UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | ||
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
or
¨ | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-33662
FORESTAR GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | ||
26-1336998 | ||
(State or Other Jurisdiction of | ||
Incorporation or Organization) | (I.R.S. Employer Identification No.) |
6300 Bee Cave Road, Building Two, Suite 500, Austin, Texas 78746
(Address of Principal Executive Offices, Including Zip Code)
(512) 433-5200
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.þ Yes o¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).þ Yes o¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | þ | |||||
Non-accelerated filer | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o¨ Yes þ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Number of Shares Outstanding as of | ||
Title of Each Class | May 4, 2012 | |
Common Stock, par value $1.00 per share | ||
3 | ||||||||
3 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
18 | ||||||||
2
FORESTAR GROUP INC.
(Unaudited) | ||||||||
Third | ||||||||
Quarter-End | Year-End | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 29,121 | $ | 5,366 | ||||
Real estate | 587,226 | 562,192 | ||||||
Assets held for sale | — | 21,122 | ||||||
Investment in unconsolidated ventures | 98,089 | 101,166 | ||||||
Timber | 15,656 | 17,959 | ||||||
Receivables, net | 24,376 | 2,875 | ||||||
Prepaid expenses | 2,409 | 2,034 | ||||||
Property and equipment, net | 5,362 | 5,577 | ||||||
Oil and gas properties and equipment, net | 3,713 | 322 | ||||||
Deferred tax asset | 58,154 | 47,141 | ||||||
Goodwill and other intangible assets | 5,720 | 6,527 | ||||||
Other assets | 16,870 | 17,043 | ||||||
TOTAL ASSETS | $ | 846,696 | $ | 789,324 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Accounts payable | $ | 5,733 | $ | 4,214 | ||||
Accrued employee compensation and benefits | 784 | 994 | ||||||
Accrued property taxes | 6,996 | 3,662 | ||||||
Accrued interest | 946 | 1,061 | ||||||
Income taxes payable | 22,423 | 3,293 | ||||||
Other accrued expenses | 10,713 | 8,168 | ||||||
Other liabilities | 30,753 | 32,064 | ||||||
Debt | 223,697 | 221,589 | ||||||
TOTAL LIABILITIES | 302,045 | 275,045 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||
Forestar Group Inc. shareholders’ equity: | ||||||||
Preferred stock, par value $0.01 per share, 25,000,000 authorized shares, none issued | — | — | ||||||
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 36,793,467 issued at third quarter-end 2011 and 36,667,210 issued at year-end 2010 | 36,793 | 36,667 | ||||||
Additional paid-in capital | 396,898 | 391,352 | ||||||
Retained earnings | 131,035 | 101,001 | ||||||
Treasury stock, at cost, 1,459,621 shares at third quarter-end 2011 and 1,216,647 shares at year-end 2010 | (22,873 | ) | (19,456 | ) | ||||
Total Forestar Group Inc. shareholders’ equity | 541,853 | 509,564 | ||||||
Noncontrolling interests | 2,798 | 4,715 | ||||||
TOTAL SHAREHOLDERS’ EQUITY | 544,651 | 514,279 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 846,696 | $ | 789,324 | ||||
(Unaudited) | ||||||||
First | ||||||||
Quarter-End | Year-End | |||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 6,801 | $ | 18,283 | ||||
Real estate | 605,283 | 565,367 | ||||||
Investment in unconsolidated ventures | 35,260 | 64,223 | ||||||
Timber | 14,078 | 14,240 | ||||||
Receivables, net | 24,456 | 23,281 | ||||||
Prepaid expenses | 3,358 | 2,931 | ||||||
Property and equipment, net | 5,080 | 5,178 | ||||||
Oil and natural gas properties and equipment, net | 6,218 | 4,561 | ||||||
Deferred tax asset | 74,406 | 72,942 | ||||||
Goodwill and other intangible assets | 5,451 | 5,451 | ||||||
Other assets | 17,380 | 18,400 | ||||||
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TOTAL ASSETS | $ | 797,771 | $ | 794,857 | ||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Accounts payable | $ | 5,721 | $ | 5,044 | ||||
Accrued employee compensation and benefits | 691 | 1,421 | ||||||
Accrued property taxes | 2,659 | 4,986 | ||||||
Accrued interest | 1,152 | 1,086 | ||||||
Income taxes payable | 2,707 | 8,501 | ||||||
Other accrued expenses | 7,652 | 7,716 | ||||||
Other liabilities | 32,407 | 33,304 | ||||||
Debt | 227,865 | 221,587 | ||||||
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| |||||
TOTAL LIABILITIES | 280,854 | 283,645 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||
Forestar Group Inc. shareholders’ equity: | ||||||||
Common stock, par value $1.00 per share, 200,000,000 authorized shares, 36,942,804 issued at first quarter-end 2012 and 36,835,732 issued at year-end 2011 | 36,943 | 36,836 | ||||||
Additional paid-in capital | 402,237 | 398,517 | ||||||
Retained earnings | 110,957 | 108,155 | ||||||
Treasury stock, at cost, 2,283,770 shares at first quarter-end 2012 and 2,212,876 shares at year-end 2011 | (35,130 | ) | (33,982 | ) | ||||
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Total Forestar Group Inc. shareholders’ equity | 515,007 | 509,526 | ||||||
Noncontrolling interests | 1,910 | 1,686 | ||||||
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TOTAL SHAREHOLDERS’ EQUITY | 516,917 | 511,212 | ||||||
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 797,771 | $ | 794,857 | ||||
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Please read the Notes to Consolidated Financial Statements.
3
(Unaudited)
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
REVENUES | ||||||||||||||||
Real estate sales | $ | 11,802 | $ | 10,000 | $ | 38,335 | $ | 36,895 | ||||||||
Income producing properties and other | 7,258 | 5,139 | 21,479 | 17,041 | ||||||||||||
Real estate | 19,060 | 15,139 | 59,814 | 53,936 | ||||||||||||
Mineral resources | 5,871 | 6,654 | 17,784 | 18,387 | ||||||||||||
Fiber resources and other | 1,310 | 2,220 | 3,968 | 6,185 | ||||||||||||
26,241 | 24,013 | 81,566 | 78,508 | |||||||||||||
COSTS AND EXPENSES | ||||||||||||||||
Cost of real estate sales | (7,760 | ) | (4,183 | ) | (19,396 | ) | (17,312 | ) | ||||||||
Cost of income producing properties and other | (4,607 | ) | (3,931 | ) | (13,498 | ) | (12,680 | ) | ||||||||
Cost of mineral resources | (597 | ) | (223 | ) | (1,829 | ) | (852 | ) | ||||||||
Cost of fiber resources and other | (349 | ) | (466 | ) | (881 | ) | (1,208 | ) | ||||||||
Other operating | (11,771 | ) | (10,323 | ) | (33,928 | ) | (29,760 | ) | ||||||||
General and administrative | (2,770 | ) | (4,797 | ) | (15,590 | ) | (16,493 | ) | ||||||||
Gain on sale of assets | 61,784 | 15,441 | 61,784 | 15,441 | ||||||||||||
33,930 | (8,482 | ) | (23,338 | ) | (62,864 | ) | ||||||||||
OPERATING INCOME | 60,171 | 15,531 | 58,228 | 15,644 | ||||||||||||
Equity in earnings of unconsolidated ventures | 648 | 82 | 1,632 | 740 | ||||||||||||
Interest expense | (4,271 | ) | (3,913 | ) | (12,933 | ) | (12,562 | ) | ||||||||
Other non-operating income | 26 | 246 | 77 | 690 | ||||||||||||
INCOME BEFORE TAXES | 56,574 | 11,946 | 47,004 | 4,512 | ||||||||||||
Income tax expense | (19,609 | ) | (2,860 | ) | (16,069 | ) | (1,507 | ) | ||||||||
CONSOLIDATED NET INCOME | 36,965 | 9,086 | 30,935 | 3,005 | ||||||||||||
Less: Net income attributable to noncontrolling interests | (537 | ) | (164 | ) | (901 | ) | (328 | ) | ||||||||
NET INCOME ATTRIBUTABLE TO FORESTAR GROUP INC. | $ | 36,428 | $ | 8,922 | $ | 30,034 | $ | 2,677 | ||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||||
Basic | 35,514 | 35,934 | 35,482 | 36,109 | ||||||||||||
Diluted | 35,796 | 36,379 | 35,877 | 36,595 | ||||||||||||
NET INCOME PER COMMON SHARE | ||||||||||||||||
Basic | $ | 1.03 | $ | 0.25 | $ | 0.85 | $ | 0.07 | ||||||||
Diluted | $ | 1.02 | $ | 0.25 | $ | 0.84 | $ | 0.07 |
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands, except per share amounts) | ||||||||
REVENUES | ||||||||
Real estate sales and other | $ | 10,644 | $ | 14,204 | ||||
Commercial and income producing properties | 7,278 | 6,935 | ||||||
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Real estate | 17,922 | 21,139 | ||||||
Mineral resources | 9,426 | 7,333 | ||||||
Fiber resources and other | 744 | 1,368 | ||||||
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28,092 | 29,840 | |||||||
COSTS AND EXPENSES | ||||||||
Cost of real estate sales and other | (5,774 | ) | (5,658 | ) | ||||
Cost of commercial and income producing properties | (4,557 | ) | (4,512 | ) | ||||
Cost of mineral resources | (1,375 | ) | (794 | ) | ||||
Cost of fiber resources and other | (128 | ) | (247 | ) | ||||
Other operating | (12,750 | ) | (11,674 | ) | ||||
General and administrative | (6,963 | ) | (5,971 | ) | ||||
Gain on sale | 11,675 | — | ||||||
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(19,872 | ) | (28,856 | ) | |||||
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OPERATING INCOME | 8,220 | 984 | ||||||
Equity in earnings of unconsolidated ventures | 724 | 582 | ||||||
Interest expense | (3,891 | ) | (4,009 | ) | ||||
Other non-operating income | 64 | 27 | ||||||
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INCOME (LOSS) BEFORE TAXES | 5,117 | (2,416 | ) | |||||
Income tax (expense) benefit | (1,620 | ) | 712 | |||||
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CONSOLIDATED NET INCOME (LOSS) | 3,497 | (1,704 | ) | |||||
Less: Net income attributable to noncontrolling interests | (695 | ) | (769 | ) | ||||
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NET INCOME (LOSS) ATTRIBUTABLE TO FORESTAR GROUP INC. | $ | 2,802 | $ | (2,473 | ) | |||
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||
Basic | 34,855 | 35,406 | ||||||
Diluted | 35,169 | 35,406 | ||||||
NET INCOME PER COMMON SHARE | ||||||||
Basic | $ | 0.08 | $ | (0.07 | ) | |||
Diluted | $ | 0.08 | $ | (0.07 | ) | |||
OTHER COMPREHENSIVE INCOME (LOSS) | $ | 2,802 | $ | (2,473 | ) |
Please read the Notes to Consolidated Financial Statements.
4
(Unaudited)
First Nine Months | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Consolidated net income | $ | 30,935 | $ | 3,005 | ||||
Adjustments: | ||||||||
Depreciation and amortization | 7,335 | 7,231 | ||||||
Deferred income taxes | (11,013 | ) | (1,470 | ) | ||||
Tax benefits not recognized for book purposes | 144 | 91 | ||||||
Equity in (earnings) loss of unconsolidated ventures | (1,632 | ) | (740 | ) | ||||
Distributions of earnings of unconsolidated ventures | 5,307 | 1,184 | ||||||
Distributions of earnings to noncontrolling interests | (2,899 | ) | (569 | ) | ||||
Non-cash share-based compensation | 399 | 7,370 | ||||||
Non-cash real estate cost of sales | 17,149 | 15,387 | ||||||
Non-cash cost of assets sold | 24,931 | 6,604 | ||||||
Real estate development and acquisition expenditures | (49,530 | ) | (11,499 | ) | ||||
Acquisition of non-performing loan | (21,137 | ) | — | |||||
Reimbursements from utility and improvement districts | 2,270 | 495 | ||||||
Other changes in real estate | (237 | ) | 133 | |||||
Gain on termination of timber lease | (181 | ) | (617 | ) | ||||
Cost of timber cut | 856 | 1,141 | ||||||
Deferred income | 345 | 1,655 | ||||||
Asset impairments | 450 | 900 | ||||||
Loss on sale of assets held for sale | — | 277 | ||||||
Other | 115 | (51 | ) | |||||
Changes in: | ||||||||
Notes and accounts receivable | (464 | ) | (9,729 | ) | ||||
Proceeds due from qualified intermediary | — | (22,630 | ) | |||||
Prepaid expenses and other | 581 | 570 | ||||||
Accounts payable and other accrued liabilities | 9,962 | (4,220 | ) | |||||
Income taxes | 19,130 | (8,219 | ) | |||||
Net cash provided by (used for) operating activities | 32,816 | (13,701 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Property, equipment, software and reforestation | (1,466 | ) | (2,282 | ) | ||||
Oil and gas properties and equipment | (3,414 | ) | — | |||||
Investment in unconsolidated ventures | (1,350 | ) | (1,538 | ) | ||||
Return of investment in unconsolidated ventures | 688 | 4,790 | ||||||
Proceeds from sale of assets held for sale | — | 2,602 | ||||||
Proceeds from termination of timber lease | 290 | — | ||||||
Proceeds from sale of property | 103 | — | ||||||
Net cash (used for) provided by investing activities | (5,149 | ) | 3,572 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Payments of debt | (104,750 | ) | (22,551 | ) | ||||
Additions to debt | 106,858 | 36,698 | ||||||
Deferred financing fees | (3,746 | ) | (5,969 | ) | ||||
Return of investment to noncontrolling interest | (2 | ) | (706 | ) | ||||
Exercise of stock options | 1,171 | 881 | ||||||
Repurchases of common stock | (2,126 | ) | (15,178 | ) | ||||
Payroll taxes on restricted stock and stock options | (1,290 | ) | (49 | ) | ||||
Tax benefit from share-based compensation | (110 | ) | 121 | |||||
Other | 83 | 314 | ||||||
Net cash used for financing activities | (3,912 | ) | (6,439 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 23,755 | (16,568 | ) | |||||
Cash and cash equivalents at beginning of period | 5,366 | 21,051 | ||||||
Cash and cash equivalents at end of period | $ | 29,121 | $ | 4,483 | ||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Consolidated net income (loss) | $ | 3,497 | $ | (1,704 | ) | |||
Adjustments: | ||||||||
Depreciation and amortization | 2,267 | 2,294 | ||||||
Deferred income taxes | (1,464 | ) | (1,496 | ) | ||||
Tax benefits not recognized for book purposes | 38 | 47 | ||||||
Equity in (earnings) loss of unconsolidated ventures | (724 | ) | (582 | ) | ||||
Distributions of earnings of unconsolidated ventures | — | 3,035 | ||||||
Distributions of earnings to noncontrolling interests | (632 | ) | (1,026 | ) | ||||
Non-cash share-based compensation | 5,231 | 4,100 | ||||||
Non-cash real estate cost of sales | 5,484 | 5,295 | ||||||
Real estate development and acquisition expenditures, net | (36,750 | ) | (13,571 | ) | ||||
Reimbursements from utility and improvement districts | 108 | 36 | ||||||
Other changes in real estate | 603 | 19 | ||||||
Gain on termination of timber lease | (234 | ) | — | |||||
Cost of timber cut | 97 | 242 | ||||||
Deferred income | 1,022 | 83 | ||||||
Gain on sale of venture interest | (11,675 | ) | — | |||||
Other | 187 | 5 | ||||||
Changes in: | ||||||||
Notes and accounts receivable | (1,153 | ) | 760 | |||||
Prepaid expenses and other | 203 | 78 | ||||||
Accounts payable and other accrued liabilities | (7,824 | ) | (1,461 | ) | ||||
Income taxes | (5,795 | ) | (2,560 | ) | ||||
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Net cash provided by (used for) operating activities | (47,514 | ) | (6,406 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Property, equipment, software and reforestation | (863 | ) | (507 | ) | ||||
Oil and natural gas properties and equipment | (1,968 | ) | — | |||||
Investment in unconsolidated ventures | (117 | ) | (673 | ) | ||||
Return of investment in unconsolidated ventures | 266 | 9 | ||||||
Proceeds from sale of venture interest | 32,095 | — | ||||||
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Net cash provided by (used for) investing activities | 29,413 | (1,171 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Payments of debt | (27,414 | ) | (14,436 | ) | ||||
Additions to debt | 33,692 | 23,447 | ||||||
Deferred financing fees | (31 | ) | (285 | ) | ||||
Return of investment to noncontrolling interest | (40 | ) | (1 | ) | ||||
Exercise of stock options | 1,138 | 365 | ||||||
Payroll taxes on restricted stock and stock options | (1,148 | ) | (1,190 | ) | ||||
Tax benefit from share-based compensation | 390 | (110 | ) | |||||
Other | 32 | 29 | ||||||
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Net cash provided by (used for) financing activities | 6,619 | 7,819 | ||||||
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Net increase (decrease) in cash and cash equivalents | (11,482 | ) | 242 | |||||
Cash and cash equivalents at beginning of period | 18,283 | 5,366 | ||||||
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Cash and cash equivalents at end of period | $ | 6,801 | $ | 5,608 | ||||
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Please read the Notes to Consolidated Financial Statements.
