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Forestar Group Inc.

Forestar Group Inc.FOREarnings & Financial Report

NYSE · Real Estate · Real Estate

Forestar Group Inc. is a residential lot development company based in Arlington, Texas. The company has operations in 51 markets in 21 states and delivered 11,518 residential lots during the twelve-month period ended December 31, 2020. The company is publicly traded on the New York Stock Exchange and in October 2017 became a majority-owned subsidiary of D.R. Horton, Inc., the largest homebuilder by volume in the United States since 2002. The company primarily acquires entitled real estate and...

What changed in Forestar Group Inc.'s 10-K — 2022 vs 2023

Top changes in Forestar Group Inc.'s 2023 10-K

162 paragraphs added · 168 removed · 139 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

34 edited+5 added−5 removed34 unchanged
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 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. We are committed to supporting our employees in their health, wellness and financial planning goals.
Our managers are responsible for the following activities related to our land and lot acquisition and development activities: • 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. 5 Table of Content s Our corporate executives and corporate office personnel provide control and oversight functions to many important risk elements in our operations, including: • 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 • review of major personnel decisions and incentive compensation plans.
Our managers are responsible for the following activities related to our land and lot acquisition and development activities: • 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. 5 Table of Contents Our corporate executives and corporate office personnel provide control and oversight functions to many important risk elements in our operations, including: • 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 • review of major personnel decisions and incentive compensation plans.
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.
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, 2023 they owned approximately 63% of our outstanding common stock. As our controlling shareholder, D.R.
We may experience delays in receiving the proper approvals from local authorities that could delay our anticipated development activities in certain projects. 9 Table of Content s 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.
We may experience delays in receiving the proper approvals from local authorities that could delay our anticipated development activities in certain projects. 9 Table of Contents 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 Stockholder’s Agreement also establishes an investment committee to approve new investments up to $20 million. 6 Table of Content s 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).
The Stockholder’s Agreement also establishes an investment committee to approve new investments up to $20 million. 6 Table of Contents 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).
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. 10 Table of Content s
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. 10 Table of Contents
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 have expanded and diversified our lot development operations across 54 markets in 22 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.
Horton at market terms offered by Forestar and both companies identify land development opportunities to expand our portfolio of assets. 3 Table of Content s 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.
Horton at market terms offered by Forestar and both companies identify land development opportunities to expand our portfolio of assets. 3 Table of Contents We manage our operations through our real estate segment. Our national footprint provides diversification in our real estate investments and our sources of revenues and earnings.
Lucie Tampa/Sarasota South Carolina Charleston Volusia County Greenville/Spartanburg West Palm Beach Hilton Head Georgia Atlanta Tennessee Nashville Augusta Savannah Texas Austin Dallas Illinois Chicago Fort Worth Houston Indiana Indianapolis San Antonio Iowa Des Moines Washington Seattle/Tacoma/Everett 4 Table of Content s When evaluating new or existing markets for purposes of capital allocation, we consider local, market-specific factors, including, among others: • 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.
Lucie Greenville/Spartanburg Tampa/Sarasota Hilton Head Volusia County West Palm Beach Tennessee Nashville Georgia Atlanta Texas Austin Augusta Dallas Savannah Fort Worth Houston Illinois Chicago San Antonio Indiana Indianapolis Washington Seattle/Tacoma/Everett Iowa Des Moines West Virginia Eastern West Virginia Maryland Suburban Washington, D.C. 4 Table of Contents When evaluating new or existing markets for purposes of capital allocation, we consider local, market-specific factors, including, among others: • 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.
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.
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, 2023, we sold 14,040 lots with an average sales price of $90,900.
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.
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.
