for-20220630

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, 2022


☐			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)


Delaware						26-1336998
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

2221 E. Lamar Blvd., Suite 790

Arlington, Texas 76006

(Address of Principal Executive Offices, including Zip Code)

(817) 769-1860

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $1.00 per share

FOR

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer

☒

Non-accelerated filer ¨

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $1.00 par value -- 49,759,480 shares as of July 15, 2022

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FORESTAR GROUP INC.

TABLE OF CONTENTS


			Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Statements of Total Equity			5
Consolidated Statements of Cash Flows			7
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			26
Item 4. Controls and Procedures			26
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			27
Item 6. Exhibits			27
SIGNATURE			28

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

FORESTAR GROUP INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2022		September 30, 2021
	(In millions, except share data)
ASSETS
Cash and cash equivalents	$	146.3	$	153.6
Real estate	2,054.3		1,905.2
Investment in unconsolidated ventures	0.4		0.9
Property and equipment, net	5.5		2.9
Other assets	61.3		39.1
Total assets	$	2,267.8	$	2,101.7
LIABILITIES
Accounts payable	$	63.8	$	47.4
Accrued development costs	111.0		104.5
Earnest money on sales contracts	146.4		148.3
Deferred tax liability, net	25.6		24.4
Accrued expenses and other liabilities	67.5		56.7
Debt	705.6		704.5
Total liabilities	1,119.9		1,085.8
Commitments and contingencies (Note 11)
EQUITY
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 49,759,480 and 49,580,389 shares issued and outstanding at June 30, 2022 and September 30, 2021, respectively	49.8		49.6
Additional paid-in capital	640.0		636.2
Retained earnings	457.1		329.1
Stockholders' equity	1,146.9		1,014.9
Noncontrolling interests	1.0		1.0
Total equity	1,147.9		1,015.9
Total liabilities and equity	$	2,267.8	$	2,101.7

See accompanying notes to consolidated financial statements.

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FORESTAR GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2022		2021		2022		2021
	(In millions, except per share amounts)
Revenues	$	308.5	$	312.9	$	1,137.7	$	907.1
Cost of sales	234.6		257.1		902.9		753.8
Selling, general and administrative expense	24.1		16.9		69.9		48.7
Equity in earnings of unconsolidated ventures	—		—		(1.1)		(0.2)
Gain on sale of assets	(2.7)		—		(3.2)		—
Interest and other income	(0.2)		(0.3)		(0.2)		(1.2)
Loss on extinguishment of debt	—		18.1		—		18.1
Income before income taxes	52.7		21.1		169.4		87.9
Income tax expense	13.0		5.2		41.4		21.5
Net income	39.7		15.9		128.0		66.4
Net income attributable to noncontrolling interests	—		0.1		—		0.2
Net income attributable to Forestar Group Inc.	$	39.7	$	15.8	$	128.0	$	66.2

Basic net income per common share attributable to Forestar Group Inc.	$	0.80	$	0.32	$	2.57	$	1.36
Weighted average number of common shares	49.9		49.4		49.8		48.7

Diluted net income per common share attributable to Forestar Group Inc.	$	0.80	$	0.32	$	2.57	$	1.36
Adjusted weighted average number of common shares	49.9		49.5		49.8		48.7

See accompanying notes to consolidated financial statements.

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FORESTAR GROUP INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY

(Unaudited)


	Common Stock		Additional Paid-in Capital		Retained Earnings		Non-controlling Interests		Total Equity
	(In millions, except share data)
Balances at September 30, 2021 (49,580,389 shares)	$	49.6	$	636.2	$	329.1	$	1.0	$	1,015.9
Net income	—		—		40.5		—		40.5
Issuance of common stock (84,547 shares)	0.1		1.6		—		—		1.7
Stock issued under employee benefit plans (10,832 shares)	—		—		—		—		—
Cash paid for shares withheld for taxes	—		(0.1)		—		—		(0.1)
Stock-based compensation expense	—		0.4		—		—		0.4
Balances at December 31, 2021 (49,675,768 shares)	$	49.7	$	638.1	$	369.6	$	1.0	$	1,058.4
Net income	—		—		47.8		—		47.8
Stock issued under employee benefit plans (62,576 shares)	—		—		—		—		—
Cash paid for shares withheld for taxes	—		(0.4)		—		—		(0.4)
Stock-based compensation expense	—		1.6		—		—		1.6
Balances at March 31, 2022 (49,738,344 shares)	$	49.7	$	639.3	$	417.4	$	1.0	$	1,107.4
Net income	—		—		39.7		—		39.7
Stock issued under employee benefit plans (21,136 shares)	0.1		—		—		—		0.1
Cash paid for shares withheld for taxes	—		(0.1)		—		—		(0.1)
Stock-based compensation expense	—		0.8		—		—		0.8
Balances at June 30, 2022 (49,759,480 shares)	$	49.8	$	640.0	$	457.1	$	1.0	$	1,147.9

See accompanying notes to consolidated financial statements.

