SEGMENT INFORMATION

The Company is a national homebuilder that is primarily engaged in the acquisition and development of land and the construction and sale of residential homes, with operations in 79 markets in 26 states across the United States. The Company’s operating segments are its 44 homebuilding divisions, its majority-owned Forestar land development operations, its financial services operations and its other business activities. The homebuilding operating segments are aggregated into six reporting segments, as shown below. The Company’s reporting segments are its homebuilding reporting segments, its Forestar land development segment and its financial services segment.

The Company’s homebuilding divisions design, build and sell single-family detached homes on lots they develop and on fully developed lots purchased ready for home construction. To a lesser extent, the homebuilding divisions also build and sell attached homes, such as townhomes, duplexes, triplexes and condominiums. The homebuilding divisions generate most of their revenues from the sale of homes, with a lesser amount from the sale of land and lots. The Company’s reportable homebuilding segments are: East, Midwest, Southeast, South Central, Southwest and West. These reporting segments have homebuilding operations located in the following states:



	East:		Delaware, Georgia (Savannah only), Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina and Virginia
	Midwest:		Colorado, Illinois and Minnesota
	Southeast:		Alabama, Florida, Georgia, Mississippi and Tennessee
	South Central:		Louisiana, Oklahoma and Texas
	Southwest:		Arizona and New Mexico
	West:		California, Hawaii, Nevada, Oregon, Utah and Washington

The Forestar land development reporting segment has operations in 18 markets and 10 states, where it owns, directly or through joint ventures, interests in residential and mixed-use projects. The Company’s homebuilding divisions and Forestar are currently identifying land development opportunities to expand Forestar’s platform, and the homebuilding divisions expect to acquire a large portion of Forestar’s finished lots in accordance with the master supply agreement. Forestar’s segment results are presented on their historical cost basis, consistent with the manner in which management evaluates segment performance.

The Company’s financial services reporting segment provides mortgage financing and title agency services to homebuyers in many of the Company’s homebuilding markets. The segment generates the substantial majority of its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services. The Company sells substantially all of the mortgages it originates and the related servicing rights to third-party purchasers.

In addition to its core homebuilding, land development and financial services operations, the Company has subsidiaries that engage in other business activities. These subsidiaries conduct insurance-related operations, construct and own income-producing rental properties, own non-residential real estate including ranch land and improvements and own and operate oil and gas related assets. One of these subsidiaries, DHI Communities, recently began developing and constructing multi-family rental properties on land parcels the Company already owned and currently has five projects under active construction. At March 31, 2018 and September 30, 2017, property and equipment in the consolidated balance sheets included $139.6 million and $93.7 million, respectively, related to costs incurred by DHI Communities. The operating results of these subsidiaries are immaterial for separate reporting and therefore are grouped together and presented as other.

The accounting policies of the reporting segments are described throughout Note A included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2017. Financial information relating to the Company’s reporting segments is as follows:



	March 31, 2018
	Homebuilding		Forestar (1)		Financial Services		Other (2)		Eliminations (3)			Other Adjustments (4)			Consolidated
	(In millions)
Assets
Cash and cash equivalents	$	528.9	$	436.4	$	29.1	$	16.4	$	—		$	—		$	1,010.8
Restricted cash	9.4		40.0		6.0		—		—			—			55.4
Inventories:
Construction in progress and finished homes	5,119.6		—		—		—		—			—			5,119.6
Residential land and lots — developed and under development	4,595.2		261.7		—		—		2.4			40.7			4,900.0
Land held for development	86.6		—		—		—		—			—			86.6
Land held for sale	38.2		—		—		—		—			—			38.2
	9,839.6		261.7		—		—		2.4			40.7			10,144.4
Investment in unconsolidated entities	—		17.3		—		—		—			14.8			32.1
Mortgage loans held for sale	—		—		658.2		—		—			—			658.2
Deferred income taxes	218.2		1.4		—		—		—			0.3			219.9
Property and equipment, net	204.8		1.8		3.0		170.8		—			—			380.4
Other assets	543.6		22.5		42.0		3.9		(23.0		)	18.7			607.7
Goodwill	80.0		—		—		—		—			29.2			109.2
	$	11,424.5	$	781.1	$	738.3	$	191.1	$	(20.6	)	$	103.7		$	13,218.1
Liabilities
Accounts payable	$	568.9	$	2.1	$	3.0	$	8.7	$	—		$	—		$	582.7
Accrued expenses and other liabilities	967.9		59.2		35.6		15.2		(23.0		)	(25.3		)	1,029.6
Notes payable	2,623.1		109.8		489.8		—		—			11.2			3,233.9
	$	4,159.9	$	171.1	$	528.4	$	23.9	$	(23.0	)	$	(14.1	)	$	4,846.2

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(1)	Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments column.


(2)	Amounts represent the aggregate balances of certain subsidiaries that are immaterial for separate reporting.


