FORESTAR GROUP INC.
FORESTAR GROUP INC.
FORESTAR GROUP INC.
FORESTAR GROUP INCINC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies
Basis of Presentation
Our
The accompanying consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and include the accounts of Forestar Group Inc., (Forestar) and all of its 100% owned, majority-owned and controlled subsidiaries, ventures and other entities in which we have a controlling interest. We accountare collectively referred to as the Company unless the context otherwise requires. The Company accounts for ourits investment in other entities in which we haveit has significant influence over operations and financial policies using the equity method (we recognize our share of the entities’ income or loss and any preferential returns and treat distributions as a reduction of our investment). We eliminate all materialmethod. All intercompany accounts, transactions and transactions.balances have been eliminated in consolidation. Noncontrolling interests in consolidated pass-through entities are recognized before income taxes. The transactions included in net income in the consolidated statements of operations are the same as those that would be presented in comprehensive income. Thus, the Company's net income equates to comprehensive income.
We prepare our
In October 2017, Forestar became a majority-owned subsidiary of D.R. Horton, Inc. (D.R. Horton) by virtue of a merger with a wholly-owned subsidiary of D.R. Horton. Immediately following the merger, D.R. Horton owned 75% of the Company's outstanding common stock. In connection with the merger, the Company entered into certain agreements with D.R. Horton including a Stockholder’s Agreement, a Master Supply Agreement and a Shared Services Agreement. D.R. Horton is considered a related party of Forestar under GAAP. At September 30, 2020, D.R. Horton owned approximately 65% of the Company's outstanding common stock.
Change in Fiscal Year
Following the merger with D.R. Horton, the Company changed its fiscal year-end from December 31 to September 30, effective January 1, 2018. This change aligned Forestar's fiscal year-end reporting calendar with D.R. Horton. The Company's results of operations, cash flows and all transactions impacting stockholders' equity presented in this Form 10-K are for the fiscal years ended September 30, 2020 and 2019 and for the nine months ended September 30, 2018 unless otherwise noted. This Form 10-K also includes an unaudited statement of operations for the comparable stub period of January 1, 2017 to September 30, 2017. See Note 17.
Use of Estimates
The preparation of financial statements in accordanceconformity with generally accepted accounting principles in the United States, which require usGAAP requires management to make estimates and assumptions. These estimates and assumptions about future events.affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results can, and probably will,could differ materially from those we currently estimate. Examplesestimates.
Strategic Asset Sale
In February 2018, the Company entered into and closed on a Purchase and Sale Agreement with Starwood Land, L.P. (Starwood) to sell 24 legacy projects for $232.0 million which generated $217.5 million in net proceeds. This strategic asset sale included projects owned both directly and indirectly through ventures and consisted of significant estimates include those related to allocating costs to real estate, measuring long-livedapproximately 750 developed and under development lots, over 4,000 future undeveloped lots, 730 unentitled acres in California, an interest in 1 multi-family operating property and a multi-family development site.
Adoption of New Accounting Standard
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases,” which requires that lease assets and liabilities be recognized on the balance sheet and that key information about leasing arrangements be disclosed. The guidance was effective for impairment, oilthe Company beginning October 1, 2019 and gas revenue accruals, capital expenditure and lease operating expense accruals associated with our oil and gas production activities, oil and gas reserves and depletiondid not have a material impact on its consolidated financial position, results of our oil and gas properties.
At year-end 2016, we have divested substantially all of our oil and gas working interest properties.operations or cash flows. As a result of the adoption of this significant changestandard on October 1, 2019, the Company recorded right of use assets of $2.7 million and lease liabilities of $2.9 million. Lease right of use assets are included in our operations, we have reported the results of operationsother assets and financial position of these assets as discontinued operations withinlease liabilities are included in accrued expenses and other liabilities in the consolidated statementsbalance sheet.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Revenue Recognition
Real estate revenue and comprehensive income (loss) and consolidated balance sheets for all periods presented. In addition, in second quarter 2016, we changedrelated profit are generally recognized at the nametime of the oilclosing of a sale, when title to and gas segment to mineral resources to reflect the strategic shift from oil and gas working interest investments to owned mineral interests. We also changed the namepossession of the other natural resources segmentproperty are transferred to other.the buyer. The Company’s performance obligation, to deliver the agreed-upon land or lots, is generally satisfied at closing. However, there may be instances in which the Company has an unsatisfied remaining performance obligation at the time of closing. In these instances, the Company records contract liabilities and recognizes those revenues over time as the performance obligations are completed. Generally, the Company's unsatisfied remaining performance obligations are expected to have an original duration of less than one year. See Note 4.
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 2016less and 2015, restricted cash was $275,000proceeds from land and $200,000 and is included in other assets.
Cash Flows
The consolidated statements of cash flows for 2016, 2015 and 2014 reflect cash flows from both continuing and discontinued operations. Expenditureslot closings held for the Company’s benefit at title companies.
Real Estate and Cost of Sales
Real estate includes the costs of direct land and lot acquisition, land development, capitalized interest, and developmentdirect overhead costs incurred during land development. All indirect overhead costs, such as compensation of single-familymanagement personnel and multifamily real estate that we intendinsurance costs, are charged to develop for sale are classified as operating activities. Expenditures for the acquisition and development of properties to be held and operated, investment in oil and gas properties and equipment, and business acquisitions are classified as investing activities. Our accrued capital expenditures for unproved leasehold acquisitions and drilling and completion costs at year-end 2016 and 2015 were $834,000 and $7,033,000 and are included in liabilities of discontinued operations in our consolidated balance sheets. These oil and gas property additions will be reflected as cash used for investing activities in the period the accrued payables are settled.
Capitalized Software
We capitalize purchased software costs as well as the direct internal and external costs associated with software we develop for our own use. We amortize these capitalized costs using the straight-line method over estimated useful lives generally ranging from three to five years. The carrying value of capitalized software was $52,000 at year-end 2016 and $237,000 at year-end 2015 and is included in other assets. The amortization of these capitalized costs was $155,000 in 2016, $996,000 in 2015 and $1,067,000 in 2014 and is included inselling, general and administrative and operating expenses.
Environmental and Asset Retirement Obligations
We recognize environmental remediation liabilities on an undiscounted basis when environmental assessments or remediation are probable and we can reasonably estimate the cost. We adjust these liabilities as further information is obtained or circumstances change. Our asset retirement obligations are related to the abandonment and site restoration requirements that result from the acquisition, construction and development of oil and gas working interest properties, which we have divested substantially all at year-end 2016. We record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Accretion expense related to the asset retirement obligation and depletion expense related to capitalized asset retirement costs are included in cost of mineral resources and in discontinued operations on our consolidated statements of income (loss) and comprehensive income (loss). Our asset retirement obligations are recorded in liabilities held for sale at year-end 2016 and in other liabilities and liabilities of discontinued operations at year-end 2015.
The following summarizes the changes in asset retirement obligations:
|
| | | | | | | |
| Year-End |
| 2016 | | 2015 |
| (In thousands) |
Beginning balance | $ | 1,758 |
| | $ | 1,807 |
|
Additions | 6 |
| | 65 |
|
Oil and gas working interest property dispositions | (1,610 | ) | | (119 | ) |
Liabilities settled | (107 | ) | | (139 | ) |
Accretion expense | 56 |
| | 144 |
|
| $ | 103 |
| | $ | 1,758 |
|
Fair Value Measurements
Financial instruments for which we did not elect the fair value option include cash and cash equivalents, accounts and notes receivables, other assets, long-term debt, accounts payable and other liabilities. With the exception of long-term notes receivable and debt, the carrying amounts of these financial instruments approximate their fair values due to their short-term nature or variable interest rates.
Goodwill and Other Intangible Assets
We record goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. We do not amortize goodwill or other indefinite lived intangible assets. Instead, we measure these assets for impairment based on the estimated fair values at least annually or more frequently if impairment indicators exist. We perform the annual impairment measurement in the fourth quarter of each year. Intangible assets with finite useful lives are amortized over their estimated useful lives.
In 2016, we performed our annual goodwill impairment evaluation and concluded that goodwill related to our mineral interest assets was not impaired at year-end 2016 as the estimated fair value exceeded the carrying value. On February 17, 2017, we sold substantially all of the Company's remaining oil and gas assets for $85,600,000. Please read Note 21—Subsequent Events for additional information about these items.
In addition, we performed our annual goodwill impairment evaluation and concluded that goodwill related to our central Texas water assets was impaired at year-end 2016 as the estimated fair value exceeded the carrying value. We recorded a $3,874,000 non-cash impairment charge as a result of entering into an agreement to sell these assets. At year-end 2016, our central Texas water assets are classified as held for sale.
Income Taxes
We provide deferred income taxes using current tax rates for temporary differences between the financial accounting carrying value of assets and liabilities and their tax accounting carrying values. We recognize and value income tax exposures for the various taxing jurisdictions where we operate based on laws, elections, commonly accepted tax positions, and management estimates. We include tax penalties and interest in income tax expense. We provide a valuation allowance for any deferred tax asset that is not likely to be recoverable in future periods.
When we believe a tax position is supportable but the outcome uncertain, we include the item in our tax return but do not recognize the related benefit in our provision for taxes. Instead, we record a reserve for unrecognized tax benefits, which represents our expectation of the most likely outcome considering the technical merits and specific facts of the position. Changes to liabilities are only made when an event occurs that changes the most likely outcome, such as settlement with the relevant tax authority, expiration of statutes of limitations, changes in tax law, or recent court rulings.
Owned Mineral Interests
When we lease our mineral interests to third-party exploration and production entities, we retain a royalty interest and may take an additional participation in production, including a working interest. At year-end 2016, mineral interests and any remaining oil and gas working interests are included in assets held for sale.
Oil and Gas Properties (Discontinued Operations)
We use the successful efforts method of accounting for our oil and gas producing activities. Costs to acquire mineral interests leased, costs to drill and complete development of oil and gas wells and related asset retirement costs are capitalized. Costs to drill exploratory wells are capitalized pending determination of whether the wells have proved reserves and if determined incapable of producing commercial quantities of oil and gas these costs are expensed as dry hole costs. At year-end 2016, we have no capitalized exploratory well costs pending determination of proved reserves. Exploration costs include dry
hole costs, geological and geophysical costs, expired unproved leasehold costs and seismic studies, and are expensed as incurred. Production costs incurred to maintain wells and related equipment are charged to expense as incurred.
Depreciation and depletion of producing oil and gas properties is calculated using the units-of-production method. Proved developed reserves are used to compute unit rates for unamortized tangible and intangible drilling and completion costs. Proved reserves are used to compute unit rates for unamortized acquisition of proved leasehold costs. Unit-of-production amortization rates are revised whenever there is an indication of the need for revision but at least once a year and those revisions are accounted for prospectively as changes in accounting estimates.
Impairment of Oil and Gas Properties
We evaluate our oil and gas properties, including facilities and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We estimate the expected undiscounted future cash flows of our oil and gas properties and compare such undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the oil and gas properties to fair value. The factors used to determine fair value are subject to our judgment and expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operatingLand and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected. Because of the uncertainty inherent in these factors, we cannot predict when or if future impairment charges for proved properties will be recorded.
The assessment of unproved leasehold propertiesare typically allocated to determine any possible impairment requires significant judgment. We assess our unproved leasehold properties periodically for impairment on a property-by-property basisindividual residential lots based on remaining lease terms, drilling results or future plans to develop acreage. Impairment expense for proved and unproved oil and gas properties are included in cost of mineral resources and cost of oil and gas producing activities in discontinued operations.
Operating Leases
We occupy office space in various locations under operating leases. The lease agreements may contain rent escalation clauses, construction allowances and/or contingent rent provisions. We expense operating leases ratably over the shorter of the useful life or the lease term. For scheduled rent escalation clauses, we recognize the base rent expense on a straight-line basis and record the difference between the recognized rent expense and the amounts payable under the lease as deferred lease credits included in other liabilities in the consolidated balance sheets. Deferred lease credits are amortized over the lease term. For construction allowances, we record leasehold improvement assets included in property and equipment in the consolidated balance sheets amortized over the shorter of their economic lives or the lease term. The related deferred lease credits are amortized as a reduction of rent expense over the lease term.
Property and Equipment
We carry property and equipment at cost less accumulated depreciation. We capitalize the cost of significant additions and improvements, and we expense the cost of repairs and maintenance. We capitalize interest costs incurred on major construction projects. We depreciate these assets using the straight-line method over their estimated useful lives as follows:
|
| | | | | | | | | |
| Estimated | | Year-End |
| Useful Lives | | 2016 | | 2015 |
| | | (In thousands) |
Buildings and building improvements | 10 to 40 years | | $ | 2,700 |
| | $ | 4,044 |
|
Property and equipment | 2 to 10 years | | 4,957 |
| | 12,230 |
|
| | | 7,657 |
| | 16,274 |
|
Less: accumulated depreciation | | | (4,541 | ) | | (5,542 | ) |
| | | $ | 3,116 |
| | $ | 10,732 |
|
Depreciation expense of property and equipment was $889,000 in 2016, $1,067,000 in 2015 and $903,000 in 2014.
Real Estate
We carry real estate at the lower of cost or fair value less cost to sell. We capitalize interest costs once development begins, and we continue to capitalize throughout the development period. We also capitalize infrastructure, improvements, amenities, and other development costs incurred during the development period. We determine the cost of real estate sold using the relative sales value method. When we sell real estate from projects that are not finished, we includeof the lot. Cost of sales includes applicable land and lot acquisition, land development and related costs (both incurred and estimated to be incurred) allocated to each residential lot in the cost of real estate
sold estimates of futureproject. Any changes to the estimated total development costs through completion,subsequent to the initial lot sales are generally allocated based on relative sales values. These estimates of future development costs are reevaluated at least annually, with any adjustments being allocated prospectively to the remaining units available for sale. We receive cashlots.
The Company receives earnest money deposits from home buildershomebuilders for purchases of vacant developed lots from community development projects.lots. These earnest money deposits are typically released to the home buildershomebuilders as lots are developedsold. Earnest money deposits from D.R. Horton are subject to mortgages which are secured by the real estate under contract with D.R. Horton. These mortgages expire when the earnest money is released to D.R. Horton as lots are sold. See Note 15 for related party transactions and sold.balances.
Income producing properties are carried at cost less accumulated depreciation computed using the straight-line method over their estimated useful lives.
We haveThe Company has agreements with certain utility or improvement districts principally in Texas, whereby we agree to convey to the districts water, sewer and other infrastructure-related assets we haveit has constructed in connection with projects within their jurisdiction.jurisdiction and receive reimbursements for the cost of these improvements. The reimbursement amounts for these assets ranges from 70 to 90 percent of allowable cost asimprovements are defined by the district.district and are based on the allowable costs of the improvements. The transfer is consummated and we receivethe Company generally receives payment when the districts have a sufficient tax base to support funding of their bonds. The cost we incurincurred by the Company in constructing these assetsimprovements, net of the amount expected to be collected in the future, is included in capitalizedthe Company's land development costs,budgets and upon collection, we removein the assets from capitalized developmentdetermination of lot costs. We provide an allowance to reflect our past experiences related to claimed allowable development costs.
Impairment of Real Estate Long-Lived Assets
We reviewThe Company reviews real estate long-lived assets held for use for impairment when events or circumstances indicate that their carrying value may not be recoverable. Impairment exists if the carrying amount of the long-lived asset is not recoverable from the undiscounted cash flows expected from its use and eventual disposition. We determine theThe amount of the impairment loss is determined 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, which is generally determined based on the present value of future probability weighted cash flows expected from the sale of the long-lived asset. Non-cash impairment charges related to our owned and consolidated realReal estate assetsimpairments are included in cost of sales in the consolidated statements of operations. See Note 3.
Capitalized Interest
The Company capitalizes interest costs throughout the development period (active real estate). Capitalized interest is charged to cost of sales as the related real estate salesis sold to the buyer. During periods in which the Company’s active real estate is lower than its debt level, a portion of the interest incurred is reflected as interest expense in the period incurred. During fiscal 2020 and other. In 2016, we2019, the Company’s active real estate exceeded its debt level, and all interest incurred was capitalized to real estate. See Note 5.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. The cost of significant additions and improvements is capitalized and the cost of repairs and maintenance is expensed as incurred. Depreciation generally is recorded $56,453,000using the straight-line method over the estimated useful life of the asset as follows:
| | | | | | | | | | | | | | | | | |
| Estimated Useful Lives | | September 30, |
| | 2020 | | 2019 |
| | | (In millions) |
Leasehold improvements | 5 to 10 years | | $ | 1.2 | | | $ | 0.9 | |
Property and equipment | 2 to 10 years | | 1.1 | | | 3.4 | |
Total property and equipment | 2.3 | | | 4.3 | |
Accumulated depreciation | (1.2) | | | (1.9) | |
Property and equipment, net | $ | 1.1 | | | $ | 2.4 | |
Depreciation expense was $0.3 million, $0.3 million and $0.2 million in non-cash impairment chargesfiscal 2020, 2019 and the nine months ended September 30, 2018, respectively.
Income Taxes
The Company’s income tax expense is calculated using the asset and liability method, under which deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement amounts of assets and liabilities and their respective tax bases and attributable to net operating losses and tax credit carryforwards. When assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of sufficient taxable income in future periods and in the jurisdictions in which those temporary differences become deductible. The Company records a valuation allowance when it determines it is more likely than not that a portion of the deferred tax assets will not be realized. The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the Company’s deferred tax assets and liabilities.
Interest and penalties related to six non-core community development projects and two multifamily sites.
Revenue
Real Estate
We recognize revenue from salesunrecognized tax benefits are recognized in the financial statements as a component of real estate when a saleincome tax expense. Significant judgment is consummated, the buyer’s initial investment is adequate, any receivables are probable of collection, the usual risks and rewards of ownership have been transferredrequired to the buyer, and we do not have significant continuing involvement with the real estate sold. If we determine that the earnings process is not complete, we defer recognition of any gain until earned. We recognize revenue from hotel room sales and other guest services when rooms are occupied and other guest services have been rendered. We recognize rental revenues from our multifamily properties when earned in accordance with the terms of the respective leasesevaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a straight-line basis forquarterly basis. The evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the periodcourse of occupancy.
We recognize construction revenues on multifamily projects that we develop as a general contractor. Construction revenues are recognized as costs are incurred plus fixed fee earned. We are reimbursed for costs paid to subcontractors plus we may earn a developmentaudits and construction management fee on multifamily projects we develop, botheffective settlement of which are includedaudit issues. Changes in commercial andthe recognition or measurement of uncertain tax positions could result in increases or decreases in the Company’s income producing properties revenue. On multifamily projects where our fee is based on a fixed fee plus guaranteed maximum price contract, any cost overruns incurred during construction, as compared to the original budget, will reduce the net fee generated on these projects. Any excess cost overruns estimated over the net fee generated are recognizedtax expense in the period in which they become evident. At year-end 2016, we were not a general contractor on anythe change is made. See Note 11.
Stock-Based Compensation
The Company’s stockholders formally authorize shares of its common stock to be available for future grants of stock-based compensation awards. From time to time, the Compensation Committee of the multifamily projects currently under constructionCompany’s Board of Directors authorizes the grant of stock-based compensation to its employees and we do not anticipatedirectors from these available shares. At September 30, 2020, the outstanding stock-based compensation awards consist of restricted stock units. Grants of restricted stock units vest over a certain number of years as determined by the Compensation Committee of the Board of Directors. Restricted stock units outstanding at September 30, 2020 have a remaining vesting period of 1 to be5 years.
The compensation expense for stock-based awards is based on the fair value of the award and is recognized on a general contractor on any new multifamily projects as we determined multifamily was non-core and we would not be making any new investments in this business.
We exclude from revenue amounts we collect from utility or improvement districts related tostraight-line basis over the conveyanceremaining vesting period. The fair values 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 thatrestricted stock units are based on the sale. These amounts are includedCompany’s stock price at the date of grant. See Note 13.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Fair Value Measurements
The FASB's authoritative guidance for fair value measurements establishes a three-level hierarchy based upon the inputs to the valuation model of an asset or liability. When available, the Company uses quoted market prices in other accrued expenses until paid.
Oil and Gas Working Interest Revenues (Discontinued Operations)
We recognize revenue as oil and gas is produced and sold. There are a significant amount of oil and gas properties which we do not operate and, therefore, revenue is typically recorded in the month of production based on an estimate of our share of volumes produced and prices realized. We obtain the most current available production data from the operators and price indices for each wellactive markets to estimate the accrual of revenue. Obtaining production datadetermine fair value. Non-financial assets measured at fair value on a timelynon-recurring basis principally include real estate assets which the Company reviews for some wellsindicators of impairment when events and circumstances indicate that the carrying value is not feasible; therefore we utilize past production receipts and estimated sales price information to estimate accrual of working interest revenue on all other non-operated wells each month. Revisions to such estimates are recorded as actual results becomerecoverable. See Note 9.
known. We review accounts receivable periodically and reduce the carrying amount by a valuation allowance that reflects our best estimate of the amount that may not be collectible.
A majority of our sales are made under contractual arrangements with terms that are considered to be usual and customary in the oil and gas industry. The contracts are for periods of up to five years with prices determined upon a percentage of pre-determined and published monthly index price. The terms of these contracts have not had an effect on how we recognize revenue.
Mineral 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 received if drilling has not started within the specified period and when the payment has been collected. We recognize revenue from mineral royalties and non-working interests when the minerals have been delivered to the buyer, the value is determinable, and we are reasonably sure of collection.
Other
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 recreational leases on the straight-line basis over the lease term. We recognize revenue from the sale of water rights or groundwater reservation agreements upon receipt of an executed agreement and payment has been collected and all conditions to the agreement have been met and we have no further performance obligations to meet. The water delivery revenues will be recognized as water is being delivered and metered at the delivery point.
Share-Based Compensation
We use the Black-Scholes option pricing model for stock options, Monte Carlo simulation pricing model for market-leveraged stock units and for stock options with market conditions, grant date fair value for equity-settled awards and period-end fair value for cash-settled awards. We expense share-based awards ratably over the vesting period or earlier based on retirement eligibility.
