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 ...

FORESTAR Investor Presentation Q1 2021 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 statements include, but are no ...

Forestar Group Inc. (NYSE:FOR) Q1 2021 Earnings Conference Call January 21, 2021 5:00 PM ET Company Participants Jessica Hansen - Vice President, Investor Relations Dan Bartok - Chief Executive Officer Jim Allen - Chief Financial Officer Conference Call Participants John Lovallo - Bank of America Anthony Pettinari - Citi Ryan Gilbert - BTIG Operator Good afternoon and welcome to Forestar’s First Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. ...

PART I [Business Overview](index=4&type=section&id=Item%201.%20Business) Forestar Group Inc. is a publicly traded residential lot development company, majority-owned by D.R. Horton Inc. since October 2017, focusing on national expansion and risk mitigation [Company Overview and Strategy](index=4&type=section&id=Overview) Forestar Group Inc. is a publicly traded residential lot development company, majority-owned by D.R. Horton, focused on expanding its national lot development business - Forestar Group Inc. is a publicly traded residential lot development company (FOR on NYSE), **majority-owned by D.R. Horton Inc. (65% as of September 30, 2020)** since October 2017[12](index=12&type=chunk) - Strategy focuses on investments in land acquisition and development to expand residential lot development across a geographically diversified national platform, consolidating market share in the fragmented U.S. lot development industry[13](index=13&type=chunk) - As of September 30, 2020, the company operated in **49 markets across 21 states**, with a lot position consisting of **60,500 residential lots** (approximately 42,400 owned and 18,100 controlled through purchase contracts)[13](index=13&type=chunk) [Business Operations and Agreements](index=6&type=section&id=Business%20Operations) The company primarily develops single-family residential lots for homebuilders, leveraging D.R. Horton for development services and supply agreements - The majority of real estate projects are single-family residential communities, developing lots for sale primarily to local, regional, and national homebuilders[18](index=18&type=chunk) - D.R. Horton provides development services in markets where Forestar lacks local infrastructure and certain administrative, compliance, operational, and procurement services under a Shared Services Agreement[18](index=18&type=chunk)[19](index=19&type=chunk) - A Master Supply Agreement grants D.R. Horton the right of first offer to purchase up to **100% of lots** from D.R. Horton sourced projects and up to **50% from Forestar sourced projects**[22](index=22&type=chunk) - A Stockholder's Agreement defines D.R. Horton's right to nominate board members and requires its consent for certain transactions (e.g., equity issuances, debt, acquisitions >**$20 million**) as long as it owns at least **35% of voting securities**[23](index=23&type=chunk)[24](index=24&type=chunk) [Land/Lot Acquisition and Inventory Management](index=8&type=section&id=Land/Lot%20Acquisition%20and%20Inventory%20Management) Land acquisition involves thorough due diligence and risk mitigation strategies, including using non-recourse contracts and diversifying geographically - Land acquisition involves due diligence, including feasibility studies, soil and environmental reviews, zoning assessments, and financial analysis[25](index=25&type=chunk) - Utilizes non-recourse land purchase contracts to control land with limited capital investment, limiting financial exposure to earnest money deposits[26](index=26&type=chunk) - Mitigates real estate inventory risks by managing supply based on demand, monitoring market trends, limiting project size, acquiring fully-entitled land, focusing on entry-level housing, developing for known buyers, and diversifying geographically[28](index=28&type=chunk) [Lot/Land Banking](index=9&type=section&id=Lot/Land%20Banking) The company engages in short-term lot and land banking, primarily for D.R. Horton, managing levels based on liquidity and future cash needs - Engages in short-term investments in finished lots (lot banking) and undeveloped land with the intent to sell these assets within a short time period, primarily to D.R. Horton[31](index=31&type=chunk) - Manages the level of lot/land banking relative to short-term liquidity and expected future cash requirements for lot development projects[31](index=31&type=chunk) [Competition](index=9&type=section&id=Competition) Forestar faces significant competition in the highly fragmented real estate acquisition, development, and sales market from various entities - Faces significant competition for the acquisition, development, and sale of real estate from landowners, national, regional, and local developers, including homebuilders[33](index=33&type=chunk) - The lot and land acquisition and development business is highly fragmented, with competitors ranging from individuals to large corporations, many of which are local and privately-owned[34](index=34&type=chunk) [Human Capital Resources](index=9&type=section&id=Human%20Capital%20Resources) Forestar's employee count increased to 143 in fiscal 2020, with a focus on talent development, diversity, and safety protocols, incurring **$25.0 million** in compensation costs - Employee count increased from **78 at September 30, 2019, to 143 at September 30, 2020**, to support residential lot development business growth[35](index=35&type=chunk) - Total cost for employee compensation and benefits was **$25.0 million in fiscal 2020**[35](index=35&type=chunk) - Focuses on attracting and retaining talented individuals, supporting employee development, and promoting a diverse and inclusive workplace with a code of conduct[36](index=36&type=chunk) - Implemented safety protocols and remote work options in response to the COVID-19 pandemic[37](index=37&type=chunk) [Governmental Regulation and Environmental Matters](index=10&type=section&id=Governmental%20Regulation%20and%20Environmental%20Matters) Operations are subject to extensive federal, state, and local regulations, with potential delays from approval processes impacting development activities - Operations are subject to extensive federal, state, and local laws and regulations, including zoning, density, development, building, environmental, advertising, labor, and real estate sales rules[38](index=38&type=chunk) - Delays in receiving proper approvals from local authorities could impact anticipated development activities[38](index=38&type=chunk) [Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) Forestar faces significant risks stemming from D.R. Horton's concentrated ownership, operational vulnerabilities to economic cycles and regulations, substantial debt, and general market volatility [Risks Related to Concentrated Ownership](index=11&type=section&id=Risks%20Related%20to%20our%20Concentrated%20Ownership) D.R. Horton's majority ownership limits other stockholders' influence and requires its consent for key actions, potentially affecting relationships with other builders - D.R. Horton beneficially owns approximately **65% of Forestar's common stock**, allowing it to control the outcome of most stockholder votes and limit other stockholders' influence[41](index=41&type=chunk) - D.R. Horton's consent is required for certain actions (e.g., equity issuances, debt incurrence, executive compensation) as long as it owns at least **35% of voting securities**[41](index=41&type=chunk) - The strategic relationship with D.R. Horton may negatively affect business relationships with other builder customers who might perceive favoritism[51](index=51&type=chunk) [Risks Related to Operations](index=14&type=section&id=Risks%20Related%20to%20our%20Operations) The company's