UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~_________________________________________________________~~

FORM 10-Q

~~_________________________________________________________~~



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

For the ~~quarterly period ended~~ ~~September 30, 2017~~Quarterly Period Ended December 31, 2021



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

For the ~~transition period from~~ to 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.)

~~6300 Bee Cave Road, Building Two,~~2221 E. Lamar Blvd., Suite ~~500, Austin,~~790

Arlington, Texas ~~78746~~76006

(Address of Principal Executive Offices, ~~Including~~including Zip Code)

~~(512) 433-5200~~(817) 769-1860

(Registrant’s ~~Telephone Number, Including Area Code)~~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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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. ~~(Check one):~~

Large accelerated filer ☐

Accelerated filer

☒

Non-accelerated filer¨

~~(Do not check if a smaller reporting company)~~

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 -- 49,675,768 shares as of January 21, 2022



~~Title of Each Class~~		~~Number of Shares Outstanding as of October 31, 2017~~
~~Common Stock, par value $1.00 per share~~	~~41,938,936~~

Table of Contents

FORESTAR GROUP INC.

TABLE OF CONTENTS

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.Financial Statements

FORESTAR GROUP INC.

~~Consolidated Balance Sheets~~CONSOLIDATED BALANCE SHEETS

(Unaudited)


	December 31, 2021		September 30, 2021
	(In millions, except share data)
ASSETS
Cash and cash equivalents	$	162.5	$	153.6
Real estate	1,960.1		1,905.2
Investment in unconsolidated ventures	0.5		0.9
Property and equipment, net	4.2		2.9
Other assets	35.2		39.1
Total assets	$	2,162.5	$	2,101.7
LIABILITIES
Accounts payable	$	53.5	$	47.4
Accrued development costs	116.7		104.5
Earnest money on sales contracts	141.9		148.3
Deferred tax liability, net	24.2		24.4
Accrued expenses and other liabilities	62.9		56.7
Debt	704.9		704.5
Total liabilities	1,104.1		1,085.8
Commitments and contingencies (Note 11)
EQUITY
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 49,675,768 and 49,580,389 shares issued and outstanding at December 31, 2021 and September 30, 2021, respectively	49.7		49.6
Additional paid-in capital	638.1		636.2
Retained earnings	369.6		329.1
Stockholders' equity	1,057.4		1,014.9
Noncontrolling interests	1.0		1.0
Total equity	1,058.4		1,015.9
Total liabilities and equity	$	2,162.5	$	2,101.7

Third
Quarter-End Year-End
2017 2016
(In thousands, except share data)
ASSETS
Cash and cash equivalents $ 395,359
$ 265,798
Real estate 267,251
293,003
Assets of discontinued operations —
14
Assets held for sale 14,453
30,377
Investment in unconsolidated ventures 72,920
77,611
Receivables, net 13,004
8,931
Income taxes receivable 23,818
10,867
Prepaid expenses 2,641
2,000
Property and equipment, net 1,046
3,116
Deferred tax asset, net 269
323
Goodwill —
37,900
Other assets 2,772
3,268
TOTAL ASSETS $ 793,533
$ 733,208
LIABILITIES AND EQUITY
Accounts payable $ 3,972
$ 4,804
Accrued employee compensation and benefits 2,556
4,126
Accrued property taxes 2,280
2,008
Accrued interest 533
1,585
Earnest money deposits 11,946
10,511
Other accrued expenses 7,203
12,598
Liabilities of discontinued operations —
5,295
Liabilities held for sale —
103
Other liabilities 18,275
19,702
Debt, net 115,505
110,358
TOTAL LIABILITIES 162,270
171,090
COMMITMENTS AND CONTINGENCIES

EQUITY
Forestar Group Inc. shareholders’ equity:
Preferred stock, par value $0.01 per share, 200,000 authorized shares at third quarter-end 2017 and none at year-end 2016, none issued —
—
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 44,803,603 issued at third quarter-end 2017 and year-end 2016 44,804
44,804
Additional paid-in capital 549,382
553,005
Retained earnings 80,430
12,602
Treasury stock, at cost, 2,864,667 shares at third quarter-end 2017 and 3,187,253 shares at year-end 2016 (44,532 ) (49,760 )
Total Forestar Group Inc. shareholders’ equity 630,084
560,651
Noncontrolling interests 1,179
1,467
TOTAL EQUITY 631,263
562,118
TOTAL LIABILITIES AND EQUITY $ 793,533
$ 733,208

~~Please read the~~

See accompanying notes to consolidated financial statements.

Table of Contents

FORESTAR GROUP INC.

~~Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)~~CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended December 31,
	2021		2020
	(In millions, except per share amounts)
Revenues	$	407.6	$	307.1
Cost of sales	334.2		262.9
Selling, general and administrative expense	21.5		15.5
Equity in earnings of unconsolidated ventures	(1.1)		(0.2)
Gain on sale of assets	(0.5)		—
Interest and other income	—		(0.3)
Income before income taxes	53.5		29.2
Income tax expense	13.0		7.1
Net income	40.5		22.1
Net income attributable to noncontrolling interests	—		0.1
Net income attributable to Forestar Group Inc.	$	40.5	$	22.0

Basic net income per common share attributable to Forestar Group Inc.	$	0.81	$	0.46
Weighted average number of common shares	49.7		48.1

Diluted net income per common share attributable to Forestar Group Inc.	$	0.81	$	0.46
Adjusted weighted average number of common shares	49.7		48.2

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands, except per share amounts)
REVENUES
Real estate sales and other $ 33,136
$ 45,285
$ 81,789
$ 114,711
Commercial and income producing properties —
12
91
13,065
Real estate 33,136
45,297
81,880
127,776
Mineral resources —
1,423
1,502
3,842
Other —
487
74
1,199
33,136
47,207
83,456
132,817
COSTS AND EXPENSES
Cost of real estate sales and other (21,762 ) (24,884 ) (50,142 ) (105,023 )
Cost of commercial and income producing properties (14 ) (4,375 ) (3 ) (15,326 )
Cost of mineral resources —
(182 ) (38,315 ) (572 )
Cost of other (109 ) (363 ) (518 ) (867 )
Other operating expenses (3,220 ) (6,471 ) (13,905 ) (26,879 )
General and administrative (5,340 ) (5,177 ) (38,403 ) (16,508 )
(30,445 ) (41,452 ) (141,286 ) (165,175 )
GAIN ON SALE OF ASSETS 9,690
501
113,411
121,732
OPERATING INCOME 12,381
6,256
55,581
89,374
Equity in earnings of unconsolidated ventures 1,764
3,637
10,873
3,872
Interest expense (2,038 ) (3,369 ) (6,439 ) (17,926 )
Loss on extinguishment of debt, net —
—
—
(35,864 )
Other non-operating income 1,140
1,249
2,438
1,620
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 13,247
7,773
62,453
41,076
Income tax (expense) benefit (5,214 ) 9,666
(33,353 ) (7,415 )
NET INCOME FROM CONTINUING OPERATIONS 8,033
17,439
29,100
33,661
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES 37,193
(7,164 ) 38,840
(17,428 )
CONSOLIDATED NET INCOME 45,226
10,275
67,940
16,233
Less: Net (income) attributable to noncontrolling interests (24 ) (610 ) (112 ) (1,330 )
NET INCOME ATTRIBUTABLE TO FORESTAR GROUP INC. $ 45,202
$ 9,665
$ 67,828
$ 14,903
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 42,270
34,099
42,204
34,234
Diluted 42,626
42,260
42,512
42,334
NET INCOME (LOSS) PER BASIC SHARE
Continuing operations $ 0.19
$ 0.40
$ 0.69
$ 0.77
Discontinued operations $ 0.88
$ (0.17 ) $ 0.92
$ (0.42 )
NET INCOME (LOSS) PER BASIC SHARE $ 1.07
$ 0.23
$ 1.61
$ 0.35
NET INCOME (LOSS) PER DILUTED SHARE
Continuing operations $ 0.19
$ 0.40
$ 0.68
$ 0.76
Discontinued operations $ 0.87
$ (0.17 ) $ 0.91
$ (0.41 )
NET INCOME (LOSS) PER DILUTED SHARE $ 1.06
$ 0.23
$ 1.59
$ 0.35
TOTAL COMPREHENSIVE INCOME (LOSS) $ 45,202
$ 9,665
$ 67,828
$ 14,903

~~Please read the~~

See accompanying notes to consolidated financial statements.

Table of Contents

FORESTAR GROUP INC.

~~Consolidated Statements of Cash Flows~~CONSOLIDATED STATEMENTS OF TOTAL EQUITY

(Unaudited)

First Nine Months
2017 2016
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income $ 67,940
$ 16,233
Adjustments:
Depreciation, depletion and amortization 4,121
9,885
Change in deferred income taxes 54
(16 )
Equity in earnings of unconsolidated ventures (10,873 ) (3,872 )
Distributions of earnings of unconsolidated ventures 14,745
4,793
Share-based compensation 2,567
2,665
Real estate cost of sales 50,547
56,817
Real estate development and acquisition expenditures, net (38,355 ) (56,552 )
Reimbursements from utility and improvement districts 9,841
13,698
Asset impairments 37,900
57,065
Loss on debt extinguishment, net —
35,864
Gain on sale of assets (113,214 ) (108,114 )
Other 2,346
3,639
Changes in:
Notes and accounts receivable (4,011 ) 20,734
Prepaid expenses and other (428 ) 1,536
Accounts payable and other accrued liabilities (9,235 ) (13,556 )
Income taxes (12,951 ) (11,012 )
Net cash provided by operating activities 994
29,807
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, equipment, software and other (46 ) (5,902 )
Oil and gas properties and equipment (2,400 ) (579 )
Investment in unconsolidated ventures (4,462 ) (5,615 )
Proceeds from sales of assets 130,146
319,351
Return of investment in unconsolidated ventures 4,452
3,948
Net cash provided by investing activities 127,690
311,203
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt —
(311,724 )
Additions to debt 1,789
2,749
Deferred financing fees (148 ) —
Distributions to noncontrolling interests, net (400 ) (2,378 )
Exercise of stock options 616
—
Repurchases of common stock —
(3,537 )
Payroll taxes on issuance of stock-based awards (980 ) (221 )
Other —
(211 )
Net cash provided by (used for) financing activities 877
(315,322 )

Net increase in cash and cash equivalents 129,561
25,688
Cash and cash equivalents at beginning of period 265,798
96,442
Cash and cash equivalents at end of period $ 395,359
$ 122,130

~~Please read the~~


	Common Stock		Additional Paid-in Capital		Retained Earnings		Non-controlling Interests		Total Equity
	(In millions, except share data)
Balances at September 30, 2021 (49,580,389 shares)	$	49.6	$	636.2	$	329.1	$	1.0	$	1,015.9
Net income	—		—		40.5		—		40.5
Issuance of common stock (84,547 shares)	0.1		1.6		—		—		1.7
Stock issued under employee benefit plans (10,832 shares)	—		—		—		—		—
Cash paid for shares withheld for taxes	—		(0.1)		—		—		(0.1)
Stock-based compensation expense	—		0.4		—		—		0.4
Balances at December 31, 2021 (49,675,768 shares)	$	49.7	$	638.1	$	369.6	$	1.0	$	1,058.4


	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

See accompanying notes to consolidated financial statements.

Table of Contents

FORESTAR GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended December 31,
	2021		2020
	(In millions)
OPERATING ACTIVITIES
Net income	$	40.5	$	22.1
Adjustments:
Depreciation and amortization	0.8		0.8
Deferred income taxes	(0.2)		2.2
Equity in earnings of unconsolidated ventures	(1.1)		(0.2)
Stock-based compensation expense	0.4		0.3
Land option charges	0.6		0.4
Gain on sale of assets	(0.5)		—
Changes in operating assets and liabilities:
Increase in real estate	(55.5)		(218.6)
Decrease (increase) in other assets	2.6		(2.6)
Increase (decrease) in accounts payable and other accrued liabilities	12.2		(1.0)
Increase in accrued development costs	12.2		12.6
(Decrease) increase in earnest money deposits on sales contracts	(6.2)		21.1
Decrease in income taxes receivable	—		4.2
Net cash provided by (used in) operating activities	5.8		(158.7)
INVESTING ACTIVITIES
Expenditures for property, equipment, software and other	(1.5)		(0.1)
Return of investment in unconsolidated ventures	1.5		2.1
Proceeds from sale of assets	3.2		—
Net cash provided by investing activities	3.2		2.0
FINANCING ACTIVITIES
Distributions to noncontrolling interests, net	—		(0.1)
Cash paid for shares withheld for taxes	(0.1)		(0.1)
Net cash used in financing activities	(0.1)		(0.2)
Net increase (decrease) in cash and cash equivalents	8.9		(156.9)
Cash and cash equivalents at beginning of period	153.6		394.3
Cash and cash equivalents at end of period	$	162.5	$	237.4
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Note payable issued for real estate	$	—	$	12.5
Issuance of common stock not settled	$	1.7	$	—

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

~~Our~~

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, ~~ventures and other entities in~~ which ~~we have a controlling interest. We account~~are collectively referred to as the Company unless the context otherwise requires. The Company accounts for ~~our~~its investment in other entities in which ~~we have~~it has significant influence over operations and financial policies using the equity method. ~~We eliminate all material~~All intercompany accounts, transactions and ~~transactions.~~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.

~~We prepare our unaudited interim~~

The financial statements have been prepared in accordance with U.S. ~~generally accepted accounting principles ("U.S. GAAP") and Securities and Exchange Commission requirements~~Generally Accepted Accounting Principles (GAAP) for interim financial ~~statements. As a result, they~~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, 2021, which was derived from audited financial statements, do not include all of the information and ~~disclosures~~notes required by GAAP for complete financial ~~statements. However,~~statements and should be read in ~~our opinion, all adjustments~~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, 2021.

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 ~~necessary for~~ a ~~fair presentation have been included. Such adjustments consist only~~related party of ~~normal recurring items unless otherwise noted. We~~Forestar under GAAP. At December 31, 2021, 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 ~~about future events.~~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 ~~can, and probably will,~~could differ materially from those weestimates.

Changes in Presentation and Reclassifications

The Company reclassified the change in accrued development costs from the change in accounts payable and other liabilities to the change in accrued development costs in the prior year statement of cash flows to conform to the current year presentation. This reclassification had no net effect on the Company's consolidated operating results, financial position or cash flows.

Pending Accounting Standards

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

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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 and interim periods therein, with early adoption permitted. The Company is currently ~~estimate including those principally~~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 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 ~~to allocating costs to~~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:


	December 31, 2021		September 30, 2021
	(In millions)
Developed and under development projects	$	1,854.6	$	1,824.7
Undeveloped land	105.5		80.5
	$	1,960.1	$	1,905.2

In the three months ended December 31, 2021, the Company invested $135.2 million for the acquisition of residential real estate and ~~measuring long-lived assets~~$244.8 million for ~~impairment. These interim operating results are not necessarily indicative~~the development of residential real estate. At December 31, 2021 and September 30, 2021, undeveloped land 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 ~~results that may be expected~~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 ~~the entire year. For further information, please read the financial statements included in our 2016 Annual Report on Form 10-K.~~

~~At year-end 2016, we had divested of substantially~~ all of ~~our oil~~its real estate for indicators of potential impairment and ~~gas working interest properties.~~performs detailed impairment evaluations and analyses when necessary. As a result of this significant change in our operations, we have reported the results of operations and financial position of these assets as discontinued operations within the consolidated statements of income (loss) and comprehensive income (loss) and consolidated balance sheetsprocess, there were no real estate impairment charges recorded for ~~all periods presented.~~

~~Note 2—New and Pending Accounting Pronouncements~~

~~Adoption of New Accounting Standards~~

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~, as part of its simplification initiative. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The updated standard is effective for annual and interim periods beginning after December 31, 2016. Effective first quarter 2017, stock-based compensation (SBC) excess tax benefits or deficiencies are reflectedperiod presented in the consolidated statements of ~~income (loss)~~operations.

In the three months ended December 31, 2021 and ~~comprehensive income (loss)~~2020, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $0.6 million and $0.4 million, respectively. These land option charges are included in cost of sales in the consolidated statements of operations.

Note 4—Revenues

Revenues consist of:


	Three Months Ended December 31,
	2021		2020
	(In millions)
Residential lot sales	$	404.1	$	307.0
Tract sales and other	3.5		0.1
	$	407.6	$	307.1

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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 ~~component~~portion of the ~~provision~~interest incurred is reflected as interest expense in the period incurred. In the first three months of fiscal 2022 and fiscal year 2021, 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 months ended December 31, 2021 and 2020.


	Three Months Ended December 31,
	2021		2020
	(In millions)
Capitalized interest, beginning of period	$	53.7	$	48.7
Interest incurred	8.2		11.5
Interest charged to cost of sales	(9.0)		(9.2)
Capitalized interest, end of period	$	52.9	$	51.0

Note 6—Other Assets, Accrued Expenses and Other Liabilities

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


	December 31, 2021		September 30, 2021
	(In millions)
Earnest money notes receivable on sales contracts	$	0.6	$	0.7
Other receivables	2.1		0.4
Lease right of use assets	7.2		6.9
Prepaid expenses	12.5		15.4
Land purchase contract deposits	10.8		10.4
Other assets	2.0		5.3
	$	35.2	$	39.1

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


	December 31, 2021		September 30, 2021
	(In millions)
Accrued employee compensation and benefits	$	5.3	$	7.9
Accrued property taxes	0.6		3.4
Lease liabilities	7.7		7.3
Accrued interest	7.5		8.5
Contract liabilities	3.7		5.8
Deferred income	6.8		6.8
Income taxes payable	19.9		6.8
Other accrued expenses	10.2		8.9
Other liabilities	1.2		1.3
	$	62.9	$	56.7

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Note 7—Debt

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


	December 31, 2021		September 30, 2021
	(In millions)
Unsecured:
Revolving credit facility	$	—	$	—
3.85% senior notes due 2026 (1)	395.7		395.5
5.0% senior notes due 2028 (1)	296.7		296.5
Other note payable	12.5		12.5
	$	704.9	$	704.5

______________

(1)Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $7.6 million and $8.0 million at December 31, 2021 and September 30, 2021, respectively.

Bank Credit Facility

The Company has a $410 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments. The maturity date of the facility is April 16, 2025. The facility also provides for ~~income taxes, whereas they previously~~the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the revolving credit commitment. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of the Company's real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. There were ~~recognized~~no borrowings or repayments under the facility in ~~equity~~the three months ended December 31, 2021. At December 31, 2021, there were no borrowings outstanding and $66.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $343.7 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 December 31, 2021, 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 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%.

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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 ~~paid-in capital pool~~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 December 31, 2021, the Company was ~~available. Additionally, our~~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 December 31, 2021.

Other Note Payable

The Company's other note payable of $12.5 million 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.

Note 8—Earnings per Share

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


	Three Months Ended December 31,
	2021		2020
	(In millions, except share and per share amounts)
Numerator:
Net income attributable to Forestar Group Inc.	$	40.5	$	22.0
Denominator:
Weighted average common shares outstanding — basic	49,683,369		48,129,222
Dilutive effect of stock-based compensation	49,500		63,673
Total weighted average shares outstanding — diluted	49,732,869		48,192,895


Basic net income per common share attributable to Forestar Group Inc.	$	0.81	$	0.46
Diluted net income per common share attributable to Forestar Group Inc.	$	0.81	$	0.46

Note 9—Income Taxes

The Company’s income tax expense for the three months ended December 31, 2021 and 2020 was $13.0 million and $7.1 million, respectively, and the effective tax rate was 24.3% in both periods. The effective tax rate for both periods includes an expense for state income taxes and nondeductible expenses and a benefit related to noncontrolling interests.

