possess key demographic and growth characteristics that we believe make them attractive for long-term real estate investment.
Our real estate projects are located among the fastest growing markets in the United States. We have 2425 real estate projects representing almost 29,00034,000 acres in the entitlement process, andprincipally in Georgia. We also have 78 entitled, developed or under development projects in eight states and 12 markets encompassing approximatelyover 16,000 remaining acres, comprised of aboutalmost 30,000 residential lots and about 1,900over 2,200 commercial acres. We sell land for commercial uses to national retailers and local commercial developers.acres, principally in the major markets of Texas. We own and manage projects both directly and through ventures. By using ventures, we achieve various business objectives including more efficient capital deployment, risk management, and leveraging a partner’s local market contacts and expertise.
Our naturalmineral resources segment is focused on maximizingprovided 30 percent of our 2008 consolidated revenues. We promote the value from royaltiesexploitation, exploration, and other lease revenues from ourdevelopment of oil and gas on our 622,000 net mineral interests located inacres. The four principal areas of operation are Texas, Louisiana, Alabama, and Georgia. TheseThe majority of our revenues are from lease bonus payments and oil and gas royalties from over 300 producing wells. Historically, these operations have historically requiredrequire low capital investment and are low risk. In 2009, we use the cash flow generated byanticipate increasing our participation in production, including non-operating working interests in development and production of oil and gas wells on or near our mineral interests to accelerate real estate value creation activities. In addition, weinterests.
Our fiber resources segment provided 8 percent of our 2008 consolidated revenues. We sell wood fiber from our land, primarily in Georgia, and lease land for recreational uses. We have over 340,000 acres of timber on our land, and about 18,000 acres of timber under lease.
Our real estate origins date back to the 1955 incorporation of Lumbermen’s Investment Corporation, which in 2006 changed its name to Forestar (USA) Real Estate Group Inc. We have a decades-long legacy of residential and commercial real estate development operations, primarily in Texas. In 1991,Our mineral resources origins date back to the mid-1940s when we started leasing our oil and Cousins Properties Incorporated formed Temco Associates, LLC as a venturegas mineral interests to develop residential sites in Paulding County, Georgia,third-party exploration and in 2002 we and Cousins formed CL Realty, L.L.C. as a venture to develop residential and mixed-use communities in Texas and across the southeastern U.S. Those ventures continue today. In 2001, we opened an office in the Atlanta area to manage nearby land with a focus on its long-term real estate development potential.production companies. In 2006, Temple-Inland Inc.(“Temple-Inland”) began reporting Forestar Real Estate Group as a separate business segment. On December 28, 2007, Temple-Inland distributed 100%all of the issued and outstanding shares of our common stock to the holders of record of Temple-Inland common stock as of the close of business on December 14, 2007, which we will refer to in this Annual Report onForm 10-K as the “spin-off” or the “separation.” Each Temple-Inland stockholder received one share of our common stock for every three shares of Temple-Inland common stock held. (Also on December 28, 2007, Temple-Inland distributed 100%all of the issued and outstanding shares of Guaranty Financial Group Inc. (“Guaranty”), a wholly-owned subsidiary of Temple-Inland that operated Temple-Inland’s financial services business.)
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Leveraging years of real estate, oil and gas, and fiber experience, we believe our management team brings extensive knowledge and expertise to position us to maximize long-term value for our stockholders.
Strategy
Our strategy is to maximize and grow long-term stockholder value through:
| | |
| • | Entitlemententitlement and development of real estate,estate; |
|
| • | Realizationrealization of value from natural resources,mineral and fiber resources; and |
|
| • | Accelerated growth through strategic and disciplined investment in real estate.our business. |
We are focused on maximizing real estate values through the entitlement and development of well-located residential and mixed-use communities. We secure entitlements on our lands by delivering thoughtful plans and balanced solutions that meet the needs of the communities where we operate. Moving land through the entitlement and development process creates significant real estate value. Residential development activities target lot sales to national and regional home builders who build quality products and have strong and effective marketing and sales programs. The lots we deliver in the majority of our communities are for mid-priced homes, predominantly in the first and secondmove-up categories, the largest segments of the new home market.categories. We also actively market and sell undeveloped land. Commercial tracts are either sold to or ventured with commercial developers that specialize in the construction and operation of income-producing properties.
We maximize value from our oil and gas mineral interests by increasing the acreage leased, lease rates, royalty interests and royaltyadditional participation in production in the form of non-operating working interests. These operations have historically required low capital investment, and we use the cash flow generated by our mineral interests to accelerate real estate value creation activities. In addition, we realize value from our undeveloped land by selling fiber and by managing it for future real estate
2
development and conservation uses. We also generate cash flow and create additional value through recreational leases.
We are committed to growingdisciplined growth of our business and will continue to reinvest our capital primarily in ten strategic growth corridors through disciplined investment inbusiness. In 2008, we did not acquire additional real estate opportunities that meet our investment criteria. In 2007, we invested over $54 million in nine new projects, representing nearly 3,700 acres located in four of our strategic growth corridors.projects.
Our real estate, mineral and mineralfiber assets in combination with our strategy, financial strength, management expertise, stewardship and continuous reinvestment in our business, position Forestar to maximize and grow long-term value for stockholders.
2007Strategic Initiatives
On February 11, 2009, we announced the following strategic initiatives to enhance stockholder value:
| | |
| • | Generate significant cash flow, principally from the sale of approximately 175,000 acres of higher and better use (HBU) timberland; |
|
| • | Reduce debt by approximately $150 million; and |
|
| • | Repurchase up to 20% of our common stock. |
The debt reduction and share repurchases will be funded by proceeds from the asset sales.
2008 Value Creation Highlights
Activities during 20072008 include:
| | |
| • | Negotiating a 58% ownership interest in Ironstob, LLC, a venture controlling about 17,000Leasing over 61,500 net mineral acres of undeveloped land near Atlanta, Georgia;to oil and gas companies for exploration and production activities; |
|
| • | Entering intoRecruiting a new minerals team to maximize value of Forestar’s 622,000 net mineral acres through leasing, royalties and additional participation in production revenues; |
|
| • | Actively pursuing entitlement on an agreement with Marriott International, Inc., PGA Tour, Inc., and Miller Global for the development of a JW Marriott®(a) resort hotel, spa and two PGA Tour® Tournament Players Club®(b) (TPC) golf facilities at our Cibolo Canyons mixed-use development near San Antonio, Texas;additional 7,300 acres; |
|
| • | Entitling five projects which include over 1,7002,500 acres, representing over 9001,050 residential lots and moving nearly 4,300 acres into entitlement; |
|
| • | Investing in nearly 3,700 acres representing approximately 5,100 single-family residential lots, 400 multifamily units and about 140580 commercial acres; and |
|
| • | LeasingInvesting $34.9 million in our Cibolo Canyons mixed-use development in San Antonio, Texas, which includes the 1,002 room JW Marriott® hotel and golf resort expected to oilopen in early 2010. When the hotel opens, Forestar will have the right to receive 9% of hotel occupancy revenues and gas companies approximately 30,000 net mineral acres for exploration and production activities.1.5% of sales generated within the resort through 2034. |
(a) JW Marriott® is a registered trademark of Marriott International, Inc.
(b) PGA Tour® and Tournament Players Club® are registered trademarks of PGA Tour, Inc.
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Real Estate
In our real estate segment, we conduct a wide array of project planning and management activities related to the acquisition, entitlement, development and sale of real estate, primarily residential and mixed-use communities. We own and manage our projects either directly or through ventures, which we 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.
We have real estate in ten states and 13 markets encompassing about 373,000over 365,000 acres, including approximately 303,000about 300,000 acres located in a broad area around Atlanta, Georgia, with the balance located primarily in Texas. We also have real estateOur development projects are principally located in Florida, Colorado, California, Utah, Missouri, Tennessee, Alabama and Louisiana.the major markets of Texas.
Our strategy for creating value in our real estate segment is to move acres up the value chain by moving land located in growth corridors but not yet entitled, through the entitlement process, and into development. The chart below depicts our real estate value chain, including real estate owned through ventures.
We have nearly 328,000315,000 undeveloped acres located in the path of population growth. As markets grow and mature, we intend to secure the necessary entitlements, the timing for which varies depending upon the size, location, use and complexity of a project. We have about 29,000almost 34,000 acres in the entitlement process, which includes obtaining zoning, other governmental approvals, and access to utilities. We have aboutover 16,000 acres entitled, developed and under development, comprised of aboutalmost 30,000 residential lots and about 1,900over 2,200 commercial acres. We use return criteria, which include return on cost, internal rate of return, and return on cash multiple, 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 homebuilders or, for commercial parcels, sale to or venture with commercial developers. We will sell land at any point within the value chain when additional time required for entitlement or investment in development will not meet our return criteria. In 2007,2008, we sold 2,617over 6,000 acres of unentitled, undeveloped land at an average price of $6,700about $4,800 per acre.
For information about our plan to sell approximately 175,000 acres of our undeveloped land, see “Business — Strategic Initiatives.”
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A summary of our real estate projects in the entitlement process(a) at year-end 20072008 follows:
| | | | | | | | |
| | | | | | Project
| |
Project | | County | | Market | | Acres(b) | |
|
California | | | | | | | | |
Hidden Creek Estates | | Los Angeles | | Los Angeles | | | 700 | |
Terrace at Hidden Hills | | Los Angeles | | Los Angeles | | | 30 | |
Georgia | | | | | | | | |
Ball Ground | | Cherokee | | Atlanta | | | 500 | |
Burt Creek | | Dawson | | Atlanta | | | 970 | |
Corinth LandingCreekview | | CowetaTroup | | Atlanta | | | 850470 | |
Crossing | | Coweta | | Atlanta | | | 230 | |
Dallas Highway | | Haralson | | Atlanta | | | 1,060 | |
Fincher Road | | Cherokee | | Atlanta | | | 1,0603,950 | |
Fox Hall | | Coweta | | Atlanta | | | 930960 | |
Garland Mountain | | Cherokee/Bartow | | Atlanta | | | 350 | |
Genesee | | Coweta | | Atlanta | | | 720 | |
Grove Park | | Coweta | | Atlanta | | | 150 | |
Home Place | | Coweta | | Atlanta | | | 1,5001,510 | |
Hutchinson Mill | | Troup | | Atlanta | | | 880 | |
Jackson Park | | Jackson | | Atlanta | | | 690700 | |
Lithia SpringsMartin’s Bridge | | HaralsonBanks | | Atlanta | | | 120970 | |
Mill Creek | | Coweta | | Atlanta | | | 770 | |
Pickens SchoolRidgeview | | PickensHaralson | | Atlanta | | | 420120 | |
Serenity | | Carroll | | Atlanta | | | 440 | |
Three Creeks | | Troup | | Atlanta | | | 740 | |
Waleska | | Cherokee | | Atlanta | | | 150 | |
Wolf Creek | | CarrollCarroll/Douglas | | Atlanta | | | 12,230 | |
Yellow Creek | | Cherokee | | Atlanta | | | 1,060 | |
Texas | | | | | | | | |
Lake Houston | | Harris/Liberty | | Houston | | | 3,700 | |
San Jacinto | | Montgomery | | Houston | | | 150 | |
Entrada(c) | | Travis | | Austin | | | 240 | |
Woodlake Village(c) | | Montgomery | | Houston | | | 630840 | |
| | | | | | | | |
Total | | | | | | | 28,59033,720 | |
| | | | | | | | |
| | |
(a) | | A project is deemed to be in the entitlement process when customary steps necessary for the preparation and submittal of an application, like conducting pre-application meetings or similar discussions with governmental officials, have commenced, or an application has been filed. Projects listed may have significant steps remaining, and there is no assurance that entitlements ultimately will be received. |
|
(b) | | Project acres, which are the total for the project regardless of our ownership interest, are approximate. The actual number of acres entitled may vary. |
|
(c) | | We own a 50 percent interest in these projects. |
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 the community by providing convenient locations for resident support services. We sometimes undertake projects consisting exclusively of commercial tracts and, on occasion, we invest in a venture to develop a single commercial project.
We develop lots for single-family homes and commercial tracts that are substantially ready for construction of buildings for retail, multifamily, office, industrial or other commercial uses. We sell residential lots primarily
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primarily to national and regional homebuilders and, to a lesser extent, local homebuilders. We have 78 entitled, developed or under development projects in eight states and 12 markets, principally in major markets of Texas, encompassing aboutover 16,000 remaining acres, comprised of aboutalmost 30,000 residential lots and about 1,900over 2,200 commercial acres. We focus our lot sales on the first and secondmove-up primary housing categories, the largest segments of the new home market.categories. First and secondmove-up segments are homes priced above entry-level products yet below the high-end and custom home segments.
Marketing We anticipate decreased development activity in 2009. We also actively market and sales of residential lots to builders is usually conducted directly, without the need for outside real estate brokers. Although we may discuss potential interest with selected builders prior to commencement of a project, we typically do not receive a binding commitment to purchase lots prior to making our initial investment. Terms for these lot sale transactions follow industry norms, generally consisting of option contracts with prescribed takedown schedules. Prescribed takedown rates vary due to several factors, including builder profile, product type, market conditions, and the number of builders competing within a subdivision. Payment in full is typically received at the closing of each lot takedown.sell undeveloped land.
Commercial tracts are either sold to 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 sell land designated for commercial uses to national retailers and to regional and local commercial developers. As is typical for the industry, marketing and sale of commercial tracts often involves outside real estate brokers. We have about 1,900over 2,200 acres of entitled land designated for commercial use.
One of our current significant mixed-use projects is Cibolo Canyons in the San Antonio market area. Cibolo Canyons is a 2,800 acre mixed-use development planned to include 1,749 residential lots of which 466537 have been sold as of year-end 20072008 at an average price of $57,000$61,000 per lot. The residential component will include not only traditional single-family homes but also an active adult section and condominiums. Cibolo Canyons homebuilder customers include Highland Homes, Meritage Homes and Newmark Homes, as well as other builders. Our commercial component is planned to include 145 acres designated for multifamily and retail uses, of which 64 acres have been sold as of year-end 2007.2008. Currently under construction at Cibolo Canyons is the JW Marriott® San Antonio Hill Country Resort & Spa, planned to include a 1,002 room destination resort and two TPC golf courses to be designed by Pete Dye and Greg Norman. We have the right to receive revenues from9% of hotel occupancy revenues and 1.5% of sales taxes generated within the resort through 2034 and to reimbursement of certain infrastructure costs.
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A summary of activity within our projects in the development process, which includes entitled(a), developed and under development real estate projects, at year-end 20072008 follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Residential Lots(c) | | Commercial Acres(d) | | | | | | | | | Residential Lots(c) | | Commercial Acres(d) | |
| | | | | | | | Lots Sold
| | | | Acres Sold
| | | | | | | | | | | Lots Sold
| | | | Acres Sold
| | | |
| | | | | | Interest
| | Since
| | Lots
| | Since
| | Acres
| | | | | | | Interest
| | Since
| | Lots
| | Since
| | Acres
| |
Project | | County | | Market | | Owned(b) | | Inception | | Remaining | | Inception | | Remaining | | | County | | Market | | Owned(b) | | Inception | | Remaining | | Inception | | Remaining | |
|
Projects we own | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
San Joaquin River | | Contra Costa | | Oakland | | | 100% | | | | — | | | | — | | | | — | | | | 285 | | | Contra Costa/ | | Oakland | | | 100% | | | | — | | | | — | | | | — | | | | 288 | |
| | | Sacramento | | | | | | | | | | | | | | | | | | | | | | |
Colorado | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Buffalo Highlands | | Weld | | Denver | | | 100% | | | | — | | | | 164 | | | | — | | | | — | | | Weld | | Denver | | | 100% | | | | — | | | | 164 | | | | — | | | | — | |
Johnstown Farms | | Weld | | Denver | | | 100% | | | | 115 | | | | 699 | | | | — | | | | — | | | Weld | | Denver | | | 100% | | | | 115 | | | | 493 | | | | 2 | | | | 8 | |
Pinery West | | Douglas | | Denver | | | 100% | | | | — | | | | — | | | | — | | | | 115 | | | Douglas | | Denver | | | 100% | | | | — | | | | — | | | | — | | | | 115 | |
Stonebraker | | Weld | | Denver | | | 100% | | | | — | | | | 603 | | | | — | | | | 13 | | | Weld | | Denver | | | 100% | | | | — | | | | 603 | | | | — | | | | 13 | |
Westlake Highlands | | Jefferson | | Denver | | | 100% | | | | — | | | | 21 | | | | — | | | | — | | | Jefferson | | Denver | | | 100% | | | | — | | | | 21 | | | | — | | | | — | |
Texas | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Arrowhead Ranch | | Hays | | Austin | | | 100% | | | | — | | | | 232 | | | | — | | | | 5 | | | Hays | | Austin | | | 100% | | | | — | | | | 232 | | | | — | | | | 6 | |
Caruth Lakes | | Rockwall | | Dallas/Fort Worth | | | 100% | | | | 245 | | | | 404 | | | | — | | | | — | | | Rockwall | | Dallas/Fort Worth | | | 100% | | | | 245 | | | | 404 | | | | — | | | | — | |
Cibolo Canyons | | Bexar | | San Antonio | | | 100% | | | | 466 | | | | 1,283 | | | | 64 | | | | 81 | | | Bexar | | San Antonio | | | 100% | | | | 537 | | | | 1,210 | | | | 64 | | | | 81 | |
Harbor Lakes | | Hood | | Dallas/Fort Worth | | | 100% | | | | 197 | | | | 252 | | | | — | | | | 14 | | | Hood | | Dallas/Fort Worth | | | 100% | | | | 199 | | | | 250 | | | | — | | | | 14 | |
Harbor Mist | | Calhoun | | Corpus Christi | | | 100% | | | | — | | | | 1,393 | | | | — | | | | 36 | | | Calhoun | | Corpus Christi | | | 100% | | | | — | | | | 200 | | | | — | | | | — | |
Hunter’s Crossing | | Bastrop | | Austin | | | 100% | | | | 308 | | | | 183 | | | | 23 | | | | 83 | | | Bastrop | | Austin | | | 100% | | | | 308 | | | | 183 | | | | 38 | | | | 68 | |
Katy Freeway | | Harris | | Houston | | | 100% | | | | — | | | | — | | | | 38 | | | | — | | |
La Conterra | | Williamson | | Austin | | | 100% | | | | — | | | | 509 | | | | — | | | | 60 | | | Williamson | | Austin | | | 100% | | | | 32 | | | | 477 | | | | — | | | | 60 | |
Maxwell Creek | | Collin | | Dallas/Fort Worth | | | 100% | | | | 594 | | | | 429 | | | | — | | | | — | | | Collin | | Dallas/Fort Worth | | | 100% | | | | 642 | | | | 381 | | | | — | | | | — | |
Oak Creek Estates | | Comal | | San Antonio | | | 100% | | | | — | | | | 648 | | | | 13 | | | | — | �� | | Comal | | San Antonio | | | 100% | | | | 9 | | | | 639 | | | | 13 | | | | — | |
The Colony | | Bastrop | | Austin | | | 100% | | | | 380 | | | | 1,045 | | | | 22 | | | | 50 | | | Bastrop | | Austin | | | 100% | | | | 408 | | | | 2,237 | | | | 22 | | | | 49 | |
The Gables at North Hill | | Collin | | Dallas/Fort Worth | | | 100% | | | | 193 | | | | 90 | | | | — | | | | — | | | Collin | | Dallas/Fort Worth | | | 100% | | | | 195 | | | | 88 | | | | — | | | | — | |
The Preserve at Pecan Creek | | Denton | | Dallas/Fort Worth | | | 100% | | | | 156 | | | | 663 | | | | — | | | | 9 | | | Denton | | Dallas/Fort Worth | | | 100% | | | | 204 | | | | 615 | | | | — | | | | 9 | |
The Ridge at Ribelin Ranch | | Travis | | Austin | | | 100% | | | | — | | | | — | | | | 179 | | | | 22 | | | Travis | | Austin | | | 100% | | | | — | | | | — | | | | 179 | | | | 16 | |
Westside at Buttercup Creek | | Williamson | | Austin | | | 100% | | | | 1,239 | | | | 289 | | | | 66 | | | | — | | | Williamson | | Austin | | | 100% | | | | 1,276 | | | | 245 | | | | 66 | | | | — | |
Other projects (10) | | Various | | Various | | | 100% | | | | 2,879 | | | | 128 | | | | 233 | | | | 48 | | |
Other projects (9) | | | Various | | Various | | | 100% | | | | 2,654 | | | | 27 | | | | 245 | | | | 23 | |
Georgia | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Towne West | | Bartow | | Atlanta | | | 100% | | | | — | | | | 2,674 | | | | — | | | | 121 | | | Bartow | | Atlanta | | | 100% | | | | — | | | | 2,674 | | | | — | | | | 121 | |
Other projects (9) | | Various | | Atlanta | | | 100% | | | | — | | | | 1,777 | | | | — | | | | 40 | | |
Other projects (13) | | | Various | | Atlanta | | | 100% | | | | — | | | | 2,836 | | | | — | | | | 625 | |
Missouri and Utah | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other projects (3) | | Various | | Various | | | 100% | | | | 775 | | | | 242 | | | | — | | | | — | | | Various | | Various | | | 100% | | | | 793 | | | | 365 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | 7,547 | | | | 13,728 | | | | 638 | | | | 982 | | | | | | | | | | | | 7,617 | | | | 14,344 | | | | 629 | | | | 1,496 | |
| | | | | | | | | | | | | | | | | | |
Projects in entities we consolidate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Texas | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
City Park | | Harris | | Houston | | | 75% | | | | 873 | | | | 438 | | | | 50 | | | | 115 | | | Harris | | Houston | | | 75% | | | | 1,096 | | | | 215 | | | | 50 | | | | 105 | |
Lantana | | Denton | | Dallas/Fort Worth | | | 55% | (e) | | | 346 | | | | 2,004 | | | | — | | | | — | | | Denton | | Dallas/Fort Worth | | | 55% | (e) | | | 448 | | | | 1,902 | | | | — | | | | — | |
Light Farms | | Collin | | Dallas/Fort Worth | | | 65% | | | | — | | | | 2,501 | | | | — | | | | — | | | Collin | | Dallas/Fort Worth | | | 65% | | | | — | | | | 2,517 | | | | — | | | | — | |
Stoney Creek | | Dallas | | Dallas/Fort Worth | | | 90% | | | | 1 | | | | 753 | | | | — | | | | — | | | Dallas | | Dallas/Fort Worth | | | 90% | | | | 59 | | | | 695 | | | | — | | | | — | |
Timber Creek | | Collin | | Dallas/Fort Worth | | | 88% | | | | — | | | | 654 | | | | — | | | | — | | | Collin | | Dallas/Fort Worth | | | 88% | | | | — | | | | 614 | | | | — | | | | — | |
Other projects (6) | | Various | | Various | | | Various | | | | 997 | | | | 387 | | | | 24 | | | | 23 | | |
Other projects (5) | | | Various | | Various | | | Various | | | | 1,002 | | | | 274 | | | | 24 | | | | 23 | |
Tennessee | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Youngs Lane | | Davidson | | Nashville | | | 60% | | | | — | | | | — | | | | — | | | | 16 | | | Davidson | | Nashville | | | 60% | | | | — | | | | — | | | | 16 | | | | — | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | 2,217 | | | | 6,737 | | | | 74 | | | | 154 | | | | | | | | | | | | 2,605 | | | | 6,217 | | | | 90 | | | | 128 | |
| | | | | | | | | | | | | | | | | | |
Total owned and consolidated | | | | | | | | | | | 9,764 | | | | 20,465 | | | | 712 | | | | 1,136 | | | | | | | | | | | | 10,222 | | | | 20,561 | | | | 719 | | | | 1,624 | |
Projects in ventures that we account for using the equity method | Projects in ventures that we account for using the equity method | Projects in ventures that we account for using the equity method |
Georgia | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Seven Hills | | Paulding | | Atlanta | | | 50% | | | | 627 | | | | 453 | | | | 26 | | | | — | | | Paulding | | Atlanta | | | 50% | | | | 634 | | | | 446 | | | | 26 | | | | — | |
The Georgian | | Paulding | | Atlanta | | | 38% | | | | 287 | | | | 1,098 | | | | — | | | | — | | | Paulding | | Atlanta | | | 38% | | | | 288 | | | | 1,097 | | | | — | | | | — | |
Other projects (5) | | Various | | Atlanta | | | Various | | | | 1,844 | | | | 188 | | | | 3 | | | | — | | | Various | | Atlanta | | | Various | | | | 1,845 | | | | 249 | | | | 3 | | | | — | |
Texas | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bar C Ranch | | Tarrant | | Dallas/Fort Worth | | | 50% | | | | 175 | | | | 1,006 | | | | — | | | | — | | | Tarrant | | Dallas/Fort Worth | | | 50% | | | | 176 | | | | 1,023 | | | | — | | | | — | |
Fannin Farms West | | Tarrant | | Dallas/Fort Worth | | | 50% | | | | 236 | | | | 207 | | | | — | | | | — | | | Tarrant | | Dallas/Fort Worth | | | 50% | | | | 261 | | | | 119 | | | | — | | | | 15 | |
Lantana | | Denton | | Dallas/Fort Worth | | | Various | (e) | | | 1,764 | | | | 84 | | | | 3 | | | | 77 | | | Denton | | Dallas/Fort Worth | | | Various | (e) | | | 1,801 | | | | 47 | | | | 14 | | | | 75 | |
Long Meadow Farms | | Fort Bend | | Houston | | | 19% | | | | 598 | | | | 1,508 | | | | 24 | | | | 186 | | | Fort Bend | | Houston | | | 19% | | | | 603 | | | | 1,503 | | | | 72 | | | | 138 | |
Southern Trails | | Brazoria | | Houston | | | 40% | | | | 250 | | | | 812 | | | | — | | | | — | | | Brazoria | | Houston | | | 40% | | | | 320 | | | | 742 | | | | — | | | | — | |
Stonewall Estates | | Bexar | | San Antonio | | | 25% | | | | 114 | | | | 138 | | | | — | | | | — | | | Bexar | | San Antonio | | | 25% | | | | 168 | | | | 213 | | | | — | | | | — | |
Summer Creek Ranch | | Tarrant | | Dallas/Fort Worth | | | 50% | | | | 793 | | | | 1,695 | | | | — | | | | 374 | | | Tarrant | | Dallas/Fort Worth | | | 50% | | | | 796 | | | | 1,772 | | | | — | | | | 363 | |
Summer Lakes | | Fort Bend | | Houston | | | 50% | | | | 294 | | | | 850 | | | | 48 | | | | 3 | | | Fort Bend | | Houston | | | 50% | | | | 325 | | | | 819 | | | | 52 | | | | 3 | |
Village Park | | Collin | | Dallas/Fort Worth | | | 50% | | | | 335 | | | | 234 | | | | — | | | | 5 | | | Collin | | Dallas/Fort Worth | | | 50% | | | | 339 | | | | 221 | | | | 3 | | | | 2 | |
Waterford Park | | Fort Bend | | Houston | | | 50% | | | | — | | | | 493 | | | | — | | | | 37 | | | Fort Bend | | Houston | | | 50% | | | | — | | | | 493 | | | | — | | | | 37 | |
Other projects (3) | | Various | | Various | | | Various | | | | 282 | | | | 247 | | | | — | | | | 37 | | |
Other projects (2) | | | Various | | Various | | | Various | | | | 292 | | | | 232 | | | | — | | | | 15 | |
Florida | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other projects (3) | | Various | | Tampa | | | Various | | | | 473 | | | | 372 | | | | — | | | | — | | | Various | | Tampa | | | Various | | | | 473 | | | | 372 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | |
Total in ventures | | | | | | | | | | | 8,072 | | | | 9,385 | | | | 104 | | | | 719 | | | | | | | | | | | | 8,321 | | | | 9,348 | | | | 170 | | | | 648 | |
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Combined total | | | | | | | | | | | 17,836 | | | | 29,850 | | | | 816 | | | | 1,855 | | | | | | | | | | | | 18,543 | | | | 29,909 | | | | 889 | | | | 2,272 | |
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(a) | | A project is deemed entitled when all major discretionary governmental land-use approvals have been received. Some projects may require additional permits and/or non-governmental authorizations for development. |
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(b) | | Interest owned reflects our net equity interest in the project, whether owned directly or indirectly. There are some projects that have multiple ownership structures within them. Accordingly, portions of these projects may appear as owned, consolidated, and/or accounted for on the equity method. |
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(c) | | Lots are for the total project, regardless of our ownership interest. |
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(d) | | Commercial acres are for the total project, regardless of our ownership interest, and are net developable acres, which may be fewer than the gross acres available in the project. |
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(e) | | The Lantana project consists of a series of 21 partnerships in which our voting interests range from 25 percent to 55 percent. We account for eight of these partnerships using the equity method and we consolidate the remaining partnerships. |
A summary of our commercial operating properties and commercial and condominium projects at December 31, 2008 follows:
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| | | | | | Interest
| | | | | |
Project | | County | | Market | | Owned(a) | | | Type | | Description |
|
Radisson Hotel | | Travis | | Austin | | | 100 | % | | Hotel | | 413 guest rooms and suites |
Palisades West | | Travis | | Austin | | | 25 | % | | Office | | 375,000 square feet |
Presidio at Judge’s Hill | | Travis | | Austin | | | 60 | % | | Condo | | 45 units |
Las Brisas | | Williamson | | Austin | | | 49 | % | | Multi-Family | | 414 unit luxury apartment |
Harbor Lakes Golf Club | | Hood | | Dallas/Fort Worth | | | 100 | % | | Golf Club | | 18 hole golf course and club |
Gulf Coast Apartments | | Various | | Various | | | 2 | % | | Multi-Family | | 9 apartment communities |
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(a) | | Interest owned reflects our net equity interest in the project, whether owned directly or indirectly. |
Our strategy includes not only entitlement and development on our own lands but also accelerated growth through strategic and disciplined investment in acquisitions that meet our investment criteria. In 2007, we invested $54 millionWe did not acquire any new projects in nine real estate projects. These projects are planned2008. We continually monitor the markets in our strategic growth corridors for opportunities to include approximately 5,100 single-family residentialpurchase developed lots 400 multifamily units and about 140 commercial acres.land at prices that meet our return criteria.
Markets
We investtarget investments primarily in markets located within our strategic growth corridors, which we define as areas with significantpossessing favorable growth characteristics for population, employment and household formation. We believe these factorsThese markets are the most influential on the demand for new housing. We have identified ten strategic growth corridors,generally located generally across the southern half of the U.S., thatand we believe possess characteristics that make themthey represent attractive long-term real estate investment opportunities.
Long-term demand Demand for residential lots, single-family housing, and commercial use land parcels is substantially influenced by demographics suchthe aforementioned growth characteristics, as population growth,well as by immigration in-migration and household formation. Near-term demand for new single-family housing is primarily influenced by employment growth and affordability. Our strategy to invest primarily inin-migration. Currently, most of our strategic growth corridors is designed to capitalize on opportunities afforded by both long-term and near-term demographic and growth influences. This strategy is also designed to reduce our exposure to localized market volatility.development projects are located within the major metropolitan areas of Texas.
Our ten strategic growth corridors encompass 165,000 square miles, or approximately 5% of the total land area in the U.S. According to 2005 census data, 85 million people, 29% of the U.S. total, reside in these corridors. The population density in these growth corridors is almost seven times the national average and is projected to grow at nine times the national average between 2000 and 2030. During that time, the corridors are projected to garner approximately 43% of the nation’s population growth and 38% of total employment growth. Estimated housing demand from these ten growth corridors from 2000 to 2030 exceeds 23 million new homes.
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Forestar Strategic Growth Corridors
Competition
We face significant competition for the acquisition, entitlement, development and developmentsale of real estate in our markets. Many ofOur major competitors include other landowners who market and sell undeveloped land and numerous national, regional and local developers. In addition, our projects compete with other local developments that havedevelopment projects offering similar amenities, products andand/or locations. We compete with other land owners for the sale of our undeveloped land. In addition, we compete with many national, regional and local developers and builders in these markets. We may competeCompetition 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. CompetitionThe presence of competition may increase the bargaining power of property owners seeking to sell, and industry competition may increase if there is future consolidation in the real estate industry.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 usand/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. Wefragmented, and we are awareunaware of noany 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. MostMany competitors are local, privately-owned companies. We have a few regional competitors and virtually no national competitors other than national homebuilders that, depending on business cyclesand/or market conditions, may enter or exit the real estate development business in some locations to develop lots on which they construct and sell homes. There are very few national homebuilders currently developing lots. During periods when access to capital is restricted, participants with weaker financial conditions tend to be less active. We believe the current environment is one where participants with stronger financial conditions will have a competitive advantage, and where fewer participants will be active.
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NaturalMineral Resources
In our natural resources segment, weWe lease our oil and gas mineral interests to third parties for the exploration and production companies forof oil and gas, principally in Texas and Louisiana. When we lease our mineral interests, we retain a royalty interest and may take an additional participation in production, including a non-operating working interest. Non-operating working interests refer to well interests in which we pay a share of the costs to drill, complete and operate a well and receive royaltiesa proportionate share of the production revenues.
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 and other revenues. We also sell wood fiber from our land, primarily in Georgia, lease land for huntingfactors affecting the third party oil and other recreational uses,gas exploration and manage our interests in water rights.production entities including the cost of development and production.
Products
We own oil and gas mineral interests inon approximately 622,000 net acres in Texas, Louisiana, Alabama and Georgia. In the context of our mineral interests, net acres refers to the gross number of surface acres multiplied by our percentage ownership of the mineral interest. Our minerals revenue is primarily from lease bonus payments, delay rentals, oil and gas royalty interests, non-operating working interests and to a lesser extent, bonus payments made at the inception of a new oil or gas lease and delay rentals. Although we leaseother related activities. We engage in leasing certain portions of these oil and gas mineral interests to third parties for the exploration and production of oil and gas, and we do not drillare increasingly leveraging our mineral interests to participate in wells drilled on or engage in any other exploratory or extractive activities.near our mineral acreage. We do not estimate or maintain oil or gas reserve information related to our mineral interests.
Our strategy for maximizing value from our oil and gas mineral interests is to move acres up the minerals value chain by increasing the net acreage leased, the lease ratesbonus amount per acre, and the size of retained royalty interests. Additionally, we participate in non-operating working interests in the drilling, completion,and/or production of oil and natural gas on or nearby our mineral interests. The chart below depicts our minerals value chain.
