What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2020-11-19 compared with 2019-11-21 · 326 added, 419 removed, 499 unchanged (60% of the section changed)

16 unchanged sentences

(the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Forestar Group Inc.

as of September 30, 2019 and 2018 , the related consolidated statements of operations, equity, and cash flows, for the year ended September 30, 2019 , the nine month period ended September 30, 2018 and the year ended December 31, 2017 , and the related notes and our report dated November 21, 2019 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2020 and 2019, the related consolidated statements of operations, equity, and cash flows, for each of the two years in the period ended September 30, 2020 and the nine month period ended September 30, 2018, and the related notes and our report dated November 19, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

21 unchanged sentences

We have audited the accompanying consolidated balance sheets of Forestar Group Inc.

(the Company) as of September 30, 2019 and 2018 , the related consolidated statements of operations, equity, and cash flows for the year ended September 30, 2019 , the nine month period ended September 30, 2018 and the year ended December 31, 2017 , and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2019 and 2018 , and the results of its operations and its cash flows for the year ended September 30, 2019 , the nine month period ended September 30, 2018 and the year ended December 31, 2017 , in conformity with U.S.

(the Company) as of September 30, 2020 and 2019, the related consolidated statements of operations, equity, and cash flows for each of the two years in the period ended September 30, 2020 and the nine month period ended September 30, 2018, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2020 and the nine month period ended September 30, 2018, in conformity with U.S.

generally accepted accounting principles.

20 unchanged sentences

Cash and cash equivalents $ 394.3 $ 382.8

Restricted cash

Total cash, cash equivalents and restricted cash

Real estate 1,309.7 1,028.9

Investment in unconsolidated ventures 3.6 7.3

2 unchanged sentences

Deferred tax asset, net — 17.4

Other assets 24.9 13.7

Total assets $ 1,739.9 $ 1,455.7

Accounts payable $ 29.2 $ 16.8

Earnest money deposits on sales contracts

Earnest money on sales contracts 98.3 89.9

Deferred tax liability, net 5.7 —

Accrued expenses and other liabilities 93.8 79.6

Debt 641.1 460.5

Total liabilities 868.1 646.8

Commitments and contingencies (Note 14)

Common stock, par value $1.00 per share, 200,000,000 authorized shares, 47,997,366 and

41,939,403 shares issued and outstanding at September 30, 2019 and 2018, respectively

Common stock, par value $ 1.00 per share, 200,000,000 authorized shares,

48,061,921 and 47,997,366 shares issued and outstanding

at September 30, 2020 and 2019, respectively

Additional paid-in capital 603.9 602.2

2 unchanged sentences

Noncontrolling interests 0.9 0.6

Total equity 871.8 808.9

Total liabilities and equity $ 1,739.9 $ 1,455.7

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

September 30, 2019

Nine Months Ended

Year Ended September 30, Nine Months Ended

September 30, 2018

December 31, 2017

(In millions, except per share amounts)

Revenues $ 931.8 $ 428.3 $ 78.3

Cost of sales 813.7 362.7 49.5

3 unchanged sentences

Interest expense — — 3.7

Loss on extinguishment of debt

Interest and other income ( 4.9 ) ( 5.5 ) ( 6.4 )

Income from continuing operations before taxes

Income before income taxes 78.1 45.7 44.7

Income tax expense (benefit) 16.4 9.4 ( 25.3 )

Net income from continuing operations

Income from discontinued operations, net of taxes

Net income 61.7 36.3 70.0

Net income attributable to noncontrolling interests 0.9 3.3 1.2

Net income attributable to Forestar Group Inc.

Weighted Average Common Shares Outstanding:

Net Income per Basic Share:

Continuing operations

Discontinued operations

Net income per basic share

Net Income per Diluted Share:

Continuing operations

Discontinued operations

Net income per diluted share

$ 60.8 $ 33.0 $ 68.8

Basic net income per common share attributable to Forestar Group Inc.

$ 1.26 $ 0.79 $ 1.64

Weighted average number of common shares 48.0 42.0 41.9

Diluted net income per common share attributable to Forestar Group Inc.

$ 1.26 $ 0.79 $ 1.64

Adjusted weighted average number of common shares 48.1 42.0 42.0

See accompanying notes to consolidated financial statements.

FORESTAR GROUP INC.

CONSOLIDATED STATEMENTS OF EQUITY

Additional Paid-in Capital

Retained Earnings

Treasury Stock

Non-controlling Interests

CONSOLIDATED STATEMENTS OF TOTAL EQUITY

Common Stock Additional Paid-in Capital Retained Earnings Non-controlling Interests Total Equity

(In millions, except share amounts)

Balances at December 31, 2016 (44,803,603 common shares;

3,187,253 treasury shares)

Settlement of equity awards

Issuances of common stock for vested share-settled units (decrease of 335,261 treasury shares)

Issuances from exercises of stock options, net of swaps (decrease of 63,195 treasury shares)

Shares withheld for taxes (increase of 75,870 treasury shares)

Retirement of treasury shares (decrease of 2,864,667 common shares and treasury shares)

Balances at December 31, 2017 ( 41,938,936 shares)

$ 41.9 $ 506.0 $ 56.3 $ 1.4 $ 605.6

— — 68.8 1.2 70.0

Stock issued under employee benefit plans ( 467 shares)

Stock-based compensation expense

— 0.3 — — 0.3

Distributions to noncontrolling interests

Balances at December 31, 2017 (41,938,936 common shares)

Issuances of common stock under employee benefit plans (467 common shares)

— — — ( 1.4 ) ( 1.4 )

Balances at September 30, 2018 ( 41,939,403 shares)

$ 41.9 $ 506.3 $ 125.1 $ 1.2 $ 674.5

— — 33.0 3.3 36.3

Issuance of common stock ( 6,037,500 shares)

6.0 94.7 — — 100.7

Stock issued under employee benefit plans ( 20,463 shares)

0.1 ( 0.1 ) — — —

Stock-based compensation expense

— 1.3 — — 1.3

Distributions to noncontrolling interests

Balances at September 30, 2018 (41,939,403 common shares)

Issuance of common stock (6,037,500 common shares)

Issuances of common stock under employee benefit plans (20,463 common shares)

— — — ( 3.9 ) ( 3.9 )

Balances at September 30, 2019 ( 47,997,366 shares)

$ 48.0 $ 602.2 $ 158.1 $ 0.6 $ 808.9

— — 60.8 0.9 61.7

Stock issued under employee benefit plans ( 64,555 shares)

0.1 — — — 0.1

Cash paid for shares withheld for taxes

— ( 0.3 ) — — ( 0.3 )

Stock-based compensation expense

— 2.0 — — 2.0

Distributions to noncontrolling interests

Balances at September 30, 2019 (47,997,366 common shares)

— — — ( 0.6 ) ( 0.6 )

Balances at September 30, 2020 ( 48,061,921 shares)

$ 48.1 $ 603.9 $ 218.9 $ 0.9 $ 871.8

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

September 30, 2019

Nine Months Ended

Year Ended September 30, Nine Months Ended

September 30, 2018

December 31, 2017

(In millions)

OPERATING ACTIVITIES

Consolidated net income

Net income $ 61.7 $ 36.3 $ 70.0

Depreciation and amortization 4.9 6.7 3.9

3 unchanged sentences

Stock-based compensation expense 2.0 1.3 0.3

Asset impairments

Loss on extinguishment of debt

Real estate and land option charges 0.9 1.3 0.3

Gain on sale of assets ( 0.1 ) ( 3.0 ) ( 27.8 )

Other 0.1 0.1 0.9

Changes in operating assets and liabilities:

Increase in real estate ( 281.7 ) ( 531.7 ) ( 361.1 )

Decrease (increase) in other assets

Increase (decrease) in accounts payable and other accrued liabilities

(Increase) decrease in other assets ( 3.4 ) 0.3 ( 1.6 )

Increase in accounts payable and other accrued liabilities 24.0 41.9 18.4

Increase in earnest money deposits on sales contracts 3.9 40.5 37.5

Decrease in income taxes receivable

(Increase) decrease in income taxes receivable ( 3.1 ) 1.2 2.3

Net cash used in operating activities ( 168.4 ) ( 391.2 ) ( 283.0 )

INVESTING ACTIVITIES

Property, equipment, software and other

Oil and gas properties and equipment

Investment in unconsolidated ventures

Expenditures for property, equipment, software and other ( 0.6 ) ( 0.9 ) ( 0.1 )

Return of investment in unconsolidated ventures 4.3 0.1 0.8

Proceeds from sale of assets 1.3 — 258.3

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities 5.0 ( 0.8 ) 259.0

FINANCING ACTIVITIES

Issuance of common stock — 100.7 —

Payments of debt

Additions to debt

Proceeds from debt 300.0 435.0 0.2

Repayments of debt ( 118.9 ) ( 85.0 ) ( 0.5 )

Deferred financing fees ( 5.3 ) ( 6.9 ) ( 2.3 )

Distributions to noncontrolling interests, net ( 0.6 ) ( 3.9 ) ( 1.4 )

Settlement of equity awards

Cash paid for shares withheld for taxes ( 0.3 ) ( 0.1 ) —

Net cash provided by (used in) financing activities 174.9 439.8 ( 4.0 )

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Net increase (decrease) in cash and cash equivalents 11.5 47.8 ( 28.0 )

Cash and cash equivalents at beginning of period 382.8 335.0 363.0

Cash and cash equivalents at end of period $ 394.3 $ 382.8 $ 335.0

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid, net of amounts capitalized $ — $ — $ 0.9

Income taxes paid (refunded), net

Income taxes refunded, net $ ( 3.1 ) $ ( 1.7 ) $ ( 3.4 )

See accompanying notes to consolidated financial statements.

