Forestar (FOR) - 2025 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements of Forestar Group Inc., along with detailed notes explaining various financial aspects Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed explanatory notes Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (In millions) | Item | June 30, 2025 | September 30, 2024 | Change | % Change | | :-------------------------- | :------------ | :----------------- | :----- | :------- | | Cash and cash equivalents | $189.2 | $481.2 | $(292.0) | -60.7% | | Real estate | $2,823.5 | $2,266.2 | $557.3 | 24.6% | | Total assets | $3,120.4 | $2,840.1 | $280.3 | 9.9% | | Debt | $872.8 | $706.4 | $166.4 | 23.6% | | Total liabilities | $1,440.1 | $1,245.0 | $195.1 | 15.7% | | Total equity | $1,680.3 | $1,595.1 | $85.2 | 5.3% | Consolidated Statements of Operations This section details the company's revenues, expenses, and net income over specific periods Consolidated Statements of Operations Highlights (In millions, except per share amounts) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenues | $390.5 | $318.4 | $991.9 | $958.0 | | Income before income taxes | $43.6 | $51.6 | $106.2 | $161.6 | | Net income | $32.9 | $38.7 | $81.0 | $121.8 | | Basic net income per common share | $0.65 | $0.76 | $1.59 | $2.42 | | Diluted net income per common share | $0.65 | $0.76 | $1.59 | $2.40 | Consolidated Statements of Total Equity This section outlines changes in the company's equity from various sources, including net income and stock-based compensation Consolidated Statements of Total Equity Highlights (In millions) | Item | September 30, 2024 | June 30, 2025 | | :------------------------------------ | :----------------- | :------------ | | Balances at beginning of period | $1,595.1 | $1,595.1 | | Net income (9 months) | $81.0 | $81.0 | | Stock-based compensation expense (9 months) | $5.8 | $5.8 | | Total Equity at June 30, 2025 | - | $1,680.3 | | Total Equity at June 30, 2024 | $1,512.9 | - | Consolidated Statements of Cash Flows This section summarizes the cash generated and used by the company across its operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Nine Months Ended June 30, In millions) | Activity | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Net cash used in operating activities | $(454.0) | $(277.6) | | Net cash (used in) provided by investing activities | $(0.6) | $3.7 | | Net cash provided by financing activities | $162.6 | $17.1 | | Decrease in cash and cash equivalents | $(292.0) | $(256.8) | | Cash and cash equivalents at end of period | $189.2 | $359.2 | Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements Note 1 — Basis of Presentation The financial statements are unaudited, prepared under GAAP, and include Forestar and its subsidiaries, with D.R. Horton as a related party, and the Company is evaluating new accounting standards - D.R. Horton owned approximately 62% of the Company's outstanding common stock as of June 30, 2025, making it a related party[23] - The Company's business is seasonal, generally delivering more lots and generating greater revenues and pre-tax income in the fourth quarter of its fiscal year[25] - The Company is evaluating new FASB ASUs (2023-07, 2023-09, 2024-03) on segment reporting, income tax disclosures, and expense disaggregation, with impacts primarily expected on disclosures[26][27][28] Note 2 — Segment Information Forestar manages its operations through a single real estate segment, which is its core business, primarily focused on acquiring land and developing single-family residential lots for sale to homebuilders - The Company operates through a single real estate segment, which is its core business and generates substantially all revenues from selling residential single-family finished lots[29] Note 3 — Real Estate Real estate assets increased significantly, with substantial investments in acquisition and development, and no impairment charges were recorded Real Estate Composition (In millions) | Item | June 30, 2025 | September 30, 2024 | | :------------------------------ | :------------ | :----------------- | | Developed and under development projects | $2,574.6 | $2,126.1 | | Land held for future development | $248.9 | $140.1 | | Total Real Estate | $2,823.5 | $2,266.2 | - In the nine months ended June 30, 2025, the Company invested $532.6 million for residential real estate acquisition and $864.3 million for development[30] - Land purchase contract deposit and pre-acquisition cost write-offs were $3.9 million for the nine months ended June 30, 2025, compared to $1.0 million in the prior year period[32] Note 4 — Revenues Residential lot sales are the primary revenue source, showing an increase for both the three and nine months ended June 30, 2025 Revenues by Type (In millions) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Residential lot sales | $383.0 | $305.8 | $977.3 | $935.9 | | Tract sales and other | $7.5 | $12.1 | $14.6 | $18.6 | | Total Revenues | $390.5 | $318.4 | $991.9 | $958.0 | Note 5 — Capitalized Interest The Company capitalizes all incurred interest costs to real estate during development, which are later expensed to cost of sales upon property sale Interest Costs (In millions) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Interest incurred | $13.4 | $8.2 | $32.3 | $24.5 | | Interest charged to cost of sales | $(7.0) | $(5.8) | $(17.0) | $(18.4) | | Capitalized interest, end of period | $78.3 | $64.5 | $78.3 | $64.5 | Note 6 — Other Assets, Accrued Expenses and Other