e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
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þ
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
December 31, 2008
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or
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o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
From to
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Commission File Number:
001-33662
Forestar Group Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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26-1336998
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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6300 Bee Cave Road
Building Two, Suite 500
Austin, Texas
78746-5149
(Address of Principal
Executive Offices, including Zip Code)
Registrants telephone
number, including area code:
(512) 433-5200
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange On Which Registered
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Common Stock, par value $1.00 per share
Preferred Share Purchase Rights
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New York Stock Exchange
New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405) is not contained herein, and will not be
contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell
company (as defined in Rule
12b-2 of the
Exchange
Act). Yes o No þ
The aggregate market value of the Common Stock held by
non-affiliates of the registrant, based on the closing sales
price of the Common Stock on the New York Stock Exchange on
June 30, 2008, was approximately $527.5 million. For
purposes of this computation, all officers, directors, and five
percent beneficial owners of the registrant (as indicated in
Item 12) are deemed to be affiliates. Such
determination should not be deemed an admission that such
directors, officers, or five percent beneficial owners are, in
fact, affiliates of the registrant.
As of February 28, 2009, there were 35,856,419 shares
of Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Selected portions of the Companys definitive proxy
statement for the 2009 annual meeting of stockholders are
incorporated by reference into Part III of this
Form 10-K.
PART I
Overview
Forestar Group Inc. is committed to maximizing stockholder
value. We own directly or through ventures over
365,000 acres of real estate located in ten states and 13
markets and about 622,000 net acres of oil and gas mineral
interests. In 2008, we generated revenues of $160 million
and net income of $12 million. Unless the context otherwise
requires, references to we, us,
our and Forestar mean Forestar Group
Inc. and its consolidated subsidiaries. Unless otherwise
indicated, information is presented as of December 31,
2008, and references to acreage owned includes all acres owned
by ventures regardless of our ownership interest in a venture.
Prior to December 28, 2007, we were a wholly-owned
subsidiary of Temple-Inland Inc.
(Temple-Inland).
On December 28, 2007, Temple-Inland distributed all our
issued and outstanding shares of common stock to its
stockholders. In first quarter 2008, we changed our reportable
segments to reflect our post-spin management of the operations
transferred to us from Temple-Inland. All prior period segment
information has been reclassified to conform to the current
presentation. In fourth quarter 2008, we changed our name
from Forestar Real Estate Group Inc. to Forestar Group Inc.
We manage our operations through three business segments:
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Real estate,
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Mineral resources, and
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Fiber resources.
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A summary of business segment assets, including assets owned
through ventures, follows:
Our real estate segment provided 62 percent of our 2008
consolidated revenues. We secure entitlements and develop
infrastructure, primarily for single-family residential and
mixed-use communities. We own about 300,000 acres in a
broad area around Atlanta, Georgia, with the balance located
primarily in Texas. We invest in projects principally in our
strategic growth corridors, regions across the southern half of
the United States that
1
possess key demographic and growth characteristics that we
believe make them attractive for long-term real estate
investment.
We have 25 real estate projects representing almost
34,000 acres in the entitlement process, principally in
Georgia. We also have 78 entitled, developed or under
development projects in eight states and 12 markets encompassing
over 16,000 remaining acres, comprised of almost 30,000
residential lots and over 2,200 commercial acres, principally in
the major markets of Texas. We own and manage projects both
directly and through ventures. By using ventures, we achieve
various business objectives including more efficient capital
deployment, risk management, and leveraging a partners
local market contacts and expertise.
Our mineral resources segment provided 30 percent of our 2008
consolidated revenues. We promote the exploitation, exploration,
and development of oil and gas on our 622,000 net mineral
acres. The four principal areas of operation are Texas,
Louisiana, Alabama, and Georgia. The majority of our revenues
are from lease bonus payments and oil and gas royalties from
over 300 producing wells. Historically, these operations require
low capital investment and are low risk. In 2009, we anticipate
increasing our participation in production, including
non-operating working interests in development and production of
oil and gas wells on or near our mineral interests.
Our fiber resources segment provided 8 percent of our 2008
consolidated revenues. We sell wood fiber from our land,
primarily in Georgia, and lease land for recreational uses. We
have over 340,000 acres of timber on our land, and about 18,000
acres of timber under lease.
Our real estate origins date back to the 1955 incorporation of
Lumbermens Investment Corporation, which in 2006 changed
its name to Forestar (USA) Real Estate Group Inc. We have a
decades-long legacy of residential and commercial real estate
development operations, primarily in Texas. Our mineral
resources origins date back to the mid-1940s when we started
leasing our oil and gas mineral interests to third-party
exploration and production companies. In 2006, Temple-Inland
began reporting Forestar Real Estate Group as a separate
business segment. On December 28, 2007, Temple-Inland
distributed all of the issued and outstanding shares of our
common stock to the holders of record of Temple-Inland common
stock as of the close of business on December 14, 2007,
which we will refer to in this Annual Report on
Form 10-K
as the spin-off or the separation. Each
Temple-Inland stockholder received one share of our common stock
for every three shares of Temple-Inland common stock held. (Also
on December 28, 2007, Temple-Inland distributed all of the
issued and outstanding shares of Guaranty Financial Group Inc.
(Guaranty), a wholly-owned subsidiary of
Temple-Inland that operated Temple-Inlands financial
services business.)
Leveraging years of real estate, oil and gas, and fiber
experience, we believe our management team brings extensive
knowledge and expertise to position us to maximize long-term
value for our stockholders.
Strategy
Our strategy is to maximize and grow long-term stockholder value
through:
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entitlement and development of real estate;
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realization of value from mineral and fiber resources; and
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growth through strategic and disciplined investment in our
business.
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We are focused on maximizing real estate values through the
entitlement and development of well-located residential and
mixed-use communities. We secure entitlements by delivering
thoughtful plans and balanced solutions that meet the needs of
the communities where we operate. Moving land through the
entitlement and development process creates significant real
estate value. Residential development activities target lot
sales to national and regional home builders who build quality
products and have strong and effective marketing and sales
programs. The lots we deliver in the majority of our communities
are for mid-priced homes, predominantly in the first and second
move-up
categories. We also actively market and sell undeveloped land.
Commercial tracts are either sold to or ventured with commercial
developers that specialize in the construction and operation of
income-producing properties.
We maximize value from our oil and gas mineral interests by
increasing the acreage leased, lease rates, royalty interests
and additional participation in production in the form of
non-operating working interests. In addition, we realize value
from our undeveloped land by selling fiber and by managing it
for future real estate
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development and conservation uses. We also generate cash flow
and create additional value through recreational leases.
We are committed to disciplined growth of our business. In 2008,
we did not acquire additional real estate projects.
Our real estate, mineral and fiber assets in combination with
our strategy, management expertise, stewardship and reinvestment
in our business, position Forestar to maximize and grow
long-term value for stockholders.
Strategic
Initiatives
On February 11, 2009, we announced the following strategic
initiatives to enhance stockholder value:
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Generate significant cash flow, principally from the sale of
approximately 175,000 acres of higher and better use (HBU)
timberland;
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Reduce debt by approximately $150 million; and
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Repurchase up to 20% of our common stock.
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The debt reduction and share repurchases will be funded by
proceeds from the asset sales.
2008
Value Creation Highlights
Activities during 2008 include:
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Leasing over 61,500 net mineral acres to oil and gas
companies for exploration and production activities;
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Recruiting a new minerals team to maximize value of
Forestars 622,000 net mineral acres through leasing,
royalties and additional participation in production revenues;
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Actively pursuing entitlement on an additional 7,300 acres;
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Entitling five projects which include over 2,500 acres,
representing over 1,050 residential lots and 580 commercial
acres; and
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Investing $34.9 million in our Cibolo Canyons mixed-use
development in San Antonio, Texas, which includes the 1,002
room JW
Marriott®
hotel and golf resort expected to open in early 2010. When the
hotel opens, Forestar will have the right to receive 9% of hotel
occupancy revenues and 1.5% of sales generated within the resort
through 2034.
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3
Real
Estate
In our real estate segment, we conduct a wide array of project
planning and management activities related to the acquisition,
entitlement, development and sale of real estate, primarily
residential and mixed-use communities. We own and manage our
projects either directly or through ventures, which we use to
achieve a variety of business objectives, including more
effective capital deployment, risk management, and leveraging a
partners local market contacts and expertise.
We have real estate in ten states and 13 markets encompassing
over 365,000 acres, including about 300,000 acres
located in a broad area around Atlanta, Georgia, with the
balance located primarily in Texas. Our development projects are
principally located in the major markets of Texas.
Our strategy for creating value in our real estate segment is to
move acres up the value chain by moving land located in growth
corridors but not yet entitled, through the entitlement process,
and into development. The chart below depicts our real estate
value chain, including real estate owned through ventures.
We have nearly 315,000 undeveloped acres located in the path of
population growth. As markets grow and mature, we intend to
secure the necessary entitlements, the timing for which varies
depending upon the size, location, use and complexity of a
project. We have almost 34,000 acres in the entitlement
process, which includes obtaining zoning, other governmental
approvals, and access to utilities. We have over
16,000 acres entitled, developed and under development,
comprised of almost 30,000 residential lots and over 2,200
commercial acres. We use return criteria, which include return
on cost, internal rate of return, and cash multiple, when
determining whether to invest initially or make additional
investment in a project. When investment in development meets
our return criteria, we will initiate the development process
with subsequent sale of lots to homebuilders or, for commercial
parcels, sale to or venture with commercial developers. We sell
land at any point within the value chain when additional time
required for entitlement or investment in development will not
meet our return criteria. In 2008, we sold over 6,000 acres
of undeveloped land at an average price of about $4,800 per acre.
For information about our plan to sell approximately 175,000
acres of our undeveloped land, see Business
Strategic Initiatives.
4
A summary of our real estate projects in the entitlement
process(a) at
year-end 2008 follows:
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Project
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Project
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County
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Market
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Acres(b)
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California
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Hidden Creek Estates
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Los Angeles
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Los Angeles
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700
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Terrace at Hidden Hills
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Los Angeles
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Los Angeles
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30
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Georgia
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Ball Ground
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Cherokee
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Atlanta
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500
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Burt Creek
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Dawson
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Atlanta
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970
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Creekview
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Troup
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Atlanta
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470
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Crossing
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Coweta
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Atlanta
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230
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Dallas Highway
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Haralson
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Atlanta
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1,060
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Fincher Road
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Cherokee
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Atlanta
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3,950
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Fox Hall
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Coweta
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Atlanta
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960
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Garland Mountain
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Cherokee/Bartow
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Atlanta
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350
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Home Place
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Coweta
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Atlanta
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1,510
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Hutchinson Mill
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Troup
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Atlanta
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880
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Jackson Park
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Jackson
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Atlanta
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700
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Martins Bridge
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Banks
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Atlanta
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970
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Mill Creek
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Coweta
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Atlanta
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770
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Ridgeview
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Haralson
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Atlanta
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120
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Serenity
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Carroll
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Atlanta
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440
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Three Creeks
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Troup
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Atlanta
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740
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Waleska
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Cherokee
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Atlanta
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150
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Wolf Creek
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Carroll/Douglas
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Atlanta
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12,230
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Yellow Creek
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Cherokee
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Atlanta
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1,060
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Texas
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Lake Houston
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Harris/Liberty
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Houston
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3,700
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San Jacinto
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Montgomery
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Houston
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150
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Entrada(c)
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Travis
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Austin
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240
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Woodlake
Village(c)
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Montgomery
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Houston
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840
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Total
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33,720
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(a) |
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A project is deemed to be in the entitlement process when
customary steps necessary for the preparation and submittal of
an application, like conducting pre-application meetings or
similar discussions with governmental officials, have commenced,
or an application has been filed. Projects listed may have
significant steps remaining, and there is no assurance that
entitlements ultimately will be received. |
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Project acres, which are the total for the project regardless of
our ownership interest, are approximate. The actual number of
acres entitled may vary. |
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We own a 50 percent interest in these projects. |
Products
The majority of our projects are single-family residential and
mixed-use communities. In some cases, commercial land uses
within a project enhance the desirability of the community by
providing convenient locations for resident support services. We
sometimes undertake projects consisting exclusively of
commercial tracts and, on occasion, we invest in a venture to
develop a single commercial project.
We develop lots for single-family homes and commercial tracts
that are substantially ready for construction of buildings for
retail, multifamily, office, industrial or other commercial
uses. We sell residential lots
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primarily to national and regional homebuilders and, to a lesser
extent, local homebuilders. We have 78 entitled, developed or
under development projects in eight states and 12 markets,
principally in major markets of Texas, encompassing over 16,000
remaining acres, comprised of almost 30,000 residential lots and
over 2,200 commercial acres. We focus our lot sales on the first
and second
move-up
primary housing categories. First and second
move-up
segments are homes priced above entry-level products yet below
the high-end and custom home segments. We anticipate decreased
development activity in 2009. We also actively market and sell
undeveloped land.
Commercial tracts are either sold to or ventured with commercial
developers that specialize in the construction and operation of
income-producing properties, such as apartments, retail centers,
or office buildings. We sell land designated for commercial uses
to national retailers and to regional and local commercial
developers. We have over 2,200 acres of entitled land
designated for commercial use.
One of our current significant mixed-use projects is Cibolo
Canyons in the San Antonio market area. Cibolo Canyons is a
2,800 acre mixed-use development planned to include 1,749
residential lots of which 537 have been sold as of year-end 2008
at an average price of $61,000 per lot. The residential
component will include not only traditional single-family homes
but also an active adult section and condominiums. Our
commercial component is planned to include 145 acres
designated for multifamily and retail uses, of which
64 acres have been sold as of year-end 2008. Currently
under construction at Cibolo Canyons is the JW
Marriott®
San Antonio Hill Country Resort & Spa, planned to
include a 1,002 room destination resort and two TPC golf courses
designed by Pete Dye and Greg Norman. We have the right to
receive 9% of hotel occupancy revenues and 1.5% of sales
generated within the resort through 2034 and to reimbursement of
certain infrastructure costs.
6
A summary of activity within our projects in the development
process, which includes
entitled(a),
developed and under development real estate projects, at
year-end 2008 follows:
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Residential
Lots(c)
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Commercial
Acres(d)
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Lots Sold
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Acres Sold
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Interest
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Since
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Lots
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Since
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Acres
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Project
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County
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Market
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Owned(b)
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Inception
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Remaining
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Inception
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Remaining
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Projects we own
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California
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San Joaquin River
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Contra Costa/
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Oakland
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100%
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288
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Sacramento
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Colorado
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Buffalo Highlands
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Weld
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Denver
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100%
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164
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Johnstown Farms
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Weld
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Denver
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100%
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115
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493
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2
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8
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Pinery West
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Douglas
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Denver
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100%
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115
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Stonebraker
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Weld
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Denver
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100%
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603
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13
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Westlake Highlands
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Jefferson
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Denver
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100%
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21
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Texas
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Arrowhead Ranch
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Hays
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Austin
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100%
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232
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6
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Caruth Lakes
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Rockwall
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Dallas/Fort Worth
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100%
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245
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404
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Cibolo Canyons
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Bexar
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San Antonio
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100%
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537
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1,210
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64
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81
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Harbor Lakes
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Hood
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Dallas/Fort Worth
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100%
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199
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250
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14
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Harbor Mist
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Calhoun
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Corpus Christi
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100%
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200
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Hunters Crossing
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Bastrop
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Austin
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100%
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308
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183
|
|
|
|
38
|
|
|
|
68
|
|
La Conterra
|
|
Williamson
|
|
Austin
|
|
|
100%
|
|
|
|
32
|
|
|
|
477
|
|
|
|
|
|
|
|
60
|
|
Maxwell Creek
|
|
Collin
|
|
Dallas/Fort Worth
|
|
|
100%
|
|
|
|
642
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
Oak Creek Estates
|
|
Comal
|
|
San Antonio
|
|
|
100%
|
|
|
|
9
|
|
|
|
639
|
|
|
|
13
|
|
|
|
|
|
The Colony
|
|
Bastrop
|
|
Austin
|
|
|
100%
|
|
|
|
408
|
|
|
|
2,237
|
|
|
|
22
|
|
|
|
49
|
|
The Gables at North Hill
|
|
Collin
|
|
Dallas/Fort Worth
|
|
|
100%
|
|
|
|
195
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
The Preserve at Pecan Creek
|
|
Denton
|
|
Dallas/Fort Worth
|
|
|
100%
|
|
|
|
204
|
|
|
|
615
|
|
|
|
|
|
|
|
9
|
|
The Ridge at Ribelin Ranch
|
|
Travis
|
|
Austin
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
179
|
|
|
|
16
|
|
Westside at Buttercup Creek
|
|
Williamson
|
|
Austin
|
|
|
100%
|
|
|
|
1,276
|
|
|
|
245
|
|
|
|
66
|
|
|
|
|
|
Other projects (9)
|
|
Various
|
|
Various
|
|
|
100%
|
|
|
|
2,654
|
|
|
|
27
|
|
|
|
245
|
|
|
|
23
|
|
Georgia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towne West
|
|
Bartow
|
|
Atlanta
|
|
|
100%
|
|
|
|
|
|
|
|
2,674
|
|
|
|
|
|
|
|
121
|
|
Other projects (13)
|
|
Various
|
|
Atlanta
|
|
|
100%
|
|
|
|
|
|
|
|
2,836
|
|
|
|
|
|
|
|
625
|
|
Missouri and Utah
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other projects (3)
|
|
Various
|
|
Various
|
|
|
100%
|
|
|
|
793
|
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,617
|
|
|
|
14,344
|
|
|
|
629
|
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projects in entities we consolidate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Park
|
|
Harris
|
|
Houston
|
|
|
75%
|
|
|
|
1,096
|
|
|
|
215
|
|
|
|
50
|
|
|
|
105
|
|
Lantana
|
|
Denton
|
|
Dallas/Fort Worth
|
|
|
55%
|
(e)
|
|
|
448
|
|
|
|
1,902
|
|
|
|
|
|
|
|
|
|
Light Farms
|
|
Collin
|
|
Dallas/Fort Worth
|
|
|
65%
|
|
|
|
|
|
|
|
2,517
|
|
|
|
|
|
|
|
|
|
Stoney Creek
|
|
Dallas
|
|
Dallas/Fort Worth
|
|
|
90%
|
|
|
|
59
|
|
|
|
695
|
|
|
|
|
|
|
|
|
|
Timber Creek
|
|
Collin
|
|
Dallas/Fort Worth
|
|
|
88%
|
|
|
|
|
|
|
|
614
|
|
|
|
|
|
|
|
|
|
Other projects (5)
|
|
Various
|
|
Various
|
|
|
Various
|
|
|
|
1,002
|
|
|
|
274
|
|
|
|
24
|
|
|
|
23
|
|
Tennessee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Youngs Lane
|
|
Davidson
|
|
Nashville
|
|
|
60%
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,605
|
|
|
|
6,217
|
|
|
|
90
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owned and consolidated
|
|
|
|
|
|
|
|
|
|
|
10,222
|
|
|
|
20,561
|
|
|
|
719
|
|
|
|
1,624
|
|
Projects in ventures that we account for using the equity
method
|
Georgia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven Hills
|
|
Paulding
|
|
Atlanta
|
|
|
50%
|
|
|
|
634
|
|
|
|
446
|
|
|
|
26
|
|
|
|
|
|
The Georgian
|
|
Paulding
|
|
Atlanta
|
|
|
38%
|
|
|
|
288
|
|
|
|
1,097
|
|
|
|
|
|
|
|
|
|
Other projects (5)
|
|
Various
|
|
Atlanta
|
|
|
Various
|
|
|
|
1,845
|
|
|
|
249
|
|
|
|
3
|
|
|
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bar C Ranch
|
|
Tarrant
|
|
Dallas/Fort Worth
|
|
|
50%
|
|
|
|
176
|
|
|
|
1,023
|
|
|
|
|
|
|
|
|
|
Fannin Farms West
|
|
Tarrant
|
|
Dallas/Fort Worth
|
|
|
50%
|
|
|
|
261
|
|
|
|
119
|
|
|
|
|
|
|
|
15
|
|
Lantana
|
|
Denton
|
|
Dallas/Fort Worth
|
|
|
Various
|
(e)
|
|
|
1,801
|
|
|
|
47
|
|
|
|
14
|
|
|
|
75
|
|
Long Meadow Farms
|
|
Fort Bend
|
|
Houston
|
|
|
19%
|
|
|
|
603
|
|
|
|
1,503
|
|
|
|
72
|
|
|
|
138
|
|
Southern Trails
|
|
Brazoria
|
|
Houston
|
|
|
40%
|
|
|
|
320
|
|
|
|
742
|
|
|
|
|
|
|
|
|
|
Stonewall Estates
|
|
Bexar
|
|
San Antonio
|
|
|
25%
|
|
|
|
168
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
Summer Creek Ranch
|
|
Tarrant
|
|
Dallas/Fort Worth
|
|
|
50%
|
|
|
|
796
|
|
|
|
1,772
|
|
|
|
|
|
|
|
363
|
|
Summer Lakes
|
|
Fort Bend
|
|
Houston
|
|
|
50%
|
|
|
|
325
|
|
|
|
819
|
|
|
|
52
|
|
|
|
3
|
|
Village Park
|
|
Collin
|
|
Dallas/Fort Worth
|
|
|
50%
|
|
|
|
339
|
|
|
|
221
|
|
|
|
3
|
|
|
|
2
|
|
Waterford Park
|
|
Fort Bend
|
|
Houston
|
|
|
50%
|
|
|
|
|
|
|
|
493
|
|
|
|
|
|
|
|
37
|
|
Other projects (2)
|
|
Various
|
|
Various
|
|
|
Various
|
|
|
|
292
|
|
|
|
232
|
|
|
|
|
|
|
|
15
|
|
Florida
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other projects (3)
|
|
Various
|
|
Tampa
|
|
|
Various
|
|
|
|
473
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total in ventures
|
|
|
|
|
|
|
|
|
|
|
8,321
|
|
|
|
9,348
|
|
|
|
170
|
|
|
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined total
|
|
|
|
|
|
|
|
|
|
|
18,543
|
|
|
|
29,909
|
|
|
|
889
|
|
|
|
2,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
(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, and/or accounted for on the equity method. |
|
|
|
|
|
(c) |
|
Lots are for the total project, regardless of our ownership
interest. |
|
|
|
|
|
(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 21 partnerships in
which our voting interests range from 25 percent to
55 percent. We account for eight of these partnerships
using the equity method and we consolidate the remaining
partnerships. |
A summary of our commercial operating properties and commercial
and condominium projects at December 31, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Project
|
|
County
|
|
Market
|
|
Owned(a)
|
|
|
Type
|
|
Description
|
|
Radisson Hotel
|
|
Travis
|
|
Austin
|
|
|
100
|
%
|
|
Hotel
|
|
413 guest rooms and suites
|
Palisades West
|
|
Travis
|
|
Austin
|
|
|
25
|
%
|
|
Office
|
|
375,000 square feet
|
Presidio at Judges Hill
|
|
Travis
|
|
Austin
|
|
|
60
|
%
|
|
Condo
|
|
45 units
|
Las Brisas
|
|
Williamson
|
|
Austin
|
|
|
49
|
%
|
|
Multi-Family
|
|
414 unit luxury apartment
|
Harbor Lakes Golf Club
|
|
Hood
|
|
Dallas/Fort Worth
|
|
|
100
|
%
|
|
Golf Club
|
|
18 hole golf course and club
|
Gulf Coast Apartments
|
|
Various
|
|
Various
|
|
|
2
|
%
|
|
Multi-Family
|
|
9 apartment communities
|
|
|
|
(a) |
|
Interest owned reflects our net equity interest in the project,
whether owned directly or indirectly. |
Our strategy includes not only entitlement and development on
our own lands but also growth through strategic and disciplined
investment in acquisitions that meet our investment criteria. We
did not acquire any new projects in 2008. We continually monitor
the markets in our strategic growth corridors for opportunities
to purchase developed lots and land at prices that meet our
return criteria.
Markets
We target investments primarily in markets within our strategic
growth corridors, which we define as areas possessing favorable
growth characteristics for population, employment and household
formation. These markets are generally located across the
southern half of the U.S., and we believe they represent
attractive long-term real estate investment opportunities.
Demand for residential lots, single-family housing, and
commercial land is substantially influenced by the
aforementioned growth characteristics, as well as by immigration
and in-migration. Currently, most of our development projects
are located within the major metropolitan areas of Texas.
Our ten strategic growth corridors encompass 165,000 square
miles, or approximately 5% of the total land area in the
U.S. According to 2005 census data, 85 million people,
29% of the U.S. total, reside in these corridors. The
population density in these growth corridors is almost seven
times the national average and is projected to grow at nine
times the national average between 2000 and 2030. During that
time, the corridors are projected to garner approximately 43% of
the nations population growth and 38% of total employment
growth. Estimated housing demand from these ten growth corridors
from 2000 to 2030 exceeds 23 million new homes.
8
Forestar
Strategic Growth Corridors
Competition
We face competition for the acquisition, entitlement,
development and sale of real estate in our markets. Our major
competitors include other landowners who market and sell
undeveloped land and numerous national, regional and local
developers. In addition, our projects compete with other
development projects offering similar amenities, products
and/or
locations. Competition also exists for investment opportunities,
financing, available land, raw materials and labor, with
entities that may possess greater financial, marketing and other
resources than us. The presence of competition may increase the
bargaining power of property owners seeking to sell. These
competitive market pressures sometimes make it difficult to
acquire, entitle, develop or sell land at prices that meet our
return criteria. Some of our real estate competitors are well
established and financially strong, may have greater financial
resources than we do, or may be larger than us
and/or have
lower cost of capital and operating costs than we have and
expect to have.
The land acquisition and development business is highly
fragmented, and we are unaware of any meaningful concentration
of market share by any one competitor. Enterprises of varying
sizes, from individuals or small companies to large
corporations, actively engage in the real estate development
business. Many competitors are local, privately-owned companies.
We have a few regional competitors and virtually no national
competitors other than national homebuilders that, depending on
business cycles
and/or
market conditions, may enter or exit the real estate development
business in some locations to develop lots on which they
construct and sell homes. There are very few national
homebuilders currently developing lots. During periods when
access to capital is restricted, participants with weaker
financial conditions tend to be less active. We believe the
current environment is one where participants with stronger
financial conditions will have a competitive advantage, and
where fewer participants will be active.