Of our 622,000 net acres of oil and gas mineral interests, about 520,000476,000 net acres are available for lease. Almost half of the acres available for lease are in Georgia and Alabama, which have historically had very little oil and gas exploration activity. Included in mineral acreage available for lease is about 46,00011,200 net acres subject to a geophysical option. The option gives the holder the right to lease these acres upon satisfaction of certain conditions. We have about 77,000121,000 net acres leased for exploration activities, and about 25,000 net acres held by production from 331over 300 oil and gas wells that are owned and operated by others.
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The principal areas in which we operate are as follows:
East Texas Basin
We have about 243,000 net mineral acres in East Texas and about 121,000 net mineral acres in Northern Louisiana located within the East Texas Basin. This basin contains 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, James Lime, Pettet, Travis Peak, Cotton Valley, Austin Chalk, Haynesville Shale, and Bossier formations.
Fort Worth Basin
We have about 1,000 net mineral acres in the Fort Worth Basin. This basin contains numerous oil and gas producing formations consisting of conventional, unconventional, and tight sand reservoirs. Of these reservoirs, we have mineral interests in and around the Barnett Shale.
Alabama & Georgia
We have about 57,000 net mineral acres in Alabama and 200,000 net mineral acres in Georgia. These areas have historically had very little oil and gas exploration activity. However, there has been recent activity in the Floyd and Conesuega Shales in and around our mineral interests and we currently have about 9,000 acres under lease in Northeastern Alabama.
A summary of our oil and gas mineral interests(a) at year-end 2008 follows:
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| | | | | | | | Held by
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State | | Unleased | | | Leased(b) | | | Production(c) | | | Total(d) | |
| | (Net acres) | |
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Texas | | | 118,000 | | | | 108,000 | | | | 18,000 | | | | 244,000 | |
Louisiana | | | 110,000 | | | | 4,000 | | | | 7,000 | | | | 121,000 | |
Alabama | | | 48,000 | | | | 9,000 | | | | — | | | | 57,000 | |
Georgia | | | 200,000 | | | | — | | | | — | | | | 200,000 | |
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| | | 476,000 | | | | 121,000 | | | | 25,000 | | | | 622,000 | |
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(a) | | Includes ventures. |
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(b) | | Includes leases in primary lease term only. |
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(c) | | Acres being held by production are producing oil or gas in paying quantities. |
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(d) | | Texas and Louisiana 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. |
Leasing mineral acres for exploration and production activities creates significant value because we retain a royalty interest in all revenues generated by the lessee from oil and gas production activities.production. The significant terms of these arrangements include granting the exploration company the rights to any oil or gas it may find
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and requiring that drilling be commenced within a specified period. In return we receive an initial 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 foundproduced (royalties). If no oil or gas is foundproduced during the required period, all rights are returned to us. Capital requirements are minimal and primarily consist of acquisition costs allocated to mineral interests and administrative costs.
Most agreements are for a three-year term although a portion or all of an agreement may be extended by the lessee if 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, our mineral interest, and proximity to transportation facilities such as pipelines.pipelines, depth of formations to be drilled and risk. From our retained royalty interests, we received an average net price in 2008, 2007 2006 and 20052006 per barrel of oil of $106.66, $65.24 $64.14, and $52.41,$64.14, respectively, and per thousand cubic feet of gas of $8.76, $6.69 and $7.95, and $7.04, respectively.
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A summary of our oil and gas mineral interests owned, leased, and held by production at year-end 2007 follows:
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| | Net Acres
| | | Net Acres
| | | Held by
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State | | Owned(a) | | | Leased(b) | | | Production(c) | |
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Texas | | | 244,000 | | | | 64,000 | | | | 18,000 | |
Louisiana | | | 121,000 | | | | 4,000 | | | | 7,000 | |
Alabama | | | 57,000 | | | | 9,000 | | | | 0 | |
Georgia | | | 200,000 | | | | 0 | | | | 0 | |
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Total | | | 622,000 | | | | 77,000 | | | | 25,000 | |
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(a) | | Texas and Louisiana 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. |
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(b) | | Includes leases in primary lease term only. |
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(c) | | Acres being held by production are producing oil or gas in paying quantities. |
We have about 350,000 acres of timber on our undeveloped land, and over 18,000 acres of timber under lease. In 2007, we sold at estimated market prices, primarily to Temple-Inland, about 1,215,000 tons of timber from our lands. We manage our timberland in accordance with the Sustainable Forestry Initiative® program of Sustainable Forestry Initiative, Inc. Over 285,000 acres of our land, primarily in Georgia, are leased for recreational purposes. Most recreational leases are for a three-year term but may be terminated by us on 30 days’ notice to the lessee.
We also have water interest in about 1.7 million acres, principally consisting of a 45 percent nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes or sold from approximately 1.38 million acres in Texas, Louisiana, Georgia, and Alabama. We have not received any income from this interest.
Markets
Oil and gas revenues are influenced by the prices of these commodities as determined by both regionallyregional and on world tradingglobal markets. Mineral leasing activity is influenced by the location of our mineral interests relative to existing or projected oil and gas reserves and by the proximity of successful extractive efforts to our mineral interests.
Competition
In locations where our mineral interests are close to producing wells and proven reserves, other parties will compete to lease our mineral interests. Conversely, where our mineral interests are close to areas where reserves have not been discovered we may receive nominal interest in leasing our minerals. When oil and gas prices are higher, we are likely to receive greater interest in leasing our minerals close to these areas because the economics for exploration companies will support more exploration activities. Portions of our Texas and Louisiana minerals are close to producing wells and proven reserves.
We have little competition from others in our production participation activities and resulting non-operating working interests. These wells historically have been drilled on or near our owned mineral interests, which allow us to achieve favorable terms from the oil and gas operators. Risk and the increasing need of capital to support drilling, completion and production activities may impact our ability to participate in non-operating working interests.
Fiber Resources
We sell wood fiber from our land, primarily in Georgia, and lease land for hunting and other recreational uses.
Products
We have about 340,000 acres of timber on our undeveloped land, and about 18,000 acres of timber under lease. In 2008, we sold at market prices, primarily to Temple-Inland, about 1,080,000 tons of timber from our lands. We manage our timberland in accordance with the Sustainable Forestry Initiative® program of Sustainable Forestry Initiative, Inc. Over 296,000 acres of our land, primarily in Georgia, are leased for recreational purposes. Most recreational leases are for a three-year term but may be terminated by us on 30 days’ notice to the lessee.
For information about our plan to sell approximately 175,000 acres of our undeveloped land, see “Business — Strategic Initiatives.”
Markets
Our principal timber products include pulpwood and sawtimber. We have an agreement to sell wood fiber to Temple-Inland at market prices, primarily for use at Temple-Inland’s Rome, Georgia mill complex. The agreement has a five-year termexpires in 2013 although the purchase and sale commitments are established annually based on Forestar’s annual harvest plan. Base prices are determined by independent sources and are indexed to third party indexing sources. Payment for timber is advanced to us by Temple-Inland on a quarterly basis. It is likely that Temple-Inland will continue to be our largest wood fiber customer. We also sell wood fiber to other parties at market prices.
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Competition
We compete with others who own mineral interests in the vicinity of our mineral interests. In locations where our mineral interests are close to producing wells and proven reserves, other parties will compete to lease our mineral interests. Conversely, where our mineral interests are close to areas where reserves have not been discovered we may receive nominal interest in leasing our minerals. However, when oil and gas prices are higher, we are likely to receive greater interest in leasing our minerals close to these areas because the economics for exploration companies will support more exploration activities. Portions of our Texas and Louisiana minerals are close to producing wells and proven reserves.
We face significant competition from many public and privateother landowners for the sale of our 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. A
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significant portion of our wood fiber is reasonably close to such facilities, so we expect continued demand for our wood fiber.
Some of our competitors are well established and financially strong, may have greater financial resources than we do, or may be larger than usand/or have lower cost of capital and operating costs than we have and expect to have.
Employees
We have 8893 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. 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.collateral or the ability to produce oil and gas from that property. Environmental claims generally would not be covered by our insurance programs.
The particular environmental laws that apply to any given development 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.
We own approximately 285288 acres in several parcels in or near Antioch, California, portions of which were sites of a Temple-Inland paper manufacturing operation and related support facilities that were closedare in 2002. Substantially all manufacturing facilities have been removed from the sites. Investigations conducted by Temple-Inland disclosed the need for remediation of environmental impacts associated with the closure of manufacturing operations, whichremediation. The remediation is being conducted voluntarily with oversight by the California Department of Toxic Substances Control, or DTSC. The DTSC issued Certificates of Completion for approximately 180 acres in 2006, and we anticipate that Certificates of Completion will be issued for the remaining approximately 105 acres in 2009.2006. We estimate the cost we will likely incur to complete remediation activities will be about $6$3.9 million. We will have no right of indemnification from Temple-Inland should our actual costs exceed our estimate.
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Legal Structure
Forestar Real Estate Group Inc. is a Delaware corporation. The following chart presents the ownership structure for our significant subsidiaries and ventures. It does not contain all our subsidiaries and ventures, some of which are immaterial entities. Except as indicated, all subsidiaries shown are 100 percent owned by their immediate parent.
Our principal executive offices are located at 1300 MoPac Expressway South,6300 Bee Cave Road, Building Two, Suite 3S,500, Austin, Texas 78746.78746-5149. Our telephone number is(512) 433-5200.
Available Information
From our Internet website,http://www.forestargroup.com, you may obtain additional information about us including:
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| • | our annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K, including amendments to these reports, and other documents as soon as reasonably practicable after we file them with the Securities and Exchange Commission (or “SEC”); |
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| • | beneficial ownership reports filed by officers, directors, and principal security holders under Section 16(a) of the Securities and Exchange Act of 1934, as amended (or the “Exchange Act”); and |
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| • | corporate governance information that includes our |
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| • | corporate governance guidelines, |
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| • | audit committee charter, |
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| • | management development and executive compensation committee charter, |
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| • | nominating and governance committee charter, |
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| • | standards of business conduct and ethics, |
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| • | code of ethics for senior financial officers, and |
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| • | 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 at1-800-SEC-0330. The SEC also maintains an Internet site (http://www.sec.gov)
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(http://www.sec.gov) that contains reports, proxy and information statements, and other information that is filed electronically with the SEC.
Financial Information
Our results of operation, including information regarding our principal business segments, are shown in the Consolidated Financial Statements and the notes thereto attached as pages F-1 through F-25F-31 to this Annual Report onForm 10-K.
Executive Officers
The names, ages and titles of our executive officers are:
| | | | | | |
Name | | Age | | Position |
|
James M. DeCosmo | | | 4950 | | | Chief Executive Officer |
Christopher L. Nines | | | 3637 | | | Chief Financial Officer |
Craig A. Knight | | | 6061 | | | Chief Investment Officer |
Charles T. Etheredge, Jr. | | | 4445 | | | Executive Vice President |
Flavious J. Smith, Jr. | | | 50 | | | Executive Vice President |
David M. Grimm | | | 4748 | | | Chief Administrative Officer, General Counsel and Secretary |
Charles D. Jehl | | | 3940 | | | Chief Accounting Officer |
James M. DeCosmo has served as our President and Chief Executive Officer since 2006. He served as Group Vice President of Temple-Inland from 2005 to 2007, as Vice President, Forest from 2000 to 2005 and as Director of Forest Management from 1999 to 2000. Prior to 2000,1999, he held land management positions with several companies throughout the southeastern United States.
Christopher L. Nines has served as our Chief Financial Officer since April 2007. He served as Temple-Inland’s Director of Investor Relations from 2003 to 2007, and as Corporate Finance Director from 2001 to 2003. He was Senior Vice President of Finance for ConnectSouth Communications, Inc. from 2000 to 2001.
Craig A. Knight has served as our Chief Investment Officer since 2006. From 1994 to 2006, he served as President of Lumbermen’s Investment Corporation, which changed its name in 2006 to Forestar (USA) Real Estate Group Inc. Mr. Knight was a principal in the real estate development firm of Heath and Knight Properties from 1991 to 1994, and was a partner with Centre Development from 1978 to 1994.
Charles T. Etheredge, Jr. has served as our Executive Vice President since 2006. He was a member of Guaranty Bank’s commercial real estate lending segment from 1992 to 2006, where he served as Senior Vice President and Managing Director for the Eastern Region from 1999 to 2006, and as Vice President and Division Manager from 1997 to 1999.
Flavious J. Smith, Jr. has served as our Executive Vice President since August 2008. He served as Division Land Manger for EOG Resources, Inc. from 2005 to August 2008. He owned Flavious Smith Petroleum Properties, an independent oil and gas operator, from 1995 to 2005, and previously held various leadership positions with several oil and gas and energy-related companies.
David M. Grimm has served as our Chief Administrative Officer since April 2007, in addition to holding the offices of General Counsel and Secretary since 2006. Mr. Grimm served Temple-Inland 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, Mr. Grimm was an attorney in private practice in Dallas, Texas.
Charles D. Jehl has served as our Chief Accounting Officer since 2006. He 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.
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Risks Relating to Our Business
A decrease in demand for new housing in the markets where we operate could decrease 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
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Our business and results of operations are negatively affected by the existence of these conditions.
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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 provisions regulating the discharge of materials into the environment and otherwise related to the protection of the environment. Compliance with these provisions may result in delays, may cause us to invest substantial funds to ensure compliance with applicable environmental regulations and can prohibit or severely restrict homebuildingreal estate development or mineral production activity in environmentally sensitive regions or areas.
Our real estate development operations are currently concentrated in Georgiathe major markets of Texas, and Texas.a significant portion of our undeveloped land holdings are concentrated in Georgia. As a result, our financial results are dependent on the economic growth and strength of those areas.
The economic growth and strength of Georgia and Texas, where the majority of our real estate development activity is located, are important factors in sustaining demand for our real estate development activities. As a result, any adverse change to the economic growth and health of those areas could materially adversely affect our financial results. The future economic growth in certain portions of Georgia in particular may be adversely affected if its infrastructure, such as roads, utilities, and schools, are not improved to meet increased demand. There can be no assurance that these improvements will occur.
If we are unable to retain or attract experienced real estate development or natural resources management personnel, our business may be adversely affected.
Our future success depends on our ability to retain and attract experienced real estate development and natural resources management personnel. The market for these employees is highly competitive. If we cannot continue to retain and attract quality personnel, our ability to effectively operate our business may be significantly limited.
Our real estate development operations are increasingly dependent upon national, regional, and local homebuilders, as well as other strategic partners, who may have interests that differ from ours and may take actions that adversely affect us.
We are highly dependent upon our relationships with national, regional, and local homebuilders to purchase lots in our residential developments. If homebuilders do not view our developments as desirable locations for homebuilding operations, our business will be adversely affected. Also, a national homebuilder could decide to delay purchases of lots in one of our developments due to adverse real estate conditions wholly unrelated to our areas of operations.
We are also involved in strategic alliances or venture relationships as part of our overall strategy for particular developments or regions. These venture partners may bring development experience, industry expertise, financing capabilities, and local credibility or other competitive assets.attributes. Strategic partners, however, may 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 of a strategic partner deteriorates.
A formal agreement with a venture partner may also involve special risks such as:
| | |
| • | we may not have voting control over the venture; |
|
| • | the venture partner may take actions contrary to our instructions or requests, or contrary to our policies or objectives with respect to the real estate investments; |
|
| • | the venture partner could experience financial difficulties; and |
|
| • | actions by a venture partner may subject property owned by the venture to liabilities greater than those contemplated by the venture agreement or have other adverse consequences. |
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Our customers may be unwilling or unable to meet lot takedown commitments due to liquidity limitations or slowing market conditions.
We enter into contracts to sell lots to builders. Home mortgage credit standards have tightened substantially and many markets have excess housing inventory so fewer new houses are being constructed and sold. Some builders are experiencing liquidity shortfalls and may be unwilling or unable to close on previously committed lot purchases. As a result, we may sell fewer lots and may have lower sales revenues, which could have an adverse effect on our financial position and results of operations.
Significant reductions in cash flow from slowing real estate, mineral resources or naturalfiber resources market conditions could lead to higher levels of indebtedness, limiting our financial and operating flexibility.
Under our senior credit facility, we have a $175 million term loan and a revolving line of credit with a borrowing limit of $290 million. We had drawn $175 million of the term loan and none$59.9 million of the revolving line of credit at year-end 2007.2008. Amounts due under our senior credit facility are secured by certain of our assets.
15
For a further description of our senior credit facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity — Senior Credit Facility.”
We must comply with various covenants contained in our senior credit facility, and any other future debt arrangements. Significant reductions in cash flow from slowing real estate, mineral resources or naturalfiber resources market conditions could lead to higher levels of indebtedness, limiting our financial and operating flexibility, and ultimately limiting our ability to comply with our debt covenants. If we fail to comply with the terms of any of our debt covenants, our lenders will have the right to accelerate the maturity of that debt and foreclose upon the collateral securing that debt. Realization of any of these factors could adversely affect our financial condition and results of operations.
Risks RelatingDebt within some of our ventures may not be renewed or may be difficult or more expensive to replace.
Some of our ventures have debt, most of which is non-recourse to us. Many lenders have substantially curtailed or ceased making real estate acquisition and development loans. 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 to our ventures which could increase our risk or increase our borrowings under our senior credit facility, or both. If our ventures secure replacement financing that is more expensive, our profits may be reduced.
Our lenders may be unable or unwilling to fund their commitments under our senior credit facility.
Our senior credit facility includes a revolving line of credit under which we regularly draw funds as required for routine operating liquidity. Many U.S. financial institutions are having difficulty maintaining regulatory capital at levels required for additional lending, and some institutions are experiencing liquidity shortfalls. If some of the Spin-offlenders participating in our senior credit facility fail to meet their funding commitments, we could be required to borrow from other sources at a higher cost or we may be required to monetize some of our assets to meet our liquidity requirements, which could have an adverse effect on our business, financial position and results of operations.
The current turmoil in the credit markets could limit demand for our products, and affect the overall availability and cost of credit.
At this time, it is unclear whether and to what extent actions recently taken by the U.S. government, including passage of the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009, will mitigate the effects of the current turmoil in the credit markets and in the economy generally. Demand for our products could be limited by the reduction in availability or increased cost of credit. While we have no immediate need to access the credit markets, the impact of the current turmoil on our ability to obtain financing in the future, and the cost and terms of financing, is unclear. No assurances can be given that the effects of the current credit markets turmoil will not have a material adverse effect on our business, financial position and results of operations.
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Delays or failures by third parties to take expected actions could reduce our returns or cause us to incur losses on certain real estate development projects.
We rely on governmental utility and special improvement districts to issue bonds as a revenue source for the districts to reimburse us for qualified expenses, such as road and utility infrastructure costs. Bonds must be supported by districts 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 reduce our returns or cause us to incur losses on certain real estate development projects.
Also, to satisfy certain conditions to receive revenues funded by hotel occupancy, sales and ad valorem taxes under various agreements associated with our Cibolo Canyons project, the JW Marriott® resort hotel must be open and operating on July 1, 2011. Failure to satisfy the hotel opening condition could be caused by a number of factors outside of our control, such as failure of the hotel owner or parties under contract with the hotel owner to obtain sufficient equity investment or debt for the resort project or to meet contractual obligations related to hotel financing or construction. Although the hotel is currently on schedule to open well in advance of the required date, failure by the hotel’s owner to complete and open the hotel on a timely basis could cause us to lose significant revenues that are currently anticipated for the project, resulting in a reduction of our returns or causing us to incur losses related to our investment.
We may be unable to achieve somecannot control activities on oil or all of the benefits thatgas properties we expected to achieve from our spin-off from Temple-Inland.do not operate.
We maydo not be ableoperate any of the properties in which we have oil or gas mineral interests and have very limited ability to achieveexercise influence over operations for these properties or their associated costs. The success and timing of drilling, development and exploitation activities on properties operated by others depend on a number of factors that are beyond our control, including the full strategicoperator’s expertise and financial benefits that we expected would result fromresources, approval of other participants for drilling wells and utilization of technology.
Volatile oil and gas prices could adversely affect our spin-off from Temple-Inlandcash flows and results of operations.
Our cash flows and results of operations are dependent in part on oil and gas prices, which are volatile. Any substantial or such benefits may be delayed or may not occur at all. For example, there can be no assurance that analystsextended decline in the price of oil and investors will regard our corporate structure as clearer and simpler than the former Temple-Inland corporate structure or placegas below current levels could have a greater valuenegative impact on our company as a stand-alone company thanbusiness operations and future revenues. Moreover, oil and gas prices depend on our businesses being a partfactors we cannot control, such as: actions by the Organization of Temple-Inland.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; availability of alternate fuel sources; the value of the U.S. dollar relative to other major currencies; and governmental regulations.
We have only a limited operating history as an independent, publicly-traded company upon which you can evaluate our performance, and accordingly, our prospects must be considered in light of the risks that any newly independent company encounters.
We have only a limited experience operating as an independent, publicly-traded company and performing various corporate functions, including human resources, tax administration, legal (including compliance with the Sarbanes-Oxley Act of 2002 and with the periodic reporting obligations of the Securities Exchange Act of 1934), treasury administration, investor relations, internal audit, insurance, information technology and telecommunications services, as well as the accounting for items such as equity compensation and income taxes. We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent, publicly-traded company, and we may experience increased costs associated with performing these functions.company. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies in the early stages of independent business operations, particularly companies such as ours in highly competitive markets.
Our agreements with Temple-Inland and Guaranty may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties.
The agreements that we have entered into related to our spin-off from Temple-Inland, including the separation and distribution agreement, employee matters agreement, tax matters agreement and transition services agreement, were prepared in the context of our spin-off from Temple-Inland while we were still part of Temple-Inland and, accordingly, may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. These agreements relate to, among other things, the allocation of assets, liabilities, rights, indemnifications and other obligations between Temple-Inland, Guaranty, and us.
Our historical financial information prior to 2008 is not necessarily indicative of our results as a separate company and, therefore, may not be reliable as an indicator of our future financial results.
Our historical financial information prior to 2008 has been created using our historical results of operations and historical bases of assets and liabilities as part of Temple-Inland. This historical financial information is not necessarily indicative of what our results of operations, financial position and cash flows would have been if we had been a separate, stand-alone entity during the periods presented.
It also is not necessarily indicative of what our results of operations, financial position and cash flows will be in the future and does not reflect many significant changes that have occurred or will occur in our capital structure, funding, and operations as a result of the spin-off. While our historical results of operations prior to 2008 include all costs of Temple-Inland’s real estate development and minerals operations, our historical costs and
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expenses prior to 2008 do not include all of the costs that would have been or will be incurred by us as an independent, publicly-traded company. In addition, our historical financial information does not reflect changes, many of which are significant, that we anticipate will occur or have occurred in our cost structure, financing and operations as a result of the spin-off. These changes include potentially increased costs associated with reduced economies of scale and purchasing power.
Our effective income tax rate as reflected in our historical financial information also may not be indicative of our future effective income tax rate. Among other things, the rate may be materially affected by:
| | |
| • | changes in the mix of our earnings from the various jurisdictions in which we operate; |
|
| • | the tax characteristics of our earnings; and |
|
| • | the timing and results of any reviews of our income tax filing positions in the jurisdictions in which we transact business. |
If the spin-off is determined to be taxable for U.S. federal income tax purposes, we our stockholders, and Temple-Inland could incur significant U.S. federal income tax liabilities.
Temple-Inland has received a private letter ruling from the Internal Revenue Service, or IRS, that the spin-off qualifies for tax-free treatment under applicable sections of the Code. In addition, Temple-Inland has received an opinion from tax counsel that the spin-off so qualifies. The IRS ruling and the opinion rely on certain representations, assumptions, and undertakings, including those relating to the past and future conduct of our business, and neither the IRS ruling nor the opinion would be valid if such representations, assumptions, and undertakings were incorrect. Moreover, the IRS private letter ruling does not address all the issues that are relevant to determining whether the spin-off qualifies for tax-free treatment. Notwithstanding the IRS private letter ruling and opinion, the IRS could determine that the spin-off should be treated as a taxable transaction if it determines that any of the representations, assumptions, or undertakings that were included in the request for the private letter ruling are false or have been violated or if it disagrees with the conclusions in the opinion that are not covered by the IRS ruling.
If the spin-off fails to qualify for tax-free treatment, Temple-Inland would be subject to tax as if it had sold the common stock of our company in a taxable sale for its fair market value, and our initial public stockholders would be subject to tax as if they had received a taxable distribution equal to the fair market value of our common stock that was distributed to them. Underunder the tax matters agreement between Temple-Inland and us, we would generally be required to indemnify Temple-Inland against any tax resulting from the distribution to the extent that such tax resulted from (1) an issuance of our equity securities, a redemption of our equity securities, or our involvement in other acquisitions of our equity securities, (2) other actions or failures to act by us, or (3) any of our representations or undertakings being incorrect or violated. Our indemnification obligations to Temple-Inland and its subsidiaries, officers, and directors are not limited by any maximum amount. If we are required to indemnify Temple-Inland or such other persons under the circumstances set forth in the tax matters agreement, we may be subject to substantial liabilities.
We must abide by certain restrictions to preserve the tax-free treatment of the spin-off and may not be able to engage in desirable acquisitions and other strategic transactions following the spin-off.
To preserve the tax-free treatment of the spin-off to Temple-Inland, under the tax matters agreement that we entered into with Temple-Inland and Guaranty, for the two-year period following the distribution, we may be prohibited, except in specified circumstances, from:
| | |
| • | issuing equity securities to satisfy financing needs, |
|
| • | acquiring businesses or assets with equity securities, or |
|
| • | engaging in mergers or asset transfers that could jeopardize the tax-free status of the distribution. |
These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business.
17
The ownership by our chairman, our executive officers, and some of our other directors of common stock, options, or other equity awards of Temple-Inland or Guaranty may create actual or apparent conflicts of interest.
Because of their current or former positions with Temple-Inland, our chairman, substantially all of our executive officers, including our Chief Executive Officer and our Chief Financial Officer, and some of our non-employee directors, own shares of common stock of Temple-Inland, options to purchase shares of common stock of Temple-Inland, or other Temple-Inland equity awards. These officers and non-employee directors also own shares of common stock, options to purchase shares of common stock, and other equity awards in Guaranty. The individual holdings of shares of common stock, options to purchase shares of common stock, or other equity awards of Temple-Inland and Guaranty may be significant for some of these persons compared with their total assets. In light of our continuing relationships with Temple-Inland and Guaranty, these equity interests may create actual or apparent conflicts of interest when these directors and officers are faced with decisions that could benefit or affect the equity holders of Temple-Inland or Guaranty in ways that do not benefit or affect us in the same manner.
We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent, publicly-traded company, and we may experience increased costs after the spin-off or as a result of the spin-off.
Following the spin-off, Temple-Inland is obligated contractually to provide to us only those transition services specified in the transition services agreement we have entered into with Temple-Inland and Guaranty. We may be unable to replace in a timely manner or on comparable terms the services or other benefits that Temple-Inland previously provided to us that are not specified in any transition services agreement. After the expiration of the transition services agreement, we may be unable to replace in a timely manner or on comparable terms the services specified in the agreement. Upon expiration of the transition services agreement, many of the services that are covered in the agreement will have to be provided internally or by unaffiliated third parties. We may incur higher costs to obtain these services than we incurred previously. In addition, if Temple-Inland does not continue to perform the services that are called for under the transition services agreement, we may not be able to operate our business as effectively and our profitability may decline.
Risks Relating to Our Common Stock
The market price of our shares may fluctuate widely.
The market price of our common stock may fluctuate widely, depending upon many factors, some of which may be beyond our control, including:
| | |
| • | a shift in our investor base; |
|
| • | actual or anticipated fluctuations in our operating results due to the seasonality of our business and other factors related to our business; |
|
| • | announcements by us or our competitors of significant acquisitions or dispositions; |
|
| • | the operating and stock price performance of other comparable companies; |
|
| • | overall market fluctuations; and |
|
| • | general economic conditions. |
Stock markets in general have experienced volatility that has often been unrelated to the operating or financial performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.
Your percentage ownership in our common stock may be diluted in the future.
Your percentage ownership in our common stock may be diluted in the future because of equity awards that have already been granted and that we expect will be granted to our directors and officers in the future. Our 2007 Stock Incentive Plan provides for the grant of equity-based awards, including restricted stock, restricted stock units, stock options, stock appreciation rights, phantom equity awards and other equity-based awards to our directors, officers and other employees. In the future, we may issue additional equity securities,
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subject to limitations imposed by the tax matters agreement, in order to fund working capital needs, capital expenditures and product development, or to make acquisitions and other investments, which may dilute your ownership interest.
The terms of our spin-off from Temple-Inland, anti-takeover provisions of our charter and bylaws, as well as Delaware law and our stockholder rights agreement, may reduce the likelihood of any potential change of control or unsolicited acquisition proposal that you might consider favorable.
The terms of our spin off from Temple-Inland could delay or prevent a change of control that you may favor. An acquisition or issuance of our common stock could trigger the application of Section 355(e) of the Code, which could cause the spin off to be taxable to Temple-Inland. Under the tax matters agreement we have entered into with Temple-Inland and Guaranty, we would be required to indemnify Temple-Inland and Guaranty for the resulting tax in connection with such an acquisition or issuance and this indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable.
In addition, our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. Our board of directors may classify or reclassify any unissued shares of common stock or preferred stock and may set the preferences, conversion, or other rights, voting powers, and other terms of the classified or reclassified shares. Our board of directors could establish a series of preferred stock that could have the effect of delaying, deferring, or preventing a transaction or a change in control that might involve a premium price for our common stock or otherwise be considered favorably by our stockholders. Our certificate of incorporation and bylaws also provide for a classified board structure.
Our bylaws provide that nominations of persons for election to our board of directors and the proposal of business to be considered at a stockholders’ meeting may be made only in the notice of the meeting, by our board of directors or by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures of our bylaws. Also, under Delaware law, business combinations, including issuances of equity securities, between us and any person who beneficially owns 15 percent or more of our common stock or an affiliate of such person, are prohibited for a three-year period unless exempted by the statute. After this three-year period, a combination of this type must be approved by a super-majority stockholder vote, unless specific conditions are met or the business combination is exempted by our board of directors.
In addition, we have entered into a stockholder rights agreement with a rights agent that provides that in the event of an acquisition of or tender offer for 20 percent or more of our outstanding common stock, our stockholders shall be granted rights to purchase our common stock at a significant discount. The stockholder rights agreement could have the effect of significantly diluting the percentage interest of a potential acquirer and make it more difficult to acquire a controlling interest in our common stock without the approval of our board of directors to redeem the rights or amend the stockholder rights agreement to permit the acquisition.
We currently do not intend to pay any dividends on our common stock. Accordingly, investors in our common stock must rely upon subsequent sales after price appreciation as the sole method to realize a gain on an investment in our common stock.
We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. 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 to which we may be a party at the time, legal requirements (including compliance with the IRS private letter ruling), industry practice, and other factors that our board of directors deems relevant. To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition, investors must rely on sales of their common stock after price appreciation as the only way to realize a return on their investment, and if the price of our stock does not appreciate, then there will be no return on investment. Investors seeking cash dividends should not hold our common stock.
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Additional Risks
Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, financial condition or results of operations, the spin-off, or the trading price of our common stock.
The risks and uncertainties we face are not limited to those set forth in the risk factors described above. Although we believe that the risks identified above are our material risks in each of these categories, our assessment is based on the information currently known to us. Additional risks and uncertainties that are not presently known to us or that we do not currently believe to be material, if they occur, also may materially adversely affect our business, financial condition or results of operations, the spin-off, or the trading price of our common stock.
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Item 1B. | Unresolved Staff Comments. |
None.
Our principal executive offices are located in Austin, Texas, where we lease approximately 23,00032,000 square feet of office space from Guaranty.Palisades West, LLC, a venture in which we own a 25% interest. We also lease office space in Dallas, Texas,Texas; Fort Worth, Texas; Diboll, Texas; and in several locations near Atlanta, Georgia. We believe these offices are suitable for conducting our business.
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For a description of our properties in our real estate, mineral resources and naturalfiber resources segments, see “Business — Real Estate”, “Business — Mineral Resources” and “Business — NaturalFiber Resources”, respectively, in Part I, Item 1 of this Annual Report onForm 10-K.
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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.
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Item 4. | Submission of Matters to a Vote of Security Holders. |
None.
PART II
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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 record date for our spin off was the close of business on December 14, 2007, and our spin off was completed on December 28, 2007. A limited market, commonly known as a “when-issued” trading market, began shortly before the record date for the spin off, and “regular way” trading of our common stock began on the first trading day after the spin off. Thus, there was no “regular way” trading in our common stock during our 2007 fiscal year. The high and low sales prices forin each quarter in 2008 and in the fourth quarter in 2007 since our common stock for the period frombegan trading on December 12, 2007 to December 29,13, 2007 were:
| | | | | | | | |
| | 2007 | |
| | Price Range | |
| | High | | | Low | |
|
Fourth Quarter (since December 12, 2007) | | $ | 24.45 | | | $ | 20.00 | |
| | | | | | | | | | | | | | | | |
| | 2008 | | | 2007 | |
| | Price Range | | | Price Range | |
| | High | | | Low | | | High | | | Low | |
|
First Quarter | | $ | 29.49 | | | $ | 16.50 | | | $ | — | | | $ | — | |
Second Quarter | | | 27.30 | | | | 18.39 | | | | — | | | | — | |
Third Quarter | | | 21.03 | | | | 12.01 | | | | — | | | | — | |
Fourth Quarter | | | 15.50 | | | | 2.93 | | | | 24.45 | | | | 20.00 | |
For the Year | | | 29.49 | | | | 2.93 | | | | 24.45 | | | | 20.00 | |
ShareholdersStockholders
Our stock transfer records indicated that as of February 22, 2008,28, 2009, there were approximately 4,4504,270 holders of record of our common stock.
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Dividend Policy
We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. The declaration and payment of any future dividends will be at the discretion of our boardBoard of directorsDirectors after taking into account various factors, including without limitation, our financial condition, earnings, capital requirements of our business, the terms of any credit agreements to which we may be a party at the time, legal requirements (including compliance with the IRS private letter ruling), industry practice, and other factors that our board of directors deems relevant.
