What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-04-23 compared with 2026-01-22 · 69 added, 50 removed, 202 unchanged (37% of the section changed)

12 unchanged sentences

Horton owned 75% of our outstanding common stock.

As of December 31, 2025, D.R.

As of March 31, 2026, D.R.

Horton owned approximately 62% of our outstanding common stock.

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We occasionally make short-term strategic investments in finished lots (lot banking) and undeveloped land (land banking) with the intent to sell these assets within a short time period to utilize available capital prior to its deployment into longer-term lot development projects.

For the three months ended December 31, 2025, we sold 1,944 lots with an average sales price of $121,000.

At December 31, 2025, our lot position consisted of 101,000 residential lots, of which approximately 65,600 were owned and 35,400 were controlled through purchase contracts.

For the six months ended March 31, 2026, we sold 4,882 lots with an average sales price of $116,000 .

At March 31, 2026, our lot position consisted of 94,400 residential lots, of which approximately 63,500 were owned and 30,900 were controlled through purchase contracts.

Of our 63,500 owned lots, approximately 24,100 lots are under contract to be sold for an aggregate remaining sales price of approximately $2.2 billion.

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Entry-level and first-time move-up homebuyers are the largest segments of the new home market.

During the three months ended December 31, 2025, total residential lots sold decreased by 17% while the average sales price per lot increased 15% resulting in a 5% decrease in total residential lot sales revenue compared to the prior year period.

Our consolidated revenues increased 9% to $273.0 million compared to $250.4 million.

Our pre-tax income was $20.8 million in the three months ended December 31, 2025 compared to $21.9 million in the prior year period, and our pre-tax operating margin was 7.6% compared to 8.7%.

Net income was $15.4 million in the three months ended December 31, 2025 compared to $16.5 million in the prior year period, and our diluted earnings per share was $0.30 compared to $0.32.

During the first quarter, new home demand continued to be impacted by ongoing affordability constraint s and cautious consumer sentiment.

Homebuilders have continued to offer elevated levels of sales incentives, such as mortgage rate buydowns, to address affordability and spur the demand for new homes.

Despite current market conditions, our revenues increased 9% from the prior year period.

During the six months ended March 31, 2026, total residential lots sold decreased by 15% while the average sales price per lot increased 12% resulting in a 5% decrease in total residential lot sales revenues compared to the prior year period, and our consolidated revenues increased 8% to $647.3 million compared to $601.3 million which was primarily the result of the increase in tract sales and other revenues compared to the prior year period.

Our pre-tax income was $64.8 million in the six months ended March 31, 2026 compared to $62.6 million in the prior year period, and our pre-tax operating margin was 10.0% compared to 10.4% .

Net income attributable to Forestar was $47.5 million in the six months ended March 31, 2026 compared to $48.1 million in the prior year period, and our diluted earnings per share was $0.93 compared to $0.94 .

During the second quarter, new home demand continued to be impacted by ongoing affordability constraints and cautious consumer sentiment.

Homebuilders have continued to offer elevated levels of sales incentives, such as mortgage interest rate buydowns, to address affordability and spur the demand for new homes.

Despite current market conditions, second quarter revenues increased 7% from the prior year quarter.

Ou r ongoing focus is primarily to develop lots for homes at affordable price points.

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Results of Operations

The following tables and related discussion set forth key operating and financial data as of and for the three months ended December 31, 2025 and 2024.

The following tables and related discussion set forth key operating and financial data as of and for the three and six months ended March 31, 2026 and 2025.

Operating Results

Components of income before income taxes were as follows:

Three Months Ended December 31,

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

2026 2025 2026 2025

(In millions)

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Interest and other income (1.6) (1.0) (3.9) (3.3)

Loss on extinguishment of debt — 1.1 — 1.1

Income before income taxes $ 43.9 $ 40.7 $ 64.8 $ 62.6

Residential lots sold consisted of:

Three Months Ended December 31,

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

2026 2025 2026 2025

Development projects 2,914 3,334 4,814 5,625

Lot banking projects 24 77 68 119

2,938 3,411 4,882 5,744

Average sales price per lot (a)

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Revenues consisted of:

Three Months Ended December 31,

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

2026 2025 2026 2025

(In millions)

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Decrease in contract liabilities

331.4 346.9 566.6 594.2

Tract sales and other 42.9 4.1 80.7 7.1

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Horton consisted of:

Three Months Ended December 31,

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

2026 2025 2026 2025

Residential lots sold to D.R.