5
Note 1 — 1—Basis of Presentation
Our consolidated financial statements include the accounts of Forestar Group Inc., all subsidiaries, ventures and other entities in which we have a controlling interest and variable interest entities of which we are the primary beneficiary. We eliminate all material intercompany accounts and transactions. Noncontrolling interests in consolidated pass-through entities are recognized before income taxes. We account for our investment in other entities in which we have significant influence over operations and financial policies using the equity method (we recognize our share of the entities’ income or loss and any preferential returns and treat distributions as a reduction of our investment). We account for our investment in other entities in which we do not have significant influence over operations and financial policies using the cost method (we recognize as income distributions of accumulated earnings).
We prepare our unaudited interim financial statements in accordance with U.S. generally accepted accounting principles and Securities and Exchange Commission requirements for interim financial statements. As a result, they do not include all the information and disclosures required for complete financial statements. However, in our opinion, all adjustments considered necessary for a fair presentation have been included. Such adjustments consist only of normal recurring items unless otherwise noted. We make estimates and assumptions about future events. Actual results can, and probably will, differ from those we currently estimate including those related to allocating cost of sales to real estate, minerals and fiber and measuring assets for impairment. These interim operating results are not necessarily indicative of the results that may be expected for the entire year. For further information, please read the financial statements included in our 20102011 Annual Report on Form 10-K.
Note 2 — 2—New and Pending Accounting Pronouncements
Accounting Standards Adopted in 20112012
In first quarter 2011,2012, we adopted Accounting Standards Update (ASU) 2010-28 —2011-04 –WhenFair Value Measurement (Topic 820): Amendments to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying AmountsAchieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs and ASU 2010-29 —2011-05 –DisclosureComprehensive Income (Topic 220): Presentation of Supplementary Pro Forma Information for Business CombinationsComprehensive Income. Adoption of these pronouncements did not affect our earnings or financial position.
Pending Accounting Standards
Pending ASU 2011-04 —2011-10 –Fair Value Measurement: Amendments to Achieve Common Fair Value MeasurementProperty, Plant, and Disclosure RequirementsEquipment: Derecognition of in U.S. GAAP and IFRSsSubstance Real Estate, ASU 2011-05 —Comprehensive Income: Presentation of Comprehensive Incomeand ASU 2011-08 —Testing Goodwill for Impairmentwill be effective first quarter 2012 though early adoption2013. Adoption is permitted. We are evaluating whether we will adopt this ASU in fourth quarter 2011. Adoptions of these ASUs are not anticipated to have a significant effect on our earnings or financial position but may result in certain additional disclosures.
Note 3 — Strategic Initiatives3—Business Acquisitions
On March 29, 2012, we acquired from CL Realty, L.L.C. and Assets HeldTemco Associates, LLC, the ventures’ interest in 17 residential and mixed-use real estate projects for Sale
The acquired assets and better use timberlandoperating results are included within our real estate segment and reduction of debt. Since announcing these initiatives, we have sold 176,000 acres of timberland in Georgia, Alabama and Texas for $284,442,000 in eleven transactions. These transactions generated net proceeds of $277,909,000 and resulted in gains of $194,438,000. We used the proceeds principally to reduce debt, pay income taxes, reinvest in our business and repurchase stock. Our total debt has been reduced by $151,986,000 sinceat first quarter-end 2009, excluding $26,500,0002012 represent approximately 1,130 fully developed lots, 4,900 planned lots and over 460 commercial acres, principally in non-recourse borrowings secured by a 401 unit multifamily property wethe major markets of Texas. Operating results of the acquired assets in fourthfirst quarter 2010. In addition, we have repurchased 1,173,422 shares2012 were not significant. Pro forma consolidated operating income (loss) assuming these acquisitions had occurred at the beginning of our common stock for $17,304,000.
62011 would not be significantly different than those reported.
Real estate consists of:
Third | ||||||||
Quarter-End | Year-End | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Entitled, developed and under development projects | $ | 406,311 | $ | 403,059 | ||||
Undeveloped land | 90,969 | 86,608 | ||||||
Income producing properties | 116,034 | 95,963 | ||||||
613,314 | 585,630 | |||||||
Accumulated depreciation | (26,088 | ) | (23,438 | ) | ||||
$ | 587,226 | $ | 562,192 | |||||
First Quarter-End 2012 | Year-End 2011 | |||||||
(In thousands) | ||||||||
Entitled, developed and under development projects | $ | 414,325 | $ | 383,026 | ||||
Undeveloped land | 81,078 | 80,076 | ||||||
Commercial and income producing properties | ||||||||
Carrying value | 137,716 | 129,220 | ||||||
Accumulated depreciation | (27,836 | ) | (26,955 | ) | ||||
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Net carrying value | 109,880 | 102,265 | ||||||
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$ | 605,283 | $ | 565,367 | |||||
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Included in entitled, developed and under development projects are the estimated costs of assets we expect to convey to utility and improvement districts of $63,087,000$63,573,000 at thirdfirst quarter-end 20112012 and $59,079,000$61,526,000 at year-end 2010,2011, including $36,552,000$34,802,000 included in both thirdfirst quarter-end 20112012 and year-end 20102011 related to our Cibolo Canyons project near San Antonio, Texas. These costs relate to water, sewer and other infrastructure assets we have submitted to utility or improvement districts for approval and reimbursement. We submitted for reimbursement to these districts $2,336,000$2,296,000 in first nine months 2011quarter 2012 and $3,316,000$1,800,000 in first nine months 2010.quarter 2011. We collected $187,000$108,000 from these districts in first nine months 2011quarter 2012 and $495,000$36,000 in first nine months 2010.quarter 2011. We expect to collect the remaining amounts billed when these districts achieve adequate tax bases to support payment.
Also included in entitled, developed and under development projects is our investment in the resort development owned by third parties at our Cibolo Canyons project. In first nine months 2011, we received $2,083,000 from the Special Improvement District (SID) from hotel occupancy and sales revenues collected as taxes by the SID. We currently account for these receipts as a reduction of our investment in the resort development. At third-quarter-end 2011,first-quarter-end 2012, we have $39,918,000$35,368,000 invested in the resort development.
In first quarter 2012, entitled, developed and under development projects increased by $31,891,000 as result of our acquisition of certain residential and mixed-use projects from CL Realty and Temco. Please readNote 3 for additional information.
At thirdfirst quarter-end 2011,2012, commercial and income producing properties primarily represents our investment in a 401 unit multifamily property in Houston Texas with a carrying value of $46,998,000 and$46,344,000, a 413 guest room hotel in Austin Texas with a carrying value of $21,569,000. In addition, in second quarter 2011, we reclassified $4,555,000 in land from entitled, developed$20,844,000 and under development projects to income producing properties as result of commencing construction on a 289 unit multifamily project in Austin, Texas. At third-quarter end 2011, our investmentcurrently under construction, with a carrying value of $21,193,000. In first quarter 2012, we invested $7,765,000 in construction costs associated with this project including landproperty and construction in progress is $9,394,000 with anthe estimated cost to complete construction of $21,142,000.
Depreciation expense, primarily related to commercial and income producing properties, was $2,650,000$882,000 in first nine months 2011quarter 2012 and $2,067,000$879,000 in first nine months 2010quarter 2011 and is included in other operating expenses.
Note 5 — 5—Timber
We own directly or through ventures over 143,000about 130,000 acres of timber, primarily in Georgia.Georgia and about 17,000 acres of timber under lease. The non-cash cost of timber cut and sold was $856,000$97,000 in first nine months 2011quarter 2012 and $1,141,000$242,000 in first nine months 2010.
Note 6 — 6—Shareholders’ Equity
A reconciliation of changes in shareholders’ equity at thirdfirst quarter-end 20112012 follows:
Forestar | Noncontrolling | |||||||||||
Group Inc. | Interests | Total | ||||||||||
(In thousands) | ||||||||||||
Balance at year-end 2010 | $ | 509,564 | $ | 4,715 | $ | 514,279 | ||||||
Net income | 30,034 | 901 | 30,935 | |||||||||
Distributions to noncontrolling interests | — | (2,901 | ) | (2,901 | ) | |||||||
Contributions from noncontrolling interests | — | 83 | 83 | |||||||||
Other (primarily share-based compensation) | 2,255 | — | 2,255 | |||||||||
Balance at third quarter-end 2011 | $ | 541,853 | $ | 2,798 | $ | 544,651 | ||||||
Forestar- Group Inc. | Noncontrolling Interests | Total | ||||||||||
(In thousands) | ||||||||||||
Balance at year-end 2011 | $ | 509,526 | $ | 1,686 | $ | 511,212 | ||||||
Net income | 2,802 | 695 | 3,497 | |||||||||
Distributions to noncontrolling interests | (676 | ) | (676 | ) | ||||||||
Contributions from noncontrolling interests | 205 | 205 | ||||||||||
Other (primarily share-based compensation) | 2,679 | 2,679 | ||||||||||
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Balance at first quarter-end 2012 | $ | 515,007 | $ | 1,910 | $ | 516,917 | ||||||
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In first nine months 2011,quarter 2012, we issued 126,257107,072 shares of our common stock as a result of stock option exercises and vesting of equity-settled restricted stock units.
7
At thirdfirst quarter-end 2011,2012, we had ownership interests generally ranging from 25 to 50 percent in 1011 ventures that we account for using the equity method. We have no real estate ventures that are accounted for using the cost method. Our three largest ventures at third quarter-end 2011 are CL Realty, Temco and Palisades West. We own a 50 percent interest in both
In first quarter 2012, we acquired from CL Realty and Temco their interest in 17 residential and Cousins Real Estate Corporation owns the other 50 percent interest. We own amixed-use projects for $47,000,000, principally representing $31,891,000 in real estate and $14,236,000 in investment in unconsolidated ventures. Please readNote 3 for additional information. Also in first quarter 2012, we sold our 25 percent interest in Palisades West Cousins Properties IncorporatedLLC, which owns a 50 percent interesttwo office buildings and an accompanying parking garage in Austin, to Dimensional Fund Advisors, LP ownsfor $32,095,000, resulting in a gain on sale of $11,675,000.
Summary information regarding our ventures at first quarter-end 2012 follows:
CL Realty’s remaining assets consist of one commercial development site located on the Texas gulf coast and about 900 net mineral acres leased in the Fort Worth Basin with about 23 wells currently producing from the Barnett Shale natural gas formation.
Temco’s remaining 25 percent interest. Information regardingassets consist of about 5,700 acres of undeveloped land and a golf course and country club property, both located in Paulding County, Georgia.
Other ventures include three investments in unconsolidated ventures acquired from CL Realty and our net share of the equity in these ventures follows:is $14,660,000 at first quarter-end 2012. These investments represent residential and mixed-use projects located in Houston and San Antonio.
Combined summarized balance sheet information for our ventures accounted for using the equity method follows:
Third Quarter-End 2011 | Year-End 2010 | |||||||||||||||||||||||||||||||||||||||
CL | Palisades | Other | CL | Palisades | Other | |||||||||||||||||||||||||||||||||||
Realty | Temco | West | Ventures | Total | Realty | Temco | West | Ventures | Total | |||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||
Real estate | $ | 81,844 | $ | 59,641 | $ | 120,474 | $ | 66,634 | $ | 328,593 | $ | 85,436 | $ | 60,454 | $ | 124,696 | $ | 69,612 | $ | 340,198 | ||||||||||||||||||||
Total assets | 82,357 | 60,259 | 125,089 | 77,679 | 345,384 | 86,657 | 60,609 | 129,378 | 78,060 | 354,704 | ||||||||||||||||||||||||||||||
Borrowings(a) | 1,047 | 2,824 | — | 75,330 | 79,201 | 2,664 | 2,929 | — | 74,605 | 80,198 | ||||||||||||||||||||||||||||||
Total liabilities | 3,306 | 3,357 | 44,869 | (b) | 90,096 | 141,628 | 4,124 | 3,133 | 48,612 | (b) | 87,145 | 143,014 | ||||||||||||||||||||||||||||
Equity | 79,051 | 56,902 | 80,220 | (12,417 | ) | 203,756 | 82,533 | 57,476 | 80,766 | (9,085 | ) | 211,690 | ||||||||||||||||||||||||||||
Our investment in real estate ventures: | ||||||||||||||||||||||||||||||||||||||||
Our share of their equity (c) | 39,525 | 28,451 | 20,055 | 13,221 | 101,252 | 41,267 | 28,738 | 20,191 | 14,075 | 104,271 | ||||||||||||||||||||||||||||||
Unrecognized deferred gain (d) | (2,164 | ) | — | — | (999 | ) | (3,163 | ) | (2,190 | ) | — | — | (915 | ) | (3,105 | ) | ||||||||||||||||||||||||
Investment in real estate ventures | $ | 37,361 | $ | 28,451 | $ | 20,055 | $ | 12,222 | $ | 98,089 | $ | 39,077 | $ | 28,738 | $ | 20,191 | $ | 13,160 | $ | 101,166 | ||||||||||||||||||||
8
First Quarter-End 2012 | Year-End 2011 | |||||||||||||||||||||||||||||||||||||||
CL Realty | Temco | Palisades West | Other Ventures | Total | CL Realty | Temco | Palisades West | Other Ventures | Total | |||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||
Real estate | $ | 7,546 | $ | 12,967 | $ | — | $ | 97,404 | $ | 117,917 | $ | 50,050 | $ | 18,741 | $ | 119,017 | $ | 71,842 | $ | 259,650 | ||||||||||||||||||||
Total assets | 8,193 | 13,408 | — | 113,662 | 135,263 | 51,096 | 18,922 | 124,588 | 75,060 | 269,666 | ||||||||||||||||||||||||||||||
Borrowings(a) | — | 2,750 | — | 73,968 | 76,718 | 1,056 | 2,787 | — | 70,975 | 74,818 | ||||||||||||||||||||||||||||||
Total liabilities | 209 | 2,974 | — | 91,343 | 94,526 | 2,488 | 3,026 | 42,953 | (b) | 85,704 | 134,171 | |||||||||||||||||||||||||||||
Equity | 7,984 | 10,434 | — | 22,319 | 40,737 | 48,608 | 15,896 | 81,635 | (10,644 | ) | 135,495 | |||||||||||||||||||||||||||||
Our share of their equity(c ) | 3,992 | 5,217 | — | 26,977 | 36,186 | 24,304 | 7,948 | 20,412 | 12,495 | 65,159 | ||||||||||||||||||||||||||||||
Unrecognized deferred gain(d) | — | — | — | (926 | ) | (926 | ) | — | — | — | (936 | ) | (936 | ) | ||||||||||||||||||||||||||
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Investment in real estate ventures | $ | 3,992 | $ | 5,217 | $ | — | $ | 26,051 | $ | 35,260 | $ | 24,304 | $ | 7,948 | $ | 20,412 | $ | 11,559 | $ | 64,223 | ||||||||||||||||||||
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Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
CL Realty | $ | 2,290 | $ | 1,120 | $ | 5,808 | $ | 5,332 | ||||||||
Temco | 89 | 233 | 435 | 2,110 | ||||||||||||
Palisades West | 4,142 | 3,414 | 12,256 | 10,145 | ||||||||||||
Other ventures | 2,678 | 1,549 | 8,343 | 9,769 | ||||||||||||
Total | $ | 9,199 | $ | 6,316 | $ | 26,842 | $ | 27,356 | ||||||||
Earnings (Loss): | ||||||||||||||||
CL Realty | $ | 1,091 | $ | 964 | $ | 2,481 | $ | 2,184 | ||||||||
Temco | (366 | ) | (382 | ) | (782 | ) | 430 | |||||||||
Palisades West | 1,461 | 1,124 | 4,372 | 3,406 | ||||||||||||
Other ventures | (612 | ) | (524 | ) | (2,744 | ) | (16,807 | ) | ||||||||
Total | $ | 1,574 | $ | 1,182 | $ | 3,327 | $ | (10,787 | ) | |||||||
Our equity in their earnings (loss): | ||||||||||||||||
CL Realty | $ | 545 | $ | 482 | $ | 1,240 | $ | 1,092 | ||||||||
Temco | (183 | ) | (191 | ) | (391 | ) | 215 | |||||||||
Palisades West | 365 | 281 | 1,093 | 850 | ||||||||||||
Other ventures(c) | (105 | ) | (490 | ) | (336 | ) | (1,417 | ) | ||||||||
Amortization of deferred gain | 26 | — | 26 | — | ||||||||||||
Total | $ | 648 | $ | 82 | $ | 1,632 | $ | 740 | ||||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Revenues: | ||||||||
CL Realty | $ | 1,667 | $ | 1,869 | ||||
Temco | 440 | 58 | ||||||
Palisades West | — | 4,030 | ||||||
Other ventures | 4,678 | 1,549 | ||||||
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Total | $ | 6,785 | $ | 7,506 | ||||
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Earnings (Loss): | ||||||||
CL Realty | $ | 552 | $ | 656 | ||||
Temco | (58 | ) | (204 | ) | ||||
Palisades West | — | 1,456 | ||||||
Other ventures | 541 | (870 | ) | |||||
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Total | $ | 1,035 | $ | 1,038 | ||||
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Our equity in their earnings (loss): | ||||||||
CL Realty | $ | 276 | $ | 328 | ||||
Temco | (29 | ) | (102 | ) | ||||
Palisades West | — | 364 | ||||||
Other ventures(c ) | 467 | (8 | ) | |||||
Amortization of deferred gain | 10 | — | ||||||
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Total | $ | 724 | $ | 582 | ||||
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(a) | Total includes current maturities of |
(b) | Principally included deferred income from leasehold improvements funded by tenants in excess of leasehold improvement allowances. These amounts |
(c) | Our share of the equity in other ventures reflects our ownership interests generally ranging from 25 to 50 percent, excluding venture losses that exceed our investment where we are not obligated to fund those losses. |
(d) | Represents deferred gains on real estate contributed by us to ventures. We are recognizing income as real estate is sold to third parties. The deferred gains are reflected as a reduction to our investment in unconsolidated ventures. |
In first nine months 2011,quarter 2012, we invested $1,350,000$117,000 in these ventures and received $5,995,000$266,000 in distributions; in first nine months 2010,quarter 2011, we invested $1,538,000$673,000 in these ventures and received $5,974,000$3,044,000 in distributions. Distributions include both return of investments and distributions of earnings.