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FORESTAR GROUP INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY

(Unaudited)


	Common Stock		Additional Paid-in Capital		Retained Earnings		Non-controlling Interests		Total Equity
	(In millions, except share data)
Balances at September 30, 2020 (48,061,921 shares)	$	48.1	$	603.9	$	218.9	$	0.9	$	871.8
Net income	—		—		22.0		0.1		22.1
Stock issued under employee benefit plans (14,722 shares)	—		—		—		—		—
Cash paid for shares withheld for taxes	—		(0.1)		—		—		(0.1)
Stock-based compensation expense	—		0.3		—		—		0.3
Balances at December 31, 2020 (48,076,643 shares)	$	48.1	$	604.1	$	240.9	$	1.0	$	894.1
Net income	—		—		28.4		—		28.4
Issuance of common stock (1,018,503 shares)	1.0		22.3		—		—		23.3
Purchase of noncontrolling interest, net	—		(1.7)		—		(0.2)		(1.9)
Stock issued under employee benefit plans (29,655 shares)	—		—		—		—		—
Cash paid for shares withheld for taxes	—		(0.3)		—		—		(0.3)
Stock-based compensation expense	—		0.9		—		—		0.9
Balances at March 31, 2021 (49,124,801 shares)	$	49.1	$	625.3	$	269.3	$	0.8	$	944.5
Net income	—		—		15.8		0.1		15.9
Issuance of common stock (378,736 shares)	0.4		8.9		—		—		9.3
Stock issued under employee benefit plans (23,571 shares)	—		—		—		—		—
Cash paid for shares withheld for taxes	—		(0.1)		—		—		(0.1)
Stock-based compensation expense	—		0.8		—		—		0.8
Balances at June 30, 2021 (49,527,108 shares)	$	49.5	$	634.9	$	285.1	$	0.9	$	970.4

See accompanying notes to consolidated financial statements.

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FORESTAR GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended June 30,
	2022		2021
	(In millions)
OPERATING ACTIVITIES
Net income	$	128.0	$	66.4
Adjustments:
Depreciation and amortization	2.0		2.1
Deferred income taxes	1.2		4.6
Equity in earnings of unconsolidated ventures	(1.1)		(0.2)
Stock-based compensation expense	2.8		2.0
Real estate impairment and land option charges	7.0		1.6
Loss on extinguishment of debt	—		18.1
Gain on sale of assets	(3.2)		—
Changes in operating assets and liabilities:
Increase in real estate	(170.3)		(540.7)
Increase in other assets	(11.7)		(13.4)
Increase in accounts payable and other accrued liabilities	29.8		34.5
Increase in accrued development costs	6.5		26.3
(Decrease) increase in earnest money deposits on sales contracts	(1.2)		51.8
Decrease in income taxes receivable	—		6.3
Net cash used in operating activities	(10.2)		(340.6)
INVESTING ACTIVITIES
Expenditures for property, equipment, software and other	(3.2)		(0.5)
Return of investment in unconsolidated ventures	1.6		2.2
Proceeds from sale of assets	3.2		—
Net cash provided by investing activities	1.6		1.7
FINANCING ACTIVITIES
Proceeds from debt	—		425.0
Repayments of debt	—		(389.0)
Deferred financing fees	—		(5.0)
Issuance of common stock	1.7		32.6
Purchase of noncontrolling interest	—		(2.4)
Distributions to noncontrolling interests, net	—		(0.1)
Cash paid for shares withheld for taxes	(0.4)		(0.5)
Net cash provided by financing activities	1.3		60.6
Net decrease in cash and cash equivalents	(7.3)		(278.3)
Cash and cash equivalents at beginning of period	153.6		394.3
Cash and cash equivalents at end of period	$	146.3	$	116.0
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Note payable issued for real estate	$	—	$	12.5

See accompanying notes to consolidated financial statements.

