What changed in this filing

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Item 1. Financial Statements

2021-01-27 compared with 2020-07-29 · 112 added, 194 removed, 274 unchanged (53% of the section changed)

9 unchanged sentences

Property and equipment, net 1.9 1.1

Deferred tax asset, net — 17.4

Other assets 26.3 24.9

2 unchanged sentences

Earnest money on sales contracts 118.5 98.3

Deferred tax liability, net 7.9 5.7

Accrued expenses and other liabilities 92.4 93.8

3 unchanged sentences

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

48,059,921 and 47,997,366 shares issued and outstanding at June 30, 2020

48,076,643 and 48,061,921 shares issued and outstanding at December 31, 2020

and September 30, 2020, respectively

9 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2020 2019 2020 2019

(In millions, except per share amounts)

2 unchanged sentences

Selling, general and administrative expense 15.5 10.5

Equity in loss (earnings) of unconsolidated ventures 0.1 — ( 0.6 ) ( 0.5 )

Gain on sale of assets — ( 1.5 ) ( 0.1 ) ( 2.4 )

Equity in earnings of unconsolidated ventures ( 0.2 ) ( 0.5 )

Loss on sale of assets — 0.1

Interest and other income ( 0.3 ) ( 1.7 )

2 unchanged sentences

Net income 22.1 16.8

Net income attributable to noncontrolling interests — — 0.7 3.3

Net income (loss) attributable to noncontrolling interests 0.1 ( 0.1 )

Net income attributable to Forestar Group Inc.

13 unchanged sentences

$ 48.1 $ 603.9 $ 218.9 $ 0.9 $ 871.8

Net income (loss)

— — 22.0 0.1 22.1

4 unchanged sentences

— 0.3 — — 0.3

Distributions to noncontrolling interests

— — — ( 0.4 ) ( 0.4 )

Balances at December 31, 2020 ( 48,076,643 shares)

$ 48.1 $ 604.1 $ 240.9 $ 1.0 $ 894.1

— — 9.6 0.8 10.4

Stock-based compensation expense

— 0.8 — — 0.8

Balances at March 31, 2020 ( 48,025,359 shares)

$ 48.0 $ 603.3 $ 184.6 $ 0.9 $ 836.8

— — 10.1 — 10.1

Stock issued under employee benefit plans ( 34,562 shares)

0.1 — — — 0.1

Cash paid for shares withheld for taxes

— ( 0.1 ) — — ( 0.1 )

Stock-based compensation expense

— 0.3 — — 0.3

Distributions to noncontrolling interests

— — — ( 0.3 ) ( 0.3 )

Balances at June 30, 2020 ( 48,059,921 shares)

$ 48.1 $ 603.5 $ 194.7 $ 0.6 $ 846.9

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

2 unchanged sentences

$ 48.0 $ 602.2 $ 158.1 $ 0.6 $ 808.9

— — 3.3 0.6 3.9

Net income (loss) — — 16.9 ( 0.1 ) 16.8

Stock issued under employee benefit plans ( 27,993 shares)

0.1 — — — 0.1

Cash paid for shares withheld for taxes

6 unchanged sentences

$ 48.0 $ 602.5 $ 175.0 $ 0.1 $ 825.6

— — 10.1 2.7 12.8

Stock-based compensation expense

— 0.1 — — 0.1

Distributions to noncontrolling interests

— — — ( 3.1 ) ( 3.1 )

Balances at March 31, 2019 ( 41,959,866 shares)

$ 42.0 $ 506.4 $ 138.5 $ 0.9 $ 687.8

— — 6.9 — 6.9

Stock-based compensation expense

— 0.9 — — 0.9

Distributions to noncontrolling interests

— — — ( 0.3 ) ( 0.3 )

Balances at June 30, 2019 ( 41,959,866 shares)

$ 42.0 $ 507.3 $ 145.4 $ 0.6 $ 695.3

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended June 30,

Three Months Ended December 31,

(In millions)

