UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 20162017
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From                 to                
Commission File Number: 001-33662
Forestar Group Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 26-1336998
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
6300 Bee Cave Road
Building Two,10700 Pecan Park Blvd., Suite 500150
Austin, Texas 78746-514978750
(Address of Principal Executive Offices, including Zip Code)
Registrant’s telephone number, including area code: (512) 433-5200
6300 Bee Cave Road, Building Two, Suite 500
Austin, Texas 78746
(Former Name or Former Address,if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
Common Stock, par value $1.00 per shareNew York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ¨    No  þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.     Yes  ¨    No  þ
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.     Yes  þ    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).     Yes  þ    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company” and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer oþ
 
Accelerated filer þo
  
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company o
(Do not check if a smaller reporting 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  ¨    No  þ
The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the closing sales price of the Common Stock on the New York Stock Exchange on June 30, 2016,2017, was approximately $210$707 million. For purposes of this computation, all officers, directors, and ten percent beneficial owners of the registrant (as indicated in Item 12) are deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or ten percent beneficial owners are, in fact, affiliates of the registrant.
As of February 27, 2017,23, 2018, there were 41,694,43241,938,936 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Company’s definitive proxy statement for the 20172018 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K.
 


TABLE OF CONTENTS
 
  Page
PART I.
  
Item 1.
Business
3
Item 1A.
Risk Factors
1712
Item 1B.
Unresolved Staff Comments
2216
Item 2.
Properties
2216
Item 3.
Legal Proceedings
2216
Item 4.
Mine Safety Disclosures
2216
   
PART II.
  
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
2317
Item 6.
Selected Financial Data
2519
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2721
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
4838
Item 8.
Financial Statements and Supplementary Data
4939
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
9377
Item 9A.
Controls and Procedures
9377
Item 9B.
Other Information
9377
   
PART III.
  
Item 10.
Directors, Executive Officers and Corporate Governance
9478
Item 11.
Executive Compensation
9478
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
9478
Item 13.
Certain Relationships and Related Transactions, and Director Independence
9578
Item 14.
Principal Accountant Fees and Services
9578
   
PART IV.
  
Item 15.
Exhibits and Financial Statement Schedules
9578
Item 16.
10-K Summary
81
   
SIGNATURES 
 
9881


PART I
 
Item 1.Business
Overview
Forestar Group Inc. is a residential and mixed-use real estate development company. As of October 5, 2017, we are a majority-owned subsidiary of D.R. Horton, Inc. ("D.R. Horton"). For a discussion of the terms of the D.R. Horton merger (the"Merger"), see "Business - D.R. Horton Merger" in Part I, Item 1 of this annual report on Form 10-K. In our core community development business we own directly or through ventures interests in 5049 residential and mixed-use projects comprised of 4,600 acres of real estate located in 1011 states and 1416 markets. In addition, we own interests in various other assets that have been identified as non-core that the company iswe are divesting opportunistically over time. At year-end 2016, our remaining non-core assets principally include approximately 523,000 net acres of owned mineral assets principally located in Texas, Louisiana, Georgia and Alabama, 19,000 acres of timberland and undeveloped land (including mitigation banking), four multifamily assets and approximately 20,000 acres of groundwater leases in central Texas. On February 17,In 2017, we sold our owned mineral assets for $85.6 million. In 2016, we had revenues of $197.3$114.3 million and net income of $58.6$50.3 million. Unless the context otherwise requires, references to “we,” “us,” “our” and “Forestar” mean Forestar Group Inc. and its consolidated subsidiaries. Unless otherwise indicated, information is presented as of December 31, 2016,2017, and references to acreage owned include approximate acres owned by us and ventures regardless of our ownership interest in a venture.
Key Initiatives
ReducingFor the past two years we have focused on reducing costs across our entire organization;
Reviewing entireorganization, selling non-core assets, reducing our outstanding debt and reviewing our portfolio of assets (complete non-core asset sales); and
Reviewing capital structure (allocate capitalallocation to maximize shareholder value).    value. The merger with D.R. Horton provides us an opportunity to grow our core community development business by establishing a strategic relationship to supply finished lots to D.R. Horton at market prices under the 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. As our controlling shareholder, D.R. Horton has significant influence in guiding our strategic direction and operations. As of February 23, 2018, we have acquired 13 new projects since the Merger, representing nearly 5,300 planned lots, of which approximately 35 percent are under contract to sell to D.R. Horton and a majority of these remaining lots are also expected to be sold to D.R. Horton in accordance with the Master Supply Agreement between the two companies.
2016 Transformation Highlights (including ventures):2018 Strategic Initiatives
Core Community Development:
Sold 1,940 residential lots for approximately $68,200 per lot
Approximately 2,100 lots under option contracts with builders at year-end 2016
Sold 298 commercial acres for approximately $44,600 per acre (principally non-core projects)
Sold 1,792 residential tract acres for approximately $8,700 per acre (principally non-core projects)
Cost Reductions:
Reduced SG&A, including discontinued operations, by over 28% compared with full year 2015
Divest Non-core Assets:
ExecutedOur 2018 strategic initiatives include making significant investments in land acquisition and development to expand our community development business into a diversified national platform and finalizing non-core asset sales generating $481.9 millionsales. On February 8, 2018, we entered into and closed on a Purchase and Sale Agreement with Starwood Land, L.P. ("Starwood") to sell 24 legacy projects for $232,000,000. This strategic asset sale included projects owned both directly and indirectly through ventures and consisted of approximately 750 developed and under development lots, over 4,000 future undeveloped lots (including all real estate associated with the Cibolo Canyons mixed-use development), 730 unentitled acres in pre-tax net proceeds:
AssetsPre-Tax Net Proceeds
 (In millions)
Timberland and Undeveloped Land (bulk and retail, ~73,000 acres)$138.0
Radisson Hotel & Suites128.8
Multifamily properties (five properties)118.7
Oil and Gas Working Interests77.1
Non-core Community Development Projects (five projects)19.3
 $481.9
Reduced outstanding debt by $277.8 millionCalifornia, an interest in 2016one multifamily operating property and $323.3 million since third quarter-end 2015a multifamily development site. This sale helps to further streamline our business and provide additional capital for future growth. We plan to invest the capital principally into new land development projects with goals of improving returns and enhancing value for our shareholders.
Business Segments
We manage our operations through three business segments:
Real estate,
Mineral resources, and
Other.


Our real estate segment provided approximately 96%99 percent of our 20162017 consolidated revenues. We are focused on maximizing real estate value through the entitlement and development of strategically located residential and mixed-use communities. We secure entitlements by delivering thoughtful plans and balanced solutions that meet the needs of communities where we operate. Residential development activities target lot sales to local, regional and national home builders who build quality products and have strong and effective marketing and sales programs. The lots we develop in the majority of our communities are for mid-priced homes, predominantly in the first and second move up categories. We invest in projects principally in regions across the southern half of the United States that possess key demographic and growth characteristics that we believe make them attractive for long-term real estate investment. A majority of our active real estate projects are developed on land we or our ventures acquired in the open market.investments. In 2016, we announced that multifamily iswas a non-core business and arewe have been opportunistically divesting our multifamily portfolio and will no longer allocate capital to new communities in this business.assets. At year-end 2016,2017, a multifamily site in Austin was classified aswithin assets held for sale.sale and we owned interests in two multifamily operating properties.
Our mineral resources segment, which is also non-core, provided threeone percent of our 20162017 consolidated revenues. We promote the exploration, development and production of oil and gas on our owned mineral interests. These interests include 523,000 owned net mineral acres which we determined were non-core in 2016 and we are opportunistically divesting these assets over time. At year-end 2016, we classified our non-core mineral assets as held for sale. On February 17,In first quarter 2017, we sold theseall of the remaining assets for $85.6 million.approximately $85,700,000, which generated gains of $82,422,000 in 2017.


Our other segment, all of which is non-core, provided one percentno material revenues in 2017. Historically, revenues from this segment were generated by sales of our 2016 consolidated revenues. We sell wood fiber from our land, primarilyprincipally in Georgia, and leaseleasing land for recreational uses. WeAt year-end 2017, we did not have 19,000 acres of non-core timberland and undeveloped land that was classified as assets held for sale at year-end 2016. In addition, weany remaining timber holdings or recreational leases. We have non-core water interests in 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 20,000 acres of groundwater leases in central Texas that were classified as assets held for sale at year-end 2016.2017, and 20,000 acres of groundwater leases in central Texas.
Our results of operations, including information regarding our business segments, are discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Item 8, Financial Statements and Supplementary Data.
Real Estate
In our real estate segment, we conduct project planning and management activities related to the acquisition, entitlement, development and sale of real estate, primarilyprincipally residential and mixed-use communities, which we refer to as community development. We own and manage our projects either directly or through ventures, which we may use to achieve a variety of business objectives, including more effective capital deployment, risk management, and leveraging a partner’s local market contacts and expertise. Our development projects are principally located in the major markets of Texas.
We have two real estate projects representing approximately 730 acres currently in the entitlement process in California, which includes obtaining zoning and access to water, sewer and roads. In fourth quarter 2016, we classified 3,700 acres in Texas previously in the entitlement process as timberland and undeveloped land as it was determined it was unlikely this project would be entitled and developed in the future, and at year-end 2016 it was classified as assets held for sale. Additional entitlements, such as flexible land use provisions, annexation, and the creation of local financing districts generate additional value for our business and may provide us the right to reimbursement of major infrastructure costs. We use return criteria, which include return on cost, internal rate of return, cash multiples, and margin on sales when determining whether to invest initially or make additional investment in a project. When investment in development meets our return criteria, we will initiate the development process with subsequent sale of lots to home builders or for commercial tracts, internal development, sale to or venture with third parties.
We have 50At year-end 2017, we had 49 entitled, developed or under development projects in 1011 states and 1416 markets encompassing 4,600 acres planned for residential and commercial uses. We may sell land at any point when additional time required for entitlement or investment in development will not meet our return criteria. In 2016, we sold nearly 73,000 acres of timberland and undeveloped land at an average price of $1,925 per acre, of which 58,000 acres were bulk timberland and undeveloped land sales and 15,000 acres were retail land sales.criteria or for other strategic reasons.
A summary of our real estate projects in the entitlement process (a) classified as assets held for sale at year-end 20162017 follows:
Project County Market 
Project Acres (b)
California      
Hidden Creek Estates(c)
 Los Angeles Los Angeles 700
Terrace at Hidden Hills(c)
 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, such as 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 of our non-core timberland and undeveloped land classified as assets held for sale at year-end 2016 follows:
Acres
Timberland
Georgia11,100
Texas (a)
7,900
Total19,000
 _____________________
(a)(c) 
Includes 3,700 acres in Houston that was previously
Included in the entitlement process.strategic asset sale to Starwood on February 8, 2018. Please read Note 22 — Subsequent Event to our consolidated financial statements in this report for additional information regarding this transaction.
Products
The majority of our projects are single-family residential and mixed-use communities. In some cases, commercial land uses within a project enhance the desirability of thea community by providing convenient locations for resident support services.
We develop lots for single-family homes on sites we may purchase.typically purchase in the open market. We sell residential lots primarily to local, regional and national home builders. We have 4,600 acres, principallyAt year-end 2017, we had interests in the major49 entitled, developed or under development projects in 11 states and 16 markets, of Texas, comprised of land planned for approximately 10,20011,600 residential lots and units. We generally focus our lot sales on the firstsold approximately 750 developed and second move-up primary housing categories. Firstunder development lots and second move-up segments are homes priced above entry-level products yet below the high-end and custom home segments.over 4,000 future undeveloped lots subsequent to year-end 2017 in a strategic asset sale to Starwood.
Commercial tracts are developed internally or ventured with commercial developers that specialize in the construction and operation of income producing properties, such as apartments, retail centers, or office buildings. We also sell landLand designated for commercial useuses is typically sold to regional and local commercial developers. We have about 770had approximately 560 acres of entitled land designated for commercial use.
Cibolo Canyons is a significant mixed-use project in the San Antonio market area. Cibolo Canyons includes 2,100 acres planned to include 1,791 residential lots,use at year-end 2017, of which 1,142 have beenapproximately 254 acres were sold as ofsubsequent to year-end 2016 at an average price of $75,000 per lot. The residential component includes not only traditional single-family homes but also an active adult section, and is planned2017 in a strategic asset sale to include condominiums. The remaining 58 acres of commercial component is designated principally for multifamily and retail uses. Located at Cibolo Canyons is the JW Marriott® San Antonio Hill Country Resort & Spa (Resort), a 1,002 room destination resort and two PGA Tour® Tournament Players Club® (TPC) golf courses designed by Pete Dye and Greg Norman. We have the right to receive from the Cibolo Canyons Special Improvement District (CCSID) nine percent of hotel occupancy revenues and 1.5 percent of other resort sales revenues collected as taxes by CCSID through 2034 and reimbursement of certain infrastructure costs related to the mixed-use development. The amount we receive is 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 in 2014 by CCSID as discussed below which are collateralized by hotel occupancy tax (HOT) and other resort sales tax through 2034.Starwood.
In 2014, we received $50,550,000 from CCSID principally related to its issuance of $48,900,000 Hotel Occupancy Tax (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 by CCSID. To facilitate the issuance of the bonds, we provided a $6,846,000 letter of credit to the bond trustee as security for certain debt service fund obligations in the event CCSID tax collections are not sufficient to support payment of the bonds in accordance with their terms. The letter of credit must be maintained until the earlier of redemption of the bonds or scheduled bond maturity in 2034. 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 decreases as CCSID makes annual ad valorem tax rebate payments, which obligation is scheduled to be retired in full by 2020.


A summary of activity within our projects in the development process, which includes entitled, developed and under development single-family and mixed-use projects, at year-end 20162017 follows:
     Residential Lots/Units Commercial Acres     Residential Lots/Units Commercial Acres
Project County 
Interest
Owned (a)
 Lots/Units Sold
Since
Inception		 Lots/Units
Remaining		 Acres Sold
Since
Inception		 Acres
   Remaining		 County 
Interest
Owned (a)
 Lots/Units Sold
Since
Inception		 Lots/Units
Remaining		 Acres Sold
Since
Inception		 Acres
   Remaining
Projects with lots/units in inventory, under development or future planned development, projects with remaining commercial acres only and projects sold out in 2016
Projects with lots/units in inventory, under development or future planned development, projects with remaining commercial acres only and projects sold out in 2017Projects with lots/units in inventory, under development or future planned development, projects with remaining commercial acres only and projects sold out in 2017
Texas                    
Austin                    
Arrowhead Ranch(e) Hays 100% 6
 378
 —
 19
 Hays 100% 32
 352
 —
 19
The Colony Bastrop 100% 566
 —
 27
 —
Double Horn Creek Burnet 100% 167
 —
 —
 —
Hunter's Crossing Bastrop 100% 510
 —
 54
 51
La Conterra Williamson 100% 202
 —
 3
 —
Westside at Buttercup Creek Williamson 100% 1,497
 —
 66
 —
Hunter's Crossing (e)
 Bastrop 100% 510
 —
 66
 39
   2,948
 378
 150
 70
   542
 352
 66
 58
Corpus Christi                    
Caracol Calhoun 75% 65
 —
 14
 —
Padre Island (b)
 Nueces 50% —
 —
 —
 15
 Nueces 50% —
 —
 —
 13
Tortuga Dunes Nueces 75% 95
 —
 4
 —
   160
 —
 18
 15
   —
 —
 —
 13
Dallas-Ft. Worth                    
Bar C Ranch Tarrant 100% 467
 654
 —
 —
 Tarrant 100% 487
 660
 —
 —
Keller Tarrant 100% —
 —
 1
 —
Lakes of Prosper Collin 100% 187
 100
 4
 —
 Collin 100% 283
 4
 4
 —
Lakewood Trails Kaufman 100% —
 599
 —
 —
Lantana Denton 100% 3,670
 432
 44
 —
 Denton 100% 3,801
 303
 44
 —
Maxwell Creek Collin 100% 1,001
 —
 10
 —
Parkside Collin 100% 138
 62
 —
 —
 Collin 100% 186
 14
 —
 —
The Preserve at Pecan Creek Denton 100% 631
 151
 —
 7
 Denton 100% 669
 113
 —
 7
River's Edge Denton 100% —
 202
 —
 —
 Denton 100% —
 217
 —
 —
Stoney Creek Dallas 100% 320
 376
 —
 —
Stoney Creek (e)
 Dallas 100% 347
 316
 —
 —
Summer Creek Ranch Tarrant 100% 983
 245
 35
 44
 Tarrant 100% 983
 245
 79
 —
Timber Creek Collin 88% 80
 521
 —
 —
 Collin 88% 172
 425
 —
 —
Village Park Collin 100% 567
 —
 3
 2
 Collin 100% 567
 —
 5
 —
   8,044
 2,743
 97
 53
   7,495
 2,896
 132
 7
Houston                    
Barrington Kingwood Harris 100% 176
 4
 —
 —
Barrington Kingwood (e)
 Harris 100% 180
 —
 —
 —
City Park Harris 75% 1,468
 —
 58
 104
 Harris 75% 1,468
 —
 78
 83
Harper's Preserve (b)
 Montgomery 50% 588
 1,094
 30
 49
Harper's Preserve (b) (e)
 Montgomery 50% 634
 1,189
 76
 1
Imperial Forest Harris 100% 84
 347
 —
 —
 Harris 100% 84
 347
 —
 —
Long Meadow Farms (b)
 Fort Bend 38% 1,648
 149
 194
 99
 Fort Bend 38% 1,762
 34
 237
 60
Southern Colony Fort Bend 100% —
 400
 —
 —
Southern Trails (b)
 Brazoria 80% 954
 41
 1
 —
 Brazoria 80% 995
 —
 1
 —
Spring Lakes Harris 100% 348
 —
 25
 4
 Harris 100% 348
 —
 29
 —
Summer Lakes Fort Bend 100% 780
 294
 56
 —
Summer Park Fort Bend 100% 125
 74
 34
 67
Summer Lakes (e)
 Fort Bend 100% 811
 251
 58
 1
Summer Park (e)
 Fort Bend 100% 135
 64
 36
 65
Willow Creek Farms II Waller / Fort Bend 90% 154
 111
 —
 —
 Waller / Fort Bend 90% 218
 47
 —
 —
   6,325
 2,114
 398
 323
   6,635
 2,332
 515
 210
San Antonio                    
Cibolo Canyons Bexar 100% 1,142
 649
 97
 58
Cibolo Canyons (e)
 Bexar 100% 1,242
 756
 108
 25
Oak Creek Estates Comal 100% 326
 227
 13
 —
 Comal 100% 352
 —
 13
 —
Olympia Hills Bexar 100% 747
 7
 10
 —
 Bexar 100% 754
 —
 10
 —
Stonewall Estates (b)
 Bexar 50% 378
 8
 —
 —
Stonewall Estates Bexar 100% 386
 —
 —
 —
   2,593
 891
 120
 58
   2,734
 756
 131
 25
Total Texas   20,070
 6,126
 783
 519
   17,406
 6,336
 844
 313
Colorado          
Denver          
Buffalo Highlands (e)
 Weld 100% —
 164
 —
 —
Cielo Douglas 100% —
 343
 —
 —
Johnstown Farms (e)
 Weld 100% 281
 355
 2
 —
Pinery West (e)
 Douglas 100% 86
 —
 20
 104
Stonebraker (e)
 Weld 100% —
 603
 —
 —
             367
 1,465
 22
 104
                    


             
      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
 317
 2
 —
Pinery West Douglas 100% 86
 —
 20
 104
Stonebraker Weld 100% —
 603
 —
 —
      367
 1,427
 22
 104
Georgia            
Atlanta            
Harris Place Paulding 100% 22
 5
 —
 —
Montebello (b) 
 Forsyth 90% —
 224
 —
 —
Seven Hills Paulding 100% 912
 341
 26
 113
West Oaks Cobb 100% 6
 50
 —
 —
      940
 620
 26
 113
North & South Carolina            
Charlotte            
Ansley Park Lancaster 100% —
 307
 —
 —
Habersham York 100% 91
 96
 —
 6
Moss Creek Cabarrus 100% —
 84
 —
 —
Walden Mecklenburg 100% —
 384
 —
 —
      91
 871
 —
 6
Raleigh            
Beaver Creek (b)
 Wake 90% 31
 162
 —
 —
      31
 162
 —
 —
      122
 1,033
 —
 6
Tennessee            
Nashville            
Beckwith Crossing Wilson 100% 32
 67
 —
 —
Morgan Farms Williamson 100% 132
 41
 —
 —
Scales Farmstead Williamson 100% 26
 171
 —
 —
Weatherford Estates Williamson 100% 8
 9
 —
 —
      198
 288
 —
 —
Wisconsin            
Madison            
Juniper Ridge/Hawks Woods (b) (d)
 Dane 90% 18
 196
 —
 —
Meadow Crossing II (b) (c)
 Dane 90% 7
 165
 —
 —
      25
 361
 —
 —
Arizona, California, Missouri, Utah            
Tucson            
Boulder Pass (b) (d)
 Pima 50% 29
 59
 —
 —
Dove Mountain Pima 100% —
 98
 —
 —
Oakland            
San Joaquin River Contra Costa/Sacramento 100% —
 —
 264
 25
Kansas City            
Somerbrook Clay 100% 185
 —
 —
 —
Salt Lake City            
Suncrest (b) (c)
 Salt Lake 90% —
 171
 —
 —
      214
 328
 264
 25
Total     21,936
 10,183
 1,095
 767
___________________
             
      Residential Lots/Units Commercial Acres
Project County 
Interest
Owned (a)
 
Lots/Units Sold
Since
Inception
 
Lots/Units
Remaining
 Acres Sold
Since
Inception		 
Acres
   Remaining
Florida            
Palm Bay            
The Preserves at Stonebriar Brevard 100% —
 328
 —
 —
      —
 328
 —
 —
Sarasota-Bradenton            
Fox Creek Sarasota 100% —
 422
 —
 —
Palisades Manatee 100% —
 150
 —
 —
      —
 572
 —
 —
Total Florida     —
 900
 —
 —
Georgia            
Atlanta            
Harris Place Paulding 100% 25
 2
 —
 —
Independence Gwinnett 100% —
 760
 —
 —
Montebello (b) 
 Forsyth 90% —
 223
 —
 —
Seven Hills Paulding 100% 949
 303
 26
 113
West Oaks Cobb 100% 19
 37
 —
 —
      993
 1,325
 26
 113
North & South Carolina            
Charlotte            
Ansley Park (e)
 Lancaster 100% —
 307
 —
 —
Habersham York 100% 139
 48
 1
 5
Moss Creek Cabarrus 100% —
 84
 —
 —
Walden (e)
 Mecklenburg 100% —
 384
 —
 —
      139
 823
 1
 5
Raleigh            
Beaver Creek (b) (e)
 Wake 90% 108
 85
 —
 —
      108
 85
 —
 —
Total North & South Carolina     247
 908
 1
 5
Tennessee            
Nashville            
Beckwith Crossing Wilson 100% 58
 41
 —
 —
Morgan Farms Williamson 100% 151
 22
 —
 —
Scales Farmstead (e)
 Williamson 100% 84
 113
 —
 —
Weatherford Estates Williamson 100% 16
 1
 —
 —
      309
 177
 —
 —
Wisconsin            
Madison            
Juniper Ridge/Hawks Woods (b) (d) (e)
 Dane 90% 70
 144
 —
 —
Meadow Crossing II (b) (c) (e)
 Dane 90% 32
 140
 —
 —
      102
 284
 —
 —
Arizona, California, Utah            
Tucson            
Boulder Pass (b) (d) (e)
 Pima 50% 39
 49
 —
 —
Dove Mountain Pima 100% —
 —
 —
 —
      39
 49
 —
 —
Oakland            
San Joaquin River Contra Costa/Sacramento 100% —
 —
 264
 25
      —
 —
 264
 25
Salt Lake City            
Suncrest (b) (d) (e)
 Salt Lake 90% 5
 169
 —
 —
      5
 169
 —
 —
Total Arizona, California, Utah     44
 218
 264
 25
Total     19,468
 11,613
 1,157
 560


___________________
(a) 
Interest owned reflects our total interest in the project, whether 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.
(e)
Included in the strategic asset sale to Starwood on February 8, 2018. The owned projects are classified as assets held for sale and our equity interests in ventures continued to be classified as investment in unconsolidated ventures at year-end 2017. Please readNote 22 — Subsequent Event to our consolidated financial statements in this report for additional information regarding this transaction.
A summary of our non-core multifamily operating properties excluding one multifamily site in Austin classified as held for sale, at year-end 20162017 follows:
Project Market 
Interest
Owned (a)
 Type Acres Description Market 
Interest
Owned (a)
 Type Acres Description
Elan 99(b) Houston 90% Multifamily 17
 360-unit luxury apartment 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 Denver 25% Multifamily 18
 385-unit luxury apartment
          
_____________________
(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)
Included in the strategic asset sale to Starwood on February 8, 2018. Please readNote 22 — Subsequent Event to our consolidated financial statements in this report for additional information regarding this transaction.
Our net investment in owned and consolidated real estate projects by geographic locationstate at year-end 20162017 follows:
State 
Entitled,
Developed,
and Under
Development
Projects
 
Undeveloped
Land and
Land in
Entitlement
 Total 
Entitled,
Developed,
and Under
Development
Projects
 Other Real Estate Costs Real Estate, Net Real Estate Held for Sale
 (In thousands) (In thousands)
Texas $167,772
 $2,639
 $170,411
 $61,835
 $2,803
 $64,638
 $93,990
Georgia 7,504
 409
 7,913
 25,273
 —
 25,273
 —
Florida 21,131
 —
 21,131
 —
Colorado 7,120
 —
 7,120
 22,878
Tennessee 5,611
 135
 5,746
 8,878
North and South Carolina 27,915
 117
 28,032
 4,805
 —
 4,805
 27,483
California 1,667
 25,957
 27,624
 1,667
 —
 1,667
 27,018
Tennessee 23,624
 22
 23,646
Colorado 29,514
 —
 29,514
Other 5,863
 —
 5,863
Total $263,859
 $29,144
 $293,003
 $127,442
 $2,938
 $130,380
 $180,247
Approximately 58 percent of our net investment in real estate is in the major markets of Texas.
Markets
Sales of new U.S. single-family homes in December 2017, according to U.Sa joint release by the U.S. Census Bureau and the U.S. Department of Commerce declined 0.4% onHousing and Urban Development, were at a seasonally adjusted annual rate of 625,000 units. On a year over year basis, asU.S. single family home sales were 14.1% higher than reported in December 2016. A total of 608,000 new home sales were reported for the year, the highest annual level reported since 2007. The number of units for sale at the end of December 31, 2016was 295,000, representing a supply of 5.7 months at the current sales rate. The U.S. Census Bureau and 10.4% belowthe U.S. Department of Housing and Urban Development jointly announced that housing starts for December 2017 registered a seasonally adjusted annual rate of 1,192,000 units, representing an 8.2% drop from the November estimate of 1,299,000 and a 6.0% decrease from prior month's rateyear. Seasonally adjusted single-family starts in December were 836,000 units, 11.8% below the revised November rate but 3.5% above prior year. For the year, total housing starts were up 2.4% to 1,202,100, compared to 1,173,800 for 2016, suggesting that the 40 basis point risehighest annual rate since 2007. Seasonally adjusted housing permits, generally viewed as a precursor for housing starts, registered 1,302,000 in mortgage rates andDecember 2017, 0.1% below the return of winter weather affectedprior month’s revised reading but 2.8% above the December 2016 sales. Consumer confidence as measured by The Conference Board increased in December 2016 to its highest level since August 2001, registering 113.7 up from 109.4 in November 2016. The elevated monthly reading was attributed in part to increases in consumers' outlook for business conditions over the next six-months and more positive outlooks for the labor market and rising incomes. Builderrate. Homebuilder confidence, as measured by the NAHB/National Association of Homebuilders/Wells Fargo Housing Market Index, ended 2016increased in December on expectations for a high note, jumping sevenstronger economy and potential regulatory relief for the business community. The monthly reading of homebuilder sentiment rose 5 points to its74, the highest reading since July 2005, largely attributable to1999 and 5 points


higher than a post-election bounce.year ago. On a monthlyregional basis, housing startsthe three month moving averages for builders’ confidence increased significantly in December 2016 due to volatile multifamily activity, while housing permit activity, viewed asall regions with the Midwest registering the highest increase on a precursor to starts increased 1.9%percentage basis, 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, ending December 2016. Home prices as measured bythe S&P Corelogic Case-Shiller U.S. National Home Price index hitNSA Index, which covers all nine U.S. Census divisions, reported a new high6.2% annual gain in November, 2016 after rising at approximately a 5.5% annual rate overup from 6.1% in the last two-and-a half years. As of the November 2016 reading, average home prices for the metropolitan statistical areas (MSAs) within the two composite indices were back to their winter 2007 levels. As of year-end 2016, finished vacant supply of new homes and vacant developed lot supply in MSAs in which Forestar's single family activity is located remained extremely tight, registering below the two month and 24 month equilibrium levels.previous month.
 Competition
We face significant competition for the acquisition, entitlement, development and sale of real estate in our markets. Our major competitors include other landowners who market and sell undeveloped land and numerous national, regional and local developers, including home builders. In addition, our projects compete with other development projects offering similar


amenities, products and/or locations. Competition also exists for investment opportunities, financing, available land, raw materials and labor, with entities that may possess greater financial, marketing and other resources than us. The presence of competition may increase the bargaining power of property owners seeking to sell. These competitive market pressures sometimes make it difficult to acquire, entitle, develop or sell land at prices that meet our return criteria. Some of our real estate competitors are well established and financially strong, may have greater financial resources than we do, or may be larger than us and/or have lower cost of capital and operating costs than we have and expect to have.
The land acquisition and development business is highly fragmented, and we are unaware of any meaningful concentration of market share by any one competitor. Enterprises of varying sizes, from individuals or small companies to large corporations, actively engage in the real estate development business. Many competitors are local, privately-owned companies. We have a few regional competitors and virtually noa few national land developer competitors other thanin addition to national home builders that, depending on business cycles and market conditions, may enter or exit the real estate development business in some locations to develop lots on which they construct and sell homes. During periods when access to capital is restricted, participants within a weaker financial conditionscondition tend to be less active.
 Discontinued Operations
InAt year-end 2016, we havehad divested 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 our consolidated statements of income (loss) and comprehensive income (loss) and consolidated balance sheets for all periods presented. In addition, in second quarter 2016, we changed the name of the oil and gas segment to mineral resources to reflect the strategic shift from oil and gas working interests to owned mineral interests.
Mineral Resources
Our mineral resources segment is focused on maximizing the value from our owned oil and gas mineral interests through promoting exploration, development and production activities by increasing acreage leased, lease rates, and royalty interests. Our revenue from our owned mineral interests is primarily from oil and gas royalty interests, lease bonus payments and delay rentals received and other related activities. We typically lease our owned mineral interests toIn third parties for exploration and production of oil and gas.
At year-end 2016, we had approximately 523,000 net acres of owned mineral acres that are classified as assets held for sale. On February 17,quarter 2017, we sold substantiallythe common stock of Forestar Petroleum Corporation for $100,000. With the completion of this transaction we have sold all of our remaining oil and gas assets for a total purchase price of $85,600,000. Please read Note 21  — Subsequent Events for additional information about these items. At year-end 2016, we had about 57,000 net acres leased for oil and gas exploration activities, of which about 44,000 net acres were held by production from over 473 gross oil and gas wells that were operated by others, in which we had royalty interests. In addition, we had working interest ownership in 31 of these wells. Many of these wells are part of an oil and gas unit, however; we count each well regardless of the unitization.
A summary of our non-core owned mineral acres (a) at year-end 2016 follows:
State Unleased 
Leased (b)
 
Held By
Production (c)
 
Total (d)
Texas (e)
 210,000
 8,000
 34,000
 252,000
Louisiana (e) (f)
 129,000
 5,000
 10,000
 144,000
Georgia 84,000
 —
 —
 84,000
Alabama 41,000
 —
 —
 41,000
California 1,000
 —
 —
 1,000
Indiana 1,000
 —
 —
 1,000
  466,000
 13,000
 44,000
 523,000
 _____________________
(a)
Includes ventures.
(b)
Includes leases in primary lease term or for which a delayed rental payment has been received. In the ordinary course of business, leases covering a significant portion of leased net mineral acres may expire from time to time in a single reporting period.
(c)
Acres being held by production are producing oil or gas in paying quantities.
(d)
Texas, Louisiana, California and Indiana net acres are calculated as the gross number of surface acres multiplied by our percentage ownership of the mineral interest. Alabama and Georgia net acres are calculated as the gross number of surface acres multiplied by our estimated percentage ownership of the mineral interest based on county sampling. In fourth quarter


2016, we sold approximately 58,300 acres of timberland and undeveloped land in Georgia and Alabama which included selling any owned minerals rights associated with these acres.
(e)
These owned mineral acre interests contain numerous oil and gas producing formations consisting of conventional, unconventional, and tight sand reservoirs. Of these reservoirs, we have mineral interests in and around production trends in the Wilcox, Frio, Cockfield, James Lime, Petet, Travis Peak, Cotton Valley, Austin Chalk, Haynesville Shale, Barnett Shale and Bossier formations.
(f)
A significant portion of our Louisiana net acres was severed from the surface estate shortly before our 2007 spin-off. Under Louisiana law, a mineral servitude that is not producing minerals or which has not been the subject of good-faith drilling operations will cease to burden the property upon the tenth anniversary of the date of its creation. The total number of net acres subject to prescription can fluctuate based on oil and gas development and production activities. Some or all of approximately 70,000 of our Louisiana net acres may revert to the surface owner unless drilling operations or production commences prior to October 2017.
We engage in leasing certain portions of our owned mineral interests to third parties for the exploration and production of oil and gas. The significant terms of these arrangements include granting the exploration company the rights to oil or gas it may find and requiring that drilling be commenced within a specified period. In return, we may receive an initial lease payment (bonus), subsequent payments if drilling has not started within the specified period (delay rentals), and a percentage interest in the value of any oil or gas produced (royalties). If no oil or gas is produced during the required period, all rights are returned to us. Historically, our capital requirements for our owned mineral acres have been minimal.
Our royalty revenues are contractually defined and based on a percentage of production and are received in cash. Our royalty revenues fluctuate based on changes in the market prices for oil and gas, the decline in production in existing wells, and other factors affecting the third-party oil and gas exploration and production companies that operate wells on our minerals including the cost of development and production.
Most leases are for a three to five year term although a portion or all of a lease may be extended by the lessee as long as actual production is occurring. Financial terms vary based on a number of market factors including the location of the mineral interest, the number of acres subject to the agreement, proximity to transportation facilities such as pipelines, depth of formations to be drilled and risk.
Estimated Proved Reserves (Including Discontinued Operations)    
Our net estimated proved oil and gas reserves, all of which are located in the United States, as of year-end 2016, 2015 and 2014 are set forth in the table below. We engaged independent petroleum engineers, Netherland, Sewell & Associates, Inc. (NSAI), to assist us in preparing estimates of our proved oil and gas reserves in accordance with the definitions and guidelines of the Securities and Exchange Commission (SEC).


Net quantities of proved oil and gas reserves related to our working and royalty interests follow, including oil and gas working interest assets classified as discontinued operations in 2016:
 Reserves
 
Oil (a)
(Barrels)
 
Gas
(Mcf)
 (In thousands)
Consolidated entities:   
Proved developed446
 3,836
Proved undeveloped—
 —
Total proved reserves 2016446
 3,836
Proved developed5,179
 7,957
Proved undeveloped—
 —
Total proved reserves 20155,179
 7,957
Proved developed5,269
 10,848
Proved undeveloped2,403
 1,801
Total proved reserves 20147,672
 12,649
Our share of ventures accounted for using the equity method:   
Proved developed—
 1,199
Proved undeveloped—
 —
Total proved reserves 2016—
 1,199
Proved developed—
 1,263
Proved undeveloped—
 —
Total proved reserves 2015—
 1,263
Proved developed—
 1,751
Proved undeveloped—
 —
Total proved reserves 2014—
 1,751
Total consolidated and our share of equity method ventures:   
Proved developed446
 5,035
Proved undeveloped—
 —
Total proved reserves 2016446
 5,035
Proved developed5,179
 9,220
Proved undeveloped—
 —
Total proved reserves 20155,179
 9,220
Proved developed5,269
 12,599
Proved undeveloped2,403
 1,801
Total proved reserves 20147,672
 14,400
 _____________________
(a)
Includes natural gas liquids.


The following summarizes the changes in proved reserves for 2016:
 Reserves
 
Oil
(Barrels)
 
Gas
(Mcf)
 (In thousands)
Consolidated entities:   
Year-end 20155,179
 7,957
Revisions of previous estimates(11) 631
Extensions and discoveries29
 —
Acquisitions—
 —
Sales(4,460) (3,756)
Production(291) (996)
Year-end 2016446
 3,836
Our share of ventures accounted for using the equity method:   
Year-end 2015—
 1,263
Revisions of previous estimates—
 79
Extensions and discoveries—
 —
Production—
 (143)
Year-end 2016—
 1,199
Total consolidated and our share of equity method ventures:   
Year-end 2016446
 5,035
We do not have any estimated reserves of synthetic oil, synthetic gas or products of other non-renewable natural resources that are intended to be upgraded into synthetic oil and gas.
At year-end 2016, we have no barrels of oil equivalent (BOE) of proved undeveloped (PUD) reserves because we have substantially divested all our non-core oil and gas working interest assets. At year-end 2015, we had no BOE of PUD reserves due to our planned divestiture of oil and gas working interest assets and not allocating capital to this non-core business. At year-end 2014,related entities. This transaction resulted in a significant tax loss with the corresponding tax benefit reported as discontinued operations.
Mineral Resources
In first quarter 2017, we had 2,703,000 BOE of PUD reserves.
We did not participate in any drilling activity in 2016. In 2015, we investedsold our remaining owned mineral assets for approximately $9,205,000 to convert 610,000 BOE of PUD reserves into proved developed reserves.
Reserve estimates were based on$85,700,000. With the economic and operating conditions existing at year-end 2016, 2015 and 2014. Oil and gas prices were based on the twelve month unweighted arithmetic average of the first-day-of-the-month price for each month in the period January through December. For 2016, 2015 and 2014, prices used for reserve estimates were $42.75, $50.28 and $94.99 per barrel of West Texas Intermediate and gas prices of $2.48, $2.59 and $4.35 per MMBTU per the Henry Hub spot. All prices were then adjusted for quality, transportation fees and differentials. Since the determination and valuation of proved reserves is a function of the interpretation of engineering and geologic data and prices for oil and gas and the cost to produce these reserves, the reserves presented should be expected to change as future information becomes available. For an estimate of the standardized measure of discounted future net cash flows from proved oil and gas reserves, please read Note 19  — Supplemental Oil and Gas Disclosures (Unaudited) to our consolidated financial statements included in Part II, Item 8completion of this Annual Report on Form 10-K.
The process of estimating oil and gas reserves is complex, involving decisions and assumptions in evaluating the available geological, geophysical, engineering and economic data. Accordingly, these estimates are imprecise. Actual future production, oil and gas prices, capital costs, operating costs, revenues, taxes and quantities of recoverable oil and gas reserves might vary from those estimated. Any variance could materially affect the estimated quantities and present value of proved reserves. In addition, estimates of proved reserves may be adjusted to reflect production history, development, prevailing oil and gas prices and other factors, many of which are beyond our control.
The primary internal technical person in charge of overseeing our reserves estimates has a Bachelor of Science in Physics and Mathematics and a Master's of Science in Civil Engineering. He has over 40 years of domestic and international experience in the exploration and production business including 40 years of reserve evaluations. He has been a registered Professional Engineer for over 25 years.
As partsale we have divested all of our internal control over financial reporting, we have a process for reviewing well production data and division of interest percentages prior to submitting well level data to NSAI to assist us in preparing reserve estimates. Our primary internal technical person and other members of management review the reserve estimates prepared by NSAI, including the underlying assumptions and estimates upon which they are based, for accuracy and reasonableness.owned mineral assets.


