What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-11-18 compared with 2020-11-19 · 222 added, 310 removed, 515 unchanged (51% of the section changed)

16 unchanged sentences

(the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021, 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 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.

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, 2021 and 2020, the related consolidated statements of operations, total equity, and cash flows, for each of the three years in the period ended September 30, 2021, and the related notes and our report dated November 18, 2021 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, 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.

(the Company) as of September 30, 2021 and 2020, the related consolidated statements of operations, total equity, and cash flows for each of the three years in the period ended September 30, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2021, in conformity with U.S.

generally accepted accounting principles.

11 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Land development costs (including estimated costs to complete)

Description of the Matter

For the year ended September 30, 2021, the Company’s cost of sales was approximately $1.1 billion, which included the costs of direct land and lot acquisition, land development, and related costs (both incurred and estimated to be incurred) allocated to each residential lot in the project.

As discussed in Note 1 to the consolidated financial statements, land development costs are typically allocated to individual residential lots based on the relative sales value of the lots.

At the time of lot closings, land development activities may not yet be finalized.

To recognize the appropriate amount of cost of sales, the Company estimates the total remaining development costs.

Estimates are affected by changes to the land development project’s cost of labor, material, and subcontractors.

Auditing the Company's land development cost measurement and allocation to lots can be complex and subjective due to the estimation required to determine the costs to complete land development.

Specifically, the land development cost estimate is sensitive to management assumptions regarding estimated cost of labor, material, and subcontractors.

How We Addressed the Matter in Our Audit

We obtained an understanding and tested the design and operating effectiveness of the Company's process and controls over its land development cost measurement and allocation to lots, including controls over management's review of the estimated costs to complete.

Our audit procedures included, among others, testing the assumptions used to develop the estimated costs to complete the land development projects by comparing to supporting documentation such as subcontractor bids, contracts, or actual costs from similar or related projects.

In addition, we performed procedures related to land development budget changes during the year as well as performed a predictive margin analytic which included investigating variances between historical and estimated margins.

We also performed a look-back analysis on completed projects by comparing actual land development costs to land development budgets as of the beginning of the year in order to evaluate the accuracy of management’s land development budgets.

/s/ Ernst & Young LLP

11 unchanged sentences

Property and equipment, net 2.9 1.1

Deferred tax asset, net — 17.4

Other assets 39.1 24.9

1 unchanged sentence

Accounts payable $ 47.4 $ 29.2

Accrued development costs 104.5 44.4

Earnest money on sales contracts 148.3 98.3

16 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended September 30, Nine Months Ended

September 30, 2018

Year Ended September 30,

2021 2020 2019

(In millions, except per share amounts)

4 unchanged sentences

Gain on sale of assets ( 2.5 ) ( 0.1 ) ( 3.0 )

Interest expense — — 3.7

Interest and other income ( 1.2 ) ( 4.9 ) ( 5.5 )

Loss on extinguishment of debt 18.1 — —

Income before income taxes 146.6 78.1 45.7

Income tax expense (benefit) 16.4 9.4 ( 25.3 )

Income tax expense 36.1 16.4 9.4

Net income 110.5 61.7 36.3

13 unchanged sentences

(In millions, except share amounts)

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

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

5 unchanged sentences

— — 60.8 0.9 61.7

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

6.0 94.7 — — 100.7

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

5 unchanged sentences

— — 110.2 0.3 110.5

Issuance of common stock ( 1,448,520 shares)

1.4 32.0 — — 33.4

Purchase of noncontrolling interest, net — ( 1.7 ) — ( 0.1 ) ( 1.8 )

Stock issued under employee benefit plans ( 69,948 shares)

11 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended September 30, Nine Months Ended

September 30, 2018

Year Ended September 30,

2021 2020 2019

(In millions)