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Equity Compensation Plan Information
We have only one equity compensation plan, the Forestar 2007 Stock Incentive Plan, which was approved by our sole stockholder prior to the spin off.spin-off. Information at year-end 2007December 31, 2008 about our equity compensation plan under which our common stock may be issued follows:
| | | | | | | | | | | | |
| | | | | | | | (c)
| |
| | | | | | | | Number of Shares of
| |
| | | | | | | | Our Common Stock
| |
| | (a)
| | | | | | Remaining Available for
| |
| | Number of Shares of
| | | (b)
| | | Future Issuance Under
| |
| | Our Common Stock to be
| | | Weighted-Average
| | | Equity Compensation
| |
| | Issued Upon Exercise of
| | | Exercise Price of
| | | Plans (Exceeding
| |
| | Outstanding Options,
| | | Outstanding Options,
| | | Securities Reflected in
| |
Plan Category | | Warrants and Rights | | | Warrants and Rights | | | Column(a)) | |
|
2007 stock incentive plan | | | 1,982,030 | | | $ | 19.32 | | | | 1,817,970 | |
Other equity compensation plans approved by our security holders | | | None | | | | None | | | | None | |
Equity compensation plans not approved by our security holders | | | None | | | | None | | | | None | |
| | | | | | | | | | | | |
Total | | | 1,982,030 | | | | | | | | 1,817,970 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | Number of Securities
| |
| | | | | | | | Remaining Available for
| |
| | Number of Securities to be
| | | Weighted-Average
| | | Future Issuance Under
| |
| | Issued Upon Exercise of
| | | Exercise Price of
| | | Equity Compensation Plans
| |
| | Outstanding Options,
| | | Outstanding Options,
| | | (Excluding Securities
| |
Plan Category | | Warrants and Rights | | | Warrants and Rights | | | Reflected in Column (a)) | |
| | (a) | | | (b) | | | (c) | |
|
Equity compensation plans approved by security holders | | | 2,512,896 | | | $ | 21.70 | | | | 545,574 | |
Equity compensation plans not approved by security holders | | | None | | | | None | | | | None | |
Total | | | 2,512,896 | | | $ | 21.70 | | | | 545,574 | |
Due to the equitable adjustment of Temple-Inland equity awards in connection with our spin-off, over 60% of the securities authorized for issuance under our 2007 Stock Incentive Plan were committed to Temple-Inland equity award holders immediately upon our spin-off.
Issuer Purchases of Equity Securities
We made no purchases of our equity securities in 2008. 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, to be funded principally from the sale of approximately 175,000 acres of higher and better use timberland. We have not purchased any shares under this authorization, which has no expiration date, and no repurchases will be made under this repurchase authorization until after completion of the asset sales. We have no repurchase plans or programs that expired during 2008 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.
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Performance Graph
We composed an index of our peers consisting of Avatar Holdings Inc., Consolidated-Tomoka Land Co., Tejon Ranch Co. and The St. Joe Company (“Peer Index”). From the date trading in our common stock began (December 12, 2007) until year-end 2007,In 2008, our cumulative total stockholder return compared to the S&P SmallCap 600Russell 2000 Index and to the Peer Index was as shown in the following graph (assuming $100 invested on December 12, 2007)January 1, 2008):
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Item 6. | Selected Financial Data. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year | | | For the Year | |
| | 2007 | | 2006 | | 2005 | | 2004 | | 2003 | | | 2008 | | 2007 | | 2006 | | 2005 | | 2004 | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
|
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate | | $ | 142,729 | | | $ | 180,151 | | | $ | 118,121 | | | $ | 138,823 | | | $ | 92,416 | | | $ | 98,859 | | | $ | 142,729 | | | $ | 180,151 | | | $ | 118,121 | | | $ | 138,823 | |
Natural resources | | | 35,257 | | | | 45,409 | | | | 37,366 | | | | 30,478 | | | | 27,474 | | |
Mineral resources | | | | 47,671 | | | | 20,818 | | | | 27,980 | | | | 21,049 | | | | 13,439 | |
Fiber resources | | | | 13,192 | | | | 14,439 | | | | 17,429 | | | | 16,317 | | | | 17,039 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 177,986 | | | $ | 225,560 | | | $ | 155,487 | | | $ | 169,301 | | | $ | 119,890 | | | $ | 159,722 | | | $ | 177,986 | | | $ | 225,560 | | | $ | 155,487 | | | $ | 169,301 | |
| | | | | | | | | | | | | | | | | | | | | | |
Segment earnings: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate(a) | | $ | 39,507 | | | $ | 70,271 | | | $ | 46,418 | | | $ | 43,370 | | | $ | 21,259 | | | $ | 9,075 | | | $ | 39,507 | | | $ | 70,271 | | | $ | 46,418 | | | $ | 43,370 | |
Natural resources | | | 26,531 | | | | 33,016 | | | | 24,850 | | | | 18,653 | | | | 14,463 | | |
Mineral resources | | | | 44,076 | | | | 18,581 | | | | 26,305 | | | | 19,629 | | | | 12,360 | |
Fiber resources | | | | 8,896 | | | | 7,950 | | | | 6,711 | | | | 5,221 | | | | 6,293 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total segment earnings | | | 66,038 | | | | 103,287 | | | | 71,268 | | | | 62,023 | | | | 35,722 | | | | 62,047 | | | | 66,038 | | | | 103,287 | | | | 71,268 | | | | 62,023 | |
Items not allocated to segments | | | | | | | | | | | | | | | | | | | | | |
Items not allocated to segments: | | | | | | | | | | | | | | | | | | | | | |
General and administrative | | | (17,413 | ) | | | (14,048 | ) | | | (9,113 | ) | | | (10,433 | ) | | | (6,921 | ) | | | (19,318 | ) | | | (17,413 | ) | | | (14,048 | ) | | | (9,113 | ) | | | (10,433 | ) |
Share-based compensation(b) | | | (1,397 | ) | | | (1,275 | ) | | | (443 | ) | | | (154 | ) | | | (56 | ) | | | (4,516 | ) | | | (1,397 | ) | | | (1,275 | ) | | | (443 | ) | | | (154 | ) |
Interest expense | | | (9,229 | ) | | | (6,229 | ) | | | (6,439 | ) | | | (6,091 | ) | | | (5,591 | ) | | | (21,283 | ) | | | (9,229 | ) | | | (6,229 | ) | | | (6,439 | ) | | | (6,091 | ) |
Other non-operating income (expense)(c) | | | 705 | | | | 79 | | | | 483 | | | | 535 | | | | 552 | | |
Other non-operating income(c) | | | | 279 | | | | 705 | | | | 79 | | | | 483 | | | | 535 | |
| | | | | | | | | | | | | | | | | | | | | | |
Income before taxes | | | 38,704 | | | | 81,814 | | | | 55,756 | | | | 45,880 | | | | 23,706 | | | | 17,209 | | | | 38,704 | | | | 81,814 | | | | 55,756 | | | | 45,880 | |
Income tax expense | | | (13,909 | ) | | | (29,970 | ) | | | (20,859 | ) | | | (17,444 | ) | | | (8,456 | ) | | | (5,235 | ) | | | (13,909 | ) | | | (29,970 | ) | | | (20,859 | ) | | | (17,444 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 24,795 | | | $ | 51,844 | | | $ | 34,897 | | | $ | 28,436 | | | $ | 15,250 | | | $ | 11,974 | | | $ | 24,795 | | | $ | 51,844 | | | $ | 34,897 | | | $ | 28,436 | |
| | | | | | | | | | | | |
Diluted net income per share(d) | | | $ | 0.33 | | | $ | 0.70 | | | $ | 1.47 | | | $ | 0.99 | | | $ | 0.80 | |
Average diluted shares outstanding(d) | | | | 35,892 | | | | 35,380 | | | | 35,380 | | | | 35,380 | | | | 35,380 | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At year-end: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | $ | 748,726 | | | $ | 620,174 | | | $ | 543,944 | | | $ | 517,700 | | | $ | 533,097 | | | $ | 834,576 | | | $ | 748,726 | | | $ | 620,174 | | | $ | 543,944 | | | $ | 517,700 | |
Debt | | $ | 266,015 | | | $ | 161,117 | | | $ | 121,948 | | | $ | 110,997 | | | $ | 143,337 | | | $ | 337,402 | | | $ | 266,015 | | | $ | 161,117 | | | $ | 121,948 | | | $ | 110,997 | |
Minority interest in consolidated ventures | | $ | 8,629 | | | $ | 7,746 | | | $ | 7,292 | | | $ | 8,078 | | | $ | 2,558 | | | $ | 6,660 | | | $ | 8,629 | | | $ | 7,746 | | | $ | 7,292 | | | $ | 8,078 | |
Stockholders’/Parent’s Equity | | $ | 433,201 | | | $ | 418,052 | | | $ | 381,290 | | | $ | 368,659 | | | $ | 354,155 | | | $ | 447,292 | | | $ | 433,201 | | | $ | 418,052 | | | $ | 381,290 | | | $ | 368,659 | |
Ratio of total debt to total capitalization | | | 38 | % | | | 28 | % | | | 24 | % | | | 23 | % | | | 29 | % | | | 43 | % | | | 38 | % | | | 28 | % | | | 24 | % | | | 23 | % |
| | |
(a) | | Beginning in 2006, we eliminated our historical one-month lag in accounting for our investment in our two largest real estate ventures as financial information became more readily available. The one-time effect of eliminating this one-month lag was to increase our equity in earnings by about $1,104,000. |
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| | |
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(b) | | In 2006, Temple-Inland adopted the modified prospective application of SFAS No. 123 (revised December 2004),Share-Based Payment.As a result, share-based compensation expense allocated to us increased by $153,000. In 2003, Temple-Inland voluntarily adopted the prospective transition method of SFAS No. 148,Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123.As a result, Temple-Inland began allocating share-based compensation expense to us. |
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| | |
|
(c) | | In 2006, other non-operating income (expense) included $459,000 expense associated with early repayment of debt. |
|
(d) | | For 2007 and prior years, we computed diluted net income per share based upon the number of shares of our common stock distributed by Temple-Inland on December 28, 2007. |
| |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Forward-Looking Statements
This Annual Report onForm 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
24
subject to risk and uncertainties. We note that a variety of factors and uncertainties could cause our actual
22
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; |
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| • | economic, market or business conditions in Texas or Georgia, where our real estate activities are concentrated; |
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| • | the opportunities (or lack thereof) that may be presented to us and that we may pursue; |
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| • | future residential or commercial entitlements; |
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| • | expected development timetables and projected timing for sales of lots or other parcels of land; |
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| • | development approvals and the ability to obtain such approvals; |
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| • | the anticipated price ranges of lots in our developments; |
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| • | the number, price and timing of land sales or acquisitions; |
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| • | estimated land holdings for a particular use within a specified time frame; |
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| • | absorption rates and expected gains on land and lot sales; |
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| • | the levels of resale inventory in our development projects and the regions in which they are located; |
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| • | the development of relationships with strategic partners; |
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| • | the pace at which we release lots for sale; |
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| • | fluctuations in costs and expenses; |
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| • | demand for new housing;housing, which can be affected by the availability of mortgage credit; |
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| • | government energy policies; |
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| • | demand for oil and gas; |
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| • | fluctuations in oil and gas prices; |
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| • | competitive actions by other companies; |
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| • | changes in laws or regulations and actions or restrictions of regulatory agencies; |
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| • | the results of financing efforts, including our ability to obtain financing onwith favorable terms, which can be affected by various factors, including terms; |
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| • | our credit ratings and general economic conditions;partners’ ability to fund their capital commitments; |
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| • | the ability to complete merger, acquisition or divestiture plans; regulatory or other limitations imposed as a result of a merger, acquisition or divestiture; and the success of the business following a merger, acquisition or divestiture; and |
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| • | the final resolutions or outcomes with respect to our contingent and other corporate liabilities related to our businessbusiness; and any related actions for indemnification made pursuant |
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| • | our customers may be unwilling or unable to the separation and distribution agreement.meet lot takedown commitments due to liquidity limitations or slowing market conditions. |
Other factors, including the risk factors described in Item 1A of this Annual Report onForm 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.
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IntroductionBackground
Our spin-off from Temple-Inland occurred after the close of business onPrior to December 28, 2007, we were a wholly-owned subsidiary of Temple-Inland Inc. On December 28, 2007, Temple-Inland distributed all our issued and outstanding shares of common stock to its stockholders. As a result of the spin-off, our 2007 fiscalfinancial statements prior to 2008 reflect the historical accounts of the real estate development, minerals and fiber operations contributed to us and have been derived from the historical financial statements and accounts of Temple-Inland. In 2008, we operated our first full year ended December 29, 2007. Except for the last day of our fiscal year,as a stand-alone public company and the following discussion and analysis of our financial condition andreflect the post-spin results of operations covers periods prior toand the spin-off and related transactions. It does not reflect the impact that the spin-off and related transactions will haveeffect on us, including leverage, debt service requirements, and differences between administrative costs allocated to us by Temple-Inland and actual administrative costs that we will incur as a separate public company.
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In 2007, costsoperating expenses principally consist of $7,405,000 in property taxes, $3,907,000 related to employee compensation and expenses includebenefits, and depreciation expense of $2,333,000. Cost of sales includes $6,518,000 in asset impairments of $6,518,000impairment charges related to residential real estate projects and a commercial golf club operation in Texas. The decrease in equity in earnings of unconsolidated ventures is principally due principally to the overall decline in the housing industry.
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BeginningIn 2006, operating expenses principally consist of $8,063,000 in 2006, weproperty taxes, and $3,976,000 related to employee compensation and benefits. We eliminated our historical one-month lag in accounting for our investment in our two largest real estate ventures as financial information became more readily available. The one-time effect of eliminating this one-month lag was to increase our equity in earnings of unconsolidated ventures in 2006 by about $1,104,000.
Revenues in our owned and units soldconsolidated ventures consist of:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year | | | For the Year | |
| | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | (In thousands, except lots and acres) | | | (In thousands) | |
|
Residential real estate | | $ | 58,467 | | | $ | 74,833 | | | $ | 60,340 | | | $ | 38,110 | | | $ | 56,731 | | | $ | 74,833 | |
Commercial real estate | | | 41,484 | | | | 49,699 | | | | 13,968 | | | | 9,440 | | | | 43,220 | | | | 49,699 | |
Undeveloped land | | | 17,939 | | | | 27,253 | | | | 22,388 | | | | 26,005 | | | | 17,939 | | | | 27,253 | |
Commercial operating properties | | | 20,383 | | | | 19,590 | | | | 17,349 | | | | 21,488 | | | | 20,383 | | | | 19,590 | |
Other | | | 4,456 | | | | 8,776 | | | | 4,076 | | | | 3,816 | | | | 4,456 | | | | 8,776 | |
| | | | | | | | | | | | | | |
Total revenues | | $ | 142,729 | | | $ | 180,151 | | | $ | 118,121 | | | $ | 98,859 | | | $ | 142,729 | | | $ | 180,151 | |
| | | | | | | | | | | | | | |
Residential real estate — lots sold | | | 1,076 | | | | 1,710 | | | | 1,355 | | |
Commercial real estate — acres sold | | | 166 | | | | 220 | | | | 264 | | |
Undeveloped land — acres sold | | | 2,486 | | | | 3,441 | | | | 3,067 | | |
| | | | | | | | | | | | | |
Units sold in our owned and consolidated ventures consist of:
| | | | | | | | | | | | |
| | For the Year | |
| | 2008 | | | 2007 | | | 2006 | |
|
Residential real estate: | | | | | | | | | | | | |
Lots sold | | | 812 | | | | 1,076 | | | | 1,710 | |
Revenue per lot sold | | $ | 45,712 | | | $ | 51,079 | | | $ | 42,355 | |
Commercial real estate: | | | | | | | | | | | | |
Acres sold | | | 55 | | | | 166 | | | | 220 | |
Revenue per acre sold | | $ | 172,346 | | | $ | 260,229 | | | $ | 221,888 | |
Undeveloped land: | | | | | | | | | | | | |
Acres sold | | | 5,577 | | | | 2,486 | | | | 3,441 | |
Revenue per acre sold | | $ | 4,663 | | | $ | 6,748 | | | $ | 7,925 | |
Residential real estate revenues principally consist of the sale of single-family lots to national, regional and local homebuilders. In 2007,2008, residential real estate revenues decreaseddeclined as a result of decreased demand for single-family lots due to the overall decline in the housing industry.industry and significant tightening of mortgage credit availability. We expect difficult housing markets and credit conditions throughout 2009.
Commercial real estate revenues in 2007 included $31,000,000 from three sales aggregating 91 acres on which we recognized income of $17,000,000. In 2006, commercial real estate revenues included $39,000,000 from two sales aggregating 131 acres on which we recognized income of $14,000,000.
UndevelopedAs market conditions for residential and commercial real estate continued to deteriorate in 2008, we allocated additional internal resources and focused our strategic marketing efforts toward sale of our undeveloped land. As a result, we sold 5,577 acres from our owned and consolidated ventures at an average price of $4,663 per acre, generating $26,005,000 in undeveloped land sales revenues in 2008.
In 2007, undeveloped land sales revenues decreased in 2007compared to 2006 as a result of significant tightening of credit standards.
29
Other revenues in 2006 included the sale of a country club property for $4,300,000.
26
Information about our real estate projects and our real estate ventures follows:
| | | | | | | | | | | | | | | | |
| | Year-End | | | Year-End | |
| | 2007 | | 2006 | | | 2008 | | 2007 | |
|
Owned and consolidated ventures: | | | | | | | | | | | | | | | | |
Entitled, developed, and under development land | | | | | | | | | |
Entitled, developed, and under development projects | | | | | | | | | |
Number of projects | | | 56 | | | | 48 | | | | 57 | | | | 56 | |
Residential lots remaining | | | 20,465 | | | | 15,941 | | | | 20,561 | | | | 20,465 | |
Commercial acres remaining | | | 1,136 | | | | 1,265 | | | | 1,624 | | | | 1,136 | |
Undeveloped land | | | | | | | | | |
Undeveloped land and land in the entitlement process | | | | | | | | | |
Number of projects | | | 22 | | | | 19 | | | | 23 | | | | 22 | |
Acres in entitlement process | | | 27,720 | | | | 24,990 | | | | 32,640 | | | | 27,720 | |
Acres sold (for the year) | | | 2,486 | | | | 3,441 | | |
Acres undeveloped | | | 320,458 | | | | 327,850 | | | | 309,232 | | | | 321,694 | |
Ventures accounted for using the equity method: | | | | | | | | | | | | | | | | |
Ventures’ lot sales (for the year) | | | | | | | | | | | | | | | | |
Lots sold | | | 631 | | | | 1,829(a | ) | | | 248 | | | | 631 | |
Revenue per lot sold | | $ | 55,877 | | | $ | 53,619 | | | $ | 57,750 | | | $ | 55,877 | |
Ventures’ entitled, developed, and under development land | | | | | | | | | |
Ventures’ entitled, developed, and under development projects | | | | | | | | | |
Number of projects | | | 22 | | | | 23 | | | | 21 | | | | 22 | |
Residential lots remaining | | | 9,385 | | | | 10,816 | | | | 9,348 | | | | 9,385 | |
Commercial acres sold (for the year) | | | | 65 | | | | 32 | |
Revenue per acre sold | | | $ | 280,609 | | | $ | 264,181 | |
Commercial acres remaining | | | 719 | | | | 675 | | | | 648 | | | | 719 | |
Ventures’ undeveloped land | | | | | | | | | |
Ventures’ undeveloped land and land in the entitlement process | | | | | | | | | |
Number of projects | | | 2 | | | | 2 | | | | 2 | | | | 2 | |
Acres in entitlement process | | | 870 | | | | 860 | | | | 1,080 | | | | 870 | |
Acres sold (for the year) | | | 131 | | | | 211 | | | | 486 | | | | 131 | |
Revenue per acre sold | | | $ | 6,306 | | | $ | 5,764 | |
Acres undeveloped | | | 7,363 | | | | 6,384 | | | | 5,641 | | | | 6,127 | |
Mineral Resources
We own directly or through ventures about 622,000 net acres of oil and gas mineral interests. Our mineral resources segment is focused on maximizing the value from royalties and other lease revenues from our oil and gas mineral interests located in Texas, Louisiana, Alabama and Georgia. At year-end 2008, we have about 121,000 net acres under lease and about 25,000 net acres held by production.
A summary of our mineral resources results follows:
| | | | | | | | | | | | |
| | For the Year | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands) | |
|
Revenues | | $ | 47,671 | | | $ | 20,818 | | | $ | 27,980 | |
Operating expenses | | | (4,757 | ) | | | (2,237 | ) | | | (1,675 | ) |
| | | | | | | | | | | | |
| | | 42,914 | | | | 18,581 | | | | 26,305 | |
Equity in earnings of unconsolidated ventures | | | 1,162 | | | | — | | | | — | |
| | | | | | | | | | | | |
Segment earnings | | $ | 44,076 | | | $ | 18,581 | | | $ | 26,305 | |
| | | | | | | | | | | | |
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In 2008, operating expenses principally consist of $911,000 related to employee compensation and benefits and $1,714,000 related to oil and gas production severance taxes. Equity in earnings of unconsolidated ventures includes our share of a lease bonus payment as result of leasing 241 net mineral acres for $1,568,000.
In 2007 and 2006, oil and gas production severance taxes were reflected as a reduction of revenues. Operating expenses were allocated to us from Temple-Inland.
Revenues consist of:
| | | | | | | | | | | | |
| | For the Year | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands) | |
|
Royalties | | $ | 21,639 | | | $ | 13,114 | | | $ | 17,381 | |
Other lease revenues | | | 26,032 | | | | 7,704 | | | | 10,599 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total revenues | | $ | 47,671 | | | $ | 20,818 | | | $ | 27,980 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
In 2008, other lease revenues include $23,356,000 in lease bonus payments as a result of leasing over 61,500 net mineral acres. The leasing activity was located principally in East Texas and was driven by our proximity to the Cotton Valley, James Lime and Haynesville natural gas formations.
In 2008, royalty revenues include our share of about 88,000 barrels of oil and approximately 1,363 million cubic feet (mmcf) of natural gas production related to our royalty interests. In 2008, royalty revenues benefited from increased production volume from new well activity and higher oil and natural gas prices. The average price per barrel of oil was $106.66 in 2008, $65.24 in 2007 and $64.14 in 2006. The average price per thousand cubic feet (mcf) of natural gas was $8.76 in 2008, $6.69 in 2007 and $7.95 in 2006.
A summary of our oil and gas mineral interests(a) at year-end 2008 follows:
| | | | | | | | | | | | | | | | |
| | | | | | | | Held By
| | | | |
State | | Unleased | | | Leased(b) | | | Production(c) | | | Total(d) | |
| | (Net acres) | |
|
Texas | | | 118,000 | | | | 108,000 | | | | 18,000 | | | | 244,000 | |
Louisiana | | | 110,000 | | | | 4,000 | | | | 7,000 | | | | 121,000 | |
Alabama | | | 48,000 | | | | 9,000 | | | | — | | | | 57,000 | |
Georgia | | | 200,000 | | | | — | | | | — | | | | 200,000 | |
| | | | | | | | | | | | | | | | |
| | | 476,000 | | | | 121,000 | | | | 25,000 | | | | 622,000 | |
| | | | | | | | | | | | | | | | |
| | |
(a) | | The eliminationIncludes ventures. |
|
(b) | | Includes leases in primary lease term only. |
|
| | |
|
(c) | | Acres being held by production are producing oil or gas in paying quantities. |
|
| | |
|
(d) | | Texas and Louisiana net acres are calculated as the gross number of surface acres multiplied by our percentage ownership of the previously mentioned one month reporting lag resulted in a one-time increase inmineral interest. Alabama and Georgia net acres are calculated as the gross number of lots soldsurface acres multiplied by our estimated percentage ownership of 122 lots.the mineral interest based on county sampling. |
We also have a 45 percent nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes or sold from approximately 1.38 million acres in Texas, Louisiana, Georgia and Alabama. We have not received any income from this interest.
NaturalFiber Resources
Our naturalfiber resources segment managesfocuses principally on the management of our oil and gas mineral interests, timber and recreational leases. Our natural resources segment revenues are principally derived from lease royalties, bonus payments, and delay rentals associated with our oil and gas mineral interests, the saleholdings. We have over 340,000 acres of timber on our undeveloped land and to a lesser degreeabout 18,000 acres of timber under lease. We sell wood fiber from our land, primarily in Georgia, and lease land for hunting and other recreational leases of our lands.uses.
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A summary of our naturalfiber resources results follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year | | | For the Year | |
| | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | (In thousands) | | | (In thousands) | |
|
Revenues | | $ | 35,257 | | | $ | 45,409 | | | $ | 37,366 | | | $ | 13,192 | | | $ | 14,439 | | | $ | 17,429 | |
Costs and expenses | | | (10,969 | ) | | | (12,393 | ) | | | (12,516 | ) | |
Cost of sales | | | | (3,357 | ) | | | (3,672 | ) | | | (3,455 | ) |
Operating expenses | | | | (2,611 | ) | | | (5,060 | ) | | | (7,263 | ) |
| | | | | | | | |
| | | | 7,224 | | | | 5,707 | | | | 6,711 | |
Other operating income | | | 2,243 | | | | — | | | | — | | | | 1,672 | | | | 2,243 | | | | — | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Segment earnings | | $ | 26,531 | | | $ | 33,016 | | | $ | 24,850 | | | $ | 8,896 | | | $ | 7,950 | | | $ | 6,711 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
OtherIn 2008, operating expenses decreased as a result of establishing our post-spin operating structure and principally consist of $1,036,000 related to employee compensation and benefits, and $600,000 related to contract services. In 2007 and 2006, costs and expenses were allocated to us from Temple-Inland.
In 2008 and 2007, other operating income in 2007 representsprincipally reflects a gain from partial termination of a timber lease related to land sold from Ironstob LLC, a venture created in connection with the formation2007. We have a 58% ownership interest in this venture which controls about 16,000 acres of a venture.undeveloped land near Atlanta, Georgia.
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Revenues consist of:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year | | | For the Year | |
| | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | (In thousands) | | | (In thousands) | |
|
Minerals | | $ | 20,818 | | | $ | 27,980 | | | $ | 21,049 | | |
Timber | | | 13,722 | | | | 14,313 | | | | 14,209 | | |
Fiber | | | $ | 10,987 | | | $ | 13,722 | | | $ | 14,313 | |
Recreational leases and other | | | 717 | | | | 3,116 | | | | 2,108 | | | | 2,205 | | | | 717 | | | | 3,116 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 35,257 | | | $ | 45,409 | | | $ | 37,366 | | | $ | 13,192 | | | $ | 14,439 | | | $ | 17,429 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Mineral revenues are principally derived from royaltiesFiber sold consists of:
| | | | | | | | | | | | |
| | For the Year |
| | 2008 | | 2007 | | 2006 |
|
Tons sold | | | 1,079,873 | | | | 1,215,471 | | | | 1,114,820 | |
Revenue per ton sold | | $ | 10.17 | | | $ | 11.29 | | | $ | 12.84 | |
In 2008, revenue per ton decreased because we harvested and other lease revenue. Mineral revenues fluctuate based on changes in the market prices for oil and gas and the numbersold higher levels of acres leased. We sold about 1,215,000 tons of timber in 2007, 1,115,000 tons in 2006, and 959,000 tons in 2005, thepulpwood. The majority of which was soldour sales were to Temple-Inland based on an estimate ofat market prices at the time of delivery. Average price paid per ton was $11 in 2007, $13 in 2006, and $15 in 2005. Timber revenue fluctuates based on changes in tons sold and in the market prices of timber.prices.
In 2007, Temple-Inland retained a greater portion of recreational lease revenues than in prior years. In 2008, we anticipate our recreational lease revenues will be about $2,000,000.revenues.
Items Not Allocated to Segments
Unallocated items represent income and expenses managed on a company-wide basis and include general and administrative expenses, share-based compensation, other non-operating income and expense and interest expense.
The changeIn 2008 and 2007, the increase in general and administrativeinterest expense in 2007 was principally due to increased compensationhigher average debt balances and benefits and other support costs associated with the development of corporate functions as a stand alone company. The change in general and administrative expense in 2006 was principally due to incremental support costs related to the segmentation of the real estate business within Temple-Inland.higher borrowing costs.
Share-basedIn 2008, the increase in share-based compensation expense was a result of recognizing accelerated expense for retirement eligible employees and fully vested awards to members of our board of directors, and from an increase in the number of participants in our plan. In 2007 and 2006, share-based compensation was allocated from Temple-Inland and represents the expense of Temple-Inland share-based awards granted to our employees. The changes
In 2008 and 2007, the increase in 2007general and in 2006 were primarilyadministrative expenses was due to increases in Temple-Inland’s share price related to awards to be settled in cash.
The change in interest expense in 2007 is principally due to higher debt levels. The decline in 2006increased costs associated with implementing corporate functions as compared to 2005 was primarily related to the payoff of a senior bank credit facility at a weighted average rate of 6.04 percent, the funding for which came from borrowings under our credit facility with Temple-Inland at a weighted average rate of 4.20 percent.stand-alone public company.
32
Income Taxes
Our effective tax rate, which is income tax as a percentage of income before taxes, was 30 percent in 2008, 36 percent in 2007 37 percent in 2006, and 37 percent in 2005.2006. The 2008 rate reflects a benefit from increased percentage depletion deduction related to our mineral activities and a federal income tax rate change for qualified timber gains due to the Food, Conservation and Energy Act of 2008. We anticipate that our effective tax rate in 20082009 will be about 36 percent.37 percent due to our announced 2009 strategic initiatives and the expiration in June 2009 of special tax rates for qualified timber gains under the Food, Conservation and Energy Act of 2008. We have not provided a valuation allowance for our deferred tax asset because we believe it is likely it will be recoverable in future periods.
Capital Resources and Liquidity
Sources and Uses of Cash
We operate in cyclical industries and our cash flows fluctuate accordingly. Our principal operating cash requirements are for the acquisition and development of real estate, either directly or indirectly through ventures, taxes, interest, and compensation. Our principal sources of cash are proceeds from the sale of real estate and timber, the cash flow from minerals and commercial operating properties, and borrowings. Operating cash flows are also affected by the timing of the payment of real estate development expenditures and the collection of proceeds from the eventual sale of the real estate, the timing of which can vary substantially depending on many factors including the size of the project, state and local permitting requirements, and availability of utilities. Working capital is subject to operating needs, the timing of sales of real estate and timber, the timing of collection of mineral royalties or mineral lease payments, collection of receivables, reimbursement from utility or improvement districts, and the payment of payables and expenses.
28
Cash Flows from Operating Activities
Cash flows from real estate development activities, are classified as operating cash flows. Cash flows related to the operation or sale of natural resources including minerals,undeveloped land sales, timber sales, and mineral and recreational leases are also classified as operating cash flows.
Net cash (used for) provided by operations was $(66,284,000)$(51,889,000) in 2008, $(63,981,000) in 2007 $(29,071,000)and $(27,705,000) in 2006,2006. In 2008, expenditures for real estate development and $21,094,000acquisition exceeded non-cash real estate cost of sales principally due to contractual commitments to our Cibolo Canyons project. We invested $34,863,000 in 2005.this project in 2008. In 2007, expenditures for real estate development and acquisition significantly exceeded non-cash real estate cost of sales principally due to the investment of $47,000,000 in new real estate projects, an increase in the deferred tax asset of $19,544,000 due primarily to a tax gain resulting from our contractual right to receive certain hotel occupancy and sales taxesrevenues through 2034 at our Cibolo Canyons mixed-use development near San Antonio, Texas,project, and distributions to minority interests of $11,948,000.$11,042,000. In 2006, expenditures for real estate development and acquisition significantly exceeded non-cash real estate cost of sales principally due to the investment of $74,000,000 in ten new real estate projects for $74,000,000. In 2005, real estate development and acquisition expenditures exceeded non-cash real estate cost of sales.projects.
Cash Flows from Investing Activities
Capital contributions to and capital distributions from unconsolidated ventures are classified as investing activities. In addition, expenditures related to reforestation activities in our naturalfiber resources segment are classified as investing activities.
In 2008, net cash (used for) investing activities was $(16,667,000) as capital contributed to unconsolidated ventures exceeded distributions received principally due to our contractual commitment to Palisades West LLC. In 2008, we contributed $9,118,000 to this venture which consists of two office buildings totaling approximately 375,000 square feet located in Austin, Texas. In 2007, net cash (used for) investing activities was $(10,828,000) as capital contributed to unconsolidated ventures exceeded distributions received. In 2006, netNet cash provided by investing activities was $7,410,000 in 2006 as capital distributions we received from unconsolidated ventures exceeded contributions. Net cash (used for) investing activities was $(5,532,000) in 2005 as contributions to unconsolidated ventures exceeded the distributions we received.
33
Cash Flows from Financing Activities
Net cash provided by (used for) financing activities was $74,282,000$69,163,000 in 2008, $71,979,000 in 2007 $19,069,000and $17,703,000 in 2006,2006. In 2008, our debt increased by $71,387,000 to fund our real estate development expenditures, net investment in our unconsolidated ventures and $(16,831,000) in 2005.net working capital to operate our business. In 2007, the increase in debt funded expenditures for real estate development and acquisition.acquisitions. In 2006, the increase in debt, including borrowings under our credit facility with Temple-Inland, funded expenditures for real estate development and acquisitionacquisitions in excess of the net distributions we received from ventures. In 2005, the increase in debt and cash flow from operations funded net contributions to ventures.
Liquidity and Contractual Obligations
Liquidity
At year-end 2007,2008, we had $187,933,000 in net unused borrowing capacity under our senior credit facility.
| | | | |
| | Senior
| |
| | Credit Facility | |
| | (In thousands) | |
|
Committed | | $ | 465,000 | |
Plus: unrestricted cash equivalents | | | 5,968 | |
Less: borrowings | | | (234,900 | ) |
Less: letters of credit | | | (13,135 | ) |
Less: minimum liquidity covenant | | | (35,000 | ) |
| | | | |
Unused borrowing capacity at year-end 2008 | | $ | 187,933 | |
| | | | |
| | | | |
Our senior credit facility provides for a $175,000,000 term loan and a $290,000,000 revolving line of credit. We may, upon notice to the lenders, request an increase in the credit facility to provide for a total of $500,000,000. The revolving line of credit may be prepaid at any time without penalty. The term loan may be prepaid at any time; however, repayment prior to June 1, 2009 requires a fee of 1.00% of the principal amount. There is no prepayment fee for the term loan on or after June 1, 2009. The senior credit facility matures December 1, 2010. The revolving line of credit includes a $100,000,000 sublimit for letters of credit, of which $13,135,000 was outstanding at year-end 2008. Total borrowings under our senior credit facility (including the face amount of letters of credit) may not exceed a borrowing base formula, and include a $35,000,000 minimum liquidity requirement at each quarter-end.