At December 31, 2021, the Company had deferred tax liabilities, net of deferred tax assets, of $23.0 million. The deferred tax assets were partially offset by a valuation allowance of $1.2 million, resulting in a net deferred tax liability of $24.2 million. At September 30, 2021, deferred tax liabilities, net of deferred tax assets, were $23.2 million. The deferred tax assets were partially offset by a valuation allowance of $1.2 million, resulting in a net deferred tax liability of $24.4 million. The valuation allowance for both 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 in October 2021, registering $750 million of equity securities, of which $300 million was reserved for sales under its at-the-market equity offering program that became effective in November 2021. In the three months ended December 31, 2021, the Company issued 84,547 shares of common stock under its at-the-market equity offering program for proceeds of $1.7 million, net of commissions and other issuance costs totaling $0.1 million. At December 31, 2021, $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.

There were no new grants of time-based RSUs in the three months ended December 31, 2021. Total stock-based compensation expense related to the Company's restricted stock units for the three months ended December 31, 2021 and 2020 was $0.4 million and $0.3 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 December 31, 2021, the Company had outstanding letters of credit of $66.3 million under the revolving credit facility and surety bonds of $528.2 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. In the three months ended December 31, 2021 and 2020, selling, general and administrative expense in the consolidated statements of ~~cash flows will now present excess tax~~operations includes $1.0 million and $1.1 million for these shared services, $1.6 million and $1.0 million for the cost of health insurance and other employee benefits ~~as an operating activity, if applicable. Finally, we have elected to account~~and $0.9 million and $1.1 million for ~~forfeitures as they occur, rather than estimate expected forfeitures. As a result~~other corporate and administrative expenses paid by D.R. Horton on behalf of the ~~adoption~~Company.

Under the terms of ~~ASU 2016-09 in first nine~~the Master Supply Agreement with D.R. Horton, both companies identify land development opportunities to expand the Company's portfolio of assets. At December 31, 2021 and September 30, 2021, the Company owned approximately 65,700 and 64,400 residential lots, of which D.R. Horton had the following involvement.


	December 31, 2021		September 30, 2021
	(Dollars in millions)
Residential lots under contract to sell to D.R. Horton	20,000		21,000
Residential lots subject to right of first offer with D.R. Horton	18,300		18,200
Earnest money deposits from D.R. Horton for lots under contract	$	134.8	$	143.1
Earnest money notes from D.R. Horton for lots under contract	$	0.6	$	0.7
Remaining purchase price of lots under contract with D.R. Horton	$	1,491.5	$	1,582.7

In the three months ~~2017, there~~ended December 31, 2021 and 2020, the Company sold 4,516 and 3,567 residential lots, and lot sales revenues were ~~no material impacts to our consolidated financial statements.~~

~~Pending Accounting Standards~~

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of~~$404.1 million and $307.0 million. Lot sales and lot sales revenue to ~~which it expects~~D.R. Horton in those periods were as follows.


	Three Months Ended December 31,
	2021		2020
	(Dollars in millions)
Residential single-family lots sold to D.R. Horton	4,014		3,389
Residential lot sales revenues from sales to D.R. Horton	$	328.0	$	294.0

In addition, the net impact of the change in contract liabilities increased revenues on lot sales to ~~be entitled~~D.R. Horton by $2.1 million and $0.2 million in the three months ended December 31, 2021 and 2020, respectively.

In the three months ended December 31, 2021 and 2020, the Company reimbursed D.R. Horton approximately $2.7 million and $16.1 million for ~~the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective~~previously paid earnest money and ~~permits the use of either the retrospective or cumulative effect transition method. The updated standard becomes effective~~$21.6 million and $20.9 million for ~~annual~~pre-acquisition and interim periods beginning after December 15, 2017. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). We anticipate adopting the standard using the cumulative catch-up transition method. We have reached conclusions on our key accounting assessmentsother due diligence and development costs related to land purchase contracts whereby D.R. Horton assigned its rights under these land purchase contracts to the ~~standard~~Company.

In the three months ended December 31, 2021 and 2020, the Company paid D.R. Horton $0.9 million and $1.7 million for land development services. These amounts are ~~finalizing our accounting policies. Based on our initial assessment, we believe the timing~~included in cost of ~~revenue recognition for our primary revenue stream, residential lot and tract~~ sales ~~will not materially change. We are still finalizing our accounting policies and assessing disclosure requirements. Upon adopting FASB ASC Topic 606, we will provide additional disclosures~~ in the ~~notes~~Company’s consolidated statements of operations.

At December 31, 2021 and September 30, 2021, undeveloped land primarily consists of undeveloped land which the Company has the contractual right to ~~our consolidated financial statements. Due~~sell to D.R. Horton at a sales price equal to the ~~complexity~~carrying value of ~~certain of our real estate sale transactions,~~ the ~~revenue recognition treatment required under the standard will be dependent on contract-specific terms, and may vary in limited circumstances from recognition~~land at the time of ~~the~~ sale ~~closing.~~plus additional consideration of 12% to 16% per annum.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842), in order to provide increased transparency~~

At December 31, 2021 and ~~comparability among organizations by recognizing lease assets~~September 30, 2021, accrued expenses and ~~lease~~other liabilities on the ~~balance sheet and disclosing key information about leasing arrangements. The updated standard is effective for financial statements issued for annual periods~~

beginning after December 15, 2019 and interim periods within fiscal years beginning after December 31, 2020 with early adoption permitted. We are currently evaluating the effect that the updated standard will have on our earnings, financial position and disclosures.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230)~~, in order to address eight specific cash flow issues with the objective of reducing the existing diversity in practice. The updated standard is effective for financial statements issued for annual periods beginning after December 15, 2017 and interim periods within those fiscal years with early adoption permitted. We are currently evaluating the effect of the updated standard, but we do not expect it to have a material effect on our consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230).~~ This ASU requires that a statement of cash flow explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash investments. This standard is effective for fiscal years beginning after December 15, 2017. The adoption of ASU 2016-18 will modify our current disclosures and reclassifications relating to the consolidated statements of cash flows, but we do not expect it to have a material effect on our consolidated financial statements.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718),~~ in order to provide guidance about which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The updated standard is effective for financial statements issued for annual periods beginning after December 15, 2017. We are currently evaluating the effect that the updated standard will have on our earnings, financial position and disclosures, but we do not expect it to have a material effect on our consolidated financial statements.

~~Note 3—Merger~~

~~On June 29, 2017, we entered into an Agreement and Plan of Merger with D.R. Horton, Inc. ("D.R. Horton") pursuant to which D.R. Horton would acquire~~ ~~75 percent~~ ~~of the~~ Company's ~~common stock, par value $1.00 per share ("Our Common Stock") for~~ ~~$17.75~~ ~~per share (the “Merger Agreement”). The Merger Agreement was unanimously approved by our and D.R. Horton’s boards of directors.~~

~~Subject to the terms and conditions of the Merger Agreement, at the effective time of the merger (the "Merger"), all of Our Common Stock would be converted into the right to receive, either~~

~~(i) an amount in cash per share of Our Common Stock equal to~~ ~~$17.75~~ ~~(the “Cash Consideration”); or~~

~~(ii) one share of Our Common Stock,~~

in each case at the election of the holder of such share of Our Common Stock, subject to proration procedures applicable to oversubscription and undersubscription for Cash Consideration by stockholders.

~~Please see~~ ~~Note 19—Subsequent Events~~ ~~for information regarding consummation of the merger with D.R. Horton on October 5, 2017, and related matters.~~

~~In connection with merger activities, in first nine months 2017, we paid a~~ ~~$20,000,000~~ ~~merger agreement termination fee to Starwood Capital Group and incurred~~ ~~$5,624,000~~ ~~in professional fees and other costs related to proposed merger transactions, all of which are included in general and administrative expenses.~~

~~Note 4—Held for Sale~~

In first quarter 2017, we sold all of our remaining owned mineral assets for approximately $85,700,000. We generated $82,422,000 in total gains related to the sale of our mineral assets in first nine months 2017 of which $8,200,000 was recognized in third quarter 2017 as a result of the expiration of a title review period.

In second quarter 2017, we sold approximately 19,000 acres of timberland and undeveloped land in Georgia and Texas for $46,197,000 in three transactions generating combined net proceeds of $45,396,000. We generated combined gains of $28,674,000 in first nine months 2017 of which $625,000 was recognized in third quarter 2017 upon receipt of certain regulatory approvals and release of funds held in escrow.

At third quarter-end 2017, assets held for sale principally includes a multifamily site in Austin, central Texas groundwater assets, and water wells related to our nonparticipating royalty interests in water rights located in east Texas.

~~The major classes of assets and liabilities held for sale are as follows:~~

Third
Quarter-End Year-End
2017 2016
(In thousands)
Assets Held for Sale:
Real estate $ 5,743
$ 19,931
Timber —
1,682
Other intangible assets ^(a)
1,681
1,681
Oil and gas properties and equipment, net —
782
Property and equipment, net ^(b)
7,029
6,301
$ 14,453
$ 30,377

Liabilities Held for Sale:
Other liabilities —
103
$ —
$ 103

~~___________________~~

^(a) ~~Related to indefinite lived groundwater leases associated with our central Texas water assets.~~

^(b) ~~Related to water wells associated with our Texas water assets.~~

~~Note 5—Real Estate~~

~~Real estate consists of:~~

Third
Quarter-End Year-End
2017 2016
(In thousands)
Entitled, developed and under development projects $ 237,064
$ 263,859
Land in the entitlement process and other 30,187
29,144
$ 267,251
$ 293,003

Our estimated costs of assets for which we expect to be reimbursed by utility and improvement districts were $45,253,000 at third quarter-end 2017 and $45,157,000 at year-end 2016, including $13,892,000 at third quarter-end 2017 and $14,749,000 at year-end 2016 related to our Cibolo Canyons project near San Antonio, Texas. In first nine months 2017, we have collected $9,376,000 in reimbursements that were previously submitted to these districts. At third quarter-end 2017, our inception-to-date submitted reimbursements for the Cibolo Canyons project were $56,750,000, of which $52,337,000 have been approved, and we have collected $46,567,000. These costs are principally for water, sewer and other infrastructure assets that we have incurred and submitted or will submit to utility or improvement districts for approval and reimbursement. We expect to be reimbursed by utility and improvement districts when these districts achieve adequate tax basis or otherwise have funds available to support payment.

~~Note 6—Investment in Unconsolidated Ventures~~

We participate in real estate ventures for the purpose of acquiring and developing residential, multifamily and mixed-use communities in which we may or may not have a controlling financial interest. U.S. GAAP requires consolidation of Variable Interest Entities (VIEs) in which an enterprise has a controlling financial interest and is the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance; and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE. We examine specific criteria and use judgment when determining whether a venture is a VIE and whether we are the primary beneficiary and must consolidate a VIE. We perform this review initially at the time we enter into venture agreements and reassess upon reconsideration events.

At ~~third quarter-end2017, we had ownership interests in 15 ventures that we accounted for using the equity method, none of which are a VIE.~~

~~Combined summarized balance sheet information for our ventures accounted for using the equity method follows:~~

Venture Assets
Venture Borrowings^(a)
Venture Equity Our Investment
Third
Quarter-End Year-End Third
Quarter-End Year-End Third
Quarter-End Year-End Third
Quarter-End Year-End
2017 2016 2017 2016 2017 2016 2017 2016
(In thousands)
242, LLC ^(b)
$ 19,600
$ 26,503
$ —
$ 1,107
$ 19,376
$ 23,136
$ 9,140
$ 10,934
CL Ashton Woods, LP 581
2,653
—
—
558
2,198
446
1,107
CL Realty, LLC 8,287
8,048
—
—
8,156
7,899
4,078
3,950
CREA FMF Nashville LLC ^(b)
53,986
56,081
35,676
37,446
17,162
17,091
4,803
4,923
Elan 99, LLC 49,003
49,652
36,373
36,238
11,283
13,100
10,155
11,790
FMF Littleton LLC 68,536
70,282
46,006
44,446
21,745
23,798
5,508
6,128
FMF Peakview LLC —
—
—
—
—
—
—
—
FOR/SR Forsyth LLC 11,566
10,672
1,548
1,568
9,985
8,990
8,986
8,091
HM Stonewall Estates, Ltd —
852
—
—
—
852
—
477
LM Land Holdings, LP ^(c)
22,816
25,538
906
3,477
13,771
20,945
6,619
9,685
MRECV DT Holdings LLC 3,573
4,155
—
—
3,573
4,144
3,216
3,729
MRECV Edelweiss LLC/MRECV Lender VIII LLC 7,824
3,484
—
—
7,824
3,484
7,042
3,358
MRECV Juniper Ridge LLC 3,784
4,156
—
—
3,784
4,156
3,405
3,741
MRECV Meadow Crossing II LLC 3,103
2,492
—
—
3,103
2,491
2,793
2,242
Miramonte Boulder Pass, LLC 7,488
10,738
1,391
4,006
4,775
5,265
4,567
5,330
Temco Associates, LLC 4,426
4,368
—
—
4,323
4,253
2,162
2,126
Other ventures —
—
—
—
—
—
—
—
$ 264,573
$ 279,674
$ 121,900
$ 128,288
$ 129,418
$ 141,802
$ 72,920
$ 77,611

~~Combined summarized income statement information for our ventures accounted for using the equity method follows:~~

Venture Revenues Venture Earnings (Loss) Our Share of Earnings (Loss)
Third Quarter First Nine Months Third Quarter First Nine Months Third Quarter First Nine Months
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
(In thousands)
242, LLC ^(b)
$ —
$ 937
$ 13,073
$ 937
$ (342 ) $ 15
$ 8,040
$ (449 ) $ (171 ) $ 14
$ 4,106
$ (218 )
CL Ashton Woods, LP 451
288
3,079
1,977
262
83
1,360
601
307
129
1,739
892
CL Realty, LLC 300
140
499
386
256
72
2,657
136
128
37
1,328
68
CREA FMF Nashville LLC ^(b)
1,410
1,291
4,280
3,273
(159 ) (145 ) (479 ) (1,214 ) (47 ) 1,484
(144 ) 1,164
Elan 99, LLC 1,188
461
3,116
628
(562 ) (867 ) (1,816 ) (2,211 ) (506 ) (779 ) (1,635 ) (1,989 )
FMF Littleton LLC 1,702
944
4,713
1,791
227
(183 ) 47
(531 ) 57
(47 ) 12
(133 )
FMF Peakview LLC —
—
—
939
—
—
—
(248 ) —
—
—
(50 )
FOR/SR Forsyth LLC —
—
—
—
(42 ) (21 ) (110 ) (38 ) (38 ) (19 ) (99 ) (34 )
HM Stonewall Estates, Ltd —
822
496
1,948
—
280
243
794
—
120
103
347
LM Land Holdings, LP ^(c)
2,703
3,505
19,636
6,531
2,110
2,502
8,327
4,557
757
836
2,746
1,481
MRECV DT Holdings LLC 351
162
939
379
337
157
923
372
303
141
831
334
MRECV Edelweiss LLC/MRECV Lender VIII LLC 293
106
716
287
291
106
713
280
262
96
642
252
MRECV Juniper Ridge LLC 413
151
1,023
356
412
151
1,022
357
371
135
920
321
MRECV Meadow Crossing II LLC 253
112
612
141
254
112
612
94
229
101
551
84
Miramonte Boulder Pass, LLC 2,312
1,015
4,848
1,678
105
(126 ) 109
(285 ) 101
(63 ) (262 ) (142 )
Temco Associates, LLC 48
77
144
224
21
32
70
111
11
16
35
56
Other ventures —
6,520
—
6,520
—
2,166
—
2,109
—
1,436
—
1,439
$ 11,424
$ 16,531
$ 57,174
$ 27,995
$ 3,170
$ 4,334
$ 21,718
$ 4,435
$ 1,764
$ 3,637
$ 10,873
$ 3,872

~~_____________________~~


^(a)	~~Total includes current maturities of $86,206,000 at third quarter-end 2017, of which $81,531,000 is non-recourse to us, and $89,756,000 at year-end 2016, of which $78,557,000 is non-recourse to us.~~


^(b)	Includes unamortized deferred gains on real estate we contributed to ventures. We recognize deferred gains as income as the real estate is sold to third parties. Deferred gains of $1,372,000 are reflected as a reduction to our investment in unconsolidated ventures at third quarter-end 2017.


^(c)	Includes unrecognized basis difference of $496,000 which is reflected as an increase of our investment in unconsolidated ventures at third quarter-end 2017. The difference will be amortized as expense over the life of the investment and included in our share of earnings (loss) from the respective venture.

In first nine months 2017, we invested $4,462,000 in these ventures and received $19,197,000 in distributions. In first nine months 2016, we invested $5,615,000 in these ventures and received $8,741,000 in distributions. Distributions include both return of investments and distribution of earnings.

The increase in our share of earnings from our unconsolidated ventures in first nine months 2017 compared with first nine months 2016 is primarily due to higher lot sale activity and earnings from LM Land Holdings, LP which benefited from the sale of 42 commercial acres for $13,600,000 generating venture earnings of $10,683,000, of which $6,321,000 was deferred and will be recognized as development is completed. Based on our 37.5% interest in this venture, our pro-rata share of the earnings associated with this sale was $1,636,000 and our pro-rata share of the distributable cash was $4,411,000. Venture earnings from 242, LLC also benefited from the sale of 46 commercial acres for $9,719,000 generating $6,612,000 in earnings to the venture. Based on our 50% interest in the venture, our pro-rata share of the earnings associated with this sale was $3,306,000 and our pro-rata share of the total distributable cash was $4,348,000. CL Realty, LLC, a venture in which we own a 50% interest, sold certain mineral assets to us for $2,400,000. Subsequent to closing of this transaction, we received $1,200,000 from the venture, representing our pro-rata share of distributable cash.

~~In first quarter 2016, we sold our interest in FMF Peakview LLC (360~~⁰~~), a 304-unit multifamily joint venture project near Denver, generating $13,167,000 in net proceeds and we recognized a gain of $10,363,000 which is included in gain on sale of assets.~~

~~Note 7—Goodwill~~

~~Carrying value of goodwill follows:~~

Third
Quarter-End Year-End
2017 2016
(In thousands)
Goodwill $ —
$ 37,900

Goodwill related to our owned mineral assets was $0 at third quarter-end 2017 and $37,900,000 at year-end 2016. In first nine months 2017, we recognized a non-cash impairment charge of $37,900,000 related to goodwill attributable to our mineral resources reporting unit. This impairment was a result of selling our remaining owned mineral assets for approximately $85,700,000 in first quarter 2017. Impairment charge is included in cost of mineral resources on our consolidated statements of income (loss) and comprehensive income (loss).

~~Note 8—Discontinued Operations~~

At year-end 2016, we had divested of substantially all of our oil and gas working interest properties. As a result of this significant change in our operations, we have reported the results of operations and financial position of these assets as discontinued operations within the consolidated statements of income (loss) and comprehensive income (loss) and consolidated balance sheets included $7.7 million and $6.7 million, respectively, owed to D.R. Horton for ~~all periods presented.~~any accrued and unpaid shared service charges, land purchase contract deposits and due diligence and other development cost reimbursements.

