Related Party Disclosures

12 Months Ended

Sep. 30, 2020

Related Party Transactions

The Company has a Shared Services Agreement with D.R. Horton whereby D.R. Horton provides the Company with certain administrative, compliance, operational and procurement services. During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company paid D.R. Horton $5.0 million, $2.1 million and $0.9 million for these shared services and $2.7 million, $1.4 million and $0.9 million for the cost of health insurance and other employee benefits. These expenses are included in selling, general and administrative expense in the consolidated statements of operations.

The Company is subject to a Tax Sharing Agreement with D.R. Horton. The agreement sets forth an equitable method for reimbursements of tax liabilities or benefits between the Company and D.R. Horton related to state and local income, margin or franchise tax returns that are filed on a unitary basis with D.R. Horton. In accordance with the agreement, the Company reimbursed D.R. Horton $0.2 million in fiscal 2020 for its tax expense generated in fiscal 2019, and D.R. Horton reimbursed the Company $0.4 million in fiscal 2019 for its tax benefit generated in the nine months ended September 30, 2018.

Under the terms of the Master Supply Agreement with D.R. Horton, both companies identify land development opportunities to expand Forestar's portfolio of assets. At September 30, 2020 and 2019, the Company owned or controlled through purchase contracts approximately 60,500 and 38,300 residential lots, of which D.R. Horton had the following involvement.


	September 30,
	2020		2019
	(Dollars in millions)
Residential lots under contract to sell to D.R. Horton	14,000		12,800
Residential lots subject to right of first offer with D.R. Horton	16,400		10,600
Earnest money deposits from D.R. Horton for lots under contract	$	92.2	$	88.7
Earnest money notes from D.R. Horton for lots under contract	$	4.8	$	—
Remaining purchase price of lots under contract with D.R. Horton	$	1,022.2	$	953.8

During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company's residential lot sales totaled 10,373, 4,132 and 1,024, and lot sales revenues were $880.3 million, $351.7 million and $72.0 million. Lot and land sales to D.R. Horton during those periods were as follows.


	Year Ended September 30,				Nine Months Ended September 30, 2018
	2020		2019
	(Dollars in millions)
Residential single-family lots sold to D.R. Horton	10,164		3,728		642
Residential lot sales revenues from sales to D.R. Horton	$	859.7	$	311.7	$	43.6
Residential tract acres sold to D.R. Horton	143		290		79
Residential tract sales revenues from sales to D.R. Horton	$	25.6	$	10.9	$	2.0

In addition, the net impact of the change in contract liabilities or revenue deferrals increased revenues on lot sales to D.R. Horton by $2.3 million and $4.0 million in fiscal 2020 and 2019, respectively, and decreased revenues by $6.4 million in the nine months ended September 30, 2018. During the nine months ended September 30, 2018, a venture in which the Company owns a 37.5% interest sold 40 residential tract acres to D.R. Horton for $7.8 million. The Company's share of these earnings was $2.5 million, which is included in equity in earnings of unconsolidated ventures in its consolidated statements of operations.

During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company reimbursed D.R. Horton approximately $27.0 million, $34.5 million and $21.2 million for previously paid earnest money and $36.3 million, $13.1 million and $15.2 million for pre-acquisition and other due diligence and development costs related to land purchase contracts whereby D.R. Horton assigned its rights under these land purchase contracts to the Company.

During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company paid D.R. Horton $6.2 million, $2.4 million and $0.6 million for land development services. These amounts are included in cost of sales in the Company’s consolidated statements of operations.

At September 30, 2020 and 2019, undeveloped land was $5.4 million and $17.1 million. Undeveloped land primarily consists of undeveloped land which the Company has the contractual right to sell to D.R. Horton within approximately one year of its purchase or, if D.R. Horton elects, at an earlier date, at a sales price equal to the carrying value of the land at the time of sale plus additional consideration of 16% per annum. In fiscal 2019, the Company sold approximately 63 acres of undeveloped land to a third party for approximately $44.2 million. In conjunction with the sale, the Company paid D.R. Horton a fee of approximately $2.1 million to terminate an existing purchase and sale agreement whereby D.R. Horton had the option to purchase the property at a fixed price. This termination fee is included in cost of sales in the Company's consolidated statements of operations.

At September 30, 2020 and 2019, accrued expenses and other liabilities on the Company's consolidated balance sheets included $8.4 million and $2.2 million owed to D.R. Horton for any accrued and unpaid shared service charges, land purchase contract deposits and due diligence and other development cost reimbursements.