DHID. R. Horton

Despite elevated mortgage interest rates During fiscal 2025, new home demand continued to be impacted by ongoing affordability constraints and inflationary pressures during fiscal 2024, demand for new homes remained solid, and cautious consumer sentiment. As a result, the value of our net sales orders increased 10% and homebuilding revenues in fiscal 2025 decreased 6% and 7%, respectively, compared to fiscal 2023. The disruptions in the supply chain for certain building materials and tightness in the labor market we experienced in recent years have largely subsided, 2024, and our average construction cycle time has returned home sales gross margin decreased to historical norms. The supply 21.5% as we increased sales incentives, such as buydowns of both new and existing homes at affordable price points is still limited, and demographics supporting housing demand mortgage rates for our homebuyers. We strive to remain favorable; however, we are continuing to use incentives and pricing adjustments to adapt to current market conditions. We believe we are well-positioned to meet changing market conditions well positioned with our affordable product offerings and a flexible lot supply and will continue to manage our home pricing, sales incentives and number of homes in inventory based on the level of homebuyer demand. demand in each of our local markets. We expect our incentive levels to remain elevated, assuming similar maintain an elevated level of sales incentives to support demand and may increase them further, depending on market conditions and no significant changes in mortgage interest rates.

Change of control purchase option under Forestar’s notes and change of control default under the Forestar revolving credit facility. Upon the occurrence of a change of control triggering event (as defined in the indentures governing Forestar’s notes), Forestar will be required to offer to repurchase Forestar’s notes at 101% of their principal amount, together with all accrued and unpaid interest, if any. A change of control (as defined in the Forestar revolving credit facility) with respect to Forestar would constitute an event of default under the Forestar revolving credit facility, which could result in the acceleration of the repayment of any borrowings outstanding under the Forestar revolving credit facility, a requirement to cash collateralize all letters of credit outstanding thereunder and the termination of the commitments thereunder. If the maturity of the Forestar revolving credit facility and/or other any indebtedness of Forestar and or any of its restricted subsidiaries together having an aggregate principal amount outstanding of $40 million or more is accelerated, more, in the case of the indenture governing Forestar’s 5.0% senior notes due 2028 (2028 notes), or $75 million or more, in the case of Forestar’s 6.5% senior notes due 2033 (2033 notes), were accelerated and such acceleration were not rescinded or such indebtedness were not satisfied, in either case within 30 days, an event of default would result under the indentures governing the Forestar notes, entitling the trustee for the Forestar notes or holders of at least 25% 25%, in the case of the 2028 notes, or 30%, in the case of the 2033 notes, in aggregate principal amount of the then outstanding applicable series of Forestar notes to declare all such Forestar notes to be due and payable immediately. If purchase offers were required under the indentures for Forestar’s notes, repayment of the borrowings under Forestar’s revolving credit facility were required, or if Forestar’s notes were accelerated, we can give no assurance that Forestar would have sufficient funds to pay the required amounts.

In fiscal 2014, we received Notices of Violation from the United States Environmental Protection Agency (EPA), the Alabama Department of Environmental Management and the State of South Carolina Department of Health and Environmental Control related to stormwater compliance at certain of our sites in the southeastern United States within EPA Region 4. Since 2014, we have enhanced our practices and procedures related to stormwater compliance, and this matter has been resolved with each of these governmental entities through a consent decree issued in April 2024 (Consent Decree) and entered by the court in August 2024. In addition to a stipulated monetary $400,000 civil penalty, we agreed to complete a supplemental environmental project intended to provide a tangible environmental benefit. Collectively, the cost of the penalty and the project is not expected to exceed $1 million. The Consent Decree also provides for ongoing reporting obligations and stipulated penalties for any future noncompliance with the Consent Decree in EPA Region 4. We While the aggregate costs of the civil penalty, the project and stipulated penalties have exceeded $1 million, we do not believe it is reasonably possible that any future obligations related to this matter would result in a loss that would have a material effect on our consolidated financial position, results of operations or cash flows.