7 unchanged sentences

Real estate and land option charges 3.0 0.9 1.3

Loss on extinguishment of debt 18.1 — —

Gain on sale of assets ( 2.5 ) ( 0.1 ) ( 3.0 )

4 unchanged sentences

Increase in accounts payable and other accrued liabilities 28.0 15.0 24.4

Increase in accrued development costs 60.1 9.0 17.5

Increase in earnest money deposits on sales contracts 49.7 3.9 40.5

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

Decrease (increase) in income taxes receivable 6.3 ( 3.1 ) 1.2

Net cash used in operating activities ( 303.1 ) ( 168.4 ) ( 391.2 )

9 unchanged sentences

Deferred financing fees ( 4.9 ) ( 5.3 ) ( 6.9 )

Purchase of noncontrolling interest ( 2.4 ) — —

Distributions to noncontrolling interests, net ( 0.1 ) ( 0.6 ) ( 3.9 )

Cash paid for shares withheld for taxes ( 0.6 ) ( 0.3 ) ( 0.1 )

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

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

Net cash provided by financing activities 61.4 174.9 439.8

Net (decrease) increase in cash and cash equivalents ( 240.7 ) 11.5 47.8

Cash and cash equivalents at beginning of year 394.3 382.8 335.0

Cash and cash equivalents at end of year $ 153.6 $ 394.3 $ 382.8

SUPPLEMENTAL CASH FLOW INFORMATION:

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

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

Note payable issued for real estate $ 12.5 $ — $ —

Income taxes paid (refunded), net $ 4.3 $ ( 3.1 ) $ ( 1.7 )

See accompanying notes to consolidated financial statements.

18 unchanged sentences

Horton is considered a related party of Forestar under GAAP.

At September 30, 2020, D.R.

As of September 30, 2021, D.R.

Horton owned approximately 63 % of the Company's outstanding common stock.

Change in Fiscal Year

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 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.

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.

Accrued development costs have been reclassified from accrued expenses and other liabilities to accrued development costs in the prior year consolidated balance sheet.

The Company has reclassified the change in accrued development costs from the change in accounts payable and other liabilities to the change in accrued development costs in the prior year statement of cash flows.

These reclassifications had no net effect on the Company's consolidated operating results, financial position or cash flows.

Use of Estimates

2 unchanged sentences

Actual results could differ materially from those estimates.

Strategic Asset Sale

In February 2018, the Company entered into and closed on a Purchase and Sale Agreement with Starwood Land, L.P.

(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 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)

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.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Real Estate and Cost of Sales

24 unchanged sentences

During fiscal 2021 and 2020, the Company’s active real estate exceeded its debt level, and all interest incurred was capitalized to real estate.

Land Purchase Contract Deposits and Pre-Acquisition Costs

The Company enters into land and lot purchase contracts to acquire land for the development of residential lots.

Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms.

Under the terms of many of the purchase contracts, the deposits are not refundable in the event the Company elects to terminate the contract.

Land purchase contract deposits and capitalized pre-acquisition costs are expensed to cost of sales when the Company believes it is probable that it will not acquire the property under contract and will not be able to recover these costs through other means.

See Notes 3 and 12.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Variable Interests

Land purchase contracts can result in the creation of a variable interest in the entity holding the land parcel under contract.

There were no variable interest entities reported in the consolidated balance sheets at September 30, 2021 or 2020 because, with regard to each entity, the Company determined it did not control the activities that most significantly impact the variable interest entity’s economic performance.

The maximum exposure to losses related to the Company’s unconsolidated variable interest entities is limited to the amounts of the Company’s related deposits.

At September 30, 2021 and 2020, the deposits related to these contracts totaled $ 10.4 million and $ 5.5 million, respectively, and are included in other assets in the consolidated balance sheets.

Property and Equipment

9 unchanged sentences

Property and equipment, net $ 2.9 $ 1.1

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.

Depreciation expense was $ 0.4 million in fiscal 2021 and $ 0.3 million in both fiscal 2020 and 2019.

