Notes to Consolidated Financial Statements
(Unaudited)
Note 1 — Basis of Presentation
The accompanying unaudited consolidated 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 and include the accounts of Forestar Group Inc. ("Forestar") and all of its 100% owned, majority-owned and controlled subsidiaries, which are collectively referred to as the Company unless the context otherwise requires. The Company accounts for its investment in other entities in which it has significant influence over operations and financial policies using the equity method. All intercompany accounts, transactions and balances have been eliminated in consolidation. Noncontrolling interests in consolidated pass-through entities are recognized before income taxes. The transactions included in net income in the consolidated statements of operations are the same as those that would be presented in comprehensive income. Thus, the Company's net income equates to comprehensive income.
In 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, 2022, 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, 2022.
In October 2017, Forestar became a majority-owned subsidiary of D.R. Horton, Inc. ("D.R. Horton") by virtue of a merger with a wholly-owned subsidiary of D.R. Horton. Immediately following the merger, D.R. Horton owned 75% of the Company's outstanding common stock. In connection with the merger, the Company entered into certain agreements with D.R. Horton, including a Stockholder’s Agreement, a Master Supply Agreement and a Shared Services Agreement. D.R. Horton is considered a related party of Forestar under GAAP. As of March 31, 2023, D.R. Horton owned approximately 63% of the Company's outstanding common stock.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
Pending Accounting Standards
In October 2021, the FASB issued ASU 2021-08, which requires application of ASC 606, “Revenue from Contracts with Customers,” to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination. ASU 2021-08 creates an exception to the general recognition and measurement principle in ASC 805 and will result in recognition of contract assets and contract liabilities consistent with those recorded by the acquiree immediately before the acquisition date. The guidance is effective for the Company beginning October 1, 2023, with early adoption permitted. The Company is currently evaluating the impact of this guidance, and it is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.
Note 2 — Segment Information
The Company manages its operations through its real estate segment, which is its core business and generates substantially all of its revenues. The real estate segment primarily acquires land and installs infrastructure for single-family residential communities, and its revenues generally come from sales of residential single-family finished lots to local, regional and national homebuilders. The Company has other business activities for which the related assets and operating results are immaterial and therefore are included within the Company's real estate segment.
Note 3 — Real Estate
Real estate consists of:
| | | | | | | | | | | |
| March 31, 2023 | | September 30, 2022 |
| | (In millions) |
| Developed and under development projects | $ | 1,920.4 | | | $ | 1,932.6 | |
| Land held for future development | 67.6 | | | 89.8 | |
| $ | 1,988.0 | | | $ | 2,022.4 | |
In the six months ended March 31, 2023, the Company invested $47.2 million for the acquisition of residential real estate and $374.4 million for the development of residential real estate. At March 31, 2023 and September 30, 2022, land held for future development primarily consisted of undeveloped land which the Company has the contractual right to sell to D.R. Horton at a sales price equal to the carrying value of the land at the time of sale plus additional consideration of 12% to 16% per annum.
Each quarter, the Company reviews the performance and outlook for all of its real estate for indicators of potential impairment and performs detailed impairment evaluations and analyses when necessary. As of March 31, 2023, the Company performed detailed impairment evaluations on two real estate projects with an aggregate carrying value of $35.5 million and, as a result of this process, recorded impairment charges of $19.4 million during the three months ended March 31, 2023 to reduce the carrying value of the impaired real estate projects to fair value. During the three months ended March 31, 2022, impairment charges totaled $3.8 million.
In the three and six months ended March 31, 2023, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $0.9 million and $3.3 million, respectively, compared to $1.6 million and $2.2 million in the prior year periods. These land option charges and the impairments discussed above 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, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (In millions) |
| Residential lot sales | $ | 252.9 | | | $ | 409.0 | | | $ | 459.5 | | | $ | 813.1 | |
| Deferred development lot sales | 7.5 | | | 12.5 | | | 14.3 | | | 12.5 | |
| Tract sales and other | 41.1 | | | 0.1 | | | 44.4 | | | 3.6 | |
| $ | 301.5 | | | $ | 421.6 | | | $ | 518.2 | | | $ | 829.2 | |
In the three and six months ended March 31, 2023, the Company recognized $7.5 million and $14.3 million of revenues as a result of its progress towards completion of its remaining unsatisfied performance obligations on deferred development projects, compared to $12.5 million in both prior year periods.