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Horton 488 910 805 1,131

2,938 3,411 4,882 5,744

Residential lot revenues from lot sales to D.R.

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Horton, before deferred development projects and changes in contract liabilities, consisted of:

Three Months Ended December 31,

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

2026 2025 2026 2025

(In millions)

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$ 331.4 $ 346.9 $ 566.6 $ 593.0

Residential lot sales revenues in the three months ended December 31, 2025 decreased compared to the prior year period primarily due to the decrease in lot sales volume, which was partially offset by the increase in our average selling price per lot.

Residential lot sales revenues in the three and six months ended March 31, 2026 decreased compared to the prior year periods primarily due to the decrease in lot sales volume, which was partially offset by the increase in our average selling price per lot.

The increase in our average sales price per lot was primarily due to changes in the regional mix of lot sales.

Lots sold to customers other than D.R.

Horton in the three months ended December 31, 2025 included 146 lots that were sold for $33.4 million to a lot banker who expects to sell those lots to D.R.

Horton in the six months ended March 31, 2026 included 146 lots that were sold for $33.4 million to a lot banker who expects to sell those lots to D.R.

Horton at a future date.

Tract sales and other revenues in three months ended December 31, 2025 primarily consisted of 193 tract acres sold to customers other than D.R.

Lots sold to customers other than D.R.

Horton in the three and six months ended March 31, 2025 included 362 lots that were sold for $18.8 million to a lot banker who expects to sell those lots to D.R.

Horton at a future date.

Tract sales and other revenues in three months ended March 31, 2026 primarily consisted of 332 tract acres sold to customers other than D.R.

Horton for $24.1 million and 56 tract acres sold to D.R.

Horton for $11.5 million.

Tract sales and other revenues in six months ended March 31, 2026 consisted of 525 tract acres sold to customers other than D.R.

Horton for $53.4 million and 56 tract acres sold to D.R.

Horton for $11.5 million.

Tract sales and other revenue from sales to D.R.

Horton in both the three and six months ended March 31, 2026 include a multifamily site representing 295 rental units which we developed and sold to D.R.

Horton for $9.1 million.

Cost of Sales, Real Estate Impairment and Land Option Charges and Interest Incurred

Cost of sales in the three months ended December 31, 2025 increased compared to the prior year periods primarily due to the increase in revenues.

Cost of sales related to tract sales and other revenues in the three months ended December 31, 2025 was $26.9 million.

Cost of sales in the three and six months ended March 31, 2026 increased compared to the prior year periods primarily due to the increase in revenues.

Cost of sales related to tract sales and other revenues in the three and six months ended March 31, 2026 was $30.6 million and $57.5 million.

Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment and perform detailed impairment evaluations and analyses when necessary.

As a result of this process, no impairment charges were recorded in the three months ended December 31, 2025 and 2024.

In the three months ended December 31, 2025, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $0.8 million, compared to $1.1 million in the prior year period.

As a result of this process, no impairment charges were recorded in the three and six months ended March 31, 2026 and 2025.

In the three and six months ended March 31, 2026, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $6.3 million and $7.1 million, respectively, compared to $0.9 million and $2.0 million in the prior year periods.

We capitalize interest costs throughout the development period (active real estate).

Capitalized interest is charged to cost of sales as the related real estate is sold to the buyer.

Interest incurred was $12.5 million in the three months ended December 31, 2025 compared to $8.3 million in the prior year period.

Interest charged to cost of sales in the three months ended December 31, 2025 was 2.0% of total cost of sales (excluding impairments and land option charges) compared to 1.8% and for the prior year period.