operations are highly susceptible to cyclical economic and real estate conditions, public health crises, extensive regulations, and dependence on homebuilder demand - The homebuilding and lot development industries are cyclical and significantly affected by changes in general and local economic and real estate conditions (e.g., employment, consumer confidence, interest rates)[55](index=55&type=chunk) - Public health issues like the COVID-19 pandemic can adversely affect business, leading to temporary operational impacts and uncertainty regarding future economic and housing market conditions[53](index=53&type=chunk)[54](index=54&type=chunk) - Operations are subject to extensive and complex federal, state, and local regulations, including zoning, environmental laws, and building standards, which can cause delays and increase costs[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) - Dependence on national, regional, and local homebuilders to purchase lots means adverse economic conditions or corporate decisions by builders could negatively affect business[69](index=69&type=chunk)[70](index=70&type=chunk) [Risks Related to Indebtedness](index=19&type=section&id=Risks%20Related%20to%20our%20Indebtedness) Forestar's **$641.1 million** consolidated debt as of September 30, 2020, imposes restrictive covenants and potential default risks, limiting financial flexibility - Consolidated debt was **$641.1 million as of September 30, 2020**, which could require a substantial portion of cash flow for payments and limit financial flexibility[75](index=75&type=chunk)[76](index=76&type=chunk) - Debt agreements contain restrictive covenants limiting the ability to incur additional debt, pay dividends, make investments, and engage in certain business activities[79](index=79&type=chunk) - A breach of covenants or a change of control triggering event could result in default, acceleration of debt repayment, and adverse effects on liquidity[78](index=78&type=chunk)[82](index=82&type=chunk) [General Risk Factors](index=20&type=section&id=General%20Risk%20Factors) The company's common stock price may be volatile, and the loss of key personnel or IT failures could materially impact operations and reputation - The market price and trading volume of common stock may be volatile due to fluctuations in operating results, strategic announcements, and general real estate industry conditions[82](index=82&type=chunk) - Loss of key management personnel could have a material adverse effect on operations, as the company does not maintain key-person life insurance[84](index=84&type=chunk) - Information technology failures, data security breaches, and failure to satisfy privacy and data protection laws could disrupt business, damage reputation, and incur significant expenses or penalties[85](index=85&type=chunk)[86](index=86&type=chunk) [Unresolved Staff Comments](index=18&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report - No unresolved staff comments[89](index=89&type=chunk) [Properties](index=18&type=section&id=Item%202.%20Properties) Forestar's principal executive office is leased in Arlington, Texas, with additional leased office space supporting business operations - Principal executive office is leased in Arlington, Texas[90](index=90&type=chunk) - Additional office space is leased in other locations to support business operations[90](index=90&type=chunk) [Legal Proceedings](index=18&type=section&id=Item%203.%20Legal%20Proceedings) Forestar is involved in various ordinary course legal proceedings, for which adequate reserves are established, with no expected material adverse effect on long-term financial results - Involved in various legal proceedings arising in the ordinary course of business[91](index=91&type=chunk) - Adequate reserves have been established for probable losses[91](index=91&type=chunk) - Outcome of proceedings is not expected to have a material adverse effect on financial position or long-term results, but charges could be significant in a single accounting period[91](index=91&type=chunk) [Mine Safety Disclosures](index=18&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to Forestar Group Inc - Not Applicable[92](index=92&type=chunk) PART II [Market for Common Equity, Stockholder Matters, and Equity Purchases](index=19&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Forestar's common stock trades on the NYSE under 'FOR', with **48,070,347 shares outstanding** as of November 12, 2020, and a policy to retain future earnings, as illustrated by its stock performance graph [Market Information](index=19&type=section&id=Market%20Information) Forestar's common stock is traded on the NYSE under 'FOR', with a closing price of **$18.30** and **48,070,347 shares outstanding** as of November 12, 2020 - Common stock is traded on the New York Stock Exchange (NYSE) under the trading symbol 'FOR'[95](index=95&type=chunk) Common Stock Information (as of November 12, 2020) | Metric | Value | | :--- | :--- | | Closing Price | $18.30 | | Holders of Record | ~1,443 | | Shares Outstanding | 48,070,347 | [Dividend Policy](index=19&type=section&id=Dividend%20Policy) The company intends to retain future earnings to support its business, with any dividend declarations at the Board's discretion - Company currently intends to retain any future earnings to support its business[96](index=96&type=chunk) - Declaration and payment of any future dividends will be at the discretion of the Board of Directors, considering financial condition, earnings, capital requirements, and other relevant factors[96](index=96&type=chunk) [Stock Performance Graph](index=20&type=section&id=Stock%20Performance%20Graph) A stock performance graph illustrates the cumulative total stockholder return of Forestar Group Inc. compared to the Russell 2000 Index and a peer group Cumulative Total Stockholder Return ($100 initial investment) | Year Ended December 31, | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 (Nine Months Ended Sep 30) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Forestar Group Inc. | $100.00 | $121.57 | $201.09 | $193.78 | $167.09 | $161.79 | | Russell 2000 Index | $100.00 | $121.31 | $139.08 | $155.10 | $141.31 | $141.86 | | Peer Group | $100.00 | $118.44 | $111.22 | $89.94 | $85.79 | $60.04 | [Selected Financial Data](index=21&type=section&id=Item%206.%20Selected%20Financial%20Data) The selected financial data highlights Forestar's significant growth in fiscal 2020, with revenues more than doubling to **$931.8 million** and net income attributable to Forestar Group Inc. increasing to **$60.8 million**, alongside substantial increases in total assets and debt [Consolidated Operating Data](index=21&type=section&id=Consolidated%20Operating%20Data) Forestar's consolidated operating data shows a significant increase in revenues to **$931.8 million** and net income to **$60.8 million** in fiscal 2020 Consolidated Operating Data (in millions, except per share amounts) | Metric | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | Year Ended Dec 31, 2017 | Year Ended Dec 31, 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $931.8 | $428.3 | $78.3 | $114.3 | $197.3 | | Cost of sales | $813.7 | $362.7 | $49.5 | $112.6 | $175.1 | | Selling, general and administrative expense | $45.7 | $28.9 | $19.4 | $75.3 | $48.5 | | Income from continuing operations before taxes | $78.1 | $45.7 | $44.7 | $52.1 | $92.3 | | Net income attributable to Forestar Group Inc. | $60.8 | $33.0 | $68.8 | $50.3 | $58.6 | | Net income per basic share | $1.26 | $0.79 | $1.64 | $1.19 | $1.40 | | Net income per diluted share | $1.26 | $0.79 | $1.64 | $1.19 | $1.38 | - Revenues increased by **117.6% from $428.3 million in fiscal 2019 to $931.8 million in fiscal 2020**[101](index=101&type=chunk) - Net income attributable to Forestar Group Inc. increased by **84.2% from $33.0 million in fiscal 2019 to $60.8 million in fiscal 2020**[101](index=101&type=chunk) [Consolidated Balance Sheet Data](index=21&type=section&id=Consolidated%20Balance%20Sheet%20Data) The consolidated balance sheet shows total assets growing to **$1,739.9 million** in 2020, primarily due to real estate, with debt increasing to **$641.1 million** and stockholders' equity rising to **$870.9 million** Consolidated Balance Sheet Data (in millions) | Metric | September 30, 2020 | September 30, 2019 | December 31, 2018 | December 31, 2017 | December 31, 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $394.3 | $382.8 | $318.8 | $323.0 | $266.1 | | Real estate | $1,309.7 | $1,028.9 | $498.0 | $130.4 | $293.0 | | Total assets | $1,739.9 | $1,455.7 | $893.1 | $761.9 | $733.2 | | Debt | $641.1 | $460.5 | $111.7 | $108.4 | $110.4 | | Forestar Group Inc. stockholders' equity | $870.9 | $808.3 | $673.3 | $604.2 | $560.7 | - Total assets grew to **$1,739.9 million in 2020 from $1,455.7 million in 2019**, primarily driven by an increase in real estate assets[101](index=101&type=chunk) - Debt increased to **$641.1 million in 2020 from $460.5 million in 2019**, while stockholders' equity rose to **$870.9 million**[101](index=101&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Forestar's MD&A details its strong growth in fiscal 2020, driven by increased residential lot sales and its strategic relationship with D.R. Horton, highlighting robust liquidity, a low-leverage model, and significant increases in revenues and net income, while managing capital structure and market risks [Our Operations](index=27&type=section&id=Our%20Operations) Forestar is a residential lot development company operating in **49 markets across 21 states**, leveraging its majority ownership by D.R. Horton to expand nationally through short-duration, phased development projects - Forestar is a residential lot development company with operations in **49 markets in 21 states** as of September 30, 2020[104](index=104&type=chunk) - Became a majority-owned subsidiary of D.R. Horton in October 2017, leveraging this relationship to grow into a national, well-capitalized residential lot developer[104](index=104&type=chunk) - Strategy involves investing in land acquisition and development for short duration, phased development projects, aiming for consistent returns and market share consolidation[104](index=104&type=chunk) [Change in Fiscal Year](index=27&type=section&id=Change%20in%20Fiscal%20Year) The company changed its fiscal year-end from December 31 to September 30, effective January 1, 2018, to align with D.R. Horton's reporting calendar - Changed fiscal year-end from December 31 to September 30, effective January 1, 2018, to align with D.R. Horton's reporting calendar[105](index=105&type=chunk) [COVID-19 Impact](index=27&type=section&id=COVID-19) COVID-19 temporarily impacted business operations and lot sales in early 2020, but sales recovered in the latter half of the fiscal year, with the company well-positioned due to strong liquidity and its strategic relationship with D.R. Horton - COVID-19 impacts in late March 2020 temporarily affected business operations and demand for residential lots, leading to a decline in lot sales pace[106](index=106&type=chunk)[107](index=107&type=chunk) - Residential construction was designated an essential business, allowing lot development operations to continue in most markets[106](index=106&type=chunk) - Lot sales pace increased during the last half of fiscal year 2020 as economic activity and housing market conditions improved[107](index=107&type=chunk) - Company is well positioned due to low net leverage, strong liquidity, low overhead model, and strategic relationship with D.R. Horton[108](index=108&type=chunk) [Business Segment](index=27&type=section&id=Business%20Segment) Forestar manages its operations through a single real estate segment, which is its core business, primarily acquiring land and developing single-family residential lots for homebuilders - Manages operations through a single real estate segment, which is its core business and generates substantially all revenues[109](index=109&type=chunk) - The real estate segment primarily acquires land and develops infrastructure for single-family residential communities, selling finished lots to homebuilders[109](index=109&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Forestar's fiscal 2020 results show a **117.6% increase in revenues to $931.8 million** and an **84.2% rise in net income to $60.8 million**, driven by significant growth in lot sales Key Operating and Financial Data (in millions) | Metric | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | | :--- | :--- | | Revenues | $931.8 | $428.3 | | Cost of sales | $813.7 | $362.7 | | Selling, general and administrative expense | $45.7 | $28.9 | | Income before income taxes | $78.1 | $45.7 | | Net income attributable to Forestar Group Inc. | $60.8 | $33.0 | - Revenues increased by **117.6% from $428.3 million in fiscal 2019 to $931.8 million in fiscal 2020**[111](index=111&type=chunk) - Net income attributable to Forestar Group Inc. increased by **84.2% from $33.0 million in fiscal 2019 to $60.8 million in fiscal 2020**[111](index=111&type=chunk)[192](index=192&type=chunk) [Lot Sales](index=28&type=section&id=Lot%20Sales) Total residential lots sold increased by **151%** in fiscal 2020 to **10,373**, with an average sales price of **$84,600 per lot** Residential Lots Sold | Category | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | | :--- | :--- | | Development projects | 7,316 | 2,610 | | Lot banking projects | 3,057 | 1,522 | | **Total Lots Sold** | **10,373** | **4,132** | | Average sales price per lot | $84,600 | $84,200 | - Total residential lots sold increased by **151% from 4,132 in fiscal 2019 to 10,373 in fiscal 2020**[112](index=112&type=chunk) [Revenues](index=28&type=section&id=Revenues) Total revenues reached **$931.8 million** in fiscal 2020, primarily driven by a significant increase in residential lot sales to D.R. Horton, which accounted for **$859.7 million** Revenue Components (in millions) | Category | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | | :--- | :--- | | Residential lot sales | $880.3 | $351.7 | | Residential tract sales | $48.6 | $55.8 | | Commercial tract sales | $2.5 | $18.5 | | Other | $0.4 | $2.3 | | **Total Revenues** | **$931.8** | **$428.3** | - Residential lot sales to D.R. Horton increased from **3,728 lots ($311.7 million) in fiscal 2019 to 10,164 lots ($859.7 million) in fiscal 2020**[114](index=114&type=chunk) - As of September 30, 2020, lot position included **60,500 residential lots** (42,400 owned, 18,100 controlled), with **14,000 under contract to D.R. Horton** and **16,400 subject to D.R. Horton's right of first offer**[114](index=114&type=chunk) [Cost of Sales](index=29&type=section&id=Cost%20of%20Sales) Cost of sales increased in fiscal 2020 primarily due to the higher volume of lots sold, with **$40.6 million** related to residential and commercial tract sales - Cost of sales in fiscal 2020 increased compared to fiscal 2019 primarily due to the increase in the number of lots sold[117](index=117&type=chunk) - Cost of sales related to residential and commercial tract sales was **$40.6 million in fiscal 2020** and **$50.8 million in fiscal 2019**[117](index=117&type=chunk) [Selling, General and Administrative (SG&A) Expense and Other Income Statement Items](index=29&type=section&id=Selling,%20General%20and%20Administrative%20(SG%26A)%20Expense%20and%20Other%20Income%20Statement%20Items) SG&A expense increased by **$16.8 million** in fiscal 2020 due to workforce growth, but decreased as a percentage of revenues from **6.7% to 4.9%**, indicating improved operational efficiency SG&A Expense | Metric | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | | :--- | :--- | | SG&A expense (in millions) | $45.7 | $28.9 | | SG&A as % of revenues | 4.9% | 6.7% | - SG&A expense increased by **$16.8 million (58.1%) in fiscal 2020** compared to fiscal 2019, primarily due to increased employee compensation for a larger workforce[118](index=118&type=chunk) - SG&A as a percentage of revenues decreased from **6.7% in fiscal 2019 to 4.9% in fiscal 2020**, indicating improved operational efficiency[118](index=118&type=chunk) [Income Taxes](index=29&type=section&id=Income%20Taxes) The effective tax rate remained at **21%** in fiscal 2020, including a **$2.3 million** tax benefit from the CARES Act NOL carryback provisions, with no unrecognized tax benefits at year-end Income Tax Expense and Effective Tax Rate | Metric | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | | :--- | :--- | | Income tax expense (in millions) | $16.4 | $9.4 | | Effective tax rate | 21% | 21% | - Effective tax rate for fiscal 2020 includes a **$2.3 million tax benefit** related to the net operating loss (NOL) carryback provisions of the CARES Act[121](index=121&type=chunk) - No unrecognized tax benefits at September 30, 2020, due to the recognition of **$1.6 million** previously unrecognized tax benefits attributable to the CARES Act NOL carryback provisions[124](index=124&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) Forestar maintains a strong liquidity position with **$394.3 million in cash** and **$344.0 million** available on its revolving credit facility, aiming to keep its net debt to total capital ratio at or below **40%** - Strong liquidity position with **$394.3 million in cash and cash equivalents** and **$344.0 million available borrowing capacity** on revolving credit facility as of September 30, 2020[126](index=126&type=chunk) Debt to Capital Ratios | Metric | September 30, 2020 | September 30, 2019 | | :--- | :--- | :--- | | Debt to total capital | 42.4% | 36.3% | | Net debt to total capital | 22.1% | 8.8% | - Company aims to maintain its ratio of net debt to total capital at or below **40%** over the long term[127](index=127&type=chunk) [Bank Credit Facility](index=31&type=section&id=Bank%20Credit%20Facility) Forestar has a **$380 million** senior unsecured revolving credit facility, with **$344.0 million** available capacity as of September 30, 2020, and is compliant with all financial covenants - Has a **$380 million** senior unsecured revolving credit facility, extendable to **$570 million** with an uncommitted accordion feature, maturing October 2, 2022[129](index=129&type=chunk) - As of September 30, 2020, no borrowings were outstanding, and **$36.0 million** in letters of credit were issued, leaving **$344.0 million available capacity**[129](index=129&type=chunk) - Compliant with all financial covenants (minimum tangible net worth, minimum liquidity, maximum leverage ratio) of the revolving credit facility as of September 30, 2020[130](index=130&type=chunk) [Senior Notes](index=31&type=section&id=Senior%20Notes) Forestar issued **$300 million** of **5.0% senior notes** due 2028 and has **$350 million** of **8.0% senior notes** due 2024 outstanding, while repaying **$118.9 million** in convertible senior notes - Issued **$300 million principal amount of 5.0% senior notes** in February 2020, maturing March 1, 2028, with an effective interest rate of **5.2%**[131](index=131&type=chunk) - Has **$350 million principal amount of 8.0% senior notes** outstanding, maturing April 15, 2024, with an effective interest rate of **8.5%**[132](index=132&type=chunk) - Repaid **$118.9 million principal amount of 3.75% convertible senior notes** in cash at maturity in March 2020[133](index=133&type=chunk) - Board authorized repurchase of up to **$30 million of debt securities**, with the full amount remaining as of September 30, 2020[135](index=135&type=chunk) [Issuance of Common Stock](index=32&type=section&id=Issuance%20of%20Common%20Stock) Forestar has a **$500 million** shelf registration statement for equity securities, with **$394.3 million** remaining, and an equity distribution agreement for up to **$100 million** of common stock, though no shares were issued under this program as of September 30, 2020 - Has an effective shelf registration statement for **$500 million of equity securities**, with **$394.3 million remaining available** as of September 30, 2020[136](index=136&type=chunk) - Entered into an equity distribution agreement in August 2020 to sell up to **$100 million of common stock** through an at-the-market program; no shares issued as of September 30, 2020[137](index=137&type=chunk) [Operating Cash Flow Activities](index=32&type=section&id=Operating%20Cash%20Flow%20Activities) Net cash used in operating activities significantly decreased in fiscal 2020 to **$168.4 million**, reflecting the company's strategy to grow land development operations Net Cash Used in Operating Activities (in millions) | Period | Net Cash Used | | :--- | :--- | | Fiscal 2020 | $168.4 | | Fiscal 2019 | $391.2 | - Net cash used in operating activities decreased significantly in fiscal 2020, reflecting the strategy of continuing to grow land development operations[138](index=138&type=chunk) [Investing Cash Flow Activities](index=32&type=section&id=Investing%20Cash%20Flow%20Activities) Cash provided by investing activities in fiscal 2020 was **$5.0 million**, primarily due to distributions received from unconsolidated ventures Net Cash Provided by (Used in) Investing Activities (in millions) | Period | Net Cash Flow | | :--- | :--- | | Fiscal 2020 | $5.0 (provided) | | Fiscal 2019 | $0.8 (used) | - Cash provided by investing activities in fiscal 2020 was primarily due to distributions received from unconsolidated ventures[139](index=139&type=chunk) [Financing Cash Flow Activities](index=32&type=section&id=Financing%20Cash%20Flow%20Activities) Fiscal 2020 cash provided by financing activities totaled **$174.9 million**, mainly from the **$300 million** senior notes issuance, partially offset by **$118.9 million** in convertible notes repayment Net Cash Provided by Financing Activities (in millions) | Period | Net Cash Provided | | :--- | :--- | | Fiscal 2020 | $174.9 | | Fiscal 2019 | $439.8 | - Fiscal 2020 cash provided by financing activities primarily from **$300 million senior notes issuance**, partially offset by **$118.9 million convertible notes repayment**[140](index=140&type=chunk) - Fiscal 2019 cash provided by financing activities primarily from **$350 million senior notes issuance** and **$100.7 million common stock issuance**[140](index=140&type=chunk) [Contractual Obligations and Off-Balance Sheet Arrangements](index=34&type=section&id=Contractual%20Obligations%20and%20Off-Balance%20Sheet%20Arrangements) As of September 30, 2020, Forestar had total contractual cash obligations of **$887.8 million**, including **$650.0 million** in debt principal, and off-balance sheet arrangements totaling **$272.9 million** in letters of credit and surety bonds Contractual Cash Obligations (as of Sep 30, 2020, in millions) | Obligation | Total | Less Than 1 Year | 1 - 3 Years | > 3 - 5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt — Principal | $650.0 | $0 | $0 | $350.0 | $300.0 | | Debt — Interest | $224.5 | $43.0 | $86.0 | $58.0 | $37.5 | | Operating leases | $4.0 | $1.2 | $1.8 | $1.0 | $0 | | Performance bond | $2.5 | $2.5 | $0 | $0 | $0 | | Standby letter of credit | $6.8 | $6.8 | $0 | $0 | $0 | | **Total** | **$887.8** | **$53.5** | **$87.8** | **$409.0** | **$337.5** | - Off-balance sheet arrangements include **$36.0 million** in outstanding letters of credit under the revolving credit facility and **$236.9 million** in surety bonds issued by third parties to secure development obligations[142](index=142&type=chunk) [Inflation](index=34&type=section&id=Inflation) High