9
Mineral
Resources
We lease our oil and gas mineral interests to third parties for
the exploration and production of oil and gas, principally in
Texas and Louisiana. When we lease our mineral interests, we
retain a royalty interest and may take an additional
participation in production, including a non-operating working
interest. Non-operating working interests refer to well
interests in which we pay a share of the costs to drill,
complete and operate a well and receive a proportionate share of
the production revenues.
Our royalty revenues are contractually defined and based on a
percentage of production and are received in cash. Our royalty
revenues fluctuate based on changes in the market prices for oil
and gas and other factors affecting the third party oil and gas
exploration and production entities including the cost of
development and production.
Products
We own oil and gas mineral interests on approximately
622,000 net acres in Texas, Louisiana, Alabama and Georgia.
Our minerals revenue is primarily from lease bonus payments,
delay rentals, oil and gas royalty interests, non-operating
working interests and other related activities. We engage in
leasing certain portions of these oil and gas mineral interests
to third parties for the exploration and production of oil and
gas, and we are increasingly leveraging our mineral interests to
participate in wells drilled on or near our mineral acreage. We
do not estimate or maintain oil or gas reserve information
related to our mineral interests.
Our strategy for maximizing value from our oil and gas mineral
interests is to move acres up the minerals value chain by
increasing the net acreage leased, the lease bonus amount per
acre, and the size of retained royalty interests. Additionally,
we participate in non-operating working interests in the
drilling, completion,
and/or
production of oil and natural gas on or nearby our mineral
interests. The chart below depicts our minerals value chain.
Of our 622,000 net acres of oil and gas mineral interests,
about 476,000 net acres are available for lease. Included
in mineral acreage available for lease is about 11,200 net
acres subject to a geophysical option. The option gives the
holder the right to lease these acres upon satisfaction of
certain conditions. We have about 121,000 net acres leased
for exploration activities, and about 25,000 net acres held
by production from over 300 oil and gas wells that are owned and
operated by others.
10
The principal areas in which we operate are as follows:
East
Texas Basin
We have about 243,000 net mineral acres in East Texas and
about 121,000 net mineral acres in Northern Louisiana located
within the East Texas Basin. This basin contains numerous oil
and gas producing formations consisting of conventional,
unconventional, and tight sand reservoirs. Of these reservoirs,
we have mineral interests in and around production trends in the
Wilcox, Frio, James Lime, Pettet, Travis Peak, Cotton Valley,
Austin Chalk, Haynesville Shale, and Bossier formations.
Fort Worth
Basin
We have about 1,000 net mineral acres in the
Fort Worth Basin. This basin contains numerous oil and gas
producing formations consisting of conventional, unconventional,
and tight sand reservoirs. Of these reservoirs, we have mineral
interests in and around the Barnett Shale.
Alabama &
Georgia
We have about 57,000 net mineral acres in Alabama and
200,000 net mineral acres in Georgia. These areas have
historically had very little oil and gas exploration activity.
However, there has been recent activity in the Floyd and
Conesuega Shales in and around our mineral interests and we
currently have about 9,000 acres under lease in
Northeastern Alabama.
A summary of our oil and gas mineral
interests(a)
at year-end 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held by
|
|
|
|
|
State
|
|
Unleased
|
|
|
Leased(b)
|
|
|
Production(c)
|
|
|
Total(d)
|
|
|
|
(Net acres)
|
|
|
Texas
|
|
|
118,000
|
|
|
|
108,000
|
|
|
|
18,000
|
|
|
|
244,000
|
|
Louisiana
|
|
|
110,000
|
|
|
|
4,000
|
|
|
|
7,000
|
|
|
|
121,000
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|
Alabama
|
|
|
48,000
|
|
|
|
9,000
|
|
|
|
|
|
|
|
57,000
|
|
Georgia
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476,000
|
|
|
|
121,000
|
|
|
|
25,000
|
|
|
|
622,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(a) |
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Includes ventures. |
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(b) |
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Includes leases in primary lease term only. |
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|
(c) |
|
Acres being held by production are producing oil or gas in
paying quantities. |
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(d) |
|
Texas and Louisiana net acres are calculated as the gross number
of surface acres multiplied by our percentage ownership of the
mineral interest. Alabama and Georgia net acres are calculated
as the gross number of surface acres multiplied by our estimated
percentage ownership of the mineral interest based on county
sampling. |
Leasing mineral acres for exploration and production creates
significant value because we retain a royalty interest in all
revenues generated by the lessee from oil and gas production.
The significant terms of these arrangements include granting the
exploration company the rights to any oil or gas it may find and
requiring that drilling be commenced within a specified period.
In return we receive an initial payment (bonus), subsequent
payments if drilling has not started within the specified period
(delay rentals), and a percentage interest in the value of any
oil or gas produced (royalties). If no oil or gas is produced
during the required period, all rights are returned to us.
Capital requirements are minimal and primarily consist of
acquisition costs allocated to mineral interests and
administrative costs.
Most agreements are for a three-year term although a portion or
all of an agreement may be extended by the lessee if actual
production is occurring. Financial terms vary based on a number
of market factors including the location of the mineral
interest, the number of acres subject to the agreement, our
mineral interest, and proximity to transportation facilities
such as pipelines, depth of formations to be drilled and risk.
From our retained royalty interests, we received an average net
price in 2008, 2007 and 2006 per barrel of oil of $106.66,
$65.24 and $64.14, respectively, and per thousand cubic feet of
gas of $8.76, $6.69 and $7.95, respectively.
11
We also have water interest in about 1.7 million acres,
principally consisting of a 45 percent nonparticipating
royalty interest in groundwater produced or withdrawn for
commercial purposes or sold from approximately 1.38 million
acres in Texas, Louisiana, Georgia, and Alabama. We have not
received any income from this interest.
Markets
Oil and gas revenues are influenced by the prices of these
commodities as determined by both regional and global markets.
Mineral leasing activity is influenced by the location of our
mineral interests relative to existing or projected oil and gas
reserves and by the proximity of successful extractive efforts
to our mineral interests.
Competition
In locations where our mineral interests are close to producing
wells and proven reserves, other parties will compete to lease
our mineral interests. Conversely, where our mineral interests
are close to areas where reserves have not been discovered we
may receive nominal interest in leasing our minerals. When oil
and gas prices are higher, we are likely to receive greater
interest in leasing our minerals close to these areas because
the economics for exploration companies will support more
exploration activities. Portions of our Texas and Louisiana
minerals are close to producing wells and proven reserves.
We have little competition from others in our production
participation activities and resulting non-operating working
interests. These wells historically have been drilled on or near
our owned mineral interests, which allow us to achieve favorable
terms from the oil and gas operators. Risk and the increasing
need of capital to support drilling, completion and production
activities may impact our ability to participate in
non-operating working interests.
Fiber
Resources
We sell wood fiber from our land, primarily in Georgia, and
lease land for hunting and other recreational uses.
Products
We have about 340,000 acres of timber on our undeveloped
land, and about 18,000 acres of timber under lease. In
2008, we sold at market prices, primarily to Temple-Inland,
about 1,080,000 tons of timber from our lands. We manage our
timberland in accordance with the Sustainable Forestry
Initiative®
program of Sustainable Forestry Initiative, Inc. Over
296,000 acres of our land, primarily in Georgia, are leased
for recreational purposes. Most recreational leases are for a
three-year term but may be terminated by us on
30 days notice to the lessee.
For information about our plan to sell approximately 175,000
acres of our undeveloped land, see
Business Strategic Initiatives.
Markets
Our principal timber products include pulpwood and sawtimber. We
have an agreement to sell wood fiber to Temple-Inland at market
prices, primarily for use at Temple-Inlands Rome, Georgia
mill complex. The agreement expires in 2013 although the
purchase and sale commitments are established annually based on
Forestars annual harvest plan. Base prices are determined
by independent sources and are indexed to third party indexing
sources. Payment for timber is advanced to us by Temple-Inland
on a quarterly basis. It is likely that Temple-Inland will
continue to be our largest wood fiber customer. We also sell
wood fiber to other parties at market prices.
Competition
We face significant competition from other landowners for the
sale of our wood fiber. Some of these competitors own similar
timber assets that are located in the same or nearby markets.
However, due to its weight, the cost for transporting wood fiber
long distances is significant, resulting in a competitive
advantage for timber that is located reasonably close to paper
and building products manufacturing facilities. A
12
significant portion of our wood fiber is reasonably close to
such facilities, so we expect continued demand for our wood
fiber.
Employees
We have 93 employees. None of our employees participate in
collective bargaining arrangements. We believe we have a good
relationship with our employees.
Environmental
Regulations
Our operations are subject to federal, state and local laws,
regulations and ordinances relating to protection of public
health and the environment. These laws may impose liability on
property owners or operators for the costs of removal or
remediation of hazardous or toxic substances on real property,
without regard to whether the owner or operator knew, or was
responsible for, the presence of the hazardous or toxic
substances. The presence of, or the failure to properly
remediate, such substances may adversely affect the value of a
property, as well as our ability to sell the property or to
borrow funds using that property as collateral or the ability to
produce oil and gas from that property. Environmental claims
generally would not be covered by our insurance programs.
The particular environmental laws that apply to any given
development site vary according to the sites location, its
environmental condition, and the present and former uses of the
site and adjoining properties. Environmental laws and conditions
may result in delays, may cause us to incur substantial
compliance or other costs and can prohibit or severely restrict
development activity or mineral production in environmentally
sensitive regions or areas, which could negatively affect our
results of operations.
We own approximately 288 acres in several parcels in or
near Antioch, California, portions of which were sites of a
Temple-Inland paper manufacturing operation that are in
remediation. The remediation is being conducted voluntarily with
oversight by the California Department of Toxic Substances
Control, or DTSC. The DTSC issued Certificates of Completion for
approximately 180 acres in 2006. We estimate the cost to
complete remediation activities will be about $3.9 million.
13
Legal
Structure
Forestar Group Inc. is a Delaware corporation. The following
chart presents the ownership structure for our significant
subsidiaries and ventures. It does not contain all our
subsidiaries and ventures, some of which are immaterial
entities. Except as indicated, all subsidiaries shown are
100 percent owned by their immediate parent.
Our principal executive offices are located at 6300 Bee Cave
Road, Building Two, Suite 500, Austin, Texas
78746-5149.
Our telephone number is
(512) 433-5200.
Available
Information
From our Internet website,
http://www.forestargroup.com,
you may obtain additional information about us including:
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our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
including amendments to these reports, and other documents as
soon as reasonably practicable after we file them with the
Securities and Exchange Commission (or SEC);
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beneficial ownership reports filed by officers, directors, and
principal security holders under Section 16(a) of the
Securities Exchange Act of 1934, as amended (or the
Exchange Act); and
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corporate governance information that includes our
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corporate governance guidelines,
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audit committee charter,
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management development and executive compensation committee
charter,
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nominating and governance committee charter,
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standards of business conduct and ethics,
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code of ethics for senior financial officers, and
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information on how to communicate directly with our board of
directors.
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We will also provide printed copies of any of these documents to
any stockholder free of charge upon request. In addition, the
materials we file with the SEC may be read and copied at the
SECs Public Reference Room at 100 F Street, NE,
Washington, DC 20549. Information about the operation of the
Public Reference Room is available by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet site
14
(http://www.sec.gov)
that contains reports, proxy and information statements, and
other information that is filed electronically with the SEC.
Financial
Information
Our results of operation, including information regarding our
principal business segments, are shown in the Consolidated
Financial Statements and the notes thereto attached as pages F-1
through F-31 to this Annual Report on
Form 10-K.
Executive
Officers
The names, ages and titles of our executive officers are:
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Name
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Age
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Position
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James M. DeCosmo
|
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50
|
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Chief Executive Officer
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Christopher L. Nines
|
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37
|
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Chief Financial Officer
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Craig A. Knight
|
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61
|
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Chief Investment Officer
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Charles T. Etheredge, Jr.
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45
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Executive Vice President
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Flavious J. Smith, Jr.
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50
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Executive Vice President
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David M. Grimm
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48
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Chief Administrative Officer, General Counsel and Secretary
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Charles D. Jehl
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40
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Chief Accounting Officer
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James M. DeCosmo has served as our President and Chief Executive
Officer since 2006. He served as Group Vice President of
Temple-Inland from 2005 to 2007, as Vice President, Forest from
2000 to 2005 and as Director of Forest Management from 1999 to
2000. Prior to 1999, he held land management positions with
several companies throughout the southeastern United States.
Christopher L. Nines has served as our Chief Financial Officer
since 2007. He served as Temple-Inlands Director of
Investor Relations from 2003 to 2007, and as Corporate Finance
Director from 2001 to 2003. He was Senior Vice President of
Finance for ConnectSouth Communications, Inc. from 2000 to 2001.
Craig A. Knight has served as our Chief Investment Officer since
2006. From 1994 to 2006, he served as President of
Lumbermens Investment Corporation, which changed its name
in 2006 to Forestar (USA) Real Estate Group Inc. Mr. Knight
was a principal in the real estate development firm of Heath and
Knight Properties from 1991 to 1994, and was a partner with
Centre Development from 1978 to 1994.
Charles T. Etheredge, Jr. has served as our Executive Vice
President since 2006. He was a member of Guaranty Banks
commercial real estate lending segment from 1992 to 2006, where
he served as Senior Vice President and Managing Director for the
Eastern Region from 1999 to 2006, and as Vice President and
Division Manager from 1997 to 1999.
Flavious J. Smith, Jr. has served as our Executive Vice
President since August 2008. He served as Division Land Manger
for EOG Resources, Inc. from 2005 to August 2008. He owned
Flavious Smith Petroleum Properties, an independent oil and gas
operator, from 1995 to 2005, and previously held various
leadership positions with several oil and gas and
energy-related companies.
David M. Grimm has served as our Chief Administrative Officer
since 2007, in addition to holding the offices of General
Counsel and Secretary since 2006. Mr. Grimm served
Temple-Inland as Group General Counsel from 2005 to 2006,
Associate General Counsel from 2003 to 2005, and held various
other legal positions from 1992 to 2003. Prior to joining
Temple-Inland, Mr. Grimm was an attorney in private
practice in Dallas, Texas.
Charles D. Jehl has served as our Chief Accounting Officer since
2006. He served as Chief Operations Officer and Chief Financial
Officer of Guaranty Insurance Services, Inc. from 2005 to 2006,
and as Senior Vice President and Controller from 2000 to 2005.
From 1989 to 1999, Mr. Jehl held various financial
management positions within Temple-Inlands financial
services segment.
15
A
decrease in demand for new housing in the markets where we
operate could decrease our profitability.
The residential development industry is cyclical and is
significantly affected by changes in general and local economic
conditions, such as employment levels, availability of financing
for home buyers, interest rates, consumer confidence and housing
demand. Adverse changes in these conditions generally, or in the
markets where we operate, could decrease demand for lots for new
homes in these areas. The current market conditions include a
general over-supply of housing, decreased sales volumes for both
new and existing homes, and flat to declining home prices. There
also has been significant tightening of mortgage credit
standards, decreasing the availability of mortgage loans to
acquire new and existing homes. A further decline in housing
demand could negatively affect our real estate development
activities, which could result in a decrease in our revenues and
earnings.
Furthermore, the market value of undeveloped land and lots held
by us can fluctuate significantly as a result of changing
economic and real estate market conditions. If there are
significant adverse changes in economic or real estate market
conditions, we may have to hold land in inventory longer than
planned. Inventory carrying costs can be significant and can
result in losses or lower returns.
Both
our real estate and mineral resources businesses are cyclical in
nature.
The operating results of our business segments reflect the
general cyclical pattern of each segment. While the cycles of
each industry do not necessarily coincide, demand and prices in
each may drop substantially in an economic downturn. Real estate
development of residential lots is further influenced by new
home construction activity. Mineral resources may be further
influenced by national and international commodity prices,
principally for oil and gas. Cyclical downturns may materially
and adversely affect our results of operations.
Development
of real estate entails a lengthy, uncertain, and costly
entitlement process.
Approval to develop real property entails an extensive
entitlement process involving multiple and overlapping
regulatory jurisdictions and often requiring discretionary
action by local governments. This process is often political,
uncertain and may require significant exactions in order to
secure approvals. Real estate projects must generally comply
with local land development regulations and may need to comply
with state and federal regulations. The process to comply with
these regulations is usually lengthy and costly, may not result
in the approvals we seek, and can be expected to materially
affect our real estate development activities.
The
real estate and mineral resource industries are highly
competitive and a number of entities with which we compete are
larger and have greater resources, and competitive conditions
may adversely affect our results of operations.
The real estate and mineral resource industries in which we
operate are highly competitive and are affected to varying
degrees by supply and demand factors and economic conditions,
including changes in interest rates, new housing starts, home
repair and remodeling activities, credit availability, housing
affordability and federal energy policies. No single company is
dominant in any of our industries.
We compete with numerous regional and local developers for the
acquisition, entitlement, and development of land suitable for
development. We also compete with some of our national and
regional home builder customers who develop real estate for
their own use in homebuilding operations, many of which are
larger and have greater resources, including greater marketing
and technology budgets. Any improvement in the cost structure or
service of our competitors will increase the competition we face.
The competitive conditions in the real estate industry result in:
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difficulties in acquiring suitable land at acceptable prices;
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lower sales volumes;
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lower sale prices;
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increased development costs; and
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delays in construction.
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16
Our business and results of operations are negatively affected
by the existence of these conditions.
Our
activities are subject to environmental regulations and
liabilities that could have a negative effect on our operating
results.
Our operations are subject to federal, state, and local
provisions regulating the discharge of materials into the
environment and otherwise related to the protection of the
environment. Compliance with these provisions may result in
delays, may cause us to invest substantial funds to ensure
compliance with applicable environmental regulations and can
prohibit or severely restrict real estate development or mineral
production activity in environmentally sensitive regions or
areas.
Our
real estate development operations are currently concentrated in
the major markets of Texas, and a significant portion of our
undeveloped land holdings are concentrated in Georgia. As a
result, our financial results are dependent on the economic
growth and strength of those areas.
The economic growth and strength of Texas, where the majority of
our real estate development activity is located, are important
factors in sustaining demand for our real estate development
activities. As a result, any adverse change to the economic
growth and health of those areas could materially adversely
affect our financial results. The future economic growth in
certain portions of Georgia in particular may be adversely
affected if its infrastructure, such as roads, utilities, and
schools, are not improved to meet increased demand. There can be
no assurance that these improvements will occur.
If we
are unable to retain or attract experienced management
personnel, our business may be adversely affected.
Our future success depends on our ability to retain and attract
experienced management personnel. The market for these employees
is highly competitive. If we cannot continue to retain and
attract quality personnel, our ability to effectively operate
our business may be significantly limited.
Our
real estate development operations are increasingly dependent
upon national, regional, and local homebuilders, as well as
other strategic partners, who may have interests that differ
from ours and may take actions that adversely affect
us.
We are highly dependent upon our relationships with national,
regional, and local homebuilders to purchase lots in our
residential developments. If homebuilders do not view our
developments as desirable locations for homebuilding operations,
our business will be adversely affected. Also, a national
homebuilder could decide to delay purchases of lots in one of
our developments due to adverse real estate conditions wholly
unrelated to our areas of operations.
We are also involved in strategic alliances or venture
relationships as part of our overall strategy for particular
developments or regions. These venture partners may bring
development experience, industry expertise, financing
capabilities, and local credibility or other competitive
attributes. Strategic partners, however, may have economic or
business interests or goals that are inconsistent with ours or
that are influenced by factors unrelated to our business. We may
also be subject to adverse business consequences if the market
reputation of a strategic partner deteriorates.
A formal agreement with a venture partner may also involve
special risks such as:
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we may not have voting control over the venture;
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the venture partner may take actions contrary to our
instructions or requests, or contrary to our policies or
objectives with respect to the real estate investments;
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the venture partner could experience financial
difficulties; and
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actions by a venture partner may subject property owned by the
venture to liabilities greater than those contemplated by the
venture agreement or have other adverse consequences.
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17
Our
customers may be unwilling or unable to meet lot takedown
commitments due to liquidity limitations or slowing market
conditions.
We enter into contracts to sell lots to builders. Home mortgage
credit standards have tightened substantially and many markets
have excess housing inventory so fewer new houses are being
constructed and sold. Some builders are experiencing liquidity
shortfalls and may be unwilling or unable to close on previously
committed lot purchases. As a result, we may sell fewer lots and
may have lower sales revenues, which could have an adverse
effect on our financial position and results of operations.
Significant
reductions in cash flow from slowing real estate, mineral
resources or fiber resources market conditions could lead to
higher levels of indebtedness, limiting our financial and
operating flexibility.
Under our senior credit facility, we have a $175 million
term loan and a revolving line of credit with a borrowing limit
of $290 million. We had drawn $175 million of the term
loan and $59.9 million of the revolving line of credit at
year-end 2008. Amounts due under our senior credit facility are
secured by certain of our assets. For a further description of
our senior credit facility, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations Capital Resources and
Liquidity Senior Credit Facility.
We must comply with various covenants contained in our senior
credit facility, and any other future debt arrangements.
Significant reductions in cash flow from slowing real estate,
mineral resources or fiber resources market conditions could
lead to higher levels of indebtedness, limiting our financial
and operating flexibility, and ultimately limiting our ability
to comply with our debt covenants. If we fail to comply with the
terms of any of our debt covenants, our lenders will have the
right to accelerate the maturity of that debt and foreclose upon
the collateral securing that debt. Realization of any of these
factors could adversely affect our financial condition and
results of operations.
Debt
within some of our ventures may not be renewed or may be
difficult or more expensive to replace.
Some of our ventures have debt, most of which is non-recourse to
us. Many lenders have substantially curtailed or ceased making
real estate acquisition and development loans. When debt within
our ventures matures, some of our ventures may be unable to
renew existing loans or secure replacement financing, or
replacement financing may be more expensive. If our ventures are
unable to renew existing loans or secure replacement financing,
we may be required to contribute additional equity to our
ventures which could increase our risk or increase our
borrowings under our senior credit facility, or both. If our
ventures secure replacement financing that is more expensive,
our profits may be reduced.
Our
lenders may be unable or unwilling to fund their commitments
under our senior credit facility.
Our senior credit facility includes a revolving line of credit
under which we regularly draw funds as required for routine
operating liquidity. Many U.S. financial institutions are
having difficulty maintaining regulatory capital at levels
required for additional lending, and some institutions are
experiencing liquidity shortfalls. If some of the lenders
participating in our senior credit facility fail to meet their
funding commitments, we could be required to borrow from other
sources at a higher cost or we may be required to monetize some
of our assets to meet our liquidity requirements, which could
have an adverse effect on our business, financial position and
results of operations.
The
current turmoil in the credit markets could limit demand for our
products, and affect the overall availability and cost of
credit.
At this time, it is unclear whether and to what extent actions
recently taken by the U.S. government, including passage of
the Emergency Economic Stabilization Act of 2008 and the
American Recovery and Reinvestment Act of 2009, will mitigate
the effects of the current turmoil in the credit markets and in
the economy generally. Demand for our products could be limited
by the reduction in availability or increased cost of credit.
While we have no immediate need to access the credit markets,
the impact of the current turmoil on our ability to obtain
financing in the future, and the cost and terms of financing, is
unclear. No assurances can be given that the effects of the
current credit markets turmoil will not have a material adverse
effect on our business, financial position and results of
operations.
18
Delays
or failures by third parties to take expected actions could
reduce our returns or cause us to incur losses on certain real
estate development projects.
We rely on governmental utility and special improvement
districts to issue bonds as a revenue source for the districts
to reimburse us for qualified expenses, such as road and utility
infrastructure costs. Bonds must be supported by districts tax
revenues, usually from ad valorem taxes. Slowing new home sales,
decreasing real estate prices or difficult credit markets for
bond sales can reduce or delay district bond sale revenues,
causing such districts to delay reimbursement of our qualified
expenses. Failure to receive timely reimbursement for qualified
expenses could reduce our returns or cause us to incur losses on
certain real estate development projects.
Also, to satisfy certain conditions to receive revenues funded
by hotel occupancy, sales and ad valorem taxes under various
agreements associated with our Cibolo Canyons project, the JW
Marriott®
resort hotel must be open and operating on July 1, 2011.
Failure to satisfy the hotel opening condition could be caused
by a number of factors outside of our control, such as failure
of the hotel owner or parties under contract with the hotel
owner to obtain sufficient equity investment or debt for the
resort project or to meet contractual obligations related to
hotel financing or construction. Although the hotel is currently
on schedule to open well in advance of the required date,
failure by the hotels owner to complete and open the hotel
on a timely basis could cause us to lose significant revenues
that are currently anticipated for the project, resulting in a
reduction of our returns or causing us to incur losses related
to our investment.
We
cannot control activities on oil or gas properties we do not
operate.
We do not operate any of the properties in which we have oil or
gas mineral interests and have very limited ability to exercise
influence over operations for these properties or their
associated costs. The success and timing of drilling,
development and exploitation activities on properties operated
by others depend on a number of factors that are beyond our
control, including the operators expertise and financial
resources, approval of other participants for drilling wells and
utilization of technology.
Volatile
oil and gas prices could adversely affect our cash flows and
results of operations.
Our cash flows and results of operations are dependent in part
on oil and gas prices, which are volatile. Any substantial or
extended decline in the price of oil and gas below current
levels could have a negative impact on our business operations
and future revenues. Moreover, oil and gas prices depend on
factors we cannot control, such as: actions by the Organization
of Petroleum Exporting Countries; weather; political conditions
in other oil-producing countries, including the possibility of
insurgency or war in such areas; prices of foreign exports;
availability of alternate fuel sources; the value of the
U.S. dollar relative to other major currencies; and
governmental regulations.
We
have only a limited operating history as an independent,
publicly-traded company upon which you can evaluate our
performance, and accordingly, our prospects must be considered
in light of the risks that any newly independent company
encounters.
We have only a limited experience operating as an independent,
publicly-traded company. Our prospects must be considered in
light of the risks, expenses and difficulties encountered by
companies in the early stages of independent business
operations, particularly companies such as ours in highly
competitive markets.
Our
historical financial information prior to 2008 is not
necessarily indicative of our results as a separate company and,
therefore, may not be reliable as an indicator of our future
financial results.
Our historical financial information prior to 2008 has been
created using our historical results of operations and
historical bases of assets and liabilities as part of
Temple-Inland. This historical financial information is not
necessarily indicative of what our results of operations,
financial position and cash flows would have been if we had been
a separate, stand-alone entity during the periods presented.