Timber
We carry timber at cost less the cost of timber cut. We expense the cost of timber cut based on the relationship of the timber carrying value to the estimated volume of recoverable timber multiplied by the amount of timber cut. We include the cost of timber cut in cost of other. We determine the estimated volume of recoverable timber using statistical information and other data related to growth rates and yields gathered from physical observations, models and other information gathering techniques. Changes in yields are generally due to adjustments in growth rates and similar matters and are accounted for prospectively as changes in estimates. We capitalize reforestation costs incurred in developing viable seedling plantations (up to two years from planting), such as site preparation, seedlings, planting, fertilization, insect and wildlife control, and herbicide application. We expense all other costs, such as property taxes and costs of forest management personnel, as incurred. Once the seedling plantation is viable, we expense all costs to maintain the viable plantations, such as fertilization, herbicide application, insect and wildlife control, and thinning, as incurred.
We own about 19,000 acres of non-core timberland and undeveloped land, in Georgia and Texas. The non-cash cost of timber cut and sold is $63,000 in 2016, $250,000 in 2015 and $371,000 in 2014 and is included in depreciation, depletion and amortization in our consolidated statements of cash flows.
Note 2 — New and Pending Accounting Pronouncements
Adoption of New Accounting Standards
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, as part of its initiative to reduce complexity in accounting standards. To simplify presentation of debt issuance costs, the amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015,June 2016, the FASB issued ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements2016-13, “Financial Instruments - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update), Credit Losses,” which allows an entity to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The updated standards are effective for
financial statements issued for annual and interim periods beginning after December 15, 2015. We adopted ASU 2015-03 in first quarter 2016 and prior period amounts have been reclassified to conform toreplaces the current period presentation. Asincurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of December 31, 2015, $8,267,000a broader range of debt issuance costs were reclassifiedreasonable and supportable information in determining credit loss estimates. The guidance is effective for the consolidated balance sheets from other assetsCompany beginning October 1, 2020 and is not expected to debt. The adoption did nothave a material impact ouron its consolidated financial position, results of operations or cash flows. As permitted under this guidance, we will continue to present debt issuance costs associated with revolving-debt agreements as other assets.
In February 2015,December 2019, the FASB issued ASU 2015-02, Consolidation: Amendments2019-12 related to simplifying the Consolidation Analysis (Topic 810), requiring entities to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model.accounting for income taxes. The revised consolidation model: (1) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (2) eliminates the presumption that a general partner should consolidate a limited partnership, (3) affects the consolidation analysis of reporting entities that are involved with VIEs, and (4) provides a scope exception from consolidation guidance for reporting entities with interests in certain legal entities. The updated standard is effective for financial statements issued for annual and interim periodsthe Company beginning after December 15, 2015.October 1, 2021, although early adoption is permitted. The adoptionCompany is currently evaluating the impact of this guidance, which was applied retrospectively, had no impact to our consolidated financial statements.
In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items(Subtopic 225-20), which eliminates the concept of extraordinary items from U.S. GAAP. The updated standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this guidance had no impact on our financial statements and related disclosures.
Pending Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for annual and interim periods beginning after December 15, 2017. The guidance permits two methods of adoption: retrospectivelyexpected to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). We currently anticipate adopting the standard using the cumulative catch-up transition method. We anticipate this standard will not have a material impact on ourits consolidated financial statements. While we are continuing to assess all potential impactsposition, results of the standard, we expect revenue related to lot and tract sales to remain substantially unchanged. Due to the complexity of certain of our real estate sale transactions, the revenue recognition treatment required under the standard will be dependent on contract-specific terms, and may vary in some instances from recognition at the time of the sale closing.operations or cash flows.
In February 2016,March 2020, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees2020-04, “Reference Rate Reform,” which provides optional expedients and exceptions for applying U.S. GAAP to put most leases on their balance sheets but recognize expenses on their income statements in a manner that is similar to today's accounting. This guidance also eliminates today's real estate-specific provisions for all entities. For lessors,contracts, hedging relationships, and other transactions affected by the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This guidance is effective in 2019, and interim periods within that year. Early adoption is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the effect the updated standard will have on our financial position and disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, as part of its simplification initiative. The areas for simplification in this update involve several aspectsdiscontinuation of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equityLondon Interbank Offered Rate (LIBOR) or liabilities,by another reference rate expected to be discontinued. The guidance was effective beginning March 12, 2020 and the classification on the statement of cash flows. The updated standard becomes effective for annual and interim periods beginning aftercan be applied prospectively through December 31, 2016. We are currently evaluating the effect that the updated2022. The Company will adopt this standard will have on our earnings, financial positionwhen LIBOR is discontinued and disclosures, but we dodoes not expect it to have a material impact on ourits consolidated financial statements.statements and related disclosures.
In August 2016,
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 — Segment Information
Since the FASB issued ASU 2016-15, Statementbeginning of Cash Flows (Topic 230), in orderfiscal 2019, the Company has managed its operations through its real estate segment, which is its core business and generates substantially all of its revenues. The real estate segment primarily acquires land and develops infrastructure for single-family residential communities, and its revenues generally come from sales of residential single-family finished lots to address eight specific cash flow issueslocal, regional and national homebuilders. The Company has other business activities for which the related assets and operating results are immaterial, and therefore are included within the Company's real estate segment. As such, the operating results of the Company's real estate segment are consistent with the objectiveits consolidated operating results and no separate disclosure is required as of reducingand for the existing diversity in practice. The updated standard is effective for financial statements issued for annual periods beginning after December 15, 2017 and interim periods within those fiscal years with early adoption permitted. We are currently evaluatingended September 30, 2020 and 2019.
During the effect thatnine months ended September 30, 2018, the updated standard will have on our earnings, financial positionCompany managed its operations through its real estate segment and disclosures, but we doother segment (previously referred to as other natural resources). Additionally, certain costs and assets were not expect it to have a material effect on our consolidated financial statements.
In November, 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230). This ASU requires that a statement of cash flow explain the change during the period in the total of cash, cash equivalents, and amounts generally
described as restricted cash or restricted cash investments. This standard is effective for fiscal years beginning after December 15, 2017. The adoption of ASU 2016-18 will modify our current disclosures and reclassifications relatingallocated to the consolidated statementsCompany’s segments. The accounting policies of cash flows, but we do not expect itthe segments are the same as those described throughout Note 1. Segment results for the nine months ended September 30, 2018 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| Real Estate | | Other | | Items Not Allocated | | Consolidated |
| (In millions) |
Revenues | $ | 78.3 | | | $ | 0 | | | $ | 0 | | | $ | 78.3 | |
Cost of sales | 48.9 | | | 0.6 | | | 0 | | | 49.5 | |
Selling, general and administrative expense | 7.1 | | | 0.3 | | | 12.0 | | | 19.4 | |
Equity in earnings of unconsolidated ventures | (4.8) | | | 0 | | | 0 | | | (4.8) | |
Gain on sale of assets (1) | (18.6) | | | (9.2) | | | 0 | | | (27.8) | |
Interest expense | 0 | | | 0 | | | 3.7 | | | 3.7 | |
Interest and other income | (1.8) | | | 0 | | | (4.6) | | | (6.4) | |
Income before income taxes | 47.5 | | | 8.3 | | | (11.1) | | | 44.7 | |
Net income attributable to noncontrolling interests | 1.2 | | | 0 | | | 0 | | | 1.2 | |
Income before income taxes attributable to Forestar Group Inc. | $ | 46.3 | | | $ | 8.3 | | | $ | (11.1) | | | $ | 43.5 | |
______________
(1)Gain on sale of assets within the real estate segment consisted primarily of a gain of $14.6 million related to havethe sale of the Company's interest in a material effectmulti-family venture near Denver. Gain on our consolidated financial statements.sale of assets within the other segment relates to the sale of non-core water interests in Texas, Louisiana, Georgia and Alabama.
Note 3 — Real Estate
Real estate consists of:
| | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| (In millions) |
Developed and under development projects | $ | 1,304.3 | | | $ | 1,011.8 | |
Undeveloped land | 5.4 | | | 17.1 | |
| $ | 1,309.7 | | | $ | 1,028.9 | |
In fiscal 2020, the Company invested $550.8 million for the acquisition of residential real estate and $503.0 million for the development of residential real estate. At September 30, 2020 and 2019, undeveloped land primarily consists of undeveloped land which the Company has the contractual right to sell to D.R. Horton within approximately one year of its purchase or, if D.R. Horton elects, at an earlier date, at a sales price equal to the carrying value of the land at the time of sale plus additional consideration of 16% per annum.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Year-End 2016 | | Year-End 2015 |
| Carrying Value | | Accumulated Depreciation | | Net Carrying Value | | Carrying Value | | Accumulated Depreciation | | Net Carrying Value |
| (In thousands) |
Entitled, developed and under development projects | $ | 263,859 |
| | $ | — |
| | $ | 263,859 |
| | $ | 352,141 |
| | $ | — |
| | $ | 352,141 |
|
Undeveloped land (includes land in entitlement) | 29,144 |
| | — |
| | 29,144 |
| | 98,181 |
| | — |
| | 98,181 |
|
Commercial | | | | | | | | | | | |
Radisson Hotel & Suites (a) | — |
| | — |
| | — |
| | 62,889 |
| | (29,268 | ) | | 33,621 |
|
Income producing properties | | | | | | | | | | | |
Eleven (a) | — |
| | — |
| | — |
| | 53,896 |
| | (2,861 | ) | | 51,035 |
|
Dillon (a) | — |
| | — |
| | — |
| | 19,987 |
| | — |
| | 19,987 |
|
Music Row (a) | — |
| | — |
| | — |
| | 9,947 |
| | — |
| | 9,947 |
|
Downtown Edge (a) | — |
| | — |
| | — |
| | 12,706 |
| | — |
| | 12,706 |
|
West Austin (b) | — |
| | — |
| | — |
| | 9,097 |
| | — |
| | 9,097 |
|
| $ | 293,003 |
| | $ | — |
| | $ | 293,003 |
| | $ | 618,844 |
| | $ | (32,129 | ) | | $ | 586,715 |
|
_________________________
| |
(b)
| Classified as assets held for sale at year-end 2016. |
In 2016, we recognized non-cashEach quarter the Company reviews the performance and outlook for all of its real estate for indicators of potential impairment charges of $56,453,000 related to six non-core community development projects and two multifamily sites. These impairments wereperforms detailed impairment evaluations and analyses when necessary. As a result of our key initiative to review our entire portfoliothis process there were 0 real estate impairment charges recorded in fiscal 2020 and $0.8 million and $0.3 million of assets which resulted in business plan changes, inclusive of cash tax savings considerations, to market these properties for sale, which resulted in adjustment ofimpairment charges were recorded during fiscal 2019 and the carrying value to fair value.nine months ended September 30, 2018, respectively.
In 2016, we sold the Radisson Hotel & Suites, a 413 room hotel in Austin, for $130,000,000, generating $128,764,000 in net proceeds before paying in full the associated debt of $15,400,000
During fiscal 2020 and recognized a gain on sale of $95,336,000. We also sold Eleven, a wholly-owned 257-unit multifamily property in Austin, for $60,150,000, generating $59,719,000 in net proceeds before paying in full the associated debt of $23,936,000 and recognized a gain on sale of $9,116,000. In addition, we sold Dillon, a planned 379-unit multifamily property that was under construction in Charlotte, for $25,979,000, generating $25,428,000 in net proceeds and recognized a gain on sale of $1,223,000, and Music Row, a planned 230-unit multifamily property that was under construction in Nashville, for $15,025,000, generating $14,703,000 in net proceeds and recognized a gain on sale of $3,968,000 . We also sold Downtown Edge, a multifamily site in Austin, for $5,000,000, generating $4,975,000 in net proceeds and recognized a loss of $3,870,000.
In 2016, we sold over 58,300 acres of timber and timberland in Georgia and Alabama for $104,172,000 in three transactions generating combined net proceeds of $103,238,000. These transactions resulted in a combined gain on sale of assets of $48,891,000.
In 2015, we sold Midtown Cedar Hill, a 354-unit multifamily property we developed near Cedar, Hill, Texas for $42,880,000, generating segment earnings of $9,265,000 and generating $42,639,000 in net proceeds before paying in full the associated debt of $24,166,000.
Depreciation expense2019, pre-acquisition cost write-offs related to commercialland purchase contracts that the Company has terminated or expects to terminate were $0.9 million and income producing properties was $816,000 in 2016, $6,810,000 in 2015 and $3,319,000 in 2014 and is included in other operating expense.
As a general contractor on guaranteed maximum price contracts associated with two multifamily venture properties, we recognized charges of $392,000 in 2016, $1,543,000 in 2015 and $5,111,000 in 2014 related to$0.2 million, respectively. There were no pre-acquisition cost overruns.
Our estimated cost of assets for which we expect to be reimbursed by utility and improvement districts were $45,157,000 at year-end 2016 and $67,554,000 at year-end 2015, which included $14,749,000 at year-end 2016 and $22,302,000 at year-end 2015 related to our Cibolo Canyons project near San Antonio. In 2016, we collected $26,606,000 in reimbursements that were previously submitted to these districts. At year-end 2016, our inception to-date submitted and approved reimbursements for the
Cibolo Canyons project were $54,376,000, of which we have collected $45,132,000. These costs are principally for water, sewer and other infrastructure assets that we have incurred and submitted or will submit to utility or improvement districts for approval and reimbursement. We expect to be reimbursed by utility and improvement districts when these districts achieve adequate tax basis or otherwise have funds available to support payment.
In 2014, we received $50,550,000 from Cibolo Canyons special improvement district (CCSID) and recognized a gain of $6,577,000 related to its issuance of $48,900,000 Hotel Occupancy Tax (HOT) and Sales and Use Tax Revenue Bonds. These bonds are obligations solely of CCSID and are payable from HOT and sales and use taxes levied on the Resort by CCSID. To facilitate the issuance of the bonds, we provided a $6,846,000 letter of credit to the bond trustee as security for certain debt service fund obligationswrite-offs in the event CCSID tax collections are not sufficient to support payment of the bonds in accordance with their terms. The letter of credit must be maintained until the earlier of redemption of the bonds or scheduled bond maturity in 2034. We also entered into an agreement with the owner of the Resort to assign its senior rights to us in exchange for consideration provided by us, including a surety bond to be drawn if CCSID tax collections are not sufficient to support ad valorem tax rebates payable. The surety bond has a balance of $6,631,000 at year-end 2016. The deferred gains related to the letter of creditnine months ended September 30, 2018. Real estate impairments and surety bondland option charges are included in other liabilities on our consolidated balance sheet. The surety bond decreases and gains are recognized as CCSID makes annual ad valorem tax rebate payments, which obligation is scheduled to be retired in full by 2020. All future receipts are expected to be recognized as gainscost of sales in the period collected. We recorded gainsconsolidated statements of $1,219,000 and $1,160,000 in 2016 and 2015 associated with reduction of surety bond and gains of $501,000 and $425,000 in 2016 and 2015 associated with excess hotel occupancy and sales and use tax revenues from CCSID in 2015.operations.
Note 4 — Revenues
Revenues consist of:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, | | Nine Months Ended September 30, 2018 |
| 2020 | | 2019 | |
| (In millions) |
Residential lot sales | $ | 880.3 | | | $ | 351.7 | | | $ | 72.0 | |
Residential tract sales | 48.6 | | | 55.8 | | | 3.6 | |
Commercial tract sales | 2.5 | | | 18.5 | | | 2.0 | |
Other | 0.4 | | | 2.3 | | | 0.7 | |
| $ | 931.8 | | | $ | 428.3 | | | $ | 78.3 | |
Land and lot sales to D.R. Horton were $887.6 million, $326.6 million and $39.1 million in fiscal 2020, 2019 and the nine months ended September 30, 2018, respectively.
Note 5 — Capitalized Interest
The following table summarizes the Company’s interest costs incurred, capitalized and expensed in fiscal 2020, 2019 and the nine months ended September 30, 2018.
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, | | Nine Months Ended September 30, 2018 |
| 2020 | | 2019 | |
| (In millions) |
Capitalized interest, beginning of period | $ | 23.7 | | | $ | 3.2 | | | $ | 0.5 | |
Interest incurred | 43.3 | | | 25.3 | | | 7.3 | |
Interest expensed: | | | | | |
Directly to interest expense | 0 | | | 0 | | | (3.7) | |
Charged to cost of sales | (18.3) | | | (4.8) | | | (0.9) | |
Capitalized interest, end of period | $ | 48.7 | | | $ | 23.7 | | | $ | 3.2 | |
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 — Investment in Unconsolidated Ventures
We participate
In the past, the Company has participated in real estate ventures for the purpose of acquiring and developing residential, multifamilymulti-family and mixed-use communities in which weit may or may not have a controlling financial interest. U.S. GAAP requires consolidation of Variable Interest Entitiesvariable interest entities (VIEs) in which an enterprise has a controlling financial interest and is the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE. We examineThe Company examines specific criteria and useuses judgment when determining whether a venture is a VIE and whether we areit is the primary beneficiary. We performThe Company performs this review initially at the time we enterit enters into venture agreements and reassessreassesses upon reconsideration events.
At year-end 2016, weSeptember 30, 2020, the Company had ownership interests in 164 ventures that weit accounted for using the equity method, none of which are a VIE.
In 2016, we sold our interest in FMF Peakview LLC (3600), a 304-unit multifamily joint venture near Denver, generating $13,917,000 in net proceeds and recognized a gain of $10,363,000 which is included in gain on sale of assets.
method. Combined summarized balance sheet information for our ventures accounted for using the equity method follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Venture Assets | | Venture Borrowings (a) | | Venture Equity | | Our Investment |
| At Year-End |
| 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| (In thousands) |
242, LLC (b) | $ | 26,503 |
| | $ | 26,687 |
| | $ | 1,107 |
| | $ | — |
| | $ | 23,136 |
| | $ | 24,877 |
| | $ | 10,934 |
| | $ | 11,766 |
|
CL Ashton Woods, LP (c) | 2,653 |
| | 7,654 |
| | — |
| | — |
| | 2,198 |
| | 6,084 |
| | 1,107 |
| | 3,615 |
|
CL Realty, LLC | 8,048 |
| | 7,872 |
| | — |
| | — |
| | 7,899 |
| | 7,662 |
| | 3,950 |
| | 3,831 |
|
CREA FMF Nashville LLC (b) | 56,081 |
| | 57,820 |
| | 37,446 |
| | 50,845 |
| | 17,091 |
| | 4,291 |
| | 4,923 |
| | 3,820 |
|
Elan 99, LLC | 49,652 |
| | 34,192 |
| | 36,238 |
| | 14,587 |
| | 13,100 |
| | 15,838 |
| | 11,790 |
| | 14,255 |
|
FMF Littleton LLC | 70,282 |
| | 52,376 |
| | 44,446 |
| | 22,347 |
| | 23,798 |
| | 24,370 |
| | 6,128 |
| | 6,270 |
|
FMF Peakview LLC | — |
| | 48,869 |
| | — |
| | 30,485 |
| | — |
| | 16,828 |
| | — |
| | 3,447 |
|
FOR/SR Forsyth LLC | 10,672 |
| | 6,500 |
| | 1,568 |
| | — |
| | 8,990 |
| | 6,500 |
| | 8,091 |
| | 5,850 |
|
HM Stonewall Estates, Ltd (c) | 852 |
| | 2,842 |
| | — |
| | — |
| | 852 |
| | 2,842 |
| | 477 |
| | 1,294 |
|
LM Land Holdings, LP (c) | 25,538 |
| | 31,984 |
| | 3,477 |
| | 7,728 |
| | 20,945 |
| | 22,751 |
| | 9,685 |
| | 9,664 |
|
MRECV DT Holdings LLC | 4,155 |
| | 4,215 |
| | — |
| | — |
| | 4,144 |
| | 4,215 |
| | 3,729 |
| | 3,807 |
|
MRECV Edelweiss LLC | 3,484 |
| | 2,237 |
| | — |
| | — |
| | 3,484 |
| | 2,237 |
| | 3,358 |
| | 2,029 |
|
MRECV Juniper Ridge LLC | 4,156 |
| | 3,006 |
| | — |
| | — |
| | 4,156 |
| | 3,006 |
| | 3,741 |
| | 2,730 |
|
MRECV Meadow Crossing II LLC | 2,492 |
| | 728 |
| | — |
| | — |
| | 2,491 |
| | 728 |
| | 2,242 |
| | 655 |
|
Miramonte Boulder Pass, LLC | 10,738 |
| | 12,627 |
| | 4,006 |
| | 5,869 |
| | 5,265 |
| | 5,474 |
| | 5,330 |
| | 5,349 |
|
Temco Associates, LLC | 4,368 |
| | 5,284 |
| | — |
| | — |
| | 4,253 |
| | 5,113 |
| | 2,126 |
| | 2,557 |
|
Other ventures (d) | — |
| | 4,174 |
| | — |
| | 2,242 |
| | — |
| | 1,922 |
| | — |
| | 1,514 |
|
| $ | 279,674 |
| | $ | 309,067 |
| | $ | 128,288 |
| | $ | 134,103 |
| | $ | 141,802 |
| | $ | 154,738 |
| | $ | 77,611 |
| | $ | 82,453 |
|
Combined summarizedand income statement information for ourthese unconsolidated ventures accounted for usingfollows:
| | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| (In millions) |
Assets: | | | |
Cash and cash equivalents | $ | 1.2 | | | $ | 1.6 | |
Real estate | 6.1 | | | 13.6 | |
Other assets | 0.2 | | | 0.1 | |
Total assets | $ | 7.5 | | | $ | 15.3 | |
Liabilities and Equity: | | | |
Accounts payable and other liabilities | $ | 0.2 | | | $ | 0.3 | |
Equity | 7.3 | | | 15.0 | |
Total liabilities and equity | $ | 7.5 | | | $ | 15.3 | |
| | | |
Forestar's investment in unconsolidated ventures | $ | 3.6 | | | $ | 7.3 | |
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, | | Nine Months Ended September 30, 2018 |
| 2020 | | 2019 | |
| (In millions) |
Revenues | $ | 3.5 | | | $ | 1.9 | | | $ | 22.2 | |
Earnings | 3.8 | | | 1.3 | | | 15.1 | |
Forestar's equity in earnings of unconsolidated ventures | 0.7 | | | 0.5 | | | 4.8 | |
During fiscal 2020, 2019 and the equity method follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | Earnings (Loss) | | Our Share of Earnings (Loss) |
| For the Year |
| 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| (In thousands) |
242, LLC (b) | $ | 5,835 |
| | $ | 20,995 |
| | $ | 5,612 |
| | $ | 1,259 |
| | $ | 9,588 |
| | $ | 2,951 |
| | $ | 668 |
| | $ | 4,919 |
| | $ | 1,514 |
|
CL Ashton Woods, LP (c) | 2,870 |
| | 9,820 |
| | 5,431 |
| | 914 |
| | 3,881 |
| | 1,748 |
| | 1,332 |
| | 5,000 |
| | 2,471 |
|
CL Realty, LLC | 567 |
| | 856 |
| | 1,573 |
| | 237 |
| | 424 |
| | 1,068 |
| | 119 |
| | 212 |
| | 534 |
|
CREA FMF Nashville LLC (b) (d) | 4,955 |
| | 1,227 |
| | — |
| | (1,420 | ) | | (1,696 | ) | | (163 | ) | | 1,103 |
| | (1,696 | ) | | (163 | ) |
Elan 99, LLC | 1,392 |
| | — |
| | — |
| | (2,739 | ) | | (49 | ) | | (87 | ) | | (2,465 | ) | | (44 | ) | | (78 | ) |
FMF Littleton LLC | 3,116 |
| | 120 |
| | — |
| | (571 | ) | | (367 | ) | | (239 | ) | | (143 | ) | | (92 | ) | | (60 | ) |
FMF Peakview LLC | 939 |
| | 2,057 |
| | 4 |
| | (248 | ) | | (1,116 | ) | | (410 | ) | | (50 | ) | | (223 | ) | | (83 | ) |
FOR/SR Forsyth LLC | — |
| | — |
| |
|
| | (65 | ) | | — |
| |
|
| | (58 | ) | | — |
| |
|
|
HM Stonewall Estates, Ltd. (c) | 2,112 |
| | 3,990 |
| | 1,728 |
| | 832 |
| | 1,881 |
| | 613 |
| | 361 |
| | 952 |
| | 248 |
|
LM Land Holdings, LP (c) | 10,001 |
| | 10,956 |
| | 21,980 |
| | 7,288 |
| | 8,251 |
| | 15,520 |
| | 2,458 |
| | 3,342 |
| | 4,827 |
|
MRECV DT Holdings LLC | 495 |
| | — |
| |
|
| | 477 |
| | 167 |
| |
|
| | 429 |
| | — |
| |
|
|
MRECV Edelweiss LLC | 416 |
| | — |
| |
|
| | 409 |
| | 151 |
| |
|
| | 368 |
| | 137 |
| |
|
|
MRECV Juniper Ridge LLC | 379 |
| | — |
| |
|
| | 380 |
| | 106 |
| |
|
| | 342 |
| | — |
| |
|
|
MRECV Meadow Crossing II LLC | 267 |
| | — |
| | — |
| | 220 |
| | — |
| | — |
| | 198 |
| | — |
| | — |
|
Miramonte Boulder Pass, LLC | 4,923 |
| | — |
| |
|
| | (399 | ) | | (250 | ) | |
|
| | (200 | ) | | (125 | ) | |
|
|
PSW Communities, LP | — |
| | 29,986 |
| | — |
| | — |
| | 2,688 |
| | (86 | ) | | — |
| | 1,169 |
| | (76 | ) |
TEMCO Associates, LLC | 1,344 |
| | 9,485 |
| | 2,155 |
| | 440 |
| | 2,358 |
| | 494 |
| | 220 |
| | 1,179 |
| | 247 |
|
Other ventures | 6,519 |
| | 36,237 |
| | 3,960 |
| | 2,105 |
| | 33,303 |
| | 3,879 |
| | 1,441 |
| | 1,278 |
| | (696 | ) |
| $ | 46,130 |
| | $ | 125,729 |
| | $ | 42,443 |
| | $ | 9,119 |
| | $ | 59,320 |
| | $ | 25,288 |
| | $ | 6,123 |
| | $ | 16,008 |
| | $ | 8,685 |
|
_____________________
| |
(a)
| Total includes current maturities of $89,756,000 at year-end 2016, of which $78,557,000 is non-recourse to us, and $39,590,000 at year-end 2015, of which $29,691,000 is non-recourse to us.