11 unchanged sentences

Thus, the Company's net income equates to comprehensive income.

The Company divested substantially all of its oil and gas working interest properties in 2016 and completed the sale of all oil and gas assets and related entities in 2017.

As a result of selling the entities, the Company recognized a tax benefit of $46.0 million during fiscal 2017 that was recorded as income from discontinued operations.

There was no activity related to these discontinued operations during the nine months ended September 30, 2018 or in fiscal 2019.

In October 2017, Forestar became a majority-owned subsidiary of D.R.

Horton) by virtue of a merger with a wholly-owned subsidiary of D.R.

Horton (the Merger).

Immediately following the merger, D.R.

6 unchanged sentences

Change in Fiscal Year

Following the Merger, the Company changed its fiscal year-end from December 31 to September 30, effective January 1, 2018.

Following the merger with D.R.

Horton, the Company changed its fiscal year-end from December 31 to September 30, effective January 1, 2018.

This change aligned Forestar's fiscal year-end reporting calendar with D.R.

The Company's results of operations, cash flows, and all transactions impacting stockholders' equity presented in this Form 10-K are for the fiscal year ended September 30, 2019 , the nine months ended September 30, 2018 and the fiscal year ended December 31, 2017 unless otherwise noted.

This Form 10-K also includes an unaudited statement of operations for the comparable stub period of January 1, 2017 to September 30, 2017 (see Note 17 — Transition Period Comparative Data ).

Changes in Presentation and Reclassifications

Certain items have been reclassified in the prior year financial statements to conform to the presentation and classifications used in the current year.

Receivables, prepaid expenses, land purchase contract deposits, and intangible assets have been reclassified to other assets in the prior year consolidated balance sheet.

Accrued employee compensation and benefits, accrued property taxes, accrued interest, other accrued expenses and other liabilities have been reclassified to accrued expenses and other liabilities in the prior year consolidated balance sheet.

Other operating expense and general and administrative expense have been combined into one line item which is titled selling, general and administrative expense in the prior year consolidated statements of operations.

In addition, certain items have been reclassified from selling, general and administrative expense to cost of sales in the prior year statements of operations to conform to classifications used in the current year.

The Company has reclassified the change in earnest money deposits in the prior year statements of cash flows from change in accounts payable and other accrued liabilities to conform to the classifications used in the current year.

The Company has reclassified real estate cost of sales, real estate development and acquisition expenditures and reimbursements from utility and improvement districts to change in real estate in the prior year statements of cash flows to conform to classifications used in the current year.

The Company has reclassified proceeds from land and lot closings held for the Company’s benefit at title companies in the prior year consolidated balance sheet from receivables to cash and cash equivalents to conform to the classification used in the current year.

These reclassifications had no effect on the Company's consolidated operating results, balance sheet or cash flows.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

In connection with the Company's adoption of Accounting Standards Update (ASU) 2016-18 on October 1, 2018, restricted cash is included with cash and cash equivalents when reconciling beginning and ending cash amounts in the consolidated statements of cash flows.

Prior period amounts have been reclassified to conform to the current year presentation, resulting in a decrease in cash provided by financing activities of $23.8 million in the nine months ended September 30, 2018 and a decrease in cash used in financing activities of $39.8 million in fiscal 2017 .

The Company's results of operations, cash flows and all transactions impacting stockholders' equity presented in this Form 10-K are for the fiscal years ended September 30, 2020 and 2019 and for the nine months ended September 30, 2018 unless otherwise noted.

This Form 10-K also includes an unaudited statement of operations for the comparable stub period of January 1, 2017 to September 30, 2017.

Use of Estimates

5 unchanged sentences

(Starwood) to sell 24 legacy projects for $ 232.0 million which generated $ 217.5 million in net proceeds.

This strategic asset sale included projects owned both directly and indirectly through ventures and consisted of approximately 750 developed and under development lots, over 4,000 future undeveloped lots, 730 unentitled acres in California, an interest in one multifamily operating property and a multifamily development site.

Adoption of New Accounting Standards

On October 1, 2018, the Company adopted Accounting Standards Codification 606, "Revenue from Contracts with Customers" (ASC 606), which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services and satisfaction of performance obligations to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services.

The Company applied the modified retrospective method to contracts that were not completed as of October 1, 2018.

Results for the reporting period beginning on October 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and will continue to be reported under the previous accounting standards.

Under ASC 606, the Company's performance obligations are typically satisfied at closing.

However, there may be instances in which the Company has an unsatisfied remaining performance obligation at the time of closing.

In these instances, the Company records contract liabilities and recognizes those revenues over time as the performance obligations are completed.

Generally, the Company's unsatisfied remaining performance obligations are expected to have an original duration of less than one year.

As of October 1, 2018, the Company established contract liabilities of $6.4 million related to its remaining unsatisfied performance obligations at the time of adoption of ASC 606.

There was no impact to the amount or timing of revenues recognized as a result of applying ASC 606 during fiscal 2019 , and there have not been significant changes to the Company’s business processes, systems, or internal controls as a result of implementing the standard.

A summary of items impacted as the result of adopting ASC 606 follows:

As of September 30, 2019

Impact of Adoption

(In millions)

Contract liabilities

Deferred income

This strategic asset sale included projects owned both directly and indirectly through ventures and consisted of approximately 750 developed and under development lots, over 4,000 future undeveloped lots, 730 unentitled acres in California, an interest in one multi-family operating property and a multi-family development site.

Adoption of New Accounting Standard

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases,” which requires that lease assets and liabilities be recognized on the balance sheet and that key information about leasing arrangements be disclosed.

The guidance was effective for the Company beginning October 1, 2019 and did not have a material impact on its consolidated financial position, results of operations or cash flows.

As a result of the adoption of this standard on October 1, 2019, the Company recorded right of use assets of $ 2.7 million and lease liabilities of $ 2.9 million.

Lease right of use assets are included in other assets and lease liabilities are included in accrued expenses and other liabilities in the consolidated balance sheet.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows - Restricted Cash,” which requires amounts generally described as restricted cash be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows.

The Company adopted the guidance as of October 1, 2018 on a retrospective basis and made the required changes to its statements of cash flows as described in the “Changes in Presentation and Reclassifications” section above.

Revenue Recognition

6 unchanged sentences

Cash and cash equivalents include cash, other short-term instruments with original maturities of three months or less and proceeds from land and lot closings held for the Company’s benefit at title companies.

Real Estate and Cost of Sales

Real estate includes the costs of direct land and lot acquisition, land development, capitalized interest, and direct overhead costs incurred during land development.

6 unchanged sentences

Earnest money deposits from D.R.

Horton of $88.7 million and $45.3 million at September 30, 2019 and 2018 , respectively, are subject to mortgages which are secured by the real estate under contract with D.R.

Horton are subject to mortgages which are secured by the real estate under contract with D.R.

These mortgages expire when the earnest money is released to D.R.

Horton as lots are sold.

The Company had approximately 12,800 lots under contract to sell to D.R.

Horton for a remaining purchase price of $953.8 million at September 30, 2019 .

The Company had approximately 5,500 lots under contract to sell to D.R.

Horton for a remaining purchase price of $522.2 million at September 30, 2018 .

See Note 15 for related party transactions and balances.

The Company has agreements with certain utility or improvement districts to convey water, sewer and other infrastructure-related assets it has constructed in connection with projects within their jurisdiction and receive reimbursements for the cost of these improvements.