It also is not necessarily indicative of what our results of
operations, financial position and cash flows will be in the
future and does not reflect many significant changes that have
occurred in our capital structure, funding, and operations as a
result of the spin-off. While our historical results of
operations prior to 2008 include all costs of
Temple-Inlands real estate development and minerals
operations, our historical costs and
19
expenses prior to 2008 do not include all of the costs that
would have been or will be incurred by us as an independent,
publicly-traded company.
If the
spin-off is determined to be taxable for U.S. federal income tax
purposes, we could incur significant U.S. federal income tax
liabilities.
Temple-Inland has received a private letter ruling from the
Internal Revenue Service, or IRS, that the spin-off qualifies
for tax-free treatment under applicable sections of the Code. In
addition, Temple-Inland has received an opinion from tax counsel
that the spin-off so qualifies. The IRS ruling and the opinion
rely on certain representations, assumptions, and undertakings,
including those relating to the past and future conduct of our
business, and neither the IRS ruling nor the opinion would be
valid if such representations, assumptions, and undertakings
were incorrect. Notwithstanding the IRS private letter ruling
and opinion, the IRS could determine that the spin-off should be
treated as a taxable transaction if it determines that any of
the representations, assumptions, or undertakings that were
included in the request for the private letter ruling are false
or have been violated or if it disagrees with the conclusions in
the opinion that are not covered by the IRS ruling. If the
spin-off fails to qualify for tax-free treatment, under the tax
matters agreement between Temple-Inland and us, we would
generally be required to indemnify Temple-Inland against any tax
resulting from the distribution to the extent that such tax
resulted from (1) an issuance of our equity securities, a
redemption of our equity securities, or our involvement in other
acquisitions of our equity securities, (2) other actions or
failures to act by us, or (3) any of our representations or
undertakings being incorrect or violated. If we are required to
indemnify Temple-Inland or such other persons under the
circumstances set forth in the tax matters agreement, we may be
subject to substantial liabilities.
We
must abide by certain restrictions to preserve the tax-free
treatment of the spin-off and may not be able to engage in
desirable acquisitions and other strategic transactions
following the spin-off.
To preserve the tax-free treatment of the spin-off to
Temple-Inland, under the tax matters agreement that we entered
into with Temple-Inland and Guaranty, for the two-year period
following the distribution, we may be prohibited, except in
specified circumstances, from:
|
|
|
|
|
issuing equity securities to satisfy financing needs,
|
|
|
|
acquiring businesses or assets with equity securities, or
|
|
|
|
engaging in mergers or asset transfers that could jeopardize the
tax-free status of the distribution.
|
These restrictions may limit our ability to pursue strategic
transactions or engage in new business or other transactions
that may maximize the value of our business.
Additional
risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also adversely affect our
business, financial condition or results of operations, the
spin-off, or the trading price of our common
stock.
The risks and uncertainties we face are not limited to those set
forth in the risk factors described above. Although we believe
that the risks identified above are our material risks in each
of these categories, our assessment is based on the information
currently known to us. Additional risks and uncertainties that
are not presently known to us or that we do not currently
believe to be material, if they occur, also may materially
adversely affect our business, financial condition or results of
operations, the spin-off, or the trading price of our common
stock.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
Our principal executive offices are located in Austin, Texas,
where we lease approximately 32,000 square feet of office
space from Palisades West, LLC, a venture in which we own a 25%
interest. We also lease office space in Dallas, Texas; Fort
Worth, Texas; Diboll, Texas; and Atlanta, Georgia. We believe
these offices are suitable for conducting our business.
20
For a description of our properties in our real estate, mineral
resources and fiber resources segments, see
Business Real Estate,
Business Mineral Resources and
Business Fiber Resources, respectively,
in Part I, Item 1 of this Annual Report on
Form 10-K.
|
|
Item 3.
|
Legal
Proceedings.
|
We are involved directly or through ventures in various legal
proceedings that arise from time to time in the ordinary course
of doing business. We believe we have established adequate
reserves for any probable losses and that the outcome of any of
the proceedings should not have a material adverse effect on our
financial position or long-term results of operations or cash
flows. It is possible, however, that charges related to these
matters could be significant to results of operations or cash
flow in any single accounting period.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
Market
Information
Our common stock is traded on the New York Stock Exchange. The
high and low sales prices in each quarter in 2008 and in the
fourth quarter in 2007 since our stock began trading on
December 13, 2007 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Price Range
|
|
|
Price Range
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
29.49
|
|
|
$
|
16.50
|
|
|
$
|
|
|
|
$
|
|
|
Second Quarter
|
|
|
27.30
|
|
|
|
18.39
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
21.03
|
|
|
|
12.01
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
15.50
|
|
|
|
2.93
|
|
|
|
24.45
|
|
|
|
20.00
|
|
For the Year
|
|
|
29.49
|
|
|
|
2.93
|
|
|
|
24.45
|
|
|
|
20.00
|
|
Stockholders
Our stock transfer records indicated that as of
February 28, 2009, there were approximately 4,270 holders
of record of our common stock.
Dividend
Policy
We currently intend to retain any future earnings to support our
business and do not anticipate paying cash dividends in the
foreseeable future. The declaration and payment of any future
dividends will be at the discretion of our Board of Directors
after taking into account various factors, including without
limitation, our financial condition, earnings, capital
requirements of our business, the terms of any credit agreements
to which we may be a party at the time, legal requirements
(including compliance with the IRS private letter ruling),
industry practice, and other factors that our board of directors
deems relevant.
21
Equity
Compensation Plan Information
We have only one equity compensation plan, the Forestar 2007
Stock Incentive Plan, which was approved by our sole stockholder
prior to the spin-off. Information at December 31, 2008
about our equity compensation plan under which our common stock
may be issued follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities to be
|
|
|
Weighted-Average
|
|
|
Future Issuance Under
|
|
|
|
Issued Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Equity Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
2,512,896
|
|
|
$
|
21.70
|
|
|
|
545,574
|
|
Equity compensation plans not approved by security holders
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Total
|
|
|
2,512,896
|
|
|
$
|
21.70
|
|
|
|
545,574
|
|
Due to the equitable adjustment of Temple-Inland equity awards
in connection with our spin-off, over 60% of the securities
authorized for issuance under our 2007 Stock Incentive Plan were
committed to Temple-Inland equity award holders immediately upon
our spin-off.
Issuer
Purchases of Equity Securities
We made no purchases of our equity securities in 2008. On
February 11, 2009, we announced that our Board of Directors
authorized the repurchase of up to 7,000,000 shares of our
common stock, to be funded principally from the sale of
approximately 175,000 acres of higher and better use timberland.
We have not purchased any shares under this authorization, which
has no expiration date, and no repurchases will be made under
this repurchase authorization until after completion of the
asset sales. We have no repurchase plans or programs that
expired during 2008 and no repurchase plans or programs that we
intend to terminate prior to expiration or under which we no
longer intend to make further purchases.
22
Performance
Graph
We composed an index of our peers consisting of Avatar Holdings
Inc., Consolidated-Tomoka Land Co., Tejon Ranch Co. and The St.
Joe Company (Peer Index). In 2008, our cumulative
total stockholder return compared to the Russell 2000 Index and
to the Peer Index was as shown in the following graph (assuming
$100 invested on January 1, 2008):
23
|
|
Item 6.
|
Selected
Financial Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
98,859
|
|
|
$
|
142,729
|
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
Mineral resources
|
|
|
47,671
|
|
|
|
20,818
|
|
|
|
27,980
|
|
|
|
21,049
|
|
|
|
13,439
|
|
Fiber resources
|
|
|
13,192
|
|
|
|
14,439
|
|
|
|
17,429
|
|
|
|
16,317
|
|
|
|
17,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
159,722
|
|
|
$
|
177,986
|
|
|
$
|
225,560
|
|
|
$
|
155,487
|
|
|
$
|
169,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate(a)
|
|
$
|
9,075
|
|
|
$
|
39,507
|
|
|
$
|
70,271
|
|
|
$
|
46,418
|
|
|
$
|
43,370
|
|
Mineral resources
|
|
|
44,076
|
|
|
|
18,581
|
|
|
|
26,305
|
|
|
|
19,629
|
|
|
|
12,360
|
|
Fiber resources
|
|
|
8,896
|
|
|
|
7,950
|
|
|
|
6,711
|
|
|
|
5,221
|
|
|
|
6,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
62,047
|
|
|
|
66,038
|
|
|
|
103,287
|
|
|
|
71,268
|
|
|
|
62,023
|
|
Items not allocated to segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(19,318
|
)
|
|
|
(17,413
|
)
|
|
|
(14,048
|
)
|
|
|
(9,113
|
)
|
|
|
(10,433
|
)
|
Share-based
compensation(b)
|
|
|
(4,516
|
)
|
|
|
(1,397
|
)
|
|
|
(1,275
|
)
|
|
|
(443
|
)
|
|
|
(154
|
)
|
Interest expense
|
|
|
(21,283
|
)
|
|
|
(9,229
|
)
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
|
|
(6,091
|
)
|
Other non-operating
income(c)
|
|
|
279
|
|
|
|
705
|
|
|
|
79
|
|
|
|
483
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
17,209
|
|
|
|
38,704
|
|
|
|
81,814
|
|
|
|
55,756
|
|
|
|
45,880
|
|
Income tax expense
|
|
|
(5,235
|
)
|
|
|
(13,909
|
)
|
|
|
(29,970
|
)
|
|
|
(20,859
|
)
|
|
|
(17,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,974
|
|
|
$
|
24,795
|
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per
share(d)
|
|
$
|
0.33
|
|
|
$
|
0.70
|
|
|
$
|
1.47
|
|
|
$
|
0.99
|
|
|
$
|
0.80
|
|
Average diluted shares
outstanding(d)
|
|
|
35,892
|
|
|
|
35,380
|
|
|
|
35,380
|
|
|
|
35,380
|
|
|
|
35,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At year-end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
834,576
|
|
|
$
|
748,726
|
|
|
$
|
620,174
|
|
|
$
|
543,944
|
|
|
$
|
517,700
|
|
Debt
|
|
$
|
337,402
|
|
|
$
|
266,015
|
|
|
$
|
161,117
|
|
|
$
|
121,948
|
|
|
$
|
110,997
|
|
Minority interest in consolidated ventures
|
|
$
|
6,660
|
|
|
$
|
8,629
|
|
|
$
|
7,746
|
|
|
$
|
7,292
|
|
|
$
|
8,078
|
|
Stockholders/Parents Equity
|
|
$
|
447,292
|
|
|
$
|
433,201
|
|
|
$
|
418,052
|
|
|
$
|
381,290
|
|
|
$
|
368,659
|
|
Ratio of total debt to total capitalization
|
|
|
43
|
%
|
|
|
38
|
%
|
|
|
28
|
%
|
|
|
24
|
%
|
|
|
23
|
%
|
|
|
|
(a) |
|
Beginning in 2006, we eliminated our historical one-month lag in
accounting for our investment in our two largest real estate
ventures as financial information became more readily available.
The one-time effect of eliminating this one-month lag was to
increase our equity in earnings by about $1,104,000. |
|
|
|
|
|
(b) |
|
In 2006, Temple-Inland adopted the modified prospective
application of SFAS No. 123 (revised December 2004),
Share-Based Payment. As a result, share-based
compensation expense allocated to us increased by $153,000. |
|
|
|
|
|
(c) |
|
In 2006, other non-operating income included $459,000 expense
associated with early repayment of debt. |
|
(d) |
|
For 2007 and prior years, we computed diluted net income per
share based upon the number of shares of our common stock
distributed by Temple-Inland on December 28, 2007. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Forward-Looking
Statements
This Annual Report on
Form 10-K
and other materials we have filed or may file with the
Securities and Exchange Commission contain forward-looking
statements within the meaning of the federal securities
laws. These forward-looking statements are identified by their
use of terms and phrases such as believe,
anticipate, could, estimate,
likely, intend, may,
plan, expect, and similar expressions,
including references to assumptions. These statements reflect
our current views with respect to future events and are
24
subject to risk and uncertainties. We note that a variety of
factors and uncertainties could cause our actual results to
differ significantly from the results discussed in the
forward-looking statements. Factors and uncertainties that might
cause such differences include, but are not limited to:
|
|
|
|
|
general economic, market or business conditions;
|
|
|
|
economic, market or business conditions in Texas or Georgia,
where our real estate activities are concentrated;
|
|
|
|
the opportunities (or lack thereof) that may be presented to us
and that we may pursue;
|
|
|
|
future residential or commercial entitlements;
|
|
|
|
expected development timetables and projected timing for sales
of lots or other parcels of land;
|
|
|
|
development approvals and the ability to obtain such approvals;
|
|
|
|
the anticipated price ranges of lots in our developments;
|
|
|
|
the number, price and timing of land sales or acquisitions;
|
|
|
|
absorption rates and expected gains on land and lot sales;
|
|
|
|
the levels of resale inventory in our development projects and
the regions in which they are located;
|
|
|
|
the development of relationships with strategic partners;
|
|
|
|
fluctuations in costs and expenses;
|
|
|
|
demand for new housing, which can be affected by the
availability of mortgage credit;
|
|
|
|
government energy policies;
|
|
|
|
demand for oil and gas;
|
|
|
|
fluctuations in oil and gas prices;
|
|
|
|
competitive actions by other companies;
|
|
|
|
changes in laws or regulations and actions or restrictions of
regulatory agencies;
|
|
|
|
the results of financing efforts, including our ability to
obtain financing with favorable terms;
|
|
|
|
our partners ability to fund their capital commitments;
|
|
|
|
the ability to complete merger, acquisition or divestiture
plans; regulatory or other limitations imposed as a result of a
merger, acquisition or divestiture; and the success of the
business following a merger, acquisition or divestiture;
|
|
|
|
the final resolutions or outcomes with respect to our contingent
and other corporate liabilities related to our business; and
|
|
|
|
our customers may be unwilling or unable to meet lot takedown
commitments due to liquidity limitations or slowing market
conditions.
|
Other factors, including the risk factors described in
Item 1A of this Annual Report on
Form 10-K,
may also cause actual results to differ materially from those
projected by our forward-looking statements. New factors emerge
from time to time and it is not possible for us to predict all
such factors, nor can we assess the impact of any such factor on
our business or the extent to which any factor, or combination
of factors, may cause results to differ materially from those
contained in any forward-looking statement.
Any forward-looking statement speaks only as of the date on
which such statement is made, and, except as required by law, we
expressly disclaim any obligation or undertaking to disseminate
any updates or revisions to any forward-looking statement to
reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated
events.
25
Background
Prior to December 28, 2007, we were a wholly-owned
subsidiary of Temple-Inland Inc. On December 28, 2007,
Temple-Inland distributed all our issued and outstanding shares
of common stock to its stockholders. As a result of the
spin-off, our financial statements prior to 2008 reflect the
historical accounts of the real estate development, minerals and
fiber operations contributed to us and have been derived from
the historical financial statements and accounts of
Temple-Inland. In 2008, we operated our first full year as a
stand-alone public company and the following discussion and
analysis reflect the post-spin results of operations and the
effect on our financial condition.
Strategy
Our strategy is to maximize and grow long-term stockholder value
through:
|
|
|
|
|
Entitlement and development of real estate;
|
|
|
|
Realization of value from minerals and fiber resources; and
|
|
|
|
Growth through strategic and disciplined investment in our
business.
|
On February 11, 2009, we announced the following strategic
initiatives to enhance shareholder value:
|
|
|
|
|
Generate significant cash flow, principally from the sale of
approximately 175,000 acres of higher and better use (HBU)
timberland;
|
|
|
|
Reduce debt by approximately $150 million; and
|
|
|
|
Repurchase up to 20% of our common stock.
|
The debt reduction and share repurchases will be funded by
proceeds from the assets sales.
Results
of Operations for the Years Ended 2008, 2007 and 2006
Net income was $11,974,000 or $0.33 per diluted share in 2008,
compared with $24,795,000 or $0.70 per diluted share in 2007 and
$51,844,000 or $1.47 per diluted share in 2006.
A summary of our consolidated results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
98,859
|
|
|
$
|
142,729
|
|
|
$
|
180,151
|
|
Mineral resources
|
|
|
47,671
|
|
|
|
20,818
|
|
|
|
27,980
|
|
Fiber resources
|
|
|
13,192
|
|
|
|
14,439
|
|
|
|
17,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
159,722
|
|
|
$
|
177,986
|
|
|
$
|
225,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
9,075
|
|
|
$
|
39,507
|
|
|
$
|
70,271
|
|
Mineral resources
|
|
|
44,076
|
|
|
|
18,581
|
|
|
|
26,305
|
|
Fiber resources
|
|
|
8,896
|
|
|
|
7,950
|
|
|
|
6,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
62,047
|
|
|
|
66,038
|
|
|
|
103,287
|
|
Items not allocated to segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
General & administrative
|
|
|
(19,318
|
)
|
|
|
(17,413
|
)
|
|
|
(14,048
|
)
|
Share-based compensation
|
|
|
(4,516
|
)
|
|
|
(1,397
|
)
|
|
|
(1,275
|
)
|
Interest expense
|
|
|
(21,283
|
)
|
|
|
(9,229
|
)
|
|
|
(6,229
|
)
|
Other non-operating income
|
|
|
279
|
|
|
|
705
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
17,209
|
|
|
|
38,704
|
|
|
|
81,814
|
|
Income tax expense
|
|
|
(5,235
|
)
|
|
|
(13,909
|
)
|
|
|
(29,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,974
|
|
|
$
|
24,795
|
|
|
$
|
51,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Significant aspects of our results of operations follow:
2008
|
|
|
|
|
Real estate segment earnings declined principally due to a
continued decrease in the sales of residential real estate,
decreased commercial sales activity, increased costs associated
with environmental remediation, and asset impairments.
|
|
|
|
Mineral resources segment earnings increased as a result of
bonus payments received for leasing over 61,500 net mineral
acres. This leasing activity was located principally in East
Texas and was driven by our proximity to the Cotton Valley,
James Lime and Haynesville natural gas formations. Mineral
resources segment earnings also benefited from increased
production volumes from new well activity and higher average oil
and gas prices.
|
|
|
|
General and administrative expenses increased as a result of
costs associated with the continued development of corporate
functions as well as
start-up
costs necessary as a stand-alone public company.
|
|
|
|
Share-based compensation expense increased primarily due to
accelerated expense recognition in conjunction with awards
granted to retirement-eligible employees, and an increase in the
number of participants in our plan.
|
|
|
|
Interest expense increased as a result of higher debt levels and
higher borrowing costs.
|
2007
|
|
|
|
|
Net income decreased as a result of the overall decline in the
housing industry and a reduction in activity within our mineral
resources segment.
|
|
|
|
General and administrative expenses increased as a result of
costs associated with the development of corporate functions as
a stand-alone company.
|
|
|
|
Interest expense increased principally as a result of higher
debt levels.
|
2006
|
|
|
|
|
Net income increased due to the continued strength for new
housing in the markets in which we operate and increased
activity within our mineral resources segment.
|
|
|
|
General and administrative expenses increased as a result of
costs associated with the segmentation of the real estate
business within Temple-Inland.
|
Current
Market Conditions
Current market conditions in the residential development
industry are extremely difficult due to the oversupply of
housing, declining sales volume for existing and new homes, flat
to declining sales prices and a significant tightening of
mortgage credit. Consumer confidence is near or at an all time
low. Many home builders are experiencing liquidity shortfalls
and are unwilling or unable to close committed lot purchases.
All geographic markets and products have not been affected to
the same extent or with equal severity, but most have
experienced declines. It is likely these conditions will
continue throughout 2009.
Current market conditions in the oil and gas industry have
declined as oil and gas commodity prices have decreased from
recent highs. Exploration and production companies have reduced
capital expenditures for lease acquisition and production due to
lower world wide demand and higher inventories resulting in
lower oil and gas commodity prices. These conditions may impact
the demand for new mineral leases, new exploration activity and
the amount of royalty revenues we receive.
Pulpwood demand in our markets is stable. Pulpwood prices in our
market areas have increased modestly due to pulp mill demand and
wet weather conditions. Sawtimber prices have declined due to
the decrease in demand for lumber products consistent with the
decline in the housing industry.
27
Business
Segments
In first quarter 2008, we changed our reportable segments to
reflect our post-spin management of the operations transferred
to us from Temple-Inland. All prior period segment information
has been reclassified to conform to the current presentation. We
manage our operations through three business segments:
|
|
|
|
|
Real estate,
|
|
|
|
Mineral resources, and
|
|
|
|
Fiber resources.
|
We evaluate performance based on earnings before unallocated
items and income taxes. Segment earnings consist of operating
income and equity in earnings of unconsolidated ventures, less
minority interest expense in consolidated ventures. Unallocated
items consist of general and administrative expense, share-based
compensation, other non-operating income and expense, and
interest expense. The accounting policies of the segments are
the same as those described in the accounting policy note to the
consolidated financial statements.
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 sentiment, new housing starts, real
estate values, employment levels, changes in the market prices
for oil, gas, and timber, and the overall strength or weakness
of the U.S. economy.
Real
Estate
We own directly or through ventures over 365,000 acres of
real estate located in ten states and 13 markets. Our real
estate segment secures entitlements and develops infrastructure
on our lands, primarily for single-family residential and
mixed-use communities. We own about 300,000 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 of accelerated growth 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, undeveloped land sales
and commercial real estate and to a lesser degree from the
operation of commercial properties, primarily a hotel.
A summary of our real estate results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
98,859
|
|
|
$
|
142,729
|
|
|
$
|
180,151
|
|
Cost of sales
|
|
|
(55,131
|
)
|
|
|
(75,982
|
)
|
|
|
(107,936
|
)
|
Operating expenses
|
|
|
(35,898
|
)
|
|
|
(25,201
|
)
|
|
|
(18,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,830
|
|
|
|
41,546
|
|
|
|
54,131
|
|
Equity in earnings of unconsolidated ventures
|
|
|
3,480
|
|
|
|
3,732
|
|
|
|
19,371
|
|
Minority interest expense in consolidated ventures
|
|
|
(2,235
|
)
|
|
|
(5,771
|
)
|
|
|
(3,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
9,075
|
|
|
$
|
39,507
|
|
|
$
|
70,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, operating expenses principally consist of $10,280,000
in property taxes, $8,109,000 in employee compensation and
benefits and $3,007,000 related to environmental remediation
activities. Cost of sales includes $3,000,000 in asset
impairment charges related to wholly-owned residential real
estate projects, principally in Texas. Segment earnings
benefited from $943,000 in recovered project infrastructure
costs from an improvement district related to a project in Texas
in which we no longer have an investment.
28
In 2007, operating expenses principally consist of $7,405,000 in
property taxes, $3,907,000 related to employee compensation and
benefits, and depreciation expense of $2,333,000. Cost of sales
includes $6,518,000 in asset impairment charges related to
residential real estate projects and a commercial golf club
operation in Texas. The decrease in equity in earnings of
unconsolidated ventures is principally due to the overall
decline in the housing industry.
In 2006, operating expenses principally consist of $8,063,000 in
property taxes, and $3,976,000 related to employee compensation
and benefits. We eliminated our historical one-month lag in
accounting for our investment in our two largest real estate
ventures as financial information became more readily available.
The one-time effect of eliminating this one-month lag was to
increase our equity in earnings of unconsolidated ventures in
2006 by about $1,104,000.
Revenues in our owned and consolidated ventures consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Residential real estate
|
|
$
|
38,110
|
|
|
$
|
56,731
|
|
|
$
|
74,833
|
|
Commercial real estate
|
|
|
9,440
|
|
|
|
43,220
|
|
|
|
49,699
|
|
Undeveloped land
|
|
|
26,005
|
|
|
|
17,939
|
|
|
|
27,253
|
|
Commercial operating properties
|
|
|
21,488
|
|
|
|
20,383
|
|
|
|
19,590
|
|
Other
|
|
|
3,816
|
|
|
|
4,456
|
|
|
|
8,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
98,859
|
|
|
$
|
142,729
|
|
|
$
|
180,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units sold in our owned and consolidated ventures consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lots sold
|
|
|
812
|
|
|
|
1,076
|
|
|
|
1,710
|
|
Revenue per lot sold
|
|
$
|
45,712
|
|
|
$
|
51,079
|
|
|
$
|
42,355
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres sold
|
|
|
55
|
|
|
|
166
|
|
|
|
220
|
|
Revenue per acre sold
|
|
$
|
172,346
|
|
|
$
|
260,229
|
|
|
$
|
221,888
|
|
Undeveloped land:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres sold
|
|
|
5,577
|
|
|
|
2,486
|
|
|
|
3,441
|
|
Revenue per acre sold
|
|
$
|
4,663
|
|
|
$
|
6,748
|
|
|
$
|
7,925
|
|
Residential real estate revenues principally consist of the sale
of single-family lots to national, regional and local
homebuilders. In 2008, residential real estate revenues declined
as a result of decreased demand for single-family lots due to
the overall decline in the housing industry and significant
tightening of mortgage credit availability. We expect difficult
housing markets and credit conditions throughout 2009.
Commercial real estate revenues in 2007 included $31,000,000
from three sales aggregating 91 acres on which we
recognized income of $17,000,000. In 2006, commercial real
estate revenues included $39,000,000 from two sales aggregating
131 acres on which we recognized income of $14,000,000.
As market conditions for residential and commercial real estate
continued to deteriorate in 2008, we allocated additional
internal resources and focused our strategic marketing efforts
toward sale of our undeveloped land. As a result, we sold 5,577
acres from our owned and consolidated ventures at an average
price of $4,663 per acre, generating $26,005,000 in undeveloped
land sales revenues in 2008.
In 2007, undeveloped land sales revenues decreased compared to
2006 as a result of significant tightening of credit standards.
29
Other revenues in 2006 included the sale of a country club
property for $4,300,000.
