What changed in this filing

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Item 1. Financial Statements

2022-04-22 compared with 2022-01-28 · 109 added, 52 removed, 332 unchanged (33% of the section changed)

19 unchanged sentences

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

49,675,768 and 49,580,389 shares issued and outstanding at December 31, 2021

49,738,344 and 49,580,389 shares issued and outstanding at March 31, 2022

and September 30, 2021, respectively

9 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2022 2021 2022 2021

(In millions, except per share amounts)

34 unchanged sentences

$ 49.7 $ 638.1 $ 369.6 $ 1.0 $ 1,058.4

— — 47.8 — 47.8

Stock issued under employee benefit plans ( 62,576 shares)

Cash paid for shares withheld for taxes

— ( 0.4 ) — — ( 0.4 )

Stock-based compensation expense

— 1.6 — — 1.6

Balances at March 31, 2022 ( 49,738,344 shares)

$ 49.7 $ 639.3 $ 417.4 $ 1.0 $ 1,107.4

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

10 unchanged sentences

$ 48.1 $ 604.1 $ 240.9 $ 1.0 $ 894.1

Net income — — 28.4 — 28.4

Issuance of common stock ( 1,018,503 shares)

1.0 22.3 — — 23.3

Purchase of noncontrolling interest, net — ( 1.7 ) — ( 0.2 ) ( 1.9 )

Stock issued under employee benefit plans ( 29,655 shares)

Cash paid for shares withheld for taxes

— ( 0.3 ) — — ( 0.3 )

Stock-based compensation expense

— 0.9 — — 0.9

Balances at March 31, 2021 ( 49,124,801 shares)

$ 49.1 $ 625.3 $ 269.3 $ 0.8 $ 944.5

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended December 31,

Six Months Ended March 31,

(In millions)

5 unchanged sentences

Stock-based compensation expense 2.0 1.2

Land option charges 0.6 0.4

Real estate impairment and land option charges 6.0 0.9

Gain on sale of assets ( 0.5 ) —

2 unchanged sentences

Decrease (increase) in other assets 3.8 ( 6.5 )

Increase (decrease) in accounts payable and other accrued liabilities 12.2 ( 1.0 )

Increase in accounts payable and other accrued liabilities 29.4 25.6

Increase in accrued development costs 16.1 3.6

8 unchanged sentences

FINANCING ACTIVITIES

Issuance of common stock 1.7 23.3

Purchase of noncontrolling interest — ( 2.4 )

Distributions to noncontrolling interests, net — ( 0.1 )

Cash paid for shares withheld for taxes ( 0.4 ) ( 0.4 )

Net cash used in financing activities ( 0.1 ) ( 0.2 )

Net cash provided by financing activities 1.3 20.4

Net increase (decrease) in cash and cash equivalents 80.1 ( 227.1 )

3 unchanged sentences

Note payable issued for real estate $ — $ 12.5

Issuance of common stock not settled $ 1.7 $ —

See accompanying notes to consolidated financial statements.

20 unchanged sentences

Horton is considered a related party of Forestar under GAAP.

At December 31, 2021, D.R.

At March 31, 2022, D.R.

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

14 unchanged sentences

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 guidance is effective for the Company beginning October 1, 2023, with early adoption 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.

10 unchanged sentences

$ 1,960.5 $ 1,905.2

In the three months ended December 31, 2021, the Company invested $ 135.2 million for the acquisition of residential real estate and $ 244.8 million for the development of residential real estate.

At December 31, 2021 and September 30, 2021, undeveloped land primarily consisted of undeveloped land which the Company has the contractual right to sell to D.R.

In the six months ended March 31, 2022, the Company invested $ 220.4 million for the acquisition of residential real estate and $ 495.4 million for the development of residential real estate.

At March 31, 2022 and September 30, 2021, undeveloped land primarily consisted of undeveloped land which the Company has the contractual right to sell to D.R.

Horton 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 for either period presented in the consolidated statements of operations.