The amount of reimbursements for these improvements are defined by the district and are based on the allowable costs of the improvements.

The reimbursement amounts for these improvements are defined by the district and are based on the allowable costs of the improvements.

The transfer is consummated and the Company generally receives payment when the districts have a sufficient tax base to support funding of their bonds.

The cost incurred by the Company in constructing these improvements, net of the amount expected to be collected in the future, is included in real estate.

The cost incurred by the Company in constructing these improvements, net of the amount expected to be collected in the future, is included in the Company's land development budgets and in the determination of lot costs.

The Company reviews real estate assets held for use for impairment when events or circumstances indicate that their carrying value may not be recoverable.

1 unchanged sentence

The amount of the impairment loss is determined by comparing the carrying value of the asset to its estimated fair value, which is generally determined based on the present value of future cash flows expected from the sale of the asset.

Real estate asset impairment charges were $0.8 million , $0.3 million and $3.4 million in fiscal 2019 , the nine months ended September 30, 2018 and fiscal 2017 , respectively, and are included in cost of sales in the consolidated statements of operations.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Real estate impairments are included in cost of sales in the consolidated statements of operations.

Capitalized Interest

2 unchanged sentences

During periods in which the Company’s active real estate is lower than its debt level, a portion of the interest incurred is reflected as interest expense in the period incurred.

During fiscal 2019, the Company’s active real estate exceeded its debt level, and all interest incurred was capitalized to real estate.

The following table summarizes the Company’s interest costs incurred, capitalized and expensed for fiscal 2019 and the nine months ended September 30, 2018 .

September 30, 2019

Nine Months Ended

September 30, 2018

(In millions)

Capitalized interest, beginning of period

Interest incurred

Interest expensed:

Directly to interest expense

Charged to cost of sales

Capitalized interest, end of period

During fiscal 2020 and 2019, the Company’s active real estate exceeded its debt level, and all interest incurred was capitalized to real estate.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.

The cost of significant additions and improvements are capitalized and the cost of repairs and maintenance is expensed as incurred.

The cost of significant additions and improvements is capitalized and the cost of repairs and maintenance is expensed as incurred.

Depreciation generally is recorded using the straight-line method over the estimated useful life of the asset as follows:

Estimated Useful Lives

September 30,

Estimated Useful Lives September 30,

(In millions)

Buildings and building improvements

10 to 40 years

Property and equipment

2 to 10 years

Leasehold improvements 5 to 10 years

Property and equipment 2 to 10 years

Total property and equipment 2.3 4.3

1 unchanged sentence

Property and equipment, net $ 1.1 $ 2.4

Depreciation expense was $0.3 million in fiscal 2019 , $0.2 million in the nine months ended September 30, 2018 and $0.4 million in fiscal 2017 .

Depreciation expense was $ 0.3 million, $ 0.3 million and $ 0.2 million in fiscal 2020, 2019 and the nine months ended September 30, 2018, respectively.

The Company’s income tax expense is calculated using the asset and liability method, under which deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement amounts of assets and liabilities and their respective tax bases and attributable to net operating losses and tax credit carryforwards.

5 unchanged sentences

Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the Company’s deferred tax assets and liabilities.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Interest and penalties related to unrecognized tax benefits are recognized in the financial statements as a component of income tax expense.

11 unchanged sentences

The fair values of restricted stock units are based on the Company’s stock price at the date of grant.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Fair Value Measurements

The Financial Accounting Standards Board’s (FASB) authoritative guidance for fair value measurements establishes a three-level hierarchy based upon the inputs to the valuation model of an asset or liability.

The FASB's authoritative guidance for fair value measurements establishes a three-level hierarchy based upon the inputs to the valuation model of an asset or liability.

When available, the Company uses quoted market prices in active markets to determine fair value.

Non-financial assets measured at fair value on a non-recurring basis principally include real estate assets which the Company reviews for indicators of impairment when events and circumstances indicate that the carrying value is not recoverable.

Discontinued Operations

The Company has divested all of its oil and gas working interest properties.

As a result of this significant change in operations, the Company has reported the results of operations as discontinued operations for the fiscal year ended December 31, 2017.

The consolidated statements of cash flows for 2017 reflect cash flows from both continuing and discontinued operations.

There was no activity related to discontinued operations during fiscal year 2019 or the nine months ended September 30, 2018.

See Note 6 — Discontinued Operations .

Pending Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).

This ASU requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner that is similar to today's accounting.

This guidance also eliminates today's real estate-specific provisions for all entities.

For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases.

The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief.

The guidance is effective for the Company beginning October 1, 2019 and will not have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information in determining credit loss estimates.

The guidance is effective for the Company beginning October 1, 2020 and is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU 2019-12 related to simplifying the accounting for income taxes.

The guidance is effective for the Company beginning October 1, 2021, although early adoption is permitted.

The Company is currently evaluating the impact of this guidance, and it is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform,” which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued.

The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022.

The Company will adopt this standard when LIBOR is discontinued and does not expect it to have a material impact on its consolidated financial statements and related disclosures.

FORESTAR GROUP INC.

1 unchanged sentence

Note 2 — Segment Information

Historically, the Company managed its operations through its real estate segment, mineral resources segment (previously referred to as oil and gas) and other segment (previously referred to as other natural resources).

During the first quarter of fiscal 2019, the Company began managing its operations through one real estate segment.

As such, the operating results of the Company's real estate segment are consistent with its consolidated operating results and no separate disclosure is required as of and for the fiscal year ended September 30, 2019 .

The Company's real estate segment is its core business and generated all of the Company’s revenues in fiscal 2019 .

The real estate segment primarily acquires land and develops infrastructure for single-family residential communities.

The Company's real estate segment generates its revenues principally from sales of residential single-family finished lots to local, regional and national homebuilders.

The Company has other business activities which were presented in its other segment in prior periods.

The assets and results of operations of these business activities are immaterial and are included within the Company's real estate segment in fiscal 2019 .

Additionally, as of and for the fiscal year ended September 30, 2019 , all assets and results of operations have been included in the real estate segment.

In prior periods, certain costs and assets were not allocated to the Company’s segments.

During the first quarter of fiscal 2019, the Company began evaluating the results of operations of its real estate segment based on income from continuing operations before income taxes.

As a result, all of the Company’s results of operations have been allocated to the real estate segment for the fiscal year ended September 30, 2019 .

This change in the measure of segment profit (loss) was adopted prospectively and the prior period segment results have not been adjusted to conform to the current year.

In prior periods, segment earnings (loss) consist of operating income, equity in earnings (loss) of unconsolidated ventures, gain on sales of assets, interest income and net income (loss) attributable to noncontrolling interests.

Items not allocated to segments in prior periods consist of general and administrative expense, stock-based and long-term incentive compensation, gain on sale of timberland assets, interest expense, and other corporate interest and other income.

The accounting policies of the segments are the same as those described in Note 1 — Summary of Significant Accounting Policies .

The Company's revenues are derived from its real estate operations and all of its assets are located in the U.S.

In fiscal 2019 , D.R.

Horton accounted for $326.6 million of the Company's real estate revenues.

Total assets by segment at September 30, 2018 were as follows:

September 30, 2018

Items Not Allocated

(In millions)

Cash and cash equivalents

Restricted cash

Investment in unconsolidated ventures

Income taxes receivable

Property and equipment, net

Deferred tax asset, net

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Since the beginning of fiscal 2019, the Company has managed its operations through its real estate segment, which is its core business and generates substantially all of its revenues.

The real estate segment primarily acquires land and develops infrastructure for single-family residential communities, and its revenues generally come from sales of residential single-family finished lots to local, regional and national homebuilders.

The Company has other business activities for which the related assets and operating results are immaterial, and therefore are included within the Company's real estate segment.

During the nine months ended September 30, 2018, the Company managed its operations through its real estate segment and other segment (previously referred to as other natural resources).

Additionally, certain costs and assets were not allocated to the Company’s segments.

The accounting policies of the segments are the same as those described throughout Note 1.

Segment results for the nine months ended September 30, 2018 were as follows:

Nine Months Ended September 30, 2018

Items Not Allocated

(In millions)

Cost of sales

Selling, general and administrative expense

Equity in earnings of unconsolidated ventures

Gain on sale of assets

Interest expense

Interest and other income

Income from continuing operations before taxes

Net income attributable to noncontrolling interests

Income from continuing operations before taxes attributable to Forestar Group Inc.

Gain on sale of assets within the Company's real estate segment in the nine months ended September 30, 2018 consists primarily of a gain of $14.6 million related to the sale of its interest in a multifamily venture near Denver.

