FORESTAR
2022
ANNUAL
REPORT
F O R E S T A R A N N U A L R E P O R T | 2 0 2 2
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2022
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)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
26-1336998
(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
Common Stock, par value $1.00 per share
Trading Symbol
FOR
Name of Each Exchange On Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
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. Yes þ 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). Yes þ 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 þ Non-accelerated filer o 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of March 31, 2022, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $322
million based on the closing price as reported on the New York Stock Exchange.
As of November 10, 2022, there were 49,769,480 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Company’s definitive proxy statement for the 2023 annual meeting of stockholders are incorporated by reference into
Part III of this Form 10-K.
FORESTAR GROUP INC.
2022 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Business.............................................................................................................................................................................
Item 1A.
Risk Factors.......................................................................................................................................................................
Item 1B.
Unresolved Staff Comments .............................................................................................................................................
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties...........................................................................................................................................................................
Legal Proceedings .............................................................................................................................................................
Mine Safety Disclosures....................................................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.......
[Reserved] .........................................................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...........................................
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ..........................................................................................
Item 8.
Item 9.
Financial Statements and Supplementary Data.................................................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........................................
Item 9A.
Controls and Procedures....................................................................................................................................................
Item 9B.
Other Information..............................................................................................................................................................
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ..............................................................................
PART III
Item 10.
Directors, Executive Officers and Corporate Governance................................................................................................
Item 11.
Executive Compensation...................................................................................................................................................
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.........................
Item 13.
Certain Relationships and Related Transactions, and Director Independence..................................................................
Item 14.
Principal Accountant Fees and Services ...........................................................................................................................
PART IV
Item 15.
Exhibits and Financial Statement Schedules.....................................................................................................................
Item 16.
10-K Summary ..................................................................................................................................................................
SIGNATURES .....................................................................................................................................................................................
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Item 1. Business.
Overview
PART I
Forestar Group Inc. is a national, well-capitalized residential lot development company focused primarily on making
investments in land acquisition and development to sell finished single-family residential lots to homebuilders. Our common
stock is listed on the New York Stock Exchange (NYSE) under the ticker symbol “FOR.” The terms “Forestar,” the
“Company,” “we” and “our” used herein refer to Forestar Group Inc., a Delaware corporation, and its predecessors and
subsidiaries.
We conduct a wide range of project planning and management activities related to the entitlement, acquisition,
community development and sale of residential lots. We generally secure entitlements while the land is under contract by
creating plans that meet the needs of the markets where we operate, and we aim to have all entitlements secured before
closing on the investment. Moving land through the entitlement and development process creates significant value. We
primarily invest in entitled short-duration projects that can be developed in phases, enabling us to complete and sell lots at a
pace that matches market demand, consistent with our focus on maximizing capital efficiency and returns. This strategy is a
unique, lower-risk business model that we expect will produce more consistent returns than other public and private land
developers. We also make short-term strategic investments in finished lots (lot banking) and undeveloped land (land banking)
with the intent to sell these assets within a short time period to utilize available capital prior to its deployment into longer-
term lot development projects. For the year ended September 30, 2022, we sold 17,691 lots with an average sales price of
$86,300. At September 30, 2022, our lot position consisted of 90,100 residential lots, of which approximately 61,800 were
owned and 28,300 were controlled through purchase contracts. Of our 61,800 owned lots, approximately 19,200 lots are
under contract to be sold for an aggregate remaining sales price of approximately $1.5 billion.
We have expanded and diversified our lot development operations across 53 markets in 21 states by investing available
capital into our existing markets and by entering new markets. We believe our geographically diverse operations provide a
strong platform for us to consolidate market share in the highly fragmented lot development industry. We also believe our
geographic diversification lowers our operational risks and enhances our earnings potential by mitigating the effects of local
and regional economic cycles.
Our customers are primarily local, regional and national homebuilders. The lots we deliver in our communities are
primarily for entry-level, first-time move-up and active adult homes. Entry-level and first-time move-up homebuyers are the
largest segments of the new home market. We also market some of our communities towards build-to-rent operators.
Our real estate origins date back to the 1954 incorporation of Lumbermen’s Investment Corporation, which became a
wholly-owned subsidiary of the predecessor to Temple-Inland Inc. ("Temple-Inland") in 1971. We changed our name to
Forestar Real Estate Group Inc. after Temple-Inland began reporting us as a separate business segment in 2006, and in 2007,
Temple-Inland completed a tax-free distribution of our shares to its stockholders, making us an independent publicly-traded
company. In 2008, we changed our name from Forestar Real Estate Group Inc. to Forestar Group Inc. We became a majority-
owned subsidiary of D.R. Horton, Inc. ("D.R. Horton") in October 2017 by virtue of a merger with a wholly-owned
subsidiary of D.R. Horton. Immediately following the merger, D.R. Horton owned 75% of our outstanding common stock,
and as of September 30, 2022 they owned approximately 63% of our outstanding common stock. As our controlling
shareholder, D.R. Horton has significant influence in guiding our strategic direction and operations. In connection with the
merger, we entered into certain agreements with D.R. Horton including a Stockholder’s Agreement, a Master Supply
Agreement and a Shared Services Agreement. Under the terms of the Master Supply Agreement, we supply finished lots to
D.R. Horton at market terms offered by Forestar and both companies identify land development opportunities to expand our
portfolio of assets.
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We manage our operations through our real estate segment. Our national footprint provides diversification in our real
estate inventory investments and our sources of revenues and earnings. At September 30, 2022, we conducted our operations
in the states and markets listed below.
Market
Birmingham
Huntsville
State
Maryland
Market
Washington/Arlington/Alexandria
Mobile/Baldwin County
Minnesota
Minneapolis/St. Paul
State
Alabama
Arizona
Tuscaloosa
Phoenix
Tucson
California
Riverside County
Colorado
Denver
Fort Collins
Florida
Fort Myers/Naples
Gainesville
Jacksonville
Lakeland
Melbourne
Nevada
Las Vegas
Reno
New Jersey
Southern New Jersey
New Mexico
Albuquerque
North Carolina
Asheville
Charlotte
Greensboro
Greenville
Raleigh-Durham
Wilmington
Columbus
Cincinnati
Miami/Fort Lauderdale
Ohio
Ocala
Orlando
Pensacola/Panama City
Pennsylvania
Allentown/Bethlehem/Easton
Port St. Lucie
Tampa/Sarasota
Volusia County
West Palm Beach
Atlanta
Augusta
Savannah
Chicago
Indianapolis
Des Moines
Georgia
Illinois
Indiana
Iowa
South Carolina
Charleston
Greenville/Spartanburg
Hilton Head
Tennessee
Nashville
Texas
Austin
Dallas
Fort Worth
Houston
San Antonio
Washington
Seattle/Tacoma/Everett
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When evaluating new or existing markets for purposes of capital allocation, we consider local, market-specific factors,
including, among others:
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economic conditions;
employment levels and job growth;
housing demand and affordability;
availability of land and lots in desirable locations on acceptable terms;
land entitlement and development processes;
availability of qualified subcontractors;
new and secondary home sales activity;
competition; and
performance capabilities of our local management teams.
Business Operations
The majority of our real estate projects are single-family residential communities. We primarily purchase land in the
open market and install the necessary infrastructure to develop the land into finished residential lots for single-family homes.
Our customers are primarily local, regional and national homebuilders. Our managers are responsible for the following
activities related to our land and lot acquisition and development activities:
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site selection, which involves:
– a feasibility study;
– soil and environmental reviews;
– review of existing zoning and other governmental requirements;
– review of the need for and extent of offsite work required to obtain project entitlements and to complete
necessary infrastructure; and
– financial analysis of the potential project;
negotiating land acquisition, lot purchase and related contracts;
obtaining all necessary land development approvals;
selecting land development subcontractors and ensuring their work meets our contracted scopes;
planning and managing land development schedules;
determining the sales pricing for each lot in a given project;
developing and implementing marketing and sales plans; and
coordinating all interactions with customers throughout the lot sale process.
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Our corporate executives and corporate office personnel provide control and oversight functions to many important risk
elements in our operations, including:
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allocation of capital;
cash management;
review and approval of business plans and budgets;
review, approval and funding of land and lot acquisitions (Board of Directors must approve acquisitions greater
than $20 million in accordance with the Stockholder's Agreement);
environmental assessments of land and lot acquisitions;
review of all business and financial analysis for potential land and lot inventory investments;
oversight of land and lot inventory levels;
• monitoring and analysis of profitability, returns and costs; and
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review of major personnel decisions and incentive compensation plans.
Our corporate executives and office personnel are responsible for establishing our operational policies and internal
control standards and monitoring compliance with established policies and controls throughout our operations. We have a
Shared Services Agreement with D.R. Horton whereby D.R. Horton provides us with certain administrative, compliance,
operational and procurement services. Our corporate executives and office personnel are responsible for, and provide
oversight and review for, the following shared services performed by D.R. Horton:
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finance and treasury;
risk and insurance;
information technology;
internal audit;
investor relations; and
human resources, payroll and employee benefits.
We have a Master Supply Agreement with D.R. Horton which establishes our business relationship with D.R. Horton as
both companies identify residential real estate opportunities. The agreement provides D.R. Horton the right of first offer to
purchase, at market prices and terms offered by Forestar, up to 100% of the lots from D.R. Horton sourced projects, up to
50% of the lots in the first phase of a Forestar sourced project and up to 50% of the lots in any subsequent phase in which
D.R. Horton purchases at least 25% of the lots in the previous phase. D.R. Horton has no such rights on third-party sourced
development opportunities. The Master Supply Agreement continues until the earlier of (i) the date at which D.R. Horton
owns less than 15% of our voting shares or (ii) June 29, 2037; however, we may terminate the agreement at any time when
D.R. Horton owns less than 25% of our voting shares.
We have a Stockholder's Agreement with D.R. Horton which defines D.R. Horton’s right to nominate members to our
Board, requires D.R. Horton’s consent for certain transactions and establishes an investment committee. D.R. Horton has the
right to nominate our Board members commensurate with its equity ownership. As long as D.R. Horton owns at least 20% of
our voting securities, it retains the right to nominate individuals to our Board based on its equity ownership as well as
designate the Executive Chairman.
As long as D.R. Horton owns at least 35% of our voting securities, we must obtain D.R. Horton’s consent to (i) issue
any new class of equity or shares of our common stock in excess of certain amounts; (ii) incur, assume, refinance or
guarantee debt that would increase our total leverage to greater than 40%; (iii) select, terminate, remove or change
compensation arrangements for the Executive Chairman, Chief Executive Officer, Chief Financial Officer and other key
senior management; and (iv) make an acquisition or investment greater than $20 million. The Stockholder’s Agreement also
establishes an investment committee to approve new investments up to $20 million.
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Land/Lot Acquisition and Inventory Management
We acquire land for use in our development operations after we have completed due diligence and obtained the
development rights (known as entitlements). Before we acquire lots or tracts of land, we complete a feasibility study, which
includes soil tests, independent environmental studies, other engineering work and financial analysis. We also evaluate the
status of necessary zoning and other governmental entitlements required to develop the property for home construction.
Although we purchase and develop land primarily to sell finished lots to homebuilders, we may sell land where we have
excess land positions or for other strategic reasons.
We also enter into land purchase contracts, whereby we obtain the right, but generally not the obligation, to buy land at
predetermined prices on a defined schedule commensurate with planned development. These contracts generally are non-
recourse, which limits our financial exposure to our earnest money deposited into escrow under the terms of the contract and
any pre-acquisition due diligence costs we incur. This enables us to control land with limited capital investment.
We attempt to mitigate our exposure to real estate inventory risks by:
• managing our supply of land and lots owned and controlled through purchase contracts in each market based on
anticipated future demand;
• monitoring local market and demographic trends that affect housing demand;
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limiting the size of our land development projects and focusing on short duration projects;
acquiring land entitled for single-family residential housing and managing our development in phases;
focusing on developing lots for entry-level housing, the segment where housing demand has been the highest;
developing the majority of our lots for a known buyer; and
geographically diversifying our land portfolio.
Land Development
Substantially all of our land development work is performed by subcontractors. Subcontractors typically are selected
after a competitive bidding process pursuant to a contract that obligates the subcontractor to complete the scope of work at an
agreed-upon price and within a specified time frame. We monitor land development activities, participate in major decisions,
coordinate the activities of subcontractors and suppliers, review the work of subcontractors for quality and cost controls and
monitor compliance with building codes or other regulations.
We typically do not maintain inventories of land development materials except for work-in-progress materials for active
development projects. Generally, the materials used in our operations have been readily available from numerous sources. In
fiscal 2021, our development cycle time lengthened primarily due to the COVID-19 pandemic and its effects on our supply
chain, which resulted in shortages of certain construction materials and tightness in the labor market. Continuing supply chain
delays and disruptions during fiscal 2022 lengthened our development cycle time further.
We are subject to governmental regulations that affect our land development operations. In fiscal 2021 and 2022,
municipalities and other government agencies were frequently delayed in granting the proper approvals to us, which delayed
our development activities in certain markets.
In select situations, we contract with D.R. Horton for land development services, generally in geographic markets where
we do not have established development teams and capabilities.
Lot/Land Banking
In addition to our residential lot development activities, we also make strategic short-term investments in finished lots
(lot banking) and undeveloped land (land banking) with the intent to sell these assets within a short time period, primarily to
D.R. Horton, utilizing available capital prior to its deployment into longer term lot development projects. We manage our
level of lot/land banking relative to short-term liquidity and expected future cash requirements for lot development projects.
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Cost Controls
We control development costs by designing our communities efficiently and by obtaining competitive bids for materials
and labor. We monitor our land development expenditures versus budgets for each project, and we review our inventory
levels, margins, expenses, profitability and returns for each project compared to its business plan and our performance
expectations.
Competition
We face significant competition for the acquisition, development and sale of real estate in our markets. Our major
competitors include numerous national, regional and local developers, including homebuilders. In addition, we compete with
other development projects offering similar amenities, products and/or locations. Competition also exists for investment
opportunities, financing, available land, raw materials and labor. Some of our real estate competitors are well established and
financially strong, may have greater financial, marketing and other resources than we do, or may be larger than us and/or
have lower cost of capital and operating costs than we have and expect to have. The presence of competition may increase the
bargaining power of property owners seeking to sell. These competitive market pressures can sometimes make it difficult to
acquire, develop or sell land and lots at prices that meet our return criteria.
The land and lot acquisition and development business is highly fragmented, and we are unaware of any meaningful
concentration of national market share by any one competitor. Enterprises of varying sizes, from individuals or small
companies to large corporations, actively engage in the real estate development business. Many competitors are local,
privately-owned companies. We have a few regional and national land developer competitors in addition to national
homebuilders that may develop lots on which they construct and sell homes. During periods when access to capital is
restricted, participants in a weaker financial condition tend to be less active.
Sales Contracts and Backlog
Our lot sales contracts require an earnest money deposit, which can vary in amount across our markets and
communities. We have the right to either retain or refund customer deposits on canceled lot purchase contracts, depending
upon the applicable provisions of the contract or other circumstances. The length of time between the signing of a lot sales
contract and delivery of the lot to the customer (closing) is generally from three to twelve months. At September 30, 2022,
our lots owned included approximately 19,200 lots (31%) that were under contract to be sold, of which approximately 17,800
lots are under contract to D.R. Horton.
Human Capital Resources
People and Culture
For the past three fiscal years, despite the COVID-19 pandemic, we increased the number of employees and made no
reductions to our employee compensation plans or employee benefit plans. We have increased our number of employees from
250 at September 30, 2021 to 291 at September 30, 2022 to support the growth of our residential lot development business
across a geographically diversified platform. At September 30, 2022, 231 of our employees worked in our regional and
divisional offices and 60 worked at our corporate office. In fiscal 2022, our total cost for employee compensation and
benefits was $58.4 million. In addition to our employees, we also have a Shared Services Agreement with D.R. Horton
whereby D.R. Horton employees provide us with certain administrative, compliance, operational and procurement services.
We believe the people who work for our company are our most important resources and are critical to our continued
success. We focus significant attention toward attracting and retaining talented and experienced individuals to manage and
support our operations. Our people are expected to exhibit and promote honest, ethical and respectful conduct in the
workplace. All of our employees must certify to their understanding of and adhere to a code of conduct that sets standards for
appropriate behavior and includes required internal training on preventing, identifying, reporting and stopping any type of
discrimination.