|
| |
(b)
| Includes unamortized deferred gains on real estate contributed by us to ventures. We recognize deferred gains as income as real estate is sold to third parties. Deferred gains of $1,457,000 are reflected as a reduction to our investment in unconsolidated ventures at year-end 2016.
|
| |
(c)
| Includes unrecognized basis difference of $259,000 which is reflected as an increase of our investment in unconsolidated ventures at year-end 2016. This difference between estimated fair value of the equity investment and our capital account within the respective ventures at closing will be accreted as income or expense over the life of the investment and included in our share of earnings (loss) from the respective ventures.
|
| |
(d)
| Our share of venture earnings in 2016 includes reallocation of prior year cumulative losses incurred by the venture as a result of equity contribution by the venture partner in 2016. |
In 2016, we invested $6,089,000nine months ended September 30, 2018, the Company made 0 further investments in these ventures and received $13,419,000 in distributions; in 2015, we invested $26,349,000 in these ventures$4.3 million, $5.0 million and received $24,909,000 in distributions; and in 2014, we invested $14,692,000 in these ventures and received $7,518,000$4.3 million, respectively, in distributions. Distributions include both return of investments and distributions of earnings.
We provide construction
In the nine months ended September 30, 2018, the Company's equity in earnings from one of its unconsolidated ventures in which it owns a 37.5% interest, LM Land Holdings, LP, accounted for over 10% of the Company's consolidated pre-tax income. At September 30, 2018, LM Land Holdings, LP had $21.6 million in venture assets, $0.4 million in accounts payable and development services for someother liabilities, and $21.2 million in venture equity on its balance sheet. At September 30, 2018, the Company's investment in this venture was $8.9 million. In the nine months ended September 30, 2018, LM Land Holdings, LP recognized $17.4 million of revenues and generated $18.1 million in earnings, which includes $5.7 million of earnings related to the recognition of a deferred gain. The Company's share of these ventures for which we receive fees. Fees for these services were $2,466,000 in 2016, $1,856,000 in 2015 and $2,275,000 in 2014, and are included in real estate revenues.earnings was $6.4 million.
Note 5 — Goodwill and Other Intangible Assets
Carrying value of goodwill and other intangible assets follows:
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
|
| | | | | | | |
| Year-End |
| 2016 | | 2015 |
| (In thousands) |
Goodwill | $ | 37,900 |
| | $ | 41,774 |
|
Identified intangibles, net | — |
| | 1,681 |
|
| $ | 37,900 |
| | $ | 43,455 |
|
Goodwill relatedIn the nine months ended September 30, 2018, the Company sold its ownership interest in 8 of its unconsolidated ventures to our mineral interests was $37,900,000 at year-end 2016Starwood as part of a strategic asset sale (see Note 1); its interest in a residential venture in Atlanta, generating $11.0 million in net proceeds and 2015. Goodwill associated with our water resources initiatives was $0a gain of $2.0 million; and $3,874,000 at year-end 2016its interest in a multi-family venture near Denver, generating $19.2 million in net proceeds and 2015. a gain of $14.6 million.
In 2016, wethe nine months ended September 30, 2018, a venture in which the Company owns a 50% interest recognized a goodwill non-cash impairment charge of $3,874,000$3.0 million related to interestsa golf course near Atlanta. The Company's share of this charge is included within equity in groundwater leasesearnings of unconsolidated ventures in central Texas as result of entering into an agreement to sell these assets. Impairment charges are included in cost of other on ourits consolidated statements of income (loss) and comprehensive income (loss).operations.
Identified intangibles include $1,681,000 in indefinite lived groundwater leases associated with our water resources initiatives and is included in assets held for sale at year-end 2016.
Note 6—Held for Sale
At year-end 2016, assets held for sale includes approximately 19,000 acres of timberland and undeveloped land and the related timber, a multifamily site in Austin, our owned mineral interest assets and central Texas groundwater assets.
The major classes of assets and liabilities of the properties held for sale at year-end 2016 are as follows: |
| | | |
| At Year-End |
| 2016 |
Assets Held for Sale: | (In thousands) |
Real estate | $ | 19,931 |
|
Timber | 1,682 |
|
Other intangible assets | 1,681 |
|
Oil and gas properties and equipment, net | 782 |
|
Property and equipment, net | 6,301 |
|
| $ | 30,377 |
|
| |
Liabilities Held for Sale: | |
Other liabilities | 103 |
|
| $ | 103 |
|
Note7 — Discontinued OperationsOther Assets, Accrued Expenses and Other Liabilities
At year-end 2016, we have divested substantially all of our oil
The Company's other assets at September 30, 2020 and gas working interest properties. As a result of this significant change in our operations, we have reported the results of operations and financial position of these assets as discontinued operations within the consolidated statements of income (loss) and comprehensive income (loss) and consolidated balance sheets for all periods presented. In addition, in second quarter 2016, we changed the name of the oil and gas segment to mineral resources to reflect the strategic shift from oil and gas working interest investments to owned mineral interests.
Summarized results from discontinued operations2019 were as follows:
| | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| (In millions) |
Receivables, net | $ | 0.4 | | | $ | 1.1 | |
Earnest money notes receivable on sales contracts | 4.8 | | | 0 | |
Lease right of use assets | 3.6 | | | 0 | |
Prepaid expenses | 4.9 | | | 3.4 | |
Land purchase contract deposits | 5.5 | | | 5.1 | |
Other assets | 5.7 | | | 4.1 | |
| $ | 24.9 | | | $ | 13.7 | |
|
| | | | | | | | | | | |
| For the Year |
| 2016 | | 2015 | | 2014 |
| | | |
Revenues | $ | 5,862 |
| | $ | 43,845 |
| | $ | 68,610 |
|
Cost of oil and gas producing activities | (6,578 | ) | | (221,402 | ) | | (94,581 | ) |
Other operating expenses | (7,754 | ) | | (10,363 | ) | | (14,357 | ) |
Loss from discontinued operations before income taxes | $ | (8,470 | ) | | $ | (187,920 | ) | | $ | (40,328 | ) |
Gain (loss) on sale of assets before income taxes | (13,664 | ) | | (706 | ) | | 8,526 |
|
Income tax benefit | 5,269 |
| | 2,496 |
| | 12,193 |
|
Loss from discontinued operations, net of taxes | $ | (16,865 | ) | | $ | (186,130 | ) | | $ | (19,609 | ) |
In 2016, we recorded a net loss of $13,664,000 on the sale of 199,263 net mineral acres leased from others and 379 gross (95 net) producing oil and gas working interest wells in Nebraska, Kansas, Oklahoma and North Dakota for total net proceeds of $80,374,000, which includes $3,269,000 in reimbursement of capital costs incurred on in-progress wells that were assumed by the buyer. Other operating expenses in 2016 include loss contingency charges of $2,990,000 related to litigation and $1,155,000 related to potential environmental liabilities to plug and abandon certain oil and gas wells in Wyoming. Please read Note 14—Litigation and Environmental Contingencies for additional information about these items.
In 2015, we recorded a net loss of $706,000 on the sale of 109,000 net mineral acres leased from others and the disposition of 39 gross (7 net) producing oil and gas wells in Nebraska, Texas, Colorado, North Dakota and Oklahoma for total net proceeds of $17,800,000.
In 2014, we recorded a net gain of $8,526,000 on the sale of 650 net mineral acres leased from others and 124 gross (18 net) producing oil and gas working interest wells in Nebraska, Kansas, Oklahoma and North Dakota for total net proceeds of $17,660,000.
Cost of sales includes non-cash impairment charges of $612,000 in 2016, $163,029,000 in 2015 and $32,665,000 in 2014 related to our proved properties and unproved leasehold oil and gas working interests.
The major classes of assetsCompany's accrued expenses and other liabilities of discontinued operations at year-end 2016September 30, 2020 and 2015 are2019 were as follows:
| | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| (In millions) |
Accrued employee compensation and benefits | $ | 6.2 | | | $ | 5.6 | |
Accrued property taxes | 3.8 | | | 2.1 | |
Lease liabilities | 3.8 | | | 0 | |
Accrued interest | 14.0 | | | 13.5 | |
Contract liabilities | 0.2 | | | 2.5 | |
Deferred income | 9.3 | | | 9.3 | |
State income taxes payable | 0.5 | | | 0 | |
Accrued development costs | 35.3 | | | 35.4 | |
Other accrued expenses | 10.2 | | | 8.4 | |
Other liabilities | 10.5 | | | 2.8 | |
| $ | 93.8 | | | $ | 79.6 | |
|
| | | | | | | |
| At Year-End |
| 2016 | | 2015 |
| (In thousands) |
Assets of Discontinued Operations: | | | |
Receivables, net of allowance for bad debt | $ | 6 |
| | $ | 4,632 |
|
Oil and gas properties and equipment, net | — |
| | 79,733 |
|
Goodwill and other intangible assets | — |
| | 19,673 |
|
Prepaid expenses | 8 |
| | 96 |
|
Other assets | — |
| | 833 |
|
| $ | 14 |
| | $ | 104,967 |
|
| | | |
Liabilities of Discontinued Operations: | | | |
Accounts payable | $ | 67 |
| | $ | 342 |
|
Accrued property taxes | — |
| | 259 |
|
Other accrued expenses | 5,228 |
| | 8,924 |
|
Other liabilities | — |
| | 1,667 |
|
| $ | 5,295 |
| | $ | 11,192 |
|
Significant operating activities and investing activities of discontinued operations are as follows:
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
|
| | | | | | | | | | | |
| For the Year |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
Operating activities: | | | | | |
Asset impairments | $ | 612 |
| | $ | 105,337 |
| | $ | 15,535 |
|
Dry hole and unproved leasehold impairment charges | — |
| | 67,639 |
| | 29,528 |
|
Loss (gain) on sale of assets | 13,664 |
| | 706 |
| | (8,526 | ) |
Depreciation, depletion and amortization | 2,202 |
| | 28,391 |
| | 28,758 |
|
| $ | 16,478 |
| | $ | 202,073 |
| | $ | 65,295 |
|
| | | | | |
Investing activities: | | | | | |
Oil and gas properties and equipment | $ | (579 | ) | | $ | (49,717 | ) | | $ | (101,145 | ) |
Acquisition of oil and gas properties | — |
| | — |
| | (1,100 | ) |
Proceeds from sales of assets | 77,105 |
| | 17,800 |
| | 17,660 |
|
| $ | 76,526 |
| | $ | (31,917 | ) | | $ | (84,585 | ) |
Note 8 — Receivables
Receivables consist of:
|
| | | | | | | |
| At Year-End |
| 2016 | | 2015 |
| (In thousands) |
Funds held by qualified intermediary for potential 1031 like-kind exchange | $ | — |
| | $ | 14,703 |
|
Other receivables and accrued interest | 1,505 |
| | 2,218 |
|
Other loans secured by real estate, average interest rate of 5.86% at year-end 2016 and 11.31% at year-end 2015 | 7,452 |
| | 2,130 |
|
| 8,957 |
| | 19,051 |
|
Allowance for bad debts | (26 | ) | | (26 | ) |
| $ | 8,931 |
| | $ | 19,025 |
|
In 2016, we received funds previously held by qualified intermediary because we did not complete an intended like-kind exchange related to a sale of 6,915 acres of undeveloped land.
Other loans secured by real estate generally are secured by a deed of trust and due within three to five years.
Note 9 — Debt
Debt consists of:
The Company's notes payable at their carrying amounts consist of the following: |
| | | | | | | |
| At Year-End |
| 2016 | | 2015 |
| (In thousands) |
8.50% senior secured notes due 2022 | 5,200 |
| | 224,647 |
|
3.75% convertible senior notes due 2020, net of discount | 104,673 |
| | 104,719 |
|
6.00% tangible equity units, net | — |
| | 8,666 |
|
Secured promissory notes — average interest rates of 3.42% at year-end 2015 | — |
| | 15,400 |
|
Other indebtedness due through 2018 at variable and fixed interest rates ranging from 5.0% to 5.50% | 485 |
| | 28,083 |
|
| $ | 110,358 |
| | $ | 381,515 |
|
| | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| (In millions) |
Unsecured: | | | |
3.75% convertible senior notes due 2020 | $ | 0 | | | $ | 116.7 | |
8.0% senior notes due 2024 (1) | 345.2 | | | 343.8 | |
5.0% senior notes due 2028 (1) | 295.9 | | | 0 | |
Revolving credit facility | 0 | | | 0 | |
| $ | 641.1 | | | $ | 460.5 | |
In 2016, we reduced______________
(1)Unamortized debt issuance costs that were deducted from the revolving commitment provided by ourcarrying amounts of the senior securednotes totaled $8.9 million and $6.2 million at September 30, 2020 and 2019, respectively.
Bank Credit Facility
The Company has a $380 million senior unsecured revolving credit facility which matures on May 15, 2017 (with two one-year extension options), from $300,000,000with an uncommitted accordion feature that could increase the size of the facility to $125,000,000, none$570 million, subject to certain conditions and availability of which was drawn at year-end 2016.additional bank commitments. The revolving linefacility also provides for the issuance of credit may be prepaid at any time without penalty. The revolving line of credit includes a $100,000,000 sublimit for letters of credit with a sublimit equal to the greater of which $14,850,000 was outstanding at year-end 2016. Total borrowings$100 million and 50% of the revolving credit commitment. Borrowings under our senior securedthe revolving credit facility (includingare subject to a borrowing base calculation based on the face amountbook value of the Company's real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. There were 0 borrowings or repayments under the facility during fiscal 2020. At September 30, 2020, there were 0 borrowings outstanding and $36.0 million of letters of credit) may not exceedcredit issued under the revolving credit facility, resulting in available capacity of $344.0 million. The maturity date of the facility is October 2, 2022, which can be extended by up to one year on up to two additional occasions, subject to the approval of lenders holding a borrowing base formula.majority of the commitments.
The revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. At year-end 2016, we had $71,262,000September 30, 2020, the Company was in net unused borrowing capacity under our seniorcompliance with all of the covenants, limitations and restrictions of its revolving credit facility.
Under
Senior Notes
In February 2020, the termsCompany issued $300 million principal amount of our5.0% senior secured credit facility, at our option, we can borrow at LIBOR plus 4.0 percent or at the alternate base rate plus 3.0 percent. The alternate base rate is the highest of (i) KeyBank National Association’s base rate, (ii) the federal funds effective rate plus 0.5 percent or (iii) 30 day LIBOR plus 1 percent. Borrowingsnotes pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The notes mature March 1, 2028 with interest payable semi-annually and represent senior secured credit facility are orunsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness. The notes may be secured by (a) mortgages onredeemed prior to maturity, subject to certain limitations and premiums defined in the timberland, high value timberland and portionsindenture agreement. On or after March 1, 2023, the notes may be redeemed at 102.5% of raw entitled land, as well as pledges of other rights including certain oil and gas operating properties, (b) assignments of current and future leases, rents and contracts, (c) a security interest in our primary operating account, (d) a pledge of the equity interests in current and future material operating subsidiaries and most of our majority-owned joint venture interests, or if such pledge is not permitted, a pledge of the right to distributions from such entities, and (e) a pledge of certain reimbursements payable to us from special improvement district tax collections in connection with our Cibolo Canyons project. The senior secured credit facility provides for releases of real estate and other collateral provided that borrowing base compliance is maintained.
Our debt agreements contain financial covenants customary for such agreements including minimum levels of interest coverage and limitations on coverage. At year-end 2016, our tangible net worth requirement was $426,312,000 computed as: $379,044,000 plus 85 percent of the aggregate net proceeds received by us from any equity offering, plus 75 percent of all positive net income, on a cumulative basis since third quarter 2015. At year-end 2016, we were in compliance with the financial covenants of these agreements.
We may elect to make distributions to stockholders so long as the total leverage ratio is less than 40 percent, the interest coverage ratio is greater than 3.0:1.0 and available liquidity is not less than $125,000,000, all of which were satisfied at year-end 2016. Regardless of whether the foregoing conditions are satisfied, we may make distributions in an aggregate amount not to exceed $50,000,000 to be funded from up to 65% of the net proceeds from sales of multifamily properties and non-core assets, such as the Radisson Hotel & Suites in Austin, and any oil and gas properties.
In 2014, we issued $250,000,000 aggregate principal of8.5% Senior Secured Notes due 2022 (Notes). The Notes will mature on June 1, 2022 and interest on the Notes is payable semiannually at a rate of 8.5 percent per annum in arrears. In 2016, we completed a cash tender offer for our Notes, pursuant to which we purchased $215,495,000their principal amount (representing approximately 97.6% outstanding) of the Notes. Total consideration paid was $245,604,000, which included $29,091,000 in premium at 113.5% and $1,018,000 inplus any accrued and unpaid interest. In addition, we received consent from holdersaccordance with the indenture, the redemption price decreases annually thereafter and the notes can be redeemed at par on or after March 1, 2026 through maturity. The notes are guaranteed by each of the NotesCompany's subsidiaries to eliminate or modifythe extent such subsidiaries guarantee the Company's revolving credit facility. The annual effective interest rate of the notes after giving effect to the amortization of financing costs is 5.2%.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company also has $350 million principal amount of 8.0% senior notes outstanding. The notes mature April 15, 2024 with interest payable semi-annually and represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness. The notes may be redeemed prior to maturity, subject to certain covenants, events of defaultlimitations and other provisions containedpremiums defined in the indenture agreement. On or after April 15, 2021, the notes may be redeemed at 104% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the notes can be redeemed at par on or after April 15, 2023 through maturity. The notes are guaranteed by each of the Company's subsidiaries to the extent such subsidiaries guarantee the Company's revolving credit facility. The annual effective interest rate of the notes after giving effect to the amortization of financing costs is 8.5%.
In March 2020, the Company repaid $118.9 million principal amount of its 3.75% convertible senior notes in cash at maturity.
