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Item 1. Financial Statements

2023-01-25 compared with 2022-07-20 · 92 added, 184 removed, 285 unchanged (49% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

2022 September 30,

December 31, 2022 September 30, 2022

(In millions, except share data)

14 unchanged sentences

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

49,759,480 and 49,580,389 shares issued and outstanding at June 30, 2022

and September 30, 2021, respectively

49,772,555 and 49,761,480 shares issued and outstanding

at December 31, 2022 and September 30, 2022, respectively

Additional paid-in capital 641.1 640.6

7 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Three Months Ended December 31,

(In millions, except per share amounts)

5 unchanged sentences

Interest and other income ( 1.7 ) —

Loss on extinguishment of debt — 18.1 — 18.1

Income before income taxes 27.9 53.5

14 unchanged sentences

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

(In millions, except share data)

(In millions, except share amounts)

Balances at September 30, 2022 ( 49,761,480 shares)

1 unchanged sentence

— — 20.8 — 20.8

Issuance of common stock ( 84,547 shares)

0.1 1.6 — — 1.7

Stock issued under employee benefit plans ( 11,075 shares)

5 unchanged sentences

$ 49.8 $ 641.1 $ 528.7 $ 1.0 $ 1,220.6

— — 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

— — 39.7 — 39.7

Stock issued under employee benefit plans ( 21,136 shares)

0.1 — — — 0.1

Cash paid for shares withheld for taxes

— ( 0.1 ) — — ( 0.1 )

Stock-based compensation expense

— 0.8 — — 0.8

Balances at June 30, 2022 ( 49,759,480 shares)

$ 49.8 $ 640.0 $ 457.1 $ 1.0 $ 1,147.9

See accompanying notes to consolidated financial statements.

FORESTAR GROUP INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY

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

(In millions, except share data)

(In millions, except share amounts)

Balances at September 30, 2021 ( 49,580,389 shares)

$ 49.6 $ 636.2 $ 329.1 $ 1.0 $ 1,015.9

Net income — — 22.0 0.1 22.1

Stock issued under employee benefit plans ( 14,722 shares)

Cash paid for shares withheld for taxes

— — 40.5 — 40.5

Stock-based compensation expense

— 0.3 — — 0.3

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

$ 48.1 $ 604.1 $ 240.9 $ 1.0 $ 894.1

Net income — — 28.4 — 28.4

Issuance of common stock ( 84,547 shares)

0.1 1.6 — — 1.7

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

Stock issued under employee benefit plans ( 10,832 shares)

3 unchanged sentences

— 0.4 — — 0.4

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

$ 49.1 $ 625.3 $ 269.3 $ 0.8 $ 944.5

Net income — — 15.8 0.1 15.9

Issuance of common stock ( 378,736 shares)

0.4 8.9 — — 9.3

Stock issued under employee benefit plans ( 23,571 shares)

Cash paid for shares withheld for taxes

— ( 0.1 ) — — ( 0.1 )

Stock-based compensation expense

— 0.8 — — 0.8

Balances at June 30, 2021 ( 49,527,108 shares)

Balances at December 31, 2021 ( 49,675,768 shares)

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

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended June 30,

Three Months Ended December 31,

(In millions)

5 unchanged sentences

Stock-based compensation expense 0.6 0.4

Real estate impairment and land option charges 7.0 1.6

Loss on extinguishment of debt — 18.1

Land option charges 2.4 0.6

Gain on sale of assets ( 1.6 ) ( 0.5 )

1 unchanged sentence

Increase in real estate

Increase in other assets ( 11.7 ) ( 13.4 )

Increase in accounts payable and other accrued liabilities 29.8 34.5

Increase in accrued development costs 6.5 26.3

(Decrease) increase in earnest money deposits on sales contracts ( 1.2 ) 51.8

Decrease in income taxes receivable — 6.3

Net cash used in operating activities ( 10.2 ) ( 340.6 )

( 49.9 ) ( 55.5 )

Decrease in other assets

(Decrease) increase in accounts payable and other accrued liabilities

(Decrease) increase in accrued development costs

( 24.3 ) 12.2

Increase (decrease) in earnest money deposits on sales contracts

Net cash (used in) provided by operating activities ( 49.8 ) 5.8

INVESTING ACTIVITIES

4 unchanged sentences

FINANCING ACTIVITIES

Proceeds from debt — 425.0

Repayments of debt — ( 389.0 )

Deferred financing fees — ( 5.0 )

Issuance of common stock 1.7 32.6

Purchase of noncontrolling interest — ( 2.4 )

Distributions to noncontrolling interests, net — ( 0.1 )

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

Net cash provided by financing activities 1.3 60.6

Net decrease in cash and cash equivalents ( 7.3 ) ( 278.3 )

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

(Decrease) increase in cash and cash equivalents ( 48.4 ) 8.9

Cash and cash equivalents at beginning of period 264.8 153.6

Cash and cash equivalents at end of period $ 216.4 $ 162.5

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES

Note payable issued for real estate $ — $ 12.5

SUPPLEMENTAL CASH FLOW INFORMATION:

Issuance of common stock not settled $ — $ 1.7

See accompanying notes to consolidated financial statements.

