for-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From To

Commission File Number: 001-33662

FORESTAR GROUP INC.

(Exact Name of Registrant as Specified in Its Charter)


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

2221 E. Lamar Blvd., Suite 790

Arlington, Texas 76006

(Address of Principal Executive Offices, including Zip Code)

(817) 769-1860

(Registrant’s telephone number, including area code)

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $1.00 per share

FOR

New York Stock Exchange

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

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

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

Large accelerated filer ☐

Accelerated filer

☒

Non-accelerated filer ¨

Smaller reporting company

☐

Emerging growth company

☐

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

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

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

Common Stock, $1.00 par value -- 49,124,801 shares as of April 21, 2021

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FORESTAR GROUP INC.

TABLE OF CONTENTS


			Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Statements of Total Equity			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			23
Item 4. Controls and Procedures			23
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			24
Item 6. Exhibits			24
SIGNATURE			25

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

FORESTAR GROUP INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2021		September 30, 2020
	(In millions, except share data)
ASSETS
Cash and cash equivalents	$	167.2	$	394.3
Real estate	1,698.6		1,309.7
Investment in unconsolidated ventures	0.9		3.6
Income taxes receivable	—		6.3
Property and equipment, net	2.0		1.1
Other assets	30.2		24.9
Total assets	$	1,898.9	$	1,739.9
LIABILITIES
Accounts payable	$	39.8	$	29.2
Earnest money on sales contracts	140.2		98.3
Deferred tax liability, net	7.4		5.7
Accrued expenses and other liabilities	112.4		93.8
Debt	654.6		641.1
Total liabilities	954.4		868.1
Commitments and contingencies (Note 11)
EQUITY
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 49,124,801 and 48,061,921 shares issued and outstanding at March 31, 2021 and September 30, 2020, respectively	49.1		48.1
Additional paid-in capital	625.3		603.9
Retained earnings	269.3		218.9
Stockholders' equity	943.7		870.9
Noncontrolling interests	0.8		0.9
Total equity	944.5		871.8
Total liabilities and equity	$	1,898.9	$	1,739.9

See accompanying notes to consolidated financial statements.

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FORESTAR GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
	(In millions, except per share amounts)
Revenues	$	287.1	$	159.1	$	594.2	$	406.4
Cost of sales	233.8		136.6		496.7		353.2
Selling, general and administrative expense	16.3		11.2		31.8		21.7
Equity in earnings of unconsolidated ventures	(0.1)		(0.3)		(0.3)		(0.8)
Gain on sale of assets	—		(0.3)		—		(0.1)
Interest and other income	(0.5)		(1.8)		(0.8)		(3.4)
Income before income taxes	37.6		13.7		66.8		35.8
Income tax expense	9.2		3.3		16.3		8.7
Net income	28.4		10.4		50.5		27.1
Net income attributable to noncontrolling interests	—		0.8		0.1		0.7
Net income attributable to Forestar Group Inc.	$	28.4	$	9.6	$	50.4	$	26.4

Basic net income per common share attributable to Forestar Group Inc.	$	0.59	$	0.20	$	1.04	$	0.55
Weighted average number of common shares	48.4		48.0		48.3		48.0

Diluted net income per common share attributable to Forestar Group Inc.	$	0.59	$	0.20	$	1.04	$	0.55
Adjusted weighted average number of common shares	48.5		48.1		48.4		48.1

See accompanying notes to consolidated financial statements.

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FORESTAR GROUP INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY

(Unaudited)


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


	Common Stock		Additional Paid-in Capital		Retained Earnings		Non-controlling Interests		Total Equity
	(In millions, except share data)
Balances at September 30, 2019 (47,997,366 shares)	$	48.0	$	602.2	$	158.1	$	0.6	$	808.9
Net income (loss)	—		—		16.9		(0.1)		16.8
Stock issued under employee benefit plans (27,993 shares)	—		—		—		—		—
Cash paid for shares withheld for taxes	—		(0.2)		—		—		(0.2)
Stock-based compensation expense	—		0.5		—		—		0.5
Distributions to noncontrolling interests	—		—		—		(0.4)		(0.4)
Balances at December 31, 2019 (48,025,359 shares)	$	48.0	$	602.5	$	175.0	$	0.1	$	825.6
Net income	—		—		9.6		0.8		10.4
Stock-based compensation expense	—		0.8		—		—		0.8
Balances at March 31, 2020 (48,025,359 shares)	$	48.0	$	603.3	$	184.6	$	0.9	$	836.8

See accompanying notes to consolidated financial statements.