(3)	Amounts represent the elimination of intercompany transactions with Forestar and the reclassification of Forestar interest expense to inventory.


(4)	Amounts represent purchase accounting adjustments related to the Forestar acquisition.



	September 30, 2017
	Homebuilding		Financial Services		Other (1)		Consolidated
	(In millions)
Assets
Cash and cash equivalents	$	973.0	$	24.1	$	10.7	$	1,007.8
Restricted cash	9.3		7.2		—		16.5
Inventories:
Construction in progress and finished homes	4,606.0		—		—		4,606.0
Residential land and lots — developed and under development	4,519.7		—		—		4,519.7
Land held for development	101.0		—		—		101.0
Land held for sale	10.4		—		—		10.4
	9,237.1		—		—		9,237.1
Mortgage loans held for sale	—		587.3		—		587.3
Deferred income taxes	365.0		—		—		365.0
Property and equipment, net	194.4		3.0		127.6		325.0
Other assets	518.7		42.2		5.0		565.9
Goodwill	80.0		—		—		80.0
	$	11,377.5	$	663.8	$	143.3	$	12,184.6
Liabilities
Accounts payable	$	575.6	$	1.5	$	3.3	$	580.4
Accrued expenses and other liabilities	933.1		35.6		16.3		985.0
Notes payable	2,451.6		420.0		—		2,871.6
	$	3,960.3	$	457.1	$	19.6	$	4,437.0

______________


(1)	Amounts represent the aggregate balances of certain subsidiaries that are immaterial for separate reporting.



	Three Months Ended March 31, 2018
	Homebuilding			Forestar (1)			Financial Services			Other (2)			Eliminations (3)			Other Adjustments (4)			Consolidated
	(In millions)
Revenues:
Home sales	$	3,672.1		$	—		$	—		$	—		$	—		$	—		$	3,672.1
Land/lot sales and other	13.6			22.6			—			—			(8.5		)	—			27.7
Financial services	—			—			94.9			—			—			—			94.9
	3,685.7			22.6			94.9			—			(8.5		)	—			3,794.7
Cost of sales:
Home sales	2,907.5			—			—			—			—			—			2,907.5
Land/lot sales and other	12.0			16.2			—			—			(6.7		)	2.5			24.0
Inventory and land option charges	30.1			—			—			—			—			—			30.1
	2,949.6			16.2			—			—			(6.7		)	2.5			2,961.6
Selling, general and administrative expense	322.7			5.6			66.7			5.8			—			0.1			400.9
Equity in earnings of unconsolidated entities	—			(1.5		)	—			—			—			1.1			(0.4		)
Gain on sale of assets	—			(2.7		)	—			—			—			1.6			(1.1		)
Interest expense	—			2.1			—			—			(2.1		)	—			—
Other (income) expense	(2.6		)	(1.7		)	(3.2		)	(3.6		)	—			—			(11.1		)
Income (loss) before income taxes	$	416.0		$	4.6		$	31.4		$	(2.2	)	$	0.3		$	(5.3	)	$	444.8

______________


(1)	Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments column.


(2)	Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.


(3)	Amounts represent the elimination of intercompany transactions with Forestar and the reclassification of Forestar interest expense to inventory.


(4)	Amounts represent purchase accounting adjustments related to the Forestar acquisition.



	Six Months Ended March 31, 2018
	Homebuilding			Forestar (1)			Financial Services			Other (2)			Eliminations (3)			Other Adjustments (4)			Consolidated
	(In millions)
Revenues:
Home sales	$	6,856.6		$	—		$	—		$	—		$	—		$	—		$	6,856.6
Land/lot sales and other	50.0			53.5			—			—			(8.5		)	—			95.0
Financial services	—			—			176.0			—			—			—			176.0
	6,906.6			53.5			176.0			—			(8.5		)	—			7,127.6
Cost of sales:
Home sales	5,429.0			—			—			—			—			—			5,429.0
Land/lot sales and other	43.3			35.5			—			—			(6.7		)	6.9			79.0
Inventory and land option charges	33.8			—			—			—			—			—			33.8
	5,506.1			35.5			—			—			(6.7		)	6.9			5,541.8
Selling, general and administrative expense	627.5			19.1			128.4			9.8			—			0.3			785.1
Equity in earnings of unconsolidated entities	—			(9.1		)	—			—			—			6.4			(2.7		)
Gain on sale of assets	(13.4		)	(2.7		)	—			—			—			1.6			(14.5		)
Interest expense	—			4.2			—			—			(4.2		)	—			—
Other (income) expense	(3.4		)	(2.2		)	(6.1		)	(6.5		)	—			—			(18.2		)
Income (loss) before income taxes	$	789.8		$	8.7		$	53.7		$	(3.3	)	$	2.4		$	(15.2	)	$	836.1
Summary Cash Flow Information:
Depreciation and amortization	$	26.3		$	2.5		$	0.7		$	3.3		$	—		$	0.3		$	33.1
Cash provided by (used in) operating activities	$	90.7		$	(150.2	)	$	(30.7	)	$	(0.5	)	$	—		$	(8.1	)	$	(98.8	)

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(1)	Results are presented from the date of acquisition and on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments column.