Interest incurred was $12.5 million and $25.0 million in the three and six months ended March 31, 2026 compared to $10.6 million and $18.8 million in the prior year periods.

Interest charged to cost of sales in the three and six months ended March 31, 2026 was 2.4% and 2.2% of total cost of sales (excluding impairments and land option charges) compared to 2.4% and 2.1% for the prior year periods.

Selling, General and Administrative (SG&A) Expense and Other Income Statement Items

SG&A expense in the three months ended December 31, 2025 was $36.5 million compared to $36.0 million in the prior year period.

SG&A expense as a percentage of revenues was 13.4% in the three months ended December 31, 2025 compared to 14.4% in the prior year period.

SG&A expense in the three and six months ended March 31, 2026 was $37.9 million and $74.3 million compared to $38.4 million and $74.3 million in the prior year periods.

SG&A expense as a percentage of revenues was 10.1% and 11.5% in the three and six months ended March 31, 2026 compared to 10.9% and 12.4% in the prior year periods.

Our SG&A expense primarily consisted of employee compensation and related costs.

Our business operations employed 415 and 427 employees at December 31, 2025 and 2024, respectively.

Our business operations employed 406 and 440 employees at March 31, 2026 and 2025, respectively.

We attempt to control our SG&A costs while ensuring that our infrastructure supports our operations;

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Interest and other income primarily represents interest earned on our cash deposits.

Income tax expense for both the three months ended December 31, 2025 and 2024 was $5.4 million.

Our effective tax rate was 26.0% for the three months ended December 31, 2025 compared to 24.7% in the prior year period.

The effective tax rate for both periods included an expense for state income taxes and nondeductible expenses as well as a benefit for nontaxable income.

At December 31, 2025, we had deferred tax liabilities, net of deferred tax assets , of $86.8 million.

Income tax expense for the three and six months ended March 31, 2026 was $11.7 million and $17.1 million compared to $9.1 million and $14.5 million in the prior year periods.

Our effective tax rate was 26.7% and 26.4% for the three and six months ended March 31, 2026 compared to 22.4% and 23.2% 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 and nontaxable income.

At March 31, 2026, we had deferred tax liabilities, net of deferred tax assets , of $83.7 million.

The deferred tax assets were partially offset by a valuation allowance of $0.6 million, resulting in a net deferred tax liability of $84.3 million.

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Land and Lot Position

Our land and lot position at December 31, 2025 and September 30, 2025 is summarized as follows:

December 31, 2025 September 30, 2025

Our land and lot position at March 31, 2026 and September 30, 2025 is summarized as follows:

March 31, 2026 September 30, 2025

Lots owned 63,500 65,100

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Liquidity and Capital Resources

At December 31, 2025, we had $211.7 million of cash and cash equivalents and $607.6 million of available borrowing capacity on our revolving credit facility.

At March 31, 2026, we had $362.2 million of cash and cash equivalents and $672.1 million of available borrowing capacity on our revolving credit facility.

We have no senior note maturities until 2028.

We believe we are well-positioned to operate effectively during changing economic conditions because of our low net leverage and strong liquidity position, our low overhead model and our strategic relationship with D.R.

At December 31, 2025, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 30.8% compared to 31.2% at September 30, 2025 and 33.3% at December 31, 2024.

Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 24.6% compared to 19.3% at September 30, 2025 and 29.5% at December 31, 2024.

At March 31, 2026, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 30.4% compared to 31.2% at September 30, 2025 and 34.7% at March 31, 2025.

Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 19.2% compared to 19.3% at September 30, 2025 and 29.8% at March 31, 2025.

Over the long term, we intend to maintain our ratio of net debt to total capital at approximately 40% or less.

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We have a $715 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 current capacity of the facility reflects additional bank commitments of $25 million and $50 million obtained in October 2025 and March 2026, respectively.

Of the total commitments, $650 million matures on December 18, 2029 and $65 million matures on October 28, 2026.

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

At December 31, 2025, there were no borrowings outstanding and $57.4 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $607.6 million.