Information about our real estate projects and our real estate
ventures follows:
|
|
|
|
|
|
|
|
|
|
|
Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
Owned and consolidated ventures:
|
|
|
|
|
|
|
|
|
Entitled, developed, and under development projects
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
57
|
|
|
|
56
|
|
Residential lots remaining
|
|
|
20,561
|
|
|
|
20,465
|
|
Commercial acres remaining
|
|
|
1,624
|
|
|
|
1,136
|
|
Undeveloped land and land in the entitlement process
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
23
|
|
|
|
22
|
|
Acres in entitlement process
|
|
|
32,640
|
|
|
|
27,720
|
|
Acres undeveloped
|
|
|
309,232
|
|
|
|
321,694
|
|
Ventures accounted for using the equity method:
|
|
|
|
|
|
|
|
|
Ventures lot sales (for the year)
|
|
|
|
|
|
|
|
|
Lots sold
|
|
|
248
|
|
|
|
631
|
|
Revenue per lot sold
|
|
$
|
57,750
|
|
|
$
|
55,877
|
|
Ventures entitled, developed, and under development
projects
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
21
|
|
|
|
22
|
|
Residential lots remaining
|
|
|
9,348
|
|
|
|
9,385
|
|
Commercial acres sold (for the year)
|
|
|
65
|
|
|
|
32
|
|
Revenue per acre sold
|
|
$
|
280,609
|
|
|
$
|
264,181
|
|
Commercial acres remaining
|
|
|
648
|
|
|
|
719
|
|
Ventures undeveloped land and land in the entitlement
process
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
2
|
|
|
|
2
|
|
Acres in entitlement process
|
|
|
1,080
|
|
|
|
870
|
|
Acres sold (for the year)
|
|
|
486
|
|
|
|
131
|
|
Revenue per acre sold
|
|
$
|
6,306
|
|
|
$
|
5,764
|
|
Acres undeveloped
|
|
|
5,641
|
|
|
|
6,127
|
|
Mineral
Resources
We own directly or through ventures about 622,000 net acres
of oil and gas mineral interests. Our mineral resources segment
is focused on maximizing the value from royalties and other
lease revenues from our oil and gas mineral interests located in
Texas, Louisiana, Alabama and Georgia. At year-end 2008, we have
about 121,000 net acres under lease and about
25,000 net acres held by production.
A summary of our mineral resources results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
47,671
|
|
|
$
|
20,818
|
|
|
$
|
27,980
|
|
Operating expenses
|
|
|
(4,757
|
)
|
|
|
(2,237
|
)
|
|
|
(1,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,914
|
|
|
|
18,581
|
|
|
|
26,305
|
|
Equity in earnings of unconsolidated ventures
|
|
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
44,076
|
|
|
$
|
18,581
|
|
|
$
|
26,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
In 2008, operating expenses principally consist of $911,000
related to employee compensation and benefits and $1,714,000
related to oil and gas production severance taxes. Equity in
earnings of unconsolidated ventures includes our share of a
lease bonus payment as result of leasing 241 net mineral
acres for $1,568,000.
In 2007 and 2006, oil and gas production severance taxes were
reflected as a reduction of revenues. Operating expenses were
allocated to us from Temple-Inland.
Revenues consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Royalties
|
|
$
|
21,639
|
|
|
$
|
13,114
|
|
|
$
|
17,381
|
|
Other lease revenues
|
|
|
26,032
|
|
|
|
7,704
|
|
|
|
10,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
47,671
|
|
|
$
|
20,818
|
|
|
$
|
27,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, other lease revenues include $23,356,000 in lease bonus
payments as a result of leasing over 61,500 net mineral
acres. The leasing activity was located principally in East
Texas and was driven by our proximity to the Cotton Valley,
James Lime and Haynesville natural gas formations.
In 2008, royalty revenues include our share of about
88,000 barrels of oil and approximately 1,363 million
cubic feet (mmcf) of natural gas production related to our
royalty interests. In 2008, royalty revenues benefited from
increased production volume from new well activity and higher
oil and natural gas prices. The average price per barrel of oil
was $106.66 in 2008, $65.24 in 2007 and $64.14 in 2006. The
average price per thousand cubic feet (mcf) of natural gas was
$8.76 in 2008, $6.69 in 2007 and $7.95 in 2006.
A summary of our oil and gas mineral
interests(a)
at year-end 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held By
|
|
|
|
|
State
|
|
Unleased
|
|
|
Leased(b)
|
|
|
Production(c)
|
|
|
Total(d)
|
|
|
|
(Net acres)
|
|
|
Texas
|
|
|
118,000
|
|
|
|
108,000
|
|
|
|
18,000
|
|
|
|
244,000
|
|
Louisiana
|
|
|
110,000
|
|
|
|
4,000
|
|
|
|
7,000
|
|
|
|
121,000
|
|
Alabama
|
|
|
48,000
|
|
|
|
9,000
|
|
|
|
|
|
|
|
57,000
|
|
Georgia
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476,000
|
|
|
|
121,000
|
|
|
|
25,000
|
|
|
|
622,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes ventures. |
|
(b) |
|
Includes leases in primary lease term only. |
|
|
|
|
|
(c) |
|
Acres being held by production are producing oil or gas in
paying quantities. |
|
|
|
|
|
(d) |
|
Texas and Louisiana net acres are calculated as the gross number
of surface acres multiplied by our percentage ownership of the
mineral interest. Alabama and Georgia net acres are calculated
as the gross number of surface acres multiplied by our estimated
percentage ownership of the mineral interest based on county
sampling. |
We also have a 45 percent nonparticipating royalty interest in
groundwater produced or withdrawn for commercial purposes or
sold from approximately 1.38 million acres in Texas,
Louisiana, Georgia and Alabama. We have not received any income
from this interest.
Fiber
Resources
Our fiber resources segment focuses principally on the
management of our timber holdings. We have over
340,000 acres of timber on our undeveloped land and about
18,000 acres of timber under lease. We sell wood fiber from
our land, primarily in Georgia, and lease land for hunting and
other recreational uses.
31
A summary of our fiber resources results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
13,192
|
|
|
$
|
14,439
|
|
|
$
|
17,429
|
|
Cost of sales
|
|
|
(3,357
|
)
|
|
|
(3,672
|
)
|
|
|
(3,455
|
)
|
Operating expenses
|
|
|
(2,611
|
)
|
|
|
(5,060
|
)
|
|
|
(7,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,224
|
|
|
|
5,707
|
|
|
|
6,711
|
|
Other operating income
|
|
|
1,672
|
|
|
|
2,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
8,896
|
|
|
$
|
7,950
|
|
|
$
|
6,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, operating expenses decreased as a result of
establishing our post-spin operating structure and principally
consist of $1,036,000 related to employee compensation and
benefits, and $600,000 related to contract services. In 2007 and
2006, costs and expenses were allocated to us from Temple-Inland.
In 2008 and 2007, other operating income principally reflects a
gain from partial termination of a timber lease related to land
sold from Ironstob LLC, a venture created in 2007. We have a 58%
ownership interest in this venture which controls about
16,000 acres of undeveloped land near Atlanta, Georgia.
Revenues consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Fiber
|
|
$
|
10,987
|
|
|
$
|
13,722
|
|
|
$
|
14,313
|
|
Recreational leases and other
|
|
|
2,205
|
|
|
|
717
|
|
|
|
3,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
13,192
|
|
|
$
|
14,439
|
|
|
$
|
17,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber sold consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
2008
|
|
2007
|
|
2006
|
|
Tons sold
|
|
|
1,079,873
|
|
|
|
1,215,471
|
|
|
|
1,114,820
|
|
Revenue per ton sold
|
|
$
|
10.17
|
|
|
$
|
11.29
|
|
|
$
|
12.84
|
|
In 2008, revenue per ton decreased because we harvested and sold
higher levels of pulpwood. The majority of our sales were to
Temple-Inland at market prices.
In 2007, Temple-Inland retained a greater portion of
recreational lease revenues.
Items Not
Allocated to Segments
Unallocated items represent income and expenses managed on a
company-wide basis and include general and administrative
expenses, share-based compensation, other non-operating income
and expense and interest expense.
In 2008 and 2007, the increase in interest expense was due to
higher average debt balances and higher borrowing costs.
In 2008, the increase in share-based compensation expense was a
result of recognizing accelerated expense for retirement
eligible employees and fully vested awards to members of our
board of directors, and from an increase in the number of
participants in our plan. In 2007 and 2006, share-based
compensation was allocated from Temple-Inland and represents the
expense of Temple-Inland share-based awards granted to our
employees.
In 2008 and 2007, the increase in general and administrative
expenses was due to increased costs associated with implementing
corporate functions as a stand-alone public company.
32
Income
Taxes
Our effective tax rate, which is income tax as a percentage of
income before taxes, was 30 percent in 2008,
36 percent in 2007 and 37 percent in 2006. The 2008
rate reflects a benefit from increased percentage depletion
deduction related to our mineral activities and a federal income
tax rate change for qualified timber gains due to the Food,
Conservation and Energy Act of 2008. We anticipate that our
effective tax rate in 2009 will be about 37 percent due to
our announced 2009 strategic initiatives and the expiration in
June 2009 of special tax rates for qualified timber gains under
the Food, Conservation and Energy Act of 2008. We have not
provided a valuation allowance for our deferred tax asset
because we believe it is likely it will be recoverable in future
periods.
Capital
Resources and Liquidity
Sources
and Uses of Cash
We operate in cyclical industries and our cash flows fluctuate
accordingly. Our principal operating cash requirements are for
the acquisition and development of real estate, either directly
or indirectly through ventures, taxes, interest, and
compensation. Our principal sources of cash are proceeds from
the sale of real estate and timber, the cash flow from minerals
and commercial operating properties, and borrowings. Operating
cash flows are affected by the timing of the payment of real
estate development expenditures and the collection of proceeds
from the eventual sale of the real estate, the timing of which
can vary substantially depending on many factors including the
size of the project, state and local permitting requirements,
and availability of utilities. Working capital is subject to
operating needs, the timing of sales of real estate and timber,
the timing of collection of mineral royalties or mineral lease
payments, collection of receivables, reimbursement from utility
or improvement districts, and the payment of payables and
expenses.
Cash
Flows from Operating Activities
Cash flows from real estate development activities, undeveloped
land sales, timber sales, and mineral and recreational leases
are classified as operating cash flows.
Net cash (used for) operations was $(51,889,000) in 2008,
$(63,981,000) in 2007 and $(27,705,000) in 2006. In 2008,
expenditures for real estate development and acquisition
exceeded non-cash real estate cost of sales principally due to
contractual commitments to our Cibolo Canyons project. We
invested $34,863,000 in this project in 2008. In 2007,
expenditures for real estate development and acquisition
significantly exceeded non-cash real estate cost of sales
principally due to the investment of $47,000,000 in new real
estate projects, an increase in the deferred tax asset of
$19,544,000 due primarily to a tax gain resulting from our
contractual right to receive certain hotel occupancy and sales
revenues through 2034 at our Cibolo Canyons project, and
distributions to minority interests of $11,042,000. In 2006,
expenditures for real estate development and acquisition
significantly exceeded non-cash real estate cost of sales
principally due to the investment of $74,000,000 in ten new real
estate projects.
Cash
Flows from Investing Activities
Capital contributions to and capital distributions from
unconsolidated ventures are classified as investing activities.
In addition, expenditures related to reforestation activities in
our fiber resources segment are classified as investing
activities.
In 2008, net cash (used for) investing activities was
$(16,667,000) as capital contributed to unconsolidated ventures
exceeded distributions received principally due to our
contractual commitment to Palisades West LLC. In 2008, we
contributed $9,118,000 to this venture which consists of two
office buildings totaling approximately 375,000 square feet
located in Austin, Texas. In 2007, net cash (used for) investing
activities was $(10,828,000) as capital contributed to
unconsolidated ventures exceeded distributions received. Net
cash provided by investing activities was $7,410,000 in 2006 as
capital distributions we received from unconsolidated ventures
exceeded contributions.
33
Cash
Flows from Financing Activities
Net cash provided by financing activities was $69,163,000 in
2008, $71,979,000 in 2007 and $17,703,000 in 2006. In 2008, our
debt increased by $71,387,000 to fund our real estate
development expenditures, net investment in our unconsolidated
ventures and net working capital to operate our business. In
2007, the increase in debt funded expenditures for real estate
development and acquisitions. In 2006, the increase in debt,
including borrowings under our credit facility with
Temple-Inland, funded expenditures for real estate development
and acquisitions in excess of the net distributions we received
from ventures.
Liquidity
and Contractual Obligations
Liquidity
At year-end 2008, we had $187,933,000 in net unused borrowing
capacity under our senior credit facility.
|
|
|
|
|
|
|
Senior
|
|
|
|
Credit Facility
|
|
|
|
(In thousands)
|
|
|
Committed
|
|
$
|
465,000
|
|
Plus: unrestricted cash equivalents
|
|
|
5,968
|
|
Less: borrowings
|
|
|
(234,900
|
)
|
Less: letters of credit
|
|
|
(13,135
|
)
|
Less: minimum liquidity covenant
|
|
|
(35,000
|
)
|
|
|
|
|
|
Unused borrowing capacity at year-end 2008
|
|
$
|
187,933
|
|
|
|
|
|
|
|
|
|
|
|
Our senior credit facility provides for a $175,000,000 term loan
and a $290,000,000 revolving line of credit. We may, upon notice
to the lenders, request an increase in the credit facility to
provide for a total of $500,000,000. The revolving line of
credit may be prepaid at any time without penalty. The term loan
may be prepaid at any time; however, repayment prior to
June 1, 2009 requires a fee of 1.00% of the principal
amount. There is no prepayment fee for the term loan on or after
June 1, 2009. The senior credit facility matures
December 1, 2010. The revolving line of credit includes a
$100,000,000 sublimit for letters of credit, of which
$13,135,000 was outstanding at year-end 2008. Total borrowings
under our senior credit facility (including the face amount of
letters of credit) may not exceed a borrowing base formula, and
include a $35,000,000 minimum liquidity requirement at each
quarter-end.
At our option, we can borrow at LIBOR plus 4 percent or
Prime plus 2 percent. All borrowings under the senior
credit facility are secured by (a) an initial pledge of
approximately 250,000 acres of undeveloped land,
(b) assignments of current and future leases, rents and
contracts, including our mineral leases, (c) a security
interest in our primary operating account, (d) pledge of
the equity interests in current and future material operating
subsidiaries or joint venture interests, or if such pledge is
not permitted, a pledge of the right to distributions from such
entities, and (e) negative pledge (without a mortgage) on
most other wholly-owned assets. The senior credit facility
provides for releases of real estate provided that borrowing
base compliance is maintained.
As a result of current financial market conditions, we closely
monitor the banks in our senior credit facility. We have not
experienced any difficulty borrowing under our credit facility
to date, and we currently have no reason to believe that the
participants will not be able to honor their commitments under
these facilities.
In 2008, we entered into an interest rate swap agreement. This
instrument expires in 2010 and is for a total notional amount of
$100,000,000. It is non-exchange traded and is valued using
third-party resources and models. Under the agreement, we
mitigate interest rate fluctuations by fixing the interest rate
on the first $100,000,000 of our variable rate borrowings at
6.57 percent compared with a floating interest rate of one month
LIBOR plus 4 percent (4.77% at year-end 2008). At year-end 2008,
the fair value of our interest rate instrument was a $1,938,000
liability that is included in other liabilities.
34
Our senior credit facility and other debt agreements contain
terms, conditions and financial covenants customary for such
agreements including minimum levels of interest coverage and
limitations on leverage. At year-end 2008, we had complied with
the terms, conditions and financial covenants of these
agreements. The following table details our compliance with the
financial covenants of these agreements:
|
|
|
|
|
Financial Covenant
|
|
Requirement
|
|
Year-End 2008
|
|
Interest Coverage
Ratio(a)
|
|
³1.50:1.0
|
|
2.68:1.0
|
Revenues/Capital Expenditures
Ratio(b)
|
|
³0.80:1.0
|
|
1.47:1.0
|
Total Leverage
Ratio(c)
|
|
40%
|
|
23.7%
|
Minimum
Liquidity(d)
|
|
>$35 million
|
|
$223 million
|
Net
Worth(e)
|
|
>$355
million(e)
|
|
$447 million
|
|
|
|
(a) |
|
Calculated as EBITDA (earnings before interest, taxes,
depreciation and amortization) plus all non-cash compensation
expenses plus other non-cash expenses, divided by interest
expense. This covenant is applied at the end of each quarter on
a rolling four quarter basis, and the requirement increases to
2.00 in second quarter 2009. |
|
(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, and the
requirement increases to 1.0:1.0 after third quarter 2009. |
|
(c) |
|
Calculated as total funded debt divided by adjusted asset value.
Total funded debt includes all indebtedness for borrowed funds,
all secured liabilities, and all 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, and
all 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 available for drawing under the
revolving commitment, plus unrestricted cash, plus cash
equivalents which are not pledged or encumbered and the use of
which is not restricted by the terms of any agreement. This
covenant is applied at the end of each quarter. |
|
(e) |
|
Calculated as the amount by which consolidated total assets
exceeds consolidated total liabilities. At year-end 2008, the
requirement is $355 million, computed as:
$350 million, plus eighty five percent of the aggregate net
proceeds received by us from any equity offering, plus fifty
percent of all positive net income, on a cumulative basis. This
covenant is applied at the end of each quarter. |
Based on our current operating projections, we believe that we
will remain in compliance with our senior credit facility
covenants in the future. However, if market conditions continue
to deteriorate or continue for an extended period, we may be
unable to comply with our financial covenants and may need to
seek amendments, waivers or forbearance of our senior credit
facility, or may need to refinance. There can be no assurance
that we will be able to obtain any amendments, waivers or
forbearance when, as and if needed, or if the lenders would be
willing to refinance on terms acceptable to us, or at all. Any
amended facilities could be on terms that are both more
expensive and more restrictive than our current senior credit
facility.
There can be no assurance that these covenants will not
adversely affect our ability to finance our future operations or
capital needs or to pursue available business opportunities. A
breach of any of these covenants or our inability to maintain
the required financial ratios could result in a default of the
senior credit facility. If a default occurs, the affected
lenders could elect to declare the indebtedness, together with
accrued interest and other fees, to be immediately due and
payable.
35
Contractual
Obligations
At year-end 2008, contractual obligations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due or Expiring by Year
|
|
|
|
Total
|
|
|
2009
|
|
|
2010-11
|
|
|
2012-13
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Debt(a)
|
|
$
|
337,402
|
|
|
$
|
35,207
|
|
|
$
|
302,195
|
|
|
$
|
|
|
|
$
|
|
|
Interest payments on debt
|
|
|
20,065
|
|
|
|
11,574
|
|
|
|
8,491
|
|
|
|
|
|
|
|
|
|
Purchase obligations
|
|
|
20,699
|
|
|
|
18,417
|
|
|
|
2,282
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
23,746
|
|
|
|
2,226
|
|
|
|
4,196
|
|
|
|
3,719
|
|
|
|
13,605
|
|
Venture contributions
|
|
|
2,792
|
|
|
|
2,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
404,704
|
|
|
$
|
70,216
|
|
|
$
|
317,164
|
|
|
$
|
3,719
|
|
|
$
|
13,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Denotes items included in our balance sheet. |
Interest payments on debt include interest payments related to
our fixed rate debt and estimated interest payments related to
our variable rate debt. Estimated interest payments on variable
rate debt were calculated assuming that the outstanding balances
and interest rates that existed at year-end 2008 remain constant
through maturity.
Purchase obligations are defined as legally binding and
enforceable agreements to purchase goods and services. Our
purchase obligations include commitments for land acquisition
and land development, engineering and construction contracts for
land development and service contracts. Our commitment to
support third-party construction and ownership of a resort
hotel, spa and golf facilities at our Cibolo Canyons mixed-use
development near San Antonio, Texas represents our most
significant purchase obligation. At year-end 2008, our unfunded
commitment related to the Cibolo Canyons resort was $13,083,000,
which is expected to be funded in 2009.
Our operating leases are for timberland, facilities and
equipment. In second quarter 2008, we entered into a
10-year
agreement with Palisades West LLC, in which we have a
25 percent ownership interest, to lease approximately
32,000 square feet in Austin, Texas. We occupy this
facility as our corporate headquarters effective in fourth
quarter 2008. At year-end 2008, the remaining contractual
obligation is $12,133,000. Also included in operating leases is
a long-term timber lease of over 16,000 acres that has a
remaining lease term of 16 years and a remaining contractual
obligation of $9,106,000.
Venture contributions represent commitments to contribute a
stated amount to a venture as and when needed by the venture. We
have excluded from the table contributions that may be made in
the ordinary course of business for which there is no commitment
to contribute an amount that is quantifiable or identifiable to
specific dates.
Estimated payments related to our interest rate swap agreement
are excluded from the table because we cannot reasonably
estimate the amount or timing of payment obligations.
Additionally, we have other long-term liabilities that are not
included in the table because they do not have scheduled
maturities.
Our sources of funding are our operating cash flows and
borrowings under our senior credit facility. Our contractual
obligations due in 2009 will likely be paid from operating cash
flows and from borrowings under our senior credit facility.
36
Off-Balance
Sheet Arrangements
From time to time, we enter into off-balance sheet arrangements
to facilitate our operating activities. At year-end 2008, our
off-balance sheet unfunded arrangements, excluding contractual
interest payments, purchase obligations, and operating lease
obligations, included in the table of contractual obligations,
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiring by Year
|
|
|
|
Total
|
|
|
2009
|
|
|
2010-11
|
|
|
2012-13
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Standby letters of credit
|
|
$
|
13,135
|
|
|
$
|
10,635
|
|
|
$
|
2,500
|
|
|
$
|
|
|
|
$
|
|
|
Performance bonds
|
|
|
14,099
|
|
|
|
14,009
|
|
|
|
70
|
|
|
|
20
|
|
|
|
|
|
Recourse obligations
|
|
|
8,991
|
|
|
|
2,860
|
|
|
|
4,656
|
|
|
|
100
|
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,225
|
|
|
$
|
27,504
|
|
|
$
|
7,226
|
|
|
$
|
120
|
|
|
$
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance bonds, letters of credit, and recourse obligations
are primarily for our real estate development activities and
include $3,151,000 of performance bonds and letters of credit we
provided on behalf of certain ventures. Our venture partners
also provide performance bonds and letters of credit. Generally
these performance bonds or letters of credit would be drawn on
due to lack of specific performance by us or the ventures, such
as failure to deliver streets and utilities in accordance with
local codes and ordinances.
Cibolo
Canyons San Antonio, Texas
Mixed-Use
Development
The Cibolo Canyons mixed-use development consists of
2,100 acres planned to include 1,749 residential lots and
145 commercial acres designated for multifamily and retail uses,
of which 537 lots and 64 commercial acres have been sold at
year-end 2008. We have $65,894,000 invested in the development
at year-end 2008.
The construction and opening of the resort hotel (discussed
below) will satisfy a condition to our right to obtain
reimbursement of certain infrastructure costs related to our
mixed-use development under an Ad Valorem Tax and Non Resort
Sales and Use Tax Public Improvement Financing Agreement between
us and a Special Purpose Improvement District (SPID).
Until the SPID achieves an adequate tax base to support issuance
of bonds, the proceeds of which will be used by the SPID to
reimburse us for qualified infrastructure costs, we will not
include the estimated reimbursements as a reduction of our real
estate cost of sales. At year-end 2008, we have billed the SPID
$49,529,000 for qualified infrastructure costs. These costs have
been audited by the SPID and approved for payment, and are
included in our investment in the mixed-use development.
If the resort hotel is not open and operating on July 1,
2011, the City of San Antonio could terminate the SPID and
we would have no payor for reimbursement of qualified
infrastructure costs. The resort hotel is under construction and
is currently scheduled to open well before July 1, 2011.
Resort
Hotel, Spa and Golf
In 2007, we entered into agreements to facilitate third-party
construction and ownership of the JW
Marriott®
San Antonio Hill Country Resort & Spa, planned to
include a 1,002 room destination resort and two PGA
Tour®
Tournament Players
Club®
golf courses. Under these agreements, we transferred to the
third-party owners about 700 acres of undeveloped land and
we agreed to provide about $38,500,000. In exchange, the
third-party owners assigned to us certain rights under an
Economic Development Agreement, including the right to receive
9% of hotel occupancy revenues and 1.5% of sales generated
within the resort through 2034. At year-end 2008, we have
provided $25,417,000 and expect to fund our remaining commitment
of $13,083,000 by year-end 2009.
If the resort hotel is not open and operating on July 1,
2011, the City of San Antonio could terminate the SPID and
there would be no source of revenue to fund payments under the
Economic Development Agreement. The resort hotel is under
construction and is currently scheduled to open well before
July 1, 2011.
37
Accounting
Policies
Critical
Accounting Estimates
In preparing our financial statements, we follow generally
accepted accounting principles, which in many cases require us
to make assumptions, estimates, and judgments that affect the
amounts reported. Our significant accounting policies are
included in Note 1 to the Consolidated Financial
Statements. Many of these principles are relatively
straightforward. There are, however, a few accounting policies
that are critical because they are important in determining our
financial condition and results and involve significant
assumptions, estimates, and judgments that are difficult to
determine. We must make these assumptions, estimates, and
judgments currently about matters that are inherently uncertain,
such as future economic conditions, operating results, and
valuations, as well as our intentions. As the difficulty
increases, the level of precision decreases, meaning actual
results can, and probably will, differ from those currently
estimated. We base our assumptions, estimates, and judgments on
a combination of historical experiences and other factors that
we believe are reasonable. We have reviewed the selection and
disclosure of these critical accounting estimates with our Audit
Committee.
|
|
|
|
|
Investment in Real Estate and Cost of Real Estate Sales
In allocating costs to real estate owned and
real estate sold, we must estimate current and future real
estate values. Our estimates of future real estate values
sometimes must extend over periods 15 to 20 years from
today and are dependent on numerous assumptions including our
intentions and future market and economic conditions. In
addition, when we sell real estate from projects that are not
finished, we must estimate future development costs through
completion. Differences between our estimates and actual results
will affect future carrying values and operating results.
|
|
|
|
Impairment of Long-Lived Assets Measuring
assets for impairment requires estimating future fair values
based on our intentions as to holding periods, future operating
cash flows and the residual value of assets under review,
primarily undeveloped land. Depending on the asset under review,
we use varying methods to determine fair value, such as
discounting expected future cash flows, determining resale
values by market, or applying a capitalization rate to net
operating income using prevailing rates in a given market.
