What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-22 compared with 2026-04-23 · 63 added, 56 removed, 215 unchanged (36% of the section changed)

12 unchanged sentences

Horton owned 75% of our outstanding common stock.

As of March 31, 2026, D.R.

As of June 30, 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 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.

For the nine months ended June 30, 2026, we sold 8,541 lots with an average sales price of $113,000 .

At June 30, 2026, our lot position consisted of 91,700 residential lots, of which approximately 62,200 were owned and 29,500 were controlled through purchase contracts.

Of our 62,200 owned lots, approximately 23,500 lots are under contract to be sold for an aggregate remaining sales price of approximately $2.3 billion.

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

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.

During the nine months ended June 30, 2026, total residential lots sold decreased by 9% while the average sales price per lot increased 8% resulting in a 1% decrease in total residential lot sales revenues compared to the prior year period, and our consolidated revenues increased 6% to $1,054.3 million compared to $991.9 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 $113.5 million in the nine months ended June 30, 2026 compared to $106.2 million in the prior year period, and our pre-tax operating margin was 10.8% compared to 10.7%.

Net income attributable to Forestar was $83.5 million in the nine months ended June 30, 2026 compared to $81.0 million in the prior year period, and our diluted earnings per share was $1.63 compared to $1.59.

During the third 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.

Despite current market conditions, third quarter revenues increased 4% from the prior year quarter.

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

While disruptions in the supply chain for certain construction materials and tightness in the labor market have largely subsided, delays in receiving the necessary approvals from municipalities are still extending development cycle times in certain markets, and development costs remain elevated.

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To adjust to changes in market conditions during recent years, we have reduced lot prices where necessary.

We believe we are well-positioned to consolidate market share in the highly fragmented lot development industry because of our national footprint and strong local teams, our low net leverage and strong liquidity position, lower overhead model, geographically diverse lot portfolio that is focused on affordable price points and strategic relationship with D.R.

We plan to remain disciplined when investing in land opportunities and to remain focused on managing our lot sales pace and lot pricing at each community to optimize the return on our investments.

Results of Operations

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.

The following tables and related discussion set forth key operating and financial data as of and for the three and nine months ended June 30, 2026 and 2025.

Operating Results

Components of income before income taxes were as follows:

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

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

2026 2025 2026 2025

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Residential lots sold consisted of:

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

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

2026 2025 2026 2025

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Revenues consisted of:

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

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

2026 2025 2026 2025

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Lot banking projects 2.0 10.9 8.0 24.1

Decrease in contract liabilities

Increase in contract liabilities (0.6) (1.3) (0.6) (0.1)

397.4 383.0 963.9 977.3

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Horton consisted of:

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

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

2026 2025 2026 2025

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Horton and customers other than D.R.

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

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

Horton, before changes in contract liabilities, consisted of:

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

2026 2025 2026 2025

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$ 398.0 $ 384.3 $ 964.5 $ 977.4

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.

Residential lot sales revenues in the three months ended June 30, 2026 increased compared to the prior year period primarily due to the increase in lot sales volume and an increase in our average selling price per lot.

Residential lot sales revenues in the nine months ended June 30, 2026 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.

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 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 in the nine months ended June 30, 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.

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 in the three and nine months ended June 30, 2025 included 331 lots and 693 lots that were sold for $37.5 million and $56.3 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.

Tract sales and other revenues in three months ended June 30, 2026 primarily consisted of 184 tract acres sold to customers other than D.R.

Horton for $8.3 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.

Tract sales and other revenues in nine months ended June 30, 2026 primarily consisted of 709 tract acres sold to customers other than D.R.

Horton for $61.7 million and 56 tract acres sold to D.R.

Horton for $11.5 million.

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

Horton in the three and nine months ended June 30, 2026 included 182 tract acres sold for $8.2 million to a third party who expects to sell finished lots to D.R.

Horton at a later date.

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 in the nine months ended June 30, 2026 included 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 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.

Cost of sales in the three and nine months ended June 30, 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 nine months ended June 30, 2026 was $6.7 million and $64.2 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 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.

As a result of this process, no impairment charges were recorded in the three and nine months ended June 30, 2026 and 2025.

In the three and nine months ended June 30, 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 $0.8 million and $8.0 million, respectively, compared to $1.9 million and $3.9 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 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.