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Recruitment, Development and Retention
We are committed to hiring, developing and supporting an energetic, diverse workforce and maintaining a productive,
positive and inclusive workplace. We believe diversity in the workplace produces unique perspectives and fresh ideas and
helps us better serve our customers. We have an active recruiting team that partners with college campuses and external
organizations to identify strong new hires and experienced professionals. Our paid internship program provides college
students and recent graduates an opportunity to work alongside some of the most experienced professionals in the land
development industry. Management is committed to supporting the development of our employees in many ways including
onboarding programs, training and providing employees exposure to senior management. Our management team also
supports a culture of developing future leaders from our existing workforce, enabling us to promote from within for many
leadership positions. We believe this provides long-term focus and continuity to our operations while also providing
opportunities for the growth and advancement of our employees. During fiscal 2022, 19 employees were placed into new
leadership positions in our regional and divisional offices, and of those, 74% were promoted from within the organization.
Compensation and Benefits
We believe our compensation package and benefits are competitive with others in our industry. In addition to base pay,
eligible employees may participate in our incentive bonus and stock compensation plans, which align their compensation to
the interests of our shareholders. We also offer our employees a broad range of benefits, including paid vacation, holidays,
sick time and parental leave; medical, dental and vision healthcare insurance and life insurance and disability coverage. We
are committed to supporting our employees in their health, wellness and financial planning goals. Additional benefits offered
include a 401(k) savings plan, employee stock purchase plan and access to professional resources to support employees with
their mental and physical health, financial planning, identify theft protection and legal needs. Additional information about
our employee benefit plans is included in Note 11 to the accompanying financial statements.
Workplace Safety and Wellness
The safety and well-being of our employees are our first priority. We take workplace safety seriously at our
construction sites and in our offices. Our organization strives for a zero-incident safety culture and full compliance with
safety regulations. We provide certification training to our field personnel through an Occupational Safety and Health
Administration authorized third-party vendor; we provide our teams with an abundance of safety resources, including safety
checklists, policies, procedures, and best practices; and we communicate with all of our employees through a monthly safety
newsletter to inform and reinforce our commitment to and concern for their well-being. We also require certain personal
protective equipment, such as hard hats, high visibility safety wear and hearing and eye protection to be worn in certain
circumstances at our active development sites. Additionally, because substantially all of our land development work is
performed by subcontractors, we require that our subcontractors maintain safety programs.
During the COVID-19 pandemic, we implemented safety protocols to protect our employees and contractors. These
protocols included complying with health and safety standards as required by federal, state and local government agencies,
taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.
Many of our administrative and operational functions during this period required modification, including some of our
workforce working remotely. Our teams adapted to the changes in our work environment and managed our business
successfully during this challenging time. To support our employees throughout the pandemic, employee access to remote
work and virtual meetings was expanded. Once available, COVID-19 vaccinations were provided at no charge through
Company sponsored health insurance plans. We also have had no workforce or salary reductions related to the pandemic.
Governmental Regulation and Environmental Matters
Our operations are subject to extensive and complex regulations. We, and the subcontractors we use, must comply with
many federal, state and local laws and regulations. These include zoning, permitting, density and development requirements,
and building, environmental, advertising, labor and real estate sales rules and regulations. These regulations and requirements
substantially affect all aspects of our land development and sales processes in varying degrees across our markets. Our
properties are subject to inspection and approval by local authorities where required and may be subject to various
assessments for schools, parks, streets, utilities and other public improvements. We may experience delays in receiving the
proper approvals from local authorities that could delay our anticipated development activities in certain projects.
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Our land development activities are also subject to an extensive array of local, state and federal statutes, ordinances,
rules and regulations concerning protecting health, safety and the environment. The particular compliance requirements for
each site vary greatly according to location, environmental condition and the present and former uses of the site and adjoining
properties. We believe that we are in compliance in all material respects with existing environmental regulations applicable to
our business. Additionally, our compliance with such regulations has not had, nor is expected to have, a material adverse
effect on our consolidated financial position, results of operations or cash flows. However, changes in regulations could
increase our costs to comply with such regulations, as discussed in “Item 1A. Risk Factors.”
Available Information
Our principal executive offices are located at 2221 E. Lamar Blvd., Suite 790, Arlington, Texas 76006. Our telephone
number is (817) 769-1860.
On the Investor Relations section of our website, www.forestar.com, you may obtain additional information about us,
including:
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our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other
documents as soon as reasonably practicable after we file them with the Securities and Exchange Commission
("SEC");
copies of certain agreements with D.R. Horton, including the Stockholder’s Agreement and Master Supply
Agreement;
beneficial ownership reports filed by officers, directors, and principal security holders under Section 16(a) of
the Securities Exchange Act of 1934, as amended (or the “Exchange Act”); and
corporate governance information that includes our:
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corporate governance guidelines,
audit committee charter,
compensation committee charter,
nominating and governance committee charter,
standards of business conduct and ethics,
environmental policy,
human rights policy,
code of ethics for senior financial officers, and
information on how to communicate directly with our Board of Directors.
We will also provide printed copies of any of these documents to any stockholder free of charge upon request. The SEC
also maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information that is
filed electronically with the SEC.
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Item 1A. Risk Factors.
Discussion of our business and operations included in this annual report on Form 10-K should be read together with the
risk factors set forth below. They describe various risks and uncertainties we are or may become subject to, many of which
are difficult to predict or beyond our control. Although the risks are organized and described separately, many of the risks are
interrelated. These risks and uncertainties, together with other factors described elsewhere in this report, have the potential to
affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse
manner.
Risks Related to our Concentrated Ownership
So long as D.R. Horton controls us, our other stockholders will have limited ability to influence matters requiring
stockholder approval, and D.R. Horton's interest may conflict with the interests of other current or potential holders of
our securities.
D.R. Horton beneficially owns approximately 63% of our common stock. As a result, until such time as D.R. Horton
and its controlled affiliates hold shares representing less than a majority of the votes entitled to be cast by our stockholders at
a stockholder meeting, D.R. Horton generally has the ability to control the outcome of any matter submitted for the vote of
our stockholders, except in certain circumstances set forth in our certificate of incorporation or bylaws. In addition, under the
terms of our certificate of incorporation and the Stockholder's Agreement with D.R. Horton, so long as D.R. Horton or its
affiliates own 35% or more of our voting securities, we may not take certain actions without D.R. Horton's approval,
including certain actions with respect to equity issuances, indebtedness, acquisitions, fundamental changes in our business
and executive hiring, termination and compensation.
For so long as D.R. Horton and its controlled affiliates hold shares of our common stock representing at least 20% of
the votes entitled to be cast by our stockholders at a stockholder meeting, D.R. Horton is able to designate a certain number
of the members of our Board of Directors. Currently, D.R. Horton has the right to designate four out of five members of our
Board, subject to a requirement that we and D.R. Horton use reasonable best efforts to cause at least three directors to qualify
as “independent directors,” as such term is defined in the New York Stock Exchange ("NYSE") listing rules, and applicable
law. The directors designated by D.R. Horton have the authority to make decisions affecting our capital structure, including
the issuance of additional capital stock or options, the incurrence of additional indebtedness, the implementation of stock
repurchase programs and the declaration of dividends. The interests of D.R. Horton may be materially different than the
interests of our other stakeholders.
The interests of D.R. Horton may not coincide with the interests of our current or potential stockholders. D.R. Horton's
ability, subject to the limitations in the Stockholder's Agreement and our certificate of incorporation and bylaws, to control
matters submitted to our stockholders for approval limits the ability of other stockholders to influence corporate matters,
which may cause us to take actions that our other stockholders do not view as beneficial to them. In such circumstances, the
market price of our common stock could be adversely affected, and our ability to access the capital markets may also be
adversely affected. In addition, the existence of a controlling stockholder may have the effect of making it more difficult for a
third party to acquire us, or may discourage a third party from seeking to acquire us. A third party would be required to
negotiate any such transaction with D.R. Horton, and the interests of D.R. Horton with respect to such transaction may be
different from the interests of our other stockholders.
Subject to limitations in the Stockholder's Agreement and our certificate of incorporation that limit D.R. Horton's ability
to take advantage of certain corporate opportunities that are presented directly to our officers or directors in their capacity as
such, D.R. Horton is not restricted from competing with us or otherwise taking for itself or its other affiliates certain
corporate opportunities that may be attractive to us.
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Any inability to resolve favorably any disputes that may arise between us and D.R. Horton may result in a significant
reduction of our revenues and earnings.
Disputes may arise between D.R. Horton and us in a number of areas, including:
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business combinations involving us;
sales or dispositions by D.R. Horton of all or any portion of its ownership interest in us;
performance under the Master Supply Agreement;
arrangements with third parties that are exclusionary to D.R. Horton or us; and
business opportunities that may be attractive to both D.R. Horton and us.
We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we
were dealing with an unaffiliated party.
New agreements may be entered into between D.R. Horton and us, and agreements we enter into with D.R. Horton may
be amended upon agreement between the parties. Because we are controlled by D.R. Horton, we may not have the leverage to
negotiate these agreements, or amendments thereto if required, on terms as favorable to us as those that we would negotiate
with an unaffiliated third party.
D.R. Horton's ability to control our Board may make it difficult for us to recruit independent directors.
So long as D.R. Horton and its controlled affiliates hold shares of our common stock representing at least 20% of the
votes entitled to be cast by our stockholders at a stockholders' meeting, D.R. Horton is able to designate a certain number of
the members of our Board. Our Nominating and Governance Committee has the right to designate the remaining number of
individuals to the Board, and in any event not less than one. Currently, D.R. Horton has the right to designate four out of five
members of our Board. Further, the interests of D.R. Horton and our other stockholders may diverge. Under these
circumstances, persons who might otherwise accept an invitation to join our Board may decline.
We qualify as a controlled company within the meaning of the NYSE rules and, as a result, may elect to rely on
exemptions from certain corporate governance requirements that provide protection to stockholders of companies that are
not controlled companies.
So long as D.R. Horton owns more than 50% of the total voting power of our common stock, we qualify as a
"controlled company" under the NYSE corporate governance standards. As a controlled company, we may under the NYSE
rules elect to be exempt from obligations to comply with certain NYSE corporate governance requirements, including the
requirements:
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that a majority of our Board consist of independent directors;
that we have a nominating and governance committee that is composed entirely of independent directors with a
written charter addressing the committee's purpose and responsibilities;
that we have a compensation committee that is composed entirely of independent directors with a written charter
addressing the committee's purpose and responsibilities; and
that an annual performance evaluation of the nominating and governance committee and compensation committee
be performed.
We have not elected to utilize the “controlled company” exemptions at this time. However, if we elect to use the
controlled company exemptions, our stockholders will not have the same protections afforded to stockholders of companies
that are subject to all of the NYSE corporate governance requirements.
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We may not realize potential benefits of the strategic relationship with D.R. Horton, including the transactions
contemplated by the Master Supply Agreement with D.R. Horton.
The Master Supply Agreement establishes a strategic relationship between us and D.R. Horton for the supply of
developed lots. Under the Master Supply Agreement, we will, and D.R. Horton may, present lot development opportunities to
each other, subject to certain exceptions. The parties may collaborate with respect to such opportunities and, if they elect to
develop such opportunities, D.R. Horton has a right of first offer or right to purchase some or all of the lots developed by us,
as set forth in the Master Supply Agreement, on market terms offered by Forestar. There are numerous uncertainties
associated with our relationship with D.R. Horton, including the risk that the parties will be unable to negotiate mutually
acceptable terms for lot development opportunities and the fact that D.R. Horton is not obligated to present its lot
development opportunities to us. As a result, we may not realize potential growth or other benefits from the strategic
relationship with D.R. Horton, which may affect our financial condition or results of operations.
D.R. Horton's control of us or the strategic relationship between D.R. Horton and us may negatively affect our business
relationships with other builder customers.
So long as D.R. Horton controls us or the strategic relationship between D.R. Horton and us remains in place, our
business relationships with other builder customers may be negatively affected, including the risk that such other builder
customers may believe that we will favor D.R. Horton over our other customers. In addition, we have in the past relied on
builder referrals as a source for land development opportunities, and there is a risk that builders may refer such opportunities
to land developers other than us as a result of our close alignment with D.R. Horton.
Risks Related to Our Business and our Industry
The homebuilding and lot development industries are cyclical and affected by changes in economic, real estate or other
conditions that could adversely affect our business or financial results.
The homebuilding and lot development industries are cyclical and are significantly affected by changes in general and
local economic and real estate conditions, such as:
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employment levels;
consumer confidence and spending;
demand for residential lots;
availability of financing for homebuyers;
availability of financing for companies that purchase our residential lots;
interest rates;
inflation; and
demographic trends.
Adverse changes in general and local economic conditions or deterioration in the broader economy may negatively
impact our business and financial results and increase the risk of asset impairments and write-offs. Changes in economic
conditions may affect some of our regions or markets more than others. If adverse conditions affect our larger markets, they
could have a proportionately greater impact on us than on some other real estate development companies.
The federal government’s fiscal policies and the Federal Reserve's monetary policies may negatively impact the
financial markets and consumer confidence and could hurt the U.S. economy and the real estate market, and in turn, could
adversely affect the operating results of our businesses. During fiscal 2022, in response to increased inflation, the Federal
Reserve raised interest rates significantly and has signaled it expects additional future interest rate increases. As a result,
mortgage interest rates increased significantly, and we began to see a moderation in housing demand. Increases in mortgage
interest rates would likely reduce demand for our residential lots and may have an adverse impact on our business or financial
results.
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Deployments of U.S. military personnel to foreign regions, terrorist attacks, other acts of violence or threats to national
security and any corresponding response by the United States or others, domestic or international instability or social or
political unrest may cause an economic slowdown in the markets where we operate, which could adversely affect our
business.
If we experience any of the foregoing, homebuilders may be less willing or able to buy our residential lots.
Additionally, cancellations of lot sales contracts may increase if homebuilders do not honor their contracts due to any of the
factors discussed above. Our pricing and product strategies may also be limited by market conditions. We may be unable to
change the mix of our product offerings, reduce the costs of the residential lots we develop, or satisfactorily address changing
market conditions in other ways without adversely affecting our profits and returns.
Our business and financial results could be adversely affected by significant inflation, higher interest rates or deflation.
Inflation can adversely affect us by increasing costs of land, materials and labor. In addition, significant inflation is
often accompanied by higher interest rates, which have a negative impact on housing affordability. During fiscal 2022, we
began to see a moderation in housing demand as inflationary pressures and mortgage interest rates increased. In an
inflationary environment, depending on industry and other economic conditions, we may be precluded from raising
residential lot prices enough to keep up with the rate of inflation, which could reduce our profit margins. Moreover, in an
inflationary environment, our cost of capital, labor and materials can increase and the purchasing power of our cash resources
can decline, which can have an adverse impact on our business or financial results.
Alternatively, a significant period of deflation could cause a decrease in overall spending and borrowing levels. This
could lead to deterioration in economic conditions, including an increase in the rate of unemployment. Deflation could also
cause the value of our real estate to decline. These, or other factors related to deflation, could have a negative impact on our
business or financial results.
Supply shortages and other risks related to acquiring land, materials and skilled labor could increase our costs and delay
lot deliveries.
The residential lot development industry may experience significant difficulties that can affect the cost or timing of lot
development, including:
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difficulty in acquiring land suitable for residential development at affordable prices in locations that are attractive
to homebuilders;
shortages of qualified subcontractors;
reliance on local subcontractors, manufacturers and distributors who may be inadequately capitalized;
shortages of construction materials; and
significant increases in the cost of materials and other inputs, including petroleum-based products.
These factors may cause construction delays or increase our costs. During fiscal 2021 and 2022, we have experienced
multiple disruptions in our supply chain, which have resulted in shortages of certain building materials and tightness in the
labor market. This has caused our construction cycle to lengthen and costs of building materials to increase. If shortages and
cost increases in building materials and tightness in the labor market persist for a prolonged period of time, our profit margins
could be adversely impacted if we are unable to offset future cost increases by increasing the selling price of our lots.
Public health issues such as a major epidemic or pandemic could adversely affect our business or financial results.
The U.S. and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that
affect public health and public perception of health risk. The ongoing COVID-19 pandemic continues to affect the global
economy. The effects of the pandemic contributed to disrupting our supply chain, which has resulted in shortages of certain
building materials and tightness in the labor market.
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There is uncertainty regarding the extent to which and how long COVID-19 and its variant strains will continue to
impact the global economy and our supply chain, and the effect of the pandemic on our operational and financial performance
will depend on future developments, including its impact on our customers, trade partners and employees, all of which are
highly uncertain and cannot be predicted. If COVID-19 and its variant strains continue to have a negative impact on
economic conditions, our results of operations and financial condition could be adversely impacted.
Our business and financial results could be adversely affected by weather conditions and natural disasters.
Physical risks, including weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, volcanic
activity, droughts, floods, hailstorms, heavy or prolonged precipitation, wildfires and others, can harm our business.