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.

10 unchanged sentences

Changes in the recognition or measurement of uncertain tax positions could result in increases or decreases in the Company’s income tax expense in the period in which the change is made.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Stock-Based Compensation

3 unchanged sentences

Grants of restricted stock units vest over a certain number of years as determined by the Compensation Committee of the Board of Directors.

Restricted stock units outstanding at September 30, 2020 have a remaining vesting period of 1 to 5 years.

Restricted stock units outstanding at September 30, 2021 have a remaining vesting period of up to 4.5 years.

The compensation expense for stock-based awards is based on the fair value of the award and is recognized on a straight-line basis over the remaining vesting period.

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

3 unchanged sentences

Pending Accounting Standards

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.

The guidance is effective for the Company beginning October 1, 2021 and 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.

1 unchanged sentence

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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 it to have a material impact on its consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU 2021-08, which requires application of ASC 606, “Revenue from Contracts with Customers,” to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination.

ASU 2021-08 creates an exception to the general recognition and measurement principle in ASC 805 and will result in recognition of contract assets and contract liabilities consistent with those recorded by the acquiree immediately before the acquisition date.

The guidance is effective for the Company beginning October 1, 2023 and interim periods therein, with early adoption permitted.

The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations and cash flows.

Note 2 — Segment Information

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 Company manages 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.

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 years ended September 30, 2020 and 2019.

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

Real Estate Other Items Not Allocated Consolidated

(In millions)

Revenues $ 78.3 $ — $ — $ 78.3

Cost of sales 48.9 0.6 — 49.5

Selling, general and administrative expense 7.1 0.3 12.0 19.4

Equity in earnings of unconsolidated ventures ( 4.8 ) — — ( 4.8 )

Gain on sale of assets (1)

( 18.6 ) ( 9.2 ) — ( 27.8 )

Interest expense — — 3.7 3.7

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

Income before income taxes 47.5 8.3 ( 11.1 ) 44.7

Net income attributable to noncontrolling interests 1.2 — — 1.2

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.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 3 — Real Estate

8 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 of 16 % per annum.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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 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.

As a result of this process there were no real estate impairment charges recorded in fiscal 2021 or 2020 and $ 0.8 million of impairment charges were recorded during fiscal 2019.

During fiscal 2021, 2020 and 2019, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 3.0 million, $ 0.9 million and $ 0.2 million, respectively.

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

1 unchanged sentence

Revenues consist of:

Year Ended September 30, Nine Months Ended

September 30, 2018

(In millions)

Residential lot sales $ 880.3 $ 351.7 $ 72.0

Residential tract sales 48.6 55.8 3.6

Commercial tract sales 2.5 18.5 2.0

Other 0.4 2.3 0.7

Year Ended September 30,

2021 2020 2019

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

Residential lot sales $ 1,293.1 $ 880.3 $ 351.7

Tract sales and other 32.7 51.5 76.6

$ 1,325.8 $ 931.8 $ 428.3

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

Total revenue from D.R.

Horton was $ 1.2 billion, $ 887.6 million and $ 326.6 million in fiscal 2021, 2020 and 2019, respectively.

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, 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.

A controlling financial interest will have both of the following characteristics:

(a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE.

The Company examines specific criteria and uses judgment when determining whether a venture is a VIE and whether it is the primary beneficiary.

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

At September 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:

September 30,

(In millions)

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

Year Ended September 30, Nine Months Ended

September 30, 2018

Note 5 — Capitalized Interest

The following table summarizes the Company’s interest costs incurred, capitalized and expensed in fiscal 2021, 2020 and 2019.

Year Ended September 30,

2021 2020 2019

(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 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.

In the nine months ended September 30, 2018, the Company's equity in earnings from one of its unconsolidated ventures in which it owns a 37.5% interest, LM Land Holdings, LP, accounted for over 10% of the Company's consolidated pre-tax income.