At thirdfirst quarter-end 2011,2012, other ventures include three partnerships we participate in that have total assets of $51,301,000$48,967,000 and total liabilities of $83,575,000,$79,335,000, which includes $67,557,000$63,463,000 of borrowings classified as current maturities. These partnerships are managed by third parties who intend to extend or refinance these borrowings; however, there is no assurance that this can be done. Although these borrowings may be guaranteed by third parties, we may under certain circumstances elect or be required to provide additional equity to these partnerships. We do not believe that the ultimate resolution of these matters will have a significant effect on our earnings or financial position. Our investment in these partnerships is $2,362,000$1,884,000 at thirdfirst quarter-end 2011.2012. These three partnerships are variable interest entities. Please readNote 1716for additional information.
We have provided performance bonds and letters of credit on behalf of certain ventures totaling $1,387,000$310,000 at thirdfirst quarter-end 2011.2012. Generally these performance bonds and letters of credit would be drawn on due to lack of performance by us or the ventures, such as failure to timely deliver streets and utilities in accordance with local codes and ordinances.
9
Receivables consists of:
Third | ||||||||
Quarter-End | Year-End | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Non-performing loan | $ | 20,666 | $ | — | ||||
Notes receivable, average interest rates of 7.73% at third quarter-end 2011 and 7.93% at year-end 2010 | 2,720 | 1,057 | ||||||
Due from qualified intermediary | — | 1,347 | ||||||
Receivables and accrued interest | 1,052 | 615 | ||||||
24,438 | 3,019 | |||||||
Allowance for bad debts | (62 | ) | (144 | ) | ||||
$ | 24,376 | $ | 2,875 | |||||
First Quarter- End 2012 | Year-End 2011 | |||||||
(In thousands) | ||||||||
Non-performing loan | $ | 20,666 | $ | 20,666 | ||||
Notes receivable, average interest rates of 7.50% at first quarter-end 2012 and 7.16% at year-end 2011 | 1,594 | 1,817 | ||||||
Receivables and accrued interest | 2,258 | 860 | ||||||
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24,518 | 23,343 | |||||||
Allowance for bad debts | (62 | ) | (62 | ) | ||||
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At first quarter-end 2012, we acquiredhave $20,666,000 invested in a non-performing loan acquired from a financial institution for $21,137,000.in 2011. The original loan commitment was $38,000,000matured in February 2010 and the outstanding balance is about $34,087,000.$35,464,000 at first quarter-end 2012. The loan matured in February 2010. The note is secured by a lien on 900 acres of developed and undeveloped real estate located near Houston Texas designated for single-family residential and
commercial development. We are not currently accruing interest andThrough first quarter-end 2012, we have not recorded any accretable yield due to the non-performing status of the loan. We cannotloan and our inability to estimate the anticipated future cash flows becauseas the borrower ishas been in bankruptcy. In third quarter 2011, we received $471,000 in payments and accounted for these receipts asOn March 13, 2012, the bankruptcy court approved a reductionplan of reorganization of the carrying valueborrower which became effective in second quarter 2012. The reorganization established a principal amount of $33,800,000 maturing in April 2017. Interest will accrue at 9 percent the non-performing loan.
Notes receivable generally are secured by a deed of trust and generally due within three years.
Receivables and accrued interest principally include miscellaneous operating receivables arising in the normal course of business.
Note 9 — 9—Debt
Debt consists of:
Third | ||||||||
Quarter-End | Year-End | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Senior secured credit facility | ||||||||
Term loan facility — average interest rate of 6.50% at third quarter-end 2011 and year-end 2010 | $ | 130,000 | $ | 125,000 | ||||
Revolving line of credit | — | — | ||||||
Secured promissory notes — average interest rate of 4.31% at third quarter-end 2011 and 4.51% at year-end 2010 | 41,900 | 41,716 | ||||||
Other indebtedness due through 2017 at variable and fixed interest rates ranging from 5.00% to 8.00% | 51,797 | 54,873 | ||||||
$ | 223,697 | $ | 221,589 | |||||
First Quarter-End 2012 | Year-End 2011 | |||||||
(In thousands) | ||||||||
Senior secured credit facility | ||||||||
Term loan facility — average interest rate of 6.50% at first quarter-end 2012 and year-end 2011 | $ | 130,000 | $ | 130,000 | ||||
Revolving line of credit — average interest rate of 7.50% at first quarter-end 2012 | 6,000 | — | ||||||
Secured promissory notes — average interest rate of 4.32% at first quarter-end 2012 and 4.34% at year-end 2011 | 41,900 | 41,900 | ||||||
Other indebtedness due through 2017 at variable and fixed interest rates ranging from 5.00% to 8.00% | 49,965 | 49,687 | ||||||
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$ | 227,865 | $ | 221,587 | |||||
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Our debt agreements contain financial covenants customary for such agreements including minimum levels of interest coverage and limitations on leverage. At thirdfirst quarter-end 2011,2012, we were in compliance with the financial covenants of these agreements.
At various times in 2011, we supplemented and amended our senior secured credit facility to provide us with, among other matters, additional flexibility with respect to the borrowing base, collateral coverage and leverage requirements. As a result, in third quarter 2011 we increased our unused borrowing capacity by over $70,000,000 and extended the maturity of our revolving line of credit by one year, to August 6, 2014.
At our option, we can borrow at LIBOR plus 4.5 percent (subject to a 2 percent LIBOR floor) or prime plus 2.5 percent. Borrowings under the senior secured credit facility are secured by (a) all timberland, land in entitlement process, minerals and certain raw entitled land, (b) assignments of current and future leases, rents and contracts, including our mineral leases, (c) a security interest in our primary operating account, (d) pledge of the equity interests in current and future material operating subsidiaries or joint venture interests, or if such pledge is not permitted, a pledge of the right to distributions from such entities, to the extent permitted, and (e) negative pledge (without a mortgage) on all other wholly-owned assets. The senior secured credit facility provides for releases of real estate provided that borrowing base compliance is maintained.
10
At thirdfirst quarter-end 2011,2012, other indebtedness, primarilyprincipally non-recourse, is collateralized by entitled, developed and under development projects with a carrying value of $116,602,000.
At thirdfirst quarter-end 2011,2012, we have $9,101,000$7,654,000 in unamortized deferred financing fees including $3,746,000 incurred in 2011 principally related to our senior secured credit facility, which are included in other assets. Amortization of deferred financing fees was $2,161,000$740,000 in first nine months 2011quarter 2012 and $3,747,000$604,000 in first nine months 2010quarter 2011 and is included in interest expense.
Note 10 — 10—Fair Value
Non-financial assets measured at fair value on a non-recurring basis principally include real estate assets, and assets held for sale, goodwill and other intangible assets, which are measured for impairment. In secondfirst quarter 2012 and 2011, a real estate asset wasno non-financial 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. As a result, we recognized asset impairment of $450,000 in second quarter 2011. The carrying value of this asset may have subsequently increased or decreased from the fair value due to activity that has occurred since the measurement date.
Third | ||||||||||||||||
Fair Value Measurements | Quarter-End | |||||||||||||||
Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
(In thousands) | ||||||||||||||||
Non-Financial Assets | ||||||||||||||||
Real estate | $ | — | $ | — | $ | 1,725 | $ | 1,725 |
We elected not to use the fair value option for cash and cash equivalents, accounts receivable, other current assets, variable debt, accounts payable and other current liabilities. The carrying amounts of these financial instruments approximate their fair values due to their short-term nature or variable interest rates. We determine the fair value of fixed rate financial instruments using quoted prices for similar instruments in active markets.
Information about our fixed rate financial instruments not measured at fair value follows:
Third Quarter-End 2011 | Year-End 2010 | |||||||||||||||||||
Carrying | Fair | Carrying | Fair | Valuation | ||||||||||||||||
Amount | Value | Amount | Value | Technique | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Fixed rate debt | $ | (29,931 | ) | $ | (32,431 | ) | $ | (29,931 | ) | $ | (30,164 | ) | Level 2 |
First Quarter-End 2012 | Year-End 2011 | |||||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | Valuation Technique | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Fixed rate debt | $ | (29,931 | ) | $ | (32,017 | ) | $ | (29,931 | ) | $ | (32,478 | ) | Level 2 |
Note 11 — 11—Capital Stock
Pursuant to our stockholder rights plan, each share of common stock outstanding is coupled with one-quarter of a preferred stock purchase right (Right). Each Right entitles our stockholders to purchase, under certain conditions, one one-hundredth of a share of newly issued Series A Junior Participating Preferred Stock at an exercise price of $100. Rights will be exercisable only if someone acquires beneficial ownership of 20 percent or more of our common shares or commences a tender or exchange offer, upon consummation of which they would beneficially own 20 percent or more of our common shares. We will generally be entitled to redeem the Rights at $0.001 per Right at any time until the 10th business day following public announcement that a 20 percent position has been acquired. The Rights will expire on December 11, 2017.
Please readNote 1817for information about additional shares of common stock that could be issued under terms of our share-based compensation plans.
11
Note 12 — Other Comprehensive12—Net Income
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Consolidated net income | $ | 36,965 | $ | 9,086 | $ | 30,935 | $ | 3,005 | ||||||||
Change in fair value of interest rate swap agreement | — | — | — | 393 | ||||||||||||
Income tax effect of change in fair value | — | — | — | (137 | ) | |||||||||||
Other comprehensive income | 36,965 | 9,086 | 30,935 | 3,261 | ||||||||||||
Less: Comprehensive income attributable to noncontrolling interests | (537 | ) | (164 | ) | (901 | ) | (328 | ) | ||||||||
Other comprehensive income attributable to Forestar Group Inc. | $ | 36,428 | $ | 8,922 | $ | 30,034 | $ | 2,933 | ||||||||
Earnings attributable to common shareholders and weighted average common shares outstanding used to compute earnings per share were:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Earnings available to common shareholders: | ||||||||||||||||
Consolidated net income | $ | 36,965 | $ | 9,086 | $ | 30,935 | $ | 3,005 | ||||||||
Less: Net income attributable to noncontrolling interest | (537 | ) | (164 | ) | (901 | ) | (328 | ) | ||||||||
Net income attributable to Forestar Group Inc. | $ | 36,428 | $ | 8,922 | $ | 30,034 | $ | 2,677 | ||||||||
Weighted average common shares outstanding — basic | 35,514 | 35,934 | 35,482 | 36,109 | ||||||||||||
Dilutive effect of stock options | 84 | 154 | 163 | 224 | ||||||||||||
Dilutive effect of restricted stock and equity-settled awards | 198 | 291 | 232 | 262 | ||||||||||||
Weighted average common shares outstanding — diluted | 35,796 | 36,379 | 35,877 | 36,595 | ||||||||||||
Anti-dilutive awards excluded from diluted weighted average shares outstanding | 2,250 | 1,602 | 1,998 | 1,574 |
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Earnings available to common shareholders: | ||||||||
Consolidated net income (loss) | $ | 3,497 | $ | (1,704 | ) | |||
Less: Net income attributable to noncontrolling interest | (695 | ) | (769 | ) | ||||
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Net income (loss) attributable to Forestar Group Inc. | $ | 2,802 | $ | (2,473 | ) | |||
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Weighted average common shares outstanding — basic | 34,855 | 35,406 | ||||||
Dilutive effect of stock options | 118 | — | ||||||
Dilutive effect of restricted stock and equity-settled awards | 196 | — | ||||||
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Weighted average common shares outstanding — diluted | 35,169 | 35,406 | ||||||
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Anti-dilutive awards excluded from diluted weighted average shares outstanding | 2,283 | 3,186 | ||||||
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Note 14 — 13—Income Taxes
Our effective tax rate was 35 percent in third quarter 2011 and 3432 percent in first nine months 2011,quarter 2012, which includes a 14 percent benefit for noncontrolling interests and 1 percent non-cash charge for share-based compensation.interests. Our effective tax rate was 24 percent in third quarter 2010 and 33a benefit of 29 percent in first nine months 2010,quarter 2011, which included a 413 percent benefit attributable to noncontrolling interests.non-cash charge for share–based compensation. In addition, 20112012 and 20102011 effective tax rates include the effect of state income taxes, nondeductible items and benefits of percentage depletion and the 2011 rate includes the effect of charitable contributions related to timberland conservation.
We have not provided a valuation allowance for our deferred tax asset because we believe it is likely it will be recoverable in future periods.
At thirdfirst quarter-end 2011,2012, our unrecognized tax benefits totaled $7,767,000,$6,138,000, all of which $6,391,000 would affect our effective tax rate if recognized.
Note 15 — 14—Commitments and Contingencies
Litigation
We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business and believe that adequate reserves have been established for any probable losses. We do not believe that the outcome of any of these proceedings should have a significant adverse effect on our financial position, long-term results of operations or cash flows. It is possible;possible, however, that charges related to these matters could be significant to our results or cash flows in any one accounting period.
12
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. We own 288 acres near Antioch, California, portions of which were sites of a former Temple-Inland paper manufacturing operation that are in remediation. We have received certificates of completion on all but one 80 acres,acre tract, a portion of which includes subsurface contamination. In third quarter 2011, we increased our reserves for environmental remediation by $2,500,000 due to additional testing and remediation requirements by the state regulatory agencies. We estimate the cost to complete remediation activities will be approximately $3,500,000,$2,372,000, which is included in other accrued expenses. It is possible that remediation or monitoring activities could be required in addition to those included within our estimate, but we are unable to determine the scope, timing or extent of such activities.
Note 16 — 15—Segment Information
We manage our operations through three business segments: real estate, mineral resources and fiber resources. 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, primarily a hotel and a multifamily property. Mineral resources manages our oil, natural gas and water interests. Fiber resources manages our timber and recreational leases.
Assets allocated by segment are as follows:
Third | ||||||||
Quarter-End | Year-End | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Real estate | $ | 713,867 | $ | 669,363 | ||||
Mineral resources | 15,653 | 13,399 | ||||||
Fiber resources | 15,856 | 18,258 | ||||||
Assets not allocated to segments | 101,320 | 88,304 | ||||||
Total assets | $ | 846,696 | $ | 789,324 | ||||
First Quarter-End 2012 | Year-End 2011 | |||||||
(In thousands) | ||||||||
Real estate | $ | 668,599 | $ | 657,661 | ||||
Mineral resources | 21,705 | 19,130 | ||||||
Fiber resources | 14,123 | 14,444 | ||||||
Assets not allocated to segments | 93,344 | 103,622 | ||||||
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Total assets | $ | 797,771 | $ | 794,857 | ||||
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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 and net (income) loss attributable to noncontrolling interests. Items not allocated to our business segments consist of general and administrative expense, share-based compensation, gain on sale of assets,strategic timberland, interest expense and other non-operating income and expense. The accounting policies of the segments are the same as those described in the accounting policy note to the consolidated financial statements. Our revenues are derived from our U.S. operations and all of our assets are located in the U.S. In first nine months 2011,quarter 2012, no single customer accounted for more than 10 percent of our total revenues.