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FORESTAR GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended March 31,
	2021		2020
	(In millions)
OPERATING ACTIVITIES
Net income	$	50.5	$	27.1
Adjustments:
Depreciation and amortization	1.5		3.4
Deferred income taxes	2.2		9.4
Equity in earnings of unconsolidated ventures	(0.3)		(0.8)
Stock-based compensation expense	1.2		1.3
Land option charges	0.9		0.4
Gain on sale of assets	—		(0.1)
Changes in operating assets and liabilities:
Increase in real estate	(377.3)		(170.7)
Decrease in income taxes receivable	6.3		0.7
Increase in other assets	(6.5)		(4.5)
Increase (decrease) in accounts payable and other accrued liabilities	29.2		(1.0)
Increase in earnest money on sales contracts	42.8		11.0
Net cash used in operating activities	(249.5)		(123.8)
INVESTING ACTIVITIES
Expenditures for property, equipment and other	(0.2)		(0.2)
Return of investment in unconsolidated ventures	2.2		2.4
Proceeds from sale of assets	—		1.3
Net cash provided by investing activities	2.0		3.5
FINANCING ACTIVITIES
Proceeds from debt	—		300.0
Repayments of debt	—		(118.9)
Deferred financing fees	—		(4.8)
Issuance of common stock	23.3		—
Purchase of noncontrolling interest	(2.4)		—
Distributions to noncontrolling interests, net	(0.1)		(0.4)
Cash paid for shares withheld for taxes	(0.4)		(0.2)
Net cash provided by financing activities	20.4		175.7
Net (decrease) increase in cash and cash equivalents	(227.1)		55.4
Cash and cash equivalents at beginning of period	394.3		382.8
Cash and cash equivalents at end of period	$	167.2	$	438.2
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Note payable issued for real estate	$	12.5	$	—

See accompanying notes to consolidated financial statements.

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FORESTAR GROUP INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1—Basis of Presentation

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

The financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these financial statements reflect all adjustments considered necessary to fairly state the results for the interim periods shown, including normal recurring accruals and other items. These financial statements, including the consolidated balance sheet as of September 30, 2020, which was derived from audited financial statements, do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2020. Certain items have been reclassified in the prior year financial statements to conform to the presentation and classifications used in the current year.

In October 2017, Forestar became a majority-owned subsidiary of D.R. Horton, Inc. (D.R. Horton) by virtue of a merger with a wholly-owned subsidiary of D.R. Horton. Immediately following the merger, D.R. Horton owned 75% of the Company's outstanding common stock. In connection with the merger, the Company entered into certain agreements with D.R. Horton including a Stockholder’s Agreement, a Master Supply Agreement, and a Shared Services Agreement. D.R. Horton is considered a related party of Forestar under GAAP. At March 31, 2021, D.R. Horton owned approximately 64% of the Company's outstanding common stock.

Use of Estimates

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

Pending Accounting Standards

In December 2019, the FASB issued ASU 2019-12 related to simplifying the accounting for income taxes. The guidance is effective for the Company beginning October 1, 2021, although early adoption is permitted. The Company is currently evaluating the impact of this guidance, and it is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

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

Note 2—Segment Information

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

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Note 3—Real Estate

Real estate consists of:


	March 31, 2021		September 30, 2020
	(In millions)
Developed and under development projects	$	1,643.1	$	1,304.3
Undeveloped land	55.5		5.4
	$	1,698.6	$	1,309.7

In the six months ended March 31, 2021, the Company invested $484.6 million for the acquisition of residential real estate and $369.4 million for the development of residential real estate. At March 31, 2021 and September 30, 2020, undeveloped land primarily consists of undeveloped land which the Company has the contractual right to sell to D.R. Horton at a sales price equal to the carrying value of the land at the time of sale plus additional consideration of 12% to 16% per annum.

Each quarter, the Company reviews the performance and outlook for all of its real estate for indicators of potential impairment and performs detailed impairment evaluations and analyses when necessary. As a result of this process, there were no real estate impairment charges recorded for any period presented in the consolidated statements of operations.

During the three and six months ended March 31, 2021, pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $0.6 million and $0.9 million, respectively, compared to $0.1 million and $0.4 million in the prior year periods. Real estate impairments and land option charges are included in cost of sales in the consolidated statements of operations.