At September 30, 2018, LM Land Holdings, LP had $ 21.6 million in venture assets, $ 0.4 million in accounts payable and other liabilities, and $ 21.2 million in venture equity on its balance sheet.

At September 30, 2018, the Company's investment in this venture was $ 8.9 million.

In the nine months ended September 30, 2018, LM Land Holdings, LP recognized $ 17.4 million of revenues and generated $ 18.1 million in earnings, which includes $ 5.7 million of earnings related to the recognition of a deferred gain.

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

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.

Capitalized interest, beginning of year $ 48.7 $ 23.7 $ 3.2

Interest incurred 41.5 43.3 25.3

Interest charged to cost of sales ( 36.5 ) ( 18.3 ) ( 4.8 )

Capitalized interest, end of year $ 53.7 $ 48.7 $ 23.7

Note 6 — Other Assets, Accrued Expenses and Other Liabilities

7 unchanged sentences

Land purchase contract deposits 10.4 5.5

Other assets 5.7 4.1

Other 5.3 5.7

$ 39.1 $ 24.9

8 unchanged sentences

Deferred income 6.8 9.3

State income taxes payable 0.5 —

Accrued development costs 35.3 35.4

Income taxes payable 6.8 0.5

Other accrued expenses 8.9 10.2

7 unchanged sentences

(In millions)

3.75 % convertible senior notes due 2020

Revolving credit facility $ — $ —

8.0 % senior notes due 2024 (1)

3.85 % senior notes due 2026 (1)

Revolving credit facility — —

5.0 % senior notes due 2028 (1)

Other note payable 12.5 —

$ 704.5 $ 641.1

2 unchanged sentences

Bank Credit Facility

The Company has a $ 380 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $ 570 million, subject to certain conditions and availability of additional bank commitments.

In April 2021, the Company's senior unsecured revolving credit facility was amended to increase its capacity to $ 410 million with an uncommitted accordion feature that could increase the size of the facility to $ 600 million, subject to certain conditions and availability of additional bank commitments.

The maturity date of the facility was extended to April 16, 2025.

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.

1 unchanged sentence

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

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

Borrowings and repayments under the facility were $ 58.0 million each during fiscal 2021.

At September 30, 2021, there were no borrowings outstanding and $ 60.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 349.7 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, 2021, 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.

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

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.

In April 2021, the company issued $ 400 million principal amount of 3.85 % senior notes (the "2026 notes") that mature May 15, 2026 with interest payable semi-annually.

On or after May 15, 2023, the 2026 notes may be redeemed at 101.925 % of their principal amount plus any accrued and unpaid interest.

In accordance with the indenture, the redemption price decreases annually thereafter and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity.

The annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1 %.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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.

proceeds from this issuance were primarily used to redeem the Company's $ 350 million principal amount of 8.0 % senior notes due April 15, 2024 on May 7, 2021.

The redemption price of $ 365.6 million included a call premium of $ 14.0 million and accrued and unpaid interest of $ 1.6 million.

The Company recognized an $ 18.1 million loss on extinguishment of debt upon the redemption of such notes.

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

On or after March 1, 2023, the 2028 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 2028 notes can be redeemed at par on or after March 1, 2026 through maturity.

The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2 %.

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.

9 unchanged sentences

All of the $ 30 million authorization was remaining at September 30, 2021.

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.

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 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 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 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.

Other Note Payable

The Company also has a note payable of $ 12.5 million that 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:

Year Ended September 30, Nine Months Ended

September 30, 2018

Year Ended September 30,

2021 2020 2019

(In millions, except share and per share amounts)

8 unchanged sentences

$ 2.25 $ 1.26 $ 0.79

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.