Segment revenues and earnings are as follows:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Real estate | $ | 19,060 | $ | 15,139 | $ | 59,814 | $ | 53,936 | ||||||||
Mineral resources | 5,871 | 6,654 | 17,784 | 18,387 | ||||||||||||
Fiber resources | 1,310 | 2,220 | 3,968 | 6,185 | ||||||||||||
Total revenues | $ | 26,241 | $ | 24,013 | $ | 81,566 | $ | 78,508 | ||||||||
Segment earnings (loss): | ||||||||||||||||
Real estate | $ | (4,266 | ) | $ | (1,883 | ) | $ | (684 | ) | $ | 883 | |||||
Mineral resources | 3,592 | 6,196 | 12,292 | 16,640 | ||||||||||||
Fiber resources | 446 | 1,372 | 1,790 | 3,900 | ||||||||||||
Total segment earnings (loss) | (228 | ) | 5,685 | 13,398 | 21,423 | |||||||||||
Items not allocated to segments(a) | 56,265 | 6,097 | 32,705 | (17,239 | ) | |||||||||||
Income before taxes attributable to Forestar Group Inc. | $ | 56,037 | $ | 11,782 | $ | 46,103 | $ | 4,184 | ||||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Revenues: | ||||||||
Real estate | $ | 17,922 | $ | 21,139 | ||||
Mineral resources | 9,426 | 7,333 | ||||||
Fiber resources | 744 | 1,368 | ||||||
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Total revenues | $ | 28,092 | $ | 29,840 | ||||
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Segment earnings: | ||||||||
Real estate | $ | 11,577 | $ | 2,575 | ||||
Mineral resources | 5,875 | 5,598 | ||||||
Fiber resources | 390 | 640 | ||||||
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Total segment earnings | 17,842 | 8,813 | ||||||
Items not allocated to segments(a) | (13,420 | ) | (11,998 | ) | ||||
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Income (loss) before taxes attributable to Forestar Group Inc. | $ | 4,422 | $ | (3,185 | ) | |||
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(a) | Items not allocated to segments consist of: |
13
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
General and administrative expense | $ | (4,362 | ) | $ | (3,916 | ) | ||
Shared-based compensation expense | (5,231 | ) | (4,100 | ) | ||||
Interest expense | (3,891 | ) | (4,009 | ) | ||||
Other non-operating income | 64 | 27 | ||||||
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$ | (13,420 | ) | $ | (11,998 | ) | |||
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Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
General and administrative expense | $ | (4,827 | ) | $ | (3,860 | ) | $ | (15,824 | ) | $ | (13,438 | ) | ||||
Share-based compensation expense | 3,553 | (1,817 | ) | (399 | ) | (7,370 | ) | |||||||||
Gain on sale of assets | 61,784 | 15,441 | 61,784 | 15,441 | ||||||||||||
Interest expense | (4,271 | ) | (3,913 | ) | (12,933 | ) | (12,562 | ) | ||||||||
Other non-operating income | 26 | 246 | 77 | 690 | ||||||||||||
$ | 56,265 | $ | 6,097 | $ | 32,705 | $ | (17,239 | ) | ||||||||
At thirdfirst quarter-end 2011,2012, we are the primary beneficiary of two VIEs that we consolidate. We have provided the majority of equity to these VIEs, which absent our contributions or advances do not have sufficient equity to fund their operations. We have the authority to approve project budgets and the issuance of additional debt. At thirdfirst quarter-end 2011,2012, our consolidated balance sheet includes $14,687,000$15,687,000 in assets, principally real estate, assets and $4,605,000$2,920,000 in liabilities related to these two VIEs. In first nine months 2011,quarter 2012, we contributed or advanced $2,826,000$559,000 to these VIEs. In first nine months 2010, real estate assets decreased by $11,865,000, debt decreased by $13,207,000 and other liabilities increased by $1,342,000 due to lender foreclosure of a lien on property owned by one of these VIEs. In second quarter 2011, our earnings benefited from a $1,342,000 reallocation of a previously recognized loss related to foreclosure of a lien on property in the above VIE. Based on our access to new information, we determined this loss and related liability should be allocated from us to the noncontrolling financial interests as we believe the likelihood we will be subject to any potential lender liabilities is remote. We have a nominal general partner interest in this VIE and could be held responsible for certain of its liabilities.
Also at thirdfirst quarter-end 2011,2012, we are not the primary beneficiary of three VIEs that we account for using the equity method. The unrelated managing partners oversee the day-to-day operations and guarantee some of the debt of the VIEs while we have the authority to approve project budgets and the issuance of additional debt. Although some of the debt is guaranteed by the managing partners, we may under certain circumstances elect or be required to provide additional funds to these VIEs. At thirdfirst quarter-end 2011,2012, these three VIEs have total assets of $51,301,000,$48,967,000, substantially all of which represent developed and undeveloped real estate and total liabilities of $83,575,000,$79,335,000, which includes $67,557,000$63,463,000 of borrowings classified as current maturities. These amounts are included in other ventures in the combined summarized balance sheet information for ventures accounted for using the equity method inNote 7. At thirdfirst quarter-end 2011,2012, our investment in these three VIEs is $2,362,000$1,884,000 and is included in investment in unconsolidated ventures. In first ninethree months 2011,2012, we contributed or advanced $151,000$37,000 to these VIEs. Our maximum exposure to loss related to these VIEs is estimated at $36,037,000,$34,695,000, which exceeds our investment as we have a nominal general partner interest in two of these VIEs and could be held responsible for their liabilities. The maximum exposure to loss represents the maximum loss that we could be required to recognize assuming all the ventures’ assets (principally real estate) are worthless, without consideration of the probability of a loss or of any actions we may take to mitigate any such loss.
Note 18 — 17—Share-Based Compensation
Share-based compensation expense (income) consists of:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Cash-settled awards | $ | (4,893 | ) | $ | 422 | $ | (4,212 | ) | $ | 3,187 | ||||||
Equity-settled awards | 265 | — | 676 | — | ||||||||||||
Restricted stock | 612 | 923 | 1,882 | 2,538 | ||||||||||||
Stock options | 463 | 472 | 2,053 | 1,645 | ||||||||||||
$ | (3,553 | ) | $ | 1,817 | $ | 399 | $ | 7,370 | ||||||||
14
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Cash-settled awards | $ | 2,082 | $ | 2,169 | ||||
Equity-settled awards | 1,274 | 149 | ||||||
Restricted stock | 614 | 663 | ||||||
Stock options | 1,261 | 1,119 | ||||||
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$ | 5,231 | $ | 4,100 | |||||
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Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
General and administrative expense | $ | (2,057 | ) | $ | 937 | $ | (234 | ) | $ | 3,055 | ||||||
Other operating expense | (1,496 | ) | 880 | 633 | 4,315 | |||||||||||
$ | (3,553 | ) | $ | 1,817 | $ | 399 | $ | 7,370 | ||||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
General and administrative expense | $ | 2,601 | $ | 2,055 | ||||
Other operating expense | 2,630 | 2,045 | ||||||
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$ | 5,231 | $ | 4,100 | |||||
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Share-based compensation decreasedincreased principally as a result of a declinenew awards granted in first quarter 2012 and an increase in our expected stock price volatility rate assumptions used in valuing new awards and its impact on vested cash-settledexisting awards.
The fair value of awards granted to retirement eligible employees and expensed at the date of grant was $595,000 in first quarter 2012 and $654,000 in first nine months 2011 and $286,000 in first nine months 2010.quarter 2011. Unrecognized share-based compensation expense related to non-vested equity-settled awards, restricted stock and stock options is $8,424,000$12,899,000 at thirdfirst quarter-end 2011.2012. The weighted average period over which this amount will be recognized is estimated to be two years. We did not capitalize any share-based compensation in first nine months 2011quarter 2012 or 2010.
In first nine months 2011,quarter 2012, we withheld 70,53970,894 shares having a value of $1,290,000$1,148,000 in connection with vesting of restricted stock awards and exercises of stock options. In first nine months 2010,quarter 2011, we withheld 2,60163,000 shares having a value of $49,000$1,190,000 in connection with vesting of restricted stock awards and exercises of stock options. These shares are included in treasury stock and are reflected in financing activities in our consolidated statement of cash flows.
A summary of the awards granted under our 2007 Stock Incentive Plan follows:
Cash-settled awards
Cash-settled awards granted to our employees in the form of restricted stock units or stock appreciation rights generally vest over three to four years from the date of grant and generally provide for accelerated vesting upon death, disability or if there is a change in control. Vesting for some restricted stock unit awards is also conditioned upon achievement of a minimum one percent annualized return on assets over a three-year period. 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.
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 the first nine months 2011:
Weighted | ||||||||
Equivalent | Average Grant | |||||||
Units | Date Fair Value | |||||||
(In thousands) | (Per unit) | |||||||
Non-vested at beginning of period | 376 | $ | 11.88 | |||||
Granted | 159 | 18.10 | ||||||
Vested | (77 | ) | 17.53 | |||||
Forfeited | — | — | ||||||
Non-vested at end of period | 458 | $ | 13.10 | |||||
Equivalent Units | Weighted Average Grant Date Fair Value | |||||||
(In thousands) | (Per unit) | |||||||
Non-vested at beginning of period | 449 | $ | 13.13 | |||||
Granted | 187 | 16.11 | ||||||
Vested | (286 | ) | 10.32 | |||||
Forfeited | — | — | ||||||
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Non-vested at end of period | 350 | $ | 17.03 | |||||
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The following table summarizes the activity of cash-settled stock appreciation rights in first nine months 2011:
Weighted | Aggregate | |||||||||||||||
Average | Intrinsic Value | |||||||||||||||
Weighted | Remaining | (Current | ||||||||||||||
Rights | Average | Contractual | Value Less | |||||||||||||
Outstanding | Exercise Price | Term | Exercise Price) | |||||||||||||
(In thousands) | (Per share) | (In years) | (In thousands) | |||||||||||||
Balance at beginning of period | 909 | $ | 11.28 | 8 | $ | 7,289 | ||||||||||
Granted | — | — | ||||||||||||||
Exercised | (12 | ) | 9.29 | |||||||||||||
Forfeited | — | — | ||||||||||||||
Balance at end of period | 897 | $ | 11.30 | 8 | $ | 1,109 | ||||||||||
Exercisable at end of period | 380 | $ | 10.48 | 8 | $ | 529 |
15
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 | 895 | $ | 11.31 | 7 | $ | 3,986 | ||||||||||
Granted | — | — | ||||||||||||||
Exercised | (4 | ) | 9.29 | |||||||||||||
Forfeited | — | — | ||||||||||||||
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Balance at end of period | 891 | $ | 11.32 | 7 | $ | 4,137 | ||||||||||
Exercisable at end of period | 613 | $ | 10.79 | 7 | $ | 3,084 |
Equity-settled awards
Equity-settled awards granted to our employees include restricted stock units (RSU), which vest ratably over three years from the date of grant, and beginning first quarter 2011, market-leveraged stock units (MSU), which vest after three years. Equity settled awards in the form of restricted stock units granted to our directors are fully vested at time of grant and payable upon retirement. The following table summarizes the activity of equity-settled awards in first nine months 2011:
Weighted | ||||||||
Equivalent | Average Grant | |||||||
Units | Date Fair Value | |||||||
(In thousands) | (Per share) | |||||||
Non-vested at beginning of period | — | $ | — | |||||
Granted | 160 | 20.73 | ||||||
Vested | — | — | ||||||
Forfeited | — | — | ||||||
Non-vested at end of period | 160 | $ | 20.73 | |||||
Equivalent Units | Weighted Average Grant Date Fair Value | |||||||
(In thousands) | (Per share) | |||||||
Non-vested at beginning of period | 159 | $ | 20.74 | |||||
Granted | 278 | 17.56 | ||||||
Vested | (68 | ) | 16.11 | |||||
Forfeited | — | — | ||||||
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Non-vested at end of period | 369 | $ | 19.20 | |||||
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In first quarter 2011,2012, we granted 124,700154,900 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 187,050232,370 shares if our stock price increases by 50 percent or more, to a low of 62,35077,460 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. MSU awards are valued using a Monte Carlo simulation pricing model, which includes expected stock price volatility and risk-free interest rate assumptions. Compensation expense is recognized regardless of achievement of performance conditions, provided the requisite service period is satisfied.
Unrecognized share-based compensation expense related to non-vested equity-settled awards is $2,480,000$5,221,000 at thirdfirst quarter-end 2011.2012. The weighted average period over which this amount will be recognized is estimated to be two years.
Restricted stock
Restricted stock awards vest either ratably over or after three years, generally 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 first nine months 2011:
Weighted | ||||||||
Restricted | Average Grant | |||||||
Shares | Date Fair Value | |||||||
(In thousands) | (Per share) | |||||||
Non-vested at beginning of period | 636 | $ | 17.56 | |||||
Granted | 20 | 12.74 | ||||||
Vested | (223 | ) | 24.23 | |||||
Forfeited | — | — | ||||||
Non-vested at end of period | 433 | $ | 13.91 | |||||
Restricted Shares | Weighted Average Grant Date Fair Value | |||||||
(In thousands) | (Per share) | |||||||
Non-vested at beginning of period | 399 | $ | 15.02 | |||||
Granted | — | — | ||||||
Vested | (183 | ) | 12.65 | |||||
Forfeited | — | — | ||||||
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Non-vested at end of period | 216 | $ | 17.03 | |||||
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Unrecognized share-based compensation expense related to non-vested restricted stock awards is $2,848,000$2,147,000 at thirdfirst quarter-end 2011.2012. The weighted average period over which this amount will be recognized is estimated to be one year.
16
Stock options have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. Options were granted with an exercise price equal to the market value of our stock on the date of grant. The following table summarizes the activity of stock option awards in first nine months 2011:
Weighted | Aggregate | |||||||||||||||
Average | Intrinsic Value | |||||||||||||||
Weighted | Remaining | (Current | ||||||||||||||
Options | Average | Contractual | Value Less | |||||||||||||
Outstanding | Exercise Price | Term | Exercise Price) | |||||||||||||
(In thousands) | (Per share) | (In years) | (In thousands) | |||||||||||||
Balance at beginning of period | 957 | $ | 23.45 | 8 | $ | 1,890 | ||||||||||
Granted | 327 | 18.59 | ||||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited | — | — | ||||||||||||||
Balance at end of period | 1,284 | $ | 22.22 | 8 | $ | 262 | ||||||||||
Exercisable at end of period | 642 | $ | 25.61 | 7 | $ | 131 |
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 | 1,284 | $ | 22.22 | 7 | $ | 944 | ||||||||||
Granted | 453 | 16.11 | ||||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited | — | — | ||||||||||||||
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Balance at end of period | 1,737 | $ | 20.62 | 8 | $ | 986 | ||||||||||
Exercisable at end of period | 910 | $ | 24.20 | 7 | $ | 740 |
We estimate the fair value of stock options using the Black-Scholes option pricing model and the following assumptions:
First Nine Months | ||||||||
2011 | 2010 | |||||||
Expected dividend yield | 0.0 | % | 0.0 | % | ||||
Expected stock price volatility | 56.2 | % | 51.0 | % | ||||
Risk-free interest rate | 2.4 | % | 2.3 | % | ||||
Expected life of options (years) | 6 | 6 | ||||||
Weighted average estimated fair value of options granted | $ | 10.11 | $ | 8.98 |
First Quarter | ||||||||
2012 | 2011 | |||||||
Expected dividend yield | 0 | % | 0 | % | ||||
Expected stock price volatility | 61.8 | % | 56.2 | % | ||||
Risk-free interest rate | 1.4 | % | 2.4 | % | ||||
Expected life of options (years) | 6 | 6 | ||||||
Weighted average estimated fair value of options granted | $ | 9.32 | $ | 10.11 |
We have limited historical experience as a stand-alone company so we utilized alternative methods in determining our valuation assumptions. The expected life was based on the simplified method utilizing the midpoint between the vesting period and the contractual life of the awards. In 2011, theOur expected stock price volatility wasis based on a blended rate utilizing our historical volatility and historical prices of our peers’ common stock for a period corresponding to the expected life of the options. In 2010, the expected stock price volatility was based on historical prices of our peers’ common stock for a period corresponding to the expected life of the options. Pre-vesting forfeitures are estimated based upon the pool of participants and their expected activity and historical trends.
Unrecognized share-based compensation expense related to non-vested stock options is $3,096,000$5,531,000 at thirdfirst quarter-end 2011.2012. The weighted average period over which this amount will be recognized is estimated to be twothree years.
Pre-Spin Awards
Certain of our employees participated in Temple-Inland’s share-based compensation plans. In conjunction with the 2007 spin-off, these awards were equitably adjusted into separate awards of the common stock of Temple-Inland and the spin-off entities.
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. A summary of stock optionAt first quarter-end 2012, there were 69,000 awards outstanding at third quarter-end 2011 follows:
Weighted | Aggregate | |||||||||||||||
Average | Intrinsic Value | |||||||||||||||
Weighted | Remaining | (Current | ||||||||||||||
Options | Average | Contractual | Value Less | |||||||||||||
Outstanding | Exercise Price | Term | Exercise Price) | |||||||||||||
(In thousands) | (Per share) | (In years) | (In thousands) | |||||||||||||
Outstanding and exercisable on Forestar stock | 77 | $ | 22.08 | 4 | $ | 21 | ||||||||||
Outstanding and exercisable on Temple-Inland stock | 108 | 20.95 | 4 | 1,126 | ||||||||||||
$ | 1,147 | |||||||||||||||
Note 18—Subsequent Events
On April 20, 2012, Forestar/RPG Land Company LLC, a consolidated venture, sold approximately 800 acres near Dallas, Texas (Light Farms real estate project) for $56,000,000 total consideration. We received $25,000,000 in first nine months 2011distributable cash from the venture, reduced our consolidated debt by approximately $31,000,000, and $553,000 in first nine months 2010.
17recognized a gain on sale of approximately $3,400,000.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
This Quarterly Report on Form 10-Q and other materials we have filed or may file with the Securities and Exchange Commission contain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “likely,” “intend,” “may,” “plan,” “expect,” and similar expressions, including references to assumptions. These statements reflect our current views with respect to future events and are subject to risks and uncertainties. We note that a variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements. Factors and uncertainties that might cause such differences include, but are not limited to:
general economic, market or business conditions in Texas or Georgia, where our real estate activities are concentrated;
our ability to achieve some or all of our strategic initiatives;
the opportunities (or lack thereof) that may be presented to us and that we may pursue;
significant customer concentration;
future residential, multifamily or commercial entitlements, development approvals and the ability to obtain such approvals;
obtaining approvals of reimbursements and other payments from special improvement districts and the timing of such payments
accuracy of estimates and other assumptions related to investment in real estate, the expected timing and pricing of land and lot sales and related cost of real estate sales, impairment of long-lived assets, income taxes, share-based compensation and oil and natural gas reserves;
the levels of resale housing inventory and potential impact of foreclosures in our mixed-use development projects and the regions in which they are located;
fluctuations in costs and expenses;
demand for new housing, which can be affected by a number of factors including the availability of mortgage credit;
competitive actions by other companies;
changes in governmental policies, laws or regulations and actions or restrictions of regulatory agencies, including regulation of hydraulic fracturing;
government regulation of exploration and production technology, including hydraulic fracturing;
the results of financing efforts, including our ability to obtain financing with favorable terms;
our partners’ ability to fund their capital commitments and otherwise fulfill their operating and financial obligations;
the effect of limitations, restrictions and natural events on our ability to harvest and deliver timber;
Inability to obtain permits for, or changes in laws, governmental policies or regulations effecting, water withdrawal or usage and
the final resolutions or outcomes with respect to our contingent and other liabilities related to our business.
