PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business.) Forestar Group Inc. is a national residential lot development company focused on selling finished single-family residential lots to homebuilders, operating in 56 markets across 23 states as a majority-owned subsidiary of D.R. Horton, Inc. - Forestar Group Inc. is a national residential lot development company, primarily selling finished single-family residential lots to homebuilders[11](index=11&type=chunk) - The company's strategy focuses on investments in land acquisition and development for short-duration, phased projects, aiming for consistent returns and market share consolidation in the fragmented U.S. lot development industry[11](index=11&type=chunk) - As of September 30, 2021, Forestar operated in **56 markets** across **23 states**, with a lot position of **97,000 residential lots** (**64,400 owned**, **32,600 controlled** via contracts)[11](index=11&type=chunk) - D.R. Horton, Inc. became a majority-owned subsidiary in October 2017, owning **63% of outstanding common stock** as of September 30, 2021, and has significant influence over Forestar's strategic direction and operations[12](index=12&type=chunk) - Approximately **21,000 owned residential lots** are under contract to sell to D.R. Horton, and D.R. Horton has a right of first offer on an additional **18,200 owned lots**[12](index=12&type=chunk) [Overview](index=4&type=section&id=Overview) [Business Operations](index=6&type=section&id=Business%20Operations) [Land/Lot Acquisition and Inventory Management](index=8&type=section&id=Land%2FLot%20Acquisition%20and%20Inventory%20Management) [Land Development](index=10&type=section&id=Land%20Development) [Lot/Land Banking](index=10&type=section&id=Lot%2FLand%20Banking) [Cost Controls](index=10&type=section&id=Cost%20Controls) [Competition](index=10&type=section&id=Competition) [Human Capital Resources](index=12&type=section&id=Human%20Capital%20Resources) [Governmental Regulation and Environmental Matters](index=13&type=section&id=Governmental%20Regulation%20and%20Environmental%20Matters) [Available Information](index=13&type=section&id=Available%20Information) [Item 1A. Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors.) This section outlines significant risks, including those related to D.R. Horton's concentrated ownership, operational challenges from cyclical industry conditions and supply chain disruptions, financial risks from substantial debt, and general risks like stock price volatility and cybersecurity threats. - D.R. Horton's **63% beneficial ownership** gives it control over stockholder matters and requires its consent for significant actions (e.g., equity issuance, debt, acquisitions >**$20 million**, executive changes) if it owns **35% or more** of voting securities[25](index=25&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) - The strategic relationship with D.R. Horton, while beneficial, may negatively affect relationships with other builder customers who might perceive favoritism[56](index=56&type=chunk) - The homebuilding and lot development industries are cyclical, highly sensitive to economic conditions (employment, consumer confidence, interest rates), and susceptible to supply chain disruptions and labor market tightness, as experienced during the COVID-19 pandemic[57](index=57&type=chunk)[59](index=59&type=chunk)[65](index=65&type=chunk) - The company faces significant competition from national, regional, and local developers and homebuilders, some with greater resources or lower cost structures[34](index=34&type=chunk)[66](index=66&type=chunk) - As of September 30, 2021, consolidated debt was **$704.5 million**, with restrictive covenants in debt agreements limiting financial flexibility and potentially impacting future operations or capital needs[82](index=82&type=chunk)[87](index=87&type=chunk)[89](index=89&type=chunk) - Operations are subject to extensive governmental regulations and environmental matters, including zoning, development requirements, and health/safety laws, which can increase costs, cause delays, or restrict activities[69](index=69&type=chunk)[70](index=70&type=chunk) [Risks Related to our Concentrated Ownership](index=14&type=section&id=Risks%20Related%20to%20our%20Concentrated%20Ownership) [Risks Related to Our Operations](index=16&type=section&id=Risks%20Related%20to%20Our%20Operations) [Risks Related to Our Indebtedness](index=21&type=section&id=Risks%20Related%20to%20Our%20Indebtedness) [General Risk Factors](index=23&type=section&id=General%20Risk%20Factors) [Item 1B. Unresolved Staff Comments](index=25&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) There are no unresolved staff comments to report for the period. - No unresolved staff comments[100](index=100&type=chunk) [Item 2. Properties](index=25&type=section&id=Item%202.%20Properties.) The company's principal executive office is leased in Arlington, Texas, and it leases additional office spaces to support its business operations. - Principal executive office is leased in Arlington, Texas[101](index=101&type=chunk) - Additional office space is leased in other locations to support business operations[101](index=101&type=chunk) [Item 3. Legal Proceedings](index=25&type=section&id=Item%203.%20Legal%20Proceedings.) The company is involved in various legal proceedings in the ordinary course of business, for which adequate reserves have been established, with management believing the outcome will not materially adversely affect financial position or long-term results. - Involved in various legal proceedings arising in the ordinary course of business[102](index=102&type=chunk) - Adequate reserves have been established for probable losses[102](index=102&type=chunk) - Outcome not expected to have a material adverse effect on financial position or long-term results, but charges could be significant in a single period[102](index=102&type=chunk) [Item 4. Mine Safety Disclosures](index=25&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company's operations. - Not Applicable[103](index=103&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=26&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) Forestar's common stock trades on the NYSE under 'FOR', with 1,167 holders of record as of November 10, 2021, and the company intends to retain future earnings, with dividend declarations at the Board's discretion. - Common stock is traded on the New York Stock Exchange (NYSE) under the trading symbol 'FOR'[106](index=106&type=chunk) - As of November 10, 2021, the closing price was **$21.51**, with approximately **1,167 holders of record**[106](index=106&type=chunk) - The company intends to retain future earnings to support its business; future dividends are at the Board's discretion[107](index=107&type=chunk) Cumulative Total Stockholder Return (December 31, 2016 - September 30, 2021) | | December 31, 2016 | 2017 | 2018 | 2019 | 2020 | September 30, 2021 | |:---|:---|:---|:---|:---|:---|:---|\ | Forestar Group Inc. | $100.00 | $165.41 | $159.40 | $137.44 | $133.08 | $140.08 | | Former Peer Group | $100.00 | $94.43 | $80.21 | $78.95 | $57.18 | $111.99 | | Russell 2000 | $100.00 | $114.65 | $127.85 | $116.48 | $116.93 | $172.69 | | New Peer Group | $100.00 | $124.56 | $109.14 | $119.80 | $112.14 | $148.37 | [Market Information](index=26&type=section&id=Market%20Information) [Dividend Policy](index=26&type=section&id=Dividend%20Policy) [Stock Performance Graph](index=27&type=section&id=Stock%20Performance%20Graph) [Item 6. [Reserved]](index=28&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information. [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Forestar's financial condition, operations, and liquidity for fiscal year 2021 compared to 2020, highlighting significant growth in lot sales and revenues driven by its strategic relationship with D.R. Horton, despite COVID-19 related disruptions. - Forestar is a residential lot development company operating in **56 markets** across **23 states**, with D.R. Horton as its majority owner and strategic partner[115](index=115&type=chunk) - The company's strategy involves investing in land acquisition and development for short-duration, phased projects, and strategic short-term lot banking[115](index=115&type=chunk) - COVID-19 caused supply chain disruptions and labor market