At our option, we can borrow at LIBOR plus 4 percent or Prime plus 2 percent. All borrowings under the senior credit facility are secured by (a) an initial pledge of approximately 250,000 acres of undeveloped land, (b) assignments of current and future leases, rents and contracts, including our mineral leases, (c) a security interest in our primary operating account, (d) pledge of the equity interests in current and future material operating subsidiaries or joint venture interests, or if such pledge is not permitted, a pledge of the right to distributions from such entities, and (e) negative pledge (without a mortgage) on most other wholly-owned assets. The senior credit facility provides for releases of real estate provided that borrowing base compliance is maintained.
As a result of current financial market conditions, we closely monitor the banks in our senior credit facility. We have not experienced any difficulty borrowing under our credit facility to date, and we currently have no reason to believe that the participants will not be able to honor their commitments under these facilities.
In 2008, we entered into an interest rate swap agreement. This instrument expires in 2010 and is for a total notional amount of $100,000,000. It is non-exchange traded and is valued using third-party resources and models. Under the agreement, we mitigate interest rate fluctuations by fixing the interest rate on the first $100,000,000 of our variable rate borrowings at 6.57 percent compared with a floating interest rate of one month LIBOR plus 4 percent (4.77% at year-end 2008). At year-end 2008, the fair value of our interest rate instrument was a $1,938,000 liability that is included in other liabilities.
34
| | |
| | provision in our financial statements. These adjustments could materially impact our financial position, cash flow and results of operation. |
Pending Accounting Pronouncements
There are sixthree new accounting pronouncements that we will adopt in 20082009 or will be required to adopt in 2009.2010. Please read Note 1 to the Consolidated Financial Statements.
31
Effects of Inflation
Inflation has had minimal effects on operating results the past three years. Our real estate, timber, and property and equipment are carried at historical costs. If carried at current replacement costs, the cost of real estate sold, timber cut, and depreciation expense would have been significantly higher than what we reported.
Litigation MattersLegal 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
Our interest rate risk is principally related to our variable-rate debt. Interest rate changes impact earnings due to the resulting increase or decrease in the cost of our variable-rate debt, which was $229,030,000 at year-end 2008 and $238,716,000 at year-end 2007.
The following table illustrates the estimated effect on our pre-tax income of immediate, parallel, and sustained shifts in interest rates for the next 12 months at year-end 2007,2008 on our variable-rate debt, with comparative year-end 20062007 information. This estimate assumes that debt reductions from contractual payments will be replaced with short-term, variable-rate debt; however, that may not be the financing alternative we choose.
| | | | | | | | | | | | | | | | |
| | At Year-End | | | At Year-End | |
Change in Interest Rates | | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (In thousands) | | | (In thousands) | |
|
+2% | | $ | (4,774 | ) | | $ | (2,422 | ) | | $ | (4,581 | ) | | $ | (4,774 | ) |
+1% | | | (2,387 | ) | | | (1,211 | ) | | | (2,290 | ) | | | (2,387 | ) |
−1% | | | 2,387 | | | | 1,211 | | | | 2,290 | | | | 2,387 | |
−2% | | | 4,774 | | | | 2,422 | | | | 4,581 | | | | 4,774 | |
OurChanges in interest rates affect the value of our interest rate risk is principally related to our variable-rate debt. Interest rate changes impact earnings due to the resulting increase or decreaseswap agreement ($100,000,000 notional value at year-end 2008). We believe any change in the costvalue of our variable-rate debt. The interest rate sensitivity change from year-end 2006 is principally due to an increase in variable-rate debt.this agreement would not be significant.
Foreign Currency Risk
We have no exposure to foreign currency fluctuations.
Commodity Price Risk
We have no significant exposure to commodity price fluctuations.
39
| |
Item 8. | Financial Statements and Supplementary Data. |
The Consolidated Financial Statements and related notes and schedules are indexed onpageF-1, and are attached as pagesF-1 throughF-25, F-31, to this Annual Report on FormForm 10-K.
| |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
| |
Item 9A. | Controls and Procedures. |
(a) Disclosure Controlscontrols and Proceduresprocedures
At year-end 2007, under the supervision andOur management, with the participation of our management, including ourthe Chief Executive Officer (our principal executive officer) and our Chief Financial Officer, (our principal financial officer), wehas evaluated the effectiveness of our disclosure controls and procedures (as such term is defined underinRuleRules 13a-15(e) ofand15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”(or the Exchange Act))). as of the end of the period covered by this report. Based on thissuch evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of December 29, 2007,the end of such period, our disclosure controls and procedures were effective.are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are 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 Controlcontrol over Financial Reportingfinancial reporting
32
This annualManagement’s report does not include a report of management’s assessment regardingon internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.is included in this Annual Report on Form10-K on page F-2.
(c) Changes in Internal Control over Financial Reporting
There have not been noany changes in our internal control over financial reporting that occurred during(as such term is defined inRules 13a-15(f) and15d-15(f) under the Exchange Act) in fourth quarter 20072008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| |
Item 9B. | Other Information. |
None.
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PART III
| |
Item 10. | Directors, Executive Officers and Corporate Governance. |
Set forth below is certain information about the members of our Board of Directors:
| | | | | | | | | | |
| | | | Year First
| | |
| | | | Elected to
| | |
Name | | Age | | the Board | | Principal Occupation |
|
Kenneth M. Jastrow, II | | | 61 | | | | 2007 | | | Former Chairman and Chief Executive Officer of Temple-Inland Inc. |
Louis R. Brill | | | 67 | | | | 2007 | | | Former Chief Accounting Officer of Temple-Inland Inc. |
Kathleen Brown | | | 63 | | | | 2007 | | | Senior Advisor, Goldman, Sachs & Co. |
William G. Currie | | | 61 | | | | 2007 | | | Executive Chairman of Universal Forest Products, Inc. |
James M. DeCosmo | | | 50 | | | | 2007 | | | President and Chief Executive Officer of Forestar Group Inc. |
Michael E. Dougherty | | | 68 | | | | 2008 | | | Chairman of Dougherty Financial Group LLC |
James A. Johnson | | | 65 | | | | 2007 | | | Vice Chairman of Perseus LLC |
Thomas H. McAuley | | | 63 | | | | 2007 | | | President of Inland Capital Markets Groups, Inc. |
William C. Powers, Jr. | | | 62 | | | | 2007 | | | President of The University of Texas at Austin |
James A. Rubright | | | 62 | | | | 2007 | | | Chairman and Chief Executive Officer of Rock-Tenn Company |
Richard M. Smith | | | 63 | | | | 2007 | | | Chairman of Newsweek |
The remaining information required by this item will be contained inis incorporated herein by reference from our definitive proxy statement, involving the election of directors, to be filed in connectionpursuant to Regulation 14A with our 2008 annual meetingthe SEC not later than 120 days after the end of stockholders, except for the information regarding our executive officers, which is presented in Part I, Item 1 offiscal year covered by this Annual Report onForm 10-K.10-K The(or Definitive Proxy Statement). Certain information required by this item containedconcerning executive officers is included in our definitive proxy statement is incorporated herein by reference.Part I of this report.
| |
Item 11. | Executive Compensation. |
The information required by this item will be contained in our definitive proxy statementDefinitive Proxy Statement to be filed in connection with our 20082009 annual meeting of stockholders and is incorporated herein by reference.
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The information required by this item will be contained in our definitive proxy statementDefinitive Proxy Statement to be filed in connection with our 20082009 annual meeting of stockholders and is incorporated herein by reference.
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
The information required by this item will be contained in our definitive proxy statementDefinitive Proxy Statement to be filed in connection with our 20082009 annual meeting of stockholders and is incorporated herein by reference.
| |
Item 14. | Principal Accountant Fees and Services. |
The information required by this item will be contained in our definitive proxy statementDefinitive Proxy Statement to be filed in connection with our 20082009 annual meeting of stockholders and is incorporated herein by reference.
41
PART IV
Item 15. Exhibits and Financial Statement Schedules.
| |
Item 15. | Exhibits and Financial Statement Schedules. |
(a) Documents filed as part of this report.
(1) Financial Statements
Our Consolidated Financial Statements are attached as pagesF-1 throughF-25 F-31 to this Annual Report onForm 10-K.
(2) Financial Statement Schedules
Schedule III — Consolidated Real Estate and Accumulated Depreciation is attached as pagesS-1 throughS-6 to this Annual Report onForm 10-K.
33
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 onForm 10-K.
(b) Exhibits
| | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
Number | Number | | Exhibit | Number | | Exhibit |
|
| 2 | .1 | | Separation and Distribution Agreement, dated December 11, 2007, among Forestar Real Estate Group Inc. (the “Company”), Guaranty Financial Group Inc., and Temple — Inland Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). | 2 | .1 | | Separation and Distribution Agreement, dated December 11, 2007, among Forestar Real Estate Group Inc. (the “Company”), Guaranty Financial Group Inc., and Temple — Inland Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). |
| 3 | .1 | | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). | 3 | .1 | | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). |
| 3 | .2 | | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). | 3 | .2 | | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). |
| 3 | .3 | | First Amendment to Amended and Restated Bylaws of Forestar Real Estate Group Inc. (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 | .3 | | First Amendment to Amended and Restated Bylaws of Forestar Real Estate Group Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report onForm 8-K filed with the Commission on February 19, 2008). |
| 3 | .4 | | Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.3 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). | 3 | .4 | | Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.3 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). |
| 4 | .1 | | Specimen Certificate for shares of common stock, par value $1.00 per share, of Forestar Real Estate Group Inc. (incorporated by reference to Exhibit 4.1 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). | 3 | .5 | | Second Amendment to Amended and Restated Bylaws of Forestar Real Estate Group Inc.(1) |
| 4 | .2 | | Rights Agreement, dated December 11, 2007, between Forestar Real Estate Group Inc. and Computershare Trust Company, N.A., as Rights Agent (including Form of Rights Certificate) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). | 3 | .6 | | Certificate of Ownership and Merger, dated November 21, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report onForm 8-K filed with the Commission on November 24, 2008). |
| 10 | .1 | | Tax Matters Agreement, dated December 11, 2007, among Forestar Real Estate Group Inc., Guaranty Financial Group Inc., and Temple — Inland Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). | 3 | .7 | | Third Amendment to Amended and Restated Bylaws of Forestar Group Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report onForm 8-K filed with the Commission on November 24, 2008). |
| 10 | .2 | | Transition Services Agreement, dated December 11, 2007, among Forestar Real Estate Group Inc., Guaranty Financial Group Inc., and Temple — Inland Inc. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). | 4 | .1 | | Specimen Certificate for shares of common stock, par value $1.00 per share, of Forestar Real Estate Group Inc. (incorporated by reference to Exhibit 4.1 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). |
| 10 | .3 | | Employee Matters Agreement, dated December 11, 2007, among Forestar Real Estate Group Inc., Guaranty Financial Group Inc., and Temple — Inland Inc. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). | 4 | .2 | | Rights Agreement, dated December 11, 2007, between Forestar Real Estate Group Inc. and Computershare Trust Company, N.A., as Rights Agent (including Form of Rights Certificate) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). |
| 10 | .4 | | Form of Forestar Real Estate Group Retirement Savings Plan (incorporated by reference to Exhibit 10.4 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). | 10 | .1 | | Tax Matters Agreement, dated December 11, 2007, among Forestar Real Estate Group Inc., Guaranty Financial Group Inc., and Temple — Inland Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). |
| 10 | .5† | | Form of Forestar Real Estate Group Supplemental Employee 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 | .6† | | Form of Forestar Real Estate Group 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 | .7† | | Form of Forestar Real Estate Group Non-Employee Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.7 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). | |
| 10 | .8 | | Revolving and Term Credit Agreement, dated as of December 14, 2007, among Forestar (USA) Real Estate Group Inc., as borrower, and Forestar Real Estate Group Inc. and certain wholly-owned subsidiaries of the Company, as guarantors, and KeyBank National Association, as lender, swing line lender and agent; General Electric Credit Corporation and AgFirst Farm Credit Bank, as co-syndication agents; KeyBanc Capital Markets, as sole arranger and sole book managers; and the lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report onForm 8-K filed with the Commission on December 17, 2007). | |
| 10 | .9† | | Form of Indemnification Agreement to be entered into between the Company and each of its directors (incorporated by reference to Exhibit 10.9 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). | |
3442
| | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
Number | Number | | Exhibit | Number | | Exhibit |
|
| 10 | .10† | | Form of Change in Control Agreement between the Company and its named executive officers (incorporated by reference to Exhibit 10.10 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). | 10 | .2 | | Transition Services Agreement, dated December 11, 2007, among Forestar Real Estate Group Inc., Guaranty Financial Group Inc., and Temple — Inland Inc. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). |
| 10 | .11† | | Employment Agreement between the Company and James M. DeCosmo dated August 9, 2007 (incorporated by reference to Exhibit 10.11 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). | 10 | .3 | | Employee Matters Agreement, dated December 11, 2007, among Forestar Real Estate Group Inc., Guaranty Financial Group Inc., and Temple — Inland Inc. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report onForm 8-K filed with the Commission on December 11, 2007). |
| 10 | .12† | | Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report onForm 8-K filed with the Commission on February 19, 2008). | 10 | .4 | | Form of Forestar Real Estate Group Retirement Savings Plan (incorporated by reference to Exhibit 10.4 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). |
| 10 | .13† | | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report onForm 8-K filed with the Commission on February 19, 2008). | 10 | .5† | | Form of Forestar Real Estate Group Supplemental Employee 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 | .14† | | Form of Restricted Stock Units Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Current Report onForm 8-K filed with the Commission on February 19, 2008). | 10 | .6† | | Form of Forestar Real Estate Group 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). |
| 21 | .1 | | List of Subsidiaries of the Company (1). | 10 | .7† | | Form of Forestar Real Estate Group Director’s Fee Deferral Plan (incorporated by reference to Exhibit 10.7 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). |
| 23 | | | Consent of Ernst & Young LLP (1). | 10 | .8 | | Revolving and Term Credit Agreement, dated as of December 14, 2007, among Forestar (USA) Real Estate Group Inc., as borrower, and Forestar Real Estate Group Inc. and certain wholly-owned subsidiaries of the Company, as guarantors, and KeyBank National Association, as lender, swing line lender and agent; General Electric Credit Corporation and AgFirst Farm Credit Bank, as co-syndication agents; KeyBanc Capital Markets, as sole arranger and sole book managers; and the lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report onForm 8-K filed with the Commission on December 17, 2007). |
| 31 | .1 | | Certification of Chief Executive Officer pursuant to Exchange Actrule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1). | 10 | .9† | | Form of Indemnification Agreement to be entered into between the Company and each of its directors (incorporated by reference to Exhibit 10.9 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). |
| 31 | .2 | | Certification of Chief Financial Officer pursuant to Exchange Actrule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1). | 10 | .10† | | Form of Change in Control Agreement between the Company and its named executive officers (incorporated by reference to Exhibit 10.10 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). |
| 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 (1). | 10 | .11† | | Employment Agreement between the Company and James M. DeCosmo dated August 9, 2007 (incorporated by reference to Exhibit 10.11 of Amendment No. 5 to the Company’s Form 10 filed with the Commission on December 10, 2007). |
| 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 (1). | 10 | .12† | | Form of Nonqualified Stock Option Agreement(1). |
| | 10 | .13† | | Form of Restricted Stock Agreement (Tier 1) (1). |
| | 10 | .14† | | Form of Restricted Stock Units Agreement for senior executives (incorporated by reference to Exhibit 10.2 of the Company’s Current Report onForm 8-K filed with the Commission on February 12, 2009). |
| | 10 | .15† | | Form of Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report onForm 8-K filed with the Commission on February 12, 2009). |
| | 10 | .16† | | First Amendment to Forestar Group Inc. Director’s Fee Deferral Plan(1). |
| | 21 | .1 | | List of Subsidiaries of the Company(1). |
| | 23 | | | Consent of Ernst & Young LLP(1). |
| | 31 | .1 | | Certification of Chief Executive Officer pursuant to Exchange Actrule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1). |
| | 31 | .2 | | Certification of Chief Financial Officer pursuant to Exchange Actrule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1). |
| | 32 | .1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1). |
| | 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(1). |
| | |
† | | Management contract or compensatory plan or arrangement. |
|
(1) | | Filed herewith. |
3543
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 Real Estate Group Inc.
James M. DeCosmo
President and Chief Executive Officer
Date: March 4, 20085, 2009
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/ James M. DeCosmo James M. DeCosmo | | Director, President and Chief Executive Officer (Principal Executive Officer) | | March 4, 20085, 2009 |
| | | | |
/s/ Christopher L. Nines Christopher L. Nines | | Chief Financial Officer (Principal Financial Officer) | | March 4, 20085, 2009 |
| | | | |
/s/ Charles D. Jehl Charles D. Jehl | | Chief Accounting Officer (Principal Accounting Officer) | | March 4, 20085, 2009 |
| | | | |
/s/ Kenneth M. Jastrow, II Kenneth M. Jastrow, II | | Chairman of the Board | | March 4, 20085, 2009 |
| | | | |
/s/ Louis R. Brill Louis R. Brill | | Director | | March 4, 20085, 2009 |
| | | | |
/s/ Kathleen Brown Kathleen Brown | | Director | | March 4, 20085, 2009 |
| | | | |
/s/ William G. Currie William G. Currie | | Director | | March 4, 20085, 2009 |
| | | | |
/s/ Michael E. Dougherty Michael E. Dougherty | | Director | | March 4, 20085, 2009 |
| | | | |
/s/ James A. Johnson James A. Johnson | | Director | | March 4, 20085, 2009 |
| | | | |
/s/ Thomas H. McAuley Thomas H. McAuley | | Director | | March 4, 20085, 2009 |
| | | | |
/s/ William C. Powers, Jr. William C. Powers, Jr. | | Director | | March 4, 20085, 2009 |
| | | | |
/s/ James A. Rubright James A. Rubright | | Director | | March 4, 20085, 2009 |
| | | | |
/s/ Richard M. Smith Richard M. Smith | | Director | | March 4, 20085, 2009 |
3644
Index to Financial Statements
| | | | |
| | Page |
|
| | | F-2 | |
| | | F-3 | |
| | | F-4 | |
Audited Financial Statements | | | | |
Report of Independent Registered Public Accounting Firm | | | F-2 | |
| | | F-3F-5 | |
| | | F-4F-6 | |
| | | F-5F-7 | |
| | | F-6F-8 | |
| | | F-7F-9 | |
Financial Statement Schedule | | | | |
| | | S-1 | |
F-1
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) ofRule 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 theInternal Control — Integrated Frameworkissued in July 1994 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 2008.
Ernst & Young LLP, the independent registered public accounting firm that audited our financial statements included in this Form10-K, has also audited our internal control over financial reporting. Their attestation report follows this report of management.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Forestar Real EstateGroup Inc.:
We have audited Forestar Group Inc. and subsidiaries (Forestar Group) internal control over financial reporting as of December 31, 2008 based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Forestar Group’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 including in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit 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 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.
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, Forestar Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008 based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Forestar Group as of December 31, 2008 and December 29, 2007 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008 and our report dated March 4, 2009 expressed an unqualified opinion thereon.
Ernst & Young LLP
Austin, Texas
March 4, 2009
F-3
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 Real Estate Group Inc., and subsidiaries (Forestar Group) as of December 29, 200731, 2008 and December 30, 2006,29, 2007, and the related consolidated statements of income, shareholders’/parent’s equity, and cash flows for each of the three years in the period ended December 29, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15(a).31, 2008. These financial statements and schedule are the responsibility of Forestar Real Estate Group Inc.the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The financial statements of CL Realty, L.L.C., (a Limited Liability Company in which Forestar Group has a 50% interest), have been audited by other auditors whose report has been furnished to us, and our opinion on the consolidated financial statements, insofar as it relates to the amounts included for CL Realty, L.L.C., is based solely on the report of the other auditors. In the consolidated financial statements, Forestar Group’s investment in CL Realty, L.L.C. is stated at $51,963,000 and $50,189,000, respectively, at December 31, 2008 and December 29, 2007, and Forestar Group’s equity in the net income of CL Realty, L.L.C. is stated at $3,377,000 and $1,700,000, for the years then ended.
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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by management, andas well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Forestar Real Estate Group Inc. at December 29, 200731, 2008 and December 30, 2006,29, 2007, and the consolidated results of itstheir operations and itstheir cash flows for each of the three years in the period ended December 29, 200731, 2008, 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), the effectiveness of Forestar Group’s internal control over financial reporting as of December 31, 2008, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2009 expressed an unqualified opinion thereon.
Ernst & Young LLP
Austin, Texas
March 4, 20082009
F-2F-4
FORESTAR REAL ESTATE GROUP INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | |
| | At Year-End | |
| | 2007 | | | 2006 | |
| | (In thousands
| |
| | except share data) | |
|
ASSETS | | | | | | | | |
Cash and cash equivalents | | $ | 7,520 | | | $ | 10,350 | |
Prepaid expense | | | 2,267 | | | | 2,378 | |
Real estate | | | 552,210 | | | | 447,817 | |
Investment in unconsolidated ventures | | | 101,687 | | | | 90,444 | |
Receivables, net of allowance for bad debts of $226 in 2007 and 2006 | | | 3,767 | | | | 6,091 | |
Timber | | | 54,593 | | | | 58,966 | |
Property and equipment, net of accumulated depreciation of $2,455 in 2007 and $2,387 in 2006 | | | 1,568 | | | | 1,688 | |
Deferred tax asset | | | 5,106 | | | | — | |
Other assets | | | 20,008 | | | | 2,440 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 748,726 | | | $ | 620,174 | |
| | | | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’/PARENT’S EQUITY | | | | | | | | |
Accounts payable | | $ | 8,002 | | | $ | 4,838 | |
Accrued employee compensation and benefits | | | 3,857 | | | | 2,114 | |
Accrued interest | | | 896 | | | | 210 | |
Accrued property taxes | | | 4,459 | | | | 4,577 | |
Other accrued expenses | | | 15,318 | | | | 2,810 | |
Deferred tax liability | | | — | | | | 14,438 | |
Other liabilities | | | 8,349 | | | | 4,272 | |
Note payable to Temple-Inland | | | — | | | | 110,506 | |
Debt | | | 266,015 | | | | 50,611 | |
| | | | | | | | |
TOTAL LIABILITIES | | | 306,896 | | | | 194,376 | |
| | | | | | | | |
MINORITY INTEREST IN CONSOLIDATED VENTURES | | | 8,629 | | | | 7,746 | |
| | | | | | | | |
STOCKHOLDERS’/PARENT’S EQUITY | | | | | | | | |
| | | | | | | | |
Preferred stock, par value $0.01 per share, 25,000,000 authorized shares, none issued | | | — | | | | — | |
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 35,380,385 issued | | | 35,380 | | | | — | |
Additional paid-in capital | | | 373,026 | | | | — | |
Retained earnings | | | 24,795 | | | | — | |
Temple-Inland’s net investment | | | — | | | | 418,052 | |
| | | | | | | | |
TOTAL STOCKHOLDERS’/PARENT’S EQUITY | | | 433,201 | | | | 418,052 | |
| | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’/PARENT’S EQUITY | | $ | 748,726 | | | $ | 620,174 | |
| | | | | | | | |
Please read the notes to the consolidated financial statements.
F-3
FORESTAR REAL ESTATE GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | |
| | For the Year | |
| | 2007 | | | 2006 | | | 2005 | |
| | (In thousands except per share data) | |
|
REVENUES | | | | | | | | | | | | |
Real estate sales | | $ | 117,890 | | | $ | 151,785 | | | $ | 96,696 | |
Commercial operating properties and other | | | 24,839 | | | | 28,366 | | | | 21,425 | |
| | | | | | | | | | | | |
Real estate | | | 142,729 | | | | 180,151 | | | | 118,121 | |
Natural resources and other | | | 35,257 | | | | 45,409 | | | | 37,366 | |
| | | | | | | | | | | | |
| | | 177,986 | | | | 225,560 | | | | 155,487 | |
EXPENSES | | | | | | | | | | | | |
Cost of real estate sales | | | (58,046 | ) | | | (90,629 | ) | | | (57,404 | ) |
Cost of commercial operating properties and other | | | (17,936 | ) | | | (17,307 | ) | | | (16,212 | ) |
Cost of natural resources and other | | | (6,793 | ) | | | (5,238 | ) | | | (4,733 | ) |
Other operating | | | (27,320 | ) | | | (25,418 | ) | | | (22,071 | ) |
General and administrative | | | (18,624 | ) | | | (15,144 | ) | | | (9,481 | ) |
| | | | | | | | | | | | |
| | | (128,719 | ) | | | (153,736 | ) | | | (109,901 | ) |
| | | | | | | | | | | | |
OPERATING INCOME | | | 49,267 | | | | 71,824 | | | | 45,586 | |
Equity in earnings of unconsolidated ventures | | | 3,732 | | | | 19,371 | | | | 17,180 | |
Minority interest in consolidated ventures | | | (5,771 | ) | | | (3,231 | ) | | | (1,054 | ) |
Interest expense | | | (9,229 | ) | | | (6,229 | ) | | | (6,439 | ) |
Other non-operating income (expense) | | | 705 | | | | 79 | | | | 483 | |
| | | | | | | | | | | | |
INCOME BEFORE TAXES | | | 38,704 | | | | 81,814 | | | | 55,756 | |
Income tax expense | | | (13,909 | ) | | | (29,970 | ) | | | (20,859 | ) |
| | | | | | | | | | | | |
NET INCOME | | $ | 24,795 | | | $ | 51,844 | | | $ | 34,897 | |
| | | | | | | | | | | | |
NET INCOME PER COMMON SHARE — BASIC AND DILUTED | | $ | 0.70 | | | $ | 1.47 | | | $ | 0.99 | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — BASIC AND DILUTED | | | 35,380 | | | | 35,380 | | | | 35,380 | |
Please read the notes to the consolidated financial statements.
F-4
FORESTAR REAL ESTATE GROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’/PARENT’S EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Additional
| | | | | | | | | | |
| | Common Stock | | | Treasury Stock | | | Paid-In
| | | Retained
| | | Parent’s
| | | | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Earnings | | | Equity | | | Total | |
| | (In thousands except share data) | |
|
Balances at January 1, 2005 | | | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 368,659 | | | $ | 368,659 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 34,897 | | | | 34,897 | |
Net transactions with parent company | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (22,266 | ) | | | (22,266 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2005 | | | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 381,290 | | | $ | 381,290 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 51,844 | | | | 51,844 | |
Net transactions with parent company | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (15,082 | ) | | | (15,082 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 30, 2006 | | | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 418,052 | | | $ | 418,052 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 24,795 | | | | — | | | | 24,795 | |
Net transactions with parent company | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (9,646 | ) | | | (9,646 | ) |
Spin-off from Temple-Inland | | | 35,380,385 | | | | 35,380 | | | | (53 | ) | | | — | | | | 373,026 | | | | — | | | | (408,406 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 29, 2007 | | | 35,380,385 | | | $ | 35,380 | | | | (53 | ) | | $ | — | | | $ | 373,026 | | | $ | 24,795 | | | $ | — | | | $ | 433,201 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | At Year-End | |
| | 2008 | | | 2007 | |
| | (In thousands,
| |
| | except share data) | |
|
ASSETS | | | | | | | | |
Cash and cash equivalents | | $ | 8,127 | | | $ | 7,520 | |
Real estate | | | 610,586 | | | | 552,210 | |
Investment in unconsolidated ventures | | | 117,554 | | | | 101,687 | |
Timber | | | 50,989 | | | | 54,593 | |
Receivables, net of allowance for bad debts of $226 in 2008 and 2007 | | | 4,262 | | | | 3,767 | |
Prepaid expense | | | 2,425 | | | | 2,267 | |
Property and equipment, net of accumulated depreciation of $2,994 in 2008 and $2,455 in 2007 | | | 6,211 | | | | 1,568 | |
Deferred tax asset | | | 17,184 | | | | 5,106 | |
Other assets | | | 17,238 | | | | 20,008 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 834,576 | | | $ | 748,726 | |
| | | | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Accounts payable | | $ | 7,438 | | | $ | 8,002 | |
Accrued employee compensation and benefits | | | 3,389 | | | | 3,857 | |
Accrued interest | | | 1,199 | | | | 896 | |
Accrued property taxes | | | 6,808 | | | | 4,459 | |
Other accrued expenses | | | 11,448 | | | | 15,318 | |
Other liabilities | | | 12,940 | | | | 8,349 | |
Debt | | | 337,402 | | | | 266,015 | |
| | | | | | | | |
TOTAL LIABILITIES | | | 380,624 | | | | 306,896 | |
| | | | | | | | |
COMMITMENTS AND CONTINGENCIES | | | | | | | | |
| | | | | | | | |
MINORITY INTEREST IN CONSOLIDATED VENTURES | | | 6,660 | | | | 8,629 | |
| | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | |
Preferred stock, par value $0.01 per share, 25,000,000 authorized shares, none issued | | | — | | | | — | |
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 35,839,390 issued at December 31, 2008 and 35,380,385 issued at December 29, 2007 | | | 35,839 | | | | 35,380 | |
Additional paid-in capital | | | 377,810 | | | | 373,026 | |
Retained earnings | | | 36,769 | | | | 24,795 | |
Accumulated other comprehensive income | | | (1,260 | ) | | | — | |
Treasury stock, at cost, 90,819 shares at December 31, 2008 | | | (1,866 | ) | | | — | |
| | | | | | | | |
TOTAL STOCKHOLDERS’ EQUITY | | | 447,292 | | | | 433,201 | |
| | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 834,576 | | | $ | 748,726 | |
| | | | | | | | |
Please read the notes to the consolidated financial statements.
F-5
FORESTAR REAL ESTATE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSINCOME
| | | | | | | | | | | | |
| | For the Year | |
| | 2007 | | | 2006 | | | 2005 | |
| | (In thousands) | |
|
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
Net income | | $ | 24,795 | | | $ | 51,844 | | | $ | 34,897 | |
Adjustments: | | | | | | | | | | | | |
Depreciation and amortization | | | 2,915 | | | | 2,355 | | | | 2,249 | |
Deferred income taxes | | | (19,544 | ) | | | (4,912 | ) | | | 1,578 | |
Equity in earnings of unconsolidated ventures | | | (3,732 | ) | | | (19,371 | ) | | | (17,180 | ) |
Distributions of earnings of unconsolidated ventures | | | 2,863 | | | | 1,519 | | | | 4,090 | |
Minority interest in consolidated ventures | | | 5,771 | | | | 3,231 | | | | 1,054 | |
Distributions to minority interest | | | (11,948 | ) | | | (517 | ) | | | (1,989 | ) |
Non-cash real estate cost of sales | | | 46,975 | | | | 86,393 | | | | 53,741 | |
Real estate development and acquisition expenditures | | | (140,013 | ) | | | (159,886 | ) | | | (65,117 | ) |
Reimbursements from utility or improvement districts | | | 10,628 | | | | 5,790 | | | | 1,000 | |
Other changes in real estate | | | (1,364 | ) | | | (2,174 | ) | | | 2,730 | |
Gain on termination of timber lease | | | (2,243 | ) | | | — | | | | — | |
Cost of timber cut | | | 4,060 | | | | 3,441 | | | | 3,218 | |
Asset impairments | | | 6,518 | | | | — | | | | — | |
Other | | | (65 | ) | | | 286 | | | | 653 | |
Changes in: | | | | | | | | | | | | |
Receivables | | | 659 | | | | (313 | ) | | | (3,586 | ) |
Prepaid expenses and other | | | (66 | ) | | | (298 | ) | | | 1,926 | |
Accounts payable and other accrued liabilities | | | 7,507 | | | | 3,541 | | | | 1,830 | |
| | | | | | | | | | | | |
Net cash (used in) provided by operating activities | | | (66,284 | ) | | | (29,071 | ) | | | 21,094 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Property, equipment, software, and reforestation | | | (3,198 | ) | | | (3,991 | ) | | | (1,616 | ) |
Investment in unconsolidated ventures | | | (14,492 | ) | | | (17,611 | ) | | | (29,612 | ) |
Return of investment in unconsolidated ventures | | | 3,239 | | | | 22,208 | | | | 20,830 | |
Notes receivable sold or collected | | | 491 | | | | 5,493 | | | | 3,767 | |
Proceeds from sale of property and equipment | | | 166 | | | | 1,311 | | | | 1,099 | |
Proceeds from termination of timber lease | | | 2,966 | | | | — | | | | — | |
| | | | | | | | | | | | |
Net cash (used in) provided by investing activities | | | (10,828 | ) | | | 7,410 | | | | (5,532 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Note payable to Temple-Inland, net | | | (93,063 | ) | | | 97,678 | | | | 1,802 | |
Payments of debt | | | (22,534 | ) | | | (89,144 | ) | | | (29,733 | ) |
Proceeds from issuance of debt | | | 226,446 | | | | 30,636 | | | | 38,882 | |
Dividends and other transfers to Temple-Inland | | | (27,704 | ) | | | (20,241 | ) | | | (27,931 | ) |
Deferred financing fees | | | (10,010 | ) | | | — | | | | — | |
Other | | | 1,147 | | | | 140 | | | | 149 | |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 74,282 | | | | 19,069 | | | | (16,831 | ) |
| | | | | | | | | | | | |
Net decrease in cash and cash equivalents | | | (2,830 | ) | | | (2,592 | ) | | | (1,269 | ) |
Cash and cash equivalents at beginning of year | | | 10,350 | | | | 12,942 | | | | 14,211 | |
| | | | | | | | | | | | |
Cash and cash equivalents at year-end | | $ | 7,520 | | | $ | 10,350 | | | $ | 12,942 | |
| | | | | | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | | | | | |
Cash paid during the year for: | | | | | | | | | | | | |
Interest | | $ | 10,014 | | | $ | 4,309 | | | $ | 7,171 | |
Income taxes | | $ | 33,428 | | | $ | 125 | | | $ | 3,444 | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION: | | | | | | | | | | | | |
Capitalized interest | | $ | 695 | | | $ | 543 | | | $ | 1,444 | |
| | | | | | | | | | | | |
| | For the Year | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands, except per share amounts) | |
|
REVENUES | | | | | | | | | | | | |
Real estate sales | | $ | 73,555 | | | $ | 117,890 | | | $ | 151,785 | |
Commercial operating properties and other | | | 25,304 | | | | 24,839 | | | | 28,366 | |
| | | | | | | | | | | | |
Real estate | | | 98,859 | | | | 142,729 | | | | 180,151 | |
Mineral resources | | | 47,671 | | | | 20,818 | | | | 27,980 | |
Fiber resources and other | | | 13,192 | | | | 14,439 | | | | 17,429 | |
| | | | | | | | | | | | |
| | | 159,722 | | | | 177,986 | | | | 225,560 | |
EXPENSES | | | | | | | | | | | | |
Cost of real estate sales | | | (38,395 | ) | | | (58,046 | ) | | | (90,629 | ) |
Cost of commercial operating properties and other | | | (16,736 | ) | | | (17,936 | ) | | | (17,307 | ) |
Cost of fiber resources | | | (3,357 | ) | | | (3,672 | ) | | | (3,455 | ) |
Other operating | | | (43,200 | ) | | | (30,441 | ) | | | (27,201 | ) |
General and administrative | | | (22,228 | ) | | | (18,624 | ) | | | (15,144 | ) |
| | | | | | | | | | | | |
| | | (123,916 | ) | | | (128,719 | ) | | | (153,736 | ) |
| | | | | | | | | | | | |
OPERATING INCOME | | | 35,806 | | | | 49,267 | | | | 71,824 | |
Equity in earnings of unconsolidated ventures | | | 4,642 | | | | 3,732 | | | | 19,371 | |
Minority interest in consolidated ventures | | | (2,235 | ) | | | (5,771 | ) | | | (3,231 | ) |
Interest expense | | | (21,283 | ) | | | (9,229 | ) | | | (6,229 | ) |
Other non-operating income | | | 279 | | | | 705 | | | | 79 | |
| | | | | | | | | | | | |
INCOME BEFORE TAXES | | | 17,209 | | | | 38,704 | | | | 81,814 | |
Income tax expense | | | (5,235 | ) | | | (13,909 | ) | | | (29,970 | ) |
| | | | | | | | | | | | |
NET INCOME | | $ | 11,974 | | | $ | 24,795 | | | $ | 51,844 | |
| | | | | | | | | | | | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | | | | | | | | | | | | |
Basic | | | 35,455 | | | | 35,380 | | | | 35,380 | |
Diluted | | | 35,892 | | | | 35,380 | | | | 35,380 | |
NET INCOME PER COMMON SHARE | | | | | | | | | | | | |
Basic | | $ | 0.34 | | | $ | 0.70 | | | $ | 1.47 | |
Diluted | | $ | 0.33 | | | $ | 0.70 | | | $ | 1.47 | |
Please read the notes to the consolidated financial statements.