The indentures governing the Notes,senior notes require that, upon the occurrence of both a change of control and a rating decline (each as defined in the indentures), the Company offer to releasepurchase the subsidiary guarantees and collateral securingnotes at 101% of their principal amount. If the Notes. We also purchased $9,750,000Company or its restricted subsidiaries dispose of assets, under certain circumstances, the Company will be required to either invest the net cash proceeds from such asset sales in its business within a specified period of time, repay certain senior secured debt or debt of its non-guarantor subsidiaries, or make an offer to purchase a principal amount of the Notes between 99% and 99.95% of face value in open market transactions. The 2016 tender offer and open market purchases resulted in a $35,681,000 loss on extinguishment of debt, which includes the premium paid to repurchase the Notes, write-off of unamortized debt issuance costs of $5,416,000 and $1,301,000 in other costs related to tender offer advisory services.
In 2015, we purchased $19,440,000 principal amount of Notes at 97% of face value, resulting in a gain of $589,000 on the early extinguishment of the retired Notes, offset by the write-off of unamortized debt issuance costs of $506,000 allocatednotes equal to the retired Notes.
In 2013, we issued $125,000,000 aggregate principal amount of 3.75% convertible senior notes due 2020 (Convertible Notes). Interest on the Convertible Notes is payable semiannuallyexcess net cash proceeds at a ratepurchase price of 3.75 percent per annum and they mature on March 1, 2020. The Convertible Notes have an initial conversion rate100% of 40.8351 per $1,000their principal amount. The initial conversion rate is subjectindentures contain covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to adjustment uponpay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments; incur additional debt or issue mandatorily redeemable equity; incur liens on assets; merge or consolidate with another company or sell or otherwise dispose of all or substantially all of the occurrence ofCompany’s assets; enter into transactions with affiliates; and allow to exist certain events. Prior to November 1, 2019, the Convertible Notes are convertible only upon certain circumstances, and thereafter are convertible at any time prior to the close of businessrestrictions on the second scheduled trading day priorability of subsidiaries to maturity. If converted, holders will receive cash, shares of our common stockpay dividends or a combination thereof at our election. We intend to settlemake other payments. At September 30, 2020, the principal amountCompany was in compliance with all of the Convertible Notes in cash upon conversion,limitations and restrictions associated with any excess conversion valueits senior note obligations.
Effective April 30, 2020, the Board of Directors authorized the repurchase of up to be settled in shares of our common stock. At year-end 2016, unamortized debt discount of our Convertible Notes was $13,809,000.
In 2016, we purchased $5,000,000 of 3.75% Convertible Senior Notes due 2020 at 93.25% of face value in open market transactions for $4,663,000 and we allocated $4,452,000 to extinguish the debt and $211,000 to reacquire the equity component within the convertible notes based on the fair value$30 million of the Company’s debt component. We recognized a $110,000 loss on extinguishment of debt based on the difference between the fair valuesecurities. The authorization has no expiration date. All of the debt component prior to conversion and the carrying value of the debt component. Total loss on extinguishment of debt including write-off of debt issuance costs allocated to the repurchased notes$30 million authorization was $183,000.remaining at September 30, 2020.
In 2013, we issued $150,000,000 aggregate principal amount of 6.00% tangible equity units (Units). The total offering was 6,000,000 Units, including 600,000 exercised by the underwriters, each with a stated amount of $25.00. Each Unit is comprised of (i) a prepaid stock purchase contract to be settled by delivery of a number of shares of our common stock, par value $1.00 per share to be determined pursuant to a purchase contract agreement, and (ii) a senior amortizing note due December 15, 2016 that has an initial principal amount of $4.2522, bears interest at a rate of 4.50% per annum and has a final installment payment date of December 15, 2016. On December 15, 2016, we made the final installment payment of principal and accrued interest and issued 7,857,000 shares upon settlement of the stock purchase contract based on the applicable market value, as defined in the purchase contract agreement associated with issuance of the Units.
In 2016, a secured promissory note of $15,400,000 was paid in full in connection with sale of the Radisson Hotel & Suites, for $130,000,000.
In 2016, other indebtedness decreased principally as a result of selling Eleven, a 257-unit multifamily project in Austin, for $60,150,000 and paying in full the associated debt of $23,936,000.
At year-end 2016 and 2015, we have $1,633,000 and $8,267,000 in unamortized deferred fees which were deducted from our debt. In addition, at year-end 2016 and 2015, unamortized deferred financing fees related to our senior credit facility included in other assets were $314,000 and $2,768,000. Amortization of deferred financing fees was $3,598,000 in 2016, $4,002,000 in 2015 and $3,845,000 in 2014 and is included in interest expense.
Debt maturities during the next five years are: 2017 — $0; 2018 — $485,000; 2019 — $0; 2020 — $104,673,000; 2021 — $0 and thereafter — $5,200,000.
Note 109 — Fair Value Measurements
Fair value is the exchange price that would be the amount received for an asset or paid to transfer a liability in an orderly transaction between market participants. In arriving at a fair value measurement, we usethe Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of inputs used to establish fair value are the following:
•Level 1 — Quoted prices in active markets for identical assets or liabilities;
•Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
We
The Company elected not to use the fair value option for cash and cash equivalents accounts receivable, other currentand debt.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
For the financial assets variable debt, accounts payable and other current liabilities.liabilities that the Company does not reflect at fair value, the following tables present both their respective carrying value and fair value at September 30, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value at September 30, 2020 |
| Carrying Value | | Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
Cash and cash equivalents (a) | $ | 394.3 | | | $ | 394.3 | | | $ | 0 | | | $ | 0 | | | $ | 394.3 | |
Debt (b) | 641.1 | | | 0 | | | 673.5 | | | 0 | | | 673.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value at September 30, 2019 |
| Carrying Value | | Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
Cash and cash equivalents (a) | $ | 382.8 | | | $ | 382.8 | | | $ | 0 | | | $ | 0 | | | $ | 382.8 | |
Debt (b) | 460.5 | | | 0 | | | 497.3 | | | 0 | | | 497.3 | |
_____________________
(a) The carrying amountsfair values of these financial instrumentscash and cash equivalents approximate their faircarrying values due to their short-term nature or variable interest rates. We determineand are classified as Level 1 within the fair value hierarchy.
(b) At September 30, 2020 and 2019, debt consisted of fixed rate financial instruments using quoted prices for similar instruments in active markets.
Information about our fixed rate financial instruments not measured atthe Company's senior notes. The fair value follows:of the senior notes is determined based on quoted market prices, which is classified as Level 2 within the fair value hierarchy.
|
| | | | | | | | | | | | | | | | | |
| Year-End 2016 | | Year-End 2015 | | |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Valuation Technique |
| (In thousands) |
Fixed rate debt | $ | (111,506 | ) | | $ | (109,789 | ) | | $ | (346,090 | ) | | $ | (321,653 | ) | | Level 2 |
Non-financial assets measured at fair value on a non-recurring basis principallyprimarily include real estate assets oilwhich the Company reviews for indicators of potential impairment and gas properties, assets held for sale, goodwill and intangible assets, which are measured for impairment.performs impairment evaluations when necessary.
In 2016, we recognized non-cash impairment charges of $56,453,000 related to six non-core community development projects and two multifamily sites as a result of the review of our entire portfolio of assets and marketing these properties for sale, of which four non-core community development projects and one multifamily site were sold in 2016. We based our valuations primarily on executed purchase and sale agreements, current negotiations and letters of intent with expected buyers and third party broker price opinions. In 2016, we recognized non-cash impairment charges of $612,000 related to non-core oil and gas working interest properties that were sold in 2016.
In 2015, we recognized non-cash impairment charges of $107,140,000 related to non-core oil and gas working interest assets classified as discontinued operations in 2016. These properties were primarily located in North Dakota, Nebraska and Kansas and were impaired primarily due to a significant decline in oil and gas prices and the likelihood these assets will be sold. The fair value of these properties was determined using Level 3 inputs and income valuation method based on estimated future commodity prices and our various operational assumptions. In instances where a third party bid was received for a combination of proved and unproved properties, an estimate of the allocation of bid prices was performed and fair value was adjusted accordingly. Included in proved oil and gas non-cash impairments were impairments associated with properties that were sold in fourth quarter 2015. In addition, in 2015 we recognized impairments of $57,691,000 for unproved leasehold interests as a result of continued decline in oil prices and our current plans to only allocate capital to these non-core assets to preserve values and optionality for ultimate sale. Fair value of certain unproved leasehold interests that were impaired were based on market comparables or where a third party bid was received for a combination of proved and unproved properties, an estimate of the allocation of fair value was performed which reduced the carrying value of these leasehold interests.
In 2015, certain real estate assets were remeasured and reported at fair value due to events or circumstances that indicated the carrying value may not be recoverable. We determined estimated fair value based on the present value of future probability weighted cash flows expected from the sale of the long-lived asset or based on a third party appraisal of current value. As a result, we recognized non-cash asset impairment charges of $1,044,000 in 2015 associated with a residential development with golf course and country club property near Fort Worth which was sold in April 2015, one owned project near Atlanta where the remaining lots were sold in August 2015 and one owned entitled project in Atlanta.
Non-financial assets measured at fair value on a non-recurring basis are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year-End 2016 | | Year-End 2015 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| (In thousands) |
Non-financial Assets and Liabilities: | | | | | | | | | | | | | | |
Real estate | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 641 |
| | $ | 641 |
|
Assets of discontinued operations | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 57,219 |
| | $ | 57,219 |
|
| | | | | | | | | | | | | | | |
Note 1110 — Capital Stock
In 2015, we accelerated the expiration date of our shareholder rights plan from December 11, 2017 to March 13, 2015, resulting in termination of the plan.
Please read Note 12 — Net Income (Loss) per Share for information about shares of common stock that could be issued under our 3.75% convertible senior notes due 2020.
Please read Note 17 — Share-Based and Long-Term Incentive Compensation for information about additional shares of common stock that could be issued under terms of our share-based compensation plans.
Please read Note 21 — Subsequent Events for information about preferred stock purchase rights pursuant to our tax benefits preservation plan.
At year-end 2016, personnel of former affiliates held options to purchase 234,764 shares of our common stock. The options have a weighted average exercise price of $30.56 and will expire in February 2017. At year-end 2016, the options have an aggregate intrinsic value of $0.
On December 15, 2016, we issued 7,857,000 shares of our common stock upon settlement of the stock purchase contract related to the 6.00% tangible equity units. In 2016, we repurchased 283,976 shares of our common stock for $3,537,000. In 2014, we repurchased 1,491,187 shares of our common stock for $24,595,000. We have repurchased 3,777,308 shares of our common stock for $57,696,000 since we announced our 2009 strategic initiative of repurchasing up to 20 percent or up to 7,000,000 shares of our common stock.
Note 12 — Net Income (Loss)Earnings per Share
Basic and diluted earnings (loss) per share are computed using the two-class method. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security. We have determined that our 6.00% tangible equity units are participating securities. Per share amounts are computed by dividing earnings available to common shareholders by the weighted average shares outstanding during each period. In periods with a net loss, no such adjustment is made to earnings as the holders of the participating securities have no obligation to fund losses.
The computations of basic and diluted earnings (loss) per share are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, | | Nine Months Ended September 30, 2018 |
| 2020 | | 2019 | |
| (In millions, except share and per share amounts) |
Numerator: | | | | | |
Net income attributable to Forestar Group Inc. | $ | 60.8 | | | $ | 33.0 | | | $ | 68.8 | |
Denominator: | | | | | |
Weighted average common shares outstanding — basic | 48,037,018 | | | 41,974,429 | | | 41,938,987 | |
Dilutive effect of stock-based compensation | 57,093 | | | 30,712 | | | 30,069 | |
Total weighted average shares outstanding — diluted | 48,094,111 | | | 42,005,141 | | | 41,969,056 | |
| | | | | |
Basic net income per common share attributable to Forestar Group Inc. | $ | 1.26 | | | $ | 0.79 | | | $ | 1.64 | |
Diluted net income per common share attributable to Forestar Group Inc. | $ | 1.26 | | | $ | 0.79 | | | $ | 1.64 | |
|
| | | | | | | | | | | |
| For the Year |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
Numerator: | | | | | |
Continuing operations | | | | | |
Net income (loss) from continuing operations | $ | 77,044 |
| | $ | (26,241 | ) | | $ | 36,697 |
|
Less: Net (income) attributable to noncontrolling interest | (1,531 | ) | | (676 | ) | | (505 | ) |
Earnings (loss) available for diluted earnings per share | $ | 75,513 |
| | $ | (26,917 | ) | | $ | 36,192 |
|
Less: Undistributed net income from continuing operations allocated to participating securities | (13,493 | ) | | — |
| | (6,586 | ) |
Earnings (loss) from continuing operations available to common shareholders for basic earnings per share | $ | 62,020 |
| | $ | (26,917 | ) | | $ | 29,606 |
|
| | | | | |
Discontinued operations | | | | | |
Net income (loss) from discontinued operations available for diluted earnings per share | (16,865 | ) | | (186,130 | ) | | (19,609 | ) |
Less: Undistributed net income from discontinued operations allocated to participating securities | 3,014 |
| | — |
| | 3,569 |
|
Earnings (loss) from discontinued operations available to common shareholders for basic earnings per share | (13,851 | ) | | (186,130 | ) | | (16,040 | ) |
Denominator: | | | | | |
Weighted average common shares outstanding — basic | 34,546 |
| | 34,266 |
| | 35,317 |
|
Weighted average common shares upon conversion of participating securities (a) | 7,515 |
| | — |
| | 7,857 |
|
Dilutive effect of stock options, restricted stock and equity-settled awards | 273 |
| | — |
| | 422 |
|
Total weighted average shares outstanding — diluted | 42,334 |
| | 34,266 |
| | 43,596 |
|
Anti-dilutive awards excluded from diluted weighted average shares outstanding | 2,102 |
| | 10,864 |
| | 2,238 |
|
_____________________
| |
(a)
| Our earnings per share calculation reflects the weighted average shares issuable upon settlement of the prepaid stock purchase contract component of our 6.00% tangible equity units, issued in 2013. |
On December 15, 2016, we issued 7,857,000 shares of our common stock upon settlement ofIn March 2020, the stock purchase contract related to the 6.00% tangible equity units.
We intend to settle theCompany repaid $118.9 million principal amount of the Convertible Notesits 3.75% convertible senior notes in cash upon conversion with any excess conversion value to be settled in shares of our common stock. Therefore, only the amount in excess of the par value of the Convertible Notes will be included in our calculation of diluted net income per share using the treasury stock method. As such, the Convertible Notes haveat maturity. The notes had no impact on diluted net income per share until the price of our common stock exceeds the conversion pricein any of the Convertible Notesprior periods presented.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 1311 — Income Taxes
Income
The components of the Company's income tax (expense) benefit from continuing operations consists of:expense are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, | | Nine Months Ended September 30, 2018 |
| 2020 | | 2019 | |
| (In millions) |
Current tax expense (benefit): | | | | | |
Federal | $ | (7.6) | | | $ | (0.3) | | | $ | (0.5) | |
State and other | 0.9 | | | 0.3 | | | 0 | |
| (6.7) | | | 0 | | | (0.5) | |
Deferred tax expense (benefit): | | | | | |
Federal | 21.2 | | | 9.1 | | | (23.5) | |
State and other | 1.9 | | | 0.3 | | | (1.3) | |
| 23.1 | | | 9.4 | | | (24.8) | |
Income tax expense (benefit) | $ | 16.4 | | | $ | 9.4 | | | $ | (25.3) | |
|
| | | | | | | | | | | |
| For the Year |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
Current tax provision: | | | | | |
U.S. Federal | $ | (15,089 | ) | | $ | 6,740 |
| | $ | (18,905 | ) |
State and other | (1,520 | ) | | (418 | ) | | (2,182 | ) |
| (16,609 | ) | | 6,322 |
| | (21,087 | ) |
Deferred tax provision: | | | | | |
U.S. Federal | 1,382 |
| | (38,262 | ) | | 184 |
|
State and other | (75 | ) | | (3,191 | ) | | 53 |
|
| 1,307 |
| | (41,453 | ) | | 237 |
|
Income tax (expense) benefit | $ | (15,302 | ) | | $ | (35,131 | ) | | $ | (20,850 | ) |
A reconciliation of the federal statutory rate to the Company's effective income tax rate on continuing operations follows:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, | | Nine Months Ended September 30, 2018 |
| 2020 | | 2019 | |
Federal statutory rate | 21 | % | | 21 | % | | 21 | % |
State, net of federal benefit | 3 | | | 1 | | | 4 | |
Valuation allowance | 0 | | | 0 | | | (81) | |
Tax benefits previously unrecognized | (2) | | | 0 | | | 0 | |
Tax rate benefit in carryback years | (1) | | | 0 | | | 0 | |
Noncontrolling interests | 0 | | | (1) | | | (1) | |
Effective tax rate (benefit) | 21 | % | | 21 | % | | (57) | % |
|
| | | | | | | | |
| For the Year |
| 2016 | | 2015 | | 2014 |
Federal statutory rate (benefit) | 35 | % | | 35 | % | | 35 | % |
State, net of federal benefit | — |
| | 10 |
| | 2 |
|
Valuation allowance | (19 | ) | | 348 |
| |
|
|
Noncontrolling interests | (1 | ) | | (3 | ) | | — |
|
Installment sale ace adjustment | 2 |
| | — |
| | — |
|
Stock based compensation | — |
| | 5 |
| | — |
|
Charitable contributions | — |
| | — |
| | (1 | ) |
Oil and gas percentage depletion | — |
| | (1 | ) | | — |
|
Other | — |
| | 1 |
| | — |
|
Effective tax rate | 17 | % | | 395 | % | | 36 | % |
Our 2016The effective tax rate for fiscal 2020 includes a 19 percenttax benefit fromof $2.3 million related to the net operating loss (NOL) carryback provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which allows the Company to carryback a portion of its fiscal 2018 NOL. The carryback provisions result in the recognition of previously unrecognized tax benefits and the revaluation of deferred tax assets due to the utilization of NOLs at a higher tax rate in the carryback period. The Company's effective tax rate for the nine months ended September 30, 2018 also includes a benefit for the release of its federal valuation allowance decrease due toand a decrease in ourportion of its state valuation allowance associated with its deferred tax assets. Our 2015The effective tax rate for all periods includes an expense for state income taxes and nondeductible expenses and a 348 percent detriment from the recordingbenefit related to noncontrolling interests.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Significant components of deferred taxes are:
| | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| (In millions) |
Deferred tax assets: | | | |
Real estate | $ | 10.5 | | | $ | 10.2 | |
Employee benefits | 1.5 | | | 1.5 | |
Net operating loss carryforwards | 1.7 | | | 15.1 | |
AMT credits | 0 | | | 0.6 | |
Accruals not deductible until paid | 0.2 | | | 0.2 | |
Total deferred tax assets | 13.9 | | | 27.6 | |
Valuation allowance | (1.5) | | | (3.3) | |
Total deferred tax assets, net of valuation allowance | 12.4 | | | 24.3 | |
Deferred tax liabilities: | | | |
Deferral of profit on lot sales | (18.1) | | | (6.4) | |
Convertible debt | 0 | | | (0.5) | |
Total deferred tax liabilities | (18.1) | | | (6.9) | |
Deferred tax (liability) asset, net | $ | (5.7) | | | $ | 17.4 | |
|
| | | | | | | |
| At Year-End |
| 2016 | | 2015 |
| (In thousands) |
Deferred Tax Assets: | | | |
Real estate | $ | 50,759 |
| | $ | 69,594 |
|
Employee benefits | 13,185 |
| | 15,752 |
|
Net operating loss carryforwards | 2,804 |
| | 13,827 |
|
Oil and gas properties | 1,672 |
| | 5,510 |
|
AMT credits | 5,900 |
| | 3,620 |
|
Income producing properties | 2,055 |
| | — |
|
Oil and gas percentage depletion carryforwards | 3,478 |
| | 3,616 |
|
Accruals not deductible until paid | 552 |
| | 911 |
|
Other assets | — |
| | 139 |
|
Gross deferred tax assets | 80,405 |
| | 112,969 |
|
Valuation allowance | (73,405 | ) | | (97,068 | ) |
Deferred tax asset net of valuation allowance | 7,000 |
| | 15,901 |
|
Deferred Tax Liabilities: | | | |
Undeveloped land | (1,359 | ) | | (7,588 | ) |
Convertible debt | (5,035 | ) | | (6,516 | ) |
Income producing properties | — |
| | (2,257 | ) |
Timber | (283 | ) | | (577 | ) |
Gross deferred tax liabilities | (6,677 | ) | | (16,938 | ) |
Net Deferred Tax Asset (Liability) | $ | 323 |
| | $ | (1,037 | ) |
In October 2017, D.R. Horton acquired 75% of the Company's common stock resulting in an ownership change under Section 382 of the Internal Revenue Code. Section 382 limits the Company's ability to use certain tax attributes and built-in losses and deductions in a given year. Any federal tax attributes or built-in losses and deductions that were limited in fiscal 2018 or 2019 have been fully utilized.
At year-end 2016, weSeptember 30, 2020, the Company had approximately $7,500,0000 federal NOL carryforwards as a result of NOL carryback claims and $64,200,000taxable income in the current year. At September 30, 2020, the Company had tax benefits of federal and$1.7 million related to state net operating loss carryforwards. Approximately $7,500,000 of the federal and $2,400,000 of the state net operating loss carryforwards were from our acquisition of Credo at third quarter 2012 and are subject to certain limitations. If not utilized, the federal carryforwards will expire in 2031 and the state carryforwards will expire in 2017 to 2036. We had approximately $9,200,000 of oil and gas percentage depletionNOL carryforwards, of which approximately $9,200,000 were a result of our acquisition of Credo$1.4 million will expire between 2030 and are subject to certain limitations. We had approximately $5,900,000 of AMT credit carryforwards. The percentage depletion and AMT credit carryforwards2037 while the remaining $0.3 million do not expire.have an expiration date.
Goodwill associated with our oil and gas and mineral resources enterprise are not deductible for income tax purposes.
At year-end 2016 and 2015, we have providedThe Company has a valuation allowance for our deferred tax asset of $73,405,000$1.5 million and $97,068,000 respectively for the portion of the deferred tax asset that$3.3 million at September 30, 2020 and 2019 because it is more likely than not that a portion of the Company's state deferred tax assets, primarily NOL carryforwards, will not be realized because the Company is no longer operating in some states or the NOL carryforward periods are too brief to be unrealizable.realize the related deferred tax asset. The current year decrease in the valuation allowance is primarily attributable to the write-off of state deferred tax assets for NOLs which are not expected to be utilized, resulting in no impact to state tax expense. The Company will continue to evaluate both the year was $23,663,000.
