What changed in this filing

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Item 1. Financial Statements

2023-04-24 compared with 2023-01-25 · 115 added, 63 removed, 314 unchanged (36% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

December 31, 2022 September 30, 2022

March 31, 2023 September 30, 2022

(In millions, except share data)

15 unchanged sentences

49,897,709 and 49,761,480 shares issued and outstanding

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

at March 31, 2023 and September 30, 2022, respectively

Additional paid-in capital 642.3 640.6

7 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended December 31,

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

2023 2022 2023 2022

(In millions, except per share amounts)

32 unchanged sentences

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

— — 26.9 — 26.9

Stock issued under employee benefit plans ( 125,154 shares)

0.1 — — — 0.1

Cash paid for shares withheld for taxes

— ( 0.7 ) — — ( 0.7 )

Stock-based compensation expense

— 1.9 — — 1.9

Balances at March 31, 2023 ( 49,897,709 shares)

$ 49.9 $ 642.3 $ 555.6 $ 1.0 $ 1,248.8

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

12 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

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 2.5 2.0

Land option charges 2.4 0.6

Impairments and land option charges 22.7 6.0

Gain on sale of assets ( 1.6 ) ( 0.5 )

Changes in operating assets and liabilities:

Increase in real estate

( 49.9 ) ( 55.5 )

Decrease in other assets

Decrease (increase) in real estate

(Increase) decrease in other assets

(Decrease) increase in accounts payable and other accrued liabilities

( 26.5 ) 29.4

(Decrease) increase in accrued development costs

( 23.2 ) 16.1

Increase (decrease) in earnest money deposits on sales contracts

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

Decrease in earnest money deposits on sales contracts

( 7.2 ) ( 6.2 )

Net cash provided by operating activities 21.3 76.6

INVESTING ACTIVITIES

4 unchanged sentences

FINANCING ACTIVITIES

Issuance of common stock — 1.7

Cash paid for shares withheld for taxes ( 0.7 ) ( 0.4 )

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

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

Net cash (used in) provided by financing activities ( 0.7 ) 1.3

Increase in cash and cash equivalents 21.9 80.1

Cash and cash equivalents at beginning of period 264.8 153.6

Cash and cash equivalents at end of period $ 286.7 $ 233.7

SUPPLEMENTAL CASH FLOW INFORMATION:

Issuance of common stock not settled $ — $ 1.7

See accompanying notes to consolidated financial statements.

19 unchanged sentences

Horton is considered a related party of Forestar under GAAP.

As of December 31, 2022, D.R.

As of March 31, 2023, D.R.

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

14 unchanged sentences

Real estate consists of:

December 31, 2022 September 30, 2022

March 31, 2023 September 30, 2022

(In millions)

2 unchanged sentences

$ 1,988.0 $ 2,022.4

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.

In the six months ended March 31, 2023, the Company invested $ 47.2 million for the acquisition of residential real estate and $ 374.4 million for the development of residential real estate.

At March 31, 2023 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 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.

As of March 31, 2023, the Company performed detailed impairment evaluations on two real estate projects with an aggregate carrying value of $ 35.5 million and, as a result of this process, recorded impairment charges of $ 19.4 million during the three months ended March 31, 2023 to reduce the carrying value of the impaired real estate projects to fair value.

During the three months ended March 31, 2022, impairment charges totaled $ 3.8 million.

In the three and six months ended March 31, 2023, 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 $ 0.9 million and $ 3.3 million, respectively, compared to $ 1.6 million and $ 2.2 million in the prior year periods.

These land option charges and the impairments 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,

2023 2022 2023 2022

(In millions)

3 unchanged sentences

$ 301.5 $ 421.6 $ 518.2 $ 829.2

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.

In the three and six months ended March 31, 2023, the Company recognized $ 7.5 million and $ 14.3 million of revenues as a result of its progress towards completion of its remaining unsatisfied performance obligations on deferred development projects, compared to $ 12.5 million in both prior year periods.

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 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 the first six 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 and six months ended March 31, 2023 and 2022.

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

2023 2022 2023 2022

(In millions)

4 unchanged sentences

Note 6 — Other Assets, Accrued Expenses and Other Liabilities

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

December 31, 2022 September 30, 2022

The Company's other assets at March 31, 2023 and September 30, 2022 were as follows:

March 31, 2023 September 30, 2022

(In millions)

3 unchanged sentences

Land purchase contract deposits 7.3 10.0

Income taxes receivable 1.2 —

Other assets 3.6 1.8

$ 55.5 $ 49.6

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

The Company's accrued expenses and other liabilities at March 31, 2023 and September 30, 2022 were as follows:

March 31, 2023 September 30, 2022

(In millions)

9 unchanged sentences

$ 48.1 $ 70.1

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.

Contract liabilities at March 31, 2023 and September 30, 2022 include $ 8.0 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:

2022 September 30,

March 31, 2023 September 30, 2022

(In millions)

5 unchanged sentences

______________

(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.

(1) Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $ 5.7 million and $ 6.5 million at March 31, 2023 and September 30, 2022, respectively.

Bank Credit Facility

3 unchanged sentences

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

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 maturity date of the facility is October 28, 2026.