At March 31, 2026, there were no borrowings outstanding and $42.9 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $672.1 million.

The revolving credit facility is guaranteed by our wholly-owned subsidiaries that are not immaterial subsidiaries and have not been designated as unrestricted subsidiaries.

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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, 2025, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

At March 31, 2026, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

We have outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended.

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Our $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 2028 notes can be redeemed at par 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%.

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and merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of us and our restricted subsidiaries (taken as a whole).

At December 31, 2025, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

At March 31, 2026, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

Effective April 30, 2020, our Board of Directors authorized the repurchase of up to $30 million of our debt securities.

The authorization has no expiration date.

All of the $30 million authorization was remaining at December 31, 2025.

All of the $30 million authorization was remaining at March 31, 2026.

Other Note Payable

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We have 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 was reserved for sales under our at-the-market equity offering program that we entered into in November 2024.

In the three months ended December 31, 2025, we did not issue any shares of common stock under our at-the-market equity offering program.

At December 31, 2025, the full $750 million remained available for issuance under the shelf registration statement, with $300 million reserved for sales under our at-the-market equity offering program.

In the six months ended March 31, 2026, we did not issue any shares of common stock under our at-the-market equity offering program.

At March 31, 2026, the full $750 million remained available for issuance under the shelf registration statement, with $300 million reserved for sales under our at-the-market equity offering program.

Operating Cash Flow Activities

In the three months ended December 31, 2025, net cash used in operating activities was $157.0 million, which was primarily the result of the increase in real estate, partially offset by net income generated in the period and the increases in accounts payable and other liabilities and earnest money deposits on sales contracts.

In the three months ended December 31, 2024, net cash used in operating activities was $450.0 million, which was primarily the result of the increase in real estate and the decreases in accounts payable and other liabilities and accrued development costs, partially offset by net income generated in the period and the increase in earnest money deposits on sales contracts.

In the six months ended March 31, 2026, net cash used in operating activities was $5.1 million, which was primarily the result of the increase in real estate and the decreases in accrued development costs and accounts payable and other accrued liabilities, partially offset by net income generated in the period and the increase in earnest money deposits on sales contracts and the decrease in other assets.

In the six months ended March 31, 2025, net cash used in operating activities was $469.8 million, which was primarily the result of the increase in real estate and the decreases in accounts payable and other accrued liabilities and accrued development costs, partially offset by net income generated in the period and the increase in earnest money on sales contracts.

Investing Cash Flow Activities

In the three months ended December 31, 2025, net cash used in investing activities was $0.1 million compared to $0.9 million of cash provided by investing activities in the prior year period.

In the six months ended March 31, 2026, net cash used in investing activities was $0.3 million compared to $0.2 million of cash provided by investing activities in the prior year period.

Financing Cash Flow Activities

In the three months ended December 31, 2025, net cash used in financing activities was $10.4 million which was primarily the result of the repayment of the $9.9 million principal amount of our other note payable.

Cash provided by financing activities in the three months ended December 31, 2024 was $99.9 million which was primarily the result of $100 million of borrowings under our senior unsecured revolving credit facility.

In the six months ended March 31, 2026, net cash used in financing activities was $11.6 million which was primarily the result of the repayment of the $9.9 million principal amount of our other note payable.

Cash provided by financing activities in the six months ended March 31, 2025 was $162.7 million which was primarily the result of proceeds from the issuance of $500 million principal amount of our 2033 notes and $245 million of borrowings under our senior unsecured revolving credit facility, which were partially offset by the repurchase of $329.4 million of our $400 million principal amount of 2026 notes and $245 million in repayments under our senior unsecured revolving credit facility.

Critical Accounting Policies and Estimates

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• the effects of public health issues such as a major epidemic or pandemic on the economy and our business;

• the impacts of weather conditions and natural disasters;

• the impacts of weather conditions and natural disasters on our business and financial results;

• health and safety incidents relating to our operations;

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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 2. Management’s Discussion and Analysis