Note 4—Revenues

Revenues consist of:


	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
	(In millions)
Residential lot sales	$	280.2	$	156.4	$	587.1	$	373.5
Tract sales and other	6.9		2.7		7.1		32.9
	$	287.1	$	159.1	$	594.2	$	406.4

Note 5—Capitalized Interest

The Company capitalizes interest costs to real estate throughout the development period (active real estate). Capitalized interest is charged to cost of sales as the related real estate is sold to the buyer. During periods in which the Company’s active real estate is lower than its debt level, a portion of the interest incurred is reflected as interest expense in the period incurred. During the first six months of fiscal 2021 and fiscal year 2020, the Company’s active real estate exceeded its debt level, and all interest incurred was capitalized to real estate.

The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the three and six months ended March 31, 2021 and 2020.


	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
	(In millions)
Capitalized interest, beginning of period	$	51.0	$	29.8	$	48.7	$	23.7
Interest incurred	11.5		10.6		23.0		20.5
Interest charged to cost of sales	(8.2)		(2.5)		(17.4)		(6.3)
Capitalized interest, end of period	$	54.3	$	37.9	$	54.3	$	37.9

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Note 6—Other Assets, Accrued Expenses and Other Liabilities

The Company's other assets at March 31, 2021 and September 30, 2020 were as follows:


	March 31, 2021		September 30, 2020
	(In millions)
Receivables, net	$	3.2	$	0.4
Earnest money notes receivable on sales contracts	2.6		4.8
Lease right of use assets	4.9		3.6
Prepaid expenses	5.3		4.9
Land purchase contract deposits	9.9		5.5
Other assets	4.3		5.7
	$	30.2	$	24.9

The Company's accrued expenses and other liabilities at March 31, 2021 and September 30, 2020 were as follows:


	March 31, 2021		September 30, 2020
	(In millions)
Accrued employee compensation and benefits	$	5.9	$	6.2
Accrued property taxes	1.8		3.8
Lease liabilities	5.3		3.8
Accrued interest	14.3		14.0
Contract liabilities	0.2		0.2
Deferred income	9.3		9.3
Income taxes payable	2.8		0.5
Accrued development costs	68.2		44.4
Other accrued expenses	3.4		10.2
Other liabilities	1.2		1.4
	$	112.4	$	93.8

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Note 7—Debt

The Company's notes payable at their carrying amounts consist of the following:


	March 31, 2021		September 30, 2020
	(In millions)
Unsecured:
Revolving credit facility	$	—	$	—
8.0% senior notes due 2024 (1)	345.9		345.2
5.0% senior notes due 2028 (1)	296.2		295.9
Other note payable	12.5		—
	$	654.6	$	641.1

______________

(1)Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $7.9 million and $8.9 million at March 31, 2021 and September 30, 2020, respectively.

Bank Credit Facility

The Company has a $380 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $570 million, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the revolving credit commitment. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of the Company's real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. The maturity date of the facility is October 2, 2022. There were no borrowings or repayments under the facility during the six months ended March 31, 2021. At March 31, 2021, there were no borrowings outstanding and $46.0 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $334.0 million.

The revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require a minimum level of tangible net worth, a minimum level of liquidity, and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. At March 31, 2021, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

In April 2021, the revolving credit facility was amended to extend its maturity date from October 2, 2022 to April 16, 2025. The maturity date may be extended subject to the approval of lenders holding a majority of the commitments. The revolving credit facility size was increased to $410 million 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.

Senior Notes

The Company has outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness and may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreements. The notes are guaranteed by each of the Company's subsidiaries to the extent such subsidiaries guarantee the Company's revolving credit facility.

The Company's $300 million principal amount of 5.0% senior notes mature March 1, 2028 with interest payable semi-annually. On or after March 1, 2023, the 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 notes can be redeemed at par on or after March 1, 2026 through maturity. The annual effective interest rate of the notes after giving effect to the amortization of financing costs is 5.2%.

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The Company's $350 million principal amount of 8.0% senior notes mature April 15, 2024 with interest payable semi-annually. On or after April 15, 2021, the notes may be redeemed at 104% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the notes can be redeemed at par on or after April 15, 2023 through maturity. The annual effective interest rate of the notes after giving effect to the amortization of financing costs is 8.5%.