In determining our valuation allowance, we assessed available positive and negative evidence to estimate whether sufficient future taxable income would be generated to permit usein determining the need for a valuation allowance on its deferred tax assets. Any reversal of the existing deferredvaluation allowance in future periods will impact the effective tax asset. A significant piece of objective evidence was the cumulative loss incurred over the three-year period ended December 31, 2016, principally driven by impairments of oil and gas and real estate assets. Such evidence limited our ability to consider other subjective evidence, such as our projected future taxable income.rate.
The amountCompany is subject to a Tax Sharing Agreement with D.R. Horton. The agreement sets forth an equitable method for reimbursements of deferred tax asset considered realizable could be adjusted if negative evidenceliabilities or benefits between the Company and D.R. Horton related to state and local income, margin or franchise tax returns that are filed on a unitary basis with D.R. Horton. In accordance with the agreement, the Company reimbursed D.R. Horton $0.2 million in fiscal 2020 for its tax expense generated in fiscal 2019, and D.R. Horton reimbursed the Company $0.4 million in fiscal 2019 for its tax benefit generated in the form of cumulative losses is no longer present and additional weight is given to subjective evidence, such as our projected future taxable income.nine months ended September 30, 2018.
We file
The Company files income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. We are no longer subjectThe federal statute of limitations for tax years prior to U.S. federal2016 is closed and the statute of limitations in major state incomejurisdictions for tax examinations for years before 2012.prior to 2016 is closed. The Company is not currently being audited by the IRS or any state jurisdictions.
At year-end 2016, our unrecognized
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
A reconciliation of the beginning and ending amount of tax benefitbenefits not recognized for book purposes was $2,499,000is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, | | Nine Months Ended September 30, 2018 |
| 2020 | | 2019 | |
| (In millions) |
Balance at beginning of period | $ | 1.6 | | | $ | 1.6 | | | $ | 1.1 | |
(Decrease) increase for tax positions taken in prior periods | (1.6) | | | 0 | | | 0.5 | |
Balance at end of period | $ | 0 | | | $ | 1.6 | | | $ | 1.6 | |
The Company had no unrecognized tax benefits at September 30, 2020 as a result of tax positions taken in the current year. We did not have anyrecognition of $1.6 million of previously unrecognized tax benefits forduring fiscal 2020. All of the years 2015 and 2014. If the total amount$1.6 million of unrecognizedrecognized tax benefits were recognized, it would result in a deferred tax asset and a corresponding increase in our valuation allowance. Therefore, such tax benefit would not affectaffected the Company’s effective tax rate if recognized inand was attributable to the current year.NOL carryback provisions of the CARES Act allowing previously uncertain tax attributes to be recognized.
We recognize
The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. In 2016, 2015fiscal years 2020, 2019 and 2014, we recognized noin the nine months ended September 30, 2018, 0 significant interest expense.related to unrecognized tax benefits was recognized. At year-end 2016 and 2015, we have noSeptember 30, 2020, there were 0 accrued interest or penalties.
Note 12 — Stockholders' Equity
The Company has an effective shelf registration statement filed with the Securities and Exchange Commission (SEC) in September 2018 registering $500 million of equity securities. As of September 30, 2020, $394.3 million remained available for issuance under the shelf registration statement, $100 million of which is reserved for sales under the at-the-market equity offering program discussed below.
In August 2020, the Company entered into an equity distribution agreement to issue and sell, from time to time, up to $100 million in aggregate offering price of its common stock through an at-the-market equity offering program. As of September 30, 2020, 0 shares had been issued under the at-the-market equity offering program.
Note 13 — Employee Benefit Plans
Retirement Plans
The Company has a 401(k) plan for all employees who have been with the Company for a period of six months or more. The Company matches portions of employees’ voluntary contributions. Additional employer contributions in the form of profit sharing may also be made at the Company’s discretion. The Company recorded expense of $0.4 million, $0.2 million and $0.1 million for matching contributions in fiscal 2020, 2019 and the nine months ended September 30, 2018, respectively.
Restricted Stock Units (RSUs)
The Company’s Stock Incentive Plan provides for the granting of stock options and restricted stock units to executive officers, other key employees and non-management directors. Restricted stock unit awards may be based on performance (performance-based) or on service over a requisite time period (time-based). RSU equity awards represent the contingent right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are satisfied and have no voting rights during the vesting period.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
During fiscal 2020, 2019 and in the nine months ended September 30, 2018, the Company granted time-based RSUs that vest annually in equal installments over periods of three to five years. The following table provides additional information related to time-based RSU activity during those periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended September 30, | | Nine Months Ended September 30, 2018 |
| 2020 | | 2019 | |
| Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value | | Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value | | Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value |
Outstanding at beginning of period | 200,960 | | | $ | 19.68 | | | 86,500 | | | $ | 18.09 | | | 85,994 | | | $ | 17.54 | |
Granted | 181,325 | | | 16.11 | | | 149,400 | | | 20.24 | | | 12,000 | | | 22.35 | |
Vested | (79,432) | | | 19.58 | | | (23,740) | | | 18.03 | | | (500) | | | 18.40 | |
Cancelled | (16,990) | | | 19.10 | | | (11,200) | | | 18.39 | | | (10,994) | | | 18.40 | |
Outstanding at end of period | 285,863 | | | $ | 17.47 | | | 200,960 | | | $ | 19.68 | | | 86,500 | | | $ | 18.09 | |
The total fair value of shares vested on the vesting date during fiscal 2020 and 2019 was $1.6 million and $0.4 million, respectively. Total stock-based compensation expense related to the Company's restricted stock units for fiscal 2020, 2019 and the nine months ended September 30, 2018 was $2.0 million, $1.3 million and $0.3 million, respectively, and fiscal 2020 and 2019 included $0.5 million and $0.6 million, respectively, of expense recognized for employees that were retirement eligible on the date of grant. These expenses are included in selling, general and administrative expense in the Company's consolidated statements of operations. At September 30, 2020, there was $3.2 million of unrecognized compensation expense related to unvested time-based RSU awards. This expense is expected to be recognized over a weighted average period of 2.6 years.
Note 14 — LitigationCommitments and Environmental Contingencies
Contractual Obligations and Off-Balance Sheet Arrangements
In support of the Company's residential lot development business, it issues letters of credit under the revolving credit facility and has a surety bond program that provides financial assurance to beneficiaries related to the execution and performance of certain development obligations. At September 30, 2020, the Company had outstanding letters of credit of $36.0 million under the revolving credit facility and surety bonds of $236.9 million issued by third parties to secure performance under various contracts. The Company expects that its performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms. When the Company completes its performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving the Company with no continuing obligations. The Company has no material third-party guarantees.
Litigation
We are
The Company is involved in various legal proceedings that arise from time to time in the ordinary course of doing business and believebelieves that adequate reserves have been established for any probable losses. We doThe Company does not believe that the outcome of any of these proceedings shouldwill have a significant adverse effect on ourits financial position, long-term results of operations or cash flows. It is possible, however, that charges related to these matters could be significant to ourthe Company's results or cash flows in any one accounting period.
On October 4, 2014, James Huffman, a former director and CEO of CREDO Petroleum Corporation (Credo), which we acquired in 2012 and is now known as Forestar Petroleum Corporation, filed Huffman vs. Forestar Petroleum Corporation, Case Number 14CV33811, Civ. Div., Dist. Ct., City and County of Denver, Colorado, claiming entitlement to certain overriding royalty interests under a Credo compensation program. In third quarter 2016, we settled a portion of the case for $150,000 and accrued an additional $1,100,000 following an adverse jury verdict in Huffman's favor in regard to the portion of his claim related to past damages. In fourth quarter 2016, following additional rulings by the court, we accrued an additional $1,890,000 representing our estimate of future damages to which Huffman is entitled plus interest and costs, resulting in a total accrual of $2,990,000 at year-end 2016.
Other Commitments
The case was settled for the amount of accrual.
Environmental
Environmental remediation liabilities arise from time to time in the ordinary course of doing business, and we believe we have established adequate reserves for any probable losses that we can reasonably estimate. In 2016, we sold all but 25 of our 289 acres near Antioch, California, approximately 80 acres of which had not yet received a certificate of completion under the voluntary remediation program in which we were participating. The buyer of the former paper manufacturing sites assumed responsibility for environmental, remediation and monitoring activities, subject to limited exclusions, and obtained a $20,000,000, ten year pollution legal liability insurance policy naming us as an additional insured.
We have asset retirement obligations related to the abandonment and site restoration requirements that result from the acquisition, construction and development of oil and gas properties. We record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Accretion expense related to the asset retirement obligation and depletion expense related to capitalized asset retirement cost are included in cost of mineral resources and cost of oil and gas producing activities in discontinued operations on our consolidated statements of income (loss) and comprehensive income (loss). At year-end 2016, our asset retirement obligation was $103,000, which is included in liabilities held for sale. In addition, at year-end 2016, we have accrued $1,155,000 related to potential environmental liabilities to plug and abandon certain oil and gas wells in Wyoming which is included in liabilities of discontinued operations.
Note 15 — Commitments and Other Contingencies
We leaseCompany leases facilities and equipment under non-cancelable long-term operating lease agreements. In addition, we havethe Company has various obligations under other office space and equipment leases of less than one year. Rent expense onfor facilities and equipment was $1,923,000$1.1 million in 2016, $3,872,000fiscal 2020, $0.7 million in 2015fiscal 2019 and $2,617,000$0.6 million in 2014.the nine months ended September 30, 2018. Future minimum rental commitments, by fiscal year, under non-cancelable operating leases having aan initial or remaining term in excess of one year are: 2017 — $2,267,000; 2018 — $1,593,000; 2019 — $298,000; 2020 — $182,000; 2021 — $62,000;$1.2 million; 2022 — $0.9 million; 2023 — $0.9 million; 2024 — $0.7 million; 2025 — $0.3 million; and thereafter —$0.— $0.0 million.
We have one year remaining on groundwater leases
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 15 — Related Party Transactions
The Company has a Shared Services Agreement with D.R. Horton whereby D.R. Horton provides the remaining contractual obligationCompany with certain administrative, compliance, operational and procurement services. During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company paid D.R. Horton $5.0 million, $2.1 million and $0.9 million for these groundwater leases is $494,000.
We lease approximately 22,000 square feetshared services and $2.7 million, $1.4 million and $0.9 million for the cost of office space in Austin, Texas, which we occupy as our corporate headquarters. The remaining contractual obligation for this lease is $1,983,000. We also lease office space in other locations in support of our business operations. The total remaining contractual obligations for these leases is $1,925,000.
We may provide performance bonds and letters of credit on behalf of certain ventures that would be drawn on due to failure to satisfy construction obligations as general contractor or for failure to timely deliver streets and utilities in accordance with local codes and ordinances.
Unallocated Severance-related Costs
In connection with the departures of our former CEO and CFO in September 2015, we recorded severance-related charges of $3,314,000 which are included in general and administrative expense on our consolidated statements of income (loss) and comprehensive income (loss). We paid $2,732,000 of these severance-related charges in fourth quarter 2015 with the remainder paid in 2016.
Non-core Assets Restructuring Costs
In connection with key initiatives to reduce costs across our entire organization and divest non-core assets, in 2016, we incurred and paid severance costs related to workforce reductions of $1,422,000 in our real estate segment, $164,000 in our other segment and $486,000 in unallocated general and administrative expenses. In addition, we offered retention bonuses to certain key personnel provided they remained our employees through completion of sale transactions. We expensed retention bonus costs over the estimated retention periods. These restructuring costs are included in other operating expense.
The following table summarizes activity related to liabilities associated with our restructuring activities in 2016:
|
| | | | | | | | | | | |
| Employee-Related Costs | | Retention Bonuses | | Total |
| (In thousands) |
Balance at year-end 2015 | $ | (1,049 | ) | | $ | — |
| | $ | (1,049 | ) |
Additions | (2,072 | ) | | (832 | ) | | (2,904 | ) |
Payments | 3,121 |
| | 832 |
| | 3,953 |
|
Balance at year-end 2016 | $ | — |
| | $ | — |
| | $ | — |
|
Note 16 — Segment Information
We manage our operations through three business segments: real estate, mineral resources and other. Real estate secures entitlements and develops infrastructure on our lands for single-family residential and mixed-use communities, and manages our undeveloped land, commercial and income producing properties, which consist of three projects and one multifamily site. Mineral resources manages our owned mineral interests. Other manages our timber, recreational leases and water resource initiatives.
At year-end 2016 we have divested substantially all of our oil and gas working interest properties. As a result of this significant change in our operations, we have reported the results of operations and financial position of these assets as discontinued operations for all periods presented. In addition, we changed the name of the oil and gas segment to mineral resources to reflect the strategic shift from oil and gas working interest investments to owned mineral interests. We also changed the name of the other natural resources segment to other.
We evaluate performance based on segment earnings (loss) before unallocated items and income taxes. Segment earnings (loss) consist of operating income, equity in earnings (loss) of unconsolidated ventures, gain on sales of assets, interest income on loans secured by real estate and net (income) loss attributable to noncontrolling interests. Items not allocated to our business segments consist of general and administrative expense, share-based and long-term incentive compensation, gain on sale of strategic timberland, interest expense, loss on extinguishment of debthealth insurance and other corporate non-operating income and expense. The accounting policies of the segments are the same as those described in Note 1 — Summary of Significant Accounting Policies. Our revenues are derived from our U.S. operations and all of our assets are located in the U.S. In 2016, 2015 and 2014, no single customer accounted for more than 10 percent of our total revenues, other than the customer associated with the sale of our Midtown Cedar Hill multifamily project in 2015.
|
| | | | | | | | | | | | | | | | | | | | |
| Real Estate | | Mineral Resources | | Other | | Items Not Allocated to Segments | | | Total |
| (In thousands) |
For the year or at year-end 2016 | | | | | | | | | | |
Revenues | $ | 190,273 |
| | $ | 5,076 |
| | $ | 1,965 |
| | $ | — |
| | | $ | 197,314 |
|
Depreciation, depletion and amortization | 976 |
| | 145 |
| | 352 |
| | 7,772 |
| | | 9,245 |
|
Equity in earnings of unconsolidated ventures | 5,778 |
| | 173 |
| | 172 |
| | — |
| | | 6,123 |
|
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc. | 121,420 |
| | 3,327 |
| | (4,625 | ) | | (29,307 | ) | (a) | | 90,815 |
|
Total assets (b) | 403,062 |
| | 38,907 |
| | 11,531 |
| | 279,694 |
| | | 733,194 |
|
Investment in unconsolidated ventures | 77,611 |
| | — |
| | — |
| | — |
| | | 77,611 |
|
Capital expenditures | 5,783 |
| | — |
| | 299 |
| | 56 |
| | | 6,138 |
|
For the year or at year-end 2015 | | | | | | | | | | |
Revenues | $ | 202,830 |
| | $ | 9,094 |
| | $ | 6,652 |
| | $ | — |
| | | $ | 218,576 |
|
Depreciation, depletion and amortization | 7,605 |
| | 383 |
| | 540 |
| | 8,166 |
| | | 16,694 |
|
Equity in earnings of unconsolidated ventures | 15,582 |
| | 275 |
| | 151 |
| | — |
| | | 16,008 |
|
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc. | 67,678 |
| | 4,230 |
| | (608 | ) | | (63,086 | ) | (a) | | 8,214 |
|
Total assets (b) | 691,238 |
| | 39,469 |
| | 19,106 |
| | 117,466 |
| | | 867,279 |
|
Investment in unconsolidated ventures | 82,453 |
| | — |
| | — |
| | — |
| | | 82,453 |
|
Capital expenditures | 13,644 |
| | 59 |
| | 745 |
| | 242 |
| | | 14,690 |
|
For the year or at year-end 2014 | | | | | | | | | | |
Revenues | $ | 213,112 |
| | $ | 15,690 |
| | $ | 9,362 |
| | $ | — |
| | | $ | 238,164 |
|
Depreciation, depletion and amortization | 3,741 |
| | 684 |
| | 497 |
| | 8,035 |
| | | 12,957 |
|
Equity in earnings of unconsolidated ventures | 8,068 |
| | 586 |
| | 31 |
| | — |
| | | 8,685 |
|
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc. | 96,906 |
| | 9,116 |
| | 5,499 |
| | (54,479 | ) | (a) | | 57,042 |
|
Investment in unconsolidated ventures | 65,005 |
| | — |
| | — |
| | — |
| | | 65,005 |
|
Capital expenditures | 28,980 |
| | 2,240 |
| | 5,817 |
| | 616 |
| | | 37,653 |
|
_____________________
| |
(a)
| Items not allocated to segments consist of: |
|
| | | | | | | | | | | |
| For the Year |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
General and administrative expense | $ | (18,274 | ) | | $ | (24,802 | ) | | $ | (21,229 | ) |
Share-based and long-term incentive compensation expense | (4,425 | ) | | (4,474 | ) | | (3,417 | ) |
Gain on sale of assets | 48,891 |
| | — |
| | — |
|
Interest expense | (19,985 | ) | | (34,066 | ) | | (30,286 | ) |
Loss on extinguishment of debt, net | (35,864 | ) | | — |
| | — |
|
Other corporate non-operating income | 350 |
| | 256 |
| | 453 |
|
| $ | (29,307 | ) | | $ | (63,086 | ) | | $ | (54,479 | ) |
| |
(b)
| Total assets excludes assets of discontinued operations of $14 and $104,967 in 2016 and 2015. |
Note 17 — Share-Based and Long-Term Incentive Compensation
Share-based and long-term incentive compensation expense consists of:
|
| | | | | | | | | | | |
| For the Year |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
Cash-settled awards | $ | 717 |
| | $ | (3,127 | ) | | $ | (3,710 | ) |
Equity-settled awards | 2,444 |
| | 5,026 |
| | 5,168 |
|
Restricted stock | 22 |
| | (8 | ) | | (25 | ) |
Stock options | 854 |
| | 2,355 |
| | 1,984 |
|
Total share-based compensation | $ | 4,037 |
| | $ | 4,246 |
| | $ | 3,417 |
|
Deferred cash | 388 |
| | 228 |
| | — |
|
| $ | 4,425 |
| | $ | 4,474 |
| | $ | 3,417 |
|
Share-based and long-term incentive compensation expense is included in:
|
| | | | | | | | | | | |
| For the Year |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
General and administrative | $ | 3,323 |
| | $ | 2,451 |
| | $ | 1,001 |
|
Other operating | 1,102 |
| | 2,023 |
| | 2,416 |
|
| $ | 4,425 |
| | $ | 4,474 |
| | $ | 3,417 |
|
Excluded from share-based compensation expense in the table above are fees earned by directors in the amount of $725,000 for 2016, $1,203,000 for 2015 and $906,000 for 2014 for which they elected to defer payment until retirement in the form of share-settled units.employee benefits. These expenses are included in selling, general and administrative expense on ourin the consolidated statements of income (loss)operations.
The Company is subject to a Tax Sharing Agreement with D.R. Horton. The agreement sets forth an equitable method for reimbursements of tax liabilities or benefits between the Company and comprehensive income (loss).
Share-Based Compensation
The fair value of awards granted to retirement-eligible employees and expensed at the date of grant was $600,000 in 2016, $517,000 in 2015 and $760,000 in 2014. Unrecognized share-based compensation expenseD.R. Horton related to non-vested equity-settled awardsstate and stock options was $1,878,000 at year-end 2016. The weighted average period over which this amount will be recognized is estimated to be one year. We did not capitalize any share-based compensationlocal income, margin or franchise tax returns that are filed on a unitary basis with D.R. Horton. In accordance with the agreement, the Company reimbursed D.R. Horton $0.2 million in 2016, 2015 or 2014.
In 2016fiscal 2020 for its tax expense generated in fiscal 2019, and 2015, we issued 300,491 and 288,089 shares out of our treasury stock associated with vesting of stock-based awards or exercise of stock options, net of 25,082 and 51,521 shares withheld having a value of $222,000 and $762,000D.R. Horton reimbursed the Company $0.4 million in fiscal 2019 for payroll taxes in connection with vesting of stock-based awards or exercise of stock options which are reflected in financing activities in our consolidated statements of cash flows.
A summary of awards granted under our 2007 Stock Incentive Plan follows:
Cash-settled awards
Cash-settled awards granted to our employeesits tax benefit generated in the form of restricted stock units or stock appreciation rights generally vest over three to four years from the date of grant and generally provide for accelerated vesting upon death, disability or if there is a change in control. Cash-settled stock appreciation rights have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. Stock appreciation rights were granted with an exercise price equal to the market value of our stock on the date of grant.nine months ended September 30, 2018.
Cash-settled awards granted to our directors in the form of restricted stock units are fully vested at the time of grant and payable upon retirement.
The following table summarizes the activity of cash-settled restricted stock unit awards in 2016:
|
| | | | |
| Equivalent Units | | Weighted Average Grant Date Fair Value |
| (In thousands) | | (Per unit) |
Non-vested at beginning of period | 117 |
| | $16.00 |
Granted | — |
| | — |
Vested | (41 | ) | | 18.84 |
Forfeited | (34 | ) | | 13.83 |
Non-vested at end of period | 42 |
| | 14.98 |
The weighted average grant date fair value of cash-settled restricted stock unit awards was $13.26 per unit for 2015 and $18.96 per unit for 2014. The fair value of cash-settled restricted stock unit awards settled was $1,195,000 in 2016, $2,469,000 in 2015, and $2,286,000 in 2014. The aggregate current value of non-vested awards is $555,000 at year-end 2016 based on a year-end stock price of $13.30.
The following table summarizes the activity of cash-settled stock appreciation rights in 2016:
|
| | | | | | | | |
| Rights Outstanding | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value (Current Value Less Exercise Price) |
| (In thousands) | | (Per share) | | (In years) | | (In thousands) |
Balance at beginning of period | 487 |
| | $12.97 | | 4 | | $404 |
Granted | — |
| | — | | | | |
Exercised | (52 | ) | | 9.29 | | | | |
Forfeited | (61 | ) | | 16.12 | | | | |
Balance at end of period | 374 |
| | 12.97 | | 3 | | 773 |
Exercisable at end of period | 345 |
| | 12.87 | | 3 | | 773 |
The intrinsic value of cash-settled stock appreciation rights settled was $154,000 in 2016, $206,000 in 2015 and $1,181,000 in 2014.