Changes in economic conditions, demand for real estate, and the
projected net operating income for a specific property will
inevitably change our estimates.
|
|
|
|
Share-Based Compensation We currently use the
Black-Scholes option pricing model to determine the fair value
of stock options. The determination of the fair value of
share-based payment awards on the date of grant using an
option-pricing model is affected by the stock price as well as
assumptions regarding a number of other variables. These
variables include expected stock price volatility over the term
of the awards, actual and projected employee stock option
exercise behaviors (term of option), risk-free interest rate and
expected dividends. We have limited historical experience as a
stand-alone company so we utilized alternative methods in
determining our valuation assumptions. The expected life was
based on the simplified method utilizing the midpoint between
the vesting period and the contractual life of the awards. The
expected stock price volatility was based on historical prices
of our peers common stock for a period corresponding to
the expected life of the options. Pre-vesting forfeitures are
estimated based upon the pool of participants and their expected
activity.
|
|
|
|
Income Taxes In preparing our consolidated
financial statements, significant management judgment is
required to estimate our income taxes. Our estimates are based
on our interpretation of federal and state tax laws. We estimate
our actual current tax due and assess temporary differences
resulting from differing treatment of items for tax and
accounting purposes. The temporary differences result in
deferred tax assets and liabilities, which are included in our
consolidated balance sheet. If needed, we record a valuation
allowance against our deferred tax assets based upon our
analysis of the timing and reversal of future taxable amounts
and our history and future expectations of taxable income.
Adjustments may be required by a change in assessment of our
deferred tax assets and liabilities, changes due to audit
adjustments by federal and state tax authorities, and changes in
tax laws. To the extent adjustments are required in any given
period; we will include the adjustments in the tax
|
38
|
|
|
|
|
provision in our financial statements. These adjustments could
materially impact our financial position, cash flow and results
of operation.
|
Pending
Accounting Pronouncements
There are three new accounting pronouncements that we will adopt
in 2009 or will be required to adopt in 2010. Please read
Note 1 to the Consolidated Financial Statements.
Effects
of Inflation
Inflation has had minimal effects on operating results the past
three years. Our real estate, timber, and property and equipment
are carried at historical costs. If carried at current
replacement costs, the cost of real estate sold, timber cut, and
depreciation expense would have been significantly higher than
what we reported.
Legal
Proceedings
We are involved in various legal proceedings that arise from
time to time in the ordinary course of doing business. We
believe we have established adequate reserves for any probable
losses, and we do not believe that the outcome of any of these
proceedings should have a material adverse effect on our
financial position, long-term results of operations, or cash
flow. It is possible, however, that charges related to these
matters could be significant to results of operations or cash
flows in any one accounting period.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Interest
Rate Risk
Our interest rate risk is principally related to our
variable-rate debt. Interest rate changes impact earnings due to
the resulting increase or decrease in the cost of our
variable-rate debt, which was $229,030,000 at year-end 2008 and
$238,716,000 at year-end 2007.
The following table illustrates the estimated effect on our
pre-tax income of immediate, parallel, and sustained shifts in
interest rates for the next 12 months at year-end 2008 on
our variable-rate debt, with comparative year-end 2007
information. This estimate assumes that debt reductions from
contractual payments will be replaced with short-term,
variable-rate debt; however, that may not be the financing
alternative we choose.
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
Change in Interest Rates
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
+2%
|
|
$
|
(4,581
|
)
|
|
$
|
(4,774
|
)
|
+1%
|
|
|
(2,290
|
)
|
|
|
(2,387
|
)
|
−1%
|
|
|
2,290
|
|
|
|
2,387
|
|
−2%
|
|
|
4,581
|
|
|
|
4,774
|
|
Changes in interest rates affect the value of our interest rate
swap agreement ($100,000,000 notional value at year-end 2008).
We believe any change in the value of this agreement would not
be significant.
Foreign
Currency Risk
We have no exposure to foreign currency fluctuations.
Commodity
Price Risk
We have no significant exposure to commodity price fluctuations.
39
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
The Consolidated Financial Statements and related notes and
schedules are indexed on
page F-1,
and are attached as pages F-1 through F-31, to this Annual
Report on Form
10-K.
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
(a) Disclosure controls and procedures
Our management, with the participation of the Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such
term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (or the
Exchange Act)) as of the end of the period covered by this
report. Based on such evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end
of such period, our disclosure controls and procedures are
effective in recording, processing, summarizing and reporting,
on a timely basis, information required to be disclosed by us in
the reports that we file or submit under the Exchange Act and
are effective in ensuring that information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure.
(b) Internal control over financial reporting
Managements report on internal control over financial
reporting is included in this Annual Report on Form
10-K on page
F-2.
(c) Changes in Internal Control over Financial Reporting
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) in fourth quarter 2008 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
40
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
Set forth below is certain information about the members of our
Board of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year First
|
|
|
|
|
|
|
Elected to
|
|
|
Name
|
|
Age
|
|
the Board
|
|
Principal Occupation
|
|
Kenneth M. Jastrow, II
|
|
|
61
|
|
|
|
2007
|
|
|
Former Chairman and Chief Executive Officer of Temple-Inland Inc.
|
Louis R. Brill
|
|
|
67
|
|
|
|
2007
|
|
|
Former Chief Accounting Officer of Temple-Inland Inc.
|
Kathleen Brown
|
|
|
63
|
|
|
|
2007
|
|
|
Senior Advisor, Goldman, Sachs & Co.
|
William G. Currie
|
|
|
61
|
|
|
|
2007
|
|
|
Executive Chairman of Universal Forest Products, Inc.
|
James M. DeCosmo
|
|
|
50
|
|
|
|
2007
|
|
|
President and Chief Executive Officer of Forestar Group Inc.
|
Michael E. Dougherty
|
|
|
68
|
|
|
|
2008
|
|
|
Chairman of Dougherty Financial Group LLC
|
James A. Johnson
|
|
|
65
|
|
|
|
2007
|
|
|
Vice Chairman of Perseus LLC
|
Thomas H. McAuley
|
|
|
63
|
|
|
|
2007
|
|
|
President of Inland Capital Markets Groups, Inc.
|
William C. Powers, Jr.
|
|
|
62
|
|
|
|
2007
|
|
|
President of The University of Texas at Austin
|
James A. Rubright
|
|
|
62
|
|
|
|
2007
|
|
|
Chairman and Chief Executive Officer of Rock-Tenn Company
|
Richard M. Smith
|
|
|
63
|
|
|
|
2007
|
|
|
Chairman of Newsweek
|
The remaining information required by this item is incorporated
herein by reference from our definitive proxy statement,
involving the election of directors, to be filed pursuant to
Regulation 14A with the SEC not later than 120 days
after the end of the fiscal year covered by this
Form 10-K
(or Definitive Proxy Statement). Certain information required by
this item concerning executive officers is included in
Part I of this report.
|
|
Item 11.
|
Executive
Compensation.
|
The information required by this item will be contained in our
Definitive Proxy Statement to be filed in connection with our
2009 annual meeting of stockholders and is incorporated herein
by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information required by this item will be contained in our
Definitive Proxy Statement to be filed in connection with our
2009 annual meeting of stockholders and is incorporated herein
by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information required by this item will be contained in our
Definitive Proxy Statement to be filed in connection with our
2009 annual meeting of stockholders and is incorporated herein
by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
The information required by this item will be contained in our
Definitive Proxy Statement to be filed in connection with our
2009 annual meeting of stockholders and is incorporated herein
by reference.
41
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) Documents filed as part of this report.
(1) Financial Statements
Our Consolidated Financial Statements are attached as pages F-1
through F-31 to this Annual Report on
Form 10-K.
(2) Financial Statement Schedules
Schedule III Consolidated Real Estate and
Accumulated Depreciation is attached as pages
S-1 through
S-6 to this
Annual Report on
Form 10-K.
Schedules other than those listed above are omitted as the
required information is either inapplicable or the information
is presented in our Consolidated Financial Statements and notes
thereto.
(3) Exhibits
The exhibits listed in the Exhibit Index in (b) below
are filed or incorporated by reference as part of this Annual
Report on
Form 10-K.
(b) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
2
|
.1
|
|
Separation and Distribution Agreement, dated December 11,
2007, among Forestar Real Estate Group Inc. (the
Company), Guaranty Financial Group Inc., and
Temple Inland Inc. (incorporated by reference to
Exhibit 2.1 of the Companys Current Report on
Form 8-K
filed with the Commission on December 11, 2007).
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 of the Companys Current
Report on
Form 8-K
filed with the Commission on December 11, 2007).
|
|
3
|
.2
|
|
Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 of the Companys Current Report on
Form 8-K
filed with the Commission on December 11, 2007).
|
|
3
|
.3
|
|
First Amendment to Amended and Restated Bylaws of Forestar Real
Estate Group Inc. (incorporated by reference to Exhibit 3.1
of the Companys Current Report on
Form 8-K
filed with the Commission on February 19, 2008).
|
|
3
|
.4
|
|
Certificate of Designation of Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 3.3
of the Companys Current Report on
Form 8-K
filed with the Commission on December 11, 2007).
|
|
3
|
.5
|
|
Second Amendment to Amended and Restated Bylaws of Forestar Real
Estate Group Inc.(1)
|
|
3
|
.6
|
|
Certificate of Ownership and Merger, dated November 21,
2008 (incorporated by reference to Exhibit 3.1 of the
Companys Current Report on
Form 8-K
filed with the Commission on November 24, 2008).
|
|
3
|
.7
|
|
Third Amendment to Amended and Restated Bylaws of Forestar Group
Inc. (incorporated by reference to Exhibit 3.2 of the
Companys Current Report on
Form 8-K
filed with the Commission on November 24, 2008).
|
|
4
|
.1
|
|
Specimen Certificate for shares of common stock, par value $1.00
per share, of Forestar Real Estate Group Inc. (incorporated by
reference to Exhibit 4.1 of Amendment No. 5 to the
Companys Form 10 filed with the Commission on
December 10, 2007).
|
|
4
|
.2
|
|
Rights Agreement, dated December 11, 2007, between Forestar
Real Estate Group Inc. and Computershare Trust Company,
N.A., as Rights Agent (including Form of Rights Certificate)
(incorporated by reference to Exhibit 4.1 of the
Companys Current Report on
Form 8-K
filed with the Commission on December 11, 2007).
|
|
10
|
.1
|
|
Tax Matters Agreement, dated December 11, 2007, among
Forestar Real Estate Group Inc., Guaranty Financial Group Inc.,
and Temple Inland Inc. (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K
filed with the Commission on December 11, 2007).
|
42
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
10
|
.2
|
|
Transition Services Agreement, dated December 11, 2007,
among Forestar Real Estate Group Inc., Guaranty Financial Group
Inc., and Temple Inland Inc. (incorporated by
reference to Exhibit 10.2 of the Companys Current
Report on
Form 8-K
filed with the Commission on December 11, 2007).
|
|
10
|
.3
|
|
Employee Matters Agreement, dated December 11, 2007, among
Forestar Real Estate Group Inc., Guaranty Financial Group Inc.,
and Temple Inland Inc. (incorporated by reference to
Exhibit 10.3 of the Companys Current Report on
Form 8-K
filed with the Commission on December 11, 2007).
|
|
10
|
.4
|
|
Form of Forestar Real Estate Group Retirement Savings Plan
(incorporated by reference to Exhibit 10.4 of Amendment
No. 5 to the Companys Form 10 filed with the
Commission on December 10, 2007).
|
|
10
|
.5
|
|
Form of Forestar Real Estate Group Supplemental Employee
Retirement Plan (incorporated by reference to Exhibit 10.5
of Amendment No. 5 to the Companys Form 10 filed
with the Commission on December 10, 2007).
|
|
10
|
.6
|
|
Form of Forestar Real Estate Group 2007 Stock Incentive Plan
(incorporated by reference to Exhibit 10.6 of Amendment
No. 5 to the Companys Form 10 filed with the
Commission on December 10, 2007).
|
|
10
|
.7
|
|
Form of Forestar Real Estate Group Directors Fee Deferral
Plan (incorporated by reference to Exhibit 10.7 of
Amendment No. 5 to the Companys Form 10 filed
with the Commission on December 10, 2007).
|
|
10
|
.8
|
|
Revolving and Term Credit Agreement, dated as of
December 14, 2007, among Forestar (USA) Real Estate Group
Inc., as borrower, and Forestar Real Estate Group Inc. and
certain wholly-owned subsidiaries of the Company, as guarantors,
and KeyBank National Association, as lender, swing line lender
and agent; General Electric Credit Corporation and AgFirst Farm
Credit Bank, as co-syndication agents; KeyBanc Capital Markets,
as sole arranger and sole book managers; and the lenders party
thereto (incorporated by reference to Exhibit 10.1 of the
Companys Current Report on
Form 8-K
filed with the Commission on December 17, 2007).
|
|
10
|
.9
|
|
Form of Indemnification Agreement to be entered into between the
Company and each of its directors (incorporated by reference to
Exhibit 10.9 of Amendment No. 5 to the Companys
Form 10 filed with the Commission on December 10,
2007).
|
|
10
|
.10
|
|
Form of Change in Control Agreement between the Company and its
named executive officers (incorporated by reference to
Exhibit 10.10 of Amendment No. 5 to the Companys
Form 10 filed with the Commission on December 10,
2007).
|
|
10
|
.11
|
|
Employment Agreement between the Company and James M. DeCosmo
dated August 9, 2007 (incorporated by reference to
Exhibit 10.11 of Amendment No. 5 to the Companys
Form 10 filed with the Commission on December 10,
2007).
|
|
10
|
.12
|
|
Form of Nonqualified Stock Option Agreement(1).
|
|
10
|
.13
|
|
Form of Restricted Stock Agreement (Tier 1) (1).
|
|
10
|
.14
|
|
Form of Restricted Stock Units Agreement for senior executives
(incorporated by reference to Exhibit 10.2 of the
Companys Current Report on
Form 8-K
filed with the Commission on February 12, 2009).
|
|
10
|
.15
|
|
Form of Stock Appreciation Rights Agreement (incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
filed with the Commission on February 12, 2009).
|
|
10
|
.16
|
|
First Amendment to Forestar Group Inc. Directors Fee
Deferral Plan(1).
|
|
21
|
.1
|
|
List of Subsidiaries of the Company(1).
|
|
23
|
|
|
Consent of Ernst & Young LLP(1).
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Exchange
Act
rule 13a-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002(1).
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Exchange
Act
rule 13a-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002(1).
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002(1).
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002(1).
|
|
|
|
|
|
Management contract or compensatory plan or arrangement. |
|
(1) |
|
Filed herewith. |
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Forestar Group Inc.
James M. DeCosmo
President and Chief Executive Officer
Date: March 5, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
/s/ James
M. DeCosmo
James
M. DeCosmo
|
|
Director, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Christopher
L. Nines
Christopher
L. Nines
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Charles
D. Jehl
Charles
D. Jehl
|
|
Chief Accounting Officer
(Principal Accounting Officer)
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Kenneth
M. Jastrow, II
Kenneth
M. Jastrow, II
|
|
Chairman of the Board
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Louis
R. Brill
Louis
R. Brill
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Kathleen
Brown
Kathleen
Brown
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ William
G. Currie
William
G. Currie
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Michael
E. Dougherty
Michael
E. Dougherty
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ James
A. Johnson
James
A. Johnson
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Thomas
H. McAuley
Thomas
H. McAuley
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ William
C. Powers, Jr.
William
C. Powers, Jr.
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ James
A. Rubright
James
A. Rubright
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Richard
M. Smith
Richard
M. Smith
|
|
Director
|
|
March 5, 2009
|
44
Index to
Financial Statements
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
Audited Financial Statements
|
|
|
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
Financial Statement Schedule
|
|
|
|
|
Schedule III Consolidated Real Estate and
Accumulated Depreciation
|
|
|
S-1
|
|
F-1
MANAGEMENTS
ANNUAL REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Forestar is responsible for establishing and
maintaining adequate internal control over financial reporting.
Management has designed our internal control over financial
reporting to provide reasonable assurance that our published
financial statements are fairly presented, in all material
respects, in conformity with generally accepted accounting
principles.
Management is required by paragraph (c) of
Rule 13a-15
of the Securities Exchange Act of 1934, as amended, to assess
the effectiveness of our internal control over financial
reporting as of each year end. In making this assessment,
management used the Internal Control Integrated
Framework issued in July 1994 by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Management conducted the required assessment of the
effectiveness of our internal control over financial reporting
as of year end. Based upon this assessment, management believes
that our internal control over financial reporting is effective
as of year-end 2008.
Ernst & Young LLP, the independent registered public
accounting firm that audited our financial statements included
in this Form
10-K, has
also audited our internal control over financial reporting.
Their attestation report follows this report of management.
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Forestar Group Inc.:
We have audited Forestar Group Inc. and subsidiaries (Forestar
Group) internal control over financial reporting as of
December 31, 2008 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Forestar Groups management
is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting including in the
accompanying Managements Annual Report on Internal Control
Over Financial Reporting. Our responsibility is to express an
opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Forestar Group maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008 based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Forestar Group as of
December 31, 2008 and December 29, 2007 and the
related consolidated statements of income, shareholders
equity, and cash flows for each of the three years in the period
ended December 31, 2008 and our report dated March 4, 2009
expressed an unqualified opinion thereon.
Ernst & Young LLP
Austin, Texas
March 4, 2009
F-3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Forestar Group Inc.:
We have audited the accompanying consolidated balance sheets of
Forestar Group Inc. and subsidiaries (Forestar Group) as of
December 31, 2008 and December 29, 2007, and the
related consolidated statements of income, shareholders
equity, and cash flows for each of the three years in the period
ended December 31, 2008. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. The financial statements of CL
Realty, L.L.C., (a Limited Liability Company in which Forestar
Group has a 50% interest), have been audited by other auditors
whose report has been furnished to us, and our opinion on the
consolidated financial statements, insofar as it relates to the
amounts included for CL Realty, L.L.C., is based solely on the
report of the other auditors. In the consolidated financial
statements, Forestar Groups investment in CL Realty,
L.L.C. is stated at $51,963,000 and $50,189,000, respectively,
at December 31, 2008 and December 29, 2007, and
Forestar Groups equity in the net income of CL Realty,
L.L.C. is stated at $3,377,000 and $1,700,000, for the years
then ended.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the
report of other auditors provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Forestar Group at December 31, 2008
and December 29, 2007, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Forestar Groups internal control over
financial reporting as of December 31, 2008, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
March 4, 2009 expressed an unqualified opinion thereon.
Ernst & Young LLP
Austin, Texas
March 4, 2009
F-4
FORESTAR
GROUP INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,127
|
|
|
$
|
7,520
|
|
Real estate
|
|
|
610,586
|
|
|
|
552,210
|
|
Investment in unconsolidated ventures
|
|
|
117,554
|
|
|
|
101,687
|
|
Timber
|
|
|
50,989
|
|
|
|
54,593
|
|
Receivables, net of allowance for bad debts of $226 in 2008 and
2007
|
|
|
4,262
|
|
|
|
3,767
|
|
Prepaid expense
|
|
|
2,425
|
|
|
|
2,267
|
|
Property and equipment, net of accumulated depreciation of
$2,994 in 2008 and $2,455 in 2007
|
|
|
6,211
|
|
|
|
1,568
|
|
Deferred tax asset
|
|
|
17,184
|
|
|
|
5,106
|
|
Other assets
|
|
|
17,238
|
|
|
|
20,008
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
834,576
|
|
|
$
|
748,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,438
|
|
|
$
|
8,002
|
|
Accrued employee compensation and benefits
|
|
|
3,389
|
|
|
|
3,857
|
|
Accrued interest
|
|
|
1,199
|
|
|
|
896
|
|
Accrued property taxes
|
|
|
6,808
|
|
|
|
4,459
|
|
Other accrued expenses
|
|
|
11,448
|
|
|
|
15,318
|
|
Other liabilities
|
|
|
12,940
|
|
|
|
8,349
|
|
Debt
|
|
|
337,402
|
|
|
|
266,015
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
380,624
|
|
|
|
306,896
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST IN CONSOLIDATED VENTURES
|
|
|
6,660
|
|
|
|
8,629
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share, 25,000,000
authorized shares, none issued
|
|
|
|
|
|
|
|
|
Common stock, par value $1.00 per share, 200,000,000 authorized
shares, 35,839,390 issued at December 31, 2008 and
35,380,385 issued at December 29, 2007
|
|
|
35,839
|
|
|
|
35,380
|
|
Additional paid-in capital
|
|
|
377,810
|
|
|
|
373,026
|
|
Retained earnings
|
|
|
36,769
|
|
|
|
24,795
|
|
Accumulated other comprehensive income
|
|
|
(1,260
|
)
|
|
|
|
|
Treasury stock, at cost, 90,819 shares at December 31,
2008
|
|
|
(1,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY
|
|
|
447,292
|
|
|
|
433,201
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
834,576
|
|
|
$
|
748,726
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the consolidated financial statements.
F-5
FORESTAR
GROUP INC.
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales
|
|
$
|
73,555
|
|
|
$
|
117,890
|
|
|
$
|
151,785
|
|
Commercial operating properties and other
|
|
|
25,304
|
|
|
|
24,839
|
|
|
|
28,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
98,859
|
|
|
|
142,729
|
|
|
|
180,151
|
|
Mineral resources
|
|
|
47,671
|
|
|
|
20,818
|
|
|
|
27,980
|
|
Fiber resources and other
|
|
|
13,192
|
|
|
|
14,439
|
|
|
|
17,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,722
|
|
|
|
177,986
|
|
|
|
225,560
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate sales
|
|
|
(38,395
|
)
|
|
|
(58,046
|
)
|
|
|
(90,629
|
)
|
Cost of commercial operating properties and other
|
|
|
(16,736
|
)
|
|
|
(17,936
|
)
|
|
|
(17,307
|
)
|
Cost of fiber resources
|
|
|
(3,357
|
)
|
|
|
(3,672
|
)
|
|
|
(3,455
|
)
|
Other operating
|
|
|
(43,200
|
)
|
|
|
(30,441
|
)
|
|
|
(27,201
|
)
|
General and administrative
|
|
|
(22,228
|
)
|
|
|
(18,624
|
)
|
|
|
(15,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123,916
|
)
|
|
|
(128,719
|
)
|
|
|
(153,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
35,806
|
|
|
|
49,267
|
|
|
|
71,824
|
|
Equity in earnings of unconsolidated ventures
|
|
|
4,642
|
|
|
|
3,732
|
|
|
|
19,371
|
|
Minority interest in consolidated ventures
|
|
|
(2,235
|
)
|
|
|
(5,771
|
)
|
|
|
(3,231
|
)
|
Interest expense
|
|
|
(21,283
|
)
|
|
|
(9,229
|
)
|
|
|
(6,229
|
)
|
Other non-operating income
|
|
|
279
|
|
|
|
705
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
|
17,209
|
|
|
|
38,704
|
|
|
|
81,814
|
|
Income tax expense
|
|
|
(5,235
|
)
|
|
|
(13,909
|
)
|
|
|
(29,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
11,974
|
|
|
$
|
24,795
|
|
|
$
|
51,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,455
|
|
|
|
35,380
|
|
|
|
35,380
|
|
Diluted
|
|
|
35,892
|
|
|
|
35,380
|
|
|
|
35,380
|
|
NET INCOME PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.34
|
|
|
$
|
0.70
|
|
|
$
|
1.47
|
|
Diluted
|
|
$
|
0.33
|
|
|
$
|
0.70
|
|
|
$
|
1.47
|
|
Please read the notes to the consolidated financial statements.
F-6
FORESTAR
GROUP INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS/PARENTS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Parents
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Earnings
|
|
|
Equity
|
|
|
Total
|
|
|
|
(In thousands, except share data)
|
|
|
Balances at December 31, 2005
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
381,290
|
|
|
$
|
381,290
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,844
|
|
|
|
51,844
|
|
Net transactions with parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,082
|
)
|
|
|
(15,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 30, 2006
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
418,052
|
|
|
$
|
418,052
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,795
|
|
|
|
|
|
|
|
24,795
|
|
Net transactions with parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,646
|
)
|
|
|
(9,646
|
)
|
Spin-off from Temple-Inland
|
|
|
35,380,385
|
|
|
|
35,380
|
|
|
|
373,026
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(408,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 29, 2007
|
|
|
35,380,385
|
|
|
$
|
35,380
|
|
|
$
|
373,026
|
|
|
|
(53
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24,795
|
|
|
$
|
|
|
|
$
|
433,201
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,974
|
|
|
|
|
|
|
|
11,974
|
|
Unrealized losses on interest rate swap, net of taxes of $679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,714
|
|
Issuances of common stock
|
|
|
182,976
|
|
|
|
183
|
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of restricted stock
|
|
|
214,426
|
|
|
|
214
|
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances from exercises of stock options
|
|
|
61,603
|
|
|
|
62
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
897
|
|
Shares withheld for payroll taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,482
|
)
|
|
|
(1,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,194
|
)
|
Shares exchanged for options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,394
|
)
|
|
|
(646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(646
|
)
|
Forfeitures of restricted stock
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
(10,890
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,254
|
|
Tax benefit from exercise of restricted stock units and stock
options and vested restricted stock
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
35,839,390
|
|
|
$
|
35,839
|
|
|
$
|
377,810
|
|
|
|
(90,819
|
)
|
|
$
|
(1,866
|
)
|
|
$
|
(1,260
|
)
|
|
$
|
36,769
|
|
|
$
|
|
|
|
$
|
447,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the consolidated financial statements.