(2)	Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.


(3)	Amounts represent the elimination of intercompany transactions with Forestar and the reclassification of Forestar interest expense to inventory.


(4)	Amounts represent purchase accounting adjustments related to the Forestar acquisition.



	Three Months Ended March 31, 2017
	Homebuilding			Financial Services			Other (1)			Consolidated
	(In millions)
Revenues:
Home sales	$	3,158.1		$	—		$	—		$	3,158.1
Land/lot sales and other	6.3			—			—			6.3
Financial services	—			86.9			—			86.9
	3,164.4			86.9			—			3,251.3
Cost of sales:
Home sales	2,532.1			—			—			2,532.1
Land/lot sales and other	5.6			—			—			5.6
Inventory and land option charges	12.2			—			—			12.2
	2,549.9			—			—			2,549.9
Selling, general and administrative expense	294.5			58.2			2.5			355.2
Other (income) expense	(2.4		)	(3.5		)	(1.8		)	(7.7		)
Income (loss) before income taxes	$	322.4		$	32.2		$	(0.7	)	$	353.9



	Six Months Ended March 31, 2017
	Homebuilding			Financial Services			Other (1)			Consolidated
	(In millions)
Revenues:
Home sales	$	5,955.8		$	—		$	—		$	5,955.8
Land/lot sales and other	34.7			—			—			34.7
Financial services	—			165.0			—			165.0
	5,990.5			165.0			—			6,155.5
Cost of sales:
Home sales	4,776.9			—			—			4,776.9
Land/lot sales and other	26.4			—			—			26.4
Inventory and land option charges	14.5			—			—			14.5
	4,817.8			—			—			4,817.8
Selling, general and administrative expense	562.9			112.9			5.2			681.0
Other (income) expense	(6.5		)	(6.7		)	(2.2		)	(15.4		)
Income (loss) before income taxes	$	616.3		$	58.8		$	(3.0	)	$	672.1
Summary Cash Flow Information:
Depreciation and amortization	$	25.0		$	0.7		$	1.6		$	27.3
Cash (used in) provided by operating activities	$	(240.4	)	$	108.6		$	(3.9	)	$	(135.7	)

______________


(1)	Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.



Homebuilding Inventories by Reporting Segment (1)	March 31, 2018		September 30, 2017
	(In millions)
East	$	1,188.2	$	1,068.9
Midwest	545.6		492.6
Southeast	2,597.3		2,392.3
South Central	2,326.2		2,199.4
Southwest	536.9		506.1
West	2,415.9		2,352.5
Corporate and unallocated (2)	229.5		225.3
	$	9,839.6	$	9,237.1

_____________________________


(1)	Homebuilding inventories are the only assets included in the measure of homebuilding segment assets used by the Company’s chief operating decision makers.


(2)	Corporate and unallocated consists primarily of capitalized interest and property taxes.



Homebuilding Results by Reporting Segment	Three Months Ended March 31,				Six Months Ended March 31,
	2018		2017		2018		2017
	(In millions)
Revenues
East	$	435.8	$	372.6	$	828.9	$	678.6
Midwest	203.6		168.7		365.0		319.8
Southeast	1,042.0		969.0		2,030.6		1,852.4
South Central	919.0		815.4		1,727.8		1,572.3
Southwest	172.1		126.7		328.5		235.2
West	913.2		712.0		1,625.8		1,332.2
	$	3,685.7	$	3,164.4	$	6,906.6	$	5,990.5
Inventory and Land Option Charges (1)
East	$	0.7	$	6.2	$	0.6	$	6.5
Midwest	0.2		0.2		0.4		0.3
Southeast	25.1		0.9		26.2		1.6
South Central	0.6		1.6		1.9		1.9
Southwest	—		0.1		0.8		0.1
West	3.5		3.2		3.9		4.1
	$	30.1	$	12.2	$	33.8	$	14.5
Income before Income Taxes (2)
East	$	46.7	$	25.9	$	91.7	$	52.2
Midwest	18.7		0.7		32.0		10.9
Southeast	96.3		113.1		218.8		212.7
South Central	120.5		105.8		222.0		202.3
Southwest	22.0		7.2		36.7		11.2
West	111.8		69.7		188.6		127.0
	$	416.0	$	322.4	$	789.8	$	616.3

_____________________________


(1)	To conform to the current year presentation, prior period amounts include earnest money and pre-acquisition cost write-offs.

(2)

Expenses maintained at the corporate level consist primarily of interest and property taxes, which are capitalized and amortized to cost of sales or expensed directly, and the expenses related to operating the Company’s corporate office. The amortization of capitalized interest and property taxes is allocated to each segment based on the segment’s cost of sales, while expenses associated with the corporate office are allocated to each segment based on the segment’s inventory balances.