2 unchanged sentences

Note 1 — Basis of Presentation

The accompanying unaudited, consolidated financial statements include the accounts of Forestar Group Inc.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S.

Generally Accepted Accounting Principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and include the accounts of Forestar Group Inc.

("Forestar") and all of its 100% owned, majority-owned and controlled subsidiaries, which are collectively referred to as the Company unless the context otherwise requires.

4 unchanged sentences

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

The financial statements have been prepared in accordance with U.S.

Generally Accepted Accounting Principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

In the opinion of management, these financial statements reflect all adjustments considered necessary to fairly state the results for the interim periods shown, including normal recurring accruals and other items.

7 unchanged sentences

Horton is considered a related party of Forestar under GAAP.

At June 30, 2022, D.R.

As of December 31, 2022, D.R.

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

3 unchanged sentences

Actual results could differ materially from those estimates.

Changes in Presentation and Reclassifications

The Company 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 to conform to the current year presentation.

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

Pending Accounting Standards

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

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

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

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 such standards 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.

4 unchanged sentences

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 primarily come from sales of residential single-family finished lots to local, regional and national homebuilders.

The real estate segment primarily acquires land and installs 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.

1 unchanged sentence

Real estate consists of:

2022 September 30,

December 31, 2022 September 30, 2022

(In millions)

Developed and under development projects $ 1,980.2 $ 1,932.6

Undeveloped land 103.7 80.5

Land held for future development 87.5 89.8

$ 2,067.7 $ 2,022.4

In the nine months ended June 30, 2022, the Company invested $ 299.0 million for the acquisition of residential real estate and $ 784.7 million for the development of residential real estate.

At June 30, 2022 and September 30, 2021, 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, 2022, the Company invested $ 31.8 million for the acquisition of residential real estate and $ 205.6 million for the development of residential real estate.

At December 31, 2022 and September 30, 2022, land held for future development 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 projects for indicators of potential impairment and performs detailed impairment evaluations and analyses when necessary.

As a result of this process, no impairment charges were recorded during the three months ended June 30, 2022.

During the nine months ended June 30, 2022, impairment charges totaled $ 3.8 million.

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

In the three and nine months ended June 30, 2022, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 1.0 million and $ 3.2 million, respectively, compared to $ 0.7 million and $ 1.6 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.

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, 2022 and 2021, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 2.4 million and $ 0.6 million, respectively.

These 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,

2022 2021 2022 2021

Three Months Ended December 31,

(In millions)

3 unchanged sentences

$ 216.7 $ 407.6

In the three months ended June 30, 2022, deferred development lot sales include 67 undeveloped and partially developed lots that were sold to a customer other than D.R.

Horton for a total transaction price of $ 9.4 million.

As part of the transaction, the Company is obligated to complete the development of these lots.

The Company received $ 4.6 million in cash at closing with the remainder due as development of the lots is completed.

During the three months ended June 30, 2022, the Company recognized revenue of $ 1.1 million related to this transaction and revenue of $ 6.8 million related to previous deferred development lot sales.

In the nine months ended June 30, 2022, deferred development lot sales include 854 undeveloped and partially developed lots that were sold to customers other than D.R.

Horton for a cumulative transaction price of $ 64.1 million.

As part of these transactions, the Company is obligated to complete the development of the lots.

In the nine months ended June 30, 2022, the Company received $ 33.6 million in cash related to deferred development transactions with the remainder due as development of the lots is completed.

In the nine months ended June 30, 2022, the Company recognized revenue of $ 20.4 million related to deferred development transactions.

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 the inception of each respective contract.

In the three months ended December 31, 2022, the Company recognized $ 6.7 million of revenues as a result of its progress towards completion of its remaining unsatisfied performance obligations on deferred development projects.

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 nine 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 nine months ended June 30, 2022 and 2021.

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

2022 2021 2022 2021

In the first three months of fiscal 2023 and fiscal 2022, 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, 2022 and 2021.