In the nine months ended September 30, 2018, the Company's other segment sold non-core water interests in Texas, Louisiana, Georgia and Alabama for $10.5 million , which generated a gain on sale of assets of $9.2 million .

Segment results for the fiscal year ended December 31, 2017 were as follows:

Year Ended December 31, 2017

Mineral Resources

Items Not Allocated

Real Estate Other Items Not Allocated Consolidated

(In millions)

Revenues $ 78.3 $ — $ — $ 78.3

Cost of sales 48.9 0.6 — 49.5

2 unchanged sentences

Gain on sale of assets (1)

( 18.6 ) ( 9.2 ) — ( 27.8 )

Interest expense — — 3.7 3.7

Loss on extinguishment of debt

Interest and other income ( 1.8 ) — ( 4.6 ) ( 6.4 )

Income (loss) from continuing operations before taxes

Income before income taxes 47.5 8.3 ( 11.1 ) 44.7

Net income attributable to noncontrolling interests 1.2 — — 1.2

Income (loss) from continuing operations before taxes attributable to Forestar Group Inc.

In fiscal 2017, the Company's mineral resources segment sold its remaining owned mineral assets for approximately $85.7 million , which generated gains of $82.4 million .

These gains were partially offset by a $37.9 million impairment charge associated with the mineral resources reporting unit goodwill which is included in cost of sales in the consolidated statement of operations.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

In fiscal 2017, cost of sales in the Company's other segment includes impairment charges of $5.8 million primarily related to the Company's central Texas water assets.

Items not allocated to segments consist of:

Nine Months Ended

September 30, 2018

December 31, 2017

(In millions)

Selling, general and administrative expense

Stock-based and long-term incentive compensation expense

Gain on sale of assets

Interest expense

Loss on extinguishment of debt

Interest and other income

Selling, general and administrative expense in fiscal 2017 includes Merger related transaction costs of $37.2 million which included a Merger termination fee of $20.0 million paid to Starwood Capital Group, $11.8 million in professional fees and other costs, and $5.4 million in executive severance and change in control costs.

Income before income taxes attributable to Forestar Group Inc.

$ 46.3 $ 8.3 $ ( 11.1 ) $ 43.5

______________

(1) Gain on sale of ass ets within the real estate segment consisted primarily of a gain of $ 14.6 million related to the sale of the Company's interest in a multi-family venture near Denver.

Gain on sale of assets within the other segment relates to the sale of non-core water interests in Texas, Louisiana, Georgia and Alabama.

Note 3 — Real Estate

4 unchanged sentences

Undeveloped land 5.4 17.1

$ 1,309.7 $ 1,028.9

In fiscal 2020, the Company invested $ 550.8 million for the acquisition of residential real estate and $ 503.0 million for the development of residential real estate.

1 unchanged sentence

Horton within approximately one year of its purchase or, if D.R.

Horton elects, at an earlier date, at a sales price equal to the carrying value of the land at the time of sale plus additional consideration which ranges from 12% to 16% per annum.

In fiscal 2019 , the Company sold approximately 63 acres of undeveloped land to a third party for approximately $44.2 million .

In conjunction with the sale, the Company paid D.R.

Horton a fee of approximately $2.1 million to terminate an existing purchase and sale agreement whereby D.R.

Horton had the option to purchase the property at a fixed price.

This termination fee is included in cost of sales in the Company's consolidated statements of operations.

In February 2018 , the Company sold a portion of its assets to Starwood for $232.0 million .

This strategic asset sale included projects owned both directly and indirectly through ventures.

The total net proceeds after certain purchase price adjustments, closing costs and other costs associated with selling these projects was $217.5 million , and a gain on the sale of these assets of $0.7 million is included in the Company’s consolidated statement of operations for the nine months ended September 30, 2018.

Horton elects, at an earlier date, at a sales price equal to the carrying value of the land at the time of sale plus additional consideration of 16 % per annum.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Each quarter the Company reviews the performance and outlook for all of its real estate for indicators of potential impairment and performs detailed impairment evaluations and analyses when necessary.

As a result of this process there were no real estate impairment charges recorded in fiscal 2020 and $ 0.8 million and $ 0.3 million of impairment charges were recorded during fiscal 2019 and the nine months ended September 30, 2018, respectively.

During fiscal 2020 and 2019, pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 0.9 million and $ 0.2 million, respectively.

There were no pre-acquisition cost write-offs in the nine months ended September 30, 2018.

Real estate impairments and land option charges are included in cost of sales in the consolidated statements of operations.

Note 4 — Revenues

The Company applied the modified retrospective method to contracts that were not completed as of October 1, 2018.

Under ASC 606 the Company's performance obligations are typically satisfied at closing.

However, there may be instances in which the Company has an unsatisfied remaining performance obligation at the time of closing.

In these instances, the Company records contract liabilities and recognizes those revenues over time as the performance obligations are completed.

Generally, the Company's unsatisfied remaining performance obligations are expected to have an original duration of less than one year.

As of October 1, 2018, the Company established contract liabilities of $6.4 million related to its remaining unsatisfied performance obligations at the time of adoption of ASC 606.

There was no impact to the amount or timing of revenues recognized during fiscal 2019 as a result of applying ASC 606.

At September 30, 2019 , the Company had contract liabilities of $2.5 million related to its remaining unsatisfied performance obligations.

Revenues consist of:

September 30, 2019

Nine Months Ended

Year Ended September 30, Nine Months Ended

September 30, 2018

December 31, 2017

(In millions)

2 unchanged sentences

Commercial tract sales 2.5 18.5 2.0

Other 0.4 2.3 0.7

$ 931.8 $ 428.3 $ 78.3

Land and lot sales to D.R.

Horton were $ 887.6 million, $ 326.6 million and $ 39.1 million in fiscal 2020, 2019 and the nine months ended September 30, 2018, respectively.

Note 5 — Capitalized Interest

The following table summarizes the Company’s interest costs incurred, capitalized and expensed in fiscal 2020, 2019 and the nine months ended September 30, 2018.

Year Ended September 30, Nine Months Ended

September 30, 2018

(In millions)

Capitalized interest, beginning of period $ 23.7 $ 3.2 $ 0.5

Interest incurred 43.3 25.3 7.3

Interest expensed:

Directly to interest expense

Charged to cost of sales

( 18.3 ) ( 4.8 ) ( 0.9 )

Capitalized interest, end of period $ 48.7 $ 23.7 $ 3.2

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 6 — Investment in Unconsolidated Ventures

In the past, the Company has participated in real estate ventures for the purpose of acquiring and developing residential, multifamily and mixed-use communities in which it may or may not have a controlling financial interest.

In the past, the Company has participated in real estate ventures for the purpose of acquiring and developing residential, multi-family and mixed-use communities in which it may or may not have a controlling financial interest.

GAAP requires consolidation of variable interest entities (VIEs) in which an enterprise has a controlling financial interest and is the primary beneficiary.

3 unchanged sentences

The Company performs this review initially at the time it enters into venture agreements and reassesses upon reconsideration events.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

At September 30, 2020, the Company had ownership interests in four ventures that it accounted for using the equity method.

3 unchanged sentences

Cash and cash equivalents $ 1.2 $ 1.6

Real estate 6.1 13.6

Other assets 0.2 0.1

Total assets $ 7.5 $ 15.3

Liabilities and Equity:

Accounts payable and other liabilities $ 0.2 $ 0.3

Equity 7.3 15.0

Total liabilities and equity $ 7.5 $ 15.3

Forestar's investment in unconsolidated ventures $ 3.6 $ 7.3

September 30, 2019

Nine Months Ended

Year Ended September 30, Nine Months Ended

September 30, 2018

December 31, 2017

(In millions)

Revenues $ 3.5 $ 1.9 $ 22.2

Earnings 3.8 1.3 15.1

Forestar's equity in earnings of unconsolidated ventures 0.7 0.5 4.8

During fiscal 2019 and the nine months ended September 30, 2018 , the Company made no further investments in these ventures and received $5.0 million and $4.3 million , respectively, in distributions.

During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company made no further investments in these ventures and received $ 4.3 million, $ 5.0 million and $ 4.3 million, respectively, in distributions.

Distributions include both return of investments and distributions of earnings.

4 unchanged sentences

The Company's share of these earnings was $ 6.4 million.

In the nine months ended September 30, 2018, the Company sold its ownership interest in eight of its unconsolidated ventures to Starwood as part of a strategic asset sale (See Note 3—Real Estate ).

In the nine months ended September 30, 2018, the Company also sold its interest in a residential venture in Atlanta, generating $11.0 million in net proceeds and a gain of $2.0 million .