~~Summarized results from discontinued operations were as follows:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Revenues $ 2
$ 180
$ 15
$ 5,827
Cost of sales (42 ) (108 ) (52 ) (6,593 )
Other operating expenses (763 ) (3,318 ) 226
(5,707 )
Income (loss) from discontinued operations before income taxes $ (803 ) $ (3,246 ) $ 189
$ (6,473 )
Gain (loss) on sale of assets before income taxes (297 ) 955
(197 ) (13,618 )
Income tax benefit (expense) 38,293
(4,873 ) 38,848
2,663
Income (loss) from discontinued operations, net of taxes $ 37,193
$ (7,164 ) $ 38,840
$ (17,428 )

~~In first nine months 2017, other operating expenses include a benefit~~Table of $1,043,000 due to a reduction of an accrual resulting from a change in estimate related to potential environmental liabilities to plug and abandon certain oil and gas wells in Wyoming. Other operating expenses in third quarter 2016 include loss contingency charges of $1,100,000 related to litigation and $1,155,000 related to potential environmental liabilities to plug and abandon certain oil and gas wells in Wyoming.Contents

On September 22, 2017, in accordance with our previously announced initiative to sell non-core assets, we sold the common stock of Forestar Petroleum Corporation for $100,000. With the completion of this transaction we have now sold all of our oil and gas assets and related entities. This transaction resulted in a significant tax loss. The corresponding tax benefit is reported in discontinued operations as a discrete event in third quarter 2017.

In first nine months 2016, we recorded a net loss of $13,618,000 on the sale of nearly 199,263 net mineral acres leased from others and 379 gross (95 net) producing oil and gas working interest wells in Nebraska, Kansas, Oklahoma and North Dakota for total sales proceeds of $80,084,000, which includes $3,269,000 in reimbursement of capital costs incurred on in-progress wells that were assumed by the buyer. A significant portion of the net loss on sale, $7,244,000, is related to write-off of allocated goodwill to sold producing oil and gas properties.

~~The major classes of assets and liabilities of discontinued operations at third quarter-end 2017 and year-end 2016 are as follows:~~

Third
Quarter-End Year-End
2017 2016
(In thousands)
Assets of Discontinued Operations:
Receivables, net of allowance for bad debt $ —
$ 6
Prepaid expenses —
8
$ —
$ 14

Liabilities of Discontinued Operations:
Accounts payable $ —
$ 67
Other accrued expenses —
5,228
$ —
$ 5,295

~~Significant operating activities and investing activities of discontinued operations included in our consolidated statements of cash flows are as follows:~~

First Nine Months
2017 2016
(In thousands)
Operating activities:
Asset impairments $ —
$ 612
Accounts payable and other accrued liabilities (3,000 ) —
Loss on sale of assets 197
13,618
Depreciation, depletion and amortization —
2,202
$ (2,803 ) $ 16,432

Investing activities:
Oil and gas properties and equipment $ —
$ (579 )
Proceeds from sales of assets 200
76,815
$ 200
$ 76,236

Note ~~9—Receivables~~

~~Receivables consist of:~~

Third
Quarter-End Year-End
2017 2016
(In thousands)
Other receivables and accrued interest 6,958
1,505
Other loans secured by real estate, average interest rates of 5.13% at third quarter-end 2017 and 4.94% at year-end 2016 6,072
7,452
13,030
8,957
Allowance for bad debts (26 ) (26 )
$ 13,004
$ 8,931

~~Note 10—Equity~~

~~A reconciliation of changes in equity at~~ ~~third quarter-end2017~~ ~~follows:~~

Forestar
Group Inc.

Noncontrolling
Interests
Total
(In thousands)
Balance at year-end 2016 $ 560,651
$ 1,467
$ 562,118
Net income 67,828
112
67,940
Distributions to noncontrolling interests —
(400 ) (400 )
Other (primarily share-based compensation) 1,605
—
1,605

$ 630,084
$ 1,179
$ 631,263

~~Note 11—Debt, net~~

~~Debt consists of:~~

Third
Quarter-End Year-End
2017 2016
(In thousands)
8.50% senior secured notes due 2022, net $ 5,216
$ 5,200
3.75% convertible senior notes due 2020, net of discount 108,014
104,673
Other indebtedness — 5.50% interest rate 2,275
485
$ 115,505
$ 110,358

At third quarter-end 2017, our senior secured credit facility provided a line of credit commitment of $50,000,000, none of which was drawn, and included a $50,000,000 sublimit for letters of credit, of which ~~$14,267,000~~ ~~was outstanding. Total borrowings under our senior secured credit facility (including the face amount of letters of credit) were limited by a borrowing base formula. At~~ ~~third quarter-end2017, we had $14,810,000 in net unused borrowing capacity under our senior secured credit facility.~~

At third quarter-end 2017, the proposed Merger was expected to constitute a “fundamental change” under our 3.75% convertible senior notes, which would provide holders with the right to convert their notes or sell their notes to us at par, subject to certain conditions.

~~Please see~~ ~~Note 19—Subsequent Events~~ for information regarding consummation of the merger with D.R. Horton and related matters, including (a) termination of our senior secured credit facility, (b) entry into a new letter of credit facility, (c) entry into a supplemental indenture in regard to our 3.75% convertible senior notes due 2020, and (d) redemption of the 8.50% senior secured notes due 2022.

At third quarter-end 2017 and year-end 2016, we had $1,273,000 and $1,633,000 in unamortized deferred financing fees which were deducted from our debt. In addition, at third quarter-end 2017 and year-end 2016, unamortized deferred financing fees related to our senior secured credit facility included in other assets were $91,000 and $314,000. Amortization of deferred financing fees were $731,000 and $3,253,000 in first nine months 2017 and 2016 and were included in interest expense.

~~Note 12—~~13—Fair Value Measurements

Fair value is the exchange price that would be ~~the amount~~ received for an asset or paid to transfer a liability in an orderly transaction between market participants. In arriving at a fair value measurement, ~~we use~~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.

Non-financial assets measured at fair value on a non-recurring basis principally include real estate assets, oil and gas properties, assets held for sale, goodwill and other intangible assets, which are measured for impairment.

~~In first nine months 2017, we recognized a non-cash impairment charge of $37,900,000 related to goodwill attributable to our mineral resources reporting unit.~~ The ~~impairment was a result of selling all of our remaining owned mineral assets in first quarter 2017 for approximately $85,700,000.~~

WeCompany elected not to use the fair value option for cash and cash equivalents ~~accounts receivable, other current~~and debt.

For the financial assets ~~variable debt, accounts payable~~ and ~~other current liabilities.~~liabilities that the Company does not reflect at fair value, the following tables present both their respective carrying value and fair value at December 31, 2021 and September 30, 2021.


			Fair Value at December 31, 2021
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Cash and cash equivalents (a)	$	162.5	$	162.5	$	—	$	—	$	162.5
Debt (b) (c)	704.9		—		709.9		12.5		722.4


			Fair Value at September 30, 2021
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Cash and cash equivalents (a)	$	153.6	$	153.6	$	—	$	—	$	153.6
Debt (b) (c)	704.5		—		711.2		12.5		723.7

_____________________

(a) The ~~carrying amounts~~fair values of ~~these financial instruments~~cash and cash equivalents approximate their ~~fair~~carrying values due to their short-term nature ~~or variable interest rates. We determine~~and are classified as Level 1 within the fair value hierarchy.

(b) At December 31, 2021 and September 30, 2021, debt primarily consisted of ~~fixed rate financial instruments using~~the Company's senior notes. The fair value of the senior notes is determined based on quoted market prices, ~~for similar instruments in active markets.~~which is classified as Level 2 within the fair value hierarchy.

~~Information about our fixed rate financial instruments not~~

(c) The fair value of the Company's other note payable approximates its carrying value due to its short-term nature and is classified as Level 3 within the fair value hierarchy.

Non-financial assets measured at fair value ~~follows:~~

Third Quarter-End 2017 Year-End 2016

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Valuation
Technique
(In thousands)
Fixed rate debt $ (114,502 ) $ (119,246 ) $ (111,506 ) $ (109,789 ) Level 2

~~Note 13—Capital Stock~~

~~Pursuant to our tax benefits preservation plan ("Plan") adopted January 5, 2017, as amended~~ on April 13, 2017 and June 29, 2017, each share of common stock outstanding at third quarter-end 2017 is coupled with one preferred stock purchase right ("Right"). Each Right entitles our stockholders to purchase, under certain conditions, one one-thousandth of a share ("Unit") of newly issued Series B Junior Participating Preferred Stock at a purchase price of $50 per Unit, subject to adjustment. Rights will be exercisable only if someone becomes a five-percent stockholder after adoption of the Plan without meeting certain customary exceptions. Stockholders owning five percent or more of our outstanding stock at the time of adoption of the Plan are grandfathered and will cause Rights to be distributed and become exercisable only if they acquire an additional one percent of our outstanding shares. Our board of directors has the discretion to exempt certain transactions and persons from the coverage of the Plan, and the Plan has been amended to exempt the Merger Agreement from the coverage of the Plan.

~~Please see~~ ~~Note 19—Subsequent Events~~ ~~for information regarding expiration of the Plan.~~

~~Note 14—Net Income (Loss) per Share~~

Basic and diluted earnings per share are computed using the treasury stock method for third quarter and first nine months 2017 and the two-class method for third quarter and first nine months 2016. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security. We previously determined that our 6.00% tangible equity units issued in 2013 were participating securities. In December 2016, we issued 7,857,000 shares of our common stock upon the mandatory settlement of the stock purchase contract related to the 6.00% tangible equity units. Per share amounts are computed by dividing earnings available to common shareholders by the weighted average shares outstanding during each period. In periods with a net loss, no such adjustment is made to earnings as the holders of the participating securities have no obligation to fund losses.

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

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Numerator:
Continuing operations
Net income (loss) from continuing operations $ 8,033
$ 17,439
$ 29,100
$ 33,661
Less: Net (income) attributable to noncontrolling interest (24 ) (610 ) (112 ) (1,330 )
Earnings (loss) available for diluted earnings per share $ 8,009
$ 16,829
$ 28,988
$ 32,331
Less: Undistributed net income from continuing operations allocated to participating securities —
(3,152 ) —
(6,035 )
Earnings (loss) from continuing operations available to common shareholders for basic earnings per share $ 8,009
$ 13,677
$ 28,988
$ 26,296

Discontinued operations
Net income (loss) from discontinued operations available for diluted earnings per share $ 37,193
$ (7,164 ) $ 38,840
$ (17,428 )
Less: Undistributed net income from discontinued operations allocated to participating securities —
1,342
—
3,253
Earnings (loss) from discontinued operations available to common shareholders for basic earnings per share $ 37,193
$ (5,822 ) $ 38,840
$ (14,175 )
Denominator:
Weighted average common shares outstanding — basic 42,270
34,099
42,204
34,234
Weighted average common shares upon conversion of participating securities —
7,857
—
7,857
Dilutive effect of stock options, restricted stock and equity-settled awards 356
304
308
243
Total weighted average shares outstanding — diluted 42,626
42,260
42,512
42,334
Anti-dilutive awards excluded from diluted weighted average shares 1,048
2,001
1,458
2,146

We intend to settle the remaining principal amount of our 3.75% convertible senior notes due in 2020 (Convertible Notes) in cash upon conversion with only the amount in excess of par value of the Convertible Notes to be settled in shares of our common stock. Therefore, our calculation of diluted net income per share includes only the amount, if any, in excess of par value of the Convertible Notes. As such, the Convertible Notes have no impact on diluted net income per share until the price of our common stock exceeds the ~~$24.49~~ ~~conversion price of the Convertible Notes. The average price of our common stock in~~ ~~third quarter2017~~ ~~did not exceed the conversion price which resulted in no additional diluted outstanding shares.~~

~~Note 15—Income Taxes~~

Our effective tax rate from continuing operations was 39 percent in third quarter 2017 and 53 percent for first nine months 2017. Our effective tax rate from continuing operations for first nine months 2017 exceeded the statutory rate due to a change in our valuation allowance due to current year transaction costs (termination fee and other costs) associated with our Merger. In addition, our effective tax rate from continuing operations for first nine months 2017 exceeded the statutory rate due to goodwill impairment associated with our first quarter 2017 sale of owned mineral assets and a benefit from a valuation allowance decrease due to net decreases in our deferred tax assets.

Our effective tax rate from continuing operations was a tax benefit of 124 percent in third quarter 2016 and a tax expense of 18 percent for first nine months 2016. Our effective tax rate from continuing operations for first nine months 2016 of 18 percent differs from the statutory rate of 35 percentnon-recurring basis primarily ~~due to a benefit from decrease in our valuation allowance related to decrease in our deferred tax assets. In addition, 2017 and 2016 effective tax rates from continuing operations~~ include ~~the effect of state income taxes, nondeductible items and benefits of percentage depletion.~~

At third quarter-end 2017 and year-end 2016, we have a valuation allowance for our deferred tax assets of $66,461,000 and $73,405,000 for the portion of the deferred tax assets that we have determined is more likely than not to be unrealizable under U.S. GAAP.

In determining our valuation allowance, we assessed available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets under U.S. GAAP. A significant piece of objective evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2017, principally driven by impairments of oil and gas and real estate ~~properties in prior years. Such evidence limits our ability to consider other subjective evidence, such as our projected future taxable income.~~

The amount of the deferred tax asset considered realizable could be adjusted if negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence, such as our projected future taxable income.

~~Our unrecognized tax benefits totaled approximately $442,000 at third quarter-end 2017, all of which would affect our effective tax rate, if recognized.~~

~~Note 16—Commitments and Contingencies~~

~~Litigation~~

We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business, and we believe that adequate reserves have been established for any probable losses. We do not believe that the outcome of any of these proceedings should have a significant adverse effect on our financial position, long-term results of operations or cash flows. However, it is possible that charges related to these matters could be significant to our results or cash flows in any one accounting period.

~~Environmental~~

Environmental remediation liabilities arise from time to time in the ordinary course of doing business, and we believe we have established adequate reserves for any probable losses that can be reasonably estimated. With the sale of our remaining oil and gas entities in third quarter 2017 we no longer have asset retirement obligations related to the abandonment and site restoration requirements that result from the acquisition, construction and development of oil and gas properties. Prior to the sale, we recorded the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Accretion expense related to the asset retirement obligation and depletion expense related to capitalized asset retirement cost is included in cost of oil and gas producing activities of discontinued operations. At third quarter-end 2017 and year-end 2016, our estimated asset retirement obligation was $0 and $1,258,000, of which $0 and $1,155,000 is included in liabilities of discontinued operations and the remaining balance at year-end 2016 was in liabilities held for sale. In first nine months 2017, we reduced our accrual related to potential environmental liabilities to plug and abandon certain oil and gas wells in Wyoming by $1,043,000 due to a change in estimate of our potential exposure. In connection with our sale of the stock of Forestar Petroleum on September 22, 2017, the buyer assumed substantially all liabilities of Forestar Petroleum including the obligation to plug and abandon certain oil and gas wells in Wyoming.

~~Note 17—Segment Information~~

~~We manage our operations through~~ ~~three~~ segments: real estate, mineral resources and other. Real estate secures entitlements and develops infrastructure on our lands for single-family residential and mixed-use communities, and manages our undeveloped land and commercial and income producing properties, which consists of three multifamily projects and one site. Mineral resources manages our owned mineral interests. Other manages our timber, recreational leases and water resource initiatives.

~~Total~~ assets ~~allocated by segment are as follows:~~

Third
Quarter-End Year-End
2017 2016
(In thousands)
Real estate $ 363,395
$ 403,062
Mineral resources —
38,907
Other 9,196
11,531
Assets of discontinued operations —
14
Assets not allocated to segments ^(a)
420,942
279,694
$ 793,533
$ 733,208

~~_________________________~~


^(a)	~~Assets not allocated to segments at~~ ~~third quarter-end2017~~ ~~principally consist of cash and cash equivalents of~~ ~~$395,359,000~~ ~~and an income tax receivable of $23,818,000. Assets not allocated to segments at year-end~~ ~~2016~~ ~~principally consist of cash and cash equivalents of~~ ~~$265,798,000~~ ~~and an income tax receivable of $10,867,000.~~

We evaluate performance based on segment earnings (loss) before unallocated items and income taxes. Segment earnings (loss) consist of operating income, equity in earnings (loss) of unconsolidated ventures, gain on sales of assets, interest income on loans secured by real estate and net (income) loss attributable to noncontrolling interests. Items not allocated to our business segments consist of general and administrative expense, share-based and long-term incentive compensation, gain on sale of strategic timberland and undeveloped land, interest expense and other corporate non-operating income and expense. The accounting policies of the segments are the same as those described in ~~Note 1—Basis of Presentation. Our revenues are derived from U.S. operations and all of our assets are located in the U.S.~~

~~Segment revenues and earnings are as follows:~~

~~_________________________~~


^(a)	~~Items not allocated to segments consist of:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
General and administrative expense $ (4,979 ) $ (4,505 ) $ (36,556 ) $ (13,992 )
Shared-based and long-term incentive compensation expense (424 ) (1,024 ) (2,767 ) (2,980 )
Gain on sale of assets 625
—
28,674
—
Interest expense (2,038 ) (3,369 ) (6,439 ) (17,926 )
Loss on extinguishment of debt, net —
—
—
(35,864 )
Other corporate non-operating income 361
58
956
283
$ (6,455 ) $ (8,840 ) $ (16,132 ) $ (70,479 )

~~Note 18—Share-Based and Long-Term Incentive Compensation~~

~~Share-based and long-term incentive compensation expense consists of:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Cash-settled awards $ (66 ) $ (43 ) $ 1,047
$ 82
Equity-settled awards 268
765
1,171
1,869
Restricted stock —
10
—
22
Stock options 106
217
349
692
Total share-based compensation 308
949
2,567
2,665
Deferred cash 116
75
200
315
$ 424
$ 1,024
$ 2,767
$ 2,980

~~Share-based and long-term incentive compensation expense is included in:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
General and administrative expense $ 361
$ 672
$ 1,847
$ 2,516
Other operating expense 63
352
920
464
$ 424
$ 1,024
$ 2,767
$ 2,980

~~Share-Based Compensation~~

~~We did not grant any new equity-settled or cash-settled awards to employees in first nine months 2017.~~

In first nine months 2017, we granted 66,037 restricted stock units to our board of directors, of which 34,746 were annual restricted stock units which vest 25 percent at grant date and 25 percent at each subsequent quarterly board meeting. Expense associated with annual restricted stock units is included in share-based compensation expense.

Excluded from share-based compensation expense in the table above are fees earned by our board of directors in the amount of $135,000 and $169,000 in third quarter of 2017 and 2016 and $449,000 and $596,000 in the first nine months of 2017 and 2016 for which they elected to defer payment until retirement in the form of share-settled units. These expenses are included in general and administrative expense.

~~The fair value of awards granted to retirement eligible employees expensed at the date of grant was~~ ~~$600,000~~ ~~in first nine months~~ ~~2016. Unrecognized share-based compensation expense related to non-vested equity-settled awards, restricted stock and stock options is $864,000 at~~ ~~third quarter-end2017~~.

~~In first nine months~~ ~~2017~~ ~~and~~ ~~2016, we issued 322,586 and 263,371 shares out of our treasury stock associated with vesting of stock-based awards or exercise of stock options, net of~~ ~~75,870~~ ~~and~~ ~~25,026~~ ~~shares withheld having a value of~~ ~~$980,000~~ ~~and~~ ~~$221,000~~ ~~for payroll taxes in connection with vesting of stock-based awards or exercise of stock options.~~

~~Long-Term Incentive Compensation~~

In first nine months 2017 and 2016, we granted $1,180,000 and $620,000 of long-term incentive compensation to employees in the form of deferred cash awards. The 2017 deferred cash awards vest annually over three years and the 2016 awards vest annually over two years. Expense associated with deferred cash awards is recognized ratably over the vesting period.