4 unchanged sentences

Equity in earnings of unconsolidated ventures ( 0.2 ) ( 0.5 )

Distributions of earnings of unconsolidated ventures — 4.9

Stock-based compensation expense 0.3 0.5

Real estate and land option charges 0.5 0.5

Gain on sale of assets ( 0.1 ) ( 2.4 )

Land option charges 0.4 0.3

Loss on sale of assets — 0.1

Changes in operating assets and liabilities:

Increase in real estate ( 218.6 ) ( 38.2 )

Decrease (increase) in income taxes receivable 4.2 ( 0.6 )

Increase in other assets ( 2.6 ) ( 0.7 )

(Decrease) increase in accounts payable and other accrued liabilities ( 0.2 ) 30.2

Increase in earnest money deposits on sales contracts 2.9 35.4

(Increase) decrease in income taxes receivable ( 5.7 ) 1.1

Increase in accounts payable and other accrued liabilities 11.6 3.4

Increase (decrease) in earnest money on sales contracts 21.1 ( 0.2 )

Net cash used in operating activities ( 158.7 ) ( 11.6 )

3 unchanged sentences

Proceeds from sale of assets — 1.3

Net cash provided by (used in) investing activities 3.1 ( 0.8 )

Net cash provided by investing activities 2.0 3.1

FINANCING ACTIVITIES

Additions to debt 300.0 435.0

Repayment of debt ( 118.9 ) ( 85.0 )

Deferred financing fees — ( 0.4 )

1 unchanged sentence

Cash paid for shares withheld for taxes ( 0.1 ) ( 0.2 )

Net cash provided by financing activities 175.4 339.1

Net cash used in financing activities ( 0.2 ) ( 1.0 )

Net decrease in cash and cash equivalents ( 156.9 ) ( 9.5 )

1 unchanged sentence

Cash and cash equivalents at end of period $ 237.4 $ 373.3

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES

Note payable issued for real estate $ 12.5 $ —

See accompanying notes to consolidated financial statements.

20 unchanged sentences

Horton is considered a related party of Forestar under GAAP.

At June 30, 2020, D.R.

At December 31, 2020, D.R.

Horton owned approximately 65 % of the Company's outstanding common stock.

3 unchanged sentences

Actual results could differ materially from those estimates.

Adoption of New Accounting Standard

In February 2016, the FASB issued 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.

Pending Accounting Standards

5 unchanged sentences

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.

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance.

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

Note 2— Segment Information

9 unchanged sentences

$ 1,540.5 $ 1,309.7

In the nine months ended June 30, 2020, the Company invested $ 385.3 million for the acquisition of residential real estate and $ 348.6 million for the development of residential real estate.

At June 30, 2020 and September 30, 2019, undeveloped land primarily consists of undeveloped land which the Company has the contractual right to sell to D.R.

In the three months ended December 31, 2020, the Company invested $ 295.1 million for the acquisition of residential real estate and $ 181.9 million for the development of residential real estate.

At December 31, 2020 and September 30, 2020, undeveloped land primarily consists of undeveloped land which the Company has the contractual right to sell to D.R.

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 of 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 12 % to 16 % per annum.

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, no real estate impairment charges were recorded for any period presented in the consolidated statements of operations.

Real estate impairments, if any, and the land option charges discussed below are included in cost of sales in the consolidated statements of operations.

During the three and nine months ended June 30, 2020, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 0.1 million and $ 0.5 million, respectively, compared to $ 0.1 million in both periods of fiscal 2019.

During the latter part of March and in April, the impacts of COVID-19 (C-19) and the related widespread reductions in economic activity affected the Company’s business operations and the demand for residential lots.

The Company’s lot sales pace declined as homebuilders slowed their purchases of lots to adjust to expected lower levels of home sales orders as a result of the pandemic.

However, as economic activity and housing market conditions began to improve during the latter part of the quarter, the lot sales pace increased.

There is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S.

economy, capital markets and demand for the Company's lots.