The Company also sold its interest in a multifamily venture near Denver, generating $19.2 million in net proceeds and a gain of $14.6 million .

In the nine months ended September 30, 2018, a venture in which the Company owns a 50% interest recognized a non-cash impairment charge of $3.0 million associated with a golf course near Atlanta.

The Company's share of this non-cash impairment charge is included within equity in earnings of unconsolidated ventures in its consolidated statements of operations.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

In fiscal 2017, a multifamily venture in which the Company owned a 30% interest sold a 320-unit multifamily project in Nashville for $71.8 million and recognized a gain of $19.0 million .

The Company's share of earnings was $7.8 million and it received a distribution of $12.0 million as a result of this sale.

In fiscal 2017, a venture in which the Company owned a 50% interest benefited from the sale of 46 commercial acres in Houston for $9.7 million generating $6.6 million in earnings to the venture.

The Company's pro-rata share of the earnings associated with this sale was $3.3 million and its pro-rata share of the total distributable cash was $4.3 million .

Note 6 — Discontinued Operations

The Company has divested all of its oil and gas working interest properties.

As a result of this significant change in operations, the Company has reported the results of operations as discontinued operations for the year ended December 31, 2017 .

There was no activity related to these operations in fiscal 2019 or the nine months ended September 30, 2018 .

Summarized results from discontinued operations were as follows:

December 31, 2017

(In millions)

Cost of sales

Selling, general and administrative expense

Income from discontinued operations before income taxes

Loss on sale of assets before income taxes

Income tax benefit

Income from discontinued operations, net of taxes

In 2017, the Company sold all common stock of Forestar Petroleum Corporation for $0.1 million , which completed the sale of all of its oil and gas assets and related entities.

This transaction resulted in a significant tax loss, and the corresponding tax benefit is reported in discontinued operations in 2017.

Operating activities and investing activities of discontinued operations included in the consolidated statements of cash flows were as follows:

December 31, 2017

(In millions)

Operating activities:

Decrease in accounts payable and other accrued liabilities

Loss on sale of assets

Investing activities:

Proceeds from sale of assets

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

In the nine months ended September 30, 2018, the Company sold its ownership interest in eight of its unconsolidated ventures to Starwood as part of a strategic asset sale (see Note 1);

its interest in a residential venture in Atlanta, generating $ 11.0 million in net proceeds and a gain of $ 2.0 million;

and its interest in a multi-family venture near Denver, generating $ 19.2 million in net proceeds and a gain of $ 14.6 million.

In the nine months ended September 30, 2018, a venture in which the Company owns a 50% interest recognized a non-cash impairment charge of $ 3.0 million related to a golf course near Atlanta.

The Company's share of this charge is included within equity in earnings of unconsolidated ventures in its consolidated statements of operations.

Note 7 — Other Assets, Accrued Expenses and Other Liabilities

3 unchanged sentences

Receivables, net $ 0.4 $ 1.1

Earnest money notes receivable on sales contracts 4.8 —

Lease right of use assets 3.6 —

Prepaid expenses 4.9 3.4

Land purchase contract deposits 5.5 5.1

Intangible assets

Other assets 5.7 4.1

$ 24.9 $ 13.7

The Company's accrued expenses and other liabilities at September 30, 2020 and 2019 were as follows:

3 unchanged sentences

Accrued property taxes 3.8 2.1

Lease liabilities 3.8 —

Accrued interest 14.0 13.5

1 unchanged sentence

Deferred income 9.3 9.3

State income taxes payable 0.5 —

Accrued development costs 35.3 35.4

1 unchanged sentence

Other liabilities 10.5 2.8

$ 93.8 $ 79.6

FORESTAR GROUP INC.

1 unchanged sentence

Note 8 — Debt

The Company's notes payable at their principal amounts, net of unamortized discounts and debt issuance costs, consist of the following:

The Company's notes payable at their carrying amounts consist of the following:

September 30,

2 unchanged sentences

8.0 % senior notes due 2024 (1)

5.0 % senior notes due 2028 (1)

Revolving credit facility — —

$ 641.1 $ 460.5

______________

(1) Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $ 8.9 million and $ 6.2 million at September 30, 2020 and 2019, respectively.

Bank Credit Facility

1 unchanged sentence

The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $ 100 million and 50 % of the revolving credit commitment.

Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of the Company's real estate assets and unrestricted cash.

Letters of credit issued under the facility reduce the available borrowing capacity.

At September 30, 2019 , there were no borrowings outstanding and $29.7 million of letters of credit issued under the revolving credit facility.

Borrowings under the revolving credit facility are subject to a borrowing base based on the book value of the Company's real estate assets and unrestricted cash.

At September 30, 2019 , the borrowing base limited the available capacity under the revolving credit facility to $339.6 million .

Borrowings and repayments under the facility totaled $85 million each during fiscal 2019 .

In October 2019 , the revolving credit facility was amended to extend its maturity date from August 16, 2021 to October 2, 2022 .

The maturity date may be extended by up to one year on up to two additional occasions, subject to the approval of lenders holding a majority of the commitments.

There were no borrowings or repayments under the facility during fiscal 2020.

At September 30, 2020, there were no borrowings outstanding and $ 36.0 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 344.0 million.

The maturity date of the facility is October 2, 2022, which can be extended by up to one year on up to two additional occasions, subject to the approval of lenders holding a majority of the commitments.

The revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants.

3 unchanged sentences

At September 30, 2020, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

3.75% Convertible Senior Notes due 2020

At September 30, 2019 , the principal amount of the 3.75% convertible senior notes due March 2020 was $118.9 million and the unamortized debt discount was $2.0 million .

The effective interest rate on the liability component was 8.0% and the carrying amount of the equity component was $16.8 million .

The Company intends to settle the principal amount of these notes in cash in 2020, with any excess conversion value to be settled in shares of its common stock.

At September 30, 2019 and 2018 , the Company had $0.2 million and $0.7 million in unamortized deferred financing fees that were deducted from the carrying value of these notes.

In February 2020, the Company issued $ 300 million principal amount of 5.0 % senior notes pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended.

The notes mature March 1, 2028 with interest payable semi-annually and represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness.

The notes may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreement.

On or after March 1, 2023, the notes may be redeemed at 102.5 % of their principal amount plus any accrued and unpaid interest.

In accordance with the indenture, the redemption price decreases annually thereafter and the notes can be redeemed at par on or after March 1, 2026 through maturity.

The notes are guaranteed by each of the Company's subsidiaries to the extent such subsidiaries guarantee the Company's revolving credit facility.

The annual effective interest rate of the notes after giving effect to the amortization of financing costs is 5.2 %.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

8.0% Senior Notes due 2024

In April 2019 , the Company issued $350 million principal amount of 8.0% senior notes pursuant to Rule 144A and Regulation S under the Securities Act.

The Company also has $ 350 million principal amount of 8.0 % senior notes outstanding.

The notes mature April 15, 2024 with interest payable semi-annually and represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness.

The notes may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreement.

On or after April 15, 2021, the notes may be redeemed at 104 % of their principal amount plus any accrued and unpaid interest.

In accordance with the indenture, the redemption price decreases annually thereafter and the notes can be redeemed at par on or after April 15, 2023 through maturity.

The notes are guaranteed by each of the Company's subsidiaries to the extent such subsidiaries guarantee the Company's revolving credit facility.

At September 30, 2019 , the Company had $6.2 million in unamortized deferred financing fees that were deducted from the carrying value of these notes.

The annual effective interest rate of the notes after giving effect to the amortization of financing costs is 8.5 %.

The indenture governing the notes requires that, upon the occurrence of both a Change of Control and a Rating Decline (each as defined in the indenture), the Company offer to purchase the notes at 101% of their principal amount.

In March 2020, the Company repaid $ 118.9 million principal amount of its 3.75 % convertible senior notes in cash at maturity.

The indentures governing the senior notes require that, upon the occurrence of both a change of control and a rating decline (each as defined in the indentures), the Company offer to purchase the notes at 101% of their principal amount.

If the Company or its restricted subsidiaries dispose of assets, under certain circumstances, the Company will be required to either invest the net cash proceeds from such asset sales in its business within a specified period of time, repay certain senior secured debt or debt of its non-guarantor subsidiaries, or make an offer to purchase a principal amount of the notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount.

The indenture contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments;

The indentures contain covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments;

incur additional debt or issue mandatorily redeemable equity;

4 unchanged sentences

At September 30, 2020, the Company was in compliance with all of the limitations and restrictions associated with its senior note obligations.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Effective April 30, 2020, the Board of Directors authorized the repurchase of up to $ 30 million of the Company’s debt securities.