Additionally, the physical impacts of climate change may cause these occurrences to increase in frequency, severity and
duration. Any such events can temporarily delay our development work and lot sales, unfavorably affect the cost or
availability of materials or labor, damage residential lots under construction, lead to changing customer preferences and/or
negatively impact demand for residential lots in affected areas. We have experienced temporary delays in production and
short-term impacts on our lot sales from weather events in recent years. However, there has been no material impact on our
business from these events or material operational challenges resulting from these events, but they could adversely affect our
business in the future. The climates and geology of many of the states in which we operate, including California, Florida,
Texas and other coastal areas where we have some of our larger operations and which have experienced recent natural
disasters, present increased risks of adverse weather or natural disasters.
A health and safety incident relating to our operations could be costly in terms of potential liability and reputational
damage.
Land development sites are inherently dangerous, and operating in this industry poses certain inherent health and safety
risks. Due to health and safety regulatory requirements and the number of residential lots we develop, health and safety
performance is critical to the success of our business. Any failure in health and safety performance may result in penalties for
non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety
incident is likely to be costly and could expose us to liability that could be costly. Such an incident could generate significant
negative publicity and have a corresponding impact on our reputation, our relationships with relevant regulatory agencies or
governmental authorities, and our ability to attract customers and employees, which in turn could have a material adverse
effect on our financial results and liquidity.
From time to time, we obtain performance bonds, the unavailability of which could adversely affect our results of
operations and cash flows.
From time to time, we provide surety bonds to secure our performance or obligations under construction contracts,
development agreements and other arrangements. At September 30, 2022, we had $632.7 million of outstanding surety
bonds. Our ability to obtain surety bonds primarily depends upon our credit rating, financial condition, past performance and
other factors, including the capacity of the surety market and the underwriting practices of surety bond issuers. The ability to
obtain surety bonds also can be impacted by the willingness of insurance companies to issue performance bonds for
construction and development activities. If we are unable to obtain surety bonds when required, our results of operations and
cash flows could be adversely affected.
Governmental regulations and environmental matters could increase the cost and limit the availability of property suitable
for residential lot development and could adversely affect our business or financial results.
We are subject to extensive and complex regulations that affect land acquisition, development and home construction,
including zoning, density restrictions and building standards. These regulations often provide broad discretion to the
administering governmental authorities as to the conditions we must meet prior to acquisition or development being
approved, if approved at all. We are subject to determinations by these authorities as to the adequacy of water or sewage
facilities, roads or other local services. New housing developments may also be subject to various assessments for schools,
parks, streets and other public improvements. In addition, in many markets, government authorities have implemented no
growth or growth control initiatives. Any of these may limit, delay or increase the costs of acquisition of land for residential
use and development or home construction.
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We are also subject to a significant number and variety of local, state and federal laws and regulations concerning
protection of health, safety, labor standards and the environment. The impact of environmental laws varies depending upon
the prior uses of the building site or adjoining properties and may be greater in areas with less supply where undeveloped
land or desirable alternatives are less available. These matters may result in delays, may cause us to incur substantial
compliance, remediation, mitigation and other costs, and can prohibit or severely restrict land acquisition and development
activity in environmentally sensitive regions or areas. Government agencies also routinely initiate audits, reviews or
investigations of our business practices to ensure compliance with these laws and regulations, which can cause us to incur
costs or create other disruptions in our business that can be significant.
Recently, there has been growing concern from advocacy groups, government agencies and the general public over the
effects of climate change on the environment. Transition risks, such as government restrictions, standards or regulations
intended to reduce greenhouse gas emissions and potential climate change impacts, are emerging and may increase in the
future in the form of restrictions or additional requirements on land development in certain areas. Such restrictions and
requirements could increase our operating and compliance costs or require additional technology and capital investment,
which could adversely affect our results of operations. This is a particular concern in the western United States, where some
of the most extensive and stringent environmental laws and residential building construction standards in the country have
been enacted, and where we have business operations. We believe we are in compliance in all material respects with existing
climate-related government restrictions, standards and regulations applicable to our business, and such compliance has not
had a material impact on our business. However, given the rapidly changing nature of environmental laws and matters that
may arise that are not currently known, we cannot predict our future exposure concerning such matters, and our future costs
to achieve compliance or remedy potential violations could be significant.
Additionally, actual or perceived environmental, social, governance ("ESG") and other sustainability matters and our
response to these matters could harm our business. Increasing governmental and societal attention to ESG matters, including
expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, human capital,
labor and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess and
report. These factors may alter the environment in which we do business and may increase the ongoing costs of compliance,
and adversely impact our results of operations and cash flows. If we are unable to adequately address such ESG matters or
fail to comply with all laws, regulations, policies and related interpretations, it could negatively impact our reputation and our
business results.
The subcontractors we rely on to perform the actual development of our residential lots are also subject to a significant
number of local, state and federal laws and regulations, including laws involving matters that are not within our control.
If the subcontractors who develop our residential lots fail to comply with all applicable laws, we can suffer reputational
damage and may be exposed to possible liability.
We are also subject to an extensive number of laws and regulations because our common stock is publicly traded in the
capital markets. These regulations govern our communications with our shareholders and the capital markets, our financial
statement disclosures and our legal processes, and they also impact the work required to be performed by our independent
registered public accounting firm and our legal counsel. Changes in these laws and regulations, including the subsequent
implementation of rules by the administering government authorities, may require us to incur additional compliance costs,
and such costs may be significant.
There can be no assurance that our current business strategy will be successful.
Our business strategy is focused on expanding our unique residential lot development business across a geographically
diversified national platform while consolidating market share in the fragmented U.S. lot development industry, primarily
through our strategic relationship with D.R. Horton. There can be no assurance that our unique model will continue to
succeed as intended or that we will be able to continue to execute it effectively because of the risks described elsewhere in
this “Risk Factors” section, or other unforeseen issues or problems that arise. If we are not successful in achieving our
objectives, our business, results of operations, cash flows and financial condition may be negatively affected.
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We may have continuing liabilities relating to assets that have been sold, which could adversely impact our results of
operations.
In the course of selling assets we are typically required to make contractual representations and warranties and to
provide contractual indemnities to the buyers. These contractual obligations typically survive the closing of the transactions
for some period of time. If a buyer is successful in sustaining a claim against us we may incur additional expenses pertaining
to an asset we no longer own, and we may also be obligated to defend and/or indemnify the buyer from certain third-party
claims. Such obligations could be material and they could adversely impact our results of operations.
Our real estate development operations span several markets and as a result, our financial results may be significantly
influenced by the local economies of those markets.
The local economic growth and strength of the markets in which our real estate development activity is located are
important factors in sustaining demand for our land and lots. Any adverse impact on the economic growth and health, or
infrastructure development, of a local economy in which we develop real estate could materially adversely affect our
business, liquidity, financial condition and results of operations.
Our real estate development operations are highly dependent upon national, regional and local homebuilders.
We are highly dependent upon our relationships with national, regional, and local homebuilders to purchase lots in our
residential developments. If homebuilders do not view our developments as desirable locations for homebuilding operations,
or if homebuilders are limited in their ability to conduct operations due to economic conditions, our business, liquidity,
financial condition and results of operations will be adversely affected.
In addition, we enter into contracts to sell lots to homebuilders. A homebuilder could decide to delay purchases of lots
in one or more of our developments, subject to loss of earnest money, due to adverse real estate conditions wholly unrelated
to our areas of operations, such as corporate decisions regarding allocation of limited capital or human resources. As a result,
we may sell fewer lots and may have lower sales revenues, which could have an adverse effect on our business, liquidity,
financial condition and results of operations.
Delays or failures by governmental authorities to take expected actions could reduce our returns or cause us to incur
losses on certain real estate development projects.
For certain projects, we rely on governmental districts to issue bonds to reimburse us for qualified expenses, such as
road and utility infrastructure costs. Bonds are often supported by assessments of district tax revenues, usually from ad
valorem taxes. Slowing new home sales, decreasing real estate values or difficult credit markets for bond sales can reduce or
delay district bond sale revenues and tax or assessment receipts, causing such districts to delay reimbursement of our
qualified expenses. Failure to receive reimbursement for qualified expenses could adversely affect our cash flows and reduce
our returns or cause us to incur losses on certain real estate development projects.
Failure to succeed in new markets may limit our growth.
We may from time to time commence development activity or make acquisitions outside of our existing market areas if
appropriate opportunities arise. Our historical experience in existing markets does not ensure that we will be able to operate
successfully in new markets. We may be exposed to a variety of risks if we choose to enter new markets, including, among
others:
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an inability to accurately evaluate local housing market conditions and local economies;
an inability to obtain land for development or to identify appropriate acquisition opportunities;
an inability to hire and retain key personnel;
an inability to successfully integrate operations; and
lack of familiarity with local governmental and permitting procedures.
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We plan to raise additional capital in the future, and such capital may not be available when needed or at all.
We have a $410 million senior unsecured revolving credit facility with an uncommitted accordion feature that could
increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments.
The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of
the revolving credit commitment. The maturity date of the facility is October 28, 2026. The revolving credit facility is
guaranteed by our wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted
subsidiaries. We also have outstanding $400 million principal amount of 3.85% senior notes due 2026 and $300 million
principal amount of 5.0% senior notes due 2028, both of which may be redeemed prior to maturity, subject to certain
limitations and premiums defined in the indenture agreements. The notes represent senior unsecured obligations that rank
equally in right of payment to all existing and future senior unsecured indebtedness and are guaranteed by each of our
subsidiaries to the extent such subsidiaries guarantee our revolving credit facility.
We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations and
support other general corporate and operational needs, and we regularly evaluate our opportunities to raise additional capital.
At September 30, 2022, we had an effective shelf registration statement filed with the SEC in October 2021 registering $750
million of equity securities, of which $300 million was reserved for sales under our at-the-market equity offering program
that became effective November 2021. At September 30, 2022, $748.2 million remained available for issuance under the
shelf registration statement, of which $298.2 million is reserved for sales under our at-the-market equity offering program.
We plan to raise additional capital in the future, in the form of additional debt or equity, to have sufficient capital resources
and liquidity to fund our business needs and future growth plans and repay existing indebtedness. Our ability to raise
additional capital will depend on, among other things, conditions in the capital markets at that time, which are outside of our
control, and our financial condition, operating performance and growth prospects. Economic conditions may increase our cost
of funding and limit access to certain customary sources of capital or make such capital only available on unfavorable terms.
We may not be able to obtain capital on acceptable terms or at all. Any occurrence that may limit our access to the capital
markets, such as a decline in the confidence of debt purchasers or counterparties participating in the capital markets or other
disruption in capital markets, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity.
Further, we may need to raise capital in the future when other real estate-related companies are also seeking to raise capital
and would then have to compete with those companies for investors. An inability to raise additional capital on acceptable
terms when needed could have a material adverse effect on our business, financial condition and results of operations.
The real estate development industry is highly competitive and a number of entities with which we compete are larger and
have greater resources or are smaller and have lower cost structures, and competitive conditions may adversely affect our
results of operations.
The real estate development industry in which we operate is highly competitive. Competitive conditions in the real
estate development industry may result in difficulties acquiring suitable land at acceptable prices, lower sales volumes and
prices, increased development or construction costs and delays in construction. We compete with numerous regional and
local developers for the acquisition of land suitable for development. We also compete with national, regional and local
homebuilders who develop real estate for their own use in homebuilding operations, many of which are larger and have
greater resources than we do or are smaller and have lower cost structures than we do. Any improvement in the cost structure
or service of our competitors will increase the competition we face. Our business, financial condition and results of
operations may be negatively affected by any of these factors.
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Risks Related to Our Indebtedness
We have significant amounts of consolidated debt and may incur additional debt; our debt obligations and our ability to
comply with related covenants, restrictions or limitations could adversely affect our financial condition.
As of September 30, 2022, our consolidated debt was $706.0 million, including $400 million principal amount of 3.85%
senior notes due 2026 and $300 million principal amount of 5.0% senior notes due 2028. Our revolving credit facility and the
indentures governing the senior notes impose restrictions on our and our restricted subsidiaries’ ability to incur secured and
unsecured debt, but still permit us and our restricted subsidiaries to incur a substantial amount of future secured and
unsecured debt, and do not restrict the incurrence of future secured and unsecured debt by our unrestricted subsidiaries. The
indentures governing the senior notes allow us to incur a substantial amount of additional debt.
Possible Consequences
The amount and the maturities of our debt could have important consequences. For example, they could:
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require us to dedicate a substantial portion of our cash flow from operations to payment of our debt and reduce our
ability to use our cash flow for other operating or investing purposes;
limit our flexibility to adjust to changes in our business or economic conditions; and
limit our ability to obtain future financing for working capital, capital expenditures, acquisitions, debt service
requirements or other requirements.
In addition, our debt and the restrictions imposed by the instruments governing those obligations expose us to additional
risks, including:
Dependence on Future Performance
Our ability to meet our debt service and other obligations, including our obligations under the senior notes and the
financial covenants under our revolving credit facility, will depend, in part, upon our future financial performance. Our future
results are subject to the risks and uncertainties described in this “Risk Factors” section. Our revenues and earnings vary with
the level of general economic activity in the markets we serve. Our business is also affected by financial, political, business
and other factors, many of which are beyond our control. The factors that affect our ability to generate cash can also affect
our ability to raise additional funds for these purposes through the sale of debt or equity, the refinancing of debt or the sale of
assets.
Risks of Variable Rate Debt
Changes in prevailing interest rates may affect the cost of our debt service obligations, because borrowings under our
revolving credit facility bear interest at floating rates. Borrowings under our revolving credit facility primarily bear interest
based on the Secured Overnight Financing Rate ("SOFR").
Changes in Debt Ratings
There can be no assurance that we will be able to maintain the credit ratings on our senior unsecured debt. Any
lowering of our debt ratings could make accessing the capital markets or obtaining additional credit from banks more difficult
and/or more expensive.
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Change of Control Purchase Option and Change of Control Default.
Upon the occurrence of a change of control triggering event, as defined in the indentures governing our senior notes, we
will be required to offer to repurchase such notes at 101% of their principal amount, together with all accrued and unpaid
interest, if any. Moreover, a change of control, as defined in our revolving credit facility, would constitute an event of default
under our revolving credit facility that could result in the acceleration of the repayment of any borrowings outstanding under
our revolving credit facility, a requirement to cash collateralize all letters of credit outstanding thereunder and the termination
of the commitments thereunder. If the maturity of our revolving credit facility and/or other indebtedness together having an
aggregate principal amount outstanding of $40 million or more is accelerated, an event of default would result under the
indentures governing the senior notes, entitling the trustee for the notes or holders of at least 25% in aggregate principal
amount of the then outstanding notes to declare all such notes to be due and payable immediately. If purchase offers were
required under the indentures for the senior notes, repayment of the borrowings under our revolving credit facility were
required, or if the notes were accelerated, we can give no assurance that we would have sufficient funds to pay the required
amounts.
Our debt agreements contain a number of restrictive covenants which will limit our ability to finance future operations,
acquisitions or capital needs or engage in other business activities that may be in our interest.
The covenants in the indentures governing our senior notes and the credit agreement governing our revolving credit
facility impose, and the terms of any future indebtedness may impose, operating and other restrictions on us and our
subsidiaries. Such restrictions affect or will affect, and in many respects limit or prohibit, among other things, our ability and
the ability of certain of our subsidiaries to:
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incur additional indebtedness;
create liens;
pay dividends and make other distributions in respect of our equity securities;
redeem or repurchase our equity securities;
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sell certain kinds of assets;
enter into certain types of transactions with affiliates; and
effect mergers or consolidations.
In addition, our revolving credit facility contains financial covenants requiring the maintenance of a minimum level of
tangible net worth, a minimum level of liquidity, a maximum allowable leverage ratio and a borrowing base restriction based
on the book value of our real estate assets and unrestricted cash.
The restrictions contained in the indentures and the credit agreements could (1) limit our ability to plan for or react to
market or economic conditions or meet capital needs or otherwise restrict our activities or business plans and (2) adversely
affect our ability to finance our operations, acquisitions, investments or strategic alliances or other capital needs or to engage
in other business activities that would be in our interest.
A breach of any of these covenants could result in a default under all or certain of our debt instruments. If an event of
default occurs, such creditors could elect to:
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declare all amounts outstanding, together with accrued and unpaid interest, to be immediately due and payable;
require us to apply all of our available cash to repay such amounts; or
prevent us from making debt service payments on certain of our debt instruments.
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General Risk Factors
The market price of and trading volume of our shares of common stock may be volatile.
