What changed in this filing

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Item 1. Financial Statements

2023-07-21 compared with 2023-04-24 · 87 added, 93 removed, 336 unchanged (35% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

(In millions, except share data)

15 unchanged sentences

49,903,713 and 49,761,480 shares issued and outstanding

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

at June 30, 2023 and September 30, 2022, respectively

Additional paid-in capital 643.2 640.6

7 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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

2023 2022 2023 2022

9 unchanged sentences

Net income $ 46.8 $ 39.7 $ 94.5 $ 128.0

Net income attributable to noncontrolling interests — — — —

Net income attributable to Forestar Group Inc.

$ 26.9 $ 47.8 $ 47.7 $ 88.3

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

$ 0.54 $ 0.96 $ 0.95 $ 1.77

Basic net income per common share $ 0.94 $ 0.80 $ 1.89 $ 2.57

Weighted average number of common shares 50.1 49.9 50.0 49.8

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

$ 0.54 $ 0.96 $ 0.95 $ 1.77

Diluted net income per common share $ 0.93 $ 0.80 $ 1.89 $ 2.57

Adjusted weighted average number of common shares 50.2 49.9 50.0 49.8

23 unchanged sentences

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

— — 46.8 — 46.8

Stock issued under employee benefit plans ( 6,004 shares)

Stock-based compensation expense

— 0.9 — — 0.9

Balances at June 30, 2023 ( 49,903,713 shares)

$ 49.9 $ 643.2 $ 602.4 $ 1.0 $ 1,296.5

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

20 unchanged sentences

$ 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.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended March 31,

Nine Months Ended June 30,

(In millions)

9 unchanged sentences

Decrease (increase) in real estate

(Increase) decrease in other assets

87.7 ( 170.3 )

Increase in other assets

( 6.7 ) ( 11.7 )

(Decrease) increase in accounts payable and other accrued liabilities

1 unchanged sentence

(Decrease) increase in accrued development costs

( 23.2 ) 16.1

Decrease in earnest money deposits on sales contracts

( 13.4 ) ( 1.2 )

Net cash provided by operating activities 21.3 76.6

Net cash provided by (used in) operating activities 136.2 ( 10.2 )

INVESTING ACTIVITIES

7 unchanged sentences

Net cash (used in) provided by financing activities ( 0.8 ) 1.3

Increase in cash and cash equivalents 21.9 80.1

Increase (decrease) in cash and cash equivalents 136.2 ( 7.3 )

Cash and cash equivalents at beginning of period 264.8 153.6

10 unchanged sentences

Noncontrolling interests in consolidated pass-through entities are recognized before income taxes.

Net income attributable to noncontrolling interests is zero for all periods presented in the Company's statements of operations.

The transactions included in net income in the consolidated statements of operations are the same as those that would be presented in comprehensive income.

9 unchanged sentences

Horton is considered a related party of Forestar under GAAP.

As of March 31, 2023, D.R.

As of June 30, 2023, D.R.

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

14 unchanged sentences

Real estate consists of:

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

(In millions)

2 unchanged sentences

$ 1,909.1 $ 2,022.4

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.

In the nine months ended June 30, 2023, the Company invested $ 71.0 million for the acquisition of residential real estate and $ 566.3 million for the development of residential real estate.

At June 30, 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 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.

As a result of this process, no impairment charges were recorded during the three months ended June 30, 2023.

In the nine months ended June 30, 2023 and 2022, impairment charges totaled $ 19.4 million and $ 3.8 million.

In the three and nine months ended June 30, 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 $ 4.2 million, respectively, compared to $ 1.0 million and $ 3.2 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.

1 unchanged sentence

Revenues consist of:

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

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

2023 2022 2023 2022

4 unchanged sentences

$ 368.9 $ 308.5 $ 887.1 $ 1,137.7

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.

In the three and nine months ended June 30, 2023, the Company recognized $ 10.3 million and $ 24.6 million of revenues as a result of its progress towards completion of its remaining unsatisfied performance obligations on deferred development projects, compared to $ 7.9 million and $ 20.4 million in the 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 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,

In the first nine 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 nine months ended June 30, 2023 and 2022.

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

2023 2022 2023 2022

5 unchanged sentences

Note 6 — Other Assets, Accrued Expenses and Other Liabilities

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

March 31, 2023 September 30, 2022

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

June 30, 2023 September 30, 2022

(In millions)

3 unchanged sentences

Land purchase contract deposits 6.1 10.0

Income taxes receivable 1.2 —

Other assets 3.3 1.8

$ 59.1 $ 49.6

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

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

June 30, 2023 September 30, 2022

(In millions)

9 unchanged sentences

$ 54.1 $ 70.1

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.

Contract liabilities at June 30, 2023 and September 30, 2022 include $ 4.5 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:

March 31, 2023 September 30, 2022

June 30, 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 $ 5.7 million and $ 6.5 million at March 31, 2023 and September 30, 2022, respectively.

(1) Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $ 5.3 million and $ 6.5 million at June 30, 2023 and September 30, 2022, respectively.

Bank Credit Facility

4 unchanged sentences

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.

At June 30, 2023, there were no borrowings outstanding and $ 29.8 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 380.2 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.

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 March 31, 2023, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

At June 30, 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 March 31, 2023, the Company was in compliance with all of the limitations and restrictions associated with its senior note obligations.