F-6
FORESTAR REAL ESTATEGROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’/PARENT’S EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Accumulated
| | | | | | | | | | |
| | | | | | | | Additional
| | | | | | | | | Other
| | | | | | | | | | |
| | Common Stock | | | Paid-In
| | | Treasury Stock | | | Comprehensive
| | | Retained
| | | Parent’s
| | | | |
| | Shares | | | Amount | | | Capital | | | Shares | | | Amount | | | Income | | | Earnings | | | Equity | | | Total | |
| | (In thousands, except share data) | |
|
Balances at December 31, 2005 | | | — | | | $ | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 381,290 | | | $ | 381,290 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 51,844 | | | | 51,844 | |
Net transactions with parent company | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (15,082 | ) | | | (15,082 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 30, 2006 | | | — | | | $ | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 418,052 | | | $ | 418,052 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 24,795 | | | | — | | | | 24,795 | |
Net transactions with parent company | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (9,646 | ) | | | (9,646 | ) |
Spin-off from Temple-Inland | | | 35,380,385 | | | | 35,380 | | | | 373,026 | | | | (53 | ) | | | — | | | | — | | | | — | | | | (408,406 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 29, 2007 | | | 35,380,385 | | | $ | 35,380 | | | $ | 373,026 | | | | (53 | ) | | $ | — | | | $ | — | | | $ | 24,795 | | | $ | — | | | $ | 433,201 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,974 | | | | — | | | | 11,974 | |
Unrealized losses on interest rate swap, net of taxes of $679 | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,260 | ) | | | — | | | | — | | | | (1,260 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,714 | |
Issuances of common stock | | | 182,976 | | | | 183 | | | | (183 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Issuances of restricted stock | | | 214,426 | | | | 214 | | | | (214 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Issuances from exercises of stock options | | | 61,603 | | | | 62 | | | | 835 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 897 | |
Shares withheld for payroll taxes | | | — | | | | — | | | | — | | | | (52,482 | ) | | | (1,194 | ) | | | — | | | | — | | | | — | | | | (1,194 | ) |
Shares exchanged for options exercised | | | — | | | | — | | | | — | | | | (27,394 | ) | | | (646 | ) | | | — | | | | — | | | | — | | | | (646 | ) |
Forfeitures of restricted stock | | | — | | | | — | | | | 7 | | | | (10,890 | ) | | | (26 | ) | | | — | | | | — | | | | — | | | | (19 | ) |
Share-based compensation | | | — | | | | — | | | | 4,254 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,254 | |
Tax benefit from exercise of restricted stock units and stock options and vested restricted stock | | | — | | | | — | | | | 85 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 85 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2008 | | | 35,839,390 | | | $ | 35,839 | | | $ | 377,810 | | | | (90,819 | ) | | $ | (1,866 | ) | | $ | (1,260 | ) | | $ | 36,769 | | | $ | — | | | $ | 447,292 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Please read the notes to the consolidated financial statements.
F-7
FORESTAR GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | |
| | For the Year | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands) | |
|
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
Net income | | $ | 11,974 | | | $ | 24,795 | | | $ | 51,844 | |
Adjustments: | | | | | | | | | | | | |
Depreciation and amortization | | | 7,673 | | | | 2,915 | | | | 2,355 | |
Deferred income taxes | | | (11,399 | ) | | | (19,544 | ) | | | (4,912 | ) |
Equity in earnings of unconsolidated ventures | | | (4,642 | ) | | | (3,732 | ) | | | (19,371 | ) |
Distributions of earnings of unconsolidated ventures | | | 1,053 | | | | 2,863 | | | | 1,519 | |
Minority interest in consolidated ventures | | | 2,235 | | | | 5,771 | | | | 3,231 | |
Distributions of earnings to minority interests | | | (4,427 | ) | | | (11,042 | ) | | | (426 | ) |
Share-based compensation | | | 4,516 | | | | 1,397 | | | | 1,275 | |
Non-cash real estate cost of sales | | | 34,766 | | | | 46,975 | | | | 86,393 | |
Real estate development and acquisition expenditures | | | (99,189 | ) | | | (140,013 | ) | | | (159,886 | ) |
Reimbursements from utility or improvement districts | | | 674 | | | | 10,628 | | | | 5,790 | |
Other changes in real estate | | | (522 | ) | | | (1,364 | ) | | | (2,174 | ) |
Gain on termination of timber lease | | | (1,627 | ) | | | (2,243 | ) | | | — | |
Cost of timber cut | | | 2,968 | | | | 4,060 | | | | 3,441 | |
Deferred income | | | 681 | | | | — | | | | — | |
Asset impairments | | | 3,000 | | | | 6,518 | | | | — | |
Other | | | (538 | ) | | | (65 | ) | | | 286 | |
Changes in: | | | | | | | | | | | | |
Receivables | | | 22 | | | | 659 | | | | (313 | ) |
Prepaid expenses and other | | | 1,058 | | | | (66 | ) | | | (298 | ) |
Accounts payable and other accrued liabilities | | | (165 | ) | | | 7,507 | | | | 3,541 | |
| | | | | | | | | | | | |
Net cash (used for) operating activities | | | (51,889 | ) | | | (63,981 | ) | | | (27,705 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Property, equipment, software and reforestation | | | (5,197 | ) | | | (3,198 | ) | | | (3,991 | ) |
Investment in unconsolidated ventures | | | (17,845 | ) | | | (14,492 | ) | | | (17,611 | ) |
Return of investment in unconsolidated ventures | | | 6,168 | | | | 3,239 | | | | 22,208 | |
Notes receivable sold or collected | | | — | | | | 491 | | | | 5,493 | |
Proceeds from sale of property and equipment | | | 52 | | | | 166 | | | | 1,311 | |
Proceeds from termination of timber lease | | | 155 | | | | 2,966 | | | | — | |
| | | | | | | | | | | | |
Net cash (used for) provided by investing activities | | | (16,667 | ) | | | (10,828 | ) | | | 7,410 | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Payments of debt | | | (80,165 | ) | | | (22,534 | ) | | | (89,144 | ) |
Additions to debt | | | 151,552 | | | | 226,446 | | | | 30,636 | |
Note payable to Temple-Inland, net | | | — | | | | (93,063 | ) | | | 97,678 | |
Dividends and other transfers to Temple-Inland | | | — | | | | (29,101 | ) | | | (21,516 | ) |
Deferred financing fees | | | (1,619 | ) | | | (10,010 | ) | | | — | |
Return of investment to minority interest | | | (14 | ) | | | (906 | ) | | | (91 | ) |
Exercise of stock options | | | 897 | | | | — | | | | — | |
Payroll taxes on restricted stock and stock options | | | (1,858 | ) | | | — | | | | — | |
Tax benefit from share-based compensation | | | 85 | | | | — | | | | — | |
Other | | | 285 | | | | 1,147 | | | | 140 | |
| | | | | | | | | | | | |
Net cash provided by financing activities | | | 69,163 | | | | 71,979 | | | | 17,703 | |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 607 | | | | (2,830 | ) | | | (2,592 | ) |
Cash and cash equivalents at beginning of year | | | 7,520 | | | | 10,350 | | | | 12,942 | |
| | | | | | | | | | | | |
Cash and cash equivalents at year-end | | $ | 8,127 | | | $ | 7,520 | | | $ | 10,350 | |
| | | | | | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | | | | | |
Cash paid during the year for: | | | | | | | | | | | | |
Interest | | $ | 18,348 | | | $ | 10,014 | | | $ | 4,309 | |
Income taxes | | $ | 18,414 | | | $ | 33,428 | | | $ | 125 | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION: | | | | | | | | | | | | |
Capitalized interest | | $ | 943 | | | $ | 695 | | | $ | 543 | |
Lessor construction allowances | | | 1,296 | | | | — | | | | — | |
Please read the notes to the consolidated financial statements.
F-8
FORESTAR GROUP INC.
| |
Note 1 — | Summary of Significant Accounting Policies |
Background
Prior to December 28, 2007, we were a wholly-owned subsidiary of Temple-Inland Inc. On February 26,December 28, 2007, Temple-Inland Inc. (“Temple-Inland”) announced thatdistributed all of the issued and outstanding shares of our common stock to its Board of Directors approved a transformation plan which included the spin-off of its real estate operations to Temple-Inland shareholders as an independent publicly held company.stockholders. In connection with the spin-off, Temple-Inland contributed the assets, liabilities, operations and cash flow of its real estate development and minerals operations to us. Our operations consist of the former real estate segment of Temple-Inland and several smaller real estate operations and assets previously included in Temple-Inland’s other business segments, and the minerals operations previously included in Temple-Inland’s forest products segment.
On December 28, 2007, Temple-Inland distributed 100% of the issued and outstanding shares of our common stock to the holders of record of Temple-Inland common stock as of the close of business on December 14, 2007. Each Temple-Inland stockholder received one share of our common stock for every three shares of Temple-Inland common stock held. (Also on December 28, 2007, Temple-Inland distributed 100% of the issued and outstanding shares of Guaranty Financial Group, Inc., a wholly-owned subsidiary of Temple-Inland that operated Temple-Inland’s financial services business.) We converted to a Delaware corporation before the spin-off.
The terms “Forestar,” “we,” and “our” in these financial statements refer to the operations that were spun off to Temple-Inland stockholders.
Basis of Presentation
Our consolidated financial statements reflectinclude the historical accounts of the real estate development and minerals operations contributed to us and have been derived from the historical financial statements and accounts of Temple-Inland. These operations were conducted within separate legal entities and their subsidiaries or within segments or components of segments of Temple-Inland. In addition, as a result of the different forms of Temple-Inland’s ownership in these operations, Temple-Inland’s net investment is shown for periods prior to the spin-off instead of stockholders’ equity.
These financial statements also includeForestar Group Inc., all subsidiaries, ventures, and other entities in which we have a controlling interest and variable interest entities of which we are the primary beneficiary. We eliminate all material intercompany accounts and transactions. Minority interest in consolidated pass-through entities is recognized before income taxes. 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 account for our investment in other entities in which we do not have significant influence over operations and financial policies using the cost method (we recognize as income only distribution of accumulated earnings).
In 2007 and 2006, our consolidated financial statements reflect the historical accounts of the real estate development, minerals and fiber operations contributed to us and have been derived from the historical financial statements and accounts of Temple-Inland. These operations were conducted within separate legal entities and their subsidiaries or within segments or components of segments of Temple-Inland.
We prepare our financial statements in accordance with generally accepted accounting principles, 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 and measuring assets for impairment.
OurIn 2008, we changed our fiscal year endsfrom a 52/53 week year ending the Saturday closest to December 31 to a calendar year. In 2007 and 2006, our fiscal year ended on the Saturday closest to December 31, which from time to time means that a fiscal year will include 53 weeks instead of 52 weeks.31. All of the periods presented had 52 weeks. Fiscal year 2007 ended on December 29, 2007 and fiscal year 2006 ended on December 30, 2006, and fiscal year 2005 ended on December 31, 2005. Effective fiscal year 2008, our fiscal year will coincide with the calendar year.2006.
We have historicallyIn 2007 and 2006, we used Temple-Inland as a source of capital and for services such as environmental, finance, financial reporting, human resources, internal audit, insurance, legal, tax and technology. The estimated costs of these services were allocated to us and are included in general and administrative expense.
F-7
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition, we have also included other expenses incurred by Temple-Inland but not directly attributable to us such as costs associated with investor relations and executive officers. The allocations were based on actual usage or in some cases estimated usage based on Temple-Inland’s net investment in us relative to its other segments, revenues, operating profits, employee count, or similar measures. These allocated costs, which include salaries and benefits, totaled $7,909,000 in 2007 and $7,128,000 in 2006 and $4,684,000 in 2005.2006.
WeFor 2007 and 2006, we believe the assumptions and methodologymethodologies used to derive the allocations in our financial statements are reasonable; however, they may not necessarily be indicative of what expenses would have been had we been a separate stand-alone company in the past or what expenses might be incurred in the future.company. We have no practical way of determining what expenses we would have incurred if we would have been a stand-alone company in the past.2007 and 2006.
F-9
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 2007,2008, restricted cash included in cash and cash equivalents was $147,000.$2,159,000.
Cash Flows
Expenditures for the acquisition and development of real estate are classified as operating activities. Expenditures for the acquisition of commercial operating properties are classified as investing activities.
Capitalized Software
We capitalize purchased software costs as well as the direct internal and external costs associated with software we develop for our own use. We amortize these capitalized costs using the straight-line method over estimated useful lives ranging from three to seven years. The carrying value of capitalized software was $2,604,000 at year-end 2008 and $2,720,000 at year-end 2007 and $1,071,000 at year-end 2006 and is included in other assets. The amortization of these capitalized costs was $784,000 in 2008, $370,000 in 2007 and $6,000 in 2006 and $9,000 in 2005 and is included in general and administrative expense.
Derivative Instruments
We periodically enter into interest rate agreements in the normal course of business to mitigate the risk inherent in interest rate fluctuations. We account for derivative financial instruments in accordance with Statement of Financial Accounting Standards (SFAS) No. 133,Accounting for Derivative Instruments and Hedging Activities.We defer and include in other comprehensive income changes in the fair value of derivative instruments designated as cash flow hedges. We recognize the ineffective portion of these hedges in income.
Environmental Obligations 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. We currently do not have any asset retirement obligations.
Fair Value of Financial Instruments
In September 2006, the absenceFASB issued SFAS 157,Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of quoted market prices, we estimateAmerica, and expands disclosure about fair value measurements. This pronouncement applies under other accounting standards that require or permit fair value measurements. Accordingly, this statement does not require any new fair value measurement. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. SFAS 157 is amended by FASB Staff Position (FSP)FAS 157-2,Effective Date of FASB Statement 157, which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This FSP partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. We adopted SFAS 157 on January 1, 2008, except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSPFAS 157-2. The partial adoption of SFAS 157 did not have a material impact on our consolidated financial position or results of operations.
F-10
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition, SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities,which permits the election of fair value as the initial and subsequent measurement method for many financial assets and financial liabilities, was effective for us in 2008. We did not elect the fair value option.
Please readNote 7andNote 8for information about fair value of our financial instruments. Our estimates are affected by the assumptions we make, including the discount rate and estimates of the amount and timing of future cash flows. Where these fair values approximate carrying value, no separate disclosure of fair value is shown.
Impairment of Long-Lived Assets
We review 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, we determine estimated fair value generally based on the present value of future probability weighted cash flows expected from the use and eventual disposition of the long-lived asset. We recognized asset impairments of $3,000,000 in 2008, $6,518,000 in 2007 none in 2006 and none in 2005.2006. Impairment expense ischarges are included in cost of real estate sales.
F-8
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income Taxes
We were included in Temple-Inland’s consolidated federal income tax return prior to our spin-off, and our income tax expense was computed as if we filed a separate tax return. We providedprovide 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. In 2007 and 2006, we were included in Temple-Inland’s consolidated federal income tax return prior to our spin-off, and our income tax expense was computed as if we filed a separate tax return. We provide a valuation allowance for any deferred tax asset that is not likely to be recoverable in future periods.
Beginning first quarter 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). We determined that no material unrecognized deferred tax assets or liabilities existed at the date of adoption, and accordingly, the adoption of FIN 48 did not impact our financial condition or results of operations. In addition, we believe that no material unrecognized deferred tax assets or liabilities existed at year-end 2007.2008. We classify interest and penalties related to underpayments of income tax as income tax expense.
Mineral Interests
We acquire real estate that may include the subsurface rights associated with the property, including minerals. We lease some of our mineral interests to third party exploration and production entities and retain a royalty interest. We use the successful efforts method to account for our mineral interests. We do not incur exploration, development, geological or geophysical costs, and we do not drill wells. We capitalize the costs of acquiring these mineral interests.
We amortize the cost assigned to unproved interests, principally acquisition costs, using the straight-line method over appropriate periods based on our experience, generally no longer than 10 years. Costs assigned to individual unproven interests are minimal and amortized on an aggregate basis. When we lease these interests to third party oil and gas exploration and production entities, any related unamortized costs are accounted for using the cost recovery method from the cash proceeds received from lease bonus payments. We have fully recoveredamortized all previously-capitalized acquisition costs and did not capitalize any costs in 20072008 or 2006.2007.
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 non-operating working interest. Non-operating working interests refer to well interests 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. We use the successful efforts method to account for our mineral interest participations. Mineral interests and non-operating working interests, net of amortization, are included in property and equipment on our balance sheet.
F-11
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We do not know the oil and gas reserves related to our royalty interests. We do not make such estimates, and the lessees do not make this reserve information available to us.
Operating Leases
We occupy office space in various locations under operating leases. The lease agreements may contain rent escalation clauses, construction allowancesand/or contingent rent provisions. For scheduled rent escalation clauses, we recognize the minimum 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:
| | | | | | | | | | | | | | | | |
| | | | Carrying
| | | | | Carrying
| |
| | | | Value
| | | | | Value
| |
| | Estimated
| | At Year-End
| | | Estimated
| | At Year-End
| |
| | Useful Lives | | 2007 | | | Useful Lives | | 2008 | |
| | | | (In thousands) | | | | | (In thousands) | |
|
Buildings and building improvements | | | 10 to 40 years | | | $ | 1,745 | | | | 10 to 40 years | | | $ | 4,800 | |
Office and other equipment | | | 2 to 10 years | | | | 2,278 | | | | 2 to 10 years | | | | 4,405 | |
| | | | | | |
| | | | | | | 4,023 | | | | | | | | 9,205 | |
Less accumulated depreciation | | | | | | | (2,455 | ) | | | | | | | (2,994 | ) |
| | | | | | |
| | | | | | $ | 1,568 | | | | | | | $ | 6,211 | |
| | | | | | |
Depreciation expense of property and equipment was $650,000 in 2008, $392,000 in 2007 and $341,000 in 2006 and $364,000 in 2005.2006. We expense operating leases ratably over the shorter of the useful life or the lease term.
F-9
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Real Estate
We carry real estate at the lower of cost or fair value less cost to sell. We capitalize interest costs and property taxes 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 though 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.
Commercial properties are carried at cost less accumulated depreciation computed using the straight-line method over their estimated useful lives (three to 39 years).
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 100 percent of allowable cost as defined by the district. The transfer is consummated and we receive payment when the
F-12
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 which is not significant, to reflect our past experiences related to claimed allowable development costs.
Reclassifications
CertainIn 2008, we changed our reportable segments to reflect our post-spin management of the operations transferred to us by Temple-Inland and all prior years’ general and administrative expenses haveperiod information has been reclassified to other operating expenses to conform to the current year’syear presentation.
Revenue
Real Estate
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 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.
NaturalMineral Resources
We recognize revenue from mineral bonus payments when we have 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 has been collected, and we have no obligation to refund the payment. We recognize revenue from delay rentals if drilling has not started within the specified period, when the payment has been collected, and we have no further obligation. We recognize revenue from mineral royalties and non-operating working interests when the minerals have been delivered to the buyer, the value is determinable, and we are reasonably sure of collection.
Fiber Resources
We recognize revenue from timber sales upon passage of title, which occurs at delivery; when the price is fixed and determinable; and we are reasonably sure of collection. We recognize revenue from hunting and recreational leases on the straight-line basis over the lease term if we are reasonably sure of collection.
F-10
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Share-Based Compensation
Our directors and certain of our employees participate in and have received share-based compensation awards under our 2007 Stock Incentive Plan, which was approved by our sole stockholder prior to the spin-off.
Prior to the spin-off, we participated in Temple-Inland’s share-based compensation plans, and as a result, certain of our employees received share-based compensation awards under those plans. The expense for those
F-13
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
awards was allocated to us by Temple-Inland and was determined by Temple-Inland using the following accounting principles:
| | |
| • | Beginning January 2006, Temple-Inland adopted the modified prospective application method contained in Statement of Financial Accounting StandardsSFAS No. 123 (revised December 2004),Share-Based Payment(SFAS 123(R)),to account for share-based payments. As a result, Temple-Inland applied this pronouncement to new awards or modifications of existing awards in 2006. Prior to adopting SFAS 123(R), Temple-Inland had been expensing, over the service period, the fair value of share-based compensation awards granted, modified, or settled in 2003 through 2005, using the prospective transition method of accounting contained in SFAS No. 148,Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123. |
|
| • | Prior to 2003, Temple-Inland used the intrinsic value method in accounting for stock options. As a result, Temple-Inland did not allocate to us share-based compensation expense related to those stock options granted prior to 2003 in 2005. |
The following table illustrates the effect on our net income as if the fair value method had been applied to the options granted to our employees prior to 2003:
| | | | |
| | For the Year
| |
| | 2005 | |
| | (In thousands) | |
|
Net income, as reported | | $ | 34,897 | |
Add: Share-based compensation expense, net of related tax effects, included in the determination of reported net income | | | 277 | |
Deduct: Total share-based compensation expense, net of related tax effects, determined under the fair value based method for all awards | | | (321 | ) |
| | | | |
Pro forma net income | | $ | 34,853 | |
| | | | |
Please readNote 1316for additional information about share-based compensation.
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 naturalfiber resources in the income statement and in non-cash expenses in the statement of cash flows.statement. 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.
Pending Accounting Pronouncements
SFAS No. 150,141(R),Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity— The provisions of this standard that addressApplying the accounting for certain mandatorily redeemable non-controlling interests have been deferred indefinitely pending further FASB action. The deferred provisions would principally affect the way we account for minority interests in partnerships we control; the classification
F-11
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of such interests as liabilities, which we presently do; and accounting for changes in the fair value of the minority interest by a charge to earnings, which we currently do not do. While the effect of the deferred provisions would be dependent on the changes in the fair value of the partnerships’ net assets, it is possible that the future effects could be significant. Because the minority interests are not readily marketable, it is difficult to determine their fair value. However, we believe the difference between the carrying value of the minority interests and their estimated fair value was not significant at year-end 2007 or 2006.
SFAS No. 157,Fair Value Measures— This new standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance applies to fair value measurements already required or permitted and will be effective for our first quarter 2008. We do not expect that adoption will have a significant effect on our earnings or financial position.
SFAS No. 159,The Fair Value Option for Financial Assets and Financial LiabilitiesAcquisition Method— SFAS No. 159 permits the election141(R) requires valuation of assets and liabilities acquired to be based upon fair valuevalues and eliminates recognition of minority interest as well as the initial and subsequent measurement methodinclusion of transaction costs in the purchase price. SFAS No. 141(R) is effective for many financial assets and liabilities. We do not anticipate electing this option.business combinations occurring after year-end 2008.
SFAS No. 160,Noncontrolling Interests— SFAS No. 160 clarifies the classification of noncontrolling interests in consolidated statement of financial position and the accounting for and reporting of transactions between the reporting entity and holders of such noncontrolling interst.interest. Under the new standard, noncontrolling interests will be classified as equity, net income will encompass the total income of all consolidated subsidiaries with separate disclosure on the face of the income statement of the attribution of that income between the controlling and noncontrolling interests and changes in the noncontrolling ownership interest will be accounted for as a change to the controlling interest’s equity. SFAS No. 160 is effective for our first quarter 2009. Based on our current understanding, we do not expect that adoption will have a significant effect on our earnings or financial position. At year-end 2008, minority interest in consolidated ventures was $6,660,000.
SFAS No. 141(R),161,Applying the Acquisition MethodDisclosures about Derivative Instruments and Hedging Activities-an amendment of SFAS No. 133— SFAS No. 141(R)161 requires valuation of assetsenhanced disclosures about derivative instruments including how and liabilities acquired to be based upon fair valueswhy they are used; how they are accounted for; and eliminates recognition of minority interest as well as the inclusion of transaction costs in the purchase price.how they affect an entity’s financial position, financial performance and cash flows. SFAS No. 141(R)161 is effective for our first quarter 2009. Based on our current understanding, we do not expect that adoption will have a significant effect on our earnings or financial position.
F-14
EITF 07-6,FORESTAR GROUP INC.
Accounting for the Sale of Real Estate Subject to the Requirements of FASB Statement No. 66, Accounting for Sales of Real Estate, When the Agreement Includes a Buy-Sell Clause
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — EITF 07-6(Continued) requires consideration of buy-sell clauses to determine the effect on profit recognition in connection with a partial sale of real estate.EITF 07-6 is effective for our first quarter 2008. We do not expect that adoption will have a significant effect on our earnings or financial position.
Real estate consists of:
| | | | | | | | | | | | | | | | |
| | At Year-End | | | At Year-End | |
| | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (In thousands) | | | (In thousands) | |
|
Entitled, developed, and under development land | | $ | 388,493 | | | $ | 292,534 | | |
Entitled, developed and under development projects | | | $ | 445,394 | | | $ | 387,157 | |
Undeveloped land | | | 141,012 | | | | 133,170 | | | | 143,749 | | | | 142,348 | |
Commercial operating properties | | | 43,479 | | | | 43,020 | | | | 43,987 | | | | 43,479 | |
| | | | | | | | | | |
| | | 572,984 | | | | 468,724 | | | | 633,130 | | | | 572,984 | |
Accumulated depreciation | | | (20,774 | ) | | | (20,907 | ) | | | (22,544 | ) | | | (20,774 | ) |
| | | | | | | | | | |
| | $ | 552,210 | | | $ | 447,817 | | | $ | 610,586 | | | $ | 552,210 | |
| | | | | | | | | | |
F-12
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Included in entitled, developed, and under development landprojects are the estimated costcosts of assets we expect to convey to utility or improvement districts of $76,173,000 in 2008 and $40,843,000 in 2007, including $49,529,000 at year-end 2008 and $14,213,000 in 2006.$25,516,000 at year-end 2007 related to our Cibolo Canyons project near San Antonio, Texas. These costs relate to water, sewer and other infrastructure assets for which the utility or improvement districts have agreed to reimburse us. We billed these districts $27,581,000 in 2008 and $37,137,000 in 2007, and $6,614,000 in 2006 and we collected from these districts $674,000 in 2008 and $10,628,000 in 2007 and $5,790,000 in 2006.2007. We expect to collect the remaining amounts billed in 2008 and 2007 when these districts achieve adequate tax bases to support payment, which is typically 12 to 24 months.payment.
We recognized asset impairments of $3,000,000 in 2008, $6,518,000 in 2007 none in 2006 and none in 2005.2006. Impairment expense ischarges are included in cost of real estate sales and in 2008 and 2007, isand are related to residential projects and a commercial golf club operationprincipally in Texas.
Depreciation expense primarily related to commercial operating properties was $1,770,000 in 2008, $2,014,000 in 2007 and $2,008,000 in 2006 and $1,876,000 in 2005 and is included in other operating expense.