2 unchanged sentences

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

Year Ended September 30, Nine Months Ended

September 30, 2018

Year Ended September 30,

2021 2020 2019

(In millions)

3 unchanged sentences

16.9 ( 6.7 ) —

Deferred tax expense (benefit):

Deferred tax expense:

Federal 15.8 21.2 9.1

1 unchanged sentence

19.2 23.1 9.4

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

Income tax expense $ 36.1 $ 16.4 $ 9.4

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

Year Ended September 30,

2021 2020 2019

Federal statutory rate 21.0 % 21.0 % 21.0 %

2 unchanged sentences

Tax benefits previously unrecognized — ( 2.0 ) —

Non-controlling interests — ( 0.3 ) ( 1.4 )

Tax rate benefit in carryback years — ( 1.0 ) —

Noncontrolling interests — ( 1 ) ( 1 )

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

Other 0.3 0.5 —

Effective tax rate 24.6 % 21.0 % 20.6 %

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 allowed the Company to carryback a portion of its fiscal 2018 NOL.

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

FORESTAR GROUP INC.

7 unchanged sentences

Net operating loss carryforwards 1.4 1.7

AMT credits — 0.6

Accruals not deductible until paid 0.2 0.2

4 unchanged sentences

Deferral of profit on lot sales ( 40.9 ) ( 18.1 )

Convertible debt — ( 0.5 )

Total deferred tax liabilities ( 40.9 ) ( 18.1 )

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

In October 2017, D.R.

Horton acquired 75 % of the Company's common stock resulting in an ownership change under Section 382 of the Internal Revenue Code.

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

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.

Deferred tax liability, net $ ( 24.4 ) $ ( 5.7 )

At September 30, 2021 and 2020, the Company had no federal NOL carryforwards as a result of NOL carryback claims and taxable income in fiscal 2020.

At September 30, 2021, the Company had tax benefits of $ 1.4 million related to state NOL carryforwards, of which $ 0.9 million will expire between 2030 and 2038 while the remaining $ 0.5 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 has a valuation allowance of $ 1.2 million and $ 1.5 million at September 30, 2021 and 2020, respectively, 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 will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on its deferred tax assets.

4 unchanged sentences

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.

Horton $ 0.5 million and $ 0.2 million in fiscal 2021 and 2020, respectively, for its tax expense generated in fiscal 2020 and 2019.

The Company files income tax returns in the U.S.

2 unchanged sentences

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:

Year Ended September 30, Nine Months Ended

September 30, 2018

Year Ended September 30,

2021 2020 2019

(In millions)

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

Unrecognized tax benefits, beginning of year $ — $ 1.6 $ 1.6

Decrease for tax positions taken in prior years — ( 1.6 ) —

Unrecognized tax benefits, end of year $ — $ — $ 1.6

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The Company had no unrecognized tax benefits at September 30, 2021 as a result of the recognition of $ 1.6 million of previously unrecognized tax benefits during fiscal 2020.

1 unchanged sentence

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

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

In fiscal years 2021, 2020 and 2019, no significant interest related to unrecognized tax benefits was recognized.

At September 30, 2021, there were no accrued interest or penalties.

Note 10 — Stockholders' Equity

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.

At September 30, 2021, the Company had an effective shelf registration statement filed with the Securities and Exchange Commission (SEC) in September 2018 registering $ 500 million of equity securities, of which $ 100 million was reserved for sales under the at-the-market equity offering program that became effective in August 2020.

In fiscal 2021, the Company issued 1.4 million shares of common stock under its at-the-market equity offering program for proceeds of $ 33.4 million, net of commissions and other issuance costs totaling $ 1.0 million.

At September 30, 2021, $ 359.9 million remained available for issuance under the shelf registration statement, of which $ 65.6 million is reserved for sales under the at-the-market equity offering program.

In October 2021, after the expiration of the existing registration statement and at-the market equity offering program, a new shelf registration statement became effective registering $ 750 million of equity securities.

Note 11 — 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 $ 0.4 million, $ 0.2 million and $ 0.1 million for matching contributions in fiscal 2020, 2019 and the nine months ended September 30, 2018, respectively.