The market price of our shares of common stock has fluctuated substantially and may continue to fluctuate in response
to many factors which are beyond our control, including:
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fluctuations in our operating results, including results that vary from the expectations of management, analysts and
investors;
announcements of strategic developments, acquisitions, financings and other material events by us or our
competitors;
the sale of a substantial number of shares of our common stock held by existing security holders in the public
market; and
general conditions in the real estate industry.
The stock markets in general may experience extreme volatility that may be unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the trading price of our common stock, make it
difficult to predict the market price of our common stock in the future and cause the value of our common stock to decline.
Our business may suffer if we lose key personnel.
We depend to a large extent on the services of certain key management personnel. These individuals have extensive
experience and expertise in our business. The loss of any of these individuals could have a material adverse effect on our
operations. We do not maintain key-person life insurance with respect to any of our employees. Our success may be
dependent on our ability to continue to employ and retain skilled personnel.
Information technology failures, data security breaches and the failure to satisfy privacy and data protection laws and
regulations could harm our business.
We use information technology and other computer resources to carry out important operational and marketing
activities and to maintain our business records. These information technology systems are dependent upon global
communications providers, web browsers, third-party software and data storage providers and other aspects of the Internet
infrastructure that have experienced security breaches, cyber-attacks, ransomware attacks, significant systems failures and
service outages in the past. Additionally, phishing attacks, whereby perpetrators attempt to fraudulently induce employees,
customers, vendors or other users of a company’s systems to disclose sensitive information to gain access to its data, have
become more prevalent in recent years. The use of remote work environments and virtual platforms may increase our risk of
cyber-attack or data security breaches. Further, geopolitical tensions or conflicts, such as the ongoing conflict between Russia
and Ukraine, may create a heightened risk of cyber-attacks or other data security breaches. Our normal business activities
involve collecting and storing information specific to our customers, employees, vendors and suppliers and maintaining
operational and financial information related to our business, both in an office setting and remote locations as needed. A
material breach in the security of our information technology systems or other data security controls could include the theft or
release of this information. The unintended or unauthorized disclosure of personal identifying and confidential information as
a result of a security breach by any means could lead to litigation or other proceedings against us by the affected individuals
or business partners, or by regulators. The outcome of such proceedings, which could include penalties or fines, could have a
significant negative impact on our business.
We may also be required to incur significant costs to protect against damages caused by information technology
failures, security breaches, and the failure to satisfy privacy and data protection laws and regulations in the future as legal
requirements continue to increase. The European Union and other international regulators, as well as state governments, have
enacted or enhanced data privacy regulations, such as the California Consumer Privacy Act (and its successor the California
Privacy Rights Act that will go into effect on January 1, 2023), and other governments are considering establishing similar or
stronger protections. These regulations impose certain obligations for handling specified personal information in our systems,
including notifying individuals regarding information we have collected from them. We have incurred costs in an effort to
comply with these requirements, but our costs may increase significantly if new requirements are enacted and based on how
individuals exercise their rights. Any noncompliance could result in substantial penalties, reputational damage or litigation.
21
We provide employee awareness training about cybersecurity threats. We routinely utilize information technology
security experts to assist us in our evaluations of the effectiveness of the security of our information technology systems, and
we regularly enhance our security measures to protect our systems and data. We use various encryption, tokenization and
authentication technologies to mitigate cybersecurity risks and have increased our monitoring capabilities to enhance early
detection and rapid response to potential cyber threats. However, because the techniques used to obtain unauthorized access,
disable or degrade systems change frequently and are increasing in sophistication, they often are not recognized until
launched against a target. As such, we may be unable to anticipate these techniques, to implement adequate preventative
measures or to identify and investigate cybersecurity incidents.
Although past cybersecurity incidents have not had a material effect on our business or operations to date, in the future,
a data security breach, a significant and extended disruption in the functioning of our information technology systems or a
breach of any of our data security controls could disrupt our business operations, damage our reputation and cause us to lose
customers. We cannot provide assurances that a security breach, cyber-attack, data theft or other significant systems or
security failures will not occur in the future, and such occurrences could have a material and adverse effect on our
consolidated results of operations or financial position.
22
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive office is leased and is located in Arlington, Texas. We also lease office space in other locations
to support our business operations.
Item 3. Legal Proceedings.
We are involved in various legal proceedings that arise from time to time in the ordinary course of our business. We
believe we have established adequate reserves for any probable losses and that the outcome of any of the proceedings should
not have a material adverse effect on our financial position or long-term results of operations or cash flows. It is possible,
however, that charges related to these matters could be significant to our results of operations or cash flow in any single
accounting period.
Item 4. Mine Safety Disclosures.
Not Applicable.
23
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market Information
Our common stock is traded on the NYSE under the trading symbol "FOR." As of November 10, 2022, the closing
price of our common stock on the NYSE was $13.45, and there were approximately 1,076 holders of record.
Dividend Policy
We currently intend to retain any future earnings to support our business. The declaration and payment of any future
dividends will be at the discretion of our Board of Directors after taking into account various factors, including without
limitation, our financial condition, earnings, capital requirements of our business, the terms of any credit agreements or
indentures to which we may be a party at the time, legal requirements, industry practice and other factors that our Board of
Directors deems relevant.
24
Stock Performance Graph
The following graph illustrates the cumulative total stockholder return of an initial investment of $100 on December 31,
2017 in Forestar common stock for the period from December 31, 2017 through September 30, 2022 compared to the same
investment in the Russell 2000 Index and our peer group.
The companies included in our peer group are M.D.C. Holdings, Inc.; Tri Pointe Homes, Inc.; Century Communities,
Inc.; Beazer Homes USA, Inc.; Five Point Holdings, LLC (Class A); The Howard Hughes Corporation; The St. Joe
Company; Masonite International Corporation; and PGT Innovations, Inc. These companies were selected based on their
industries, similar market capitalization and business model.
Pursuant to SEC rules, returns of each of the companies in the peer groups are weighted according to the respective
company’s stock market capitalization at the beginning of each period for which a return is indicated. Shareholder returns
over the indicated period are based on historical data and should not be considered indicative of future shareholder returns.
The graph and related disclosure in no way reflect our forecast of future financial performance.
Comparison of 57 Month Cumulative Total Return
$200
$150
$100
$50
$0
Dec-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Forestar Group Inc.
Russell 2000
Peer Group
December 31,
2017
2018
2019
September 30,
2020
2021
2022
Forestar Group Inc.
$
100.00
$
96.36
$
83.09
$
80.45
$
84.68
$
Russell 2000
Peer Group
100.00
100.00
111.51
87.62
101.60
96.18
101.99
90.03
150.62
119.11
50.86
115.23
81.68
This performance graph shall not be deemed to be incorporated by reference into our SEC filings and should not
constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended (Securities Act)
or the Exchange Act.
25
Item 6.
[Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to
promote an understanding of our financial condition, results of operations, liquidity and certain other factors that may affect
future results. MD&A is provided as a supplement to, and should be read in conjunction with our consolidated financial
statements and notes to those statements that appear elsewhere in this Form 10-K. This section generally discusses the results
of operations for fiscal 2022 compared to 2021. For similar operating and financial data and discussion of our fiscal 2021
results compared to our fiscal 2020 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” under Part II of our annual report on Form 10-K for the fiscal year ended September 30, 2021,
which was filed with the SEC on November 18, 2021.
The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Actual
results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute
to any differences include, but are not limited to, those discussed under the caption “Forward-Looking Statements” and under
Item 1A — “Risk Factors.”
Business Segment
We are a residential lot development company with operations in 53 markets in 21 states as of September 30, 2022. In
October 2017, we became a majority-owned subsidiary of D.R. Horton. As our controlling shareholder, D.R. Horton has
significant influence in guiding our strategic direction and operations.
We manage our operations through our real estate segment, which is our core business and generates substantially all of
our revenues. The real estate segment primarily acquires land and installs infrastructure for single-family residential
communities and generates revenues from sales of residential single-family finished lots to local, regional and national
homebuilders. We have other business activities for which the related assets and operating results are immaterial and
therefore, are included in our real estate segment.
26
Results of Operations
The following tables and related discussion set forth key operating and financial data as of and for the fiscal years ended
September 30, 2022 and 2021.
Operating Results
Components of income before taxes were as follows:
Year Ended September 30,
2022
2021
(In millions)
Revenues.................................................................................................................................. $
1,519.1
$
Cost of sales.............................................................................................................................
1,195.1
Selling, general and administrative expense............................................................................
Equity in earnings of unconsolidated ventures........................................................................
Gain on sale of assets...............................................................................................................
Interest and other income.........................................................................................................
Loss on extinguishment of debt...............................................................................................
93.6
(1.2)
(3.2)
(1.0)
—
1,325.8
1,096.6
68.4
(0.2)
(2.5)
(1.2)
18.1
Income before income taxes .................................................................................................... $
235.8
$
146.6
Lot Sales
Residential lots sold consist of:
Development projects ..............................................................................................................
Lot banking projects ................................................................................................................
Deferred development projects................................................................................................
Year Ended September 30,
2022
2021
16,454
383
16,837
854
17,691
14,221
1,694
15,915
—
15,915
Average sales price per lot (a)................................................................................................... $
_______________
86,300
$
81,600
(a) Excludes lots sold from deferred development projects and any impact from change in contract liabilities.
27
Revenues
Revenues consist of:
Residential lot sales:
Year Ended September 30,
2022
2021
(In millions)
Development projects........................................................................................................... $
1,420.2
$
Lot banking projects.............................................................................................................
Decrease (increase) in contract liabilities ............................................................................
Deferred development projects ............................................................................................
Tract sales and other ................................................................................................................
33.5
1.8
1,455.5
26.8
1,482.3
36.8
1,182.6
116.1
(5.6)
1,293.1
—
1,293.1
32.7
Total revenues
$
1,519.1
$
1,325.8
Residential lots sold and residential lot sales revenues have increased primarily as a result of lots sales to customers
other than D.R. Horton. In fiscal 2022, we sold 14,895 residential lots to D.R. Horton for $1.2 billion compared to 14,839
residential lots sold to D.R. Horton for $1.2 billion in fiscal 2021. In fiscal 2022, we sold 2,796 residential lots to customers
other than D.R. Horton for $287.8 million, inclusive of the $64.1 million cumulative transaction price of deferred
development lot sales, compared to 1,076 residential lots sold for $86.5 million in fiscal 2021. Lots sold to customers other
than D.R. Horton in fiscal 2022 included 943 lots that were sold for $131.1 million to a lot banker who expects to sell those
lots to DR. Horton at a future date.
Deferred development lot sales in fiscal 2022 include 854 undeveloped and partially developed lots that were sold to
customers other than D.R. Horton for a cumulative transaction price of $64.1 million. As part of these transactions, we are
obligated to complete the development of the lots. During fiscal 2022, we received $38.8 million in cash related to deferred
development transactions with the remainder due as development of the lots is completed. During fiscal 2022, we recognized
revenue of $26.8 million related to deferred development transactions. The remaining revenue will be recognized over time
as our development obligations are completed.
Tract sales and other revenue in fiscal 2022 primarily consisted of 512 acres sold to third parties for $35.7 million. Tract
sales and other revenue in fiscal 2021 primarily consisted of 12 acres sold to third parties for $1.6 million and 85 acres sold to
D.R. Horton for $25.9 million.
Throughout the majority of fiscal 2022, demand for our residential lots remained strong. More recently, we have seen
weakening demand as mortgage interest rates have increased substantially and inflationary pressures have remained elevated.
We increase our land and lot sales prices when market conditions permit, and we attempt to offset cost increases in one
component with savings in another. However, during periods when market conditions are challenging, we may have to reduce
selling prices or may not be able to offset cost increases with higher selling prices. Although these challenging market
conditions may persist for some time, we believe we are well-positioned to operate effectively through changing economic
conditions because of our low net leverage and strong liquidity position, our low overhead model and our strategic
relationship with D.R. Horton.
Cost of Sales, Real Estate Impairment and Land Option Charges and Interest Incurred
Cost of sales in fiscal 2022 increased compared to fiscal 2021 primarily due to the increase in the number of lots sold.
Cost of sales related to tract sales and other revenues in fiscal 2022 and 2021 was $20.3 million and $27.0 million,
respectively.
Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment and
perform detailed impairment evaluations and analyses when necessary. As a result of this process, we recorded real estate
impairment charges of $3.8 million during fiscal 2022. There were no real estate impairment charges recorded in fiscal 2021.
During fiscal 2022 and 2021, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase
contracts that we terminated or expect to terminate were $8.7 million and $3.0 million, respectively.
28
We capitalize interest costs throughout the development period (active real estate). Capitalized interest is charged to
cost of sales as the related real estate is sold to the buyer. Interest incurred was $32.9 million and $41.5 million in fiscal 2022
and 2021, respectively. Interest charged to cost of sales was 2.9% and 3.3% of total cost of sales (excluding real estate
impairments and land option charges) in those years.
Selling, General and Administrative (SG&A) Expense and Other Income Statement Items
SG&A expense in fiscal 2022 was $93.6 million compared to $68.4 million in fiscal 2021. SG&A expense as a
percentage of revenues was 6.2% and 5.2% in fiscal 2022 and 2021, respectively. Our SG&A expense primarily consists of
employee compensation and related costs. Our business operations employed 291 and 250 employees at September 30, 2022
and 2021, respectively. We attempt to control our SG&A costs while ensuring that our infrastructure supports our operations;
however, we cannot make assurances that we will be able to maintain or improve upon the current SG&A expense as a
percentage of revenues.
Loss on extinguishment of debt of $18.1 million in fiscal 2021 was due to the redemption of our $350 million principal
amount of 8.0% senior notes due 2024 in May 2021.
Income Taxes
Our income tax expense was $57.0 million and $36.1 million in fiscal 2022 and 2021, respectively, and our effective tax
rate was 24.2% and 24.6% in those respective years. Our effective tax rate for both years includes an expense for state
income taxes and nondeductible expenses and a benefit related to noncontrolling interests.
At September 30, 2022, we had deferred tax liabilities, net of deferred tax assets, of $35.9 million. The deferred tax
assets were offset by a valuation allowance of $1.0 million, resulting in a net deferred tax liability of $36.9 million. At
September 30, 2021, deferred tax liabilities, net of deferred tax assets, were $23.2 million. The deferred tax assets were offset
by a valuation allowance of $1.2 million, resulting in a net deferred tax liability of $24.4 million. The valuation allowance for
both years was recorded because it is more likely than not that a portion of our state deferred tax assets, primarily NOL
carryforwards, will not be realized because we are no longer operating in some states or the NOL carryforward periods are
too brief to realize the related deferred tax asset. We will continue to evaluate both the positive and negative evidence in
determining the need for a valuation allowance on our deferred tax assets. Any reversal of the valuation allowance in future
periods will impact our effective tax rate.
The Inflation Reduction Act of 2022 (“IRA”) was signed into law on August 16, 2022. The tax related provisions of the
IRA did not have a material impact on our financial statements and are not expected to have a material impact on our
financial statements in the future.
We had no unrecognized tax benefits at September 30, 2022 and September 30, 2021.
Land and Lot Position
Our land and lot position at September 30, 2022 and 2021 is summarized as follows:
Lots owned...............................................................................................................................
Lots controlled through land lot purchase contracts................................................................
Total lots owned and controlled .......................................................................................
Owned lots under contract to sell to D.R. Horton ...................................................................
Owned lots under contract to customers other than D.R. Horton............................................
Total owned lots under contract .......................................................................................
Owned lots subject to right of first offer with D.R. Horton based on executed purchase and
sale agreements........................................................................................................................
Owned lots fully developed
29
September 30,
2022
2021
61,800
28,300
90,100
17,800
1,400
19,200
18,900
5,500
64,400
32,600
97,000
21,000
800
21,800
18,200
5,300
Liquidity and Capital Resources
Liquidity
At September 30, 2022, we had $264.8 million of cash and cash equivalents and $356.7 million of available borrowing
capacity on our revolving credit facility. We have no senior note maturities until fiscal 2026. We believe we are well
positioned to operate effectively during changing economic conditions because of our low net leverage and strong liquidity
position, our low overhead model and our strategic relationship with D.R. Horton.
At September 30, 2022, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 37.1%
compared to 41.0% at September 30, 2021. Our ratio of net debt to total capital (debt net of unrestricted cash divided by
stockholders’ equity plus debt net of unrestricted cash) was 26.9% compared to 35.2% at September 30, 2021. Over the long
term, we intend to maintain our ratio of net debt to total capital at approximately 40% or less. We believe that the ratio of net
debt to total capital is useful in understanding the leverage employed in our operations.