Paul Tuscaloosa Nevada Las Vegas Arizona Phoenix Reno Tucson New Jersey Southern New Jersey California Riverside County New Mexico Albuquerque Colorado Denver Fort Collins North Carolina Asheville Charlotte Florida Fort Myers/Naples Greensboro Gainesville Greenville Jacksonville Raleigh-Durham Lakeland Wilmington Melbourne Miami/Fort Lauderdale Ohio Columbus Ocala Cincinnati Orlando Pensacola/Panama City Pennsylvania Allentown/Bethlehem/Easton Port St.
Paul Huntsville Mobile/Baldwin County Nevada Las Vegas Tuscaloosa Reno Arizona Phoenix New Jersey Southern New Jersey Tucson New Mexico Santa Fe California Riverside County North Carolina Asheville Colorado Denver Charlotte Fort Collins Greensboro Greenville Florida Fort Myers/Naples Raleigh-Durham Gainesville Wilmington Jacksonville Lakeland Ohio Columbus Melbourne Cincinnati Miami/Fort Lauderdale Ocala Pennsylvania Philadelphia Orlando Pensacola South Carolina Charleston Port St.
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.
Additionally, our compliance with such regulations has not had, nor is it 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.
We manage our level of lot/land banking relative to short-term liquidity and expected future cash requirements for lot development projects. 7 Table of Content s Cost Controls We control development costs by designing our communities efficiently and by obtaining competitive bids for materials and labor.
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. 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.
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.
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.
At September 30, 2023, our lot position consisted of 79,200 residential lots, of which approximately 52,400 were owned and 26,800 were controlled through purchase contracts. Of our 52,400 owned lots, approximately 15,000 lots are under contract to be sold for an aggregate remaining sales price of approximately $1.3 billion.
At September 30, 2022, we conducted our operations in the states and markets listed below. State Market State Market Alabama Birmingham Maryland Washington/Arlington/Alexandria Huntsville Mobile/Baldwin County Minnesota Minneapolis/St.
At September 30, 2023, we conducted our operations in the states and markets listed below. State Market State Market Alabama Birmingham Minnesota Minneapolis/St.
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.
At September 30, 2023, our lots owned included approximately 15,000 lots (29%) that were under contract to be sold, of which approximately 14,400 lots are under contract to D.R. Horton.
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.
Human Capital Resources People and Culture We have increased our number of employees from 291 at September 30, 2022 to 303 at September 30, 2023 to support the growth of our residential lot development business across a geographically diversified platform.
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.
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.
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.
Horton for land development services, generally in geographic markets where we do not have established development teams and capabilities. 7 Table of Contents 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.
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.
Horton employees provide us with certain administrative, compliance, operational and procurement services. 8 Table of Contents 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.
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 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.
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. 8 Table of Content s Recruitment, Development and Retention We are committed to hiring, developing and supporting an energetic, diverse workforce and maintaining a productive, positive and inclusive workplace.
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.
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.
At September 30, 2023, 233 of our employees worked in our regional and divisional offices and 70 worked at our corporate office. In fiscal 2023, our total cost for employee compensation and benefits was $59.5 million. In addition to our employees, we also have a Shared Services Agreement with D.R. Horton whereby D.R.
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.
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.
Lamar Blvd., Suite 790, Arlington, Texas 76006. Our telephone number is (817) 769-1860.
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.
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 host events and challenges, both virtually and in person, to encourage our employees to stay active and healthy. 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.
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 fiscal 2022 and 2023, 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.
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.
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.
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.
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 2023, 20 employees were placed into new leadership positions in our regional and divisional offices, and of those, 85% were promoted from within the organization.
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.
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.
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.
Generally, the materials used in our operations have been readily available from numerous sources. In fiscal 2022, we experienced supply chain constraints including increases in the prices of materials, shortages of skilled labor and delays in municipal approvals and inspections, which caused delays in developing and the realization of revenues and increases in cost of revenues.
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.
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.
Removed
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.
Added
In fiscal 2023, these supply chain constraints have eased in the majority of our markets. The cost and availability of certain materials, especially steel, transformers, concrete, and petroleum-based materials, is influenced by changes in local and global commodity prices and capacity as well as government regulation, such as government-imposed tariffs or trade restrictions on supplies such as steel.