Other factors, including the risk factors described in Item 1A of our 20102011 Annual Report on Form 10-K, may also cause actual results to differ materially from those projected by our forward-looking statements. New factors emerge from time to time and it is not possible for us to predict all such factors, nor can we assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.
18
Strategy
Our strategy is:
Recognizing and responsibly delivering the greatest value from every acre; and
Growing through strategic and disciplined investments.
2012 Strategic Initiatives
In 2009,2012, we announced our near-termTriple in FOR, new strategic initiatives designed to further enhance shareholder value by: generating significant cash flow, principally from the sale of 175,000 acres of higher and better use timberland; reducing debt by $150,000,000; and repurchasing up to 20 percent
Accelerating value realization of our common stock.
Optimizing transparency and disclosure by expanding reported oil and natural gas resources, providing additional information related to the sale of highergroundwater interests, and better use timberlandestablishing a progress report on corporate responsibility efforts.
Raising our net asset value through strategic and reduction of debt. Since announcing these initiatives, we have sold 176,000 acres of timberland in Georgia, Alabamadisciplined investments by pursuing growth opportunities which help prove up our asset value and Texas for $284,442,000 in eleven transactions. These transactions generated net proceeds of $277,909,000 and resulted in gains of $194,438,000. We used the proceeds principally to reduce debt, pay income taxes, reinvest in ourmeet return expectations, developing a low-capital, high-return multifamily business, and repurchase stock. Our total debt has been reduced by $151,986,000 since first quarter-end 2009, excluding $26,500,000accelerating investment in non-recourse borrowings secured by a 401 unit multifamily property we acquired in fourth quarter 2010. In addition, we have repurchased 1,173,422 shares of our common stock for $17,304,000.lower-risk oil and natural gas opportunities.
Results of Operations
A summary of our consolidated results by business segment follows:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Real estate | $ | 19,060 | $ | 15,139 | $ | 59,814 | $ | 53,936 | ||||||||
Mineral resources | 5,871 | 6,654 | 17,784 | 18,387 | ||||||||||||
Fiber resources | 1,310 | 2,220 | 3,968 | 6,185 | ||||||||||||
Total revenues | $ | 26,241 | $ | 24,013 | $ | 81,566 | $ | 78,508 | ||||||||
Segment earnings (loss): | ||||||||||||||||
Real estate | $ | (4,266 | ) | $ | (1,883 | ) | $ | (684 | ) | $ | 883 | |||||
Mineral resources | 3,592 | 6,196 | 12,292 | 16,640 | ||||||||||||
Fiber resources | 446 | 1,372 | 1,790 | 3,900 | ||||||||||||
Total segment earnings | (228 | ) | 5,685 | 13,398 | 21,423 | |||||||||||
Items not allocated to segments: | ||||||||||||||||
General and administrative expense | (4,827 | ) | (3,860 | ) | (15,824 | ) | (13,438 | ) | ||||||||
Share-based compensation expense | 3,553 | (1,817 | ) | (399 | ) | (7,370 | ) | |||||||||
Gain on sale of assets | 61,784 | 15,441 | 61,784 | 15,441 | ||||||||||||
Interest expense | (4,271 | ) | (3,913 | ) | (12,933 | ) | (12,562 | ) | ||||||||
Other non-operating income | 26 | 246 | 77 | 690 | ||||||||||||
Income before taxes | 56,037 | 11,782 | 46,103 | 4,184 | ||||||||||||
Income tax expense | (19,609 | ) | (2,860 | ) | (16,069 | ) | (1,507 | ) | ||||||||
Net income attributable to Forestar Group Inc. | $ | 36,428 | $ | 8,922 | $ | 30,034 | $ | 2,677 | ||||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Revenues: | ||||||||
Real estate | $ | 17,922 | $ | 21,139 | ||||
Mineral resources | 9,426 | 7,333 | ||||||
Fiber resources | 744 | 1,368 | ||||||
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Total revenues | $ | 28,092 | $ | 29,840 | ||||
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Segment earnings : | ||||||||
Real estate | $ | 11,577 | $ | 2,575 | ||||
Mineral resources | 5,875 | 5,598 | ||||||
Fiber resources | 390 | 640 | ||||||
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| |||||
Total segment earnings | 17,842 | 8,813 | ||||||
Items not allocated to segments: | ||||||||
General and administrative expense | (4,362 | ) | (3,916 | ) | ||||
Share-based compensation expense | (5,231 | ) | (4,100 | ) | ||||
Interest expense | (3,891 | ) | (4,009 | ) | ||||
Other non-operating income | 64 | 27 | ||||||
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Income (loss) before taxes | 4,422 | (3,185 | ) | |||||
Income tax (expense) benefit | (1,620 | ) | 712 | |||||
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Net income (loss) attributable to Forestar Group Inc. | $ | 2,802 | $ | (2,473 | ) | |||
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Significant aspects of our results of operations follow:
ThirdFirst Quarter and First Nine Months 20112012
Real estate segment earnings benefited from a $11,675,000 gain from the sale of our 25 percent interest in Palisades West LLC to Dimensional Fund Advisors L.P. for $32,095,000. Segment earnings were negatively impacted by lower undeveloped land sales volumefrom our retail sales program.
Mineral resources segment earnings benefited from increased oil production volumes and priceshigher average oil prices. This increase was partially offset by a decrease in lease bonus payments and increased costs from additional oil and natural gas personnel and professional services associated with our water initiatives.
Fiber resources segment earnings continued to decrease principally due to lower harvest volume as a result of current market conditions. In addition, we recognized a $2,500,000 charge relatedselling over 217,000 acres of timberland since year-end 2008.
Share-based compensation increased principally as result of new awards granted in first quarter 2012 and an increase in our expected stock price volatility rate assumptions used in valuing new and existing awards.
First Quarter 2011
Real estate segment earnings were positively impacted by higher undeveloped land sales volume and price from our retail sales program and improved sales activity within our single-family residential and mixed-use communities.
Mineral resources segment earnings declined due to environmental remediation activities. These items were partially offset by increased residential sales activity.
19
Fiber resources segment earnings decreased principally due to reduced harvest activity resulting from the sale of approximately 30,000 acres of timberland in 2010.
Current U.S. market conditions in the single-family residential industry continue to be challenging, characterized by high unemployment rates, low consumer confidence, depressed sales volumes and prices, difficult financing environment for purchasers and competition from foreclosure inventory. While all markets are being negatively affected by overall poor economic conditions, not all geographic areas and products have been affected to the same extent or with equal severity. It is difficult to predict when and at what rate these broader negative conditions will improve, or whenimprove. We have seen signs of stability in certain markets, where declining finished lot inventories and lack of real estate development is increasing demand for our developed lots, principally in the homebuilding industry will experience a sustained recovery.Texas markets. Multifamily market conditions are improving, with many markets experiencing healthy occupancy levels and positive rent growth. This improvement has been driven primarily by limited new construction activity, reduced single-family mortgage credit availability, and the increased propensity to rent among the millennial generation18 to 34 year old demographic of the U.S. population.
Oil prices have increased principally due to supply uncertainty, demand growth from emerging markets and ongoing political unrest in oil-producing regions. Natural gas prices have remained softdepressed due to increased levels of production and highrecord levels of inventory.inventory due to mild temperatures. Shale resource drilling and production remains strong and working natural gas inventories are expected to remain relatively high. In the East Texas Basin, exploration and production companies continue to focus drilling on natural gas prospects in order to extend and hold existing mineral leases. In the Gulf Coast Basin, in Louisiana, activity has increased as operators have shifted exploration efforts to oil and high liquid natural gas plays. These conditions may impact the demand for new mineral leases, new exploration activity and the amount of royalty revenues we receive.
Business Segments
We manage our operations through three business segments:
Real estate,
20
Mineral resources, and
We operate in cyclical industries. Our operations are affected to varying degrees by supply and demand factors and economic conditions including changes in interest rates, availability of mortgage credit, consumer and home builder sentiment, new housing starts, real estate values, employment levels, changes in the market prices for oil, natural gas, and timber, and the overall strength or weakness of the U.S. economy.
Real Estate
We own directly or through ventures over 159,000146,000 acres of real estate located in nine states and 12 markets. Our real estate segment secures entitlements and develops infrastructure on our lands, primarily for single-family residential and mixed-use communities. We own 114,000104,000 acres in a broad area around Atlanta, Georgia, with the balance located primarily in Texas. We target investments principally in our strategic growth corridors, regions across the southern half of the United States that possess key demographic and growth characteristics that we believe make them attractive for long-term real estate investment. We own and manage our projects either directly or through ventures. Our real estate segment revenues are principally derived from the sales of residential single-family lots and tracts, undeveloped land and commercial real estate and from the operation of commercial and income producing properties, primarily a hotel and a multifamily property.
A summary of our real estate results follows:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues | $ | 19,060 | $ | 15,139 | $ | 59,814 | $ | 53,936 | ||||||||
Cost of sales | (12,367 | ) | (8,114 | ) | (32,894 | ) | (29,992 | ) | ||||||||
Operating expenses | (10,717 | ) | (8,313 | ) | (27,064 | ) | (22,164 | ) | ||||||||
(4,024 | ) | (1,288 | ) | (144 | ) | 1,780 | ||||||||||
Equity in earnings (loss) of unconsolidated ventures | 295 | (431 | ) | 361 | (569 | ) | ||||||||||
Less: Net income attributable to noncontrolling interests | (537 | ) | (164 | ) | (901 | ) | (328 | ) | ||||||||
Segment earnings (loss) | $ | (4,266 | ) | $ | (1,883 | ) | $ | (684 | ) | $ | 883 | |||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Revenues | $ | 17,922 | $ | 21,139 | ||||
Cost of sales | (10,331 | ) | (10,170 | ) | ||||
Operating expenses | (7,544 | ) | (7,714 | ) | ||||
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47 | 3,255 | |||||||
Gain on sale of venture interest | 11,675 | — | ||||||
Equity in earnings of unconsolidated ventures | 550 | 89 | ||||||
Less: Net income attributable to noncontrolling interests | (695 | ) | (769 | ) | ||||
|
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Segment earnings | $ | 11,577 | $ | 2,575 | ||||
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Revenues in our owned and consolidated ventures consist of:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Residential real estate | $ | 10,276 | $ | 5,615 | $ | 27,503 | $ | 19,443 | ||||||||
Commercial real estate | — | — | 736 | 157 | ||||||||||||
Undeveloped land | 1,526 | 4,385 | 10,096 | 17,295 | ||||||||||||
Income producing properties | 6,653 | 4,987 | 20,400 | 16,220 | ||||||||||||
Other | 605 | 152 | 1,079 | 821 | ||||||||||||
Total revenues | $ | 19,060 | $ | 15,139 | $ | 59,814 | $ | 53,936 | ||||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Residential real estate | $ | 8,498 | $ | 7,867 | ||||
Undeveloped land | 733 | 6,090 | ||||||
Commercial and Income producing properties | 7,278 | 6,935 | ||||||
Other | 1,413 | 247 | ||||||
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Total revenues | $ | 17,922 | $ | 21,139 | ||||
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Residential real estate revenues principally consist of the sale of single-family lots to national, regional and local homebuilders. In thirdfirst quarter and first nine months 2011,2012, residential real estate revenues increased principally as a result of increased lot sales volume due to demand for finished lot inventory by homebuilders in markets where supply has diminished.
In addition, in thirdfirst quarter 2011, we
21
In thirdfirst quarter 2012, commercial and first nine months 2011, income producing properties revenue principally increased as a result of higher occupancy levels and revenue per available room from our fourth quarter 2010 acquisition of a413 guest room hotel in Austin and rent growth from our 401 unit multifamily property located in Houston, Texas.
In first quarter 2012, other revenues include $1,047,000 as result of selling seven acres of impervious cover entitlement credits to a national homebuilder. This sale generated segment earnings of approximately $920,000.
Units sold in our owned and consolidated ventures consist of:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Residential real estate: | ||||||||||||||||
Lots sold | 155 | 105 | 458 | 356 | ||||||||||||
Revenue per lot sold | $ | 52,197 | $ | 52,342 | $ | 55,277 | $ | 54,091 | ||||||||
Commercial real estate: | ||||||||||||||||
Acres sold | — | — | 4.0 | 1.3 | ||||||||||||
Revenue per acre sold | $ | — | $ | — | $ | 185,344 | $ | 121,705 | ||||||||
Undeveloped land: | ||||||||||||||||
Acres sold | 548 | 1,153 | 3,938 | 4,713 | ||||||||||||
Revenue per acre sold | $ | 2,786 | $ | 3,803 | $ | 2,564 | $ | 3,669 |
First Quarter | ||||||||
2012 | 2011 | |||||||
Residential real estate: | ||||||||
Lots sold | 137 | 145 | ||||||
Revenue per lot sold | $ | 62,023 | $ | 54,257 | ||||
Commercial real estate: | ||||||||
Acres sold | — | — | ||||||
Revenue per acre sold | $ | — | $ | — | ||||
Undeveloped land: | ||||||||
Acres sold | 320 | 2,629 | ||||||
Revenue per acre sold | $ | 2,293 | $ | 2,316 |
Operating expenses consist of:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Property taxes | $ | 2,023 | $ | 1,878 | $ | 6,484 | $ | 6,460 | ||||||||
Employee compensation and benefits | 1,893 | 1,543 | 5,730 | 4,674 | ||||||||||||
Professional services | 1,174 | 1,646 | 3,405 | 3,080 | ||||||||||||
Depreciation and amortization | 1,344 | 641 | 3,938 | 2,187 | ||||||||||||
Environmental | 2,527 | 37 | 2,607 | 108 | ||||||||||||
Other | 1,756 | 2,568 | 4,900 | 5,655 | ||||||||||||
Total operating expenses | $ | 10,717 | $ | 8,313 | $ | 27,064 | $ | 22,164 | ||||||||
22
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Employee compensation and benefits | $ | 2,125 | $ | 1,941 | ||||
Property taxes | 1,943 | 2,184 | ||||||
Professional services | 1,257 | 966 | ||||||
Depreciation and amortization | 1,047 | 1,281 | ||||||
Other | 1,172 | 1,342 | ||||||
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Total operating expenses | $ | 7,544 | $ | 7,714 | ||||
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Third Quarter-End | ||||||||
2011 | 2010 | |||||||
Owned and consolidated ventures: | ||||||||
Entitled, developed and under development projects | ||||||||
Number of projects | 54 | 54 | ||||||
Residential lots remaining | 18,679 | 17,811 | ||||||
Commercial acres remaining | 1,808 | 1,775 | ||||||
Undeveloped land and land in the entitlement process | ||||||||
Number of projects | 16 | 18 | ||||||
Acres in entitlement process | 27,590 | 29,670 | ||||||
Acres undeveloped | 110,115 | 179,736 | ||||||
Ventures accounted for using the equity method: | ||||||||
Ventures’ lot sales (for first nine months) | ||||||||
Lots sold | 350 | 261 | ||||||
Average price per lot sold | $ | 40,592 | $ | 43,402 | ||||
Ventures’ entitled, developed and under development projects | ||||||||
Number of projects | 21 | 22 | ||||||
Residential lots remaining | 9,295 | 11,369 | ||||||
Commercial acres sold (for first nine months) | 20.0 | 15.4 | ||||||
Average price per acre sold | $ | 152,460 | $ | 81,318 | ||||
Commercial acres remaining | 538 | 829 | ||||||
Ventures’ undeveloped land and land in the entitlement process | ||||||||
Number of projects | — | — | ||||||
Acres in entitlement process | — | — | ||||||
Acres sold (for first nine months) | 19.2 | — | ||||||
Average price per acre sold | $ | 3,000 | $ | — | ||||
Acres undeveloped | 5,712 | 5,517 |
First Quarter-End | ||||||||
2012 | 2011 | |||||||
Owned and consolidated ventures: | ||||||||
Entitled, developed and under development projects | ||||||||
Number of projects | 66 | 52 | ||||||
Residential lots remaining | 22,830 | 17,635 | ||||||
Commercial acres remaining | 2,123 | 1,774 | ||||||
Undeveloped land and land in the entitlement process | ||||||||
Number of projects | 16 | 18 | ||||||
Acres in entitlement process | 27,590 | 29,620 | ||||||
Acres undeveloped | 96,606 | 167,387 | ||||||
Ventures accounted for using the equity method: | ||||||||
Ventures’ lot sales (for first three months) | ||||||||
Lots sold | 148 | 69 | ||||||
Average price per lot sold | $ | 44,570 | $ | 35,473 | ||||
Ventures’ entitled, developed and under development projects | ||||||||
Number of projects | 7 | 21 | ||||||
Residential lots remaining | 4,093 | 9,582 | ||||||
Commercial acres sold (for first three months) | — | 20 | ||||||
Average price per acre sold | $ | — | $ | 152,460 | ||||
Commercial acres remaining | 333 | 570 | ||||||
Ventures’ undeveloped land and land in the entitlement process | ||||||||
Acres sold (for first three months) | 135 | — | ||||||
Average price per acre sold | $ | 2,600 | $ | — | ||||
Acres undeveloped | 5,655 | 5,731 |
In first quarter 2012, we acquired from CL Realty and Temco, 14 entitled, developed and under development projects and interests in three ventures accounted for using the equity method. The acquired assets represent approximately 1,130 fully developed lots, 4,900 planned lots, and over 460 commercial acres, principally in the major markets of Texas.
