Forestar Group Inc. 10-Q

Item 1. Financial Statements FORESTAR GROUP INC. CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, 2025 September 30, 2024 (In millions, except share data) ASSETS Cash and cash equivalents $ 174.3 $ 481.2 Real estate 2,759.4 2,266.2 Investment in unconsolidated ventures — 0.3 Property and equipment, net 7.1 7.1 Other assets 101.9 85.3 Total assets $ 3,042.7 $ 2,840.1 LIABILITIES Accounts payable $ 70.0 $ 85.9 Accrued development costs 122.9 144.6 Earnest money on sales contracts 212.1 172.3 Deferred tax liability, net 74.9 67.5 Accrued expenses and other liabilities 44.4 68.3 Debt 872.5 706.4 Total liabilities 1,396.8 1,245.0 Commitments and contingencies (Note 11) EQUITY Common stock, par value $ 1.00 per share, 200,000,000 authorized shares, 50,823,800 and 50,653,637 shares issued and outstanding at March 31, 2025 and September 30, 2024, respectively 50.8 50.7 Additional paid-in capital 667.8 665.2 Retained earnings 926.3 878.2 Stockholders' equity 1,644.9 1,594.1 Noncontrolling interests 1.0 1.0 Total equity 1,645.9 1,595.1 Total liabilities and equity $ 3,042.7 $ 2,840.1 See accompanying notes to consolidated financial statements. 3 Table of Contents FORESTAR GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, Six Months Ended March 31, 2025 2024 2025 2024 (In millions, except per share amounts) Revenues $ 351.0 $ 333.8 $ 601.3 $ 639.7 Cost of sales 271.8 250.7 467.2 483.7 Selling, general and administrative expense 38.4 29.2 74.3 57.2 Equity in earnings of unconsolidated ventures — — ( 0.6 ) — Interest and other income ( 1.0 ) ( 5.0 ) ( 3.3 ) ( 11.3 ) Loss on extinguishment of debt 1.1 — 1.1 — Income before income taxes 40.7 58.9 62.6 110.1 Income tax expense 9.1 13.9 14.5 26.9 Net income $ 31.6 $ 45.0 $ 48.1 $ 83.2 Basic net income per common share $ 0.62 $ 0.90 $ 0.95 $ 1.66 Weighted average number of common shares 50.8 50.1 50.8 50.1 Diluted net income per common share $ 0.62 $ 0.89 $ 0.94 $ 1.65 Adjusted weighted average number of common shares 51.0 50.6 51.1 50.5 See accompanying notes to consolidated financial statements. 4 Table of Contents FORESTAR GROUP INC. CONSOLIDATED STATEMENTS OF TOTAL EQUITY (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Non-controlling Interests Total Equity (In millions, except share amounts) Balances at September 30, 2024 ( 50,653,637 shares) $ 50.7 $ 665.2 $ 878.2 $ 1.0 $ 1,595.1 Net income — — 16.5 — 16.5 Stock issued under employee benefit plans ( 16,309 shares) — — — — — Cash paid for shares withheld for taxes — ( 0.1 ) — — ( 0.1 ) Stock-based compensation expense — 2.6 — — 2.6 Balances at December 31, 2024 ( 50,669,946 shares) $ 50.7 $ 667.7 $ 894.7 $ 1.0 $ 1,614.1 Net income — — 31.6 — 31.6 Stock issued under employee benefit plans ( 153,854 shares) 0.1 — — — 0.1 Cash paid for shares withheld for taxes — ( 1.6 ) — — ( 1.6 ) Stock-based compensation expense — 1.7 — — 1.7 Balances at March 31, 2025 ( 50,823,800 shares) $ 50.8 $ 667.8 $ 926.3 $ 1.0 $ 1,645.9 Common Stock Additional Paid-in Capital Retained Earnings Non-controlling Interests Total Equity (In millions, except share amounts) Balances at September 30, 2023 ( 49,903,713 shares) $ 49.9 $ 644.2 $ 674.8 $ 1.0 $ 1,369.9 Net income — — 38.2 — 38.2 Stock issued under employee benefit plans ( 6,000 shares) — — — — — Cash paid for shares withheld for taxes — ( 0.2 ) — — ( 0.2 ) Stock-based compensation expense — 0.9 — — 0.9 Balances at December 31, 2023 ( 49,909,713 shares) $ 49.9 $ 644.9 $ 713.0 $ 1.0 $ 1,408.8 Net income — — 45.0 — 45.0 Issuance of common stock ( 546,174 shares) 0.5 19.2 — — 19.7 Stock issued under employee benefit plans ( 146,835 shares) 0.2 — — — 0.2 Cash paid for shares withheld for taxes — ( 2.6 ) — — ( 2.6 ) Stock-based compensation expense — 1.8 — — 1.8 Balances at March 31, 2024 ( 50,602,722 shares) $ 50.6 $ 663.3 $ 758.0 $ 1.0 $ 1,472.9 See accompanying notes to consolidated financial statements. 5 Table of Contents FORESTAR GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended March 31, 2025 2024 (In millions) OPERATING ACTIVITIES Net income $ 48.1 $ 83.2 Adjustments: Depreciation and amortization 1.8 1.4 Deferred income taxes 7.4 0.1 Equity in earnings of unconsolidated ventures ( 0.6 ) — Stock-based compensation expense 4.3 2.7 Impairments and land option charges 2.0 0.4 Loss on extinguishment of debt 1.1 — Other — 0.3 Changes in operating assets and liabilities: Increase in real estate ( 495.2 ) ( 316.1 ) Increase in other assets ( 16.8 ) ( 2.1 ) Decrease in accounts payable and other accrued liabilities ( 40.0 ) ( 12.1 ) (Decrease) increase in accrued development costs ( 21.7 ) 3.2 Increase in earnest money deposits on sales contracts 39.8 23.1 Net cash used in operating activities ( 469.8 ) ( 215.9 ) INVESTING ACTIVITIES Expenditures for property, equipment, software and other ( 0.7 ) ( 0.8 ) Return of investment in unconsolidated ventures 0.9 — Net cash provided by (used in) investing activities 0.2 ( 0.8 ) FINANCING ACTIVITIES Issuance of common stock — 19.7 Additions to debt 745.0 — Repayment of debt ( 574.4 ) — Deferred financing fees ( 6.3 ) — Cash paid for shares withheld for taxes ( 1.6 ) ( 2.8 ) Net cash provided by financing activities 162.7 16.9 Decrease in cash and cash equivalents ( 306.9 ) ( 199.8 ) Cash and cash equivalents at beginning of period 481.2 616.0 Cash and cash equivalents at end of period $ 174.3 $ 416.2 SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES Note payable issued for real estate $ — $ 9.9 See accompanying notes to consolidated financial statements. 