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. In the first six months of fiscal 2023 and fiscal 2022, 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 in the three and six months ended March 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (In millions) |
| Capitalized interest, beginning of period | $ | 55.7 | | | $ | 52.9 | | | $ | 52.5 | | | $ | 53.7 | |
| Interest incurred | 8.2 | | | 8.1 | | | 16.4 | | | 16.3 | |
| Interest charged to cost of sales | (5.1) | | | (10.4) | | | (10.1) | | | (19.4) | |
| Capitalized interest, end of period | $ | 58.8 | | | $ | 50.6 | | | $ | 58.8 | | | $ | 50.6 | |
Note 6 — Other Assets, Accrued Expenses and Other Liabilities
The Company's other assets at March 31, 2023 and September 30, 2022 were as follows:
| | | | | | | | | | | |
| | March 31, 2023 | | September 30, 2022 |
| | (In millions) |
| Receivables, net | $ | 19.1 | | | $ | 11.4 | |
| Lease right of use assets | 7.5 | | | 7.5 | |
| Prepaid expenses | 16.8 | | | 18.9 | |
| Land purchase contract deposits | 7.3 | | | 10.0 | |
| Income taxes receivable | 1.2 | | | — | |
| Other assets | 3.6 | | | 1.8 | |
| $ | 55.5 | | | $ | 49.6 | |
The Company's accrued expenses and other liabilities at March 31, 2023 and September 30, 2022 were as follows:
| | | | | | | | | | | |
| | March 31, 2023 | | September 30, 2022 |
| | (In millions) |
| Accrued employee compensation and benefits | $ | 6.4 | | | $ | 11.6 | |
| Accrued property taxes | 2.8 | | | 6.2 | |
| Lease liabilities | 8.1 | | | 8.1 | |
| Accrued interest | 6.7 | | | 8.0 | |
| Contract liabilities | 11.4 | | | 16.1 | |
| Deferred income | 4.1 | | | 4.1 | |
| Income taxes payable | 1.2 | | | 8.2 | |
| Other accrued expenses | 4.5 | | | 6.8 | |
| Other liabilities | 2.9 | | | 1.0 | |
| $ | 48.1 | | | $ | 70.1 | |
Contract liabilities at March 31, 2023 and September 30, 2022 include $8.0 million and $12.0 million, respectively, related to the Company's remaining unsatisfied performance obligations on deferred development lot sales.
Note 7 — Debt
The Company's notes payable at their carrying amounts consist of the following:
| | | | | | | | | | | |
| | March 31, 2023 | | September 30, 2022 |
| | (In millions) |
| Unsecured: | | | |
| Revolving credit facility | $ | — | | | $ | — | |
3.85% senior notes due 2026 (1) | 397.0 | | | 396.5 | |
5.0% senior notes due 2028 (1) | 297.3 | | | 297.0 | |
| Other note payable | 12.5 | | | 12.5 | |
| $ | 706.8 | | | $ | 706.0 | |
______________
(1)Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $5.7 million and $6.5 million at March 31, 2023 and September 30, 2022, respectively.
Bank Credit Facility
The Company has a $410 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the total revolving credit commitments. 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 28, 2026. At March 31, 2023, there were no borrowings outstanding and $42.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $367.4 million.
The revolving credit facility is guaranteed by the Company’s wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries. The revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. At March 31, 2023, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.
Senior Notes
The Company has outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the "Securities Act"). The notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness and may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreements. The notes are guaranteed by each of the Company's subsidiaries to the extent such subsidiaries guarantee the Company's revolving credit facility.
The Company's $400 million principal amount of 3.85% senior notes (the "2026 notes") mature May 15, 2026 with interest payable semi-annually. On or after May 15, 2023, the 2026 notes may be redeemed at 101.925% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1%.
The Company's $300 million principal amount of 5.0% senior notes (the "2028 notes") mature March 1, 2028 with interest payable semi-annually. On or after March 1, 2023, the 2028 notes may be redeemed at 102.5% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2028 notes can be redeemed at par on or after March 1, 2026 through maturity. The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.
The indentures governing the senior notes require that, upon the occurrence of both a change of control and a rating decline (as defined in each indenture), the Company offer to purchase the applicable series of notes at 101% of their principal amount. If the Company or its restricted subsidiaries dispose of assets, under certain circumstances, the Company will be required to either invest the net cash proceeds from such asset sales in its business within a specified period of time, repay certain senior secured debt or debt of its non-guarantor subsidiaries, or make an offer to purchase a principal amount of such notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount. The indentures contain covenants that, among other things, restrict the ability of 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, 2023, 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, 2023.
Other Note Payable
The Company also has a note payable of $12.5 million that was issued as part of a transaction to acquire real estate for development. The note is non-recourse, is secured by the underlying real estate, accrues interest at 4.0% per annum and matures in October 2023.