The extent to which C-19 impacts the Company’s operational and financial performance will depend on future developments, including the duration and spread of C-19 and the impact on the Company’s customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

If economic and housing market conditions are adversely affected for a prolonged period, the Company may be required to evaluate its real estate for potential impairment.

These evaluations could result in impairment charges which could be significant.

As a result of this process, there were no real estate impairment charges recorded for either period presented in the consolidated statements of operations.

During the three months ended December 31, 2020 and 2019, pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 0.4 million and $ 0.3 million, respectively.

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

Note 4— Revenues

Revenues consist of:

Three Months Ended June 30, Nine Months Ended June 30,

2020 2019 2020 2019

Three Months Ended December 31,

(In millions)

1 unchanged sentence

Residential tract sales — 30.0

Commercial tract sales — — 2.5 18.5

Other 0.1 0.1

4 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 the first nine months of fiscal 2020 and fiscal year 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 during the three and nine months ended June 30, 2020 and 2019.

Three Months Ended June 30, Nine Months Ended June 30,

2020 2019 2020 2019

During the first three months of fiscal 2021 and fiscal year 2020, 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 during the three months ended December 31, 2020 and 2019.

Three Months Ended December 31,

(In millions)

3 unchanged sentences

Capitalized interest, end of period $ 51.0 $ 29.8

Note 6— Investment in Unconsolidated Ventures

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

Combined summarized balance sheet and income statement information for these unconsolidated ventures follows:

2020 September 30,

(In millions)

Cash and cash equivalents $ 1.2 $ 1.6

Real estate 9.4 13.6

Other assets 0.2 0.1

Total assets $ 10.8 $ 15.3

Liabilities and Equity:

Accounts payable and other liabilities $ 0.2 $ 0.3

Equity 10.6 15.0

Total liabilities and equity $ 10.8 $ 15.3

Forestar's investment in unconsolidated ventures $ 5.5 $ 7.3

Three Months Ended June 30, Nine Months Ended June 30,

2020 2019 2020 2019

(In millions)

Revenues $ — $ 0.1 $ 3.0 $ 1.9

(Loss) earnings $ ( 0.1 ) $ ( 0.1 ) $ 1.9 $ 1.3

Forestar's equity in (loss) earnings of unconsolidated ventures $ ( 0.1 ) $ — $ 0.6 $ 0.5

Note 6— Other Assets, Accrued Expenses and Other Liabilities

The Company's other assets at June 30, 2020 and September 30, 2019 were as follows:

The Company's other assets at December 31, 2020 and September 30, 2020 were as follows:

2020 September 30,

7 unchanged sentences

$ 26.3 $ 24.9

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

The Company's accrued expenses and other liabilities at December 31, 2020 and September 30, 2020 were as follows:

2020 September 30,

6 unchanged sentences

Deferred income 9.3 9.3

State income taxes payable 1.3 0.5

Accrued development costs 42.5 35.3

5 unchanged sentences

(In millions)

3.75 % convertible senior notes due 2020

8.0 % senior notes due 2024 (1)

$ 345.5 $ 345.2

5.0 % senior notes due 2028 (1)

Revolving credit facility — —

Other note payable 12.5 —

$ 654.1 $ 641.1

______________

(1) Debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $ 9.4 million and $ 6.2 million at June 30, 2020 and September 30, 2019, respectively.

(1) Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $ 8.4 million and $ 8.9 million at December 31, 2020 and September 30, 2020, respectively.

Bank Credit Facility

3 unchanged sentences

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

At June 30, 2020, there were no borrowings outstanding and $ 31.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 348.4 million.

There were no borrowings or repayments under the facility during the nine months ended June 30, 2020.

In October 2019, the revolving credit facility was amended to extend its maturity date 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 the three months ended December 31, 2020.

At December 31, 2020, there were no borrowings outstanding and $ 40.5 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 339.5 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.

2 unchanged sentences

A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity.

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

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 (Securities Act).

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.

At December 31, 2020, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

The Company has outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended.

The notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness and may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreements.

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

The Company's $ 350 million principal amount of 8.0 % senior notes mature April 15, 2024 with interest payable semi-annually.

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

The Company's $ 300 million principal amount of 5.0 % senior notes mature March 1, 2028 with interest payable semi-annually.

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 %.

The Company also has $ 350 million principal amount of 8.0 % senior notes due 2024 outstanding.

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.

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 respective indenture), 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.

5 unchanged sentences

and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments.

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

At December 31, 2020, the Company was in compliance with all of the limitations and restrictions associated with its senior note obligations.

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 June 30, 2020.

Note 9— Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants.

In arriving at a fair value measurement, the Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

The three levels of inputs used to establish fair value are the following:

• Level 1 — Quoted prices in active markets for identical assets or liabilities;

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;

• 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 and debt.

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 June 30, 2020 and September 30, 2019.

Fair Value at June 30, 2020

Carrying Value Level 1 Level 2 Level 3 Total

(in millions)

Cash and cash equivalents (a)

$ 355.6 $ 355.6 $ — $ — $ 355.6

640.6 — 660.4 — 660.4

Fair Value at September 30, 2019

Carrying Value Level 1 Level 2 Level 3 Total

(in millions)

Cash and cash equivalents (a)

$ 382.8 $ 382.8 $ — $ — $ 382.8

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 June 30, 2020 and September 30, 2019, debt consisted of the Company's 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 primarily include real estate assets which the Company reviews for indicators of potential impairment and performs impairment evaluations when necessary.

All of the $ 30 million authorization was remaining at December 31, 2020.

Other Note Payable

The Company's other note payable of $ 12.5 million was issued as part of a transaction to acquire real estate for development.

The note is non-recourse and is secured by the underlying real estate, accrues interest at 4.0 % per annum and matures in October 2023.

Note 8— Earnings per Share

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

Three Months Ended June 30, Nine Months Ended June 30,

2020 2019 2020 2019

Three Months Ended December 31,

(In millions, except share and per share amounts)

2 unchanged sentences

Weighted average common shares outstanding — basic 48,129,222 48,011,132

Dilutive effect of share based compensation 24,831 50,355 45,903 20,931

Dilutive effect of stock-based compensation 63,673 55,286

Total weighted average shares outstanding — diluted 48,192,895 48,066,418

Anti-dilutive awards excluded from diluted weighted average shares — — — —

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

2 unchanged sentences

$ 0.46 $ 0.35

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.

Note 9— Income Taxes

The Company’s income tax expense for the three and nine months ended June 30, 2020 was $ 0.2 million and $ 8.9 million compared to $ 1.5 million and $ 6.0 million in the prior year periods.

The effective tax rate was 1.9 % and 19.3 % for the three and nine months ended June 30, 2020 compared to 17.9 % and 20.3 % in the prior year periods.

The effective tax rate for the three and nine months ended June 30, 2020 includes a tax benefit of $ 2.3 million related to the net operating loss (NOL) carryback provisions of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which allows the Company to carryback a portion of its 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 all periods includes an expense for state income taxes and nondeductible expenses and a benefit related to noncontrolling interests.

At June 30, 2020, the Company had deferred tax assets, net of deferred tax liabilities, of $ 3.2 million.

The deferred tax assets were offset by a valuation allowance of $ 3.3 million, resulting in a net deferred tax liability of $ 0.1 million, which is included in accrued expenses and other liabilities on its consolidated balance sheets.

At September 30, 2019, deferred tax assets, net of deferred tax liabilities, were $ 20.7 million, partially offset by a valuation allowance of $ 3.3 million.

The valuation allowance for both periods 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.

The Company’s income tax expense for the three months ended December 31, 2020 and 2019 was $ 7.1 million and $ 5.4 million, respectively, and the effective tax rate was 24.3 % in both periods.

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

At December 31, 2020, the Company had deferred tax liabilities, net of deferred tax assets, of $ 6.4 million.