The authorization has no expiration date.

All of the $ 30 million authorization was remaining at September 30, 2020.

Note 9 — Fair Value Measurements

7 unchanged sentences

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company elected not to use the fair value option for cash and cash equivalents, restricted cash and debt.

The Company elected not to use the fair value option for cash and cash equivalents and debt.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

For the financial assets and liabilities that the Company does not reflect at fair value, the following tables present both their respective carrying value and fair value at September 30, 2020 and 2019.

Fair Value at September 30, 2020

Carrying Value

Carrying Value Level 1 Level 2 Level 3 Total

(in millions)

Cash and cash equivalents (a)

$ 394.3 $ 394.3 $ — $ — $ 394.3

641.1 — 673.5 — 673.5

Fair Value at September 30, 2019

Carrying Value

Carrying Value Level 1 Level 2 Level 3 Total

(in millions)

Cash and cash equivalents (a)

Restricted cash (a)

$ 382.8 $ 382.8 $ — $ — $ 382.8

The fair values of cash, cash equivalents and restricted cash approximate their carrying values due to their short-term nature and are classified as Level 1 within the fair value hierarchy.

At September 30, 2019 and 2018, debt consisted of the Company's senior and convertible senior notes.

The fair value of the senior notes is determined based on quoted prices, which is classified as Level 2 within the fair value hierarchy.

Non-financial assets measured at fair value on a non-recurring basis principally include real estate assets which the Company reviews for indicators of potential impairment and performs impairment evaluations when necessary.

Real estate impairment charges are included in cost of sales in the Company's consolidated statements of operations.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

460.5 — 497.3 — 497.3

_____________________

(a) The fair values of cash and cash equivalents approximate their carrying values due to their short-term nature and are classified as Level 1 within the fair value hierarchy.

(b) At September 30, 2020 and 2019, debt consisted of the Company's senior notes.

The fair value of the senior notes is determined based on quoted market prices, which is classified as Level 2 within the fair value hierarchy.

Non-financial assets measured at fair value on a non-recurring basis primarily include real estate assets which the Company reviews for indicators of potential impairment and performs impairment evaluations when necessary.

Note 10 — Earnings per Share

The computations of basic and diluted earnings per share are as follows:

September 30, 2019

Nine Months Ended

Year Ended September 30, Nine Months Ended

September 30, 2018

December 31, 2017

(In millions, except share data)

Continuing operations

Net income from continuing operations attributable to Forestar Group Inc.

Discontinued operations

Net income from discontinued operations available for diluted earnings per share

(In millions, except share and per share amounts)

Net income attributable to Forestar Group Inc.

$ 60.8 $ 33.0 $ 68.8

Weighted average common shares outstanding — basic 48,037,018 41,974,429 41,938,987

1 unchanged sentence

Total weighted average shares outstanding — diluted 48,094,111 42,005,141 41,969,056

Anti-dilutive awards excluded from diluted weighted average shares

The Company intends to settle the principal amount of its convertible senior notes in cash with any excess conversion value to be settled in shares of its common stock.

Therefore, only the amount in excess of the par value of the notes will be included in the calculation of diluted net income per share using the treasury stock method.

As such, the notes have no impact on diluted net income per share until the price of the Company's common stock exceeds the conversion price of the notes of $51.42 .

The price of the Company's common stock did not exceed the conversion price in any of the periods presented.

Basic net income per common share attributable to Forestar Group Inc.

$ 1.26 $ 0.79 $ 1.64

Diluted net income per common share attributable to Forestar Group Inc.

$ 1.26 $ 0.79 $ 1.64

In March 2020, the Company repaid $ 118.9 million principal amount of its 3.75 % convertible senior notes in cash at maturity.

The notes had no impact on diluted net income per share in any of the prior periods presented.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 11 — Income Taxes

Income tax expense from continuing operations consists of:

September 30, 2019

Nine Months Ended

The components of the Company's income tax expense are as follows:

Year Ended September 30, Nine Months Ended

September 30, 2018

December 31, 2017

(In millions)

Current tax expense (benefit):

Federal $ ( 7.6 ) $ ( 0.3 ) $ ( 0.5 )

State and other 0.9 0.3 —

( 6.7 ) — ( 0.5 )

Deferred tax expense (benefit):

Federal 21.2 9.1 ( 23.5 )

State and other 1.9 0.3 ( 1.3 )

23.1 9.4 ( 24.8 )

Income tax expense (benefit) $ 16.4 $ 9.4 $ ( 25.3 )

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

A reconciliation of the federal statutory rate to the Company's effective income tax rate from continuing operations follows:

September 30, 2019

Nine Months Ended

A reconciliation of the federal statutory rate to the Company's effective income tax rate follows:

Year Ended September 30, Nine Months Ended

September 30, 2018

December 31, 2017

Federal statutory rate (benefit)

Federal statutory rate 21 % 21 % 21 %

State, net of federal benefit 3 1 4

Valuation allowance — — ( 81 )

Tax rate change due to new tax act

Tax benefits previously unrecognized ( 2 ) — —

Tax rate benefit in carryback years ( 1 ) — —

Noncontrolling interests — ( 1 ) ( 1 )

Stock based compensation

Effective tax rate

The effective tax rate for all years includes an expense for state income taxes and non-deductible expenses, reduced by a tax benefit related to noncontrolling interests.

Effective tax rate (benefit) 21 % 21 % ( 57 ) %

The effective tax rate for fiscal 2020 includes a tax benefit of $ 2.3 million related to the net operating loss (NOL) carryback provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which allows the Company to carryback a portion of its fiscal 2018 NOL.

The carryback provisions result in the recognition of previously unrecognized tax benefits and the revaluation of deferred tax assets due to the utilization of NOLs at a higher tax rate in the carryback period.

The Company's effective tax rate for the nine months ended September 30, 2018 also includes a benefit for the release of its federal valuation allowance and a portion of its state valuation allowance associated with its deferred tax assets.

The Company's effective tax rate for 2017 includes an expense for non-deductible goodwill related to the sale of its owned mineral interests and non-deductible transaction costs related to its merger with D.R.

Other differences, including the remeasurement of the Company's deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act (Tax Act), are fully offset by a change in its valuation allowance.

The effective tax rate for all periods includes an expense for state income taxes and nondeductible expenses and a benefit related to noncontrolling interests.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Significant components of deferred taxes are:

September 30,

September 30, 2018

(In millions)

Deferred tax assets:

Real estate $ 10.5 $ 10.2

Employee benefits 1.5 1.5

Net operating loss carryforwards 1.7 15.1

AMT credits — 0.6

Accruals not deductible until paid 0.2 0.2

Gross deferred tax assets

Total deferred tax assets 13.9 27.6

Valuation allowance ( 1.5 ) ( 3.3 )

Deferred tax asset net of valuation allowance

Total deferred tax assets, net of valuation allowance 12.4 24.3

Deferred tax liabilities:

1 unchanged sentence

Convertible debt — ( 0.5 )

Gross deferred tax liabilities

Net Deferred Tax Asset

Total deferred tax liabilities ( 18.1 ) ( 6.9 )

Deferred tax (liability) asset, net $ ( 5.7 ) $ 17.4

In October 2017, D.R.

1 unchanged sentence

Section 382 limits the Company's ability to use certain tax attributes and built-in losses and deductions in a given year.

Any tax attributes or built-in losses and deductions that were limited in 2018 or 2019 are expected to be fully utilized in future years with the exception of some state net operating loss (NOL) carryforwards.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

At September 30, 2019 , the Company had tax benefits of $11.4 million related to federal NOL carryforwards, none of which have an expiration date.

At September 30, 2019 , the Company had tax benefits of $3.7 million related to state NOL carryforwards, of which $3.3 million will expire between 2030 and 2038 while the remaining $0.4 million does not have an expiration date.

At September 30, 2019 and 2018 , the Company has provided a valuation allowance for its deferred tax asset of $3.3 million and $3.4 million for the portion of the deferred tax assets that the Company has determined is more likely than not to be unrealizable.

The valuation allowance was recorded because it is more likely than not that a portion of the Company's state deferred tax assets, primarily NOL carryforwards, will not be realized because the Company is no longer operating in some states or the NOL carryforward periods are too brief to realize the related deferred tax asset.

Any federal tax attributes or built-in losses and deductions that were limited in fiscal 2018 or 2019 have been fully utilized.

At September 30, 2020, the Company had no federal NOL carryforwards as a result of NOL carryback claims and taxable income in the current year.