6 Table of Contents FORESTAR GROUP INC. Notes to Consolidated Financial Statements (Unaudited) Note 1 — Basis of Presentation 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. The Company accounts for its investment in other entities in which it has significant influence over operations and financial policies using the equity method. All intercompany accounts, transactions and balances have been eliminated in consolidation. 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. Thus, the Company's net income equates to comprehensive income. 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. These financial statements, including the consolidated balance sheet as of September 30, 2024, which was derived from audited financial statements, do not include all of the information and notes required by GAAP for complete financial statements, and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2024. In October 2017, Forestar became a majority-owned subsidiary of D.R. Horton, Inc. ("D.R. Horton") by virtue of a merger with a wholly-owned subsidiary of D.R. Horton. Immediately following the merger, D.R. Horton owned 75% of the Company's outstanding common stock. In connection with the merger, the Company entered into certain agreements with D.R. Horton, including a Stockholder’s Agreement, a Master Supply Agreement and a Shared Services Agreement. D.R. Horton is considered a related party of Forestar under GAAP. As of March 31, 2025, D.R. Horton owned approximately 62 % of the Company's outstanding common stock. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Seasonality Although the growth of the Company's business and significant changes in market conditions have impacted its seasonal patterns in the past and could do so again in the future, the Company generally delivers more lots and generates greater revenues and pre-tax income in the fourth quarter of its fiscal year. As a result of seasonal activity, the Company's quarterly results of operations and financial position at the end of a particular fiscal quarter are not necessarily representative of the balance of its fiscal year. 7 Table of Contents Pending Accounting Standards In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, "Segment Reporting - Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosures. The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. It also requires disclosure of the amount and description of the composition of other segment items and interim disclosures of a reportable segment’s profit or loss and assets. The standard is effective for the Company's annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026 on a retrospective basis to all periods presented. This standard will impact the Company's disclosures but will not impact its consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, "Income Taxes - Improvements to Income Tax Disclosures," which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation and modifies other income tax related disclosures. The guidance is effective for the Company beginning October 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures," which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the financial statements. The standard is effective for the Company's annual periods beginning in fiscal 2028 and interim periods beginning in the first quarter of fiscal 2029, with early adoption permitted. The Company is currently evaluating the impact on its disclosures. Note 2 — Segment Information 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 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. Note 3 — Real Estate Real estate consists of: March 31, 2025 September 30, 2024 (In millions) Developed and under development projects $ 2,506.6 $ 2,126.1 Land held for future development 252.8 140.1 $ 2,759.4 $ 2,266.2 In the six months ended March 31, 2025, the Company invested $ 460.4 million for the acquisition of residential real estate and $ 564.2 million for the development of residential real estate. At March 31, 2025 and September 30, 2024, land held for future development primarily consisted of undeveloped land which the Company has under contract 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, no impairment charges were recorded for either period presented in the consolidated statements of operations. In the three and six months ended March 31, 2025, 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 $ 2.0 million, respectively, compared to $ 0.2 million and $ 0.4 million in the prior year periods. These land option charges are included in cost of sales in the consolidated statements of operations. 