tightness, lengthening development cycles, but strong demand for residential lots continued throughout fiscal 2021[116](index=116&type=chunk) Key Operating Results (Fiscal Years Ended September 30, In millions) | Metric | 2021 | 2020 | |:---|:---|:---|\ | Revenues | $1,325.8 | $931.8 | | Cost of sales | $1,096.6 | $813.7 | | Selling, general and administrative expense | $68.4 | $45.7 | | Income before income taxes | $146.6 | $78.1 | Residential Lots Sold (Fiscal Years Ended September 30) | Category | 2021 | 2020 | |:---|:---|:---|\ | Development projects | 14,221 | 7,316 | | Lot banking projects | 1,694 | 3,057 | | **Total lots sold** | **15,915** | **10,373** | | Average sales price per lot | $81,600 | $84,600 | Revenues Breakdown (Fiscal Years Ended September 30, In millions) | Category | 2021 | 2020 | |:---|:---|:---|\ | Residential lot sales: Development projects | $1,182.6 | $616.3 | | Residential lot sales: Lot banking projects | $116.1 | $261.7 | | (Increase) decrease in contract liabilities | ($5.6) | $2.3 | | **Total residential lot sales** | **$1,293.1** | **$880.3** | | Tract sales and other | $32.7 | $51.5 | | **Total revenues** | **$1,325.8** | **$931.8** | - In fiscal 2021, **14,839 residential lots** were sold to D.R. Horton for **$1.2 billion**, compared to **10,164 lots** for **$859.7 million** in fiscal 2020, indicating significant growth in sales to the controlling shareholder[122](index=122&type=chunk) Land and Lot Position (September 30) | Category | 2021 | 2020 | |:---|:---|:---|\ | Lots owned | 64,400 | 42,400 | | Lots controlled through land lot purchase contracts | 32,600 | 18,100 | | **Total lots owned and controlled** | **97,000** | **60,500** | - At September 30, 2021, the company had **$153.6 million** in cash and cash equivalents and **$349.7 million** in available borrowing capacity on its revolving credit facility[134](index=134&type=chunk) Debt to Total Capital Ratios (September 30) | Ratio | 2021 | 2020 | |:---|:---|:---|\ | Debt to total capital | 41.0% | 42.4% | | Net debt to total capital | 35.2% | 22.1% | - In fiscal 2021, net cash used in operating activities was **$303.1 million**, primarily due to investments in real estate acquisition and development[149](index=149&type=chunk) - In fiscal 2021, net cash provided by financing activities was **$61.4 million**, driven by the issuance of **$400 million** in **3.85% senior notes** and **$33.4 million** from common stock issuance, partially offset by the redemption of **$350 million** in **8.0% senior notes**[151](index=151&type=chunk) [Our Operations](index=28&type=section&id=Our%20Operations) [COVID-19](index=28&type=section&id=COVID-19) [Business Segment](index=28&type=section&id=Business%20Segment) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) [Operating Results](index=29&type=section&id=Operating%20Results) [Lot Sales](index=29&type=section&id=Lot%20Sales) [Revenues](index=29&type=section&id=Revenues) [Selling, General and Administrative (SG&A) Expense and Other Income Statement Items](index=30&type=section&id=Selling%2C%20General%20and%20Administrative%20%28SG%26A%29%20Expense%20and%20Other%20Income%20Statement%20Items) [Income Taxes](index=30&type=section&id=Income%20Taxes) [Land and Lot Position](index=31&type=section&id=Land%20and%20Lot%20Position) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) [Liquidity](index=32&type=section&id=Liquidity) [Bank Credit Facility](index=32&type=section&id=Bank%20Credit%20Facility) [Senior Notes](index=32&type=section&id=Senior%20Notes) [Other Note Payable](index=33&type=section&id=Other%20Note%20Payable) [Issuance of Common Stock](index=33&type=section&id=Issuance%20of%20Common%20Stock) [Operating Cash Flow Activities](index=34&type=section&id=Operating%20Cash%20Flow%20Activities) [Investing Cash Flow Activities](index=34&type=section&id=Investing%20Cash%20Flow%20Activities) [Financing Cash Flow Activities](index=34&type=section&id=Financing%20Cash%20Flow%20Activities) [Contractual Obligations and Off-Balance Sheet Arrangements](index=34&type=section&id=Contractual%20Obligations%20and%20Off-Balance%20Sheet%20Arrangements) [Inflation](index=35&type=section&id=Inflation) [Critical Accounting Policies and Estimates](index=35&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) [General](index=35&type=section&id=General) [Revenue Recognition](index=35&type=section&id=Revenue%20Recognition) [Real Estate and Cost of Sales](index=35&type=section&id=Real%20Estate%20and%20Cost%20of%20Sales) [Pending Accounting Standards](index=36&type=section&id=Pending%20Accounting%20Standards) [Forward-Looking Statements](index=37&type=section&id=Forward-Looking%20Statements) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, primarily interest rate risk on its senior debt and revolving credit facility, noting that Forestar uses both fixed and variable rate debt and has no significant exposure to foreign currency or commodity price risks. - The company is subject to interest rate risk on its senior debt and revolving credit facility[174](index=174&type=chunk) - Fixed rate debt includes **$400 million** of 2026 notes, **$300 million** of 2028 notes, and a **$12.5 million** note payable. Variable rate debt consists of the revolving credit facility, which had no outstanding borrowings at September 30, 2021[175](index=175&type=chunk) - No exposure to foreign currency fluctuations or significant commodity price risks[176](index=176&type=chunk)[177](index=177&type=chunk) [Interest Rate Risk](index=39&type=section&id=Interest%20Rate%20Risk) [Foreign Currency Risk](index=39&type=section&id=Foreign%20Currency%20Risk) [Commodity Price Risk](index=39&type=section&id=Commodity%20Price%20Risk) [Item 8. Financial Statements and Supplementary Data](index=40&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Forestar's consolidated financial statements for fiscal years 2021, 2020, and 2019, along with management's report on internal control and independent auditor's reports, affirming effective internal controls and fair presentation. - Management believes internal control over financial reporting is effective as of September 30, 2021, based on the COSO framework[183](index=183&type=chunk) - Ernst & Young LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting and the fair presentation of consolidated financial statements[187](index=187&type=chunk)[197](index=197&type=chunk) - A critical audit matter identified was the complexity and subjectivity in auditing land development costs, particularly estimated costs to complete, due to reliance on management assumptions[203](index=203&type=chunk) Consolidated Balance Sheets (September 30, In millions) | ASSETS | 2021 | 2020 | |:---|:---|:---|\ | Cash and cash equivalents | $153.6 | $394.3 | | Real estate | $1,905.2 | $1,309.7 | | Total assets | $2,101.7 | $1,739.9 | | LIABILITIES | | | | Debt | $704.5 | $641.1 | | Total liabilities | $1,085.8 | $868.1 | | EQUITY | | | | Total equity | $1,015.9 | $871.8 | | Total liabilities and equity | $2,101.7 | $1,739.9 | Consolidated Statements of Operations (Year Ended September 30, In millions, except per share amounts) | Metric | 2021 | 2020 | 2019 | |:---|:---|:---|:---|\ | Revenues | $1,325.8 | $931.8 | $428.3 | | Cost of sales | $1,096.6 | $813.7 | $362.7 | | Selling, general and administrative expense | $68.4 | $45.7 | $28.9 | | Income before income taxes | $146.6 | $78.1 | $45.7 | | Net income attributable to Forestar Group Inc. | $110.2 | $60.8 | $33.0 | | Basic net income per common share | $2.25 | $1.26 | $0.79 | Consolidated Statements of Cash Flows (Year Ended September 30, In millions) | Activity | 2021 | 2020 | 2019 | |:---|:---|:---|:---|\ | Net cash used in operating activities | ($303.1) | ($168.4) | ($391.2) | | Net cash provided by (used in) investing activities | $1.0 | $5.0 | ($0.8) | | Net cash provided by financing activities | $61.4 | $174.9 | $439.8 | | Net (decrease) increase in cash and cash equivalents | ($240.7) | $11.5 | $47.8 | | Cash and cash equivalents at end of year | $153.6 | $394.3 | $382.8 | - Forestar's real estate segment is its core business, generating substantially all revenues from acquiring land and developing infrastructure for single-family residential communities, primarily selling finished lots to homebuilders[244](index=244&type=chunk) Real Estate Investments (September 30, In