In the three months ended December 31, 2021 and 2020, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 0.6 million and $ 0.4 million, respectively.

These land option charges are included in cost of sales in the consolidated statements of operations.

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

As of March 31, 2022, the Company performed detailed impairment evaluations of one real estate project with a carrying value of $ 8.8 million and recorded impairment charges of $ 3.8 million during the three months ended March 31, 2022 to reduce the carrying value of the impaired real estate project to fair value.

There were no impairment charges recorded in the prior year periods.

In the three and six months ended March 31, 2022 and 2021, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 1.6 million and $ 2.2 million, respectively, compared to $ 0.6 million and $ 0.9 million in the prior year periods.

These land option charges and the impairment discussed above are included in cost of sales in the consolidated statements of operations.

Note 4— Revenues

Revenues consist of:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

(In millions)

Residential lot sales $ 409.0 $ 280.2 $ 813.1 $ 587.1

Deferred development lot sales 12.5 — 12.5 —

Tract sales and other 0.1 6.9 3.6 7.1

$ 421.6 $ 287.1 $ 829.2 $ 594.2

In the three and six months ended March 31, 2022, deferred development lot sales represent 787 undeveloped and partially developed lots that were sold to a customer other than D.R.

Horton for a total transaction price of $ 54.7 million.

The Company will complete the development of these lots as part of the transaction.

The Company received $ 26.0 million in cash at closing with the remainder due as development of the lots is completed.

In the three and six months ended March 31, 2022, the Company recognized revenue of $ 12.5 million related to this transaction.

The remaining revenue will be recognized over time as the Company’s development obligations are completed, which is anticipated to be within one year from contract inception.

Note 5— Capitalized Interest

2 unchanged sentences

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

In the first three months of fiscal 2022 and fiscal year 2021, 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 in the three months ended December 31, 2021 and 2020.

Three Months Ended December 31,

In the first six months of fiscal 2022 and fiscal 2021, 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 in the three and six months ended March 31, 2022 and 2021.

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

(In millions)

4 unchanged sentences

Note 6— Other Assets, Accrued Expenses and Other Liabilities

The Company's other assets at December 31, 2021 and September 30, 2021 were as follows:

The Company's other assets at March 31, 2022 and September 30, 2021 were as follows:

2022 September 30,

7 unchanged sentences

$ 31.9 $ 39.1

The Company's accrued expenses and other liabilities at December 31, 2021 and September 30, 2021 were as follows:

The Company's accrued expenses and other liabilities at March 31, 2022 and September 30, 2021 were as follows:

2022 September 30,

10 unchanged sentences

$ 77.8 $ 56.7

Contract liabilities at March 31, 2022 include $ 13.5 million related to the Company's remaining unsatisfied performance obligations on 787 deferred development lots that were sold in the period.

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

7 unchanged sentences

______________

(1) Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $ 7.6 million and $ 8.0 million at December 31, 2021 and September 30, 2021, respectively.

(1) Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $ 7.2 million and $ 8.0 million at March 31, 2022 and September 30, 2021, respectively.

Bank Credit Facility

4 unchanged sentences

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

There were no borrowings or repayments under the facility in the three months ended December 31, 2021.

At December 31, 2021, there were no borrowings outstanding and $ 66.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 343.7 million.

There were no borrowings or repayments under the facility in the six months ended March 31, 2022.

At March 31, 2022, there were no borrowings outstanding and $ 60.5 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 349.5 million.

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 December 31, 2021, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

At March 31, 2022, 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.

17 unchanged sentences

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

At December 31, 2021, the Company was in compliance with all of the limitations and restrictions associated with its senior note obligations.

At March 31, 2022, 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 December 31, 2021.

All of the $ 30 million authorization was remaining at March 31, 2022.

Other Note Payable

3 unchanged sentences

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

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

(In millions, except share and per share amounts)

9 unchanged sentences

Note 9— Income Taxes

The Company’s income tax expense for the three months ended December 31, 2021 and 2020 was $ 13.0 million and $ 7.1 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, 2021, the Company had deferred tax liabilities, net of deferred tax assets, of $ 23.0 million.