Please readSchedule III for additional information.
| |
Note 3 — | Investment in Unconsolidated Ventures |
At year-end 2007,2008, we had ownership interests ranging from 25 to 50 percent in 15 ventures that we account for using the equity method. We have no real estate ventures that are accounted for using the cost method. Our twothree largest ventures at year-end 20072008 are CL Realty, Temco and Temco, in both of which wePalisades West. We own a 50 percent interest in both CL Realty and Temco and Cousins Real Estate Corporation owns the other 50 percent interest. We own a 25 percent interest in Palisades West, Cousins Properties Incorporated owns a 50 percent interest and Dimensional Fund Advisors LP owns the remaining 25 percent. Information regarding CL Realty and Temcothese ventures follows:
| | |
| • | CL Realty, L.L.C. was formed in 2002 for the purpose of developing residential and mixed-use communities in Texas and across the southeastern United States. At year-end 2007,2008, the venture had 15 residential and mixed-use communities, of which 10 are in Texas, 3 are in Florida and 2 are in Georgia.Georgia, representing about 7,600 residential lots and 560 commercial acres. |
|
| • | Temco Associates, LLC was formed in 1991 for the purpose of acquiring and developing residential real estate sites in Georgia. At year-end 2007,2008, the venture had 5 residential and mixed-use communities, representing about 1,500 residential lots, all of which are located in Paulding County, Georgia. The venture also owns approximately 6,1005,600 acres of undeveloped land in Paulding County, Georgia. In 2008, the venture sold approximately 486 acres of undeveloped land for $6,300 per acre. |
F-15
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | |
| • | Palisades West LLC was formed in 2006 for the purpose of constructing a commercial office park in Austin, Texas. The project includes two office buildings totaling approximately 375,000 square feet and an accompanying parking garage. Construction of the project was completed in fourth quarter 2008 and is approximately 67% leased. Our remaining commitment for investment in this venture as of year-end 2008 is $2,792,000. We have entered into a10-year operating lease for approximately 32,000 square feet that we occupy as our corporate headquarters effective in fourth quarter 2008. Please readNote 14 for additional information about operating leases. |
Combined summarized balance sheet information for our ventures accounted for using the equity method follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At Year-End 2007 | | At Year-End 2006 | | | December 31, 2008 | | December 29, 2007 | |
| | | | | | Other
| | | | | | | | Other
| | | | | | | | | Palisades
| | Other
| | | | | | | | Palisades
| | Other
| | | |
| | CL Realty | | Temco | | Ventures | | Total | | CL Realty | | Temco | | Ventures | | Total | | | CL Realty | | Temco | | West | | Ventures | | Total | | CL Realty | | Temco | | West | | Ventures | | Total | |
| | (In thousands) | | | (In thousands) | |
|
Real estate | | $ | 122,659 | | | $ | 59,992 | | | $ | 75,061 | | | $ | 257,712 | | | $ | 113,289 | | | $ | 58,273 | | | $ | 44,666 | | | $ | 216,228 | | | $ | 124,417 | | | $ | 60,791 | | | $ | 120,953 | | | $ | 94,094 | | | $ | 400,255 | | | $ | 122,659 | | | $ | 59,992 | | | $ | 38,627 | | | $ | 36,434 | | | $ | 257,712 | |
Total assets | | | 124,419 | | | | 63,481 | | | | 125,323 | | | | 313,223 | | | | 117,779 | | | | 65,765 | | | | 99,523 | | | | 283,067 | | | | 126,726 | | | | 61,832 | | | | 123,290 | | | | 102,930 | | | | 414,778 | | | | 124,419 | | | | 63,481 | | | | 40,444 | | | | 84,879 | | | | 313,223 | |
Borrowings, principally non-recourse(a) | | | 6,350 | | | | 3,397 | | | | 62,888 | | | | 72,635 | | | | 5,357 | | | | 3,745 | | | | 56,407 | | | | 65,509 | | | | 4,901 | | | | 3,198 | | | | — | | | | 75,638 | | | | 83,737 | | | | 6,350 | | | | 3,397 | | | | — | | | | 62,888 | | | | 72,635 | |
Total liabilities | | | 9,903 | | | | 4,437 | | | | 82,565 | | | | 96,905 | | | | 9,456 | | | | 4,979 | | | | 67,469 | | | | 81,904 | | | | 8,683 | | | | 3,570 | | | | 50,548 | | | | 89,580 | | | | 152,381 | | | | 9,903 | | | | 4,437 | | | | 7,584 | | | | 74,981 | | | | 96,905 | |
Equity | | | 114,516 | | | | 59,044 | | | | 42,758 | | | | 216,318 | | | | 108,323 | | | | 60,786 | | | | 32,054 | | | | 201,163 | | | | 118,043 | | | | 58,262 | | | | 72,742 | | | | 13,350 | | | | 262,397 | | | | 114,516 | | | | 59,044 | | | | 32,860 | | | | 9,898 | | | | 216,318 | |
Our investment in real estate ventures | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Our investment in real estate ventures: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Our share of their equity(b) | | | 57,258 | | | | 29,522 | | | | 22,590 | | | | 109,370 | | | | 54,162 | | | | 30,393 | | | | 13,919 | | | | 98,474 | | | | 59,022 | | | | 29,131 | | | | 18,779 | | | | 18,295 | | | | 125,227 | | | | 57,258 | | | | 29,522 | | | | 9,362 | | | | 13,228 | | | | 109,370 | |
Unrecognized deferred gain(c) | | | (7,069 | ) | | | — | | | | (614 | ) | | | (7,683 | ) | | | (7,416 | ) | | | — | | | | (614 | ) | | | (8,030 | ) | | | (7,059 | ) | | | — | | | | — | | | | (614 | ) | | | (7,673 | ) | | | (7,069 | ) | | | — | | | | — | | | | (614 | ) | | | (7,683 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment in real estate ventures | | $ | 50,189 | | | $ | 29,522 | | | $ | 21,976 | | | $ | 101,687 | | | $ | 46,746 | | | $ | 30,393 | | | $ | 13,305 | | | $ | 90,444 | | | $ | 51,963 | | | $ | 29,131 | | | $ | 18,779 | | | $ | 17,681 | | | $ | 117,554 | | | $ | 50,189 | | | $ | 29,522 | | | $ | 9,362 | | | $ | 12,614 | | | $ | 101,687 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-13F-16
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Combined summarized income statement information for our ventures accounted for using the equity method follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year | | | For the Year | |
| | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | (In thousands) | | | (In thousands) | |
|
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
CL Realty | | $ | 7,392 | | | $ | 51,367 | | | $ | 42,823 | | | $ | 8,065 | | | $ | 7,392 | | | $ | 51,367 | |
Temco | | | 8,305 | | | | 51,470 | | | | 31,239 | | | | 6,426 | | | | 8,305 | | | | 51,470 | |
Palisades West | | | | 1,421 | | | | 267 | | | | — | |
Other ventures | | | 14,762 | | | | 33,053 | | | | 108,966 | | | | 12,865 | | | | 14,495 | | | | 33,053 | |
| | | | | | | | | | | | | | |
Total | | $ | 30,459 | | | $ | 135,890 | | | $ | 183,028 | | | $ | 28,777 | | | $ | 30,459 | | | $ | 135,890 | |
| | | | | | | | | | | | | | |
Earnings: | | | | | | | | | | | | | | | | | | | | | | | | |
CL Realty | | $ | 3,400 | | | $ | 16,892 | | | $ | 11,362 | | | $ | 6,781 | | | $ | 3,400 | | | $ | 16,892 | |
Temco | | | 258 | | | | 16,986 | | | | 8,566 | | | | 940 | | | | 258 | | | | 16,986 | |
Palisades West | | | | 1,218 | | | | 230 | | | | — | |
Other ventures | | | (176 | ) | | | (2,609 | ) | | | 72,698 | | | | (2,489 | ) | | | (406 | ) | | | (2,609 | ) |
| | | | | | | | | | | | | | |
Total | | $ | 3,482 | | | $ | 31,269 | | | $ | 92,626 | | | $ | 6,450 | | | $ | 3,482 | | | $ | 31,269 | |
| | | | | | | | | | | | | | |
Our equity in their earnings: | | | | | | | | | | | | | | | | | | | | | | | | |
CL Realty(c)(d) | | $ | 1,700 | | | $ | 8,431 | | | $ | 5,681 | | | $ | 3,377 | | | $ | 1,700 | | | $ | 8,431 | |
Temco(d) | | | 129 | | | | 8,493 | | | | 4,283 | | | | 469 | | | | 129 | | | | 8,493 | |
Palisades West | | | | 304 | | | | 58 | | | | — | |
Other ventures(b) | | | 1,557 | | | | 1,538 | | | | 5,730 | | | | 482 | | | | 1,499 | | | | 1,538 | |
Recognition of deferred gain(c) | | | 346 | | | | 909 | | | | 1,486 | | | | 10 | | | | 346 | | | | 909 | |
| | | | | | | | | | | | | | |
Total | | $ | 3,732 | | | $ | 19,371 | | | $ | 17,180 | | | $ | 4,642 | | | $ | 3,732 | | | $ | 19,371 | |
| | | | | | | | | | | | | | |
| | |
(a) | | Includes current maturities of debt of $21,150,000 in 2008 and $36,337,000 in 2007 and $12,375,000 in 2006.2007. |
|
(b) | | Our share of the equity in other ventures reflects our ownership interests ranging from 25 to 50 percent, excluding venture losses that exceed our investment where we are not obligated to fund those losses. Our equity in earnings of partnerships in 2005 included a number of partnerships in which we owned a five to ten percent interest. Our investments in these partnerships were liquidated prior to year-end 2005. At year-end 2007 and 2006, we have no real estate ventures that are accounted for using the cost method. |
|
(c) | | In 2003, we contributed real estate with a $13,800,000 carrying value to CL Realty in exchange for $13,800,000 cash and a 50 percent interest in the partnership. We deferred the $14,587,000 gain on the sale and are recognizing it as the partnership sells the real estate to third parties. The deferred gain is reflected as an offset to our investment in unconsolidated ventures. |
|
(d) | | Beginning in 2006, we eliminated our historic one-month lag in accounting for our investment in CL Realty and Temco as financial information became more readily available. The one-time effect of eliminating this one-month lag was to increase our equity in earnings for 2006 by $754,000 for CL Realty and $350,000 for Temco. |
In 2008, we invested $17,845,000 in these ventures and received $7,221,000 in distributions; in 2007, we invested $14,492,000 in these ventures and received $6,102,000 in distributions,distributions; and in 2006, we invested $17,611,000 in these ventures and received $23,727,000 in distributions, and in 2005 we invested $29,612,000 and received $24,920,000 in distributions. Distributions include both return of investments and distributions of earnings.
We provide development services for some of these ventures for which we receive a fee. Fees for these services were $120,000 in 2008, $344,000 in 2007 and $729,000 in 2006 and $1,126,000 in 2005 and are included in real estate revenues.
F-14F-17
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Receivables consistsconsist of:
| | | | | | | | | | | | | | | | |
| | At Year-End | | | At Year-End | |
| | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (In thousands) | | | (In thousands) | |
|
Seller financing notes receivable, average interest rate of 7.8% in 2007 and 2006 | | $ | 411 | | | $ | 1,729 | | |
Notes receivable, average interest rate of 9.6% in 2007 and 2006 | | | 1,314 | | | | 1,755 | | |
Seller financing notes receivable, average interest rate of 6.9% in 2008 and 7.8% in 2007 | | | $ | 410 | | | $ | 411 | |
Notes receivable, average interest rate of 9.6% in 2008 and 2007 | | | | 1,336 | | | | 1,314 | |
Accrued interest and other | | | 2,268 | | | | 2,833 | | | | 2,742 | | | | 2,268 | |
| | | | | | | | | | |
| | $ | 3,993 | | | $ | 6,317 | | | $ | 4,488 | | | $ | 3,993 | |
Allowance for bad debts | | | (226 | ) | | | (226 | ) | | | (226 | ) | | | (226 | ) |
| | | | | | | | | | |
| | $ | 3,767 | | | $ | 6,091 | | | $ | 4,262 | | | $ | 3,767 | |
| | | | | | | | | | |
Seller financing notes receivable are generally secured by a deed of trust with a 10 percent down payment and mature through 2009. In November 2006, we ceased providing seller financing in connection with the sale of residential lots.
Notes receivable are funds advanced to potential venture partners and will be converted to an equity interest in a venture or collected. It is anticipated that these notes will be satisfied by year-end 2008.2009.
Other receivables are miscellaneous operating receivables arising in the normal course of business. We expect to collect $1,200,000$1,625,000 in 2008.2009.
We have about 350,000340,000 acres of timber on our undeveloped land, located primarily in Georgia. We capitalized reforestation expenditures of $282,000 in 2008, $411,000 in 2007 and $1,409,000 in 2006, and $1,553,000 in 2005.2006. The cost of timber cut was $3,881,000$2,968,000 in 2008, $4,060,000 in 2007 and $3,441,000 in 2006, and $3,218,000 in 2005.2006.
Debt consists of:
| | | | | | | | |
| | At Year-End | |
| | 2007 | | | 2006 | |
| | (In thousands) | |
|
Term loan facility — interest payable at LIBOR +4% (8.63% at year-end 2007), maturing in 2010 | | $ | 175,000 | | | $ | — | |
Secured promissory note — interest payable at 7.3%, maturing in 2008 | | | 16,431 | | | | 16,978 | |
Other indebtedness due through 2011 at variable interest rates based on prime (7.25% at year-end 2007) and at fixed interest rates ranging from 6.00% to 9.50% secured primarily by real estate including non-recourse debt of consolidated ventures | | | 74,584 | | | | 33,633 | |
| | | | | | | | |
| | $ | 266,015 | | | $ | 50,611 | |
| | | | | | | | |
| | | | | | | | |
| | At Year-End | |
| | 2008 | | | 2007 | |
| | (In thousands) | |
|
Term loan facility — average interest rate of 4.77% at year-end 2008 and 8.63% at year-end 2007 | | $ | 175,000 | | | $ | 175,000 | |
Revolving loan facility — average interest rate of 5.12% at year-end 2008 | | | 59,900 | | | | — | |
Secured promissory note — interest rate of 3.01% at year-end 2008 and 7.3% at year-end 2007 | | | 16,000 | | | | 16,431 | |
Other indebtedness due through 2011 at variable interest rates based on prime (3.25% at December 31, 2008) and at fixed interest rates ranging from 6.00% to 9.50% secured primarily by real estate including non-recourse debt of consolidated ventures | | | 86,502 | | | | 74,584 | |
| | | | | | | | |
| | $ | 337,402 | | | $ | 266,015 | |
| | | | | | | | |
Our senior credit facility and other debt agreements contain terms, conditions and financial covenants customary for such agreements including minimum levels of interest coverage and limitations on leverage. At year-end 2007,2008, we had complied with the terms, conditions and financial covenants of these agreements.
Our senior credit facility provides for a $175,000,000 term loan and a $265,000,000$290,000,000 revolving line of credit. We may, upon notice to the lenders, request an increase in the credit facility to provide for a total of $500,000,000. In first quarter 2008, we increased our revolving line of credit to $290,000,000. The revolving line of credit includes a $100,000,000 sublimit available for letters of credit, and a $25,000,000 swing line sublimit. Total borrowings under our senior credit facility (including the face amount of letters of credit) may not exceed a borrowing base formula. Also, at the end of each quarter, we are required to have at least
F-15
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$35,000,000 in available liquidity. At year-end 2007, we had $218,567,000 in unused borrowing capacity under our senior credit facility.
We may elect interest rates on our borrowings calculated by reference to either (a) the higher of a base rate or the federal funds effective rate plus 0.50%, plus a margin of 2.00%, or (b) LIBOR plus a margin of 4.00%. The senior credit facility matures December 1, 2010. The revolving line of credit may be prepaid at any time without penalty. The term loan may be prepaid at any time; however, repayment during the first 12 months requires a fee of 2.00% of the principal amount and repayment during the next six monthsprior to June 1, 2009 requires a fee of 1.00% of the principal amount. There is no prepayment fee for the term loan on or after 18 months.June 1, 2009. The senior credit facility
F-18
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
matures December 1, 2010. The revolving line of credit includes a $100,000,000 sublimit for letters of credit, of which $13,135,000 was outstanding at year-end 2008. Total borrowings under our senior credit facility (including the face amount of letters of credit) may not exceed a borrowing base formula, and include a $35,000,000 minimum liquidity requirement at each quarter-end. At year-end 2008, we had $187,933,000 in net unused borrowing capacity under our senior credit facility.
At our option, we can borrow at LIBOR plus 4 percent or Prime plus 2 percent. All borrowings under the senior credit facility are secured by (a) aan initial pledge of approximately 250,000 acres of undeveloped land, (b) assignments of current and future leases, rents and contracts, including our mineral leases, (c) a security interest in theour primary operating account, of Forestar (USA) Real Estate Group Inc., (d) pledge of the equity interests in current and future material operating subsidiaries or joint venture interests, or if such pledge is not permitted, a pledge of the right to distributions from such entities, and (e) negative pledge (without a mortgage) on all other wholly-owned assets. The senior credit facility provides for releases of real estate provided that borrowing base compliance is maintained.
Our senior credit facility contains certain affirmative and negative covenants that are usual and customary for similar facilities, including limitations on indebtedness, acquisitions and divestitures, and distributions. The senior credit facility also contains certain financial covenants that are usual and customary for similar facilities, including, a minimum interest coverage ratio (EBITDA to interest incurred), a minimum ratio of total revenues to capital expenditures, a maximum leverage ratio (funded debt to adjusted asset value as defined in the agreement), a minimum liquidity requirement, and a minimum tangible net worth requirement.
In 2007, weWe incurred origination and other fees related to our credit facility $9,871,000of $10,573,000, of which $6,928,000 is unamortized at year-end 2008 and is included in other assets. Amortization of deferred financing fees in connection with our senior credit facility was $3,506,000 in 2008, $139,000 in 2007 none in 2006 and none in 2005.2006.
At year-end 2007,2008, commercial operating properties having a book value of $22,189,000$21,051,000 were subject to liens in connection with $16,431,000$16,000,000 of debt. On October 1, 2008, we refinanced this debt andthrough 2010 with interest payable at LIBOR plus 2.5 percent or Prime plus 2 percent, at our option.
At year-end 2008, entitled, developed and under development landprojects having a book value of $157,834,000$162,141,000 was subject to liens in connection with $74,584,000$86,502,000 of principally non-recourse debt. Please readSchedule IIIfor additional information.
Maturities of our debt during the next five years are: 2008 — $57,960,000; 2009 — $18,485,000;$35,207,000; 2010 — $181,706,000;$264,453,000; 2011 — $7,864,000;$37,742,000; 2012 — $0; 2013 — $0; and thereafter — $0.
| |
Note 7 — | Fair Value of FinancialDerivative Instruments |
We periodically use interest rate agreements in the normal course of business to mitigate the risk inherent in interest rate fluctuations by entering into contracts with major U.S. securities firms.
In first quarter 2008, we entered into a $100,000,000 notional amount interest rate swap agreement that matures in 2010. The carrying valuesswap agreement was designed to offset the cash flow variability of financial assetsinterest rate payments associated with the first $100,000,000 of our variable-rate borrowings. Under this swap agreement, we pay a fixed interest rate of 6.57 percent and liabilities, including cash, receivables, and accounts payablereceive a floating interest rate of one month LIBOR plus 4 percent (4.77 percent at year-end 2007 and 2006 approximate2008).
At year-end 2008, the fair values becausevalue of the short maturity of these instruments. The carrying amount of notes receivable and notes payable approximatesinterest rate swap agreement was a $1,939,000 liability that is included in other liabilities. In 2008, the fair value at year-end 2007of our interest rate swap decreased and 2006 sinceas a result we recognized an after-tax loss of $1,260,000 that is included in accumulated other comprehensive income. The fair value of the notes are at floating rates or fixed rates, which approximate current market ratesinterest rate swap agreement was determined using quoted prices in active markets for notes with similar risksidentical assets (Level 1) under SFAS No. 157.
The effectiveness of the hedge relationship is periodically assessed by comparing the present value of the cumulative change in the expected future cash flows on the variable leg of the swap and maturities.the present value of the cumulative change in the expected future hedged cash flows. In 2008, hedge ineffectiveness was not significant.
F-16F-19
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
Note 8 — | Earnings Per ShareFair Value of Financial Instruments |
We computed earnings per share for the year 2007 by dividing net income by the numberThe carrying amounts and fair values of our financial instruments follow:
| | | | | | | | | | | | | | | | |
| | At Year-End | |
| | 2008 | | | 2007 | |
| | Carrying
| | | Fair
| | | Carrying
| | | Fair
| |
| | Amount | | | Value | | | Amount | | | Value | |
| | (In thousands) | |
|
Cash and cash equivalents | | $ | 8,127 | | | $ | 8,127 | | | $ | 7,520 | | | $ | 7,520 | |
Receivables, net | | | 4,262 | | | | 4,262 | | | | 3,767 | | | | 3,767 | |
Accounts payable | | | (7,438 | ) | | | (7,438 | ) | | | (8,002 | ) | | | (8,002 | ) |
Interest rate swap agreement | | | (1,939 | ) | | | (1,939 | ) | | | — | | | | — | |
Debt | | | (337,402 | ) | | | (337,684 | ) | | | (266,015 | ) | | | (266,276 | ) |
At year-end 2008 and 2007, carrying amounts of cash and cash equivalents, receivables and accounts payable approximate their fair values due to the short-term nature of these assets and liabilities. The interest rate swap agreement is carried at its fair value at year-end 2008. The carrying amount of debt approximates fair value at year-end 2008 and 2007 since it is primarily made up of variable-rate borrowings. We estimated the fair value of our fixed-rate borrowings using quoted market prices for similar securities (Level 2).
Pursuant to our shareholder rights plan, each share of common stock outstanding is coupled with one-quarter of a preferred stock purchase right (Right). Each Right entitles our shareholders to purchase, under certain conditions, one one-hundredth of a share of newly issued Series A Junior Participating Preferred Stock at an exercise price of $100. Rights will be exercisable only if someone acquires beneficial ownership of 20 percent or more of our common shares or commences a tender or exchange offer, upon consummation of which they would beneficially own 20 percent or more of our common shares. We will generally be entitled to redeem the Rights at $0.001 per Right at any time until the 10th business day following public announcement that a 20 percent position has been acquired. The Rights will expire on December 11, 2017.
Please readNote 16for information about additional shares of common stock distributed by Temple-Inland as follows:
| | | | |
| | (In thousands,
| |
| | except per share) | |
|
Net income | | $ | 24,795 | |
Weighted average shares outstanding — basic and diluted | | | 35,380 | |
| | | | |
Earnings per common share — basic and diluted | | $ | 0.70 | |
| | | | |
that could be issued under terms of our share-based compensation plans.
Weighted average sharesAs a result of our spin-off from Temple-Inland, all of Temple-Inland’s outstanding represent the number of shares of common stock outstanding at year-end 2007 because allshare-based compensation awards were equitably adjusted into separate awards: one related to our common stock, was held byone related to Temple-Inland prior to spin-off. There was only one day after our spin-off that our stock was outstanding during fiscal year 2007, so weighted average shares outstanding is equal to the number of shares outstanding at year-end 2007.
Our directors and certain employees have share-based compensation awards including cash-settled awards, restricted stock, stock-settled units, and options on our stock. Those awards are described more fully inNote 13. Additionally, directors and key employees of Temple-Inland and Guaranty also hold similar awards as a result of conversion of Temple-Inland awards outstanding at the date of distribution of our stock. We do not recognize share-based compensation expense for vesting of the awards of Temple-Inland or Guaranty directors or employees. However, upon vesting of stock-settled units or exercise by a Temple-Inland or Guaranty award holder of an option on our stock, we issue shares of our stock. Upon issuance, the resulting shares have a dilutive effect on our basic earnings per common share. Additionally, outstanding options have a dilutive effective on our diluted earnings per share. Because these awards on our stock and those held by our employeesone related to Guaranty common stock. All awards issued as discussed inNote 13, were not outstanding until the Temple-Inland awards were convertedpart of this adjustment are subject to awards in our stock on December 28, 2007, they had no effect on our diluted earnings per share in 2007. Outstanding option awards will be included in our determination of diluted earnings per share in future years. Had we included the outstanding option awards in our calculations for 2007, proforma (unaudited) diluted earnings per share would have been $0.69.their original vesting schedules.
At year-end 2007,2008, Temple-Inland and Guaranty directors and employees held 211,000 stock-settled units27,000 equity-settled restricted stock awards on our stock.
The following informationtable summarizes outstanding stock option awards on our stock held by Temple-Inland and Guaranty directors and employees at year-end 2007:2008:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted
| | Aggregate
| | | | | | Weighted
| | Aggregate
|
| | | | Weighted
| | Average
| | Intrinsic Value
| | | | Weighted
| | Average
| | Intrinsic Value
|
| | | | Average
| | Remaining
| | (Current Value
| | | | Average
| | Remaining
| | (Current Value
|
| | | | Exercise Price
| | Contractual
| | Less Exercise
| | | | Exercise Price
| | Contractual
| | Less Exercise
|
| | Shares | | per Share | | Term | | Price) | | Shares | | per Share | | Term | | Price) |
| | (In thousands) | | | | (In years) | | (In thousands) | | (In thousands) | | | | (In years) | | (In thousands) |
|
Outstanding | | | 1,894 | | | $ | 11.41 | | | | 6 | | | $ | 21,190 | | | | 1,805 | | | $ | 19.26 | | | | 5 | | | $ | 142 | |
Exercisable | | | 1,103 | | | | 11.55 | | | | 4 | | | | 12,860 | | | | 1,440 | | | $ | 17.06 | | | | 4 | | | $ | 142 | |
F-17F-20
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
Note 910 — | Other Comprehensive Income |
Other comprehensive income consists of:
| | | | | | | | | | | | |
| | For the Year | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands) | |
|
Net income | | $ | 11,974 | | | $ | 24,795 | | | $ | 51,844 | |
Change in fair value of interest rate swap agreement, net of taxes | | | (1,260 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Other comprehensive income | | $ | 10,714 | | | $ | 24,795 | | | $ | 51,844 | |
| | | | | | | | | | | | |
| |
Note 11 — | Net Income per Share |
Our basic and diluted weighted average common shares outstanding used to compute net income per share are as follows:
| | | | | | | | | | | | |
| | For the Year | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands) | |
|
Weighted average common shares outstanding — basic | | | 35,455 | | | | 35,380 | | | | 35,380 | |
Dilutive effect of stock options | | | 305 | | | | — | | | | — | |
Dilutive effect of restrict stock and restricted stock units | | | 132 | | | | — | | | | — | |
| | | | | | | | | | | | |
Weighted average common shares outstanding — diluted | | | 35,892 | | | | 35,380 | | | | 35,380 | |
| | | | | | | | | | | | |
For 2007 and 2006, we computed basic and diluted net income per share based upon the number of shares of our common stock distributed by Temple-Inland on December 28, 2007.
At year-end 2008, the effect of 1,713,000 stock options and unvested shares of restricted stock were not included in the computation of diluted weighted average shares outstanding because their impact would have been anti-dilutive.
Income tax expense consists of:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year | | | For the Year | |
| | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | (In thousands) | | | (In thousands) | |
|
Current tax provision: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Federal | | $ | (28,782 | ) | | $ | (29,954 | ) | | $ | (16,327 | ) | | $ | (14,954 | ) | | $ | (28,782 | ) | | $ | (29,954 | ) |
State and other | | | (3,133 | ) | | | (4,928 | ) | | | (2,954 | ) | | | (1,680 | ) | | | (3,133 | ) | | | (4,928 | ) |
| | | | | | | | | | | | | | |
| | | (31,915 | ) | | | (34,882 | ) | | | (19,281 | ) | | | (16,634 | ) | | | (31,915 | ) | | | (34,882 | ) |
| | | | | | | | |
Deferred tax provision: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Federal | | | 16,509 | | | | 3,708 | | | | (1,416 | ) | | | 11,124 | | | | 16,509 | | | | 3,708 | |
State and other | | | 1,497 | | | | 1,204 | | | | (162 | ) | | | 275 | | | | 1,497 | | | | 1,204 | |
| | | | | | | | | | | | | | |
| | | 18,006 | | | | 4,912 | | | | (1,578 | ) | | | 11,399 | | | | 18,006 | | | | 4,912 | |
| | | | | | | | | | | | | | |
Income tax expense | | $ | (13,909 | ) | | $ | (29,970 | ) | | $ | (20,859 | ) | | $ | (5,235 | ) | | $ | (13,909 | ) | | $ | (29,970 | ) |
| | | | | | | | | | | | | | |
Our 2008 income tax expense reflects a benefit of $800,000 from a federal income tax rate change for qualified timber gains due to the Food, Conservation and Energy Act of 2008.
F-21
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In 2006, Texas enacted a margin tax to replace the franchise tax, which for us resultsresulted in a lower overall Texas tax rate. As a result, in 2006 we recognized a one-time, non-cash benefit of $780,000 related to the reduction of previously provided deferred state income taxes.
In 2006,We were included in the Internal Revenue Service completed the examinationsfederal consolidated income tax return of Temple-Inland’s tax returns through 2003.Temple-Inland prior to our spin-off.
A reconciliation of the federal statutory rate to the effective income tax rate on continuing operations follows:
| | | | | | | | | | | | | | | | | | |
| | For the Year | | | For the Year | |
| | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
|
Federal statutory rate | | | 35 | % | | | 35 | % | | | 35 | % | | | 35 | % | | | 35 | % | | | 35 | % |
State, net of federal benefit | | | 3 | | | | 3 | | | | 3 | | | | 5 | | | | 3 | | | | 3 | |
Finalization of deferred tax balance transferred at spin-off | | | | 2 | | | | — | | | | — | |
Percentage depletion | | | | (6 | ) | | | (2 | ) | | | (1 | ) |
Qualified timber gains | | | | (5 | ) | | | — | | | | — | |
Other | | | (2 | ) | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | |
Effective tax rate | | | 36 | % | | | 37 | % | | | 37 | % | | | 30 | % | | | 36 | % | | | 37 | % |
| | | | | | | | | | | | | | |
Significant components of deferred taxes are:
| | | | | | | | | | | | | | | | |
| | At Year-End | | | At Year-End | |
| | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (In thousands) | | | (In thousands) | |
|
Deferred Tax Assets: | | | | | | | | | | | | | | | | |
Real estate | | $ | 34,735 | | | $ | 14,737 | | | $ | 44,711 | | | $ | 37,632 | |
Employee benefits | | | 1,141 | | | | 829 | | | | 3,594 | | | | 1,141 | |
Accruals not deductible until paid | | | 840 | | | | 409 | | | | 986 | | | | 840 | |
Other | | | | 696 | | | | — | |
| | | | | | | | | | |
Gross deferred tax assets | | | 36,716 | | | | 15,975 | | | | 49,987 | | | | 39,613 | |
Deferred Tax Liabilities: | | | | | | | | | | | | | | | | |
Undeveloped land | | | (24,123 | ) | | | (23,974 | ) | | | (25,869 | ) | | | (27,020 | ) |
Timber | | | (6,153 | ) | | | (6,439 | ) | | | (5,638 | ) | | | (6,153 | ) |
Other | | | (1,334 | ) | | | — | | | | (1,296 | ) | | | (1,334 | ) |
| | | | | | | | | | |
Gross deferred tax liabilities | | | (31,610 | ) | | | (30,413 | ) | | | (32,803 | ) | | | (34,507 | ) |
| | | | | | | | | | |
Net Deferred Tax Asset (Liability) | | $ | 5,106 | | | $ | (14,438 | ) | |
Net Deferred Tax Asset | | | $ | 17,184 | | | $ | 5,106 | |
| | | | | | | | | | |
F-18
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We, or Temple-Inland prior to our spin-off, file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2004.2005. We have no significant unrecognized deferred tax assets or liabilities at year-end 2008 or 2007.
| |
Note 1013 — | Litigation and Environmental Contingencies |
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.
Liabilities in connection with environmentalEnvironmental 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. We own approximately 285288 acres in several parcels in or near
F-22
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Antioch, California, portions of which were sites of a Temple-Inland paper manufacturing operation and related support facilities that needare in remediation. In 2008, we increased our reserves for environmental remediation by about $2,900,000. We estimate the cost we will likely incur to complete remediation activities will be about $5,790,000,$3,900,000, which is included in other accrued expenses at year-end 2007.
We do not believe thatand will likely be paid in 2009. Our estimate requires us to make assumptions regarding the outcomescope of anyrequired remediation, the effectiveness of these proceedings or matters should have a significant adverse effect on our financial position, long-term results of operations or cash flows. Itplanned remediation activities, and approvals by regulatory authorities. Our estimate is possible, however, that charges relatedsubject to these matters could be significant to our results or cash flows in any one accounting period.revision as new information becomes available.
| |
Note 1114 — | Commitments and Other Contingencies |
We lease timberland, 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 timberland was $346,000 in 2008, $428,000 in 2007 and $414,000 in 2006. Rent expense on facilities and equipment was $2,135,000 in 2008, $536,000 in 2007 and $445,000 in 2006. Future minimum rental commitments under non-cancelable operating leases having a remaining term in excess of one year are: 2008 — $1,570,000; 2009 — $1,180,000;$2,226,000; 2010 — $800,000;$2,123,000; 2011 — $720,000;$2,073,000; 2012 — $580,000;$1,956,000; 2013 — $1,763,000 and thereafter — $8,047,000. Rent expense$13,605,000.
We have 16 years remaining on timberland was $428,000a65-year timber lease of over 16,000 acres. At year-end 2008, the remaining contractual obligation for this lease is $9,106,000.
During 2008, we entered into a10-year operating lease for approximately 32,000 square feet in 2007, $414,000the Palisades West Office Park in 2006,Austin, Texas. Effective in fourth quarter 2008, we occupy this space as our corporate headquarters. This lease contains predetermined fixed increases of the minimum rental rate during the initial lease term and $392,000 in 2005. Other rent expense was $536,000 in 2007, $445,000 in 2006, and $328,000 in 2005.a construction allowance for leasehold improvements. The remaining contractual obligation for this lease is $12,133,000.
We have a commitment to support third-party construction and ownership of a resort hotel, spa and golf facilities at our Cibolo Canyons mixed-use development near San Antonio, Texas. At year-end 2007,2008, our unfunded commitment was $29,625,000, of$13,083,000 which $19,625,000 is expected to be funded in 2008 and the remainder in2009-10.
2009.
In connection with our unconsolidated venture operations, we have provided performance bonds and letters of credit aggregating $3,344,000$3,151,000 at year-end 2007.2008. Generally these performance bonds and letters of credit would be drawn on due to lack of specific performance by the ventures, such as failure to deliver streets and utilities in accordance with local codes and ordinances. In addition, we own a 25 percent interest in a venturePalisades West LLC to which all the members have committed to make additional proportionate capital contributions, our share of which is $11,911,000$2,792,000 at year-end 2007.2008.
Temple-Inland has received a private letter ruling from the Internal Revenue Service that the spin-off qualifies for tax-free treatment under applicable sections of the Internal Revenue Code, and has also received an opinion of tax counsel that the spin-off so qualifies. However, if the spin-off fails to qualify for tax-free treatment, under the tax matters agreement between Temple-Inland and us we would generally be required to indemnify Temple-Inland against any tax resulting from the distribution of our shares of stock to the extent that such tax resulted from (1) an issuance of our equity securities, a redemption of our equity securities or our involvement in other acquisitions of our equity securities, (2) other actions or failures to act by us or (3) any of our representations or undertakings being incorrect or violated.
F-19
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
Note 1215 — | Segment Information |
In first quarter 2008, we changed our reportable segments to reflect our post-spin management of the operations transferred to us from Temple-Inland. All prior period segment information has been reclassified to conform to the current presentation. We operate twothree business segments: real estate, mineral resources and naturalfiber resources. Real estate secures entitlements and develops infrastructure on our lands for single-family residential and mixed-use communities and manages our undeveloped land and our commercial operating
F-23
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
properties. NaturalMineral resources manages our oil and gas mineral interests,interests. Fiber resources manages our timber and recreational leases.