Liabilities Other assets increased due to higher deposits and prepaid expenses, while accrued expenses and other liabilities decreased, mainly from employee compensation and interest Other Assets (In millions) | Item | June 30, 2025 | September 30, 2024 | | :-------------------------- | :------------ | :----------------- | | Receivables, net | $24.2 | $28.4 | | Land purchase contract deposits | $32.8 | $23.4 | | Total Other Assets | $100.1 | $85.3 | Accrued Expenses and Other Liabilities (In millions) | Item | June 30, 2025 | September 30, 2024 | | :---------------------------------- | :------------ | :----------------- | | Accrued employee compensation and benefits | $8.4 | $13.5 | | Accrued interest | $14.9 | $7.3 | | Income taxes payable | $1.2 | $8.6 | | Total Accrued Expenses and Other Liabilities | $63.5 | $68.3 | Note 7 — Debt Total debt increased significantly due to new 6.5% senior notes issuance, partially offset by repurchases of 3.85% senior notes, with substantial available credit and covenant compliance Notes Payable (In millions) | Item | June 30, 2025 | September 30, 2024 | | :------------------------ | :------------ | :----------------- | | 3.85% senior notes due 2026 | $70.4 | $398.4 | | 5.0% senior notes due 2028 | $298.5 | $298.1 | | 6.5% senior notes due 2033 | $494.0 | — | | Other note payable | $9.9 | $9.9 | | Total Debt | $872.8 | $706.4 | - In March 2025, the Company issued $500 million principal amount of 6.5% senior notes due March 15, 2033, with an effective interest rate of 6.7%[44] - Net proceeds from the 2033 notes issuance were primarily used to fund a tender offer for the 3.85% senior notes due 2026, repurchasing $329.4 million and recognizing a $1.1 million loss on extinguishment of debt[44] - At June 30, 2025, the Company had $602.8 million of available capacity under its $640 million senior unsecured revolving credit facility and was in compliance with all debt covenants[40][42][49] Note 8 — Earnings per Share Basic and diluted net income per common share decreased for both the three and nine months ended June 30, 2025 Earnings per Share (In millions, except per share amounts) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income | $32.9 | $38.7 | $81.0 | $121.8 | | Basic net income per common share | $0.65 | $0.76 | $1.59 | $2.42 | | Diluted net income per common share | $0.65 | $0.76 | $1.59 | $2.40 | | Weighted average common shares outstanding — basic | 50,931,777 | 50,755,276 | 50,849,223 | 50,322,916 | Note 9 — Income Taxes Income tax expense and effective tax rates decreased, with a net deferred tax liability partially offset by a valuation allowance, and a new tax law is being evaluated Income Tax Expense and Effective Tax Rate | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Income tax expense | $10.7 million | $12.9 million | $25.2 million | $39.8 million | | Effective tax rate | 24.5% | 25.0% | 23.7% | 24.6% | - At June 30, 2025, the Company had net deferred tax liabilities of $77.9 million, partially offset by a $0.7 million valuation allowance for state deferred tax assets[54] - The Company is evaluating the impact of the 'One Big Beautiful Bill Act' signed on July 4, 2025, but none of its tax provisions are expected to have a significant impact[55] Note 10 — Stockholders' Equity and Stock-Based Compensation The Company has a $750 million shelf registration for equity securities, with no shares issued under its ATM program, and stock-based compensation expense increased due to PSU and RSU grants - A $750 million shelf registration statement for equity securities is effective, with $300 million reserved for an at-the-market equity offering program; no shares were issued under this program in the nine months ended June 30, 2025[56] Stock-Based Compensation Expense (In millions) | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | $1.5 | $1.4 | | Nine Months Ended June 30 | $5.8 | $4.1 | - In the nine months ended June 30, 2025, the Company granted 99,097 Performance Stock Units (PSUs) to executive officers and 306,300 Restricted Stock Units (RSUs)[58][59] Note 11 — Commitments and Contingencies The Company has significant off-balance sheet arrangements, including letters of credit and surety bonds, and is involved in legal proceedings and substantial land purchase contracts Contractual Obligations and Off-Balance Sheet Arrangements (June 30, 2025, In millions) | Item | Amount | | :-------------------- | :----- | | Outstanding letters of credit | $37.2 | | Surety bonds issued by third parties | $808.5 | | Land purchase contracts (remaining purchase price) | $854.6 | | Land purchase contract deposits | $32.8 | - A stockholder derivative complaint was filed on April 29, 2025, against D.R. Horton and certain Company directors, alleging breach of fiduciary duty related to lot sale transactions; the outcome is uncertain, and a possible loss cannot be estimated[62][63] - The Maryland Department of Environment filed a suit on September 6, 2024, regarding stormwater compliance issues, which the Company does not believe will have a material effect on its financial position[64] Note 12 — Related Party Transactions The Company engages in ongoing related party transactions with D.R. Horton, its majority owner, including shared services, land development, and significant residential lot sales - D.R. Horton provides administrative, compliance, operational, and procurement services under a Shared Services Agreement[68] Residential Lots and Sales to D.R. Horton (In millions, except