millions) | Category | 2021 | 2020 | |:---|:---|:---|\ | Developed and under development projects | $1,824.7 | $1,304.3 | | Undeveloped land | $80.5 | $5.4 | | **Total Real Estate** | **$1,905.2** | **$1,309.7** | * In fiscal 2021, the company invested **$779.7 million** for residential real estate acquisition and **$850.7 million** for development[247](index=247&type=chunk) Debt Composition (September 30, In millions) | Debt Type | 2021 | 2020 | |:---|:---|:---|\ | Revolving credit facility | $0 | $0 | | 8.0% senior notes due 2024 | $0 | $345.2 | | 3.85% senior notes due 2026 | $395.5 | $0 | | 5.0% senior notes due 2028 | $296.5 | $295.9 | | Other note payable | $12.5 | $0 | | **Total Debt** | **$704.5** | **$641.1** | * In April 2021, the company issued **$400 million** of **3.85% senior notes** due 2026 and redeemed **$350 million** of **8.0% senior notes** due 2024, incurring an **$18.1 million loss** on extinguishment of debt[259](index=259&type=chunk)[263](index=263&type=chunk)[266](index=266&type=chunk) Quarterly Results of Operations (Fiscal 2021, In millions, except per share amounts) | Metric | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |:---|:---|:---|:---|:---|\ | Total revenues | $307.1 | $287.1 | $312.9 | $418.7 | | Income before income taxes | $29.2 | $37.6 | $21.1 | $58.8 | | Net income attributable to Forestar Group Inc. | $22.0 | $28.4 | $15.8 | $44.0 | | Net income per share — basic | $0.46 | $0.59 | $0.32 | $0.89 | [MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING](index=40&type=section&id=MANAGEMENT%27S%20ANNUAL%20REPORT%20ON%20INTERNAL%20CONTROL%20OVER%20FINANCIAL%20REPORTING) [REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Internal Control)](index=41&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM) [REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Financial Statements)](index=43&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM) [Land development costs (including estimated costs to complete)](index=44&type=section&id=Land%20development%20costs%20%28including%20estimated%20costs%20to%20complete%29) [FORESTAR GROUP INC. CONSOLIDATED BALANCE SHEETS](index=45&type=section&id=FORESTAR%20GROUP%20INC.%20CONSOLIDATED%20BALANCE%20SHEETS) [FORESTAR GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS](index=46&type=section&id=FORESTAR%20GROUP%20INC.%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) [FORESTAR GROUP INC. CONSOLIDATED STATEMENTS OF TOTAL EQUITY](index=47&type=section&id=FORESTAR%20GROUP%20INC.%20CONSOLIDATED%20STATEMENTS%20OF%20TOTAL%20EQUITY) [FORESTAR GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS](index=48&type=section&id=FORESTAR%20GROUP%20INC.%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) [Note 1 — Summary of Significant Accounting Policies](index=49&type=section&id=Note%201%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) [Basis of Presentation](index=49&type=section&id=Basis%20of%20Presentation) [Changes in Presentation and Reclassifications](index=49&type=section&id=Changes%20in%20Presentation%20and%20Reclassifications) [Use of Estimates](index=49&type=section&id=Use%20of%20Estimates) [Revenue Recognition](index=49&type=section&id=Revenue%20Recognition) [Cash and Cash Equivalents](index=49&type=section&id=Cash%20and%20Cash%20Equivalents) [Real Estate and Cost of Sales](index=50&type=section&id=Real%20Estate%20and%20Cost%20of%20Sales) [Capitalized Interest](index=50&type=section&id=Capitalized%20Interest) [Land Purchase Contract Deposits and Pre-Acquisition Costs](index=50&type=section&id=Land%20Purchase%20Contract%20Deposits%20and%20Pre-Acquisition%20Costs) [Variable Interests](index=51&type=section&id=Variable%20Interests) [Property and Equipment](index=51&type=section&id=Property%20and%20Equipment) [Income Taxes](index=51&type=section&id=Income%20Taxes) [Stock-Based Compensation](index=52&type=section&id=Stock-Based%20Compensation) [Fair Value Measurements](index=52&type=section&id=Fair%20Value%20Measurements) [Pending Accounting Standards](index=52&type=section&id=Pending%20Accounting%20Standards) [Note 2 — Segment Information](index=52&type=section&id=Note%202%20%E2%80%94%20Segment%20Information) [Note 3 — Real Estate](index=53&type=section&id=Note%203%20%E2%80%94%20Real%20Estate) [Note 4 — Revenues](index=53&type=section&id=Note%204%20%E2%80%94%20Revenues) [Note 5 — Capitalized Interest](index=54&type=section&id=Note%205%20%E2%80%94%20Capitalized%20Interest) [Note 6 — Other Assets, Accrued Expenses and Other Liabilities](index=54&type=section&id=Note%206%20%E2%80%94%20Other%20Assets%2C%20Accrued%20Expenses%20and%20Other%20Liabilities) [Note 7 — Debt](index=55&type=section&id=Note%207%20%E2%80%94%20Debt) [Note 8 — Earnings per Share](index=56&type=section&id=Note%208%20%E2%80%94%20Earnings%20per%20Share) [Note 9 — Income Taxes](index=57&type=section&id=Note%209%20%E2%80%94%20Income%20Taxes) [Note 10 — Stockholders' Equity](index=59&type=section&id=Note%2010%20%E2%80%94%20Stockholders%27%20Equity) [Note 11 — Employee Benefit Plans](index=59&type=section&id=Note%2011%20%E2%80%94%20Employee%20Benefit%20Plans) [Retirement Plans](index=59&type=section&id=Retirement%20Plans) [Restricted Stock Units (RSUs)](index=59&type=section&id=Restricted%20Stock%20Units%20%28RSUs%29) [Note 12 — Commitments and Contingencies](index=60&type=section&id=Note%2012%20%E2%80%94%20Commitments%20and%20Contingencies) [Contractual Obligations and Off-Balance Sheet Arrangements](index=60&type=section&id=Contractual%20Obligations%20and%20Of%20-Balance%20Sheet%20Arrangements) [Litigation](index=60&type=section&id=Litigation) [Land Purchase Contracts](index=60&type=section&id=Land%20Purchase%20Contracts) [Other Commitments](index=61&type=section&id=Other%20Commitments) [Note 13 — Related Party Transactions](index=61&type=section&id=Note%2013%20%E2%80%94%20Related%20Party%20Transactions) [Note 14 — Fair Value Measurements](index=63&type=section&id=Note%2014%20%E2%80%94%20Fair%20Value%20Measurements) [Note 15 — Quarterly Results of Operations (Unaudited)](index=64&type=section&id=Note%2015%20%E2%80%94%20Quarterly%20Results%20of%20Operations%20%28Unaudited%29) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=65&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) There have been no changes in or disagreements with accountants on accounting and financial disclosure matters. - No changes in or disagreements with accountants on accounting and financial disclosure[323](index=323&type=chunk) [Item 9A. Controls and Procedures](index=65&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2021, concluding they were effective, with no material changes in internal control over financial reporting during the quarter. - Disclosure controls and procedures were effective as of September 30, 2021[324](index=324&type=chunk) - No material changes in internal control over financial reporting during the quarter ended September 30, 2021[326](index=326&type=chunk) [Item 9B. Other Information](index=65&type=section&id=Item%209B.%20Other%20Information.) There is no other information to report under this item. - No other information to report[327](index=327&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=66&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders. - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement[330](index=330&type=chunk) [Item 11. Executive Compensation](index=66&type=section&id=Item%2011.%20Executive%20Compensation.) Information on executive compensation is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders. - Information on executive compensation is incorporated by reference from the 2022 Proxy Statement[331](index=331&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=66&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) Information regarding security ownership of certain beneficial owners and management, along with related stockholder matters, is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders. - Information on security ownership and related stockholder matters is incorporated by reference from the 2022 Proxy Statement[332](index=332&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=66&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Information concerning certain relationships, related party transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders. - Information on certain relationships, related party transactions, and director independence is incorporated by reference from the 2022 Proxy Statement[333](index=333&type=chunk) [Item 14. Principal Accountant Fees and Services](index=66&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services.) Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders. - Information on principal accountant fees and services is incorporated by reference from the 2022 Proxy Statement[334](index=334&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=67&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules.) This section lists all exhibits and financial statement schedules filed as part of the Annual Report on Form 10-K, with financial statements included in Part II, Item 8, and other schedules omitted as not applicable or included elsewhere. - Consolidated financial statements are included in Part II, Item 8[337](index=337&type=chunk) - All financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes[337](index=337&type=chunk) - A comprehensive list of exhibits, including merger agreements, bylaws, indentures, credit agreements, and stock incentive plans, is provided[337](index=337&type=chunk)[340](index=340&type=chunk)[342](index=342&type=chunk) [Item 16. 10-K Summary](index=69&type=section&id=Item%2016.%2010-K%20Summary.) This item indicates that no 10-K summary is provided. - No 10-K Summary is provided[343](index=343&type=chunk)

Forestar Group Inc. (NYSE:FOR) Q4 2021 Earnings Conference Call November 4, 2021 5:00 PM ET Company Participants Katie Smith – Director-Finance and Investor Relations Dan Bartok – Chief Executive Officer Jim Allen – Chief Financial Officer Conference Call Participants Paul Przybylski – Wolfe Research Asher Sohnen – Citigroup Deepa Raghavan – Wells Fargo Securities Mike Rehaut – JPMorgan Max Downey – BTIG Operator Good afternoon, and welcome to Forestar’s Fourth Quarter 2021 Earnings Conference Call. I will ...

1 Investor Presentation Q4 21 FORWARD‑LOOKING STATEMENTS This presentation may include "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. Although Forestar believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. Factors that may cause the actual results to be materially different from the future results expressed by the forward-looking statements include, but are not limited t ...

PART I — FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements of Forestar Group Inc., including the balance sheets, statements of operations, total equity, and cash flows, along with detailed notes explaining the basis of presentation, segment information, real estate, revenues, debt, and other financial disclosures for the periods ended June 30, 2021 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time - The company's **total assets** increased significantly from September 30, 2020, to June 30, 2021, primarily driven by a substantial increase in **real estate holdings**, while **cash and cash equivalents** decreased[9](index=9&type=chunk) | Metric | June 30, 2021 (Millions) | September 30, 2020 (Millions) | | :-------------------------- | :----------------------- | :-------------------------- | | Cash and cash equivalents | $116.0 | $394.3 | | Real estate | $1,861.4 | $1,309.7 | | Total assets | $2,015.0 | $1,739.9 | | Total liabilities | $1,044.6 | $868.1 | | Total equity | $970.4 | $871.8 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's financial performance over specific periods, including revenues, costs, and net income - The company experienced substantial **revenue** and **net income growth** for both the three and nine months ended June 30, 2021, compared to the prior year, despite incurring a significant **loss on extinguishment of debt** in 2021[12](index=12&type=chunk) | Metric | 3 Months Ended June 30, 2021 (Millions) | 3 Months Ended June 30, 2020 (Millions) | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :------------------------------------------ | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Revenues | $312.9 | $177.9 | $907.1 | $584.3 | | Cost of sales | $257.1 | $157.1 | $753.8 | $510.3 | | Selling, general and administrative expense | $16.9 | $11.2 | $48.7 | $32.8 | | Loss on extinguishment of debt | $18.1 | $— | $18.1 | $— | | Net income attributable to Forestar Group Inc. | $15.8 | $10.1 | $66.2 | $36.5 | | Basic net income per common share | $0.32 | $0.21 | $1.36 | $0.76 | [Consolidated Statements of Total Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Total%20Equity) This section outlines changes in the company's equity components, reflecting net income, stock transactions, and other comprehensive income - Total equity increased from **$871.8 million** at September 30, 2020, to **$970.4 million** at June 30, 2021, primarily driven by net income and the issuance of common stock, partially offset by cash paid for shares withheld for taxes and purchase of noncontrolling interest[15](index=15&type=chunk) | Equity Component | Balances at Sep 30, 2020 (Millions) | Balances at Jun 30, 2021 (Millions) | | :-------------------------- | :---------------------------------- | :---------------------------------- | | Common Stock | $48.1 | $49.5 | | Additional Paid-in Capital | $603.9 | $634.9 | | Retained Earnings | $218.9 | $285.1 | | Noncontrolling Interests | $0.9 | $0.9 | | Total Equity | $871.8 | $970.4 | - Net income contributed **$22.0 million** (Q1), **$28.4 million** (Q2), and **$15.8 million** (Q3) to retained earnings during the nine months ended June 30, 2021[15](index=15&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash generated and used by the company across its operating, investing, and financing activities - The company used significantly more **cash in operating activities** during the nine months ended June 30, 2021, primarily due to increased **real estate investments**, while **cash provided by financing activities** decreased compared to the prior year[21](index=21&type=chunk)[103](index=103&type=chunk) | Activity | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net cash used in operating activities | $(340.6) | $(205.7) | | Net cash provided by investing activities | $1.7 | $3.1 | | Net cash provided by financing activities | $60.6 | $175.4 | | Net decrease in cash and cash equivalents | $(278.3) | $(27.2) | | Cash and cash equivalents at end of period | $116.0 | $355.6 | - Financing activities in 2021 included proceeds from **$400 million** senior notes and **$32.6 million** from common stock issuance, partially offset by **$350 million** senior notes redemption[105](index=105&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements [Note 1—Basis of Presentation](index=8&type=section&id=Note%201%E2%80%94Basis%20of%20Presentation) This note describes the accounting principles and conventions used in preparing the financial statements - Forestar Group Inc. is a majority-owned subsidiary of D.R. Horton, Inc., which owned approximately **64%** of outstanding common stock at June 30, 2021[25](index=25&type=chunk) - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and should be read in conjunction with the annual report on Form 10-K[24](index=24&type=chunk) - The company is evaluating new accounting guidance (ASU 2019-12 and ASU 2020-04/2021-01) but does not expect a material impact on its consolidated financial position, results of operations or cash flows[27](index=27&type=chunk)[28](index=28&type=chunk) [Note 2—Segment Information](index=8&type=section&id=Note%202%E2%80%94Segment%20Information) This note details the company's operating segments and their respective financial performance - The real estate segment is the company's core business, generating substantially all revenues from sales of residential single-family finished lots[29](index=29&type=chunk) [Note 3—Real Estate](index=10&type=section&id=Note%203%E2%80%94Real%20Estate) This note provides a breakdown of the company's real estate assets, including developed and undeveloped land - Real estate assets significantly increased to **$1,861.4 million** at June 30, 2021, from **$1,309.7 million** at September 30, 2020, reflecting substantial investments in land acquisition and development[31](index=31&type=chunk) | Real Estate Component | June 30, 2021 (Millions) | September 30, 2020 (Millions) | | :-------------------------- | :----------------------- | :-------------------------- | | Developed