At September 30, 2020, the Company had tax benefits of $ 1.7 million related to state NOL carryforwards, of which $ 1.4 million will expire between 2030 and 2037 while the remaining $ 0.3 million do not have an expiration date.

The Company has a valuation allowance of $ 1.5 million and $ 3.3 million at September 30, 2020 and 2019 because it is more likely than not that a portion of the Company's state deferred tax assets, primarily NOL carryforwards, will not be realized because the Company is no longer operating in some states or the NOL carryforward periods are too brief to realize the related deferred tax asset.

The current year decrease in the valuation allowance is primarily attributable to the write-off of state deferred tax assets for NOLs which are not expected to be utilized, resulting in no impact to state tax expense.

The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on its deferred tax assets.

Any reversal of the valuation allowance in future periods will impact the effective tax rate.

The Company entered into a Tax Sharing Agreement with D.R.

The Tax Sharing Agreement sets forth an equitable method for reimbursements of tax liabilities or benefits between the Company and D.R.

The Company is subject to a Tax Sharing Agreement with D.R.

The agreement sets forth an equitable method for reimbursements of tax liabilities or benefits between the Company and D.R.

Horton related to state and local income, margin or franchise tax returns that are filed on a unitary basis with D.R.

In accordance with the tax sharing agreement, D.R.

In accordance with the agreement, the Company reimbursed D.R.

Horton $ 0.2 million in fiscal 2020 for its tax expense generated in fiscal 2019, and D.R.

Horton reimbursed the Company $ 0.4 million in fiscal 2019 for its tax benefit generated in the nine months ended September 30, 2018.

1 unchanged sentence

and in various state jurisdictions.

The federal statute of limitations for tax years prior to 2017 is effectively closed and the statute of limitations in major state jurisdictions for tax years prior to 2015 is closed.

The Internal Revenue Service (IRS) recently completed an audit of the Company's 2016 tax year with no changes.

The federal statute of limitations for tax years prior to 2016 is closed and the statute of limitations in major state jurisdictions for tax years prior to 2016 is closed.

The Company is not currently being audited by the IRS or any state jurisdictions.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

A reconciliation of the beginning and ending amount of tax benefits not recognized for book purposes is as follows:

September 30, 2019

Nine Months Ended

Year Ended September 30, Nine Months Ended

September 30, 2018

December 31, 2017

(In millions)

Balance at beginning of year

Increases (decreases) for dispositions and other

Balance at end of year

If the total amount of unrecognized tax benefits was recognized at September 30, 2019 , it would result in a $1.6 million tax benefit.

Balance at beginning of period $ 1.6 $ 1.6 $ 1.1

(Decrease) increase for tax positions taken in prior periods ( 1.6 ) — 0.5

Balance at end of period $ — $ 1.6 $ 1.6

The Company had no unrecognized tax benefits at September 30, 2020 as a result of the recognition of $ 1.6 million of previously unrecognized tax benefits during fiscal 2020.

All of the $ 1.6 million of recognized tax benefits affected the Company’s effective tax rate and was attributable to the NOL carryback provisions of the CARES Act allowing previously uncertain tax attributes to be recognized.

The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense.

In fiscal years 2019 , 2018 and 2017 , no significant interest related to unrecognized tax benefits was recognized.

At September 30, 2019 , September 30, 2018 and December 31, 2017 , there were no significant accrued interest or penalties.

In fiscal years 2020, 2019 and in the nine months ended September 30, 2018, no significant interest related to unrecognized tax benefits was recognized.

At September 30, 2020, there were no accrued interest or penalties.

Note 12 — Stockholders' Equity

The Company has an effective shelf registration statement filed with the Securities and Exchange Commission (SEC) on September 24, 2018 , which became effective on October 4, 2018 , registering $500 million of equity securities.

On September 30, 2019 , the Company issued 6.0 million shares of its common stock for $17.50 per share in a public underwritten offering.

Net proceeds from this offering after deducting underwriting discounts and commissions and other expenses were $100.7 million .

As a result of the issuance, D.R.

Horton's ownership of the Company's outstanding common shares decreased from 75% to approximately 66% .

Following the offering, $394.3 million remains available for issuance under the shelf registration statement.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The Company has an effective shelf registration statement filed with the Securities and Exchange Commission (SEC) in September 2018 registering $ 500 million of equity securities.

As of September 30, 2020, $ 394.3 million remained available for issuance under the shelf registration statement, $ 100 million of which is reserved for sales under the at-the-market equity offering program discussed below.

In August 2020, the Company entered into an equity distribution agreement to issue and sell, from time to time, up to $ 100 million in aggregate offering price of its common stock through an at-the-market equity offering program.

As of September 30, 2020, no shares had been issued under the at-the-market equity offering program.

Note 13 — Employee Benefit Plans

3 unchanged sentences

Additional employer contributions in the form of profit sharing may also be made at the Company’s discretion.

The Company recorded expense of $0.2 million in fiscal 2019 , $0.1 million in the nine months ended September 30, 2018 and $0.7 million in fiscal 2017 for matching contributions.

The Company recorded expense of $ 0.4 million, $ 0.2 million and $ 0.1 million for matching contributions in fiscal 2020, 2019 and the nine months ended September 30, 2018, respectively.

Restricted Stock Units (RSUs)

1 unchanged sentence

Restricted stock unit awards may be based on performance (performance-based) or on service over a requisite time period (time-based).

Performance-based and time-based RSU equity awards represent the contingent right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are satisfied.

The Company granted time-based RSUs during fiscal 2019 and in the nine months ended September 30, 2018 .

The time-based RSUs vest annually in equal installments over periods of three to five years and have no voting rights until vested.

The following table provides additional information related to time-based RSU activity during fiscal 2019 and in the nine months ended September 30, 2018 .

September 30, 2019

Nine Months Ended

RSU equity awards represent the contingent right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are satisfied and have no voting rights during the vesting period.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

During fiscal 2020, 2019 and in the nine months ended September 30, 2018, the Company granted time-based RSUs that vest annually in equal installments over periods of three to five years .

The following table provides additional information related to time-based RSU activity during those periods.

Year Ended September 30, Nine Months Ended

September 30, 2018

Number of Restricted Stock Units

Weighted Average Grant Date Fair Value

Number of Restricted Stock Units

Weighted Average Grant Date Fair Value

Number of Restricted Stock Units Weighted Average Grant Date Fair Value Number of Restricted Stock Units Weighted Average Grant Date Fair Value Number of Restricted Stock Units Weighted Average Grant Date Fair Value

Outstanding at beginning of period 200,960 $ 19.68 86,500 $ 18.09 85,994 $ 17.54

Granted 181,325 16.11 149,400 20.24 12,000 22.35

Vested ( 79,432 ) 19.58 ( 23,740 ) 18.03 ( 500 ) 18.40

Cancelled ( 16,990 ) 19.10 ( 11,200 ) 18.39 ( 10,994 ) 18.40

Outstanding at end of period 285,863 $ 17.47 200,960 $ 19.68 86,500 $ 18.09

The total fair value of shares vested on the vesting date during fiscal 2019 , the nine months ended September 30, 2018 and fiscal 2017 was $0.4 million , $0.0 million and $14.9 million , respectively.

For fiscal 2019 , the nine months ended September 30, 2018 , and fiscal 2017 , compensation expense related to time-based RSUs was $1.3 million , $0.3 million and $5.0 million respectively, and fiscal 2019 includes $0.6 million of stock based compensation expense related to employees that were retirement eligible on the date of grant.

The total fair value of shares vested on the vesting date during fiscal 2020 and 2019 was $ 1.6 million and $ 0.4 million, respectively.

Total stock-based compensation expense related to the Company's restricted stock units for fiscal 2020, 2019 and the nine months ended September 30, 2018 was $ 2.0 million, $ 1.3 million and $ 0.3 million, respectively, and fiscal 2020 and 2019 included $ 0.5 million and $ 0.6 million, respectively, of expense recognized for employees that were retirement eligible on the date of grant.

These expenses are included in selling, general and administrative expense in the Company's consolidated statements of operations.

1 unchanged sentence

This expense is expected to be recognized over a weighted average period of 2.6 years.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 14 — Commitments and Contingencies

Contractual Obligations and Off-Balance Sheet Arrangements

In support of the Company's residential lot development business, it issues letters of credit under the revolving credit facility and it has a surety bond program that provides financial assurance to beneficiaries related to the execution and performance of certain development obligations.

In support of the Company's residential lot development business, it issues letters of credit under the revolving credit facility and has a surety bond program that provides financial assurance to beneficiaries related to the execution and performance of certain development obligations.