We underwrite development projects based on a variety of assumptions incorporated into our development plans, including the timing and pricing of lot sales and commercial parcels,leasing and costs to complete development. Our development plans are periodically reviewed in comparison to our return projections and expectations, and we may revise our plans as business conditions warrant. If as a result of changes to our development plans the anticipated future net cash flows are reduced such that our basis in a project is not fully recoverable, we may be required to recognize a non-cash impairment charge for such project.
Our net investment in Houston, Texas for $8,950,000, which includes the right to receive about $4,000,000 in reimbursements, excluding interest, under a development agreement with the City of Houston. We also acquired two multifamily development sites located in Austinowned and Dallas for $8,672,000.
$xxxxxxxxx | $xxxxxxxxx | $xxxxxxxxx | $xxxxxxxxx | |||||||||||||
State | Entitled, Developed, and Under Development Projects | Undeveloped Land | Commercial and Income Producing Properties | Total | ||||||||||||
(In thousands) | ||||||||||||||||
Texas | $ | 352,553 | $ | 9,615 | $ | 101,007 | $ | 463,175 | ||||||||
Georgia | 21,912 | 56,515 | — | 78,427 | ||||||||||||
Colorado | 22,465 | — | 8,873 | 31,338 | ||||||||||||
California | 8,795 | 14,440 | — | 23,235 | ||||||||||||
Other | 9,108 | — | — | 9,108 | ||||||||||||
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Total | $ | 414,833 | $ | 80,570 | $ | 109,880 | $ | 605,283 | ||||||||
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Mineral Resources
We own directly or through ventures 602,000about 594,000 net acres of mineral interests. Our mineral resources segment revenues are principally derived from royalties and other revenues from our oil and natural gas royalties, non-operating working interests and other lease revenues from our mineral interests located principally in Texas, Louisiana, Georgia and Alabama. At thirdfirst quarter-end 2011,2012, we have 59,000about 49,000 net acres under lease and 30,000about 32,000 net acres held by production from 510 oil and natural gas wells owned and operated by exploration and production companies.
A summary of our mineral resources results follows:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues | $ | 5,871 | $ | 6,654 | $ | 17,784 | $ | 18,387 | ||||||||
Cost of sales | (597 | ) | (223 | ) | (1,829 | ) | (852 | ) | ||||||||
Operating expenses | (2,030 | ) | (748 | ) | (4,918 | ) | (2,204 | ) | ||||||||
3,244 | 5,683 | 11,037 | 15,331 | |||||||||||||
Equity in earnings of unconsolidated ventures | 348 | 513 | 1,255 | 1,309 | ||||||||||||
Segment earnings | $ | 3,592 | $ | 6,196 | $ | 12,292 | $ | 16,640 | ||||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Revenues | $ | 9,426 | $ | 7,333 | ||||
Cost of sales | (1,375 | ) | (794 | ) | ||||
Operating expenses | (2,344 | ) | (1,429 | ) | ||||
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5,707 | 5,110 | |||||||
Equity in earnings of unconsolidated ventures | 168 | 488 | ||||||
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Segment earnings | $ | 5,875 | $ | 5,598 | ||||
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Cost of sales represents our share of oil and natural gas production severance taxes, which are calculated based on a percentage of oil and natural gas produced, costs related to our oil and natural gas non-operating working interests and delay rental payments related to ground water leases in central Texas.
Equity in earnings of unconsolidated ventures includes our share of royalty revenue from 23 producing wells in the Barnett Shale natural gas formation.
23
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Royalties | $ | 5,424 | $ | 3,217 | $ | 13,056 | $ | 10,542 | ||||||||
Other revenues | 447 | 3,437 | 4,728 | 7,845 | ||||||||||||
Total revenues | $ | 5,871 | $ | 6,654 | $ | 17,784 | $ | 18,387 | ||||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Royalties | $ | 7,027 | $ | 3,676 | ||||
Non-operating working interests | 915 | 129 | ||||||
Other revenues | 1,484 | 3,528 | ||||||
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Total revenues | $ | 9,426 | $ | 7,333 | ||||
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In thirdfirst quarter and first nine months 2011,2012, royalty revenues increased principally as a result of increased oil production and higher oil prices and increased oil production partially offset by decreases in natural gas production inour owned and consolidated properties. In thirdIncreased oil production contributed about $3,071,000 and increased oil prices contributed about $1,043,000 as compared with first quarter 2011, increases in net oil and2011. Increased natural gas production contributed about $204,000 but was essentially offset by decreased natural gas prices contributed $1,172,000 and changes in net oil and gas production contributed $1,035,000of $181,000 as compared to thirdwith first quarter 2010. 2011.
In first nine months 2011, changes in net oil and natural gas prices contributed $1,878,000 and changes in net oil and gas production contributed $636,000 as compared to first nine months 2010.
Oil and natural gas produced and average unit prices related to our royalty interests follows:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Consolidated entities: | ||||||||||||||||
Oil production (barrels) | 42,300 | 27,700 | 102,200 | 87,600 | ||||||||||||
Average price per barrel | $ | 97.83 | $ | 71.41 | $ | 94.23 | $ | 72.53 | ||||||||
Natural gas production (millions of cubic feet) | 295.9 | 298.5 | 850.1 | 946.0 | ||||||||||||
Average price per thousand cubic feet | $ | 4.33 | $ | 4.15 | $ | 4.03 | $ | 4.43 | ||||||||
Our share of ventures accounted for using the equity method: | ||||||||||||||||
Natural gas production (millions of cubic feet) | 112.1 | 138.1 | 398.3 | 345.6 | ||||||||||||
Average price per thousand cubic feet | $ | 4.10 | $ | 4.02 | $ | 3.80 | $ | 4.25 | ||||||||
Total consolidated and our share of equity method ventures: | ||||||||||||||||
Oil production (barrels) | 42,300 | 27,700 | 102,200 | 87,600 | ||||||||||||
Average price per barrel | $ | 97.83 | $ | 71.41 | $ | 94.23 | $ | 72.53 | ||||||||
Natural gas production (millions of cubic feet) | 408.0 | 436.6 | 1,248.4 | 1,291.6 | ||||||||||||
Average price per thousand cubic feet | $ | 4.27 | $ | 4.11 | $ | 3.96 | $ | 4.38 |
First Quarter | ||||||||
2012 | 2011 | |||||||
Consolidated entities: | ||||||||
Oil production (barrels) | 69,200 | 32,000 | ||||||
Average price per barrel | $ | 97.57 | $ | 82.49 | ||||
Natural gas production (millions of cubic feet) | 362.1 | 308.2 | ||||||
Average price per thousand cubic feet | $ | 3.29 | $ | 3.79 | ||||
Our share of ventures accounted for using the equity method: | ||||||||
Natural gas production (millions of cubic feet) | 90.1 | 158.6 | ||||||
Average price per thousand cubic feet | $ | 2.99 | $ | 3.57 | ||||
Total consolidated and our share of equity method ventures: | ||||||||
Oil production (barrels) | 69,200 | 32,000 | ||||||
Average price per barrel | $ | 97.57 | $ | 82.49 | ||||
Natural gas production (millions of cubic feet) | 452.2 | 466.8 | ||||||
Average price per thousand cubic feet | $ | 3.23 | $ | 3.72 |
At thirdfirst quarter-end 2011,2012, there were 510 active534 productive wells owned and operated by others on our leased mineral acres compared to 491496 productive wells at thirdfirst quarter-end 2010.
Operating expenses consist of:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Professional and consulting services | $ | 792 | $ | 115 | $ | 2,086 | $ | 351 | ||||||||
Employee compensation and benefits | 614 | 307 | 1,495 | 888 | ||||||||||||
Property taxes | 78 | 78 | 228 | 225 | ||||||||||||
Other | 546 | 248 | 1,109 | 740 | ||||||||||||
Total operating expenses | $ | 2,030 | $ | 748 | $ | 4,918 | $ | 2,204 | ||||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Employee compensation and benefits | $ | 1,037 | $ | 453 | ||||
Professional and consulting services | 722 | 644 | ||||||
Property taxes | 71 | 76 | ||||||
Other | 514 | 256 | ||||||
|
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| |||||
Total operating expenses | $ | 2,344 | $ | 1,429 | ||||
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|
In first quarter 2012, employee compensation and benefits increased principally as result of incremental staffing to support our oil, natural gas and water interests. Professional and consulting services increasedincludes $429,000 in thirdfirst quarter 2012 and $1,286,000 in first nine months 2011 primarily due to non-cash amortization of contingent consideration paid to the seller of a water resources company acquired in fourth quarter 2010. These costs are being amortized ratably over the performance period assuming certain milestones are achieved by July 2014. Employee compensation and benefits increased in third quarter and first nine months 2011 as a result of incremental staffing to support our oil, gas and water interests.
24
Fiber Resources
Our fiber resources segment focuses principally on the management of our timber holdings and recreational leases. We have about 130,000 acres of timber we own directly or through ventures, over 143,000 acres of timber, primarily in Georgia, and about 17,000 acres of timber under lease. Our fiber resources segment revenues are principally derived from the sales of wood fiber from our land and leases for recreational uses. We have sold over 204,000217,000 acres of undeveloped landtimberland since year-end 2008 through our retail land sales program and as a result of our strategic initiatives.2008. As a result of the reduced acreage from executing these land sales, future segment revenues and earnings are anticipated to be lower.
A summary of our fiber resources results follows:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues | $ | 1,310 | $ | 2,220 | $ | 3,968 | $ | 6,185 | ||||||||
Cost of sales | (349 | ) | (466 | ) | (881 | ) | (1,208 | ) | ||||||||
Operating expenses | (520 | ) | (502 | ) | (1,494 | ) | (1,694 | ) | ||||||||
441 | 1,252 | 1,593 | 3,283 | |||||||||||||
Other operating income | — | 120 | 181 | 617 | ||||||||||||
Equity in earnings of unconsolidated ventures | 5 | — | 16 | — | ||||||||||||
Segment earnings | $ | 446 | $ | 1,372 | $ | 1,790 | $ | 3,900 | ||||||||
$xxx,xxx | $xxx,xxx | |||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Revenues | $ | 744 | $ | 1,368 | ||||
Cost of sales | (128 | ) | (247 | ) | ||||
Operating expenses | (466 | ) | (486 | ) | ||||
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| |||||
150 | 635 | |||||||
Other operating income, principally gain on termination of timber leases | 234 | — | ||||||
Equity in earnings of unconsolidated ventures | 6 | 5 | ||||||
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| |||||
Segment earnings | $ | 390 | $ | 640 | ||||
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|
Revenues consist of:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Fiber | $ | 978 | $ | 1,767 | $ | 2,695 | $ | 4,797 | ||||||||
Recreational leases and other | 332 | 453 | 1,273 | 1,388 | ||||||||||||
Total revenues | $ | 1,310 | $ | 2,220 | $ | 3,968 | $ | 6,185 | ||||||||
$xxx,xxx | $xxx,xxx | |||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Fiber | $ | 334 | $ | 865 | ||||
Recreational leases and other | 410 | 503 | ||||||
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| |||||
Total revenues | $ | 744 | $ | 1,368 | ||||
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Fiber sold consists of:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Pulpwood tons sold | 85,800 | 116,900 | 222,100 | 295,600 | ||||||||||||
Average pulpwood price per ton | $ | 7.57 | $ | 9.41 | $ | 8.57 | $ | 10.31 | ||||||||
Sawtimber tons sold | 22,900 | 37,500 | 51,200 | 90,900 | ||||||||||||
Average sawtimber price per ton | $ | 14.33 | $ | 17.79 | $ | 15.47 | $ | 19.23 | ||||||||
Total tons sold | 108,700 | 154,400 | 273,300 | 386,500 | ||||||||||||
Average price per ton | $ | 8.99 | $ | 11.45 | $ | 9.86 | $ | 12.41 |
First Quarter | ||||||||
2012 | 2011 | |||||||
Pulpwood tons sold | 24,400 | 65,600 | ||||||
Average pulpwood price per ton | $ | 10.18 | $ | 9.18 | ||||
Sawtimber tons sold | 4,400 | 15,500 | ||||||
Average sawtimber price per ton | $ | 19.48 | $ | 16.98 | ||||
Total tons sold | 28,800 | 81,100 | ||||||
Average price per ton | $ | 11.59 | $ | 10.67 |
In thirdfirst quarter and first nine months 2011,2012, total fiber tons sold decreased principally due to the sale of about 30,00074,000 acres of timberland in 2010 and postponing harvest plans on acres previously classified as held for sale.2011. The majority of our fiber sales were to Temple-InlandInternational Paper at market prices.
Information about our recreational leases follows:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Average recreational acres leased | 164,600 | 205,900 | 185,300 | 209,900 | ||||||||||||
Average price per leased acre | $ | 8.28 | $ | 8.60 | $ | 8.84 | $ | 8.33 |
25
First Quarter | ||||||||
2012 | 2011 | |||||||
Average recreational acres leased | 130,900 | 200,000 | ||||||
Average price per leased acre | $ | 8.80 | $ | 8.91 |
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Employee compensation and benefits | $ | 229 | $ | 224 | $ | 696 | $ | 909 | ||||||||
Facility and long-term timber lease costs | 109 | 116 | 337 | 306 | ||||||||||||
Other | 182 | 162 | 461 | 479 | ||||||||||||
Total operating expenses | $ | 520 | $ | 502 | $ | 1,494 | $ | 1,694 | ||||||||
$xxx,xxx | $xxx,xxx | |||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Employee compensation and benefits | $ | 244 | $ | 237 | ||||
Facility and long-term timber lease costs | 121 | 119 | ||||||
Other | 101 | 130 | ||||||
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| |||||
Total operating expenses | $ | 466 | $ | 486 | ||||
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Items Not Allocated to Segments
Unallocated items represent income and expenses managed on a company-wide basis and include general and administrative expenses, share-based compensation, gain on sale of assets,strategic timberland, interest expense and other non-operating income and expense. General and administrative expenses principally consist of accounting and finance, tax, legal, human resources, internal audit, information technology and our board of directors. These functions support all of our business segments and are not allocated.
General and administrative expenses consist of:
Third Quarter | First Nine Months | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Professional services | $ | 1,600 | $ | 583 | $ | 6,025 | $ | 2,665 | ||||||||
Employee compensation and benefits | 1,394 | 1,410 | 4,221 | 4,145 | ||||||||||||
Depreciation and amortization | 347 | 371 | 1,050 | 1,113 | ||||||||||||
Insurance costs | 276 | 295 | 809 | 936 | ||||||||||||
Facility costs | 210 | 301 | 594 | 912 | ||||||||||||
Other | 1,000 | 900 | 3,125 | 3,667 | ||||||||||||
Total general and administrative expenses | $ | 4,827 | $ | 3,860 | $ | 15,824 | $ | 13,438 | ||||||||
$xxx,xxx | $xxx,xxx | |||||||
First Quarter | ||||||||
2012 | 2011 | |||||||
(In thousands) | ||||||||
Professional services | $ | 842 | $ | 680 | ||||
Employee compensation and benefits | 1,576 | 1,454 | ||||||
Depreciation and amortization | 299 | 351 | ||||||
Insurance costs | 269 | 244 | ||||||
Facility costs | 198 | 211 | ||||||
Other | 1,178 | 976 | ||||||
|
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| |||||
Total general and administrative expenses | $ | 4,362 | $ | 3,916 | ||||
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Income Taxes
Our effective tax rate was 35 percent in third quarter 2011 and 3432 percent in first nine months 2011,quarter 2012, which includes a 14 percent benefit for noncontrolling interests and 1 percent non-cash charge for share-based compensation.interests. Our effective tax rate was 24 percent in third quarter 2010 and 33a benefit of 29 percent in first nine months 2010,quarter 2011, which included a 413 percent benefit attributable to noncontrolling interests.non-cash charge for share–based compensation. In addition, 20112012 and 20102011 effective tax rates include the effect of state income taxes, nondeductible items and benefits of percentage depletion and the 2011 rate includes the effect of charitable contributions related to timberland conservation.
We have not provided a valuation allowance for our deferred tax asset because we believe it is likely it will be recoverable in future periods.
Capital Resources and Liquidity
Sources and Uses of Cash
We operate in cyclical industries and our cash flows fluctuate accordingly. Our principal operating cash requirements are for the acquisition and development of real estate, either directly or indirectly through ventures, taxes, interest and compensation. Our principal sources of cash are proceeds from the sale of real estate and timber, the cash flow from minerals and income producing properties, borrowings, and reimbursements from utility and improvement districts. Operating cash flows are affected by the timing of the payment of real estate development expenditures and the collection of proceeds from the eventual sale of the real estate, the timing of which can vary substantially depending on many factors including the size of the project, state and local permitting requirements and availability of utilities, and by the timing of oil and natural gas leasing and production activities. Working capital is subject to operating needs, the timing of sales of real estate and timber, the timing of collection of mineral royalties or mineral lease payments, collection of receivables, reimbursement from utility and improvement districts and the payment of payables and expenses.