lot count) | Item | June 30, 2025 | September 30, 2024 | | :---------------------------------------------------------------- | :------------ | :----------------- | | Residential lots under contract to sell to D.R. Horton | 24,200 | 20,500 | | Owned lots subject to right of first offer with D.R. Horton | 18,500 | 17,200 | | Earnest money deposits from D.R. Horton for lots under contract | $225.2 | $168.4 | | Remaining sales price of lots under contract with D.R. Horton | $2,172.5 | $1,840.5 | Residential Lot Sales Revenues from D.R. Horton (In millions) | Period | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------ | :------------------------------ | | Residential lots sold to D.R. Horton | 7,688 | 8,842 | | Residential lot sales revenues from sales to D.R. Horton | $810.2 | $846.6 | Note 13 — Fair Value Measurements The Company uses a three-level fair value hierarchy, classifying cash as Level 1, senior notes as Level 2, and other notes payable as Level 3 - Fair value hierarchy: Level 1 for cash and cash equivalents, Level 2 for senior notes, and Level 3 for the other note payable[76][77][78] Fair Value of Debt (June 30, 2025, In millions) | Item | Carrying Value | Fair Value | | :--- | :------------- | :--------- | | Debt | $872.8 | $880.3 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational performance, discussing business operations, key financial results, liquidity, capital resources, and critical accounting policies Our Operations Forestar Group Inc. is a national residential lot development company, majority-owned by D.R. Horton, focusing on land acquisition and development for single-family residential lots across diverse markets - Forestar is a national residential lot development company, primarily focused on acquiring land and developing finished single-family residential lots for homebuilders[80][82] - D.R. Horton, Inc. owned approximately 62% of the Company's outstanding common stock as of June 30, 2025, exerting significant influence on strategic direction[81] Land and Lot Position (June 30, 2025) | Item | Count | | :---------------------------------------- | :------ | | Total lots owned and controlled | 102,300 | | Owned lots | 68,300 | | Lots controlled through purchase contracts | 34,000 | | Owned lots under contract to be sold | 25,700 | - The Company has expanded its operations across 64 markets in 23 states, focusing on affordable price points for entry-level, first-time move-up, and active adult homes[84][85] Results of Operations For the nine months ended June 30, 2025, total residential lots sold decreased, but average sales price increased, leading to higher revenues but lower pre-tax income, net income, and diluted EPS due to increased costs and a debt extinguishment loss Key Operating and Financial Data (Nine Months Ended June 30, In millions, except per share amounts) | Item | 2025 | 2024 | Change | % Change | | :---------------------------------- | :----- | :----- | :----- | :------- | | Consolidated Revenues | $991.9 | $958.0 | $33.9 | 3.5% | | Pre-tax income | $106.2 | $161.6 | $(55.4) | -34.3% | | Pre-tax operating margin | 10.7% | 16.9% | -6.2% | -36.7% | | Net income | $81.0 | $121.8 | $(40.8) | -33.5% | | Diluted earnings per share | $1.59 | $2.40 | $(0.81) | -33.8% | Residential Lot Sales Performance | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total residential lots sold | 3,605 | 3,255 | 9,349 | 9,694 | | Average sales price per lot | $106,600 | $94,000 | $104,500 | $96,300 | | Residential lot sales revenues | $383.0 million | $305.8 million | $977.3 million | $935.9 million | - Selling, general and administrative (SG&A) expense as a percentage of revenues increased to 11.3% for the nine months ended June 30, 2025, from 9.0% in the prior year period[99] - A $1.1 million loss on extinguishment of debt was recognized in the nine months ended June 30, 2025, due to the partial repurchase of senior notes[100] Income Taxes Income tax expense and effective tax rates decreased for the three and nine months ended June 30, 2025, with a net deferred tax liability and ongoing evaluation of a new tax law Income Tax Expense and Effective Tax Rate | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Income tax expense | $10.7 million | $12.9 million | $25.2 million | $39.8 million | | Effective tax rate | 24.5% | 25.0% | 23.7% | 24.6% | - At June 30, 2025, the Company had net deferred tax liabilities of $77.9 million, partially offset by a $0.7 million valuation allowance[103] - The 'One Big Beautiful Bill Act' signed on July 4, 2025, is being evaluated, but its tax provisions are not expected to significantly impact financial statements[104] Land and Lot Position The Company's total land and lot position increased, with a notable increase in owned lots and lots under contract to sell to D.R. Horton Land and Lot Position | Item | June 30, 2025 | September 30, 2024 | | :---------------------------------------- | :------------ | :----------------- | | Lots owned | 68,300 | 57,800 | | Lots controlled through purchase contracts | 34,000 | 37,300 | | Total lots owned and controlled | 102,300 | 95,100 | | Owned lots under contract to sell to D.R. Horton | 24,200 | 20,500 | | Owned lots fully developed | 10,000 | 6,300 | Liquidity and Capital Resources The Company maintains strong liquidity with cash and available credit, despite decreased cash and increased debt, aiming for a net debt to total capital ratio of approximately 40% or less Liquidity and Capital Ratios (In millions, except