Production
In 2016, 2015 and 2014, oil and gas produced was approximately 291,000, 1,158,500 and 931,100 barrels of oil at an average realized price of $27.58, $40.08 and $80.63 per barrel and 1,139.5, 2,134.8 and 2,060.2 MMcf of gas at an average realized price of $2.04, $2.60 and $4.19 per Mcf. Natural gas liquids (NGLs) are aggregated with oil volumes and prices.
In 2016, 2015 and 2014, production lifting costs, which exclude ad valorem and severance taxes, were $12.33, $12.95 and $13.40 per BOE.
Drilling and Other Exploratory and Development Activities
The following tables set forth the number of gross and net oil and gas wells in which we participated:
Gross Wells
    Exploratory Development
Year Total Oil Gas Dry Oil Gas Dry
2016 —
 —
 —
 —
 —
 —
 —
2015 (a)
 38
 2
 —
 1
 34
 —
 1
2014 (b)
 119
 21
 —
 32
 46
 1
 19
 _____________________
(a)
Of the gross wells drilled in 2015, we operated 3 wells or 8 percent. The remaining wells represent our participations in wells operated by others. The exploratory dry hole was located in Oklahoma.
(b)
Of the gross wells drilled in 2014, we operated 72 wells or 61 percent. The remaining wells represent our participations in wells operated by others. Dry holes were principally located in Nebraska, Kansas and Oklahoma.
Net Wells
    Exploratory Development
Year Total Oil Gas Dry Oil Gas Dry
2016 —
 —
 —
 —
 —
 —
 —
2015 6.3
 0.7
 —
 0.8
 4.3
 —
 0.5
2014 57.3
 11.9
 —
 20.1
 13.6
 0.1
 11.6
Present Activities
None.
Delivery Commitments
We have no oil or gas delivery commitments.
Wells and Acreage
The number of productive wells as of year-end 2016 follows:
 Productive Wells
 Gross Net
Consolidated entities:
  
Oil274
 40.8
Gas177
 12.2
Total451
 53.0
Ventures accounted for using the equity method:   
Oil—
 —
Gas23
 1.8
Total23
 1.8
Total consolidated and equity method ventures:   
Oil274
 40.8
Gas200
 14.0
Total474
 54.8



At year-end 2016, 2015 and 2014,2017, we had royalty interests in 473, 534 and 551 gross wells. In addition, at year-end 2016, 2015 and 2014, we had working interests in 32, 400 and 426 gross wells. At year-end 2016, we had 78 working interest wells in Wyoming, of which 77 of them are shut in wells, and not included in our productive well count, in which we have 10 percent working interest and have associated plugging liabilities accrued on the balance sheet based on the present value of our estimated future obligation.
We did not have any wells with production of synthetic oil, synthetic gasremaining timber holdings or products of other non-renewable natural resources that are intended to be upgraded into synthetic oil and gas as of year-end 2016, 2015 or 2014.
At year-end 2016, our remaining working interests represent approximately 4,300 gross developed acres and 890 net developed acres leased from others that are held by production. At year-end 2016, werecreational leases. We had approximately 8,100 gross undeveloped acres and 5,900 net undeveloped acres leased from others.
Markets
Oil and gas revenues are influenced by prices of, and global and domestic supply and demand for, oil and gas. These commodities as determined by both regional and global markets depend on numerous factors beyond our control, including seasonality, the condition of the domestic and global economies, political conditions in other oil and gas producing countries, the extent of domestic production and imports of oil and gas, the proximity and capacity of gas pipelines and other transportation facilities, supply and demand for oil and gas and the effects of federal, state and local regulation. The oil and gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. The price of crude oil decreased during the first half of 2016 as compared with the first half of 2015. Prices increased during the second half of 2016 as compared to the first half of 2016 as the number of U.S. crude oil rigs and inventories declined in the last half of 2015 and into early 2016. Natural gas prices decreased in 2016 compared with 2015, primarily due to domestic oversupply driven by lack of a normal winter withdrawal cycle in the winter of 2015-2016. West Texas Intermediate (WTI) oil prices averaged $43.33 per Bbl in 2016, nearly 11% lower than in 2015, and $48.66 per Bbl in 2015, nearly 48% lower than in 2014.
Mineral leasing activity is influenced by changes in commodity prices, the location of our owned mineral interests relative to existing or projected oil and gas reserves, the proximity of successful production efforts to our mineral interests and the evolution of new plays and improvements in drilling and extraction technology.
Competition
The oil and gas industry is highly competitive, and we compete with a substantial number of other companies that may have greater resources than us. Many of these companies explore for, produce and market oil and gas, carry on refining operations and market the end products on a worldwide basis. The primary areas in which we face competition are from alternative fuel sources, including coal, heating oil, imported LNG, nuclear and other nonrenewable fuel sources, and renewable fuel sources such as wind, solar, geothermal, hydropower and biomass. Competitive conditions may also be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the United States government. It is not possible to predict whether such legislation or regulation may ultimately be adopted or its precise effects upon our future operations. Such laws and regulations may, however, substantially increase the costs of exploring for, developing or producing oil and gas.
In locations where our owned mineral interests are close to producing wells and proven reserves, we may have multiple parties interested in leasing our minerals. Conversely, where our mineral interests are in or near areas where reserves have not been discovered, we may receive nominal interest in leasing our minerals. Portions of our Texas and Louisiana minerals are in close proximity to producing wells and proven reserves. Interest in leasing our minerals is correlated with the economics of production which are substantially influenced by current oil and gas prices and improvements in drilling and extraction technologies.
Other
We sell wood fiber from portions of our land, primarily in Georgia, and lease land for recreational uses. We have 19,000 acres of non-core timberland and undeveloped land we own directly that was classified as assets held for sale at year-end 2016. We have water interests in 1.5 million acres which includes 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 20,000 acres of groundwater leases in central Texas which wasTexas. Our nonparticipating royalty interests are classified as assets held for sale at year-end 2016.2017. We have not received significant revenues or earnings from these interests.
Competition
We face competition from other landowners for the sale of wood fiber. Some of these competitors own similar timber assets that are located in the same or nearby markets. However, due to its weight, the cost for transporting wood fiber long


distances is significant, resulting in a competitive advantage for timber that is located reasonably close to paper and building products manufacturing facilities.
Employees
At year-end 2016,2017, we had 5934 employees. None of our employees participate in collective bargaining arrangements. We believe we have a good relationship with our employees.
Environmental Regulations
Our operations are subject to federal, state and local laws, regulations and ordinances relating to protection of public health and the environment. Changes to laws and regulations may adversely affect our ability to develop real estate develop minerals, harvest and sell timber, or withdraw groundwater, or may require us to investigate and remediate contaminated properties. These laws and regulations may relate to, among other things, water quality, endangered species, protection and restoration of natural resources, timber harvesting practices, and remedial standards for contaminated property and groundwater. Additionally, these laws may impose liability on property owners or operators for the costs of removal or remediation of hazardous or toxic substances on real property, without regard to whether the owner or operator knew, or was responsible for, the presence of the hazardous or toxic substances. The presence of, or the failure to properly remediate, such substances may adversely affect the value of a property,


as well as our ability to sell the property or to borrow funds using that property as collateral or the ability to produce oil and gas from that property.collateral. Environmental claims generally would not be covered by our insurance programs.
The particular environmental laws that apply to any given site vary according to the site’s location, its environmental condition, and the present and former uses of the site and adjoining properties. Environmental laws and conditions may result in delays, may cause us to incur substantial compliance or other costs and can prohibit or severely restrict development activity or mineral production in environmentally sensitive regions or areas, which could negatively affect our results of operations.
In 2016, we sold all but 25 acres of oura 289 acresacre former paper manufacturing facility near Antioch, California, approximately 80 acres of which had not yet received a certificate of completion under the voluntary environmental remediation program in which we were participating. The buyer of the former paper manufacturing sitessite assumed responsibility for environmental, remediation and monitoring activities, subject to limited exclusions, and obtained a $20,000,000, ten year pollution legal liability insurance policy naming us as an additional insured.
OilD.R. Horton Merger
Merger Transaction
On June 29, 2017, we entered into an Agreement and gas operations arePlan of Merger with D.R. Horton and a wholly-owned subsidiary of D.R. Horton (“Merger Sub”). At the effective time on October 5, 2017, we merged (the “Merger”) 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”) was converted into the right to receive, at the election of the holders of the shares of Former Forestar Common Stock, either an amount in cash equal to $17.75 per share (the “Cash Consideration”) or one new share of our common stock (the “New Forestar Common Stock”), subject to numerous federal, stateproration procedures applicable to oversubscription and local lawsundersubscription for the Cash Consideration as described in the Merger agreement. The aggregate amount of the Cash Consideration paid by D.R. Horton to holders of Former Forestar Common Stock in the Merger was $558,256,000, and regulations controllingD.R. Horton funded the generation, use, processing, storage, transportation, disposal and dischargepayment of materials into the environment or otherwise relatingCash Consideration with cash on hand. 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 protectionholders of our common stock and 31,451,063 shares of New Forestar Common Stock (representing 75% of the environment. These lawsoutstanding shares of the New Forestar Common Stock immediately after the effective time) were issued to D.R. Horton. As of October 5, 2017, we became a majority-owned subsidiary of D.R. Horton and regulations affecta controlled company under New York Stock Exchange rules.
Stockholder’s Agreement
In connection with the Merger, we entered into a Stockholder’s Agreement with D.R. Horton that, among other things, provide D.R. Horton with certain board and board committee appointment rights and certain approval rights.
Additional information regarding the Stockholder’s Agreement, including a copy of the Stockholder’s Agreement, can be found in our operationsCurrent Report on Form 8-K filed with the SEC on June 29, 2017.
Master Supply Agreement
In connection with the Merger, we entered into a Master Supply Agreement with D.R. Horton. The terms of the Master Supply Agreement, unless earlier terminated, continue until the earlier of (a) the date that D.R. Horton and costsits affiliates beneficially own less than 15% of our voting securities and (b) June 29, 2037. However, we have the right to terminate the Master Supply Agreement at any time that D.R. Horton and its affiliates beneficially own less than 25% of our voting securities.
Under the Master Supply Agreement, we will present to D.R. Horton all single-family residential lot development opportunities (subject to certain exceptions) that we desire to acquire and develop that have been approved or conditionally approved by the Forestar Investment Committee (a “Forestar Sourced Opportunity”); and D.R. Horton has the right, but not the obligation, to present us with lot development opportunities that D.R. Horton desires to acquire for development (if presented to us, a “D.R. Horton Sourced Opportunity”).
We and D.R. Horton will collaborate regarding all Forestar Sourced Opportunities and all D.R. Horton Sourced Opportunities, after considering current and future market conditions and dynamics. If we and D.R. Horton agree to pursue a Forestar Sourced Opportunity or a D.R. Horton Sourced Opportunity, such agreement will be evidenced by a mutually agreed upon written development plan prepared at the direction of the Forestar Investment Committee (a “Development Plan”), addressing, among other things, the number, size, layout and projected price of lots, phasing, timing, amenities and entitlements, and are referred to as either a “Forestar Sourced Development” or a “D.R. Horton Sourced Development”, as the case may be.
D.R. Horton or its affiliates have (a) a right of first offer (“ROFO”) to buy up to 50% of the lots in the first phase (and in any subsequent phase in which D.R. Horton purchased at least 25% of the lots in the previous phase) in each Forestar Sourced Development; and (b) the right to purchase up to 100% of the lots in each D.R. Horton Sourced Development, at the then current fair market price and terms per lot, as mutually agreed to by us and D.R. Horton. All lots in a Forestar Sourced Development in which a D.R. Horton affiliate participates as a result of their impact on oilbuyer will be equitably allocated among D.R. Horton and gas production operations. Failure to complyany other builders in each phase taking into consideration the location, size and other attributes associated with these laws and regulations may resultthe lots. The agreement evidencing the ROFO for the lots in the assessment of administrative, civil and criminal penalties, including the assessment of monetary penalties, the imposition of investigatory and remedial obligations, the suspension or revocation of necessary permits, licenses and authorizations, the requirement that additional pollution controls be installedForestar Sourced Development (the “ROFO Agreement”), and the issuance of orders enjoining future operations or imposing additional compliance requirements.
Compliance with environmental lawspurchase and regulations increases our overall cost of business, but has not had, to date, a material adverse effect on our operations, financial condition or results of operations. It is not anticipated, based on current laws and regulations, that wesale agreement for the lots in the D.R. Horton Sourced Development (the “PSA”), will be requirednegotiated, finalized and executed as a part of the Development Plan, and in all events the near futureDevelopment Plan will be finalized, and the ROFO Agreement will be negotiated, finalized and executed,


prior to expend amounts (whetherthe expiration of the feasibility period in any contract to acquire a Forestar Sourced Development. D.R. Horton will assign to us on an “as-is”, “where-is basis” the contract to acquire a D.R. Horton Sourced Development after the finalization of the Development Plan and PSA for environmental control equipment, modificationsuch D.R. Horton Sourced Development.
Additional information regarding the Master Supply Agreement, including a copy of facilities or otherwise) that are materialthe Master Supply Agreement, can be found in relationour Current Report on Form 8-K filed with the SEC on June 29, 2017.
Shared Services Agreement
On October 6, 2017, we entered into a Shared Services Agreement with D.R. Horton pursuant to which D.R. Horton will provide us certain administrative, compliance, operational and procurement services. Additional information regarding the Shared Services Agreement, including a copy of the Shared Services Agreement, can be found in our total development expenditure program in order to complyCurrent Report on Form 8-K filed with such laws and regulations. However, given that such laws and regulations are subject to change, we are unable to predict the ultimate cost of compliance or the ultimate effectSEC on our operations, financial condition and results of operations.October 10, 2017.
Available Information
Forestar Group Inc. is a Delaware corporation. Our principal executive offices are located at 6300 Bee Cave Road, Building Two,10700 Pecan Park Blvd., Suite 500,150, Austin, Texas 78746-5149.78750. Our telephone number is (512) 433-5200.
From our Internet website, http://www.forestargroup.com, you may obtain additional information about us including:
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other documents as soon as reasonably practicable after we file them with SEC;
beneficial ownership reports filed by officers, directors, and principal security holders under Section 16(a) of the Securities Exchange Act of 1934, as amended (or the “Exchange Act”); and
corporate governance information that includes our:
corporate governance guidelines,
audit committee charter


management development and executive compensation committee charter,
nominating and governance committee charter,
standards of business conduct and ethics,
code of ethics for senior financial officers, and
information on how to communicate directly with our board of directors.
We will also provide printed copies of any of these documents to any stockholder free of charge upon request. In addition, the materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information about the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information that is filed electronically with the SEC.
Executive Officers
The names, ages and titles of our executive officers are:
Name Age Position
PhillipDonald J. WeberTomnitz 5669Executive Chairman of the Board
Daniel C. Bartok61 Chief Executive Officer
Charles D. Jehl 4849 Chief Financial Officer and Treasurer
David M. Grimm 56 Chief Administrative Officer, Executive Vice President, General Counsel and Secretary
Michael J. Quinley55President - Community Development
Phillip
Donald J. WeberTomnitz has served as our Executive Chairman of the Board since October 2017 and was appointed in connection with the Merger with D.R. Horton. Prior to joining Forestar, Mr. Tomnitz served as a consultant to D.R. Horton from October 2014 to September 2017. From November 1998 to September 2014, Mr. Tomnitz was the Vice Chairman and Chief Executive Officer of D.R. Horton. From 1996 until 1998, Mr. Tomnitz was President of D.R. Horton's Homebuilding Division. In 1998, he was elected an Executive Vice President of D.R. Horton and in 2000, he became President of D.R. Horton as well. Before joining D.R. Horton, Mr. Tomnitz was a Captain in the U.S. Army, a Vice President of RepublicBank of Dallas, N.A., and a Vice President of Crow Development Company, a Trammell Crow Company. Mr. Tomnitz holds a Bachelor of Arts Degree in Economics from Westminster College and a Masters of Business Administration in Finance from Western Illinois University
Daniel C. Bartok has served as our Chief Executive Officer since September 2015. He has served as Chairman of the Real Estate Investment Committee since May 2013 and previously served as Executive Vice President - Water Resources from May 2013 to September 2015 and as Executive Vice President - Real Estate from 2009 to May 2013.December 2017. Prior to joining Forestar, he served the Federal National Mortgage Association (Fannie Mae) as SeniorExecutive Vice President - Multifamilyof Wells Fargo Bank as head of its Owned Real Estate Group from 20062008 to October 2009, as Chief2017. Prior to joining


Wells Fargo, he was President of Staff toClarion Realty, Inc. a real estate development company operating across multiple states, with an emphasis on residential land development and homebuilding. Mr. Bartok holds a Bachelor of Sciences degree in Accountancy from the CEO from 2004 to 2006, as ChiefUniversity of Staff to non-Executive Chairman of the BoardIllinois and Corporate Secretary from 2005 to 2006, and as Senior Vice President, Corporate Development in 2005.began his career at Price Waterhouse.
Charles D. Jehl has served as our Chief Financial Officer and Treasurer since September 2015. He previously served as our Executive Vice President - Oil and Gas from February 2015 to September 2015, as Executive Vice President - Oil and Gas Business Administration from June 2013 to February 2015, and as Chief Accounting Officer from 2006 to June 2013. Mr. Jehl served as Chief Operations Officer and Chief Financial Officer of Guaranty Insurance Services, Inc. from 2005 to 2006, and as Senior Vice President and Controller from 2000 to 2005. From 1989 to 1999, Mr. Jehl held various financial management positions within Temple-Inland’s financial services segment. Mr. Jehl holds a Bachelor of Arts Degree in Accounting from Concordia Lutheran College and is also a Certified Public Accountant.
David M. Grimm has served as our Chief Administrative Officer since 2007, in addition to holding the offices of General Counsel and Secretary since 2006. Mr. Grimm served Temple-Inland Inc. as Group General Counsel from 2005 to 2006, Associate General Counsel from 2003 to 2005, and held various other legal positions from 1992 to 2003. Prior to joining Temple-Inland Inc., he was an attorney in private practice in Dallas, Texas. Mr. Grimm is also a Certified Public Accountant. Mr. Grimm will retire from the Company effective March 31, 2017.
Michael J. Quinley has served as our President - Community Development since September 2015. He previously served as our Executive Vice President - Real Estate, East Region from 2011 to September 2015, as Executive Vice President - Eastern Region Real Estate Investments & Development from 2010 to 2011, and as Executive Vice President - Eastern Region Developments & Investments from 2008 to 2010. He has more than 30 years of prior real estate experience, including as CEO of Patrick Malloy Communities, as Senior Executive Vice President of Cousins Properties Incorporated and as Senior Vice President and CFO of Peachtree Corners Inc., all based in Atlanta.







Item 1A.Risk Factors.
General Risks Related to our OperationsConcentrated Ownership
BothSo long as D.R. Horton controls us, our real estateother stockholders will have limited ability to influence matters requiring stockholder approval, and mineral resources businesses are cyclical in nature.
The operating resultsD.R. Horton's interest may conflict with the interests of our business segments reflect the general cyclical pattern of each segment. While the cycles of each industry do not necessarily coincide, demand and prices in each may drop substantially during the same period. Real estate development of residential lots is further influenced by new home construction activity, which can be volatile. Mineral resources may be further influenced by national and international commodity prices, principally for oil and gas. Cyclical downturns may materially and adversely affect our business, liquidity, financial condition and results of operations. Allother stockholders.
        D.R. Horton beneficially owns approximately 75% of our operations are impacted by both national and global economic conditions.
The real estate and mineral resources industries are highly competitive andcommon stock. As a number of entities with which we compete are larger and have greater resources, and competitive conditions may adversely affect our results of operations.
The real estate and mineral resources industries in which we operate are highly competitive and are affected to varying degrees by supply and demand factors and economic conditions, including changes in interest rates, new housing starts, home repair and remodeling activities, credit availability, consumer confidence, unemployment, housing affordability, changes in commodity prices, and federal energy policies.
Competitive conditions in the real estate industry may result, in difficulties acquiring suitable land at acceptable prices, lower sales volumes and prices, increased development or construction costs and delays in construction and leasing. We compete with numerous regional and local developers for the acquisition, entitlement, and development of land suitable for development. We also compete with national, regional and local home builders who develop real estate for their own use in homebuilding operations, many of which are larger and have greater resources, including greater marketing budgets. Any improvement in the cost structure or service of our competitors will increase the competition we face.
Our business, financial condition and results of operations may be negatively affected by any of these factors.
We may be unable to successfully divest our non-core assets at favorable prices or on our target schedule, which could adversely affect our results of operations or cash flows.
We have announced that we are focused on our core community development business, and that we intend to exit non-core, non-residential housing assets. The sale of non-core real estate assets may be impacted by market conditions outside of our control, such as capitalization rates, anticipated market demand and job growth, property location and other existing or anticipated competitive properties, interest rates, availability of financing, and other factors that we do not control. Our ability to divest non-core assets, the timing for such divestments, and the prices we may ultimately receive may be impacted by the foregoing or other factors.
We may have continuing liabilities relating to non-core assets that have been sold, which could adversely impact our results of operations.
In the course of selling our non-core assets we are typically required to make contractual representations and warranties and to provide contractual indemnities to the buyers. These contractual obligations typically survive the closing of the transactions for some period of time. If a buyer is successful in sustaining a claim against us we may incur additional expenses pertaining to an asset we no longer own, and we may also be obligated to defend and/or indemnify the buyer from certain third party claims. Such obligations could be material and they could adversely impact our results of operations.
Any significant reduction in our borrowing base under our senior secured credit facility as a result of the sale of non-core assets may reduce the credit that is available to us under the facility and impact our ability to fund our operations.
Our senior secured credit facility is secured by some of our assets, and the borrowing base available to us thereunder is derived substantially from valuations associated with the assets pledged. Historically, a substantial portion of the borrowing base was derived from valuations associated with non-core assets, many of which were sold in 2015 and 2016. A portion of the existing borrowing base is also supported by non-core assets that we may market for sale or sell in the near future. Although we have additional assets that have not been but could be pledged to support additional borrowing capacity under our senior secured credit facility, until such time as additional assets are pledged, the reductionD.R. Horton and its controlled affiliates hold shares representing less than a majority of the borrowing base could negatively impactvotes entitled to be cast by our stockholders at a stockholder meeting, D.R. Horton generally has the ability to fund our operations and, as a result may have a material adverse effect on our financial position, resultscontrol the outcome of operation and cash flow.
Restrictive covenants under our senior secured credit facility and indentures governing our 3.75% convertible senior notes may limitany matter submitted for the manner in which we operate.
Our senior secured credit facility and indentures covering our 3.75% convertible senior notes contain various covenants and conditions that limit our ability to, among other things:
incur or guarantee additional debt;
pay dividends or make distributions to our stockholders;


repurchase or redeem capital stock or subordinated indebtedness;
make loans, investments or acquisitions;
incur restrictions on the ability of certainvote of our subsidiaries to pay dividendsstockholders, except in certain circumstances set forth in the our certificate of incorporation or to make other payments to us;
enter into transactions with affiliates;
create liens;
merge or consolidate with other companies or transfer all or substantially allbylaws. In addition, under the terms of our assets;certificate of incorporation and
transfer the Stockholder's Agreement with D.R. Horton, so long as D.R. Horton or sell assets, including capital stock of subsidiaries.
As a result of these covenants, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs.
Despite current indebtedness levels, we and our subsidiaries may be able to incur substantially more debt.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.
We may be unable to fully realize the benefits of our tax attributes if we experience an ownership change.
We have significant deferred tax assets that are generally available to offset future taxable income or income tax. If we experienced an “ownership change” under Section 382 of the Internal Revenue Code (“Section 382”), Section 382 would impose an annual limit on the amount of our future taxable income that may be reduced by our tax attributes, such as built in losses and other tax attributes (“Tax Benefits”), existing prior to the ownership change. In general, an ownership change would occur if our “5-percent shareholders” (as defined in Section 382) collectively increase their ownership in the Company by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. For these purposes, a 5-percent shareholder is generally any person or group of persons that at any time during the relevant three-year period has owned 5 percentits affiliates own 35% or more of our outstanding common stock. Under Section 382, stock ownership is determined under complex attribution rulesvoting securities, we may not take certain actions without D.R. Horton's approval, including certain actions with respect to equity issuances, indebtedness, acquisitions and generally includes shares held directly, indirectly (though intervening entities),executive hiring, termination and constructively (bycompensation.
        In addition, pursuant to the Stockholder's Agreement with D.R. Horton, we are subject to certain related partiesrequirements and certain unrelated parties acting as a group). On January 5, 2017, we adopted a Tax Benefits Preservation Plan in order to help protect our tax attributes, such as built-in losses and other tax attributes. Our Tax Benefits Preservation Plan is intended to provide a meaningful deterrent effect against acquisitionslimitations regarding the composition of our common stock that could cause the Company to experience an ownership change; however, the Tax Benefits Preservation Plan does not guarantee that the Company will not experience an ownership change. If an ownership change were to occur, our ability to use our Tax BenefitsBoard. However, many of those requirements and limitations expire in the future would be limited, which would have a significant negative impact on our financial positionJanuary 2019. Thereafter, for so long as D.R. Horton and results of operations. The ratification of the extension of the Tax Benefits Preservation Plan to January 5, 2020 is subject to shareholder approval at the Company’s 2017 Annual Meeting. If our shareholders do not approve such extension, the Tax Benefits Preservation Plan will expire on January 5, 2018. Please read Note 21  — Subsequent Events for additional information about the Tax Benefits Preservation Plan.
The market price of and trading volume of our shares of common stock may be volatile.
The market price of our shares of common stock has fluctuated substantially and may continue to fluctuate in response to many factors which are beyond our control, including:
fluctuations in our operating results, including results that vary from expectations of management, analysts and investors;
announcements of strategic developments, acquisitions, financings and other material events by us or our competitors;
the sale of a substantial number ofits controlled affiliates hold shares of our common stock heldrepresenting at least a majority of the votes entitled to be cast by existing security holdersour stockholders at a stockholder meeting, D.R. Horton is 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 public market;New York Stock Exchange ("NYSE") listing rules, and applicable law. The directors elected by D.R. Horton 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.
general conditions        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 real estateStockholder's Agreement and mineral resources industries.
The stock markets in generalour certificate of incorporation and bylaws, to control matters submitted to our stockholders for approval limits the ability of other stockholders to influence corporate matters, which may experience extreme volatilitycause us to take actions that may be unrelatedour other stockholders do not view as beneficial to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock, make it difficult to predictthem. In such circumstances, the market price of our common stock incould be adversely affected. In addition, the future and causeexistence of a controlling stockholder may have the valueeffect of our common stock to decline.
Provisions of Delaware law, our charter documents, the Tax Benefits Preservation Plan and the indentures governing the 3.75% convertible senior notes may impede or discourage a takeover, which could cause the market price of our common stock to decline.
We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability ofmaking it more difficult for a third party to acquire controlus, 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 our 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 the 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 a change in control would be beneficial to our existing stockholders. In


addition, our Tax Benefits Preservation Plan could be deemed to have an “anti-takeover” effect because, among other things, an Acquiring Person (as defined underwe do, the Tax Benefits Preservation Plan)resolution may be dilutedless 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 occurrence of a triggering event. Our board of directors also hasparties. Because we are controlled by D.R. Horton, we may not have the power, without stockholder approval,leverage to designate thenegotiate these agreements, or amendments thereto if required, on terms of one or more series of preferred stockas 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 issue shares of preferred stock. These and other impediments to third party acquisition or change of control could limit the price investors are willing to pay forits controlled affiliates hold shares of our common stock which could in turn reducerepresenting at least a majority of the market pricevotes entitled to be cast by our stockholders at a stockholders' meeting, D.R. Horton is 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. In addition, upon the occurrence ofstock, we qualify as a fundamental change"controlled company" under the termsNYSE 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 convertible senior notes, certain repurchase rightsnominating and early settlement rights wouldgovernance committee and compensation committee be triggered underperformed.
We have not elected to utilize the indentures governing“controlled company” exemptions at this time. However, if we elect to use the convertible senior notes. In such event,"controlled company" exemptions, our stockholders will not have the increasesame protections afforded to stockholders of the conversion or early settlement rate, as applicable, in connection with certain make-whole fundamental change transactions under the terms of the convertible senior notes could discourage a potential acquirer.
Our activitiescompanies that are subject to environmental regulationsall 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 the Master Supply Agreement with D.R. Horton.
        The Master Supply Agreement establishes a strategic relationship between us and liabilitiesD.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 could have a negative effect on our operating results.
Our operations areit desires to develop to the other party, subject to federal, state and local laws and regulations related to the protection of the environment. Compliance with these provisions or the promulgation of new environmental laws and regulationscertain exceptions. The parties may result in delays, may cause us to invest substantial funds to ensure compliance with applicable environmental regulations and can prohibit or severely restrict timber harvesting, real estate development or mineral production activity in environmentally sensitive regions or areas.
Our business may suffer if we lose key personnel.
We depend to a large extent on the services of certain key management personnel. These individuals have extensive experience and expertise in our business segments in which they work. The loss of any of these individuals could have a material adverse effect on our operations. We do not maintain key-man life insurancecollaborate with respect to anysuch opportunities and, if they elect to develop such opportunities, D.R. Horton has a right of first offer or right to purchase 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 its 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.
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 employees. Our success will be dependent on our ability to continue to employ and retain skilled personnel in each of our business segments.

close alignment with D.R. Horton.
Risks Related to our Real Estate Operations
Reduced demand for new housing or commercial tracts in the markets where we operate could adversely impact our profitability.
The residential development industry is cyclical and is significantly affected by changes in general and local economic conditions, such as employment levels, availability of financing for home buyers, interest rates, consumer confidence and housing demand. Adverse changes in these conditions generally, or in the markets where we operate, could decrease demand for lots for new homes in these areas. Decline in housing demand could negatively affect our real estate development activities, which could result in a decrease in our revenues and earnings.
Furthermore, the market value of undeveloped land and lots held by us, including commercial tracts, can fluctuate significantly as a result of changing economic and real estate market conditions. If there are significant adverse changes in economic or real estate market conditions, we may have to hold land in inventory longer than planned. Inventory carrying costs can be significant and can result in losses or lower returns and adversely affect our liquidity.
Our business is cyclical in nature.
Real estate development of residential lots is influenced by new home construction activity, which can be volatile. Cyclical downturns may materially and adversely affect our business, liquidity, financial condition and results of operations. Our operations are also impacted by general and local economic conditions, including employment levels, consumer confidence and spending, housing demand, availability of financing for homebuyers, tax policy for deductibility of home mortgage interest and property taxes, and interest rate and demographic trends.


Adverse changes in these general and local economic conditions or deterioration in the broader economy would cause a negative impact on our business and financial results and increase the risk for asset impairments and write-offs. Changes in these economic conditions may affect some of our regions or markets more than others. If adverse conditions affect our larger markets, particularly Texas, they could have a proportionately greater impact on us than on some other real estate development companies.
The real estate development industry is highly competitive and a number of entities with which we compete are larger and have greater resources, and competitive conditions may adversely affect our results of operations.
The real estate development industry in which we operate is highly competitive.
Competitive conditions in the real estate development industry may result in difficulties acquiring suitable land at acceptable prices, lower sales volumes and prices, increased development or construction costs and delays in construction. We compete with numerous regional and local developers for the acquisition, entitlement, and development of land suitable for development. We also compete with national, regional and local home builders who develop real estate for their own use in homebuilding operations, many of which are larger and have greater resources than we do. Any improvement in the cost structure or service of our competitors will increase the competition we face.
Our business, financial condition and results of operations may be negatively affected by any of these factors.
We and our subsidiaries may be able to incur substantially more debt.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.
We may have continuing liabilities relating to non-core assets that have been sold, which could adversely impact our results of operations.
In the course of selling our non-core assets we are typically required to make contractual representations and warranties and to provide contractual indemnities to the buyers. These contractual obligations typically survive the closing of the transactions for some period of time. If a buyer is successful in sustaining a claim against us we may incur additional expenses pertaining to an asset we no longer own, and we may also be obligated to defend and/or indemnify the buyer from certain third party claims. Such obligations could be material and they could adversely impact our results of operations.
The market price of and trading volume of our shares of common stock may be volatile.
The market price of our shares of common stock has fluctuated substantially and may continue to fluctuate in response to many factors which are beyond our control, including:
fluctuations in our operating results, including results that vary from expectations of management, analysts and investors;
announcements of strategic developments, acquisitions, financings and other material events by us or our competitors;
the sale of a substantial number of shares of our common stock held by existing security holders in the public market; and
general conditions in the real estate industry.
The stock markets in general may experience extreme volatility that may be unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock, make it difficult to predict the market price of our common stock in the future and cause the value of our common stock to decline.
Provisions of Delaware law, our charter documents and the indentures governing our 3.75% convertible senior notes may impede or discourage a takeover, which could cause the market price of our common stock to decline.
We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Our board of directors also has the power, without stockholder approval, to designate the terms of one or more series of preferred stock and issue shares of preferred stock. These and other impediments to third party acquisition or change of control could limit the price investors are willing to pay for shares of our common stock, which could in turn reduce the market price of our common stock. In addition, upon the occurrence of a fundamental change under the terms of the convertible senior notes, certain repurchase rights and early settlement rights would be triggered under the indentures governing our convertible senior notes. In such event, the increase of the conversion or early settlement rate, as applicable, in connection with certain make-whole fundamental change transactions under the terms of our convertible senior notes could discourage a potential acquirer.



Our activities are subject to environmental regulations and liabilities that could have a negative effect on our operating results.
Our operations are subject to federal, state and local laws and regulations related to the protection of the environment. Compliance with these provisions or the promulgation of new environmental laws and regulations may result in delays, may cause us to invest substantial funds to ensure compliance with applicable environmental regulations and can prohibit or severely restrict real estate development activity in environmentally sensitive regions or areas.
Our business may suffer if we lose key personnel.
We depend to a large extent on the services of certain key management personnel. These individuals have extensive experience and expertise in our business. The loss of any of these individuals could have a material adverse effect on our operations. We do not maintain key-man life insurance with respect to any of our employees. Our success may be dependent on our ability to continue to employ and retain skilled personnel.
Development of real estate entails a lengthy, uncertain and costly entitlement process.
Approval to develop real property entails an extensive entitlement process involving multiple and overlapping regulatory jurisdictions and often requiring discretionary actionactions by local governments. This process is often political, uncertain and may require significant exactions in order to secure approvals. Real estate projects must generally comply with local land development regulations and may need to comply with state and federal regulations. The process to comply with these regulations is usually lengthy and costly, may not result in the approvals we seek, and can be expected to materially affect our real estate development activities, which may adversely affect our business, liquidity, financial condition and results of operations.
Our real estate development operations are currently concentrated in the major markets of Texas, and as a result, our financial results may be significantly influenced by the Texas economy.
The economic growth and strength of Texas, where the majority of our real estate development activity is located, are important factors in sustaining demand for our real estate development activities. TheA significant decline in oil prices over the past several years may impact near-term job growth and housing demand in Texas, particularly in Houston, where the energy industry has traditionally generateda significant job growth.concentration. As a result, any adverse impact to the economic growth and health, or infrastructure development, of Texas could materially adversely affect our business, liquidity, financial condition and results of operations.
Our real estate development operations are highly dependent upon national, regional and local home builders.
We are highly dependent upon our relationships with national, regional, and local home builders to purchase lots in our residential developments. If home builders do not view our developments as desirable locations for homebuilding operations, or if home builders are limited in their ability to conduct operations due to economic conditions, our business, liquidity,


financial condition and results of operations will be adversely affected.
In addition, we enter into contracts to sell lots to home builders. A home builder could decide to delay purchases of lots in one or more of our developments due to adverse real estate conditions wholly unrelated to our areas of operations, such as the corporate decisions regarding allocation of limited capital or human resources. As a result, we may sell fewer lots and may have lower sales revenues, which could have an adverse effect on our business, liquidity, financial condition and results of operations.
Our strategic partners may have interests that differ from ours and may take actions that adversely affect us.
We may enter into strategic alliances or venture relationships as part of our overall strategy for particular developments or regions. While these partners may bring development experience, industry expertise, financing capabilities, local credibility or other competitive attributes, they may also have economic or business interests or goals that are inconsistent with ours or that are influenced by factors unrelated to our business. We may also be subject to adverse business consequences if the market reputation or financial condition of a partner deteriorates, or if a partner takes actions inconsistent with our interest.
When we enter into a venture, we may rely on our venture partner to fund its share of capital commitments to the venture and to otherwise fulfill its operating and financial obligations. Failure of a venture partner to timely satisfy its funding or other obligations to the venture could require us to elect whether to increase our financial or other operating support of the venture in order to preserve our investment, which may reduce our returns or cause us to incur losses, or to not fund such obligations, which may subject the venture and us to adverse consequences or increase our financial exposure in the project.
Debt within some of our ventures may not be renewed or may be difficult or more expensive to replace.
As of December 31, 2016,2017, our unconsolidated ventures had approximately $128.3$85.2 million of debt, of which $78.6$80.6 million was non-recourse to us. When debt within our ventures matures, some of our ventures may be unable to renew existing loans or


secure replacement financing, or replacement financing may be more expensive. If our ventures are unable to renew existing loans or secure replacement financing, we may be required to contribute additional equity or elect to loan or contribute funds to our ventures, which could increase our risk or increase our borrowings under our senior secured credit facility, or both.risk. If our ventures secure replacement financing that is more expensive, our profits may be reduced.
Delays or failures by governmental authorities to take expected actions could reduce our returns or cause us to incur losses on certain real estate development projects.
For certain projects, we rely on governmental utility and special improvement districts to issue bonds to reimburse us for qualified expenses, such as road and utility infrastructure costs. Bonds must be supported by district tax revenues, usually from ad valorem taxes. Slowing new home sales, decreasing real estate prices or difficult credit markets for bond sales can reduce or delay district bond sale revenues, causing such districts to delay reimbursement of our qualified expenses. Failure to receive timely reimbursement for qualified expenses could adversely affect our cash flows and reduce our returns or cause us to incur losses on certain real estate development projects.
Failure to succeed in new markets may limit our growth.
We may from time to time commence development activity or make acquisitions outside of our existing market areas if appropriate opportunities arise. Our historical experience in existing markets does not ensure that we will be able to operate successfully in new markets. We may be exposed to a variety of risks if we choose to enter new markets, including, among others:
an inability to accurately evaluate local housing market conditions and local economies;
an inability to obtain land for development or to identify appropriate acquisition opportunities;
an inability to hire and retain key personnel;
an inability to successfully integrate operations; and
lack of familiarity with local governmental and permitting procedures.

Risks Related to our Mineral Resources Operations
We do not operate any properties, and have limited control over the activities on properties we do not operate.
The properties in which we have an interest are operated by other companies and involve third-party working interest owners. As a result, we have limited ability to influence or control the operation or future development of such properties, including compliance with environmental, safety and other regulations, or the amount of capital expenditures that we will be required to fund with respect to such properties. Decisions by other parties may significantly influence the revenues we receive from our mineral resources.
Volatile oil and natural gas prices could adversely affect our cash flows and results of operations.
Our cash flows and results of operations are dependent in part on oil and natural gas prices, which can be volatile. Any substantial or extended decline in the price of oil and natural gas could have a negative impact on our business operations and future revenues. Moreover, oil and natural gas prices depend on factors we cannot control, such as: changes in foreign and


domestic supply and demand for oil and natural gas; actions by the Organization of Petroleum Exporting Countries; weather; political conditions in other oil-producing countries, including the possibility of insurgency or war in such areas; prices of foreign exports; domestic and international drilling activity; price and availability of alternate fuel sources; the value of the U.S. dollar relative to other major currencies; the level and effect of trading in commodity markets, the effect of worldwide energy conservation measures, and governmental regulations.
The ability to sell and deliver oil and natural gas produced from wells on our mineral interests could be materially and adversely affected if adequate gathering, processing, compression and transportation services are not obtained.
 The sale of oil and natural gas produced from wells on our mineral interests depends on a number of factors beyond our control, including the availability, proximity and capacity of, and costs associated with, gathering, processing, compression and transportation facilities owned by third parties. These facilities may be temporarily unavailable due to market conditions, mechanical reasons or other factors or conditions, and may not be available to us in the future on terms we consider acceptable, if at all. Any significant change in market or other conditions affecting these facilities or the availability of these facilities, including due to our failure or inability to obtain access to these facilities on terms acceptable to us or at all, could materially and adversely affect our business and, in turn, our financial condition and results of operations.
Our reserves and production will decline from their current levels.
The rate of production from oil and natural gas properties generally declines as reserves are produced. Our reserves will decline as they are produced which could materially and adversely affect our future cash flow and results of operations.
A portion of our oil and natural gas production may be subject to interruptions that could have a material and adverse effect on us.
A portion of oil and natural gas production from our minerals may be interrupted, or shut in, from time to time for various reasons, including as a result of accidents, weather conditions, loss of gathering, processing, compression or transportation facility access or field labor issues, or intentionally as a result of market conditions such as oil and natural gas prices that we deem uneconomic. If a substantial amount of production is interrupted, our cash flow and, in turn, our results of operations could be materially and adversely affected.
Weather and climate may have a significant and adverse impact on us.
Demand for natural gas is, to a significant degree, dependent on weather and climate, which impacts, among other things, the price we receive for the commodities produced from wells on our mineral interests and, in turn, our cash flow and results of operations. For example, relatively warm temperatures during a winter season generally result in relatively lower demand for natural gas (as less natural gas is used to heat residences and businesses) and, as a result, relatively lower prices for natural gas production.
Our estimated proved reserves are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.
The process of estimating oil and natural gas reserves is complex involving decisions and assumptions in evaluating the available geological, geophysical, engineering and economic data. Accordingly, these estimates are imprecise. Actual future production, oil and natural gas prices, revenues, taxes and quantities of recoverable oil and natural gas reserves might vary from those estimated. Any variance could materially affect the estimated quantities and present value of proved developed reserves. In addition, we may adjust estimates of proved reserves to reflect production history, development, prevailing oil and natural gas prices and other factors, many of which are beyond our control.
The standardized measure of future net cash flows from our proved reserves is not necessarily the same as the current market value of our estimated reserves. Any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.
As required by SEC regulations, we base the estimated discounted future net cash flows from our proved reserves on prices and costs in effect at the time of the estimate. However, actual future net cash flows from our properties will be affected by numerous factors not subject to our control.
The timing of production will affect the timing of actual future net cash flows from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net cash flow, which is required by the SEC, may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and natural gas industry in general. Any material inaccuracies in our reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.


A significant portion of our Louisiana owned net mineral acres are subject to prescription of non-use under Louisiana law.
A significant portion of our Louisiana owned net mineral acres were severed from surface ownership and retained by creation of one or more mineral servitudes shortly before our 2007 spin-off. Under Louisiana law, a mineral servitude that is not producing minerals or which has not been the subject of good-faith drilling operations will cease to burden the property upon the tenth anniversary of the date of its creation. Upon such event, the mineral rights effectively will revert to the surface owner and we will no longer own the right to lease, explore for or produce minerals from such acreage. The total number of net acres subject to prescription can fluctuate based on oil and gas development and production activities. Some or all of approximately 70,000 of our Louisiana net acres may revert to the surface owner unless drilling operations or production activities commences prior to October 2017.
Risks Related to our Other Operations
Our water interests may require governmental permits, the consent of third parties and/or completion of significant transportation infrastructure prior to commercialization, all of which are dependent on the actions of others.
Many jurisdictions require governmental permits to withdraw and transport water for commercial uses, the granting of which may be subject to discretionary determinations by such jurisdictions regarding necessity. In addition, we do not own the executory rights related to our non-participating royalty interest, and as a result, third-party consent from the executor rights owner(s) would be required prior to production. The process to obtain permits can be lengthy, and governmental jurisdictions or third parties from whom we seek permits or consent may not provide the approvals we seek. We may be unable to secure buyers at commercially economic prices for water that we have a right to extract and transport, and transportation infrastructure across property not owned or controlled by us is required for transport of water prior to commercial use. Such infrastructure can require significant capital and may also require the consent of third parties. We may not have cost effective means to transport water from property we own, lease or manage to buyers. As a result, we may lose some or all of our investment in water assets, or our returns may be diminished.
Item 1B.Unresolved Staff Comments.
None.

Item 2.Properties.
Our principal executive offices are leased and are located in Austin, Texas, where we lease approximately 22,000 square feet.Texas. We also lease office space in Atlanta, Georgia; Dallas, Texas; Denver, Colorado; and Houston, Texas. We believe these offices are suitable for conducting our business.
For a description of our properties in our real estate, mineral resources and other segments, see “Business — Real Estate”, “Business — Mineral Resources” and “Business — Other”, respectively, in Part I, Item 1 of this Annual Report on Form 10-K.
 
Item 3.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 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 charges related to these matters could be significant to results of operations or cash flow in any single accounting period.

Item 4.Mine Safety Disclosures.
Not Applicable.



PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded on the New York Stock Exchange. The high and low sales prices in each quarter in 20162017 and 20152016 were:
2016 20152017 2016
Price Range Price RangePrice Range Price Range
High Low High LowHigh Low High Low
First Quarter$13.04
 $8.40
 $15.91
 $13.27
$13.75
 $12.50
 $13.04
 $8.40
Second Quarter$13.74
 $11.23
 $16.29
 $13.16
$17.65
 $13.85
 $13.74
 $11.23
Third Quarter$12.80
 $11.33
 $13.67
 $11.98
$17.40
 $16.95
 $12.80
 $11.33
Fourth Quarter$13.65
 $10.75
 $14.59
 $10.58
$22.50
 $16.35
 $13.65
 $10.75
For the Year$13.74
 $8.40
 $16.29
 $10.58
$22.50
 $12.50
 $13.74
 $8.40
Shareholders
Our stock transfer records indicated that as of February 27, 2017,23, 2018, there were approximately 3,1441,963 holders of record of our common stock.
Dividend Policy
We currently intend to retain any future earnings to support our business. The declaration and payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including without limitation, our financial condition, earnings, capital requirements of our business, the terms of any credit agreements or indentures to which we may be a party at the time, legal requirements, industry practice, and other factors that our Board of Directors deems relevant.
Issuer Purchases of Equity Securities (a) 
Period
Total
Number of
Shares
Purchased (b)
 
Average
Price Paid
per Share
 
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plan or
Programs
 
Maximum
Number of
Shares That
May Yet be
Purchased
Under the
Plans or
Programs
Month 10 (10/1/2016 — 10/31/2016)—
 $—
 —
 3,222,692
Month 11 (11/1/2016 — 11/30/2016)56
 $11.10
 —
 3,222,692
Month 12 (12/1/2016 — 12/31/2016)—
 $—
 —
 3,222,692
Total56
 $11.10
 —
  
Period
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plan or
Programs
Maximum
Number of
Shares That
May Yet be
Purchased
Under the
Plans or
Programs
Month 10 (10/1/2017 — 10/31/2017)—
$—
—
—
Month 11 (11/1/2017 — 11/30/2017)—
$—
—
—
Month 12 (12/1/2017 — 12/31/2017)—
$—
—
—
Total—
$—
—
 _____________________
(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. We have no repurchase plans or programs that expired duringterminated upon closing of the period covered by the table above and no repurchase plans or programs that we intend to terminate prior to expiration or under which we no longer intend to make further purchases.
(b)
Includes shares withheld to pay taxes in connectionMerger with vesting of restricted stock awards and exercises of stock options.D.R. Horton on October 5, 2017.