inflation could adversely affect the company through increased financing, land, and labor costs, which it attempts to offset by savings and price adjustments - Company may be adversely affected by high inflation due to higher financing, land, and labor costs[143](index=143&type=chunk) - Attempts to offset cost increases by savings in other components and increasing land and lot sales prices when market conditions permit[143](index=143&type=chunk) [Critical Accounting Policies](index=35&type=section&id=Critical%20Accounting%20Policies) Forestar's critical accounting policies involve revenue recognition upon title transfer, capitalization of real estate costs, and quarterly impairment reviews based on undiscounted and discounted cash flows, with potential for future impairment charges due to COVID-19 uncertainty - Revenue is generally recognized at the closing of a sale when title and possession are transferred, with contract liabilities recorded for unsatisfied performance obligations[145](index=145&type=chunk) - Real estate costs include direct land/lot acquisition, land development, capitalized interest, and direct overhead, allocated to individual lots based on relative sales value[146](index=146&type=chunk)[147](index=147&type=chunk) - Quarterly review for real estate impairment indicators, with detailed evaluations based on undiscounted cash flows, market conditions, and fair value determination (discounted cash flows)[150](index=150&type=chunk)[151](index=151&type=chunk) - Significant uncertainty regarding COVID-19's impact could lead to potential impairment charges on real estate if economic and housing market conditions are adversely affected for a prolonged period[152](index=152&type=chunk) [Pending Accounting Standards](index=36&type=section&id=Pending%20Accounting%20Standards) Several new accounting standards, including ASU 2016-13, ASU 2019-12, and ASU 2020-04, are not expected to have a material impact on Forestar's financial statements - ASU 2016-13 'Financial Instruments - Credit Losses' is effective October 1, 2020, and is not expected to have a material impact[155](index=155&type=chunk) - ASU 2019-12 'Simplifying the accounting for income taxes' is effective October 1, 2021, and is not expected to have a material impact[156](index=156&type=chunk) - ASU 2020-04 'Reference Rate Reform' was effective March 12, 2020, and will be adopted when LIBOR is discontinued, with no expected material impact[157](index=157&type=chunk) [Forward-Looking Statements](index=37&type=section&id=Forward-Looking%20Statements) The Annual Report contains forward-looking statements subject to various factors and uncertainties, including D.R. Horton's ownership, COVID-19, economic cycles, competition, and regulatory changes, with no obligation to update them - Annual Report contains forward-looking statements identified by terms like 'believe,' 'anticipate,' 'expect,' and similar expressions[158](index=158&type=chunk) - Actual results may differ significantly due to various factors and uncertainties, including D.R. Horton's ownership, COVID-19 impact, economic cycles, competition, and regulatory changes[158](index=158&type=chunk)[159](index=159&type=chunk) - Company disclaims any obligation to update or revise forward-looking statements to reflect events or circumstances after the statement date, except as required by law[160](index=160&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Forestar is exposed to interest rate risk on its senior debt and revolving credit facility, which it manages through a mix of fixed and variable rate debt, but has no significant exposure to foreign currency or commodity price risks [Interest Rate Risk](index=38&type=section&id=Interest%20Rate%20Risk) Forestar is subject to interest rate risk on its senior debt and revolving credit facility, managing it through a combination of fixed-rate senior notes and a variable-rate credit facility - Subject to interest rate risk on senior debt and revolving credit facility, utilizing both fixed and variable rate debt[161](index=161&type=chunk) - Fixed rate debt includes **$350 million of 8.0% senior notes due 2024** and **$300 million of 5.0% senior notes due 2028**[162](index=162&type=chunk) - Variable rate debt consists of a **$380 million senior unsecured revolving credit facility**, with no borrowings outstanding at September 30, 2020[162](index=162&type=chunk) [Foreign Currency Risk](index=38&type=section&id=Foreign%20Currency%20Risk) Forestar has no exposure to foreign currency fluctuations - No exposure to foreign currency fluctuations[163](index=163&type=chunk) [Commodity Price Risk](index=38&type=section&id=Commodity%20Price%20Risk) Forestar has no significant exposure to commodity price fluctuations - No significant exposure to commodity price fluctuations[164](index=164&type=chunk) [Financial Statements and Supplementary Data](index=34&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Forestar's audited consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, along with detailed notes, management's report on internal control, and independent auditor's reports affirming effectiveness and fair presentation [Management's Annual Report on Internal Control Over Financial Reporting](index=39&type=section&id=Management's%20Annual%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) Management is responsible for internal control over financial reporting and concluded it was effective as of September 30, 2020, based on the COSO framework - Management is responsible for establishing and maintaining adequate internal control over financial reporting[168](index=168&type=chunk) - Management assessed the effectiveness of internal control over financial reporting as of September 30, 2020, based on the COSO framework (2013) and concluded it was effective[169](index=169&type=chunk)[170](index=170&type=chunk) [Report of Independent Registered Public Accounting Firm (Internal Control)](index=40&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20(Internal%20Control)) Ernst & Young LLP issued an unqualified opinion, affirming that Forestar Group Inc. maintained effective internal control over financial reporting as of September 30, 2020 - Ernst & Young LLP audited Forestar Group Inc.'s internal control over financial reporting as of September 30, 2020, based on the COSO criteria[174](index=174&type=chunk) - Expressed an unqualified opinion that the company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020[174](index=174&type=chunk) [Report of Independent Registered Public Accounting Firm (Financial Statements)](index=41&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20(Financial%20Statements)) Ernst & Young LLP issued an unqualified opinion, stating that Forestar Group Inc.'s consolidated financial statements fairly present its financial position, results of operations, and cash flows in conformity with U.S. GAAP - Ernst & Young LLP audited the consolidated financial statements of Forestar Group Inc. as of September 30, 2020 and 2019, and for the periods ended September 30, 2020, 2019, and 2018[183](index=183&type=chunk) - Expressed an unqualified opinion that the consolidated financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with U.S. GAAP[183](index=183&type=chunk) [Consolidated Balance Sheets](index=42&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$1,739.9 million** in 2020 from **$1,455.7 million** in 2019, primarily driven by growth in real estate assets Consolidated Balance Sheets (in millions) | Metric | September 30, 2020 | September 30, 2019 | | :--- | :--- | | Cash and cash equivalents | $394.3 | $382.8 | | Real estate | $1,309.7 | $1,028.9 | | Total assets | $1,739.9 | $1,455.7 | | Debt | $641.1 | $460.5 | | Total liabilities | $868.1 | $646.8 | | Total equity | $871.8 | $808.9 | - Total assets increased to **$1,739.9 