Removed
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.
Added
The ability to consistently source qualified labor at reasonable prices remains challenging as labor supply growth has not kept pace with construction demand. We are subject to governmental regulations that affect our land development operations.
Removed
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.
Added
We control overhead costs by centralizing certain accounting and administrative functions, monitoring staffing and compensation levels and applying technology to business processes to improve productivity where practical. We review other general and administrative costs to identify efficiencies and savings opportunities in our operating divisions and our regional and corporate offices.
Removed
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.
Added
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.
Removed
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.
Added
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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

44 edited+6 added−6 removed107 unchanged
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.
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, government authorities in many markets have implemented no growth or growth control initiatives.
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.
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. We operate in a highly competitive industry.
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.
We may be unable to change the pricing or 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.
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.
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, cybersecurity and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess and report.
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.
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.
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, 2023, 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.
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.
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 business.
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. 11 Table of Content s 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.
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. 11 Table of Contents 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.
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. 12 Table of Content s We may not realize potential benefits of the strategic relationship with D.R.
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. 12 Table of Contents We may not realize potential benefits of the strategic relationship with D.R.
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.
At September 30, 2023, $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.
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.
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. 17 Table of Contents There can be no assurance that our current business strategy will be successful.
If an event of default occurs, such creditors could elect to: • 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. 20 Table of Content s General Risk Factors The market price of and trading volume of our shares of common stock may be volatile.
If an event of default occurs, such creditors could elect to: • 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. 21 Table of Contents General Risk Factors The market price of and trading volume of our shares of common stock may be volatile.
Any of these may limit, delay or increase the costs of acquisition of land for residential use and development or home construction. 15 Table of Content s 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.
Any of these may limit, delay or increase the costs of acquisition of land for residential use and development or home construction. 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.
If we are not successful in achieving our objectives, our business, results of operations, cash flows and financial condition may be negatively affected. 16 Table of Content s We may have continuing liabilities relating to assets that have been sold, which could adversely impact our results of operations.
If we are not successful in achieving our objectives, our business, results of operations, cash flows and financial condition may be negatively affected. We may have continuing liabilities relating to assets that have been sold, which could adversely impact our results of operations.
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 facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the total revolving credit commitments. The maturity date of the facility is October 28, 2026.
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.
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. 18 Table of Contents Failure to succeed in new markets may limit our growth.
Our business, financial condition and results of operations may be negatively affected by any of these factors. 18 Table of Content s 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.
Our business, financial condition and results of operations may be negatively affected by any of these factors. 19 Table of Contents 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.
The residential lot development industry may experience significant difficulties that can affect the cost or timing of lot development, including: • 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.
The residential lot development industry may experience significant difficulties that can affect the cost or timing of lot development, including: • difficulty in acquiring land suitable for residential development at affordable prices in locations that are attractive to homebuilders; • delays in receiving the necessary approvals from municipalities or other government agencies; • 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.
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.
As of September 30, 2023, our consolidated debt was $695.0 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.
Any lowering of our debt ratings could make accessing the capital markets or obtaining additional credit from banks more difficult and/or more expensive. 19 Table of Content s Change of Control Purchase Option and Change of Control Default .
Any lowering of our debt ratings could make accessing the capital markets or obtaining additional credit from banks more difficult and/or more expensive. 20 Table of Contents Change of Control Purchase Option and Change of Control Default .
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 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, which include multiple redundant safeguards, to protect our systems and data.
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.
Horton. 13 Table of Contents Risks Related to Our Business Operations The homebuilding and lot development industries are cyclical and significantly affected by changes in economic, real estate or other conditions that could adversely affect our business and financial results.
We may be exposed to a variety of risks if we choose to enter new markets, including, among others: • 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. 17 Table of Content s We plan to raise additional capital in the future, and such capital may not be available when needed or at all.