Performance Graph
Our 2016old peer group consists of the followinga combination of real estate and oil and gas companies: Alexander & Baldwin, Inc., AV Homes Inc., Approach Resources, Inc., Cousins Properties Incorporated, Contango Oil and Gas Co., Goodrich Petroleum Corp., Matador Resources Co., Petroquest Energy Inc., Post Properties, Inc., Potlatch Corporation, PS Business Parks, Inc., Resolute Energy Corp., and The St. Joe Company.
Because we are no longer in the oil and gas business, we constructed a new peer group consisting only of real estate companies: The St. Joe Company, and Tejon Ranch Co, Consolidated-Tomoka Land Co. Magnum Hunter Resources Corp., Five Points Holding, LLC (Class A), HomeFed Corporation, and Penn Virginia Corp are omitted from our peer group because they have ceased trading.Alexander & Baldwin, Inc.
Pursuant to SEC rules, returns of each of the companies in the Peer Index are weighted according to the respective company’s stock market capitalization at the beginning of each period for which a return is indicated.


Item 6.Selected Financial Data.
For the YearFor the Year
2016 2015 2014 2013 20122017 2016 2015 2014 2013
(In thousands, except per share amount)(In thousands, except per share amount)
Revenues:                  
Real estate$190,273
 $202,830
 $213,112
 $248,011
 $120,115
$112,746
 $190,273
 $202,830
 $213,112
 $248,011
Mineral resources5,076
 9,094
 15,690
 21,419
 34,086
1,502
 5,076
 9,094
 15,690
 21,419
Other1,965
 6,652
 9,362
 10,721
 8,256
74
 1,965
 6,652
 9,362
 10,721
Total revenues$197,314
 $218,576
 $238,164
 $280,151
 $162,457
$114,322
 $197,314
 $218,576
 $238,164
 $280,151
Segment earnings (loss):                  
Real estate (a)
$121,420
 $67,678
 $96,906
 $68,454
 $53,582
$47,281
 $121,420
 $67,678
 $96,906
 $68,454
Mineral resources(b)3,327
 4,230
 9,116
 14,815
 29,190
45,552
 3,327
 4,230
 9,116
 14,815
Other(c)(4,625) (608) 5,499
 6,507
 29
(6,393) (4,625) (608) 5,499
 6,507
Total segment earnings120,122
 71,300
 111,521
 89,776
 82,801
86,440
 120,122
 71,300
 111,521
 89,776
Items not allocated to segments:                  
General and administrative expense (b)(d)
(18,274) (24,802) (21,229) (20,597) (25,176)(50,354) (18,274) (24,802) (21,229) (20,597)
Share-based compensation expense(4,425) (4,474) (3,417) (16,809) (14,929)
Share-based and long-term incentive compensation expense

(7,201) (4,425) (4,474) (3,417) (16,809)
Gain on sale of assets (c)(e)
48,891
 —
 —
 —
 16
28,674
 48,891
 —
 —
 —
Interest expense(19,985) (34,066) (30,286) (20,004) (19,363)(8,532) (19,985) (34,066) (30,286) (20,004)
Loss on extinguishment of debt, net (d)(f)
(35,864) —
 —
 —
 —
(611) (35,864) —
 —
 —
Other corporate non-operating income350
 256
 453
 119
 191
1,627
 350
 256
 453
 119
Income from continuing operations before taxes attributable to Forestar Group, Inc.90,815
 8,214
 57,042
 32,485
 23,540
50,043
 90,815
 8,214
 57,042
 32,485
Income tax expense (e)(g)
(15,302) (35,131) (20,850) (5,780) (9,016)(45,820) (15,302) (35,131) (20,850) (5,780)
Net income (loss) from continuing operations attributable to Forestar Group Inc.75,513
 (26,917) 36,192
 26,705
 14,524
4,223
 75,513
 (26,917) 36,192
 26,705
Income (loss) from discontinued operations, net of taxes (f)(h)
(16,865) (186,130) (19,609) 2,616
 (1,582)46,031
 (16,865) (186,130) (19,609) 2,616
Net income (loss) attributable to Forestar Group Inc.$58,648
 $(213,047) $16,583
 $29,321
 $12,942
$50,254
 $58,648
 $(213,047) $16,583
 $29,321
Net income (loss) per diluted share:                  
Continuing operations$1.78
 $(0.79) $0.83
 $0.73
 $0.41
$0.10
 $1.78
 $(0.79) $0.83
 $0.73
Discontinued operations$(0.40) $(5.43) $(0.45) $0.07
 $(0.05)$1.09
 $(0.40) $(5.43) $(0.45) $0.07
Net income (loss) per diluted share$1.38
 $(6.22) $0.38
 $0.80
 $0.36
$1.19
 $1.38
 $(6.22) $0.38
 $0.80
Average diluted shares outstanding (g)(i)
42,334
 34,266
 43,596
 36,813
 35,482
42,381
 42,334
 34,266
 43,596
 36,813
At year-end:                  
Assets$733,208
 $972,246
 $1,247,606
 $1,168,027
 $917,869
$761,912
 $733,208
 $972,246
 $1,247,606
 $1,168,027
Debt110,358
 381,515
 422,151
 353,282
 293,498
108,429
 110,358
 381,515
 422,151
 353,282
Noncontrolling interest1,467
 2,515
 2,540
 5,552
 4,059
1,420
 1,467
 2,515
 2,540
 5,552
Forestar Group Inc. shareholders’ equity560,651
 501,600
 707,202
 709,845
 529,488
604,212
 560,651
 501,600
 707,202
 709,845
Ratio of total debt to total capitalization16% 43% 37% 33% 35%15% 16% 43% 37% 33%
 _____________________
(a) 
Real estate segment earnings (loss) includes gain on sale of assets of $1,915,000 in 2017, $117,856,000 in 2016, $1,585,000 in 2015 and $25,981,000 in 2014 and $25,273,000 in 2012.2014. Segment earnings also includes non-cash impairments of $3,420,000 in 2017, $56,453,000 in 2016, $1,044,000 in 2015, $399,000 in 2014 and $1,790,000 in 2013. Real estate segment earnings (loss) also include the effects of net (income) loss attributable to noncontrolling interests.
(b) 
General administrative expenseMineral resources segment earnings in 2017 includes severance-related chargesgain on sale of $3,314,000 in 2015 and $6,323,000 in costs associated withassets of $82,422,000 related to the sale of all our acquisitionremaining owned mineral assets. Segment earnings also includes a non-cash impairment charge of Credo in 2012.$37,900,000 related to the mineral resources reporting unit goodwill.
(c) 
Other segment earnings (loss) includes non-cash impairment charges of $5,852,000 in 2017 and $3,874,000 in 2016 primarily related to our central Texas water assets.
(d)
In 2017, general and administrative expense includes merger related transaction costs of $37,216,000 which includes a merger termination fee of $20,000,000 paid to Starwood Capital Group, $11,787,000 in professional fees and other costs, and $5,429,000 in executive severance and change in control costs.


(e)
Gain on sale of assets in 2017 and 2016 represents gains in accordance with our key initiatives to divest non-core timberland and undeveloped land.
(d)(f) 
Loss on extinguishment of debt, net is related to retirement of $225,245,000$5,315,000 of our 8.5%8.50% Senior Secured Notes due 2022 and $5,000,000$1,077,000 of our 3.75% of Convertible Senior Notes due 2020 in 2017 and $225,245,000 of our 8.50% Senior Secured Notes and $5,000,000 of our 3.75% Convertible Senior Notes in 2016.
(e)(g) 
In 2017, income tax expense was impacted by non-deductible merger transaction costs and goodwill impairment. In 2015, income tax expense from continuing and discontinued operations includes an expense of $97,068,000 for a valuation allowance on a portion of our deferred tax asset that was determined to be more likely than not to be unrealizable. In 2013, income tax expense includes a benefit from recognition of $6,326,000 of previously unrecognized tax benefits upon lapse of the statute of limitations for a previously reserved tax position.


from recognition of $6,326,000 of previously unrecognized tax benefits upon lapse of the statute of limitations for a previously reserved tax position.
(f)(h) 
Income (loss) from discontinued operations includes an income tax benefit of $46,039,000 in 2017 and non-cash impairment charges of $612,000 in 2016, $163,029,000 in 2015, $32,665,000 in 2014 and $473,000 in 2013 related to proved properties and unproved leasehold interests related to our non-core oil and gas working interests. Income (loss) from discontinued operations also includes losses of $13,664,000 in 2016 and $706,000 in 2015 and gains of $8,526,000 in 2014 associated with sale of working interest oil and gas properties.
(g)(i) 
Our 2015 weighted average diluted shares outstanding excludes dilutive effect of equity awards and 7,857,000 shares issuable upon settlement of the prepaid stock purchase contract component of our 6.00% tangible equity units, due to our net loss attributable to Forestar Group Inc.


Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Caution Concerning Forward-Looking Statements
This Annual Report on Form 10-K and other materials we have filed or may file with the Securities and Exchange Commission contain “forward-looking statements” within the meaning of the federal securities laws. 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 risk 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:
general economic, market or business conditions in Texas, or Georgia, where our real estate activities are concentrated, or on a national or global scale;
our ability to achieve some or all of our key2018 strategic 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 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;
demand for multifamily communities, which can be affected by a number of factors including local markets and economic conditions;
competitive actions by other companies;
changes in governmental policies, laws or regulations and actions or restrictions of regulatory agencies;
fluctuations in oil and gas commodity prices;
demand by oil and gas operators to lease our minerals, which may be influenced by government regulation of exploration and production activities including hydraulic fracturing;
our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our senior secured credit facility, indentures and other debt agreements;
our partners’ ability to fund their capital commitments and otherwise fulfill their operating and financial obligations;
inabilitythe effect of D.R. Horton's controlling level of ownership on us and our stockholders;
our ability to obtain permits for, or changes in laws, governmental policies or regulations affecting, water withdrawal or usage;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 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 described in Item 1A of this Annual Report on Form 10-K, may also cause actual results to differ materially from those projected by our forward-looking statements. 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.
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 mixed-use real estate development company. As of October 5, 2017, we are a majority-owned subsidiary of D.R. Horton. In our core community development business we own directly or through ventures interests in 49 residential and mixed-use projects located in 11 states and 16 markets. In addition, we own interests in various other assets that have been identified as non-core that we are divesting opportunistically over time.


Key Initiatives
ReducingFor the past two years we have focused on reducing costs across our entire organization,
Reviewing entire selling non-core assets, reducing our outstanding debt and reviewing our portfolio of assets (complete non-core asset sales); and
Reviewing capital structure (allocate capitalallocation to maximize shareholder value).value. The merger with D.R. Horton provides us an opportunity to grow our core community development business by establishing a strategic relationship to supply finished lots to D. R. Horton at market prices under the 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. As our controlling shareholder, D.R. Horton has significant influence in guiding our strategic direction and operations. As of February 23, 2018, we have acquired 13 new projects since the Merger representing nearly 5,300 planned lots, of which approximately 35 percent are under contract to sell to D.R. Horton and a majority of these remaining lots are also expected to be sold to D.R. Horton in accordance with the Master Supply Agreement between the two companies.
2018 Strategic Initiatives
Our 2018 strategic initiatives include making significant investments in land acquisition and development to expand our community development business into a diversified national platform and finalizing non-core asset sales. On February 8, 2018, we entered into and closed on a Purchase and Sale Agreement with Starwood to sell 24 legacy projects for $232,000,000. This strategic asset sale included projects owned both directly and indirectly through ventures and consisted of approximately 750 developed and under development lots, over 4,000 future undeveloped lots (including all real estate associated with the Cibolo Canyons mixed-use development), 730 unentitled acres in California, an interest in one multifamily operating property and a multifamily development site. This sale helps to further streamline our business and provide additional capital for future growth. We plan to invest the capital principally into new land development projects with goals of improving returns and enhancing value for our shareholders.
Discontinued Operations / Segment Name Changes
At year-end 2016, we havehad divested 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 our consolidated statements of income (loss) and consolidated balance sheets for all periods presented. In addition, in second quarter 2016, we changed the name of the oil and gas segment to mineral resources to reflect the strategic shift from oil and gas working interest investmentsinterests to owned mineral interests.
In third quarter 2017, we sold the common stock of Forestar Petroleum Corporation for $100,000. With the completion of this transaction we have sold all of our oil and gas working interest assets and related entities. This transaction resulted in a significant tax loss with the corresponding tax benefit reported as discontinued operations.
Business Segments
We also changed the namemanage 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 (loss), equity in earnings of unconsolidated ventures, gain on sale 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 expenses, share-based and long-term compensation, gain on sale of strategic timberland and undeveloped land, interest expense, loss on extinguishment of debt and other corporate non-operating income and expense. The accounting policies of the other natural resources segmentsegments are the same as those described in the accounting policy note to other. The discussion of our results of operations is based on the results from our continuing operations unless otherwise indicated.consolidated financial statements.



Results of Operations for the Years Ended 2016,2017, 20152016 and 20142015
A summary of our consolidated results by business segment follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Revenues:          
Real estate$190,273
 $202,830
 $213,112
$112,746
 $190,273
 $202,830
Mineral resources5,076
 9,094
 15,690
1,502
 5,076
 9,094
Other1,965
 6,652
 9,362
74
 1,965
 6,652
Total revenues$197,314
 $218,576
 $238,164
$114,322
 $197,314
 $218,576
Segment earnings (loss):          
Real estate$121,420
 $67,678
 $96,906
$47,281
 $121,420
 $67,678
Mineral resources3,327
 4,230
 9,116
45,552
 3,327
 4,230
Other(4,625) (608) 5,499
(6,393) (4,625) (608)
Total segment earnings (loss)120,122
 71,300
 111,521
Total segment earnings86,440
 120,122
 71,300
Items not allocated to segments:          
General and administrative expense(18,274) (24,802) (21,229)(50,354) (18,274) (24,802)
Share-based and long-term incentive compensation expense(4,425) (4,474) (3,417)(7,201) (4,425) (4,474)
Gain on sale of assets48,891
 —
 —
28,674
 48,891
 —
Interest expense(19,985) (34,066) (30,286)(8,532) (19,985) (34,066)
Loss on extinguishment of debt, net(35,864) —
 —
(611) (35,864) —
Other corporate non-operating income350
 256
 453
1,627
 350
 256
Income from continuing operations before taxes attributable to Forestar Group Inc.90,815
 8,214
 57,042
50,043
 90,815
 8,214
Income tax expense(15,302) (35,131) (20,850)(45,820) (15,302) (35,131)
Net income (loss) from continuing operations attributable to Forestar Group Inc.$75,513
 $(26,917) $36,192
$4,223
 $75,513
 $(26,917)
Significant aspects of our results of operations follow:
2017
Real estate segment earnings in 2017 decreased as compared to 2016 primarily due to gains of $117,856,000 from the sale of non-core assets in 2016 which were partially offset by non-cash impairment charges of $56,453,000. In addition, 2016 included $28,098,000 in earnings from retail sales of undeveloped land and we had no retail sales of undeveloped land in 2017. Segment earnings in 2017 reflect higher equity in earnings from unconsolidated ventures primarily due to higher commercial sales activity from our ventures and a gain of $7,783,000 from the sale of the Acklen multifamily project from a venture in which we own a 30% interest.
Mineral resources segment earnings increased due to the sale of our remaining owned mineral assets for approximately $85,700,000, which generated $82,422,000 in gains. These gains were partially offset by a non-cash impairment charge of $37,900,000 related to the mineral resources reporting unit goodwill.
Other segment earnings (loss) includes non-cash impairment charges of $5,852,000 in 2017 and $3,874,000 in 2016 primarily related to our central Texas water assets.
General and administrative expense increased primarily due to merger-related transaction costs of $37,216,000 which includes a merger termination fee of $20,000,000 paid to Starwood Capital Group, $11,787,000 in professional fees and other costs, and $5,429,000 in executive severance and change in control costs.
Share-based and long-term incentive compensation expense increased by $4,349,000 due to the acceleration of vesting and settlement of outstanding equity awards upon closing of the Merger.
Gain on sale of assets of $28,674,000 represents the sale of approximately 19,000 acres of timberland and undeveloped land in Georgia and Texas for $46,197,000 in accordance with our key initiative to divest non-core assets.
Income tax expense from continuing operations in 2017 includes the impact of non-deductible goodwill impairment and transaction costs related to the Merger.




2016
Real estate segment earnings benefited from combined gains of $117,856,000 which generated combined net proceeds before debt repayment of $247,506,000 as a result of executing our key initiative to opportunistically divest non-core assets. These gains were partially offset by non-cash impairment charges of $56,453,000 related to six non-core community development projects and two multifamily sites. These impairments were a result of our key initiative to review our entire portfolio of assets which resulted in business plan changes, inclusive of cash tax savings consideration, to market these properties for sale. In addition, earnings benefited from increased residential lot sales activity and higher undeveloped land sales from our retail sales program.of undeveloped land.
Mineral resources segment earnings decreased due to lower oil and gas prices and production volumes associated with royalty interests and reduced lease bonus and delay rental payments received from our owned mineral interests.
Other segment earnings was negatively impacted due to a $3,874,000 non-cash impairment charge of goodwill related to our central Texas water assets as a result of entering into an agreement to sell these assets.
General and administrative expense decreased as result of our key initiative to reduce costs across our entire organization.
Gain on sale of assets of $48,891,000 represents the sale of over 58,300 acres of timberland and undeveloped land in Georgia and Alabama in three separate transactions for $104,172,000 in accordance with our key initiative to divest non-core assets.
Interest expense decreased primarily due to reducing our debt outstanding by $277,790,000 in 2016 and $323,303,000 since third quarter 2015.
Loss on extinguishment of debt of $35,864,000 is related to debt retirement of portions of our 8.50% Senior Secured Notes due 2022 and 3.75% Convertible Senior Notes due 2020, which includes write-off of unamortized debt issuance costs of $5,489,000 and $1,301,000 in other costs related to tender offer advisory services.
2015
Real estate segment earnings declined principally due to gain on sale of assets of $25,981,000 in 2014 compared with $1,585,000 in 2015, lower undeveloped land sales and decreased residential lot sales activity. Segment earnings were positively impacted by higher commercial and residential tract sales and sale of Midtown Cedar Hill, a 354-unit multifamily property near Dallas for $42,880,000, which generated segment earnings of $9,265,000.
Mineral resources segment earnings decreased principally due to lower oil prices, as well as lower oil and gas production volumes associated with royalty interests and reduced lease bonus and delay rental payments received from our owned mineral interests.
Other segment earnings declined principally due to gains of $3,531,000 in 2014 related to partial terminations of a timber lease related to land sold from a consolidated venture near Atlanta, Georgia and due to lower fiber volumes.
General and administrative expense increased principally as a result of severance-related charges of $3,314,000 related to departures of our former Chief Executive Officer (CEO) and Chief Financial Officer (CFO).
Interest expense increased primarily due to higher average borrowing rates and increased average debt outstanding.
2014
Real estate segment earnings benefited from increased undeveloped land sales generating earnings of $29,895,000, a $10,476,000 gain associated with a non-monetary exchange of leasehold timber rights for 5,400 acres of undeveloped land with a partner in a consolidated venture, a $7,610,000 gain associated with the acquisition of our partner's interest in the Eleven multifamily venture, higher residential lot sales activity and a $6,577,000 gain associated with $46,500,000 of bond proceeds we received from the Cibolo Canyons Special Improvement District.
Mineral resources segment earnings decreased principally due to lower oil and gas production volumes associated with royalty interests and reduced lease bonus and delay rental payments received from our owned mineral interests.


Other segment earnings declined principally due to lower fiber volumes, which were partially offset by gains of $3,531,000 primarily related to partial terminations of a timber lease related to land sold from a consolidated venture near Atlanta, Georgia.
Share-based compensation decreased principally as result of a 28% decrease in our stock price since year-end 2013 and its impact on cash-settled awards.
Interest expense increased primarily due to higher average borrowing rates and increased debt outstanding.
Current Market Conditions
Sales of new U.S. single-family homes in December 2017, according to U.Sa joint release by the U.S. Census Bureau and the U.S. Department of Commerce declined 0.4% onHousing and Urban Development, were at a seasonally adjusted annual rate of 625,000 units. On a year over year basis, asU.S. single family home sales were 14.1% higher than reported in December 2016. A total of 608,000 new home sales were reported for the year, the highest annual level reported since 2007. The number of units for sale at the end of December 31, 2016was 295,000, representing a supply of 5.7 months at the current sales rate. The U.S. Census Bureau and 10.4% belowthe U.S. Department of Housing and Urban Development jointly announced that housing starts for December 2017 registered a seasonally adjusted annual rate of 1,192,000 units, representing an 8.2% drop from the November estimate of 1,299,000 and a 6.0% decrease from prior month's rateyear. Seasonally adjusted single-family starts in December were 836,000 units, 11.8% below the revised November rate but 3.5% above prior year. For the year, total housing starts were up 2.4% to 1,202,100, compared to 1,173,800 for 2016, suggesting that the 40 basis point risehighest annual rate since 2007. Seasonally adjusted housing permits, generally viewed as a precursor for housing starts, registered 1,302,000 in mortgage rates andDecember 2017, 0.1% below the return of winter weather affectedprior month’s revised reading but 2.8% above the December 2016 sales. Consumer confidence as measured by The Conference Board increased in December 2016 to its highest level since August 2001, registering 113.7 up from 109.4 in November 2016. The elevated monthly reading was attributed in part to increases in consumers' outlook for business conditions over the next six-months and more positive outlooks for the labor market and rising incomes. Builderrate. Homebuilder confidence, as measured by the NAHB/National Association of Homebuilders/Wells Fargo Housing Market Index, ended 2016increased in December on expectations for a high note, jumping sevenstronger economy and potential regulatory relief for the business community. The monthly reading of homebuilder sentiment rose 5 points to its74, the highest reading since July 2005, largely attributable to1999 and 5 points higher than a post-election bounce.year ago. On a monthlyregional basis, housing startsthe three month moving averages for builders’ confidence increased significantly in December 2016 due to volatile multifamily activity, while housing permit activity, viewed asall regions with the Midwest registering the highest increase on a precursor to starts increased 1.9%percentage basis, 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, ending December 2016. Home prices as measured bythe S&P Corelogic Case-Shiller U.S. National Home Price index hitNSA Index, which covers all nine U.S. Census divisions, reported a new high6.2% annual gain in November, 2016 after rising at approximately a 5.5% annual rate over the last two-and-a half years. As of the November 2016 reading, average home prices for the metropolitan statistical areas (MSAs) within the two composite indices were back to their winter 2007 levels. As of year-end 2016, finished vacant supply of new homes and vacant developed lot supply in MSAs in which Forestar's single family activity is located remained extremely tight, registering below the two month and 24 month equilibrium levels.
Oil and gas revenues are influenced by prices of, and global and domestic supply and demand for, oil and gas. These commodities as determined by both regional and global markets depend on numerous factors beyond our control, including seasonality, the condition of the domestic and global economies, political conditions in other oil and gas producing countries, the extent of domestic production and imports of oil and gas, the proximity and capacity of gas pipelines and other transportation facilities, supply and demand for oil and gas and the effects of federal, state and local regulation. The oil and gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. The price of crude oil decreased during the first half of 2016 as compared with the first half in 2015. Prices increased during the second half of 2016 as compared to the first half of 2016 as the number of U.S. crude oil rigs and inventories declinedup from 6.1% in the last half of 2015 and into early 2016. Natural gas prices decreased in 2016 compared with 2015, primarily due to domestic oversupply driven by lack of a normal winter withdrawal cycle in the winter of 2015-2016. West Texas Intermediate (WTI) oil prices averaged $43.33 per Bbl in 2016, nearly 11% lower than in 2015 and $48.66 per Bbl in 2015, nearly 48% lower than in 2014.
Business Segments
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 (loss), equity in earnings of unconsolidated ventures’, gain on sale 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 expenses, share-based and long-term compensation, gain on sale of strategic timberland and undeveloped land, interest expense, loss on extinguishment of debt 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.
We operate in cyclical industries. 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, changes in the market prices for oil, gas and timber, and the overall strength or weakness of the U.S. economy.previous month.




Real Estate
We own directly or through ventures interests in 5049 residential and mixed-use projects comprised of approximately 4,600 acres of real estate projects located in 1011 states and 1416 markets. Our real estate segment secures entitlements and develops infrastructure on our lands, primarily for single-family residential and mixed-use communities. We own approximately 11,000 acres of non-core timberland and undeveloped land in Georgia and approximately 8,000 acres in Texas. We own and manage our projects either directly or through ventures. Our real estate segment revenues are principally derived from the sales of residential single-family lots and tracts, undeveloped land and commercial real estate, and in 20142016 and 2015 from the operation of several income producing properties, primarily a hotel and multifamily properties.






A summary of our real estate results follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Revenues$190,273
 $202,830
 $213,112
$112,746
 $190,273
 $202,830
Cost of sales(163,095) (113,891) (123,764)(65,014) (163,095) (113,891)
Operating expenses(29,229) (40,502) (34,121)(18,761) (29,229) (40,502)
(2,051) 48,437
 55,227
28,971
 (2,051) 48,437
Interest income on loan secured by real estate1,368
 2,750
 8,135
Interest income1,973
 1,368
 2,750
Gain on sale of assets117,856
 1,585
 25,981
1,915
 117,856
 1,585
Equity in earnings of unconsolidated ventures5,778
 15,582
 8,068
16,500
 5,778
 15,582
Less: Net income attributable to noncontrolling interests(1,531) (676) (505)(2,078) (1,531) (676)
Segment earnings$121,420
 $67,678
 $96,906
$47,281
 $121,420
 $67,678
Revenues in our owned and consolidated ventures consist of:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Residential real estate$121,196
 $87,771
 $119,308
$98,521
 $121,196
 $87,771
Commercial real estate11,151
 5,390
 2,717
13,001
 11,151
 5,390
Undeveloped land35,873
 22,851
 46,554
Retail undeveloped land—
 35,873
 22,851
Commercial and income producing properties13,738
 82,808
 41,440
91
 13,738
 82,808
Other8,315
 4,010
 3,093
1,133
 8,315
 4,010
$190,273
 $202,830
 $213,112
$112,746
 $190,273
 $202,830
Residential real estate revenues principally consist of the sale of single-family lots to local, regional and national home builders. In 2017, residential real estate revenues decreased primarily due to lower lot sales activity but were partially offset by higher average sale prices per lot sold and also due to mix of product sold. In 2017, we sold 937 lots from our owned and consolidated projects at an average price of $89,300 per lot. In addition, in 2017, we sold 189 residential tract acres for $12,546,000 generating earnings of $3,842,000. In 2016, residential real estate revenues increased as compared to 2015 primarily due to higher lot sales activity but were partially offset by lower average sale prices per lot as a result of selling 235 bulk lots from four non-core community development projects. Excluding these non-core sales, we sold 1,427 lots from our owned and consolidated projects at an average price of $71,300 per lot.lot in 2016. In addition, in 2016, we sold 1,539 residential tract acres for $8,728,000 generating earnings of $847,000. In 2015, residential real estate revenues decreased primarily due to lower lot sales activity due to construction and inspection delays associated with abnormally wet weather conditions. Also, in 2015, we sold 1,062 residential tract acres for $11,223,000 generating earnings of $5,489,000, compared with 936 acres of residential tracts for $7,996,000 generating earnings of $2,988,000 in 2014.
The timing of commercial real estate revenues can vary depending on the demand, mix, project life-cycle, size and location of the project. In 2017, we sold 98 commercial acres for $13,001,000 from our owned and consolidated projects, generating earnings of $10,467,000. In 2016, the increase in commercial real estate revenues as compared to 2015 is primarily due to selling 286 commercial acres from four non-core community development projects, of which 264 acres were sold from our San Joaquin River project in Antioch, California for $7,330,000 which provided approximately $37,400,000 in income tax losses to offset tax gains from other sales. In 2015, our commercial tract sales revenue increased principally due to higher average sales price of tracts sold. In 2015, we sold 31 commercial acres for $5,542,000 from our owned and consolidated projects, generating earnings of $3,345,000, compared with 21 commercial acres for $1,889,000, generating earnings of $444,000 in 2014.
UndevelopedRetail undeveloped land revenues represent land sold from our retail sales program. We did not sell any retail land in 2017. In 2016, we sold 14,438 acres of undevelopedretail land for $2,485 per acre, generating approximately $28,098,000 in earnings. In 2015, we sold 9,645 acres of undevelopedretail land for $2,369 per acre, generating approximately $16,542,000 in earnings, compared with 21,345 acres sold for $2,181 per acre, generating earnings of $29,895,000 in 2014.


earnings.
Commercial and income producing properties revenues include revenues from sale of multifamily properties which we developed as a merchant builder and operateoperated until sold, from hotel room sales and other guest services, rental revenues from our operating multifamily properties and reimbursement for costs paid to subcontractors plus development and construction fees from certain multifamily projects. At year-end 2017, we had no owned or consolidated commercial or income producing properties. In 2016, commercial and income producing properties revenues decreased as compared with 2015 as result of selling the Radisson Hotel & Suites a 413 guest room hotel located in Austin, in second quarter 2016 and Eleven, a multifamily property in Austin, in first quarter 2016, and the impact of selling Midtown Cedar Hill, a multifamily property near Dallas in fourth quarter 2015 for $42,880,000. Commercial and income producing properties revenue in 2015 includes $6,238,000 in construction revenues associated with one multifamily fixed fee contract as general contractor which was substantially completed at year-end 2015, compared with $12,282,000 in 2014. The decrease in construction revenues in 2015 is primarily due to the completion of the Eleven project in second quarter 2014. In 2015, rental revenues from our multifamily operating properties were $8,380,000 compared with $1,550,000 in 2014, primarily due to the substantial completion of the Eleven multifamily project at the end of second quarter 2014 and acquiring our partner's interest in the multifamily venture in third quarter 2014.
Other revenues primarily result from sale of stream and impervious cover credits.credits and from management fee income. In 2017, other revenues principally represents management fee income earned for services provided to certain joint ventures. In 2016, we sold 24 acres of impervious cover credits to home builders for $3,232,000, generating earnings of $2,787,000 and 138,000 mitigation banking credits for $3,265,000, generating earnings of $2,137,000.


Units sold consist of:
For the YearFor the Year
2016 2015 20142017 2016 2015
Owned and consolidated ventures:          
Residential lots sold1,662
 972
 1,999
937
 1,662
 972
Revenue per lot sold$66,694
 $76,594
 $55,597
$89,312
 $66,694
 $76,594
Commercial acres sold294
 31
 21
98
 294
 31
Revenue per commercial acre sold$37,312
 $182,184
 $89,681
$132,938
 $37,312
 $182,184
Undeveloped acres sold14,438
 9,645
 21,345
—
 14,438
 9,645
Revenue per acre sold$2,485
 $2,369
 $2,181
$—
 $2,485
 $2,369
Ventures accounted for using the equity method:Ventures accounted for using the equity method:    Ventures accounted for using the equity method:    
Residential lots sold278
 500
 344
282
 278
 500
Revenue per lot sold$76,866
 $78,288
 $72,906
$69,384
 $76,866
 $78,288
Commercial acres sold4
 32
 11
88
 4
 32
Revenue per commercial acre sold$527,152
 $309,224
 $589,574
$263,674
 $527,152
 $309,224
Undeveloped acres sold476
 4,217
 792
—
 476
 4,217
Revenue per acre sold$1,567
 $2,129
 $2,391
$—
 $1,567
 $2,129
Cost of sales in 2017 included non-cash impairment charges of $3,420,000 related to the asset group sold in the strategic asset sale to Starwood and one non-core mitigation project. Cost of sales in 2016 included non-cash impairment charges of $56,453,000 associated with six non-core community development projects and two multifamily sites, of which four non-core community development projects and one multifamily site were sold in 2016 and one multifamily site was under contract to be sold at year-end 2016 and is expected to close in 2017. The non-cash impairments were a result of our key initiative to review our entire portfolio of assets which resulted in business plan changes, inclusive of cash tax savings considerations, to market these properties for sale. In 2015, cost of sales includes $7,781,000 related to multifamily construction contracts we incurred as general contractor and paid to subcontractors associated with our development of a multifamily venture property near Denver compared to $17,393,000 in 2014, associated with two multifamily venture properties. Included in multifamily construction contract costs are charges of $1,531,000 in 2015 reflecting estimated cost increases associated with our fixed fee contracts as general contractor for these two multifamily venture properties compared to $5,107,000 in 2014. Cost of sales in 2015 includes $33,375,000 in carrying value related to Midtown Cedar Hill multifamily property we developed as a merchant builder and sold. In addition, cost of sales includes non-cash impairment charges of $1,044,000 in 2015 and $399,000 in 2014.









2015.
Operating expenses consist of:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Employee compensation and benefits$8,384
 $8,989
 $10,327
$6,555
 $8,384
 $8,989
Property taxes5,996
 9,031
 6,919
3,209
 5,996
 9,031
Professional services5,134
 5,749
 5,749
4,532
 5,134
 5,749
Depreciation and amortization976
 7,605
 3,741
131
 976
 7,605
Other8,739
 9,128
 7,385
4,334
 8,739
 9,128
$29,229
 $40,502
 $34,121
$18,761
 $29,229
 $40,502
The decreaseEmployee compensation and benefits decreased as compared to 2016 as result of our key initiative to reduce costs across our entire organization. In 2017, employee compensation and benefits include $2,254,000 in operating expenses for 2016 is principally related tocosts associated with executive change in control agreements and expense incurred as a result of the Merger with D.R. Horton. The decrease in depreciation and amortization expense and property taxes associated with first quarterin 2017 and 2016 are due to the sale of Eleven multifamily project and fourth quarter 2015 sale of Midtown Cedar Hill multifamily project.non-core assets. The increasedecrease in other operating expenses for 2015 when compared with 2014 wasin 2017 is primarily due to increasepre-acquisition and development costs incurred in depreciation2016 and amortization2015 associated with the acquisition of Eleven multifamily projectand mitigation projects that we elected not to pursue and operating cost savings in which we previously held a 25 percent equity interest and completion of Midtown Cedar Hill multifamily project2017 related to non-core community development projects sold in 2015.2016.
Interest income principally represents interest received on reimbursements from utility and improvement districts. Interest income
In 2017, gain on sale of assets principally includes a gain of $1,318,000 associated with the reduction of a surety bond in yearconnection with the Cibolo Canyons Special Improvement District ("CCSID") bond offering in 2014 principally represents earningsand $465,000 of excess hotel occupancy and sales and use tax pledged revenues from CCSID after their payments to the debt service fund. The surety bond has a loan secured by a mixed-use real estate community in Houston that was paidbalance of $5,312,000 at year-end 2017. The surety bond will decrease as CCSID makes annual ad valorem tax rebate payments to the owner of the resort, which obligation is scheduled to be retired in full in first quarter 2015.by 2020.
In 2016, gain on sale of assets includes a gain of $95,336,000 related to sale of Radisson Hotel & Suites, a gain of $9,116,000 related to sale of Eleven, a gain of $1,223,000 associated with sale of Dillon, a gain of $10,363,000 related to sale of our interest in 3600,, a gain of $3,968,000 associated with sale of Music Row, a loss of $3,870,000 related to selling the


Downtown Edge multifamily site, a gain of $1,219,000 associated with the reduction of a surety bond supporting the 2014 Cibolo Canyons Special Improvement District (CCSID)CCSID bond offering and $501,000 of excess hotel occupancy and sales and use tax revenues from CCSID. The surety bond has a balance of $6,631,000 at year-end 2016. The surety bond will decrease as CCSID makes annual ad valorem tax rebate payments
Increases in equity earnings from our unconsolidated ventures in 2017 compared with 2016 is primarily due to San Antonio Real Estate (SARE) owner of the Resort, which obligation is scheduled to be retired in full by 2020.
In 2015, gain on sale of assets includes a gain of $1,160,000 associated with the reduction of a surety bond in connection with the CCSID bond offering in 2014 and $425,000 of excess hotel occupancy andhigher commercial sales and use tax pledged revenuesactivity from CCSID after their payments to the debt service fund.
In 2014, gain on sale of assets principally includes a gain of $10,476,000 associated with a non-monetary exchange of leasehold timber rights on approximately 10,300 acres for 5,400 acres of undeveloped land with a partner in a consolidated venture, a gain of $7,610,000 related to acquiring our partner's interest in the Eleven multifamily venture, a gain of $6,577,000 related to bond proceeds received from Cibolo Canyons Special Improvement District (CCSID) at our Cibolo Canyons project near San Antonio,ventures and a gain of $1,318,000 associated with$7,783,000 from the sale of the Acklen multifamily project from a land purchase option contract.
venture in which we own a 30% interest. Decreases in equity earnings from our unconsolidated ventures in 2016 compared with 2015 is primarily due to lower residential, commercial and undeveloped sales activity. Increase in equity earnings from our unconsolidated ventures in 2015 compared with 2014 is primarily due to increased lot sales activity associated with two projects in Houston and increased undeveloped land sales from a venture in Atlanta.activity.
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.charge. See Part I, Item 1. Business for information about our net investment in owned and consolidated real estate by geographic locationstate at year-end 2016.2017.




Mineral resources
In 2016,2017, we determined thatsold our remaining owned mineral assets for approximately $85,700,000 which generated gains of $82,422,000. These gains were partially offset by a $37,900,000 non-cash impairment charge associated with the mineral resources reporting unit goodwill. With the completion of this sale we have divested of all of our owned mineral assets were non-core and that we would explore opportunistically divesting these assets.
At year-end 2016, we classified our non-core mineral assets as held for sale. On February 17, 2017, we sold substantially all of our remaining oil and gas assets for a total purchase price of $85,600,000, of which $75,000,000 was received at closing. The balance of the purchase price is being held in a third-party escrow account pending completion of (a) title review, and (b) transfer of certain mineral interests owned by a venture in which the Company is a member. In first quarter 2017, we expect to recognize a gain on sale of approximately $82,400,000, of which $10,600,000 will be deferred until verification of accepted title for non-producing fee minerals in Texas and Louisiana, transfer of certain mineral interests owned by a venture in which we are a member and release of the escrowed funds. In addition, the Company expects to incur a non-cash charge of $37,900,000 related to oil and gas enterprise goodwill that is impaired due to the sale of substantially all of the Company's remaining oil and gas assets.
Our mineral resources segment is focused on maximizing the value from our owned oil and gas mineral interests through promoting exploration, development and production activities by increasing acreage leased, lease rates, and royalty interests.
A summary of our mineral resources results follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Revenues$5,076
 $9,094
 $15,690
$1,502
 $5,076
 $9,094
Cost of mineral resources(763) (2,998) (3,790)(38,315) (763) (2,998)
Operating expenses(1,159) (2,141) (3,370)(1,452) (1,159) (2,141)
3,154
 3,955
 8,530
(38,265) 3,154
 3,955
Gain on sale of assets82,422
 —
 —
Equity in earnings of unconsolidated ventures173
 275
 586
1,395
 173
 275
Segment earnings (loss)$3,327
 $4,230
 $9,116
Segment earnings$45,552
 $3,327
 $4,230
Revenues consist of:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Oil royalties (a)
$2,905
 $5,739
 $10,923
$900
 $2,905
 $5,739
Gas royalties1,304
 2,138
 3,402
487
 1,304
 2,138
Other (principally lease bonus and delay rentals)867
 1,217
 1,365
Other115
 867
 1,217
$5,076
 $9,094
 $15,690
$1,502
 $5,076
 $9,094
 _____________________
(a) 
Oil royalties includes revenues from oil, condensate and natural gas liquids (NGLs).



Oil and gas produced and average unit prices related to our royalty interests follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
Consolidated entities:          
Oil production (barrels)70,700
 106,800
 101,900
17,400
 70,700
 106,800
Average oil price per barrel$39.74
 $50.48
 $97.55
$50.20
 $39.74
 $50.48
NGL production (barrels)8,000
 21,500
 23,800
600
 8,000
 21,500
Average NGL price per barrel$11.84
 $16.32
 $41.39
$22.99
 $11.84
 $16.32
Total oil production (barrels), including NGLs78,700
 128,300
 125,700
18,000
 78,700
 128,300
Average total oil price per barrel, including NGLs$36.91
 $44.76
 $86.91
$49.38
 $36.91
 $44.76
Gas production (millions of cubic feet)633.3
 771.9
 831.0
159.9
 633.3
 771.9
Average price per thousand cubic feet$2.06
 $2.77
 $4.09
$3.05
 $2.06
 $2.77
Our share of ventures accounted for using the equity method:          
Gas production (millions of cubic feet)143.5
 168.3
 199.6
33.4
 143.5
 168.3
Average price per thousand cubic feet$1.97
 $2.54
 $3.94
$2.98
 $1.97
 $2.54
Total consolidated and our share of equity method ventures:          
Oil production (barrels)70,700
 106,800
 101,900
17,400
 70,700
 106,800
Average oil price per barrel$39.74
 $50.48
 $97.55
$50.20
 $39.74
 $50.48
NGL production (barrels)8,000
 21,500
 23,800
600
 8,000
 21,500
Average NGL price per barrel$11.84
 $16.32
 $41.39
$22.99
 $11.84
 $16.32
Total oil production (barrels), including NGLs78,700
 128,300
 125,700
18,000
 78,700
 128,300
Average total oil price per barrel, including NGLs$36.91
 $44.76
 $86.91
$49.38
 $36.91
 $44.76
Gas production (millions of cubic feet)776.8
 940.2
 1,030.6
193.3
 776.8
 940.2
Average price per thousand cubic feet$2.04
 $2.73
 $4.06
$3.03
 $2.04
 $2.73
Total BOE (barrel of oil equivalent)(a)
208,200
 284,900
 297,400
50,200
 208,200
 284,900
Average price per barrel of oil equivalent$21.58
 $29.15
 $50.80
$29.36
 $21.58
 $29.15
  _____________________
(a) 
Gas is converted to barrels of oil equivalent (BOE) using six Mcf to one barrel of oil.
In 20162017, oil and 2015,gas production revenues decreased principally due to the sale of our remaining owned mineral assets in first quarter 2017. In 2016, oil and gas production revenues decreased principally as a result of lower realized oil and gas prices and lower production volumes from our royalty interests.
In 2016, other revenues principally represents $402,000 in lease bonuses received from leasing approximately 2,100 net mineral owned acres for for an average of $191 per acre compared with $996,000 in lease bonuses received from leasing approximately 3,300 net mineral owned acres for an average of $300 per acre in 2015 and $1,244,000 in lease bonus payments in 2014 from leasing approximately 3,900 owned mineral acres for an average of $320 per acre.
Cost of mineral resources consists of:
 For the Year
 2016 2015 2014
 (In thousands)
Depletion and amortization$85
 $209
 $498
Exploration costs103
 153
 1,689
Production costs568
 814
 1,151
Non-cash impairment of proved oil and gas properties—
 1,802
 —
Other7
 20
 452
 $763
 $2,998
 $3,790
Costin 2017 principally includes a non-cash impairment charge of $37,900,000 associated with mineral resources principally representsreporting unit goodwill related to the sale of our share of oil and gas production severance taxes, which are calculated based on a percentage of oil and gas produced.remaining owned mineral assets. Cost of mineral resources in 2015 included non-cash impairment charges of $1,802,000 associated with proved oil and gas properties on our owned mineral interests.
Operating expenses principally consist of employee compensation and benefits, professional services, property taxes and rent expense. The increase in operating expenses in 2017 as compared to 2016 is due to the costs of selling our remaining owned mineral assets. The decrease in operating expenses year over yearin 2016 as compared to 2015 is primarily due to our key initiative to reduce costs across our entire organization.