~~Please see~~ ~~Note 19—Subsequent Events~~ ~~for information regarding consummation of the merger with D.R. Horton and related matters, including settlement of outstanding awards denominated in shares of stock.~~

~~Note 19—Subsequent Events~~

~~Completion of Merger~~

On June 29, 2017, we entered into the Merger Agreement with D.R. Horton and Force Merger Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of D.R. Horton. At the effective time on October 5, 2017, we merged with Merger Sub and we continued as the surviving entity in the Merger. In the Merger, each existing share of our common stock issued and outstanding immediately prior to the effective time (the “Former Forestar Common Stock”) (except for shares of our common stock that were held by us as treasury shares or by us or D.R. Horton or our or their respective subsidiaries) were converted into the right to receive, at the election of the holders of such shares of Former Forestar Common Stock, either an amount in cash equal to the Cash Consideration ($17.75 per share) or one new share of our common stock (the “New Forestar Common Stock”), subject to proration procedures applicable to oversubscription and undersubscription for the Cash Consideration described in the Merger Agreement. The aggregate amount of Cash Consideration paid by D.R. Horton to holders of Former Forestar Common Stock in the Merger was ~~$558,256,000~~. In the Merger, 10,487,873 shares of New Forestar Common Stock (representing 25% of the outstanding shares of New Forestar Common Stock immediately after the effective time) were issued to the holders of our common stock and 31,451,063 shares of New Forestar Common Stock (representing 75% of the outstanding share of the New Forestar Common Stock immediately after the effective time) were issued to D.R. Horton.

Subject to the terms of the Merger Agreement, at the effective time, each equity award made or otherwise denominated in shares of Former Forestar Common Stock that was outstanding immediately prior to the effective time under our equity compensation plans was cancelled and of no further force or effect as of the effective time. In exchange for the cancellation of the equity awards, each holder of such an equity award received from us the Cash Consideration for each share of Former Forestar Common Stock underlying such equity award (and in the case of equity awards that were stock options or stock appreciation rights, less the applicable exercise or strike price, but not less than $0), whether or not otherwise vested as of the effective time. With respect to any of our market-leveraged stock units, the number of shares of Former Forestar Common Stock subject to such equity awards were determined pursuant to the terms set forth in the applicable award agreements and based on a per share value equal to $17.75.

We paid our financial advisor a transaction fee of $5,595,000 which was expensed upon closing of the Merger. New Forestar Common Stock continues to be listed and traded on the New York Stock Exchange under the ticker symbol, “FOR.”

As of October 5, 2017, we are a majority-owned subsidiary of D.R. Horton, the largest homebuilder by volume in the United States for fifteen consecutive years. We are evaluating the impact of any potential changes in our accounting policies and related party transactions with D.R. Horton post merger and will update our disclosures accordingly in future periods. The merger will be accounted for under the acquisition method in accordance with U.S. GAAP. D.R. Horton is the acquirer for accounting purposes and our consolidated financial statements will continue to be stated at historical cost.

~~Letter of Credit Facility~~

On October 5, 2017, we entered into a Letter of Credit Facility Agreement (the “LC Facility Agreement”) providing for a $30,000,000 secured standby letter of credit facility (the “LC Facility”) with Keybank National Association and other lenders party thereto, as banks, Keybank National Association, as letter of credit issuer and administrative agent, and Keybanc Capital Markets, as sole arranger and sole bookrunner.

The LC Facility is secured by $30,000,000 in cash deposited with the administrative agent. We are required to pay a letter of credit fee of 1.25% per annum on the outstanding face amount of the letters of credit issued under the LC Facility, as well as other customary fees and expenses. We also are required to pay an unused facility fee of 0.15% per annum, in each case on the daily amount by which the ~~aggregate commitments exceed the sum~~company reviews for indicators of ~~the outstanding letters~~potential impairment and performs impairment evaluations when necessary.

Table of ~~credit during each fiscal quarter or portion thereof.~~Contents

The LC Facility Agreement includes customary representations and warranties, affirmative and negative covenants and other undertakings. The LC Facility Agreement also contains customary events of default. If an event of default occurs, all or a portion of the commitments under the LC Facility may be terminated and/or other rights held by the banks under any of the related facility documents (including against the collateral) may be exercised, subject to certain limitations.

~~Termination of Senior Credit Facility~~

On October 5, 2017, in connection with entry into the LC Facility, we terminated our existing senior credit facility (the “Prior Credit Facility”). The Prior Credit Facility provided for a $50,000,000 revolving line of credit that was scheduled to mature on May 15, 2018. This Prior Credit Facility could be prepaid at any time without penalty and included a $50,000,000

~~sublimit for letters of credit, of which $14,267,000 were outstanding at the time of termination and were transferred to the new LC Facility.~~

~~3.75% Convertible Senior Notes~~

On October 5, 2017, in connection with the consummation of the Merger, we entered into a Third Supplemental Indenture (together with the base indenture and the prior supplemental indentures, the "Indenture") to the Indenture relating to our 3.75% Convertible Senior Notes due 2020 (the “Convertible Notes”).

Pursuant to the Third Supplemental Indenture, the Convertible Notes are no longer convertible into shares of Former Forestar Common Stock and instead are convertible into cash and shares of New Forestar Common Stock based on the per-share weighted average of the cash and shares of New Forestar Common Stock received by our stockholders that affirmatively made an election in connection with the Merger. As a result of such elections, for each share of Former Forestar Common Stock a holder of Convertible Notes was previously entitled to receive upon conversion of Convertible Notes, such holder is instead entitled to receive $14.19785 in cash and 0.20012 of a share of New Forestar Common Stock.

The completion of the Merger constituted a Fundamental Change, as defined in the Indenture. On October 12, 2017, in accordance with the Indenture, we gave notice of the Fundamental Change to holders of the Convertible Notes and made an offer to purchase (a “Fundamental Change Offer”) all or any part (equal to $1,000 or an integral multiple of $1,000) of every holder’s Convertible Notes pursuant to the Fundamental Change Offer on the terms set forth in the Indenture. In the Fundamental Change Offer, we offered to repurchase the Convertible Notes for a price in cash equal to 100% of the aggregate principal amount of Convertible Notes, plus accrued and unpaid interest, if any, to the date of repurchase.

~~Expiration of Tax Benefits Preservation Plan~~

On October 5, 2017 immediately prior to the effective time of the merger, our Tax Benefit Preservation Plan expired pursuant to its terms and all Rights previously distributed to the holders of our common stock pursuant to the Plan expired.

~~8.50% Senior Secured Notes~~

On October 30, 2017 (the “Redemption Date”), we redeemed the remaining $5,315,000 aggregate principal amount of outstanding 8.50% Senior Secured Notes due 2022 (the “Notes”). Pursuant to the indenture governing the Notes, the Notes were redeemed for $5,928,063, which was the sum of (a) the present value of 104.250% of the outstanding principal amount of the Notes and the scheduled payments of interest thereon through June 1, 2018 discounted as set forth in such indenture to the Redemption Date, plus (b) accrued and unpaid interest to but not including the Redemption Date.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Management’s Discussion~~

The following discussion and ~~Analysis~~analysis of ~~Financial Condition~~our financial condition and ~~Results~~results of ~~Operations~~operations should be read in conjunction with ~~the~~our consolidated financial statements and ~~Management’s Discussion~~related notes included in this quarterly report and ~~Analysis of Financial Condition and Results of Operations in~~with our ~~2016 Annual Report~~annual report on Form ~~10-K. Unless otherwise indicated, information is presented as of~~ ~~third quarter-end2017, and references to acreage owned includes all acres owned by ventures regardless of our ownership interest in a venture.~~

~~Forward-Looking Statements~~

~~This Quarterly Report on Form 10-Q and other materials we have filed or may file with~~10-K for the ~~Securities and Exchange Commission contain “forward-looking statements” within the meaning~~fiscal year ended September 30, 2021. Some of the ~~federal securities laws. These~~information contained in this discussion and analysis constitutes forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “likely,” “intend,” “may,” “plan,” “expect,” and similar expressions, including references to assumptions. These statements reflect our current views with respect to future events and are subject tothat involve risks and uncertainties. ~~We note that a variety of factors and uncertainties~~Actual results could ~~cause our actual results to~~ differ ~~significantly~~materially from ~~the results~~those discussed in ~~the~~these forward-looking statements. Factors ~~and uncertainties~~ that ~~might~~could cause ~~such~~or contribute to these differences include, but are not limited ~~to:~~

~~general economic, market or business conditions in Texas, where our real estate activities are concentrated, or on a national or global scale;~~

~~our ability~~ to, ~~achieve some or all of our key initiatives;~~

~~the opportunities (or lack thereof) that may be presented to us and that we may pursue;~~

~~our ability to hire and retain key personnel;~~

~~future residential or commercial entitlements, development approvals and the ability to obtain such approvals;~~

~~obtaining approvals of reimbursements and other payments from special improvement districts and the timing of such payments;~~

accuracy of estimates and other assumptions related to investment in and development of real estate, the expected timing and pricing of land and lot sales and related cost of real estate sales, impairment of long-lived assets, income taxes, share-based compensation;

~~the levels of resale housing inventory in our mixed-use development projects and the regions in which they are located;~~

~~fluctuations in costs and expenses, including impacts from shortages in materials or labor;~~

~~demand for new housing, which can be affected by a number of factors including the availability of mortgage credit, job growth and fluctuations in commodity prices;~~

~~competitive actions by other companies;~~

~~changes in governmental policies, laws or regulations and actions or restrictions of regulatory agencies;~~

~~our partners’ ability to fund their capital commitments and otherwise fulfill their operating and financial obligations;~~

~~inability to obtain permits for, or changes in laws, governmental policies or regulations affecting, water withdrawal or usage;~~

~~the effect of D.R. Horton's controlling level of ownership on us and our stockholders;~~

~~our ability to realize the potential benefits of the strategic relationship with D.R. Horton;~~

~~the effect of our merger with D.R. Horton on our ability to maintain relationships with our vendors and customers; and~~

~~the final resolutions or outcomes with respect to our contingent and other liabilities related to our business.~~

~~Other factors, including the risk factors~~those described in ~~Item 1A of our~~ ~~2016~~ ~~Annual Report on Form 10-K, in Item 1A of our first and second quarter 2017 Quarterly Reports on Form 10-Q, and in Item 1A of~~the “Forward-Looking Statements” section following this third quarter 2017 Quarterly Report on Form 10-Q, may also cause actual results to differ materially from those projected by our forward-looking statements. New factors emerge from time to time and it is not possible for us to predict all such factors, nor can we assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.discussion.

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.

Our Operations

We are a residential ~~and real estate~~lot development company with operations in 1455 markets in 1023 states ~~where we own, directly or through joint ventures, interests in 44 residential and mixed-use projects. As~~as of December 31, 2021. In October 5, 2017, we ~~are~~became a majority-owned subsidiary of D.R. Horton. Through our alignment with and support from D.R. Horton, ~~Inc. ("D.R. Horton"), the largest homebuilder by volume in the United States for fifteen consecutive years.~~

~~Merger~~

~~On June 29, 2017,~~ we ~~entered~~have grown our business into ~~the Merger Agreement with~~a national, well-capitalized residential lot developer selling lots to D.R. Horton and Force Merger Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of D.R. Horton. At the effective time on October 5, 2017, we merged with Merger Sub and we continued as the surviving entity in the Merger. In the Merger, each existing share ofother homebuilders. As our common stock issued and outstanding immediately prior to the effective time (the “Former Forestar Common Stock”) (except for shares of our common stock that were held by us as treasury shares or by us orcontrolling shareholder, D.R. Horton orhas significant influence in guiding our or their respective subsidiaries) were converted into the right to receive, at the election of the holders of such shares of Former Forestar Common Stock, either an amount in cash equal to the Cash Consideration ($17.75 per share) or one new share of our common stock (the “New Forestar Common Stock”), subject to proration procedures applicable to oversubscriptionstrategic direction and undersubscription for the Cash Consideration described in the Merger Agreement. The aggregate amount of Cash Consideration paid by D.R. Horton to holders of Former Forestar Common Stock in the Merger was ~~$558,256,000~~. In the Merger, 10,487,873 shares of New Forestar Common Stock (representing 25% of the outstanding shares of New Forestar Common Stock immediately after the effective time) were issued to the holders of our common stock and 31,451,063 shares of New Forestar Common Stock (representing 75% of the outstanding share of the New Forestar Common Stock immediately after the effective time) were issued to D.R. Horton.

~~Key Initiatives~~

~~For the past two years we have~~operations. Our strategy is focused on ~~our key initiatives to reduce costs across our entire organization, review our portfolio of assets~~making investments in land acquisition and complete non-core asset sales and review our capital structure to allocate capital to maximize shareholder value. The merger with D.R Horton provides us an opportunity to substantially grow our core community development business in the future by establishing a strategic relationship to supply finished lots to D. R. Horton at market prices under a master supply agreement. Under the terms of the master supply agreement, both companies will proactively identify land development opportunities to expand our ~~portfolio of assets.~~

~~Discontinued Operations~~

~~At year-end 2016, we had divested of substantially all of our oil~~residential lot development business across a geographically diversified national platform and ~~gas working interest properties. As a result of this significant change~~consolidating market share in ~~our operations, we have reported~~ the results of operations and financial position of these assets as discontinued operations for all periods presented. The discussion of our results of operations is based on the results from our continuing operations unless otherwise indicated.

~~On September 22, 2017,~~fragmented U.S. lot development industry. We are primarily investing in accordance with our previously announced initiative to sell non-core assets, we sold the common stock of Forestar Petroleum Corporation for $100,000. With the completion of this transaction we have now sold all of our oil and gas assets and related entities. This transaction resulted in a significant tax loss. The corresponding tax benefit is reported in discontinued operations as a discrete event in third quarter 2017.

~~Results of Operations~~

~~A summary of our consolidated results by business segment follows:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Revenues:
Real estate $ 33,136
$ 45,297
$ 81,880
$ 127,776
Mineral resources —
1,423
1,502
3,842
Other —
487
74
1,199
Total revenues $ 33,136
$ 47,207
$ 83,456
$ 132,817
Segment earnings (loss):
Real estate $ 11,309
$ 15,017
$ 33,327
$ 108,531
Mineral resources 8,112
1,182
45,580
2,668
Other 257
(196 ) (434 ) (974 )
Total segment earnings 19,678
16,003
78,473
110,225
Items not allocated to segments:
General and administrative expense (4,979 ) (4,505 ) (36,556 ) (13,992 )
Share-based and long-term incentive compensation expense (424 ) (1,024 ) (2,767 ) (2,980 )
Gain on sale of assets 625
—
28,674
—
Interest expense (2,038 ) (3,369 ) (6,439 ) (17,926 )
Loss on extinguishment of debt, net —
—
—
(35,864 )
Other corporate non-operating income 361
58
956
283
Income from continuing operations before taxes attributable to Forestar Group Inc. 13,223
7,163
62,341
39,746
Income tax (expense) benefit (5,214 ) 9,666
(33,353 ) (7,415 )
Net income from continuing operations attributable to Forestar Group Inc. $ 8,009
$ 16,829
$ 28,988
$ 32,331

~~Significant aspects of our results of operations follow:~~

~~Third Quarter~~ ~~and First Nine Months 2017~~

Third quarter 2017, real estate segment earnings decreased compared with third quarter 2016 due to $12,810,000 in segment earnings from retail land sales, partially offset by non-cash impairment charges of $7,627,000 in third quarter 2016. First nine months 2017, real estate segment earnings decreased compared with first nine months 2016 primarily due to gains of $121,732,000 in 2016 as a result of executing our key initiative to opportunistically sell non-core assets. In addition, we generated segment earnings of $27,688,000 in first nine months 2016 from retail land sales. These items were partially offset by non-cash impairment charges of $56,453,000 related to six non-core communityshort duration, phased development projects that generate returns similar to production-oriented homebuilders. This strategy is a unique, lower-risk business model that we expect will produce more consistent returns than other public and ~~two multifamily sites~~private land developers. We also make strategic short-term investments in first nine months 2016. Segment earnings in 2017 reflect higher equity in earnings of unconsolidated ventures as a result of an increase in commercial tract and residential lot sales within these ventures in first nine months 2017 compared with first nine months 2016. We had no retail land sales in third quarter or first nine months 2017.

In first quarter 2017, we sold all of our remaining owned mineral assets for approximately $85,700,000. We generated $82,422,000 in gains related to the sale of our mineral assets in first nine months 2017 of which $8,200,000 was recognized in third quarter 2017 as a result of the expiration of a title review period. In addition, as a result of selling our remaining mineral assets in first quarter 2017, we recognized a non-cash impairment charge of $37,900,000 in first nine months 2017 related to the mineral resources reporting unit goodwill.

~~First nine months 2017 general and administrative expense increased compared to first nine months 2016 primarily due to a merger agreement termination fee of $20,000,000 and~~ ~~$5,624,000~~ ~~in professional fees and other costs incurred associated with proposed merger transactions.~~

~~Third quarter and first nine months 2017 gain on sale of assets increased compared to third quarter and first nine months 2016 due to the sale of approximately 19,000 acres of timberland~~finished lots (lot banking) and undeveloped land 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.

COVID-19

During 2020, the impacts of the COVID-19 pandemic significantly disrupted economic activity and temporarily affected our business operations and the demand for our residential lots. As economic activity resumed, housing market conditions and demand for residential lots improved and has remained strong throughout fiscal 2021 and into fiscal 2022. However, multiple disruptions in ~~Georgia and Texas~~the supply chain, combined with the strong demand for ~~$46,197,000~~residential lots, have resulted in ~~three transactions generating combined proceeds of $45,396,000.~~shortages in certain construction materials, which, together with tightness in the labor market, has caused our development cycles to lengthen in certain markets. We ~~generated combined gains of $28,674,000 in first nine months 2017 of which $625,000 was recognized in third quarter 2017 upon receipt of certain regulatory approvals and release of funds from escrow.~~

~~Third quarter and first nine months 2017 interest expense decreased primarily due~~believe we are well-positioned to ~~reducing our debt outstanding by $277,790,000 in 2016.~~

~~Loss on extinguishment of debt in first nine months 2016 represents the cash tender offer~~effectively operate through changing economic conditions because of our ~~8.5% senior secured notes~~low net leverage and ~~other open market purchases of debt securities.~~strong liquidity position, our low overhead model and our strategic relationship with D.R. Horton.

~~Current Market Conditions~~

Sales of new U.S. single-family homes in September 2017, according to a joint release by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, were at a seasonally adjusted annual rate of 667,000 units, representing the highest reading since October 2007. The reading registered 18.9% above the revised August rate of 561,000 and 17% above the September 2016 rate. The report reflected strength in new residential home sales in all regions of the country, with particular strength reported in the South. The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced that housing starts for September 2017 registered a seasonally adjusted annual rate of 1,127,000 units, representing a 4.7% drop from the August estimate of 1,183,000 units but 6.1% above prior year. The housing start decrease during the period was partially attributed to hurricanes disrupting construction activity in the South. Single-family permits, generally viewed as a precursor to housing starts, registered 1,215,000 in September 2017, reflecting a 4.5% decrease from the revised August rate of 1,272,000 and a 4.3% decrease from prior year. Homebuilder confidence, as measured by the National Association of Homebuilders/Wells Fargo Housing Market Index, declined three points in September to a reading of 64 from a downwardly revised reading of 67 in August. The decline reflected builders’ concerns about near term labor availability and increases in building material costs in certain markets due to the recent hurricane activity. On a regional basis, the three month moving averages for builders’ confidence registered the highest in the West followed by the South. The S&P CoreLogic Case-Shiller National Index, which measures home price appreciation for the entire nation, reflected continued price appreciation across the country. On a year over year basis, the S&P Case-Shiller U.S. National Home Price NSA Index, which covers all nine U.S. Census divisions, reported a 5.9% annual gain in July, up from 5.8% in the previous month. In the 20-City Composite, Seattle, Portland and Las Vegas reported the highest year over year gains with twelve cities within the Composite reporting greater price increases in the year ending July 2017 versus the year ending June 2017.