We evaluate performance based on segment earnings before unallocated items and income taxes. Segment earnings consist of operating income, equity in earnings of unconsolidated ventures, and minority interest expense in consolidated ventures. Unallocated items consist of general and administrative expense, share-based compensation, other non-operating income and expense, and interest expense. The accounting policies of the segments are the same as those described in the accounting policy note to the consolidated financial statements. Our revenues are derived from our U.S. operations and all of our assets are located in the U.S. No single customer accounts for more than 10 percent of our revenues.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Items Not
| | | | | | | | | | | Items Not
| | | |
| | Real
| | Natural
| | Allocated to
| | | | | Real
| | Mineral
| | Fiber
| | Allocated to
| | | |
| | Estate | | Resources | | Segments(a) | | Total | | | Estate | | Resources | | Resources | | Segments(a) | | Total | |
| | (In thousands) | |
| |
For the year or at year-end 2008: | | | | | | | | | | | | | | | | | | | | | |
Revenues | | | $ | 98,859 | | | $ | 47,671 | | | $ | 13,192 | | | $ | — | | | $ | 159,722 | |
Depreciation and amortization | | | | 2,076 | | | | — | | | | 36 | | | | 5,561 | | | | 7,673 | |
Equity in earnings of unconsolidated ventures | | | | 3,480 | | | | 1,162 | | | | — | | | | — | | | | 4,642 | |
Income (loss) before taxes | | | | 9,075 | | | | 44,076 | | | | 8,896 | | | | (44,838 | ) | | | 17,209 | |
Total assets | | | | 732,401 | | | | 376 | | | | 51,321 | | | | 50,478 | | | | 834,576 | |
Investment in unconsolidated ventures | | | | 117,554 | | | | — | | | | — | | | | — | | | | 117,554 | |
Capital expenditures(b) | | | | 508 | | | | 370 | | | | 282 | | | | 4,037 | | | | 5,197 | |
For the year or at year-end 2007: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | $ | 142,729 | | | $ | 35,257 | | | $ | — | | | $ | 177,986 | | | $ | 142,729 | | | $ | 20,818 | | | $ | 14,439 | | | $ | — | | | $ | 177,986 | |
Depreciation and amortization | | | 2,839 | | | | 76 | | | | — | | | | 2,915 | | | | 2,839 | | | | — | | | | 76 | | | | — | | | | 2,915 | |
Equity in earnings of unconsolidated ventures | | | 3,732 | | | | — | | | | — | | | | 3,732 | | | | 3,732 | | | | — | | | | — | | | | — | | | | 3,732 | |
Income (loss) before taxes | | | 39,507 | | | | 26,531 | | | | (27,334 | ) | | | 38,704 | | | | 39,507 | | | | 18,581 | | | | 7,950 | | | | (27,334 | ) | | | 38,704 | |
Total assets | | | 658,813 | | | | 55,011 | | | | 34,902 | | | | 748,726 | | | | 658,813 | | | | — | | | | 55,011 | | | | 34,902 | | | | 748,726 | |
Investment in unconsolidated ventures | | | 101,687 | | | | — | | | | — | | | | 101,687 | | | | 101,687 | | | | — | | | | — | | | | — | | | | 101,687 | |
Capital expenditures(b) | | | 2,788 | | | | 410 | | | | — | | | | 3,198 | | | | 2,788 | | | | — | | | | 410 | | | | — | | | | 3,198 | |
For the year or at year-end 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | $ | 180,151 | | | $ | 45,409 | | | $ | — | | | $ | 225,560 | | | $ | 180,151 | | | $ | 27,980 | | | $ | 17,429 | | | $ | — | | | $ | 225,560 | |
Depreciation and amortization | | | 2,298 | | | | 57 | | | | — | | | | 2,355 | | | | 2,298 | | | | — | | | | 57 | | | | — | | | | 2,355 | |
Equity in earnings of unconsolidated ventures | | | 19,371 | | | | — | | | | — | | | | 19,371 | | | | 19,371 | | | | — | | | | — | | | | — | | | | 19,371 | |
Income (loss) before taxes | | | 70,271 | | | | 33,016 | | | | (21,473 | ) | | | 81,814 | | | | 70,271 | | | | 26,305 | | | | 6,711 | | | | (21,473 | ) | | | 81,814 | |
Total assets | | | 546,911 | | | | 59,414 | | | | 13,849 | | | | 620,174 | | | | 546,911 | | | | — | | | | 59,414 | | | | 13,849 | | | | 620,174 | |
Investment in unconsolidated ventures | | | 90,444 | | | | — | | | | — | | | | 90,444 | | | | 90,444 | | | | — | | | | — | | | | — | | | | 90,444 | |
Capital expenditures(b) | | | 2,558 | | | | 1,433 | | | | — | | | | 3,991 | | | | 2,558 | | | | — | | | | 1,433 | | | | — | | | | 3,991 | |
For the year or at year-end 2005: | | | | | | | | | | | | | | | | | |
Revenues | | $ | 118,121 | | | $ | 37,366 | | | $ | — | | | $ | 155,487 | | |
Depreciation and amortization | | | 2,184 | | | | 65 | | | | — | | | | 2,249 | | |
Equity in earnings of unconsolidated ventures | | | 17,180 | | | | — | | | | — | | | | 17,180 | | |
Income (loss) before taxes | | | 46,418 | | | | 24,850 | | | | (15,512 | ) | | | 55,756 | | |
Total assets | | | 467,155 | | | | 61,478 | | | | 15,311 | | | | 543,944 | | |
Investment in unconsolidated ventures | | | 76,846 | | | | — | | | | — | | | | 76,846 | | |
Capital expenditures(b) | | | 63 | | | | 1,553 | | | | — | | | | 1,616 | | |
| | |
(a) | | Items not allocated to segments consists of: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year | | For the Year |
| | 2007 | | 2006 | | 2005 | | 2008 | | 2007 | | 2006 |
| | (In thousands) | | (In thousands) |
|
Corporate general and administrative | | $ | (11,119 | ) | | $ | (8,911 | ) | | $ | (5,818 | ) | | $ | (19,318 | ) | | $ | (11,119 | ) | | $ | (8,911 | ) |
Expense allocation from Temple-Inland (see Note 16) | | | (6,294 | ) | | | (5,137 | ) | | | (3,295 | ) | |
Share-based compensation allocation from Temple-Inland (see Note 13) | | | (1,397 | ) | | | (1,275 | ) | | | (443 | ) | |
Expense allocation from Temple-Inland (see Note 19) | | | | — | | | | (6,294 | ) | | | (5,137 | ) |
Share-based compensation (allocated from Temple-Inland in 2007 and 2006, see Note 16) | | | | (4,516 | ) | | | (1,397 | ) | | | (1,275 | ) |
Interest expense | | | (9,229 | ) | | | (6,229 | ) | | | (6,439 | ) | | | (21,283 | ) | | | (9,229 | ) | | | (6,229 | ) |
Other non-operating income | | | 705 | | | | 79 | | | | 483 | | | | 279 | | | | 705 | | | | 79 | |
| | | | | | | | | | | | | | |
| | $ | (27,334 | ) | | $ | (21,473 | ) | | $ | (15,512 | ) | | $ | (44,838 | ) | | $ | (27,334 | ) | | $ | (21,473 | ) |
| | | | | | | | | | | | | | |
| | |
(b) | | Consists of expenditures for property and equipment and reforestation. |
F-20F-24
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
Note 1316 — | Share-Based Compensation |
Post-Spin Awards
A summary of the awards granted under our 2007 Stock Incentive Plan follows.
Cash-settled awards
Cash-settled awards vest 50 percent after year one and 50 percent after year two from the date of grant and provide for accelerated vesting upon retirement, death, disability or if there is a change in control. The following table summarizes the activity of awards granted under our plan for 2008:
| | | | | | | | |
| | | | | Weighted
| |
| | | | | Average
| |
| | | | | Grant Date
| |
| | Equivalent Units | | | Fair Value | |
| | (In thousands) | | | | |
|
Non-vested as of December 29, 2007 | | | — | | | $ | — | |
Granted | | | 6 | | | | 28.85 | |
Vested | | | — | | | | — | |
Forfeited | | | (1 | ) | | | 28.85 | |
| | | | | | | | |
Non-vested as of December 31, 2008 | | | 5 | | | $ | 28.85 | |
| | | | | | | | |
The aggregate current value of non-vested awards as of December 31, 2008 is $50,000.
Equity-settled awards
Equity-settled awards in the form of restricted stock units granted to our directors are fully vested at the time of grant and payable upon retirement. The following table summarizes the activity of awards granted under our plan for 2008:
| | | | | | | | |
| | | | | Weighted
| |
| | | | | Average
| |
| | | | | Grant Date
| |
| | Equivalent Units | | | Fair Value | |
| | (In thousands) | | | | |
|
Non-vested as of December 29, 2007 | | | — | | | $ | — | |
Granted | | | 86 | | | | 15.69 | |
Vested | | | (86 | ) | | | 15.69 | |
Forfeited | | | — | | | | — | |
| | | | | | | | |
Non-vested as of December 31, 2008 | | | — | | | $ | — | |
| | | | | | | | |
The total fair value of awards vested in 2008 was $1,550,000, of which $800,000 are classified as deferred director fees.
F-25
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted stock
Restricted stock awards vest after three years if we achieve a minimum one percent annualized return on assets over such three-year period. The following table summarizes the activity of awards granted under our plan for 2008:
| | | | | | | | |
| | | | | Weighted
| |
| | | | | Average
| |
| | | | | Grant Date
| |
| | Restricted Shares | | | Fair Value | |
| | (In thousands) | | | | |
|
Non-vested as of December 29, 2007 | | | — | | | $ | — | |
Granted | | | 215 | | | | 22.15 | |
Vested | | | — | | | | — | |
Forfeited | | | (8 | ) | | | 28.85 | |
| | | | | | | | |
Non-vested as of December 31, 2008 | | | 207 | | | $ | 21.89 | |
| | | | | | | | |
Stock options
Stock options have a ten-year term, generally become exercisable ratably over three to four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. Options were granted with an exercise price equal to the market value of our stock on the date of grant. The following table summarizes the activity of awards granted under our plan for 2008:
| | | | | | | | | | | | |
| | | | | Weighted
| | | Weighted
| |
| | | | | Average
| | | Average
| |
| | | | | Exercise
| | | Remaining
| |
| | Options
| | | Price per
| | | Contractual
| |
| | Outstanding | | | Share | | | Term | |
| | (In thousands) | | | | | | (In years) | |
|
Balance as of December 29, 2007 | | | — | | | $ | — | | | | — | |
Granted | | | 624 | | | | 28.85 | | | | | |
Exercised | | | — | | | | — | | | | | |
Forfeited | | | (2 | ) | | | 28.85 | | | | | |
| | | | | | | | | | | | |
Balance as of December 31, 2008 | | | 622 | | | $ | 28.85 | | | | 9 | |
| | | | | | | | | | | | |
Options Exercisable as of December 31, 2008 | | | 18 | | | $ | 28.85 | | | | 9 | |
There was no aggregate intrinsic value for stock options outstanding or exercisable at December 31, 2008.
Stock options are valued based upon the Black-Scholes option pricing model. Awards granted in 2008 were valued based upon the following assumptions:
| | | | |
Expected dividend yield | | | 0.0 | % |
Expected stock price volatility | | | 31.0 | % |
Risk-free interest rate | | | 2.7 | % |
Expected life of options (years) | | | 6 | |
Weighted average estimated fair value of options granted | | $ | 10.22 | |
We have limited historical experience as a stand-alone company so we utilized alternative methods in determining our valuation assumptions. 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 based on historical prices of our peers’ common stock for a period corresponding to the expected life of the options. Pre-vesting forfeitures are estimated based upon the pool of participants and their expected activity.
F-26
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pre-Spin Awards
Prior to the spin-off, we participated in Temple-Inland’s share-based compensation plans, and as a result, certain of our directors and employees received share-based compensation in the form of restricted or performance stock units, restricted stock, or options to purchase shares of Temple-Inland’s common stock. Concurrent with Temple-Inland’s distribution of our common stock, all outstanding Temple-Inland awards were adjusted into three separate awards: one related to Forestar common stock, one related to Guaranty common stock and one related to Temple-Inland common stock. This adjustment was made so that immediately following the adjustment the number of shares relating to each award and, for options, the per share option exercise price of the original Temple-Inland award, was proportionally allocated among Forestar, Guaranty and Temple-Inland awards based on relative per share trading prices of their common stock immediately prior to the distribution. All awards issued as part of this adjustment continue to be subject to their original vesting schedules.
After Temple-Inland’s distribution of our stock, our employees no longer participate inIn 2007 and 2006, the Temple-Inland share-based compensation plans. We have a stock incentive plan which permits awards in various forms, including restricted stock and stock options. At year end 2007, the only awards outstanding were the awards resulting from the adjustments to the Temple-Inland awards.
The expense for the share-based compensation awards granted to our employees under Temple-Inland’s plans was allocated to us by Temple-Inland. We willcontinue to recognize share-based compensation expense over the remaining vesting periods associated with future vesting of our employees’ and directors’ awards in Forestar, Guaranty and Temple-Inland stock.
Information about outstanding awards to our employees follows:
Cash-settled awards
Cash-settled awards generally vest and are paid after three years from the date of grant or the attainment of defined performance goals, generally measured over a three-year period. A summary of cash-settled awards outstanding to our directors and employees at year-end 2007,2008, following the adjustments described previously, follows:
| | | | | | | | | | | | | | | | |
| | | | Aggregate
| | | | | Aggregate
| |
| | Equivalent
| | Current
| | | Equivalent
| | Current
| |
| | Units | | Value | | | Units | | Value | |
| | (In thousands) | | (In thousands) | | | (In thousands) | |
|
Awards on Forestar stock | | | 40 | | | $ | 914 | | | | 38 | | | $ | 362 | |
Awards on Guaranty stock | | | 40 | | | | 587 | | | | 38 | | | | 99 | |
Awards on Temple-Inland stock | | | 121 | | | | 2,136 | | | | 114 | | | | 548 | |
| | | | | | |
| | | | | | $ | 3,637 | | | | | | | $ | 1,009 | |
| | | | | | |
Of the $3,637,000 aggregate current value of awardsIn 2008, we paid $166,000 to be settled in cash, we had recognized cumulative compensation expense of $1,480,000 through year-end 2007. There were no awards settled in cash in 2007, 2006 or 2005. The fair value at date of grant forsettle vested cash-settled awards granted by Temple-Inland to our employees was $3,849,000 in 2007 and $1,995,000 in 2006. There were no vested cash awards to be settled at year-end 2007.
F-21
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)awards.
Restricted stock
Restricted stock awards generally vest after three to six years, and provide for accelerated vesting upon retirement, death, disability, or if there is a change in control. Compensation costs are recognized ratably over the service period. There were noAll outstanding restricted stock awards granted in 2007. A summary of restricted stock awards outstanding to our employees at year-end 2007 following the adjustments described previously, follows:vested in first quarter 2008. The total fair value of these awards was $474,000.
F-27
| | | | | | | | |
| | | | | Aggregate
| |
| | | | | Current
| |
| | Shares | | | Value | |
| | (In thousands) | | | (In thousands) | |
|
Awards on Forestar stock | | | 5 | | | $ | 113 | |
Awards on Guaranty stock | | | 5 | | | | 72 | |
Awards on Temple-Inland stock | | | 16 | | | | 282 | |
| | | | | | | | |
| | | | | | $ | 467 | |
| | | | | | | | |
FORESTAR GROUP INC.
There were no restricted stock awards that vested in 2007.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. Options were granted with an exercise price equal to the market value of Temple-Inland common stock on the date of grant. A summary of stock option awards outstanding to our directors and employees at year-end 2007,2008, following the adjustments described previously, follows:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Aggregate
| |
| | | | | | Weighted
| | Aggregate
| | | | | | | Weighted
| | Value
| |
| | | | Weighted
| | Average
| | Intrinsic Value
| | | | | Weighted
| | Average
| | (Current
| |
| | | | Average
| | Remaining
| | (Current Value
| | | | | Average
| | Remaining
| | Value Less
| |
| | | | Exercise Price
| | Contractual
| | Less Exercise
| | | | | Exercise Price
| | Contractual
| | Exercise
| |
| | Shares | | per Share | | Term | | Price) | | | Shares | | per Share | | Term | | Price) | |
| | (In thousands) | | | | (In years) | | (In thousands) | | | (In thousands) | | | | (In years) | | (In thousands) | |
|
Outstanding on Forestar stock | | | 89 | | | $ | 20.84 | | | | 7 | | | $ | 156 | | | | 86 | | | $ | 21.12 | | | | 6 | | | $ | 7 | |
Outstanding on Guaranty stock | | | 89 | | | | 13.37 | | | | 7 | | | | 100 | | | | 86 | | | | 13.55 | | | | 6 | | | | — | |
Outstanding on Temple-Inland stock | | | 266 | | | | 16.61 | | | | 7 | | | | 263 | | | | 255 | | | | 16.90 | | | | 6 | | | | — | |
| | | | | | |
| | | | | | | | | | | | | | $ | 519 | | | | | | | | | | | | | | | $ | 7 | |
| | | | | | |
Exercisable on Forestar stock | | | 44 | | | $ | 14.50 | | | | 5 | | | $ | 360 | | | | 57 | | | $ | 17.64 | | | | 5 | | | $ | 7 | |
Exercisable on Guaranty stock | | | 44 | | | | 9.30 | | | | 5 | | | | 231 | | | | 57 | | | | 11.32 | | | | 5 | | | | — | |
Exercisable on Temple-Inland stock | | | 133 | | | | 11.56 | | | | 5 | | | | 803 | | | | 170 | | | | 14.12 | | | | 5 | | | | — | |
| | | | | | |
| | | | | | | | | | | | | | $ | 1,394 | | | | | | | | | | | | | | | $ | 7 | |
| | | | | | |
The intrinsic value of options exercised in 2008 was $310,000 in 2007, $497,000 in 2006 and $286,000 in 2005. The aggregate fair value of stock options granted to our directors and employees by Temple-Inland was $2,565,000 in 2007, $2,176,000 in 2006 and $1,075,000 in 2005.
Temple-Inland estimated the fair value of the options granted using the Black-Scholes-Merton option-pricing model and the following assumptions:
| | | | | | | | | | | | |
| | For the Year | |
| | 2007 | | | 2006 | | | 2005 | |
|
Expected dividend yield | | | 2.3 | % | | | 2.4 | % | | | 2.3 | % |
Expected stock price volatility | | | 22.8 | % | | | 25.1 | % | | | 28.2 | % |
Risk-free interest rate | | | 4.9 | % | | | 4.4 | % | | | 4.2 | % |
Expected life of options in years | | | 6 | | | | 6 | | | | 8 | |
Weighted average estimated fair value of options granted | | $ | 12.47 | | | $ | 11.53 | | | $ | 11.13 | |
F-22
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The expected life of options was based on historical experience. The expected stock price volatility was based on historical prices of Temple-Inland common stock for a period corresponding to the expected life of the options with appropriate consideration given to current conditions and events. Historical data was used to estimate pre-vesting forfeitures stratified into two groups based on job level.$146,000.
Share-based compensation expenseShare-Based Compensation Expense
Pre-tax share-basedShare-based compensation expense allocated to us by Temple-Inlandfor post-spin and pre-spin awards consists of:
| | | | | | | | | | | | |
| | For the Year | |
| | 2007 | | | 2006 | | | 2005 | |
| | (In thousands) | |
|
Cash-settled awards | | $ | 763 | | | $ | 635 | | | $ | 82 | |
Restricted stock | | | 142 | | | | 224 | | | | 194 | |
Stock options | | | 492 | | | | 416 | | | | 167 | |
| | | | | | | | | | | | |
Pre-tax share-based compensation expense | | $ | 1,397 | | | $ | 1,275 | | | $ | 443 | |
| | | | | | | | | | | | |
Pre-tax share-based compensation expense included in other operating and general and administrative expense follows:
| | | | | | | | | | | | |
| | For the Year | |
| | 2007 | | | 2006 | | | 2005 | |
| | (In thousands) | |
|
General and administrative | | $ | 1,211 | | | $ | 1,096 | | | $ | 368 | |
Other operating | | | 186 | | | | 179 | | | | 75 | |
| | | | | | | | | | | | |
| | $ | 1,397 | | | $ | 1,275 | | | $ | 443 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | For the Year | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands) | |
|
Cash-settled awards | | $ | (488 | ) | | $ | 763 | | | $ | 635 | |
Equity-settled awards | | | 750 | | | | — | | | | — | |
Restricted stock | | | 1,264 | | | | 142 | | | | 224 | |
Stock options | | | 2,990 | | | | 492 | | | | 416 | |
| | | | | | | | | | | | |
Pre-tax share-based compensation expense | | | 4,516 | | | | 1,397 | | | | 1,275 | |
Income tax benefit | | | (1,355 | ) | | | (503 | ) | | | (472 | ) |
| | | | | | | | | | | | |
| | $ | 3,161 | | | $ | 894 | | | $ | 803 | |
| | | | | | | | | | | | |
The fair value of awards granted to retirement-eligible employees and expensed at the date of grant was $166,000$1,321,000 in 2007, all of which was related to stock options.2008.
Pre-tax share-based compensation expense is included in:
| | | | | | | | | | | | |
| | For the Year | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands) | |
|
General and administrative | | $ | 2,910 | | | $ | 1,211 | | | $ | 1,096 | |
Other operating | | | 1,606 | | | | 186 | | | | 179 | |
| | | | | | | | | | | | |
| | $ | 4,516 | | | $ | 1,397 | | | $ | 1,275 | |
| | | | | | | | | | | | |
We did not capitalize any share-based compensation in 2008, 2007 2006 or 2005.2006.
Unrecognized share-based compensation for allpost-spin awards not vested was $3,161,000$7,311,000 at year-end 2007.2008. It is likely that this cost will be recognized as expense over the next three years. Unrecognized share-
F-28
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
based compensation for pre-spin awards not vested was $542,000 at year-end 2008. It is likely that this cost will be recognized as expense over the next two years.
In connection with restricted stock vested and stock options exercised, we withheld shares having a value of $1,858,000 for payment of payroll taxes in 2008. These shares are accounted for as treasury stock. Payroll taxes on restricted stock and stock options are reflected in financing activities in our consolidated statement of cash flows.
| |
Note 1417 — | Retirement, Pension and Postretirement Plans |
Our defined contribution retirement plans include a 401(k) plan, which is funded, and a supplemental plan for key employees, which is unfunded. The expense of our defined contribution retirement plans was $1,134,000 in 2008. The unfunded liability for our supplemental plan was $132,000 at year-end 2008 and is included in other liabilities.
Prior to the spin-off, we participated in Temple-Inland’s retirement, pension and postretirement plans, and as a result,plans. The retirement expense for certain of our employees are entitled to receive benefits under those plans.was $262,000 in 2007 and $223,000 in 2006. The pension and postretirement expense for our employees allocated to us by Temple-Inland for certain of our employees was $218,000 in 2007 and $716,000 in 2006, and $946,000 in 2005.
2006. Subsequent to the spin-off, our employees no longer participate in the Temple-Inland post-retirementpostretirement plans, and as a result,our employees who participate in Temple-Inland retirement and pension plans will not accrue any additional benefits. The liability for their benefits as of the spin-off date has been retained by Temple-Inland.
F-23
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
Note 1518 — | Summary of Quarterly Results of Operations (Unaudited) |
Summarized quarterly financial results for 20072008 and 20062007 follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | First
| | Second
| | Third
| | Fourth
| | | First
| | Second
| | Third
| | Fourth
| |
| | Quarter | | Quarter | | Quarter | | Quarter | | | Quarter | | Quarter | | Quarter | | Quarter | |
| | (In thousands) | | | (In thousands, except per share data) | |
|
2008 | | | | | | | | | | | | | | | | | |
Total revenues | | | $ | 37,223 | | | $ | 51,597 | | | $ | 33,943 | | | $ | 36,959 | |
Gross profit | | | | 19,305 | | | | 37,629 | | | | 21,976 | | | | 22,324 | |
Operating income | | | | 4,167 | | | | 17,849 | | | | 5,601 | | | | 8,189 | |
Equity in earnings of unconsolidated ventures | | | | 1,534 | | | | 2,018 | | | | 1,436 | | | | (346 | ) |
Income (loss) before taxes | | | | (383 | ) | | | 14,407 | | | | 1,192 | | | | 1,993 | |
Net income (loss) | | | | (238 | ) | | | 9,596 | | | | 872 | | | | 1,744 | |
Net income (loss) per share — basic | | | | (0.01 | ) | | | 0.27 | | | | 0.02 | | | | 0.05 | |
Net income (loss) per share — diluted | | | | (0.01 | ) | | | 0.27 | | | | 0.02 | | | | 0.05 | |
2007 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 34,432 | | | $ | 56,309 | | | $ | 51,632 | | | $ | 35,613 | | | $ | 34,456 | | | $ | 56,285 | | | $ | 51,632 | | | $ | 35,613 | |
Gross profit | | | | 16,465 | | | | 37,272 | | | | 28,411 | | | | 16,184 | |
Operating income | | | 2,602 | | | | 26,404 | | | | 16,370 | | | | 3,891 | | | | 2,625 | | | | 26,380 | | | | 16,371 | | | | 3,891 | |
Equity in earnings of unconsolidated ventures | | | 1,523 | | | | 1,454 | | | | 1,333 | | | | (578 | ) | | | 1,499 | | | | 1,478 | | | | 1,333 | | | | (578 | ) |
Income before taxes | | | 1,043 | | | | 22,781 | | | | 14,816 | | | | 64 | | | | 1,043 | | | | 22,781 | | | | 14,816 | | | | 64 | |
Net income | | | 660 | | | | 14,433 | | | | 9,596 | | | | 106 | | | | 661 | | | | 14,432 | | | | 9,596 | | | | 106 | |
2006 | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 60,107 | | | $ | 54,545 | | | $ | 68,796 | | | $ | 42,112 | | |
Operating income | | | 25,997 | | | | 15,095 | | | | 19,038 | | | | 11,694 | | |
Equity in earnings of unconsolidated ventures | | | 10,154 | | | | 3,538 | | | | 1,850 | | | | 3,829 | | |
Income before taxes | | | 33,994 | | | | 17,044 | | | | 18,067 | | | | 12,709 | | |
Net income | | | 21,213 | | | | 11,418 | | | | 11,278 | | | | 7,935 | | |
Net income per share — basic | | | | 0.02 | | | | 0.41 | | | | 0.27 | | | | — | |
Net income per share — diluted | | | | 0.02 | | | | 0.41 | | | | 0.27 | | | | — | |
| |
Note 1619 — | Pre-Spin Transactions with Temple-Inland |
Prior to the spin-off, we reimbursed Temple-Inland for expenses incurred on our behalf and allocated to us. Additional allocated expenses incurred by Temple-Inland but not directly attributable to us were allocated
F-29
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to us and recognized as expense with a corresponding increase to Temple-Inland’s investment, net of tax. Please readNote 1for additional information.
A summary of allocated expenses from Temple-Inland follows:
| | | | | | | | | | | | | | | | | | | | |
| | For the Year | | | For the Year | |
| | 2007 | | 2006 | | 2005 | | | 2007 | | 2006 | |
| | (In thousands) | | | (In thousands) | |
|
Legal, human resources and other administrative costs | | $ | 2,842 | | | $ | 2,178 | | | $ | 1,986 | | | $ | 2,842 | | | $ | 2,178 | |
Variable compensation | | | 883 | | | | 1,146 | | | | 372 | | | | 883 | | | | 1,146 | |
Accounting and finance | | | 1,425 | | | | 954 | | | | 785 | | | | 1,425 | | | | 954 | |
Information technology support | | | 935 | | | | 664 | | | | 33 | | | | 935 | | | | 664 | |
Internal audit, governance and other | | | 209 | | | | 195 | | | | 119 | | | | 209 | | | | 195 | |
| | | | | | | | | | | | |
| | | 6,294 | | | | 5,137 | | | | 3,295 | | | | 6,294 | | | | 5,137 | |
Share-based compensation | | | 1,397 | | | | 1,275 | | | | 443 | | | | 1,397 | | | | 1,275 | |
Pension and postretirement | | | 218 | | | | 716 | | | | 946 | | | | 218 | | | | 716 | |
| | | | | | | | | | | | |
| | $ | 7,909 | | | $ | 7,128 | | | $ | 4,684 | | | $ | 7,909 | | | $ | 7,128 | |
| | | | | | | | | | | | |
Prior to the spin-off, we paid income taxes to Temple-Inland as if we filed a separate income tax return. Please readNote 912for additional information. In addition, rent paid to a former subsidiary of Temple-Inland was $190,000 in 2007 and $178,000 in 2006, and $151,000 in 2005.2006.
We own an undivided 15 percent interest in corporate aircraft contributed to us by Temple-Inland at spin-off. Under the terms of the joint ownership agreement, we pay 15 percent of the fixed costs associated with ownership of the aircraft and pay our portion of the variable costs based on our usage. The agreement has a two-year term at which time it can be renewed or terminated. At year-end 2007,2008, the carrying value of the aircraft of $5,686,000$5,319,000 is included in other assets.
F-24
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NaturalFiber resources and other revenues include sales of timber to Temple-Inland of $12,167,000 in 2007 and $8,867,000 in 2006, and $9,615,000 in 2005.2006. Cost of naturalfiber resources and other includes cost of timber sold to Temple-Inland of $3,241,000 in 2007 and $2,140,000 in 2006, and $2,001,000 in 2005.
Temple-Inland Credit Facility
In 2006, we established a credit facility with Temple-Inland. Under this facility, when we required funds we borrowed and when we had excess funds we used them to repay amounts borrowed. In 2006, the average daily balance was $84,313,000, the maximum month-end balance was $110,506,000, the weighted average interest rate on borrowing was 4.46 percent, and the related interest expense was $3,758,000.
A summary of the activity in the Temple-Inland credit facility follows:
| | | | | | | | |
| | For the Year | |
| | 2007 | | | 2006 | |
| | (In thousands) | |
|
Beginning balance | | $ | 110,506 | | | $ | 12,829 | |
Additions | | | 131,150 | | | | 186,777 | |
Repayments | | | (241,656 | ) | | | (89,100 | ) |
| | | | | | | | |
Ending balance | | $ | — | | | $ | 110,506 | |
| | | | | | | | |
Additions to the Temple-Inland credit facility consisted of acquisition and development costs, venture contributions, and other operating, general and administrative expenses, and income taxes. Repayments to the Temple-Inland credit facility were made when our daily sources of funds from operations exceeded our uses of funds. The Temple-Inland credit facility was repaid in full prior to our separation.2006.
| |
Note 1720 — | Supplemental Oil and Gas Disclosures (Unaudited) |
We lease our oil and gas mineral interests, principally those in LouisianaTexas and Texas,Louisiana, to third party oil and gas exploration and production entities for the exploration and production of oil and gas.
Mineral When we lease our mineral interests, we retain a royalty interest acquisitionand may take an additional participation in production, including a non-operating working interest. Non-operating working interests refer to well interests 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. At year-end 2008, non-operating working interests capitalized costs were immaterial$131,000 and werepresent our proportionate share of exploration and development costs to date related to one well located in Louisiana. We incurred no exploration or development costs in 2007 2006or 2006.
We did not acquire any oil or gas mineral interests in 2008, and 2005. The unamortized costs of our oil and gas mineral interests were not material at year-end 2007 and 2006.
Our royalty revenues were allocated to us by Temple-Inland. They 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 and other factors affecting the third party oil and gas exploration and production entities including the cost of development and production. In 2007 and 2006, our royalty revenues were allocated to us by Temple-Inland.
F-30
FORESTAR GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Information about the results of operations of our oil and gas mineral interests follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year | | | For the Year | |
| | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | (In thousands) | | | (In thousands) | |
|
Royalty revenues | | $ | 13,114 | | | $ | 17,381 | | | $ | 15,767 | | | $ | 21,638 | | | $ | 13,114 | | | $ | 17,381 | |
Production costs | | | — | | | | — | | | | — | | | | (1,714 | ) | | | — | | | | — | |
Exploration expenses | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Depreciation, depletion, amortization and valuation provisions | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Administrative expenses | | | (2,237 | ) | | | (1,675 | ) | | | (1,420 | ) | | | (3,121 | ) | | | (2,237 | ) | | | (1,675 | ) |
Income tax expenses | | | (3,327 | ) | | | (5,029 | ) | | | (4,601 | ) | | | (5,152 | ) | | | (3,327 | ) | | | (5,029 | ) |
| | | | | | | | | | | | | | |
Results of operations | | $ | 7,550 | | | $ | 10,677 | | | $ | 9,746 | | | $ | 11,651 | | | $ | 7,550 | | | $ | 10,677 | |
| | | | | | | | | | | | | | |
F-25
FORESTAR REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)In 2008, production costs represent our share of oil and gas production severance taxes. In 2007 and 2006, oil and gas production severance taxes were reflected as a reduction of royalty revenues and were allocated to us by Temple-Inland.
Other lease revenues, principally bonus and delay rentals, were $26,032,000 in 2008, $7,704,000 in 2007 and $10,599,000 in 2006 and $5,282,000 in 2005.2006. In 2008, our share of lease bonus revenues from unconsolidated ventures was $1,162,000.
Estimates of oil and gas reserve information related to our royalty interests are unknown to us. We do not make such estimates and our lessees do not make this information available to us. Our approximate share of oil and gas produced and average unit prices related to our royalty interests follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year | | For the Year | |
| | 2007 | | 2006 | | 2005 | | 2008 | | 2007 | | 2006 | |
|
Oil (barrels) | | | 95,000 | | | | 126,000 | | | | 113,000 | | | | 87,895 | | | | 94,909 | | | | 125,994 | |
Average price per barrel | | | $ | 106.66 | | | $ | 65.24 | | | $ | 64.14 | |
Gas (thousands of cubic feet (Mcf)) | | | 967,000 | | | | 1,212,000 | | | | 1,522,000 | | | | 1,363,434 | | | | 967,268 | | | | 1,212,290 | |
Average price per Mcf | | | $ | 8.76 | | | $ | 6.69 | | | $ | 7.95 | |
| |
Note 21 — | Subsequent Event |
On February 11, 2009, we announced the following strategic initiatives to enhance stockholder value: generate significant free cash flow, principally from the sale of approximately 175,000 acres of higher and better use (HBU) timberland; reduce debt by approximately $150 million; and repurchase up to 20 percent of our outstanding shares of common stock. Debt reduction and share repurchases will be funded by proceeds from the asset sales. We are in the process of marketing a portion of our HBU timberland and will classify that portion of the HBU timberland we anticipate selling as assets held for sale at first quarter-end 2009.
F-26F-31
Forestar Real Estate Group Inc.