We may be exposed to a variety of risks if we choose to enter new markets, including, among others: • 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.
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. 13 Table of Content s 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.
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.
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.
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. 15 Table of Contents From time to time, we obtain performance bonds, the unavailability of which could adversely affect our results of operations and cash flows.
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.
During the last few years, we experienced multiple disruptions in our supply chain, which resulted in shortages of certain building materials and tightness in the labor market. This caused our construction cycle to lengthen and costs of building materials to increase.
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.
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.
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.
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, 2023, we had $632.3 million of outstanding surety bonds.
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.
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.
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.
Further, geopolitical tensions or conflicts 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.
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.
During the past two years, the economy has experienced significant inflationary pressures. Inflation can adversely affect us by increasing costs of land, materials, labor and our cost of capital. In addition, significant inflation is often accompanied by higher interest rates, which have a negative impact on housing affordability.
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 Table of Content s Item 1B. Unresolved Staff Comments. None.
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. 16 Table of Contents 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 and financial results.
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.
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 significant experience and skills as well as leadership and management abilities that are vital to our success.
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.
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.
Recently, there has been growing concern from advocacy groups, government agencies and the general public over the effects of climate change on the environment.
In recent years, advocacy groups, government agencies and the general public have expressed growing concerns regarding the effects of climate change on the environment.
Supply shortages and other risks related to acquiring land, materials and skilled labor could increase our costs and delay lot deliveries.
These, or other factors related to deflation, could have a negative impact on our business and financial results. 14 Table of Contents Supply shortages and other risks related to acquiring land, materials and skilled labor and obtaining regulatory approval could increase our costs and delay lot deliveries.
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 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. In the event of a resurgence of COVID-19, or a widespread, prolonged actual or perceived outbreak of any contagious disease, our operations could be negatively impacted.
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.
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.
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.
The European Union and other international regulators, as well as state governments, have enacted or enhanced data privacy regulations, such as the California Privacy Rights Act, 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.
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.
If we are unable to obtain surety bonds when required, our results of operations and cash flows could be adversely affected. Information technology failures, data security breaches and the failure to satisfy privacy and data protection laws and regulations could harm our business.
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.
If inflation and mortgage interest rates remain high or continue to increase, lot affordability may be further impacted, which could reduce our profit margins and have an adverse impact on our business and financial results. Alternatively, a significant period of deflation could cause a decrease in overall spending and borrowing levels.
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.
These or other repercussions of a public health crisis that affect the global economy could have an adverse impact on our results of operations and financial condition. Our business and financial results could be adversely affected by weather conditions and natural disasters.
As such, we may be unable to anticipate these techniques, to implement adequate preventative measures or to identify and investigate cybersecurity incidents.
However, because the techniques used to obtain unauthorized access, disable or degrade systems change frequently and increasingly leverage sophisticated technologies such as artificial intelligence, 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.
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.
Although our construction cycle times have decreased more recently, if shortages and cost increases in building materials and tightness in the labor market increase, our construction cycle time and profit margins could be adversely impacted. Public health issues such as a major epidemic or pandemic could adversely affect our business and financial results.
Removed
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.
Added
In response to increased inflation, the Federal Reserve has raised interest rates significantly, which has resulted in higher mortgage interest rates. Prolonged periods of elevated mortgage interest rates or further increases in mortgage interest rates could have an adverse impact on our business and financial results.
Removed
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.
Added
In an effort to lower the current rate of inflation, the Federal Reserve has raised interest rates significantly, which has resulted in higher mortgage rates. The increase in mortgage rates has reduced the affordability of our lots and has required us to use pricing adjustments and incentives to adapt to current market conditions.
Removed
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. 14 Table of Content s 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.
Added
Such events have had, and could in the future have, an effect on our operations, including a reduction in homebuilder traffic, a disruption in our supply chain, tightness in the labor market or other factors, all of which could reduce demand for our lots.
Removed
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.