We believe that our existing cash resources and revolving credit facility will provide sufficient liquidity to fund our
near-term working capital needs. Our ability to achieve our long-term growth objectives will depend on our ability to obtain
financing in sufficient amounts. We regularly evaluate alternatives for managing our capital structure and liquidity profile in
consideration of expected cash flows, growth and operating capital requirements and capital market conditions. We may, at
any time, be considering or preparing for the purchase or sale of our debt securities, the sale of our common stock or a
combination thereof.
Bank Credit Facility
We have a $410 million senior unsecured revolving credit facility with an uncommitted accordion feature that could
increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments.
The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of
the revolving credit commitment. Borrowings under the revolving credit facility are subject to a borrowing base calculation
based on the book value of our real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the
available borrowing capacity. There were no borrowings or repayments under the facility during fiscal 2022. At
September 30, 2022, there were no borrowings outstanding and $53.3 million of letters of credit issued under the revolving
credit facility, resulting in available capacity of $356.7 million.
In October 2022, our senior unsecured revolving credit facility was amended to extend its maturity date to October 28,
2026.
The revolving credit facility is guaranteed by our wholly-owned subsidiaries that are not immaterial subsidiaries or have
not been designated as unrestricted subsidiaries. The revolving credit facility includes customary affirmative and negative
covenants, events of default and financial covenants. The financial covenants require a minimum level of tangible net worth,
a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit
agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants
could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any
outstanding borrowings to become due and payable prior to maturity. At September 30, 2022, we were in compliance with all
of the covenants, limitations and restrictions of our revolving credit facility.
Senior Notes
We have outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under
the Securities Act. The notes represent senior unsecured obligations that rank equally in right of payment to all existing and
future senior unsecured indebtedness and may be redeemed prior to maturity, subject to certain limitations and premiums
defined in the respective indenture. The notes are guaranteed by each of our subsidiaries to the extent such subsidiaries
guarantee our revolving credit facility.
Our $400 million principal amount of 3.85% senior notes (the "2026 notes") mature May 15, 2026 with interest payable
semi-annually. On or after May 15, 2023, the 2026 notes may be redeemed at 101.925% of their principal amount plus any
accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter, and the
2026 notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest rate of the 2026
notes after giving effect to the amortization of financing costs is 4.1%.
30
We also have $300 million principal amount of 5.0% senior notes (the "2028 notes") outstanding, which mature
March 1, 2028 with interest payable semi-annually. On or after March 1, 2023, the 2028 notes may be redeemed at 102.5% of
their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases
annually thereafter and the 2028 notes can be redeemed at par on or after March 1, 2026 through maturity. The annual
effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.
The indentures governing our senior notes require that, upon the occurrence of both a change of control and a rating
decline (each as defined in the indentures), we offer to purchase the applicable series of notes at 101% of their principal
amount. If we or our restricted subsidiaries dispose of assets, under certain circumstances, we will be required to either invest
the net cash proceeds from such asset sales in our business within a specified period of time, repay certain senior secured debt
or debt of our non-guarantor subsidiaries, or make an offer to purchase a principal amount of such notes equal to the excess
net cash proceeds at a purchase price of 100% of their principal amount. The indentures contain covenants that, among other
things, restrict the ability of us and our restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay
subordinated debt and make certain investments; incur additional debt or issue mandatorily redeemable equity; incur liens on
assets; merge or consolidate with another company or sell or otherwise dispose of all or substantially all of our assets; enter
into transactions with affiliates; and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make
other payments. At September 30, 2022, we were in compliance with all of the limitations and restrictions associated with our
senior note obligations.
Effective April 30, 2020, our Board of Directors authorized the repurchase of up to $30 million of our debt securities.
The authorization has no expiration date. All of the $30 million authorization was remaining at September 30, 2022.
Other Note Payable
We also have a note payable of $12.5 million that was issued as part of a transaction to acquire real estate for
development. The note is non-recourse, is secured by the underlying real estate and accrues interest at 4.0% per annum with
interest payments due in October 2022 and at maturity in October 2023.
Issuance of Common Stock
We have an effective shelf registration statement filed with the SEC in October 2021 registering $750 million of equity
securities, of which $300 million was reserved for sales under our at-the-market equity offering program that became
effective November 2021. In fiscal 2022, we issued 84,547 shares of common stock under our at-the-market equity offering
program for proceeds of $1.7 million, net of commissions and other issuance costs totaling $0.1 million. At September 30,
2022, $748.2 million remained available for issuance under the shelf registration statement, of which $298.2 million was
reserved for sales under our at-the-market equity offering program.
Operating Cash Flow Activities
In fiscal 2022, net cash provided by operating activities was $108.7 million, which was primarily the result of net
income generated in the year and increases in liabilities and other accrued expenses, partially offset by the increase in our real
estate. In fiscal 2021, net cash used in operating activities was $303.1 million, which was primarily the result of the increase
in our real estate.
Investing Cash Flow Activities
In fiscal 2022, net cash provided by investing activities was $1.3 million compared to $1.0 million in fiscal 2021. The
cash provided by investing activities in the current period consists primarily of cash received from the sale of an investment,
partially offset by cash expenditures for property and equipment. Additionally, cash provided by investing activities in both
periods includes distributions received from our unconsolidated ventures.
31
Financing Cash Flow Activities
In fiscal 2022, net cash provided by financing activities was $1.2 million compared to $61.4 million in fiscal 2021. Cash
provided by financing activities in the prior year was primarily the result of proceeds from the issuance of $400 million
principal amount of 3.85% senior notes and the issuance of common stock under our at-the-market equity offering program
for net proceeds of $33.4 million, which were partially offset by the early redemption of our $350 million principal amount of
8.0% senior notes and the related call premium of $14.0 million.
Critical Accounting Policies and Estimates
General — A comprehensive enumeration of the significant accounting policies of Forestar Group Inc. and subsidiaries
is presented in Note 1 to the accompanying financial statements as of September 30, 2022 and 2021, and for the years ended
September 30, 2022, 2021 and 2020. Each of our accounting policies has been chosen based upon current authoritative
literature that collectively comprises U.S. Generally Accepted Accounting Principles (GAAP). In instances where alternative
methods of accounting are permissible under GAAP, we have chosen the method that most appropriately reflects the nature
of our business, the results of our operations and our financial condition, and have consistently applied those methods over
each of the periods presented in the financial statements. The Audit Committee of our Board of Directors has reviewed and
approved the accounting policies selected.
Accounting estimates are considered critical if both of the following conditions are met: (1) the nature of the estimates
or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly
uncertain and susceptible to change and (2) the effect of the estimates and assumptions is material to the financial statements.
We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods
presented.
Revenue Recognition — Real estate revenue and related profit are generally recognized at the time of the closing of a
sale, when title to and possession of the property are transferred to the buyer. Our performance obligation, to deliver the
agreed-upon land or lots, is generally satisfied at closing. However, there may be instances in which we have an unsatisfied
remaining performance obligation at the time of closing. In these instances, we record contract liabilities and recognize those
revenues over time as the performance obligations are completed. Generally, our unsatisfied remaining performance
obligations are expected to have an original duration of less than one year.
Real Estate and Cost of Sales — Real estate includes the costs of direct land and lot acquisition, land development,
capitalized interest, and direct overhead costs incurred during land development. All indirect overhead costs, such as
compensation of management personnel and insurance costs are charged to selling, general and administrative expense as
incurred.
Land and development costs are typically allocated to individual residential lots based on the relative sales value of the
lot. Cost of sales includes applicable land and lot acquisition, land development and related costs (both incurred and
estimated to be incurred) allocated to each residential lot in the project. Any changes to the estimated total development costs
subsequent to the initial lot sales are generally allocated to the remaining lots.
We receive earnest money deposits from homebuilders for purchases of developed lots. These earnest money deposits
are typically released to the homebuilders as lots are sold. Earnest money deposits from D.R. Horton are subject to mortgages
that are secured by the real estate under contract with D.R. Horton. These mortgages expire when the earnest money is
released to D.R. Horton as lots are sold.
We have agreements with certain utility or improvement districts to convey water, sewer and other infrastructure-
related assets we have constructed in connection with projects within their jurisdiction and receive reimbursements for the
cost of these improvements. The amount of reimbursements for these improvements are defined by the district and are based
on the allowable costs of the improvements. The transfer is consummated and we generally receive payment when the
districts have a sufficient tax base to support funding of their bonds. The cost incurred by us in constructing these
improvements, net of the amount expected to be collected in the future, is included in our land development budgets and in
the determination of lot costs.
32
Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment.
We determine if impairment indicators exist by analyzing a variety of factors including, but not limited to, the following:
•
•
•
•
gross margins on lots sold in recent months;
projected gross margins based on budgets;
trends in gross margins, average selling prices or cost of sales; and
lot sales absorption rates.
If indicators of impairment are present, we perform an impairment evaluation, which includes an analysis to determine
if the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. These estimates
of cash flows are significantly impacted by specific factors including estimates of the amount and timing of future revenues
and estimates of the amount of land development costs which, in turn, may be impacted by the following local market
conditions:
•
•
•
•
supply and availability of land and lots;
location and desirability of our land and lots;
amount of land and lots we own or control in a particular market or sub-market; and
local economic and demographic trends.
For those assets deemed impaired, an impairment charge is recorded to cost of sales for the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Our determination of fair value is primarily based on
discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the assets and related
estimated cash flow streams. When an impairment charge is determined, the charge is then allocated to each lot in the same
manner as land and development costs are allocated to each lot.
We rarely purchase land for resale. However, we may change our plans for land we own or land under development and
decide to sell the asset. When we determine that we will sell the asset, the project is accounted for as land held for sale if
certain criteria are met. We record land held for sale at the lesser of its carrying value or fair value less estimated costs to sell.
In performing the impairment evaluation for land held for sale, we consider several factors including, but not limited to,
recent offers received to purchase the property, prices for land in recent comparable sales transactions and market analysis
studies, which include the estimated price a willing buyer would pay for the land. If the estimated fair value less costs to sell
an asset is less than the current carrying value, the asset is written down to its estimated fair value less costs to sell.
The key assumptions relating to inventory valuations are impacted by local market and economic conditions, and are
inherently uncertain. Although our quarterly assessments reflect management’s best estimates, due to uncertainties in the
estimation process, actual results could differ from such estimates.
Pending Accounting Standards
In March 2020, the 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. We will adopt these standards when LIBOR is discontinued and do not expect them to have a material impact on
our consolidated financial statements or related disclosures.
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 us beginning October 1, 2023 and interim periods
therein, with early adoption permitted. We are currently evaluating the impact of this guidance, and it is not expected to have
a material impact on our consolidated financial position, results of operations and cash flows.
33
Forward-Looking Statements
This Annual Report on Form 10-K and other materials we have filed or may file with the Securities and Exchange
Commission contain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking
statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “likely,”
“intend,” “may,” “plan,” “expect,” and similar expressions, including references to assumptions. These statements reflect our
current views with respect to future events and are subject to risks and uncertainties. We note that a variety of factors and
uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking
statements. Factors and uncertainties that might cause such differences include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the effect of D.R. Horton’s controlling level of ownership on us and the holders of our securities;
our ability to realize the potential benefits of the strategic relationship with D.R. Horton;
the effect of our strategic relationship with D.R. Horton on our ability to maintain relationships with our
customers;
the cyclical nature of the homebuilding and lot development industries and changes in economic, real estate and
other conditions;
the impact of significant inflation, higher interest rates or deflation;
supply shortages and other risks of acquiring land, construction materials and skilled labor;
the effects of public health issues such as a major epidemic or pandemic, including the impact of COVID-19 on
the economy and our business;
the impacts of weather conditions and natural disasters;
health and safety incidents relating to our operations;
our ability to obtain or the availability of surety bonds to secure our performance related to construction and
development activities and the pricing of bonds;
the impact of governmental policies, laws or regulations and actions or restrictions of regulatory agencies;
our ability to achieve our strategic initiatives;
continuing liabilities related to assets that have been sold;
the cost and availability of property suitable for residential lot development;
general economic, market or business conditions where our real estate activities are concentrated;
our dependence on relationships with national, regional and local homebuilders;
competitive conditions in our industry;
obtaining reimbursements and other payments from governmental districts and other agencies and timing of
such payments;
our ability to succeed in new markets;
the conditions of the capital markets and our ability to raise capital to fund expected growth;
our ability to manage and service our debt and comply with our debt covenants, restrictions and limitations;
the volatility of the market price and trading volume of our common stock;
our ability to hire and retain key personnel;
the strength of our information technology systems and the risk of cybersecurity breaches and our ability to
satisfy privacy and data protection laws and regulations.
34
Other factors, including the risk factors described in Item 1A of this Annual Report on Form 10-K, may also cause
actual results to differ materially from those projected by our forward-looking statements. New factors emerge from time to
time and it is not possible for us to predict all such factors, nor can we assess the impact of any such factor on our business or
the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any
forward-looking statement.
Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by
law, we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking
statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of
unanticipated events.
35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are subject to interest rate risk on our senior debt and revolving credit facility. We monitor our exposure to changes
in interest rates and utilize both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the
fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest
rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. Except
in very limited circumstances, we do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result,
interest rate risk and changes in fair value would not have a significant impact on our cash flows related to our fixed-rate debt
until such time as we are required to refinance, repurchase or repay such debt.
At September 30, 2022, our fixed rate debt consisted of $400 million principal amount of the 2026 notes, $300
million principal amount of the 2028 notes and $12.5 million principal amount of 4.0% other note payable due October 2023.
Our variable rate debt consists of the outstanding borrowings on our $410 million senior unsecured revolving credit facility,
of which there were none at September 30, 2022. There were no borrowings or repayments under the facility during fiscal
2022.
Foreign Currency Risk
We have no exposure to foreign currency fluctuations.
Commodity Price Risk
We have no significant exposure to commodity price fluctuations.
36
Item 8. Financial Statements and Supplementary Data.
MANAGEMENT’S ANNUAL REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Forestar is responsible for establishing and maintaining adequate internal control over financial
reporting. Management has designed our internal control over financial reporting to provide reasonable assurance that our
published financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting
principles.
Management is required by paragraph (c) of Rule 13a-15 of the Securities Exchange Act of 1934, as amended, to assess
the effectiveness of our internal control over financial reporting as of each year end. In making this assessment, management
used the Internal Control — Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Management conducted the required assessment of the effectiveness of our internal control over financial reporting as
of September 30, 2022. Based upon this assessment, management believes that our internal control over financial reporting is
effective as of September 30, 2022.
Ernst & Young LLP (PCAOB ID: 42), the independent registered public accounting firm that audited our financial
statements included in this Form 10-K, has also audited our internal control over financial reporting. Their attestation report
follows this report of management.
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Forestar Group Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Forestar Group Inc.’s internal control over financial reporting as of September 30, 2022, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Forestar Group Inc. (the Company) maintained, in all
material respects, effective internal control over financial reporting as of September 30, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of September 30, 2022 and 2021, the related consolidated
statements of operations, total equity, and cash flows, for each of the three years in the period ended September 30, 2022, and
the related notes and our report dated November 17, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Fort Worth, Texas
November 17, 2022
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Forestar Group Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Forestar Group Inc. (the Company) as of September 30,
2022 and 2021, the related consolidated statements of operations, total equity and cash flows for each of the three years in the
period ended September 30, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in
the period ended September 30, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated November 17, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
39
Description of the
Matter
Land development costs (including estimated costs to complete)
For the year ended September 30, 2022, the Company’s cost of sales was approximately $1.2
billion, which included the costs of direct land and lot acquisition, land development, and related
costs (both incurred and estimated to be incurred) allocated to each residential lot in the project.
As discussed in Note 1 to the consolidated financial statements, land development costs are
typically allocated to individual residential lots based on the relative sales value of the lots. At
the time of lot closings, land development activities may not yet be finalized. To recognize the
appropriate amount of cost of sales, the Company estimates the total remaining development
costs. Estimates are affected by changes to the land development project’s cost of labor, material,
and subcontractors.
Auditing the Company's land development cost measurement and allocation to lots can be
complex and subjective due to the estimation required to determine the costs to complete land
development. Specifically, the land development cost estimate is sensitive to management
assumptions regarding estimated cost of labor, material, and subcontractors.
How We Addressed the
Matter in Our Audit
We obtained an understanding and tested the design and operating effectiveness of the
Company's process and controls over its land development cost measurement and allocation to
lots, including controls over management's review of the estimated costs to complete.
Our audit procedures included, among others, testing the assumptions used to develop the
estimated costs to complete the land development projects by comparing to supporting
documentation such as subcontractor bids, contracts, or actual costs from similar or related
projects. In addition, we performed procedures related to land development budget changes
during the year as well as performed a predictive margin analytic which included investigating
variances between historical and estimated margins. We also performed a look-back analysis on
completed projects by comparing actual land development costs to land development budgets as
of the beginning of the year in order to evaluate the accuracy of management’s land development
budgets.