million in 2020 from $1,455.7 million in 2019**, primarily driven by growth in real estate assets[189](index=189&type=chunk) [Consolidated Statements of Operations](index=43&type=section&id=Consolidated%20Statements%20of%20Operations) Revenues significantly increased to **$931.8 million** in 2020 from **$428.3 million** in 2019, leading to a rise in net income attributable to Forestar Group Inc. to **$60.8 million** from **$33.0 million** Consolidated Statements of Operations (in millions, except per share amounts) | Metric | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | | Revenues | $931.8 | $428.3 | $78.3 | | Cost of sales | $813.7 | $362.7 | $49.5 | | Selling, general and administrative expense | $45.7 | $28.9 | $19.4 | | Income before income taxes | $78.1 | $45.7 | $44.7 | | Net income attributable to Forestar Group Inc. | $60.8 | $33.0 | $68.8 | | Basic net income per common share | $1.26 | $0.79 | $1.64 | | Diluted net income per common share | $1.26 | $0.79 | $1.64 | - Revenues significantly increased to **$931.8 million in 2020 from $428.3 million in 2019**, leading to a rise in net income attributable to Forestar Group Inc. to **$60.8 million from $33.0 million**[192](index=192&type=chunk) [Consolidated Statements of Total Equity](index=45&type=section&id=Consolidated%20Statements%20of%20Total%20Equity) Total equity increased to **$871.8 million** at September 30, 2020, from **$808.9 million** at September 30, 2019, driven by net income and stock-based compensation Consolidated Statements of Total Equity (in millions, except share amounts) | Metric | Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | | :--- | :--- | :--- | :--- | | Balances at beginning of period | $808.9 | $674.5 | $605.6 | | Net income | $61.7 | $36.3 | $70.0 | | Issuance of common stock | $0.1 | $100.7 | $0 | | Stock-based compensation expense | $2.0 | $1.3 | $0.3 | | Distributions to noncontrolling interests | $(0.6) | $(3.9) | $(1.4) | | Balances at end of period | $871.8 | $808.9 | $674.5 | - Total equity increased to **$871.8 million at September 30, 2020, from $808.9 million at September 30, 2019**, driven by net income and stock-based compensation[195](index=195&type=chunk) [Consolidated Statements of Cash Flows](index=46&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities significantly decreased to **$168.4 million** in fiscal 2020, while financing activities provided **$174.9 million**, primarily from senior notes issuance offset by debt repayment Consolidated Statements of Cash Flows (in millions) | Activity | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(168.4) | $(391.2) | $(283.0) | | Net cash provided by (used in) investing activities | $5.0 | $(0.8) | $259.0 | | Net cash provided by (used in) financing activities | $174.9 | $439.8 | $(4.0) | | Net increase (decrease) in cash and cash equivalents | $11.5 | $47.8 | $(28.0) | | Cash and cash equivalents at end of period | $394.3 | $382.8 | $335.0 | - Net cash used in operating activities was **$168.4 million in fiscal 2020**, a significant decrease from **$391.2 million in fiscal 2019**[198](index=198&type=chunk) - Net cash provided by financing activities was **$174.9 million in fiscal 2020**, primarily from the issuance of **$300 million senior notes**, partially offset by debt repayment[198](index=198&type=chunk) [Notes to Consolidated Financial Statements](index=47&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail Forestar's significant accounting policies, including its majority ownership by D.R. Horton, fiscal year change, segment reporting, real estate composition, revenue breakdown, capitalized interest, unconsolidated ventures, other assets and liabilities, debt structure, fair value measurements, earnings per share, income taxes, stockholders' equity, employee benefit plans, commitments, contingencies, related party transactions, and unaudited quarterly results [Note 1 — Summary of Significant Accounting Policies](index=47&type=section&id=Note%201%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) Forestar became a majority-owned subsidiary of D.R. Horton in October 2017, aligning its fiscal year-end to September 30, and adopted ASU 2016-02 with no material financial impact - Forestar became a majority-owned subsidiary of D.R. Horton in October 2017, with D.R. Horton owning approximately **65% of outstanding common stock** as of September 30, 2020[201](index=201&type=chunk) - Changed fiscal year-end from December 31 to September 30, effective January 1, 2018, to align with D.R. Horton[202](index=202&type=chunk) - Adopted ASU 2016-02 'Leases' on October 1, 2019, recording **$2.7 million in right-of-use assets** and **$2.9 million in lease liabilities**, with no material impact on financial position or results[205](index=205&type=chunk) [Note 2 — Segment Information](index=53&type=section&id=Note%202%20%E2%80%94%20Segment%20Information) Since fiscal 2019, Forestar manages operations through a single real estate segment, which constitutes its core business and generates substantially all revenues - Since fiscal 2019, operations are managed through a single real estate segment, which is the core business and generates substantially all revenues[229](index=229&type=chunk) - For the nine months ended September 30, 2018, the company managed operations through real estate and 'other' segments, with certain costs not allocated[230](index=230&type=chunk) [Note 3 — Real Estate](index=53&type=section&id=Note%203%20%E2%80%94%20Real%20Estate) Total real estate assets amounted to **$1,309.7 million** at September 30, 2020, with **$550.8 million** invested in acquisitions and **$503.0 million** in development during fiscal 2020, and no impairment charges recorded in that year Real Estate Composition (in millions) | Category | September 30, 2020 | September 30, 2019 | | :--- | :--- | | Developed and under development projects | $1,304.3 | $1,011.8 | | Undeveloped land | $5.4 | $17.1 | | **Total Real Estate** | **$1,309.7** | **$1,028.9** | - Invested **$550.8 million for residential real estate acquisition** and **$503.0 million for development in fiscal 2020**[231](index=231&type=chunk) - No real estate impairment charges recorded in fiscal 2020; **$0.8 million in fiscal 2019** and **$0.3 million in nine months ended September 30, 2018**[234](index=234&type=chunk) [Note 4 — Revenues](index=54&type=section&id=Note%204%20%E2%80%94%20Revenues) Total revenues reached **$931.8 million** in fiscal 2020, with land and lot sales to D.R. Horton significantly increasing to **$887.6 million** Revenue Breakdown (in millions) | Category | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | | Residential lot sales | $880.3 | $351.7 | $72.0 | | Residential tract sales | $48.6 | $55.8 | $3.6 | | Commercial tract sales | $2.5 | $18.5 | $2.0 | | Other | $0.4 | $2.3 | $0.7 | | **Total Revenues** | **$931.8** | **$428.3** | **$78.3** | - Land and lot sales to D.R. Horton were **$887.6 million in fiscal 2020**, a significant increase from **$326.6 million in fiscal 2019**[236](index=236&type=chunk) [Note 5 — Capitalized Interest](index=54&type=section&id=Note%205%20%E2%80%94%20Capitalized%20Interest) Capitalized interest at the end of fiscal 2020 was **$48.7 million**, with all interest incurred in fiscal 2020 and 2019 capitalized to real estate due to active real estate exceeding debt levels Capitalized Interest (in millions) | Metric | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | | Capitalized interest, beginning of period | $23.7 | $3.2 | $0.5 | | Interest incurred | $43.3 | $25.3 | $7.3 | | Interest expensed (charged to cost of sales) | $(18.3) | $(4.8) | $(0.9) | | Capitalized interest, end of period | $48.7 | $23.7 | $3.2 | - All interest incurred in fiscal 2020 and 2019 was capitalized to real estate as active real estate exceeded debt