and under development projects | $1,777.9 | $1,304.3 | | Undeveloped land | $83.5 | $5.4 | | Total Real Estate | $1,861.4 | $1,309.7 | - The company invested **$654.7 million** in residential real estate acquisition and **$604.3 million** in development during the nine months ended June 30, 2021[31](index=31&type=chunk) [Note 4—Revenues](index=10&type=section&id=Note%204%E2%80%94Revenues) This note explains the sources and recognition policies for the company's revenue streams - Total revenues increased significantly for both the three and nine months ended June 30, 2021, primarily driven by a substantial rise in residential lot sales[34](index=34&type=chunk) | Revenue Type | 3 Months Ended June 30, 2021 (Millions) | 3 Months Ended June 30, 2020 (Millions) | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :------------------ | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Residential lot sales | $307.4 | $164.4 | $894.5 | $537.9 | | Tract sales and other | $5.5 | $13.5 | $12.6 | $46.4 | | Total Revenues | $312.9 | $177.9 | $907.1 | $584.3 | [Note 5—Capitalized Interest](index=10&type=section&id=Note%205%E2%80%94Capitalized%20Interest) This note details the company's policy and amounts related to capitalized interest on real estate projects - The company capitalized all interest incurred during the first nine months of fiscal 2021 and 2020, as active real estate exceeded debt levels, with capitalized interest at period-end increasing to **$56.5 million** at June 30, 2021[35](index=35&type=chunk)[37](index=37&type=chunk) | Metric | 3 Months Ended June 30, 2021 (Millions) | 3 Months Ended June 30, 2020 (Millions) | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :-------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Interest incurred | $10.3 | $11.4 | $33.3 | $32.0 | | Interest charged to cost of sales | $(8.1) | $(4.1) | $(25.5) | $(10.5) | | Capitalized interest, end of period | $56.5 | $45.2 | $56.5 | $45.2 | [Note 6—Other Assets, Accrued Expenses and Other Liabilities](index=12&type=section&id=Note%206%E2%80%94Other%20Assets%2C%20Accrued%20Expenses%20and%20Other%20Liabilities) This note provides a breakdown of miscellaneous assets, accrued liabilities, and other non-current obligations - Other assets increased to **$34.7 million** at June 30, 2021, from **$24.9 million** at September 30, 2020, driven by increases in prepaid expenses and land purchase contract deposits[39](index=39&type=chunk) | Other Assets | June 30, 2021 (Millions) | September 30, 2020 (Millions) | | :-------------------------- | :----------------------- | :-------------------------- | | Prepaid expenses | $11.2 | $4.9 | | Land purchase contract deposits | $11.4 | $5.5 | | Total Other Assets | $34.7 | $24.9 | - Accrued expenses and other liabilities also rose significantly to **$138.2 million** from **$93.8 million**, primarily due to accrued development costs[39](index=39&type=chunk) | Accrued Expenses & Other Liabilities | June 30, 2021 (Millions) | September 30, 2020 (Millions) | | :----------------------------------- | :----------------------- | :-------------------------- | | Accrued development costs | $84.5 | $44.4 | | Total Accrued Expenses & Other Liabilities | $138.2 | $93.8 | [Note 7—Debt](index=13&type=section&id=Note%207%E2%80%94Debt) This note outlines the company's debt structure, including senior notes, credit facilities, and other borrowings - Total debt increased to **$704.1 million** at June 30, 2021, from **$641.1 million** at September 30, 2020, following the issuance of new **3.85% senior notes due 2026** and the redemption of **8.0% senior notes due 2024**, resulting in an **$18.1 million loss on extinguishment**[40](index=40&type=chunk)[44](index=44&type=chunk) | Debt Type | June 30, 2021 (Millions) | September 30, 2020 (Millions) | | :-------------------------- | :----------------------- | :-------------------------- | | 8.0% senior notes due 2024 | $— | $345.2 | | 3.85% senior notes due 2026 | $395.2 | $— | | 5.0% senior notes due 2028 | $296.4 | $295.9 | | Other note payable | $12.5 | $— | | Total Debt | $704.1 | $641.1 | - The revolving credit facility capacity was increased to **$410 million**, with **$349.8 million** available capacity at June 30, 2021[41](index=41&type=chunk) [Note 8—Earnings per Share](index=14&type=section&id=Note%208%E2%80%94Earnings%20per%20Share) This note details the calculation of basic and diluted earnings per common share - Basic and diluted net income per common share increased significantly for both the three and nine months ended June 30, 2021, reflecting higher net income and a slight increase in weighted average shares outstanding[49](index=49&type=chunk) | Metric | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 9 Months Ended June 30, 2021 | 9 Months Ended June 30, 2020 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic net income per common share | $0.32 | $0.21 | $1.36 | $0.76 | | Diluted net income per common share | $0.32 | $0.21 | $1.36 | $0.76 | | Weighted average common shares outstanding — basic | 49,419,594 | 48,050,379 | 48,653,676 | 48,028,957 | [Note 9—Income Taxes](index=15&type=section&id=Note%209%E2%80%94Income%20Taxes) This note explains the company's income tax expense, effective tax rate, and deferred tax assets and liabilities - Income tax expense and the effective tax rate increased significantly for the three and nine months ended June 30, 2021, compared to the prior year, which included a tax benefit from NOL carryback provisions[50](index=50&type=chunk) | Metric | 3 Months Ended June 30, 2021 (Millions) | 3 Months Ended June 30, 2020 (Millions) | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :---------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Income tax expense | $5.2 | $0.2 | $21.5 | $8.9 | | Effective tax rate | 24.6% | 1.9% | 24.5% | 19.3% | - Net deferred tax liability increased to **$9.8 million** at June 30, 2021, from **$5.7 million** at September 30, 2020, with a valuation allowance of **$1.3 million**[51](index=51&type=chunk) [Note 10—Stockholders' Equity and Stock-Based Compensation](index=15&type=section&id=Note%2010%E2%80%94Stockholders%27%20Equity%20and%20Stock-Based%20Compensation) This note describes changes in stockholders' equity and the accounting for stock-based compensation plans - The company issued **1.4 million shares** of common stock for **$32.6 million** under its at-the-market equity offering program during the nine months ended June 30, 2021, and recognized increased stock-based compensation expense[52](index=52&type=chunk)[54](index=54&type=chunk) - Stock-based compensation expense increased to **$0.8 million** (3 months) and **$2.0 million** (9 months) for June 30, 2021, compared to **$0.3 million** and **$1.6 million** in the prior year periods[54](index=54&type=chunk) [Note 11—Commitments and Contingencies](index=16&type=section&id=Note%2011%E2%80%94Commitments%20and%20Contingencies) This note discloses the company's contractual commitments, guarantees, and potential legal liabilities - The company has outstanding letters of credit of **$60.2 million** and surety bonds of **$436.6 million** to secure performance obligations in its residential lot development business[55](index=55&type=chunk) - The company is involved in various legal proceedings but does not believe the outcome will have a significant adverse effect on its financial position, long-term results of operations, or cash flows[56](index=56&type=chunk) [Note 12—Related Party Transactions](index=16&type=section&id=Note%2012%E2%80%94Related%20Party%20Transactions) This note details significant transactions and relationships with related parties, particularly D.R. Horton - D.R. Horton, as the majority shareholder, is a significant related party, providing shared services and being the primary buyer of residential lots, with substantial lot sales revenues and contractual arrangements for future lot sales[57](index=57&type=chunk)[61](index=61&type=chunk) | Metric | 3 Months Ended June 30, 2021 (Millions) | 3 Months Ended June 30, 2020 (Millions) | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :------------------------------------------ | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Residential lots sold to D.R. Horton | 3,719 | 1,991 | 10,466 | 6,287 | | Residential lot sales revenues from D.R. Horton | $300.4 | $159.3 | $860.0 | $526.0 | - At June 30, 2021, **21,500 residential lots** were under contract to sell to D.R. Horton, with a remaining purchase price of **$1,611.5 million**[59](index=59&type=chunk) [Note 13—Fair Value Measurements](index=18&type=section&id=Note%2013%E2%80%94Fair%20Value%20Measurements) This note explains the methodologies and hierarchy used for fair value measurements of financial instruments - The company uses a fair value hierarchy (Level 1, 2, 3) for financial assets and liabilities, with **cash and cash equivalents** classified as **Level 1** and **senior notes** as **Level 2**, reflecting their market observability[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) | Financial Instrument | Carrying Value (June 30, 2021, Millions) | Fair Value (June 30, 2021, Millions) | Fair Value Level | | :-------------------------- | :--------------------------------------- | :----------------------------------- | :--------------- | | Cash and cash equivalents | $116.0 | $116.0 | Level 1 | | Debt | $704.1 | $727.9 | Level 2/3 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational performance, highlighting significant increases in lot sales and revenues, the impact of the D.R. Horton relationship, and the company's liquidity and capital resources, including recent debt and equity activities [Our Operations](index=19&type=section&id=Our%20Operations) This section describes the company's business model, strategic focus, and operational footprint - The company operates in **55 markets** in **22 states** and is a majority-owned subsidiary of D.R. Horton, which guides its strategic direction[73](index=73&type=chunk) - Strategy focuses on investments in land acquisition and development for residential lot development, consolidating market share, and utilizing a lower-risk business model for consistent returns[73](index=73&type=chunk) [COVID-19](index=19&type=section&id=COVID-19) This section discusses the impact of the COVID-19 pandemic on the company's operations and market conditions - COVID-19 initially affected business operations and demand but lot sales pace increased in late fiscal 2020 and remained strong in fiscal 2021[74](index=74&type=chunk) - Supply chain disruptions and labor market tightness have lengthened development cycles in certain markets[74](index=74&type=chunk) [Business Segment](index=19&type=section&id=Business%20Segment) This section identifies the company's primary operating segment and its core business activities - The real estate segment is the core business, generating substantially all revenues from sales of residential single-family finished lots[75](index=75&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenues, costs, and profitability trends - The company achieved significant growth in **revenues** and **income before income taxes** for both the three and nine months ended June 30, 2021, compared to the prior year, driven by increased lot sales, despite a **loss on debt extinguishment**[78](index=78&type=chunk) | Metric | 3 Months Ended June 30, 2021 (Millions) | 3 Months Ended June 30, 2020 (Millions) | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :-------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Revenues | $312.9 | $177.9 | $907.1 | $584.3 | | Income before income taxes | $21.1 | $10.3 | $87.9 | $46.1 | | Loss on extinguishment of debt | $18.1 | $— | $18.1 | $— | [Lot Sales](index=20&type=section&id=Lot%20Sales) This section provides a detailed breakdown of residential lot sales volume and average selling prices - Total residential lot sales increased substantially for both the three and nine months ended June 30, 2021, primarily driven by a significant rise in development projects[79](index=79&type=chunk) | Lot Sales Type | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 9 Months Ended June 30, 2021 | 9 Months Ended June 30, 2020 | | :------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Development projects | 3,330 | 1,556 | 9,606 | 4,234 | | Lot banking projects | 528 | 467 | 1,407 | 2,162 | | Total lots sold | 3,858 | 2,023 | 11,013 | 6,396 | | Average sales price per lot | $80,700 | $79,900 | $81,600 | $83,800 | [Revenues](index=20&type=section&id=Revenues) This section analyzes the company's revenue streams, focusing on residential lot sales and other income - Residential lot sales revenues significantly increased for both the three and nine months ended June 30, 2021, largely due to increased sales to D.R. Horton and other builders, while tract sales and other revenue decreased[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) | Revenue Type | 3 Months Ended June 30, 2021 (Millions) | 3 Months Ended June 30, 2020 (Millions) | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :-------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Residential lot sales | $307.4 | $164.4 | $894.5 | $537.9 | | Tract sales and other | $5.5 | $13.5 | $12.6 | $46.4 | - Sales to D.R. Horton accounted for **$300.4 million** (3 months) and **$860.0 million** (9 months) in residential lot sales revenues for June 30, 2021[81](index=81&type=chunk) [Cost of sales](index=21&type=section&id=Cost%20of%20sales) This section examines the direct costs associated with the company's lot sales and revenue generation - Cost of sales increased in the three and nine months ended June 30, 2021, primarily due to the higher volume of lots sold[83](index=83&type=chunk) | Metric | 3 Months Ended June 30, 2021 (Millions) | 3 Months Ended June 30, 2020 (Millions) | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :---------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Cost of sales | $257.1 | $157.1 | $753.8 | $510.3 | [Selling, General and Administrative (SG&A) Expense and Other Income Statement Items](index=21&type=section&id=Selling%2C%20General%20and%20Administrative%20(SG%26A)%20Expense%20and%20Other%20Income%20Statement%20Items) This section analyzes operating expenses, including SG&A, and other non-operating income or losses - SG&A expense increased in absolute terms but decreased as a percentage of revenues for the three and nine months ended June 30, 2021, reflecting operational leverage from increased business volume, while a significant loss on debt extinguishment was recognized[84](index=84&type=chunk)[85](index=85&type=chunk) | Metric | 3 Months Ended June 30, 2021 (Millions) | 3 Months Ended June 30, 2020 (Millions) | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :------------------------------------------ | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | SG&A expense | $16.9 | $11.2 | $48.7 | $32.8 | | SG&A as % of revenues | 5.4% | 6.3% | 5.4% | 5.6% | - Employee count increased from **128** at June 30, 2020, to **232** at June 30, 2021[84](index=84&type=chunk) [Income Taxes](index=21&type=section&id=Income%20Taxes) This section discusses the company's income tax expense, effective tax rate, and factors influencing tax provisions - Income tax expense and the effective tax rate increased for the three and nine months ended June 30, 2021, compared to the prior year, which benefited from a tax provision related to NOL carryback[87](index=87&type=chunk) | Metric | 3 Months Ended June 30, 2021 (Millions) | 3 Months Ended June 30, 2020 (Millions) | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :---------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Income tax expense | $5.2 | $0.2 | $21.5 | $8.9 | | Effective tax rate | 24.6% | 1.9% | 24.5% | 19.3% | - The 2020 effective tax rate included a **$2.3 million** tax benefit from the CARES Act's NOL carryback provisions[87](index=87&type=chunk) [Land and Lot Position](index=22&type=section&id=Land%20and%20Lot%20Position) This section details the company's inventory of owned and controlled residential lots for future development - The company significantly expanded its land and lot position, owning or controlling **96,600 residential lots** at June 30, 2021, up from **60,500** at September 30, 2020, with a substantial portion under contract or right of first offer with D.R. Horton[89](index=89&type=chunk) | Lot Position | June 30, 2021 | September 30, 2020 | | :------------------------------------ | :------------ | :----------------- | | Lots owned | 64,200 | 42,400 | | Lots controlled through purchase contracts | 32,400 | 18,100 | | Total lots owned and controlled | 96,600 | 60,500 | - At June 30, 2021, **21,500 owned lots** were under contract to sell to D.R. Horton, and D.R. Horton had a right of first offer on approximately **17,900 additional lots**[89](index=89&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations and fund operations - The company maintains a strong liquidity position with **$116.0 million** in cash and **$349.8 million** in available borrowing capacity, and aims to keep its net debt to total capital ratio at or below **40%**, which was **37.8%** at June 30, 2021[90](index=90&type=chunk)[91](index=91&type=chunk)[93](index=93&type=chunk) | Metric | June 30, 2021 (Millions) | September 30, 2020 (Millions) | June 30, 2020 (Millions) | | :------------------------------------------ | :----------------------- | :-------------------------- | :----------------------- | | Cash and cash equivalents | $116.0 | $394.3 | $355.6 | | Available borrowing capacity (revolving credit) | $349.8 | N/A | N/A | | Ratio of debt to total capital | 42.1% | 42.4% | 43.1% | | Ratio of net debt to total capital | 37.8% | 22.1% | 25.2% | - The company has no senior note maturities until fiscal 2026[90](index=90&type=chunk) [Bank Credit Facility](index=22&type=section&id=Bank%20Credit%20Facility) This section describes the company's revolving credit facility, its capacity, and utilization - The company's senior unsecured revolving credit facility was amended in April 2021, increasing its capacity to **$410 million** and extending its maturity to April 2025, with **$349.8 million** available at June 30, 2021, and the company in compliance with all covenants[93](index=93&type=chunk)[94](index=94&type=chunk) - Revolving credit facility capacity increased to **$410 million**, with an uncommitted accordion feature up to **$600 million**[93](index=93&type=chunk) - At June 30, 2021, there were no borrowings outstanding, **$60.2 million** in letters of credit, and **$349.8 million** available capacity[93](index=93&type=chunk) [Senior Notes](index=24&type=section&id=Senior%20Notes) This section details the company's outstanding senior notes, including issuance, redemption, and covenants - In April 2021, the company issued **$400 million** of **3.85% senior notes due 2026**, using the proceeds to redeem **$350 million** of **8.0% senior notes due 2024**, resulting in an **$18.1 million loss on extinguishment**, and remains in compliance with all debt covenants[96](index=96&type=chunk)[98](index=98&type=chunk) - Issued **$400 million** of **3.85% senior notes** due May 15, 2026, with an effective interest rate of **4.1%**[96](index=96&type=chunk) - The company was in compliance with all limitations and restrictions associated with its senior note obligations at June 30, 2021[98](index=98&type=chunk) [Other Note Payable](index=24&type=section&id=Other%20Note%20Payable) This section describes any additional notes payable, their terms, and security - The company has a **$12.5 million** non-recourse note payable, secured by underlying real estate, accruing interest at **4.0%** per annum and maturing in October 2023[100](index=100&type=chunk) [Issuance of Common Stock](index=24&type=section&id=Issuance%20of%20Common%20Stock) This section reports on the company's activities related to issuing common stock, including equity offering programs - The company issued **1.4 million shares** of common stock for **$32.6 million** under its at-the-market equity offering program during the nine months ended June 30, 2021, with **$66.7 million** remaining available under the program[101](index=101&type=chunk) - Issued **0.4 million shares** for **$9.3 million** (3 months) and **1.4 million shares** for **$32.6 million** (9 months) under its at-the-market equity offering program[101](index=101&type=chunk) [Contractual Obligations and Off-Balance Sheet Arrangements](index=25&type=section&id=Contractual%20Obligations%20and%20Off-Balance%20Sheet%20Arrangements) This section outlines the company's significant contractual commitments and off-balance sheet liabilities - The company utilizes letters of credit (**$60.2 million**) and surety bonds (**$436.6 million**) to secure performance obligations in its residential lot development business, expecting these obligations to be completed in the ordinary course[102](index=102&type=chunk) [Operating Cash Flow Activities](index=25&type=section&id=Operating%20Cash%20Flow%20Activities) This section analyzes cash flows generated or used by the company's primary business operations - Net cash used in operating activities increased to **$340.6 million** for the nine months ended June 30, 2021, from **$205.7 million** in the prior year, primarily due to increased investments in real estate for land development[103](index=103&type=chunk) | Metric | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net cash used in operating activities | $(340.6) | $(205.7) | [Investing Cash Flow Activities](index=25&type=section&id=Investing%20Cash%20Flow%20Activities) This section details cash flows related to the acquisition and disposal of long-term assets - Net cash provided by investing activities decreased to **$1.7 million** for the nine months ended June 30, 2021, from **$3.1 million** in the prior year, primarily from distributions received from unconsolidated ventures[104](index=104&type=chunk) | Metric | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net cash provided by investing activities | $1.7 | $3.1 | [Financing Cash Flow Activities](index=25&type=section&id=Financing%20Cash%20Flow%20Activities) This section reports cash flows from debt, equity, and dividend transactions - Net cash provided by financing activities decreased to **$60.6 million** for the nine months ended June 30, 2021, from **$175.4 million** in the prior year, reflecting the net impact of new senior note issuance, redemption of old notes, and common stock issuance[105](index=105&type=chunk) | Metric | 9 Months Ended June 30, 2021 (Millions) | 9 Months Ended June 30, 2020 (Millions) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net cash provided by financing activities | $60.6 | $175.4 | - 2021 financing activities included proceeds from **$400 million** senior notes and **$32.6 million** from common stock issuance, partially offset by the redemption of **$350 million** senior notes and a **$14.0 million** call premium[105](index=105&type=chunk) [Critical Accounting Policies and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the accounting policies requiring significant judgment and estimation - There have been no significant changes in the company's critical accounting policies or estimates since its 2020 Annual Report on Form 10-K[106](index=106&type=chunk) [New and Pending Accounting Pronouncements](index=25&type=section&id=New%20and%20Pending%20Accounting%20Pronouncements) This section discusses recently issued or pending accounting standards and their potential impact - The company refers to Note 1 for details on new and pending accounting pronouncements, which are not expected to have a material impact[107](index=107&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to market risks, primarily focusing on interest rate risk related to its debt, and confirms no significant exposure to foreign currency or commodity price fluctuations - The company is subject to **interest rate risk** on its senior debt, revolving credit facility, and other note payable, managing this through a mix of fixed and variable rate debt[112](index=112&type=chunk) - Fixed rate debt includes **$400 million** of **3.85% senior notes (2026)**, **$300 million** of **5.0% senior notes (2028)**, and a **$12.5 million 4.0% other note payable (2023)**[113](index=113&type=chunk) - The company has no exposure to foreign currency fluctuations or significant commodity price risk[114](index=114&type=chunk)[115](index=115&type=chunk) [Interest Rate Risk](index=28&type=section&id=Interest%20Rate%20Risk) This section details the company's exposure to fluctuations in interest rates on its debt instruments - The company monitors its exposure to changes in interest rates and utilizes both fixed and variable rate debt[112](index=112&type=chunk) - At June 30, 2021, all outstanding debt was fixed rate, with no borrowings on the variable rate revolving credit facility[113](index=113&type=chunk) [Foreign Currency