Business ~~Segments~~Segment

We manage our operations through ~~three business segments:~~

•~~Real estate;~~

•~~Mineral resources; and~~

•~~Other~~

We evaluate performance based on segment earnings (loss) before unallocated items and income taxes. Segment earnings (loss) consist of operating income, equity in earnings (loss) of unconsolidated ventures, gain on sales of assets, interest income on loans secured by real estate and net (income) loss attributable to noncontrolling interests. Items not allocated to our business segments consist of general and administrative expense, share-based and long-term incentive compensation, gain on sale of strategic timberland and undeveloped land, interest expense and other corporate non-operating income and expense. The accounting policies of the segments are the same as those described in the accounting policy note to the consolidated financial statements.

Our operations are affected to varying degrees by supply and demand factors and economic conditions including changes in interest rates, availability of mortgage credit, consumer and home builder sentiment, new housing starts, real estate values, employment levels, and the overall strength or weakness of the U.S. economy.

~~Real Estate~~

~~We own directly or through ventures interests in 44 residential and mixed-use projects comprised of approximately 4,000 acres of real estate located in 10 states and 14 markets. Our~~ real estate segment, ~~secures entitlements~~which is our core business and generates substantially all of our revenues. The real estate segment primarily acquires land and develops infrastructure ~~on our lands, primarily~~ for single-family residential communities and ~~mixed-use communities. We own and manage our projects either directly or through ventures. Our real estate segment~~generates revenues ~~are principally derived~~ from ~~the~~ sales of residential single-family ~~lots and tracts, undeveloped land and commercial real estate.~~

~~A summary of our real estate results follows:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Revenues $ 33,136
$ 45,297
$ 81,880
$ 127,776
Cost of sales (21,776 ) (29,259 ) (50,145 ) (120,349 )
Operating expenses (2,885 ) (5,671 ) (11,168 ) (24,382 )
8,475
10,367
20,567
(16,955 )
Interest income 779
1,191
1,482
1,337
Gain on sale of assets 465
501
1,915
121,732
Equity in earnings of unconsolidated ventures 1,614
3,568
9,475
3,747
Less: Net (income) attributable to noncontrolling interests (24 ) (610 ) (112 ) (1,330 )
Segment earnings $ 11,309
$ 15,017
$ 33,327
$ 108,531

~~Revenues in our owned and consolidated ventures consist of:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Residential real estate $ 30,320
$ 18,963
$ 75,106
$ 66,126
Commercial real estate 2,595
7,000
5,862
9,655
Undeveloped land —
15,667
—
34,184
Commercial and income producing properties —
12
91
13,065
Other 221
3,655
821
4,746
$ 33,136
$ 45,297
$ 81,880
$ 127,776

~~Residential real estate revenues principally consist of the sale of single-family~~finished lots to local, regional and national homebuilders. ~~Owned~~We have other business activities for which the related assets and ~~consolidated venture~~operating results are immaterial, and therefore, are included in our real estate segment.

Table of Contents

Results of Operations

The following tables and related discussion set forth key operating and financial data as of and for the three months ended December 31, 2021 and 2020.

Operating Results

Components of income before income taxes were as follows:


	Three Months Ended December 31,
	2021		2020
	(In millions)
Revenues	$	407.6	$	307.1
Cost of sales	334.2		262.9
Selling, general and administrative expense	21.5		15.5
Equity in earnings of unconsolidated ventures	(1.1)		(0.2)
Gain on sale of assets	(0.5)		—
Interest and other income	—		(0.3)
Income before income taxes	$	53.5	$	29.2

Lot Sales

Residential lots sold consist of:


	Three Months Ended December 31,
	2021		2020
Development projects	4,381		3,102
Lot banking projects	135		465
	4,516		3,567

Average sales price per lot (a)	$	89,000	$	86,000

_______________

(a) Excludes any impact from change in contract liabilities.

Revenues

Revenues consist of:


	Three Months Ended December 31,
	2021		2020
	(In millions)
Residential lot sales:
Development projects	$	393.0	$	271.1
Lot banking projects	9.0		35.7
Decrease in contract liabilities	2.1		0.2
	404.1		307.0
Tract sales and other	3.5		0.1
Total revenues	$	407.6	$	307.1

Table of Contents

Residential lots sold and residential lot sales ~~volume in third quarter and first nine~~revenues have increased as we have grown our business primarily through our strategic relationship with D.R. Horton. In the three months 2017 declined as compared with third quarter and first nine months 2016, however, average price per lot sold increased 40 percent in third quarter and 36 percent in first nine months 2017 due to mix of product sold. Residential real estate revenues also included the sale of approximately 41 residential tract acres from one project in Arizona for $6,796,000 generating segment earnings of $715,000 in third quarter 2017. In first nine months 2017,ended December 31, 2021, we sold ~~approximately 189~~4,014 residential ~~tract acres from two projects in Texas and one project in Arizona~~lots to D.R. Horton for ~~$12,546,000 generating segment earnings of $3,843,000.~~

~~Commercial real estate revenues principally consist of the sale of tracts~~$328.0 million compared to ~~commercial developers that specialize~~3,389 residential lots sold to D.R. Horton for $294.0 million in the ~~construction and operation of income producing properties such as apartments, retail centers, or office buildings. The commercial real estate revenues in third quarter 2017 relate to~~prior year period. In the ~~sale of 46 acres from two projects in Texas for $2,595,000, generating segment earnings of $2,097,000. The commercial real estate revenues in first nine~~three months 2017 relate primarily to the sale of 65 acres from six projects in Texas, generating segment earnings of $3,876,000. The commercial real estate revenues in third quarter and first nine months 2016 relate primarily to the sale of 108 acres from our San Joaquin River project in Antioch, California for $7,000,000 which provided approximately $37,400,000 in income tax losses to offset tax gains.

~~We did not sell any retail land in third quarter or first nine months 2017. In third quarter 2016,~~ended December 31, 2021, we sold ~~approximately 6,500 acres of retail land~~502 residential lots to customers other than D.R. Horton for ~~$15,667,000, or approximately $2,410 per acre, generating $12,810,000~~$74.0 million compared to 178 residential lots sold to customers other than D.R. Horton for $12.8 million in ~~segment earnings. In first nine months 2016, we sold 13,898 acres of retail land for $34,184,000, or approximately $2,460 per acre, generating approximately $27,688,000 in segment earnings.~~the prior year period.

~~Commercial and income producing properties revenue includes revenues from hotel room~~

Tract sales and other ~~guest services, rental revenues from our operating multifamily properties and reimbursement~~revenue in the three months ended December 31, 2021 primarily consisted of 38 tract acres sold to third parties for costs paid to subcontractors plus development and construction fees from certain multifamily projects. The decrease in commercial and income producing properties revenues in third quarter and first nine months 2017 when compared with third quarter and first nine months 2016 was primarily due to the sale of Radisson Hotel & Suites and one multifamily property in 2016 as a result of our key initiative to sell non-core assets.$3.5 million.

~~Units sold consist of:~~

Third Quarter First Nine Months
2017 2016 2017 2016
Owned and consolidated ventures:
Residential lots sold 240
272
682
975
Revenue per lot sold $ 96,638
$ 69,131
$ 91,831
$ 67,301
Commercial acres sold 46
108
66
116
Revenue per commercial acre sold $ 56,230
$ 64,923
$ 88,312
$ 83,347
Undeveloped acres sold —
6,501
—
13,898
Revenue per acre sold $ —
$ 2,410
$ —
$ 2,460
Ventures accounted for using the equity method:
Residential lots sold 70
60
236
130
Revenue per lot sold $ 68,069
$ 73,773
$ 69,573
$ 78,108
Commercial acres sold —
2
88
4
Revenue per commercial acre sold $ —
$ 750,902
$ 263,674
$ 527,152
Undeveloped acres sold —
—
—
—
Revenue per acre sold $ —
$ —
$ —
$ —

Cost of sales in ~~third quarter and first nine~~the three months ~~2017 decreased when~~ended December 31, 2021 increased as compared ~~with third quarter and first nine months 2016 primarily due~~ to non-cash impairment charges of $7,627,000 and $56,453,000 associated with six non-core community development projects and two multifamily sites in 2016, lower lot sale activity from our owned and consolidated projects and no undeveloped land sales in third quarter and first nine months 2017.

~~Operating expenses consist of:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Employee compensation and benefits $ 871
$ 1,940
$ 3,440
$ 7,686
Property taxes 413
792
2,657
5,107
Professional services 720
1,513
2,208
4,244
Depreciation and amortization 33
39
100
937
Other 848
1,387
2,763
6,408
$ 2,885
$ 5,671
$ 11,168
$ 24,382

The decrease in employee compensation and benefits expense in third quarter and first nine months 2017 is principally related to reductions in personnel resulting from our key initiatives to reduce costs across our entire organization and our plan to sell non-core assets. The decrease in property taxes and depreciation and amortization isthe prior year period primarily due to the ~~sale~~increase in the number of ~~Radisson Hotel & Suites~~lots sold. Cost of sales related to tract sales and ~~one wholly-owned multifamily property~~other revenues in ~~2016. The decrease~~the three months ended December 31, 2021 was $2.7 million.

Selling, General and Administrative (SG&A) Expense and Other Income Statement Items

SG&A expense in ~~other operating expenses is~~the three months ended December 31, 2021 was $21.5 million compared to $15.5 million in the prior year period. SG&A expense as a percentage of revenues was 5.3% and 5.0% in the three months ended December 31, 2021 and 2020, respectively. Our SG&A expense primarily ~~due to $1,605,000~~consists of ~~pre-acquisition~~employee compensation and ~~development costs~~related costs. Our business operations employed 271 and 179 employees at December 31, 2021 and 2020, respectively.

Equity in ~~first nine months 2016 associated with multifamily and mitigation projects~~earnings of unconsolidated ventures in both periods reflects our share of earnings in ventures that we ~~no longer intended to pursue, operating cost savings from non-core community development projects sold in 2016 and other cost reductions across~~account for using the ~~organization.~~equity method.

~~Interest income principally represents interest received on reimbursements from utility and improvement districts.~~

First nine months 2017 gain on sale of assets consists primarily of $465,000 received from the Cibolo Canyons Special Improvement District (CCSID) funded by hotel occupancy and sales and use tax revenues and $1,318,000 associated with the reduction of a surety bond in connection with our credit support of a 2014 CCSID bond issuance. As the CCSID bond principal decreases, our credit support obligation is reduced and certain deferred gains associated with our receipt of proceeds from CCSID funded by its 2014 bond issuance will be recognized.

Gain on sale of assets in ~~first nine~~the three months ~~2016 includes~~ended December 31, 2021 consists of a gain of $95,336,000 related to sale of the Radisson Hotel & Suites, a gain of $9,116,000 related to sale of the Eleven multifamily project, a gain of $1,229,000 associated with sale of the Dillon multifamily project, a gain of $10,363,000 related to sale of our interest in the 360° multifamily venture, a gain of $3,968,000$0.5 million associated with the sale of ~~the Music Row multifamily project, a gain of $1,219,000 associated with the reduction of a surety bond supporting the 2014 CCSID bond issuance~~an investment.

Interest and ~~$501,000 from CCSID funded by hotel occupancy and sales and use tax collections.~~

~~The increase in equity in earnings from our unconsolidated ventures in first nine months 2017 compared with first nine months 2016 is~~other income primarily due to higher lot sale activity and earnings from LM Land Holdings, LP which benefited from the sale of 42 commercial acres for $13,600,000, generating venture earnings of $10,683,000, of which $6,321,000 was deferred and will be recognized as development is completed. Basedrepresents interest earned on our 37.5% interest in this venture, our pro-rata share of the earnings associated with this sale was $1,636,000. Venture earnings from 242, LLC also benefited from the sale of 46 commercial acres for $9,719,000 generating $6,612,000 in earnings to the venture. Based on our 50% interest in the venture, our pro-rata share of the earnings associated with this sale was $3,306,000.cash deposits.

We underwrite real estate development projects based on a variety of assumptions incorporated into our development plans, including the timing and pricing of sales and leasing and costs to complete development. Our development plans are periodically reviewed in comparison to our return projections and expectations, and we may revise our plans as business conditions warrant. If as a result of changes to our development plans the anticipated future net cash flows are reduced such that our basis in a project is not fully recoverable, we may be required to recognize a non-cash impairment charge for such project.

~~Our net investment in owned and consolidated real estate by geographic location as of third quarter-end 2017 follows:~~

State
Entitled,
Developed,
and Under
Development
Projects

Land
in Entitlement Process and Other
Total
(In thousands)
Texas $ 151,857
$ 2,778
$ 154,635
Georgia 6,656
416
7,072
California 1,667
26,813
28,480
North & South Carolina 30,097
45
30,142
Colorado 29,939
—
29,939
Tennessee 16,848
135
16,983
$ 237,064
$ 30,187
$ 267,251

~~Mineral Resources~~

In first quarter 2017, we sold our remaining owned mineral assets for a total purchase price of approximately $85,700,000. We generated total gains of $82,422,000 in first nine months 2017 of which $8,200,000 was recognized in third quarter 2017 as a result of the expiration of a title review period. With the completion of this sale we have divested of substantially all of our oil and gas assets.

~~A summary of our mineral resources results follows:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Revenues $ —
$ 1,423
$ 1,502
$ 3,842
Cost of mineral resources —
(182 ) (38,315 ) (572 )
Operating expenses (238 ) (114 ) (1,424 ) (713 )
(238 ) 1,127
(38,237 ) 2,557
Gain on sale of assets 8,200
—
82,422
—
Equity in earnings of unconsolidated ventures 150
55
1,395
111
Segment earnings (loss) $ 8,112
$ 1,182
$ 45,580
$ 2,668

~~Revenues consist of:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Oil royalties ^(a)
$ —
$ 883
$ 900
$ 2,174
Gas royalties —
330
487
929
Other (principally lease bonus and delay rentals) —
210
115
739
$ —
$ 1,423
$ 1,502
$ 3,842

~~_________________________~~


^(a)	~~Oil royalties include revenues from oil, condensate and natural gas liquids (NGLs).~~

~~In third quarter and first nine months 2017, royalty revenues decreased principally due to the sale of our remaining owned mineral assets.~~

Cost of mineral resources principally includes a non-cash impairment charge of $37,900,000 in first nine months 2017 associated with goodwill related to the sale of our owned mineral assets in first quarter 2017.

Operating expenses principally consist of employee compensation and benefits, legal and professional services, property taxes and rent expense. The increase in operating expenses in third quarter and first nine months 2017 compared with third quarter and first nine months 2016 is primarily due to incentive compensation and legal expenses associated with the sale of our owned mineral assets.

In first nine months 2017, equity in earnings of unconsolidated ventures represents $1,245,000 in earnings from a venture in which we own a 50% interest. These earnings were principally a result of our purchase of certain mineral assets from the venture. We purchased these assets from the venture for $2,400,000 and subsequently received our pro-rata share of the earnings and distributable cash of $1,200,000 from the venture.

~~Oil and gas produced and average unit prices related to our royalty interests follows:~~

Third Quarter First Nine Months
2017 2016 2017 2016
Consolidated entities:
Oil production (barrels) —
19,400
17,400
54,800
Average oil price per barrel $ —
$ 44.64
$ 50.20
$ 38.08
NGL production (barrels) —
1,000
600
7,600
Average NGL price per barrel $ —
$ 16.78
$ 22.99
$ 11.40
Total oil production (barrels), including NGLs —
20,400
18,000
62,400
Average total oil price per barrel, including NGLs $ —
$ 43.23
$ 49.38
$ 34.82
Gas production (millions of cubic feet) —
170.0
159.9
488.8
Average price per thousand cubic feet $ —
$ 1.94
$ 3.05
$ 1.90
Our share of ventures accounted for using the equity method:
Gas production (millions of cubic feet) —
35.5
33.4
108.7
Average price per thousand cubic feet $ —
$ 1.97
$ 2.98
$ 1.78
Total consolidated and our share of equity method ventures:
Oil production (barrels) —
19,400
17,400
54,800
Average oil price per barrel $ —
$ 44.64
$ 50.20
$ 38.08
NGL production (barrels) —
1,000
600
7,600
Average NGL price per barrel $ —
$ 16.78
$ 22.99
$ 11.40
Total oil production (barrels), including NGLs —
20,400
18,000
62,400
Average total oil price per barrel, including NGLs $ —
$ 43.23
$ 49.38
$ 34.82
Gas production (millions of cubic feet) —
205.5
193.3
597.5
Average price per thousand cubic feet $ —
$ 1.95
$ 3.03
$ 1.88
Total BOE (barrel of oil equivalent) ^(a)
—
54,700
50,200
162,000
Average price per barrel of oil equivalent $ —
$ 23.47
$ 29.36
$ 20.34

~~_________________________~~


^(a)	~~Gas is converted to barrels of oil equivalent (BOE) using a conversion of six Mcf to one barrel of oil.~~

~~Other~~

Our other segment, all of which is non-core, manages our timber holdings, recreational leases and water resource initiatives. Our other segment revenues are principally derived from the sales of wood fiber from our land and leases for recreational uses. At third quarter-end 2017, we did not have any remaining timber holdings or recreational leases, and we had water interests in approximately 1.5 million acres, including a 45 percent nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes or sold from 1.4 million acres in Texas, Louisiana, Georgia and Alabama, and approximately 20,000 acres of groundwater leases in central Texas. All of our water interests were classified as assets held for sale at third quarter-end 2017.

~~A summary of our other results follows:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Revenues $ —
$ 487
$ 74
$ 1,199
Cost of sales (109 ) (363 ) (518 ) (867 )
Operating expenses (34 ) (334 ) (393 ) (1,320 )
(143 ) (210 ) (837 ) (988 )
Gain on sale of assets 400
—
400
—
Equity in earnings of unconsolidated ventures —
14
3
14
Segment earnings (loss) $ 257
$ (196 ) $ (434 ) $ (974 )

~~Revenues consist of:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Fiber $ —
$ 318
$ —
$ 509
Water —
—
9
24
Recreational leases and other —
169
65
666
$ —
$ 487
$ 74
$ 1,199

~~In third quarter and first nine months 2017, revenues decreased principally due to the sale of our remaining undeveloped land containing our timber holdings and recreational leases.~~

~~Cost of sales principally includes non-cash cost of timber cut and sold and delay rental payments paid to others and permit fees related to groundwater leases in central Texas.~~

The decrease in operating expenses in third quarter and first nine months 2017 when compared with third quarter and first nine months 2016 is primarily due to our key initiatives to sell non-core assets and reduce costs across the organization. Operating expenses associated with our water resources initiatives for first nine months 2017 and 2016 were $321,000 and $703,000.

Gain on sale of assets represents nonrefundable earnest money forfeited by a buyer that terminated a contract to purchase our 20,000 acres of groundwater leases in central Texas. As of third quarter-end 2017, we continued to market this asset for sale and evaluate the long term use and ultimate disposition of this asset.

~~Items Not Allocated to Segments~~

Unallocated items represent income and expenses managed on a company-wide basis and include general and administrative expenses, share-based and long-term incentive compensation, gain on sale of strategic timberland and undeveloped land, interest expense and other corporate non-operating income and expense. General and administrative expenses principally consist of accounting and finance, tax, legal, human resources, internal audit, information technology and our board of directors. These functions support all of our business segments and are not allocated.

~~General and administrative expense~~

~~General and administrative expenses consist of:~~

Third Quarter First Nine Months
2017 2016 2017 2016
(In thousands)
Employee compensation and benefits $ 1,502
$ 2,128
$ 5,765
$ 6,859
Professional and consulting services 2,508
1,336
7,863
3,401
Facility costs 210
157
645
592
Depreciation and amortization 68
95
239
314
Insurance costs 162
179
489
546
Other 529
610
21,555
2,280
$ 4,979
$ 4,505
$ 36,556
$ 13,992

The increase in general and administrative expense in first nine months 2017 when compared with first nine months 2016 is primarily due to a $20,000,000 merger agreement termination fee and $5,624,000 in professional fees and other costs associated with proposed merger transactions. Employee compensation and benefits includes $652,000 and $486,000 in severance costs incurred in first nine months 2017 and 2016.