The fair value of accrued cash-settled awards at year-end 2016 and year-end 2015 were $1,758,000 and $3,757,000 and is included in other liabilities in our consolidated balance sheets.
Equity-settled awards
Equity-settled awards granted to our employees include restricted stock units (RSU), which vest after three years from the date of grant, market-leveraged stock units (MSU), which vest after three years from date of grant and performance stock units (PSU), which generally vest after three years from the date of grant if certain performance goals are met. Equity settled awards in the form of restricted stock units granted to our directors are fully vested at time of grant and settled upon retirement. The following table summarizes the activity of equity-settled awards in 2016:
|
| | | | | | |
| Equivalent Units | | Weighted Average Grant Date Fair Value |
| (In thousands) | | (Per unit) |
Non-vested at beginning of period | 631 |
| | $ | 18.25 |
|
Granted | 313 |
| | 9.04 |
|
Vested | (281 | ) | | 15.12 |
|
Forfeited | (108 | ) | | 17.91 |
|
Non-vested at end of period | 555 |
| | 14.70 |
|
In 2016, we granted 313,000 RSU awards at market value of the stock on the date of the grant. In 2015 and 2014, we granted 234,000 and 86,000 MSU awards. These awards will be settled in common stock based upon our stock price performance over three years from the date of grant. The number of shares to be issued could range from a high of 351,000 shares if our stock price increases by 50 percent or more, to 117,000 shares if our stock price decreases by 50 percent, or could be zero if our stock price decreases by more than 50 percent, the minimum threshold performance. We estimate the grant date
fair value of MSU awards using a Monte Carlo simulation pricing model and the following assumptions: |
| | | | | | | | |
| | For the Year |
| | 2015 | | 2014 |
Expected stock price volatility | | 32.9 | % | | 42.2 | % |
Risk-free interest rate | | 1.0 | % | | 0.7 | % |
Expected dividend yield | | — | % | | — | % |
Weighted average grant date fair value of MSU awards (per unit) | | $ | 15.11 |
| | $ | 20.38 |
|
The weighted average grant date fair value of equity-settled awards (RSU, MSU and PSU) per unit in 2016, 2015 and 2014 was $9.04, $12.99 and $19.18. The fair value of equity-settled awards settled was $2,884,478, $4,451,000 and $3,119,000 in 2016, 2015 and 2014.
Unrecognized share-based compensation expense related to non-vested equity-settled awards is $1,106,000 at year-end 2016. The weighted average period over which this amount will be recognized is estimated to be one year.
Restricted stock awards
Restricted stock awards generally vest over three years, typically if we achieve a minimum one percent annualized return on assets over such three-year period. The following table summarizes the activity of restricted stock awards in 2016:
|
| | | | | | |
| Restricted Shares | | Weighted Average Grant Date Fair Value |
| (In thousands) | | (Per unit) |
Non-vested at beginning of period | 4 |
| | $ | 20.55 |
|
Granted | — |
| | — |
|
Vested | (4 | ) | | 20.55 |
|
Forfeited | — |
| | — |
|
Non-vested at end of period | — |
| | — |
|
The fair value of our restricted stock awards settled in 2016, 2015 and 2014 was $44,000, $88,000 and $341,000.
Stock options
Stock options have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. In 2016 and 2015, options were granted with an exercise price equal to the market value of our stock on the date of grant. In the first quarter of 2016, stock options were issued to each of two new directors to acquire 20,000 shares of common stock of which 6,500 shares vest on the first and second anniversary of the date of grant and the remaining 7,000 shares vest on the third anniversary of the date of grant. Expense associated with annual restricted stock units and non-qualified stock options to our board of directors is included in share-based compensation expense. The following table summarizes the activity of stock option awards in 2016:
|
| | | | | | | | | | | | |
| Options Outstanding | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value (Current Value Less Exercise Price) |
| (In thousands) | | (Per share) | | (In years) | | (In thousands) |
Balance at beginning of period | 2,171 |
| | $ | 19.56 |
| | 5 | | $ | 156 |
|
Granted | 53 |
| | 9.98 |
| | | | |
Exercised | (35 | ) | | 9.29 |
| | | | |
Forfeited | (353 | ) | | 20.03 |
| | | | |
Balance at end of period | 1,836 |
| | 19.39 |
| | 5 | | 449 |
|
Exercisable at end of period | 1,597 |
| | 20.25 |
| | 4 | | 261 |
|
We estimate the grant date fair value of stock options that do not have a market condition using the Black-Scholes option pricing model and the following assumptions:
|
| | | | | | | | |
| | For the Year |
| | 2016 | | 2015 |
Expected stock price volatility | | 39.5 | % | | 45.6 | % |
Risk-free interest rate | | 1.5 | % | | 1.8 | % |
Expected life of options (years) | | 6 |
| | 6 |
|
Expected dividend yield | | — | % | | — | % |
Weighted average grant date fair value of options (per share) | | $ | 8.60 |
| | $ | 6.51 |
|
We determine the expected life using the simplified method which utilizes the midpoint between the vesting period and the contractual life of the awards. The expected stock price volatility assumption was determined using a blend of historical and implied volatility.
Stock option awards granted in third quarter 2015 in connection with management promotions have a ten-year term, vest ratably over three years and are exercisable only when our stock price exceeds $17.50 per share. We estimated the fair value of these options with market conditions using Monte Carlo simulation pricing model and the following assumptions:
|
| | | | |
Expected stock price volatility | | 61.4 | % |
Risk-free interest rate | | 2.2 | % |
Expected dividend yield | | — | % |
Weighted average grant date fair value of options (per share) | | $ | 7.87 |
|
The fair value of vested stock options was $0 in 2016, $0 in 2015 and $21,000 in 2014. The intrinsic value of options exercised was $61,000 in 2016, $0 in 2015 and $568,000 in 2014. Unrecognized share-based compensation expense related to non-vested stock options is $772,000 at year-end 2016. The weighted average period over which this amount will be recognized is estimated to be two years.
Pre-Spin Awards
Certain of our employees participated in Temple-Inland’s share-based compensation plans. In conjunction with our 2007 spin-off, these awards were equitably adjusted into separate awards of the common stock of Temple-Inland and the spin-off entities. No pre-spin awards were exercised in 2016. The intrinsic value of pre-spin awards exercised was $0 in 2016, $24,000 in 2015 and $352,000 in 2014.
Pre-spin stock option awards to our employees to purchase our common stock have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. At year-end 2016, there were 17,000 pre-spin awards outstanding and exercisable on our stock with a weighted average exercise price of $30.56 and weighted average remaining term of less than one year.
Long-Term Incentive Compensation
In 2016, we granted $620,000 of long-term incentive compensation in the form of deferred cash compensation. The 2016 deferred cash awards vest annually over two years, and the 2015 deferred cash awards vest after three years. Both awards provide for accelerated vesting upon retirement, disability, death, or if there is a change in control. Expense associated with deferred cash awards is recognized ratably over the vesting period or earlier based on retirement eligibility. The accrued liability was $539,000 at year-end 2016 and is included in other liabilities.
Note 18 — Retirement Plans
Our defined contribution retirement plans include a 401(k) plan, which is funded, and a supplemental plan for certain employees, which is unfunded. The expense of our defined contribution retirement plans was $978,000 in 2016, $1,060,000 in 2015 and $1,338,000 in 2014. The unfunded liability for our supplemental plan was $334,000 at year-end 2016 and $802,000 at year-end 2015 and is included in other liabilities.
Note 19 — Supplemental Oil and Gas Disclosures (Unaudited)
The following unaudited information regarding our oil and gas reserves has been prepared and is presented pursuant to requirements of the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB).
As of year-end 2016, we have divested substantially all of our oil and gas working interest properties. As a result of this significant change in our operations, we have reported the results of operations and financial position of these assets as discontinued operations within our consolidated statements of income (loss) and comprehensive income (loss) and consolidated balance sheets for all periods presented. However, all information presented in this unaudited supplemental oil and gas disclosures footnote includes all oil and gas reserve estimates and results of operations.
We lease our mineral interests, principally in Texas and Louisiana, to third-party entities for the exploration and production of oil and gas. When we lease our mineral interests, we may negotiate a lease bonus payment and we retain a royalty interest and may take an additional participation in production, including a working interest in which we pay a share of the costs to drill, complete and operate a well and receive a proportionate share of the production revenues.
We engaged independent petroleum engineers, Netherland, Sewell & Associates, Inc., to assist in preparing estimates of our proved oil and gas reserves, all of which are located in the U.S., and future net cash flows as of year-end 2016, 2015 and 2014.
These estimates were based on the economic and operating conditions existing at year-end 2016, 2015 and 2014. Proved developed reserves are those quantities of petroleum from existing wells and facilities, which by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward for known reservoirs and under defined economic conditions, operating methods and government regulations.
SEC rules require disclosure of proved reserves using the twelve-month average beginning-of-month price (which we refer to as the average price) for the year. These same average prices also are used in calculating the amount of (and changes in) future net cash inflows related to the standardized measure of discounted future net cash flows.
For 2016, 2015 and 2014, the average spot price per barrel of oil based on the West Texas Intermediate price is $42.75, $50.28 and $94.99 and the average price per MMBTU of gas based on the Henry Hub spot is $2.48, $2.59 and $4.35. All prices were then adjusted for quality, transportation fees and differentials.
The process of estimating proved reserves and future net cash flows is complex involving decisions and assumptions in evaluating the available engineering and geologic data and prices for oil and gas and the cost to produce these reserves and other factors, many of which are beyond our control. As a result, these estimates are imprecise and should be expected to change as future information becomes available. These changes could be significant. In addition, this information should not be construed as being the current fair market value of our proved reserves.
Estimated Quantities of Proved Oil and Gas Reserves
Estimated quantities of proved oil and gas reserves are summarized as follows: |
| | | | | |
| Reserves |
| Oil (a) (Barrels) | | Gas (Mcf) |
| (In thousands) |
Consolidated entities: | | | |
Year-end 2013 | 5,824 |
| | 13,630 |
|
Revisions of previous estimates | 608 |
| | 293 |
|
Extensions and discoveries | 2,191 |
| | 774 |
|
Acquisitions | 85 |
| | 31 |
|
Sales | (105 | ) | | (218 | ) |
Production | (931 | ) | | (1,861 | ) |
Year-end 2014 | 7,672 |
| | 12,649 |
|
Revisions of previous estimates | (855 | ) | | (1,675 | ) |
Extensions and discoveries | 224 |
| | 173 |
|
Acquisitions | — |
| | — |
|
Sales | (704 | ) | | (1,223 | ) |
Production | (1,158 | ) | | (1,967 | ) |
Year-end 2015 | 5,179 |
| | 7,957 |
|
Revisions of previous estimates | (11 | ) | | 631 |
|
Extensions and discoveries | 29 |
| | — |
|
Acquisitions | — |
| | — |
|
Sales | (4,460 | ) | | (3,756 | ) |
Production | (291 | ) | | (996 | ) |
Year-end 2016 | 446 |
| | 3,836 |
|
Our share of ventures accounted for using the equity method: | | | |
Year-end 2013 | — |
| | 2,332 |
|
Revisions of previous estimates | — |
| | (382 | ) |
Production | — |
| | (199 | ) |
Year-end 2014 | — |
| | 1,751 |
|
Revisions of previous estimates | — |
| | (320 | ) |
Production | — |
| | (168 | ) |
Year-end 2015 | — |
| | 1,263 |
|
Revisions of previous estimates | — |
| | 79 |
|
Production | — |
| | (143 | ) |
Year-end 2016 | — |
| | 1,199 |
|
Total consolidated and our share of equity method ventures: | | | |
Year-end 2014 | | | |
Proved developed reserves | 5,269 |
| | 12,599 |
|
Proved undeveloped reserves | 2,403 |
| | 1,801 |
|
Total Year-end 2014 | 7,672 |
| | 14,400 |
|
Year-end 2015 | | | |
Proved developed reserves | 5,179 |
| | 9,220 |
|
Proved undeveloped reserves | — |
| | — |
|
Total Year-end 2015 | 5,179 |
| | 9,220 |
|
Year-end 2016 | | | |
Proved developed reserves | 446 |
| | 5,035 |
|
Proved undeveloped reserves | — |
| | — |
|
Total Year-end 2016 | 446 |
| | 5,035 |
|
_____________________
| |
(a)
| Includes natural gas liquids (NGLs). |
We do not have any estimated reserves of synthetic oil, synthetic gas or products of other non-renewable natural resources that are intended to be upgraded into synthetic oil and gas.
At year-end 2016, estimated quantities of proved oil and gas reserves are related to our owned mineral interests which are classified as assets held for sale.
In 2016, we sold oil and gas wells located primarily in Oklahoma, Kansas, Nebraska and North Dakota. Our net reserves for those properties as of year-end 2015 less our share of 2016 production were 4,155,000 barrels of oil, 305,000 barrels of NGL, and 3,756,000 Mcf of gas. Oklahoma properties sold were mainly mature gas wells. Kansas and Nebraska produce oil from the Lansing/Kansas City formation. The North Dakota oil wells produce from the Bakken/Three Forks formation.
In 2015, oil and gas properties having reserves consisting of approximately 704,000 barrels of oil and 1,223,000 Mcf of gas located primarily in the Texas Panhandle and Bakken/Three Forks formations were sold. Due to the significant decline in oil and gas prices during 2015, net negative revisions of previous estimates were 855,000 barrels of oil and 1,995,000 Mcf of gas. At year-end 2015, we had no barrels of oil equivalent (BOE) of proved undeveloped (PUD) reserves based on our plan to exit non-core oil and gas working interest assets compared with 2,703,000 BOE of PUD reserves at year-end 2014.
In 2014, increases in extensions and discoveries of 2,191,000 barrels were primarily associated with new reserves in the Bakken/Three Forks formations. An estimated 694,000 barrels of these extensions and discoveries were associated with new producing wells while a further 913,000 barrels of proved undeveloped reserves were added during 2014. Approximately 105,000 barrels of oil and 218,000 Mcf of gas reserves located primarily in Oklahoma were sold during the year. We realized a net positive revision of previous estimates of 608,000 barrels which is primarily driven by improved drilling results in the Bakken/Three Forks formation yielding higher average estimated ultimate recoverable quantities of proved reserves per well.
In 2015 and 2014, reserve additions from new wells drilled and completed during the year are shown for both consolidated entities and ventures accounted for using the equity method under extensions and discoveries. There were no new well additions in 2016, 36 new well additions in 2015 and 106 new well additions in 2014.
Capitalized Costs Relating to Oil and Gas Producing Activities
Capitalized costs related to our oil and gas producing activities classified as assets held for sale at year-end 2016 are as follows:
|
| | | | | | | |
| At Year-End |
| 2016 | | 2015 |
| (In thousands) |
Consolidated entities: | | | |
Unproved oil and gas properties | $ | 374 |
| | $ | 19,441 |
|
Proved oil and gas properties | 5,159 |
| | 119,414 |
|
Total costs | 5,533 |
| | 138,855 |
|
Less accumulated depreciation, depletion and amortization | (4,751 | ) | | (58,242 | ) |
| $ | 782 |
| | $ | 80,613 |
|
We have not capitalized any costs for our share in ventures accounted for using the equity method.
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development
Costs incurred in oil and gas property acquisition, exploration and development activities, whether capitalized or expensed, follows:
|
| | | | | | | | | | | |
| For the Year |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
Consolidated entities: | | | | | |
Acquisition costs | | | | | |
Proved properties | $ | — |
| | $ | — |
| | $ | 2,001 |
|
Unproved properties | 15 |
| | 4,832 |
| | 25,666 |
|
Exploration costs | 21 |
| | 17,922 |
| | 39,399 |
|
Development costs | 537 |
| | 27,609 |
| | 40,277 |
|
| $ | 573 |
| | $ | 50,363 |
| | $ | 107,343 |
|
We have not incurred any costs for our share in ventures accounted for using the equity method. In 2015, acquisition of leasehold interests, exploration expenses, and development costs have decreased as a result of our increased focus on exiting and selling our leasehold working interests.
Standardized Measure of Discounted Future Net Cash Flows
Estimates of future cash flows from proved oil and gas reserves are shown in the following table. Estimated income taxes are calculated by applying the appropriate tax rates to the estimated future pre-tax net cash flows less depreciation of the tax basis of properties and the statutory depletion allowance.
|
| | | | | | | | | | | |
| At Year-End |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
Consolidated entities: | | | | | |
Future cash inflows | $ | 24,304 |
| | $ | 216,588 |
| | $ | 665,657 |
|
Future production and development costs | (2,988 | ) | | (93,623 | ) | | (271,735 | ) |
Future income tax expenses | (3,926 | ) | | (22,218 | ) | | (106,002 | ) |
Future net cash flows | 17,390 |
| | 100,747 |
| | 287,920 |
|
10% annual discount for estimated timing of cash flows | (7,077 | ) | | (33,951 | ) | | (124,079 | ) |
Standardized measure of discounted future net cash flows | $ | 10,313 |
| | $ | 66,796 |
| | $ | 163,841 |
|
Our share in ventures accounted for using the equity method: | | | | | |
Future cash inflows | $ | 2,010 |
| | $ | 2,283 |
| | $ | 6,186 |
|
Future production and development costs | (216 | ) | | (245 | ) | | (664 | ) |
Future income tax expenses | (537 | ) | | (774 | ) | | (2,098 | ) |
Future net cash flows | 1,257 |
| | 1,264 |
| | 3,424 |
|
10% annual discount for estimated timing of cash flows | (585 | ) | | (562 | ) | | (1,649 | ) |
Standardized measure of discounted future net cash flows | $ | 672 |
| | $ | 702 |
| | $ | 1,775 |
|
Total consolidated and our share of equity method ventures | $ | 10,985 |
| | $ | 67,498 |
| | $ | 165,616 |
|
Future net cash flows were computed using prices used in estimating proved oil and gas reserves, year-end costs, and statutory tax rates (adjusted for tax deductions) that relate to proved oil and gas reserves.
Changes in the standardized measure of discounted future net cash flow follows:
|
| | | | | | | | | | | |
| For the Year |
| Consolidated | | Our Share of Equity Method Ventures | | Total |
| (In thousands) |
Year-end 2013 | $ | 135,553 |
| | $ | 1,300 |
| | $ | 136,853 |
|
Changes resulting from: | | | | | |
Net change in sales prices and production costs | (1,064 | ) | | 1,571 |
| | 507 |
|
Net change in future development costs | 1,308 |
| | — |
| | 1,308 |
|
Sales of oil and gas, net of production costs | (63,192 | ) | | (787 | ) | | (63,979 | ) |
Net change due to extensions and discoveries | 58,228 |
| | — |
| | 58,228 |
|
Net change due to acquisition of reserves | 2,778 |
| | — |
| | 2,778 |
|
Net change due to divestitures of reserves | (5,804 | ) | | — |
| | (5,804 | ) |
Net change due to revisions of quantity estimates | 15,303 |
| | (343 | ) | | 14,960 |
|
Previously estimated development costs incurred | 15,497 |
| | — |
| | 15,497 |
|
Accretion of discount | 18,067 |
| | 210 |
| | 18,277 |
|
Net change in timing and other | 4,198 |
| | 115 |
| | 4,313 |
|
Net change in income taxes | (17,031 | ) | | (291 | ) | | (17,322 | ) |
Aggregate change for the year | 28,288 |
| | 475 |
| | 28,763 |
|
Year-end 2014 | 163,841 |
| | 1,775 |
| | 165,616 |
|
Changes resulting from: | | | | | |
Net change in sales prices and production costs | (136,536 | ) | | (1,112 | ) | | (137,648 | ) |
Net change in future development costs | 92 |
| | — |
| | 92 |
|
Sales of oil and gas, net of production costs | (31,732 | ) | | (428 | ) | | (32,160 | ) |
Net change due to extensions and discoveries | 11,747 |
| | — |
| | 11,747 |
|
Net change due to acquisition of reserves | — |
| | — |
| | — |
|
Net change due to divestitures of reserves | (15,855 | ) | | — |
| | (15,855 | ) |
Net change due to revisions of quantity estimates | (15,164 | ) | | (267 | ) | | (15,431 | ) |
Previously estimated development costs incurred | 15,096 |
| | — |
| | 15,096 |
|
Accretion of discount | 22,600 |
| | 286 |
| | 22,886 |
|
Net change in timing and other | 4,018 |
| | (210 | ) | | 3,808 |
|
Net change in income taxes | 48,689 |
| | 658 |
| | 49,347 |
|
Aggregate change for the year | (97,045 | ) | | (1,073 | ) | | (98,118 | ) |
Year-end 2015 | 66,796 |
| | 702 |
| | 67,498 |
|
Changes resulting from: | | | | | |
Net change in sales prices and production costs | (3,585 | ) | | (60 | ) | | (3,645 | ) |
Net change in future development costs | — |
| | — |
| | — |
|
Sales of oil and gas, net of production costs | (5,663 | ) | | (208 | ) | | (5,871 | ) |
Net change due to extensions and discoveries | 410 |
| | — |
| | 410 |
|
Net change due to acquisition of reserves | — |
| | — |
| | — |
|
Net change due to divestitures of reserves | (63,535 | ) | | | | (63,535 | ) |
Net change due to revisions of quantity estimates | 1,304 |
| | 63 |
| | 1,367 |
|
Previously estimated development costs incurred | — |
| | — |
| | — |
|
Accretion of discount | 2,992 |
| | 113 |
| | 3,105 |
|
Net change in timing and other | (128 | ) | | (80 | ) | | (208 | ) |
Net change in income taxes | 11,722 |
| | 142 |
| | 11,864 |
|
Aggregate change for the year | (56,483 | ) | | (30 | ) | | (56,513 | ) |
Year-end 2016 | $ | 10,313 |
| | $ | 672 |
| | $ | 10,985 |
|
Results of Operations for Oil and Gas Producing Activities
Our royalty interests are contractually defined and based on a percentage of production at prevailing market prices. We receive our percentage of production in cash. Similarly, for operating properties our working interests and the associated net revenue interests are contractually defined and we pay our proportionate share of the capital and operating costs to develop and operate the well and we market our share of the production. Our revenues fluctuate based on changes in the market prices for
oil and gas, the decline in production from existing wells, and other factors affecting oil and gas exploration and production activities, including the cost of development and production.