The Company recorded expense of $ 0.6 million, $ 0.4 million and $ 0.2 million for matching contributions in fiscal 2021, 2020 and 2019, respectively.

Restricted Stock Units (RSUs)

4 unchanged sentences

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 .

During fiscal 2021, 2020 and 2019, 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

Year Ended September 30,

2021 2020 2019

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

Outstanding at beginning of year 285,863 $ 17.47 200,960 $ 19.68 86,500 $ 18.09

Granted 234,000 23.13 181,325 16.11 149,400 20.24

1 unchanged sentence

Cancelled ( 40,550 ) 19.66 ( 16,990 ) 19.10 ( 11,200 ) 18.39

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 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.

Outstanding at end of year 387,154 $ 20.70 285,863 $ 17.47 200,960 $ 19.68

The total fair value of shares vested on the vesting date during both fiscal 2021 and 2020 was $ 1.6 million.

Total stock-based compensation expense related to the Company's restricted stock units for fiscal 2021, 2020 and 2019 was $ 2.6 million, $ 2.0 million and $ 1.3 million, respectively, and fiscal 2021, 2020 and 2019 included $ 0.7 million, $ 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.

11 unchanged sentences

It is possible, however, that charges related to these matters could be significant to the Company's results or cash flows in any one accounting period.

Land Purchase Contracts

The Company enters into land purchase contracts to acquire land for the development of residential lots.

At September 30, 2021, the Company had total deposits of $ 10.4 million related to contracts to purchase land with a total remaining purchase price of approximately $ 597.5 million.

The majority of land and lots under contract are currently expected to be purchased within two years.

None of the land purchase contracts were subject to specific performance provisions at September 30, 2021.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Other Commitments

1 unchanged sentence

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 $ 1.1 million in fiscal 2020, $ 0.7 million in fiscal 2019 and $ 0.6 million in the nine months ended September 30, 2018.

Rent expense for facilities and equipment was $ 1.7 million in fiscal 2021, $ 1.1 million in fiscal 2020 and $ 0.7 million in fiscal 2019.

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

4 unchanged sentences

2026 — $ 1.0 million;

and thereafter — $ 0.0 million.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

and none thereafter.

Note 13 — Related Party Transactions

2 unchanged sentences

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

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

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.

During fiscal 2021, 2020 and 2019, selling, general and administrative expense in the consolidated statements of operations included $ 4.0 million, $ 5.0 million and $ 2.1 million for these shared services, $ 4.7 million, $ 2.7 million and $ 1.4 million reimbursed to D.R.

Horton for the cost of health insurance and other employee benefits and $ 6.1 million, $ 4.0 million and $ 1.2 million for other corporate and administrative expenses paid by D.R.

Horton on behalf of the Company.

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

2 unchanged sentences

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 $ 0.5 million and $ 0.2 million in fiscal 2021 and 2020, respectively, for its tax expense generated in fiscal 2020 and 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

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

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.

At September 30, 2021 and 2020, the Company owned approximately 64,400 and 42,400 residential lots, of which D.R.

Horton had the following involvement.

11 unchanged sentences

Horton $ 1,582.7 $ 1,022.2

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.

During fiscal 2021, 2020 and 2019, the Company's residential lot sales totaled 15,915 , 10,373 and 4,132 and lot sales revenues were $ 1.3 billion, $ 880.3 million and $ 351.7 million.

Lot and land sales to D.R.

Horton during those periods were as follows.

Year Ended September 30, Nine Months Ended

September 30, 2018

Year Ended September 30,

2021 2020 2019

(Dollars in millions)

3 unchanged sentences

Horton $ 1,212.1 $ 859.7 $ 311.7

Residential tract acres sold to D.R.

Tract acres sold to D.R.

Horton 85 143 290

Residential tract sales revenues from sales to D.R.