In 2017, gain on sale of assets of $82,422,000 represents the gains associated with the sale of our remaining owned mineral assets.


EquityIn 2017, equity in earnings of unconsolidated ventures includes $1,245,000 in earnings from a venture in which we own a 50% interest. These earnings were a result of our purchase of certain minerals assets from the venture. We purchased these assets from the venture for $2,400,000 and subsequently received our pro-rata share of royalty revenuethe earnings and distributable cash of $1,200,000 from producing wells in the Barnett Shale gas formation.venture.

Other
OurAt year-end 2017, our other segment allconsisted of which is non-core, manages our timber holdings, recreational leases and water resource initiatives. We have approximately 19,000 acres of timberland and undeveloped land we own directly, primarily in Georgia and Texas, which was classified as assets held for sale at year-end 2016. Other segment revenues are principally derived from sales of wood fiber from our land and leases for recreational uses. We have water interests in 1.5 million acres includingwhich includes 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 20,000 acres of groundwater leases in central Texas, which wereTexas. Our nonparticipating royalty interests are classified as assets held for sale at year-end 2016.2017.


A summary of our other results follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Revenues$1,965
 $6,652
 $9,362
$74
 $1,965
 $6,652
Cost of sales(5,075) (3,081) (3,006)(6,450) (5,075) (3,081)
Operating expenses(1,687) (4,330) (4,419)(421) (1,687) (4,330)
(4,797) (759) 1,937
(6,797) (4,797) (759)
Gain on sale and partial termination of timber lease—
 —
 3,531
Gain on sale of assets400
 —
 —
Equity in earnings of unconsolidated ventures172
 151
 31
4
 172
 151
Segment earnings (loss)$(4,625) $(608) $5,499
$(6,393) $(4,625) $(608)
Revenues consist of:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Fiber$897
 $5,011
 $7,050
$—
 $897
 $5,011
Water49
 489
 1,100
9
 49
 489
Recreational leases and other1,019
 1,152
 1,212
65
 1,019
 1,152
$1,965
 $6,652
 $9,362
$74
 $1,965
 $6,652
Fiber sold consists of:
 For the Year
 2016 2015 2014
Pulpwood tons sold23,400
 149,700
 209,900
Average pulpwood price per ton$7.20
 $9.71
 $10.62
Sawtimber tons sold35,000
 77,000
 120,000
Average sawtimber price per ton$16.74
 $20.86
 $22.47
Total tons sold58,400
 226,700
 329,900
Average stumpage price per ton (a)
$12.91
 $13.50
 $14.93
 _____________________
(a)
Average stumpage price per ton is based on gross revenues less cut and haul costs.
Fiber revenues decreased in 2017 and 2016 when compared with 2015 and 2014 due to deferral ofterminating timber harvest activity in support of our key initiative to divestsell our non-core timberland and undeveloped land. At year-end 2017, we did not have any remaining timber holdings or recreational leases.
Water revenues for 2017 and 2016 are related to groundwater royalties from our 45 percent nonparticipating royalty interests in groundwater produced or withdrawn for commercial purposes. Water revenues for 2015 and 2014 are associated with a groundwater reservation agreement with Hays County, Texas, which commenced in 2013 and was terminated in 2015.





Information about our recreational leases follows:
 For the Year
 2016 2015 2014
Average recreational acres leased75,300
 98,300
 110,500
Average price per leased acre$9.98
 $9.17
 $9.13

Cost of sales principally includes non-cash cost of timber cutin 2017 and sold and delay rental payments paid to others related to groundwater leases in central Texas. The increase in cost of sales for 2016 is due to a $3,874,000 goodwillinclude non-cash impairment chargecharges of $5,363,000 and $3,874,000 related to our central Texas water assets and $489,000 in non-cash impairment charges in 2017 related to water interests in groundwater leases in central Texas as result of entering into an agreement to sell these assets which is expected to close in 2017. Excluding the non-cash impairment charge in 2016, cost of sales decreased due to deferral of timber harvest activity.Georgia.
Operating expenses principally consist of employee compensation and benefits and professional services. The decrease in operating expenses in 2016 when compared with 2015 and 2014 is primarily due to our key initiative to reduce costs across the entire organization and corresponding reduction in our workforce. Operating expenses associated with our central Texas water resources initiativesassets which were $348,000 in 2017, $921,000 in 2016 and $2,162,000 in 2015 and $2,437,000 in 2014.2015.
Gain on sale and partial termination of timber leaseassets in 2014 includes2017 represents nonrefundable earnest money forfeited by a $3,366,000 gain associated with partial terminations ofbuyer that terminated a timber lease relatedcontract to the remaining 2,700purchase our 20,000 acres of undeveloped land sold from a consolidated venture near Atlanta, Georgia.groundwater leases in central Texas.
Items Not Allocated to Segments
Items not allocated to segments consist of:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
General and administrative expense$(18,274) $(24,802) $(21,229)$(50,354) $(18,274) $(24,802)
Share-based and long-term incentive compensation expense(4,425) (4,474) (3,417)(7,201) (4,425) (4,474)
Gain on sale of assets48,891
 —
 —
28,674
 48,891
 —
Interest expense(19,985) (34,066) (30,286)(8,532) (19,985) (34,066)
Loss on extinguishment of debt, net(35,864) —
 —
(611) (35,864) —
Other corporate non-operating income350
 256
 453
1,627
 350
 256
$(29,307) $(63,086) $(54,479)$(36,397) $(29,307) $(63,086)
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, loss on extinguishment of debt and other corporate non-operating income and expense. General and administrative expenses principally consist of costs and expenses related to accounting and finance, tax, legal, human resources, internal audit, information technology, executive officers and our board of directors. These functions support all of our business segments and are not allocated.segments.


General and administrative expense
General and administrative expenses consist of:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Employee compensation and benefits$9,063
 $11,729
 $8,948
$11,608
 $9,063
 $11,729
Professional and consulting services4,541
 6,056
 4,647
14,855
 4,541
 6,056
Facility costs744
 889
 928
849
 744
 889
Insurance costs704
 682
 1,115
704
 704
 682
Depreciation and amortization404
 595
 638
304
 404
 595
Merger termination fee20,000
 —
 —
Other2,818
 4,851
 4,953
2,034
 2,818
 4,851
$18,274
 $24,802
 $21,229
$50,354
 $18,274
 $24,802


The increase in general and administrative expense in 2017 when compared with 2016 is primarily due to merger transaction costs of $37,216,000 which includes a merger termination fee of $20,000,000 paid to Starwood Capital Group, $11,787,000 in professional fees and other costs, and $5,429,000 in executive severance and change in control costs, all incurred as a result of the Merger. The decrease in general and administrative expense in 2016 when compared with 2015 is primarily due to our key initiative to reduce costs across our entire organization. In 2015, employee compensation and benefits include $3,314,000 of severance charges related to the departure of our former CEO and CFO under employment and separation agreements.
Share-based compensation and Long-termlong-term incentive compensation expense
OurThe increase in share-based compensation and long-term incentive compensation expense in 2017 is principally fluctuates due to a portion of our awards being cash-settled and$4,349,000 in expense as a result are affected by changes inof the market priceacceleration of our common stock.
In 2016vesting and 2015, we granted $620,000 and $587,000settlement of long-term incentive compensation inawards upon closing of the form of deferred cash compensation. The 2016 deferred cash awards vest annually over two years, and the 2015 deferred cash awards vest after three years. Both awards provide for accelerated vesting upon retirement, disability, death, or if there is a change in control. Expense associated with deferred cash awards is recognized ratably over the vesting period.Merger.
Gain on sale of assets
In 2017, we sold approximately 19,000 acres of timberland and undeveloped land in Georgia and Texas for $46,197,000 generating net proceeds of $45,396,000 and resulting in a gain on sale of assets of $28,674,000. In 2016, we sold over 58,300 acres of timbertimberland and timberlandundeveloped land in Georgia and Alabama for $104,172,000 in three transactions generating combined net proceeds of $103,238,000. These transactions resulted$103,238,000 and resulting in a combined gain on sale of assets of $48,891,000.
Interest expense
The decrease in interest expense in 2017 and 2016 is due to reducing our debt outstanding by $277,790,000 in 2016 and $323,303,000$325,807,000 since third quarter-end 2015.
Loss on extinguishment of debt, net
In 2016,2017, we retired portions of our 8.5%8.50% Senior Secured Notes due 2022 and 3.75% Convertible Senior Notes due 2020 resulting in a net loss on debt extinguishment of $611,000. In 2016, we retired portions of our 8.50% Senior Secured Notes and 3.75% Convertible Senior Notes resulting in a net loss on debt extinguishment of $35,864,000, which includes write-off of unamortized debt issuance costs of $5,489,000 and $1,301,000 in other costs related to tender offer advisory services.costs.
Income taxes
Our effectiveincome tax rateexpense from continuing operations was $45,820,000, $15,302,000 and $35,131,000 in 2017, 2016 and 2015 and our effective tax rate was 88 percent, 17 percent, in 2016,and 395 percent in 2015 and 36 percent in 2014. Our 2016each of these years. The effective tax rate differs fromfor all years includes an expense for state income taxes and non-deductible expenses, reduced by a tax benefit related to noncontrolling interests. The effective tax rate for 2017 also includes an expense for non-deductible goodwill related to the statutorysale of our owned mineral interests and non-deductible transaction costs related to the Merger with D.R. Horton. Other 2017 differences, including the remeasurement of our deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act ("Tax Act"), are fully offset by a change in our valuation allowance. The effective tax rate of 35 percent primarily due tofor 2016 includes a 19 percent benefit from achange in valuation allowance decrease due to a decrease in our deferred tax assets. OurThe effective rate for 2015 effective tax rate is attributable almost entirely to a 348 percent detriment fromincludes the recordingestablishment of a valuation allowance onagainst our deferred tax asset.assets.
Our 2016, 2015The Tax Act was enacted on December 22, 2017 and 2014reduced the federal corporate tax rate from 35 percent to 21 percent for all corporations effective January 1, 2018. Accounting Standards Codification ("ASC") 740 requires companies to reflect the effects of a tax rates includelaw change in the effectperiod in which the law is enacted. Accordingly, we have remeasured our deferred tax assets and liabilities along with the corresponding valuation allowance as of state income taxes, nondeductible itemsthe enactment date. This remeasurement resulted in no additional tax expense or benefit except for the release of a portion of our valuation allowance for minimum tax credits


which become fully refundable in future years. We have determined based on current available information that no other tax law changes as a result of the Tax Act have a significant impact on our 2017 tax expense. The adjustment to the deferred tax accounts and benefits from noncontrolling interests.our determination that no other tax law changes have a significant impact on our 2017 tax expense are our best estimate based on the information available at this time and may change as additional information, such as regulatory guidance, becomes available. Any required adjustment would be reflected as a discrete expense or benefit in the quarter that it is identified, as allowed by SEC Staff Accounting Bulletin No. 118.
On October 5, 2017, D.R. Horton acquired 75 percent of our common stock resulting in an ownership change under Section 382. Section 382 limits our ability to use certain tax attributes and built-in losses and deductions in a given year. Any tax attributes or built-in losses and deductions that are limited in the current year are expected to be fully utilized in future years.
At year-end 20162017 and 2015,2016, we have provided a valuation allowance for our deferred tax asset of $73,405,000$39,578,000 and $97,068,000$73,405,000 respectively for the portion of the deferred tax asset that we have determined is more likely than not to be unrealizable. The decrease in the valuation allowance for the year was primarily attributable to the remeasurement of deferred tax assets and liabilities as a result of the tax rate decrease from the Tax Act.
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 asset. A significant piece of objective evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2016,2017, principally driven by impairments of oil and gas and real estate properties. Such evidence limits our ability to consider other subjective evidence, such as our projected future taxable income.
The amount of 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.

Capital Resources and Liquidity
Sources and Uses of Cash
The consolidated statements of cash flows for 2017, 2016 2015 and 20142015 reflects 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 and timber, the cash flow from 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 and state and local permitting requirements and availability of utilities and by the timing of oil and gas leasing and production activities.utilities. Working capital varies based on a variety of factors, including the timing of sales of real estate and timber, oil and gas leasing and production activities, collection of receivables, reimbursement from utility and improvement districts and the payment of payables and expenses.
We regularly evaluate alternatives for managing our capital structure and liquidity profile in consideration of expected cash flows, growth and operating capital requirements and capital market conditions. We may, at any time, be considering or be in discussions with respect to the purchase or sale of our common stock, debt securities, convertible securities or a combination thereof.
Cash Flows from Operating Activities
Cash flows from our real estate acquisition and development activities, retail undeveloped land sales, commercial and income producing properties, timber sales, income from oil and gas properties, recreational leases and reimbursements from utility and improvement districts are classified as operating cash flows.
In 2017, net cash used in operating activities was $16,215,000. The net cash used in operating activities when compared to 2016 is primarily due to payment of $33,149,000 in costs associated with the Merger, higher real estate acquisition and development expenditures of $103,904,000, no retail land sales in 2017, and a decrease in residential sales activity from owned and consolidated projects.
In 2016, net cash provided by operating activities was $66,877,000. The increase in net cash provided by operating activities when compared with 2015 is primarily due to lower real estate acquisition and development expenditures of $81,179,000, proceeds of $34,748,000 from retail undeveloped land sales activity and higher lot sales from owned and consolidated ventures, including proceeds of $19,335,000 from sale of non-core community development projects.
In 2015, net cash provided by operating activities was $35,126,000. The decrease in net cash provided by operating activities year over year is primarily the result of lower residential lot sales activity, decrease in reimbursement from utilities and improvement districts and decrease in undeveloped land sales. In addition, oil and gas operating cash flows were negatively impacted as a result of 48 percent decline in realized oil and gas prices on a barrel of oil equivalent basis. However,$35,126,000 principally due to the sale of Midtown Cedar Hill for $42,880,000 in fourth quarter 2015 generated positive operating cash flow of $42,640,000. These cash flows were partially offset by real estate development and acquisition expenditures of $107,998,000.$42,880,000.
In 2014, net cash provided by operating activities was $107,082,000 principally due to $66,047,000 of reimbursements from utilities and improvement districts. In addition, increased residential lot sales and undeveloped land sales activity contributed to our net cash from operations, which are partially offset by $114,694,000 of real estate development and acquisition expenditures exceeding $84,665,000 of real estate cost of sales.


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 properties upon stabilization as investment property, business acquisitions and investment in oil and gas properties and equipment are classified as investing activities.
In addition,2017, net cash provided by investing activities was $134,544,000. The decrease in net cash provided by investing activities as compared with 2016 is primarily due to less net proceeds from non-core asset sales. In 2017, cash proceeds from the sale of propertynon-core assets was $130,146,000, which principally included $85,240,000 from the sale of our owned mineral assets and equipment, software costs$45,396,000 from the sale of our remaining 19,000 acres of timberland and expenditures related to reforestation activities are also classified as investing activities.undeveloped land in Georgia and Texas.
In 2016, net cash provided by investing activities was $420,743,000. The increase in net cash provided by investing activities year over year is primarily due to $427,849,000 in net proceeds from the execution of our key initiative to opportunistically divest non-core assets. Non-core asset sales includes $128,764,000 from sale of Radisson Hotel & Suites, $103,238,000 from sale of over 58,300 acres of strategic timberland and undeveloped land in Georgia, $77,105,000 from sale of certain oil and gas working interest properties, $59,719,000 from sale of Eleven, $25,428,000 from sale of Dillon, $14,703,000 from sale of Music Row, $13,917,000 from sale our interest in 3600 and $4,975,000 from sale of the Downtown Edge multifamily site.
In 2015, net cash used forin investing activities was $60,328,000 principally due to our investment of $49,717,000 in oil and gas working interest properties associated with previously committed capital investments related to exploration and production operations and a net investment in unconsolidated ventures of $14,181,000. In addition, we invested $14,690,000 in property and equipment, software and reforestation, of which $5,953,000 is related to capital expenditures for the Radisson Hotel & Suites hotel in Austin, which we sold in 2016. These areinvestments were partially offset by proceeds from sale of assets of $18,260,000 principally related to sale of certain oil and gas properties.
In 2014, net cash used for investing activities was $129,731,000 principally due to our investment of $101,145,000 in oil and gas properties and equipment associated with our exploration and production operations and purchase of our partner's interest in a 257-unit multifamily property in Austin for $20,155,000, net of cash. In addition, we invested $16,398,000 in property and equipment, software and reforestation, of which $8,780,000 is related to capital expenditures on our 413 guest room hotel in Austin and $4,981,000 is related to water production well development, and a net investment in unconsolidated ventures of $12,895,000. These are partially offset by proceeds from sale of assets of $21,962,000 principally related to sale of certain oil and gas properties in North Dakota and Oklahoma.


Cash Flows from Financing Activities
In 2017, net cash used in financing activities was $62,344,000. The decrease in net cash used in financing activities is primarily due to less debt retirements in 2017 as compared to 2016. This was partially offset by a $40,000,000 increase in restricted cash to secure our Letter of Credit Facility entered into in fourth quarter 2017 and $12,786,000 for the settlement of share-based awards related to the Merger.
In 2016, net cash used forin financing activities was $318,264,000 principally due to retirement of $225,245,000 of our 8.5% senior secured notes,8.50% Senior Secured Notes due 2022, $5,000,000 of our 3.75% convertible senior notes,Convertible Senior Notes due 2020, $9,000,000 of payments related to amortizing notes associated with our tangible equity units which are paid in full and our payment in full of $39,336,000 in loans secured by Radisson Hotel & Suites and Eleven multifamily property, which we sold in 2016.property. In addition, we purchased 283,976 shares of common stock for $3,537,000.
In 2015, net cash used forin financing activities was $48,483,000 principally due to our payment in full of a $24,166,000 loan secured by Midtown Cedar Hill, retirement of $19,440,000 of our 8.50% senior secured notesSenior Secured Notes due 2022 and $9,000,000 of payments related to amortizing notes associated with our tangible equity units.
In 2014, netLiquidity
We have significantly reduced our outstanding debt since 2015 and have also generated significant additional cash providedas a result of execution of our key initiatives over the past two years. The merger with D.R. Horton provides us an opportunity to increase lot sales by financing activities was $469,000 principally dueestablishing a strategic relationship to supply finished lots to D. R. Horton at market prices under the Master Supply Agreement. We expect to fund our investment initially with cash reserves, and we are continuing to evaluate our longer-term capital structure, projected future liquidity and working capital requirements. We expect to pursue a new credit facility to support anticipated growth and will also consider other alternatives to raise additional capital in the future, such as issuing debt or equity securities, as our capital requirements increase.
On February 8, 2018, we entered into and closed on a Purchase and Sale Agreement with Starwood to sell 24 legacy projects for $232,000,000 which generated approximately $216,000,000 in net proceeds of $241,947,000 from the issuance of 8.5% senior secured notes, partially offset by debt payments of $225,481,000, of which $200,000,000 is related to retirement of the term loanus after certain purchase price adjustments, closing costs and other costs associated with selling these projects. On February 23, 2018, we had over $530,000,000 in consolidated cash on our seniorbalance sheet.
Letter of Credit Facility
On October 5, 2017, we entered into a Letter of Credit Facility Agreement providing for a $30,000,000 secured standby letter of credit facility $9,450,000(the “LC Facility”). The LC Facility is related to payments of our amortizing notes associatedsecured by $30,000,000 in cash deposited with our tangible equity units, $2,878,000 is related to debt outstanding for our Lantana partnerships and the remaining associated with payment of other indebtedness.administrative agent. In addition, we purchased 1,491,187 shares of our common stock for $24,595,000.
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 activitieshave $10,000,000 on deposit with a participating lender. At year-end 2017, $14,072,000 was outstanding under the statement of cash flows. These development and acquisition expenditures include costs for development of residential lots and mixed-used communities.LC Facility.


A summary
Termination of our real estate acquisition and development expenditures is shown below:
    2016 2015 2014
    (In thousands)
Community Development Market      
Acquisitions:        
Ansley Park Charlotte —
 5,339
 —
Beckwith Crossing Nashville —
 —
 1,294
Dove Mountain Tucson —
 5,861
 —
Cielo Denver 3,783
    
Imperial Forest Houston —
 —
 5,343
Morgan Farms Nashville —
 —
 146
Moss Creek Charlotte 1,178
    
River's Edge Dallas —
 —
 1,277
Scales Farmstead Nashville 1,139
 3,345
 —
Walden Charlotte —
 12,100
 —
Weatherford Estates Nashville —
 —
 855
West Oaks Atlanta —
 1,657
 —
Woodtrace Houston —
 1,424
 8,622
Development:        
Owned projects Various 62,919
 63,401
 50,506
Consolidated venture projects Various 9,794
 10,534
 3,905
         
Multifamily        
Acquisitions and Development:        
Pre-acquisition projects Various (397) 1,616
 910
Midtown Dallas —
 1,860
 25,034
Acklen (a)
 Nashville —
 —
 (7,191)
HiLine (a)
 Denver —
 —
 (9,372)
Dillon Charlotte —
 —
 2,905
Music Row Nashville —
 —
 6,757
Downtown Edge Austin —
 —
 11,286
West Austin Austin —
 —
 8,456
         
Undeveloped Land/Mitigation        
Acquisitions:        
Crescent Hills San Antonio —
 —
 1,829
Development:        
Owned projects Various 2,763
 851
 2,132
Total   $81,179
 $107,988
 $114,694
  _____________________
(a)
Includes reimbursements received from the ventures for land and pre-development costs previously incurred.
Liquidity
Senior Credit Facility
In 2016,On October 5, 2017, in connection with entry into the LC Facility, we reduced the revolving commitment provided byterminated our senior secured credit facility which matures on May 15, 2017 (with two one year extension options), from $300,000,000 to $125,000,000, none of which was drawn at year-end 2016.(the “Prior Credit Facility”). The Prior Credit Facility provided for a $50,000,000 revolving line of credit maythat was scheduled to mature on May 15, 2018. This Prior Credit Facility could be prepaid at any time without penalty. The revolving line of credit includespenalty and included a $100,000,000$50,000,000 sublimit for letters of credit, of which $14,850,000 iscredit. All outstanding at year-end 2016. Total borrowings under our senior secured credit facility (including the face amount of letters of credit) may not exceed a borrowing base formula.
At year-end 2016, net unused borrowing capacity under our senior secured credit facility is calculated as follows:
 
Senior
Credit Facility
 (In thousands)
Borrowing base availability$86,112
Less: borrowings—
Less: letters of credit(14,850)
Net unused borrowing capacity$71,262


Our net unused borrowing capacity forat the year 2016 ranged from a hightime of $284,426,000termination were transferred to a low of $71,262,000. Certain non-core assets support the borrowing base under our senior secured credit facility so we expect our borrowing capacity to continue to be reduced as certain non-core assets are sold. This facility is used primarily to fund our operating cash needs, which fluctuate due to timing of residential and commercial real estate sales, undeveloped land sales, oil and gas leasing, exploration and production activities and mineral lease bonus payments received, timber sales, reimbursements from utility and improvement districts, payment of payables and expenses and capital expenditures.
Our debt agreements contain financial covenants customary for such agreements including minimum levels of interest coverage and limitations on leverage. At year-end 2016, we were in compliance with the financial covenants of these agreements.
The following table details our compliance with the financial covenants calculated as provided in the senior secured credit facility:
Financial CovenantRequirement
Year-End
2016
Interest Coverage Ratio (a)
≥ 2.50:1.012.01
Total Leverage Ratio (b)
≤ 50%29.2%
Tangible Net Worth (c)
≥ $426.3 million$545.2 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, timberlands, high value timberlands, raw entitled lands, entitled land under development, minerals business, Credo asset value, special improvement district receipts (SIDR) reimbursements 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 (excluding Credo acquisition goodwill over $50,000,000) exceed consolidated total liabilities. At year-end 2016, the requirement is $426,312,000 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 year-end 2016 the minimum liquidity requirement was $12,500,000, compared with $332,927,000 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. As of year-end 2016, the revenue/capital expenditure ratio was 2.4x. Revenue is defined as total gross revenues (excluding revenues attributed to certain oil and gas operations 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 certain oil and gas operations and multifamily properties), plus our pro rata share of unconsolidated ventures’ development and acquisition expenditures.
We may elect to make distributions to 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 year-end 2016. 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% 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.new LC Facility.
3.75% Convertible Senior Notes due 2020
In 2013, we issued $125,000,000 aggregate principal amount of 3.75% convertible senior notesConvertible Senior Notes due 2020 (Convertible Notes). Interest on the Convertible Notes is payable semiannually at a rate of 3.75 percent per annum and they mature on March 1, 2020. The Convertible Notes havehad an initial conversion rate of 40.8351 per $1,000 principal amount. The initial conversion rate iswas subject to adjustment upon the occurrence of certain events. Prior to November 1, 2019, the Convertible Notes are convertible only upon certain circumstances, and thereafter are convertible at any time prior to the close of business


on the second scheduled trading day prior to maturity. If converted, holders will receive cash,
On October 5, 2017, we had $120,000,000 aggregate principal amount of Convertible Notes outstanding. 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 Convertible Notes.
Pursuant to the Third Supplemental Indenture, the Convertible Notes are no longer convertible into shares of our common stockFormer Forestar Common Stock and instead are convertible into cash and shares of our 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 $579.77062 in cash and 8.17192 shares of New Forestar Common Stock per $1,000 principal amount of Notes surrendered for conversion.
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. Under this offer, we repurchased $1,077,000 of Notes, and recorded a combination thereof atloss on extinguishment of debt of $87,000.
At year-end 2017, unamortized debt discount of our election.Convertible Notes was $9,726,000. The effective interest rate on the liability component was 8 percent and the carrying amount of the equity component was $16,847,000. We intend to settle the principal amount of the Convertible Notes in cash upon conversion, with any excess conversion value to be settled in shares of our common stock.
In 2016, we purchased $5,000,000 of Convertible Notes at 93.25%93.25 percent of face value in open market transactions for $4,662,500$4,663,000 and we allocated $4,452,000 to extinguish the debt and $211,000 to reacquire the equity component within the convertible notes based on the fair value of the debt component. We recognized a $110,000 loss on extinguishment of debt based on the difference between the fair value of the debt component prior to conversion and the carrying value of the debt component. Total loss on extinguishment of debt including write-off of debt issuance costs allocated to the repurchased notes was $183,000. The aggregate principal outstanding at year-end 2016, net of discount and unamortized financing fees, was $104,673,000.
8.50% Senior Secured Notes due 2022
In 2014,On October 30, 2017, we issued $250,000,000redeemed the remaining $5,315,000 aggregate principal amount of outstanding 8.50% Senior Secured Notes due 2022 (Notes)(the “Notes”). The Notes will maturewere redeemed for $5,928,000 and the redemption resulted in a $524,000 loss on June 1, 2022 and interest on the Notes is payable semiannually at a rateextinguishment of 8.5 percent per annum in arrears. debt.
In 2016, we completed a cash tender offer for our Notes, pursuant to which we purchased $215,495,000 principal amount (representing approximately 97.6% outstanding) of the outstanding Notes. Total consideration paid was $245,604,000, which included $29,091,000 in premium at 113.5% and $1,018,000 in accrued and unpaid interest. In addition, we received consent from holders of the Notes to eliminate or modify certain covenants, events of default and other provisions contained in the indenture governing the Notes, and to release the subsidiary guarantees and collateral securing the Notes. We also purchased $9,750,000 principal amount of the Notes between 99% and 99.95% of face value principal amount of the Notes in open market transactions. The 2016cash tender offer and open market purchases resulted in a $35,681,000 loss on extinguishment of debt, which includesincluded the premium paid to repurchase the Notes, write-off of unamortized debt issuance costs of $5,416,000 and $1,301,000 in other costs related to tender offer advisory services. In 2015, we purchased $19,440,000 principal amount of Notes at 97% of face value, resulting in a gain of $589,000 on the early extinguishment of the retired Notes, offset by the write-off of unamortized debt issuance costs of $506,000 allocated to the retired Notes. The aggregate principal outstanding at year-end 2016, net of unamortized financing fees, was $5,200,000.costs.
6.00% Tangible Equity Units
In 2013, we issued $150,000,000 aggregate principal amount of 6.00% tangible equity units (Units). The total offering was 6,000,000 Units, including 600,000 exercised by the underwriters, each with a stated amount of $25.00. Each Unit is comprised of (i) a prepaid stock purchase contract to be settled by delivery of a number of shares of our common stock, par value $1.00 per share, to be determined pursuant to a purchase contract agreement, and (ii) a senior amortizing note due December 15, 2016 that has an initial principal amount of $4.2522, bears interest at a rate of 4.50% per annum and has a final installment payment date of December 15, 2016. On December 15, 2016, we made the final installment payment of principal and accrued interest and issued 7,857,000 shares upon settlement of the stock purchase contract based on the applicable market value, as defined in the purchase contract agreement associated with issuance of the Units.
Other Notes
In 2016, a secured promissory note of $15,400,000 was paid in full in connection with sale of the Radisson Hotel & Suites, a 413 guest room hotel located in Austin, for $130,000,000.
In 2016, other indebtedness decreased principally as result of selling Eleven, a 257-unit multifamily project in Austin, for $60,150,000 and paying in full the associated debt of $23,936,000.
Contractual Obligations
At year-end 2016,2017, contractual obligations consist of:
 Payments Due or Expiring by Year Payments Due or Expiring by Year
 Total 2017 2018-19 2020-21 Thereafter Total 2018 2019-20 2021-22 Thereafter
 (In thousands) (In thousands)
Debt (a) (b)
 $125,801
 $—
 $486
 $120,000
 $5,315
 $119,213
 $290
 $118,923
 $—
 $—
Interest payments on debt 16,772
 4,989
 9,941
 1,654
 188
 9,673
 4,470
 5,203
 —
 —
Purchase obligations 18,095
 18,095
 —
 —
 —
 15,602
 15,602
 —
 —
 —
Operating leases 4,402
 2,267
 1,891
 244
 —
 1,762
 1,313
 388
 61
 —
Performance bond (a)
 6,631
 6,631
 —
 —
 —
 5,312
 5,312
 —
 —
 —
Standby letter of credit (a)
 6,846
 6,846
 —
 —
 —
 6,846
 6,846
 —
 —
 —
Total $178,547
 $38,828
 $12,318
 $121,898
 $5,503
 $158,408
 $33,833
 $124,514
 $61
 $—
  _____________________
(a) 
Items included in our balance sheet.


(b) 
Gross debt excluding unamortized discount and financing fees.
Interest payments on debt include interest payments related to our fixed rate debt and estimated interest payments related to our variable rate debt. Estimated interest payments on variable rate debt were calculated assuming that the outstanding balances and interest rates that existed at year-end 2016 remain constant through maturity.
Purchase obligations are defined as legally binding and enforceable agreements to purchase goods and services. Our purchase obligations include open commitments for land acquisition and development related to community development projects.
Our operating leases are for facilities, equipment and groundwater. We lease approximately 22,000 square feet of office space in Austin as our corporate headquarters. At year-end 2016, the remaining contractual obligation for our Austin office is $1,983,000. Weheadquarters and also lease office space in other locations in support of our business operations. The total remaining contractual obligations for these leases is $1,925,000. Also included are$1,762,000 at year-end 2017. Our groundwater leases for about 20,000 acres in central Texas withhad no remaining contractual financial obligations of $494,000.at year-end 2017, however, in first quarter 2018, we have extended the groundwater leases on approximately 10,000 core surface acres for up to three additional years and will allow groundwater leases on approximately 10,000 non-core acres to expire.
The performance bond and standby letter of credit were provided in support of a bond issuance by CCSID. Please read Cibolo Canyons — San Antonio, Texas for additional information.
Off-Balance Sheet Arrangements
From time to time, we enter into off-balance sheet arrangements to facilitate our operating activities. At year-end 2016, our off-balance sheet unfunded arrangements, excluding contractual interest payments, purchase obligations, operating lease obligations and venture contributions included in the table of contractual obligations, consist of:
 Payments Due or Expiring by Year
 Total 2017 2018-19 2020-21 Thereafter
 (In thousands)
Performance bonds$8,757
 $8,197
 $560
 $—
 $—
Standby letters of credit8,005
 7,366
 639
 —
 —
Recourse obligations543
 362
 100
 81
 —
Total$17,305
 $15,925
 $1,299
 $81
 $—
In 2014, FMF Littleton LLC, an equity method venture in which we own a 25 percent interest, obtained a senior secured construction loan in the amount of $46,384,000 to develop a 385-unit multifamily project located in Littleton, Colorado. The outstanding balance was $44,446,000 at year-end 2016. 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 ten percent upon achievement of certain conditions.
In 2014, CREA FMF Nashville LLC, an equity method venture in which we own a 30 percent interest, obtained a senior secured construction loan in the amount of $51,950,000 to develop a 320-unit multifamily project located in Nashville, Tennessee. The outstanding balance at year-end 2016 was $37,446,000. 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.
Cibolo Canyons — San Antonio, Texas
Cibolo Canyons consists of the JW Marriott® San Antonio Hill Country Resort & Spa development owned by third parties and a mixed-use development we own. We have about $44,905,000 invested in Cibolo Canyons at year-end 2016, 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 1,791 residential lots and 155 commercial acres designated for multifamily and retail uses, of which 1,142 lots and 97 commercial acres have been sold through year-end 2016.
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. 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 reimbursements under this agreement. We expect to recover 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 these uncertainties are clarified, we will modify our accounting accordingly.
Through year-end 2016, we have submitted reimbursement approval for $54,376,000 of infrastructure costs, of which we have received reimbursements totaling $45,132,000, of which $10,430,000 was received in 2016. At year-end 2016, we have $9,244,000 in pending approved 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, 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 nine percent of hotel occupancy revenues and 1.5 percent of other resort sales revenues collected as taxes by the 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 any applicable debt service incurred by CCSID. The amount we receive is 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 in 2014 by CCSID as discussed below which are collateralized by hotel occupancy tax (HOT) and other resort sales tax through 2034.
In 2014, we received $50,550,000 from CCSID under 2007 Economic Development Agreements (EDA)principally related to its issuance of $48,900,000 HOTHotel Occupancy Tax (HOT) and Sales and Use Tax Revenue Bonds, resulting in recovery of our full Resort investment.Bonds. 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 letter of credit to the bond trustee as security for certain debt service fund obligations in the event CCSID tax collections are not sufficient to support payment of the bonds in accordance with their terms. The letter of credit must be maintained until the earlier of redemption of the bonds or scheduled bond maturity in 2034. 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 $6,631,000 at year-end 2016. 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 expectedAt year-end 2017, the surety bond was $5,312,000. Our rights to be recognized as gainsreceive the excess HOT and sales taxes from CCSID was excluded from the strategic asset sale to Starwood.
In support of our core community development business, we have a $40,000,000 surety bond program that provides financial assurance to beneficiaries related to execution and performance of our land development business. At year-end 2017, there were $14,708,000 outstanding under this program.


Off-Balance Sheet Arrangements
From time to time, we may enter into off-balance sheet arrangements to facilitate our operating activities. At year-end 2017, our off-balance sheet unfunded arrangements, excluding contractual interest payments, purchase obligations, operating lease obligations and venture contributions included in the period collected.table of contractual obligations, consist of:
 Payments Due or Expiring by Year
 Total 2018 2019-20 2021-22 Thereafter
 (In thousands)
Performance bonds$9,396
 $9,396
 $—
 $—
 $—
Standby letters of credit7,226
 6,620
 606
 —
 —
Recourse obligations438
 281
 141
 16
 —
Total$17,060
 $16,297
 $747
 $16
 $—
In 2014, FMF Littleton LLC, an equity method venture in which we own a 25 percent interest, obtained a senior secured construction loan in the amount of $46,384,000 to develop a 385-unit multifamily project located in Littleton, Colorado. The outstanding balance was $45,875,000 at year-end 2017. We received $501,000 in 2016.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 was reduced from 25 percent of principal to ten percent upon achievement of certain conditions.
Accounting Policies
Critical Accounting Estimates
In preparing our financial statements, we follow generally accepted accounting principles, which in many cases require us to make assumptions, estimates, and judgments that affect the amounts reported. Our significant accounting policies are included in Note 1 to the Consolidated Financial Statements. Many of these principles are relatively straightforward. There are, however, a few accounting policies that are critical because they are important in determining our financial condition and results of operations and involve significant assumptions, estimates and judgments that are difficult to determine. We must make these assumptions, estimates and judgments currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations, as well as our intentions. As the difficulty increases, the level of precision decreases, meaning actual results can, and probably will, differ from those currently estimated. We base our assumptions, estimates and judgments on a combination of historical experiences and other factors that we believe are reasonable. We have reviewed the selection and disclosure of these critical accounting estimates with our Audit Committee.
At year-end 2016,2017, we have divested substantially all of our oil and gas working interest assets and have classified our owned mineral assets as assets held for sale.assets. Critical accounting estimates related to oil and gas properties such as accrued oil and gas revenue, impairment of oil and gas properties, oil and gas reserves and asset retirement obligations are not material to our financial statements for year-end 2017 or 2016 but are disclosed to provide our policies and impact on our financial condition and results of operations for the yearsyear ended 2015 and 2014.2015.
Investment in Real Estate and Cost of Real Estate Sales — In allocating costs to real estate owned and real estate sold, we must estimate current and future real estate values. Our estimates of future real estate values sometimes must extend over periods 15 to 20 years from today and are dependent on numerous assumptions including our intentions and future market and economic conditions. In addition, when we sell real estate from projects that are


not finished, we must estimate future development costs through completion. Differences between our estimates and actual results will affect future carrying values and operating results.
Impairment of Real Estate Long-Lived Assets — Measuring real estate assets for impairment requires estimating the future undiscounted cash flows based on our intentions as to holding periods, and the residual value of assets under review, primarily undeveloped land. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the real estate long-lived assets to fair value. Depending on the asset under review, we use varying methods to determine fair value, such as discounting expected future cash flows, determining resale values by market, or applying a capitalization rate to net operating income using prevailing rates in a given market. Changes in economic conditions, demand for real estate, and the projected net operating income for a specific property will inevitably change our estimates.
Accrued Oil and Gas Revenue — We recognize revenue as oil and gas is produced and sold. There are a significant amount of oil and gas properties which we do not operate and, therefore, revenue is typically recorded in the month of production based on an estimate of our share of volumes produced and prices realized. We obtain the most current available production data from the operators and price indices for each well to estimate the accrual of revenue. Obtaining production data on a timely basis for some wells is not feasible; therefore we utilize past production receipts and estimated sales price information to estimate accrual of working interest revenue on all other non-operated wells each month. Revisions to such estimates are recorded as actual results become known.
Impairment of Oil and Gas Properties — We review our proved oil and gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. We estimate the expected undiscounted future cash flows of our oil and gas properties and compare such undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the oil and gas properties to fair value. The factors used to determine fair value are subject to our judgment and expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected. Because of the uncertainty inherent in these factors, we cannot predict when or if future impairment charges for proved properties will be recorded.
The assessment of unproved properties to determine any possible impairment requires significant judgment. We assess our unproved properties periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results or future plans to develop acreage. Due to the uncertainty inherent in these factors, we cannot predict the amount of impairment charges that may be recorded in the future.
Oil and Gas Reserves — The estimation of oil and gas reserves is a significant estimate which affects the amount of non-cash depletion expense we record as well as impairment analysis we perform. On an annual basis, we engage an independent petroleum engineering firm to assist us in preparing estimates of oil and gas reserves based on available geologic and seismic data, reservoir pressure data, core analysis reports, well logs, analogous reservoir performance history, production data and other available sources of engineering, geological and geophysical information. Oil and gas prices are volatile and largely affected by worldwide or domestic production and consumption and are outside our control.
Asset Retirement Obligations — We make estimates of the future costs of the retirement obligations of our producing oil and gas properties. Estimating future costs involves significant assumptions and judgments regarding such factors as estimated costs of plugging and abandonment, timing of settlements, discount rates and inflation rates. Such cost estimates could be subject to significant revisions in subsequent years due to changes in regulatory requirements, technological advances and other factors which may be difficult to predict.
Impairment of Goodwill — Measuring goodwill for impairment annually requires estimation of future cash flows and determination of fair values using many assumptions and inputs, including estimated future selling prices and volumes, estimated future costs to develop and explore, observable market inputs, weighted average cost of capital, estimated operating expenses and various other projected economic factors. Changes in economic and operating conditions can affect these assumptions and could result in additional interim testing and goodwill impairment charges in the future periods.


Share-Based Compensation — We use the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock


option exercise behaviors (term of option), risk-free interest rate and expected dividends. The expected life was based on the simplified method utilizing the midpoint between the vesting period and the contractual life of the awards. The expected stock price volatility was determined using a blend of historical and implied volatility. Pre-vesting forfeitures are estimated based upon the pool of participants and their expected activity and historical trends. We use Monte Carlo simulation pricing model to determine the fair value of market-leveraged stock units (MSU's)(MSUs) and stock option awards with market condition. A typical Monte Carlo exercise simulates a distribution of stock prices to yield an expected distribution of stock prices at the end of the performance period. The simulations are repeated many times in order to derive a probabilistic assessment of stock performance. The stock-paths are simulated using assumptions which include expected stock price volatility and risk-free interest rate.
Income Taxes — In preparing our consolidated financial statements, significant judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary and permanent differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. If needed, we record a valuation allowance against our deferred tax assets. In addition, when we believe a tax position is supportable but the outcome uncertain, we include the item in our tax return but do not recognize the related benefit in our provision for taxes. Instead, we record a reserve for unrecognized tax benefits, which represents our expectation of the most likely outcome considering the technical merits and specific facts of the position. Changes to liabilities are only made when an event occurs that changes the most likely outcome, such as settlement with the relevant tax authority, expiration of statutes of limitations, changes in tax law, or recent court rulings. Adjustments to temporary differences, permanent differences or uncertain tax positions could materially impact our financial position, cash flow and results of operation.
Accrued Oil and Gas Revenue — We recognized revenue as oil and gas was produced and sold. There were a significant amount of oil and gas properties which we did not operate and, therefore, revenue was typically recorded in the month of production based on an estimate of our share of volumes produced and prices realized. We obtained the most current available production data from the operators and price indices for each well to estimate the accrual of revenue. Obtaining production data on a timely basis for some wells was not feasible; therefore we utilized past production receipts and estimated sales price information to estimate accrual of working interest revenue on all other non-operated wells each month. Revisions to such estimates were recorded as actual results became known.
Impairment of Oil and Gas Properties — We reviewed our proved oil and gas properties for impairment whenever events and circumstances indicated that a decline in the recoverability of their carrying value may have occurred. We estimated the expected undiscounted future cash flows of our oil and gas properties and compared such undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. If the carrying amount exceeded the estimated undiscounted future cash flows, we would adjust the carrying amount of the oil and gas properties to fair value. The factors used to determine fair value were subject to our judgment and expertise and included, but were not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected. Because of the uncertainty inherent in these factors, we could not predict when or if future impairment charges for proved properties would be recorded.
The assessment of unproved properties to determine any possible impairment required significant judgment. We assessed our unproved properties periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results or future plans to develop acreage. Due to the uncertainty inherent in these factors, we could not predict the amount of impairment charges that may be recorded in the future.
Oil and Gas Reserves — The estimation of oil and gas reserves was a significant estimate which affected the amount of non-cash depletion expense we recorded as well as impairment analysis we performed. On an annual basis, we engaged an independent petroleum engineering firm to assist us in preparing estimates of oil and gas reserves based on available geologic and seismic data, reservoir pressure data, core analysis reports, well logs, analogous reservoir performance history, production data and other available sources of engineering, geological and geophysical information. Oil and gas prices were volatile and largely affected by worldwide or domestic production and consumption and were outside our control.