Information about the results of operations of our oil and gas interests follows:
|
| | | | | | | | | | | |
| For the Year |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
Consolidated entities | | | | | |
Revenues | $ | 10,111 |
| | $ | 51,553 |
| | $ | 82,919 |
|
Production costs | (4,392 | ) | | (19,820 | ) | | (19,727 | ) |
Exploration costs | (124 | ) | | (11,864 | ) | | (17,416 | ) |
Depreciation, depletion, amortization | (2,157 | ) | | (28,774 | ) | | (29,442 | ) |
Non-cash impairment of proved oil and gas properties and unproved leasehold interests | (612 | ) | | (164,831 | ) | | (32,665 | ) |
Oil and gas administrative expenses | (8,700 | ) | | (11,700 | ) | | (17,000 | ) |
Accretion expense | (56 | ) | | (144 | ) | | (121 | ) |
Income tax (expense) benefit | (20 | ) | | 14,717 |
| | 13,398 |
|
Results of operations | (5,950 | ) | | (170,863 | ) | | (20,054 | ) |
Our share in ventures accounted for using the equity method: | | | | | |
Revenues | $ | 284 |
| | $ | 428 |
| | $ | 786 |
|
Production costs | (76 | ) | | (102 | ) | | (105 | ) |
Oil and gas administrative expenses | (35 | ) | | (51 | ) | | (95 | ) |
Income tax (expense) benefit | — |
| | 21 |
| | (235 | ) |
Results of operations | $ | 173 |
| | $ | 296 |
| | $ | 351 |
|
Total results of operations | $ | (5,777 | ) | | $ | (170,567 | ) | | $ | (19,703 | ) |
Production costs represent our share of oil and gas production severance taxes, and lease operating expenses. Exploration costs principally represent exploratory dry hole costs, geological and geophysical and seismic study costs.
Note 20 — Summary of Quarterly Results of Operations (Unaudited)
Summarized quarterly financial results for 2016 and 2015 follows:
|
| | | | | | | | | | | | | | | |
| First Quarter (a) | | Second Quarter (a) | | Third Quarter (a) | | Fourth Quarter (a) |
| (In thousands, except per share amounts) |
2016 | | | | | | | |
Total revenues | $ | 37,618 |
| | $ | 47,992 |
| | $ | 47,207 |
| | $ | 64,497 |
|
Gross profit (loss) | 18,579 |
| | (24,953 | ) | | 17,403 |
| | 17,352 |
|
Operating income (loss) | 13,590 |
| | 69,528 |
| | 6,256 |
| | 50,980 |
|
Equity in earnings of unconsolidated ventures | 47 |
| | 188 |
| | 3,637 |
| | 2,251 |
|
Income from continuing operations before taxes attributable to Forestar Group Inc. | 5,992 |
| | 26,591 |
| | 7,163 |
| | 51,069 |
|
Income (loss) from discontinued operations, net of taxes | (8,216 | ) | | (2,048 | ) | | (7,164 | ) | | 563 |
|
Net income (loss) attributable to Forestar Group Inc. | (4,376 | ) | | 9,614 |
| | 9,665 |
| | 43,745 |
|
| | | | | | | |
Net income (loss) per share — basic | | | | | | | |
Continuing operations | $ | 0.11 |
| | $ | 0.28 |
| | $ | 0.40 |
| | $ | 1.03 |
|
Discontinued operations | $ | (0.24 | ) | | $ | (0.05 | ) | | $ | (0.17 | ) | | $ | 0.01 |
|
Net income (loss) per share — basic | $ | (0.13 | ) | | $ | 0.23 |
| | $ | 0.23 |
| | $ | 1.04 |
|
| | | | | | | |
Net income (loss) per share — diluted | | | | | | | |
Continuing operations | $ | 0.09 |
| | 0.28 |
| | 0.40 |
| | $ | 1.02 |
|
Discontinued operations | $ | (0.19 | ) | | (0.05 | ) | | (0.17 | ) | | $ | 0.01 |
|
Net income (loss) per share — diluted | $ | (0.10 | ) | | 0.23 |
| | 0.23 |
| | $ | 1.03 |
|
| | | | | | | |
2015 | | | | | | | |
Total revenues | $ | 37,374 |
| | $ | 43,625 |
| | $ | 32,185 |
| | $ | 105,392 |
|
Gross profit (loss) | 18,012 |
| | 21,060 |
| | 12,879 |
| | 46,655 |
|
Operating income (loss) | (3,424 | ) | | 5,919 |
| | (8,482 | ) | | 29,929 |
|
Equity in earnings of unconsolidated ventures | 3,045 |
| | 5,584 |
| | 2,909 |
| | 4,470 |
|
Income from continuing operations before taxes attributable to Forestar Group Inc. | (8,204 | ) | | 3,382 |
| | (13,711 | ) | | 26,747 |
|
Income (loss) from discontinued operations, net of taxes | (2,719 | ) | | (36,992 | ) | | (106,937 | ) | | (39,482 | ) |
Net loss attributable to Forestar Group Inc. | (8,158 | ) | | (34,507 | ) | | (164,216 | ) | | (6,166 | ) |
| | | | | | | |
Net income (loss) per share — basic | | | | | | | |
Continuing operations | $ | (0.16 | ) | | $ | 0.07 |
| | $ | (1.67 | ) | | $ | 0.97 |
|
Discontinued operations | $ | (0.08 | ) | | $ | (1.08 | ) | | $ | (3.12 | ) | | $ | (1.15 | ) |
Net income (loss) per share — basic | $ | (0.24 | ) | | $ | (1.01 | ) | | $ | (4.79 | ) | | $ | (0.18 | ) |
| | | | | | | |
Net income (loss) per share — diluted | | | | | | | |
Continuing operations | $ | (0.16 | ) | | $ | 0.06 |
| | $ | (1.67 | ) | | $ | 0.79 |
|
Discontinued operations | $ | (0.08 | ) | | $ | (0.87 | ) | | $ | (3.12 | ) | | $ | (0.93 | ) |
Net income (loss) per share — diluted | $ | (0.24 | ) | | $ | (0.81 | ) | | $ | (4.79 | ) | | $ | (0.14 | ) |
_____________________
(a)Non-cash impairment charges related to real estate, water assets and unproved leasehold interests and proved oil and gas properties included in our quarterly financial results are as follows: |
| | | | | | | | | | | | | | | |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| (In thousands) |
2016 |
|
| |
|
| |
|
| |
|
|
Continuing operations | $ | — |
| | $ | 48,826 |
| | $ | 7,627 |
| | $ | 3,874 |
|
Discontinued operations | $ | — |
| | $ | 612 |
| | $ | — |
| | $ | — |
|
2015 |
| |
| |
| |
|
Continuing operations | $ | 504 |
| | $ | 225 |
| | $ | — |
| | $ | 315 |
|
Discontinued operations | $ | 7 |
| | $ | 45,938 |
| | $ | 81,240 |
| | $ | 37,646 |
|
Note 21 — Subsequent Events
On January 5, 2017, we entered into a tax benefits preservation plan (the “Plan”) with Computershare Trust Company, N.A., as rights agent, and our Board of Directors declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $1.00 per share, to stockholders of record at the close of business on January 17, 2017. Each Right is governed byUnder the terms of the PlanMaster Supply Agreement with D.R. Horton, both companies identify land development opportunities to expand Forestar's portfolio of assets. At September 30, 2020 and entitles the registered holder to purchase from2019, the Company a unit consistingowned or controlled through purchase contracts approximately 60,500 and 38,300 residential lots, of one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $50 per unit, subjectwhich D.R. Horton had the following involvement.
| | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| (Dollars in millions) |
Residential lots under contract to sell to D.R. Horton | 14,000 | | | 12,800 | |
Residential lots subject to right of first offer with D.R. Horton | 16,400 | | | 10,600 | |
Earnest money deposits from D.R. Horton for lots under contract | $ | 92.2 | | | $ | 88.7 | |
Earnest money notes from D.R. Horton for lots under contract | $ | 4.8 | | | $ | 0 | |
Remaining purchase price of lots under contract with D.R. Horton | $ | 1,022.2 | | | $ | 953.8 | |
During fiscal 2020, 2019 and the nine months ended September 30, 2018, the Company's residential lot sales totaled 10,373, 4,132 and 1,024, and lot sales revenues were $880.3 million, $351.7 million and $72.0 million. Lot and land sales to adjustment. The Plan is intended to help protect our tax attributes, suchD.R. Horton during those periods were as built in losses and other tax attributes, by deterring any person from becoming a “5-percent shareholder” (as defined in Section 382follows.
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, | | Nine Months Ended September 30, 2018 |
| 2020 | | 2019 | |
| (Dollars in millions) |
Residential single-family lots sold to D.R. Horton | 10,164 | | | 3,728 | | | 642 | |
Residential lot sales revenues from sales to D.R. Horton | $ | 859.7 | | | $ | 311.7 | | | $ | 43.6 | |
Residential tract acres sold to D.R. Horton | 143 | | | 290 | | | 79 | |
Residential tract sales revenues from sales to D.R. Horton | $ | 25.6 | | | $ | 10.9 | | | $ | 2.0 | |
In addition, the net impact of the Internal Revenue Code of 1986, as amended,change in contract liabilities or revenue deferrals increased revenues on lot sales to D.R. Horton by $2.3 million and $4.0 million in fiscal 2020 and 2019, respectively, and decreased revenues by $6.4 million in the Treasury Regulations promulgated thereunder).
On February 17, 2017, we entered into a Purchase and Sale Agreement with Mineral Resource Partners, LLC, whereby we sold substantially all of our remaining oil and gas assets for $85,600,000, of which $75,000,000 was received at closing. The balance ofnine months ended September 30, 2018. During the purchase price is being held in a third-party escrow account pending completion of (a) title review, and (b) transfer of certain mineral interests owned bynine months ended September 30, 2018, a venture in which the Company owns a 37.5% interest sold 40 residential tract acres to D.R. Horton for $7.8 million. The Company's share of these earnings was $2.5 million, which is a member (Venture Minerals). Prorationsincluded in equity in earnings of operating revenuesunconsolidated ventures in its consolidated statements of operations.
During fiscal 2020, 2019 and expenses will be made utilizing an effective datethe nine months ended September 30, 2018, the Company reimbursed D.R. Horton approximately $27.0 million, $34.5 million and $21.2 million for previously paid earnest money and $36.3 million, $13.1 million and $15.2 million for pre-acquisition and other due diligence and development costs related to land purchase contracts whereby D.R. Horton assigned its rights under these land purchase contracts to the Company.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
During fiscal 2020, 2019 and indemnities customarythe nine months ended September 30, 2018, the Company paid D.R. Horton $6.2 million, $2.4 million and $0.6 million for oilland development services. These amounts are included in cost of sales in the Company’s consolidated statements of operations.
At September 30, 2020 and gas industry entity2019, undeveloped land was $5.4 million and asset sale and purchase transactions, and includes purchase price adjustment provisions, within certain parameters, relating to title and failure or inability to transfer the Venture Minerals. In first quarter 2017, we expect to recognize a gain on sale$17.1 million. Undeveloped land primarily consists of approximately $82,400,000, of which $10,600,000 will be deferred until verification of title for non-producing fee minerals in Texas and Louisiana, transfer of certain mineral interests owned by a venture inundeveloped land which the Company ishas the contractual right to sell to D.R. Horton within approximately one year of its purchase or, if D.R. Horton elects, at an earlier date, at a member and releasesales price equal to the carrying value of the escrowed funds.land at the time of sale plus additional consideration of 16% per annum. In addition,fiscal 2019, the Company expectssold approximately 63 acres of undeveloped land to incur a non-cash charge of $37,900,000 related to oil and gas enterprise goodwill that is impaired due tothird party for approximately $44.2 million. In conjunction with the sale, the Company paid D.R. Horton a fee of substantially allapproximately $2.1 million to terminate an existing purchase and sale agreement whereby D.R. Horton had the option to purchase the property at a fixed price. This termination fee is included in cost of sales in the Company's remaining oilconsolidated statements of operations.
At September 30, 2020 and gas assets.2019, accrued expenses and other liabilities on the Company's consolidated balance sheets included $8.4 million and $2.2 million owed to D.R. Horton for any accrued and unpaid shared service charges, land purchase contract deposits and due diligence and other development cost reimbursements.
Forestar Group Inc.
Schedule IIINote 16 — Quarterly Results of Operations (Unaudited)
Consolidated Real Estatequarterly results of operations for fiscal year 2020 and Accumulated Depreciation2019 were (in millions, except per share amounts):
Year-End 2016 | | | | | | | | | | | | | | | | | | | | | | | |
2020 | Three Months Ended December 31, 2019 | | Three Months Ended March 31, 2020 | | Three Months Ended June 30, 2020 | | Three Months Ended September 30, 2020 |
Total revenues | $ | 247.2 | | | $ | 159.1 | | | $ | 177.9 | | | $ | 347.6 | |
Income before income taxes | 22.2 | | | 13.7 | | | 10.3 | | | 32.0 | |
Income tax expense | 5.4 | | | 3.3 | | | 0.2 | | | 7.5 | |
Net income | 16.8 | | | 10.4 | | | 10.1 | | | 24.5 | |
Net (loss) income attributable to noncontrolling interests | (0.1) | | | 0.8 | | | 0 | | | 0.3 | |
Net income attributable to Forestar Group Inc. | 16.9 | | | 9.6 | | | 10.1 | | | 24.2 | |
| | | | | | | |
Net income per share — basic | $ | 0.35 | | | $ | 0.20 | | | $ | 0.21 | | | $ | 0.50 | |
Net income per share — diluted | $ | 0.35 | | | $ | 0.20 | | | $ | 0.21 | | | $ | 0.50 | |
| | | | | | | |
2019 | Three Months Ended December 31, 2018 | | Three Months Ended March 31, 2019 | | Three Months Ended June 30, 2019 | | Three Months Ended September 30, 2019 |
Total revenues | $ | 38.5 | | | $ | 65.3 | | | $ | 88.2 | | | $ | 236.3 | |
Income before income taxes | 4.9 | | | 16.4 | | | 8.4 | | | 16.0 | |
Income tax expense | 1.0 | | | 3.6 | | | 1.5 | | | 3.4 | |
Net income | 3.9 | | | 12.8 | | | 6.9 | | | 12.6 | |
Net income (loss) attributable to noncontrolling interests | 0.6 | | | 2.7 | | | 0 | | | (0.1) | |
Net income attributable to Forestar Group Inc. | 3.3 | | | 10.1 | | | 6.9 | | | 12.7 | |
| | | | | | | |
Net income per share — basic | $ | 0.08 | | | $ | 0.24 | | | $ | 0.16 | | | $ | 0.30 | |
Net income per share — diluted | $ | 0.08 | | | $ | 0.24 | | | $ | 0.16 | | | $ | 0.30 | |
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount Carried at End of Period | | | | |
Description | Encumbrances | | Land | | Buildings & Improvements | | Improvements less Cost of Sales and Other | | Carrying Costs(a) | | Land & Land Improvements | | Buildings & Improvements | | Total | | Accumulated Depreciation | | Date of Construction | | Date Acquired |
Entitled, Developed, and Under Development Projects: | | | | | | | | | | | | | | | | | |
ARIZONA | | | | | | | | | | | | | | | | | | | | | |
Pima County | | | | | | | | | | | | | | | | | | | | | |
Dove Mountain | | | $ | 5,860 |
| | | | $ | 3 |
| | | | $ | 5,863 |
| | | | $ | 5,863 |
| | | | | | 2015 |
CALIFORNIA | | | | | | | | | | | | | | | | | | | | | |
Contra Costa County | | | | | | | | | | | | | | | | | | | | | |
San Joaquin River | | | 12,225 |
| | | | (10,558 | ) | | | | 1,667 |
| | | | 1,667 |
| | | | | | (b) |
COLORADO | | | | | | | | | | | | | | | | | | | | | |
Douglas County | | | | | | | | | | | | | | | | | | | | | |
Pinery West | | | 7,308 |
| | | | 3,791 |
| | | | 11,099 |
| | | | 11,099 |
| | | | 2006 | | 2006 |
Cielo | | | 3,933 |
| | | | 2,645 |
| | | | 6,578 |
| | | | 6,578 |
| | | | | | 2016 |
Weld County | | | | | | | | | | | | | | | | | | | | | |
Buffalo Highlands | | | 3,001 |
| | | | (295 | ) | | | | 2,706 |
| | | | 2,706 |
| | | | 2006 | | 2005 |
Johnstown Farms | | | 2,749 |
| | | | 4,189 |
| | $ | 100 |
| | 7,038 |
| | | | 7,038 |
| | | | 2002 | | 2002 |
Stonebraker | | | 3,878 |
| | | | (1,786 | ) | | | | 2,092 |
| | | | 2,092 |
| | | | 2005 | | 2005 |
GEORGIA | | | | | | | | | | | | | | | | | | | | | |
Cobb County | | | | | | | | | | | | | | | | | | | | | |
West Oaks | | | 1,669 |
| | | | 1,543 |
| | | | 3,212 |
| | | | 3,212 |
| | | | 2015 | | 2015 |
Paulding County | | | | | | | | | | | | | | | | | | | | | |
Harris Place | | | 265 |
| | | | (111 | ) | | | | 154 |
| | | | 154 |
| | | | | | 2012 |
Seven Hills | | | 2,964 |
| | | | 1,162 |
| | 13 |
| | 4,139 |
| | | | 4,139 |
| | | | | | 2012 |
NORTH CAROLINA | | | | | | | | | | | | | | | | | | | | | |
Cabbarrus County | | | | | | | | | | | | | | | | | | | | | |
Moss Creek | | | 1,254 |
| | | | 101 |
| | | | 1,355 |
| | | | 1,355 |
| | | | | | 2016 |
Mecklenburg County | | | | | | | | | | | | | | | | | | | | | |
Walden | | | 12,085 |
| | | | 2,279 |
| | 87 |
| | 14,451 |
| | | | 14,451 |
| | | | 2016 | | 2015 |
SOUTH CAROLINA | | | | | | | | | | | | | | | | | | | | | |
Lancaster County | | | | | | | | | | | | | | | | | | | | | |
Ansley Park | | | 5,089 |
| | | | 1,594 |
| | | | 6,683 |
| | | | 6,683 |
| | | | | | 2015 |
York County | | | | | | | | | | | | | | | | | | | | | |
Habersham | | | 3,877 |
| | | | 1,128 |
| | 421 |
| | 5,426 |
| | | | 5,426 |
| | | | 2014 | | 2013 |
Table of Contents
Forestar Group Inc.FORESTAR GROUP INC.
Schedule III — Consolidated Real Estate and Accumulated DepreciationNOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Year-End 2016
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount Carried at End of Period | | | | |
Description | Encumbrances | | Land | | Buildings & Improvements | | Improvements less Cost of Sales and Other | | Carrying Costs(a) | | Land & Land Improvements | | Buildings & Improvements | | Total | | Accumulated Depreciation | | Date of Construction | | Date Acquired |
TENNESEE | | | | | | | | | | | | | | | | | | | | | |
Williamson County | | | | | | | | | | | | | | | | | | | | | |
Morgan Farms | | | $ | 6,841 |
| | | | $ | (1,808 | ) | | $ | 88 |
| | $ | 5,121 |
| | | | $ | 5,121 |
| | | | 2013 | | 2013 |
Scales Farmstead | | | 3,575 |
| | | | 9,319 |
| | 389 |
| | 13,283 |
| | | | 13,283 |
| | | | | | 2015 |
Weatherford Estates | | | 856 |
| | | | 374 |
| | 138 |
| | 1,368 |
| | | | 1,368 |
| | | | 2015 | | 2014 |
Wilson County | | | | | | | | | | | | | | | | | | | | | |
Beckwith Crossing | | | 1,294 |
| | | | 2,397 |
| | 161 |
| | 3,852 |
| | | | 3,852 |
| | | | 2015 | | 2014 |
TEXAS | | | | | | | | | | | | | | | | | | | | | |
Bastrop County | | | | | | | | | | | | | | | | | | | | | |
Hunter’s Crossing | | | 3,613 |
| | | | 5,226 |
| |
|
| | 8,839 |
| | | | 8,839 |
| | | | 2001 | | 2001 |
Bexar County | | | | | | | | | | | | | | | | | | | | | |
Cibolo Canyons | | | 17,305 |
| | | | 26,397 |
| | 1,203 |
| | 44,905 |
| | | | 44,905 |
| | | | 2004 | | 1986 |
Calhoun County | | | | | | | | | | | | | | | | | | | | | |
Caracol |
|
| | 8,603 |
| | | | (8,025 | ) | |
|
| | 578 |
| | | | 578 |
| | | | 2006 | | 2006 |
Collin County | | | | | | | | | | | | | | | | | | | | | |
Lakes of Prosper | | | 8,951 |
| | | | (3,005 | ) | | 348 |
| | 6,294 |
| | | | 6,294 |
| | | | | | 2012 |
Parkside | | | 2,177 |
| | | | (4 | ) | | 183 |
| | 2,356 |
| | | | 2,356 |
| | | | 2014 | | 2013 |
Timber Creek | | | 7,282 |
| | | | 9,862 |
| | | | 17,144 |
| | | | 17,144 |
| | | | 2007 | | 2007 |
Village Park | | | 4,772 |
| | | | (4,720 | ) | |
|
| | 52 |
| | | | 52 |
| | | | | | 2012 |
Comal County | | | | | | | | | | | | | | | | | | | | | |
Oak Creek Estates | | | 1,921 |
| | | | 685 |
| | 22 |
| | 2,628 |
| | | | 2,628 |
| | | | 2006 | | 2005 |
Dallas County | | | | | | | | | | | | | | | | | | | | | |
Stoney Creek | | | 12,822 |
| | | | 327 |
| | 443 |
| | 13,592 |
| | | | 13,592 |
| | | | 2007 | | 2007 |
Denton County | | | | | | | | | | | | | | | | | | | | | |
Lantana |
|
| | 27,673 |
| | | | (11,242 | ) | | 529 |
| | 16,960 |
| | | | 16,960 |
| | | | 2000 | | 1999 |
River's Edge | | | 1,227 |
| | | | 436 |
| | | | 1,663 |
| | | | 1,663 |
| | | | | | 2014 |
The Preserve at Pecan Creek | | | 5,855 |
| | | | (1,387 | ) | | 47 |
| | 4,515 |
| | | | 4,515 |
| | | | 2006 | | 2005 |
Fort Bend County | | | | | | | | | | | | | | | | | | | | | |
Summer Lakes |
| | 4,269 |
| | | | 374 |
| | 78 |
| | 4,721 |
| | | | 4,721 |
| | | | 2013 | | 2012 |
Summer Park |
| | 4,804 |
| | | | (2,557 | ) | | 17 |
| | 2,264 |
| | | | 2,264 |
| | | | 2013 | | 2012 |
Willow Creek Farms | 486 |
| | 3,479 |
| | | | (1,187 | ) | |
| | 2,292 |
| | | | 2,292 |
| | | | 2012 | | 2012 |
Harris County | | | | | | | | | | | | | | | | | | | | | |
Barrington | | | 8,950 |
| | | | (7,483 | ) | | | | 1,467 |
| | | | 1,467 |
| | | | | | 2011 |
City Park |
|
| | 3,946 |
| | | | (2,243 | ) | | 229 |
| | 1,932 |
| | | | 1,932 |
| | | | 2002 | | 2001 |
Imperial Forest | | | 5,345 |
| | | | (957 | ) | | 4 |
| | 4,392 |
| | | | 4,392 |
| | | | 2015 | | 2014 |
Note 17 — Transition Period Comparative Data
Forestar Group Inc.