At June 30, 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 March 31, 2023.

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

Other Note Payable

3 unchanged sentences

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

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

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

2023 2022 2023 2022

(In millions, except share and per share amounts)

Net income attributable to Forestar Group Inc.

$ 26.9 $ 47.8 $ 47.7 $ 88.3

Net income $ 46.8 $ 39.7 $ 94.5 $ 128.0

Weighted average common shares outstanding — basic 50,056,126 49,879,394 49,963,326 49,794,566

1 unchanged sentence

Total weighted average shares outstanding — diluted 50,175,794 49,893,640 50,028,451 49,834,891

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

$ 0.54 $ 0.96 $ 0.95 $ 1.77

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

$ 0.54 $ 0.96 $ 0.95 $ 1.77

Basic net income per common share $ 0.94 $ 0.80 $ 1.89 $ 2.57

Diluted net income per common share $ 0.93 $ 0.80 $ 1.89 $ 2.57

Note 9 — Income Taxes

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 Company’s income tax expense for the three and nine months ended June 30, 2023 was $ 15.6 million and $ 31.7 million compared to $ 13.0 million and $ 41.4 million in the prior year periods.

The effective tax rate was 25.0 % and 25.1 % for the three and nine months ended June 30, 2023 compared to 24.7 % and 24.4 % 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.

At June 30, 2023, the Company had deferred tax liabilities, net of deferred tax assets, of $ 33.2 million.

The deferred tax assets were partially offset by a valuation allowance of $ 0.9 million, resulting in a net deferred tax liability of $ 34.1 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 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.

The Company issued no shares of common stock under its at-the-market equity offering program in the nine months ended June 30, 2023.

At June 30, 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.

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

In the nine months ended June 30, 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.

Total stock-based compensation expense related to the Company's RSUs for the three and nine months ended June 30, 2023 was $ 0.9 million and $ 3.4 million compared to $ 0.8 million and $ 2.8 million in the 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 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.

At June 30, 2023, the Company had outstanding letters of credit of $ 29.8 million under the revolving credit facility and surety bonds of $ 616.3 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.

6 unchanged sentences

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.

At June 30, 2023, the Company had total deposits of $ 6.1 million related to contracts to purchase land with a total remaining purchase price of approximately $ 295.7 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.

At June 30, 2023, none of the land purchase contracts were subject to specific performance provisions.

Note 12 — Related Party Transactions

2 unchanged sentences

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

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.

In the nine months ended June 30, 2023 and 2022, selling, general and administrative expense in the consolidated statements of operations included $ 2.8 million and $ 3.1 million for these shared services, $ 6.6 million and $ 5.5 million reimbursed to D.R.

Horton for the cost of health insurance and other employee benefits and $ 1.2 million and $ 5.6 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 March 31, 2023 and September 30, 2022, the Company owned approximately 57,800 and 61,800 residential lots, of which D.R.

At June 30, 2023 and September 30, 2022, the Company owned approximately 53,700 and 61,800 residential lots, respectively, of which D.R.

Horton had the following involvement.

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

(Dollars in millions)

1 unchanged sentence

Horton 13,600 17,800

Residential lots subject to right of first offer with D.R.

Horton 17,300 18,900

Owned lots subject to right of first offer with D.R.

Horton based on executed purchase and sale agreements 16,900 18,900

Earnest money deposits from D.R.

2 unchanged sentences

Horton $ 1,272.4 $ 1,389.7

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 March 31, Six Months Ended March 31,

Horton in the three and nine months ended June 30, 2023 and 2022 were as follows:

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

2023 2022 2023 2022

4 unchanged sentences

Horton $ 270.4 $ 257.6 $ 677.4 $ 975.7

Decrease in contract liabilities on lot sales to D.R.

Horton $ 0.6 $ 0.5 $ 4.0 $ 2.1

Tract acres sold to D.R.

2 unchanged sentences

Horton $ 22.8 $ — $ 55.3 $ —

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

In the three and nine months ended June 30, 2023, the Company reimbursed D.R.

Horton approximately $ 6.7 million and $ 17.1 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 and six months ended March 31, 2023 and 2022, the Company paid D.R.

Horton that the Company independently underwrote and closed compared to reimbursements of $ 18.3 million and $ 56.1 million in the prior year periods.

In the nine months ended June 30, 2023, the Company reimbursed D.R.

Horton approximately $ 0.1 million for previously paid earnest money related to those land purchase contracts and 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 related to those land purchase contracts.

In the three and nine months ended June 30, 2023, the Company paid D.R.

Horton $ 0.1 million and $ 0.6 million for land development services compared to $ 0.4 million and $ 2.0 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 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.

At June 30, 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 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.

At June 30, 2023 and September 30, 2022, accrued expenses and other liabilities on the Company's consolidated balance sheets included $ 1.4 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.

At June 30, 2023, other assets on the Company's consolidated balance sheet included $2.2 million due from D.R.

Horton related to tract sales to D.R.

Horton in the nine months ended June 30, 2023.

Note 13 — Fair Value Measurements

8 unchanged sentences

The Company elected not to use the fair value option for cash and cash equivalents and debt.

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

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, 2023 and September 30, 2022.

Fair Value at June 30, 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 March 31, 2023 and September 30, 2022, debt primarily consisted of the Company's senior notes.

(b) At June 30, 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.

1 unchanged sentence

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