Added
Our ability to attract and retain our key personnel may be impacted by matters involving reputation, culture, diversity and inclusion, compensation and benefits and our management of executive succession.
Removed
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.
Added
We seek to retain our key personnel to have succession and transition plans in place to address the potential loss of key personnel and to manage personnel transitions due to retirements, promotions, transfers and other circumstances.
Removed
Any noncompliance could result in substantial penalties, reputational damage or litigation. 21 Table of Content s We provide employee awareness training about cybersecurity threats.
Added
However, if our retention, succession and transition implementation efforts are unsuccessful, the loss of key personnel could adversely affect our business. 22 Table of Contents Item 1B. Unresolved Staff Comments. None.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed4 unchanged
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 Table of Contents 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 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 Table of Contents Stock Performance Graph The following graph illustrates the cumulative total stockholder return of an initial investment of $100 on September 30, 2018 in Forestar common stock for the period from September 30, 2018 through September 30, 2023 compared to the same investment in the Russell 2000 Index and our peer group.
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.
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 13, 2023, the closing price of our common stock on the NYSE was $29.53, and there were approximately 928 holders of record.
December 31, September 30, 2017 2018 2019 2020 2021 2022 Forestar Group Inc. $ 100.00 $ 96.36 $ 83.09 $ 80.45 $ 84.68 $ 50.86 Russell 2000 100.00 111.51 101.60 101.99 150.62 115.23 Peer Group 100.00 87.62 96.18 90.03 119.11 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 Table of Contents Item 6. [Reserved]
September 30, Stock Performance Data: 2018 2019 2020 2021 2022 2023 Forestar Group Inc. $ 100.00 $ 86.23 $ 83.49 $ 87.88 $ 52.78 $ 127.08 Russell 2000 100.00 91.11 91.47 135.08 103.33 112.56 Peer Group 100.00 109.77 102.75 135.94 93.22 143.04 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.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

56 edited+12 added−17 removed26 unchanged
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.
The valuation allowance for both periods 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.
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.
In October 2017, we became a majority-owned subsidiary of D.R. Horton, Inc. 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 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.
The indentures governing our senior notes require that, upon the occurrence of both a change of control and a rating decline (as defined in each indenture), we offer to purchase the applicable series of notes at 101% of their principal amount.
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 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.
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.
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, 2023, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.
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.
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 2023 compared to 2022.
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.
At September 30, 2023, 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, 2023.
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.
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, 2023 and 2022, and for the years ended September 30, 2023, 2022 and 2021.
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.
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 total revolving credit commitments. 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.
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.
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 real estate valuations are impacted by local market and economic conditions, and are inherently uncertain.
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.
For similar operating and financial data and discussion of our fiscal 2022 results compared to our fiscal 2021 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, 2022, which was filed with the SEC on November 17, 2022.
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.
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.
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.
Issuance of Common Stock We have 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 our at-the-market equity offering program that became effective November 2021.
Senior Notes We have outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act.
Senior Notes We have outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended.
Horton 17,800 21,000 Owned lots under contract to customers other than D.R. Horton 1,400 800 Total owned lots under contract 19,200 21,800 Owned lots subject to right of first offer with D.R.
Horton 14,400 17,800 Owned lots under contract to customers other than D.R. Horton 600 1,400 Total owned lots under contract 15,000 19,200 Owned lots subject to right of first offer 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 Table of Contents 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.
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 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 strength of our information technology systems and the risk of cybersecurity breaches and our ability to satisfy privacy and data protection laws and regulations; • 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; and • our ability to hire and retain key personnel.
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.
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.
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.
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.
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.
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.
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.
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." Our Operations We are a residential lot development company with operations in 54 markets in 22 states as of September 30, 2023.
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.
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.
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.
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.
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 deferred tax assets were partially offset by a valuation allowance of $1.0 million, resulting in a net deferred tax liability of $36.9 million.
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.