8 Table of Contents Note 4 — Revenues Revenues consist of: Three Months Ended March 31, Six Months Ended March 31, 2025 2024 2025 2024 (In millions) Residential lot sales $ 346.9 $ 325.9 $ 594.2 $ 630.1 Deferred development lot sales — 1.7 — 3.0 Tract sales and other 4.1 6.2 7.1 6.6 $ 351.0 $ 333.8 $ 601.3 $ 639.7 Note 5 — Capitalized Interest The Company capitalizes interest costs to real estate throughout the development period (active real estate). Capitalized interest is charged to cost of sales as the related real estate is sold. 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 2025 and fiscal 2024, 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, 2025 and 2024. Three Months Ended March 31, Six Months Ended March 31, 2025 2024 2025 2024 (In millions) Capitalized interest, beginning of period $ 67.7 $ 60.5 $ 63.0 $ 58.5 Interest incurred 10.6 8.2 18.8 16.3 Interest charged to cost of sales ( 6.4 ) ( 6.5 ) ( 9.9 ) ( 12.6 ) Capitalized interest, end of period $ 71.9 $ 62.2 $ 71.9 $ 62.2 Note 6 — Other Assets, Accrued Expenses and Other Liabilities The Company's other assets at March 31, 2025 and September 30, 2024 were as follows: March 31, 2025 September 30, 2024 (In millions) Receivables, net $ 27.1 $ 28.4 Lease right of use assets 8.2 9.6 Prepaid expenses 11.2 13.2 Land purchase contract deposits 36.2 23.4 Income taxes receivable 5.2 — Contract assets 10.1 8.9 Other assets 3.9 1.8 $ 101.9 $ 85.3 9 Table of Contents The Company's accrued expenses and other liabilities at March 31, 2025 and September 30, 2024 were as follows: March 31, 2025 September 30, 2024 (In millions) Accrued employee compensation and benefits $ 10.4 $ 13.5 Accrued property taxes 3.2 8.2 Lease liabilities 8.8 10.2 Accrued interest 4.0 7.3 Contract liabilities 1.3 2.7 Deferred income 4.1 4.1 Income taxes payable — 8.6 Other accrued expenses 4.6 8.0 Other liabilities 8.0 5.7 $ 44.4 $ 68.3 Note 7 — Debt The Company's notes payable at their carrying amounts consist of the following: March 31, 2025 September 30, 2024 (In millions) Unsecured: Revolving credit facility $ — $ — 3.85 % senior notes due 2026 (1) 70.4 398.4 5.0 % senior notes due 2028 (1) 298.4 298.1 6.5 % senior notes due 2033 (1) 493.8 — Other note payable 9.9 9.9 $ 872.5 $ 706.4 ______________ (1) Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $ 8.0 million and $ 3.5 million at March 31, 2025 and September 30, 2024, respectively. Bank Credit Facility The Company has a $ 640 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $ 1 billion, subject to certain conditions and availability of additional bank commitments. The facility includes bank commitments of $ 575 million maturing on December 18, 2029 and $ 65 million maturing on October 28, 2026. 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. At March 31, 2025, there were no borrowings outstanding and $ 22.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 617.7 million. 10 Table of Contents The revolving credit facility is guaranteed by the Company’s wholly-owned subsidiaries that are not immaterial subsidiaries and have not been designated as unrestricted subsidiaries. The revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. 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, 2025, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility. Senior Notes 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. The notes are guaranteed by each of the Company's subsidiaries to the extent such subsidiaries guarantee the Company's revolving credit facility. In March 2025, the Company issued $ 500 million principal amount of 6.5 % senior notes due March 15, 2033 (the "2033 notes"), with interest payable semiannually . The annual effective interest rate of the 2033 notes after giving effect to the amortization of financing costs is 6.7 %. The net proceeds from this issuance were primarily used to fund the Company's tender offer to purchase any and all of its outstanding $ 400 million principal amount of 3.85 % senior notes due 2026 (the "2026 notes"), of which $ 329.4 million aggregate principal amount was tendered. The repurchase price of $ 333.4 million included accrued and unpaid interest of $ 4.2 million. The Company recognized a $ 1.1 million loss on extinguishment of debt upon repurchase of the notes. At any time prior to March 15, 2028 , the Company may, on one or more occasions, redeem up to 40 % of the aggregate principal amount of the 2033 notes with the net cash proceeds from certain equity offerings at a redemption price of 106.5 % of the principal amount of the 2033 notes being redeemed. At any time prior to March 15, 2028 , the Company may redeem some or all of the 2033 notes at a redemption price of 100 % of the principal amount thereof plus a specified “make whole” premium described in the indenture. The Company