Schedule III — Consolidated Real EstateThe following table presents certain financial information for the nine months ended September 30, 2018 and Accumulated Depreciation2017 (in millions, except per share amounts).
Year-End 2016 | | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| 2018 | | 2017 |
| | | (Unaudited) |
Revenues | $ | 78.3 | | | $ | 83.5 | |
Cost of sales | 49.5 | | | 90.1 | |
Selling, general and administrative expense | 19.4 | | | 51.2 | |
Equity in earnings of unconsolidated ventures | (4.8) | | | (10.9) | |
Gain on sale of assets | (27.8) | | | (113.4) | |
Interest expense | 3.7 | | | 6.4 | |
Interest and other income | (6.4) | | | (2.4) | |
Income from continuing operations before taxes | 44.7 | | | 62.5 | |
Income tax (benefit) expense | (25.3) | | | 33.4 | |
Net income from continuing operations | 70.0 | | | 29.1 | |
Income from discontinued operations, net of taxes | 0 | | | 38.8 | |
Net income | 70.0 | | | 67.9 | |
Net income attributable to noncontrolling interests | 1.2 | | | 0.1 | |
Net income attributable to Forestar Group Inc. | $ | 68.8 | | | $ | 67.8 | |
Weighted Average Common Shares Outstanding: | | | |
Basic | 41.9 | | | 42.2 | |
Diluted | 42.0 | | | 42.5 | |
Net Income per Basic Share: | | | |
Continuing operations | $ | 1.64 | | | $ | 0.69 | |
Discontinued operations | $ | 0 | | | $ | 0.92 | |
Net income per basic share | $ | 1.64 | | | $ | 1.61 | |
Net Income per Diluted Share: | | | |
Continuing operations | $ | 1.64 | | | $ | 0.68 | |
Discontinued operations | $ | 0 | | | $ | 0.91 | |
Net income per diluted share | $ | 1.64 | | | $ | 1.59 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount Carried at End of Period | | | | |
Description | Encumbrances | | Land | | Buildings & Improvements | | Improvements less Cost of Sales and Other | | Carrying Costs(a) | | Land & Land Improvements | | Buildings & Improvements | | Total | | Accumulated Depreciation | | Date of Construction | | Date Acquired |
Hays County | | | | | | | | | | | | | | | | | | | | | |
Arrowhead Ranch | | | $ | 12,856 |
| | | | $ | 9,204 |
| | $ | 233 |
| | $ | 22,293 |
| | | | $ | 22,293 |
| | | | 2015 | | 2007 |
Tarrant County | | | | | | | | | | | | | | | | | | | | | |
Summer Creek Ranch | | | 2,887 |
| | | | (1,377 | ) | | | | 1,510 |
| | | | 1,510 |
| | | | | | 2012 |
The Bar C Ranch | | | 1,365 |
| | | | 842 |
| | 197 |
| | 2,404 |
| | | | 2,404 |
| | | | | | 2012 |
Other | | | 5,222 |
| | | | (276 | ) | | 25 |
| | 4,971 |
| | | | 4,971 |
| | | | | | |
Total Entitled, Developed, and Under Development Projects | $ | 486 |
| | $ | 234,047 |
| | $ | — |
| | $ | 24,857 |
| | $ | 4,955 |
| | $ | 263,859 |
| | $ | — |
| | $ | 263,859 |
| | $ | — |
| | | | |
Undeveloped Land and land in entitlement: | | | | | | | | | | | | | | | | | |
CALIFORNIA | | | | | | | | | | | | | | | | | | | | | |
Los Angeles County | | | | | | | | | | | | | | | | | | | | | |
Land In Entitlement Process | | | $ | 3,950 |
| | | | $ | 20,838 |
| | | | $ | 24,788 |
| | | | $ | 24,788 |
| | | | | | 1997 |
GEORGIA | | | | | | | | | | | | | | | | | | | | | |
Cherokee County | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | 80 |
| | | |
|
| | | | 80 |
| | | | 80 |
| | | | | | (b) |
TEXAS | | | | | | | | | | | | | | | | | | | | | |
Bexar County | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 2,548 |
| | | | 2,548 |
| | | | 2,548 |
| | | | | | (b) |
Montgomery County | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 5 |
| | | | 5 |
| | | | 5 |
| | | | | | (b) |
Other | | | | | | | | | | | | | | | | | | | | | |
Undeveloped Land | | | | | | | 1,723 |
| | | | 1,723 |
| | | | 1,723 |
| | | | | | (b) |
Total Undeveloped Land and Land in Entitlement | $ | — |
| | $ | 4,030 |
| | $ | — |
| | $ | 25,114 |
| | $ | — |
| | $ | 29,144 |
| | $ | — |
| | $ | 29,144 |
| | $ | — |
| | | | |
Total | $ | 486 |
| | $ | 238,077 |
| | $ | — |
| | $ | 49,971 |
| | $ | 4,955 |
| | $ | 293,003 |
| | $ | — |
| | $ | 293,003 |
| | $ | — |
| | | | |
____________________
(a)We do not capitalize carrying costs until development begins.
(b)The acquisition date is not available.
Reconciliation of real estate:
|
| | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
Balance at beginning of year | | $ | 618,844 |
| | $ | 607,133 |
| | $ | 547,530 |
|
Amounts capitalized | | 89,780 |
| | 124,633 |
| | 214,184 |
|
Amounts retired or adjusted | | (415,621 | ) | | (112,922 | ) | | (154,581 | ) |
Balance at close of period | | $ | 293,003 |
| | $ | 618,844 |
| | $ | 607,133 |
|
Reconciliation of accumulated depreciation:
|
| | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
Balance at beginning of year | | $ | (32,129 | ) | | $ | (31,377 | ) | | $ | (28,066 | ) |
Depreciation expense | | (816 | ) | | (6,810 | ) | | (3,319 | ) |
Amounts retired or adjusted | | 32,945 |
| | 6,058 |
| | 8 |
|
Balance at close of period | | $ | — |
| | $ | (32,129 | ) | | $ | (31,377 | ) |
|
| |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
|
| |
Item 9A. | Controls and Procedures. |
Item 9A. Controls and Procedures.
(a) Disclosure controls and procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (or the(the Exchange Act)), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Internal control over financial reporting
Management’s report on internal control over financial reporting and the report of our independent registered public accounting firm are included in Part II, Item 8 of this Annual Report on Form 10-K.
(c) Changes in Internal Controlinternal control over Financial Reportingfinancial reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter 2016ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
| |
Item 9B. | Other Information.
|
Item 9B. Other Information.
None.
PART III
|
| |
Item 10. | Directors, Executive Officers and Corporate Governance. |
Item 10. Directors, Executive Officers and Corporate Governance.
Set forth below is certain information about the members of our Board of Directors:
|
| | | | | | |
Name | | Age | | Year First Elected to the Board | | Principal Occupation |
James A. Rubright | | 70 | | 2007 | | Retired Chairman and Chief Executive Officer of Rock-Tenn Company |
M. Ashton Hudson | | 44 | | 2016 | | President and General Counsel of Rock Creek Capital Group, Inc. |
William C. Powers, Jr. | | 70 | | 2007 | | Professor of Law at The University of Texas at Austin |
Daniel B. Silvers | | 40 | | 2015 | | Managing Member at Matthews Lane Capital Partners LLC |
Richard M. Smith | | 71 | | 2007 | | President of Pinkerton Foundation |
Richard D. Squires | | 59 | | 2016 | | Managing Director and Co-Founder of Lennox Capital Partners, LLC |
Phillip J. Weber | | 56 | | 2015 | | Chief Executive Officer of Forestar Group Inc. |
The remaining information required by this item is incorporated herein by reference fromset forth under the captions “Election of Directors,” “Delinquent Section 16(a) Reports” and “Board Matters” in our definitive proxy statement, involvingProxy Statement for the election2021 Annual Meeting of directors, to be filed pursuant to Regulation 14A with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K (or Definitive Proxy Statement). Certain information required by this item concerning executive officers is included in Part I of this report.Stockholders.
|
| |
Item 11. | Executive Compensation. |
Item 11. Executive Compensation.
The information required by this item is incorporated by reference fromset forth under the captions “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” in our Definitivedefinitive Proxy Statement.Statement for the 2021 Annual Meeting of Stockholders.
|
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information
We have only one equity compensation plan, the Forestar 2007 Stock Incentive Plan. It was approved by our sole stockholder prior to spin-off and material terms and amendments thereto were subsequently approved by our stockholders. Information at year-end 2016 about our equity compensation plan under which our common stock may be issued follows:
|
| | | | | | | | | |
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1)(2) | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
| (a) | | (b) | | (c) |
Equity compensation plans approved by security holders | 2,935,557 |
| | $ | 20.73 |
| | 1,097,059 |
|
Equity compensation plans not approved by security holders | None |
| | None |
| | None |
|
Total | 2,935,557 |
| | $ | 20.73 |
| | 1,097,059 |
|
_____________________
| |
(1)
| Includes 234,764 shares issuable to former Temple-Inland and the other spin-off entity personnel resulting from the equitable adjustment of Temple-Inland equity awards in connection with our spin-off. |
| |
(2)
| Includes 484,406 equity-settled restricted stock units, 224,616 market-leveraged stock units and 138,819 performance stock units, which are excluded from the calculation of weighted-average exercise price. Market-leveraged stock unit and performance stock unit awards will be settled in common stock based upon performance over three years from the date of grant. For market-leveraged stock units, the number of shares to be issued could range from a high of 336,924 shares if our stock price increases by 50 percent or more, to 112,308 shares if our stock price decreases by 50 percent, or could be zero if our stock price decreases by more than 50 percent, the minimum threshold performance. For performance stock units, the number of shares to be issued could range from 277,638 shares at maximum performance to 138,819 at threshold performance, or could be zero below threshold performance. |
The remaining information required by this item is incorporated by reference fromset forth under the captions “Securities Authorized for Issuance under Equity Compensation Plans” and “Voting Securities and Principal Stockholders” in our Definitivedefinitive Proxy Statement.Statement for the 2021 Annual Meeting of Stockholders.
|
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference fromset forth under the captions “Certain Relationships and Related Party Transactions” and “Board Matters” in our Definitivedefinitive Proxy Statement.Statement for the 2021 Annual Meeting of Stockholders.
|
| |
Item 14. | Principal Accountant Fees and Services. |
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference fromset forth under the caption “Proposal to Ratify the Selection of Ernst & Young as our DefinitiveIndependent Registered Public Accounting Firm” in our definitive Proxy Statement.Statement for the 2021 Annual Meeting of Stockholders.
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
(a)The following documents are filed as part of this report. (1)Financial Statements |
Our Consolidated Financial Statementsconsolidated financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K.
| |
(2) | Financial Statement Schedules
|
Schedule III — Consolidated Real Estate and Accumulated Depreciation is included in Part II, Item 8 of this Annual Report on Form 10-K.(2)Financial Statement Schedules
Schedules other than those listed aboveAll financial statement schedules are omitted asbecause they are not applicable or the required information is either inapplicableincluded in the consolidated financial statements or the information is presented in our Consolidated Financial Statements and notes thereto.
(3)Exhibits
The exhibits listed in the Exhibit Index in (b) below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
(b)Exhibits
|
| | | |
Exhibit Number
| | Exhibit |
3.12.1 | | |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | Second Amendment to Amended and Restated Bylaws (incorporated by reference to Exhibit 3.5 of the Company’s Annual Report on Form 10-K filed with the Commission on March 5, 2009). |
3.5 | | Certificate of Ownership and Merger, dated November 21, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2008). |
3.6 | | Third Amendment to Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2008). |
3.7 | | Fourth Amendment to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on November 26, 2012). |
3.8 | | Fifth Amendment to Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on September 28, 2015). |
3.9 | | Certificate of Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 6, 2015). |
3.10 | | Certificate of Designations, Preferences and Rights of Series B Junior Participating Preferred Stock of Forestar Group Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on January 5, 2017)30, 2018). |
4.13.4 | | |
4.1 | | |
4.2 | | |
4.24.3 | | |
4.34.4 | | Supplemental Indenture, dated February 26, 2013 |
4.4 | | Form of 3.75% Convertible Senior Notes due 2020 (included in Exhibit 4.3 above) (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the Commission on February 26, 2013). |
|
10.1† | | |
4.5 | | Indenture, dated May 12, 2014 (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed with the Commission on May 15, 2014). |
4.6 | | Form of 8.500% Senior Secured Notes due 2022 (included in Exhibit 4.10 above) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the Commission on May 15, 2014). |
4.7 | | Supplemental Indenture, dated as of June 21, 2016, among Forestar (USA) Real Estate Group Inc., as issuer, the Guarantors named therein and U.S. Bank National Association, as trustee, to the Indenture, dated as of May 12, 2014, among Forestar (USA) Real Estate Group Inc., the Guarantors named therein and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed with the Commission on June 21, 2016). |
4.8 | | Tax Benefits Preservation Plan, dated as of January 5, 2017, between Forestar Group Inc. and Computershare Trust Company, N.A. (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed with the Commission on January 5, 2017). |
10.1† | | |
10.2† | | |
| | | | | | | | |
10.3† | | |
10.4† | | |
10.5† | | |
10.6† | | |
10.7* | | |
10.8 | | |
10.9 | | |
10.10† | | |
10.4†10.11† | | Amended and Restated Forestar Group Inc. Amended and Restated Directors' Fee Deferral Plan (incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K filed with the Commission on March 11, 2014). |
10.5† | | 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). |
10.6† | | Form of Change in Control/Severance Agreement between the Company and its named executive officers (incorporated by reference to Exhibit 10.10 to the Company’s Form 10 filed with the Commission on August 10, 2007). |
10.7† | | Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K filed with the Commission on March 5, 2009). |
10.8† | | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K filed with the Commission on March 14, 2013). |
10.9† | | Form of Restricted Stock Units Agreement (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K filed with the Commission on March 14, 2013). |
10.10† | | Form of Stock Appreciation Right Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on February 12, 2009). |
10.11† | | |
10.12† | | |
10.13† | | |
10.14† | | Form of Indemnification Agreement entered into between the Company and each of its executive officers (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K filed with the Commission on March 14, 2013). |
10.15† | | Amendment No. 2 to |
10.1610.15† | | |
10.16 | | |
10.1710.17† | | |
10.18† | | |
10.18 | | Third Amended and Restated Revolving Credit Agreement dated May 15, 2014, by and among the Company, Forestar (USA) Real Estate Group Inc. and certain of its wholly-owned subsidiaries; Key Bank National Association, as lender, swing line lender and agent, the lenders party thereto; and the other parties thereto (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on May 16, 2014). |
10.19 | | Guaranty, dated July 15, 2014, by Forestar (USA) Real Estate Group Inc. in favor of Regions Bank (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K10-Q filed with the Commission on July 18, 2014)30, 2019). |
10.2010.19 | | Limited Waiver and Amendment No. 1 to the Third Amended and Restated Revolving Credit Agreement, dated September 30, 2015,October 2, 2019 by and among the Company, Forestar (USA) Real Estate Group Inc. and certain of its wholly-owned subsidiaries signatory thereto, KeyBank National Association,, JPMorgan Chase Bank, N.A., as lender, swing line lender andadministrative agent, the lenders party thereto, and the other parties thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 6, 2015). |
10.21 | | First Amendment to Third Amended and Restated Revolving Credit Agreement dated December 30, 2015, by and among the Company, Forestar (USA) Real Estate Group Inc. and certain of its wholly-owned subsidiaries signatory thereto, KeyBank National Association, as lender, swing line lender and agent, the lenders party thereto, and the other parties theretoLenders named therein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on December 31, 2015)October 3, 2019). |
| | | | | | | | |
10.22†10.20 | | Employment |
10.23 | | Purchase and Sale Agreement, dated February 4, 2016, by and between Capital of Texas Insurance Group and Austin Lakeside Hotel Owner LLC (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 10, 2016). |
10.24 | | Director Nomination Agreement, dated February 5, 2016, by and between Forestar Group Inc. and Carlson Capital, L.P. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on February 8, 2016). |
10.25 | | Director Nomination Agreement, dated February 5, 2016, by and between Forestar Group Inc. and Cove Street Capital, LLC (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on February 8, 2016). |
|
| | |
10.26 | | Purchase and Sale Agreement, dated April 7, 2016, by and between Forestar Petroleum Corporation and DW Slate, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on April 11, 2016). |
10.27 | | Consent to Third Amended and Restated Credit Agreement dated June 30, 2016, by and among the Company, Forestar (USA) Real Estate Group Inc. and certain of its wholly-owned subsidiaries signatory thereto, KeyBank National Associate, as agent and lender, the lenders thereto, and the other parties thereto (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 5, 2016). |
10.28* | | Purchase and Sale Agreement, dated November 9, 2016 among Forestar Real Estate Group Inc., Forestar Petroleum Corporation and SPP Land, LLC. |
10.29* | | Purchase and Sale Agreement, dated November 10, 2016 among Forestar Real Estate Group Inc., Forestar Petroleum Corporation and Hubble Timber, LLC. |
10.30* | | Purchase and Sale Agreement, dated November 11, 2016 among Forestar Real Estate Group Inc., Forestar Petroleum Corporation and TIR Europe Forestry Fund S.C.A. SICAV-SIF. |
10.31 | | Purchase and Sale Agreement, dated February 17, 2017, between Forestar (USA) Real Estate Group Inc. and Mineral Resources Partners, LLC (incorporated by reference to Exhibit 10.11.1 of the Company's Current Report on Form 8-K filed with the Commission on February 17, 2017)August 7, 2020). |
21.1* | | |
23.1* | | |
23.2*31.1* | | Consent of Netherland, Sewell & Associates, Inc. |
31.1* | | |
31.2* | | |
32.1* | | |
32.2* | | |
99.1*101.INS** | | Reserve report of Netherland, Sewell & Associates, Inc., dated February 3, 2017.XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.1*101.SCH** | | The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, formatted inInline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss), (iii) Consolidated Statement of Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements. |
_____________________
Taxonomy Extension Schema Document. |
101.CAL** | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF** | Filed herewith. |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB** | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
†101.PRE** | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104** | | Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101). |
_____________________ |
* | | Filed or furnished herewith. |
** | | Submitted electronically herewith. |
† | | Management contract or compensatory plan or arrangement. |
|
| |
Item 16. | Form 10-K Summary. |
Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | Forestar Group Inc. |
| FORESTAR GROUP INC.
| | |
Date: | November 19, 2020 | By: | /s/ James D. Allen |
| By: | /s/ Phillip J. Weber | James D. Allen |
| | Phillip J. Weber |
| | Executive Vice President and Chief ExecutiveFinancial Officer |
Date: March 3, 2017
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 | | Title | | Date |
| | | | |
/s/ Daniel C. Bartok | | Chief Executive Officer (Principal Executive Officer) | | November 19, 2020 |
Daniel C. Bartok | | | |
| | | | |
Signature | | Capacity | | Date |
/s/ Phillip J. WeberJames D. Allen | | DirectorExecutive Vice President and Chief Executive Officer
(Principal Executive Officer)
| | March 3, 2017 |
Phillip J. Weber | | |
| | |
/s/ Charles D. Jehl | | Chief Financial Officer (Principal Financial Officer)
| | March 3, 2017 |
Charles D. Jehl | | |
| | |
/s/ Sabita C. Reddy | | Vice President Accounting
(and Principal Accounting Officer)
| | March 3, 2017November 19, 2020 |
Sabita C. ReddyJames D. Allen | | | |
| | | | |
/s/ James A. RubrightDonald J. Tomnitz | |
Executive Chairman of the Board | | March 3, 2017November 19, 2020 |
James A. RubrightDonald J. Tomnitz | | | |
| | | | |
/s/ M. Ashton HudsonSamuel R. Fuller | | Director | | March 3, 2017November 19, 2020 |
M. Ashton HudsonSamuel R. Fuller | | | |
| | | | |
/s/ William C. Powers, Jr.Lisa H. Jamieson | | Director | | March 3, 2017November 19, 2020 |
William C. Powers, Jr.Lisa H. Jamieson | | | |
| | | | |
/s/ Daniel B. SilversG.F. (Rick) Ringler, III | | Director | | March 3, 2017November 19, 2020 |
Daniel B. SilversG.F. (Rick) Ringler, III | | | |
| | | | |
/s/ Richard M. SmithDonald C. Spitzer | | Director | | March 3, 2017November 19, 2020 |
Richard M. SmithDonald C. Spitzer | | |
| | |
/s/ Richard D. Squires | | Director | | March 3, 2017 |
Richard D. Squires | | |
| | | | |