At September 30, 2023, we had deferred tax liabilities, net of deferred tax assets, of $49.8 million. The deferred tax assets were partially offset by a valuation allowance of $0.9 million, resulting in a net deferred tax liability of $50.7 million. At September 30, 2022, deferred tax liabilities, net of deferred tax assets, were $35.9 million.
Horton based on executed purchase and sale agreements 18,900 18,200 Owned lots fully developed 5,500 5,300 29 Table of Contents 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.
Horton based on executed purchase and sale agreements 17,000 18,900 Owned lots fully developed 6,400 5,500 Liquidity and Capital Resources Liquidity At September 30, 2023, we had $616.0 million of cash and cash equivalents and $382.3 million of available borrowing capacity on our revolving credit facility. We have no senior note maturities until fiscal 2026.
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.
Other Note Payable In August 2023, we repaid the $12.5 million principal amount, together with accrued interest, of a note payable that was issued as part of a transaction to acquire real estate for development. The note was non-recourse, was secured by the underlying real estate and accrued interest of 4.0% per annum.
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.
Income Taxes Our income tax expense was $54.7 million and $57.0 million in fiscal 2023 and 2022, respectively, and our effective tax rate was 24.7% and 24.2% in those respective years. Our effective tax rate for both years includes an expense for state income taxes and nondeductible expenses.
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.
Earnest money deposits from customers are subject to mortgages that are secured by the real estate under contract. These mortgages expire when the earnest money is released to homebuilders as lots are sold.
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.
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 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.
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 within our real estate segment.
Additionally, cash provided by investing activities in both periods includes distributions received from our unconsolidated ventures. 31 Table of Contents 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.
Additionally, cash provided by investing activities in the prior year includes distributions received from our unconsolidated ventures. Financing Cash Flow Activities In fiscal 2023, net cash used in financing activities was $13.2 million compared to $1.2 million of cash provided by financing activities in the prior year.
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.
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. 34 Table of Contents 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 Table of Contents
Land and Lot Position Our land and lot position at September 30, 2022 and 2021 is summarized as follows: September 30, 2022 2021 Lots owned 61,800 64,400 Lots controlled through land lot purchase contracts 28,300 32,600 Total lots owned and controlled 90,100 97,000 Owned lots under contract to sell to D.R.
We had no unrecognized tax benefits at September 30, 2023 and September 30, 2022. 29 Table of Contents Land and Lot Position Our land and lot position at September 30, 2023 and 2022 is summarized as follows: September 30, 2023 September 30, 2022 Lots owned 52,400 61,800 Lots controlled through land and lot purchase contracts 26,800 28,300 Total lots owned and controlled 79,200 90,100 Owned lots under contract to sell to D.R.
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.
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%.
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.
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, if market conditions are challenging, we may have to reduce selling prices or may not be able to offset cost increases with higher selling prices.
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 Table of Contents 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.
Horton. 26 Table of Contents 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, 2023 and 2022.
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 in fiscal 2023 and 2022 included 252 and 943 lots that were sold for $28.2 million and $131.1 million, respectively, to a lot banker who expects to sell those lots to D.R. Horton at a future date. Tract sales and other revenue in fiscal 2023 primarily consisted of 820 tract acres sold to D.R.
Operating Results Components of income before taxes were as follows: Year Ended September 30, 2022 2021 (In millions) Revenues $ 1,519.1 $ 1,325.8 Cost of sales 1,195.1 1,096.6 Selling, general and administrative expense 93.6 68.4 Equity in earnings of unconsolidated ventures (1.2) (0.2) Gain on sale of assets (3.2) (2.5) Interest and other income (1.0) (1.2) Loss on extinguishment of debt — 18.1 Income before income taxes $ 235.8 $ 146.6 Lot Sales Residential lots sold consist of: Year Ended September 30, 2022 2021 Development projects 16,454 14,221 Lot banking projects 383 1,694 16,837 15,915 Deferred development projects 854 — 17,691 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 Table of Contents Revenues Revenues consist of: Year Ended September 30, 2022 2021 (In millions) Residential lot sales: Development projects $ 1,420.2 $ 1,182.6 Lot banking projects 33.5 116.1 Decrease (increase) in contract liabilities 1.8 (5.6) 1,455.5 1,293.1 Deferred development projects 26.8 — 1,482.3 1,293.1 Tract sales and other 36.8 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.