At March 31, 2023, there were no borrowings outstanding and $ 42.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 367.4 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.

3 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, 2022, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

At March 31, 2023, 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").

17 unchanged sentences

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

At December 31, 2022, the Company was in compliance with all of the limitations and restrictions associated with its senior note obligations.

At March 31, 2023, 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, 2022.

All of the $ 30 million authorization was remaining at March 31, 2023.

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,

2023 2022 2023 2022

(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, 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 Company’s income tax expense for the three and six months ended March 31, 2023 was $ 9.0 million and $ 16.1 million compared to $ 15.4 million and $ 28.4 million in the prior year periods.

The effective tax rate was 25.1 % and 25.2 % for the three and six months ended March 31, 2023 compared to 24.4 % and 24.3 % in the prior year periods.

The effective tax rate for all periods included an expense for state income taxes and nondeductible expenses.

At March 31, 2023, the Company had deferred tax liabilities, net of deferred tax assets, of $ 34.8 million.

The deferred tax assets were partially offset by a valuation allowance of $ 0.9 million, resulting in a net deferred tax liability of $ 35.7 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 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.

The Company issued no shares of common stock under its at-the-market equity offering program in the six months ended March 31, 2023.

At March 31, 2023, $ 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 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.

In the three months ended March 31, 2023, a total of 512,545 time-based RSUs were granted.

The weighted average grant date fair value of these equity awards was $ 14.76 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 six months ended March 31, 2023 was $ 1.9 million and $ 2.5 million compared to $ 1.6 million and $ 2.0 million in the prior year periods.

Stock-based compensation expense in both the three and six months ended March 31, 2023 included $ 1.3 million of expense recognized for employees that were retirement eligible on the date of grant compared to $ 1.2 million in both prior year periods.

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, 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.

At March 31, 2023, the Company had outstanding letters of credit of $ 42.6 million under the revolving credit facility and surety bonds of $ 635.1 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.

4 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 March 31, 2023, the Company had total deposits of $ 7.3 million related to contracts to purchase land with a total remaining purchase price of approximately $ 293.5 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 March 31, 2023.

Note 12 — Related Party Transactions

2 unchanged sentences

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

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.

In the six months ended March 31, 2023 and 2022, selling, general and administrative expense in the consolidated statements of operations included $ 1.9 million and $ 2.0 million for these shared services, $ 4.2 million and $ 3.3 million reimbursed to D.R.

Horton for the cost of health insurance and other employee benefits and $ 0.9 million and $ 1.4 million for other corporate and administrative expenses paid by D.R.

2 unchanged sentences

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.

At March 31, 2023 and September 30, 2022, the Company owned approximately 57,800 and 61,800 residential lots, of which D.R.

Horton had the following involvement.

December 31, 2022 September 30, 2022

March 31, 2023 September 30, 2022

(Dollars in millions)

7 unchanged sentences

Horton $ 1,246.7 $ 1,389.7

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.

In the three months ended March 31, 2023 and 2022, the Company sold 2,979 and 5,788 residential lots, and lot sales revenues were $ 252.9 million and $ 409.0 million.

In the six months ended March 31, 2023 and 2022, the Company sold 5,242 and 10,304 residential lots, and lot sales revenues were $ 459.5 million and $ 813.1 million.

Lot and land sales to D.R.

Horton during those periods were as follows.

Three Months Ended December 31,

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

2023 2022 2023 2022

(Dollars in millions)

3 unchanged sentences

Horton $ 219.9 $ 390.2 $ 407.0 $ 718.2

Tract acres sold to D.R.

Horton 379 — 379 —

Tract sales revenues from sales to D.R.

Horton $ 32.5 $ — $ 32.5 $ —

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

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 by $ 0.7 million in the three months ended March 31, 2023 and decreased revenues on lot sales to D.R.

Horton by $ 0.5 million in the three months ended March 31, 2022.

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

Horton by $ 3.4 million and $ 1.6 million in the six months ended March 31, 2023 and 2022, respectively.

In the three and six months ended March 31, 2023, the Company reimbursed D.R.

Horton approximately $ 5.7 million and $ 10.4 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 six months ended March 31, 2023, the Company reimbursed D.R.

Horton approximately $ 0.1 million for previously paid earnest money.

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 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.

In the three and six months ended March 31, 2023 and 2022, the Company paid D.R.

Horton $ 0.3 million and $ 0.5 million for land development services compared to $ 0.7 million and $ 1.6 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, 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.

At March 31, 2023 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 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.

At March 31, 2023 and September 30, 2022, accrued expenses and other liabilities on the Company's consolidated balance sheets included $ 3.0 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 December 31, 2022 and September 30, 2022.

Fair Value at December 31, 2022

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, 2023 and September 30, 2022:

Fair Value at

2023 September 30,

(in millions)

Real Estate (a)

_____________________

(a) The fair value included in the table above represents only the assets whose carrying value was adjusted to fair value as of March 31, 2023.

The fair value was determined using estimated future cash flows of each 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, 2023 and September 30, 2022.

Fair Value at March 31, 2023

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, 2022 and September 30, 2022, debt primarily consisted of the Company's senior notes.

(b) At March 31, 2023 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