At September 30, 2020, the Company had outstanding letters of credit of $ 36.0 million under the revolving credit facility and surety bonds of $ 236.9 million issued by third parties to secure performance under various contracts.

8 unchanged sentences

In addition, the Company has various obligations under other office space and equipment leases of less than one year.

Rent expense for facilities and equipment was $0.7 million in fiscal 2019 , $0.6 million in the nine months ended September 30, 2018 and $2.1 million in fiscal 2017 .

Rent expense for facilities and equipment was $ 1.1 million in fiscal 2020, $ 0.7 million in fiscal 2019 and $ 0.6 million in the nine months ended September 30, 2018.

Future minimum rental commitments, by fiscal year, under non-cancelable operating leases having an initial or remaining term in excess of one year are:

5 unchanged sentences

and thereafter — $ 0.0 million.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 15 — Related Party Transactions

In October 2017 , the Company entered into a Shared Services Agreement with D.R.

The Company has a Shared Services Agreement with D.R.

Horton whereby D.R.

1 unchanged sentence

During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company paid D.R.

Horton $2.1 million and $0.9 million for these shared services and $1.4 million and $0.9 million for the cost of health insurance and other employee benefits.

Horton $ 5.0 million, $ 2.1 million and $ 0.9 million for these shared services and $ 2.7 million, $ 1.4 million and $ 0.9 million for the cost of health insurance and other employee benefits.

These expenses are included in selling, general and administrative expense in the consolidated statements of operations.

The Company entered into a Tax Sharing Agreement with D.R.

The Tax Sharing Agreement sets forth an equitable method for reimbursements of tax liabilities or benefits between the Company and D.R.

The Company is subject to a Tax Sharing Agreement with D.R.

The agreement sets forth an equitable method for reimbursements of tax liabilities or benefits between the Company and D.R.

Horton related to state and local income, margin or franchise tax returns that are filed on a unitary basis with D.R.

In accordance with the tax sharing agreement, D.R.

In accordance with the agreement, the Company reimbursed D.R.

Horton $ 0.2 million in fiscal 2020 for its tax expense generated in fiscal 2019, and D.R.

Horton reimbursed the Company $ 0.4 million in fiscal 2019 for its tax benefit generated in the nine months ended September 30, 2018.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Under the terms of the Master Supply Agreement with D.R.

Horton, both companies identify land development opportunities to expand Forestar's portfolio of assets.

At September 30, 2019 and 2018 , the Company owned or controlled through option purchase contracts approximately 38,300 and 20,100 residential lots, of which D.R.

At September 30, 2020 and 2019, the Company owned or controlled through purchase contracts approximately 60,500 and 38,300 residential lots, of which D.R.

Horton had the following involvement.

2 unchanged sentences

Residential lots under contract to sell to D.R.

Horton 14,000 12,800

Residential lots subject to right of first offer with D.R.

Horton 16,400 10,600

Earnest money deposits from D.R.

Horton for lots under contract $ 92.2 $ 88.7

Earnest money notes from D.R.

Horton for lots under contract $ 4.8 $ —

Remaining purchase price of lots under contract with D.R.

During fiscal 2019 , the nine months ended September 30, 2018 and fiscal 2017 , the Company's residential lot sales totaled 4,132 , 1,024 and 937 , and lot sales revenues were $351.7 million , $72.0 million and $83.9 million .

Horton $ 1,022.2 $ 953.8

During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company's residential lot sales totaled 10,373 , 4,132 and 1,024 , and lot sales revenues were $ 880.3 million, $ 351.7 million and $ 72.0 million.

Lot and land sales to D.R.

Horton during those periods were as follows.

September 30, 2019

Nine Months Ended

Year Ended September 30, Nine Months Ended

September 30, 2018

December 31, 2017

(Dollars in millions)

Residential single-family lots sold to D.R.

Horton 10,164 3,728 642

Residential lot sales revenues from sales to D.R.

Horton $ 859.7 $ 311.7 $ 43.6

Residential tract acres sold to D.R.

Horton 143 290 79

Residential tract sales revenues from sales to D.R.

Horton $ 25.6 $ 10.9 $ 2.0

In addition, the net impact of the change in contract liabilities or revenue deferrals increased revenues on lot sales to D.R.

Horton by $4.0 million in fiscal 2019 and decreased revenues by $6.4 million in the nine months ended September 30, 2018 .

Horton by $ 2.3 million and $ 4.0 million in fiscal 2020 and 2019, respectively, and decreased revenues by $ 6.4 million in the nine months ended September 30, 2018.

During the nine months ended September 30, 2018, a venture in which the Company owns a 37.5 % interest sold 40 residential tract acres to D.R.

2 unchanged sentences

During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company reimbursed D.R.

Horton approximately $34.5 million and $21.2 million for previously paid earnest money and $13.1 million and $15.2 million for pre-acquisition and other due diligence and development costs related to land purchase contracts whereby D.R.

Horton approximately $ 27.0 million, $ 34.5 million and $ 21.2 million for previously paid earnest money and $ 36.3 million, $ 13.1 million and $ 15.2 million for pre-acquisition and other due diligence and development costs related to land purchase contracts whereby D.R.

Horton assigned its rights under these land purchase contracts to the Company.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company paid D.R.

Horton $2.4 million and $0.6 million for land development services.

Horton $ 6.2 million, $ 2.4 million and $ 0.6 million for land development services.

These amounts are included in cost of sales in the Company’s consolidated statements of operations.

2 unchanged sentences

Horton within approximately one year of its purchase or, if D.R.

Horton elects, at an earlier date, at a sales price equal to the carrying value of the land at the time of sale plus additional consideration which ranges from 12% to 16% per annum.

Horton elects, at an earlier date, at a sales price equal to the carrying value of the land at the time of sale plus additional consideration of 16 % per annum.

In fiscal 2019, the Company sold approximately 63 acres of undeveloped land to a third party for approximately $ 44.2 million.

5 unchanged sentences

Horton for any accrued and unpaid shared service charges, land purchase contract deposits and due diligence and other development cost reimbursements.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 16 — Quarterly Results of Operations (Unaudited)

Consolidated quarterly results of operations for fiscal year 2019 and the nine months ended September 30, 2018 were (in millions, except per share amounts):

December 31, 2018

March 31, 2019

June 30, 2019

Consolidated quarterly results of operations for fiscal year 2020 and 2019 were (in millions, except per share amounts):

2020 Three Months

December 31, 2019 Three Months

March 31, 2020 Three Months

June 30, 2020 Three Months

September 30, 2020

2 unchanged sentences

Income tax expense 5.4 3.3 0.2 7.5

Net income (loss) attributable to noncontrolling interests

Net income 16.8 10.4 10.1 24.5

Net (loss) income attributable to noncontrolling interests ( 0.1 ) 0.8 — 0.3

Net income attributable to Forestar Group Inc.

16.9 9.6 10.1 24.2

Net income per share — basic $ 0.35 $ 0.20 $ 0.21 $ 0.50

Net income per share — diluted $ 0.35 $ 0.20 $ 0.21 $ 0.50

March 31, 2018

June 30, 2018

2019 Three Months

December 31, 2018 Three Months

March 31, 2019 Three Months

June 30, 2019 Three Months

September 30, 2019

1 unchanged sentence

Income before income taxes 4.9 16.4 8.4 16.0

Income tax expense (benefit)

Net income attributable to noncontrolling interests

Income tax expense 1.0 3.6 1.5 3.4

Net income 3.9 12.8 6.9 12.6

Net income (loss) attributable to noncontrolling interests 0.6 2.7 — ( 0.1 )

Net income attributable to Forestar Group Inc.

3.3 10.1 6.9 12.7

Net income per share — basic $ 0.08 $ 0.24 $ 0.16 $ 0.30

Net income per share — diluted $ 0.08 $ 0.24 $ 0.16 $ 0.30

The income tax benefit in the three months ended September 30, 2018 was due to a reduction in the Company's valuation allowance on its deferred tax assets during the quarter.

FORESTAR GROUP INC.

3 unchanged sentences

For the Nine Months Ended September 30,

Revenues $ 78.3 $ 83.5

Cost of sales 49.5 90.1

8 unchanged sentences

Income from discontinued operations, net of taxes — 38.8

Net income 70.0 67.9

Net income attributable to noncontrolling interests 1.2 0.1

Net income attributable to Forestar Group Inc.

$ 68.8 $ 67.8

Weighted Average Common Shares Outstanding:

Basic 41.9 42.2

Diluted 42.0 42.5

Net Income per Basic Share:

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data