Operating Results Components of income before income taxes were as follows: Year Ended September 30, 2023 2022 (In millions) Revenues $ 1,436.9 $ 1,519.1 Cost of sales 1,132.8 1,195.1 Selling, general and administrative expense 97.7 93.6 Equity in earnings of unconsolidated ventures — (1.2) Gain on sale of assets (1.6) (3.2) Interest and other income (13.6) (1.0) Income before income taxes $ 221.6 $ 235.8 Lot Sales Residential lots sold consisted of: Year Ended September 30, 2023 2022 Development projects 14,040 16,454 Lot banking projects — 383 14,040 16,837 Deferred development projects — 854 14,040 17,691 Average sales price per lot (a) $ 90,900 $ 86,300 _______________ (a) Excludes lots sold from deferred development projects and any impact from change in contract liabilities. 27 Table of Contents Revenues Revenues consisted of: Year Ended September 30, 2023 2022 (In millions) Residential lot sales: Development projects $ 1,275.7 $ 1,420.2 Lot banking projects — 33.5 Decrease in contract liabilities — 1.8 1,275.7 1,455.5 Deferred development projects 29.0 26.8 1,304.7 1,482.3 Tract sales and other 132.2 36.8 Total revenues $ 1,436.9 $ 1,519.1 Residential lots sold and residential lot sales revenues in fiscal 2023 decreased compared to the prior year primarily as a result of the moderation in demand for finished lots that persisted throughout the first half of the current fiscal year as homebuilders had reduced their pace of new home starts to better match the moderation of housing demand caused by increases in mortgage interest rates and elevated inflationary pressures.
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 Table of Contents We capitalize interest costs throughout the development period (active real estate).
As a result of this process, we recorded real estate impairment charges of $19.4 million and $3.8 million during fiscal 2023 and 2022, respectively. During fiscal 2023 and 2022, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that we terminated or expect to terminate were $4.6 million and $8.7 million, respectively.
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.
Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 5.5% compared to 26.9% at September 30, 2022. Over the long term, we intend to maintain our ratio of net debt to total capital at approximately 40% or less.
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.
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.
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 Table of Contents 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.
Although our quarterly assessments reflect management’s best estimates, due to uncertainties in the estimation process, actual results could differ from such estimates. 33 Table of Contents 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.
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 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.
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.
Cost of sales related to tract sales and other revenues in fiscal 2023 and 2022 was $95.1 million and $20.3 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.
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 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.
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.
Horton for $35.7 million. 28 Table of Contents Cost of Sales, Real Estate Impairment and Land Option Charges and Interest Incurred Cost of sales in fiscal 2023 decreased compared to fiscal 2022 primarily due to the decrease in the number of lots sold.
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.
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 $32.8 million and $32.9 million in fiscal 2023 and 2022.
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.
Horton for $114.1 million and 68 tract acres sold to customers other than D.R. Horton for $12.8 million. Tract sales and other revenue in fiscal 2022 primarily consisted of 512 tract acres sold to customers other than D.R.
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.
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, 2023, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 33.7% compared to 37.1% at September 30, 2022.
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.
Investing Cash Flow Activities In fiscal 2023, net cash provided by investing activities was $0.3 million compared to $1.3 million in fiscal 2022. The cash provided by investing activities in both years consisted primarily of cash received from the sale of assets, partially offset by cash expenditures for property and equipment.
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.
At September 30, 2023, there were no borrowings outstanding and $27.7 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $382.3 million. 30 Table of Contents 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 annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1%. 30 Table of Contents 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.