The deferred tax assets were partially offset by a valuation allowance of $ 1.5 million, resulting in a net deferred tax liability of $ 7.9 million.

At September 30, 2020, deferred tax liabilities, net of deferred tax assets, were $ 4.2 million.

The deferred tax assets were partially offset by a valuation allowance of $ 1.5 million, resulting in a net deferred tax liability of $ 5.7 million.

The valuation allowance for both periods was recorded because it is more likely than not that a portion of the Company's state deferred tax assets, primarily net operating loss (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 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 had no unrecognized tax benefits at June 30, 2020 as a result of the recognition of $ 1.6 million of previously unrecognized tax benefits during the three months ended June 30, 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.

Note 10— Stockholders' Equity and Stock-Based Compensation

1 unchanged sentence

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.

At June 30, 2020, $ 394.3 million remains available for issuance under the shelf registration statement.

At December 31, 2020, $ 394.3 million remained available for issuance under the shelf registration statement, $ 100 million of which is reserved for sales under the Company's at-the-market equity offering program.

As of December 31, 2020, no shares had been issued under the at-the-market equity offering program.

Restricted Stock Units (RSUs)

The Company’s Stock Incentive Plan provides for the granting of stock options and restricted stock units to executive officers, other key employees and non-management directors.

Restricted stock unit awards may be based on performance (performance-based) or on service over a requisite time period (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 and have no voting rights during the vesting period.

During the nine months ended June 30, 2020, a total of 175,325 time-based RSUs were granted.

The weighted average grant date fair value of these equity awards was $ 16.01 per unit, and they vest annually in equal installments over periods of three to five years.

Total stock-based compensation expense related to the Company's restricted stock units for the three and nine months ended June 30, 2020 was $ 0.3 million and $ 1.6 million, respectively, and the nine month period includes $ 0.5 million of expense recognized for employees that were retirement eligible on the date of grant.

Total stock-based compensation expense for the three and nine months ended June 30, 2019 was $ 0.9 million and $ 1.1 million, respectively, and both periods include $ 0.6 million of expense recognized for employees that were retirement eligible on the date of grant.

During the three months ended December 31, 2020, a total of 24,000 time-based RSUs were granted.

The weighted average grant date fair value of these equity awards was $ 17.08 per unit, and they vest annually in equal installments over a period of three years.

Total stock-based compensation expense related to the Company's restricted stock units for the three months ended December 31, 2020 and 2019 was $ 0.3 million and $ 0.5 million, respectively.

Note 11— Commitments and Contingencies

1 unchanged sentence

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 June 30, 2020, the Company had outstanding letters of credit of $ 31.6 million under the revolving credit facility and surety bonds of $ 206.2 million, issued by third parties to secure performance under various contracts.

At December 31, 2020, the Company had outstanding letters of credit of $ 40.5 million under the revolving credit facility and surety bonds of $ 293.8 million issued by third parties to secure performance under various contracts.

The Company expects that its performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms.

5 unchanged sentences

Note 12— 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.

Horton provides the Company with certain administrative, compliance, operational and procurement services.

During the nine months ended June 30, 2020 and 2019, the Company paid D.R.

Horton $ 3.8 million and $ 1.6 million for these shared services and $ 1.9 million and $ 1.1 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.

During the three months ended December 31, 2020 and 2019, selling, general and administrative expense in the consolidated statements of operations includes $ 1.1 million and $ 1.3 million for these shared services, $ 1.0 million and $ 0.6 million for the cost of health insurance and other employee benefits and $ 1.1 million and $ 1.0 million for other corporate and administrative expenses paid by D.R.

Horton on behalf of the Company.

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 June 30, 2020 and September 30, 2019, the Company owned or controlled through purchase contracts approximately 50,700 and 38,300 residential lots, of which D.R.

At December 31, 2020 and September 30, 2020, the Company owned or controlled through purchase contracts approximately 77,500 and 60,500 residential lots, of which D.R.

Horton had the following involvement.