We have served as the Company’s auditor since 2007.
Fort Worth, Texas
November 17, 2022
40
FORESTAR GROUP INC.
CONSOLIDATED BALANCE SHEETS
September 30,
2022
2021
(In millions, except share data)
ASSETS
Cash and cash equivalents ................................................................................................... $
264.8
$
Real estate............................................................................................................................
2,022.4
Investment in unconsolidated ventures ...............................................................................
Property and equipment, net................................................................................................
Other assets..........................................................................................................................
0.5
5.7
49.6
153.6
1,905.2
0.9
2.9
39.1
Total assets ............................................................................................................ $
2,343.0
$
2,101.7
LIABILITIES
Accounts payable................................................................................................................. $
Accrued development costs.................................................................................................
Earnest money on sales contracts ........................................................................................
Deferred tax liability, net.....................................................................................................
Accrued expenses and other liabilities ................................................................................
Debt .....................................................................................................................................
Total liabilities..............................................................................................................
$
72.2
122.3
136.2
36.9
70.1
706.0
1,143.7
Commitments and contingencies (Note 12)
EQUITY
Common stock, par value $1.00 per share, 200,000,000 authorized shares,
49,761,480 and 49,580,389 shares issued and outstanding
at September 30, 2022 and 2021, respectively ...........................................................
Additional paid-in capital ....................................................................................................
Retained earnings ................................................................................................................
Stockholders' equity .....................................................................................................
Noncontrolling interests ......................................................................................................
Total equity ..................................................................................................................
49.8
640.6
507.9
1,198.3
1.0
1,199.3
Total liabilities and equity..................................................................................... $
2,343.0
$
47.4
104.5
148.3
24.4
56.7
704.5
1,085.8
49.6
636.2
329.1
1,014.9
1.0
1,015.9
2,101.7
See accompanying notes to consolidated financial statements.
41
FORESTAR GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended September 30,
2022
2021
2020
(In millions, except per share amounts)
Revenues ............................................................................................................ $
1,519.1
$
1,325.8
$
Cost of sales........................................................................................................
1,195.1
1,096.6
Selling, general and administrative expense ......................................................
Equity in earnings of unconsolidated ventures...................................................
Gain on sale of assets .........................................................................................
Interest and other income ...................................................................................
Loss on extinguishment of debt..........................................................................
Income before income taxes...............................................................................
Income tax expense..........................................................................................
Net income .........................................................................................................
Net income attributable to noncontrolling interests ...........................................
93.6
(1.2)
(3.2)
(1.0)
—
235.8
57.0
178.8
—
68.4
(0.2)
(2.5)
(1.2)
18.1
146.6
36.1
110.5
0.3
Net income attributable to Forestar Group Inc............................................ $
178.8
$
110.2
$
Basic net income per common share attributable to Forestar Group Inc. .......... $
Weighted average number of common shares....................................................
Diluted net income per common share attributable to Forestar Group Inc. ....... $
Adjusted weighted average number of common shares .....................................
$
$
3.59
49.8
3.59
49.8
$
$
2.25
48.9
2.25
49.0
931.8
813.7
45.7
(0.7)
(0.1)
(4.9)
—
78.1
16.4
61.7
0.9
60.8
1.26
48.0
1.26
48.1
See accompanying notes to consolidated financial statements.
42
FORESTAR GROUP INC.
CONSOLIDATED STATEMENTS OF TOTAL EQUITY
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Non-
controlling
Interests
Total
Equity
(In millions, except share amounts)
Balances at September 30, 2019 (47,997,366 shares) .................. $
48.0
$
602.2
$
158.1
$
Net income ................................................................................
Stock issued under employee benefit plans (64,555 shares).....
Cash paid for shares withheld for taxes ....................................
Stock-based compensation expense..........................................
Distributions to noncontrolling interests...................................
—
0.1
—
—
—
—
—
(0.3)
2.0
—
60.8
—
—
—
—
Balances at September 30, 2020 (48,061,921 shares) .................. $
48.1
$
603.9
$
218.9
$
Net income ................................................................................
Issuance of common stock (1,448,520 shares) .........................
Purchase of noncontrolling interest, net....................................
Stock issued under employee benefit plans (69,948 shares).....
Cash paid for shares withheld for taxes ....................................
Stock-based compensation expense..........................................
Distributions to noncontrolling interests...................................
—
1.4
—
0.1
—
—
—
—
32.0
(1.7)
—
(0.6)
2.6
—
110.2
—
—
—
—
—
—
0.6
0.9
—
—
—
(0.6)
0.9
0.3
—
(0.1)
—
—
—
(0.1)
$
808.9
61.7
0.1
(0.3)
2.0
(0.6)
$
871.8
110.5
33.4
(1.8)
0.1
(0.6)
2.6
(0.1)
Balances at September 30, 2021 (49,580,389 shares) .................. $
49.6
$
636.2
$
329.1
$
1.0
$ 1,015.9
Net income ................................................................................
Issuance of common stock (84,547 shares) ..............................
Stock issued under employee benefit plans (96,544 shares).....
Cash paid for shares withheld for taxes ....................................
Stock-based compensation expense..........................................
—
0.1
0.1
—
—
—
1.6
—
(0.5)
3.3
178.8
—
—
—
—
—
—
—
—
—
178.8
1.7
0.1
(0.5)
3.3
Balances at September 30, 2022 (49,761,480 shares) .................. $
49.8
$
640.6
$
507.9
$
1.0
$ 1,199.3
See accompanying notes to consolidated financial statements.
43
FORESTAR GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30,
2022
2021
2020
(In millions)
OPERATING ACTIVITIES
Net income ...................................................................................................... $
178.8
$
110.5
$
61.7
Adjustments:
Depreciation and amortization....................................................................
Deferred income taxes ................................................................................
Equity in earnings of unconsolidated ventures...........................................
Stock-based compensation expense............................................................
Real estate impairment and land option charges ........................................
Loss on extinguishment of debt..................................................................
Gain on sale of assets..................................................................................
Other ...........................................................................................................
Changes in operating assets and liabilities:
Increase in real estate..................................................................................
Increase in other assets ...............................................................................
Increase in accounts payable and other accrued liabilities .........................
Increase in accrued development costs.......................................................
(Decrease) increase in earnest money deposits on sales contracts .............
Decrease (increase) in income taxes receivable .........................................
Net cash provided by (used in) operating activities...........................................
INVESTING ACTIVITIES
Expenditures for property, equipment, software and other.............................
Return of investment in unconsolidated ventures
Proceeds from sale of assets
Net cash provided by investing activities ..........................................................
FINANCING ACTIVITIES
Issuance of common stock ..............................................................................
Proceeds from debt..........................................................................................
Repayments of debt.........................................................................................
Deferred financing fees ...................................................................................
Purchase of noncontrolling interest.................................................................
Distributions to noncontrolling interests, net ..................................................
Cash paid for shares withheld for taxes ..........................................................
Net cash provided by financing activities..........................................................
Net increase (decrease) in cash and cash equivalents........................................
Cash and cash equivalents at beginning of year ................................................
2.7
12.5
(1.2)
3.3
12.5
—
(3.2)
—
(142.3)
(1.6)
40.9
17.8
(11.5)
—
108.7
(3.5)
1.6
3.2
1.3
1.7
—
—
—
—
—
(0.5)
1.2
111.2
153.6
2.7
19.2
(0.2)
2.6
3.0
18.1
(2.5)
0.1
(585.9)
(14.8)
28.0
60.1
49.7
6.3
(303.1)
(1.6)
2.6
—
1.0
33.4
458.0
(422.0)
(4.9)
(2.4)
(0.1)
(0.6)
61.4
(240.7)
394.3
Cash and cash equivalents at end of year .......................................................... $
264.8
$
153.6
$
4.9
23.1
(0.7)
2.0
0.9
—
(0.1)
0.1
(281.7)
(3.4)
15.0
9.0
3.9
(3.1)
(168.4)
(0.6)
4.3
1.3
5.0
—
300.0
(118.9)
(5.3)
—
(0.6)
(0.3)
174.9
11.5
382.8
394.3
SUPPLEMENTAL CASH FLOW INFORMATION:
Note payable issued for real estate.................................................................. $
Income taxes paid (refunded), net................................................................... $
— $
42.4
$
12.5
4.3
$
$
—
(3.1)
See accompanying notes to consolidated financial statements.
44
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. Generally Accepted
Accounting Principles (GAAP) and 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.
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. As of September 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.
Revenue Recognition
Real estate revenue and related profit are generally recognized at the time of the closing of a sale, when title to and
possession of the property are transferred to the buyer. The Company’s performance obligation, to deliver the agreed-upon
land or lots, is generally satisfied at closing. However, there may be instances in which the Company has an unsatisfied
remaining performance obligation at the time of closing. In these instances, the Company records contract liabilities and
recognizes those revenues over time as the performance obligations are completed. Generally, the Company's unsatisfied
remaining performance obligations are expected to have an original duration of less than one year. See Note 4.
Cash and Cash Equivalents
Cash and cash equivalents include cash, other short-term instruments with original maturities of three months or less
and proceeds from land and lot closings held for the Company’s benefit at title companies.
45
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Real Estate and Cost of Sales
Real estate includes the costs of direct land and lot acquisition, land development, capitalized interest and direct
overhead costs incurred during land development. All indirect overhead costs, such as compensation of management
personnel and insurance costs, are charged to selling, general and administrative expense as incurred.
Land and development costs are typically allocated to individual residential lots based on the relative sales value of the
lot. Cost of sales includes applicable land and lot acquisition, land development and related costs (both incurred and
estimated to be incurred) allocated to each residential lot in the project. Any changes to the estimated total development costs
subsequent to the initial lot sales are generally allocated to the remaining lots.
The Company receives earnest money deposits from homebuilders for purchases of developed lots. These earnest
money deposits are typically released to the homebuilders as lots are sold. Earnest money deposits from D.R. Horton are
subject to mortgages which are secured by the real estate under contract with D.R. Horton. These mortgages expire when the
earnest money is released to D.R. Horton as lots are sold. See Note 13 for related party transactions and balances.
The Company has agreements with certain utility or improvement districts to convey water, sewer and other
infrastructure-related assets it has constructed in connection with projects within their jurisdiction and receive
reimbursements for the cost of these improvements. The reimbursement amounts for these improvements are defined by the
district and are based on the allowable costs of the improvements. The transfer is consummated and the Company generally
receives payment when the districts have a sufficient tax base to support funding of their bonds. The cost incurred by the
Company in constructing these improvements, net of the amount expected to be collected in the future, is included in the
Company's land development budgets and in the determination of lot costs.
The Company reviews real estate assets held for use for impairment when events or circumstances indicate that their
carrying value may not be recoverable. Impairment exists if the carrying amount of the asset is not recoverable from the
undiscounted cash flows expected from its use and eventual disposition. The amount of the impairment loss is determined by
comparing the carrying value of the asset to its estimated fair value, which is generally determined based on the present value
of future cash flows expected from the sale of the asset. Real estate impairments are included in cost of sales in the
consolidated statements of operations. See Note 3.
Capitalized Interest
The Company capitalizes interest costs throughout the development period (active real estate). Capitalized interest is
charged to cost of sales as the related real estate is sold to the buyer. During periods in which the Company’s active real
estate is lower than its debt level, a portion of the interest incurred is reflected as interest expense in the period incurred.
During fiscal 2022 and 2021, the Company’s active real estate exceeded its debt level, and all interest incurred was
capitalized to real estate. See Note 5.
Land Purchase Contract Deposits and Pre-Acquisition Costs
The Company enters into land and lot purchase contracts to acquire land for the development of residential lots. Under
these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land
or lots at a future point in time with predetermined terms. Under the terms of many of the purchase contracts, the deposits are
not refundable in the event the Company elects to terminate the contract. Land purchase contract deposits and capitalized pre-
acquisition costs are expensed to cost of sales when the Company believes it is probable that it will not acquire the property
under contract and will not be able to recover these costs through other means. See Notes 3 and 12.
46
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Variable Interests
Land purchase contracts can result in the creation of a variable interest in the entity holding the land parcel under
contract. There were no variable interest entities reported in the consolidated balance sheets at September 30, 2022 or 2021
because, with regard to each entity, the Company determined it did not control the activities that most significantly impact the
variable interest entity’s economic performance.
The maximum exposure to losses related to the Company’s unconsolidated variable interest entities is limited to the
amounts of the Company’s related deposits. At September 30, 2022 and 2021, the deposits related to these contracts totaled
$10.0 million and $10.4 million, respectively, and are included in other assets in the consolidated balance sheets.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. The cost of significant additions and
improvements is capitalized and the cost of repairs and maintenance is expensed as incurred. Depreciation generally is
recorded using the straight-line method over the estimated useful life of the asset as follows:
Estimated
Useful Lives
September 30,
2022
2021
(In millions)
Leasehold improvements ...................................................................... 5 to 10 years
$
Property and equipment ........................................................................ 2 to 10 years
Total property and equipment..............................................................................................
Accumulated depreciation...........................................................................................................
Property and equipment, net ................................................................................................ $
$
1.5
5.8
7.3
(1.6)
5.7
$
0.9
2.9
3.8
(0.9)
2.9
Depreciation expense was $0.7 million, $0.4 million and $0.3 million in fiscal 2022, 2021 and 2020, respectively.
Income Taxes
The Company’s income tax expense is calculated using the asset and liability method, under which deferred tax assets
and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial
statement amounts of assets and liabilities and their respective tax bases and attributable to net operating losses and tax credit
carryforwards. When assessing the realizability of deferred tax assets, management considers whether it is more likely than
not that some portion or all of its deferred tax assets will not be realized. The realization of deferred tax assets is dependent
upon the generation of sufficient taxable income in future periods and in the jurisdictions in which those temporary
differences become deductible. The Company records a valuation allowance when it determines it is more likely than not that
a portion of the deferred tax assets will not be realized. The accounting for deferred taxes is based upon estimates of future
results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the
Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and
tax rates could affect future tax results and the valuation of the Company’s deferred tax assets and liabilities.
Interest and penalties related to unrecognized tax benefits are recognized in the financial statements as a component of
income tax expense. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its
uncertain tax positions on a quarterly basis. The evaluations are based upon a number of factors, including changes in facts or
circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of
audit issues. Changes in the recognition or measurement of uncertain tax positions could result in increases or decreases in
the Company’s income tax expense in the period in which the change is made. See Note 9.
47
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
The Company’s stockholders formally authorize shares of its common stock to be available for future grants of stock-
based compensation awards. From time to time, the Compensation Committee of the Company’s Board of Directors
authorizes the grant of stock-based compensation to its employees and directors from these available shares.
At September 30, 2022, the outstanding stock-based compensation awards consist of restricted stock units. Grants of
restricted stock units vest over a certain number of years as determined by the Compensation Committee of the Board of
Directors. Restricted stock units outstanding at September 30, 2022 have a remaining vesting period of up to 4.5 years.
The compensation expense for stock-based awards is based on the fair value of the award and is recognized on a
straight-line basis over the remaining vesting period. The fair values of restricted stock units are based on the Company’s
stock price at the date of grant. See Note 11.
Fair Value Measurements
The FASB's authoritative guidance for fair value measurements establishes a three-level hierarchy based upon the
inputs to the valuation model of an asset or liability. When available, the Company uses quoted market prices in active
markets to determine fair value. Non-financial assets measured at fair value on a non-recurring basis principally include real
estate assets which the Company reviews for indicators of impairment when events and circumstances indicate that the
carrying value is not recoverable. See Note 14.
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.
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 installs infrastructure for single-family
residential communities, and its revenues generally 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.
48
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 — Real Estate
Real estate consists of:
Developed and under development projects ........................................................................ $
Land held for future development........................................................................................
$
September 30,
2022
2021
(In millions)
1,932.6
89.8
2,022.4
$
$
1,824.7
80.5
1,905.2
During fiscal 2022, the Company invested $320.7 million for the acquisition of residential real estate and $1.1 billion
for the development of residential real estate. At September 30, 2022 and 2021, land held for future development primarily
consisted 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 for indicators of potential
impairment and performs detailed impairment evaluations and analyses when necessary. As a result of this process, the
Company recorded real estate impairment charges of $3.8 million during fiscal 2022. There were no real estate impairment
charges recorded in fiscal 2021 or 2020.
During fiscal 2022, 2021 and 2020, land purchase contract deposit and pre-acquisition cost write-offs related to land
purchase contracts that the Company has terminated or expects to terminate were $8.7 million, $3.0 million and $0.9 million,
respectively. Real estate impairments and land option charges are included in cost of sales in the consolidated statements of
operations.