F-7
FORESTAR
GROUP INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,974
|
|
|
$
|
24,795
|
|
|
$
|
51,844
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,673
|
|
|
|
2,915
|
|
|
|
2,355
|
|
Deferred income taxes
|
|
|
(11,399
|
)
|
|
|
(19,544
|
)
|
|
|
(4,912
|
)
|
Equity in earnings of unconsolidated ventures
|
|
|
(4,642
|
)
|
|
|
(3,732
|
)
|
|
|
(19,371
|
)
|
Distributions of earnings of unconsolidated ventures
|
|
|
1,053
|
|
|
|
2,863
|
|
|
|
1,519
|
|
Minority interest in consolidated ventures
|
|
|
2,235
|
|
|
|
5,771
|
|
|
|
3,231
|
|
Distributions of earnings to minority interests
|
|
|
(4,427
|
)
|
|
|
(11,042
|
)
|
|
|
(426
|
)
|
Share-based compensation
|
|
|
4,516
|
|
|
|
1,397
|
|
|
|
1,275
|
|
Non-cash real estate cost of sales
|
|
|
34,766
|
|
|
|
46,975
|
|
|
|
86,393
|
|
Real estate development and acquisition expenditures
|
|
|
(99,189
|
)
|
|
|
(140,013
|
)
|
|
|
(159,886
|
)
|
Reimbursements from utility or improvement districts
|
|
|
674
|
|
|
|
10,628
|
|
|
|
5,790
|
|
Other changes in real estate
|
|
|
(522
|
)
|
|
|
(1,364
|
)
|
|
|
(2,174
|
)
|
Gain on termination of timber lease
|
|
|
(1,627
|
)
|
|
|
(2,243
|
)
|
|
|
|
|
Cost of timber cut
|
|
|
2,968
|
|
|
|
4,060
|
|
|
|
3,441
|
|
Deferred income
|
|
|
681
|
|
|
|
|
|
|
|
|
|
Asset impairments
|
|
|
3,000
|
|
|
|
6,518
|
|
|
|
|
|
Other
|
|
|
(538
|
)
|
|
|
(65
|
)
|
|
|
286
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
22
|
|
|
|
659
|
|
|
|
(313
|
)
|
Prepaid expenses and other
|
|
|
1,058
|
|
|
|
(66
|
)
|
|
|
(298
|
)
|
Accounts payable and other accrued liabilities
|
|
|
(165
|
)
|
|
|
7,507
|
|
|
|
3,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) operating activities
|
|
|
(51,889
|
)
|
|
|
(63,981
|
)
|
|
|
(27,705
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment, software and reforestation
|
|
|
(5,197
|
)
|
|
|
(3,198
|
)
|
|
|
(3,991
|
)
|
Investment in unconsolidated ventures
|
|
|
(17,845
|
)
|
|
|
(14,492
|
)
|
|
|
(17,611
|
)
|
Return of investment in unconsolidated ventures
|
|
|
6,168
|
|
|
|
3,239
|
|
|
|
22,208
|
|
Notes receivable sold or collected
|
|
|
|
|
|
|
491
|
|
|
|
5,493
|
|
Proceeds from sale of property and equipment
|
|
|
52
|
|
|
|
166
|
|
|
|
1,311
|
|
Proceeds from termination of timber lease
|
|
|
155
|
|
|
|
2,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities
|
|
|
(16,667
|
)
|
|
|
(10,828
|
)
|
|
|
7,410
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of debt
|
|
|
(80,165
|
)
|
|
|
(22,534
|
)
|
|
|
(89,144
|
)
|
Additions to debt
|
|
|
151,552
|
|
|
|
226,446
|
|
|
|
30,636
|
|
Note payable to Temple-Inland, net
|
|
|
|
|
|
|
(93,063
|
)
|
|
|
97,678
|
|
Dividends and other transfers to Temple-Inland
|
|
|
|
|
|
|
(29,101
|
)
|
|
|
(21,516
|
)
|
Deferred financing fees
|
|
|
(1,619
|
)
|
|
|
(10,010
|
)
|
|
|
|
|
Return of investment to minority interest
|
|
|
(14
|
)
|
|
|
(906
|
)
|
|
|
(91
|
)
|
Exercise of stock options
|
|
|
897
|
|
|
|
|
|
|
|
|
|
Payroll taxes on restricted stock and stock options
|
|
|
(1,858
|
)
|
|
|
|
|
|
|
|
|
Tax benefit from share-based compensation
|
|
|
85
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
285
|
|
|
|
1,147
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
69,163
|
|
|
|
71,979
|
|
|
|
17,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
607
|
|
|
|
(2,830
|
)
|
|
|
(2,592
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
7,520
|
|
|
|
10,350
|
|
|
|
12,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at year-end
|
|
$
|
8,127
|
|
|
$
|
7,520
|
|
|
$
|
10,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
18,348
|
|
|
$
|
10,014
|
|
|
$
|
4,309
|
|
Income taxes
|
|
$
|
18,414
|
|
|
$
|
33,428
|
|
|
$
|
125
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest
|
|
$
|
943
|
|
|
$
|
695
|
|
|
$
|
543
|
|
Lessor construction allowances
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
Please read the notes to the consolidated financial statements.
F-8
FORESTAR
GROUP INC.
|
|
Note 1
|
Summary
of Significant Accounting Policies
|
Background
Prior to December 28, 2007, we were a wholly-owned subsidiary of
Temple-Inland Inc. On December 28, 2007, Temple-Inland
distributed all of the issued and outstanding shares of our
common stock to its stockholders. In connection with the
spin-off, Temple-Inland contributed the assets, liabilities,
operations and cash flow of its real estate development and
minerals operations to us. Our operations consist of the former
real estate segment of Temple-Inland and several smaller real
estate operations and assets previously included in
Temple-Inlands other business segments, and the minerals
operations previously included in Temple-Inlands forest
products segment. We converted to a Delaware corporation before
the spin-off.
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.
Minority interest in consolidated pass-through entities is
recognized before income taxes. We account for our investment in
other entities in which we have significant influence over
operations and financial policies using the equity method (we
recognize our share of the entities income or loss and any
preferential returns and treat distributions as a reduction of
our investment). We account for our investment in other entities
in which we do not have significant influence over operations
and financial policies using the cost method (we recognize as
income only distribution of accumulated earnings).
In 2007 and 2006, our consolidated financial statements reflect
the historical accounts of the real estate development, minerals
and fiber operations contributed to us and have been derived
from the historical financial statements and accounts of
Temple-Inland. These operations were conducted within separate
legal entities and their subsidiaries or within segments or
components of segments of Temple-Inland.
We prepare our financial statements in accordance with generally
accepted accounting principles, which require us to make
estimates and assumptions about future events. Actual results
can, and probably will, differ from those we currently estimate.
Examples of significant estimates include those related to
allocating costs to real estate and measuring assets for
impairment.
In 2008, we changed our fiscal year from a 52/53 week year
ending the Saturday closest to December 31 to a calendar year.
In 2007 and 2006, our fiscal year ended on the Saturday closest
to December 31. All of the periods presented had
52 weeks. Fiscal year 2007 ended on December 29, 2007
and fiscal year 2006 ended on December 30, 2006.
In 2007 and 2006, we used Temple-Inland as a source of capital
and for services such as environmental, finance, financial
reporting, human resources, internal audit, insurance, legal,
tax and technology. The estimated costs of these services were
allocated to us and are included in general and administrative
expense.
In addition, we have also included other expenses incurred by
Temple-Inland but not directly attributable to us such as costs
associated with investor relations and executive officers. The
allocations were based on actual usage or in some cases
estimated usage based on Temple-Inlands net investment in
us relative to its other segments, revenues, operating profits,
employee count, or similar measures. These allocated costs,
which include salaries and benefits, totaled $7,909,000 in 2007
and $7,128,000 in 2006.
For 2007 and 2006, we believe the assumptions and methodologies
used to derive the allocations in our financial statements are
reasonable; however, they may not necessarily be indicative of
what expenses would have been had we been a separate stand-alone
company. We have no practical way of determining what expenses
we would have incurred if we would have been a stand-alone
company in 2007 and 2006.
F-9
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Cash Equivalents
Cash and cash equivalents include cash and other short-term
instruments with original maturities of three months or less. At
year end 2008, restricted cash included in cash and cash
equivalents was $2,159,000.
Cash
Flows
Expenditures for the acquisition and development of real estate
are classified as operating activities. Expenditures for the
acquisition of commercial operating properties are classified as
investing activities.
Capitalized
Software
We capitalize purchased software costs as well as the direct
internal and external costs associated with software we develop
for our own use. We amortize these capitalized costs using the
straight-line method over estimated useful lives ranging from
three to seven years. The carrying value of capitalized software
was $2,604,000 at year-end 2008 and $2,720,000 at year-end 2007
and is included in other assets. The amortization of these
capitalized costs was $784,000 in 2008, $370,000 in 2007 and
$6,000 in 2006 and is included in general and administrative
expense.
Derivative
Instruments
We periodically enter into interest rate agreements in the
normal course of business to mitigate the risk inherent in
interest rate fluctuations. We account for derivative financial
instruments in accordance with Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. We defer and include in
other comprehensive income changes in the fair value of
derivative instruments designated as cash flow hedges. We
recognize the ineffective portion of these hedges in income.
Environmental
Obligations and Asset Retirement Obligations
We recognize environmental remediation liabilities on an
undiscounted basis when environmental assessments or remediation
are probable and we can reasonably estimate the cost. We adjust
these liabilities as further information is obtained or
circumstances change. We currently do not have any asset
retirement obligations.
Fair
Value of Financial Instruments
In September 2006, the FASB issued SFAS 157, Fair Value
Measurements. This standard defines fair value, establishes
a framework for measuring fair value in accounting principles
generally accepted in the United States of America, and expands
disclosure about fair value measurements. This pronouncement
applies under other accounting standards that require or permit
fair value measurements. Accordingly, this statement does not
require any new fair value measurement. This statement is
effective for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years.
SFAS 157 is amended by FASB Staff Position (FSP)
FAS 157-2,
Effective Date of FASB Statement 157, which delays the
effective date of SFAS 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a
recurring basis (at least annually). This FSP partially defers
the effective date of SFAS 157 to fiscal years beginning
after November 15, 2008, and interim periods within those
fiscal years for items within the scope of this FSP. We adopted
SFAS 157 on January 1, 2008, except as it applies to
those nonfinancial assets and nonfinancial liabilities as noted
in FSP
FAS 157-2.
The partial adoption of SFAS 157 did not have a material
impact on our consolidated financial position or results of
operations.
F-10
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition, SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities, which
permits the election of fair value as the initial and subsequent
measurement method for many financial assets and financial
liabilities, was effective for us in 2008. We did not elect the
fair value option.
Please read Note 7 and Note 8 for
information about fair value of our financial instruments.
Impairment
of Long-Lived Assets
We review long-lived assets held for use for impairment when
events or circumstances indicate that their carrying value may
not be recoverable. Impairment exists if the carrying amount of
the long-lived asset is not recoverable from the undiscounted
cash flows expected from its use and eventual disposition. We
determine the amount of the impairment loss by comparing the
carrying value of the long-lived asset to its estimated fair
value. In the absence of quoted market prices, we determine
estimated fair value generally based on the present value of
future probability weighted cash flows expected from the use and
eventual disposition of the long-lived asset. We recognized
asset impairments of $3,000,000 in 2008, $6,518,000 in 2007 and
none in 2006. Impairment charges are included in cost of real
estate sales.
Income
Taxes
We provide deferred income taxes using current tax rates for
temporary differences between the financial accounting carrying
value of assets and liabilities and their tax accounting
carrying values. We recognize and value income tax exposures for
the various taxing jurisdictions where we operate based on laws,
elections, commonly accepted tax positions, and management
estimates. We include tax penalties and interest in income tax
expense. In 2007 and 2006, we were included in
Temple-Inlands consolidated federal income tax return
prior to our spin-off, and our income tax expense was computed
as if we filed a separate tax return. We provide a valuation
allowance for any deferred tax asset that is not likely to be
recoverable in future periods.
Beginning first quarter 2007, we adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). We determined that no material unrecognized
deferred tax assets or liabilities existed at the date of
adoption, and accordingly, the adoption of FIN 48 did not
impact our financial condition or results of operations. In
addition, we believe that no material unrecognized deferred tax
assets or liabilities existed at year-end 2008. We classify
interest and penalties related to underpayments of income tax as
income tax expense.
Mineral
Interests
We acquire real estate that may include the subsurface rights
associated with the property, including minerals. We capitalize
the costs of acquiring these mineral interests. We amortize the
cost assigned to unproved interests, principally acquisition
costs, using the straight-line method over appropriate periods
based on our experience, generally no longer than 10 years.
Costs assigned to individual unproven interests are minimal and
amortized on an aggregate basis. When we lease these interests
to third party oil and gas exploration and production entities,
any related unamortized costs are accounted for using the cost
recovery method from the cash proceeds received from lease bonus
payments. We have fully amortized all previously-capitalized
acquisition costs and did not capitalize any costs in 2008 or
2007.
When we lease our mineral interests to third party exploration
and production entities, we retain a royalty interest and may
take an additional participation in production, including a
non-operating working interest. Non-operating working interests
refer to well interests in which we pay a share of the costs to
drill, complete and operate a well and receive a proportionate
share of the production revenues. We use the successful efforts
method to account for our mineral interest participations.
Mineral interests and non-operating working interests, net of
amortization, are included in property and equipment on our
balance sheet.
F-11
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We do not know the oil and gas reserves related to our royalty
interests. We do not make such estimates, and the lessees do not
make this reserve information available to us.
Operating
Leases
We occupy office space in various locations under operating
leases. The lease agreements may contain rent escalation
clauses, construction allowances
and/or
contingent rent provisions. For scheduled rent escalation
clauses, we recognize the minimum rent expense on a
straight-line basis and record the difference between the
recognized rent expense and the amounts payable under the lease
as deferred lease credits included in other liabilities in the
consolidated balance sheets. Deferred lease credits are
amortized over the lease term. For construction allowances, we
record leasehold improvement assets included in property and
equipment in the consolidated balance sheets amortized over the
shorter of their economic lives or the lease term. The related
deferred lease credits are amortized as a reduction of rent
expense over the lease term.
Property
and Equipment
We carry property and equipment at cost less accumulated
depreciation. We capitalize the cost of significant additions
and improvements, and we expense the cost of repairs and
maintenance. We capitalize interest costs incurred on major
construction projects. We depreciate these assets using the
straight-line method over their estimated useful lives as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Value
|
|
|
|
Estimated
|
|
|
At Year-End
|
|
|
|
Useful Lives
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
Buildings and building improvements
|
|
|
10 to 40 years
|
|
|
$
|
4,800
|
|
Office and other equipment
|
|
|
2 to 10 years
|
|
|
|
4,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,205
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(2,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,211
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense of property and equipment was $650,000 in
2008, $392,000 in 2007 and $341,000 in 2006. We expense
operating leases ratably over the shorter of the useful life or
the lease term.
Real
Estate
We carry real estate at the lower of cost or fair value less
cost to sell. We capitalize interest costs and property taxes
once development begins, and we continue to capitalize
throughout the development period. We also capitalize
infrastructure, improvements, amenities, and other development
costs incurred during the development period. We determine the
cost of real estate sold using the relative sales value method.
When we sell real estate from projects that are not finished, we
include in the cost of real estate sold estimates of future
development costs though completion, allocated based on relative
sales values. These estimates of future development costs are
reevaluated at least annually, with any adjustments being
allocated prospectively to the remaining units available for
sale.
Commercial properties are carried at cost less accumulated
depreciation computed using the straight-line method over their
estimated useful lives (three to 39 years).
We have agreements with utility or improvement districts,
principally in Texas, whereby we agree to convey to the
districts water, sewer and other infrastructure-related assets
we have constructed in connection with projects within their
jurisdiction. The reimbursement for these assets ranges from 70
to 100 percent of allowable cost as defined by the
district. The transfer is consummated and we receive payment
when the
F-12
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
districts have a sufficient tax base to support funding of their
bonds. The cost we incur in constructing these assets is
included in capitalized development costs, and upon collection,
we remove the assets from capitalized development costs. We
provide an allowance to reflect our past experiences related to
claimed allowable development costs.
Reclassifications
In 2008, we changed our reportable segments to reflect our
post-spin management of the operations transferred to us by
Temple-Inland and all prior period information has been
reclassified to conform to current year presentation.
Revenue
Real
Estate
We recognize revenue from sales of real estate when a sale is
consummated, the buyers initial investment is adequate,
any receivables are probable of collection, the usual risks and
rewards of ownership have been transferred to the buyer, and we
do not have significant continuing involvement with the real
estate sold. If we determine that the earnings process is not
complete, we defer recognition of any gain until earned. We
recognize revenue from hotel room sales and other guest services
when rooms are occupied and other guest services have been
rendered.
We exclude from revenue amounts we collect from utility or
improvement districts related to the conveyance of water, sewer,
and other infrastructure related assets. We also exclude from
revenue amounts we collect for timber sold on land being
developed. These proceeds reduce capitalized development costs.
We exclude from revenue amounts we collect from customers that
represent sales tax or other taxes that are based on the sale.
These amounts are included in other accrued expenses until paid.
Mineral
Resources
We recognize revenue from mineral bonus payments when we have
received an executed agreement with the exploration company
transferring the rights to any oil or gas it may find and
requiring drilling be done within a specified period, the
payment has been collected, and we have no obligation to refund
the payment. We recognize revenue from delay rentals if drilling
has not started within the specified period, when the payment
has been collected, and we have no further obligation. We
recognize revenue from mineral royalties and non-operating
working interests when the minerals have been delivered to the
buyer, the value is determinable, and we are reasonably sure of
collection.
Fiber
Resources
We recognize revenue from timber sales upon passage of title,
which occurs at delivery; when the price is fixed and
determinable; and we are reasonably sure of collection. We
recognize revenue from hunting and recreational leases on the
straight-line basis over the lease term if we are reasonably
sure of collection.
Share-Based
Compensation
Our directors and certain of our employees participate in and
have received share-based compensation awards under our 2007
Stock Incentive Plan, which was approved by our sole stockholder
prior to the spin-off.
Prior to the spin-off, we participated in Temple-Inlands
share-based compensation plans, and as a result, certain of our
employees received share-based compensation awards under those
plans. The expense for those
F-13
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
awards was allocated to us by Temple-Inland and was determined
by Temple-Inland using the following accounting principles:
|
|
|
|
|
Beginning January 2006, Temple-Inland adopted the modified
prospective application method contained in SFAS No. 123
(revised December 2004), Share-Based Payment (SFAS
123(R)), to account for share-based payments. As a
result, Temple-Inland applied this pronouncement to new awards
or modifications of existing awards in 2006. Prior to adopting
SFAS 123(R), Temple-Inland had been expensing, over the service
period, the fair value of share-based compensation awards
granted, modified, or settled in 2003 through 2005, using the
prospective transition method of accounting contained in
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment
of FASB Statement No. 123.
|
Please read Note 16 for additional information about
share-based compensation.
Timber
We carry timber at cost, less the cost of timber cut. We expense
the cost of timber cut based on the relationship of the timber
carrying value to the estimated volume of recoverable timber
multiplied by the amount of timber cut. We include the cost of
timber cut in cost of fiber resources in the income statement.
We determine the estimated volume of recoverable timber using
statistical information and other data related to growth rates
and yields gathered from physical observations, models, and
other information gathering techniques. Changes in yields are
generally due to adjustments in growth rates and similar matters
and are accounted for prospectively as changes in estimates. We
capitalize reforestation costs incurred in developing viable
seedling plantations (up to two years from planting), such as
site preparation, seedlings, planting, fertilization, insect and
wildlife control, and herbicide application. We expense all
other costs, such as property taxes and costs of forest
management personnel, as incurred. Once the seedling plantation
is viable, we expense all costs to maintain the viable
plantations, such as fertilization, herbicide application,
insect and wildlife control, and thinning, as incurred.
Pending
Accounting Pronouncements
SFAS No. 141(R), Applying the Acquisition Method
SFAS No. 141(R) requires valuation of
assets and liabilities acquired to be based upon fair values and
eliminates recognition of minority interest as well as the
inclusion of transaction costs in the purchase price.
SFAS No. 141(R) is effective for business combinations
occurring after year-end 2008.
SFAS No. 160, Noncontrolling Interests
SFAS No. 160 clarifies the
classification of noncontrolling interests in consolidated
statement of financial position and the accounting for and
reporting of transactions between the reporting entity and
holders of such noncontrolling interest. Under the new standard,
noncontrolling interests will be classified as equity, net
income will encompass the total income of all consolidated
subsidiaries with separate disclosure on the face of the income
statement of the attribution of that income between the
controlling and noncontrolling interests and changes in the
noncontrolling ownership interest will be accounted for as a
change to the controlling interests equity.
SFAS No. 160 is effective for our first quarter 2009.
Based on our current understanding, we do not expect that
adoption will have a significant effect on our earnings or
financial position. At year-end 2008, minority interest in
consolidated ventures was $6,660,000.
SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities-an amendment of
SFAS No. 133 SFAS No. 161
requires enhanced disclosures about derivative instruments
including how and why they are used; how they are accounted for;
and how they affect an entitys financial position,
financial performance and cash flows. SFAS No. 161 is
effective for our first quarter 2009. Based on our current
understanding, we do not expect that adoption will have a
significant effect on our earnings or financial position.
F-14
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Real estate consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Entitled, developed and under development projects
|
|
$
|
445,394
|
|
|
$
|
387,157
|
|
Undeveloped land
|
|
|
143,749
|
|
|
|
142,348
|
|
Commercial operating properties
|
|
|
43,987
|
|
|
|
43,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
633,130
|
|
|
|
572,984
|
|
Accumulated depreciation
|
|
|
(22,544
|
)
|
|
|
(20,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
610,586
|
|
|
$
|
552,210
|
|
|
|
|
|
|
|
|
|
|
Included in entitled, developed, and under development projects
are the estimated costs of assets we expect to convey to utility
or improvement districts of $76,173,000 in 2008 and $40,843,000
in 2007, including $49,529,000 at year-end 2008 and $25,516,000
at year-end 2007 related to our Cibolo Canyons project near
San Antonio, Texas. These costs relate to water, sewer and
other infrastructure assets for which the utility or improvement
districts have agreed to reimburse us. We billed these districts
$27,581,000 in 2008 and $37,137,000 in 2007, and we collected
from these districts $674,000 in 2008 and $10,628,000 in 2007.
We expect to collect the remaining amounts billed in 2008 and
2007 when these districts achieve adequate tax bases to support
payment.
We recognized asset impairments of $3,000,000 in 2008,
$6,518,000 in 2007 and none in 2006. Impairment charges are
included in cost of real estate sales and in 2008 and 2007, and
are related to residential projects principally in Texas.
Depreciation expense primarily related to commercial operating
properties was $1,770,000 in 2008, $2,014,000 in 2007 and
$2,008,000 in 2006 and is included in other operating expense.
Please read Schedule III for additional information.
|
|
Note 3
|
Investment
in Unconsolidated Ventures
|
At year-end 2008, we had ownership interests ranging from 25 to
50 percent in 15 ventures that we account for using the
equity method. We have no real estate ventures that are
accounted for using the cost method. Our three largest ventures
at year-end 2008 are CL Realty, Temco and Palisades West. We own
a 50 percent interest in both CL Realty and Temco and
Cousins Real Estate Corporation owns the other 50 percent
interest. We own a 25 percent interest in Palisades West,
Cousins Properties Incorporated owns a 50 percent interest
and Dimensional Fund Advisors LP owns the remaining
25 percent. Information regarding these ventures follows:
|
|
|
|
|
CL Realty, L.L.C. was formed in 2002 for the purpose of
developing residential and mixed-use communities in Texas and
across the southeastern United States. At year-end 2008, the
venture had 15 residential and mixed-use communities, of which
10 are in Texas, 3 are in Florida and 2 are in Georgia,
representing about 7,600 residential lots and 560 commercial
acres.
|
|
|
|
Temco Associates, LLC was formed in 1991 for the purpose of
acquiring and developing residential real estate sites in
Georgia. At year-end 2008, the venture had 5 residential and
mixed-use communities, representing about 1,500 residential
lots, all of which are located in Paulding County, Georgia. The
venture also owns approximately 5,600 acres of undeveloped
land in Paulding County, Georgia. In 2008, the venture sold
approximately 486 acres of undeveloped land for $6,300 per
acre.
|
F-15
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Palisades West LLC was formed in 2006 for the purpose of
constructing a commercial office park in Austin, Texas. The
project includes two office buildings totaling approximately
375,000 square feet and an accompanying parking garage.
Construction of the project was completed in fourth quarter 2008
and is approximately 67% leased. Our remaining commitment for
investment in this venture as of year-end 2008 is $2,792,000. We
have entered into a
10-year
operating lease for approximately 32,000 square feet that
we occupy as our corporate headquarters effective in fourth
quarter 2008. Please read Note 14 for additional
information about operating leases.
|
Combined summarized balance sheet information for our ventures
accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 29, 2007
|
|
|
|
|
|
|
|
|
|
Palisades
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Palisades
|
|
|
Other
|
|
|
|
|
|
|
CL Realty
|
|
|
Temco
|
|
|
West
|
|
|
Ventures
|
|
|
Total
|
|
|
CL Realty
|
|
|
Temco
|
|
|
West
|
|
|
Ventures
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Real estate
|
|
$
|
124,417
|
|
|
$
|
60,791
|
|
|
$
|
120,953
|
|
|
$
|
94,094
|
|
|
$
|
400,255
|
|
|
$
|
122,659
|
|
|
$
|
59,992
|
|
|
$
|
38,627
|
|
|
$
|
36,434
|
|
|
$
|
257,712
|
|
Total assets
|
|
|
126,726
|
|
|
|
61,832
|
|
|
|
123,290
|
|
|
|
102,930
|
|
|
|
414,778
|
|
|
|
124,419
|
|
|
|
63,481
|
|
|
|
40,444
|
|
|
|
84,879
|
|
|
|
313,223
|
|
Borrowings, principally
non-recourse(a)
|
|
|
4,901
|
|
|
|
3,198
|
|
|
|
|
|
|
|
75,638
|
|
|
|
83,737
|
|
|
|
6,350
|
|
|
|
3,397
|
|
|
|
|
|
|
|
62,888
|
|
|
|
72,635
|
|
Total liabilities
|
|
|
8,683
|
|
|
|
3,570
|
|
|
|
50,548
|
|
|
|
89,580
|
|
|
|
152,381
|
|
|
|
9,903
|
|
|
|
4,437
|
|
|
|
7,584
|
|
|
|
74,981
|
|
|
|
96,905
|
|
Equity
|
|
|
118,043
|
|
|
|
58,262
|
|
|
|
72,742
|
|
|
|
13,350
|
|
|
|
262,397
|
|
|
|
114,516
|
|
|
|
59,044
|
|
|
|
32,860
|
|
|
|
9,898
|
|
|
|
216,318
|
|
Our investment in real estate ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of their
equity(b)
|
|
|
59,022
|
|
|
|
29,131
|
|
|
|
18,779
|
|
|
|
18,295
|
|
|
|
125,227
|
|
|
|
57,258
|
|
|
|
29,522
|
|
|
|
9,362
|
|
|
|
13,228
|
|
|
|
109,370
|
|
Unrecognized deferred
gain(c)
|
|
|
(7,059
|
)
|
|
|
|
|
|
|
|
|
|
|
(614
|
)
|
|
|
(7,673
|
)
|
|
|
(7,069
|
)
|
|
|
|
|
|
|
|
|
|
|
(614
|
)
|
|
|
(7,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate ventures
|
|
$
|
51,963
|
|
|
$
|
29,131
|
|
|
$
|
18,779
|
|
|
$
|
17,681
|
|
|
$
|
117,554
|
|
|
$
|
50,189
|
|
|
$
|
29,522
|
|
|
$
|
9,362
|
|
|
$
|
12,614
|
|
|
$
|
101,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Combined summarized income statement information for our
ventures accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
8,065
|
|
|
$
|
7,392
|
|
|
$
|
51,367
|
|
Temco
|
|
|
6,426
|
|
|
|
8,305
|
|
|
|
51,470
|
|
Palisades West
|
|
|
1,421
|
|
|
|
267
|
|
|
|
|
|
Other ventures
|
|
|
12,865
|
|
|
|
14,495
|
|
|
|
33,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,777
|
|
|
$
|
30,459
|
|
|
$
|
135,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
6,781
|
|
|
$
|
3,400
|
|
|
$
|
16,892
|
|
Temco
|
|
|
940
|
|
|
|
258
|
|
|
|
16,986
|
|
Palisades West
|
|
|
1,218
|
|
|
|
230
|
|
|
|
|
|
Other ventures
|
|
|
(2,489
|
)
|
|
|
(406
|
)
|
|
|
(2,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,450
|
|
|
$
|
3,482
|
|
|
$
|
31,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our equity in their earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL
Realty(c)(d)
|
|
$
|
3,377
|
|
|
$
|
1,700
|
|
|
$
|
8,431
|
|
Temco(d)
|
|
|
469
|
|
|
|
129
|
|
|
|
8,493
|
|
Palisades West
|
|
|
304
|
|
|
|
58
|
|
|
|
|
|
Other
ventures(b)
|
|
|
482
|
|
|
|
1,499
|
|
|
|
1,538
|
|
Recognition of deferred
gain(c)
|
|
|
10
|
|
|
|
346
|
|
|
|
909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,642
|
|
|
$
|
3,732
|
|
|
$
|
19,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes current maturities of debt of $21,150,000 in 2008 and
$36,337,000 in 2007. |
|
(b) |
|
Our share of the equity in other ventures reflects our ownership
interests ranging from 25 to 50 percent, excluding venture
losses that exceed our investment where we are not obligated to
fund those losses. |
|
(c) |
|
In 2003, we contributed real estate with a $13,800,000 carrying
value to CL Realty in exchange for $13,800,000 cash and a
50 percent interest in the partnership. We deferred the
$14,587,000 gain on the sale and are recognizing it as the
partnership sells the real estate to third parties. The deferred
gain is reflected as an offset to our investment in
unconsolidated ventures. |
|
(d) |
|
Beginning in 2006, we eliminated our historic one-month lag in
accounting for our investment in CL Realty and Temco as
financial information became more readily available. The
one-time effect of eliminating this one-month lag was to
increase our equity in earnings for 2006 by $754,000 for CL
Realty and $350,000 for Temco. |
In 2008, we invested $17,845,000 in these ventures and received
$7,221,000 in distributions; in 2007, we invested $14,492,000 in
these ventures and received $6,102,000 in distributions; and in
2006, we invested $17,611,000 in these ventures and received
$23,727,000 in distributions. Distributions include both return
of investments and distributions of earnings.
