Forestar (FOR) - 2021 Q3 - Quarterly Report

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