also has the option, at any time on or after March 15, 2028 to redeem some or all of the 2033 notes at 103.25 % of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2033 notes can be redeemed at par on or after March 15, 2030 through maturity. The Company's remaining $ 70.6 million principal amount of 2026 notes mature May 15, 2026 with interest payable semiannually . Until May 15, 2025 , the 2026 notes may be redeemed at 100.963 % of their principal amount plus any accrued and unpaid interest, and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1 %. The Company's $ 300 million principal amount of 5.0 % senior notes (the "2028 notes") mature March 1, 2028 with interest payable semiannually . Until March 1, 2026 , the 2028 notes may be redeemed at 100.833 % of their principal amount plus any accrued and unpaid interest, and the 2028 notes can be redeemed at par on or after March 1, 2026 through maturity. The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2 %. 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, plus accrued and unpaid interest. Under the indentures governing the 2026 notes and 2028 notes, 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. 11 Table of Contents The indentures governing the 2026 notes and 2028 notes 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; incur additional debt or issue mandatorily redeemable equity; incur liens on assets; merge or consolidate with another company or sell or otherwise dispose of all or substantially all of the Company’s assets; enter into transactions with affiliates; and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments. The indenture governing the 2033 notes contains certain covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to create certain liens on assets; engage in certain sale and leaseback transactions; and merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company’s assets. At March 31, 2025, 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, 2025. Other Note Payable In December 2023, the Company issued a note payable of $ 9.9 million 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 December 2025. Note 8 — Earnings per Share The computations of basic and diluted earnings per share are as follows: Three Months Ended March 31, Six Months Ended March 31, 2025 2024 2025 2024 (In millions, except share and per share amounts) Numerator: Net income $ 31.6 $ 45.0 $ 48.1 $ 83.2 Denominator: Weighted average common shares outstanding — basic 50,795,094 50,147,639 50,807,945 50,106,735 Dilutive effect of stock-based compensation 251,630 479,318 258,376 437,784 Total weighted average shares outstanding — diluted 51,046,724 50,626,957 51,066,321 50,544,519 Basic net income per common share $ 0.62 $ 0.90 $ 0.95 $ 1.66 Diluted net income per common share $ 0.62 $ 0.89 $ 0.94 $ 1.65 Note 9 — Income Taxes The Company’s income tax expense for the three and six months ended March 31, 2025 was $ 9.1 million and $ 14.5 million compared to $ 13.9 million and $ 26.9 million in the prior year periods. The effective tax rate was 22.4 % and 23.2 % for the three and six months ended March 31, 2025 compared to 23.6 % 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 and a benefit for stock-based compensation. The effective tax rate for the three and six months ended March 31, 2025 also included a benefit for nontaxable income. 12 Table of Contents At March 31, 2025, the Company had deferred tax liabilities, net of deferred tax assets , of $ 74.2 million. The deferred tax assets were partially offset by a valuation allowance of $ 0.7 million, resulting in a net deferred tax liability of $ 74.9 million. At September 30, 2024, deferred tax liabilities, net of deferred tax assets , were $ 66.7 million. The deferred tax assets were partially offset by a valuation allowance of $ 0.8 million, resulting in a net deferred tax liability of $ 67.5 million. The valuation allowance for both periods was recorded because it is more likely than not that a portion of the Company's state deferred tax assets, primarily net operating loss (NOL) carryforwards, will not be realized because the Company is no longer operating in some states or the NOL carryforward periods are too brief to realize the related deferred tax asset. The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on its deferred tax assets. Any reversal of the valuation allowance in future periods will impact the effective tax rate. Note 10 — Stockholders' Equity and Stock-Based Compensation Stockholders' Equity The Company has an effective shelf registration statement, filed with the Securities and Exchange Commission in September 2024, registering $ 750 million of equity securities, of which $ 300 million is reserved for sales under the at-the-market equity offering program that the Company entered into in November 2024. During the three and six months ended March 31, 2025, the Company did not issue any shares under its at-the-market equity offering program. At March 31, 2025, the full $ 750 million remained available for issuance under the Company's shelf registration statement, with $ 300 million reserved for sales under the at-the-market equity offering program. Stock-Based Compensation The Company’s Stock Incentive Plan provides for the granting of equity awards, such as performance stock units (PSUs) and restricted stock units (RSUs), to executive officers, other key employees and non-management directors. PSUs are earned by achieving key performance criteria and RSUs are earned through continued employment with the Company over a requisite time period. Each stock unit represents the contingent right to receive one share of the Company’s common stock if the performance criteria and/or vesting conditions are satisfied. The stock units have no dividend or voting rights until vested. In the six months ended March 31, 2025 , the Company granted 99,097 PSUs to its executive officers. The number of units that ultimately vest depends on the achievement of three performance criteria which are (i) relative total stockholder return, (ii) return on inventory and (iii) market share goals, and can range from 0 % to 200 % of the number of units granted. The three performance criteria are weighted equally. These awards vest at the end of a three-year performance period ending September 30, 2027. The grant date fair value of these equity awards was $ 35.20 per unit. Compensation expense related to the Company's PSUs was $ 0.3 million and $ 0.6 million in the three and six months ended March 31, 2025, based on an estimate of the Company’s achievement of the three performance criteria, the elapsed portion of the performance period and the grant date fair value of the award. In the six months ended March 31, 2025, a total of 306,300 RSUs were granted. The weighted average grant date fair value of these equity awards was $ 29.00 per unit, and they vest annually in equal installments over periods of three to five years. Compensation expense related to the Company's RSUs was $ 1.4 million and $ 3.7 million in the three and six months ended March 31, 2025. Stock-based compensation expense in the six months ended March 31, 2025 included $ 1.1 million of expense recognized for employees that were retirement eligible on the date of the grant compared to $ 0.7 million in the prior year period. Total stock-based compensation expense related to the Company's equity awards for the three and six months ended March 31, 2025 was $ 1.7 million and $ 4.3 million compared to $ 1.8 million and $ 2.7 million in the prior year periods. 13 Table of Contents Note 11 — Commitments and Contingencies Contractual Obligations and Off-Balance Sheet Arrangements 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, 2025, the Company had outstanding letters of credit of $ 22.3 million under the revolving credit facility and surety bonds of $ 804.4 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. When the Company completes its performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving the Company with no continuing obligations. The Company has no material third-party guarantees. Litigation On September 6, 2024, the Maryland Department of Environment (MDE) filed suit in the Circuit Court for Harford County, Maryland against the Company regarding various alleged stormwater compliance issues and violations at a project in Maryland dating from 2022 through 2024, seeking injunctive relief and civil penalties. Since the Company's first discovery of these issues, it has enhanced its practices and procedures related to stormwater compliance at the project in question, and is seeking to resolve these matters through further discussions with MDE. The Company does not believe it is reasonably possible that this matter would result in a loss that would have a material effect on its consolidated financial position, results of operations or cash flows. In addition, the Company is involved in various other legal proceedings that arise from time to time in the ordinary course of business and believes that adequate reserves have been established for any probable losses. The Company does not believe that the outcome of any of these proceedings will have a significant adverse effect on its financial position, long-term results of operations or cash flows. 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. Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of many of the purchase contracts, the deposits are not refundable in the event the Company elects to terminate the contract. Land purchase contract deposits and capitalized pre-acquisition costs are expensed to cost of sales when the Company believes it is probable that it will not acquire the property under contract and will not be able to recover these costs through other means. At March 31, 2025, the Company had total deposits of $ 36.2 million related to contracts to purchase land with a total remaining purchase price of approximately $ 783.7 million. The majority of land and lots under contract are currently expected to be purchased within 3 years. Non e of the land purchase contracts were subject to specific performance provisions at March 31, 2025. Note 12 — Related Party Transactions D.R. Horton The Company has a Shared Services Agreement with D.R. Horton whereby D.R. Horton provides the Company with certain administrative, compliance, operational and procurement services. In the six months ended March 31, 2025 and 2024, selling, general and administrative expense in the consolidated statements of operations included $ 3.6 million and $ 2.6 million for these shared services, $ 6.9 million and $ 4.0 million reimbursed to D.R. Horton for the cost of health insurance and other employee benefits and $ 0.5 million and $ 3.1 million for other corporate and administrative expenses paid by D.R. Horton on behalf of the Company. Under the terms of the Master Supply Agreement with D.R. Horton, both companies identify land development opportunities to expand Forestar's portfolio of assets. At March 31, 2025 and September 30, 2024, the Company owned approximately 68,400 and 57,800 residential lots, respectively, of which D.R. Horton had the following involvement. 14 Table of Contents March 31, 2025 September 30, 2024 (Dollars in millions) Residential lots under contract to sell to D.R. Horton 24,700 20,500 Owned lots subject to right of first offer with D.R. Horton based on executed purchase and sale agreements 19,200 17,200 Earnest money deposits from D.R. Horton for lots under contract $ 207.0 $ 168.4 Remaining sales price of lots under contract with D.R. Horton $ 2,187.5 $ 1,840.5 Lot and land sales to D.R. Horton in the three and six months ended March 31, 2025 and 2024 were as follows: Three Months Ended March 31, Six Months Ended March 31, 2025 2024 2025 2024 (Dollars in millions) Residential lots sold to D.R. Horton 2,501 3,105 4,613 5,939 Residential lot sales revenues from sales to D.R. Horton $ 267.8 $ 308.2 $ 485.2 $ 581.1 Decrease in contract liabilities on lot sales to D.R. Horton $ — $ 2.1 $ 1.2 $ 2.8 Tract sales and other revenues from D.R. Horton $ 2.0 $ 1.3 $ 4.0 $ 1.3 In the three and six months ended March 31, 2025, the Company reimbursed D.R. Horton approximately $ 4.0 million and $ 8.2 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 compared to reimbursements of $ 6.1 million and $ 10.7 million in the prior year periods. In the three and six months ended March 31, 2025, the Company reimbursed D.R. Horton approximately $ 4.6 million and $ 14.6 million for previously paid earnest money related to those land purchase contracts compared to reimbursements of $ 5.4 million and $ 18.7 million in the prior year periods. In the six months ended March 31, 2025, the Company purchased $ 2.1 million of water rights from D.R. Horton. In both the three and six months ended March 31, 2025, the Company paid D.R. Horton $ 0.1 million for land development services compared to $ 0.2 million and $ 0.7 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, 2025 and September 30, 2024, land held for future development primarily consisted of undeveloped land which the Company has under contract 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, 2025, accrued expenses and other liabilities on the Company's consolidated balance sheets included $ 3.4 million owed to D.R. Horton for any accrued and unpaid shared service charges, land purchase contract deposits and due diligence and other development cost reimbursements compared to $ 5.2 million at September 30, 2024. Note 13 — Fair Value Measurements Fair value is the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants. In arriving at a fair value measurement, the Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of inputs used to establish fair value are the following: • Level 1 — Quoted prices in active markets for identical assets or liabilities; • Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. 15 Table of Contents 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 March 31, 2025 and September 30, 2024. Fair Value at March 31, 2025 Carrying Value Level 1 Level 2 Level 3 Total (In millions) Cash and cash equivalents (a) $ 174.3 $ 174.3 $ — $ — $ 174.3 Debt (b) (c) 872.5 — 853.2 9.9 863.1 Fair Value at September 30, 2024 Carrying Value Level 1 Level 2 Level 3 Total (In millions) Cash and cash equivalents (a) $ 481.2 $ 481.2 $ — $ — $ 481.2 Debt (b) (c) 706.4 — 683.6 9.9 693.5 __ _____ _____________ (a) The fair values of cash and cash equivalents approximate their carrying values due to their short-term nature and are classified as Level 1 within the fair value hierarchy. (b) At March 31, 2025 and September 30, 2024, 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 value of the Company's other note payable and borrowings on the revolving credit facility approximate carrying value due to their short-term nature or floating interest rate terms, as applicable, and are classified as Level 3 within the fair value hierarchy. 16 Table of Contents