Asset Retirement Obligations — We made estimates of the future costs of the retirement obligations of our producing oil and gas properties. Estimating future costs involved significant assumptions and judgments regarding such factors as estimated costs of plugging and abandonment, timing of settlements, discount rates and inflation rates. Such cost estimates could be subject to significant revisions in subsequent years due to changes in regulatory requirements, technological advances and other factors which may be difficult to predict.
Adopted and Pending Accounting Pronouncements
Please read Note 2 — New and Pending Accounting Pronouncements to the Consolidated Financial Statements.
Effects of Inflation
Inflation has had minimal effects on operating results the past three years.
Legal Proceedings
We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business. We believe we have established adequate reserves for any probable losses, and we do not believe that the outcome of any of these proceedings should have a material adverse effect on our financial position, long-term results of operations, or cash flow. It is possible, however, that charges related to these matters could be significant to results of operations or cash flows in any one accounting period.



Item 7A.Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We have no significant exposure to interest rate risk as it relates to our variable-rate debt of $485,000 at year-end 2016, maturing in 2018.risk.
Foreign Currency Risk
We have no exposure to foreign currency fluctuations.
Commodity Price Risk
We have no significant exposure to commodity price fluctuations.



Item 8.Financial Statements and Supplementary Data.
Index to Financial Statements
 
 Page
Management’s Annual Report on Internal Control over Financial Reporting
5040
Report of Independent Registered Public Accounting Firm
5141
Report of Independent Registered Public Accounting Firm
5242
Audited Financial Statements 
Consolidated Balance Sheets
5343
Consolidated Statements of Income (Loss) And Comprehensive Income (Loss)
5444
Consolidated Statements of Equity
5545
Consolidated Statements of Cash Flows
5646
Notes to the Consolidated Financial Statements
5747
Financial Statement Schedule 
Schedule III — Consolidated Real Estate and Accumulated Depreciation
9076


MANAGEMENT’S ANNUAL REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Forestar is responsible for establishing and maintaining adequate internal control over financial reporting. Management has designed our internal control over financial reporting to provide reasonable assurance that our published financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles.
Management is required by paragraph (c) of Rule 13a-15 of the Securities Exchange Act of 1934, as amended, to assess the effectiveness of our internal control over financial reporting as of each year end. In making this assessment, management used the Internal Control — Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management conducted the required assessment of the effectiveness of our internal control over financial reporting as of year-end. Based upon this assessment, management believes that our internal control over financial reporting is effective as of year-end 2016.2017.
Ernst & Young LLP, the independent registered public accounting firm that audited our financial statements included in this Form 10-K, has also audited our internal control over financial reporting. Their attestation report follows this report of management.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TheTo the Shareholders and the Board of Directors and Shareholders of Forestar Group Inc.

Opinion on Internal Control over Financial Reporting
We have audited Forestar Group Inc.’s internal control over financial reporting as of December 31, 2016,2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Forestar Group Inc.’s (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Forestar Group Inc. as of December 31, 2017 and 2016, the related consolidated statements of income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15 (a), and our report dated February 28, 2018 expressed an unqualified opinion thereon.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion,
/s/ Ernst & Young LLP
Austin, Texas
February 28, 2018


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Forestar Group Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based

Opinion on the COSO criteria.Financial Statements
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), theaccompanying consolidated balance sheets of Forestar Group Inc. (the Company) as of December 31, 20162017 and 2015, and2016, the related consolidated statements of income (loss) and comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2016 of Forestar Group Inc. and our report dated March 3, 2017, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Austin, Texas
March 3, 2017


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Forestar Group Inc.

We have audited the accompanying consolidated balance sheets of Forestar Group Inc. as of December 31, 2016 and 2015, and the related consolidated statements of income (loss)notes and comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15 (a) (collectively referred to as the “consolidated financial statements”). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Forestar Group Inc.the Company at December 31, 2017 and 2016, and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016,2017, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Forestar Group Inc.’sthe Company's internal control over financial reporting as of December 31, 2016,2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 3, 2017February 28, 2018 expressed an unqualified opinion thereon.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2007.
Austin, Texas
March 3, 2017February 28, 2018



FORESTAR GROUP INC.
CONSOLIDATED BALANCE SHEETS
 
At Year-EndAt Year-End
2016 20152017 2016
(In thousands, except
share data)
(In thousands, except
share data)
ASSETS      
Cash and cash equivalents$265,798
 $96,442
$321,783
 $265,798
Restricted cash40,017
 275
Real estate, net293,003
 586,715
130,380
 293,003
Assets of discontinued operations14
 104,967
—
 14
Assets held for sale30,377
 —
181,607
 30,377
Investment in unconsolidated ventures77,611
 82,453
64,579
 77,611
Timber—
 7,683
Receivables, net8,931
 19,025
6,307
 8,931
Income taxes receivable10,867
 12,056
6,674
 10,867
Prepaid expenses2,000
 3,116
3,118
 2,000
Property and equipment, net3,116
 10,732
2,003
 3,116
Deferred tax asset, net323
 —
2,028
 323
Goodwill and other intangible assets37,900
 43,455
448
 37,900
Other assets3,268
 5,602
2,968
 2,993
TOTAL ASSETS$733,208
 $972,246
$761,912
 $733,208
LIABILITIES AND EQUITY      
Accounts payable$4,804
 $11,617
$2,382
 $4,804
Accrued employee compensation and benefits4,126
 5,547
8,994
 4,126
Accrued property taxes2,008
 4,529
2,153
 2,008
Accrued interest1,585
 3,267
1,489
 1,585
Deferred tax liability, net—
 1,037
Earnest money deposits10,511
 10,214
11,940
 10,511
Other accrued expenses12,598
 14,556
5,942
 12,598
Liabilities of discontinued operations5,295
 11,192
—
 5,295
Liabilities held for sale103
 —
1,017
 103
Other liabilities19,702
 24,657
13,934
 19,702
Debt, net110,358
 381,515
108,429
 110,358
TOTAL LIABILITIES171,090
 468,131
156,280
 171,090
COMMITMENTS AND CONTINGENCIES
 

 
EQUITY      
Forestar Group Inc. shareholders’ equity:      
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 44,803,603 issued at December 31, 2016 and 36,946,603 issued at December 31, 201544,804
 36,947
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 41,938,936 issued at December 31, 2017 and 44,803,603 issued at December 31, 201641,939
 44,804
Additional paid-in capital553,005
 561,850
505,977
 553,005
Retained earnings (Accumulated deficit)12,602
 (46,046)
Treasury stock, at cost, 3,187,253 shares at December 31, 2016 and 3,203,768 shares at December 31, 2015(49,760) (51,151)
Retained earnings56,296
 12,602
Treasury stock, at cost, 0 shares at December 31, 2017 and 3,187,253 shares at December 31, 2016—
 (49,760)
Total Forestar Group Inc. shareholders’ equity560,651
 501,600
604,212
 560,651
Noncontrolling interests1,467
 2,515
1,420
 1,467
TOTAL EQUITY562,118
 504,115
605,632
 562,118
TOTAL LIABILITIES AND EQUITY$733,208
 $972,246
$761,912
 $733,208
Please read the notes to the consolidated financial statements.



FORESTAR GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
 
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands, except per share amounts)(In thousands, except per share amounts)
REVENUES          
Real estate sales and other$176,535
 $120,022
 $171,672
$112,655
 $176,535
 $120,022
Commercial and income producing properties13,738
 82,808
 41,440
91
 13,738
 82,808
Real estate190,273
 202,830
 213,112
112,746
 190,273
 202,830
Mineral resources5,076
 9,094
 15,690
1,502
 5,076
 9,094
Other1,965
 6,652
 9,362
74
 1,965
 6,652
197,314
 218,576
 238,164
114,322
 197,314
 218,576
COST AND EXPENSES          
Cost of real estate sales and other(147,653) (52,640) (86,432)(65,012) (147,653) (52,640)
Cost of commercial and income producing properties(15,442) (61,251) (37,332)(2) (15,442) (61,251)
Cost of mineral resources(763) (2,998) (3,790)(38,315) (763) (2,998)
Cost of other(5,075) (3,081) (3,006)(6,450) (5,075) (3,081)
Other operating(33,177) (48,996) (44,326)(21,658) (33,177) (48,996)
General and administrative(21,597) (27,253) (22,230)(56,531) (21,597) (27,253)
(223,707) (196,219) (197,116)(187,968) (223,707) (196,219)
GAIN ON SALE OF ASSETS
166,747
 1,585
 29,512
113,411
 166,747
 1,585
OPERATING INCOME140,354
 23,942
 70,560
39,765
 140,354
 23,942
Equity in earnings of unconsolidated ventures6,123
 16,008
 8,685
17,899
 6,123
 16,008
Interest expense(19,985) (34,066) (30,286)(8,532) (19,985) (34,066)
Loss on extinguishment of debt, net(35,864) —
 —
(611) (35,864) —
Other non-operating income1,718
 3,006
 8,588
3,600
 1,718
 3,006
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES92,346
 8,890
 57,547
52,121
 92,346
 8,890
Income tax expense(15,302) (35,131) (20,850)(45,820) (15,302) (35,131)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS77,044
 (26,241) 36,697
6,301
 77,044
 (26,241)
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES(16,865) (186,130) (19,609)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES46,031
 (16,865) (186,130)
CONSOLIDATED NET INCOME (LOSS)60,179
 (212,371) 17,088
52,332
 60,179
 (212,371)
Less: Net (income) attributable to noncontrolling interests(1,531) (676) (505)(2,078) (1,531) (676)
NET INCOME (LOSS) ATTRIBUTABLE TO FORESTAR GROUP INC.$58,648
 $(213,047) $16,583
$50,254
 $58,648
 $(213,047)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING          
Basic34,546
 34,266
 35,317
42,143
 34,546
 34,266
Diluted42,334
 34,266
 43,596
42,381
 42,334
 34,266
NET INCOME (LOSS) PER BASIC SHARE          
Continuing operations$1.80
 $(0.79) $0.84
$0.10
 $1.80
 $(0.79)
Discontinued operations$(0.40) $(5.43) $(0.46)$1.09
 $(0.40) $(5.43)
NET INCOME (LOSS) PER BASIC SHARE$1.40
 $(6.22) $0.38
$1.19
 $1.40
 $(6.22)
NET INCOME (LOSS) PER DILUTED SHARE          
Continuing operations$1.78
 $(0.79) $0.83
$0.10
 $1.78
 $(0.79)
Discontinued operations$(0.40) $(5.43) $(0.45)$1.09
 $(0.40) $(5.43)
NET INCOME (LOSS) PER DILUTED SHARE$1.38
 $(6.22) $0.38
$1.19
 $1.38
 $(6.22)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO FORESTAR GROUP INC.$58,648
 $(213,047) $16,583
Please read the notes to the consolidated financial statements.


FORESTAR GROUP INC.
CONSOLIDATED STATEMENTS OF EQUITY
  Forestar Group Inc. Shareholders' Equity    Forestar Group Inc. Shareholders' Equity  
  Common Stock 
Additional
Paid-in
Capital
 Treasury Stock Retained Earnings (Accumulated Deficit) 
Non-controlling
Interests
  Common Stock 
Additional
Paid-in
Capital
 Treasury Stock Retained Earnings (Accumulated Deficit) 
Non-controlling
Interests
Total Shares Amount Shares AmountTotal Shares Amount Shares Amount
(In thousands, except per share amounts)(In thousands, except per share amounts)
Balance at December 31, 2013$715,397
 36,946,603
 $36,947
 $556,676
 (2,199,666) $(34,196) $150,418
 $5,552
Net income17,088
 —
 —
 —
 —
 —
 16,583
 505
Distributions to noncontrolling interest(4,171) —
 —
 —
 —
 —
 —
 (4,171)
Contributions from noncontrolling interest2,585
 —
 —
 —
 —
 —
 —
 2,585
Dissolution of noncontrolling interests1,342
 —
 —
 —
 —
 —
 —
 1,342
Purchase of noncontrolling interests, net(6,242) —
 —
 (2,969) —
 —
 —
 (3,273)
Issuances of common stock for vested share-settled units—
 —
 —
 (2,567) 164,914
 2,567
 —
 —
Issuances from exercises of pre-spin stock options, net of swaps877
 —
 —
 (43) 60,823
 920
 —
 —
Issuances from exercises of stock options, net of swaps329
 —
 —
 (333) 45,062
 662
 —
 —
Shares withheld for payroll taxes(1,043) —
 —
 (4) (55,238) (1,039) —
 —
Shares repurchased(24,595) —
 —
 —
 (1,491,187) (24,595) —
 —
Forfeitures of restricted stock awards—
 —
 —
 10
 (9,986) (10) —
 —
Share-based compensation8,033
 —
 —
 8,033
 —
 —
 —
 —
Tax benefit from exercise of restricted stock units and stock options and vested restricted stock142
 —
 —
 142
 —
 —
 —
 —
Balance at December 31, 2014$709,742
 36,946,603
 $36,947
 $558,945
 (3,485,278) $(55,691) $167,001
 $2,540
$709,742
 36,946,603
 $36,947
 $558,945
 (3,485,278) $(55,691) $167,001
 $2,540
Net income (loss)(212,371) —
 —
 —
 —
 —
 (213,047) 676
(212,371) —
 —
 —
 —
 —
 (213,047) 676
Distributions to noncontrolling interest(701) —
 —
 —
 —
 —
 —
 (701)(701) —
 —
 —
 —
 —
 —
 (701)
Issuances of common stock for vested share-settled units—
 —
 —
 (5,362) 335,611
 5,362
 —
 —
—
 —
 —
 (5,362) 335,611
 5,362
 —
 —
Issuances from exercises of pre-spin stock options, net of swaps31
 —
 —
 (33) 3,999
 64
 —
 —
31
 —
 —
 (33) 3,999
 64
 —
 —
Shares withheld for payroll taxes(762) —
 —
 (1) (51,521) (761) —
 —
(762) —
 —
 (1) (51,521) (761) —
 —
Forfeitures of restricted stock awards—
 —
 —
 125
 (6,579) (125) —
 —
—
 —
 —
 125
 (6,579) (125) —
 —
Share-based compensation8,576
 —
 —
 8,576
 —
 —
 —
 —
8,576
 —
 —
 8,576
 —
 —
 —
 —
Tax benefit from exercise of restricted stock units and stock options and vested restricted stock(400) —
 —
 (400) —
 —
 —
 —
(400) —
 —
 (400) —
 —
 —
 —
Balance at December 31, 2015$504,115
 36,946,603
 $36,947
 $561,850
 (3,203,768) $(51,151) $(46,046) $2,515
$504,115
 36,946,603
 $36,947
 $561,850
 (3,203,768) $(51,151) $(46,046) $2,515
Net income60,179
 —
 —
 —
 —
 —
 58,648
 1,531
60,179
 —
 —
 —
 —
 —
 58,648
 1,531
Distributions to noncontrolling interests(2,579) —
 —
 —
 —
 —
 —
 (2,579)
Distributions to noncontrolling interest(2,579) —
 —
 —
 —
 —
 —
 (2,579)
Issuances of common stock for vested share-settled units—
 —
 —
 (4,570) 288,397
 4,570
 —
 —
—
 —
 —
 (4,570) 288,397
 4,570
 —
 —
Issuances from exercises of stock options, net of swaps328
 —
 —
 (224) 35,406
 552
 —
 —
328
 —
 —
 (224) 35,406
 552
 —
 —
Shares withheld for payroll taxes(222) —
 —
 (28) (23,312) (194) —
 —
(222) —
 —
 (28) (23,312) (194) —
 —
Shares repurchased(3,537) —
 —
 —
 (283,976) (3,537) —
 —
(3,537) —
 —
 —
 (283,976) (3,537) —
 —
Share-based compensation4,045
 —
 —
 4,045
 —
 —
 —
 —
4,045
 —
 —
 4,045
 —
 —
 —
 —
Settlement of tangible equity units—
 7,857,000
 7,857
 (7,857) —
 —
 —
 —
—
 7,857,000
 7,857
 (7,857) —
 —
 —
 —
Reacquisition of equity component related to convertible debt(211) —
 —
 (211) —
 —
 —
 —
(211) —
 —
 (211) —
 —
 —
 —
Balance at December 31, 2016$562,118
 44,803,603
 $44,804
 $553,005
 (3,187,253) $(49,760) $12,602
 $1,467
$562,118
 44,803,603
 $44,804
 $553,005
 (3,187,253) $(49,760) $12,602
 $1,467
Net income52,332
 —
 —
 —
 —
 —
 50,254
 2,078
Distributions to noncontrolling interests(2,125) —
 —
 —
 —
 —
 —
 (2,125)
Issuances of common stock for vested share-settled units—
 —
 —
 (5,224) 335,261
 5,224
 —
 —
Issuances from exercises of stock options, net of swaps616
 —
 —
 (367) 63,195
 983
 —
 —
Shares withheld for payroll taxes(981) —
 —
 —
 (75,870) (981) —
 —
Retirement of treasury shares—
 (2,864,667) (2,865) (35,109) 2,864,667
 44,534
 (6,560) —
Share-based compensation6,458
 —
 —
 6,458
 —
 —
 —
 —
Settlement of equity awards(12,786) —
 —
 (12,786) —
 —
 —
 —
Balance at December 31, 2017$605,632
 41,938,936
 $41,939
 $505,977
 —
 $—
 $56,296
 $1,420
Please read the notes to the consolidated financial statements.


FORESTAR GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:          
Consolidated net income (loss)$60,179
 $(212,371) $17,088
$52,332
 $60,179
 $(212,371)
Adjustments:          
Depreciation, depletion and amortization11,447
 45,085
 41,715
5,463
 11,447
 45,085
Change in deferred income taxes(1,360) 41,261
 1,645
(1,705) (1,360) 41,261
Equity in earnings of unconsolidated ventures(6,123) (16,008) (8,685)(17,899) (6,123) (16,008)
Distributions of earnings of unconsolidated ventures7,719
 12,741
 5,721
23,041
 7,719
 12,741
Share-based compensation4,037
 4,246
 3,417
6,643
 4,037
 4,246
Real estate cost of sales98,412
 87,733
 84,665
63,999
 98,412
 87,733
Dry hole and unproved leasehold impairment costs—
 67,639
 29,528
—
 —
 67,639
Real estate development and acquisition expenditures, net(81,179) (107,988) (114,694)(103,904) (81,179) (107,988)
Reimbursements from utility and improvement districts27,107
 15,176
 66,047
20,071
 27,107
 15,176
Asset impairments60,939
 108,184
 15,934
47,172
 60,939
 108,184
Loss on debt extinguishment, net35,864
 —
 —
611
 35,864
 —
Gain on sale of assets(153,083) (879) (38,038)(113,214) (153,083) (879)
Other5,359
 4,680
 5,887
2,877
 5,359
 4,680
Changes in:          
Notes and accounts receivables13,214
 (978) 10,704
2,686
 13,214
 (978)
Prepaid expenses and other(133) 3,026
 2,180
(1,345) (133) 3,026
Accounts payable and other accrued liabilities(16,711) (11,868) (4,653)(7,236) (16,711) (11,868)
Income taxes1,189
 (4,553) (11,379)4,193
 1,189
 (4,553)
Net cash provided by operating activities66,877
 35,126
 107,082
Net cash (used in) provided by operating activities(16,215) 66,877
 35,126
CASH FLOWS FROM INVESTING ACTIVITIES:          
Property, equipment, software, reforestation and other(6,138) (14,690) (16,398)(52) (6,138) (14,690)
Oil and gas properties and equipment(579) (49,717) (101,145)(2,400) (579) (49,717)
Acquisition of partner's interest in unconsolidated multifamily venture, net of cash—
 —
 (20,155)
Acquisition of oil and gas properties—
 —
 (1,100)
Investment in unconsolidated ventures(6,089) (26,349) (14,692)(4,548) (6,089) (26,349)
Proceeds from sale of assets427,849
 18,260
 21,962
130,146
 427,849
 18,260
Return of investment in unconsolidated ventures5,700
 12,168
 1,797
11,398
 5,700
 12,168
Net cash provided by (used for) investing activities420,743
 (60,328) (129,731)
Net cash provided by (used in) investing activities134,544
 420,743
 (60,328)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of senior secured notes, net—
 —
 241,947
Payments of debt(315,229) (58,220) (225,481)(10,049) (315,229) (58,220)
Additions to debt3,184
 11,463
 22,593
3,036
 3,184
 11,463
Deferred financing fees—
 (295) (3,217)(313) —
 (295)
Change in restricted cash(39,742) —
 —
Distributions to noncontrolling interests, net(2,579) (701) (3,146)(2,125) (2,579) (701)
Purchase of noncontrolling interests—
 —
 (7,971)
Settlement of equity awards(12,786) —
 —
Exercise of stock options616
 —
 —
Repurchases of common stock(3,537) —
 (24,595)—
 (3,537) —
Payroll taxes on restricted stock and stock options(981) (222) (762)
Other(103) (730) 339
—
 119
 32
Net cash (used for) provided by financing activities(318,264) (48,483) 469
Net cash (used in) provided by financing activities(62,344) (318,264) (48,483)
Net increase (decrease) in cash and cash equivalents169,356
 (73,685) (22,180)55,985
 169,356
 (73,685)
Cash and cash equivalents at beginning of year96,442
 170,127
 192,307
265,798
 96,442
 170,127
Cash and cash equivalents at year-end$265,798
 $96,442
 $170,127
$321,783
 $265,798
 $96,442
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid during the year for:          
Interest$14,790
 $27,330
 $22,936
$4,913
 $14,790
 $27,330
Income taxes paid (refunds)$10,205
 $(4,077) $18,322
$(2,699) $10,205
 $(4,077)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:          
Capitalized interest$2,838
 $2,938
 $1,154
$1,655
 $2,838
 $2,938
Noncontrolling interests$—
 $—
 $2,904
Please read the notes to the consolidated financial statements.


FORESTAR GROUP INC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies
Basis of Presentation
Our consolidated financial statements include the accounts of Forestar Group Inc., all subsidiaries, ventures and other entities in which we have a controlling interest. We account for our investment in other entities in which we have significant influence over operations and financial policies using the equity method (we recognize our share of the entities’ income or loss and any preferential returns and treat distributions as a reduction of our investment). We eliminate all material intercompany accounts and transactions. Noncontrolling interests in consolidated pass-through entities are recognized before income taxes.
We prepare our financial statements in accordance with generally accepted accounting principles in the United States, which require us to make estimates and assumptions about future events. Actual results can, and probably will, differ from those we currently estimate. Examples of significant estimates include those related to allocating costs to real estate, measuring long-lived assets for impairment, oil and gas revenue accruals, capital expenditure and lease operating expense accruals associated with our oil and gas production activities, oil and gas reserves and depletion of our oil and gas properties.
At year-end 2016, we havehad divested 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 for all periods presented. In addition, in second quarter 2016, we changed the name of the oil and gas segment to mineral resources to reflect the strategic shift from oil and gas working interest investments to owned mineral interests.
The transactions included in our net income in the consolidated statements of income (loss) are the same as those that would be presented in other comprehensive income. Thus, our net income equates to other comprehensive income.
We also changedare evaluating the nameimpact 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 was accounted for under the other natural resources segmentacquisition method in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). D.R. Horton was the acquirer for accounting purposes and our consolidated financial statements will continue to other.be stated at historical cost.
Cash and Cash Equivalents
Cash and cash equivalents include cash and other short-term instruments with original maturities of three months or less. At year-end 2016 and 2015, restricted cash was $275,000 and $200,000 and is included in other assets.
Cash Flows
The consolidated statements of cash flows for 2017, 2016 2015 and 20142015 reflect cash flows from both continuing and discontinued operations. Expenditures for the acquisition and development of single-family and multifamily real estate that we intend to develop for sale are classified as operating activities. Expenditures for the acquisition and development of properties to be held and operated, investment in oil and gas properties and equipment, and business acquisitions are classified as investing activities. Our accrued capital expenditures for unproved leasehold acquisitions and drilling and completion costs at
Change in Fiscal Year
As a result of the Merger with D.R. Horton, we have elected to change our fiscal year-end 2016 and 2015 were $834,000 and $7,033,000 and are included in liabilities of discontinued operations infrom December 31 to September 30, effective January 1, 2018. This change will align our consolidated balance sheets. These oil and gas property additions will be reflected as cash used for investing activities in the period the accrued payables are settled.
Capitalized Software
We capitalize purchased software costs as well as the direct internal and external costs associatedfiscal year-end reporting calendar with software we develop for our own use. We amortize these capitalized costs using the straight-line method over estimated useful lives generally ranging from three to five years. The carrying value of capitalized software was $52,000 at year-end 2016 and $237,000 at year-end 2015 and is included in other assets. The amortization of these capitalized costs was $155,000 in 2016, $996,000 in 2015 and $1,067,000 in 2014 and is included in general and administrative and operating expenses.D.R. Horton.
Environmental and Asset Retirement Obligations
We recognize environmental remediation liabilities on an undiscounted basis when environmental assessments or remediation are probable and we can reasonably estimate the cost. We adjust these liabilities as further information is obtained or circumstances change. OurWith the sale of our remaining oil and gas entities in 2017 we no longer have asset retirement obligations are related to the abandonment and site restoration requirements that result from the acquisition, construction and development of oil and gas working interest properties, which we have divested substantially all at year-end 2016. We recorddivested. Prior to the sale, we recorded the fair value of a liability for an asset retirement obligation in the period in which it iswas 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 costs are included in cost of mineral resources and in discontinued operations on our consolidated statements of income (loss) and comprehensive income (loss). Our asset retirement obligations are recorded in liabilities held for sale at year-end 2016 and in other liabilities and liabilities of discontinued operations at year-end 2015.


The following summarizes the changes in asset retirement obligations:
 Year-End
 2016 2015
 (In thousands)
Beginning balance$1,758
 $1,807
Additions6
 65
Oil and gas working interest property dispositions(1,610) (119)
Liabilities settled(107) (139)
Accretion expense56
 144
 $103
 $1,758

Fair Value Measurements
Financial instruments for which we did not elect the fair value option include cash and cash equivalents, accounts and notes receivables, other assets, long-term debt, accounts payable and other liabilities. With the exception of long-term notes receivable and debt, the carrying amounts of these financial instruments approximate their fair values due to their short-term nature or variable interest rates.nature.
Goodwill and Other Intangible Assets
We record goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. We do not amortize goodwill or other indefinite lived intangible assets. Instead, we measure these assets for impairment based on the estimated fair values at least annually or more frequently if impairment indicators exist. We perform the annual impairment measurement in the fourth quarter of each year. Intangible assets with finite useful lives are amortized over their estimated useful lives.
In 2016, we performed our annual goodwill impairment evaluation and concluded that goodwill related to our mineral interest assets was not impaired at year-end 2016 as the estimated fair value exceeded the carrying value. On February 17, 2017, we sold substantially all of the Company'sour remaining oil and gasowned mineral assets for $85,600,000. Please read Note 21—Subsequent Events for additional information about these items.approximately $85,700,000 and as a result of this sale we recorded a non-cash impairment charge of $37,900,000 related to the mineral resources reporting unit goodwill which is included in cost of mineral resources on our consolidated statements of income (loss).
In addition,At year-end 2016, we performed our annual goodwill impairment evaluation and concluded that goodwill related to our central Texas water assets was impaired at year-end 2016 asbecause the estimated faircarrying value exceeded the carrying value. Wefair value and recorded a $3,874,000 non-cash impairment charge as a resultwhich is included in cost of entering into an agreement to sell these assets. At year-end 2016,other on our central Texas water assets are classified as held for sale.consolidated statements of income (loss).
Income Taxes
We provide deferred income taxes using current tax rates for temporary differences between the financial accounting carrying value of assets and liabilities and their tax accounting carrying values. We recognize and value income tax exposures for the various taxing jurisdictions where we operate based on laws, elections, commonly accepted tax positions, and management estimates. We include tax penalties and interest in income tax expense. We provide a valuation allowance for any deferred tax asset that is not likely to be recoverable in future periods.
When we believe a tax position is supportable but the outcome uncertain, we include the item in our tax return but do not recognize the related benefit in our provision for taxes. Instead, we record a reserve for unrecognized tax benefits, which represents our expectation of the most likely outcome considering the technical merits and specific facts of the position. Changes to liabilities are only made when an event occurs that changes the most likely outcome, such as settlement with the relevant tax authority, expiration of statutes of limitations, changes in tax law, or recent court rulings.
Owned Mineral Interests
When we lease our mineral interests to third-party exploration and production entities, we retain a royalty interest and may take an additional participation in production, including a working interest. At year-end 2016, mineral interests and any remaining oil and gas working interests are included in assets held for sale.
Oil and Gas Properties (Discontinued Operations)
We use the successful efforts method of accounting for our oil and gas producing activities. Costs to acquire mineral interests leased, costs to drill and complete development of oil and gas wells and related asset retirement costs are capitalized. Costs to drill exploratory wells are capitalized pending determination of whether the wells have proved reserves and if determined incapable of producing commercial quantities of oil and gas these costs are expensed as dry hole costs. At year-end 2016, we have no capitalized exploratory well costs pending determination of proved reserves. Exploration costs include dry


hole costs, geological and geophysical costs, expired unproved leasehold costs and seismic studies, and are expensed as incurred. Production costs incurred to maintain wells and related equipment are charged to expense as incurred.
Depreciation and depletion of producing oil and gas properties is calculated using the units-of-production method. Proved developed reserves are used to compute unit rates for unamortized tangible and intangible drilling and completion costs. Proved reserves are used to compute unit rates for unamortized acquisition of proved leasehold costs. Unit-of-production amortization rates are revised whenever there is an indication of the need for revision but at least once a year and those revisions are accounted for prospectively as changes in accounting estimates.
Impairment of Oil and Gas Properties
We evaluate our oil and gas properties, including facilities and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We estimate the expected undiscounted future cash flows of our oil and gas properties and compare such undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the oil and gas properties to fair value. The factors used to determine fair value are subject to our judgment and expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected. Because of the uncertainty inherent in these factors, we cannot predict when or if future impairment charges for proved properties will be recorded.
The assessment of unproved leasehold properties to determine any possible impairment requires significant judgment. We assess our unproved leasehold properties periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results or future plans to develop acreage. Impairment expense for proved and unproved oil and gas properties are included in cost of mineral resources and cost of oil and gas producing activities in discontinued operations.
Operating Leases
We occupy office space in various locations under operating leases. The lease agreements may contain rent escalation clauses, construction allowances and/or contingent rent provisions. We expense operating leases ratably over the shorter of the useful life or the lease term. For scheduled rent escalation clauses, we recognize the base rent expense on a straight-line basis and record the difference between the recognized rent expense and the amounts payable under the lease as deferred lease credits included in other liabilities in the consolidated balance sheets. Deferred lease credits are amortized over the lease term. For construction allowances, we record leasehold improvement assets included in property and equipment in the consolidated balance sheets amortized over the shorter of their economic lives or the lease term. The related deferred lease credits are amortized as a reduction of rent expense over the lease term.
Property and Equipment
We carry property and equipment at cost less accumulated depreciation. We capitalize the cost of significant additions and improvements, and we expense the cost of repairs and maintenance. We capitalize interest costs incurred on major construction projects. We depreciate these assets using the straight-line method over their estimated useful lives as follows:
Estimated Year-EndEstimated Year-End
Useful Lives 2016 2015Useful Lives 2017 2016
  (In thousands)  (In thousands)
Buildings and building improvements10 to 40 years $2,700
 $4,044
10 to 40 years $2,162
 $2,700
Property and equipment2 to 10 years 4,957
 12,230
2 to 10 years 4,513
 4,957
 7,657
 16,274
 6,675
 7,657
Less: accumulated depreciation (4,541) (5,542) (4,672) (4,541)
 $3,116
 $10,732
 $2,003
 $3,116
Depreciation expense of property and equipment was $889,000$441,000 in 2017, $889,000 in 2016, and $1,067,000 in 2015 and $903,000 in 2014.
Real Estate
We carry real estate at the lower of cost or fair value less cost to sell. We capitalize interest costs once development begins, and we continue to capitalize throughout the development period. We also capitalize infrastructure, improvements, amenities, and other development costs incurred during the development period. We determine the cost of real estate sold using the relative sales value method. When we sell real estate from projects that are not finished, we include in the cost of real estate


sold estimates of future development costs through completion, allocated based on relative sales values. These estimates of future development costs are reevaluated at least annually, with any adjustments being allocated prospectively to the remaining units available for sale. We receive cash deposits from home builders for purchases of vacant developed lots from community development projects. These earnest money deposits are released to the home builders as lots are developed and sold. In certain instances earnest money deposits are subject to mortgages which are secured by the real estate under contract with the
Income producing properties

home builder. These mortgages expire when the earnest money is released to the home builders as lots are carried at cost less accumulated depreciation computed using the straight-line method over their estimated useful lives.developed and sold.  At year-end 2017, $40,408,000 of real estate was subject to earnest money mortgages, including $25,712,000 classified as assets held for sale.
We have agreements with utility or improvement districts, principally in Texas, whereby we agree to convey to the districts water, sewer and other infrastructure-related assets we have constructed in connection with projects within their jurisdiction. The reimbursement for these assets ranges from 70 to 90 percent of allowable cost as defined by the district. The transfer is consummated and we receive payment when the districts have a sufficient tax base to support funding of their bonds. The cost we incur in constructing these assets is included in capitalized development costs, and upon collection, we remove the assets from capitalized development costs. We provide an allowance to reflect our past experiences related to claimed allowable development costs.in collecting these reimbursements.
Impairment of Real Estate Long-Lived Assets
We review real estate long-lived assets held for use for impairment when events or circumstances indicate that their carrying value may not be recoverable. Impairment exists if the carrying amount of the long-lived asset is not recoverable from the undiscounted cash flows expected from its use and eventual disposition. We determine the amount of the impairment loss by comparing the carrying value of the long-lived asset to its estimated fair value. In the absence of quoted market prices, weWe generally determine estimated fair value generally based on the present value of future probability weighted cash flows expected from the sale of the long-lived asset. Non-cash impairment charges related to our owned and consolidated real estate assets are included in cost of real estate sales and other. In 2017, we recorded $3,420,000 in non-cash impairment charges related to the asset group sold in the strategic asset sale to Starwood and one mitigation project. In 2016, we recorded $56,453,000 in non-cash impairment charges related to six non-core community development projects and two multifamily sites.
RevenueReclassifications
In 2017, we have reclassified prior years' restricted cash that was included in other assets to a separate line item on our consolidated balance sheets to conform to the current year presentation.
Real Estate Revenue
We recognize revenue from sales of real estate when a sale is consummated, the buyer’s initial investment is adequate, any receivables are probable of collection, the usual risks and rewards of ownership have been transferred to the buyer, and we do not have significant continuing involvement with the real estate sold. If we determine that the earnings process is not complete, we defer recognition of any gain until earned. We recognize revenue from hotel room sales and other guest services when rooms are occupied and other guest services have been rendered. We recognize rental revenues from our multifamily properties when earned in accordance with the terms of the respective leases on a straight-line basis for the period of occupancy.
We recognize construction revenues on multifamily projects that we develop as a general contractor. Construction revenues are recognized as costs are incurred plus fixed fee earned. We are reimbursed for costs paid to subcontractors plus we may earn a development and construction management fee on multifamily projects we develop, both of which are included in commercial and income producing properties revenue. On multifamily projects where our fee is based on a fixed fee plus guaranteed maximum price contract, any cost overruns incurred during construction, as compared to the original budget, will reduce the net fee generated on these projects. Any excess cost overruns estimated over the net fee generated are recognized in the period in which they become evident. At year-end 2016, we were not a general contractor on any of the multifamily projects currently under construction and we do not anticipate to be a general contractor on any new multifamily projects as we determined multifamily was non-core and we would not be making any new investments in this business.
We exclude from revenue amounts we collect from utility or improvement districts related to the conveyance of water, sewer and other infrastructure related assets. We also exclude from revenue amounts we collect for timber sold on land being developed. These proceeds reduce capitalized development costs. We exclude from revenue amounts we collect from customers that represent sales tax or other taxes that are based on the sale. These amounts are included in other accrued expenses until paid.
Share-Based Compensation
We use the Black-Scholes option pricing model to determine the fair value of stock options, and a Monte Carlo simulation pricing model to determine the fair value of market-leveraged stock units and for stock options with market conditions. The fair value of equity-settled awards is determined on the grant date and the fair value of cash-settled awards is determined at period end. We expense share-based awards ratably over the vesting period or earlier based on retirement eligibility.
Owned Mineral Interests
Historically, we leased our mineral interests to third-party exploration and production entities, we retained a royalty interest and may have taken an additional participation in production, including a working interest. In first quarter 2017, we sold our remaining owned mineral assets.
Oil and Gas Properties (Discontinued Operations)
We used the successful efforts method of accounting for our oil and gas producing activities. Costs to acquire mineral interests leased, costs to drill and complete development of oil and gas wells and related asset retirement costs were capitalized. Costs to drill exploratory wells were capitalized pending determination of whether the wells had proved reserves and if determined incapable of producing commercial quantities of oil and gas these costs were expensed as dry hole costs. At year-end 2017, we had no capitalized exploratory well costs pending determination of proved reserves. Exploration costs include dry hole costs, geological and geophysical costs, expired unproved leasehold costs and seismic studies, and were expensed as incurred. Production costs incurred to maintain wells and related equipment were charged to expense as incurred.


Depreciation and depletion of producing oil and gas properties was calculated using the units-of-production method. Proved developed reserves were used to compute unit rates for unamortized tangible and intangible drilling and completion costs. Proved reserves were used to compute unit rates for unamortized acquisition of proved leasehold costs. Unit-of-production amortization rates were revised whenever there was an indication of the need for revision but at least once a year and those revisions were accounted for prospectively as changes in accounting estimates. We no longer own any oil and gas working interest properties.
Impairment of Oil and Gas Properties (Discontinued Operations)
Historically, we evaluated our oil and gas properties, including facilities and equipment, for impairment whenever events or changes in circumstances indicated that the carrying value of the asset may not be recoverable. We estimate the expected undiscounted future cash flows of our oil and gas properties and compared such undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. If the carrying amount exceeded the estimated undiscounted future cash flows, we adjusted the carrying amount of the oil and gas properties to fair value. The factors used to determine fair value were subject to our judgment and expertise and included, but were not limited to, recent sales prices of comparable properties, the present value of future cash flows net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected.
Assessing unproved leasehold properties to determine impairment required significant judgment. We assessed our unproved leasehold properties periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results or future plans to develop acreage. Impairment expense for proved and unproved oil and gas properties are included in cost of mineral resources and cost of oil and gas producing activities in discontinued operations.
Oil and Gas Working Interest Revenues (Discontinued Operations)
We recognizerecognized revenue as oil and gas iswas produced and sold. There arewere a significant amount of oil and gas properties which we dodid not operate and, therefore, revenue iswas typically recorded in the month of production based on an estimate of our share of volumes produced and prices realized. We obtainobtained the most current available production data from the operators and price indices for each well to estimate the accrual of revenue. Obtaining production data on a timely basis for some wells iswas not feasible; therefore we utilizeutilized past production receipts and estimated sales price information to estimate accrual of working interest revenue on all other non-operated wells each month. Revisions to such estimates arewere recorded as actual results become


became known. We review accounts receivable periodically and reduce the carrying amount by a valuation allowance that reflects our best estimate of the amount that may not be collectible.
A majority of our sales arewere made under contractual arrangements with terms that arewere considered to be usual and customary in the oil and gas industry. The contracts arewere for periods of up to five years with prices determined upon a percentage of pre-determined and published monthly index price. The terms of these contracts havedid not hadhave an effect on how we recognizerecognized revenue.
Mineral Resources Revenues
We recognizerecognized revenue from mineral bonus payments when we havehad received an executed agreement with the exploration company transferring the rights to any oil or gas it may find and requiring drilling be done within a specified period, the payment hashad been collected, and we havehad no obligation to refund the payment. We recognizerecognized revenue from delay rentals received if drilling hashad not started within the specified period and when the payment hashad been collected. We recognizerecognized revenue from mineral royalties and non-working interests when the minerals havehad been delivered to the buyer, the value iswas determinable, and we arewere reasonably sure of collection.
Other Revenues
We recognizerecognized revenue from timber sales upon passage of title, which occursoccurred at delivery; when the price iswas fixed and determinable; and we arewere reasonably sure of collection. We recognizerecognized revenue from recreational leases on thea straight-line basis over the lease term. We recognize revenue from the sale of water rights or groundwater reservation agreements upon receipt of an executed agreement, andwhen payment has been collected, and all conditions to the agreement have been met and we have no further performance obligations to meet. The waterobligations. Water delivery revenues will beare recognized as water is being delivered and metered at the delivery point.
Share-Based Compensation
We use the Black-Scholes option pricing model for stock options, Monte Carlo simulation pricing model for market-leveraged stock units and for stock options with market conditions, grant date fair value for equity-settled awards and period-end fair value for cash-settled awards. We expense share-based awards ratably over the vesting period or earlier based on retirement eligibility.
Timber
We carry timber at cost less the cost of timber cut. We expense the cost of timber cut based on the relationship of the timber carrying value to the estimated volume of recoverable timber multiplied by the amount of timber cut. We include the cost of timber cut in cost of other. We determine the estimated volume of recoverable timber using statistical information and other data related to growth rates and yields gathered from physical observations, models and other information gathering techniques. Changes in yields are generally due to adjustments in growth rates and similar matters and are accounted for prospectively as changes in estimates. We capitalize reforestation costs incurred in developing viable seedling plantations (up to two years from planting), such as site preparation, seedlings, planting, fertilization, insect and wildlife control, and herbicide application. We expense all other costs, such as property taxes and costs of forest management personnel, as incurred. Once the seedling plantation is viable, we expense all costs to maintain the viable plantations, such as fertilization, herbicide application, insect and wildlife control, and thinning, as incurred.
We own about 19,000 acres of non-core timberland and undeveloped land, in Georgia and Texas. The non-cash cost of timber cut and sold is $63,000 in 2016, $250,000 in 2015 and $371,000 in 2014 and is included in depreciation, depletion and amortization in our consolidated statements of cash flows.