We provide development services for some of these ventures for
which we receive a fee. Fees for these services were $120,000 in
2008, $344,000 in 2007 and $729,000 in 2006 and are included in
real estate revenues.
F-17
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Receivables consist of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Seller financing notes receivable, average interest rate of 6.9%
in 2008 and 7.8% in 2007
|
|
$
|
410
|
|
|
$
|
411
|
|
Notes receivable, average interest rate of 9.6% in 2008 and 2007
|
|
|
1,336
|
|
|
|
1,314
|
|
Accrued interest and other
|
|
|
2,742
|
|
|
|
2,268
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,488
|
|
|
$
|
3,993
|
|
Allowance for bad debts
|
|
|
(226
|
)
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,262
|
|
|
$
|
3,767
|
|
|
|
|
|
|
|
|
|
|
Seller financing notes receivable are generally secured by a
deed of trust with a 10 percent down payment and mature
through 2009. In November 2006, we ceased providing seller
financing in connection with the sale of residential lots.
Notes receivable are funds advanced to potential venture
partners and will be converted to an equity interest in a
venture or collected. It is anticipated that these notes will be
satisfied by year-end 2009.
Other receivables are miscellaneous operating receivables
arising in the normal course of business. We expect to collect
$1,625,000 in 2009.
We have about 340,000 acres of timber on our undeveloped
land, located primarily in Georgia. We capitalized reforestation
expenditures of $282,000 in 2008, $411,000 in 2007 and
$1,409,000 in 2006. The cost of timber cut was $2,968,000 in
2008, $4,060,000 in 2007 and $3,441,000 in 2006.
Debt consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Term loan facility average interest rate of 4.77% at
year-end 2008 and 8.63% at year-end 2007
|
|
$
|
175,000
|
|
|
$
|
175,000
|
|
Revolving loan facility average interest rate of
5.12% at year-end 2008
|
|
|
59,900
|
|
|
|
|
|
Secured promissory note interest rate of 3.01% at
year-end 2008 and 7.3% at year-end 2007
|
|
|
16,000
|
|
|
|
16,431
|
|
Other indebtedness due through 2011 at variable interest rates
based on prime (3.25% at December 31, 2008) and at
fixed interest rates ranging from 6.00% to 9.50% secured
primarily by real estate including non-recourse debt of
consolidated ventures
|
|
|
86,502
|
|
|
|
74,584
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
337,402
|
|
|
$
|
266,015
|
|
|
|
|
|
|
|
|
|
|
Our senior credit facility and other debt agreements contain
terms, conditions and financial covenants customary for such
agreements including minimum levels of interest coverage and
limitations on leverage. At year-end 2008, we had complied with
the terms, conditions and financial covenants of these
agreements.
Our senior credit facility provides for a $175,000,000 term loan
and a $290,000,000 revolving line of credit. We may, upon notice
to the lenders, request an increase in the credit facility to
provide for a total of $500,000,000. The revolving line of
credit may be prepaid at any time without penalty. The term loan
may be prepaid at any time; however, repayment prior to
June 1, 2009 requires a fee of 1.00% of the principal
amount. There is no prepayment fee for the term loan on or after
June 1, 2009. The senior credit facility
F-18
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
matures December 1, 2010. The revolving line of credit
includes a $100,000,000 sublimit for letters of credit, of which
$13,135,000 was outstanding at year-end 2008. Total borrowings
under our senior credit facility (including the face amount of
letters of credit) may not exceed a borrowing base formula, and
include a $35,000,000 minimum liquidity requirement at each
quarter-end. At year-end 2008, we had $187,933,000 in net unused
borrowing capacity under our senior credit facility.
At our option, we can borrow at LIBOR plus 4 percent or
Prime plus 2 percent. All borrowings under the senior
credit facility are secured by (a) an initial pledge of
approximately 250,000 acres of undeveloped land,
(b) assignments of current and future leases, rents and
contracts, including our mineral leases, (c) a security
interest in our primary operating account, (d) pledge of
the equity interests in current and future material operating
subsidiaries or joint venture interests, or if such pledge is
not permitted, a pledge of the right to distributions from such
entities, and (e) negative pledge (without a mortgage) on
all other wholly-owned assets. The senior credit facility
provides for releases of real estate provided that borrowing
base compliance is maintained.
We incurred origination and other fees related to our credit
facility of $10,573,000, of which $6,928,000 is unamortized at
year-end 2008 and is included in other assets. Amortization of
deferred financing fees in connection with our senior credit
facility was $3,506,000 in 2008, $139,000 in 2007 and none in
2006.
At year-end 2008, commercial operating properties having a book
value of $21,051,000 were subject to liens in connection with
$16,000,000 of debt. On October 1, 2008, we refinanced this
debt through 2010 with interest payable at LIBOR plus
2.5 percent or Prime plus 2 percent, at our option.
At year-end 2008, entitled, developed and under development
projects having a book value of $162,141,000 was subject to
liens in connection with $86,502,000 of principally non-recourse
debt. Please read Schedule III for additional
information.
Maturities of our debt during the next five years are:
2009 $35,207,000; 2010 $264,453,000;
2011 $37,742,000; 2012 $0;
2013 $0; and thereafter $0.
|
|
Note 7
|
Derivative
Instruments
|
We periodically use interest rate agreements in the normal
course of business to mitigate the risk inherent in interest
rate fluctuations by entering into contracts with major
U.S. securities firms.
In first quarter 2008, we entered into a $100,000,000 notional
amount interest rate swap agreement that matures in 2010. The
swap agreement was designed to offset the cash flow variability
of interest rate payments associated with the first $100,000,000
of our variable-rate borrowings. Under this swap agreement, we
pay a fixed interest rate of 6.57 percent and receive a
floating interest rate of one month LIBOR plus 4 percent
(4.77 percent at year-end 2008).
At year-end 2008, the fair value of the interest rate swap
agreement was a $1,939,000 liability that is included in other
liabilities. In 2008, the fair value of our interest rate swap
decreased and as a result we recognized an after-tax loss of
$1,260,000 that is included in accumulated other comprehensive
income. The fair value of the interest rate swap agreement was
determined using quoted prices in active markets for identical
assets (Level 1) under SFAS No. 157.
The effectiveness of the hedge relationship is periodically
assessed by comparing the present value of the cumulative change
in the expected future cash flows on the variable leg of the
swap and the present value of the cumulative change in the
expected future hedged cash flows. In 2008, hedge
ineffectiveness was not significant.
F-19
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8
|
Fair
Value of Financial Instruments
|
The carrying amounts and fair values of our financial
instruments follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
8,127
|
|
|
$
|
8,127
|
|
|
$
|
7,520
|
|
|
$
|
7,520
|
|
Receivables, net
|
|
|
4,262
|
|
|
|
4,262
|
|
|
|
3,767
|
|
|
|
3,767
|
|
Accounts payable
|
|
|
(7,438
|
)
|
|
|
(7,438
|
)
|
|
|
(8,002
|
)
|
|
|
(8,002
|
)
|
Interest rate swap agreement
|
|
|
(1,939
|
)
|
|
|
(1,939
|
)
|
|
|
|
|
|
|
|
|
Debt
|
|
|
(337,402
|
)
|
|
|
(337,684
|
)
|
|
|
(266,015
|
)
|
|
|
(266,276
|
)
|
At year-end 2008 and 2007, carrying amounts of cash and cash
equivalents, receivables and accounts payable approximate their
fair values due to the short-term nature of these assets and
liabilities. The interest rate swap agreement is carried at its
fair value at year-end 2008. The carrying amount of debt
approximates fair value at year-end 2008 and 2007 since it is
primarily made up of variable-rate borrowings. We estimated the
fair value of our fixed-rate borrowings using quoted market
prices for similar securities (Level 2).
Pursuant to our shareholder rights plan, each share of common
stock outstanding is coupled with one-quarter of a preferred
stock purchase right (Right). Each Right entitles our
shareholders to purchase, under certain conditions, one
one-hundredth of a share of newly issued Series A Junior
Participating Preferred Stock at an exercise price of $100.
Rights will be exercisable only if someone acquires beneficial
ownership of 20 percent or more of our common shares or
commences a tender or exchange offer, upon consummation of which
they would beneficially own 20 percent or more of our
common shares. We will generally be entitled to redeem the
Rights at $0.001 per Right at any time until the
10th business day following public announcement that a
20 percent position has been acquired. The Rights will
expire on December 11, 2017.
Please read Note 16 for information about additional
shares of common stock that could be issued under terms of our
share-based compensation plans.
As a result of our spin-off from Temple-Inland, all of
Temple-Inlands outstanding share-based compensation awards
were equitably adjusted into separate awards: one related to our
common stock, one related to Temple-Inland common stock and one
related to Guaranty common stock. All awards issued as part of
this adjustment are subject to their original vesting schedules.
At year-end 2008, Temple-Inland and Guaranty directors and
employees held 27,000 equity-settled restricted stock awards on
our stock.
The following table summarizes outstanding stock option awards
on our stock held by Temple-Inland and Guaranty directors and
employees at year-end 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Aggregate
|
|
|
|
|
Weighted
|
|
Average
|
|
Intrinsic Value
|
|
|
|
|
Average
|
|
Remaining
|
|
(Current Value
|
|
|
|
|
Exercise Price
|
|
Contractual
|
|
Less Exercise
|
|
|
Shares
|
|
per Share
|
|
Term
|
|
Price)
|
|
|
(In thousands)
|
|
|
|
(In years)
|
|
(In thousands)
|
|
Outstanding
|
|
|
1,805
|
|
|
$
|
19.26
|
|
|
|
5
|
|
|
$
|
142
|
|
Exercisable
|
|
|
1,440
|
|
|
$
|
17.06
|
|
|
|
4
|
|
|
$
|
142
|
|
F-20
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10
|
Other
Comprehensive Income
|
Other comprehensive income consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
11,974
|
|
|
$
|
24,795
|
|
|
$
|
51,844
|
|
Change in fair value of interest rate swap agreement, net of
taxes
|
|
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$
|
10,714
|
|
|
$
|
24,795
|
|
|
$
|
51,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11
|
Net
Income per Share
|
Our basic and diluted weighted average common shares outstanding
used to compute net income per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Weighted average common shares outstanding basic
|
|
|
35,455
|
|
|
|
35,380
|
|
|
|
35,380
|
|
Dilutive effect of stock options
|
|
|
305
|
|
|
|
|
|
|
|
|
|
Dilutive effect of restrict stock and restricted stock units
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
35,892
|
|
|
|
35,380
|
|
|
|
35,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2007 and 2006, we computed basic and diluted net income per
share based upon the number of shares of our common stock
distributed by Temple-Inland on December 28, 2007.
At year-end 2008, the effect of 1,713,000 stock options and
unvested shares of restricted stock were not included in the
computation of diluted weighted average shares outstanding
because their impact would have been anti-dilutive.
Income tax expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
(14,954
|
)
|
|
$
|
(28,782
|
)
|
|
$
|
(29,954
|
)
|
State and other
|
|
|
(1,680
|
)
|
|
|
(3,133
|
)
|
|
|
(4,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,634
|
)
|
|
|
(31,915
|
)
|
|
|
(34,882
|
)
|
Deferred tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
11,124
|
|
|
|
16,509
|
|
|
|
3,708
|
|
State and other
|
|
|
275
|
|
|
|
1,497
|
|
|
|
1,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,399
|
|
|
|
18,006
|
|
|
|
4,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(5,235
|
)
|
|
$
|
(13,909
|
)
|
|
$
|
(29,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our 2008 income tax expense reflects a benefit of $800,000 from
a federal income tax rate change for qualified timber gains due
to the Food, Conservation and Energy Act of 2008.
F-21
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2006, Texas enacted a margin tax to replace the franchise
tax, which for us resulted in a lower overall Texas tax rate. As
a result, in 2006 we recognized a one-time, non-cash benefit of
$780,000 related to the reduction of previously provided
deferred state income taxes.
We were included in the federal consolidated income tax return
of Temple-Inland prior to our spin-off.
A reconciliation of the federal statutory rate to the effective
income tax rate on continuing operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State, net of federal benefit
|
|
|
5
|
|
|
|
3
|
|
|
|
3
|
|
Finalization of deferred tax balance transferred at spin-off
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Percentage depletion
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Qualified timber gains
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
30
|
%
|
|
|
36
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of deferred taxes are:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
44,711
|
|
|
$
|
37,632
|
|
Employee benefits
|
|
|
3,594
|
|
|
|
1,141
|
|
Accruals not deductible until paid
|
|
|
986
|
|
|
|
840
|
|
Other
|
|
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
49,987
|
|
|
|
39,613
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Undeveloped land
|
|
|
(25,869
|
)
|
|
|
(27,020
|
)
|
Timber
|
|
|
(5,638
|
)
|
|
|
(6,153
|
)
|
Other
|
|
|
(1,296
|
)
|
|
|
(1,334
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(32,803
|
)
|
|
|
(34,507
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset
|
|
$
|
17,184
|
|
|
$
|
5,106
|
|
|
|
|
|
|
|
|
|
|
We, or Temple-Inland prior to our spin-off, file income tax
returns in the U.S. federal jurisdiction and various state
jurisdictions. With few exceptions, we are no longer subject to
U.S. federal, state and local income tax examinations by
tax authorities for years before 2005. We have no significant
unrecognized deferred tax assets or liabilities at year-end 2008
or 2007.
|
|
Note 13
|
Litigation
and Environmental Contingencies
|
We are involved in various legal proceedings that arise from
time to time in the ordinary course of doing business and
believe that adequate reserves have been established for any
probable losses. We do not believe that the outcome of any of
these proceedings should have a significant adverse effect on
our financial position, long-term results of operations or cash
flows. It is possible; however, that charges related to these
matters could be significant to our results or cash flows in any
one accounting period.
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. We own
288 acres near
F-22
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Antioch, California, portions of which were sites of a
Temple-Inland paper manufacturing operation that are in
remediation. In 2008, we increased our reserves for
environmental remediation by about $2,900,000. We estimate the
cost to complete remediation activities will be about
$3,900,000, which is included in other accrued expenses and will
likely be paid in 2009. Our estimate requires us to make
assumptions regarding the scope of required remediation, the
effectiveness of planned remediation activities, and approvals
by regulatory authorities. Our estimate is subject to revision
as new information becomes available.
|
|
Note 14
|
Commitments
and Other Contingencies
|
We lease timberland, facilities and equipment under
non-cancelable long-term operating lease agreements. In
addition, we have various obligations under other office space
and equipment leases of less than one year. Rent expense on
timberland was $346,000 in 2008, $428,000 in 2007 and $414,000
in 2006. Rent expense on facilities and equipment was $2,135,000
in 2008, $536,000 in 2007 and $445,000 in 2006. Future minimum
rental commitments under non-cancelable operating leases having
a remaining term in excess of one year are: 2009
$2,226,000; 2010 $2,123,000; 2011
$2,073,000; 2012 $1,956,000; 2013
$1,763,000 and thereafter $13,605,000.
We have 16 years remaining on a
65-year
timber lease of over 16,000 acres. At year-end 2008, the
remaining contractual obligation for this lease is $9,106,000.
During 2008, we entered into a
10-year
operating lease for approximately 32,000 square feet in the
Palisades West Office Park in Austin, Texas. Effective in fourth
quarter 2008, we occupy this space as our corporate
headquarters. This lease contains predetermined fixed increases
of the minimum rental rate during the initial lease term and a
construction allowance for leasehold improvements. The remaining
contractual obligation for this lease is $12,133,000.
We have a commitment to support third-party construction and
ownership of a resort hotel, spa and golf facilities at our
Cibolo Canyons mixed-use development near San Antonio,
Texas. At year-end 2008, our unfunded commitment was $13,083,000
which is expected to be funded in 2009.
In connection with our unconsolidated venture operations, we
have provided performance bonds and letters of credit
aggregating $3,151,000 at year-end 2008. Generally these
performance bonds and letters of credit would be drawn on due to
lack of specific performance by the ventures, such as failure to
deliver streets and utilities in accordance with local codes and
ordinances. In addition, we own a 25 percent interest in
Palisades West LLC to which all the members have committed to
make additional proportionate capital contributions, our share
of which is $2,792,000 at year-end 2008.
Temple-Inland has received a private letter ruling from the
Internal Revenue Service that the spin-off qualifies for
tax-free treatment under applicable sections of the Internal
Revenue Code, and has also received an opinion of tax counsel
that the spin-off so qualifies. However, if the spin-off fails
to qualify for tax-free treatment, under the tax matters
agreement between Temple-Inland and us we would generally be
required to indemnify Temple-Inland against any tax resulting
from the distribution of our shares of stock to the extent that
such tax resulted from (1) an issuance of our equity
securities, a redemption of our equity securities or our
involvement in other acquisitions of our equity securities,
(2) other actions or failures to act by us or (3) any
of our representations or undertakings being incorrect or
violated.
|
|
Note 15
|
Segment
Information
|
In first quarter 2008, we changed our reportable segments to
reflect our post-spin management of the operations transferred
to us from Temple-Inland. All prior period segment information
has been reclassified to conform to the current presentation. We
operate 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 and our commercial operating
F-23
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
properties. Mineral resources manages our oil and gas mineral
interests. Fiber resources manages our timber and recreational
leases.
We evaluate performance based on segment earnings before
unallocated items and income taxes. Segment earnings consist of
operating income, equity in earnings of unconsolidated ventures,
and minority interest expense in consolidated ventures.
Unallocated items consist of general and administrative expense,
share-based compensation, other non-operating income and
expense, and interest expense. The accounting policies of the
segments are the same as those described in the accounting
policy note to the consolidated financial statements. Our
revenues are derived from our U.S. operations and all of
our assets are located in the U.S. No single customer
accounts for more than 10 percent of our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Not
|
|
|
|
|
|
|
Real
|
|
|
Mineral
|
|
|
Fiber
|
|
|
Allocated to
|
|
|
|
|
|
|
Estate
|
|
|
Resources
|
|
|
Resources
|
|
|
Segments(a)
|
|
|
Total
|
|
|
For the year or at year-end 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
98,859
|
|
|
$
|
47,671
|
|
|
$
|
13,192
|
|
|
$
|
|
|
|
$
|
159,722
|
|
Depreciation and amortization
|
|
|
2,076
|
|
|
|
|
|
|
|
36
|
|
|
|
5,561
|
|
|
|
7,673
|
|
Equity in earnings of unconsolidated ventures
|
|
|
3,480
|
|
|
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
4,642
|
|
Income (loss) before taxes
|
|
|
9,075
|
|
|
|
44,076
|
|
|
|
8,896
|
|
|
|
(44,838
|
)
|
|
|
17,209
|
|
Total assets
|
|
|
732,401
|
|
|
|
376
|
|
|
|
51,321
|
|
|
|
50,478
|
|
|
|
834,576
|
|
Investment in unconsolidated ventures
|
|
|
117,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,554
|
|
Capital
expenditures(b)
|
|
|
508
|
|
|
|
370
|
|
|
|
282
|
|
|
|
4,037
|
|
|
|
5,197
|
|
For the year or at year-end 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
142,729
|
|
|
$
|
20,818
|
|
|
$
|
14,439
|
|
|
$
|
|
|
|
$
|
177,986
|
|
Depreciation and amortization
|
|
|
2,839
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
2,915
|
|
Equity in earnings of unconsolidated ventures
|
|
|
3,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,732
|
|
Income (loss) before taxes
|
|
|
39,507
|
|
|
|
18,581
|
|
|
|
7,950
|
|
|
|
(27,334
|
)
|
|
|
38,704
|
|
Total assets
|
|
|
658,813
|
|
|
|
|
|
|
|
55,011
|
|
|
|
34,902
|
|
|
|
748,726
|
|
Investment in unconsolidated ventures
|
|
|
101,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,687
|
|
Capital
expenditures(b)
|
|
|
2,788
|
|
|
|
|
|
|
|
410
|
|
|
|
|
|
|
|
3,198
|
|
For the year or at year-end 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
180,151
|
|
|
$
|
27,980
|
|
|
$
|
17,429
|
|
|
$
|
|
|
|
$
|
225,560
|
|
Depreciation and amortization
|
|
|
2,298
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
2,355
|
|
Equity in earnings of unconsolidated ventures
|
|
|
19,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,371
|
|
Income (loss) before taxes
|
|
|
70,271
|
|
|
|
26,305
|
|
|
|
6,711
|
|
|
|
(21,473
|
)
|
|
|
81,814
|
|
Total assets
|
|
|
546,911
|
|
|
|
|
|
|
|
59,414
|
|
|
|
13,849
|
|
|
|
620,174
|
|
Investment in unconsolidated ventures
|
|
|
90,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,444
|
|
Capital
expenditures(b)
|
|
|
2,558
|
|
|
|
|
|
|
|
1,433
|
|
|
|
|
|
|
|
3,991
|
|
|
|
|
(a) |
|
Items not allocated to segments consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Corporate general and administrative
|
|
$
|
(19,318
|
)
|
|
$
|
(11,119
|
)
|
|
$
|
(8,911
|
)
|
Expense allocation from Temple-Inland (see Note 19)
|
|
|
|
|
|
|
(6,294
|
)
|
|
|
(5,137
|
)
|
Share-based compensation (allocated from Temple-Inland in 2007
and 2006, see Note 16)
|
|
|
(4,516
|
)
|
|
|
(1,397
|
)
|
|
|
(1,275
|
)
|
Interest expense
|
|
|
(21,283
|
)
|
|
|
(9,229
|
)
|
|
|
(6,229
|
)
|
Other non-operating income
|
|
|
279
|
|
|
|
705
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(44,838
|
)
|
|
$
|
(27,334
|
)
|
|
$
|
(21,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
Consists of expenditures for property and equipment and
reforestation. |
F-24
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 16
|
Share-Based
Compensation
|
Post-Spin
Awards
A summary of the awards granted under our 2007 Stock Incentive
Plan follows.
Cash-settled
awards
Cash-settled awards vest 50 percent after year one and
50 percent after year two from the date of grant and
provide for accelerated vesting upon retirement, death,
disability or if there is a change in control. The following
table summarizes the activity of awards granted under our plan
for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Equivalent Units
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Non-vested as of December 29, 2007
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
6
|
|
|
|
28.85
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1
|
)
|
|
|
28.85
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of December 31, 2008
|
|
|
5
|
|
|
$
|
28.85
|
|
|
|
|
|
|
|
|
|
|
The aggregate current value of non-vested awards as of
December 31, 2008 is $50,000.
Equity-settled
awards
Equity-settled awards in the form of restricted stock units
granted to our directors are fully vested at the time of grant
and payable upon retirement. The following table summarizes the
activity of awards granted under our plan for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Equivalent Units
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Non-vested as of December 29, 2007
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
86
|
|
|
|
15.69
|
|
Vested
|
|
|
(86
|
)
|
|
|
15.69
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of December 31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of awards vested in 2008 was $1,550,000, of
which $800,000 are classified as deferred director fees.