Schedule III — Consolidated Real Estate and Accumulated Depreciation
Year-End 20072008
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Costs Capitalized
| | | | | | | | | | | | | | | | | | | | | Costs Capitalized
| | | | | | | | | | | | | |
| | | | | | | | Subsequent to Acquisition | | | | | | | | | | | | | | | | | | | | | Subsequent to Acquisition | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Improvements
| | | | Gross Amount Carried at End of Period | | | | | | | | | Initial Cost to Company | | Improvements
| | | | Gross Amount Carried at End of Period | | | | | |
| | | | | | Buildings &
| | Less Cost of
| | Carrying
| | Land & Land
| | Buildings &
| | | | Accumulated
| | Date of
| | Date
| | | | | | | Buildings &
| | Less Cost of
| | Carrying
| | Land & Land
| | Buildings &
| | | | Accumulated
| | Date of
| | Date
| |
Description | | Encumbrances | | Land | | Improvements | | Sales and Other | | Costs(a) | | Improvements | | Improvements | | Total | | Depreciation | | Construction | | Acquired | | | Encumbrances | | Land | | Improvements | | Sales and Other | | Costs(a) | | Improvements | | Improvements | | Total | | Depreciation | | Construction | | Acquired | |
|
Entitled, Developed, and Under Development Projects: | Entitled, Developed, and Under Development Projects: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Entitled, Developed, and Under Development Projects: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CALIFORNIA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contra Costa County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
San Joaquin River | | | | | | $ | 12,225 | | | $ | 279 | | | $ | (3,715 | ) | | | | | | $ | 8,510 | | | $ | 279 | | | $ | 8,789 | | | | | | | | | | | | | | | | | | | $ | 12,225 | | | | | | | $ | (3,430 | ) | | | | | | $ | 8,795 | | | | | | | $ | 8,795 | | | | | | | | | | | | | |
COLORADO | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Douglas County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pinery West | | $ | 5,201 | | | | 7,308 | | | | | | | | 926 | | | | | | | | 8,234 | | | | | | | | 8,234 | | | | | | | | 2006 | | | | 2006 | | | $ | 4,941 | | | | 7,308 | | | | | | | | 1,412 | | | | | | | | 8,720 | | | | | | | | 8,720 | | | | | | | | 2006 | | | | 2006 | |
Weld County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Buffalo Highlands | | | | | | | 3,001 | | | | | | | | 427 | | | | | | | | 3,428 | | | | | | | | 3,428 | | | | | | | | 2006 | | | | 2005 | | | | | | | | 3,001 | | | | | | | | 603 | | | | | | | | 3,604 | | | | | | | | 3,604 | | | | | | | | 2006 | | | | 2005 | |
Johnstown Farms | | | | | | | 2,749 | | | | | | | | 8,851 | | | $ | 188 | | | | 11,788 | | | | | | | | 11,788 | | | | | | | | 2002 | | | | 2002 | | | | | | | | 2,749 | | | | | | | | 9,009 | | | $ | 188 | | | | 11,946 | | | | | | | | 11,946 | | | | | | | | 2002 | | | | 2002 | |
Stonebraker | | | | | | | 3,878 | | | | | | | | 1,046 | | | | | | | | 4,924 | | | | | | | | 4,924 | | | | | | | | 2005 | | | | 2005 | | | | | | | | 3,878 | | | | | | | | 1,309 | | | | | | | | 5,187 | | | | | | | | 5,187 | | | | | | | | 2005 | | | | 2005 | |
GEORGIA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Coweta County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fox Hall | | | | | | | 166 | | | | | | | | 3,592 | | | | | | | | 3,758 | | | | | | | | 3,758 | | | | | | | | 2007 | | | | | | |
Bartow County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Towne West | | | | | | | 936 | | | | | | | | 735 | | | | | | | | 1,671 | | | | | | | | 1,671 | | | | | | | | 2007 | | | | | | | | | | | | 936 | | | | | | | | 900 | | | | | | | | 1,836 | | | | | | | | 1,836 | | | | | | | | 2007 | | | | | |
Coweta County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cedar Creek Preserve | | | | | | | | 852 | | | | | | | | 244 | | | | | | | | 1,096 | | | | | | | | 1,096 | | | | | | | | | | | | | |
Corinth Landing | | | | | | | | 607 | | | | | | | | 582 | | | | | | | | 1,189 | | | | | | | | 1,189 | | | | | | | | | | | | | |
Coweta South Industrial Park | | | | | | | | 532 | | | | | | | | 442 | | | | | | | | 974 | | | | | | | | 974 | | | | | | | | | | | | | |
Fox Hall | | | | | | | | 166 | | | | | | | | 5,831 | | | | | | | | 5,997 | | | | | | | | 5,997 | | | | | | | | 2007 | | | | | |
Genesee | | | | | | | | 480 | | | | | | | | 1,031 | | | | | | | | 1,511 | | | | | | | | 1,511 | | | | | | | | | | | | | |
TEXAS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bastrop County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Hunter’s Crossing | | | | | | | 3,613 | | | | | | | | 8,446 | | | | 311 | | | | 12,370 | | | | | | | | 12,370 | | | | | | | | 2001 | | | | 2001 | | | | | | | | 3,613 | | | | | | | | 7,352 | | | | 311 | | | | 11,276 | | | | | | | | 11,276 | | | | | | | | 2001 | | | | 2001 | |
The Colony | | | 1,036 | | | | 6,728 | | | | 427 | | | | 12,882 | | | | 160 | | | | 19,770 | | | | 427 | | | | 20,197 | | | | | | | | 1999 | | | | 1999 | | | | | | | | 8,726 | | | | | | | | 12,818 | | | | 161 | | | | 21,705 | | | | | | | | 21,705 | | | | | | | | 1999 | | | | 1999 | |
Bexar County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cibolo Canyons | | | | | | | 25,568 | | | | | | | | 37,886 | | | | 226 | | | | 63,680 | | | | | | | | 63,680 | | | | | | | | 2004 | | | | 1986 | | | | | | | | 25,568 | | | | | | | | 65,886 | | | | 928 | | | | 92,382 | | | | | | | | 92,382 | | | | | | | | 2004 | | | | 1986 | |
Burnet County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Double Horn Creek | | | | | | | 2,087 | | | | | | | | 401 | | | | 45 | | | | 2,533 | | | | | | | | 2,533 | | | | | | | | 1999 | | | | 1999 | | |
Calhoun County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Caracol | | | 10,527 | | | | 8,603 | | | | | | | | 7,911 | | | | | | | | 16,514 | | | | | | | | 16,514 | | | | | | | | 2006 | | | | 2006 | | | | 9,109 | | | | 8,603 | | | | | | | | 8,237 | | | | 1,989 | | | | 18,829 | | | | | | | | 18,829 | | | | | | | | 2006 | | | | 2006 | |
Harbor Mist | | | | | | | 2,822 | | | | | | | | 526 | | | | | | | | 3,348 | | | | | | | | 3,348 | | | | | | | | | | | | 2007 | | | | | | | | 2,822 | | | | | | | | 963 | | | | | | | | 3,785 | | | | | | | | 3,785 | | | | | | | | | | | | 2007 | |
Collin County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Light Farms | | | 16,824 | | | | 30,103 | | | | | | | | 4,501 | | | | | | | | 34,604 | | | | | | | | 34,604 | | | | | | | | 2007 | | | | 2007 | | | | 30,519 | | | | 30,101 | | | | | | | | 18,668 | | | | | | | | 48,769 | | | | | | | | 48,769 | | | | | | | | 2007 | | | | 2007 | |
Maxwell Creek | | | | | | | 9,904 | | | | | | | | 1,177 | | | | 332 | | | | 11,413 | | | | | | | | 11,413 | | | | | | | | 2000 | | | | 2000 | | | | | | | | 9,904 | | | | | | | | (513 | ) | | | 418 | | | | 9,809 | | | | | | | | 9,809 | | | | | | | | 2000 | | | | 2000 | |
The Gables at North Hill | | | | | | | 2,160 | | | | | | | | (463 | ) | | | 63 | | | | 1,760 | | | | | | | | 1,760 | | | | | | | | 2004 | | | | 2001 | | | | | | | | 2,160 | | | | | | | | (589 | ) | | | 63 | | | | 1,634 | | | | | | | | 1,634 | | | | | | | | 2004 | | | | 2001 | |
Timber Creek | | | 3,431 | | | | 7,282 | | | | | | | | 211 | | | | | | | | 7,493 | | | | | | | | 7,493 | | | | | | | | 2007 | | | | 2007 | | | | 3,431 | | | | 7,282 | | | | | | | | 2,457 | | | | | | | | 9,739 | | | | | | | | 9,739 | | | | | | | | 2007 | | | | 2007 | |
Comal County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Oak Creek Estates | | | | | | | 1,921 | | | | | | | | 4,185 | | | | 143 | | | | 6,249 | | | | | | | | 6,249 | | | | | | | | 2006 | | | | 2005 | | |
Dallas County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stoney Creek | | | 11,390 | | | | 18,600 | | | | | | | | (20 | ) | | | | | | | 18,580 | | | | | | | | 18,580 | | | | | | | | 2007 | | | | 2007 | | |
S-1
Forestar Real Estate Group Inc.
Schedule III — Consolidated Real Estate and Accumulated Depreciation — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Costs Capitalized
| | | | | | | | | | | | | | | | | | | | | Costs Capitalized
| | | | | | | | | | | | | |
| | | | | | | | Subsequent to Acquisition | | | | | | | | | | | | | | | | | | | | | Subsequent to Acquisition | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Improvements
| | | | Gross Amount Carried at End of Period | | | | | | | | | Initial Cost to Company | | Improvements
| | | | Gross Amount Carried at End of Period | | | | | |
| | | | | | Buildings &
| | Less Cost of
| | Carrying
| | Land & Land
| | Buildings &
| | | | Accumulated
| | Date of
| | Date
| | | | | | | Buildings &
| | Less Cost of
| | Carrying
| | Land & Land
| | Buildings &
| | | | Accumulated
| | Date of
| | Date
| |
Description | | Encumbrances | | Land | | Improvements | | Sales and Other | | Costs(a) | | Improvements | | Improvements | | Total | | Depreciation | | Construction | | Acquired | | | Encumbrances | | Land | | Improvements | | Sales and Other | | Costs(a) | | Improvements | | Improvements | | Total | | Depreciation | | Construction | | Acquired | |
|
Comal County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Oak Creek Estates | | | | | | | | 1,921 | | | | | | | | 4,025 | | | | 175 | | | | 6,121 | | | | | | | | 6,121 | | | | | | | | 2006 | | | | 2005 | |
Dallas County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stoney Creek | | | | 8,368 | | | | 12,822 | | | | | | | | 3,789 | | | | | | | | 16,611 | | | | | | | | 16,611 | | | | | | | | 2007 | | | | 2007 | |
Denton County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lantana | | | 19,034 | | | | 31,451 | | | | | | | | 9,156 | | | | | | | | 40,607 | | | | | | | | 40,607 | | | | | | | | 2000 | | | | 1999 | | | | 17,822 | | | | 31,451 | | | | | | | | 10,094 | | | | | | | | 41,545 | | | | | | | | 41,545 | | | | | | | | 2000 | | | | 1999 | |
The Preserve at Pecan Creek | | | | | | | 5,855 | | | | | | | | 2,627 | | | | 313 | | | | 8,795 | | | | | | | | 8,795 | | | | | | | | 2006 | | | | 2005 | | | | | | | | 5,855 | | | | | | | | 1,387 | | | | 313 | | | | 7,555 | | | | | | | | 7,555 | | | | | | | | 2006 | | | | 2005 | |
Harris County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
City Park | | | 1,154 | | | | 3,946 | | | | | | | | 609 | | | | 1,595 | | | | 6,150 | | | | | | | | 6,150 | | | | | | | | 2002 | | | | 2001 | | | | 2 | | | | 3,946 | | | | | | | | (2,570 | ) | | | 1,641 | | | | 3,017 | | | | | | | | 3,017 | | | | | | | | 2002 | | | | 2001 | |
Hays County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Arrowhead Ranch | | | | | | | 12,001 | | | | | | | | 466 | | | | | | | | 12,467 | | | | | | | | 12,467 | | | | | | | | | | | | 2007 | | | | | | | | 12,001 | | | | | | | | 1,422 | | | | | | | | 13,423 | | | | | | | | 13,423 | | | | | | | | | | | | 2007 | |
Hood County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Harbor Lakes | | | | | | | 3,514 | | | | | | | | 5,142 | | | | 312 | | | | 8,968 | | | | | | | | 8,968 | | | $ | (517 | ) | | | 2000 | | | | 1998 | | | | | | | | 3,514 | | | | | | | | 5,061 | | | | 312 | | | | 8,887 | | | | | | | | 8,887 | | | $ | (576 | ) | | | 2000 | | | | 1998 | |
Nueces County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tortuga Dunes | | | | | | | 12,080 | | | | | | | | 1,579 | | | | | | | | 13,659 | | | | | | | | 13,659 | | | | | | | | | | | | 2006 | | | | | | | | 12,080 | | | | | | | | 8,225 | | | | | | | | 20,305 | | | | | | | | 20,305 | | | | | | | | 2008 | | | | 2006 | |
Rockwall County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Caruth Lakes | | | | | | | 1,624 | | | | | | | | 6,361 | | | | 100 | | | | 8,085 | | | | | | | | 8,085 | | | | | | | | 1997 | | | | 1996 | | | | | | | | 1,624 | | | | | | | | 4,269 | | | | 100 | | | | 5,993 | | | | | | | | 5,993 | | | | | | | | 1997 | | | | 1996 | |
Tarrant County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Parks at Deer Creek | | | | | | | 3,538 | | | | | | | | (1,294 | ) | | | 350 | | | | 2,594 | | | | | | | | 2,594 | | | | | | | | 1999 | | | | 1998 | | |
Travis County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Presidio at Judge’s Hill | | | 4,787 | | | | 1,500 | | | | | | | | 5,563 | | | | | | | | 7,063 | | | | | | | | 7,063 | | | | | | | | 2006 | | | | 2006 | | | | 12,310 | | | | 1,500 | | | | | | | | 12,794 | | | | 786 | | | | 15,080 | | | | | | | | 15,080 | | | | | | | | 2006 | | | | 2006 | |
The Ridge at Ribelin Ranch | | | | | | | 23,751 | | | | | | | | (22,284 | ) | | | | | | | 1,467 | | | | | | | | 1,467 | | | | | | | | 2006 | | | | 2006 | | | | | | | | 23,751 | | | | | | | | (20,421 | ) | | | 50 | | | | 3,380 | | | | | | | | 3,380 | | | | | | | | 2006 | | | | 2006 | |
Williamson County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Westside at Buttercup Creek | | | | | | | 13,149 | | | | | | | | (5,351 | ) | | | 186 | | | | 7,984 | | | | | | | | 7,984 | | | | | | | | 1993 | | | | 1993 | | | | | | | | 13,149 | | | | | | | | (5,370 | ) | | | 449 | | | | 8,228 | | | | | | | | 8,228 | | | | | | | | 1993 | | | | 1993 | |
Chandler Road Properties | | | | | | | 3,552 | | | | | | | | (2,137 | ) | | | | | | | 1,415 | | | | | | | | 1,415 | | | | | | | | 2004 | | | | 2004 | | | | | | | | 3,552 | | | | | | | | (2,181 | ) | | | | | | | 1,371 | | | | | | | | 1,371 | | | | | | | | 2004 | | | | 2004 | |
La Conterra | | | | | | | 4,024 | | | | | | | | 1,682 | | | | 3 | | | | 5,709 | | | | | | | | 5,709 | | | | | | | | | | | | 2006 | | | | | | | | 4,024 | | | | | | | | 2,652 | | | | 71 | | | | 6,747 | | | | | | | | 6,747 | | | | | | | | 2008 | | | | 2006 | |
MISSOURI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Clay County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Somerbrook | | | | | | | 3,061 | | | | | | | | (233 | ) | | | 13 | | | | 2,841 | | | | | | | | 2,841 | | | | | | | | 2003 | | | | 2001 | | | | | | | | 3,061 | | | | | | | | (219 | ) | | | 13 | | | | 2,855 | | | | | | | | 2,855 | | | | | | | | 2003 | | | | 2001 | |
TENNESSEE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Davidson County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Young’s Lane | | | 1,200 | | | | 2,051 | | | | | | | | 50 | | | | | | | | 2,101 | | | | | | | | 2,101 | | | | | | | | | | | | 2007 | | |
UTAH | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weber County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fort Bingham Estates | | | | | | | 3,284 | | | | | | | | (11 | ) | | | 88 | | | | 3,361 | | | | | | | | 3,361 | | | | | | | | 2003 | | | | 1998 | | | | | | | | 3,284 | | | | | | | | (608 | ) | | | 88 | | | | 2,764 | | | | | | | | 2,764 | | | | | | | | 2003 | | | | 1998 | |
Other | | | | | | | 33,681 | | | | | | | | (23,090 | ) | | | 3,303 | | | | 13,894 | | | | — | | | | 13,894 | | | | — | | | | | | | | | | | | | | | | 21,495 | | | | | | | | (11,021 | ) | | | 2,255 | | | | 12,729 | | | | — | | | | 12,729 | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Entitled, Developed, and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Under Development Projects | | $ | 74,584 | | | $ | 311,716 | | | $ | 706 | | | $ | 68,340 | | | $ | 7,731 | | | $ | 387,787 | | | $ | 706 | | | $ | 388,493 | | | $ | (517 | ) | | | | | | | | | |
Total Entitled, Developed, and Under Development Projects | | | $ | 86,502 | | | $ | 290,543 | | | $ | — | | | $ | 144,540 | | | $ | 10,311 | | | $ | 445,394 | | | $ | — | | | $ | 445,394 | | | $ | (576 | ) | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
S-2
Forestar Real Estate Group Inc.
Schedule III — Consolidated Real Estate and Accumulated Depreciation
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Costs Capitalized
| | | | | | | | | | | | | | | | | | | | | Costs Capitalized
| | | | | | | | | | | | | |
| | | | | | | | Subsequent to Acquisition | | | | | | | | | | | | | | | | | | | | | Subsequent to Acquisition | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Improvements
| | | | Gross Amount Carried at End of Period | | | | | | | | | Initial Cost to Company | | Improvements
| | | | Gross Amount Carried at End of Period | | | | | |
| | | | | | Buildings &
| | Less Cost of
| | Carrying
| | Land & Land
| | Buildings &
| | | | Accumulated
| | Date of
| | Date
| | | | | | | Buildings &
| | Less Cost of
| | Carrying
| | Land & Land
| | Buildings &
| | | | Accumulated
| | Date of
| | Date
| |
Description | | Encumbrances | | Land | | Improvements | | Sales and Other | | Costs(a) | | Improvements | | Improvements | | Total | | Depreciation | | Construction | | Acquired | | | Encumbrances | | Land | | Improvements | | Sales and Other | | Costs(a) | | Improvements | | Improvements | | Total | | Depreciation | | Construction | | Acquired | |
|
Undeveloped Land: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ALABAMA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cherokee County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | $ | 7,193 | | | | | | | $ | 18 | | | | | | | $ | 7,211 | | | | | | | $ | 7,211 | | | | | | | | | | | | | | | | | | | $ | 7,124 | | | | | | | $ | 19 | | | | | | | $ | 7,143 | | | | | | | $ | 7,143 | | | | | | | | | | | | | |
Cleburne County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 5,594 | | | | | | | | 16 | | | | | | | | 5,610 | | | | | | | | 5,610 | | | | | | | | | | | | | | | | | | | | 5,582 | | | | | | | | 51 | | | | | | | | 5,633 | | | | | | | | 5,633 | | | | | | | | | | | | | |
CALIFORNIA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Los Angeles County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | 3,219 | | | | | | | | 3,851 | | | | | | | | 7,070 | | | | | | | | 7,070 | | | | | | | | | | | | 1997 | | | | | | | | 3,969 | | | | | | | | 5,634 | | | | | | | | 9,603 | | | | | | | | 9,603 | | | | | | | | | | | | 1997 | |
GEORGIA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Banks County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 2,383 | | | | | | | | 33 | | | | | | | | 2,416 | | | | | | | | 2,416 | | | | | | | | | | | | | | | | | | | | 1,895 | | | | | | | | 10 | | | | | | | | 1,905 | | | | | | | | 1,905 | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | | 488 | | | | | | | | 50 | | | | | | | | 538 | | | | | | | | 538 | | | | | | | | | | | | | |
Bartow County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 5,585 | | | | | | | | 86 | | | | | | | | 5,671 | | | | | | | | 5,671 | | | | | | | | | | | | | | | | | | | | 5,585 | | | | | | | | 123 | | | | | | | | 5,708 | | | | | | | | 5,708 | | | | | | | | | | | | | |
Carroll County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 8,417 | | | | | | | | 107 | | | | | | | | 8,524 | | | | | | | | 8,524 | | | | | | | | | | | | | | | | | | | | 8,417 | | | | | | | | 129 | | | | | | | | 8,546 | | | | | | | | 8,546 | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | 9,308 | | | | | | | | 2,086 | | | | | | | | 11,394 | | | | | | | | 11,394 | | | | | | | | | | | | | | | | | | | | 9,308 | | | | | | | | 2,265 | | | | | | | | 11,573 | | | | | | | | 11,573 | | | | | | | | | | | | | |
Chattooga County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 4,472 | | | | | | | | 24 | | | | | | | | 4,496 | | | | | | | | 4,496 | | | | | | | | | | | | | | | | | | | | 4,269 | | | | | | | | 45 | | | | | | | | 4,314 | | | | | | | | 4,314 | | | | | | | | | | | | | |
Cherokee County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 3,835 | | | | | | | | 131 | | | | | | | | 3,966 | | | | | | | | 3,966 | | | | | | | | | | | | | | | | | | | | 3,835 | | | | | | | | 150 | | | | | | | | 3,985 | | | | | | | | 3,985 | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | 2,472 | | | | | | | | 364 | | | | | | | | 2,836 | | | | | | | | 2,836 | | | | | | | | | | | | | | | | | | | | 2,472 | | | | | | | | 470 | | | | | | | | 2,942 | | | | | | | | 2,942 | | | | | | | | | | | | | |
Coweta County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 2,742 | | | | | | | | 264 | | | | | | | | 3,006 | | | | | | | | 3,006 | | | | | | | | | | | | | | | | | | | | 2,059 | | | | | | | | 59 | | | | | | | | 2,118 | | | | | | | | 2,118 | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | 2,990 | | | | | | | | 1,072 | | | | | | | | 4,062 | | | | | | | | 4,062 | | | | | | | | | | | | | | | | | | | | 2,794 | | | | | | | | 547 | | | | | | | | 3,341 | | | | | | | | 3,341 | | | | | | | | | | | | | |
Dawson County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 2,784 | | | | | | | | 26 | | | | | | | | 2,810 | | | | | | | | 2,810 | | | | | | | | | | | | | | | | | | | | 2,570 | | | | | | | | 9 | | | | | | | | 2,579 | | | | | | | | 2,579 | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | 702 | | | | | | | | 713 | | | | | | | | 1,415 | | | | | | | | 1,415 | | | | | | | | | | | | | | | | | | | | 702 | | | | | | | | 899 | | | | | | | | 1,601 | | | | | | | | 1,601 | | | | | | | | | | | | | |
Elbert County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 1,629 | | | | | | | | 5 | | | | | | | | 1,634 | | | | | | | | 1,634 | | | | | | | | | | | | | | | | | | | | 1,617 | | | | | | | | 29 | | | | | | | | 1,646 | | | | | | | | 1,646 | | | | | | | | | | | | | |
Floyd County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 3,935 | | | | | | | | 38 | | | | | | | | 3,973 | | | | | | | | 3,973 | | | | | | | | | | | | | | | | | | | | 3,687 | | | | | | | | 63 | | | | | | | | 3,750 | | | | | | | | 3,750 | | | | | | | | | | | | | |
S-3
Forestar Real Estate Group Inc.
Schedule III — Consolidated Real Estate and Accumulated Depreciation — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Costs Capitalized
| | | | | | | | | | | | | | | | | | | | | Costs Capitalized
| | | | | | | | | | | | | |
| | | | | | | | Subsequent to Acquisition | | | | | | | | | | | | | | | | | | | | | Subsequent to Acquisition | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Improvements
| | | | Gross Amount Carried at End of Period | | | | | | | | | Initial Cost to Company | | Improvements
| | | | Gross Amount Carried at End of Period | | | | | |
| | | | | | Buildings &
| | Less Cost of
| | Carrying
| | Land & Land
| | Buildings &
| | | | Accumulated
| | Date of
| | Date
| | | | | | | Buildings &
| | Less Cost of
| | Carrying
| | Land & Land
| | Buildings &
| | | | Accumulated
| | Date of
| | Date
| |
Description | | Encumbrances | | Land | | Improvements | | Sales and Other | | Costs(a) | | Improvements | | Improvements | | Total | | Depreciation | | Construction | | Acquired | | | Encumbrances | | Land | | Improvements | | Sales and Other | | Costs(a) | | Improvements | | Improvements | | Total | | Depreciation | | Construction | | Acquired | |
|
Gilmer County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 3,058 | | | | | | | | 20 | | | | | | | | 3,078 | | | | | | | | 3,078 | | | | | | | | | | | | | | | | | | | | 3,031 | | | | | | | | 21 | | | | | | | | 3,052 | | | | | | | | 3,052 | | | | | | | | | | | | | |
Gordon County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 3,339 | | | | | | | | 18 | | | | | | | | 3,357 | | | | | | | | 3,357 | | | | | | | | | | | | | | | | | | | | 3,339 | | | | | | | | 19 | | | | | | | | 3,358 | | | | | | | | 3,358 | | | | | | | | | | | | | |
Hall County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 906 | | | | | | | | 19 | | | | | | | | 925 | | | | | | | | 925 | | | | | | | | | | | | | | | | | | | | 906 | | | | | | | | 69 | | | | | | | | 975 | | | | | | | | 975 | | | | | | | | | | | | | |
Haralson County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 8,100 | | | | | | | | 190 | | | | | | | | 8,290 | | | | | | | | 8,290 | | | | | | | | | | | | | | | | | | | | 7,582 | | | | | | | | 239 | | | | | | | | 7,821 | | | | | | | | 7,821 | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | 195 | | | | | | | | 74 | | | | | | | | 269 | | | | | | | | 269 | | | | | | | | | | | | | | | | | | | | 701 | | | | | | | | 176 | | | | | | | | 877 | | | | | | | | 877 | | | | | | | | | | | | | |
Heard County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 10,970 | | | | | | | | 108 | | | | | | | | 11,078 | | | | | | | | 11,078 | | | | | | | | | | | | | | | | | | | | 10,949 | | | | | | | | 341 | | | | | | | | 11,290 | | | | | | | | 11,290 | | | | | | | | | | | | | |
Jackson County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 996 | | | | | | | | 70 | | | | | | | | 1,066 | | | | | | | | 1,066 | | | | | | | | | | | | | | | | | | | | 996 | | | | | | | | 60 | | | | | | | | 1,056 | | | | | | | | 1,056 | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | 491 | | | | | | | | 68 | | | | | | | | 559 | | | | | | | | 559 | | | | | | | | | | | | | | | | | | | | 491 | | | | | | | | 271 | | | | | | | | 762 | | | | | | | | 762 | | | | | | | | | | | | | |
Lumpkin County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 3,120 | | | | | | | | 4 | | | | | | | | 3,124 | | | | | | | | 3,124 | | | | | | | | | | | | | | | | | | | | 3,120 | | | | | | | | 4 | | | | | | | | 3,124 | | | | | | | | 3,124 | | | | | | | | | | | | | |
Meriwether County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 1,874 | | | | | | | | 35 | | | | | | | | 1,909 | | | | | | | | 1,909 | | | | | | | | | | | | | | | | | | | | 1,700 | | | | | | | | 50 | | | | | | | | 1,750 | | | | | | | | 1,750 | | | | | | | | | | | | | |
Paulding County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | | 1,406 | | | | | | | | — | | | | | | | | 1,406 | | | | | | | | 1,406 | | | | | | | | | | | | | |
Pickens County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 3,590 | | | | | | | | 81 | | | | | | | | 3,671 | | | | | | | | 3,671 | | | | | | | | | | | | | | | | | | | | 3,379 | | | | | | | | 92 | | | | | | | | 3,471 | | | | | | | | 3,471 | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | 298 | | | | | | | | 187 | | | | | | | | 485 | | | | | | | | 485 | | | | | | | | | | | | | | |
Polk County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 4,807 | | | | | | | | 28 | | | | | | | | 4,835 | | | | | | | | 4,835 | | | | | | | | | | | | | | | | | | | | 4,740 | | | | | | | | 38 | | | | | | | | 4,778 | | | | | | | | 4,778 | | | | | | | | | | | | | |
Troup County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 5,122 | | | | | | | | 623 | | | | | | | | 5,745 | | | | | | | | 5,745 | | | | | | | | | | | | | | | | | | | | 4,178 | | | | | | | | 213 | | | | | | | | 4,391 | | | | | | | | 4,391 | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | | 944 | | | | | | | | 510 | | | | | | | | 1,454 | | | | | | | | 1,454 | | | | | | | | | | | | | |
TEXAS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Anderson County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 821 | | | | | | | | | | | | | | | | 821 | | | | | | | | 821 | | | | | | | | | | | | | | | | | | | | 821 | | | | | | | | | | | | | | | | 821 | | | | | | | | 821 | | | | | | | | | | | | | |
S-4
Forestar Real Estate Group Inc.
Schedule III — Consolidated Real Estate and Accumulated Depreciation — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Costs Capitalized
| | | | | | | | | | | | | | | | | | | | | Costs Capitalized
| | | | | | | | | | | | | |
| | | | | | | | Subsequent to Acquisition | | | | | | | | | | | | | | | | | | | | | Subsequent to Acquisition | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Improvements
| | | | Gross Amount Carried at End of Period | | | | | | | | | Initial Cost to Company | | Improvements
| | | | Gross Amount Carried at End of Period | | | | | |
| | | | | | Buildings &
| | Less Cost of
| | Carrying
| | Land & Land
| | Buildings &
| | | | Accumulated
| | Date of
| | Date
| | | | | | | Buildings &
| | Less Cost of
| | Carrying
| | Land & Land
| | Buildings &
| | | | Accumulated
| | Date of
| | Date
| |
Description | | Encumbrances | | Land | | Improvements | | Sales and Other | | Costs(a) | | Improvements | | Improvements | | Total | | Depreciation | | Construction | | Acquired | | | Encumbrances | | Land | | Improvements | | Sales and Other | | Costs(a) | | Improvements | | Improvements | | Total | | Depreciation | | Construction | | Acquired | |
|
Angelina County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 1,460 | | | | | | | | | | | | | | | | 1,460 | | | | | | | | 1,460 | | | | | | | | | | | | | | | | | | | | 1,368 | | | | | | | | | | | | | | | | 1,368 | | | | | | | | 1,368 | | | | | | | | | | | | | |
Houston County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 1,034 | | | | | | | | | | | | | | | | 1,034 | | | | | | | | 1,034 | | | | | | | | | | | | | | | | | | | | 1,034 | | | | | | | | 14 | | | | | | | | 1,048 | | | | | | | | 1,048 | | | | | | | | | | | | | |
Montgomery County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Land in Entitlement Process | | | | | | | 2,675 | | | | | | | | 32 | | | | | | | | 2,707 | | | | | | | | 2,707 | | | | | | | | | | | | 2007 | | | | | | | | 2,675 | | | | | | | | 295 | | | | | | | | 2,970 | | | | | | | | 2,970 | | | | | | | | | | | | 2007 | |
Rusk County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 269 | | | | | | | | | | | | | | | | 269 | | | | | | | | 269 | | | | | | | | | | | | | | | | | | | | 269 | | | | | | | | | | | | | | | | 269 | | | | | | | | 269 | | | | | | | | | | | | | |
Sabine County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 508 | | | | | | | | | | | | | | | | 508 | | | | | | | | 508 | | | | | | | | | | | | | | | | | | | | 508 | | | | | | | | 31 | | | | | | | | 539 | | | | | | | | 539 | | | | | | | | | | | | | |
San Augustine County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 1,720 | | | | | | | | | | | | | | | | 1,720 | | | | | | | | 1,720 | | | | | | | | | | | | | | | | | | | | 1,720 | | | | | | | | | | | | | | | | 1,720 | | | | | | | | 1,720 | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 6,907 | | | | | | | | 259 | | | | | | | | 7,166 | | | | | | | | 7,166 | | | | | | | | | | | | | | | | | | | | 6,599 | | | | | | | | 719 | | | | | | | | 7,318 | | | | | | | | 7,318 | | | | | | | | | | | | | |
Land In Entitlement Process | | | | | | | 685 | | | | | | | | 157 | | | | | | | | 842 | | | | | | | | 842 | | | | | | | | | | | | | | | | | | | | 685 | | | | | | | | 521 | | | | | | | | 1,206 | | | | | | | | 1,206 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Undeveloped Land | | $ | — | | | $ | 130,205 | | | $ | — | | | $ | 10,807 | | | $ | — | | | $ | 141,012 | | | $ | — | | | $ | 141,012 | | | $ | — | | | | | | | | | | | $ | — | | | $ | 129,514 | | | $ | — | | | $ | 14,235 | | | $ | — | | | $ | 143,749 | | | $ | — | | | $ | 143,749 | | | $ | — | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Operating Properties: | Commercial Operating Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial Operating Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TEXAS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Travis County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Radisson Hotel & Suites | | $ | 16,431 | | | | | | | $ | 16,316 | | | $ | 25,894 | | | | | | | | | | | $ | 42,210 | | | $ | 42,210 | | | $ | (20,021 | ) | | | | | | | | | | $ | 16,000 | | | | | | | $ | 16,316 | | | $ | 26,402 | | | | | | | | | | | $ | 42,718 | | | $ | 42,718 | | | $ | (21,667 | ) | | | | | | | | |
Hood County | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Harbor Lakes Golf Club | | | | | | | | | | | 1,269 | | | | | | | | | | | | | | | | 1,269 | | | | 1,269 | | | | (236 | ) | | | 2000 | | | | 1999 | | | | | | | | | | | | 1,269 | | | | | | | | | | | | | | | | 1,269 | | | | 1,269 | | | | (301 | ) | | | 2000 | | | | 1998 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Commercial Operating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Properties | | $ | 16,431 | | | $ | — | | | $ | 17,585 | | | $ | 25,894 | | | $ | — | | | $ | — | | | $ | 43,479 | | | $ | 43,479 | | | $ | (20,257 | ) | | | | | | | | | |
Total Commercial Operating Properties | | | $ | 16,000 | | | $ | — | | | $ | 17,585 | | | $ | 26,402 | | | $ | — | | | $ | — | | | $ | 43,987 | | | $ | 43,987 | | | $ | (21,968 | ) | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 91,015 | | | $ | 441,921 | | | $ | 18,291 | | | $ | 105,041 | | | $ | 7,731 | | | $ | 528,799 | | | $ | 44,185 | | | $ | 572,984 | | | $ | (20,774 | ) | | | | | | | | | | $ | 102,502 | | | $ | 420,057 | | | $ | 17,585 | | | $ | 185,177 | | | $ | 10,311 | | | $ | 589,143 | | | $ | 43,987 | | | $ | 633,130 | | | $ | (22,544 | ) | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(a) | | We do not capitalize carrying costs until development begins. |
S-5
Forestar Real Estate Group Inc.
Schedule III — Consolidated Real Estate and Accumulated Depreciation
Reconciliation of real estate:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | (In thousands) | | | (In thousands) | |
|
Balance at beginning of year | | $ | 468,724 | | | $ | 392,107 | | | $ | 383,798 | | | $ | 572,984 | | | $ | 468,724 | | | $ | 392,107 | |
Amounts capitalized | | | 181,430 | | | | 178,835 | | | | 74,858 | | | | 100,639 | | | | 181,430 | | | | 178,835 | |
Amounts retired or adjusted | | | (77,170 | ) | | | (102,218 | ) | | | (66,549 | ) | | | (40,493 | ) | | | (77,170 | ) | | | (102,218 | ) |
| | | | | | | | | | | | | | |
Balance at close of period | | $ | 572,984 | | | $ | 468,724 | | | $ | 392,107 | | | $ | 633,130 | | | $ | 572,984 | | | $ | 468,724 | |
| | | | | | | | | | | | | | |
Reconciliation of accumulated depreciation:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | | (In thousands) | | | | | (In thousands) | |
|
Balance at beginning of year | | $ | (20,907 | ) | | $ | (18,957 | ) | | $ | (18,273 | ) | | $ | (20,774 | ) | | $ | (20,907 | ) | | $ | (18,957 | ) |
Depreciation expense | | | (2,014 | ) | | | (2,008 | ) | | | (1,876 | ) | | | (1,770 | ) | | | (2,014 | ) | | | (2,008 | ) |
Amounts retired or adjusted | | | 2,147 | | | | 58 | | | | 1,192 | | | | — | | | | 2,147 | | | | 58 | |
| | | | | | | | | | | | | | |
Balance at close of period | | $ | (20,774 | ) | | $ | (20,907 | ) | | $ | (18,957 | ) | | $ | (22,544 | ) | | $ | (20,774 | ) | | $ | (20,907 | ) |
| | | | | | | | | | | | | | |
S-6