Three Months Ended December 31,

(In millions)

4 unchanged sentences

Note 6 — Other Assets, Accrued Expenses and Other Liabilities

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

2022 September 30,

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

December 31, 2022 September 30, 2022

(In millions)

Earnest money notes receivable on sales contracts $ — $ 0.7

Receivables, net $ 13.9 $ 11.4

4 unchanged sentences

$ 50.9 $ 49.6

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

2022 September 30,

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

December 31, 2022 September 30, 2022

(In millions)

9 unchanged sentences

$ 60.6 $ 70.1

Contract liabilities at June 30, 2022 include $ 13.2 million related to the Company's remaining unsatisfied performance obligations on deferred development lots.

Contract liabilities at December 31, 2022 and September 30, 2022 include $ 9.9 million and $ 12.0 million, respectively, related to the Company's remaining unsatisfied performance obligations on deferred development lot sales.

Note 7 — Debt

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 $ 6.9 million and $ 8.0 million at June 30, 2022 and September 30, 2021, respectively.

(1) Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $ 6.1 million and $ 6.5 million at December 31, 2022 and September 30, 2022, respectively.

Bank Credit Facility

The Company has a $ 410 million senior unsecured revolving credit facility 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 is 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.

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 total revolving credit commitments.

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

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

There were no borrowings or repayments under the facility in the nine months ended June 30, 2022.

At June 30, 2022, there were no borrowings outstanding and $ 56.0 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 354.0 million.

In October 2022, the Company's senior unsecured revolving credit facility was amended to extend its maturity date to October 28, 2026.

At December 31, 2022, there were no borrowings outstanding and $ 43.8 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 366.2 million.

The revolving credit facility is guaranteed by the Company’s wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries.

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, 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.

At December 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 (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.

8 unchanged sentences

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

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.

The indentures governing the senior notes require that, upon the occurrence of both a change of control and a rating decline (as defined in each indenture), the Company offer to purchase the applicable series of 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 such notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount.

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

4 unchanged sentences

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

At June 30, 2022, the Company was in compliance with all of the limitations and restrictions associated with its senior note obligations.

At December 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 June 30, 2022.

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

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.

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, 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,

2022 2021 2022 2021

Three Months Ended December 31,

(In millions, except share and per share amounts)

9 unchanged sentences

Note 9 — Income Taxes

The Company’s income tax expense for the three and nine months ended June 30, 2022 was $ 13.0 million and $ 41.4 million compared to $ 5.2 million and $ 21.5 million in the prior year periods.

The effective tax rate was 24.7 % and 24.4 % for the three and nine months ended June 30, 2022 compared to 24.6 % and 24.5 % 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 June 30, 2022, the Company had deferred tax liabilities, net of deferred tax assets, of $ 24.5 million.

The Company’s income tax expense for the three months ended December 31, 2022 was $ 7.1 million compared to $ 13.0 million in the prior year period.

The effective tax rate was 25.4 % for the three months ended December 31, 2022 compared to 24.3 % in the prior year period.

The effective tax rate for both periods includes an expense for state income taxes and nondeductible expenses.

At December 31, 2022, the Company had deferred tax liabilities, net of deferred tax assets, of $ 33.7 million.

The deferred tax assets were partially offset by a valuation allowance of $ 1.0 million, resulting in a net deferred tax liability of $ 34.7 million.

6 unchanged sentences

Stockholders' Equity

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.

The Company issued no shares of common stock under its at-the-market equity offering program in the three months ended June 30, 2022.

In the nine months ended June 30, 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.

At June 30, 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.

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 the at-the-market equity offering program that became effective in November 2021.

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

At December 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.

In the nine months ended June 30, 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 RSUs for the three and nine months ended June 30, 2022 was $ 0.8 million and $ 2.8 million compared to $ 0.8 million and $ 2.0 million in the prior year periods.

Stock-based compensation expense in the nine months ended June 30, 2022 and 2021 includes $ 1.2 million and $ 0.7 million, respectively, of expense recognized for employees that were retirement eligible on the date of grant.

There were no new grants of RSUs in the three months ended December 31, 2022.

Total stock-based compensation expense related to the Company's RSUs for the three months ended December 31, 2022 and 2021 was $ 0.6 million and $ 0.4 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, 2022, the Company had outstanding letters of credit of $ 56.0 million under the revolving credit facility and surety bonds of $ 596.6 million issued by third parties to secure performance under various contracts.

At December 31, 2022, the Company had outstanding letters of credit of $ 43.8 million under the revolving credit facility and surety bonds of $ 645.1 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 nine months ended June 30, 2022, selling, general and administrative expense in the consolidated statements of operations includes $ 3.1 million for these shared services, $ 5.5 million for the cost of health insurance and other employee benefits and $ 5.6 million for other corporate and administrative expenses paid by D.R.