~~Share-based and long-term incentive compensation expense~~

Our share-based compensation expense fluctuates principally due to a portion of our awards being cash-settled and as a result they are affected by changes in the market price of our common stock. The decrease in share-based and long-term incentive compensation expense in third quarter and first nine months 2017 when compared with third quarter and first nine months 2016 is primarily due to no new share-based awards granted to employees in first nine months 2017.

~~Gain on Sale of Assets~~

Third quarter and first nine months 2017 gain on sale of assets increased compared to third quarter and first nine months 2016 due to sale of approximately 19,000 acres of timberland and undeveloped land in Georgia and Texas for $46,197,000 in three transactions generating combined proceeds of $45,396,000. These transactions generated combined gains of $28,674,000 in first nine months 2017 of which $625,000 was recognized in third quarter 2017 upon receipt of certain regulatory approvals and release of funds from escrow.

~~Interest expense~~

The decrease in interest expense in third quarter and first nine months 2017 when compared with third quarter and first nine months 2016 is due to a reduction of our debt outstanding by $277,790,000 in 2016.

~~Loss on Extinguishment of Debt~~

Loss on extinguishment of debt in first nine months 2016 resulted from retirement of debt pursuant to the cash tender offer on our 8.5% senior secured notes and other open market purchases of debt securities.

Income Taxes

Our income tax expense for the three months ended December 31, 2021 and 2020 was $13.0 million and $7.1 million, respectively, and our effective tax rate was 24.3% in both periods. Our effective tax rate ~~from continuing operations was 39 percent in third quarter 2017~~for both periods includes an expense for state income taxes and 53 percent for first nine months 2017. Our effective tax rate from continuing operations for first nine months 2017 exceeded the statutory rate due to a change in our valuation allowance due to current year transaction costs (termination fee and other costs) associated with our Merger. In addition, our effective tax rate from continuing operations for first nine months 2017 exceeded the statutory rate due to goodwill impairment associated with our first quarter 2017 sale of owned mineral assetsnondeductible expenses and a benefit ~~from a valuation allowance decrease due~~related to ~~net decreases in our~~noncontrolling interests.

At December 31, 2021, we had deferred tax ~~assets.~~

~~Our effective tax rate from continuing operations was a tax benefit~~liabilities, net of 124 percent in third quarter 2016 and a tax expense of 18 percent for first nine months 2016. Our effective tax rate from continuing operations for first nine months 2016 of 18 percent differs from the statutory rate of 35 percent primarily due to a benefit from decrease in our valuation allowance related to decrease in our deferred tax assets. In addition, 2017 and 2016 effective tax rates from continuing operations include the effect of state income taxes, nondeductible items and benefits of percentage depletion.

~~At third quarter-end 2017 and year-end 2016, we have a valuation allowance for our~~ deferred tax assets, of ~~$66,461,000~~

~~and $73,405,000 for the portion of the~~$23.0 million. The deferred tax assets ~~that we have determined~~were partially offset by a valuation allowance of $1.2 million, resulting in a net deferred tax liability of $24.2 million. At September 30, 2021, deferred tax liabilities, net of deferred tax assets, were $23.2 million. The deferred tax assets were partially offset by a valuation allowance of $1.2 million, resulting in a net deferred tax liability of $24.4 million. The valuation allowance for both periods was recorded because it is more likely than not that a portion of our state deferred tax assets, primarily net operating loss (NOL) carryforwards, will not be realized because we are no longer operating in some states or the NOL carryforward periods are too brief to ~~be unrealizable under U.S. GAAP.~~

~~In determining our valuation allowance, we assessed available~~realize the related deferred tax asset. We will continue to evaluate both the positive and negative evidence ~~to estimate whether sufficient future taxable income will be generated to permit use~~in determining the need for a valuation allowance on our deferred tax assets. Any reversal of the ~~existing deferred~~valuation allowance in future periods will impact our effective tax ~~assets under U.S. GAAP. A significant piece~~rate.

Table of ~~objective evidence evaluated was the cumulative loss incurred over the three-year period ended~~Contents

Land and Lot Position

Our land and lot position at December 31, 2021 and September 30, ~~2017, principally driven~~2021 is summarized as follows:


	December 31, 2021	September 30, 2021
Lots owned	65,700	64,400
Lots controlled through land and lot purchase contracts	37,600	32,600
Total lots owned and controlled	103,300	97,000

At December 31, 2021, our lot position consisted of 103,300 residential lots, of which approximately 65,700 were owned and 37,600 were controlled through purchase contracts. Of our total owned residential lots, approximately 20,000 were under contract to sell to D.R. Horton. Additionally, D.R. Horton has the right of first offer on approximately 18,300 of our owned residential lots based on executed purchase and sale agreements. At December 31, 2021, our lots owned included approximately 4,900 lots that were fully developed, of which approximately 200 are related to lot banking. At December 31, 2021, we had approximately 1,000 lots under contract to sell to customers other than D.R. Horton.

Liquidity and Capital Resources

At December 31, 2021, we had $162.5 million of cash and cash equivalents and $343.7 million of available borrowing capacity on our revolving credit facility. We have no senior note maturities until fiscal 2026. We believe we are well-positioned to effectively operate 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.

At December 31, 2021, our ratio of debt to total capital (debt divided by ~~impairments~~stockholders’ equity plus debt) was 40.0% compared to 41.0% at September 30, 2021 and 42.3% at December 31, 2020. Our ratio of ~~oil~~net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 33.9% compared to 35.2% at September 30, 2021 and ~~gas~~31.8% at December 31, 2020. Over the long term, we intend to maintain our ratio of net debt to total capital at approximately 40% or less. We believe that the ratio of net debt to total capital is useful in understanding the leverage employed in our operations.

We believe that our existing cash resources and ~~real estate properties in prior years. Such evidence limits~~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 ~~consider other subjective evidence, such as our projected future taxable income.~~

~~The amount of the deferred tax asset considered realizable could be adjusted if negative evidence~~obtain financing in ~~the form of cumulative losses is no longer present and additional weight is given to subjective evidence, such as our projected future taxable income.~~

~~Our unrecognized tax benefits totaled approximately $442,000 at third quarter-end 2017, all of which would affect our effective tax rate, if recognized.~~

~~Capital Resources and Liquidity~~

~~Sources and Uses of Cash~~

The consolidated statements of cash flows for first nine months 2017 and 2016 reflect cash flows from both continuing and discontinued operations. We operate in cyclical industries and our cash flows fluctuate accordingly. Our principal sources of cash are proceeds from the sale of real estate, the cash flows from our mineral resources and income producing properties, borrowings and reimbursements from utility and improvement districts. Our principal cash requirements are for the acquisition and development of real estate, either directly or indirectly through ventures, taxes, interest and compensation. Operating cash flows are affected by the timing of the payment of real estate development expenditures and the collection of proceeds from the eventual sale of the real estate, the timing of which can vary substantially depending on many factors including the size of the project, state and local permitting requirements and availability of utilities. Working capital varies based on a variety of factors, including the timing of sales of real estate, collection of receivables, reimbursement from utility and improvement districts and the payment of payables and expenses.

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. WeSubject to market conditions we may, at any time, be considering or ~~be in discussions with respect to~~preparing for the purchase or sale of our ~~common stock,~~ debt securities, ~~convertible securities~~the sale of our common stock or a combination thereof.

~~Cash Flows from Operating Activities~~

~~Cash flows from~~Bank Credit Facility

We have a $410 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments. The maturity date of the facility is April 16, 2025. 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 ~~acquisition~~assets and ~~development activities, undeveloped land~~unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. There were no borrowings or repayments under the facility in the three months ended December 31, 2021. At December 31, 2021, there were no borrowings outstanding and $66.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $343.7 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 December 31, 2021, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

Table of Contents

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. The notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness and may be redeemed prior to maturity, subject to certain limitations and premiums defined in the respective indenture. The notes are guaranteed by each of our subsidiaries to the extent such subsidiaries guarantee our revolving credit facility.

Our $400 million principal amount of 3.85% senior notes (the "2026 notes") mature May 15, 2026 with interest payable semi-annually. On or after May 15, 2023, the 2026 notes may be redeemed at 101.925% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1%.

We also have outstanding $300 million principal amount of 5.0% senior notes (the "2028 notes"), which mature March 1, 2028 with interest payable semi-annually. On or after March 1, 2023, the 2028 notes may be redeemed at 102.5% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2028 notes can be redeemed at par on or after March 1, 2026 through maturity. The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.

The indentures governing 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), we offer to purchase the notes at 101% of their principal amount. If we or our restricted subsidiaries dispose of assets, under certain circumstances, we will be required to either invest the net cash proceeds from such asset sales ~~commercial~~in our business within a specified period of time, repay certain senior secured debt or debt of our non-guarantor subsidiaries, or make an offer to purchase a principal amount of 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 our ability and ~~income producing properties, timber~~the ability of our restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments; incur additional debt or issue mandatorily redeemable equity; incur liens on assets; merge or consolidate with another company or sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments. At December 31, 2021, 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 December 31, 2021.

Other Note Payable

Our other note payable of $12.5 million 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.

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 ~~income from oil~~under our at-the-market equity offering program that became effective in November 2021. In the three months ended December 31, 2021, 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 ~~gas properties, recreational leases and reimbursements from utility and improvement districts are classified as operating cash flows.~~other issuance costs totaling $0.1 million. At December 31, 2021, $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.

Table of Contents

Operating Cash Flow Activities

In ~~first nine~~the three months ~~2017~~,ended December 31, 2021, net cash provided by operating activities was ~~$994,000~~$5.8 million compared to ~~$29,807,000~~$158.7 million of cash used in ~~net~~operating activities in the three months ended December 31, 2020. The cash provided by operating activities in ~~first nine months 2016.~~the current period was primarily the result of the net income generated in the period and increases in liabilities and other accrued expenses, partially offset by the increase in our real estate. The ~~decrease~~cash used in ~~cash provided by~~ operating activities in the prior year ~~over year~~period was primarily due to the payment of a $20,000,000 merger agreement termination fee and $5,624,000 of professional fees and other costs related to proposed merger transactions, no retail land sales in 2017, $14,703,000 in funds received in first quarter 2016 that were previously held by a qualified intermediary for an intended like-kind exchange that was not completed related to a 2015 sale of undeveloped land and payment of $3,000,000 related to a legal settlement in first nine months 2017. These items were partially offset by an increase in ~~distributions of earnings of unconsolidated ventures in first nine~~real estate.

Investing Cash Flow Activities

In the three months ~~2017.~~

~~Cash Flows from Investing Activities~~

Capital contributions to and capital distributions from unconsolidated ventures, costs incurred to acquire, develop and construct multifamily projects that will be held as commercial operating properties upon stabilization as investment property, business acquisitions and investment in oil and gas properties and equipment are classified as investing activities. In addition, proceeds from the sale of property and equipment and software costs are also classified as investing activities.

~~In first nine months~~ ~~2017~~,ended December 31, 2021, net cash provided by investing activities was $~~127,690,000~~ ~~principally as a result of sales proceeds of $130,146,000 from~~$3.2 million compared to $2.0 million in the ~~execution of our key initiative to opportunistically sell non-core assets, which includes~~

~~$85,240,000 from the sale of our owned mineral assets and working interest assets and $45,396,000 from the sale of our remaining timberland and undeveloped land in Georgia and Texas. In first nine~~three months ~~2016, net~~ended December 31, 2020. The cash provided by investing activities ~~was $311,203,000 principally as a result~~in the current period consists primarily of ~~sales proceeds of $319,351,000 from the execution of our key initiative to opportunistically sell non-core assets, which includes $128,764,000~~cash received from the sale of ~~Radisson Hotel & Suites, $113,772,000 from the sale of multifamily properties and $76,815,000 from sale of oil and gas properties.~~

~~Cash Flows from Financing Activities~~

~~In first nine months 2017, net~~an investment. Additionally, cash provided by investing activities in both periods includes distributions received from our unconsolidated ventures.

Financing Cash Flow Activities

In the three months ended December 31, 2021, net cash used in financing activities was ~~$877,000 principally due~~$0.1 million compared to an increase in debt from a consolidated venture project which was partially offset by payroll taxes in excess of proceeds related to issuance of stock based awards. In first nine months 2016, net cash used for financing activities was $315,322,000 principally due to retirement of $225,245,000 of our 8.5% senior secured notes, $5,000,000 of our 3.75% convertible senior notes, $6,750,000 of payments related to amortizing notes associated with our tangible equity units and payment in full of $39,336,000 loans secured by the Radisson Hotel & Suites and the Eleven multifamily property, both of which were sold in second quarter 2016.

~~Real Estate Acquisition and Development Activities~~

~~We secure entitlements and develop infrastructure, primarily for single family residential and mixed-use communities.~~

We categorize real estate development and acquisition expenditures as operating activities on the statement of cash flows. These development and acquisition expenditures include costs for development of residential lots and mixed-use communities.

~~Real estate development and acquisition expenditures were $38,355,000 and $56,552,000 in first nine months 2017 and 2016.~~

~~Liquidity~~

~~Prior to Completion of the Merger~~

~~At third quarter-end 2017, net unused borrowing capacity under our senior secured credit facility is calculated as follows:~~

Senior Credit
Facility
(In thousands)
Borrowing base availability $ 29,077
Less: borrowings —
Less: letters of credit (14,267 )
$ 14,810

~~Our net unused borrowing capacity during third quarter 2017 ranged from a high of $14,810,000 to a low of $14,239,000.~~

Our debt agreements contain financial covenants customary for such agreements including minimum levels of interest coverage and limitations on leverage. At third quarter-end 2017, we were in compliance with the financial covenants of these agreements.

~~The following table details our compliance with the financial covenants calculated as provided~~$0.2 million in the ~~senior secured credit facility:~~three months ended December 31, 2020.



~~Financial Covenant~~	~~Requirement~~	~~Third Quarter-End 2017~~
~~Interest Coverage Ratio~~ ^(a)	~~≥2.50:1.0~~	~~23.41:1.0~~
~~Total Leverage Ratio~~ ^(b)	~~≤50%~~	~~25.6~~	%
~~Tangible Net Worth~~ ^(c)	~~≥$479.1 million~~	~~$616.4 million~~

~~___________________________________~~


^(a)	Calculated as EBITDA (earnings before interest, taxes, depreciation, depletion and amortization), plus non-cash compensation expense, plus other non-cash expenses, divided by interest expense excluding loan fees. This covenant is applied at the end of each quarter on a rolling four quarter basis.

^(b)

Calculated as total funded debt divided by adjusted asset value. Total funded debt includes indebtedness for borrowed funds, secured liabilities, reimbursement obligations with respect to letters of credit or similar instruments, and our pro-rata share of joint venture debt outstanding. Adjusted asset value is defined as the sum of unrestricted cash and cash equivalents, high value timberlands, raw entitled lands, entitled land under development, special improvement district reimbursements (SIDR) value and other real estate owned at book value without regard to any indebtedness and our pro rata share of joint ventures’ book value without regard to any indebtedness. This covenant is applied at the end of each quarter.

^(c)

Calculated as the amount by which consolidated total assets exceed consolidated total liabilities. At third quarter-end 2017, the requirement is $479,117,000 computed as: $379,044,000 plus 85 percent of the aggregate net proceeds received by us from any equity offering, plus 75 percent of all positive net income, on a cumulative basis since third quarter-end 2015. This covenant is applied at the end of each quarter.

To make additional discretionary investments, acquisitions, or distributions, we must maintain available liquidity equal to 10 percent of the aggregate commitments in place. At third quarter-end 2017, the minimum liquidity requirement was $5,000,000, compared with $404,852,000 in actual available liquidity based on the unused borrowing capacity under our senior secured credit facility plus unrestricted cash and cash equivalents. The failure to maintain such minimum liquidity does not constitute a default or event of default of our senior secured credit facility.

Discretionary investments in community development may be restricted in the event that the revenue/capital expenditure ratio is less than or equal to 1.0x. At third quarter-end 2017, our revenue/capital expenditure ratio was 2.6x. Revenue is defined as total gross revenues (excluding revenues attributed to Credo and multifamily properties), plus our pro rata share of the operating revenues from unconsolidated ventures. Capital expenditures are defined as consolidated development and acquisition expenditures (excluding investments related to Credo and multifamily properties), plus our pro rata share of unconsolidated ventures’ development and acquisition expenditures.

We may elect to make distributions to our stockholders so long as the total leverage ratio is less than 40 percent, the interest coverage ratio is greater than 3.0:1.0 and available liquidity is not less than $125,000,000, all of which were satisfied at third quarter-end 2017. Regardless of whether the foregoing conditions are satisfied, we may make distributions in an aggregate amount not to exceed $50,000,000 to be funded from up to 65 percent of the net proceeds from sales of multifamily properties and non-core assets, such as the Radisson Hotel & Suites in Austin, and any oil and gas properties.

~~Following Completion of the Merger~~

~~Letter of Credit Facility~~

The LC Facility is secured by $30,000,000 in cash deposited with the administrative agent. We are required to pay a letter of credit fee of 1.25% per annum on the outstanding face amount of the letters of credit issued under the LC Facility, as well as other customary fees and expenses. We also are required to pay an unused facility fee of 0.15% per annum, in each case on the daily amount by which the aggregate commitments exceed the sum of the outstanding letters of credit during each fiscal quarter or portion thereof.

~~Termination of Senior Credit Facility~~

~~sublimit for letters of credit, of which $14,267,000 were outstanding at the time of termination and were transferred to the new LC Facility.~~

~~3.75% Convertible Senior Notes~~

~~8.50% Senior Secured Notes~~

A~~vailable Cash and New Credit Facility~~

We have significantly reduced our outstanding debt since 2015 and have also generated significant available cash for reinvestment in our core community development business as a result of execution of our key initiatives over the past two years. The merger with D.R Horton provides us an opportunity to substantially grow our business in the future by establishing a strategic relationship to supply finished lots to D. R. Horton at market prices under a master supply agreement. We will fund our growth initially with available cash on our balance sheet, and we are also evaluating our longer-term capital structure, projected future liquidity and working capital requirements. We will pursue a new credit facility to support our growth and will also consider other alternatives to raise additional capital in the future, such as issuing debt or equity securities, as we expand our business with the goal of being a leading national land developer.

Contractual Obligations and Off-Balance Sheet Arrangements

In ~~2014, FMF Littleton LLC, an equity method venture in which~~support of our residential lot development business, we ~~own~~issue letters of credit under our revolving credit facility and we have a ~~25 percent interest, obtained a senior secured construction loan in~~surety bond program that provides financial assurance to beneficiaries related to the amount of $46,384,000 to develop a 385-unit multifamily project located in Littleton, Colorado. The outstanding balance was $46,064,000 at third quarter-end 2017. We provided the lender with a guaranty of completion of the improvements; a guaranty for repayment of 25 percent of the principal balanceexecution and ~~unpaid accrued interest; and a standard nonrecourse carve-out guaranty. In third quarter 2017, the principal guaranty was reduced from 25 percent to 10 percent of principal due to achievement~~performance of certain ~~conditions.~~

~~In 2014, CREA FMF Nashville LLC, an equity method venture in which~~development obligations. At December 31, 2021, we ~~own a 30 percent interest, obtained a senior secured construction loan in~~had outstanding letters of credit of $66.3 million under the ~~amount~~revolving credit facility and surety bonds of $51,950,000 to develop a 320-unit multifamily project located in Nashville, Tennessee. The outstanding balance at third quarter-end 2017 was $35,778,000. We provided the lender with a guaranty of completion of the improvements; a guaranty for repayment of 25 percent of the principal balance and unpaid accrued interest; and a standard nonrecourse carve-out guaranty. The principal guaranty will reduce from 25 percent of principal to zero percent upon achievement of certain conditions. In first quarter 2017, the principal guaranty was reduced from 25 percent to 15 percent of principal due to achievement of certain conditions.