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, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (In millions, except share and per share amounts) |
| Numerator: | | | | | | | |
| Net income attributable to Forestar Group Inc. | $ | 26.9 | | | $ | 47.8 | | | $ | 47.7 | | | $ | 88.3 | |
| Denominator: | | | | | | | |
| Weighted average common shares outstanding — basic | 49,943,373 | | | 49,820,937 | | | 49,916,927 | | | 49,752,153 | |
| Dilutive effect of stock-based compensation | 67,166 | | | 57,229 | | | 37,854 | | | 53,364 | |
| Total weighted average shares outstanding — diluted | 50,010,539 | | | 49,878,166 | | | 49,954,781 | | | 49,805,517 | |
| | | | | | | |
| Basic net income per common share attributable to Forestar Group Inc. | $ | 0.54 | | | $ | 0.96 | | | $ | 0.95 | | | $ | 1.77 | |
| Diluted net income per common share attributable to Forestar Group Inc. | $ | 0.54 | | | $ | 0.96 | | | $ | 0.95 | | | $ | 1.77 | |
Note 9 — Income Taxes
The Company’s income tax expense for the three and six months ended March 31, 2023 was $9.0 million and $16.1 million compared to $15.4 million and $28.4 million in the prior year periods. The effective tax rate was 25.1% and 25.2% for the three and six months ended March 31, 2023 compared to 24.4% and 24.3% in the prior year periods. The effective tax rate for all periods included an expense for state income taxes and nondeductible expenses.
At March 31, 2023, the Company had deferred tax liabilities, net of deferred tax assets, of $34.8 million. The deferred tax assets were partially offset by a valuation allowance of $0.9 million, resulting in a net deferred tax liability of $35.7 million. At September 30, 2022, deferred tax liabilities, net of deferred tax assets, were $35.9 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. 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.
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 in October 2021, registering $750 million of equity securities, of which $300 million was reserved for sales under the at-the-market equity offering program that became effective in November 2021. The Company issued no shares of common stock under its at-the-market equity offering program in the six months ended March 31, 2023. At March 31, 2023, $748.2 million remained available for issuance under the shelf registration statement, of which $298.2 million was reserved for sales under the at-the-market equity offering program.
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.
In the three months ended March 31, 2023, a total of 512,545 time-based RSUs were granted. The weighted average grant date fair value of these equity awards was $14.76 per unit, and they vest annually in equal installments over periods of three to five years. Total stock-based compensation expense related to the Company's RSUs for the three and six months ended March 31, 2023 was $1.9 million and $2.5 million compared to $1.6 million and $2.0 million in the prior year periods. Stock-based compensation expense in both the three and six months ended March 31, 2023 included $1.3 million of expense recognized for employees that were retirement eligible on the date of grant compared to $1.2 million in both prior year periods.
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, 2023, the Company had outstanding letters of credit of $42.6 million under the revolving credit facility and surety bonds of $635.1 million issued by third parties to secure performance under various contracts. The Company expects that its performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms. When the Company completes its performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving the Company with no continuing obligations. The Company has no material third-party guarantees.
Litigation
The Company is involved in various legal proceedings that arise from time to time in the ordinary course of business and believes that adequate reserves have been established for any probable losses. The Company does not believe that the outcome of any of these proceedings will have a significant adverse effect on its financial position, long-term results of operations or cash flows. It is possible, however, that charges related to these matters could be significant to the Company's results or cash flows in any one accounting period.
Land Purchase Contracts
The Company enters into land purchase contracts to acquire land for the development of residential lots. At March 31, 2023, the Company had total deposits of $7.3 million related to contracts to purchase land with a total remaining purchase price of approximately $293.5 million. The majority of land and lots under contract are currently expected to be purchased within two years. None of the land purchase contracts were subject to specific performance provisions at March 31, 2023.
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. In the six months ended March 31, 2023 and 2022, selling, general and administrative expense in the consolidated statements of operations included $1.9 million and $2.0 million for these shared services, $4.2 million and $3.3 million reimbursed to D.R. Horton for the cost of health insurance and other employee benefits and $0.9 million and $1.4 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, 2023 and September 30, 2022, the Company owned approximately 57,800 and 61,800 residential lots, of which D.R. Horton had the following involvement.