ratios) | Item | June 30, 2025 | September 30, 2024 | | :---------------------------------------- | :------------ | :----------------- | | Cash and cash equivalents | $189.2 | $481.2 | | Available borrowing capacity (revolving credit facility) | $602.8 | - | | Ratio of debt to total capital | 34.2% | 30.7% | | Ratio of net debt to total capital | 28.9% | 12.4% | - Net cash used in operating activities was $454.0 million for the nine months ended June 30, 2025, primarily due to increases in real estate and other assets[121] - Net cash provided by financing activities was $162.6 million for the nine months ended June 30, 2025, driven by the issuance of $500 million in 2033 notes and $280 million in revolving credit facility borrowings, partially offset by debt repurchases and repayments[123] - The Company has $70.6 million principal amount of senior note maturities in the next twelve months[106] Critical Accounting Policies and Estimates There have been no material changes in the Company's critical accounting policies or estimates from those disclosed in its 2024 Annual Report on Form 10-K - No material changes in critical accounting policies or estimates from the 2024 Annual Report on Form 10-K[124] New and Pending Accounting Pronouncements This section refers readers to Note 1—Basis of Presentation for details on new and pending accounting pronouncements - Refer to Note 1—Basis of Presentation for information on new and pending accounting pronouncements[125] Forward-Looking Statements This section contains a cautionary statement regarding forward-looking statements, identifying various factors and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements are subject to risks and uncertainties, including the effect of D.R. Horton's controlling ownership, cyclical industry conditions, inflation, interest rates, supply shortages, and governmental policies[126] - The Company disclaims any obligation to update or revise forward-looking statements to reflect events or circumstances after the statement date[128] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's exposure to market risks, specifically focusing on interest rate risk and its potential impact on financial position and cash flows Interest Rate Risk The Company is exposed to interest rate risk from its senior debt, revolving credit facility, and other note payable, utilizing both fixed and variable rate debt - The Company is subject to interest rate risk on its senior debt, revolving credit facility, and other note payable, managing exposure through a mix of fixed and variable rate debt[129] - At June 30, 2025, fixed rate debt included $70.6 million of 3.85% senior notes (2026), $300 million of 5.0% senior notes (2028), $500 million of 6.5% senior notes (2033), and $9.9 million of 4.0% other note payable (2025); there were no outstanding borrowings on the variable rate revolving credit facility[130] Item 4. Controls and Procedures This section reports on the effectiveness of the Company's disclosure controls and procedures and confirms no material changes in internal control over financial reporting during the quarter Disclosure controls and procedures Management, with the participation of the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025 - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[131] Changes in internal control over financial reporting There have been no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[132] PART II — OTHER INFORMATION This section covers additional information not included in the financial statements, such as legal proceedings, other disclosures, and exhibits Item 1. Legal Proceedings The Company is involved in various legal proceedings, including a stockholder derivative complaint and an environmental suit, with varying assessments of potential financial impact - A stockholder derivative complaint was filed on April 29, 2025, against D.R. Horton and certain Company directors, alleging breach of fiduciary duty related to lot sale transactions; the outcome is uncertain, and a possible loss cannot be estimated[136][137] - The Maryland Department of Environment filed a suit on September 6, 2024, regarding stormwater compliance issues, which the Company does not believe will have a material effect on its financial position[138] - The Company believes adequate reserves have been established for any probable losses from various other legal proceedings and does not anticipate a significant adverse effect on its financial position or long-term results[134] Item 5. Other Information This section provides other relevant information, specifically noting that no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the quarter Trading Plans During the three months ended June 30, 2025, no director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[139] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications from the CEO and CFO and XBRL-related documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, along with XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[140] SIGNATURE This section contains the formal signature block, confirming the report's official submission SIGNATURE This section contains the formal signature block, confirming that the report has been duly caused to be signed on behalf of Forestar Group Inc. by its Executive Vice President and Chief Financial Officer - The report was signed on July 23, 2025, by James D. Allen, Executive Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer) of Forestar Group Inc[146]