Cash Flows from Operating Activities
Cash flows from our real estate development activities, undeveloped land sales, commercial and income producing properties, timber sales, mineral and recreational leases and reimbursements from utility and improvement districts are classified as operating cash flows.
26
Cash Flows from Investing Activities
Capital contributions to and capital distributions from unconsolidated ventures and business acquisitionsinvestment in oil and natural gas properties and equipment are classified as investing activities. In addition, proceeds from the sale of property and equipment, software costs and expenditures related to reforestation activities are also classified as investing activities.
In first nine monthsquarter 2012, net cash provided by investing activities was $29,413,000 principally due to proceeds from the sale of our 25 percent interest in Palisades West LLC to Dimensional Fund Advisors L.P. for $32,095,000. In addition, we invested $1,968,000 in oil and natural gas properties and equipment associated with our non-operating working interests. In first quarter 2011, net cash (used for) investing activities was ($5,149,000)1,171,000) and is principally related to $3,414,000 invested in oil and gas properties as non-operating working interests, $662,000 in net contributions to unconsolidated ventures and $1,466,000investment in property, equipment, software and reforestation. In first nine months 2010, net cash provided by investing activities was $3,572,000 principally due to net distributions from unconsolidated ventures of $3,252,000. We invested $2,282,000 in property, equipment, software and reforestation offset by $2,602,000 in proceeds related to the sale of our undivided interest in corporate aircraft.
Cash Flows from Financing Activities
In first nine months 2011,quarter 2012, net cash (used for)provided by financing activities was ($3,912,000) and is principally related to the payment of $3,746,000 in deferred financing fees primarily related to supplementing and amending our senior secured credit facility and $2,126,000 related to repurchasing 172,435 shares of our common stock. This was partially offset by a net$6,619,000. The increase in our debt of $2,108,000.$6,278,000 was principally used to fund our real estate development and acquisition activities. In first nine months 2010,quarter 2011, net cash (used for)provided by financing activities was ($6,439,000) as we repurchased 1,000,987 shares of our common stock for $15,178,000 and incurred $5,969,000 in deferred financing fees primarily related$7,819,000 due to our amendment and extension of our senior secured credit facility, which was partially offset by a net increaseincreases in our debt of $14,147,000.
Liquidity
At various times in 2011, we supplemented and amended our senior secured credit facility to provide us with, among other matters, additional flexibility with respect to the borrowing base, collateral coverage and leverage requirements. As a result, in third quarter 2011 we increased our unused borrowing capacity by over $70,000,000 and extended the maturity of our revolving line of credit by one year, to August 6, 2014.
Borrowing base availability Less: borrowings Less: letters of credit Unused borrowing capacity Senior Credit
Facility (In thousands) $ 293,345 (136,000 ) (2,467 ) $ 154,878
Our unused borrowing capacity duringin first nine months 2011quarter 2012 ranged from a high of $176,337,000$154,878,000 to a low of $94,872,000.$149,618,000. This facility is used primarily to fund our operating cash needs, which fluctuate due to timing of residential real estate sales, undeveloped land sales, mineral lease bonus payments, timber sales, payment of payables and expenses and capital expenditures.
Our senior secured credit facility and other debt agreements contain financial covenants customary for such agreements including minimum levels of interest coverage and limitations on leverage. At thirdfirst quarter-end 2011,2012, we were in compliance with the financial covenants of these agreements.
The following table details our compliance with the financial covenants calculated as provided in the senior secured credit facility:
Requirement | First Quarter-End 2012 | ||||||||||
Financial Covenant | |||||||||||
Interest Coverage Ratio(a) | ³1.05:1.0 | 6.93:1.0 | |||||||||
Revenues/Capital Expenditures Ratio(b) | ³1.00:1.0 | 1.63:1.0 | |||||||||
Total Leverage Ratio(c ) | £40 | % | 25 | % | |||||||
Net Worth(d) | > $ | 441 million | $ | 510 million | |||||||
Collateral Value to Loan Commitment Ratio(e ) | ³1.50:1.0 | ||||||||||
27
(a) | Calculated as EBITDA (earnings before interest, taxes, depreciation and amortization), plus non-cash compensation expense, plus other non-cash expenses, divided by interest expense excluding loan fees. This covenant is applied at the end of each quarter on a rolling four quarter basis. |
(b) | Calculated as total gross revenues, plus our pro rata share of the operating revenues from unconsolidated ventures, divided by capital expenditures. Capital expenditures are defined as consolidated development and acquisition expenditures plus our pro rata share of unconsolidated ventures’ development and acquisition expenditures. This covenant is applied at the end of each quarter on a rolling four quarter basis. |
(c) | Calculated as total funded debt divided by adjusted asset value. Total funded debt includes indebtedness for borrowed funds, secured liabilities and reimbursement obligations with respect to letters of credit or similar instruments. Adjusted asset value is defined as the sum of unrestricted cash and cash equivalents, timberlands, high value timberlands, raw entitled lands, entitled land under development, minerals business, other real estate owned at book value without regard to any indebtedness and our pro rata share of joint ventures’ book value without regard to any indebtedness. This covenant is applied at the end of each quarter. |
(d) | Calculated as the amount by which consolidated total assets exceeds consolidated total liabilities. At |
(e) | Calculated as the total collateral value of timberland, high value timberland and our minerals business, divided by total aggregate loan commitment. This covenant is applied at the end of each quarter. |
To make additional investments, acquisitions, or distributions, we must maintain available liquidity of equal to the lesser of $35,000,000 or 10% of the aggregate commitments in place. At thirdfirst quarter-end 2011,2012, the minimum liquidity requirement was $33,000,000, resulting in $203,852,000$160,993,000 in available liquidity based on the unused borrowing capacity under our senior secured credit facility plus unrestricted cash and cash equivalents. The failure to maintain such minimum liquidity does not constitute a default or event of default of our senior secured credit facility.
Contractual Obligations and Off-Balance Sheet Arrangements
In second quarter 2011, we began construction on a 289 unit multifamily project in Austin, Texas in which the estimated cost at completion, including land, is approximately $30,536,000. At third quarter-end 2011,first-quarter end 2012, our investment in this project including land and construction in progress is $9,394,000 and the$21,193,000 with an estimated cost to complete construction is $21,142,000.
At thirdfirst quarter-end 2011,2012, we participate in three partnerships that have total assets of $51,301,000$48,967,000 and total liabilities of $83,575,000,$79,335,000, which includes $67,557,000$63,463,000 of borrowings classified as current maturities. These partnerships are managed by third parties who intend to extend or refinance these borrowings; however, there is no assurance that this can be done. Although these borrowings are guaranteed by third parties, we may under certain circumstances elect or be required to provide additional equity to these partnerships. We do not believe that the ultimate resolution of these matters will have a significant effect on our earnings or financial position. Our investment in these partnerships is $2,362,000$1,884,000 at thirdfirst quarter-end 2011.2012. These three partnerships are variable interest entities.
Cibolo Canyons — San Antonio, Texas
Cibolo Canyons consists of the JW Marriott® San Antonio Hill Country Resort & Spa development owned by third parties and a mixed-use development we own. We have $86,637,000$80,186,000 invested in Cibolo Canyons at thirdfirst quarter-end 2011.
Resort Hotel, Spa and Golf Development
In 2007, we entered into agreements to facilitate third party construction and ownership of the JW Marriott® San Antonio Hill Country Resort & Spa, which includes a 1,002 room destination resort and two PGA Tour® Tournament Players Club® (TPC) golf courses. Under these agreements, we agreed to transfer to third party owners 700 acres of undeveloped land, to provide $30,000,000 cash and to provide $12,700,000 of other consideration principally consisting of golf course construction materials, substantially all of which has been provided.
In exchange for our commitment to the resort, the third party owners assigned to us certain rights under an agreement between the third party owners and a legislatively created Special Improvement District (SID). This agreement includes the right to receive from the SID 9 percent of hotel occupancy revenues and 1.5 percent of other resort sales revenues collected as taxes by the SID through 2034. The amount we receive will be net of annual ad valorem tax reimbursements by the SID to the third party owners of the resort through 2020. In addition, these payments will be net of debt service, if any, on bonds issued by the SID collateralized by hotel occupancy tax and other resort sales tax through 2034.
The amounts we collect under this agreement are dependent on several factors including the amount of revenues generated by and ad valorem taxes imposed on the resort and the amount of any applicable debt service incurred by the SID. As a result, there is significant uncertainty as to the amount and timing of collections under this agreement. Until these uncertainties are clarified, amounts collected
28
We did not receive any reimbursements in first quarter 2011, we received $480,000 from the SID.2012. Since inception, we have received $3,083,000$7,906,000 in reimbursements and have accounted for this as a reduction of our investment. At thirdfirst quarter-end 2011,2012, we have $39,918,000$35,368,000 invested in the resort development.
Mixed-Use Development
The mixed-use development we own consists of 2,100 acres planned to include approximately 1,4201,475 residential lots and 220150 commercial acres designated for multifamily and retail uses, of which 694705 lots and 68 commercial acres have been sold through thirdfirst quarter-end 2011.
In 2007, we entered into an agreement with the SID providing for reimbursement of certain infrastructure costs related to the mixed-use development. Reimbursements are subject to review and approval by the SID and unreimbursed amounts accrue interest at 9.75 percent. The SID’s funding for reimbursements is principally derived from its ad valorem tax collections and bond proceeds collateralized by ad valorem taxes, less debt service on these bonds and annual administrative and public service expenses. Through thirdfirst quarter-end 2011,2012, we have submitted and received approval for reimbursement of approximately $57,322,000 of infrastructure costs and have received reimbursements totaling $20,770,000.$22,520,000. We did not receive any reimbursements in first quarter 2012. At thirdfirst quarter-end 2011,2012, we have $36,552,000$34,802,000 in approved and pending reimbursements, excluding interest.
Since the amount of each reimbursement is dependent on several factors, including timing of SID approval and the SID having an adequate tax base to generate funds that can be used to reimburse us, there is uncertainty as to the amount and timing of reimbursements under this agreement. We expect to recover our investment from lot and tract sales and reimbursement of approved infrastructure costs from the SID. We have not recognized income from interest due, but not collected. As these uncertainties are clarified, we will modify our accounting accordingly.
At thirdfirst quarter-end 2011,2012, we have $46,719,000$44,818,000 invested in the mixed-use development.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies or estimates from those disclosed in our 20102011 Annual Report on Form 10-K.
Recent Accounting Standards
Please readNote 2 to the Consolidated Financial Statements containedincluded in this Quarterly Report on Form 10-Q.
29
A summary of our real estate projects in the entitlement process(a) at thirdfirst quarter-end 20112012 follows:
Project | ||||||||
Project | County | Market | Acres(b) | |||||
California | ||||||||
Hidden Creek Estates | Los Angeles | Los Angeles | 700 | |||||
Terrace at Hidden Hills | Los Angeles | Los Angeles | 30 | |||||
Georgia | ||||||||
Ball Ground | Cherokee | Atlanta | 500 | |||||
Crossing | Coweta | Atlanta | 230 | |||||
Fincher Road | Cherokee | Atlanta | 3,890 | |||||
Fox Hall | Coweta | Atlanta | 960 | |||||
Garland Mountain | Cherokee/Bartow | Atlanta | 350 | |||||
Home Place | Coweta | Atlanta | 1,510 | |||||
Martin’s Bridge | Banks | Atlanta | 970 | |||||
Mill Creek | Coweta | Atlanta | 770 | |||||
Serenity | Carroll | Atlanta | 440 | |||||
Waleska | Cherokee | Atlanta | 100 | |||||
Wolf Creek | Carroll/Douglas | Atlanta | 12,230 | |||||
Yellow Creek | Cherokee | Atlanta | 1,060 | |||||
Texas | ||||||||
Lake Houston | Harris/Liberty | Houston | 3,700 | |||||
San Jacinto | Montgomery | Houston | 150 | |||||
Total | 27,590 | |||||||
(a) | A project is deemed to be in the entitlement process when customary steps necessary for the preparation of an application for governmental land-use approvals, like conducting pre-application meetings or similar discussions with governmental officials, have commenced, or an application has been filed. Projects listed may have significant steps remaining, and there is no assurance that entitlements ultimately will be received. |
(b) | Project acres, which are the total for the project regardless of our ownership interest, are approximate. The actual number of acres entitled may vary. |
30
Residential Lots(c) | Commercial Acres(d) | |||||||||||||||||||||||
Lots Sold | Acres Sold | |||||||||||||||||||||||
Interest | Since | Lots | Since | Acres | ||||||||||||||||||||
Project | County | Market | Owned(b) | Inception | Remaining | Inception | Remaining | |||||||||||||||||
Projects we own | ||||||||||||||||||||||||
California | ||||||||||||||||||||||||
San Joaquin River | Contra Costa/ Sacramento | Oakland | 100 | % | — | — | — | 288 | ||||||||||||||||
Colorado | ||||||||||||||||||||||||
Buffalo Highlands | Weld | Denver | 100 | % | — | 164 | — | — | ||||||||||||||||
Johnstown Farms | Weld | Denver | 100 | % | 115 | 497 | 2 | 7 | ||||||||||||||||
Pinery West | Douglas | Denver | 100 | % | — | — | — | 115 | ||||||||||||||||
Stonebraker | Weld | Denver | 100 | % | — | 603 | — | 13 | ||||||||||||||||
Texas | ||||||||||||||||||||||||
Arrowhead Ranch | Hays | Austin | 100 | % | — | 259 | — | 6 | ||||||||||||||||
Barrington Kingwood | Harris | Houston | 100 | % | — | 180 | — | — | ||||||||||||||||
Caruth Lakes | Rockwall | Dallas/Fort Worth | 100 | % | 362 | 287 | — | — | ||||||||||||||||
Cibolo Canyons | Bexar | San Antonio | 100 | % | 694 | 721 | 68 | 153 | ||||||||||||||||
Harbor Lakes | Hood | Dallas/Fort Worth | 100 | % | 202 | 247 | 2 | 12 | ||||||||||||||||
Hunter’s Crossing | Bastrop | Austin | 100 | % | 378 | 112 | 38 | 71 | ||||||||||||||||
La Conterra | Williamson | Austin | 100 | % | 78 | 422 | — | 58 | ||||||||||||||||
Maxwell Creek | Collin | Dallas/Fort Worth | 100 | % | 719 | 280 | 10 | — | ||||||||||||||||
Oak Creek Estates | Comal | San Antonio | 100 | % | 90 | 557 | 13 | — | ||||||||||||||||
The Colony | Bastrop | Austin | 100 | % | 418 | 729 | 22 | 31 | ||||||||||||||||
The Gables at North Hill | Collin | Dallas/Fort Worth | 100 | % | 203 | — | — | — | ||||||||||||||||
The Preserve at Pecan Creek | Denton | Dallas/Fort Worth | 100 | % | 329 | 465 | — | 7 | ||||||||||||||||
The Ridge at Ribelin Ranch | Travis | Austin | 100 | % | — | — | 195 | — | ||||||||||||||||
Westside at Buttercup Creek | Williamson | Austin | 100 | % | 1,369 | 145 | 66 | — | ||||||||||||||||
Other projects (9) | Various | Various | 100 | % | 1,557 | 16 | 197 | 24 | ||||||||||||||||
Georgia | ||||||||||||||||||||||||
The Villages at Burt Creek | Dawson | Atlanta | 100 | % | — | 1,715 | — | 57 | ||||||||||||||||
Towne West | Bartow | Atlanta | 100 | % | — | 2,674 | — | 121 | ||||||||||||||||
Other projects (13) | Various | Atlanta | 100 | % | — | 2,834 | — | 705 | ||||||||||||||||
Missouri and Utah | ||||||||||||||||||||||||
Other projects (2) | Various | Various | 100 | % | 466 | 88 | — | — | ||||||||||||||||
6,980 | 12,995 | 613 | 1,668 | |||||||||||||||||||||
Projects in entities we consolidate | ||||||||||||||||||||||||