Risk](index=28&type=section&id=Foreign%20Currency%20Risk) This section assesses the company's exposure to risks arising from changes in foreign currency exchange rates - The company has no exposure to foreign currency fluctuations[114](index=114&type=chunk) [Commodity Price Risk](index=28&type=section&id=Commodity%20Price%20Risk) This section evaluates the company's exposure to risks associated with changes in commodity prices - The company has no significant exposure to commodity price fluctuations[115](index=115&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2021, and there were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2021[116](index=116&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2021[117](index=117&type=chunk) [Disclosure controls and procedures](index=28&type=section&id=Disclosure%20controls%20and%20procedures) This section describes the effectiveness of controls ensuring timely and accurate disclosure of financial information - Management concluded that disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required by the Exchange Act[116](index=116&type=chunk) [Changes in internal control over financial reporting](index=28&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) This section reports on any material changes to the company's internal control over financial reporting - There were no changes in internal control over financial reporting during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[117](index=117&type=chunk) PART II — OTHER INFORMATION [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, for which adequate reserves have been established, and the outcomes are not expected to have a material adverse effect on its financial position or long-term results - The company is involved in various legal proceedings, believes adequate reserves are established, and does not expect a material adverse effect on financial position or long-term results[119](index=119&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including indentures, credit agreements, and certifications - The section lists various exhibits, including the Indenture dated April 21, 2021, and Amendment No. 2 to Credit Agreement dated April 16, 2021[120](index=120&type=chunk) - Includes certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act[120](index=120&type=chunk) SIGNATURE - The report was signed on behalf of Forestar Group Inc. by James D. Allen, Executive Vice President and Chief Financial Officer, on July 23, 2021[126](index=126&type=chunk)

HARRINGTON TRAILS FORESTAR Investor Presentation 3Q | 2021 FORESTAR ' FORWARD‐LOOKING STATEMENTS 2 This presentation may include "forward‐looking statements" as defined by the Private Securities Litigation Reform Act of 1995. Although Forestar believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. Factors that may cause the actual results to be materially different from the future results expressed by the forward-looking ...

Financial Data and Key Metrics Changes - Forestar's net income increased by 56% to $15.8 million or $0.32 per diluted share compared to $10.1 million or $0.21 per diluted share in the prior year quarter [11] - Revenues increased by 76% from the prior year to $312.9 million [11] - Gross profit margin increased by 610 basis points year-over-year to 17.8% from 11.7% in the prior year quarter [14] - Return on equity (ROE) improved by 390 basis points year-over-year to 10% for the trailing 12 months ended June 30, 2021 [10] Business Line Data and Key Metrics Changes - Sold 3,858 residential lots during the quarter, an increase of 91% year-over-year [11] - Average lot sales price for the quarter was $80,700, with 86% of lots sold from development projects, up from 77% in the same quarter in 2020 [12] - Lots sold to D.R. Horton represented 96% of total lots sold, down from 98% in the third quarter of fiscal 2020 [12] Market Data and Key Metrics Changes - Forestar's lot position at June 30th increased by 91% from a year ago to 96,600 lots [17] - 51% of the company's owned lot position at June 30th were sourced by Forestar, up from 34% a year ago [18] Company Strategy and Development Direction - Forestar is focused on developing lots for the affordably priced housing market and has a unique lot manufacturing business model [22] - The company aims to maintain a strong balance sheet with ample liquidity and modest leverage, ending the quarter with $470 million of liquidity [18] - The strategic relationship with D.R. Horton allows Forestar to expand its platform nationally while minimizing risk [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for the business, citing favorable market conditions and strong demand for finished lots [19] - The company expects to deliver between 15,500 and 16,000 lots, generating approximately $1.3 billion of revenue in fiscal 2021 [20] - Management noted that they are not seeing a lack of demand from homebuilders and expect a record-breaking fourth quarter [28] Other Important Information - Investments in lots, land, and development totaled $400 million for the quarter, with expectations to invest at least $1.6 billion for the full year of fiscal 2021 [16] - The company refinanced its senior notes, resulting in substantial interest savings despite recognizing a loss on extinguishment of debt of $18.1 million [13] Q&A Session Summary Question: Demand from homebuilders - Management indicated that there is strong demand from homebuilders for lots, with no signs of demand leveling off [27][28] Question: Growth expectations for 2022 - Management maintained a 20% sustainable growth rate expectation for 2022, based on current development projects [30] Question: Lot pricing and market conditions - Management noted that pricing power is present, and they are carefully managing pricing to maintain affordability [33][54] Question: Challenges in operations - Management reported that they have been staffing up to manage growth and are not currently experiencing significant delays in project completion [45][47] Question: Balance sheet and investment strategy - Management is comfortable managing net debt to total capital around 40% and will be selective in lot acquisitions [61] Question: Market dynamics and investment allocation - Management indicated a shift in investment focus away from the Pacific Northwest towards markets with stronger demand and less regulatory burden [70]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From To Commission File Number: 001-33662 FORESTAR GROUP INC. (Exact Name of Registrant as Specified in Its Charter) (State or Other Jurisdiction ...

Company Overview - Forestar is a residential lot developer focused on short duration, fully-entitled projects, operating in 54 markets across 22 states[3,4] - The company has a strategic relationship with D.R Horton, with D.R Horton currently owning 64% of Forestar[3] - Forestar's owned and controlled lot position is 84,500[5] Financial Highlights - Forestar's revenues are approximately $1.12 billion[5] - The company's liquidity is approximately $500 million[5] - The equity market capitalization is approximately $1.25 billion[5] - Forestar anticipates a 40% to 45% growth in lot deliveries in fiscal year 2021, projecting revenues between $1.20 to $1.25 billion with a pre-tax profit margin of 10.0% to 10.5%[19] Strategic Advantages - Forestar's business model focuses on return-driven residential lot development with a high-turnover, lower-risk strategy[7] - The company is increasing its sourced lots to 48% of total owned lots, up from 31% a year ago[28] - Forestar expects to invest over $1.5 billion in land acquisition and development in fiscal year 2021[23]

Forestar Group Inc. (NYSE:FOR) Q2 2021 Earnings Conference Call April 20, 2021 5:00 PM ET Company Participants Jessica Hansen - Vice President, Investor Relations Dan Bartok - Chief Executive Officer Katie Smith - Director of Finance and Investor Relations Jim Allen - Chief Financial Officer Conference Call Participants John Lovallo - Bank of America Ryan Gilbert - BTIG Anthony Pettinari - Citi Truman Patterson - Wolfe Research Elad Hillman - J.P. Morgan Deepa Raghavan - Wells Fargo Securities Alex Barron ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From To Commission File Number: 001-33662 FORESTAR GROUP INC. (Exact Name of Registrant as Specified in Its Charter) (State or Other Jurisdict ...