Tract sales revenues from sales to D.R.

Horton $ 25.9 $ 25.6 $ 10.9

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

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.

Horton for $ 7.8 million.

The Company's share of these earnings was $ 2.5 million, which is included in equity in earnings of unconsolidated ventures in its consolidated statements of operations.

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

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

Horton by $ 5.6 million in fiscal 2021 and increased revenues on lot sales to D.R.

Horton by $ 2.3 million and $ 4.0 million in fiscal 2020 and 2019, respectively.

During fiscal 2021, 2020 and 2019, the Company reimbursed D.R.

Horton approximately $ 30.8 million, $ 27.0 million and $ 34.5 million, for previously paid earnest money and $ 61.3 million, $ 36.3 million and $ 13.1 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 fiscal 2021, 2020 and 2019, the Company paid D.R.

Horton $ 5.7 million, $ 6.2 million and $ 2.4 million for land development services.

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

At September 30, 2020 and 2019, undeveloped land was $ 5.4 million and $ 17.1 million.

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

At September 30, 2021 and 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.

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.

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 September 30, 2021 and 2020, accrued expenses and other liabilities on the Company's consolidated balance sheets included $ 6.7 million and $ 8.4 million 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.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 14 — 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.

Fair Value at September 30, 2021

Carrying Value Level 1 Level 2 Level 3 Total

(in millions)

Cash and cash equivalents (a)

$ 153.6 $ 153.6 $ — $ — $ 153.6

704.5 — 711.2 12.5 723.7

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 September 30, 2021 and 2020, debt primarily consisted of the Company's senior notes.

The fair value of the senior notes is determined based on quoted market prices in markets that are not active, which is classified as Level 2 within the fair value hierarchy.

(c) The fair values of the Company's other note payable approximates its carrying value due to its short-term nature and is classified as Level 3 within the fair value hierarchy.

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 15 — Quarterly Results of Operations (Unaudited)

Consolidated quarterly results of operations for fiscal year 2021 and 2020 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

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total revenues $ 307.1 $ 287.1 $ 312.9 $ 418.7

2 unchanged sentences

Net income 22.1 28.4 15.9 44.1

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

Net income attributable to noncontrolling interests 0.1 — 0.1 0.1

Net income attributable to Forestar Group Inc.

2 unchanged sentences

Net income per share — diluted $ 0.46 $ 0.59 $ 0.32 $ 0.89

2019 Three Months

December 31, 2018 Three Months

March 31, 2019 Three Months

June 30, 2019 Three Months

September 30, 2019

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total revenues $ 247.2 $ 159.1 $ 177.9 $ 347.6

2 unchanged sentences

Net income 16.8 10.4 10.1 24.5

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

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

Net income attributable to Forestar Group Inc.

2 unchanged sentences

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

FORESTAR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 17 — Transition Period Comparative Data

The following table presents certain financial information for the nine months ended September 30, 2018 and 2017 (in millions, except per share amounts).

For the Nine Months Ended September 30,

Revenues $ 78.3 $ 83.5

Cost of sales 49.5 90.1

Selling, general and administrative expense 19.4 51.2

Equity in earnings of unconsolidated ventures ( 4.8 ) ( 10.9 )

Gain on sale of assets ( 27.8 ) ( 113.4 )

Interest expense 3.7 6.4

Interest and other income ( 6.4 ) ( 2.4 )

Income from continuing operations before taxes 44.7 62.5

Income tax (benefit) expense ( 25.3 ) 33.4

Net income from continuing operations 70.0 29.1

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:

Continuing operations $ 1.64 $ 0.69

Discontinued operations $ — $ 0.92

Net income per basic share $ 1.64 $ 1.61

Net Income per Diluted Share:

Continuing operations $ 1.64 $ 0.68

Discontinued operations $ — $ 0.91

Net income per diluted share $ 1.64 $ 1.59

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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