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FORESTAR GROUP INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1—Basis of Presentation

The accompanying unaudited, consolidated financial statements include the accounts of Forestar Group Inc. (Forestar) and all of its 100% owned, majority-owned and controlled subsidiaries, which are collectively referred to as the Company unless the context otherwise requires. The Company accounts for its investment in other entities in which it has significant influence over operations and financial policies using the equity method. All intercompany accounts, transactions and balances have been eliminated in consolidation. Noncontrolling interests in consolidated pass-through entities are recognized before income taxes. The transactions included in net income in the consolidated statements of operations are the same as those that would be presented in comprehensive income. Thus, the Company's net income equates to comprehensive income.

The financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these financial statements reflect all adjustments considered necessary to fairly state the results for the interim periods shown, including normal recurring accruals and other items. These financial statements, including the consolidated balance sheet as of September 30, 2021, which was derived from audited financial statements, do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2021.

In October 2017, Forestar became a majority-owned subsidiary of D.R. Horton, Inc. (D.R. Horton) by virtue of a merger with a wholly-owned subsidiary of D.R. Horton. Immediately following the merger, D.R. Horton owned 75% of the Company's outstanding common stock. In connection with the merger, the Company entered into certain agreements with D.R. Horton including a Stockholder’s Agreement, a Master Supply Agreement, and a Shared Services Agreement. D.R. Horton is considered a related party of Forestar under GAAP. At June 30, 2022, D.R. Horton owned approximately 63% of the Company's outstanding common stock.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Changes in Presentation and Reclassifications

The Company reclassified the change in accrued development costs from the change in accounts payable and other liabilities to the change in accrued development costs in the prior year statement of cash flows to conform to the current year presentation. This reclassification had no net effect on the Company's consolidated operating results, financial position or cash flows.

Pending Accounting Standards

In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04, “Reference Rate Reform,” which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance. The Company will adopt these standards when LIBOR is discontinued and does not expect such standards to have a material impact on its consolidated financial statements and related disclosures.

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In October 2021, the FASB issued ASU 2021-08, which requires application of ASC 606, “Revenue from Contracts with Customers,” to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination. ASU 2021-08 creates an exception to the general recognition and measurement principle in ASC 805 and will result in recognition of contract assets and contract liabilities consistent with those recorded by the acquiree immediately before the acquisition date. The guidance is effective for the Company beginning October 1, 2023, with early adoption permitted. The Company is currently evaluating the impact of this guidance, and it is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

Note 2—Segment Information

The Company manages its operations through its real estate segment which is its core business and generates substantially all of its revenues. The real estate segment primarily acquires land and develops infrastructure for single-family residential communities, and its revenues primarily come from sales of residential single-family finished lots to local, regional and national homebuilders. The Company has other business activities for which the related assets and operating results are immaterial, and therefore, are included within the Company's real estate segment.

Note 3—Real Estate

Real estate consists of:


	June 30, 2022		September 30, 2021
	(In millions)
Developed and under development projects	$	1,950.6	$	1,824.7
Undeveloped land	103.7		80.5
	$	2,054.3	$	1,905.2

In the nine months ended June 30, 2022, the Company invested $299.0 million for the acquisition of residential real estate and $784.7 million for the development of residential real estate. At June 30, 2022 and September 30, 2021, undeveloped land primarily consists of undeveloped land which the Company has the contractual right to sell to D.R. Horton at a sales price equal to the carrying value of the land at the time of sale plus additional consideration of 12% to 16% per annum.

Each quarter, the Company reviews the performance and outlook for all of its real estate projects for indicators of potential impairment and performs detailed impairment evaluations and analyses when necessary. As a result of this process, no impairment charges were recorded during the three months ended June 30, 2022. During the nine months ended June 30, 2022, impairment charges totaled $3.8 million. There were no impairment charges recorded in the prior year periods.

In the three and nine months ended June 30, 2022, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $1.0 million and $3.2 million, respectively, compared to $0.7 million and $1.6 million in the prior year periods. These land option charges and the impairment discussed above are included in cost of sales in the consolidated statements of operations.

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Note 4—Revenues

Revenues consist of:

Three Months Ended June 30,

Nine Months Ended June 30,

SEC Form 10-Q filed by Forestar Group Inc