In the three months ended December 31, 2022 and 2021, selling, general and administrative expense in the consolidated statements of operations included $ 0.9 million and $ 1.0 million for these shared services, $ 2.3 million and $ 1.6 million reimbursed to D.R.

Horton for the cost of health insurance and other employee benefits and $ 0.6 million and $ 0.9 million for other corporate and administrative expenses paid by D.R.

Horton on behalf of the Company.

In the nine months ended June 30, 2021, shared services expenses were $ 2.9 million, the cost of health insurance and other employee benefits was $ 3.4 million and other corporate and administrative expenses paid by D.R.

Horton on behalf of the Company were $ 5.5 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 June 30, 2022 and September 30, 2021, the Company owned approximately 65,300 and 64,400 residential lots, respectively, of which D.R.

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

At December 31, 2022 and September 30, 2022, the Company owned approximately 61,500 and 61,800 residential lots, of which D.R.

Horton had the following involvement.

2022 September 30,

December 31, 2022 September 30, 2022

(Dollars in millions)

5 unchanged sentences

Horton for lots under contract $ 140.4 $ 130.1

Earnest money notes from D.R.

Horton for lots under contract $ — $ 0.7

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

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

Horton $ 1,379.5 $ 1,389.7

In the three months ended June 30, 2022 and 2021, the Company sold 3,473 and 3,858 residential lots, and lot sales revenues were $ 303.0 million and $ 307.4 million.

In the nine months ended June 30, 2022 and 2021, the Company sold 13,777 and 11,013 residential lots, and lot sales revenues were $ 1.1 billion and $ 894.5 million.

Lot sales to D.R.

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

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

2022 2021 2022 2021

In the three months ended December 31, 2022 and 2021, the Company sold 2,263 , and 4,516 residential lots, and lot sales revenues were $ 206.7 million and $ 404.1 million.

Lot and land sales to D.R.

Horton during those periods were as follows.

Three Months Ended December 31,

(Dollars in millions)

Residential single-family lots sold to D.R.

Residential lots sold to D.R.

Horton 2,094 4,014

1 unchanged sentence

Horton $ 187.1 $ 328.0

Tract acres sold to D.R.

Horton — 7 — 21

Tract sales revenues from sales to D.R.

Horton $ — $ 3.0 $ — $ 6.0

Other revenue from transactions with D.R.

Horton $ — $ 2.4 $ — $ 2.4

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

Horton by $ 0.5 million and $ 2.1 million in the three and nine months ended June 30, 2022 and decreased revenues on lot sales to D.R.

Horton by $ 3.9 million in both the three and nine months ended June 30, 2021.

In the three and nine months ended June 30, 2022, the Company reimbursed D.R.

Horton approximately $ 4.2 million and $ 9.6 million for previously paid earnest money and $ 18.3 million and $ 56.1 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.

In the three and nine months ended June 30, 2021, the Company reimbursed D.R.

Horton approximately $ 3.5 million and $ 27.7 million for previously paid earnest money and $ 14.9 million and $ 43.1 million for pre-acquisition and other due diligence and development costs.

In the three and nine months ended June 30, 2022, the Company paid D.R.

Horton $ 0.4 million and $ 2.0 million for land development services compared to $ 1.3 million and $ 4.2 million for these services in the prior year periods.

Additionally, in the three months ended June 30, 2022, the Company paid D.R.

Horton a commission of $ 0.2 million related to a tract sale to a third party.

Horton by $ 2.7 million and $ 2.1 million in the three months ended December 31, 2022 and 2021, respectively.

In the three months ended December 31, 2022 and 2021, the Company reimbursed D.R.

Horton approximately $ 0.1 million and $ 2.7 million for previously paid earnest money and $ 4.7 million and $ 21.6 million for pre-acquisition and other due diligence and development costs related to land purchase contracts identified by D.R.

Horton that the Company independently underwrote and closed.

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

Horton $ 0.2 million and $ 0.9 million for land development services.

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

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

At December 31, 2022 and September 30, 2022, land held for future development 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.

At June 30, 2022 and September 30, 2021, accrued expenses and other liabilities on the Company's consolidated balance sheets includes $ 1.1 million and $ 6.7 million, respectively, owed to D.R.

At December 31, 2022 and September 30, 2022, accrued expenses and other liabilities on the Company's consolidated balance sheets included $ 2.2 million and $ 3.2 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.

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 June 30, 2022 and September 30, 2021.

Fair Value at June 30, 2022

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, 2022 and September 30, 2022.

Fair Value at December 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 June 30, 2022 and September 30, 2021, debt primarily consists 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.

(b) At December 31, 2022 and September 30, 2022, 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.

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