In April 2021, the Company issued $400 million principal amount of 3.85% senior notes that mature May 15, 2026 with interest payable semi-annually. On or after May 15, 2023, the notes may be redeemed at 101.925% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest rate of the notes after giving effect to the amortization of financing costs is 4.1%. A portion of the net proceeds from the issuance of the notes will be used to redeem the $350 million principal amount of 8.0% senior notes due April 15, 2024 in full, and the remainder of the proceeds will be used for general corporate purposes.

In April 2021, the Company delivered notice for the full redemption of its $350 million principal amount of 8.0% senior notes outstanding. The redemption price of $365.6 million includes a call premium of $14.0 million and accrued and unpaid interest of $1.6 million. The Company expects to recognize a loss on extinguishment of debt upon the redemption of the notes. The notes are scheduled to be redeemed May 7, 2021.

The indentures governing the senior notes require that, upon the occurrence of both a change of control and a rating decline (each as defined in the respective indenture), the Company offer to purchase the notes at 101% of their principal amount. If the Company or its restricted subsidiaries dispose of assets, under certain circumstances, the Company will be required to either invest the net cash proceeds from such asset sales in its business within a specified period of time, repay certain senior secured debt or debt of its non-guarantor subsidiaries, or make an offer to purchase a principal amount of the notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount. The indentures contain covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments; incur additional debt or issue mandatorily redeemable equity; incur liens on assets; merge or consolidate with another company or sell or otherwise dispose of all or substantially all of the Company’s assets; enter into transactions with affiliates; and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments. At March 31, 2021, the Company was in compliance with all of the limitations and restrictions associated with its senior note obligations.

Effective April 30, 2020, the Board of Directors authorized the repurchase of up to $30 million of the Company’s debt securities. The authorization has no expiration date. All of the $30 million authorization was remaining at March 31, 2021.

Other Note Payable

The Company also has a note payable of $12.5 million that was issued as part of a transaction to acquire real estate for development. The note is non-recourse and is secured by the underlying real estate, accrues interest at 4.0% per annum and matures in October 2023.

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Note 8—Earnings per Share

The computations of basic and diluted earnings per share are as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
	(In millions, except share and per share amounts)
Numerator:
Net income attributable to Forestar Group Inc.	$	28.4	$	9.6	$	50.4	$	26.4
Denominator:
Weighted average common shares outstanding — basic	48,412,213		48,025,359		48,270,718		48,018,246
Dilutive effect of stock-based compensation	97,711		57,592		80,692		56,439
Total weighted average shares outstanding — diluted	48,509,924		48,082,951		48,351,410		48,074,685

Basic net income per common share attributable to Forestar Group Inc.	$	0.59	$	0.20	$	1.04	$	0.55
Diluted net income per common share attributable to Forestar Group Inc.	$	0.59	$	0.20	$	1.04	$	0.55

Note 9—Income Taxes

The Company’s income tax expense for the three and six months ended March 31, 2021 was $9.2 million and $16.3 million compared to $3.3 million and $8.7 million in the prior year periods. The effective tax rate was 24.5% and 24.4% for the three and six months ended March 31, 2021 compared to 24.1% and 24.3% in the prior year periods. The effective tax rate for all periods includes an expense for state income taxes and nondeductible expenses and a benefit related to noncontrolling interests.

At March 31, 2021, the Company had deferred tax liabilities, net of deferred tax assets, of $6.1 million. The deferred tax assets were partially offset by a valuation allowance of $1.3 million, resulting in a net deferred tax liability of $7.4 million. At September 30, 2020, deferred tax liabilities, net of deferred tax assets, were $4.2 million. The deferred tax assets were partially offset by a valuation allowance of $1.5 million, resulting in a net deferred tax liability of $5.7 million. The valuation allowance for both periods was recorded because it is more likely than not that a portion of the Company's state deferred tax assets, primarily net operating loss (NOL) carryforwards, will not be realized because the Company is no longer operating in some states or the NOL carryforward periods are too brief to realize the related deferred tax asset. The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on its deferred tax assets. Any reversal of the valuation allowance in future periods will impact the effective tax rate.