Note 4 — Revenues
Revenues consist of:
Year Ended September 30,
2021
2020
2022
(In millions)
Residential lot sales...................................................................................... $
1,455.5
$
1,293.1
$
Deferred development lot sales....................................................................
Tract sales and other.....................................................................................
26.8
36.8
—
32.7
$
1,519.1
$
1,325.8
$
880.3
—
51.5
931.8
During fiscal 2022, deferred development lot sales included 854 undeveloped and partially developed lots that were
sold to customers other than D.R. Horton for a total transaction price of $64.1 million. As part of these transactions, the
Company is obligated to complete the development of these lots. During fiscal 2022, the Company received $38.8 million in
cash related to deferred development transactions with the remainder of the transaction price due as development of the lots is
completed. During fiscal 2022, the Company recognized revenue of $26.8 million related to deferred development
transactions. The remaining revenue will be recognized over time as the Company’s development obligations are completed.
Total revenue from D.R. Horton was $1.2 billion in both fiscal 2022 and 2021 and $887.6 million in fiscal 2020.
49
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 — Capitalized Interest
The following table summarizes the Company’s interest costs incurred, capitalized and expensed in fiscal 2022, 2021
and 2020.
Capitalized interest, beginning of year......................................................... $
Interest incurred ...........................................................................................
Interest charged to cost of sales ...................................................................
(In millions)
$
53.7
32.9
(34.1)
$
48.7
41.5
(36.5)
Capitalized interest, end of year................................................................... $
52.5
$
53.7
$
23.7
43.3
(18.3)
48.7
Year Ended September 30,
2021
2020
2022
Note 6 — Other Assets, Accrued Expenses and Other Liabilities
The Company's other assets at September 30, 2022 and 2021 were as follows:
September 30,
2022
2021
(In millions)
Earnest money notes receivable on sales contracts.............................................................. $
— $
Receivables, net....................................................................................................................
Lease right of use assets.......................................................................................................
Prepaid expenses ..................................................................................................................
Land purchase contract deposits ..........................................................................................
Other assets ..........................................................................................................................
11.4
7.5
18.9
10.0
1.8
$
49.6
$
The Company's accrued expenses and other liabilities at September 30, 2022 and 2021 were as follows:
September 30,
2022
2021
(In millions)
Accrued employee compensation and benefits .................................................................... $
11.6
$
Accrued property taxes ........................................................................................................
Lease liabilities.....................................................................................................................
Accrued interest ...................................................................................................................
Contract liabilities ................................................................................................................
Deferred income...................................................................................................................
Income taxes payable ...........................................................................................................
Other accrued expenses........................................................................................................
Other liabilities.....................................................................................................................
6.2
8.1
8.0
16.1
4.1
8.2
6.8
1.0
0.7
0.4
6.9
15.4
10.4
5.3
39.1
7.9
3.4
7.3
8.5
5.8
6.8
6.8
8.9
1.3
Contract liabilities at September 30, 2022 include $12.0 million related to the Company's remaining unsatisfied
performance obligations on deferred development lot sales.
$
70.1
$
56.7
50
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 — Debt
The Company's notes payable at their carrying amounts consist of the following:
September 30,
2022
2021
(In millions)
Unsecured:
Revolving credit facility ................................................................................................... $
3.85% senior notes due 2026 (1)........................................................................................
5.0% senior notes due 2028 (1)..........................................................................................
Other note payable...................................................................................................................
— $
396.5
297.0
12.5
$
706.0
$
—
395.5
296.5
12.5
704.5
______________
(1) Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $6.5
million and $8.0 million at September 30, 2022 and 2021, respectively.
Bank Credit Facility
The Company has a $410 million senior unsecured revolving credit facility with an uncommitted accordion feature that
could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank
commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100
million and 50% of the revolving credit commitment. Borrowings under the revolving credit facility are subject to a
borrowing base calculation based on the book value of the Company's real estate assets and unrestricted cash. Letters of credit
issued under the facility reduce the available borrowing capacity. There were no borrowings or repayments under the facility
during fiscal 2022. At September 30, 2022, there were no borrowings outstanding and $53.3 million of letters of credit issued
under the revolving credit facility, resulting in available capacity of $356.7 million.
In October 2022, the Company's senior unsecured revolving credit facility was amended to extend its maturity date to
October 28, 2026.
The revolving credit facility is guaranteed by the Company’s wholly-owned subsidiaries that are not immaterial
subsidiaries or have not been designated as unrestricted subsidiaries. The revolving credit facility includes customary
affirmative and negative covenants, events of default and financial covenants. The financial covenants require a minimum
level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are
measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to
comply with these financial covenants could allow the lending banks to terminate the availability of funds under the
revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. At September 30,
2022, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.
Senior Notes
The Company has outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation
S under the Securities Act. The notes represent senior unsecured obligations that rank equally in right of payment to all
existing and future senior unsecured indebtedness and may be redeemed prior to maturity, subject to certain limitations and
premiums defined in the indenture agreements. The notes are guaranteed by each of the Company's subsidiaries to the extent
such subsidiaries guarantee the Company's revolving credit facility.
51
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's $400 million principal amount of 3.85% senior notes (the "2026 notes") mature May 15, 2026 with
interest payable semi-annually. On or after May 15, 2023, the 2026 notes may be redeemed at 101.925% of their principal
amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually
thereafter and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest
rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1%.
The Company's $300 million principal amount of 5.0% senior notes (the "2028 notes") mature March 1, 2028 with
interest payable semi-annually. On or after March 1, 2023, the 2028 notes may be redeemed at 102.5% of their principal
amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually
thereafter and the 2028 notes can be redeemed at par on or after March 1, 2026 through maturity. The annual effective
interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.
The indentures governing the senior notes require that, upon the occurrence of both a change of control and a rating
decline (each as defined in the indentures), the Company offer to purchase the applicable series of notes at 101% of their
principal amount. If the Company or its restricted subsidiaries dispose of assets, under certain circumstances, the Company
will be required to either invest the net cash proceeds from such asset sales in its business within a specified period of time,
repay certain senior secured debt or debt of its non-guarantor subsidiaries, or make an offer to purchase a principal amount of
the notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount. The indentures contain
covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to pay dividends or
distributions, repurchase equity, prepay subordinated debt and make certain investments; incur additional debt or issue
mandatorily redeemable equity; incur liens on assets; merge or consolidate with another company or sell or otherwise dispose
of all or substantially all of the Company’s assets; enter into transactions with affiliates; and allow to exist certain restrictions
on the ability of subsidiaries to pay dividends or make other payments. At September 30, 2022, the Company was in
compliance with all of the limitations and restrictions associated with its senior note obligations.
Effective April 30, 2020, the Board of Directors authorized the repurchase of up to $30 million of the Company’s debt
securities. The authorization has no expiration date. All of the $30 million authorization was remaining at September 30,
2022.
Other Note Payable
The Company also has a note payable of $12.5 million that was issued as part of a transaction to acquire real estate for
development. The note is non-recourse, is secured by the underlying real estate and accrues interest at 4.0% per annum with
interest payments due in October 2022 and at maturity in October 2023.
Note 8 — Earnings per Share
The computations of basic and diluted earnings per share are as follows:
Year Ended September 30,
2021
2020
2022
(In millions, except share and per share amounts)
Numerator:
Net income attributable to Forestar Group Inc......................................... $
178.8
$
110.2
$
60.8
Denominator:
Weighted average common shares outstanding — basic .........................
49,818,132
48,901,987
48,037,018
Dilutive effect of stock-based compensation ...........................................
31,762
73,674
57,093
Total weighted average shares outstanding — diluted.............................
49,849,894
48,975,661
48,094,111
Basic net income per common share attributable to Forestar Group Inc.... $
Diluted net income per common share attributable to Forestar Group Inc. $
3.59
3.59
$
$
2.25
2.25
$
$
1.26
1.26
52
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 — Income Taxes
The components of the Company's income tax expense are as follows:
Year Ended September 30,
2021
2020
2022
(In millions)
Current tax expense (benefit):
Federal ....................................................................................................... $
38.3
$
14.3
$
State and other ...........................................................................................
Deferred tax expense:
Federal .......................................................................................................
State and other ...........................................................................................
Income tax expense ...................................................................................... $
6.2
44.5
10.2
2.3
12.5
57.0
$
2.6
16.9
15.8
3.4
19.2
36.1
$
(7.6)
0.9
(6.7)
21.2
1.9
23.1
16.4
A reconciliation of the federal statutory rate to the Company's effective income tax rate follows:
Federal statutory rate
State, net of federal benefit
Valuation allowance
Tax benefits previously unrecognized
Non-controlling interests
Tax rate benefit in carryback years
Other
Year Ended September 30,
2021
2020
2022
21.0 %
3.0
(0.1)
—
—
—
0.3
21.0 %
21.0 %
3.3
—
—
—
—
0.3
2.9
(0.1)
(2.0)
(0.3)
(1.0)
0.5
Effective tax rate ..........................................................................................
24.2 %
24.6 %
21.0 %
The effective tax rate for fiscal 2020 includes a tax benefit of $2.3 million related to the net operating loss ("NOL")
carryback provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which allowed the
Company to carryback a portion of its fiscal 2018 NOL. The carryback provisions resulted in the recognition of previously
unrecognized tax benefits and the revaluation of deferred tax assets due to the utilization of NOLs at a higher tax rate in the
carryback period. The effective tax rate for all years includes an expense for state income taxes and nondeductible expenses
and a benefit related to noncontrolling interests
The Inflation Reduction Act of 2022 ("IRA") was signed into law on August 16, 2022. The tax provisions of the IRA
did not have a material impact on our financial statements.
53
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of deferred taxes are:
September 30,
2022
2021
(In millions)
Deferred tax assets:
Real estate........................................................................................................................... $
11.5
$
Employee benefits ..............................................................................................................
Net operating loss carryforwards........................................................................................
Accruals not deductible until paid ......................................................................................
Total deferred tax assets ..........................................................................................................
Valuation allowance ...........................................................................................................
Total deferred tax assets, net of valuation allowance ..............................................................
Deferred tax liabilities:
Deferral of profit on lot sales..............................................................................................
Total deferred tax liabilities.....................................................................................................
2.8
1.2
0.2
15.7
(1.0)
14.7
(51.6)
(51.6)
Deferred tax liability, net......................................................................................................... $
(36.9) $
14.2
1.9
1.4
0.2
17.7
(1.2)
16.5
(40.9)
(40.9)
(24.4)
At September 30, 2022, the Company had tax benefits of $1.2 million related to state NOL carryforwards, of which
$0.7 million will expire between 2030 and 2037 while the remaining $0.5 million do not have an expiration date.
The Company has a valuation allowance of $1.0 million and $1.2 million at September 30, 2022 and 2021, respectively,
because it is more likely than not that a portion of the Company's state deferred tax assets, primarily NOL carryforwards, will
not be realized because the Company is no longer operating in some states or the NOL carryforward periods are too brief to
realize the related deferred tax asset. The Company will continue to evaluate both the positive and negative evidence in
determining the need for a valuation allowance on its deferred tax assets. Any reversal of the valuation allowance in future
periods will impact the effective tax rate.
The Company is subject to a Tax Sharing Agreement with D.R. Horton. The agreement sets forth an equitable method
for reimbursements of tax liabilities or benefits between the Company and D.R. Horton related to state and local income,
margin or franchise tax returns that are filed on a unitary basis with D.R. Horton. In accordance with the agreement, the
Company reimbursed D.R. Horton $0.7 million, $0.5 million and $0.2 million in fiscal 2022, 2021 and 2020, respectively, for
its tax expense generated in fiscal 2021, 2020 and 2019.
The Company files income tax returns in the U.S. and in various state jurisdictions. The federal statute of limitations for
tax years prior to 2019 is closed and the statute of limitations in major state jurisdictions for tax years prior to 2017 is closed.
The Company is not currently being audited by the IRS or any state jurisdictions.
54
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending amount of tax benefits not recognized for book purposes is as follows:
Year Ended September 30,
2021
2022
2020
Unrecognized tax benefits, beginning of year.................................................... $
Decrease for tax positions taken in prior years ..................................................
Unrecognized tax benefits, end of year .............................................................. $
(In millions)
— $
—
— $
— $
—
— $
1.6
(1.6)
—
The Company had no unrecognized tax benefits at September 30, 2022, 2021 and 2020 as a result of the recognition of
$1.6 million of previously unrecognized tax benefits during fiscal 2020. All of the $1.6 million of recognized tax benefits
affected the Company’s effective tax rate in fiscal 2020 and was attributable to the NOL carryback provisions of the CARES
Act allowing previously uncertain tax attributes to be recognized.
The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. In fiscal years
2022, 2021 and 2020, no significant interest related to unrecognized tax benefits was recognized. At September 30, 2022,
there were no accrued interest or penalties.
Note 10 — Stockholders' Equity
The Company has an effective shelf registration statement filed with the Securities and Exchange Commission in
October 2021 registering $750 million of equity securities, of which $300 million was reserved for sales under the at-the-
market equity offering program that became effective in November 2021. In fiscal 2022, the Company issued 84,547 shares
of common stock under its at-the-market equity offering program for proceeds of $1.7 million, net of commissions and other
issuance costs totaling $0.1 million. At September 30, 2022, $748.2 million remained available for issuance under the shelf
registration statement, of which $298.2 million was reserved for sales under the at-the-market equity offering program.
Note 11 — Employee Benefit Plans
Retirement Plans
The Company has a 401(k) plan for all employees who have been with the Company for a period of six months or
more. The Company matches portions of employees’ voluntary contributions. Additional employer contributions in the form
of profit sharing may also be made at the Company’s discretion. The Company recorded expense of $0.8 million, $0.6
million and $0.4 million for matching contributions in fiscal 2022, 2021 and 2020, respectively, which is included in in
selling, general and administrative expense in the Company's consolidated statements of operations.
Restricted Stock Units (RSUs)
The Company’s Stock Incentive Plan provides for the granting of stock options and restricted stock units to executive
officers, other key employees and non-management directors. Restricted stock unit awards may be based on performance
(performance-based) or on service over a requisite time period (time-based). RSU equity awards represent the contingent
right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are
satisfied and have no voting rights during the vesting period.
55
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During fiscal 2022, 2021 and 2020, the Company granted time-based RSUs that vest annually in equal installments over
periods of three to five years. The following table provides additional information related to time-based RSU activity during
those periods.
2022
Year Ended September 30,
2021
2020
Number of
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
Number of
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
Number of
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
Outstanding at beginning of year .........
387,154
$
Granted .................................................
394,786
Vested...................................................
(123,389)
Cancelled..............................................
(36,600)
Outstanding at end of year ...................
621,951
$
20.70
17.76
19.98
19.98
18.94
285,863
$
234,000
(92,159)
(40,550)
387,154
$
17.47
23.13
19.08
19.66
20.70
200,960
$
181,325
(79,432)
(16,990)
285,863
$
19.68
16.11
19.58
19.10
17.47
The total fair value of shares vested on the vesting date was $2.5 million during fiscal 2022 and $1.6 million during
both fiscal 2021 and 2020. Total stock-based compensation expense related to the Company's restricted stock units for fiscal
2022, 2021 and 2020 was $3.3 million, $2.6 million and $2.0 million, respectively. These expenses are included in selling,
general and administrative expense in the Company's consolidated statements of operations. At September 30, 2022, there
was $8.0 million of unrecognized compensation expense related to unvested time-based RSU awards. This expense is
expected to be recognized over a weighted average period of 2.9 years.
Note 12 — Commitments and Contingencies
Contractual Obligations and Off-Balance Sheet Arrangements
In support of the Company's residential lot development business, it issues letters of credit under the revolving credit
facility and has a surety bond program that provides financial assurance to beneficiaries related to the execution and
performance of certain development obligations. At September 30, 2022, the Company had outstanding letters of credit of
$53.3 million under the revolving credit facility and surety bonds of $632.7 million issued by third parties to secure
performance under various contracts. The Company expects that its performance obligations secured by these letters of credit
and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual
terms. When the Company completes its performance obligations, the related letters of credit and bonds are generally
released shortly thereafter, leaving the Company with no continuing obligations. The Company has no material third-party
guarantees.
Litigation
The Company is involved in various legal proceedings that arise from time to time in the ordinary course of business
and believes that adequate reserves have been established for any probable losses. The Company does not believe that the
outcome of any of these proceedings will have a significant adverse effect on its financial position, long-term results of
operations or cash flows. It is possible, however, that charges related to these matters could be significant to the Company's
results or cash flows in any one accounting period.
Land Purchase Contracts
The Company enters into land purchase contracts to acquire land for the development of residential lots. At
September 30, 2022, the Company had total deposits of $10.0 million related to contracts to purchase land with a total
remaining purchase price of approximately $490.3 million. The majority of land and lots under contract are currently
expected to be purchased within two years. None of the land purchase contracts were subject to specific performance
provisions at September 30, 2022.