| | | | | | | | | | | |
| | March 31, 2023 | | September 30, 2022 |
| | (Dollars in millions) |
| Residential lots under contract to sell to D.R. Horton | 14,200 | | | 17,800 | |
| Residential lots subject to right of first offer with D.R. Horton | 17,300 | | | 18,900 | |
| Earnest money deposits from D.R. Horton for lots under contract | $ | 122.4 | | | $ | 130.1 | |
| | | |
| Remaining sales price of lots under contract with D.R. Horton | $ | 1,246.7 | | | $ | 1,389.7 | |
In the three months ended March 31, 2023 and 2022, the Company sold 2,979 and 5,788 residential lots, and lot sales revenues were $252.9 million and $409.0 million. In the six months ended March 31, 2023 and 2022, the Company sold 5,242 and 10,304 residential lots, and lot sales revenues were $459.5 million and $813.1 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, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (Dollars in millions) |
| Residential lots sold to D.R. Horton | 2,666 | | | 4,771 | | | 4,760 | | | 8,785 | |
| Residential lot sales revenues from sales to D.R. Horton | $ | 219.9 | | | $ | 390.2 | | | $ | 407.0 | | | $ | 718.2 | |
| Tract acres sold to D.R. Horton | 379 | | | — | | | 379 | | | — | |
| Tract sales revenues from sales to D.R. Horton | $ | 32.5 | | | $ | — | | | $ | 32.5 | | | $ | — | |
In addition, the net impact of the change in contract liabilities increased revenues on lot sales to D.R. Horton by $0.7 million in the three months ended March 31, 2023 and decreased revenues on lot sales to D.R. Horton by $0.5 million in the three months ended March 31, 2022. The net impact of the change in contract liabilities increased revenues on lot sales to D.R. Horton by $3.4 million and $1.6 million in the six months ended March 31, 2023 and 2022, respectively.
In the three and six months ended March 31, 2023, the Company reimbursed D.R. Horton approximately $5.7 million and $10.4 million for pre-acquisition and other due diligence and development costs related to land purchase contracts identified by D.R. Horton that the Company independently underwrote and closed. In the six months ended March 31, 2023, the Company reimbursed D.R. Horton approximately $0.1 million for previously paid earnest money. In the three and six months ended March 31, 2022, the Company reimbursed D.R. Horton approximately $2.7 million and $5.4 million for previously paid earnest money and $16.2 million and $37.8 million for pre-acquisition and other due diligence and development costs related to land purchase contracts identified by D.R. Horton that the Company independently underwrote and closed.
In the three and six months ended March 31, 2023 and 2022, the Company paid D.R. Horton $0.3 million and $0.5 million for land development services compared to $0.7 million and $1.6 million for these services in the prior year periods. These amounts are included in cost of sales in the Company’s consolidated statements of operations.
At March 31, 2023 and September 30, 2022, land held for future development primarily consisted of undeveloped land which the Company has the contractual right to sell to D.R. Horton at a sales price equal to the carrying value of the land at the time of sale plus additional consideration of 12% to 16% per annum.
At March 31, 2023 and September 30, 2022, accrued expenses and other liabilities on the Company's consolidated balance sheets included $3.0 million and $3.2 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.
Note 13 — Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants. In arriving at a fair value measurement, the Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of inputs used to establish fair value are the following:
•Level 1 — Quoted prices in active markets for identical assets or liabilities;
•Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company elected not to use the fair value option for cash and cash equivalents and debt.
Non-financial assets measured at fair value on a non-recurring basis primarily include real estate assets, which the Company reviews for indicators of potential impairment and performs impairment evaluations when necessary. The following table summarizes the Company’s assets measured at fair value on a nonrecurring basis at March 31, 2023 and September 30, 2022:
| | | | | | | | | | | |
| Fair Value at |
| March 31,
2023 | | September 30,
2022 |
| Level 3 |
| (in millions) |
Real Estate (a) | $ | 16.1 | | | $ | — | |
_____________________
(a) The fair value included in the table above represents only the assets whose carrying value was adjusted to fair value as of March 31, 2023. The fair value was determined using estimated future cash flows of each project discounted at a rate of 16%
.
For the financial assets and liabilities that the Company does not reflect at fair value, the following tables present both their respective carrying value and fair value at March 31, 2023 and September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value at March 31, 2023 |
| | Carrying Value | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (in millions) |
Cash and cash equivalents (a) | $ | 286.7 | | | $ | 286.7 | | | $ | — | | | $ | — | | | $ | 286.7 | |
Debt (b) (c) | 706.8 | | | — | | | 628.9 | | | 12.5 | | | 641.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value at September 30, 2022 |
| Carrying Value | | Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
Cash and cash equivalents (a) | $ | 264.8 | | | $ | 264.8 | | | $ | — | | | $ | — | | | $ | 264.8 | |
Debt (b) (c) | 706.0 | | | — | | | 570.7 | | | 12.5 | | | 583.2 | |
_____________________
(a) The fair values of cash and cash equivalents approximate their carrying values due to their short-term nature and are classified as Level 1 within the fair value hierarchy.
(b) At March 31, 2023 and September 30, 2022, debt primarily consisted of the Company's senior notes. The fair value of the senior notes is determined based on quoted market prices in markets that are not active, which is classified as Level 2 within the fair value hierarchy.
(c) The fair values of the Company's other note payable approximates its carrying value due to its short-term nature and is classified as Level 3 within the fair value hierarchy.