Note 2 — New and Pending Accounting Pronouncements
Adoption of New Accounting Standards
In April 2015,March 2016, the FinancialFASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,, as part of its initiative to reduce complexity in accounting standards. To simplify presentation of debt issuance costs, the amendmentssimplification initiative. The areas for simplification in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update), which allows an entity to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The updated standards are effective for


financial statements issuedinvolve several aspects of the accounting for annualshare-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and interim periods beginning after December 15, 2015.the classification on the statement of cash flows. We adopted ASU 2015-03 inthe updated standard on January 1, 2017. Effective first quarter 2016 and prior period amounts have been reclassified to conform to the current period presentation. As of December 31, 2015, $8,267,000 of debt issuance costs were reclassified2017, stock-based compensation (SBC) excess tax benefits or deficiencies are reflected in the consolidated balance sheets from other assetsstatements of income (loss) as a component of the provision for income taxes, whereas they previously were recognized in equity to debt. The adoption did not impactthe extent additional paid-in capital pool was available. Additionally, our consolidated financial position, resultsstatements of operations or cash flows. As permitted under this guidance,flows will now present excess tax benefits as an operating activity, if applicable. Finally, we will continuehave elected to present debt issuance costs associated with revolving-debt agreementsaccount for forfeitures as other assets.
In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis (Topic 810), requiring entities to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The revised consolidation model: (1) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (2) eliminates the presumption that a general partner should consolidate a limited partnership, (3) affects the consolidation analysis of reporting entities that are involved with VIEs, and (4) provides a scope exception from consolidation guidance for reporting entities with interests in certain legal entities. The updated standard is effective for financial statements issued for annual and interim periods beginning after December 15, 2015.occur, rather than estimate expected forfeitures.  The adoption of this guidance which was applied retrospectively, had nodid not have a material impact toon our consolidated financial statements.
In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items(Subtopic 225-20), which eliminates the concept of extraordinary items from U.S. GAAP. The updated standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this guidance had no impact on our financial statements and related disclosures.
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 revenue to which it expects to be entitled 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 and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for annual and interim periods beginning after December 15, 2017. Due to our change in fiscal year-end, this standard is effective for us beginning October 1, 2018. 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 currently anticipate adopting the standard using the cumulative catch-up transition method. We anticipate this standard will not have a material impact on our consolidated financial statements. While we are continuing to assess all potential impacts of the standard, we expect revenue related to lot and tract sales to remain substantially unchanged. Due to the complexity 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 some instances from recognition at the time of the sale closing.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner that is similar to today's accounting. This guidance also eliminates today's real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This guidance is effective in 2019, and interim periods within that year. Early adoption is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the effect the updated standard will have on our financial position and disclosures.
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 becomes effective for annual and interim periods beginning after December 31, 2016. 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 impact on our consolidated financial statements.
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 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.
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 October 5, 2017, we merged with a subsidiary of D.R. Horton and we continued as the surviving entity (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. 
In connection with merger activities, we incurred $43,819,000 in transaction costs in 2017, of which, $41,475,000 are included in general and administrative expenses and $2,344,000 in other operating expenses on our consolidated statements of income (loss). These costs include a $20,000,000 merger termination fee paid to Starwood Capital Group, $7,683,000 in executive severance and change in control costs, $7,170,000 in transaction and other fees paid to our financial advisor, $4,617,000 in professional services and other costs and $4,349,000 related to the acceleration of vesting and settlement of equity awards.

Note 4 — Real Estate
Real estate consists of:
 Year-End 2016 Year-End 2015
 Carrying Value Accumulated Depreciation Net Carrying Value Carrying Value Accumulated Depreciation Net Carrying Value
 (In thousands)
Entitled, developed and under development projects$263,859
 $—
 $263,859
 $352,141
 $—
 $352,141
Undeveloped land (includes land in entitlement)29,144
 —
 29,144
 98,181
 —
 98,181
Commercial           
Radisson Hotel & Suites (a)
—
 —
 —
 62,889
 (29,268) 33,621
Income producing properties           
Eleven (a)
—
 —
 —
 53,896
 (2,861) 51,035
Dillon (a)
—
 —
 —
 19,987
 —
 19,987
Music Row (a)
—
 —
 —
 9,947
 —
 9,947
Downtown Edge (a)
—
 —
 —
 12,706
 —
 12,706
West Austin (b)
—
 —
 —
 9,097
 —
 9,097
 $293,003
 $—
 $293,003
 $618,844
 $(32,129) $586,715
 At Year-End
 2017 2016
 (In thousands)
Entitled, developed and under development projects$127,442
 $263,859
Other real estate costs (principally land in entitlement in 2016)2,938
 29,144
 $130,380
 $293,003
 _________________________Our estimated reimbursements from utility and improvement districts included in real estate were $9,775,000 at year-end 2017 and $45,157,000 at year-end 2016, which included $14,749,000 related to our Cibolo Canyons project near San Antonio. In 2017, we collected $19,606,000 in reimbursements that were previously submitted to these districts. 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. At year-end 2017, estimated reimbursements of $27,915,000, which include $14,127,000 related to Cibolo Canyons, are classified as assets held for sale. Please readNote 22 — Subsequent Eventfor additional information regarding our strategic asset sale to Starwood.
(a)
Sold in 2016.
(b)
Classified as assets held for sale at year-end 2016.
In 2017, we recognized non-cash impairment charges of $3,420,000 related to the asset group sold in the strategic asset sale to Starwood and one non-core mitigation project. In 2016, we recognized non-cash impairment charges of $56,453,000 related to six non-core community development projects and two multifamily sites. These impairments were a result of our key initiative to review our entire portfolio of assets which resulted in business plan changes, inclusive of cash tax savings considerations, to market these properties for sale, which resulted in adjustment of the carrying value to fair value.
In 2017, we sold over 19,000 acres of timberland and undeveloped land in Georgia and Texas for $46,197,000 generating combined net proceeds of $45,396,000. These transactions resulted in a gain on sale of assets of $28,674,000.
In 2016, we sold the Radisson Hotel & Suites, a 413 room hotel in Austin, for $130,000,000, generating $128,764,000 in net proceeds before paying in full the associated debt of $15,400,000 and recognized a gain on sale of $95,336,000. We also sold Eleven, a wholly-owned 257-unit multifamily property in Austin, for $60,150,000, generating $59,719,000 in net proceeds before paying in full the associated debt of $23,936,000 and recognized a gain on sale of $9,116,000. In addition, we sold Dillon, a planned 379-unit multifamily property that was under construction in Charlotte, for $25,979,000, generating $25,428,000 in net proceeds and recognized a gain on sale of $1,223,000, and Music Row, a planned 230-unit multifamily property that was under construction in Nashville, for $15,025,000, generating $14,703,000 in net proceeds and recognized a gain on sale of $3,968,000 .$3,968,000. We also sold Downtown Edge, a multifamily site in Austin, for $5,000,000, generating $4,975,000 in net proceeds and recognized a loss of $3,870,000.


In 2016, we sold over 58,300 acres of timbertimberland and timberlandundeveloped land in Georgia and Alabama for $104,172,000 in three transactions generating combined net proceeds of $103,238,000. These transactions resulted in a combined gain on sale of assets of $48,891,000.
In 2015, we sold Midtown Cedar Hill, a 354-unit multifamily property we developed near Cedar, Hill, Texas for $42,880,000, generating segment earnings of $9,265,000 and generating $42,639,000 in net proceeds before paying in full the associated debt of $24,166,000.
Depreciation expense related to commercial and income producing properties was $0 in 2017, $816,000 in 2016 and $6,810,000 in 2015 and $3,319,000 in 2014 and is included in other operating expense.
AsWe provided a general contractor on guaranteed maximum price contracts associated with two multifamily venture properties, we recognized chargesperformance bond and standby letter of $392,000credit in 2016, $1,543,000 in 2015 and $5,111,000 in 2014 related to cost overruns.
Our estimated costsupport of assets for which we expect to be reimburseda bond issuance by utility and improvement districts were $45,157,000 at year-end 2016 and $67,554,000 at year-end 2015, which included $14,749,000 at year-end 2016 and $22,302,000 at year-end 2015 related to our Cibolo Canyons project near San Antonio. In 2016, we collected $26,606,000 in reimbursements that were previously submitted to these districts. At year-end 2016, our inception to-date submitted and approved reimbursements for the


Cibolo Canyons project were $54,376,000, of which we have collected $45,132,000. 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.
CCSID. In 2014, we received $50,550,000 from Cibolo Canyons special improvement district (CCSID) and recognized a gain of $6,577,000CCSID principally related to its issuance of $48,900,000 Hotel Occupancy Tax (HOT) and Sales and Use Tax Revenue Bonds. 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 letter of credit to the bond trustee as security for certain debt service fund obligations in the event CCSID tax collections are not sufficient to support payment of the bonds in accordance with their terms. The letter of credit must be maintained until the earlier of redemption of the bonds or scheduled bond maturity in 2034. 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 $6,631,000 at year-end 2016. The deferred gains related to the letter of credit and surety bond are included in other liabilities on our consolidated balance sheet. The surety bond decreases and gains are recognized 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 inAt year-end 2017, the period collected. We recorded gains of $1,219,000 and $1,160,000 in 2016 and 2015 associated with reduction of surety bond and gains of $501,000 and $425,000 in 2016 and 2015 associated withwas $5,312,000. Our rights to receive the excess hotel occupancyHOT and sales and use tax revenuestaxes from CCSID in 2015.was excluded from the strategic asset sale to Starwood.

Note 45 — 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. We perform this review initially at the time we enter into venture agreements and reassess upon reconsideration events.
At year-end 2016,2017, we had ownership interests in 1615 ventures that we accounted for using the equity method, none of which are a VIE.
In 2016, we sold our interest in FMF Peakview LLC (3600), a 304-unit multifamily joint venture near Denver, generating $13,917,000 in net proceeds and recognized a gain of $10,363,000 which is included in gain on sale of assets.


Combined summarized balance sheet information for our ventures accounted for using the equity method follows:
Venture Assets 
Venture Borrowings (a)
 Venture Equity Our InvestmentVenture Assets 
Venture Borrowings (a)
 Venture Equity Our Investment
At Year-EndAt Year-End
2016 2015 2016 2015 2016 2015 2016 20152017 2016 2017 2016 2017 2016 2017 2016
(In thousands)(In thousands)
242, LLC (b)
$26,503
 $26,687
 $1,107
 $—
 $23,136
 $24,877
 $10,934
 $11,766
242, LLC (b) (e)
$19,525
 $26,503
 $—
 $1,107
 $19,357
 $23,136
 $9,131
 $10,934
CL Ashton Woods, LP (c)
2,653
 7,654
 —
 —
 2,198
 6,084
 1,107
 3,615
124
 2,653
 —
 —
 104
 2,198
 83
 1,107
CL Realty, LLC8,048
 7,872
 —
 —
 7,899
 7,662
 3,950
 3,831
4,528
 8,048
 —
 —
 4,344
 7,899
 2,172
 3,950
CREA FMF Nashville LLC (b)
56,081
 57,820
 37,446
 50,845
 17,091
 4,291
 4,923
 3,820
2,315
 56,081
 —
 37,446
 684
 17,091
 342
 4,923
Elan 99, LLC(e)49,652
 34,192
 36,238
 14,587
 13,100
 15,838
 11,790
 14,255
49,080
 49,652
 36,348
 36,238
 11,204
 13,100
 10,078
 11,790
FMF Littleton LLC70,282
 52,376
 44,446
 22,347
 23,798
 24,370
 6,128
 6,270
66,849
 70,282
 45,836
 44,446
 20,289
 23,798
 5,144
 6,128
FMF Peakview LLC—
 48,869
 —
 30,485
 —
 16,828
 —
 3,447
—
 —
 —
 —
 —
 —
 —
 —
FOR/SR Forsyth LLC10,672
 6,500
 1,568
 —
 8,990
 6,500
 8,091
 5,850
11,598
 10,672
 1,551
 1,568
 10,041
 8,990
 9,037
 8,091
HM Stonewall Estates, Ltd (c)
852
 2,842
 —
 —
 852
 2,842
 477
 1,294
—
 852
 —
 —
 —
 852
 —
 477
LM Land Holdings, LP (c)
25,538
 31,984
 3,477
 7,728
 20,945
 22,751
 9,685
 9,664
19,479
 25,538
 —
 3,477
 12,074
 20,945
 5,935
 9,685
MRECV DT Holdings LLC(e)4,155
 4,215
 —
 —
 4,144
 4,215
 3,729
 3,807
3,043
 4,155
 —
 —
 3,043
 4,144
 2,594
 3,729
MRECV Edelweiss LLC3,484
 2,237
 —
 —
 3,484
 2,237
 3,358
 2,029
MRECV Edelweiss LLC/MRECV Lender VIII LLC (e)
8,127
 3,484
 —
 —
 8,127
 3,484
 7,189
 3,358
MRECV Juniper Ridge LLC(e)4,156
 3,006
 —
 —
 4,156
 3,006
 3,741
 2,730
3,936
 4,156
 —
 —
 3,936
 4,156
 3,331
 3,741
MRECV Meadow Crossing II LLC(e)2,492
 728
 —
 —
 2,491
 728
 2,242
 655
3,129
 2,492
 —
 —
 3,129
 2,491
 2,738
 2,242
Miramonte Boulder Pass, LLC(e)10,738
 12,627
 4,006
 5,869
 5,265
 5,474
 5,330
 5,349
7,573
 10,738
 1,398
 4,006
 4,843
 5,265
 4,633
 5,330
Temco Associates, LLC4,368
 5,284
 —
 —
 4,253
 5,113
 2,126
 2,557
4,448
 4,368
 —
 —
 4,345
 4,253
 2,172
 2,126
Other ventures (d)—
 4,174
 —
 2,242
 —
 1,922
 —
 1,514
—
 —
 —
 —
 —
 —
 —
 —
$279,674
 $309,067
 $128,288
 $134,103
 $141,802
 $154,738
 $77,611
 $82,453
$203,754
 $279,674
 $85,133
 $128,288
 $105,520
 $141,802
 $64,579
 $77,611


Combined summarized income statement information for our ventures accounted for using the equity method follows:
Revenues Earnings (Loss) Our Share of Earnings (Loss)Revenues Earnings (Loss) Our Share of Earnings (Loss)
For the YearFor the Year
2016 2015 2014 2016 2015 2014 2016 2015 20142017 2016 2015 2017 2016 2015 2017 2016 2015
(In thousands)(In thousands)
242, LLC (b)
$5,835
 $20,995
 $5,612
 $1,259
 $9,588
 $2,951
 $668
 $4,919
 $1,514
242, LLC (b) (e)
$13,073
 $5,835
 $20,995
 $8,021
 $1,259
 $9,588
 $4,096
 $668
 $4,919
CL Ashton Woods, LP (c)
2,870
 9,820
 5,431
 914
 3,881
 1,748
 1,332
 5,000
 2,471
3,179
 2,870
 9,820
 1,456
 914
 3,881
 1,816
 1,332
 5,000
CL Realty, LLC567
 856
 1,573
 237
 424
 1,068
 119
 212
 534
499
 567
 856
 (1,155) 237
 424
 (578) 119
 212
CREA FMF Nashville LLC (b) (d)
4,955
 1,227
 —
 (1,420) (1,696) (163) 1,103
 (1,696) (163)5,440
 4,955
 1,227
 17,267
 (1,420) (1,696) 7,563
 1,103
 (1,696)
Elan 99, LLC(e)1,392
 —
 —
 (2,739) (49) (87) (2,465) (44) (78)4,596
 1,392
 —
 (1,896) (2,739) (49) (1,712) (2,465) (44)
FMF Littleton LLC3,116
 120
 —
 (571) (367) (239) (143) (92) (60)6,366
 3,116
 120
 192
 (571) (367) 48
 (143) (92)
FMF Peakview LLC939
 2,057
 4
 (248) (1,116) (410) (50) (223) (83)—
 939
 2,057
 —
 (248) (1,116) —
 (50) (223)
FOR/SR Forsyth LLC—
 —
 

 (65) —
 

 (58) —
 

—
 —
 —
 (148) (65) —
 (134) (58) —
HM Stonewall Estates, Ltd. (c)
2,112
 3,990
 1,728
 832
 1,881
 613
 361
 952
 248
496
 2,112
 3,990
 243
 832
 1,881
 103
 361
 952
LM Land Holdings, LP (c)
10,001
 10,956
 21,980
 7,288
 8,251
 15,520
 2,458
 3,342
 4,827
22,127
 10,001
 10,956
 10,629
 7,288
 8,251
 3,563
 2,458
 3,342
MRECV DT Holdings LLC(e)495
 —
 

 477
 167
 

 429
 —
 

1,196
 495
 —
 1,173
 477
 167
 911
 429
 —
MRECV Edelweiss LLC416
 —
 

 409
 151
 

 368
 137
 

MRECV Edelweiss LLC/MRECV Lender VIII LLC (e)
1,018
 416
 —
 1,016
 409
 151
 789
 368
 137
MRECV Juniper Ridge LLC(e)379
 —
 

 380
 106
 

 342
 —
 

1,445
 379
 —
 1,445
 380
 106
 1,089
 342
 —
MRECV Meadow Crossing II LLC(e)267
 —
 —
 220
 —
 —
 198
 —
 —
638
 267
 —
 638
 220
 —
 496
 198
 —
Miramonte Boulder Pass, LLC(e)4,923
 —
 

 (399) (250) 

 (200) (125) 

5,483
 4,923
 —
 177
 (399) (250) (197) (200) (125)
PSW Communities, LP—
 29,986
 —
 —
 2,688
 (86) —
 1,169
 (76)—
 —
 29,986
 —
 —
 2,688
 —
 —
 1,169
TEMCO Associates, LLC1,344
 9,485
 2,155
 440
 2,358
 494
 220
 1,179
 247
192
 1,344
 9,485
 92
 440
 2,358
 46
 220
 1,179
Other ventures6,519
 36,237
 3,960
 2,105
 33,303
 3,879
 1,441
 1,278
 (696)—
 6,519
 36,237
 —
 2,105
 33,303
 —
 1,441
 1,278
$46,130
 $125,729
 $42,443
 $9,119
 $59,320
 $25,288
 $6,123
 $16,008
 $8,685
$65,748
 $46,130
 $125,729
 $39,150
 $9,119
 $59,320
 $17,899
 $6,123
 $16,008
_____________________
(a) 
Total includes current maturities of $89,756,00084,098,000 at year-end 2016,2017, of which $78,557,00079,515,000 is non-recourse to us, and $39,590,00089,756,000 at year-end 20152016, of which $29,691,00078,557,000 is non-recourse to us.
(b) 
Includes unamortized deferred gains on real estate contributed by us to ventures. We recognize deferred gains as income as real estate is sold to third parties. Deferred gains of $1,457,000548,000 are reflected as a reduction to our investment in unconsolidated ventures at year-end 2016.2017.
(c) 
Includes unrecognized basis difference of $259,000448,000 which is reflected as an increase of our investment in unconsolidated ventures at year-end 2016.2017. This difference between estimated fair value of the equity investment and our capital account within the respective ventures at closing will be accretedamortized as income or expense over the life of the investment and included in our share of earnings (loss) from the respective ventures.venture.
(d) 
Our share of venture earnings in 2016 includes reallocation of prior year cumulative losses incurred by the venture as a result of equity contribution by the venture partner in 2016.2016 in accordance with the partnership agreement.
(e)
Included in our strategic asset sale to Starwood on February 8, 2018. Please read Note 22 - Subsequent Event for additional information regarding this transaction.
In 2017, we invested $4,548,000 in these ventures and received $34,439,000 in distributions; in 2016, we invested $6,089,000 in these ventures and received $13,419,000 in distributions; and in 2015, we invested $26,349,000 in these ventures and received $24,909,000 in distributions; and in 2014, we invested $14,692,000 in these ventures and received $7,518,000 in distributions. Distributions include both return of investments and distributions of earnings.
In 2017, CREA FMF Nashville LLC (Acklen), sold a 320-unit multifamily project in Nashville for $71,750,000 and recognized a gain of $18,986,000. Our share of earnings was $7,783,000 and we received a distribution of $11,956,000 as a result of this sale.
In 2017, venture earnings from 242, LLC 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.
In 2017, 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 2017, the venture recognized a non-cash impairment charge of $3,756,000 associated with a commercial tract on the Texas coast.


In 2016, we sold our interest in FMF Peakview LLC (3600), a 304-unit multifamily joint venture near Denver, generating $13,917,000 in net proceeds and recognized a gain of $10,363,000 which is included in gain on sale of assets.
We provideprovided construction and development services for some of these ventures for which we receive fees. Fees for these services were $2,466,000$741,000 in 2017, $2,466,000 in 2016 and $1,856,000 in 2015 and $2,275,000 in 2014, and are included in real estate revenues.

Note 56 — Goodwill and Other Intangible Assets
Carrying value of goodwill and other intangible assets follows:
Year-EndYear-End
2016 20152017 2016
(In thousands)(In thousands)
Goodwill$37,900
 $41,774
$—
 $37,900
Identified intangibles, net—
 1,681
448
 —
$37,900
 $43,455
$448
 $37,900
Goodwill related to our mineral interestsassets was $0 at year-end 2017 and $37,900,000 at year-end 2016 and 2015. Goodwill associated with2016. In 2017, we recognized a non-cash impairment charge of $37,900,000 related to goodwill attributable to our watermineral resources initiatives was $0 and $3,874,000 at year-end 2016 and 2015.reporting unit as a result of selling our remaining owned mineral assets. In 2016, we recognized a goodwill non-cash impairment charge of $3,874,000 related to interests in groundwater leases in central Texas. Impairment charges are included in cost of mineral resources and cost of other on our consolidated statements of income (loss).
Identified intangibles, net represent indefinite lived groundwater leases associated with our central Texas as resultwater assets at year-end 2017 and were included in assets held for sale at year-end 2016. In 2017, we recognized a non-cash impairment charge of entering into an agreement$1,233,000 related to sell these assets.the indefinite lived groundwater leases. Impairment charges are included in cost of other on our consolidated statements of income (loss) and comprehensive income (loss).
Identified intangibles include $1,681,000 in indefinite lived groundwater leases associated with our water resources initiatives and is included in
Note 7—Held for Sale
At year-end 2017, assets held for sale at year-end 2016.
principally included certain real estate projects sold on February 8, 2018, and water wells related to our nonparticipating royalty interests in water rights located in east Texas. Please read Note 6—Held 22 - Subsequent Event for Sale
At year-end 2016, assets held foradditional information regarding our strategic asset sale includes approximately 19,000 acres of timberland and undeveloped land and the related timber, a multifamily site in Austin, our owned mineral interest assets and central Texas groundwater assets.


to Starwood.
The major classes of assets and liabilities of the properties held for sale at year-end 2016 arewere as follows:
At Year-EndAt Year-End
20162017 2016
Assets Held for Sale:(In thousands)(In thousands)
Real estate$19,931
$180,247
 $19,931
Timber1,682
—
 1,682
Other intangible assets1,681
—
 1,681
Oil and gas properties and equipment, net782
—
 782
Property and equipment, net6,301
1,360
 6,301
$30,377
$181,607
 $30,377
    
Liabilities Held for Sale:    
Accounts payable1,017
 —
Other liabilities103
—
 103
$103
$1,017
 $103

Note 78 — Discontinued Operations
At year-end 2016, weWe have divested 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 for all periods presented. In addition, in second quarter 2016, we changed the name of the oil and gas segment to mineral resources to reflect the strategic shift from oil and gas working interest investments to owned mineral interests.




Summarized results from discontinued operations were as follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
      
Revenues$5,862
 $43,845
 $68,610
$15
 $5,862
 $43,845
Cost of oil and gas producing activities(6,578) (221,402) (94,581)(52) (6,578) (221,402)
Other operating expenses(7,754) (10,363) (14,357)226
 (7,754) (10,363)
Loss from discontinued operations before income taxes$(8,470) $(187,920) $(40,328)
Income (loss) from discontinued operations before income taxes$189
 $(8,470) $(187,920)
Gain (loss) on sale of assets before income taxes(13,664) (706) 8,526
(197) (13,664) (706)
Income tax benefit5,269
 2,496
 12,193
46,039
 5,269
 2,496
Loss from discontinued operations, net of taxes$(16,865) $(186,130) $(19,609)
Income (loss) from discontinued operations, net of taxes$46,031
 $(16,865) $(186,130)

In third quarter 2017, we sold the common stock of Forestar Petroleum Corporation for $100,000. This transaction completed the sale of all our oil and gas assets and related entities. This transaction resulted in a significant tax loss, and the corresponding tax benefit is reported in discontinued operations in 2017.
In 2016, we recorded a net loss of $13,664,000 on the sale of 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 net proceeds of $80,374,000, which includes $3,269,000 in reimbursement of capital costs incurred on in-progress wells that were assumed by the buyer. Other operating expenses in 2017 include a benefit 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 2016 include loss contingency charges of $2,990,000 related to litigation and $1,155,000 related to potential environmental liabilities to plug and abandon certain oil and gas wells in Wyoming. Please read Note 14—Litigation and Environmental Contingencies for additional information about these items.
In 2015, we recorded a net loss of $706,000 on the sale of 109,000 net mineral acres leased from others and the disposition of 39 gross (7 net) producing oil and gas wells in Nebraska, Texas, Colorado, North Dakota and Oklahoma for total net proceeds of $17,800,000.
In 2014, we recorded a net gain of $8,526,000 on the sale of 650 net mineral acres leased from others and 124 gross (18 net) producing oil and gas working interest wells in Nebraska, Kansas, Oklahoma and North Dakota for total net proceeds of $17,660,000.
Cost of sales includes non-cash impairment charges of $0 in 2017, $612,000 in 2016 and $163,029,000 in 2015 and $32,665,000 in 2014 related to our proved properties and unproved leasehold oil and gas working interests.



The major classes of assets and liabilities of discontinued operations at year-end 20162017 and 20152016 are as follows:
At Year-EndAt Year-End
2016 20152017 2016
(In thousands)(In thousands)
Assets of Discontinued Operations:      
Receivables, net of allowance for bad debt$6
 $4,632
$—
 $6
Oil and gas properties and equipment, net—
 79,733
Goodwill and other intangible assets—
 19,673
Prepaid expenses8
 96
—
 8
Other assets—
 833
$14
 $104,967
$—
 $14
      
Liabilities of Discontinued Operations:      
Accounts payable$67
 $342
$—
 $67
Accrued property taxes—
 259
Other accrued expenses5,228
 8,924
—
 5,228
Other liabilities—
 1,667
$5,295
 $11,192
$—
 $5,295
Significant






Cash (used in) or provided by operating activities and investing activities of discontinued operations are as follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Operating activities:          
Asset impairments$612
 $105,337
 $15,535
$—
 $612
 $105,337
Changes in accounts payable and other accrued liabilities(3,000) —
 —
Dry hole and unproved leasehold impairment charges—
 67,639
 29,528
—
 —
 67,639
Loss (gain) on sale of assets13,664
 706
 (8,526)197
 13,664
 706
Depreciation, depletion and amortization2,202
 28,391
 28,758
—
 2,202
 28,391
$16,478
 $202,073
 $65,295
$(2,803) $16,478
 $202,073
          
Investing activities:          
Oil and gas properties and equipment$(579) $(49,717) $(101,145)$—
 $(579) $(49,717)
Acquisition of oil and gas properties—
 —
 (1,100)
Proceeds from sales of assets77,105
 17,800
 17,660
200
 77,105
 17,800
$76,526
 $(31,917) $(84,585)$200
 $76,526
 $(31,917)

Note 89 — Receivables
Receivables consist of:
 At Year-End
 2016 2015
 (In thousands)
Funds held by qualified intermediary for potential 1031 like-kind exchange$—
 $14,703
Other receivables and accrued interest1,505
 2,218
Other loans secured by real estate, average interest rate of 5.86% at year-end 2016 and 11.31% at year-end 20157,452
 2,130
 8,957
 19,051
Allowance for bad debts(26) (26)
 $8,931
 $19,025


In 2016, we received funds previously held by qualified intermediary because we did not complete an intended like-kind exchange related to a sale of 6,915 acres of undeveloped land.
 At Year-End
 2017 2016
 (In thousands)
Other receivables and accrued interest2,557
 1,505
Loans secured by real estate, average interest rate of 5.40% at year-end 2017 and 4.94% at year-end 20163,776
 7,452
 6,333
 8,957
Allowance for bad debts(26) (26)
 $6,307
 $8,931
Other loans secured by real estate generally are secured by a deed of trust and due within three to five years.

Note 910 — Debt
Debt consists of:
At Year-EndAt Year-End
2016 20152017 2016
(In thousands)(In thousands)
8.50% senior secured notes due 20225,200
 224,647
—
 5,200
3.75% convertible senior notes due 2020, net of discount104,673
 104,719
108,139
 104,673
6.00% tangible equity units, net—
 8,666
Secured promissory notes — average interest rates of 3.42% at year-end 2015—
 15,400
Other indebtedness due through 2018 at variable and fixed interest rates ranging from 5.0% to 5.50%485
 28,083
290
 485
$110,358
 $381,515
$108,429
 $110,358
In 2016,Letter of Credit Facility
On October 5, 2017, we reduced the revolving commitment provided by our seniorentered into a Letter of Credit Facility Agreement providing for a $30,000,000 secured standby letter of credit facility which matures(the “LC Facility”). The LC Facility is secured by $30,000,000 in cash deposited with the administrative agent. In addition, we have $10,000,000 on May 15,deposit with a participating lender. The total of these two deposits are classified as restricted cash on our consolidated balance sheets. At year-end 2017, (with two one-year extension options), from $300,000,000 to $125,000,000, none$14,072,000 was outstanding under the LC Facility.
Termination of which was drawn at year-end 2016.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 maythat was scheduled to mature on May 15, 2018. This Prior Credit Facility could be prepaid at any time without penalty. The revolving line of credit includespenalty and included a $100,000,000$50,000,000 sublimit for letters of credit. All outstanding letters of credit at the time of which $14,850,000 was outstanding at year-end 2016. Total borrowings under our senior secured credit facility (includingtermination were transferred to the facenew LC Facility.


8.50% Senior Secured Notes due 2022
On October 30, 2017, we redeemed the remaining $5,315,000 aggregate principal amount of letters of credit) may not exceed a borrowing base formula. At year-end 2016, we had $71,262,000 in net unused borrowing capacity under our senior credit facility.
Under the terms of our senior secured credit facility, at our option, we can borrow at LIBOR plus 4.0 percent or at the alternate base rate plus 3.0 percent. The alternate base rate is the highest of (i) KeyBank National Association’s base rate, (ii) the federal funds effective rate plus 0.5 percent or (iii) 30 day LIBOR plus 1 percent. Borrowings under the senior secured credit facility are or may be secured by (a) mortgages on the timberland, high value timberland and portions of raw entitled land, as well as pledges of other rights including certain oil and gas operating properties, (b) assignments of current and future leases, rents and contracts, (c) a security interest in our primary operating account, (d) a pledge of the equity interests in current and future material operating subsidiaries and most of our majority-owned joint venture interests, or if such pledge is not permitted, a pledge of the right to distributions from such entities, and (e) a pledge of certain reimbursements payable to us from special improvement district tax collections in connection with our Cibolo Canyons project. The senior secured credit facility provides for releases of real estate and other collateral provided that borrowing base compliance is maintained.
Our debt agreements contain financial covenants customary for such agreements including minimum levels of interest coverage and limitations on coverage. At year-end 2016, our tangible net worth requirement was $426,312,000 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 2015. At year-end 2016, we were in compliance with the financial covenants of these agreements.
We may elect to make distributions to 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 year-end 2016. 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% 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.
In 2014, we issued $250,000,000 aggregate principal of8.5%outstanding 8.50% Senior Secured Notes due 2022 (Notes)(the “Notes”). The Notes will maturewere redeemed for $5,928,000 and the redemption resulted in a $524,000 loss on June 1, 2022 and interest on the Notes is payable semiannually at a rateextinguishment of 8.5 percent per annum in arrears. debt.
In 2016, we completed a cash tender offer for our Notes, pursuant to which we purchased $215,495,000 principal amount (representing approximately 97.6% outstanding) of the outstanding Notes. Total consideration paid was $245,604,000, which included $29,091,000 in premium at 113.5% and $1,018,000 in accrued and unpaid interest. In addition, we received consent from holders of the Notes to eliminate or modify certain covenants, events of default and other provisions contained in the indenture governing the Notes, and to release the subsidiary guarantees and collateral securing the Notes. We also purchased $9,750,000 principal amount of the Notes between 99% and 99.95% of face value in open market transactions. The 2016cash tender offer and open market purchases resulted in a $35,681,000 loss on extinguishment of debt, which includesincluded the premium paid to repurchase the Notes, write-off of unamortized debt issuance costs of $5,416,000 and $1,301,000 in other costs related to tender offer advisory services.costs.


In 2015, we purchased $19,440,000 principal amount of3.75% Convertible Senior Notes at 97% of face value, resulting in a gain of $589,000 on the early extinguishment of the retired Notes, offset by the write-off of unamortized debt issuance costs of $506,000 allocated to the retired Notes.due 2020
In 2013, we issued $125,000,000 aggregate principal amount of 3.75% convertible senior notesConvertible Senior Notes due 2020 (Convertible Notes). Interest on the Convertible Notes is payable semiannually at a rate of 3.75 percent per annum and they mature on March 1, 2020. The Convertible Notes havehad an initial conversion rate of 40.8351 per $1,000 principal amount. The initial conversion rate iswas subject to adjustment upon the occurrence of certain events. Prior to November 1, 2019, the Convertible Notes are convertible only upon certain circumstances, and thereafter are convertible at any time prior to the close of business on the second scheduled trading day prior to maturity. If converted, holders will receive cash,
On October 5, 2017, we had $120,000,000 aggregate principal amount of Convertible Notes outstanding. 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 Convertible Notes.
Pursuant to the Third Supplemental Indenture, the Convertible Notes are no longer convertible into shares of our pre-merger common stock (“Former Forestar Common Stock”) and instead are convertible into cash and shares of our post-merger common stock (“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 $579.77062 in cash and 8.17192 shares of New Forestar Common Stock per $1,000 principal amount of Notes surrendered for conversion.
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. Under this offer, we repurchased $1,077,000 of Notes, and recorded a combination thereof atloss on extinguishment of debt of $87,000.
At year-end 2017, unamortized debt discount of our election.Convertible Notes was $9,726,000. The effective interest rate on the liability component was 8 percent and the carrying amount of the equity component was $16,847,000. We intend to settle the principal amount of the Convertible Notes in cash upon conversion, with any excess conversion value to be settled in shares of our common stock. At year-end 2016, unamortized debt discount of our Convertible Notes was $13,809,000.
In 2016, we purchased $5,000,000 of 3.75% Convertible Senior Notes due 2020 at 93.25%93.25 percent of face value in open market transactions for $4,663,000 and we allocated $4,452,000 to extinguish the debt and $211,000 to reacquire the equity component within the convertible notes based on the fair value of the debt component. We recognized a $110,000 loss on extinguishment of debt based on the difference between the fair value of the debt component prior to conversion and the carrying value of the debt component. Total loss on extinguishment of debt including write-off of debt issuance costs allocated to the repurchased notes was $183,000.
In 2013, we issued $150,000,000 aggregate principal amount of 6.00% tangible equity units (Units). The total offering was 6,000,000 Units, including 600,000 exercised by the underwriters, each with a stated amount of $25.00. Each Unit is comprised of (i) a prepaid stock purchase contract to be settled by delivery of a number of shares of our common stock, par value $1.00 per share to be determined pursuant to a purchase contract agreement,Deferred Fees and (ii) a senior amortizing note due December 15, 2016 that has an initial principal amount of $4.2522, bears interest at a rate of 4.50% per annum and has a final installment payment date of December 15, 2016. On December 15, 2016, we made the final installment payment of principal and accrued interest and issued 7,857,000 shares upon settlement of the stock purchase contract based on the applicable market value, as defined in the purchase contract agreement associated with issuance of the Units.
In 2016, a secured promissory note of $15,400,000 was paid in full in connection with sale of the Radisson Hotel & Suites, for $130,000,000.
In 2016, other indebtedness decreased principally as a result of selling Eleven, a 257-unit multifamily project in Austin, for $60,150,000 and paying in full the associated debt of $23,936,000.Debt Maturities
At year-end 20162017 and 20152016, we have $1,633,0001,058,000 and $8,267,0001,633,000 in unamortized deferred fees which were deducted from our debt. In addition, at year-end 2016 and 2015, unamortized deferred financing fees related to our senior credit facility included in other assets were $314,000 and $2,768,000. Amortization of deferred financing fees was $979,000 in 2017, $3,598,000 in 2016 and $4,002,000 in 2015 and $3,845,000 in 2014 and is included in interest expense.
Debt maturities during the next five years are: 2017 — $0; 2018 — $485,000290,000; 2019 — $0; 2020 — $104,673,000108,139,000; 2021 — $0; 2022 — $0 and thereafter — $5,200,0000.





Note 1011 — Fair Value
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 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.
We elected not to use the fair value option for cash and cash equivalents, accounts and notes receivable, other current assets, variable debt, accounts payable and other current liabilities. The carrying amounts of these financial instruments approximate their fair values due to their short-term nature or variable interest rates. We determine the fair value of fixed rate financial instruments using quoted prices for similar instruments in active markets.


Information about our fixed rate financial instruments not measured at fair value follows:
 Year-End 2016 Year-End 2015  
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
Valuation
Technique
 (In thousands)
Fixed rate debt$(111,506) $(109,789) $(346,090) $(321,653) Level 2
 Year-End 2017 Year-End 2016  
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
Valuation
Technique
 (In thousands)
Fixed rate debt$(109,197) $(109,114) $(111,506) $(109,789) Level 2
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 intangible assets, which are measured for impairment.
In 2017, we recognized a non-cash impairment charge of $37,900,000 related to goodwill attributable to our mineral resources reporting unit as a result of selling our remaining owned mineral assets. We recognized non-cash impairment charges of $5,852,000 related to our non-core water assets in central Texas and Georgia and $420,000 related to a non-core mitigation project in Georgia. We also recorded a non-cash impairment charge of $3,000,000 related to the asset group to be disposed of in the strategic asset sale to Starwood on February 8, 2018. We based the valuations of our water assets and mitigation project primarily on past and current negotiations with expected buyers.
In 2016, we recognized non-cash impairment charges of $56,453,000 related to six non-core community development projects and two multifamily sites as a result of the review of our entire portfolio of assets and marketing these properties for sale, of which four non-core community development projects and one multifamily site were sold in 2016. We based our valuations primarily on executed purchase and sale agreements, current negotiations and letters of intent with expected buyers and third party broker price opinions. In 2016, we recognized non-cash impairment charges of $612,000 related to non-core oil and gas working interest properties that were sold in 2016.
In 2015, we recognized non-cash impairment charges of $107,140,000 related to non-core oil and gas working interest assets classified as discontinued operations in 2016. These properties were primarily located in North Dakota, Nebraska and Kansas and were impaired primarily due to a significant decline in oil and gas prices and the likelihood these assets will be sold. The fair value of these properties was determined using Level 3 inputs and income valuation method based on estimated future commodity prices and our various operational assumptions. In instances where a third party bid was received for a combination of proved and unproved properties, an estimate of the allocation of bid prices was performed and fair value was adjusted accordingly. Included in proved oil and gas non-cash impairments were impairments associated with properties that were sold in fourth quarter 2015. In addition, in 2015 we recognized impairments of $57,691,000 for unproved leasehold interests as a result of continued decline in oil prices and our current plans to only allocate capital to these non-core assets to preserve values and optionality for ultimate sale. Fair value of certain unproved leasehold interests that were impaired were based on market comparables or where a third party bid was received for a combination of proved and unproved properties, an estimate of the allocation of fair value was performed which reduced the carrying value of these leasehold interests.
In 2015, certain real estate assets were remeasured and reported at fair value due to events or circumstances that indicated the carrying value may not be recoverable. We determined estimated fair value based on the present value of future probability weighted cash flows expected from the sale of the long-lived asset or based on a third party appraisal of current value. As a result, we recognized non-cash asset impairment charges of $1,044,000 in 2015 associated with a residential development with golf course and country club property near Fort Worth which was sold in April 2015, one owned project near Atlanta where the remaining lots were sold in August 2015 and one owned entitled project in Atlanta.
Non-financial assets measured at fair value on a non-recurring basis are as follows:
 Year-End 2016 Year-End 2015
 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
 (In thousands)
Non-financial Assets and Liabilities:              
Real estate$—
 $—
 $—
 $—
 $—
 $—
 $641
 $641
Assets of discontinued operations$—
 $—
 $—
 $—
 $—
 $—
 $57,219
 $57,219
                
 Year-End 2017 Year-End 2016
 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
 (In thousands)
Non-financial Assets and Liabilities:              
Real estate held for sale$—
 $180,247
 $—
 $180,247
 $—
 $—
 $—
 $—
Central Texas water assets$—
 $—
 $1,987
 $1,987
 $—
 $—
 $—
 $—
                

Note 1112 — Capital Stock
In 2015, we acceleratedOn October 5, 2017, our stockholders received New Forestar Common Stock in connection with the expiration date of our shareholder rights plan from December 11, 2017 to March 13, 2015, resulting in termination of the plan.
Merger. Please readsee Note 123 — Net Income (Loss) per ShareMerger for information about shares of common stock that could be issued under our 3.75% convertible senior notes due 2020.
Please read Note 17 — Share-Based and Long-Term Incentive Compensation for information about additional shares of common stock that could be issued under terms of our share-based compensation plans.
Please read Note 21 — Subsequent Events for information about preferred stock purchase rights pursuant to our tax benefits preservation plan.




At year-end 2016, personnel of former affiliates held options to purchase 234,764 shares of our common stock. The options have a weighted average exercise price of $30.56 and will expire in February 2017. At year-end 2016, the options have an aggregate intrinsic value of $0.information.
On December 15, 2016, we issued 7,857,000 shares of our common stock upon settlement of the stock purchase contract related to the 6.00% tangible equity units. In 2016, we repurchased 283,976 shares of our common stock for $3,537,000. In 2014, we repurchased 1,491,187 shares of our common stock for $24,595,000. We have repurchased 3,777,308 shares of our common stock for $57,696,000 since we announced our 2009 strategic initiative of


repurchasing up to 20 percent or up to 7,000,000 shares of our common stock. The foregoing purchase authorization terminated upon closing of the Merger with D.R. Horton on October 5, 2017.

Note 1213 — Net Income (Loss) per Share
Basic and diluted earnings (loss) per share are computed using the treasury stock method in 2017 and the two-class method.method for 2016 and 2015. 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 havepreviously determined that our 6.00% tangible equity units areissued in 2013 were participating securities. 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 (loss) per share are as follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Numerator:          
Continuing operations          
Net income (loss) from continuing operations$77,044
 $(26,241) $36,697
$6,301
 $77,044
 $(26,241)
Less: Net (income) attributable to noncontrolling interest(1,531) (676) (505)(2,078) (1,531) (676)
Earnings (loss) available for diluted earnings per share$75,513
 $(26,917) $36,192
$4,223
 $75,513
 $(26,917)
Less: Undistributed net income from continuing operations allocated to participating securities(13,493) —
 (6,586)—
 (13,493) —
Earnings (loss) from continuing operations available to common shareholders for basic earnings per share$62,020
 $(26,917) $29,606
$4,223
 $62,020
 $(26,917)
          
Discontinued operations          
Net income (loss) from discontinued operations available for diluted earnings per share(16,865) (186,130) (19,609)46,031
 (16,865) (186,130)
Less: Undistributed net income from discontinued operations allocated to participating securities3,014
 —
 3,569
—
 3,014
 —
Earnings (loss) from discontinued operations available to common shareholders for basic earnings per share(13,851) (186,130) (16,040)46,031
 (13,851) (186,130)
Denominator:          
Weighted average common shares outstanding — basic34,546
 34,266
 35,317
42,143
 34,546
 34,266
Weighted average common shares upon conversion of participating securities (a)
7,515
 —
 7,857
—
 7,515
 —
Dilutive effect of stock options, restricted stock and equity-settled awards273
 —
 422
238
 273
 —
Total weighted average shares outstanding — diluted42,334
 34,266
 43,596
42,381
 42,334
 34,266
Anti-dilutive awards excluded from diluted weighted average shares outstanding2,102
 10,864
 2,238
1,093
 2,102
 10,864
 _____________________
(a)
Our earnings per share calculation reflects the weighted average shares issuable upon settlement of the prepaid stock purchase contract component of our 6.00% tangible equity units, issued in 2013.units.
On December 15, 2016, we issued 7,857,000 shares of our common stock upon settlement of the stock purchase contract related to the 6.00% tangible equity units.
We intend to settle the principal amount of the Convertible Notes in cash upon conversion with any excess conversion value to be settled in shares of our common stock. Therefore, only the amount in excess of the par value of the Convertible Notes will be included in our calculation of diluted net income per share using the treasury stock method. As such, the Convertible Notes have no impact on diluted net income per share until the price of our common stock exceeds the conversion price of the Convertible Notes of $24.49.$51.42. The average price of our common stock in 20162017 did not exceed the conversion price which resulted in no additional diluted outstanding shares.