Interest incurred was $12.4 million and $37.4 million in the three and nine months ended June 30, 2026 compared to $13.4 million and $32.3 million in the prior year periods.

Interest charged to cost of sales in the three and nine months ended June 30, 2026 was 2.3% of total cost of sales for both periods (excluding impairments and land option charges) compared to 2.3% and 2.2% for the prior year periods.

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

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.

SG&A expense in the three and nine months ended June 30, 2026 was $38.3 million and $112.6 million compared to $37.4 million and $111.8 million in the prior year periods.

SG&A expense as a percentage of revenues was 9.4% and 10.7% in the three and nine months ended June 30, 2026 compared to 9.6% and 11.3% in the prior year periods.

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

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

Our business operations employed 402 and 443 employees at June 30, 2026 and 2025, respectively.

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

however, we cannot make assurances that we will be able to maintain or improve upon the current SG&A expense as a percentage of revenues.

Loss on extinguishment of debt of $1.1 million in the nine months ended June 30, 2025 was due to the partial repurchase of our $400 million principal amount of 3.85% senior notes due 2026 in March 2025.

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

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.

Income tax expense for the three and nine months ended June 30, 2026 was $12.7 million and $29.8 million compared to $10.7 million and $25.2 million in the prior year periods.

Our effective tax rate was 26.1% and 26.3% for the three and nine months ended June 30, 2026 compared to 24.5% and 23.7% 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 nontaxable income.

The effective tax rate for the nine months ended June 30, 2026 and the three and nine months ended June 30, 2025 also included a benefit for stock-based compensation.

At June 30, 2026, we had deferred tax liabilities, net of deferred tax assets , of $92.2 million.

The deferred tax assets were partially offset by a valuation allowance of $0.6 million, resulting in a net deferred tax liability of $92.8 million.

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Land and Lot Position

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

March 31, 2026 September 30, 2025

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

June 30, 2026 September 30, 2025

Lots owned 62,200 65,100

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Liquidity and Capital Resources

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.

At June 30, 2026, we had $394.9 million of cash and cash equivalents and $669.9 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 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.

At June 30, 2026, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 30.0% compared to 31.2% at September 30, 2025 and 34.2% at June 30, 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 17.7% compared to 19.3% at September 30, 2025 and 28.9% at June 30, 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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Letters of credit issued under the facility reduce the available borrowing capacity.

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.

At June 30, 2026, there were no borrowings outstanding and $45.1 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $669.9 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 March 31, 2026, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

At June 30, 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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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 March 31, 2026, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

At June 30, 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 March 31, 2026.

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

In the nine months ended June 30, 2026, we did not issue any shares of common stock under our at-the-market equity offering program.

At June 30, 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 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.

In the nine months ended June 30, 2026, net cash provided by operating activities was $27.6 million, which was primarily the result of net income generated in the period and the increase in earnest money deposits on sales contracts, partially offset by the increase in real estate, and the decreases in accrued development costs and accounts payable and other accrued liabilities.

In the nine months ended June 30, 2025, net cash used in operating activities was $454.0 million, which was primarily the result of the increases in real estate and other assets and the decreases in accrued development costs and accounts payable and other liabilities, partially offset by net income generated in the period and the increase in earnest money on sales contracts.

Investing Cash Flow Activities

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.

In the nine months ended June 30, 2026, net cash used in investing activities was $0.3 million compared to $0.6 million in the prior year period.

Financing Cash Flow Activities

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.

In the nine months ended June 30, 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 nine months ended June 30, 2025 was $162.6 million which was primarily the result of proceeds from the issuance of $500 million principal amount of our 2033 notes and $280 million in 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 $280 million in repayments under our senior unsecured revolving credit facility.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies or estimates from those disclosed in our 2025 Annual Report on Form 10-K.

Although the growth of our business and significant changes in market conditions have impacted our seasonal patterns in the past and could do so again in the future, we generally deliver more lots and generate greater revenues and pre-tax income in the fourth quarter of our fiscal year.

As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular fiscal quarter are not necessarily representative of the balance of our fiscal year.

New and Pending Accounting Pronouncements

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Horton on our ability to maintain relationships with our customers;

• the cyclical nature of the homebuilding and lot development industries and changes in economic, real estate and other conditions;

• the cyclical nature of the homebuilding and lot development industries and changes in economic, real estate or other conditions;

• the impact of significant inflation, higher interest rates or deflation;

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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 on our business and financial results;

• the effects 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