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Note 10—Stockholders' Equity and Stock-Based Compensation

Stockholders' Equity

The Company has an effective shelf registration statement filed with the Securities and Exchange Commission (SEC) in September 2018 registering $500 million of equity securities, of which $100 million is reserved for sales under its at-the-market equity offering program that became effective in August 2020. During the three months ended March 31, 2021, the Company issued 1.0 million shares of common stock under its at-the-market equity offering program for proceeds of $23.3 million, net of commissions and other issuance costs. At March 31, 2021, $370.6 million remained available for issuance under the shelf registration statement, of which $76.3 million is reserved for sales under the Company's at-the-market equity offering program.

Restricted Stock Units (RSUs)

The Company’s Stock Incentive Plan provides for the granting of stock options and restricted stock units to executive officers, other key employees and non-management directors. Restricted stock unit awards may be based on performance (performance-based) or on service over a requisite time period (time-based). RSU equity awards represent the contingent right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are satisfied. The RSUs have no voting rights until vested.

During the six months ended March 31, 2021, a total of 232,320 time-based RSUs were granted. The weighted average grant date fair value of these equity awards was $23.12 per unit, and they vest annually in equal installments over a period of three to five years. Total stock-based compensation expense related to the Company's restricted stock units for the three and six months ended March 31, 2021 was $0.9 million and $1.2 million compared to $0.8 million and $1.3 million in the prior year periods. Stock-based compensation expense related to employees that were retirement eligible on the date of grant in the six months ended March 31, 2021 and 2020 was $0.7 million and $0.5 million, respectively.

Note 11—Commitments and Contingencies

Contractual Obligations and Off-Balance Sheet Arrangements

In support of the Company's residential lot development business, it issues letters of credit under the revolving credit facility and has a surety bond program that provides financial assurance to beneficiaries related to the execution and performance of certain development obligations. At March 31, 2021, the Company had outstanding letters of credit of $46.0 million under the revolving credit facility and surety bonds of $368.6 million issued by third parties to secure performance under various contracts. The Company expects that its performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms. When the Company completes its performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving the Company with no continuing obligations. The Company has no material third-party guarantees.

Litigation

The Company is involved in various legal proceedings that arise from time to time in the ordinary course of business and believes that adequate reserves have been established for any probable losses. The Company does not believe that the outcome of any of these proceedings will have a significant adverse effect on its financial position, long-term results of operations or cash flows. It is possible, however, that charges related to these matters could be significant to the Company's results or cash flows in any one accounting period.

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Note 12—Related Party Transactions

The Company has a Shared Services Agreement with D.R. Horton whereby D.R. Horton provides the Company with certain administrative, compliance, operational and procurement services. During the six months ended March 31, 2021 and 2020, selling, general and administrative expense in the consolidated statements of operations includes $2.0 million and $2.6 million for these shared services, $1.8 million and $1.0 million for the cost of health insurance and other employee benefits and $1.4 million and $1.3 million for other corporate and administrative expenses paid by D.R. Horton on behalf of the Company.

Under the terms of the Master Supply Agreement with D.R. Horton, both companies identify land development opportunities to expand Forestar's portfolio of assets. At March 31, 2021 and September 30, 2020, the Company owned or controlled through purchase contracts approximately 84,500 and 60,500 residential lots, of which D.R. Horton had the following involvement.


	March 31, 2021		September 30, 2020
	(Dollars in millions)
Residential lots under contract to sell to D.R. Horton	20,400		14,000
Residential lots subject to right of first offer with D.R. Horton	16,700		16,400
Earnest money deposits from D.R. Horton for lots under contract	$	134.1	$	92.2
Earnest money notes from D.R. Horton for lots under contract	$	2.6	$	4.8
Remaining purchase price of lots under contract with D.R. Horton	$	1,505.3	$	1,022.2

In the three months ended March 31, 2021 and 2020, the Company's residential lot sales totaled 3,588 and 1,951, and lot sales revenues were $280.2 million and $156.4 million. In the six months ended March 31, 2021 and 2020, the Company's residential lot sales totaled 7,155 and 4,373, and lot sales revenues were $587.1 million and $373.5 million. Lot and land sales to D.R. Horton during those periods were as follows.


	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
	(Dollars in millions)
Residential single-family lots sold to D.R. Horton	3,358		1,906		6,747		4,296
Residential lot sales revenues from sales to D.R. Horton	$	265.6	$	151.2	$	559.6	$	366.8
Tract acres sold to D.R. Horton	14		—		14		36
Tract sales revenues from sales to D.R. Horton	$	3.0	$

SEC Form 10-Q filed by Forestar Group Inc