Note 1314 — Income Taxes
Income tax (expense) benefitexpense from continuing operations consists of:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Current tax provision:          
U.S. Federal$(15,089) $6,740
 $(18,905)$(44,177) $(15,089) $6,740
State and other(1,520) (418) (2,182)(3,378) (1,520) (418)
(16,609) 6,322
 (21,087)(47,555) (16,609) 6,322
Deferred tax provision:          
U.S. Federal1,382
 (38,262) 184
1,678
 1,382
 (38,262)
State and other(75) (3,191) 53
57
 (75) (3,191)
1,307
 (41,453) 237
1,735
 1,307
 (41,453)
Income tax (expense) benefit$(15,302) $(35,131) $(20,850)
Income tax expense$(45,820) $(15,302) $(35,131)
A reconciliation of the federal statutory rate to the effective income tax rate on continuing operations follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
Federal statutory rate (benefit)35% 35 % 35 %35% 35 % 35 %
State, net of federal benefit—
 10
 2
3
 —
 10
Valuation allowance(19) 348
 

(42) (19) 348
Tax rate change due to new tax act40
 —
 —
Noncontrolling interests(1) (3) —
(1) (1) (3)
Installment sale ace adjustment2
 —
 —
—
 2
 —
Stock based compensation—
 5
 —
11
 —
 5
Charitable contributions—
 —
 (1)
Goodwill25
 —
 —
Merger costs18
 —
 —
Oil and gas percentage depletion—
 (1) —
—
 —
 (1)
Other—
 1
 —
(1) —
 1
Effective tax rate17 % 395 % 36 %88 % 17 % 395 %
Our 2016The effective tax rate for all years includes an expense for state income taxes and non-deductible expenses, reduced by a tax benefit related to noncontrolling interests. The effective tax rate for 2017 also includes an expense for non-deductible goodwill related to the sale of our owned mineral assets and non-deductible transaction costs related to the Merger with D.R. Horton. Other 2017 differences, including the remeasurement of our deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act ("Tax Act"), are fully offset by a change in our valuation allowance. The effective tax rate for 2016 includes a 19 percent benefit from achange in valuation allowance decrease due to a decrease in our deferred tax assets. OurThe effective rate for 2015 effective tax rate includes a 348 percent detriment from the recordingestablishment of a valuation allowance.





allowance against our deferred tax assets.














Significant components of deferred taxes are:
At Year-EndAt Year-End
2016 20152017 2016
(In thousands)(In thousands)
Deferred Tax Assets:      
Real estate$50,759
 $69,594
$37,513
 $50,759
Employee benefits13,185
 15,752
1,510
 13,185
Net operating loss carryforwards2,804
 13,827
2,305
 2,804
Oil and gas properties1,672
 5,510
—
 1,672
AMT credits5,900
 3,620
1,690
 5,900
Income producing properties2,055
 —
794
 2,055
Oil and gas percentage depletion carryforwards3,478
 3,616
—
 3,478
Accruals not deductible until paid552
 911
196
 552
Other assets—
 139
Gross deferred tax assets80,405
 112,969
44,008
 80,405
Valuation allowance(73,405) (97,068)(39,578) (73,405)
Deferred tax asset net of valuation allowance7,000
 15,901
4,430
 7,000
Deferred Tax Liabilities:      
Undeveloped land(1,359) (7,588)—
 (1,359)
Convertible debt(5,035) (6,516)(2,402) (5,035)
Income producing properties—
 (2,257)
Timber(283) (577)—
 (283)
Gross deferred tax liabilities(6,677) (16,938)(2,402) (6,677)
Net Deferred Tax Asset (Liability)$323
 $(1,037)$2,028
 $323
The Tax Act was enacted on December 22, 2017, and reduced the federal corporate tax rate from 35 percent to 21 percent for all corporations effective January 1, 2018. ASC 740 requires companies to reflect the effects of a tax law change in the period in which the law is enacted. Accordingly, we have remeasured our deferred tax assets and liabilities along with the corresponding valuation allowance as of the enactment date. This remeasurement resulted in no additional tax expense or benefit except for the release of a portion of the valuation allowance for AMT credits which become fully refundable in future years as a result of the tax law change. We have determined based on current available information that no other tax law changes as a result of the Tax Act have a significant impact on our 2017 tax expense. The adjustment to the deferred tax accounts and our determination that no other tax law changes have a significant impact on our 2017 tax expense are our best estimate based on the information available at this time and may change as additional information, such as regulatory guidance, becomes available. Adjustments to estimated amounts, if any, would be reflected as a discrete expense or benefit in the quarter that it is identified, as allowed by SEC Staff Accounting Bulletin No. 118.
On October 5, 2017, D.R. Horton acquired 75 percent of our common stock resulting in an ownership change under Section 382. Section 382 limits our ability to use certain tax attributes and built-in losses and deductions in a given year. Any tax attributes or built-in losses and deductions that are limited in the current year are expected to be fully utilized in future years.
At year-end 2016,2017, we had approximately $7,500,000$9,200,000 and $64,200,000$69,200,000 of federal and state net operating loss carryforwards. Approximately $7,500,000 of the federalcarryforwards, which include certain recognized built-in losses that are deferred under Section 382. These carryforwards are subject to a full valuation allowance and $2,400,000$45,600,000 of the state net operating loss carryforwards wereare attributable to states in which we are not currently doing business due to our exit from our acquisition of Credo at third quarter 2012the oil and are subject to certain limitations.gas business. If not utilized, the federal carryforwards will expire in 20312037 and the state carryforwards will expire in 20172020 to 2036.2037. We had approximately $9,200,000 of oil and gas percentage depletion carryforwards of which approximately $9,200,000 were a result of our acquisition of Credo and are subject to certain limitations. We had approximately $5,900,000$1,690,000 of AMT credit carryforwards. The percentage depletion and AMT credit carryforwards dowhich are refundable over the next four years if not expire.
Goodwill associated with our oil and gas and mineral resources enterprise are not deductible for income tax purposes.used to offset current taxes.
At year-end 20162017 and 2015,2016, we have provided a valuation allowance for our deferred tax asset of $73,405,000$39,578,000 and $97,068,000 respectively$73,405,000 for the portion of the deferred tax asset that is more likely than not to be unrealizable. The decrease in the valuation allowance for the year was $23,663,000.primarily attributable to the remeasurement of deferred tax assets and liabilities as a result of the tax rate decrease from the Tax Act.
In determining our valuation allowance, we assessed available positive and negative evidence to estimate whether sufficient future taxable income would be generated to permit use of the existing deferred tax asset. A significant piece of objective evidence was the cumulative loss incurred over the three-year period ended December 31, 2016,2017, principally driven by impairments of oil and gas and real estate assets. Such evidence limited our ability to consider other subjective evidence, such as our projected future taxable income.
The amount of 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.


We file income tax returns in the U.S. federal jurisdiction and in various state jurisdictions.  All federal statutes of limitations for tax years prior to 2012 are closed.  As a result of filing refund claims for the 2012 through 2014 tax years for carrybacks from the 2015 tax year, the Internal Revenue Service (“IRS”) initiated and completed an audit of our 2012 through 2015 tax years during 2017 resulting in no change to our tax liability. As a result, the IRS cannot re-open the 2012 through 2015 tax years for audit unless they identify an issue that meets the criteria for re-opening an audit under Section 5 of Rev. Proc. 2005-32. We believe there are no such issues in our 2012 through 2015 tax years that meet this criteria and, therefore, we believe the IRS will not re-open our 2012 through 2015 tax years for audit. We are no longer subject to U.S. federal and state income tax examinations for years before 2012.2013.
At year-end 2016, our unrecognizedA reconciliation of the beginning and ending amount of tax benefitbenefits not recognized for book purposes was $2,499,000is as a result of tax positions taken in the current year. We did not have any unrecognized tax benefits for the years 2015 and 2014. follows:
 At Year-End
 (In thousands)
 2017 2016 2015
Balance at beginning of year$2,499
 $—
 $—
Increases (decreases) for tax positions of current year—
 2,499
 —
Decreases for dispositions and other(1,449) —
 —
Balance at end of year$1,050
 $2,499
 $—
If the total amount of unrecognized tax benefits were recognized at year-end 2017, it would result in a $1,050,000 deferred tax asset and a corresponding increase in our valuation allowance. Therefore, such tax benefit would not affect the effective tax rate if recognized in the current year.benefit.
We recognize interest accrued related to unrecognized tax benefits in income tax expense. In 2017, 2016 2015and 2014,2015, we recognized no interest expense.related to unrecognized tax benefits. At year-end 20162017 and 20152016, we havehad no accrued interest or penalties.





Note 1415 — Litigation and Environmental Contingencies
Litigation
We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business and 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. It is possible, however, that charges related to these matters could be significant to our results or cash flows in any one accounting period.
On October 4, 2014, James Huffman, a former director and CEO of CREDO Petroleum Corporation (Credo), which we acquired in 2012 and is now known as Forestar Petroleum Corporation, filed Huffman vs. Forestar Petroleum Corporation, Case Number 14CV33811, Civ. Div., Dist. Ct., City and County of Denver, Colorado, claiming entitlement to certain overriding royalty interests under a Credo compensation program. In third quarter 2016, we settled a portion of the case for $150,000 and accrued an additional $1,100,000 following an adverse jury verdict in Huffman's favor in regard to the portion of his claim related to past damages. In fourth quarter 2016, following additional rulings by the court, we accrued an additional $1,890,000 representing our estimate of future damages to which Huffman is entitled plus interest and costs, resulting in a total accrual of $2,990,000 at year-end 2016. The case was settled for the amount of accrual.
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 we can reasonably estimate. In 2016, we sold all but 25 of our 289 acres near Antioch, California, approximately 80 acres of which had not yet received a certificate of completion under the voluntary remediation program in which we were participating. The buyer of the former paper manufacturing sites assumed responsibility for environmental, remediation and monitoring activities, subject to limited exclusions, and obtained a $20,000,000, ten year pollution legal liability insurance policy naming us as an additional insured.
WeWith 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. We record 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 are included in cost of mineral resources and cost of oil and gas producing activities in discontinued operations on our consolidated statements of income (loss) and comprehensive income (loss). At year-end 2016, our asset retirement obligation was $103,000, which is included in liabilities held for sale. In addition, at year-end 2016, we havehad accrued $1,155,000 related to potential environmental liabilities to plug and abandon certain oil and gas wells in Wyoming which is included in liabilities of discontinued operations.

Note 1516 — Commitments and Other Contingencies
We lease facilities and equipment under non-cancelable long-term operating lease agreements. In addition, we have various obligations under other office space and equipment leases of less than one year. Rent expense on facilities and equipment, including amounts recorded as discontinued operations, was $1,923,000$2,101,000 in 2017, $1,923,000 in 2016 and $3,872,000 in 2015 and $2,617,000 in 2014. Future minimum rental commitments under non-cancelable operating leases having aan initial or remaining term in excess of one year are: 2017 — $2,267,000; 2018 — $1,593,000;$1,313,000; 2019 — $298,000;$208,000; 2020 — $182,000;$180,000; 2021 — $62,000;$61,000; 2022 — $0; and thereafter —$0.
We have one year remaining on groundwater leases of about 20,000 acres. At year-end 2016, the remaining contractual obligation for these groundwater leases is $494,000.
We lease approximately 22,000 square feet of office space in Austin, Texas, which we occupy as our corporate headquarters. The remaining contractual obligation for this lease is $1,983,000. We also lease office spaceheadquarters and in other locations in support of our business operations. The total remaining contractual obligations for these leases is $1,925,000.
We may provide performance bonds and letters of credit on behalf of certain ventures that would be drawn on due to failure to satisfy construction obligations as general contractor or for failure to timely deliver streets and utilities in accordance with local codes and ordinances.

Unallocated Severance-related Costs$1,762,000.
In connection with the departuressupport of our former CEOcore community development business, we have a $40,000,000 surety bond program that provides financial assurance to beneficiaries related to execution and CFO in September 2015, we recorded severance-related chargesperformance of $3,314,000 which are included in general and administrative expense on our consolidated statements of income (loss) and comprehensive income (loss). We paid $2,732,000 of these severance-related charges in fourth quarter 2015 with the remainder paid in 2016.land development business. At year-end 2017, there were $14,708,000 outstanding under this program.





Non-core Assets Restructuring Costs
In connection with key initiatives to reduce costs across our entire organization and divest non-core assets, in 2016, we incurred and paid severance costs related to workforce reductions of $1,422,000 in our real estate segment, $164,000 in our other segment and $486,000 in unallocated general and administrative expenses. In addition, we offered retention bonuses to certain key personnel provided they remained our employees through completion of sale transactions. We expensed retention bonus costs over the estimated retention periods. These restructuring costs are included in other operating expense.
The following table summarizes activity related to liabilities associated with our restructuring activities in 2016:
 Employee-Related Costs Retention Bonuses Total
 (In thousands)
Balance at year-end 2015$(1,049) $—
 $(1,049)
Additions(2,072) (832) (2,904)
Payments3,121
 832
 3,953
Balance at year-end 2016$—
 $—
 $—

Note 1617 — Segment Information
We manage our operations through three business 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, commercial and income producing properties, which consist of three projects and one multifamily site.properties. Mineral resources managesmanaged our owned mineral interests.assets. Other managesmanaged our timber, recreational leases and water resource initiatives.assets.
At year-end 2016 weWe have divested 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 for all periods presented. In addition, we changed the name of the oil and gas segment to mineral resources to reflect the strategic shift from oil and gas working interest investments to owned mineral interests. We also changed the name of the other natural resources segment to 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, interest expense, loss on extinguishment of debt and other corporate non-operating income and expense. The accounting policies of the segments are the same as those described in Note 1 — Summary of Significant Accounting Policies. Our revenues are derived from our U.S. operations and all of our assets are located in the U.S. In 2016,2017, one homebuilder accounted for $20,923,000 of our total real estate segment revenues. In 20152016 and 20142015, no single customer accounted for more than 10 percent of our total revenues, other than the customer associated with the sale of our Midtown Cedar Hill multifamily project in 2015.

 
Real
Estate
 Mineral Resources Other 
Items Not
Allocated to
Segments
  Total
 (In thousands)
For the year or at year-end 2017          
Revenues$112,746
 $1,502
 $74
 $—
   $114,322
Depreciation, depletion and amortization131
 28
 25
 5,279
   5,463
Equity in earnings of unconsolidated ventures16,500
 1,395
 4
 —
   17,899
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc.47,281
 45,552
 (6,393) (36,397)
(a)  
 50,043
Total assets386,222
 —
 3,346
 372,344
   761,912
Investment in unconsolidated ventures64,579
 —
 —
 —
   64,579
Capital expenditures52
 2,400
 —
 —
   2,452
For the year or at year-end 2016          
Revenues$190,273
 $5,076
 $1,965
 $—
   $197,314
Depreciation, depletion and amortization976
 145
 352
 7,772
   9,245
Equity in earnings of unconsolidated ventures5,778
 173
 172
 —
   6,123
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc.121,420
 3,327
 (4,625) (29,307)
(a) 
 90,815
Total assets (b)
403,062
 38,907
 11,531
 279,694
   733,194
Investment in unconsolidated ventures77,611
 —
 —
 —
   77,611
Capital expenditures5,783
 —
 299
 56
   6,138
For the year or at year-end 2015          
Revenues$202,830
 $9,094
 $6,652
 $—
   $218,576
Depreciation, depletion and amortization7,605
 383
 540
 8,166
   16,694
Equity in earnings of unconsolidated ventures15,582
 275
 151
 —
   16,008
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc.67,678
 4,230
 (608) (63,086)
(a) 
 8,214
Investment in unconsolidated ventures82,453
 —
 —
 —
   82,453
Capital expenditures13,644
 59
 745
 242
   14,690

 
Real
Estate
 Mineral Resources Other 
Items Not
Allocated to
Segments
  Total
 (In thousands)
For the year or at year-end 2016          
Revenues$190,273
 $5,076
 $1,965
 $—
   $197,314
Depreciation, depletion and amortization976
 145
 352
 7,772
   9,245
Equity in earnings of unconsolidated ventures5,778
 173
 172
 —
   6,123
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc.121,420
 3,327
 (4,625) (29,307)
(a)  
 90,815
Total assets (b)
403,062
 38,907
 11,531
 279,694
   733,194
Investment in unconsolidated ventures77,611
 —
 —
 —
   77,611
Capital expenditures5,783
 —
 299
 56
   6,138
For the year or at year-end 2015          
Revenues$202,830
 $9,094
 $6,652
 $—
   $218,576
Depreciation, depletion and amortization7,605
 383
 540
 8,166
   16,694
Equity in earnings of unconsolidated ventures15,582
 275
 151
 —
   16,008
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc.67,678
 4,230
 (608) (63,086)
(a) 
 8,214
Total assets (b)
691,238
 39,469
 19,106
 117,466
   867,279
Investment in unconsolidated ventures82,453
 —
 —
 —
   82,453
Capital expenditures13,644
 59
 745
 242
   14,690
For the year or at year-end 2014          
Revenues$213,112
 $15,690
 $9,362
 $—
   $238,164
Depreciation, depletion and amortization3,741
 684
 497
 8,035
   12,957
Equity in earnings of unconsolidated ventures8,068
 586
 31
 —
   8,685
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc.96,906
 9,116
 5,499
 (54,479)
(a) 
 57,042
Investment in unconsolidated ventures65,005
 —
 —
 —
   65,005
Capital expenditures28,980
 2,240
 5,817
 616
   37,653

 _____________________
(a) 
Items not allocated to segments consist of:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
General and administrative expense$(18,274) $(24,802) $(21,229)$(50,354) $(18,274) $(24,802)
Share-based and long-term incentive compensation expense(4,425) (4,474) (3,417)(7,201) (4,425) (4,474)
Gain on sale of assets48,891
 —
 —
28,674
 48,891
 —
Interest expense(19,985) (34,066) (30,286)(8,532) (19,985) (34,066)
Loss on extinguishment of debt, net(35,864) —
 —
(611) (35,864) —
Other corporate non-operating income350
 256
 453
1,627
 350
 256
$(29,307) $(63,086) $(54,479)$(36,397) $(29,307) $(63,086)
(b) 
Total assets excludes assets of discontinued operations of $14$14,000 and $104,967$104,967,000 in 2016 and 2015.



Note 1718 — Share-Based and Long-Term Incentive Compensation
Share-based and long-term incentive compensation expense consists of:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Cash-settled awards$717
 $(3,127) $(3,710)$634
 $717
 $(3,127)
Equity-settled awards2,444
 5,026
 5,168
5,001
 2,444
 5,026
Restricted stock22
 (8) (25)—
 22
 (8)
Stock options854
 2,355
 1,984
1,008
 854
 2,355
Total share-based compensation$4,037
 $4,246
 $3,417
$6,643
 $4,037
 $4,246
Deferred cash388
 228
 —
558
 388
 228
$4,425
 $4,474
 $3,417
$7,201
 $4,425
 $4,474
Share-based and long-term incentive compensation expense is included in:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
General and administrative$3,323
 $2,451
 $1,001
$6,177
 $3,323
 $2,451
Other operating1,102
 2,023
 2,416
1,024
 1,102
 2,023
$4,425
 $4,474
 $3,417
$7,201
 $4,425
 $4,474
In 2017, share-based compensation expense included $4,349,000 in charges related to the acceleration of vesting and settlement of outstanding equity awards in connection with the Merger. Excluded from share-based compensation expense in the table above are fees earned by our previous directors in the amount of $449,000 for 2017, $725,000 for 2016 and $1,203,000 for 2015 and $906,000 for 2014 for which they elected to defer payment until retirement in the form of share-settled units. These deferred fees were settled in 2017 as a result of the Merger. These expenses are included in general and administrative expense on our consolidated statements of income (loss) and comprehensive income (loss).
Share-Based Compensation
The fair value of awards granted to retirement-eligible employees and expensed at the date of grant was $9,000 in 2017, $600,000 in 2016 and $517,000 in 2015 and $760,000 in 2014. Unrecognized share-based compensation expense related to non-vested equity-settled awards and stock options was $1,878,000$1,424,000 at year-end 2016.2017. The weighted average period over which this amount will be recognized is estimated to be one year.four years. We did not capitalize any share-based compensation in 2016,2017, 20152016 or 20142015.
In 20162017 and 20152016, we issued 300,491322,586 and 288,089300,491 shares out of our treasury stock associated with vesting of stock-based awards or exercise of stock options, net of 25,08275,870 and 51,52125,082 shares withheld having a value of $222,000$981,000 and $762,000$222,000 for payroll taxes in connection with vesting of stock-based awards or exercise of stock options which are reflected in financing activities in our consolidated statements of cash flows.
A summary of awards granted under our 2007 Stock Incentive Plan follows:

Cash-settled awards
Cash-settled awards granted to our employees in the form of restricted stock units or stock appreciation rights generally vest over three to fourfive years from the date of grant and generally provide for accelerated vesting upon death, disability or if there is a change in control. Cash-settled stock appreciation rights have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. Stock appreciation rights wereare granted with an exercise price equal to the market value of our stock on the date of grant.
Cash-settled awards granted to our directors in the form of restricted stock units are fully vested at the time of grant and payable upon retirement.


The following table summarizes the activity of cash-settled restricted stock unit awards in 2016:2017:
Equivalent
Units
 Weighted Average Grant Date Fair Value
Equivalent
Units
 Weighted Average Grant Date Fair Value
(In thousands) (Per unit)(In thousands) (Per unit)
Non-vested at beginning of period117
 $16.0042
 $14.98
Granted—
 ——
 —
Vested(41) 18.84(30) 15.66
Forfeited(34) 13.83(12) 13.15
Non-vested at end of period42
 14.98—
 —
The weighted average grant date fair value of cash-settled restricted stock unit awards was $13.26 per unit for 2015 and $18.96 per unit for 2014.2015. The fair value of cash-settled restricted stock unit awards settled was $2,178,000 in 2017, $1,195,000 in 2016, and $2,469,000 in 2015, and $2,286,000 in 2014. The aggregate current value of non-vested awards is $555,000 at year-end 2016 based on a year-end stock price of $13.30.2015.
The following table summarizes the activity of cash-settled stock appreciation rights in 2016:2017:
Rights
Outstanding
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining Contractual Term
 
Aggregate Intrinsic Value
(Current Value Less Exercise Price)
Rights
Outstanding
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining Contractual Term
 
Aggregate Intrinsic Value
(Current Value Less Exercise Price)
(In thousands) (Per share) (In years) (In thousands)(In thousands) (Per share) (In years) (In thousands)
Balance at beginning of period487
 $12.97 4 $404374
 $12.97 3 $773
Granted—
 — —
 — 
Exercised(52) 9.29 (234) 10.14 
Forfeited(61) 16.12 (140) 17.69 
Balance at end of period374
 12.97 3 773—
 — 0 —
Exercisable at end of period345
 12.87 3 773—
 — 0 —
The intrinsic value of cash-settled stock appreciation rights settled was $1,581,000 in 2017, $154,000 in 2016 and $206,000 in 2015 and $1,181,000 in 2014.
The fair value of accrued cash-settled awards at year-end 20162017 was $0 since all outstanding equity awards were accelerated as a result of the Merger and $1,758,000 at year-end 2015 were $1,758,0002016 and $3,757,000 and iswas included in other liabilities in our consolidated balance sheets.
Equity-settled awards
Equity-settled awards granted to our employees and directors include restricted stock units (RSU), which vest after three years for directors and five years for employees from the date of grant, market-leveraged stock units (MSU), which vest after three years from date of grant and performance stock units (PSU), which generally vest after three years from the date of grant if certain performance goals are met. Equity settled awards in the form of restricted stock units granted to our directors are fully vested at time of grant and settled upon retirement. The following table summarizes the activity of equity-settled awards in 2016:2017:
Equivalent
Units
 Weighted Average Grant Date Fair Value
Equivalent
Units
 Weighted Average Grant Date Fair Value
(In thousands) (Per unit)(In thousands) (Per unit)
Non-vested at beginning of period631
 $18.25
555
 $14.70
Granted313
 9.04
198
 14.55
Vested(281) 15.12
(653) 14.28
Forfeited(108) 17.91
(14) 14.59
Non-vested at end of period555
 14.70
86
 17.54


In 2017 and 2016, we granted 198,000 and 313,000 RSU awards atawards. The grant date fair value was based on the market value of the stock on the date of the grant. In 2015, and 2014, we granted 234,000 and 86,000 MSU awards. TheseThe vesting of these awards will bewas accelerated in accordance with their terms upon change in control of the company and settled in common stock based upon our stock price performance over three years fromcash in 2017 in connection with the date of grant. The number of shares to be issued could range from a high of 351,000 shares if our stock price increases by 50 percent or more, to 117,000 shares if our stock price decreases by 50 percent, or could be zero if our stock price decreases by more than 50 percent, the minimum threshold performance.Merger. We estimateestimated the grant date


fair value of MSU awards using a Monte Carlo simulation pricing model and the following assumptions:
 For the Year For the Year
 2015 2014 2015
Expected stock price volatility 32.9% 42.2% 32.9%
Risk-free interest rate 1.0% 0.7% 1.0%
Expected dividend yield —% —% —%
Weighted average grant date fair value of MSU awards (per unit) $15.11
 $20.38
 $15.11
The weighted average grant date fair value of equity-settled awards (RSU, MSU and PSU) per unit in 2017, 2016 and 2015 was $14.55, $9.04 and 2014 was $9.04, $12.99 and $19.18.$12.99. The fair value of equity-settled awards settled was $2,884,478,$14,894,000, $2,884,000 and $4,451,000 in 2017, 2016 and $3,119,000 in 2016, 2015 and 2014.
Unrecognized share-based compensation expense related to non-vested equity-settled awards is $1,106,000 at year-end 2016. The weighted average period over which this amount will be recognized is estimated to be one year.
Restricted stock awards
Restricted stock awards generally vest over three years, typically if we achieve a minimum one percent annualized return on assets over such three-year period. The following table summarizes the activity of restricted stock awards in 2016:
 
Restricted
Shares
 Weighted Average Grant Date Fair Value
 (In thousands) (Per unit)
Non-vested at beginning of period4
 $20.55
Granted—
 —
Vested(4) 20.55
Forfeited—
 —
Non-vested at end of period—
 —
The fair value of our restricted stock awards settled in 2016, 2015 and 2014 was $44,000, $88,000 and $341,000.2015.
Stock options
Stock options have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. In 2016 and 2015,All options werehave been granted with an exercise price equal to the market value of our stock on the date of grant. In the first quarter of 2016, stock options were issued to each of two new directors to acquire 20,000 shares of common stock of which 6,500 shares vest on the first and second anniversary of the date of grant and the remaining 7,000 shares vest on the third anniversary of the date of grant. Expense associated with annual restricted stock units and non-qualified stock options to our board of directors is included in share-based compensation expense. The following table summarizes the activity of stock option awards in 2016:2017:
Options
Outstanding
 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic Value
(Current
Value Less
Exercise Price)
Options
Outstanding
 
Weighted
Average
Exercise or Settlement Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic Value
(Current
Value Less
Exercise Price)
(In thousands) (Per share) (In years) (In thousands)(In thousands) (Per share) (In years) (In thousands)
Balance at beginning of period2,171
 $19.56
 5 $156
1,836
 $19.39
 5
 $449
Granted53
 9.98
  —
 —
    
Exercised(35) 9.29
  
Exercised or settled in merger(768) 14.07
    
Forfeited(353) 20.03
  (1,068) 23.21
    
Balance at end of period1,836
 19.39
 5 449
—
 —
 —
 —
Exercisable at end of period1,597
 20.25
 4 261
—
 —
 —
 —
We estimateestimated the grant date fair value of stock options that do not have a market condition using the Black-Scholes option pricing model and the following assumptions:
  For the Year
  2016 2015
Expected stock price volatility 39.5% 45.6%
Risk-free interest rate 1.5% 1.8%
Expected life of options (years) 6
 6
Expected dividend yield —% —%
Weighted average grant date fair value of options (per share) $8.60
 $6.51
We determine the expected life using the simplified method which utilizes the midpoint between the vesting period and the contractual life of the awards. The expected stock price volatility assumption was determined using a blend of historical and implied volatility.
Stock option awards granted in third quarter 2015 in connection with management promotions have a ten-year term, vest ratably over three years and are exercisable only when our stock price exceeds $17.50 per share. We estimated the fair value of these options with market conditions using Monte Carlo simulation pricing model and the following assumptions:
Expected stock price volatility 61.4%
Risk-free interest rate 2.2%
Expected dividend yield —%
Weighted average grant date fair value of options (per share) $7.87
The fair value of vested stock options was $0 in 2016, $0 in 2015 and $21,000 in 2014. The intrinsic value of options exercised was $2,603,000 in 2017, $61,000 in 2016 and $0 in 2015 and $568,000 in 2014. Unrecognized share-based compensation expense related to non-vested stock options is $772,000 at year-end 2016. The weighted average period over which this amount will be recognized is estimated to be two years.2015.
Pre-Spin Awards
Certain of our employees participated in Temple-Inland’s share-based compensation plans. In conjunction with our 2007 spin-off, these awards were equitably adjusted into separate awards of the common stock of Temple-Inland and the spin-off entities. No pre-spin awards were exercised in 2016. The intrinsic value of pre-spin awards exercised was $0 in 2016, $24,000 in 2015 and $352,000 in 2014.
Pre-spin stock option awards to our employees to purchase our common stock have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. At year-end 2016, there were 17,000 pre-spin awards outstanding and exercisable on our stock with a weighted average exercise price of $30.56 and weighted average remaining term of less than one year.
Long-Term Incentive Compensation
In 2017 and 2016, we granted $1,180,000 and $620,000 of long-term incentive compensation in the form of deferred cash compensation. The 20162017 deferred cash awards vest annually over twothree years, and the 20152016 deferred cash awards vest after threetwo years. Both awards provideThe 2016 award provides for accelerated vesting upon retirement, disability, death, or if there is a change in control. Expense associated with deferred cash awards is recognized ratably over the vesting period or earlier based on retirement eligibility.eligibility or accelerated vesting under the change of control provision. The accrued liability was $539,000 at year-end 2016 award and is includedthe first payment on the 2017 award were settled in other liabilities.cash based upon their terms in connection with the Merger.

Note 1819 — Retirement Plans
Our defined contribution retirement plans include a 401(k) plan, which is funded, and a supplemental plan for certain employees, which is unfunded. The expense of our defined contribution retirement plans was $660,000 in 2017, $978,000 in 2016 and $1,060,000 in 2015 and $1,338,000 in 2014.2015. The unfunded liability for our supplemental plan was $374,000 at year-end 2017 and $334,000 at year-end 2016 and $802,000 at year-end 20152016 and is included in other liabilities.







Note 1920 — Supplemental Oil and Gas Disclosures (Unaudited)
The following unaudited information regarding our oil and gas reserves has been prepared and is presented pursuant to requirements of the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB).
As of year-end 2016,2017, we havehad divested 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 our consolidated statements of income (loss) and comprehensive income (loss) and consolidated balance sheets for all periods presented. However, all information presented in this unaudited supplemental oil and gas disclosures footnote includes all oil and gas reserve estimates and results of operations.
We lease In addition, we have sold our remaining mineral interests, principally in Texasassets and Louisiana, to third-party entities for the exploration and production ofno longer own any oil and gas. When we lease ourgas or mineral interests, we may negotiate a lease bonus payment and we retain a royalty interest and may take an additional participation in production, including a working interest in which we pay a share of the costs to drill, complete and operate a well and receive a proportionate share of the production revenues.assets.
We engaged independent petroleum engineers, Netherland, Sewell & Associates, Inc., to assist in preparing estimates of our proved oil and gas reserves, all of which arewere located in the U.S., and future net cash flows as of year-end 2016, 20152016 and 20142015.
These estimates were based on the economic and operating conditions existing at year-end 2016, 20152016 and 20142015. Proved developed reserves are those quantities of petroleum from existing wells and facilities, which by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward for known reservoirs and under defined economic conditions, operating methods and government regulations.
For 2016 and 2015, the primary internal technical person in charge of overseeing our reserves estimates had a Bachelor of Science in Physics and Mathematics and a Master's of Science in Civil Engineering. He had over 40 years of domestic and international experience in the exploration and production business including 40 years of reserve evaluations. He had been a registered Professional Engineer for over 25 years.
As part of our internal control over financial reporting, for 2016 and 2015 we had a process for reviewing well production data and division of interest percentages prior to submitting well level data to NSAI to assist us in preparing reserve estimates. Our primary internal technical person and other members of management reviewed the reserve estimates prepared by NSAI, including the underlying assumptions and estimates upon which they are based, for accuracy and reasonableness.
SEC rules require disclosure of proved reserves using the twelve-month average beginning-of-month price (which we refer to as the average price) for the year. These same average prices also arewere used in calculating the amount of (and changes in) future net cash inflows related to the standardized measure of discounted future net cash flows.
For 2016, 20152016 and 20142015, the average spot price per barrel of oil based on the West Texas Intermediate price is $42.75,was $50.2842.75 and $94.9950.28 and the average price per MMBTU of gas based on the Henry Hub spot is $2.48,was $2.592.48 and $4.352.59. All prices were then adjusted for quality, transportation fees and differentials.
The process of estimating proved reserves and future net cash flows is complex involving decisions and assumptions in evaluating the available engineering and geologic data and prices for oil and gas and the cost to produce these reserves and other factors, many of which are beyond our control. As a result, these estimates arewere imprecise and shouldcould be expected to change as future information becomesbecame available. These changes could be significant. In addition, this information should not be construed as being the current fair market value of our proved reserves.



Estimated Quantities of Proved Oil and Gas Reserves
Estimated quantities of proved oil and gas reserves are summarized as follows:
ReservesReserves
Oil (a)
(Barrels)
 
Gas
(Mcf)
Oil (a)
(Barrels)
 
Gas
(Mcf)
(In thousands)(In thousands)
Consolidated entities:      
Year-end 20135,824
 13,630
Revisions of previous estimates608
 293
Extensions and discoveries2,191
 774
Acquisitions85
 31
Sales(105) (218)
Production(931) (1,861)
Year-end 20147,672
 12,649
7,672
 12,649
Revisions of previous estimates(855) (1,675)(855) (1,675)
Extensions and discoveries224
 173
224
 173
Acquisitions—
 —
—
 —
Sales(704) (1,223)(704) (1,223)
Production(1,158) (1,967)(1,158) (1,967)
Year-end 20155,179
 7,957
5,179
 7,957
Revisions of previous estimates(11) 631
(11) 631
Extensions and discoveries29
 —
29
 —
Acquisitions—
 —
—
 —
Sales(4,460) (3,756)(4,460) (3,756)
Production(291) (996)(291) (996)
Year-end 2016446
 3,836
446
 3,836
Revisions of previous estimates—
 —
Extensions and discoveries—
 —
Acquisitions—
 —
Sales(446) (3,836)
Production—
 —
Year-end 2017—
 —
Our share of ventures accounted for using the equity method:      
Year-end 2013—
 2,332
Revisions of previous estimates—
 (382)
Production—
 (199)
Year-end 2014—
 1,751
—
 1,751
Revisions of previous estimates—
 (320)—
 (320)
Production—
 (168)—
 (168)
Year-end 2015—
 1,263
—
 1,263
Revisions of previous estimates—
 79
—
 79
Production—
 (143)—
 (143)
Year-end 2016—
 1,199
—
 1,199
Sales—
 (1,199)
Year-end 2017—
 —
Total consolidated and our share of equity method ventures:      
Year-end 2014   
Proved developed reserves5,269
 12,599
Proved undeveloped reserves2,403
 1,801
Total Year-end 20147,672
 14,400
Year-end 2015      
Proved developed reserves5,179
 9,220
5,179
 9,220
Proved undeveloped reserves—
 —
—
 —
Total Year-end 20155,179
 9,220
5,179
 9,220
Year-end 2016      
Proved developed reserves446
 5,035
446
 5,035
Proved undeveloped reserves—
 —
—
 —
Total Year-end 2016446
 5,035
446
 5,035
Year-end 2017   
Proved developed reserves—
 —
Proved undeveloped reserves—
 —
Total Year-end 2017—
 —
 _____________________
(a) 
Includes natural gas liquids (NGLs).



We dodid not have any estimated reserves or wells with production of synthetic oil, synthetic gas or products of other non-renewable natural resources that are intended to be upgraded into synthetic oil and gas.gas as of year-end 2017, 2016 or 2015.
At year-end 2016, estimated quantities of provedIn 2017, we sold oil and gas wells located primarily in Texas and Louisiana. Our net reserves are related to our owned mineral interests which are classifiedfor those properties as assets held for sale.of year-end 2016 were 446,000 barrels of oil and 5,035,000 Mcf of gas.
In 2016, we sold oil and gas wells located primarily in Oklahoma, Kansas, Nebraska and North Dakota. Our net reserves for those properties as of year-end 2015 less our share of 2016 production were 4,155,000 barrels of oil, 305,000 barrels of NGL, and 3,756,000 Mcf of gas. Oklahoma properties sold were mainly mature gas wells. Kansas and Nebraska produce oil from the Lansing/Kansas City formation. The North Dakota oil wells produce from the Bakken/Three Forks formation.
In 2015, oil and gas properties having reserves consisting of approximately 704,000 barrels of oil and 1,223,000 Mcf of gas located primarily in the Texas Panhandle and Bakken/Three Forks formations were sold. Due to the significant decline in oil and gas prices during 2015, net negative revisions of previous estimates were 855,000 barrels of oil and 1,995,000 Mcf of gas. At year-end 2015, we had no barrels of oil equivalent (BOE) of proved undeveloped (PUD) reserves based on our plan to exit non-core oil and gas working interest assets compared with 2,703,000 BOE of PUD reserves at year-end 2014.
In 2014, increases in extensions and discoveries of 2,191,000 barrels were primarily associated with new reserves in the Bakken/Three Forks formations. An estimated 694,000 barrels of these extensions and discoveries were associated with new producing wells while a further 913,000 barrels of proved undeveloped reserves were added during 2014. Approximately 105,000 barrels of oil and 218,000 Mcf of gas reserves located primarily in Oklahoma were sold during the year. We realized a net positive revision of previous estimates of 608,000 barrels which is primarily driven by improved drilling results in the Bakken/Three Forks formation yielding higher average estimated ultimate recoverable quantities of proved reserves per well.
In 20152016 and 20142015, reserve additions from new wells drilled and completed during the year are shown for both consolidated entities and ventures accounted for using the equity method under extensions and discoveries. There were no new well additions in 2017, no new well additions in 2016 and 36 new well additions in 2015 and 106 new well additions in 2014.
Capitalized Costs Relating to Oil and Gas Producing Activities
Capitalized costs related to our oil and gas producing activities classified as assets held for sale at year-end 2016 are as follows:
At Year-EndAt Year-End
2016 20152017 2016
(In thousands)(In thousands)
Consolidated entities:      
Unproved oil and gas properties$374
 $19,441
$—
 $374
Proved oil and gas properties5,159
 119,414
—
 5,159
Total costs5,533
 138,855
—
 5,533
Less accumulated depreciation, depletion and amortization(4,751) (58,242)—
 (4,751)
$782
 $80,613
$—
 $782
We have not capitalized any costs for our share in ventures accounted for using the equity method.

Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development
Costs incurred in oil and gas property acquisition, exploration and development activities, whether capitalized or expensed, follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Consolidated entities:          
Acquisition costs          
Proved properties$—
 $—
 $2,001
$—
 $—
 $—
Unproved properties15
 4,832
 25,666
—
 15
 4,832
Exploration costs21
 17,922
 39,399
—
 21
 17,922
Development costs537
 27,609
 40,277
—
 537
 27,609
$573
 $50,363
 $107,343
$—
 $573
 $50,363
We have not incurred any costs for our share in ventures accounted for using the equity method. In 2015, acquisition of leasehold interests, exploration expenses, and development costs have decreased as a result of our increased focus on exiting and selling our leasehold working interests.





Drilling and Other Exploratory and Development Activities
The following tables set forth the number of gross and net oil and gas wells in which we participated:
Gross Wells
    Exploratory Development
Year Total Oil Gas Dry Oil Gas Dry
2017 —
 —
 —
 —
 —
 —
 —
2016 —
 —
 —
 —
 —
 —
 —
2015 (a) 38
 2
 —
 1
 34
 —
 1
 _____________________
(a)
Of the gross wells drilled in 2015, we operated 3 wells or 8 percent. The remaining wells represent our participations in wells operated by others. The exploratory dry hole was located in Oklahoma.
Net Wells
    Exploratory Development
Year Total Oil Gas Dry Oil Gas Dry
2017 —
 —
 —
 —
 —
 —
 —
2016 —
 —
 —
 —
 —
 —
 —
2015 6.3
 0.7
 —
 0.8
 4.3
 —
 0.5
Present Activities
None.
Delivery Commitments
We have no oil or gas delivery commitments.
Wells and Acreage
We had no interest in any productive wells as of year-end 2017.
At year-end 2017, 2016 and 2015, we had royalty interests in 0, 473 and 534 gross wells. In addition, at year-end 2017, 2016 and 2015, we had working interests in 0, 32 and 400 gross wells.
Standardized Measure of Discounted Future Net Cash Flows
Estimates of future cash flows from proved oil and gas reserves are shown in the following table. Estimated income taxes are calculated by applying the appropriate tax rates to the estimated future pre-tax net cash flows less depreciation of the tax basis of properties and the statutory depletion allowance.
At Year-EndAt Year-End
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Consolidated entities:          
Future cash inflows$24,304
 $216,588
 $665,657
$—
 $24,304
 $216,588
Future production and development costs(2,988) (93,623) (271,735)—
 (2,988) (93,623)
Future income tax expenses(3,926) (22,218) (106,002)—
 (3,926) (22,218)
Future net cash flows17,390
 100,747
 287,920
—
 17,390
 100,747
10% annual discount for estimated timing of cash flows(7,077) (33,951) (124,079)—
 (7,077) (33,951)
Standardized measure of discounted future net cash flows$10,313
 $66,796
 $163,841
$—
 $10,313
 $66,796
Our share in ventures accounted for using the equity method:          
Future cash inflows$2,010
 $2,283
 $6,186
$—
 $2,010
 $2,283
Future production and development costs(216) (245) (664)—
 (216) (245)
Future income tax expenses(537) (774) (2,098)—
 (537) (774)
Future net cash flows1,257
 1,264
 3,424
—
 1,257
 1,264
10% annual discount for estimated timing of cash flows(585) (562) (1,649)—
 (585) (562)
Standardized measure of discounted future net cash flows$672
 $702
 $1,775
$—
 $672
 $702
Total consolidated and our share of equity method ventures$10,985
 $67,498
 $165,616
$—
 $10,985
 $67,498


Future net cash flows were computed using prices used in estimating proved oil and gas reserves, year-end costs, and statutory tax rates (adjusted for tax deductions) that relate to proved oil and gas reserves.