levels[214](index=214&type=chunk) [Note 6 — Investment in Unconsolidated Ventures](index=55&type=section&id=Note%206%20%E2%80%94%20Investment%20in%20Unconsolidated%20Ventures) As of September 30, 2020, Forestar held ownership interests in four unconsolidated ventures, with its equity in earnings totaling **$0.7 million** in fiscal 2020 - At September 30, 2020, the company had ownership interests in four ventures accounted for using the equity method[242](index=242&type=chunk) Combined Summarized Balance Sheet for Unconsolidated Ventures (in millions) | Metric | September 30, 2020 | September 30, 2019 | | :--- | :--- | | Total assets | $7.5 | $15.3 | | Total liabilities and equity | $7.5 | $15.3 | | Forestar's investment in unconsolidated ventures | $3.6 | $7.3 | Combined Summarized Income Statement for Unconsolidated Ventures (in millions) | Metric | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | | Revenues | $3.5 | $1.9 | $22.2 | | Earnings | $3.8 | $1.3 | $15.1 | | Forestar's equity in earnings | $0.7 | $0.5 | $4.8 | [Note 7 — Other Assets, Accrued Expenses and Other Liabilities](index=57&type=section&id=Note%207%20%E2%80%94%20Other%20Assets,%20Accrued%20Expenses%20and%20Other%20Liabilities) Total other assets increased to **$24.9 million** at September 30, 2020, while total accrued expenses and other liabilities rose to **$93.8 million** Other Assets (in millions) | Category | September 30, 2020 | September 30, 2019 | | :--- | :--- | | Receivables, net | $0.4 | $1.1 | | Earnest money notes receivable on sales contracts | $4.8 | $0 | | Lease right of use assets | $3.6 | $0 | | Prepaid expenses | $4.9 | $3.4 | | Land purchase contract deposits | $5.5 | $5.1 | | Other assets | $5.7 | $4.1 | | **Total Other Assets** | **$24.9** | **$13.7** | Accrued Expenses and Other Liabilities (in millions) | Category | September 30, 2020 | September 30, 2019 | | :--- | :--- | | Accrued employee compensation and benefits | $6.2 | $5.6 | | Accrued property taxes | $3.8 | $2.1 | | Lease liabilities | $3.8 | $0 | | Accrued interest | $14.0 | $13.5 | | Contract liabilities | $0.2 | $2.5 | | Deferred income | $9.3 | $9.3 | | State income taxes payable | $0.5 | $0 | | Accrued development costs | $35.3 | $35.4 | | Other accrued expenses | $10.2 | $8.4 | | Other liabilities | $10.5 | $2.8 | | **Total Accrued Expenses and Other Liabilities** | **$93.8** | **$79.6** | [Note 8 — Debt](index=58&type=section&id=Note%208%20%E2%80%94%20Debt) Total debt increased to **$641.1 million** at September 30, 2020, following the issuance of **$300 million** in **5.0% senior notes** and the repayment of **$118.9 million** in convertible senior notes, with **$344.0 million** available on the revolving credit facility Notes Payable (in millions) | Debt Type | September 30, 2020 | September 30, 2019 | | :--- | :--- | | 3.75% convertible senior notes due 2020 | $0 | $116.7 | | 8.0% senior notes due 2024 | $345.2 | $343.8 | | 5.0% senior notes due 2028 | $295.9 | $0 | | Revolving credit facility | $0 | $0 | | **Total Debt** | **$641.1** | **$460.5** | - Issued **$300 million of 5.0% senior notes due 2028** in February 2020 and repaid **$118.9 million of 3.75% convertible senior notes** at maturity in March 2020[254](index=254&type=chunk)[258](index=258&type=chunk) - Revolving credit facility has **$344.0 million available capacity** as of September 30, 2020, with no outstanding borrowings[252](index=252&type=chunk) - Board authorized repurchase of up to **$30 million of debt securities**, with the full amount remaining as of September 30, 2020[260](index=260&type=chunk) [Note 9 — Fair Value Measurements](index=59&type=section&id=Note%209%20%E2%80%94%20Fair%20Value%20Measurements) Forestar uses a three-level hierarchy for fair value measurements, with cash and cash equivalents valued at carrying value (Level 1) and senior notes based on quoted market prices (Level 2) - Uses a three-level hierarchy for fair value measurements based on inputs to the valuation model (Level 1: quoted prices in active markets; Level 2: observable inputs other than Level 1; Level 3: unobservable inputs)[261](index=261&type=chunk) Fair Value of Financial Assets and Liabilities (in millions) | Metric | Carrying Value (2020) | Fair Value (2020) | Carrying Value (2019) | Fair Value (2019) | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $394.3 | $394.3 | $382.8 | $382.8 | | Debt | $641.1 | $673.5 | $460.5 | $497.3 | - Fair values of cash and cash equivalents approximate carrying values (Level 1), while fair value of senior notes is determined based on quoted market prices (Level 2)[265](index=265&type=chunk) [Note 10 — Earnings per Share](index=60&type=section&id=Note%2010%20%E2%80%94%20Earnings%20per%20Share) Net income attributable to Forestar Group Inc. was **$60.8 million** in fiscal 2020, resulting in basic and diluted net income per common share of **$1.26**, with the repayment of convertible senior notes having no prior period impact Earnings per Share (in millions, except share and per share amounts) | Metric | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | | Net income attributable to Forestar Group Inc. | $60.8 | $33.0 | $68.8 | | Weighted average common shares outstanding — basic | 48,037,018 | 41,974,429 | 41,938,987 | | Basic net income per common share | $1.26 | $0.79 | $1.64 | | Diluted net income per common share | $1.26 | $0.79 | $1.64 | - Repayment of **$118.9 million convertible senior notes** in March 2020 had no impact on diluted net income per share in prior periods[266](index=266&type=chunk) [Note 11 — Income Taxes](index=61&type=section&id=Note%2011%20%E2%80%94%20Income%20Taxes) Income tax expense was **$16.4 million** in fiscal 2020, with an effective tax rate of **21%**, which included a **$2.3 million** tax benefit from the CARES Act NOL carryback provisions Income Tax Expense (Benefit) (in millions) | Category | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | | Current tax expense (benefit) | $(6.7) | $0 | $(0.5) | | Deferred tax expense (benefit) | $23.1 | $9.4 | $(24.8) | | **Total Income tax expense (benefit)** | **$16.4** | **$9.4** | **$(25.3)** | Effective Income Tax Rate Reconciliation | Metric | Year Ended Sep 30, 2020 | Year Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | | Federal statutory rate | 21% | 21% | 21% | | State, net of federal benefit | 3% | 1% | 4% | | Valuation allowance | 0% | 0% | (81)% | | Tax benefits previously unrecognized | (2)% | 0% | 0% | | Tax rate benefit in carryback years | (1)% | 0% | 0% | | Noncontrolling interests | 0% | (1)% | (1)% | | **Effective tax rate (benefit)** | **21%** | **21%** | **(57)%** | - Effective tax rate for fiscal 2020 includes a **$2.3 million tax benefit** related to NOL carryback provisions of the CARES Act[269](index=269&type=chunk) - No federal NOL carryforwards at September 30, 2020, due to carryback claims and taxable income[272](index=272&type=chunk) [Note 12 — Stockholders' Equity](index=63&type=section&id=Note%2012%20%E2%80%94%20Stockholders'%20Equity) Forestar has a **$500 million** shelf registration statement for equity securities, with **$394.3 million** remaining, and an equity distribution agreement for up to **$100 million** of common stock, though no shares were issued as of September 30, 2020 - Has an effective shelf registration statement for **$500 million of equity securities**, with **$394.3 million remaining available** as of September 30, 2020[279](index=279&type=chunk) - Entered into an equity distribution agreement in August 2020 to sell up to **$100 million of common stock** through an at-the-market program; no shares issued as of September 30, 2020[280](index=280&type=chunk) [Note 13 — Employee Benefit Plans](index=63&type=section&id=Note%2013%20%E2%80%94%20Employee%20Benefit%20Plans) Forestar offers a 401(k) plan with **$0.4 million** in matching contributions