Texas | ||||||||||||||||||||||||
City Park | Harris | Houston | 75 | % | 1,176 | 135 | 50 | 115 | ||||||||||||||||
Lantana | Denton | Dallas/Fort Worth | 55 | %(e) | 723 | 1,537 | — | — | ||||||||||||||||
Light Farms | Collin | Dallas/Fort Worth | 65 | % | — | 2,501 | — | — | ||||||||||||||||
Stoney Creek | Dallas | Dallas/Fort Worth | 90 | % | 110 | 644 | — | — | ||||||||||||||||
Timber Creek | Collin | Dallas/Fort Worth | 88 | % | — | 614 | — | — | ||||||||||||||||
Other projects (4) | Various | Various | Various | 710 | 253 | 26 | 25 | |||||||||||||||||
2,719 | 5,684 | 76 | 140 | |||||||||||||||||||||
Total owned and consolidated | 9,699 | 18,679 | 689 | 1,808 | ||||||||||||||||||||
Projects in ventures that we account for using the equity method | ||||||||||||||||||||||||
Georgia | ||||||||||||||||||||||||
Seven Hills | Paulding | Atlanta | 50 | % | 641 | 452 | 26 | 113 | ||||||||||||||||
The Georgian | Paulding | Atlanta | 38 | % | 289 | 1,095 | — | — | ||||||||||||||||
Other projects (3) | Various | Atlanta | Various | 1,710 | 77 | 3 | — | |||||||||||||||||
Texas | ||||||||||||||||||||||||
Bar C Ranch | Tarrant | Dallas/Fort Worth | 50 | % | 269 | 930 | — | — | ||||||||||||||||
Entrada | Travis | Austin | 50 | % | — | 821 | — | 3 | ||||||||||||||||
Fannin Farms West | Tarrant | Dallas/Fort Worth | 50 | % | 323 | 58 | — | 15 | ||||||||||||||||
Harper’s Preserve | Montgomery | Houston | 50 | % | 42 | 1,683 | — | 72 | ||||||||||||||||
Lantana | Denton | Dallas/Fort Worth | Various(e) | 1,438 | 94 | 14 | 44 | |||||||||||||||||
Long Meadow Farms | Fort Bend | Houston | 19 | % | 838 | 1,245 | 107 | 113 | ||||||||||||||||
Southern Trails | Brazoria | Houston | 40 | % | 475 | 552 | — | — | ||||||||||||||||
Stonewall Estates | Bexar | San Antonio | 25 | % | 280 | 108 | — | — | ||||||||||||||||
Summer Creek Ranch | Tarrant | Dallas/Fort Worth | 50 | % | 806 | 468 | — | 71 | ||||||||||||||||
Summer Lakes | Fort Bend | Houston | 50 | % | 382 | 748 | 56 | — | ||||||||||||||||
Village Park | Collin | Dallas/Fort Worth | 50 | % | 368 | 203 | 3 | 2 | ||||||||||||||||
Waterford Park | Fort Bend | Houston | 50 | % | — | 210 | — | 90 | ||||||||||||||||
Other projects (2) | Various | Various | Various | 298 | 226 | — | 15 | |||||||||||||||||
Florida | ||||||||||||||||||||||||
Other projects (3) | Various | Tampa | Various | 520 | 325 | — | — | |||||||||||||||||
Total in ventures | 8,679 | 9,295 | 209 | 538 | ||||||||||||||||||||
Combined total | 18,378 | 27,974 | 898 | 2,346 | ||||||||||||||||||||
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Residential Lots( c) | Commercial Acres(d) | |||||||||||||||||||||||
Lots Sold | Acres Sold | |||||||||||||||||||||||
Interest | Since | Lots | Since | Acres | ||||||||||||||||||||
Project | County | Market | Owned (b) | Inception | Remaining | Inception | Remaining (f) | |||||||||||||||||
Projects we own | ||||||||||||||||||||||||
California | ||||||||||||||||||||||||
San Joaquin River | Contra Costa/Sacramento | Oakland | 100 | % | — | — | — | 288 | ||||||||||||||||
Colorado | ||||||||||||||||||||||||
Buffalo Highlands | Weld | Denver | 100 | % | — | 164 | — | — | ||||||||||||||||
Johnstown Farms | Weld | Denver | 100 | % | 115 | 497 | 2 | 7 | ||||||||||||||||
Pinery West | Douglas | Denver | 100 | % | — | — | — | 111 | ||||||||||||||||
Stonebraker | Weld | Denver | 100 | % | — | 603 | — | — | ||||||||||||||||
Texas | ||||||||||||||||||||||||
Arrowhead Ranch | Hays | Austin | 100 | % | — | 259 | — | 6 | ||||||||||||||||
Bar C Ranch | Tarrant | Dallas/Fort Worth | 100 | % | 291 | 908 | — | — | ||||||||||||||||
Barrington Kingwood | Harris | Houston | 100 | % | 12 | 168 | — | — | ||||||||||||||||
Cibolo Canyons | Bexar | San Antonio | 100 | % | 705 | 770 | 68 | 82 | ||||||||||||||||
Harbor Lakes | Hood | Dallas/Fort Worth | 100 | % | 203 | 246 | 2 | 19 | ||||||||||||||||
Hunter’s Crossing | Bastrop | Austin | 100 | % | 382 | 108 | 38 | 71 | ||||||||||||||||
La Conterra | Williamson | Austin | 100 | % | 88 | 412 | — | 58 | ||||||||||||||||
Maxwell Creek | Collin | Dallas/Fort Worth | 100 | % | 747 | 252 | 10 | — | ||||||||||||||||
Oak Creek Estates | Comal | San Antonio | 100 | % | 113 | 534 | 13 | — | ||||||||||||||||
Summer Creek Ranch | Tarrant | Dallas/Fort Worth | 100 | % | 807 | 467 | — | 79 | ||||||||||||||||
Summer Lakes | Fort Bend | Houston | 100 | % | 418 | 712 | 56 | — | ||||||||||||||||
The Colony | Bastrop | Austin | 100 | % | 428 | 721 | 22 | 31 | ||||||||||||||||
The Preserve at Pecan Creek | Denton | Dallas/Fort Worth | 100 | % | 349 | 445 | — | 7 | ||||||||||||||||
Village Park | Collin | Dallas/Fort Worth | 100 | % | 461 | 299 | 3 | 2 | ||||||||||||||||
Waterford Park | Fort Bend | Houston | 100 | % | — | 210 | 10 | 80 | ||||||||||||||||
Westside at Buttercup Creek | Williamson | Austin | 100 | % | 1,372 | 124 | 66 | — | ||||||||||||||||
Other projects (11) | Various | Various | 100 | % | 2,490 | 173 | 207 | 23 | ||||||||||||||||
Georgia | ||||||||||||||||||||||||
Seven Hills | Paulding | Atlanta | 100 | % | 645 | 442 | 26 | 113 | ||||||||||||||||
The Villages at Burt Creek | Dawson | Atlanta | 100 | % | — | 1,715 | — | 57 | ||||||||||||||||
Towne West | Bartow | Atlanta | 100 | % | — | 2,674 | — | 121 | ||||||||||||||||
Other projects (17) | Various | Atlanta | 100 | % | 1,712 | 2,987 | 3 | 705 | ||||||||||||||||
Florida | ||||||||||||||||||||||||
Other projects (3) | Various | Tampa | 100 | % | 599 | 246 | — | — | ||||||||||||||||
Missouri and Utah | ||||||||||||||||||||||||
Other projects (2) | Various | Various | 100 | % | 470 | 84 | — | — | ||||||||||||||||
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12,407 | 16,220 | 526 | 1,860 | |||||||||||||||||||||
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Projects in entities we consolidate Texas City Park Lantana Light Farms Stoney Creek Timber Creek Other projects (3) Georgia The Georgian Total owned and consolidated Projects in ventures that we account for using the equity method Texas Entrada Fannin Farms West Harper’s Preserve Lantana Long Meadow Farms Southern Trails Stonewall Estates Other projects (1) Total in ventures Combined total Harris Houston 75 % 1,185 126 50 115 Denton Dallas/Fort Worth 55 % (e) 821 1,471 — — Collin Dallas/Fort Worth 65 % (g) — 2,501 — — Dallas Dallas/Fort Worth 90 % 111 643 — — Collin Dallas/Fort Worth 88 % — 614 — — Various Various Various 6 203 16 148 Paulding Atlanta 75 % 289 1,052 — — 2,412 6,610 66 263 14,819 22,830 592 2,123 Travis Austin 50 % — 821 — — Tarrant Dallas/Fort Worth 50 % 323 58 — 12 Montgomery Houston 50 % 96 1,629 — 72 Denton Dallas/Fort Worth Various (e) 1,449 83 16 42 Fort Bend Houston 37 % 913 882 107 192 Brazoria Houston 80 % 521 515 — — Bexar San Antonio 50 % 286 105 — — Nueces Corpus Christi 50 % — — — 15 3,588 4,093 123 333 18,407 26,923 715 2,456
(a) | A project is deemed entitled when all major discretionary governmental land-use approvals have been received. Some projects may require additional permits and/or non-governmental authorizations for development. |
(b) | Interest owned reflects our net equity interest in the project, whether owned directly or indirectly. There are some projects that have multiple ownership structures within them. Accordingly, portions of these projects may appear as owned, consolidated or accounted for using the equity method. |
(c) | Lots are for the total project, regardless of our ownership interest. Lots remaining represent vacant developed lots, lots under development and future planned lots and are subject to change based on business plan revisions. |
(d) | Commercial acres are for the total project, regardless of our ownership interest, and are net developable acres, which may be fewer than the gross acres available in the project. |
(e) | The Lantana project consists of a series of |
(f) | Excludes acres associated with commercial and income producing properties. |
(g) | In second quarter 2012, the consolidated venture sold 800 real estate acres, representing about 2,500 planned residential lots. |
A summary of our significant commercial and income producing properties at thirdfirst quarter-end 20112012 follows:
Interest | ||||||||||||||||
Project | County | Market | Owned(a) | Type | Acres | Description | ||||||||||
Broadstone Memorial | Harris | Houston | 100 | % | Multifamily | 9 | 401 unit luxury apartment | |||||||||
Radisson Hotel | Travis | Austin | 100 | % | Hotel | 2 | 413 guest rooms and suites | |||||||||
Palisades West | Travis | Austin | 25 | % | Office | 22 | 375,000 square feet | |||||||||
Las Brisas | Williamson | Austin | 59 | % | Multifamily | 30 | 414 unit luxury apartment | |||||||||
Promesa(b) | Travis | Austin | 100 | % | Multifamily | 16 | 289 unit luxury apartment (construction in progress) |
Interest | ||||||||||||||||
Project | County | Market | Owned (a) | Type | Acres | Description | ||||||||||
Broadstone Memorial | Harris | Houston | 100 | % | Multifamily | 9 | 401 unit luxury apartment | |||||||||
Radisson Hotel | Travis | Austin | 100 | % | Hotel | 2 | 413 guest rooms and suites | |||||||||
Las Brisas | Williamson | Austin | 59 | % | Multifamily | 30 | 414 unit luxury apartment | |||||||||
Promesa(b) | Travis | Austin | 100 | % | Multifamily | 16 | 289 unit luxury apartment | |||||||||
(construction in progress) |
(a) | Interest owned reflects our total interest in the project, whether owned directly or indirectly. |
(b) | Formerly marketed as Ridge at Ribelin Ranch. |
A summary of our oil and natural gas mineral interests(a) at thirdfirst quarter-end 20112012 follows:
Held By | ||||||||||||||||
State | Unleased | Leased(b) | Production(c) | Total(d) | ||||||||||||
(Net acres) | ||||||||||||||||
Texas | 191,000 | 36,000 | 25,000 | 252,000 | ||||||||||||
Louisiana | 116,000 | 23,000 | 5,000 | 144,000 | ||||||||||||
Georgia | 164,000 | — | — | 164,000 | ||||||||||||
Alabama | 40,000 | — | — | 40,000 | ||||||||||||
California | 1,000 | — | — | 1,000 | ||||||||||||
Indiana | 1,000 | — | — | 1,000 | ||||||||||||
513,000 | 59,000 | 30,000 | 602,000 | |||||||||||||
Held By | ||||||||||||||||
State | Unleased | Leased (b) | Production (c ) | Total(d) | ||||||||||||
(Net acres) | ||||||||||||||||
Texas | 195,000 | 30,000 | 27,000 | 252,000 | ||||||||||||
Louisiana | 120,000 | 19,000 | 5,000 | 144,000 | ||||||||||||
Georgia | 156,000 | — | — | 156,000 | ||||||||||||
Alabama | 40,000 | — | — | 40,000 | ||||||||||||
California | 1,000 | — | — | 1,000 | ||||||||||||
Indiana | 1,000 | — | — | 1,000 | ||||||||||||
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513,000 | 49,000 | 32,000 | 594,000 | |||||||||||||
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(a) | Includes ventures. |
(b) | Includes leases in primary lease term or for which a delay rental payment has been received. In the ordinary course of business, leases covering a significant portion of leased net mineral acres may expire from time to time in a single reporting period. |
(c) | Acres being held by production are producing oil or natural gas in paying quantities. |
(d) | Texas, Louisiana, California and Indiana net acres are calculated as the gross number of surface acres multiplied by our percentage ownership of the mineral interest. Georgia and Alabama net acres are calculated as the gross number of surface acres multiplied by our estimated percentage ownership of the mineral interest based on county sampling. Excludes 477 net mineral acres located in Colorado including 379 acres leased and 29 acres held by production. |
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Texas | Louisiana | |||||||||
County | Net Acres | Parish | Net Acres | |||||||
Trinity | 46,000 | Beauregard | 79,000 | |||||||
Angelina | 42,000 | Vernon | 39,000 | |||||||
Houston | 29,000 | Calcasieu | 17,000 | |||||||
Anderson | 25,000 | Allen | 7,000 | |||||||
Cherokee | 24,000 | Rapides | 1,000 | |||||||
Sabine | 23,000 | Other | 1,000 | |||||||
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Red River | 14,000 | 144,000 | ||||||||
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Newton | 13,000 | |||||||||
San Augustine | 13,000 | |||||||||
Jasper | 12,000 | |||||||||
Other | 11,000 | |||||||||
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252,000 | ||||||||||
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(a) | Includes ventures. |
Interest Rate Risk
Our interest rate risk is principally related to our variable-rate debt. Interest rate changes impact earnings due to the resulting increase or decrease in the cost of our variable-rate debt, which is $193,766,000$197,934,000 at thirdfirst quarter-end 20112012 and $191,658,000$191,656,000 at year-end 2010.
The following table illustrates the estimated effect on our pre-tax income of immediate, parallel, and sustained shifts in interest rates for the next 12 months on our variable-rate debt at thirdfirst quarter-end 2011,2012, with comparative year-end 20102011 information. This estimate assumes that debt reductions from contractual payments will be replaced with short-term, variable-rate debt; however, that may not be the financing alternative we choose.
Third | ||||||||
Quarter-End | Year-End | |||||||
Change in Interest Rates | 2011 | 2010 | ||||||
(In thousands) | ||||||||
+2% | $ | (3,307 | ) | $ | (3,728 | ) | ||
+1% | (1,938 | ) | (1,917 | ) | ||||
-1% | 1,938 | 1,917 | ||||||
-2% | 3,875 | 3,833 |
Change in Interest Rates | First Quarter-End 2012 | Year-End 2011 | ||||||
(In thousands) | ||||||||
+2% | $ | (3,410 | ) | $ | (3,296 | ) | ||
+1% | (1,979 | ) | (1,917 | ) | ||||
-1% | 1,979 | 1,917 | ||||||
-2% | 3,959 | 3,833 |
Foreign Currency Risk
We have no exposure to foreign currency fluctuations.
Commodity Price Risk
We have no significant exposure to commodity price fluctuations.
(a) Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (or the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure
controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are involved directly or through ventures in various legal proceedings that arise from time to time in the ordinary course of doing business. We believe we have established adequate reserves for any probable losses and that the outcome of any of the proceedings should not have a material adverse effect on our financial position, long-term results of operations or cash flows. It is possible, however, that circumstances beyond our control or significant subsequent developments could result in additional charges related to these matters that could be significant to results of operations or cash flow in any single accounting period.
There are no material changes from the risk factors disclosed in our 20102011 Annual Report on Form 10-K, except as follows:
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Issuer Purchases of Equity Securities(a)(a)
Maximum | ||||||||||||||||
Total Number | Number of | |||||||||||||||
of Shares | Shares That | |||||||||||||||
Purchased as | May Yet be | |||||||||||||||
Total | Average | Part of Publicly | Purchased | |||||||||||||
Number of | Price | Announced | Under the | |||||||||||||
Shares | Paid per | Plans or | Plans | |||||||||||||
Period | Purchased(b) | Share | Programs | or Programs | ||||||||||||
Month 1 (7/1/2011 — 7/31/2011) | — | $ | — | — | 5,999,013 | |||||||||||
Month 2 (8/1/2011 — 8/31/2011) | 178,511 | $ | 12.33 | 172,435 | 5,826,578 | |||||||||||
Month 3 (9/1/2011 — 9/30/2011) | 26 | $ | 10.91 | — | 5,826,578 | |||||||||||
Total | 178,537 | $ | 12.33 | 172,435 | ||||||||||||
Period | Total Number of Shares Purchased (b) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs | ||||||||||||
Month 1 (1/1/2012 — 1/31/2012) | 16,708 | $ | 15.66 | — | 5,092,305 | |||||||||||
Month 2 (2/1/2012 — 2/29/2012) | 54,186 | $ | 16.36 | — | 5,092,305 | |||||||||||
Month 3 (3/1/2012 — 3/31/2012) | — | $ | — | — | 5,092,305 | |||||||||||
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Total | 70,894 | $ | 16.20 | — | ||||||||||||
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(a) | On February 11, 2009, we announced that our Board of Directors authorized the repurchase of up to 7,000,000 shares of our common stock. We have purchased |
(b) | Represents shares withheld to pay taxes in connection with vesting of restricted stock awards and exercises of stock options. |
None.
None.
10.1 | ||
10.3 | Purchase and Sale Agreement dated February 20, 2012, by and among Forestar Realty Inc., Temco Associates, LLC, and Cousins Real Estate Corporation. |
31.1 | Certification of Chief Executive Officer pursuant to Exchange Act rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Exchange Act rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.1 | The following materials from Forestar’s Quarterly Report on Form 10-Q for the quarter ended |
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FORESTAR GROUP INC. | |||||||||
Date: May 10, 2012 | |||||||||
/s/ Christopher L. Nines | |||||||||
Christopher L. Nines | |||||||||
Chief Financial Officer | |||||||||
By: | /s/ Charles D. Jehl | ||||||||
Charles D. Jehl | |||||||||
Chief Accounting Officer |
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