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.
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 181.0 223.7 $ 1,275.7 $ 1,453.7 In fiscal 2022, we sold 854 deferred development lots to customers other than D.R. Horton for a total transaction price of $64.1 million.
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.
Interest charged to cost of sales in fiscal 2023 was 2.4% of total cost of sales (excluding impairments and land option charges) compared to 2.9% of total cost of sales in fiscal 2022. Selling, General and Administrative (SG&A) Expense and Other Income Statement Items SG&A expense in fiscal 2023 was $97.7 million compared to $93.6 million in fiscal 2022.
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.
At September 30, 2023, $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. 31 Table of Contents Operating Cash Flow Activities In fiscal 2023, net cash provided by operating activities was $364.1 million, which was primarily the result of our net income generated in the year adjusted for impairments and land option charges and the decrease in real estate, partially offset by the decreases in accounts payable and other accrued liabilities, accrued development costs and earnest money deposits on sales contracts.
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 Table of Contents Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment.
Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment.
Removed
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.
Added
Throughout the majority of fiscal 2022, demand for our residential lots remained strong. In the fourth quarter of fiscal 2022, we began to see weakening demand that persisted through the end of the second quarter of fiscal 2023 as mortgage interest rates increased substantially and inflationary pressures remained elevated.
Removed
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.
Added
In the second half of fiscal 2023, demand for finished lots improved as homebuilders increased their pace of new home starts to better match the stronger demand for new homes, particularly at affordable price points.
Removed
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.
Added
Residential lot sales to D.R. Horton and customers other than D.R. Horton, before deferred development projects, consisted of: Year Ended September 30, 2023 2022 Residential lots sold to D.R. Horton 12,249 14,895 Residential lots sold to customers other than D.R. Horton 1,791 1,942 14,040 16,837 Residential lot revenues from lot sales to D.R. Horton and customers other than D.R.
Removed
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.
Added
Horton, before deferred development projects and changes in contract liabilities, consisted of: Year Ended September 30, 2023 2022 (In millions) Revenues from lot sales to D.R. Horton $ 1,094.7 $ 1,230.0 Revenues from lot sales to customers other than D.R.
Removed
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.
Added
In fiscal 2023 and 2022, we recognized $29.0 million and $26.8 million of revenues as a result of our progress towards completion of our remaining unsatisfied performance obligations on these deferred development projects. Lots sold to customers other than D.R.
Removed
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.
Added
SG&A expense as a percentage of revenues was 6.8% and 6.2% in fiscal 2023 and 2022, respectively. Our SG&A expense primarily consisted of employee compensation and related costs. Our business operations employed 303 and 291 employees at September 30, 2023 and 2022, respectively.
Removed
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.
Added
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.
Removed
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.
Added
Letters of credit issued under the facility reduce the available borrowing capacity. The maturity date of the facility is October 28, 2026.
Removed
The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.
Added
In fiscal 2023, there were no shares of common stock issued under our at-the-market equity offering program.
Removed
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.
Added
The cash used in financing activities in the current year primarily consisted of the repayment of our other note payable.
Removed
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.
Added
Any changes to the estimated total development costs subsequent to the initial lot sales are generally allocated to the remaining lots. 32 Table of Contents 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.
Removed
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.
Added
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Commodity Price Risk We have no significant exposure to commodity price fluctuations. 36 Table of Contents
Foreign Currency Risk We have no exposure to foreign currency fluctuations. Commodity Price Risk We have no significant exposure to commodity price fluctuations. 36 Table of Contents
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.
At September 30, 2023, our fixed rate debt consisted of $400 million principal amount of 3.85% senior notes due May 2026 and $300 million principal amount of 5.0% senior notes due March 2028. Our variable rate debt consisted of the outstanding borrowings on our $410 million senior unsecured revolving credit facility, of which there were none at September 30, 2023.
Removed
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.

Other FOR 10-K year-over-year comparisons