in fiscal 2020 and grants time-based Restricted Stock Units (RSUs), resulting in **$2.0 million** in stock-based compensation expense - Offers a 401(k) plan with matching contributions and discretionary profit sharing; expense for matching contributions was **$0.4 million in fiscal 2020**[281](index=281&type=chunk) - Grants time-based Restricted Stock Units (RSUs) that vest annually over three to five years; total stock-based compensation expense was **$2.0 million in fiscal 2020**[282](index=282&type=chunk)[285](index=285&type=chunk)[286](index=286&type=chunk) - As of September 30, 2020, **$3.2 million of unrecognized compensation expense** related to unvested time-based RSU awards is expected to be recognized over a weighted average period of **2.6 years**[286](index=286&type=chunk) [Note 14 — Commitments and Contingencies](index=64&type=section&id=Note%2014%20%E2%80%94%20Commitments%20and%20Contingencies) As of September 30, 2020, Forestar had **$36.0 million** in outstanding letters of credit and **$236.9 million** in surety bonds, and is involved in legal proceedings for which adequate reserves have been established - As of September 30, 2020, had **$36.0 million in outstanding letters of credit** under the revolving credit facility and **$236.9 million in surety bonds** to secure development obligations[287](index=287&type=chunk) - Involved in various legal proceedings, with adequate reserves established; outcomes not expected to have a significant adverse effect on financial position or long-term results[288](index=288&type=chunk) - Future minimum rental commitments under non-cancelable operating leases are **$1.2 million for 2021, $0.9 million for 2022, and $0.9 million for 2023**[289](index=289&type=chunk) [Note 15 — Related Party Transactions](index=66&type=section&id=Note%2015%20%E2%80%94%20Related%20Party%20Transactions) Forestar paid D.R. Horton **$5.0 million** for shared services in fiscal 2020, and residential lot sales to D.R. Horton significantly increased to **10,164 lots** totaling **$859.7 million** - Paid D.R. Horton **$5.0 million for shared administrative, compliance, operational, and procurement services in fiscal 2020**, up from **$2.1 million in fiscal 2019**[293](index=293&type=chunk) - Residential single-family lots sold to D.R. Horton increased from **3,728 in fiscal 2019 to 10,164 in fiscal 2020**, with revenues rising from **$311.7 million to $859.7 million**[297](index=297&type=chunk) D.R. Horton Lot Involvement (as of Sep 30) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Residential lots under contract to sell to D.R. Horton | 14,000 | 12,800 | | Residential lots subject to right of first offer with D.R. Horton | 16,400 | 10,600 | | Earnest money deposits from D.R. Horton for lots under contract (in millions) | $92.2 | $88.7 | | Remaining purchase price of lots under contract with D.R. Horton (in millions) | $1,022.2 | $953.8 | [Note 16 — Quarterly Results of Operations (Unaudited)](index=67&type=section&id=Note%2016%20%E2%80%94%20Quarterly%20Results%20of%20Operations%20(Unaudited)) Unaudited quarterly results show total revenues for Q4 2020 at **$347.6 million** and net income attributable to Forestar Group Inc. at **$24.2 million** Consolidated Quarterly Results of Operations (in millions, except per share amounts) | Quarter | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $247.2 | $159.1 | $177.9 | $347.6 | | Net income attributable to Forestar Group Inc. | $16.9 | $9.6 | $10.1 | $24.2 | | Net income per share — basic | $0.35 | $0.20 | $0.21 | $0.50 | | | | | | | | Quarter | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $38.5 | $65.3 | $88.2 | $236.3 | | Net income attributable to Forestar Group Inc. | $3.3 | $10.1 | $6.9 | $12.7 | | Net income per share — basic | $0.08 | $0.24 | $0.16 | $0.30 | [Note 17 — Transition Period Comparative Data](index=68&type=section&id=Note%2017%20%E2%80%94%20Transition%20Period%20Comparative%20Data) Transition period financial information for the nine months ended September 30, 2018, shows revenues of **$78.3 million** and net income attributable to Forestar Group Inc. of **$68.8 million** Transition Period Financial Information (in millions, except per share amounts) | Metric | Nine Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2017 (Unaudited) | | :--- | :--- | :--- | | Revenues | $78.3 | $83.5 | | Cost of sales | $49.5 | $90.1 | | Income from continuing operations before taxes | $44.7 | $62.5 | | Net income attributable to Forestar Group Inc. | $68.8 | $67.8 | | Net income per basic share | $1.64 | $1.61 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=59&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 - None[309](index=309&type=chunk) [Controls and Procedures](index=59&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, 2020, concluding they were effective, with no material changes in internal control over financial reporting during the quarter [Disclosure Controls and Procedures](index=69&type=section&id=Disclosure%20controls%20and%20procedures) Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of September 30, 2020, ensuring timely and accurate reporting - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of September 30, 2020[310](index=310&type=chunk) - Controls were effective in recording, processing, summarizing, and reporting required information on a timely basis[310](index=310&type=chunk) [Internal Control Over Financial Reporting](index=69&type=section&id=Internal%20control%20over%20financial%20reporting) Management's report on internal control over financial reporting and the independent registered public accounting firm's report are included in Part II, Item 8 - Management's report on internal control over financial reporting and the independent registered public accounting firm's report are included in Part II, Item 8[311](index=311&type=chunk) [Changes in Internal Control Over Financial Reporting](index=69&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020 - No changes in internal control over financial reporting during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[312](index=312&type=chunk) [Other Information](index=59&type=section&id=Item%209B.%20Other%20Information) There is no other information to report under this item - None[313](index=313&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=60&type=section&id=Item%2010.%20Directors,%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 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the Company's definitive Proxy Statement for the 2021 Annual Meeting of Stockholders[316](index=316&type=chunk) [Executive Compensation](index=60&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the Company's definitive Proxy Statement for the 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the Company's definitive Proxy Statement for the 2021 Annual Meeting of Stockholders[317](index=317&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=60&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, and related sto

FORESTAR Investor Presentation Q4 2020 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 statements include, but are no ...

Forestar Group Inc. (NYSE:FOR) Q4 2020 Earnings Conference Call November 5, 2020 5:00 PM ET Company Participants Jessica Hansen - IR Daniel Bartok - CEO James Allen - CFO Conference Call Participants Ryan Gilbert - BTIG John Lovallo - Bank of America Merrill Lynch Elad Hillman - JPMorgan Truman Patterson - Wells Fargo Operator Good afternoon, and welcome to Forestar's Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session w ...

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 June 30, 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 Jurisdiction ...

I N V E S T O R P R E S E N T A T I O N Q 3 2 0 2 0 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 statements includ ...