56
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Commitments
The Company leases facilities and equipment under non-cancelable long-term operating lease agreements. In addition,
the Company has various obligations under other office space and equipment leases of less than one year. Rent expense for
facilities and equipment was $2.5 million in fiscal 2022, $1.7 million in fiscal 2021 and $1.1 million in fiscal 2020. Future
minimum rental commitments, by fiscal year, under non-cancelable operating leases having an initial or remaining term in
excess of one year are: 2023 — $2.4 million; 2024 — $2.4 million; 2025 — $1.9 million; 2026 — $1.4 million; 2027 — $0.2
million; and none thereafter.
Note 13 — Related Party Transactions
The Company has a Shared Services Agreement with D.R. Horton whereby D.R. Horton provides the Company with
certain administrative, compliance, operational and procurement services. During fiscal 2022, 2021 and 2020, selling, general
and administrative expense in the consolidated statements of operations included $4.1 million, $4.0 million and $5.0 million
for these shared services, $7.4 million, $4.7 million and $2.7 million reimbursed to D.R. Horton for the cost of health
insurance and other employee benefits and $6.6 million, $6.1 million and $4.0 million for other corporate and administrative
expenses paid by D.R. Horton on behalf of the Company.
The Company is subject to a Tax Sharing Agreement with D.R. Horton. The agreement sets forth an equitable method
for reimbursements of tax liabilities or benefits between the Company and D.R. Horton related to state and local income,
margin or franchise tax returns that are filed on a unitary basis with D.R. Horton. In accordance with the agreement, the
Company reimbursed D.R. Horton $0.7 million, $0.5 million and $0.2 million in fiscal 2022, 2021 and 2020, respectively, for
its tax expense generated in fiscal 2021, 2020 and 2019.
Under the terms of the Master Supply Agreement with D.R. Horton, both companies identify land development
opportunities to expand Forestar's portfolio of assets. At September 30, 2022 and 2021, the Company owned approximately
61,800 and 64,400 residential lots, of which D.R. Horton had the following involvement.
September 30,
2022
2021
(Dollars in millions)
Residential lots under contract to sell to D.R. Horton .................................................................
Residential lots subject to right of first offer with D.R. Horton ..................................................
17,800
18,900
Earnest money deposits from D.R. Horton for lots under contract ............................................. $
130.1
$
Earnest money notes from D.R. Horton for lots under contract .................................................. $
— $
21,000
18,200
143.1
0.7
Remaining sales price of lots under contract with D.R. Horton .................................................. $
1,389.7
$
1,582.7
During fiscal 2022, 2021 and 2020, the Company's residential lot sales totaled 17,691, 15,915 and 10,373 and lot sales
revenues were $1.5 billion, $1.3 billion and $880.3 million. Lot and land sales to D.R. Horton during those periods were as
follows.
Year Ended September 30,
2021
2022
2020
Residential lots sold to D.R. Horton...................................................................
14,895
Residential lot sales revenues from sales to D.R. Horton .................................. $
1,230.0
$
Tract acres sold to D.R. Horton..........................................................................
Tract sales revenues from sales to D.R. Horton ................................................. $
—
— $
14,839
1,212.1
85
25.9
$
$
10,164
859.7
143
25.6
(Dollars in millions)
57
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the net impact of the change in contract liabilities increased revenues on lot sales to D.R. Horton by $1.8
million in fiscal 2022, decreased revenues on lot sales to D.R. Horton by $5.6 million in fiscal 2021 and increased revenues
on lot sales to D.R. Horton by $2.3 million in fiscal 2020.
During fiscal 2022, 2021 and 2020, the Company reimbursed D.R. Horton approximately $8.7 million, $30.8 million
and $27.0 million for previously paid earnest money and $58.9 million, $61.3 million and $36.3 million for pre-acquisition
and other due diligence and development costs related to land purchase contracts identified by D.R. Horton that the Company
independently underwrote and closed.
During fiscal 2022, 2021 and 2020, the Company paid D.R. Horton $2.8 million, $5.7 million and $6.2 million for land
development services. These amounts are included in cost of sales in the Company’s consolidated statements of operations.
At September 30, 2022 and 2021, land held for future development primarily consists of undeveloped land which the
Company has the contractual right to sell to D.R. Horton within approximately one year of its purchase or, if D.R. Horton
elects, at an earlier date, 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.
At September 30, 2022 and 2021, accrued expenses and other liabilities on the Company's consolidated balance sheets
included $3.2 million and $6.7 million owed to D.R. Horton for any accrued and unpaid shared service charges, land
purchase contract deposits and due diligence and other development cost reimbursements.
58
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 — Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability in an orderly
transaction between market participants. In arriving at a fair value measurement, the Company uses a fair value hierarchy
based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of
inputs used to establish fair value are the following:
•
•
•
Level 1 — Quoted prices in active markets for identical assets or liabilities;
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can
be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The Company elected not to use the fair value option for cash and cash equivalents and debt.
For the financial assets and liabilities that the Company does not reflect at fair value, the following tables present both
their respective carrying value and fair value at September 30, 2022 and 2021.
Fair Value at September 30, 2022
Carrying
Value
Level 1
Level 2
Level 3
Total
(in millions)
Cash and cash equivalents (a) ........................... $
Debt (b) (c)..........................................................
264.8
$
264.8
$
— $
— $
706.0
—
570.7
12.5
264.8
583.2
Carrying
Value
Level 1
Fair Value at September 30, 2021
Level 2
(in millions)
Level 3
Total
Cash and cash equivalents (a) ........................... $
Debt (b) (c)..........................................................
153.6
$
153.6
$
— $
— $
704.5
—
711.2
12.5
153.6
723.7
_____________________
(a) The fair values of cash and cash equivalents approximate their carrying values due to their short-term nature and are
classified as Level 1 within the fair value hierarchy.
(b) At September 30, 2022 and 2021, debt primarily consisted of the Company's senior notes. The fair value of the senior
notes is determined based on quoted market prices in markets that are not active, which is classified as Level 2 within the
fair value hierarchy.
(c) The fair values of the Company's other note payable approximates its carrying value due to its short-term nature and is
classified as Level 3 within the fair value hierarchy.
Non-financial assets measured at fair value on a non-recurring basis primarily include real estate assets which the
Company reviews for indicators of potential impairment and performs impairment evaluations when necessary.
59
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Disclosure controls and procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this report. Based
on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such
period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a
timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and were
effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Internal control over financial reporting
Management’s report on internal control over financial reporting and the report of our independent registered public
accounting firm are included in Part II, Item 8 of this Annual Report on Form 10-K.
(c) Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2022 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not Applicable.
60
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item is set forth under the captions “Election of Directors,” “Delinquent Section 16(a)
Reports,” if applicable, and “Board Matters” in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders.
Item 11. Executive Compensation.
The information required by this item is set forth under the captions “Director Compensation,” “Executive
Compensation” and “CEO Pay Ratio” in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is set forth under the captions “Securities Authorized for Issuance under Equity
Compensation Plans” and “Voting Securities and Principal Stockholders” in our definitive Proxy Statement for the 2023
Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is set forth under the captions “Certain Relationships and Related Party
Transactions” and “Board Matters” in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services.
The information required by this item is set forth under the caption “Proposal to Ratify the Selection of Ernst & Young
as our Independent Registered Public Accounting Firm” in our definitive Proxy Statement for the 2023 Annual Meeting of
Stockholders.
61
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this report.
(1) Financial Statements
Our consolidated financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K.
(2) Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or the required information is
included in the consolidated financial statements or notes thereto.
(3) Exhibits
The exhibits listed in (b) are filed or incorporated by reference as part of this Annual Report on Form 10-K.
(b) Exhibits
Exhibit
Number
2.1
3.1
3.2
3.3
3.4
4.1
4.2
4.3*
4.4
4.5
4.6*
10.1†
Exhibit
Agreement and Plan of Merger, dated as of June 29, 2017, by and among Forestar Group Inc., D.R. Horton,
Inc. and Force Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report
on Form 8-K filed with the Commission on June 29, 2017).
Second Amended and Restated Certificate of Incorporation of Forestar Group Inc. (incorporated by
reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on
October 10, 2017).
Second Amended and Restated Bylaws of Forestar Group Inc. (incorporated by reference to Exhibit 3.2 of
the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2017).
First Amendment to the Second Amended and Restated Bylaws of Forestar Group Inc. (incorporated by
reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on
January 30, 2018).
Second Amendment to the Second Amended and Restated Bylaws of Forestar Group Inc. (incorporated by
reference from Exhibit 3.1 to Forestar Group Inc.’s Quarterly Report on Form 10-Q filed with the
Commission on August 8, 2018).
Specimen Certificate for shares of common stock, par value $1.00 per share (incorporated by reference to
Exhibit 4.7 of the Company's Registration Statement on Form S-3 filed with the Commission on September
24, 2018).
Indenture, dated as of February 25, 2020, by and among Forestar Group Inc., the subsidiary guarantors
party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the
Company’s Current Report on Form 8-K filed with the Commission on February 25, 2020).
Supplemental Indenture, dated as of August 29, 2022, among FOR Nevada Development LLC, FOR
California Development LLC, Forestar Group Inc. and U.S. Bank Trust Company, National Association (as
successor to U.S. Bank National Association), as trustee, relating to the 5.000% Senior Notes due 2028 of
Forestar Group Inc.
Description of Securities (incorporated by reference to Exhibit 4.6 of the Company's Annual Report on
Form 10-K filed with the Commission on November 21, 2019).
Indenture, dated as of April 21, 2021, by and among Forestar Group Inc., the subsidiary guarantors party
thereto and U.S. Bank National Association, as trustee.
Supplemental Indenture, dated as of August 29, 2022, among FOR Nevada Development LLC, FOR
California Development LLC, Forestar Group Inc. and U.S. Bank Trust Company, National Association (as
successor to U.S. Bank National Association), as trustee, relating to the 3.850% Senior Notes due 2026 of
Forestar Group Inc.
Forestar Real Estate Group Inc. Supplemental Executive Retirement Plan (incorporated by reference to
Exhibit 10.5 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10,
2007).
62
10.2†
10.3†
10.4†
10.5†
10.6†
10.7
10.8
10.9
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16
10.17†
10.18†
10.19
10.20
Amendment No. 1 to Forestar Group Inc. Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit 10.3 of the Company’s Annual Report on Form 10-K filed with the Commission on
March 14, 2013).
Amendment No. 2 to Forestar Group Inc. Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K filed with the Commission on
March 11, 2014).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Current
Report on Form 8-K filed with the Commission on October 10, 2017).
Form of Change in Control/Severance Agreement between the Company and its named executive officers
(incorporated by reference to Exhibit 10.10 of the Company’s Form 10 filed with the Commission on
August 10, 2007).
Form of First Amendment to Change in Control/Severance Agreement between the Company and certain
named executive officers (incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on
Form 10-K filed with the Commission on February 28, 2018).
Shared Services Agreement, dated October 6, 2017, between Forestar Group Inc. and D.R. Horton, Inc.
(incorporated by reference to Exhibit 10.7 of the Company’s Form 10-K filed with the Commission on
November 19, 2020).
Stockholder’s Agreement dated as of June 29, 2017, by and between Forestar Group Inc. and D.R. Horton,
Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with
the Commission on June 29, 2017).
Master Supply Agreement dated as of June 29, 2017, by and between Forestar Group Inc. and D.R. Horton,
Inc. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with
the Commission on June 29, 2017).
Forestar Real Estate Group Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 of
Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007).
First Amendment to the Forestar Real Estate Group Inc. 2007 Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on
May 13, 2009).
Second Amendment to the Forestar Group Inc. 2007 Stock Incentive Plan (incorporated by reference to
Exhibit 10.22 of the Company’s Annual Report on Form 10-K filed with the Commission on March 3,
2010).
Form of Restricted Stock Units Agreement pursuant to Forestar Real Estate Group Inc.’s 2007 Stock
Incentive Plan (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K
filed with the Commission on March 14, 2013).
Forestar Group Inc. 2018 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s
Quarterly Report on Form 10-Q filed with the Commission on May 9, 2018).
Form of Restricted Stock Unit Agreement (Employees) pursuant to Forestar Group Inc.’s 2018 Stock
Incentive Plan (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q
filed with the Commission on May 9, 2018).
Credit Agreement, dated August 16, 2018, among Forestar Group Inc., the lenders party thereto and
JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed with the Commission on August 17, 2018).
Form of Restricted Stock Unit Award Agreement (Employee) pursuant to the Company's 2018 Stock
Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q
filed with the Commission on July 30, 2019).
Form of Restricted Stock Unit Award Agreement (Director) pursuant to the Company's 2018 Stock
Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q
filed with the Commission on July 30, 2019).
Amendment No. 1 to Credit Agreement, dated October 2, 2019 by and among Forestar Group Inc.,
JPMorgan Chase Bank, N.A., as administrative agent, and the Lenders named therein (incorporated by
reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on
October 3, 2019).
Amendment No. 2 to Credit Agreement, dated April 16, 2021 by and among the Company, JPMorgan
Chase Bank, N.A., as administrative agent, and the Lenders named therein (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on April 20, 2021).
63
10.21
10.22
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
Amendment No. 3 to Credit Agreement, dated October 28, 2022 by and among the Company, JPMorgan
Chase Bank, N.A., as administrative agent, and the Lenders named therein (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on November 1,
2022).
Equity Distribution Agreement, dated as of November 18, 2021, among Forestar Group Inc. and the Sales
Agents named therein (incorporated by reference to Exhibit 1.1 of the Company's Current Report on Form
8-K filed with the Commission on November 18, 2021).
List of Subsidiaries of the Company.
Consent of Ernst & Young LLP.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS** XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
Inline XBRL Taxonomy Extension Schema Document.
101.SCH**
101.CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**
Inline XBRL Taxonomy Extension Definition Linkbase Document.
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Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104**
Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101).
_____________________
*
**
†
Filed or furnished herewith.
Submitted electronically herewith.
Management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary.
None.
64
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: November 17, 2022
Forestar Group Inc.
By:
/s/ James D. Allen
James D. Allen
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Daniel C. Bartok
Daniel C. Bartok
/s/ James D. Allen
James D. Allen
/s/ Donald J. Tomnitz
Donald J. Tomnitz
/s/ Samuel R. Fuller
Samuel R. Fuller
/s/ Lisa H. Jamieson
Lisa H. Jamieson
/s/ G.F. (Rick) Ringler, III
G.F. (Rick) Ringler, III
/s/ Donald C. Spitzer
Donald C. Spitzer
Title
Chief Executive Officer
(Principal Executive Officer)
Date
November 17, 2022
Executive Vice President and Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
November 17, 2022
Executive
Chairman of the Board
November 17, 2022
Director
November 17, 2022
Director
November 17, 2022
Director
November 17, 2022
Director
November 17, 2022
65
STOCKHOLDER
INFORMATION
FORESTAR GROUP INC.
Transfer Agent & Registrar
Computershare
P.O. Box 43006
Providence, RI 02940-3006
781.575.2723
BOARD MEMBERS
Donald J. Tomnitz
Executive Chairman of the Board
Samuel R. Fuller
Retired Chief Financial Officer of D.R. Horton, Inc.
Independent Auditors
Ernst & Young LLP, Fort Worth, Texas
Annual Meeting
The 2023 Annual Meeting of Stockholders will be
held at 2221 E. Lamar Blvd., Arlington, Texas on
January 17, 2023 at 9:00 a.m. CST.
Lisa H. Jamieson
Shareholder/Attorney at
Bourland, Wall & Wenzel, P.C.
G.F. (Rick) Ringler, III
Retired Senior Vice President — Commercial and
Real Estate Lending for Frost Bank
Stock Listing
Forestar’s common stock is listed on the New York
Stock Exchange under the ticker symbol FOR.
Donald C. Spitzer
Retired Partner of KPMG
Company Website
Additional information regarding Forestar, including
the Annual Report on Form 10-K and other periodic
reports filed with the Securities and Exchange
Commission, may be obtained from Forestar’s
home page on the internet, the address of which
is www.forestar.com.
A copy of Forestar’s Annual Report on Form 10-K,
as filed with the Securities and Exchange
Commission, will be sent without charge upon
written request made to the company’s Investor
Relations Department at the mailing address below.
Mailing Address
Forestar Group Inc.
2221 E. Lamar Blvd., Suite 790
Arlington, Texas 76006
817.769.1860
2221 E. Lamar Blvd. | Suite 790 | Arlington, Texas 76006 | 817.769.1860 | www.forestar.com
FORESTAR GROUP INC.