11 unchanged sentences

Horton $ 1,319.3 $ 1,022.2

In the three months ended June 30, 2020 and 2019, the Company's residential lot sales totaled 2,023 and 1,158 , and lot sales revenues were $ 164.4 million and $ 87.6 million.

In the nine months ended June 30, 2020 and 2019, the Company's residential lot sales totaled 6,396 and 2,224 , and lot sales revenues were $ 537.9 million and $ 171.6 million.

In the three months ended December 31, 2020 and 2019, the Company's residential lot sales totaled 3,567 and 2,422 , and lot sales revenues were $ 307.0 million and $ 217.1 million.

Lot and land sales to D.R.

Horton during those periods were as follows.

Three Months Ended June 30, Nine Months Ended June 30,

2020 2019 2020 2019

Three Months Ended December 31,

(Dollars in millions)

4 unchanged sentences

Residential tract acres sold to D.R.

Horton 30 — 66 —

Residential tract sales revenues from sales to D.R.

Horton $ — $ 7.2

In addition, a decrease in contract liabilities increased revenues on lot sales to D.R.

Horton by $ 2.8 million and $ 2.1 million in the three and nine months ended June 30, 2020 and an increase in contract liabilities decreased revenues on lot sales to D.R.

Horton by $ 2.0 million and $ 3.6 million in the three and nine months ended June 30, 2019.

During the three and nine months ended June 30, 2020, the Company reimbursed D.R.

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

Horton by $ 0.2 million in the three months ended December 31, 2020 and decreased revenues on lot sales to D.R.

Horton by $ 1.5 million in the three months ended December 31, 2019.

During the three months ended December 31, 2020 and 2019, the Company reimbursed D.R.

Horton approximately $ 16.1 million and $ 10.7 million for previously paid earnest money and $ 20.9 million and $ 5.2 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.

During the three and nine months ended June 30, 2019, the Company reimbursed D.R.

Horton approximately $ 10.8 million and $ 27.6 million for previously paid earnest money and $ 4.7 million and $ 8.4 million for pre-acquisition and other due diligence and development costs.

During the three and nine months ended June 30, 2020, the Company paid D.R.

Horton $ 1.0 million and $ 3.9 million for land development services compared to $ 0.6 million and $ 1.4 million for these services in the prior year periods.

During the three months ended December 31, 2020 and 2019, the Company paid D.R.

Horton $ 1.7 million and $ 1.5 million for land development services.

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

At June 30, 2020 and September 30, 2019, undeveloped land was $ 15.4 million and $ 17.1 million.

At December 31, 2020 and September 30, 2020, undeveloped land was $ 55.5 million and $ 5.4 million.

Undeveloped land primarily consists of undeveloped land which the Company has the contractual right to sell to D.R.

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 of 16 % per annum.

At June 30, 2020 and September 30, 2019, accrued expenses and other liabilities on the Company's consolidated balance sheets included $ 3.0 million and $ 2.2 million owed to 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 of 12 % to 16 % per annum.

At December 31, 2020 and September 30, 2020, accrued expenses and other liabilities on the Company's consolidated balance sheets included $ 1.4 million and $ 8.4 million, respectively, owed to D.R.

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

Note 13— Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants.

In arriving at a fair value measurement, the Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

The three levels of inputs used to establish fair value are the following:

• Level 1 — Quoted prices in active markets for identical assets or liabilities;

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;

• 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 and debt.

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 December 31, 2020 and September 30, 2020.

Fair Value at December 31, 2020

Carrying Value Level 1 Level 2 Level 3 Total

(in millions)

Cash and cash equivalents (a)

$ 237.4 $ 237.4 $ — $ — $ 237.4

654.1 — 679.8 12.5 692.3

Fair Value at September 30, 2020

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

_____________________

(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 December 31, 2020 and September 30, 2020, 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.

(c) The fair value of the Company's other note payable approximates its carrying value and is classified as Level 3 within the fair value hierarchy.

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-Q

Item 1. Financial Statements