~~Cibolo Canyons—San Antonio, Texas~~

~~Cibolo Canyons consists of the JW Marriott~~ ^® ~~San Antonio Hill Country Resort & Spa development owned~~$528.2 million, issued by third parties ~~and a mixed-use development we own. Our net investment in Cibolo Canyons is $43,299,000 at third quarter-end 2017, all of which is related~~ to ~~the mixed-use development.~~

~~Mixed-Use Development~~

The mixed-use development we own consists of 2,100 acres planned to include approximately 2,000 residential lots and 133 commercial acres designated for multifamily and retail uses, of which 1,208 lots and 97 commercial acres have been sold through third quarter-end 2017.

In 2007, we entered into an agreement with CCSID providing for reimbursement of certain infrastructure costs related to the mixed-use development. Reimbursements are subject to review and approval by CCSID and unreimbursed amounts accrue interest at 9.75 percent per annum. CCSID’s funding for reimbursements is principally derived from its ad valorem tax collections and bond proceeds collateralized by ad valorem taxes, less debt service on these bonds and annual administrative and public service expenses.

Because the amount of each reimbursement is dependent on several factors, including timing of CCSID approval and CCSID having an adequate tax base to generate funds that can be used to reimburse us, there is uncertainty as to the amount and timing of reimbursementssecure performance under ~~this agreement.~~various contracts. We expect ~~to recover~~that our ~~investment from lot and tract sales and reimbursement of approved infrastructure costs from CCSID. We have not recognized income from interest due, but not collected. As~~performance obligations secured by these ~~uncertainties are clarified, we will modify our accounting accordingly.~~

Through third quarter-end 2017, our inception-to-date submitted reimbursements for the Cibolo Canyons project were $56,750,000, of which $52,337,000 have been approved, and we have collected $46,567,000, of which $1,435,000 was received in first nine months 2017. At third quarter-end 2017, we have $10,183,000 in pending submitted reimbursements, excluding interest.

~~Resort Hotel, Spa and Golf Development~~

~~In 2007, we entered into agreements to facilitate third party construction and ownership of the JW Marriott~~ ^® ~~San Antonio Hill Country Resort & Spa (the Resort), which includes a 1,002 room destination resort and two PGA Tour~~ ^® ~~Tournament Players Club~~ ^® ~~(TPC) golf courses.~~

In exchange for our commitment to the Resort, the third party owners assigned to us certain rights under an agreement between the third party owners and CCSID. This agreement includes the right to receive from CCSID 9 percent of hotel occupancy revenues and 1.5 percent of other resort sales revenues collected as taxes by CCSID through 2034. The amount we receive will be net of annual ad valorem tax reimbursements by CCSID to the third party owners of the resort through 2020. In addition, these payments will be net of debt service on bonds issued by CCSID collateralized by hotel occupancy tax (HOT) and other resort sales tax through 2034. The amounts we collect under this agreement are dependent on several factors including the amount of revenues generated by and ad valorem taxes imposed on the Resort and the amount of debt service incurred by CCSID.

In 2014, we received $50,550,000 from CCSID principally related to its issuance of $48,900,000 HOT and Sales and Use Tax Revenue Bonds, resulting in recovery of our full Resort investment. These bonds are obligations solely of CCSID and are payable from HOT and sales and use taxes levied on the Resort by CCSID. To facilitate the issuance of the bonds, we provided a $6,846,000 letterletters of credit ~~to the bond trustee as security for certain debt service fund obligations~~and bonds will generally be completed in the ~~event CCSID tax collections are not sufficient to support payment~~ordinary course of ~~the bonds~~business and in accordance with ~~their~~the applicable contractual terms. ~~The letter~~When we complete our performance obligations, the related letters of credit ~~must be maintained until the earlier of redemption of the~~and bonds ~~or scheduled bond maturity in 2034.~~are generally released shortly thereafter, leaving us with no continuing obligations. We also entered into an agreement with the owner of the Resort to assign its senior rights to us in exchange for consideration provided by us, including a surety bond to be drawn if CCSID tax collections are not sufficient to support ad valorem tax rebates payable. The surety bond has a balance of $5,312,000 at third quarter-end 2017. The surety bond decreases as CCSID makes annual ad valorem tax rebate payments, which obligation is scheduled to be retired in full by 2020. All future receipts are expected to be recognized as gains in the period collected. We received $465,000 in first nine months 2017.have no material third-party guarantees.

Critical Accounting Policies and Estimates

There have been no ~~significant~~material changes in our critical accounting policies or estimates from those disclosed in our ~~2016~~2021 Annual Report on Form 10-K.

New and Pending Accounting Pronouncements

Please read Note ~~2—New and Pending Accounting Pronouncements~~1—Basis of Presentation to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

~~Statistical~~

Table of Contents

Forward-Looking Statements

This Quarterly Report on Form 10-Q and ~~Other Data~~other materials we have filed or may file with the Securities and Exchange Commission contain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “likely,” “intend,” “may,” “plan,” “expect,” and similar expressions, including references to assumptions. These statements reflect our current views with respect to future events and are subject to risks and uncertainties. We note that a variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements. Factors and uncertainties that might cause such differences include, but are not limited to:

~~A summary~~•the effect of D.R. Horton's controlling level of ownership on us and the holders of our securities;

•our ability to realize the potential benefits of the strategic relationship with D.R. Horton;

•the effect of our strategic relationship with D.R. Horton on our ability to maintain relationships with our customers;

•the impact of COVID-19 on the economy and our business;

•the cyclical nature of the homebuilding and lot development industries and changes in economic, real estate and other conditions;

•the impacts of weather conditions and natural disasters;

•health and safety incidents relating to our operations;

•supply shortages and other risks of acquiring land, construction materials and skilled labor;

•competitive conditions in our industry;

•our ability to achieve our strategic initiatives;

•continuing liabilities related to assets that have been sold;

•the impact of governmental policies, laws or regulations and actions or restrictions of regulatory agencies;

•the cost and availability of property suitable for residential lot development;

•general economic, market or business conditions where our real estate ~~projects~~activities are concentrated;

•our dependence on relationships with national, regional and local homebuilders;

•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;

•obtaining reimbursements and other payments from governmental districts and other agencies and timing of such payments;

•our ability to succeed in new markets;

•the ~~entitlement process~~^(a) at ~~third quarter-end2017~~ ~~follows:~~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;



~~Project~~	~~County~~	~~Market~~	~~Project Acres~~ ^(b)
~~California~~
~~Hidden Creek Estates~~	~~Los Angeles~~	~~Los Angeles~~	~~700~~
~~Terrace at Hidden Hills~~	~~Los Angeles~~	~~Los Angeles~~	30
~~Total~~			~~730~~

~~_________________________~~

^(a)

A project is deemed to be in the entitlement process when customary steps necessary for the preparation of an application for governmental land-use approvals, like conducting pre-application meetings or similar discussions with governmental officials, have commenced, or an application has been filed. Projects listed may have significant steps remaining, and there is no assurance that entitlements ultimately will be received.


^(b)	~~Project acres, which are the total for the project regardless of our ownership interest, are approximate. The actual number of acres entitled may vary.~~

~~A summary~~•the volatility of ~~activity within our active projects in~~ the ~~development process, which includes entitled, developed~~market price and ~~under development real estate projects, at third quarter-end 2017 follows:~~

Residential Lots/Units Commercial Acres
Project County
Interest
Owned ^(a)
Lots/Units Sold
Since
Inception Lots/Units
Remaining Acres Sold
Since
Inception Acres
Remaining

Texas
Austin
Arrowhead Ranch Hays 100 % 26
358
—
19
Hunter's Crossing Bastrop 100 % 510
—
66
39
536
358
66
58
Corpus Christi
Padre Island ^(b)
Nueces 50 % —
—
—
13
—
—
—
13
Dallas-Ft. Worth
Bar C Ranch Tarrant 100 % 487
660
—
—
Lakes of Prosper Collin 100 % 271
16
4
—
Lantana Denton 100 % 3,778
326
44
—
Parkside Collin 100 % 174
26
—
—
The Preserve at Pecan Creek Denton 100 % 645
137
—
7
River's Edge Denton 100 % —
217
—
—
Stoney Creek Dallas 100 % 347
316
—
—
Summer Creek Ranch Tarrant 100 % 983
245
79
—
Timber Creek Collin 88 % 144
453
—
—
Village Park Collin 100 % 567
—
5
—
7,396
2,396
132
7
Houston
Barrington Kingwood Harris 100 % 176
4
—
—
City Park Harris 75 % 1,468
—
58
103
Harper's Preserve ^(b)
Montgomery 50 % 634
1,189
76
1
Imperial Forest Harris 100 % 84
347
—
—
Long Meadow Farms ^(b)
Fort Bend 38 % 1,734
62
237
60
Southern Trails ^(b)
Brazoria 80 % 995
—
1
—
Spring Lakes Harris 100 % 348
—
29
—
Summer Lakes Fort Bend 100 % 811
251
58
1
Summer Park Fort Bend 100 % 135
64
36
65
Willow Creek Farms II Waller / Fort Bend 90 % 154
111
—
—
6,539
2,028
495
230
San Antonio
Cibolo Canyons Bexar 100 % 1,208
790
97
36
Oak Creek Estates Comal 100 % 352
—
13
—
Olympia Hills Bexar 100 % 754
—
10
—
Stonewall Estates Bexar 100 % 386
—
—
—
2,700
790
120
36
17,171
5,572
813
344

Residential Lots/Units Commercial Acres
Project County
Interest
Owned ^(a)
Lots/Units Sold
Since
Inception Lots/Units
Remaining Acres Sold
Since
Inception Acres
Remaining
Colorado
Denver
Buffalo Highlands Weld 100 % —
164
—
—
Cielo Douglas 100 % —
343
—
—
Johnstown Farms Weld 100 % 281
355
2
—
Pinery West Douglas 100 % 86
—
20
104
Stonebraker Weld 100 % —
603
—
—
367
1,465
22
104
Georgia
Atlanta
Harris Place Paulding 100 % 24
3
—
—
Montebello ^(b)
Forsyth 90 % —
223
—
—
Seven Hills Paulding 100 % 939
313
26
113
West Oaks Cobb 100 % 19
37
—
—
982
576
26
113
North & South Carolina
Charlotte
Ansley Park Lancaster 100 % —
307
—
—
Habersham York 100 % 127
60
1
5
Moss Creek Cabarrus 100 % —
84
—
—
Walden Mecklenburg 100 % —
384
—
—
127
835
1
5
Raleigh
Beaver Creek ^(b)
Wake 90 % 90
103
—
—
90
103
—
—
217
938
1
5
Tennessee
Nashville
Beckwith Crossing Wilson 100 % 49
50
—
—
Morgan Farms Williamson 100 % 147
26
—
—
Scales Farmstead Williamson 100 % 72
125
—
—
Weatherford Estates Williamson 100 % 16
1
—
—
284
202
—
—
Wisconsin
Madison
Juniper Ridge/Hawks Woods ^{(b) (d)}
Dane 90 % 56
158
—
—
Meadow Crossing II ^{(b) (c)}
Dane 90 % 31
141
—
—
87
299
—
—
Arizona, California, Utah
Tucson
Boulder Pass ^{(b) (d)}
Pima 50 % 38
50
—
—
Dove Mountain Pima 100 % —
—
—
—
38
50
—
—
Oakland
San Joaquin River Contra Costa/Sacramento 100 % —
—
264
25
—
—
264
25
Salt Lake City
Suncrest ^{(b) (d)}
Salt Lake 90 % 1
173
—
—
1
173
—
—
39
223
264
25

Total 19,147
9,275
1,126
591

~~_________________________~~


^(a)	~~Interest owned reflects our total interest in the project, whether owned directly or indirectly, which may be different than our economic interest in the project.~~


^(b)	~~Projects in ventures that we account for using equity method.~~


^(c)	~~Venture project that develops and sells homes.~~


^(d)	~~Venture project that develops and sells lots and homes.~~

~~A summary~~trading volume of our ~~non-core multifamily operating properties at third quarter-end 2017 follows:~~common stock;

•our ability to hire and retain key personnel;

•the impact of significant inflation, higher interest rates or deflation; and

•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.

Other factors, including the risk factors described in Item 1A of our 2021 Annual Report on Form 10-K, may also cause actual results to differ materially from those projected by our forward-looking statements. New factors emerge from time to time and it is not possible for us to predict all such factors, nor can we assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

Table of Contents

Project Market
Interest
Owned ^(a)
Type Acres Description
Elan 99 Houston 90 % Multifamily 17
360-unit luxury apartment
Acklen Nashville 30 % Multifamily 4
320-unit luxury apartment
HiLine Denver 25 % Multifamily 18
385-unit luxury apartment
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.

~~_________________________~~


^(a)	~~Interest owned reflects our total interest in the project, whether owned directly or indirectly, which may be different than our economic interest in the project.~~

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate ~~Sensitivity~~Risk

We ~~have no significant exposure~~are subject to interest rate ~~risk.~~risk on our senior debt, revolving credit facility and our other note payable. We monitor our exposure to changes in interest rates and utilize both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. Except in very limited circumstances, we do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not have a significant impact on our cash flows related to our fixed-rate debt until such time as we are required to refinance, repurchase or repay such debt.

Our fixed rate debt consists of $400 million principal amount of 3.85% senior notes due May 2026, $300 million principal amount of 5.0% senior notes due March 2028 and $12.5 million principal amount of 4.0% other note payable due in October 2023. Our variable rate debt consists of the outstanding borrowings on our $410 million senior unsecured revolving credit facility, of which there were none at December 31, 2021.

Foreign Currency Risk

We have no exposure to foreign currency fluctuations.

Commodity Price Risk

We have no significant exposure to commodity price fluctuations.

Item 4.Controls and Procedures

(a) Disclosure ~~Controls~~controls and ~~Procedures~~procedures

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ~~(or the~~(the Exchange Act)), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and ~~are~~were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in ~~Internal Control~~internal control over ~~Financial Reporting~~financial reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the ~~period covered by this report~~quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

Item 1.Legal Proceedings

We are involved ~~directly or through ventures~~ in various legal proceedings that arise from time to time in the ordinary course of ~~doing~~our business. We believe we have established adequate reserves for any probable losses and that the outcome of any of the proceedings should not have a material adverse effect on our financial position or long-term results of operations or cash flows. It is possible, however, that ~~circumstances beyond our control or significant subsequent developments could result in additional~~ charges related to these matters ~~that~~ could be significant to our results of operations or cash flow in any single accounting period.

Item ~~1A.Risk Factors~~

~~There are no material changes from the risk factors disclosed in our 2016 Annual Report on Form 10-K and our first and second quarter 2017 Quarterly Reports on Form 10-Q except as follows:~~

So long as D.R. Horton controls us, our other stockholders will have limited ability to influence matters requiring stockholder approval, and D.R. Horton's interest may conflict with the interests of our other stockholders.

D.R. Horton beneficially owns approximately 75% of our common stock. As a result, until such time as D.R. Horton and its controlled affiliates hold shares representing less than a majority of the votes entitled to be cast by our stockholders at a stockholder meeting, D.R. Horton generally will have the ability to control the outcome of any matter submitted for the vote of our stockholders, except in certain circumstances set forth in the our new certificate of incorporation or bylaws. In addition, under the terms of a stockholder's agreement with D.R. Horton, so long as D.R. Horton or its affiliates own 35% or more of our voting securities, we may not take certain actions without D.R. Horton's approval, including certain actions with respect to equity issuances, indebtedness, acquisitions and executive hiring, termination and compensation.

In addition, pursuant to the stockholder's agreement with D.R. Horton, we are subject to certain requirements and limitations regarding the composition of our Board. However, many of those requirements and limitations expire in January 2019 (15 months after the merger). Thereafter, for so long as D.R. Horton and its controlled affiliates hold shares of our common stock representing at least a majority of the votes entitled to be cast by our stockholders at a stockholder meeting, D.R. Horton will be able to nominate and elect all the members of our Board, subject to a requirement that we and D.R. Horton use reasonable best efforts to cause at least three directors to qualify as "independent directors," as such term is defined in the NYSE listing rules, and applicable law. The directors elected by D.R. Horton will have the authority to make decisions affecting our capital structure, including the issuance of additional capital stock or options, the incurrence of additional indebtedness, the implementation of stock repurchase programs and the declaration of dividends.

The interests of D.R. Horton may not coincide with the interests of our other stockholders. D.R. Horton's ability, subject to the limitations in the stockholder's agreement and our new certificate of incorporation and bylaws, to control matters submitted to our stockholders for approval will limit the ability of other stockholders to influence corporate matters, which may cause us to take actions that our stockholders do not view as beneficial to them. In such circumstances, the market price of our common stock could be adversely affected. In addition, the existence of a controlling stockholder may have the effect of making it more difficult for a third party to acquire us, or may discourage a third party from seeking to acquire us. A third party would be required to negotiate any such transaction with D.R. Horton, and the interests of D.R. Horton with respect to such transaction may be different from the interests of our other stockholders.

Subject to limitations in the stockholder's agreement and the our new certificate of incorporation that limit D.R. Horton's ability to take advantage of certain corporate opportunities, D.R. Horton is not restricted from competing with us or otherwise taking for itself or its other affiliates certain corporate opportunities that may be attractive to us.

~~Any inability to resolve favorably any disputes that may arise between us and D.R. Horton may result in a significant reduction of our revenues and earnings.~~

~~Disputes may arise between D.R. Horton and us in a number of areas, including:~~

~~business combinations involving us;~~

~~sales or dispositions by D.R. Horton of all or any portion of its ownership interest in us;~~

~~performance under a master supply agreement between D.R. Horton and us;~~

~~arrangements with third parties that are exclusionary to D.R. Horton or us; and~~

~~business opportunities that may be attractive to both D.R. Horton and us.~~

~~We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.~~

New agreements may be entered into between us and D.R. Horton, and agreements we enter into with D.R. Horton may be amended upon agreement between the parties. Because we are controlled by D.R. Horton, we may not have the leverage to negotiate these agreements, or amendments thereto if required, on terms as favorable to us as those that we would negotiate with an unaffiliated third party.

~~D.R. Horton's ability to control our Board may make it difficult for us to recruit independent directors.~~

So long as D.R. Horton and its controlled affiliates hold shares of our common stock representing at least a majority of the votes entitled to be cast by our stockholders at a stockholders' meeting, D.R. Horton will be able to elect all of the members of our Board, subject to the requirement to nominate one individual from the pre-merger Board at our 2018 annual meeting of stockholders. Further, the interests of D.R. Horton and our other stockholders may diverge. Under these circumstances, persons who might otherwise accept an invitation to join our Board may decline.

We qualify as a "controlled company" within the meaning of the NYSE rules and, as a result, may elect to rely on exemptions from certain corporate governance requirements that provide protection to stockholders of companies that are not "controlled companies."