Changes in the standardized measure of discounted future net cash flow follows:
For the YearFor the Year
Consolidated 
Our Share of Equity
Method Ventures
 TotalConsolidated 
Our Share of Equity
Method Ventures
 Total
(In thousands)(In thousands)
Year-end 2013$135,553
 $1,300
 $136,853
Changes resulting from:     
Net change in sales prices and production costs(1,064) 1,571
 507
Net change in future development costs1,308
 —
 1,308
Sales of oil and gas, net of production costs(63,192) (787) (63,979)
Net change due to extensions and discoveries58,228
 —
 58,228
Net change due to acquisition of reserves2,778
 —
 2,778
Net change due to divestitures of reserves(5,804) —
 (5,804)
Net change due to revisions of quantity estimates15,303
 (343) 14,960
Previously estimated development costs incurred15,497
 —
 15,497
Accretion of discount18,067
 210
 18,277
Net change in timing and other4,198
 115
 4,313
Net change in income taxes(17,031) (291) (17,322)
Aggregate change for the year28,288
 475
 28,763
Year-end 2014163,841
 1,775
 165,616
$163,841
 $1,775
 $165,616
Changes resulting from:          
Net change in sales prices and production costs(136,536) (1,112) (137,648)(136,536) (1,112) (137,648)
Net change in future development costs92
 —
 92
92
 —
 92
Sales of oil and gas, net of production costs(31,732) (428) (32,160)(31,732) (428) (32,160)
Net change due to extensions and discoveries11,747
 —
 11,747
11,747
 —
 11,747
Net change due to acquisition of reserves—
 —
 —
—
 —
 —
Net change due to divestitures of reserves(15,855) —
 (15,855)(15,855) —
 (15,855)
Net change due to revisions of quantity estimates(15,164) (267) (15,431)(15,164) (267) (15,431)
Previously estimated development costs incurred15,096
 —
 15,096
15,096
 —
 15,096
Accretion of discount22,600
 286
 22,886
22,600
 286
 22,886
Net change in timing and other4,018
 (210) 3,808
4,018
 (210) 3,808
Net change in income taxes48,689
 658
 49,347
48,689
 658
 49,347
Aggregate change for the year(97,045) (1,073) (98,118)(97,045) (1,073) (98,118)
Year-end 201566,796
 702
 67,498
66,796
 702
 67,498
Changes resulting from:          
Net change in sales prices and production costs(3,585) (60) (3,645)(3,585) (60) (3,645)
Net change in future development costs—
 —
 —
—
 —
 —
Sales of oil and gas, net of production costs(5,663) (208) (5,871)(5,663) (208) (5,871)
Net change due to extensions and discoveries410
 —
 410
410
 —
 410
Net change due to acquisition of reserves—
 —
 —
—
 —
 —
Net change due to divestitures of reserves(63,535)   (63,535)(63,535) —
 (63,535)
Net change due to revisions of quantity estimates1,304
 63
 1,367
1,304
 63
 1,367
Previously estimated development costs incurred—
 —
 —
—
 —
 —
Accretion of discount2,992
 113
 3,105
2,992
 113
 3,105
Net change in timing and other(128) (80) (208)(128) (80) (208)
Net change in income taxes11,722
 142
 11,864
11,722
 142
 11,864
Aggregate change for the year(56,483) (30) (56,513)(56,483) (30) (56,513)
Year-end 2016$10,313
 $672
 $10,985
10,313
 672
 10,985
Changes resulting from:     
Net change in sales prices and production costs—
 —
 —
Net change in future development costs—
 —
 —
Sales of oil and gas, net of production costs—
 —
 —
Net change due to extensions and discoveries—
 —
 —
Net change due to acquisition of reserves—
 —
 —
Net change due to divestitures of reserves(10,313) (672) (10,985)
Net change due to revisions of quantity estimates—
 —
 —
Previously estimated development costs incurred—
 —
 —
Accretion of discount—
 —
 —
Net change in timing and other—
 —
 —
Net change in income taxes—
 —
 —
Aggregate change for the year(10,313) (672) (10,985)
Year-end 2017$—
 $—
 $—




Results of Operations for Oil and Gas Producing Activities
Our royalty interests arewere contractually defined and based on a percentage of production at prevailing market prices. We receivereceived our percentage of production in cash. Similarly, for operating properties our working interests and the associated net revenue interests arewere contractually defined and we paypaid our proportionate share of the capital and operating costs to develop and operate the well and we marketmarketed our share of the production. Our revenues fluctuatefluctuated based on changes in the market prices for


oil and gas, the decline in production from existing wells, and other factors affecting oil and gas exploration and production activities, including the cost of development and production.
Information about the results of operations of our oil and gas interests follows:
For the YearFor the Year
2016 2015 20142017 2016 2015
(In thousands)(In thousands)
Consolidated entities          
Revenues$10,111
 $51,553
 $82,919
$1,399
 $10,111
 $51,553
Production costs(4,392) (19,820) (19,727)(209) (4,392) (19,820)
Exploration costs(124) (11,864) (17,416)(34) (124) (11,864)
Depreciation, depletion, amortization(2,157) (28,774) (29,442)—
 (2,157) (28,774)
Non-cash impairment of proved oil and gas properties and unproved leasehold interests(612) (164,831) (32,665)(224) (612) (164,831)
Oil and gas administrative expenses(8,700) (11,700) (17,000)(1,197) (8,700) (11,700)
Accretion expense(56) (144) (121)—
 (56) (144)
Income tax (expense) benefit(20) 14,717
 13,398
(7) (20) 14,717
Results of operations(5,950) (170,863) (20,054)(272) (5,950) (170,863)
Our share in ventures accounted for using the equity method:          
Revenues$284
 $428
 $786
$100
 $284
 $428
Production costs(76) (102) (105)(19) (76) (102)
Oil and gas administrative expenses(35) (51) (95)(2) (35) (51)
Income tax (expense) benefit—
 21
 (235)—
 —
 21
Results of operations$173
 $296
 $351
$79
 $173
 $296
Total results of operations$(5,777) $(170,567) $(19,703)$(193) $(5,777) $(170,567)
Production costs represent our share of oil and gas production severance taxes, and lease operating expenses. Exploration costs principally represent exploratory dry hole costs, geological and geophysical and seismic study costs.



Note 2021 — Summary of Quarterly Results of Operations (Unaudited)
Summarized quarterly financial results for 20162017 and 20152016 follows:
First Quarter (a)
 
Second Quarter (a)
 
Third
    Quarter (a)
 
Fourth
    Quarter (a)
First Quarter (a)
 
Second Quarter (a)
 
Third
    Quarter (a)
 
Fourth
    Quarter (a)
(In thousands, except per share amounts)(In thousands, except per share amounts)
2017       
Total revenues$22,305
 $28,015
 $33,136
 $30,866
Gross profit (loss)(28,332) 11,559
 11,251
 10,065
Operating income (loss)36,235
 6,965
 12,381
 (15,816)
Equity in earnings of unconsolidated ventures6,362
 2,747
 1,764
 7,026
Income (loss) from continuing operations before taxes attributable to Forestar Group Inc.40,998
 8,120
 13,223
 (12,298)
Income from discontinued operations, net of taxes418
 1,229
 37,193
 7,191
Net income (loss) attributable to Forestar Group Inc.25,205
 (2,579) 45,202
 (17,574)
       
Net income (loss) per share — basic       
Continuing operations$0.59
 $(0.09) $0.19
 $(0.59)
Discontinued operations$0.01
 $0.03
 $0.88
 $0.17
Net income (loss) per share — basic$0.60
 $(0.06) $1.07
 $(0.42)
       
Net income (loss) per share — diluted       
Continuing operations$0.58
 (0.09) 0.19
 $(0.58)
Discontinued operations$0.01
 0.03
 0.87
 $0.18
Net income (loss) per share — diluted$0.59
 (0.06) 1.06
 $(0.40)
       
2016              
Total revenues$37,618
 $47,992
 $47,207
 $64,497
$37,618
 $47,992
 $47,207
 $64,497
Gross profit (loss)18,579
 (24,953) 17,403
 17,352
18,579
 (24,953) 17,403
 17,352
Operating income (loss)13,590
 69,528
 6,256
 50,980
Operating income13,590
 69,528
 6,256
 50,980
Equity in earnings of unconsolidated ventures47
 188
 3,637
 2,251
47
 188
 3,637
 2,251
Income from continuing operations before taxes attributable to Forestar Group Inc.5,992
 26,591
 7,163
 51,069
5,992
 26,591
 7,163
 51,069
Income (loss) from discontinued operations, net of taxes(8,216) (2,048) (7,164) 563
(8,216) (2,048) (7,164) 563
Net income (loss) attributable to Forestar Group Inc.(4,376) 9,614
 9,665
 43,745
(4,376) 9,614
 9,665
 43,745
              
Net income (loss) per share — basic              
Continuing operations$0.11
 $0.28
 $0.40
 $1.03
$0.11
 $0.28
 $0.40
 $1.03
Discontinued operations$(0.24) $(0.05) $(0.17) $0.01
$(0.24) $(0.05) $(0.17) $0.01
Net income (loss) per share — basic$(0.13) $0.23
 $0.23
 $1.04
$(0.13) $0.23
 $0.23
 $1.04
              
Net income (loss) per share — diluted              
Continuing operations$0.09
 0.28
 0.40
 $1.02
$0.09
 $0.28
 $0.40
 $1.02
Discontinued operations$(0.19) (0.05) (0.17) $0.01
$(0.19) $(0.05) $(0.17) $0.01
Net income (loss) per share — diluted$(0.10) 0.23
 0.23
 $1.03
$(0.10) $0.23
 $0.23
 $1.03
       
2015       
Total revenues$37,374
 $43,625
 $32,185
 $105,392
Gross profit (loss)18,012
 21,060
 12,879
 46,655
Operating income (loss)(3,424) 5,919
 (8,482) 29,929
Equity in earnings of unconsolidated ventures3,045
 5,584
 2,909
 4,470
Income from continuing operations before taxes attributable to Forestar Group Inc.(8,204) 3,382
 (13,711) 26,747
Income (loss) from discontinued operations, net of taxes(2,719) (36,992) (106,937) (39,482)
Net loss attributable to Forestar Group Inc.(8,158) (34,507) (164,216) (6,166)
       
Net income (loss) per share — basic       
Continuing operations$(0.16) $0.07
 $(1.67) $0.97
Discontinued operations$(0.08) $(1.08) $(3.12) $(1.15)
Net income (loss) per share — basic$(0.24) $(1.01) $(4.79) $(0.18)
       
Net income (loss) per share — diluted       
Continuing operations$(0.16) $0.06
 $(1.67) $0.79
Discontinued operations$(0.08) $(0.87) $(3.12) $(0.93)
Net income (loss) per share — diluted$(0.24) $(0.81) $(4.79) $(0.14)
 _____________________
(a)Non-cash impairment charges related to real estate, water assets and unproved leasehold interests and proved oil and gas properties included in our quarterly financial results are as follows:
First Quarter Second Quarter Third
Quarter		 Fourth
Quarter		First Quarter Second Quarter Third
Quarter		 Fourth
Quarter
(In thousands)(In thousands)
2017

 

 

 

Continuing operations$37,900
 $—
 $—
 $9,272
Discontinued operations$—
 $—
 $—
 $—
2016

 

 

 


 
 
 
Continuing operations$—
 $48,826
 $7,627
 $3,874
$—
 $48,826
 $7,627
 $3,874
Discontinued operations$—
 $612
 $—
 $—
$—
 $612
 $—
 $—
2015
 
 
 
Continuing operations$504
 $225
 $—
 $315
Discontinued operations$7
 $45,938
 $81,240
 $37,646



Note 2122 — Subsequent EventsEvent
On January 5, 2017,February 8, 2018, we entered into a tax benefits preservation plan (the “Plan”) with Computershare Trust Company, N.A., as rights agent, and our Board of Directors declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $1.00 per share, to stockholders of record at the close of businessclosed on January 17, 2017. Each Right is governed by the terms of the Plan and entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $50 per unit, subject to adjustment. The Plan is intended to help protect our tax attributes, such as built in losses and other tax attributes, by deterring any person from becoming a “5-percent shareholder” (as defined in Section 382 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder).
On February 17, 2017, we entered into a Purchase and Sale Agreement with Mineral Resource Partners, LLC, whereby we sold substantiallyStarwood Land, L.P. to sell 24 legacy projects for $232,000,000. This strategic asset sale included projects owned both directly and indirectly through ventures and consisted of approximately 750 developed and under development lots, over 4,000 future undeveloped lots (including all of our remaining oilreal estate associated with the Cibolo Canyons mixed-use development), 730 unentitled acres in California, an interest in one multifamily operating property and gas assets for $85,600,000, of which $75,000,000 was received at closing.a multifamily development site. The balance of the purchase price is being held in a third-party escrow account pending completion of (a) title review, and (b) transfer of certain mineral interests owned by a venture in which the Company is a member (Venture Minerals). Prorations of operating revenues and expenses will be made utilizing an effective date of January 1, 2017. This agreement also contains representations, warranties and indemnities customary for oil and gasa real estate industry entity and asset sale and includes certain adjustment provisions to the purchase transactions, and includesprice. The estimated total net proceeds after certain purchase price adjustment provisions, within certain parameters, relatingadjustments, closing costs and other costs associated with selling these projects is expected to title and failure or inability to transfer the Venture Minerals. In first quarterbe approximately $216,000,000.
At year-end 2017, we expect to recognizehave recorded the estimated fair value of these assets on our balance sheet and as a gain on sale of approximately $82,400,000, of which $10,600,000 will be deferred until verification of title for non-producing fee minerals in Texas and Louisiana, transfer of certain mineral interests owned by a venture in which the Company is a member and release of the escrowed funds. In addition, the Company expects to incurresult have recognized a non-cash impairment charge of $37,900,000$3,000,000 related to oilthe asset group. The owned real estate projects are classified as assets held for sale and gas enterprise goodwill thatour equity interests in ventures continued to be classified as investment in unconsolidated ventures at year-end 2017. The non-cash impairment is impaired dueincluded in cost of real estate sales and other on our consolidated statements of income (loss). This transaction is not expected to the sale ofhave a material impact on our fiscal 2018 pre-tax earnings but is expected to generate tax losses which are currently anticipated to substantially all of the Company's remaining oil and gas assets.reduce our income tax expense for fiscal 2018.



Forestar Group Inc.
Schedule III — Consolidated Real Estate and Accumulated Depreciation
Year-End 20162017
(In thousands)
   
Initial Cost to
Company
 
Costs Capitalized
Subsequent to Acquisition
 Gross Amount Carried at End of Period    
DescriptionEncumbrances Land 
Buildings &
Improvements
 
Improvements
less Cost of
Sales and Other
 
Carrying
Costs(a)
 
Land & Land
Improvements
 
Buildings &
Improvements
 Total 
Accumulated
Depreciation
 
Date of
Construction
 
Date
Acquired
Entitled, Developed, and Under Development Projects:                 
ARIZONA                     
Pima County                     
Dove Mountain  $5,860
   $3
   $5,863
   $5,863
     2015
CALIFORNIA                     
Contra Costa County                     
San Joaquin River  12,225
   (10,558)   1,667
   1,667
     
(b) 
COLORADO                     
Douglas County                     
Pinery West  7,308
   3,791
   11,099
   11,099
   2006 2006
Cielo  3,933
   2,645
   6,578
   6,578
     2016
Weld County                     
Buffalo Highlands  3,001
   (295)   2,706
   2,706
   2006 2005
Johnstown Farms  2,749
   4,189
 $100
 7,038
   7,038
   2002 2002
Stonebraker  3,878
   (1,786)   2,092
   2,092
   2005 2005
GEORGIA                     
Cobb County                     
West Oaks  1,669
   1,543
   3,212
   3,212
   2015 2015
Paulding County                     
Harris Place  265
   (111)   154
   154
     2012
Seven Hills  2,964
   1,162
 13
 4,139
   4,139
     2012
NORTH CAROLINA                     
Cabbarrus County                     
Moss Creek  1,254
   101
   1,355
   1,355
     2016
Mecklenburg County                     
Walden  12,085
   2,279
 87
 14,451
   14,451
   2016 2015
SOUTH CAROLINA                     
Lancaster County                     
Ansley Park  5,089
   1,594
   6,683
   6,683
     2015
York County                     
Habersham  3,877
   1,128
 421
 5,426
   5,426
   2014 2013

   
Initial Cost to
Company
 
Costs Capitalized
Subsequent to Acquisition
 Gross Amount Carried at End of Period    
DescriptionEncumbrances Land 
Buildings &
Improvements
 
Improvements
less Cost of
Sales and Other
 
Carrying
Costs(a)
 
Land & Land
Improvements
 
Buildings &
Improvements
 Total 
Accumulated
Depreciation
 
Date of
Construction
 
Date
Acquired
Real Estate, Net                 
CALIFORNIA                     
Contra Costa County                     
San Joaquin River  12,225
   (10,558)   1,667
   1,667
     
(b) 
COLORADO                     
Douglas County                     
Cielo  3,933
   3,187
   7,120
   7,120
     2016
FLORIDA                     
Brevard County                     
The Preserves at Stonebriar  3,002
   244
   3,246
   3,246
     2017
Manatee County                     
Palisades  4,516
   370
   4,886
   4,886
     2017
Sarasota County                     
Fox Creek  12,257
   742
   12,999
   12,999
     2017
GEORGIA                     
Cobb County                     
West Oaks  1,669
   748
   2,417
   2,417
   2015 2015
Gwinnett County                     
Independence  15,937
   2,651
   18,588
   18,588
   2017 2017
Paulding County                     
Harris Place  265
   (219)   46
   46
     2012
Seven Hills  2,964
   1,198
 61
 4,223
   4,223
     2012
NORTH CAROLINA                     
Cabbarrus County                     
Moss Creek  1,254
   116
   1,370
   1,370
   2017 2016
SOUTH CAROLINA                     
York County                     
Habersham  3,877
   (948) 506
 3,435
   3,435
   2014 2013
TENNESEE                     
Williamson County                     
Morgan Farms  6,841
   (4,168) 225
 2,898
   2,898
   2013 2013
Weatherford Estates  856
   (922) 139
 73
   73
   2015 2014
Wilson County                     
Beckwith Crossing  1,294
   1,070
 275
 2,639
   2,639
   2015 2014
                      
TEXAS                     
Calhoun County                     
Caracol

 8,603
   (8,025) 

 578
   578
   2006 2006
Collin County                     
Lakes of Prosper  8,951
   (9,094) 453
 310
   310
     2012
Parkside  2,177
   (1,937) 307
 547
   547
   2014 2013
Timber Creek  7,282
   6,410
 212
 13,904
   13,904
   2007 2007
Denton County                     
Lantana

 27,673
   (19,680) 585
 8,578
   8,578
   2000 1999
River's Edge  1,227
   445
   1,672
   1,672
     2014
The Preserve at Pecan Creek  5,855
   (681) 256
 5,430
   5,430
   2006 2005
Fort Bend County                     
Southern Colony  3,024
   4,090
   7,114
   7,114
     2017
Willow Creek Farms290
 3,479
   (1,741) 60
 1,798
   1,798
   2012 2012
Harris County                     
City Park

 3,946
   (3,794) 229
 381
   381
   2002 2001
Imperial Forest  5,345
   (634) 5
 4,716
   4,716
   2015 2014
Kaufman County                     
Lakewood Trails  8,009
   340
   8,349
   8,349
     2017
Tarrant County                     
Summer Creek Ranch  2,887
   (1,651)   1,236
   1,236
     2012
The Bar C Ranch  1,365
   3,623
 430
 5,418
   5,418
     2012
Other  —
   4,742
 —
 4,742
   4,742
      
Total Real Estate, Net$290
 $160,713
 $—
 $(34,076) $3,743
 $130,380
 $—
 $130,380
 $—
    
                      
Real Estate Held for Sale (c)
                     
CALIFORNIA                     
Los Angeles County                     
Land In Entitlement Process  $3,950
   $21,752
   $25,702
   $25,702
     1997
COLORADO                     
Douglas County                     
Pinery West  7,308
   3,849
   11,157
   11,157
   2006 2006
Weld County                     
Buffalo Highlands  3,001
   (295)   2,706
   2,706
   2006 2005
Johnstown Farms  2,749
   4,073
 $100
 6,922
   6,922
   2002 2002
Stonebraker  3,878
   (1,786)   2,092
   2,092
   2005 2005
NORTH CAROLINA                     
Mecklenburg County                     
Walden  12,085
   5,446
 350
 17,881
   17,881
   2016 2015
SOUTH CAROLINA                     
Lancaster County                     
Ansley Park  5,089
   4,198
 315
 9,602
   9,602
   2017 2015
TENNESEE                     
Williamson County                     
Scales Farmstead  3,575
   4,848
 455
 8,878
   8,878
     2015
TEXAS                     
Bastrop County                     
Hunter’s Crossing  3,613
   3,970
   7,583
   7,583
   2001 2001
Bexar County                     
Cibolo Canyons  17,305
   22,088
 1,696
 41,089
   41,089
   2004 1986
Dallas County                     
Stoney Creek  12,822
   1,712
 608
 15,142
   15,142
   2007 2007
Fort Bend County                     
Summer Lakes  4,269
   (1,100) 89
 3,258
   3,258
   2013 2012
Summer Park  4,804
   (2,490) 17
 2,331
   2,331
   2013 2012
Harris County                     
Barrington  8,950
   (7,892)   1,058
   1,058
     2011
Hays County                     
Arrowhead Ranch  12,856
   7,639
 286
 20,781
   20,781
   2015 2007
Travis County                     
West Austin multifamily site  7,274
   (1,525)   5,749
  ��5,749
     2014
Other (d)
      (1,684)   (1,684)   (1,684)      
Total Real Estate Held for Sale (c)
$—
 $113,528
 $—
 $62,803
 $3,916
 $180,247
 $—
 $180,247
 $—
    
Total Investment in Real Estate$290
 $274,241
 $—
 $28,727
 $7,659
 $310,627
 $—
 $310,627
 $—
    
                      

Forestar Group Inc.
Schedule III — Consolidated Real Estate and Accumulated Depreciation
Year-End 2016
(In thousands)
   
Initial Cost to
Company
 
Costs Capitalized
Subsequent to Acquisition
 Gross Amount Carried at End of Period    
DescriptionEncumbrances Land 
Buildings &
Improvements
 
Improvements
less Cost of
Sales and Other
 
Carrying
Costs(a)
 
Land & Land
Improvements
 
Buildings &
Improvements
 Total 
Accumulated
Depreciation
 
Date of
Construction
 
Date
Acquired
TENNESEE                     
Williamson County                     
Morgan Farms  $6,841
   $(1,808) $88
 $5,121
   $5,121
   2013 2013
Scales Farmstead  3,575
   9,319
 389
 13,283
   13,283
     2015
Weatherford Estates  856
   374
 138
 1,368
   1,368
   2015 2014
Wilson County                     
Beckwith Crossing  1,294
   2,397
 161
 3,852
   3,852
   2015 2014
TEXAS                     
Bastrop County                     
Hunter’s Crossing  3,613
   5,226
 

 8,839
   8,839
   2001 2001
Bexar County                     
Cibolo Canyons  17,305
   26,397
 1,203
 44,905
   44,905
   2004 1986
Calhoun County                     
Caracol

 8,603
   (8,025) 

 578
   578
   2006 2006
Collin County                     
Lakes of Prosper  8,951
   (3,005) 348
 6,294
   6,294
     2012
Parkside  2,177
   (4) 183
 2,356
   2,356
   2014 2013
Timber Creek  7,282
   9,862
   17,144
   17,144
   2007 2007
Village Park  4,772
   (4,720) 

 52
   52
     2012
Comal County                     
Oak Creek Estates  1,921
   685
 22
 2,628
   2,628
   2006 2005
Dallas County                     
Stoney Creek  12,822
   327
 443
 13,592
   13,592
   2007 2007
Denton County                     
Lantana

 27,673
   (11,242) 529
 16,960
   16,960
   2000 1999
River's Edge  1,227
   436
   1,663
   1,663
     2014
The Preserve at Pecan Creek  5,855
   (1,387) 47
 4,515
   4,515
   2006 2005
Fort Bend County                     
Summer Lakes
 4,269
   374
 78
 4,721
   4,721
   2013 2012
Summer Park
 4,804
   (2,557) 17
 2,264
   2,264
   2013 2012
Willow Creek Farms486
 3,479
   (1,187) 
 2,292
   2,292
   2012 2012
Harris County                     
Barrington  8,950
   (7,483)   1,467
   1,467
     2011
City Park

 3,946
   (2,243) 229
 1,932
   1,932
   2002 2001
Imperial Forest  5,345
   (957) 4
 4,392
   4,392
   2015 2014


Forestar Group Inc.
Schedule III — Consolidated Real Estate and Accumulated Depreciation
Year-End 2016
(In thousands)
   
Initial Cost to
Company
 
Costs Capitalized
Subsequent to Acquisition
 Gross Amount Carried at End of Period    
DescriptionEncumbrances Land 
Buildings &
Improvements
 
Improvements
less Cost of
Sales and Other
 
Carrying
Costs(a)
 
Land & Land
Improvements
 
Buildings &
Improvements
 Total 
Accumulated
Depreciation
 
Date of
Construction
 
Date
Acquired
Hays County                     
Arrowhead Ranch  $12,856
   $9,204
 $233
 $22,293
   $22,293
   2015 2007
Tarrant County                     
Summer Creek Ranch  2,887
   (1,377)   1,510
   1,510
     2012
The Bar C Ranch  1,365
   842
 197
 2,404
   2,404
     2012
Other  5,222
   (276) 25
 4,971
   4,971
      
Total Entitled, Developed, and Under Development Projects$486
 $234,047
 $—
 $24,857
 $4,955
 $263,859
 $—
 $263,859
 $—
    
Undeveloped Land and land in entitlement:                 
CALIFORNIA                     
Los Angeles County                     
Land In Entitlement Process  $3,950
   $20,838
   $24,788
   $24,788
     1997
GEORGIA                     
Cherokee County                     
Undeveloped Land  80
   

   80
   80
     (b)
TEXAS                     
Bexar County                     
Undeveloped Land      2,548
   2,548
   2,548
     (b)
Montgomery County                     
Undeveloped Land      5
   5
   5
     (b)
Other                     
Undeveloped Land      1,723
   1,723
   1,723
     (b)
Total Undeveloped Land and Land in Entitlement$—
 $4,030
 $—
 $25,114
 $—
 $29,144
 $—
 $29,144
 $—
    
Total$486
 $238,077
 $—
 $49,971
 $4,955
 $293,003
 $—
 $293,003
 $—
    

____________________
(a)We do not capitalize carrying costs until development begins.
(b)The acquisition date is not available.

(c) Included in the strategic asset sale to Starwood on February 8, 2018. Please readNote 22 — Subsequent Eventfor additional information regarding this transaction.
(d) Includes $3,000,000 in non-cash impairment charges in fourth quarter 2017 associated with the asset group sold to Starwood.


Reconciliation of real estate:estate (a):
 2016 2015 2014 2017 2016 2015
 (In thousands) (In thousands)
Balance at beginning of year $618,844
 $607,133
 $547,530
 $293,003
 $618,844
 $607,133
Amounts capitalized 89,780
 124,633
 214,184
 105,611
 89,780
 124,633
Amounts retired or adjusted (415,621) (112,922) (154,581) (87,987) (415,621) (112,922)
Balance at close of period $293,003
 $618,844
 $607,133
 $310,627
 $293,003
 $618,844
Reconciliation of accumulated depreciation:
 2016 2015 2014 2017 2016 2015
 (In thousands) (In thousands)
Balance at beginning of year $(32,129) $(31,377) $(28,066) $—
 $(32,129) $(31,377)
Depreciation expense (816) (6,810) (3,319) —
 (816) (6,810)
Amounts retired or adjusted 32,945
 6,058
 8
 —
 32,945
 6,058
Balance at close of period $—
 $(32,129) $(31,377) $—
 $—
 $(32,129)

(a) Includes real estate classified as assets held for sale as of year-end 2017.

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.

Item 9A.Controls and Procedures.
(a) Disclosure controls and 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 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 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) Internal control over financial reporting
Management’s report on internal control over financial reporting and the report of our independent registered public accounting firm are included in Part II, Item 8 of this Annual Report on Form 10-K.
(c) Changes in Internal Control over 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 fourth quarter 20162017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.
Other Information. 
None.



PART III
 
Item 10.Directors, Executive Officers and Corporate Governance.
Set forth below is certain information about the members of our Board of Directors:
Name Age 
Year First
Elected to
the Board
 Principal Occupation
James A. Rubright 70 2007 Retired Chairman and Chief Executive Officer of Rock-Tenn Company
M. Ashton Hudson 44 2016 President and General Counsel of Rock Creek Capital Group, Inc.
William C. Powers, Jr. 70 2007 Professor of Law at The University of Texas at Austin
Daniel B. Silvers 40 2015 Managing Member at Matthews Lane Capital Partners LLC
Richard M. Smith 71 2007 President of Pinkerton Foundation
Richard D. Squires 59 2016 Managing Director and Co-Founder of Lennox Capital Partners, LLC
Phillip J. Weber 56 2015 Chief Executive Officer of Forestar Group Inc.
Name Age 
Year First
Elected to
the Board
 Principal Occupation
Samuel R. Fuller 74 2017 Retired Chief Financial Officer of D.R. Horton, Inc.
M. Ashton Hudson 45 2016 President and General Counsel of Rock Creek Capital Group, Inc.
G.F. (Rick) Ringler, III 70 2017 Retired Senior Vice President - Commercial and Real Estate Lending for Frost Bank
Donald C. Spitzer 68 2017 Retired Partner-in-Charge of KPMG
Donald J. Tomnitz 69 2017 Executive Chairman of Forestar Group Inc.
The remaining information required by this item is incorporated herein by reference from our definitive proxy statement, involving the election of directors, to be filed pursuant to Regulation 14A with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K (or Definitive Proxy Statement). Certain information required by this item concerning executive officers is included in Part I of this report.

Item 11.Executive Compensation.
The information required by this item is incorporated by reference from our Definitive Proxy Statement.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information
We have only one equity compensation plan, the Forestar 2007 Stock Incentive Plan. It was approved by our sole stockholder prior to spin-off and material terms and amendments thereto were subsequently approved by our stockholders. Information at year-end 2016 about our equity compensation plan under which our common stock may be issued follows:
Plan Category
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights(1)(2)
 
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
 
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
 (a) (b) (c)
Equity compensation plans approved by security holders2,935,557
 $20.73
 1,097,059
Equity compensation plans not approved by security holdersNone
 None
 None
Total2,935,557
 $20.73
 1,097,059
  _____________________
(1)
Includes 234,764 shares issuable to former Temple-Inland and the other spin-off entity personnel resulting from the equitable adjustment of Temple-Inland equity awards in connection with our spin-off.
(2)
Includes 484,406 equity-settled restricted stock units, 224,616 market-leveraged stock units and 138,819 performance stock units, which are excluded from the calculation of weighted-average exercise price. Market-leveraged stock unit and performance stock unit awards will be settled in common stock based upon performance over three years from the date of grant. For market-leveraged stock units, the number of shares to be issued could range from a high of 336,924 shares if our stock price increases by 50 percent or more, to 112,308 shares if our stock price decreases by 50 percent, or could be zero if our stock price decreases by more than 50 percent, the minimum threshold performance. For performance stock units, the number of shares to be issued could range from 277,638 shares at maximum performance to 138,819 at threshold performance, or could be zero below threshold performance.
The remaining information required by this item is incorporated by reference from our Definitive Proxy Statement.



Item 13.Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference from our Definitive Proxy Statement.

Item 14.Principal Accountant Fees and Services.
The information required by this item is incorporated by reference from our Definitive Proxy Statement.

PART IV

Item 15.Exhibits and Financial Statement Schedules.
(a)Documents filed as part of this report.
(1)
 Financial Statements
Our Consolidated Financial Statements are included in Part II, Item 8 of this Annual Report on Form 10-K.
(2)
 Financial Statement Schedules
Schedule III — Consolidated Real Estate and Accumulated Depreciation is included in Part II, Item 8 of this Annual Report on Form 10-K.
Schedules other than those listed above are omitted as the required information is either inapplicable or the information is presented in our Consolidated Financial Statements and notes thereto.
(3)Exhibits
The exhibits listed in the Exhibit Index in (b) below are filed or incorporated by reference as part of this Annual Report on Form 10-K.


(b)Exhibits
Exhibit
Number
 Exhibit
3.12.1 Amended
Agreement and Restated CertificatePlan of IncorporationMerger, dated as of June 29, 2017, by and among Forestar Group Inc., D.R. Horton, Inc. and Force Merger Sub, Inc. (incorporated by reference to Exhibit 3.1 of2.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 11, 2007)June 29, 2017).
3.23.1 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed with the Commission on December 11, 2007).
3.3First Amendment to Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on February 19, 2008).
3.4Second Amendment to Amended and Restated Bylaws (incorporated by reference to Exhibit 3.5 of the Company’s Annual Report on Form 10-K filed with the Commission on March 5, 2009).
3.5Certificate of Ownership and Merger, dated November 21, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2008).
3.6Third Amendment to Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2008).
3.7Fourth Amendment to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on November 26, 2012).
3.8Fifth Amendment to Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on September 28, 2015).
3.9Certificate of Amendment to
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 6, 2015).
3.10Certificate of Designations, Preferences and Rights of Series B Junior Participating Preferred Stock of Forestar Group Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on January 5,October 10, 2017).

3.2
Amended and Restated Bylaws of Forestar Group Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2017).

4.1 
Specimen Certificate for shares of common stock, par value $1.00 per share (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed with the Commission on January 5, 2017).
4.2 
Indenture, dated February 26, 2013 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the Commission on February 26, 2013).
4.3 
Supplemental Indenture, dated February 26, 2013 (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the Commission on February 26, 2013).
4.4 
Third Supplemental Indenture, dated October 5, 2017, between Forestar Group Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2017).

4.5
Form of 3.75% Convertible Senior Notes due 2020 (included in Exhibit 4.3 above) (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the Commission on February 26, 2013).


4.5Indenture, dated May 12, 2014 (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed with the Commission on May 15, 2014).
4.6Form of 8.500% Senior Secured Notes due 2022 (included in Exhibit 4.10 above) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the Commission on May 15, 2014).
4.7Supplemental Indenture, dated as of June 21, 2016, among Forestar (USA) Real Estate Group Inc., as issuer, the Guarantors named therein and U.S. Bank National Association, as trustee, to the Indenture, dated as of May 12, 2014, among Forestar (USA) Real Estate Group Inc., the Guarantors named therein and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed with the Commission on June 21, 2016).
4.8Tax Benefits Preservation Plan, dated as of January 5, 2017, between Forestar Group Inc. and Computershare Trust Company, N.A. (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed with the Commission on January 5, 2017).
10.1† 
Forestar Real Estate Group Inc. Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.5 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007).
10.2† 
Amendment No. 1 to Forestar Group Inc. Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.3 of the Company’s Annual Report on Form 10-K filed with the Commission on March 14, 2013).
10.3† 
Forestar Real Estate Group Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007).
10.4† Amended and Restated
Amendment No. 2 to Forestar Group Inc. Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K filed with the Commission on March 11, 2014).
10.5†
Forestar Group Inc. Amended and Restated Directors' Fee Deferral Plan (incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K filed with the Commission on March 11, 2014).
10.5†10.6† 
Form of Indemnification Agreement to be entered into between the Company and each of its directors (incorporated by reference to Exhibit 10.910.3 of Amendment No. 5 to the Company’s Current Report on Form 108-K filed with the Commission on DecemberOctober 10, 2007)2017).

10.6†10.7† 
Form of Change in Control/Severance Agreement between the Company and its named executive officers (incorporated by reference to Exhibit 10.10 toof the Company’s Form 10 filed with the Commission on August 10, 2007).
10.7†10.8†* 
Form of First Amendment to Change in Control/Severance Agreement between the Company and certain named executive officers.
10.9†
Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K filed with the Commission on March 5, 2009).
10.8†10.10† 
Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K filed with the Commission on March 14, 2013).
10.9†10.11† 
Form of Restricted Stock Units Agreement (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K filed with the Commission on March 14, 2013).
10.10†10.12† 
Form of Stock Appreciation Right Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on February 12, 2009).
10.11†10.13† 
First Amendment to the Forestar Real Estate Group Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on May 13, 2009).
10.12†10.14† 
Second Amendment to the Forestar Group Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.22 toof the Company’s Annual Report on Form 10-K filed with the Commission on March 3, 2010).
10.13†10.15† 
Form of Market-Leveraged Stock Unit Award Agreement (incorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K filed with the Commission on March 14, 2013).
10.14†10.16†* 
Form of Indemnification Agreement entered into between the Company and each of its executive officers (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K filed with the Commission on March 14, 2013).
10.15†Amendment No. 2 to Forestar Group Inc. Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K filed with the Commission on March 11, 2014).
10.16Agreement of Guaranty and Suretyship (Completion), dated January 17, 2014, by Forestar Group Inc. in favor of PNC Bank, National Association (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on January 17, 2014).Long-Term Incentive Cash Award Notice.
10.17 Agreement of Guaranty and Suretyship (Payment), dated January 17, 2014, by Forestar Group Inc. in favor of PNC Bank, National Association (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on January 17, 2014).
10.18Third Amended and Restated Revolving Credit Agreement dated May 15, 2014, by and among the Company, Forestar (USA) Real Estate Group Inc. and certain of its wholly-owned subsidiaries; Key Bank National Association, as lender, swing line lender and agent, the lenders party thereto; and the other parties thereto (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on May 16, 2014).
10.19
Guaranty, dated July 15, 2014, by Forestar (USA) Real Estate Group Inc. in favor of Regions Bank (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Commission on July 18, 2014).
10.2010.18 Limited Waiver and Amendment to the Third Amended and Restated Revolving
Letter of Credit Facility Agreement, dated September 30, 2015, by andOctober 5, 2017, among the Company, Forestar (USA) Real Estate Group Inc. and certain of its wholly-owned subsidiaries signatory thereto, KeyBank, Keybank National Association, as lender swing line lender and administrative agent, the lenders party thereto, and the other parties thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 6, 2015).
10.21First Amendment to Third AmendedKeybanc Capital Markets, as sole arranger and Restated Revolving Credit Agreement dated December 30, 2015, by and among the Company, Forestar (USA) Real Estate Group Inc. and certain of its wholly-owned subsidiaries signatory thereto, KeyBank National Association, as lender, swing line lender and agent, the lenders party thereto, and the other parties theretosole bookrunner (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on December 31, 2015)October 10, 2017).
10.22†10.19 Employment
Shared Services Agreement, dated October 21, 2015,6, 2017, between the CompanyForestar Group Inc. and Phillip J. WeberD.R. Horton, Inc. (incorporated by reference to Exhibit 10.1 to10.2 of the Company’s Current Report on Form 8-K filed with the Commission on October 26, 2015)10, 2017).
10.2310.20 Purchase and Sale
Stockholder’s Agreement dated February 4, 2016, by and between Capitalas of Texas Insurance Group and Austin Lakeside Hotel Owner LLC (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 10, 2016).
10.24Director Nomination Agreement, dated February 5, 2016,June 29, 2017, by and between Forestar Group Inc. and Carlson Capital, L.P.D.R. Horton, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on February 8, 2016)June 29, 2017).
10.2510.21 Director Nomination
Master Supply Agreement dated February 5, 2016,as of June 29, 2017, by and between Forestar Group Inc. and Cove Street Capital, LLCD.R. Horton, Inc. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on February 8, 2016)June 29, 2017).
10.22†
Employment Agreement, dated October 21, 2015, between Forestar Group Inc. and Phillip J. Weber (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on October 26, 2015).
10.23†
First Amendment to Employment Agreement, dated as of August 25, 2017, between Forestar Group Inc. and Phillip J. Weber (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on August 28, 2017).


10.2610.24† Purchase
Separation Agreement and Sale Agreement,Release, dated as of April 7, 2016,13, 2017, by and between Forestar Petroleum CorporationGroup Inc. and DW Slate, LLCDavid M. Grimm (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on April 11, 2016)14, 2017).
10.2710.25 Consent to Third Amended and Restated Credit Agreement dated June 30, 2016, by and among the Company, Forestar (USA) Real Estate Group Inc. and certain of its wholly-owned subsidiaries signatory thereto, KeyBank National Associate, as agent and lender, the lenders thereto, and the other parties thereto (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 5, 2016).
10.28*Purchase and Sale Agreement, dated November 9, 2016 among Forestar Real Estate Group Inc., Forestar Petroleum Corporation and SPP Land, LLC.
10.29*Purchase and Sale Agreement, dated November 10, 2016 among Forestar Real Estate Group Inc., Forestar Petroleum Corporation and Hubble Timber, LLC.
10.30*Purchase and Sale Agreement, dated November 11, 2016 among Forestar Real Estate Group Inc., Forestar Petroleum Corporation and TIR Europe Forestry Fund S.C.A. SICAV-SIF.
10.31
Purchase and Sale Agreement, dated February 17, 2017, between Forestar (USA) Real Estate Group Inc. and Mineral Resources Partners, LLC (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Commission on February 17, 2017).
10.26
Agreement of Purchase and Sale, dated February 8, 2018, by and between certain subsidiaries of Forestar Group Inc. and Starwood Land, L.P. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed with the Commission on February 8, 2018)
21.1* 
List of Subsidiaries of the Company.
23.1* 
Consent of Ernst & Young LLP.
23.2*Consent of Netherland, Sewell & Associates, Inc.
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* 
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* 
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* 
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.
99.1*Reserve report of Netherland, Sewell & Associates, Inc., dated February 3, 2017.
101.1* The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2015,2017, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss), (iii) Consolidated Statement of Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.
  _____________________
*Filed herewith.
†Management contract or compensatory plan or arrangement.


Item 16.Form 10-K Summary.
None.
 
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
   
 By:/s/ Phillip J. WeberCharles D. Jehl
  Phillip J. WeberCharles D. Jehl
  Chief ExecutiveFinancial Officer
Date: March 3, 2017February 28, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Capacity Date
/s/ Phillip J. WeberDaniel C. Bartok 
Director and Chief Executive Officer
(Principal Executive Officer)
 March 3, 2017February 28, 2018
Phillip J. WeberDaniel C. Bartok  
   
/s/ Charles D. Jehl 
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
 March 3, 2017February 28, 2018
Charles D. Jehl  
   
/s/ Sabita C. ReddyDonald J. Tomnitz 
Vice President AccountingExecutive
(Principal Accounting Officer)Chairman of the Board
 March 3, 2017February 28, 2018
Sabita C. ReddyDonald J. Tomnitz  
   
/s/ James A. RubrightSamuel R. Fuller 

Chairman of the Board
Director		 March 3, 2017February 28, 2018
James A. RubrightSamuel R. Fuller  
   
/s/ M. Ashton Hudson Director March 3, 2017February 28, 2018
M. Ashton Hudson  
   
/s/ William C. Powers, Jr.G.F. (Rick) Ringler, III Director March 3, 2017February 28, 2018
William C. Powers, Jr.G.F. (Rick) Ringler, III  
   
/s/ Daniel B. SilversDonald C. Spitzer Director March 3, 2017February 28, 2018
Daniel B. SilversDonald C. Spitzer  
   
/s/ Richard M. SmithDirectorMarch 3, 2017
Richard M. Smith
/s/ Richard D. SquiresDirectorMarch 3, 2017
Richard D. Squires

9881