The Company’s income tax expense for the three and six months ended March 31, 2022 was $ 15.4 million and $ 28.4 million compared to $ 9.2 million and $ 16.3 million in the prior year periods.

The effective tax rate was 24.4 % and 24.3 % for the three and six months ended March 31, 2022 compared to 24.5 % and 24.4 % in the prior year periods.

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

At March 31, 2022, the Company had deferred tax liabilities, net of deferred tax assets, of $ 21.9 million.

The deferred tax assets were partially offset by a valuation allowance of $ 1.1 million, resulting in a net deferred tax liability of $ 23.0 million.

7 unchanged sentences

The Company has an effective shelf registration statement, filed with the Securities and Exchange Commission in October 2021, registering $ 750 million of equity securities, of which $ 300 million was reserved for sales under its at-the-market equity offering program that became effective in November 2021.

In the three months ended December 31, 2021, the Company issued 84,547 shares of common stock under its at-the-market equity offering program for proceeds of $ 1.7 million, net of commissions and other issuance costs totaling $ 0.1 million.

At December 31, 2021, $ 748.2 million remained available for issuance under the shelf registration statement, of which $ 298.2 million was reserved for sales under the at-the-market equity offering program.

In the six months ended March 31, 2022, the Company issued 84,547 shares of common stock under its at-the-market equity offering program for proceeds of $ 1.7 million, net of commissions and other issuance costs totaling $ 0.1 million.

The Company issued no shares of common stock under its at-the-market equity offering program in the three months ended March 31, 2022.

At March 31, 2022, $ 748.2 million remained available for issuance under the shelf registration statement, of which $ 298.2 million was reserved for sales under the at-the-market equity offering program.

Restricted Stock Units (RSUs)

3 unchanged sentences

The RSUs have no voting rights until vested.

There were no new grants of time-based RSUs in the three months ended December 31, 2021.

Total stock-based compensation expense related to the Company's restricted stock units for the three months ended December 31, 2021 and 2020 was $ 0.4 million and $ 0.3 million, respectively.

In the six months ended March 31, 2022, a total of 394,786 time-based RSUs were granted.

The weighted average grant date fair value of these equity awards was $ 17.76 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 six months ended March 31, 2022 was $ 1.6 million and $ 2.0 million compared to $ 0.9 million and $ 1.2 million in the prior year periods.

Stock-based compensation expense in the six months ended March 31, 2022 and 2021 included $ 1.2 million and $ 0.7 million, respectively, of expense recognized for employees that were retirement eligible on the date of grant.

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 December 31, 2021, the Company had outstanding letters of credit of $ 66.3 million under the revolving credit facility and surety bonds of $ 528.2 million issued by third parties to secure performance under various contracts.

At March 31, 2022, the Company had outstanding letters of credit of $ 60.5 million under the revolving credit facility and surety bonds of $ 570.8 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.

8 unchanged sentences

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

In the three months ended December 31, 2021 and 2020, selling, general and administrative expense in the consolidated statements of operations includes $ 1.0 million and $ 1.1 million for these shared services, $ 1.6 million and $ 1.0 million for the cost of health insurance and other employee benefits and $ 0.9 million and $ 1.1 million for other corporate and administrative expenses paid by D.R.

In the six months ended March 31, 2022, selling, general and administrative expense in the consolidated statements of operations includes $ 2.0 million for these shared services, $ 3.3 million for the cost of health insurance and other employee benefits and $ 1.4 million for other corporate and administrative expenses paid by D.R.

Horton on behalf of the Company.

In the six months ended March 31, 2021, shared services expenses were $ 2.0 million, the cost of health insurance and other employee benefits was $ 1.8 million and other corporate and administrative expenses paid by D.R.

Horton on behalf of the Company were $ 1.4 million.

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

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

At December 31, 2021 and September 30, 2021, the Company owned approximately 65,700 and 64,400 residential lots, of which D.R.