So long as D.R. Horton owns more than 50% of the total voting power of our common stock, we qualify as a "controlled company" under the NYSE corporate governance standards. As a controlled company, we may under the NYSE rules elect to be exempt from obligations to comply with certain NYSE corporate governance requirements, including the requirements:

~~that a majority of our Board consist of independent directors;~~

~~that we have a nominating and governance committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities;~~

~~that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and~~

~~that an annual performance evaluation of the nominating and governance committee and compensation committee be performed.~~

We have not elected to utilize the “controlled company” exemptions at this time. However, if we elect to use the "controlled company" exemptions, our stockholders will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

~~We may not realize potential benefits of the strategic relationship with D.R. Horton, including the transactions contemplated by a master supply agreement with D.R. Horton.~~

A master supply agreement establishes a strategic relationship between us and D.R. Horton for the supply of developed lots. Under the master supply agreement, we will, and D.R. Horton may, present lot development opportunities that it desires to develop to the other party, subject to certain exceptions. The parties will collaborate with respect to such opportunities and, if they elect to develop such opportunities, D.R. Horton will have a right of first refusal to acquire some or all of the lots developed by us, as set forth in the master supply agreement, on market terms as determined by the parties. There are numerous uncertainties associated with our relationship with D.R. Horton, including the risk that the parties will be unable to negotiate mutually acceptable terms for lot development opportunities and the fact that D.R. Horton is not obligated to present lot development opportunities to us. As a result, we may not realize potential growth or other benefits from the strategic relationship with D.R. Horton, which may affect our financial condition or results of operations following completion of the merger.

~~D.R. Horton's control of us or the strategic relationship between D.R. Horton and us may negatively affect our business relationships with other builder customers.~~

So long as D.R. Horton controls us or the strategic relationship between D.R. Horton and us remains in place, our business relationships with other builder customers may be negatively affected, including as a result of the risk that such other builder customers may believe that we will favor D.R. Horton over our other customers. In addition, we have in the past relied on builder referrals as a source for land development opportunities, and there is a risk that builders may refer such opportunities to land developers other than us as a result of our close alignment with D.R. Horton.

~~Item 2.Unregistered Sales of Equity Securities and Use of Proceeds~~

~~Issuer Purchases of Equity Securities~~ ^(a)

6.Exhibits

~~Period~~Exhibit

~~Total~~

~~Number of~~

~~Shares~~

~~Purchased~~

~~Average~~

~~Price~~

~~Paid per~~

~~Share~~

~~Total Number~~

~~of Shares~~

~~Purchased as~~

~~Part of Publicly~~

~~Announced~~

~~Plans or~~

~~Programs~~

~~Maximum~~

~~Number of~~

~~Shares That~~

~~May Yet be~~

~~Purchased~~

~~Under the~~

~~Plans or~~

~~Programs~~

~~Month 1 (7/1/2017 — 7/31/2017)~~

—

~~3,222,692~~

~~Month 2 (8/1/2017 — 8/31/2017)~~

—

~~3,222,692~~

~~Month 3 (9/1/2017 — 9/30/2017)~~

—

~~3,222,692~~

—

~~_________________________~~


^(a)	On February 11, 2009, we announced that our Board of Directors authorized the repurchase of up to 7,000,000 shares of our common stock. We have purchased 3,777,308 shares under this authorization, which has no expiration date. The foregoing purchase authorization is deemed to have terminated upon closing of our merger with D.R. Horton on October 5, 2017.

~~Item 3.Defaults Upon Senior Securities~~

~~None.~~

~~Item 4.Mine Safety Disclosures~~

~~Not applicable.~~

~~Item 5.Other Information~~

~~None.~~

~~Item 6.Exhibits~~

Description

~~Exhibit~~10.1		~~Description~~

~~3.1~~	~~Amended and Restated Certificate~~Equity Distribution Agreement, dated as of ~~Incorporation of~~November 18, 2021, among Forestar Group Inc. and the Sales Agents named therein (incorporated by reference to Exhibit ~~3.1 to~~1.1 of the ~~Company’s~~Company's Current Report on Form 8-K filed with the Commission on ~~October 10, 2017)~~November 18, 2021).
~~3.2~~31.1*		~~Amended and Restated Bylaws of Forestar Group Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2017).~~
~~3.3~~	Certificate of Elimination of Series B Junior Participating Preferred Stock of Forestar Group Inc. (incorporated by reference to Exhibit 3.13 to the Company’s Registration Statement on Form 8-A/A filed with the Commission on October 5, 2017).
~~4.1~~	Third Supplemental Indenture, dated October 5, 2017, between Forestar Group Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2017).
~~10.1~~	Letter of Credit Facility Agreement, dated October 5, 2017, among Forestar Group Inc., Keybank National Association, as lender and administrative agent, and Keybanc Capital Markets, as sole arranger and sole bookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2017).
~~10.2~~	Shared Services Agreement, dated October 6, 2017, between Forestar Group Inc. and D.R. Horton, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2017).
~~10.3~~	~~Form of Indemnification Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2017).~~
~~10.4~~	First Amendment to Employment Agreement, dated as of August 25, 2017, by and between Forestar Group Inc. and Phillip J. Weber (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 28, 2017).
~~31.1~~	Certification of Chief Executive Officer pursuant to Exchange Act rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~31.2~~31.2*		Certification of Chief Financial Officer pursuant to Exchange Act rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~32.1~~32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~32.2~~32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101.1~~101.INS**		~~The following materials from Forestar’s Quarterly Report on Form 10-Q for~~XBRL Instance Document - the ~~quarter ended September 30, 2017, formatted~~instance document does not appear in the Interactive Data File because its XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss), (iii) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.tags are embedded within the Inline XBRL document.
101.SCH**		Inline XBRL Taxonomy Extension Schema Document.
101.CAL**		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104**		Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101).

*		Filed or furnished herewith.
**		Submitted electronically herewith.

~~SIGNATURES~~

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		FORESTAR GROUP INC.

Date: January 28, 2022		~~FORESTAR GROUP INC.~~By:	/s/ James D. Allen
			James D. Allen, on behalf of Forestar Group Inc.
~~Date: November 2, 2017~~		~~By:~~	~~/s/ Charles D. Jehl~~
	~~Charles D. Jehl~~
	as Executive Vice President and Chief Financial Officer
			(Principal Financial and Principal Accounting Officer)


		Page
PART I — FINANCIAL INFORMATION		3
Item 1. Financial Statements (Unaudited) ~~(Unaudited)~~		3
Consolidated Balance Sheets		3
Consolidated Statements of ~~Income (Loss) and Comprehensive Income (Loss)~~Operations		4
Consolidated Statements of Total Equity		5
Consolidated Statements of Cash Flows		56
Notes to Consolidated Financial Statements		67
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2115
Item 3. Quantitative and Qualitative Disclosures About Market Risk		4023
Item 4. Controls and Procedures		4023
PART II — OTHER INFORMATION		41
Item 1. Legal Proceedings		4124
~~Item 1A. Risk Factors~~		41
~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~	43
~~Item 3. Defaults Upon Senior Securities~~	43
~~Item 4. Mine Safety Disclosures~~	43
~~Item 5. Other Information~~	43
Item 6. Exhibits	4424
~~SIGNATURES~~SIGNATURE		4525



	Third Quarter-End			Year-End
	2017			2016
	(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	395,359		$	265,798
Real estate	267,251			293,003
Assets of discontinued operations	—			14
Assets held for sale	14,453			30,377
Investment in unconsolidated ventures	72,920			77,611
Receivables, net	13,004			8,931
Income taxes receivable	23,818			10,867
Prepaid expenses	2,641			2,000
Property and equipment, net	1,046			3,116
Deferred tax asset, net	269			323
Goodwill	—			37,900
Other assets	2,772			3,268
TOTAL ASSETS	$	793,533		$	733,208
LIABILITIES AND EQUITY
Accounts payable	$	3,972		$	4,804
Accrued employee compensation and benefits	2,556			4,126
Accrued property taxes	2,280			2,008
Accrued interest	533			1,585
Earnest money deposits	11,946			10,511
Other accrued expenses	7,203			12,598
Liabilities of discontinued operations	—			5,295
Liabilities held for sale	—			103
Other liabilities	18,275			19,702
Debt, net	115,505			110,358
TOTAL LIABILITIES	162,270			171,090
COMMITMENTS AND CONTINGENCIES
EQUITY
Forestar Group Inc. shareholders’ equity:
Preferred stock, par value $0.01 per share, 200,000 authorized shares at third quarter-end 2017 and none at year-end 2016, none issued	—			—
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 44,803,603 issued at third quarter-end 2017 and year-end 2016	44,804			44,804
Additional paid-in capital	549,382			553,005
Retained earnings	80,430			12,602
Treasury stock, at cost, 2,864,667 shares at third quarter-end 2017 and 3,187,253 shares at year-end 2016	(44,532		)	(49,760		)
Total Forestar Group Inc. shareholders’ equity	630,084			560,651
Noncontrolling interests	1,179			1,467
TOTAL EQUITY	631,263			562,118
TOTAL LIABILITIES AND EQUITY	$	793,533		$	733,208



	Third Quarter						First Nine Months
	2017			2016			2017			2016
	(In thousands, except per share amounts)
REVENUES
Real estate sales and other	$	33,136		$	45,285		$	81,789		$	114,711
Commercial and income producing properties	—			12			91			13,065
Real estate	33,136			45,297			81,880			127,776
Mineral resources	—			1,423			1,502			3,842
Other	—			487			74			1,199
	33,136			47,207			83,456			132,817
COSTS AND EXPENSES
Cost of real estate sales and other	(21,762		)	(24,884		)	(50,142		)	(105,023		)
Cost of commercial and income producing properties	(14		)	(4,375		)	(3		)	(15,326		)
Cost of mineral resources	—			(182		)	(38,315		)	(572		)
Cost of other	(109		)	(363		)	(518		)	(867		)
Other operating expenses	(3,220		)	(6,471		)	(13,905		)	(26,879		)
General and administrative	(5,340		)	(5,177		)	(38,403		)	(16,508		)
	(30,445		)	(41,452		)	(141,286		)	(165,175		)
GAIN ON SALE OF ASSETS	9,690			501			113,411			121,732
OPERATING INCOME	12,381			6,256			55,581			89,374
Equity in earnings of unconsolidated ventures	1,764			3,637			10,873			3,872
Interest expense	(2,038		)	(3,369		)	(6,439		)	(17,926		)
Loss on extinguishment of debt, net	—			—			—			(35,864		)
Other non-operating income	1,140			1,249			2,438			1,620
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES	13,247			7,773			62,453			41,076
Income tax (expense) benefit	(5,214		)	9,666			(33,353		)	(7,415		)
NET INCOME FROM CONTINUING OPERATIONS	8,033			17,439			29,100			33,661
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES	37,193			(7,164		)	38,840			(17,428		)
CONSOLIDATED NET INCOME	45,226			10,275			67,940			16,233
Less: Net (income) attributable to noncontrolling interests	(24		)	(610		)	(112		)	(1,330		)
NET INCOME ATTRIBUTABLE TO FORESTAR GROUP INC.	$	45,202		$	9,665		$	67,828		$	14,903
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	42,270			34,099			42,204			34,234
Diluted	42,626			42,260			42,512			42,334
NET INCOME (LOSS) PER BASIC SHARE
Continuing operations	$	0.19		$	0.40		$	0.69		$	0.77
Discontinued operations	$	0.88		$	(0.17	)	$	0.92		$	(0.42	)
NET INCOME (LOSS) PER BASIC SHARE	$	1.07		$	0.23		$	1.61		$	0.35
NET INCOME (LOSS) PER DILUTED SHARE
Continuing operations	$	0.19		$	0.40		$	0.68		$	0.76
Discontinued operations	$	0.87		$	(0.17	)	$	0.91		$	(0.41	)
NET INCOME (LOSS) PER DILUTED SHARE	$	1.06		$	0.23		$	1.59		$	0.35
TOTAL COMPREHENSIVE INCOME (LOSS)	$	45,202		$	9,665		$	67,828		$	14,903



	Venture Assets				Venture Borrowings^(a)				Venture Equity				Our Investment
	Third Quarter-End		Year-End		Third Quarter-End		Year-End		Third Quarter-End		Year-End		Third Quarter-End		Year-End
	2017		2016		2017		2016		2017		2016		2017		2016
	(In thousands)
242, LLC ^(b)	$	19,600	$	26,503	$	—	$	1,107	$	19,376	$	23,136	$	9,140	$	10,934
CL Ashton Woods, LP	581		2,653		—		—		558		2,198		446		1,107
CL Realty, LLC	8,287		8,048		—		—		8,156		7,899		4,078		3,950
CREA FMF Nashville LLC ^(b)	53,986		56,081		35,676		37,446		17,162		17,091		4,803		4,923
Elan 99, LLC	49,003		49,652		36,373		36,238		11,283		13,100		10,155		11,790
FMF Littleton LLC	68,536		70,282		46,006		44,446		21,745		23,798		5,508		6,128
FMF Peakview LLC	—		—		—		—		—		—		—		—
FOR/SR Forsyth LLC	11,566		10,672		1,548		1,568		9,985		8,990		8,986		8,091
HM Stonewall Estates, Ltd	—		852		—		—		—		852		—		477
LM Land Holdings, LP ^(c)	22,816		25,538		906		3,477		13,771		20,945		6,619		9,685
MRECV DT Holdings LLC	3,573		4,155		—		—		3,573		4,144		3,216		3,729
MRECV Edelweiss LLC/MRECV Lender VIII LLC	7,824		3,484		—		—		7,824		3,484		7,042		3,358
MRECV Juniper Ridge LLC	3,784		4,156		—		—		3,784		4,156		3,405		3,741
MRECV Meadow Crossing II LLC	3,103		2,492		—		—		3,103		2,491		2,793		2,242
Miramonte Boulder Pass, LLC	7,488		10,738		1,391		4,006		4,775		5,265		4,567		5,330
Temco Associates, LLC	4,426		4,368		—		—		4,323		4,253		2,162		2,126
Other ventures	—		—		—		—		—		—		—		—
	$	264,573	$	279,674	$	121,900	$	128,288	$	129,418	$	141,802	$	72,920	$	77,611



	Venture Revenues								Venture Earnings (Loss)												Our Share of Earnings (Loss)
	Third Quarter				First Nine Months				Third Quarter						First Nine Months						Third Quarter						First Nine Months
	2017		2016		2017		2016		2017			2016			2017			2016			2017			2016			2017			2016
	(In thousands)
242, LLC ^(b)	$	—	$	937	$	13,073	$	937	$	(342	)	$	15		$	8,040		$	(449	)	$	(171	)	$	14		$	4,106		$	(218	)
CL Ashton Woods, LP	451		288		3,079		1,977		262			83			1,360			601			307			129			1,739			892
CL Realty, LLC	300		140		499		386		256			72			2,657			136			128			37			1,328			68
CREA FMF Nashville LLC ^(b)	1,410		1,291		4,280		3,273		(159		)	(145		)	(479		)	(1,214		)	(47		)	1,484			(144		)	1,164
Elan 99, LLC	1,188		461		3,116		628		(562		)	(867		)	(1,816		)	(2,211		)	(506		)	(779		)	(1,635		)	(1,989		)
FMF Littleton LLC	1,702		944		4,713		1,791		227			(183		)	47			(531		)	57			(47		)	12			(133		)
FMF Peakview LLC	—		—		—		939		—			—			—			(248		)	—			—			—			(50		)
FOR/SR Forsyth LLC	—		—		—		—		(42		)	(21		)	(110		)	(38		)	(38		)	(19		)	(99		)	(34		)
HM Stonewall Estates, Ltd	—		822		496		1,948		—			280			243			794			—			120			103			347
LM Land Holdings, LP ^(c)	2,703		3,505		19,636		6,531		2,110			2,502			8,327			4,557			757			836			2,746			1,481
MRECV DT Holdings LLC	351		162		939		379		337			157			923			372			303			141			831			334
MRECV Edelweiss LLC/MRECV Lender VIII LLC	293		106		716		287		291			106			713			280			262			96			642			252
MRECV Juniper Ridge LLC	413		151		1,023		356		412			151			1,022			357			371			135			920			321
MRECV Meadow Crossing II LLC	253		112		612		141		254			112			612			94			229			101			551			84
Miramonte Boulder Pass, LLC	2,312		1,015		4,848		1,678		105			(126		)	109			(285		)	101			(63		)	(262		)	(142		)
Temco Associates, LLC	48		77		144		224		21			32			70			111			11			16			35			56
Other ventures	—		6,520		—		6,520		—			2,166			—			2,109			—			1,436			—			1,439
	$	11,424	$	16,531	$	57,174	$	27,995	$	3,170		$	4,334		$	21,718		$	4,435		$	1,764		$	3,637		$	10,873		$	3,872



	Forestar Group Inc.		Noncontrolling Interests			Total
	(In thousands)
Balance at year-end 2016	$	560,651	$	1,467		$	562,118
Net income	67,828		112			67,940
Distributions to noncontrolling interests	—		(400		)	(400		)
Other (primarily share-based compensation)	1,605		—			1,605
	$	630,084	$	1,179		$	631,263



	Third Quarter-End 2017						Year-End 2016
	Carrying Amount			Fair Value			Carrying Amount			Fair Value			Valuation Technique
	(In thousands)
Fixed rate debt	$	(114,502	)	$	(119,246	)	$	(111,506	)	$	(109,789	)	Level 2



State	Entitled, Developed, and Under Development Projects		Land in Entitlement Process and Other		Total
	(In thousands)
Texas	$	151,857	$	2,778	$	154,635
Georgia	6,656		416		7,072
California	1,667		26,813		28,480
North & South Carolina	30,097		45		30,142
Colorado	29,939		—		29,939
Tennessee	16,848		135		16,983
	$	237,064	$	30,187	$	267,251



	Senior Credit Facility
	(In thousands)
Borrowing base availability	$	29,077
Less: borrowings	—
Less: letters of credit	(14,267		)
	$	14,810



				Residential Lots/Units		Commercial Acres
Project	County	Interest Owned ^(a)		Lots/Units Sold Since Inception	Lots/Units Remaining	Acres Sold Since Inception	Acres Remaining

Texas
Austin
Arrowhead Ranch	Hays	100	%	26	358	—	19
Hunter's Crossing	Bastrop	100	%	510	—	66	39
				536	358	66	58
Corpus Christi
Padre Island ^(b)	Nueces	50	%	—	—	—	13
				—	—	—	13
Dallas-Ft. Worth
Bar C Ranch	Tarrant	100	%	487	660	—	—
Lakes of Prosper	Collin	100	%	271	16	4	—
Lantana	Denton	100	%	3,778	326	44	—
Parkside	Collin	100	%	174	26	—	—
The Preserve at Pecan Creek	Denton	100	%	645	137	—	7
River's Edge	Denton	100	%	—	217	—	—
Stoney Creek	Dallas	100	%	347	316	—	—
Summer Creek Ranch	Tarrant	100	%	983	245	79	—
Timber Creek	Collin	88	%	144	453	—	—
Village Park	Collin	100	%	567	—	5	—
				7,396	2,396	132	7
Houston
Barrington Kingwood	Harris	100	%	176	4	—	—
City Park	Harris	75	%	1,468	—	58	103
Harper's Preserve ^(b)	Montgomery	50	%	634	1,189	76	1
Imperial Forest	Harris	100	%	84	347	—	—
Long Meadow Farms ^(b)	Fort Bend	38	%	1,734	62	237	60
Southern Trails ^(b)	Brazoria	80	%	995	—	1	—
Spring Lakes	Harris	100	%	348	—	29	—
Summer Lakes	Fort Bend	100	%	811	251	58	1
Summer Park	Fort Bend	100	%	135	64	36	65
Willow Creek Farms II	Waller / Fort Bend	90	%	154	111	—	—
				6,539	2,028	495	230
San Antonio
Cibolo Canyons	Bexar	100	%	1,208	790	97	36
Oak Creek Estates	Comal	100	%	352	—	13	—
Olympia Hills	Bexar	100	%	754	—	10	—
Stonewall Estates	Bexar	100	%	386	—	—	—
				2,700	790	120	36
				17,171	5,572	813	344