At March 31, 2022 and September 30, 2021, the Company owned approximately 64,200 and 64,400 residential lots, respectively, of which D.R.

Horton had the following involvement.

11 unchanged sentences

Horton $ 1,460.8 $ 1,582.7

In the three months ended December 31, 2021 and 2020, the Company sold 4,516 and 3,567 residential lots, and lot sales revenues were $ 404.1 million and $ 307.0 million.

Lot sales and lot sales revenue to D.R.

Horton in those periods were as follows.

Three Months Ended December 31,

In the three months ended March 31, 2022 and 2021, the Company sold 5,788 and 3,588 residential lots, and lot sales revenues were $ 421.5 million and $ 280.2 million.

In the six months ended March 31, 2022 and 2021, the Company sold 10,304 and 7,155 residential lots, and lot sales revenues were $ 825.6 million and $ 587.1 million.

Lot sales to D.R.

Horton and the related revenue in those periods were as follows:

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

(Dollars in millions)

3 unchanged sentences

Horton $ 390.2 $ 265.6 $ 718.2 $ 559.6

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

Horton by $ 2.1 million and $ 0.2 million in the three months ended December 31, 2021 and 2020, respectively.

In the three months ended December 31, 2021 and 2020, the Company reimbursed D.R.

Tract acres sold to D.R.

Horton — 14 — 14

Tract sales revenues from sales to D.R.

Horton $ — $ 3.0 $ — $ 3.0

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

Horton by $ 0.5 million and $ 0.2 million in the three months ended March 31, 2022 and 2021, respectively, and increased revenues on lot sales to D.R.

Horton by $ 1.6 million in the six months ended March 31, 2022.

In the three and six months ended March 31, 2022, the Company reimbursed D.R.

Horton approximately $ 2.7 million and $ 5.4 million for previously paid earnest money and $ 16.2 million and $ 37.8 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.

In the three months ended December 31, 2021 and 2020, the Company paid D.R.

Horton $ 0.9 million and $ 1.7 million for land development services.

In the three and six months ended March 31, 2021, the Company reimbursed D.R.

Horton approximately $ 8.0 million and $ 24.2 million for previously paid earnest money and $ 7.3 million and $ 28.2 million for pre-acquisition and other due diligence and development costs.

In the three and six months ended March 31, 2022 and 2021, the Company paid D.R.

Horton $ 0.7 million and $ 1.6 million for land development services compared to $ 1.2 million and $ 2.9 million for these services in the prior year periods.

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

At December 31, 2021 and September 30, 2021, undeveloped land primarily consists of undeveloped land which the Company has the contractual right to sell to D.R.

At March 31, 2022 and September 30, 2021, undeveloped land primarily consists of undeveloped land which the Company has the contractual right to sell to D.R.

Horton 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, 2021 and September 30, 2021, accrued expenses and other liabilities on the Company's consolidated balance sheets included $ 7.7 million and $ 6.7 million, respectively, owed to D.R.

At March 31, 2022 and September 30, 2021, accrued expenses and other liabilities on the Company's consolidated balance sheets included $ 6.6 million and $ 6.7 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.

9 unchanged sentences

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, 2021 and September 30, 2021.

Fair Value at December 31, 2021

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.

The following table summarizes the Company’s assets measured at fair value on a nonrecurring basis at March 31, 2022 and September 30, 2021:

Fair Value at

2022 September 30,

(in millions)

Real Estate (a)

_____________________

(a) The fair value included in the table above represents only the asset whose carrying value was adjusted to fair value as of March 31, 2022.

The fair value was determined using estimated future cash flows of the project discounted at a rate of 16 %.

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 March 31, 2022 and September 30, 2021.

Fair Value at March 31, 2022

Carrying Value Level 1 Level 2 Level 3 Total

11 unchanged sentences

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

(b) At March 31, 2022 and September 30, 2021, debt primarily 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 due to its short-term nature and is classified as Level 3 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.

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