F-25
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
stock
Restricted stock awards vest after three years if we achieve a
minimum one percent annualized return on assets over such
three-year period. The following table summarizes the activity
of awards granted under our plan for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Restricted Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Non-vested as of December 29, 2007
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
215
|
|
|
|
22.15
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(8
|
)
|
|
|
28.85
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of December 31, 2008
|
|
|
207
|
|
|
$
|
21.89
|
|
|
|
|
|
|
|
|
|
|
Stock
options
Stock options have a ten-year term, generally become exercisable
ratably over three to four years and provide for accelerated or
continued vesting upon retirement, death, disability or if there
is a change in control. Options were granted with an exercise
price equal to the market value of our stock on the date of
grant. The following table summarizes the activity of awards
granted under our plan for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
Options
|
|
|
Price per
|
|
|
Contractual
|
|
|
|
Outstanding
|
|
|
Share
|
|
|
Term
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
Balance as of December 29, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
|
624
|
|
|
|
28.85
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(2
|
)
|
|
|
28.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
622
|
|
|
$
|
28.85
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable as of December 31, 2008
|
|
|
18
|
|
|
$
|
28.85
|
|
|
|
9
|
|
There was no aggregate intrinsic value for stock options
outstanding or exercisable at December 31, 2008.
Stock options are valued based upon the Black-Scholes option
pricing model. Awards granted in 2008 were valued based upon the
following assumptions:
|
|
|
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected stock price volatility
|
|
|
31.0
|
%
|
Risk-free interest rate
|
|
|
2.7
|
%
|
Expected life of options (years)
|
|
|
6
|
|
Weighted average estimated fair value of options granted
|
|
$
|
10.22
|
|
We have limited historical experience as a stand-alone company
so we utilized alternative methods in determining our valuation
assumptions. The expected life was based on the simplified
method utilizing the midpoint between the vesting period and the
contractual life of the awards. The expected stock price
volatility was based on historical prices of our peers
common stock for a period corresponding to the expected life of
the options. Pre-vesting forfeitures are estimated based upon
the pool of participants and their expected activity.
F-26
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pre-Spin
Awards
Prior to the spin-off, we participated in Temple-Inlands
share-based compensation plans, and as a result, certain of our
directors and employees received share-based compensation in the
form of restricted or performance stock units, restricted stock,
or options to purchase shares of Temple-Inlands common
stock. Concurrent with Temple-Inlands distribution of our
common stock, all outstanding Temple-Inland awards were adjusted
into three separate awards: one related to Forestar common
stock, one related to Guaranty common stock and one related to
Temple-Inland common stock.
In 2007 and 2006, the expense for share-based compensation
awards granted to our employees under Temple-Inlands plans
was allocated to us by Temple-Inland. We continue to recognize
share-based compensation expense over the remaining vesting
periods associated with our employees and directors
awards in Forestar, Guaranty and Temple-Inland stock.
Cash-settled
awards
Cash-settled awards generally vest and are paid after three
years from the date of grant or the attainment of defined
performance goals, generally measured over a three-year period.
A summary of cash-settled awards outstanding to our directors
and employees at year-end 2008, following the adjustments
described previously, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Equivalent
|
|
|
Current
|
|
|
|
Units
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Awards on Forestar stock
|
|
|
38
|
|
|
$
|
362
|
|
Awards on Guaranty stock
|
|
|
38
|
|
|
|
99
|
|
Awards on Temple-Inland stock
|
|
|
114
|
|
|
|
548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,009
|
|
|
|
|
|
|
|
|
|
|
In 2008, we paid $166,000 to settle vested cash-settled awards.
Restricted
stock
All outstanding restricted stock awards at year-end 2007 vested
in first quarter 2008. The total fair value of these awards was
$474,000.
F-27
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
options
Stock options have a ten-year term, generally become exercisable
ratably over four years and provide for accelerated or continued
vesting upon retirement, death, disability or if there is a
change in control. Options were granted with an exercise price
equal to the market value of Temple-Inland common stock on the
date of grant. A summary of stock option awards outstanding to
our directors and employees at year-end 2008, following the
adjustments described previously, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Value
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
(Current
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Value Less
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
per Share
|
|
|
Term
|
|
|
Price)
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Outstanding on Forestar stock
|
|
|
86
|
|
|
$
|
21.12
|
|
|
|
6
|
|
|
$
|
7
|
|
Outstanding on Guaranty stock
|
|
|
86
|
|
|
|
13.55
|
|
|
|
6
|
|
|
|
|
|
Outstanding on Temple-Inland stock
|
|
|
255
|
|
|
|
16.90
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable on Forestar stock
|
|
|
57
|
|
|
$
|
17.64
|
|
|
|
5
|
|
|
$
|
7
|
|
Exercisable on Guaranty stock
|
|
|
57
|
|
|
|
11.32
|
|
|
|
5
|
|
|
|
|
|
Exercisable on Temple-Inland stock
|
|
|
170
|
|
|
|
14.12
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised in 2008 was $146,000.
Share-Based
Compensation Expense
Share-based compensation expense for post-spin and pre-spin
awards consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash-settled awards
|
|
$
|
(488
|
)
|
|
$
|
763
|
|
|
$
|
635
|
|
Equity-settled awards
|
|
|
750
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
1,264
|
|
|
|
142
|
|
|
|
224
|
|
Stock options
|
|
|
2,990
|
|
|
|
492
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax share-based compensation expense
|
|
|
4,516
|
|
|
|
1,397
|
|
|
|
1,275
|
|
Income tax benefit
|
|
|
(1,355
|
)
|
|
|
(503
|
)
|
|
|
(472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,161
|
|
|
$
|
894
|
|
|
$
|
803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of awards granted to retirement-eligible
employees and expensed at the date of grant was $1,321,000 in
2008.
Pre-tax share-based compensation expense is included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
General and administrative
|
|
$
|
2,910
|
|
|
$
|
1,211
|
|
|
$
|
1,096
|
|
Other operating
|
|
|
1,606
|
|
|
|
186
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,516
|
|
|
$
|
1,397
|
|
|
$
|
1,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We did not capitalize any share-based compensation in 2008, 2007
or 2006.
Unrecognized share-based compensation for post-spin awards not
vested was $7,311,000 at year-end 2008. It is likely that this
cost will be recognized as expense over the next three years.
Unrecognized share-
F-28
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
based compensation for pre-spin awards not vested was $542,000
at year-end 2008. It is likely that this cost will be recognized
as expense over the next two years.
In connection with restricted stock vested and stock options
exercised, we withheld shares having a value of $1,858,000 for
payment of payroll taxes in 2008. These shares are accounted for
as treasury stock. Payroll taxes on restricted stock and stock
options are reflected in financing activities in our
consolidated statement of cash flows.
|
|
Note 17
|
Retirement,
Pension and Postretirement Plans
|
Our defined contribution retirement plans include a 401(k) plan,
which is funded, and a supplemental plan for key employees,
which is unfunded. The expense of our defined contribution
retirement plans was $1,134,000 in 2008. The unfunded liability
for our supplemental plan was $132,000 at year-end 2008 and is
included in other liabilities.
Prior to the spin-off, we participated in Temple-Inlands
retirement, pension and postretirement plans. The retirement
expense for certain of our employees was $262,000 in 2007 and
$223,000 in 2006. The pension and postretirement expense
allocated to us by Temple-Inland for certain of our employees
was $218,000 in 2007 and $716,000 in 2006. Subsequent to the
spin-off, our employees no longer participate in the
Temple-Inland postretirement plans, and our employees who
participate in Temple-Inland retirement and pension plans will
not accrue any additional benefits. The liability for their
benefits as of the spin-off date has been retained by
Temple-Inland.
|
|
Note 18
|
Summary
of Quarterly Results of Operations (Unaudited)
|
Summarized quarterly financial results for 2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
37,223
|
|
|
$
|
51,597
|
|
|
$
|
33,943
|
|
|
$
|
36,959
|
|
Gross profit
|
|
|
19,305
|
|
|
|
37,629
|
|
|
|
21,976
|
|
|
|
22,324
|
|
Operating income
|
|
|
4,167
|
|
|
|
17,849
|
|
|
|
5,601
|
|
|
|
8,189
|
|
Equity in earnings of unconsolidated ventures
|
|
|
1,534
|
|
|
|
2,018
|
|
|
|
1,436
|
|
|
|
(346
|
)
|
Income (loss) before taxes
|
|
|
(383
|
)
|
|
|
14,407
|
|
|
|
1,192
|
|
|
|
1,993
|
|
Net income (loss)
|
|
|
(238
|
)
|
|
|
9,596
|
|
|
|
872
|
|
|
|
1,744
|
|
Net income (loss) per share basic
|
|
|
(0.01
|
)
|
|
|
0.27
|
|
|
|
0.02
|
|
|
|
0.05
|
|
Net income (loss) per share diluted
|
|
|
(0.01
|
)
|
|
|
0.27
|
|
|
|
0.02
|
|
|
|
0.05
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
34,456
|
|
|
$
|
56,285
|
|
|
$
|
51,632
|
|
|
$
|
35,613
|
|
Gross profit
|
|
|
16,465
|
|
|
|
37,272
|
|
|
|
28,411
|
|
|
|
16,184
|
|
Operating income
|
|
|
2,625
|
|
|
|
26,380
|
|
|
|
16,371
|
|
|
|
3,891
|
|
Equity in earnings of unconsolidated ventures
|
|
|
1,499
|
|
|
|
1,478
|
|
|
|
1,333
|
|
|
|
(578
|
)
|
Income before taxes
|
|
|
1,043
|
|
|
|
22,781
|
|
|
|
14,816
|
|
|
|
64
|
|
Net income
|
|
|
661
|
|
|
|
14,432
|
|
|
|
9,596
|
|
|
|
106
|
|
Net income per share basic
|
|
|
0.02
|
|
|
|
0.41
|
|
|
|
0.27
|
|
|
|
|
|
Net income per share diluted
|
|
|
0.02
|
|
|
|
0.41
|
|
|
|
0.27
|
|
|
|
|
|
|
|
Note 19
|
Pre-Spin
Transactions with Temple-Inland
|
Prior to the spin-off, we reimbursed Temple-Inland for expenses
incurred on our behalf and allocated to us. Additional allocated
expenses incurred by Temple-Inland but not directly attributable
to us were allocated
F-29
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to us and recognized as expense with a corresponding increase to
Temple-Inlands investment, net of tax. Please read
Note 1 for additional information.
A summary of allocated expenses from Temple-Inland follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Legal, human resources and other administrative costs
|
|
$
|
2,842
|
|
|
$
|
2,178
|
|
Variable compensation
|
|
|
883
|
|
|
|
1,146
|
|
Accounting and finance
|
|
|
1,425
|
|
|
|
954
|
|
Information technology support
|
|
|
935
|
|
|
|
664
|
|
Internal audit, governance and other
|
|
|
209
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,294
|
|
|
|
5,137
|
|
Share-based compensation
|
|
|
1,397
|
|
|
|
1,275
|
|
Pension and postretirement
|
|
|
218
|
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,909
|
|
|
$
|
7,128
|
|
|
|
|
|
|
|
|
|
|
Prior to the spin-off, we paid income taxes to Temple-Inland as
if we filed a separate income tax return. Please read
Note 12 for additional information. In addition,
rent paid to a former subsidiary of Temple-Inland was $190,000
in 2007 and $178,000 in 2006.
We own an undivided 15 percent interest in corporate
aircraft contributed to us by Temple-Inland at spin-off. Under
the terms of the joint ownership agreement, we pay
15 percent of the fixed costs associated with ownership of
the aircraft and pay our portion of the variable costs based on
our usage. The agreement has a two-year term at which time it
can be renewed or terminated. At year-end 2008, the carrying
value of the aircraft of $5,319,000 is included in other assets.
Fiber resources and other revenues include sales of timber to
Temple-Inland of $12,167,000 in 2007 and $8,867,000 in 2006.
Cost of fiber resources includes cost of timber sold to
Temple-Inland of $3,241,000 in 2007 and $2,140,000 in 2006.
|
|
Note 20
|
Supplemental
Oil and Gas Disclosures (Unaudited)
|
We lease our oil and gas mineral interests, principally in Texas
and Louisiana, to third party oil and gas exploration and
production entities for the exploration and production of oil
and gas. When we lease our mineral interests, we retain a
royalty interest and may take an additional participation in
production, including a non-operating working interest.
Non-operating working interests refer to well interests in which
we pay a share of the costs to drill, complete and operate a
well and receive a proportionate share of the production
revenues. At year-end 2008, non-operating working interests
capitalized costs were $131,000 and represent our proportionate
share of exploration and development costs to date related to
one well located in Louisiana. We incurred no exploration or
development costs in 2007 or 2006.
We did not acquire any oil or gas mineral interests in 2008, and
unamortized costs of our oil and gas mineral interests were not
material at year-end 2007 and 2006.
Our royalty revenues are contractually defined and based on a
percentage of production and are received in cash. Our royalty
revenues fluctuate based on changes in the market prices for oil
and gas and other factors affecting the third party oil and gas
exploration and production entities including the cost of
development and production. In 2007 and 2006, our royalty
revenues were allocated to us by Temple-Inland.
F-30
FORESTAR
GROUP INC.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Information about the results of operations of our oil and gas
mineral interests follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Royalty revenues
|
|
$
|
21,638
|
|
|
$
|
13,114
|
|
|
$
|
17,381
|
|
Production costs
|
|
|
(1,714
|
)
|
|
|
|
|
|
|
|
|
Exploration expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, amortization and valuation provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(3,121
|
)
|
|
|
(2,237
|
)
|
|
|
(1,675
|
)
|
Income tax expenses
|
|
|
(5,152
|
)
|
|
|
(3,327
|
)
|
|
|
(5,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of operations
|
|
$
|
11,651
|
|
|
$
|
7,550
|
|
|
$
|
10,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, production costs represent our share of oil and gas
production severance taxes. In 2007 and 2006, oil and gas
production severance taxes were reflected as a reduction of
royalty revenues and were allocated to us by Temple-Inland.
Other lease revenues, principally bonus and delay rentals, were
$26,032,000 in 2008, $7,704,000 in 2007 and $10,599,000 in 2006.
In 2008, our share of lease bonus revenues from unconsolidated
ventures was $1,162,000.
Estimates of oil and gas reserve information related to our
royalty interests are unknown to us. We do not make such
estimates and our lessees do not make this information available
to us. Our share of oil and gas produced and average unit prices
related to our royalty interests follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Oil (barrels)
|
|
|
87,895
|
|
|
|
94,909
|
|
|
|
125,994
|
|
Average price per barrel
|
|
$
|
106.66
|
|
|
$
|
65.24
|
|
|
$
|
64.14
|
|
Gas (thousands of cubic feet (Mcf))
|
|
|
1,363,434
|
|
|
|
967,268
|
|
|
|
1,212,290
|
|
Average price per Mcf
|
|
$
|
8.76
|
|
|
$
|
6.69
|
|
|
$
|
7.95
|
|
|
|
Note 21
|
Subsequent
Event
|
On February 11, 2009, we announced the following strategic
initiatives to enhance stockholder value: generate significant
free cash flow, principally from the sale of approximately
175,000 acres of higher and better use (HBU) timberland;
reduce debt by approximately $150 million; and repurchase
up to 20 percent of our outstanding shares of common stock. Debt
reduction and share repurchases will be funded by proceeds from
the asset sales. We are in the process of marketing a portion of
our HBU timberland and will classify that portion of the HBU
timberland we anticipate selling as assets held for sale at
first quarter-end 2009.
F-31
Forestar
Group Inc.
Schedule III
Consolidated Real Estate and Accumulated Depreciation
Year-End
2008
(In thousands)
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Costs Capitalized
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Subsequent to Acquisition
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Initial Cost to Company
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Improvements
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Gross Amount Carried at End of Period
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Buildings &
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Less Cost of
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Carrying
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Land & Land
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Buildings &
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Accumulated
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Date of
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Date
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Description
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Encumbrances
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Land
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Improvements
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Sales and Other
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Costs(a)
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Improvements
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Improvements
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Total
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Depreciation
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Construction
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Acquired
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Entitled, Developed, and Under Development
Projects:
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CALIFORNIA
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Contra Costa County
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San Joaquin River
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$
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12,225
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$
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(3,430
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)
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$
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8,795
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$
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8,795
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COLORADO
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Douglas County
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Pinery West
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$
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4,941
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7,308
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1,412
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8,720
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8,720
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2006
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2006
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Weld County
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Buffalo Highlands
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3,001
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603
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3,604
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3,604
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2006
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2005
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Johnstown Farms
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2,749
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9,009
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$
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188
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11,946
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11,946
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2002
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2002
|
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Stonebraker
|
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3,878
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1,309
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5,187
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5,187
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2005
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2005
|
|
GEORGIA
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Bartow County
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Towne West
|
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936
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900
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1,836
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1,836
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2007
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Coweta County
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Cedar Creek Preserve
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852
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244
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1,096
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1,096
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Corinth Landing
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|
607
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582
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1,189
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1,189
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Coweta South Industrial Park
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532
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442
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|
974
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974
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Fox Hall
|
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166
|
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|
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5,831
|
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|
5,997
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|
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|
|
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5,997
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|
2007
|
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|
Genesee
|
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|
|
480
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|
|
|
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|
|
1,031
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|
1,511
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1,511
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TEXAS
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Bastrop County
|
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|
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|
|
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|
|
Hunters Crossing
|
|
|
|
|
|
|
3,613
|
|
|
|
|
|
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|
7,352
|
|
|
|
311
|
|
|
|
11,276
|
|
|
|
|
|
|
|
11,276
|
|
|
|
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|
|
|
2001
|
|
|
|
2001
|
|
The Colony
|
|
|
|
|
|
|
8,726
|
|
|
|
|
|
|
|
12,818
|
|
|
|
161
|
|
|
|
21,705
|
|
|
|
|
|
|
|
21,705
|
|
|
|
|
|
|
|
1999
|
|
|
|
1999
|
|
Bexar County
|
|
|
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|
|
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|
Cibolo Canyons
|
|
|
|
|
|
|
25,568
|
|
|
|
|
|
|
|
65,886
|
|
|
|
928
|
|
|
|
92,382
|
|
|
|
|
|
|
|
92,382
|
|
|
|
|
|
|
|
2004
|
|
|
|
1986
|
|
Calhoun County
|
|
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caracol
|
|
|
9,109
|
|
|
|
8,603
|
|
|
|
|
|
|
|
8,237
|
|
|
|
1,989
|
|
|
|
18,829
|
|
|
|
|
|
|
|
18,829
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Harbor Mist
|
|
|
|
|
|
|
2,822
|
|
|
|
|
|
|
|
963
|
|
|
|
|
|
|
|
3,785
|
|
|
|
|
|
|
|
3,785
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Collin County
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
Light Farms
|
|
|
30,519
|
|
|
|
30,101
|
|
|
|
|
|
|
|
18,668
|
|
|
|
|
|
|
|
48,769
|
|
|
|
|
|
|
|
48,769
|
|
|
|
|
|
|
|
2007
|
|
|
|
2007
|
|
Maxwell Creek
|
|
|
|
|
|
|
9,904
|
|
|
|
|
|
|
|
(513
|
)
|
|
|
418
|
|
|
|
9,809
|
|
|
|
|
|
|
|
9,809
|
|
|
|
|
|
|
|
2000
|
|
|
|
2000
|
|
The Gables at North Hill
|
|
|
|
|
|
|
2,160
|
|
|
|
|
|
|
|
(589
|
)
|
|
|
63
|
|
|
|
1,634
|
|
|
|
|
|
|
|
1,634
|
|
|
|
|
|
|
|
2004
|
|
|
|
2001
|
|
Timber Creek
|
|
|
3,431
|
|
|
|
7,282
|
|
|
|
|
|
|
|
2,457
|
|
|
|
|
|
|
|
9,739
|
|
|
|
|
|
|
|
9,739
|
|
|
|
|
|
|
|
2007
|
|
|
|
2007
|
|
S-1
Forestar
Group Inc.
Schedule III
Consolidated Real Estate and Accumulated
Depreciation (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
Improvements
|
|
|
|
|
|
Gross Amount Carried at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
Less Cost of
|
|
|
Carrying
|
|
|
Land & Land
|
|
|
Buildings &
|
|
|
|
|
|
Accumulated
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Sales and Other
|
|
|
Costs(a)
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Comal County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oak Creek Estates
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
4,025
|
|
|
|
175
|
|
|
|
6,121
|
|
|
|
|
|
|
|
6,121
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Dallas County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stoney Creek
|
|
|
8,368
|
|
|
|
12,822
|
|
|
|
|
|
|
|
3,789
|
|
|
|
|
|
|
|
16,611
|
|
|
|
|
|
|
|
16,611
|
|
|
|
|
|
|
|
2007
|
|
|
|
2007
|
|
Denton County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lantana
|
|
|
17,822
|
|
|
|
31,451
|
|
|
|
|
|
|
|
10,094
|
|
|
|
|
|
|
|
41,545
|
|
|
|
|
|
|
|
41,545
|
|
|
|
|
|
|
|
2000
|
|
|
|
1999
|
|
The Preserve at Pecan Creek
|
|
|
|
|
|
|
5,855
|
|
|
|
|
|
|
|
1,387
|
|
|
|
313
|
|
|
|
7,555
|
|
|
|
|
|
|
|
7,555
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Harris County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Park
|
|
|
2
|
|
|
|
3,946
|
|
|
|
|
|
|
|
(2,570
|
)
|
|
|
1,641
|
|
|
|
3,017
|
|
|
|
|
|
|
|
3,017
|
|
|
|
|
|
|
|
2002
|
|
|
|
2001
|
|
Hays County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrowhead Ranch
|
|
|
|
|
|
|
12,001
|
|
|
|
|
|
|
|
1,422
|
|
|
|
|
|
|
|
13,423
|
|
|
|
|
|
|
|
13,423
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Hood County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harbor Lakes
|
|
|
|
|
|
|
3,514
|
|
|
|
|
|
|
|
5,061
|
|
|
|
312
|
|
|
|
8,887
|
|
|
|
|
|
|
|
8,887
|
|
|
$
|
(576
|
)
|
|
|
2000
|
|
|
|
1998
|
|
Nueces County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tortuga Dunes
|
|
|
|
|
|
|
12,080
|
|
|
|
|
|
|
|
8,225
|
|
|
|
|
|
|
|
20,305
|
|
|
|
|
|
|
|
20,305
|
|
|
|
|
|
|
|
2008
|
|
|
|
2006
|
|
Rockwall County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caruth Lakes
|
|
|
|
|
|
|
1,624
|
|
|
|
|
|
|
|
4,269
|
|
|
|
100
|
|
|
|
5,993
|
|
|
|
|
|
|
|
5,993
|
|
|
|
|
|
|
|
1997
|
|
|
|
1996
|
|
Travis County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presidio at Judges Hill
|
|
|
12,310
|
|
|
|
1,500
|
|
|
|
|
|
|
|
12,794
|
|
|
|
786
|
|
|
|
15,080
|
|
|
|
|
|
|
|
15,080
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
The Ridge at Ribelin Ranch
|
|
|
|
|
|
|
23,751
|
|
|
|
|
|
|
|
(20,421
|
)
|
|
|
50
|
|
|
|
3,380
|
|
|
|
|
|
|
|
3,380
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Williamson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westside at Buttercup Creek
|
|
|
|
|
|
|
13,149
|
|
|
|
|
|
|
|
(5,370
|
)
|
|
|
449
|
|
|
|
8,228
|
|
|
|
|
|
|
|
8,228
|
|
|
|
|
|
|
|
1993
|
|
|
|
1993
|
|
Chandler Road Properties
|
|
|
|
|
|
|
3,552
|
|
|
|
|
|
|
|
(2,181
|
)
|
|
|
|
|
|
|
1,371
|
|
|
|
|
|
|
|
1,371
|
|
|
|
|
|
|
|
2004
|
|
|
|
2004
|
|
La Conterra
|
|
|
|
|
|
|
4,024
|
|
|
|
|
|
|
|
2,652
|
|
|
|
71
|
|
|
|
6,747
|
|
|
|
|
|
|
|
6,747
|
|
|
|
|
|
|
|
2008
|
|
|
|
2006
|
|
MISSOURI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clay County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Somerbrook
|
|
|
|
|
|
|
3,061
|
|
|
|
|
|
|
|
(219
|
)
|
|
|
13
|
|
|
|
2,855
|
|
|
|
|
|
|
|
2,855
|
|
|
|
|
|
|
|
2003
|
|
|
|
2001
|
|
UTAH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weber County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort Bingham Estates
|
|
|
|
|
|
|
3,284
|
|
|
|
|
|
|
|
(608
|
)
|
|
|
88
|
|
|
|
2,764
|
|
|
|
|
|
|
|
2,764
|
|
|
|
|
|
|
|
2003
|
|
|
|
1998
|
|
Other
|
|
|
|
|
|
|
21,495
|
|
|
|
|
|
|
|
(11,021
|
)
|
|
|
2,255
|
|
|
|
12,729
|
|
|
|
|
|
|
|
12,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Entitled, Developed, and Under Development Projects
|
|
$
|
86,502
|
|
|
$
|
290,543
|
|
|
$
|
|
|
|
$
|
144,540
|
|
|
$
|
10,311
|
|
|
$
|
445,394
|
|
|
$
|
|
|
|
$
|
445,394
|
|
|
$
|
(576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-2
Forestar
Group Inc.
Schedule III
Consolidated Real Estate and Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
Improvements
|
|
|
|
|
|
Gross Amount Carried at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
Less Cost of
|
|
|
Carrying
|
|
|
Land & Land
|
|
|
Buildings &
|
|
|
|
|
|
Accumulated
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Sales and Other
|
|
|
Costs(a)
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Undeveloped Land:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALABAMA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cherokee County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
$
|
7,124
|
|
|
|
|
|
|
$
|
19
|
|
|
|
|
|
|
$
|
7,143
|
|
|
|
|
|
|
$
|
7,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleburne County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
5,582
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
5,633
|
|
|
|
|
|
|
|
5,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CALIFORNIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
3,969
|
|
|
|
|
|
|
|
5,634
|
|
|
|
|
|
|
|
9,603
|
|
|
|
|
|
|
|
9,603
|
|
|
|
|
|
|
|
|
|
|
|
1997
|
|
GEORGIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,895
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
1,905
|
|
|
|
|
|
|
|
1,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
488
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
538
|
|
|
|
|
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bartow County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
5,585
|
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
5,708
|
|
|
|
|
|
|
|
5,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carroll County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
8,417
|
|
|
|
|
|
|
|
129
|
|
|
|
|
|
|
|
8,546
|
|
|
|
|
|
|
|
8,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
9,308
|
|
|
|
|
|
|
|
2,265
|
|
|
|
|
|
|
|
11,573
|
|
|
|
|
|
|
|
11,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chattooga County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,269
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
4,314
|
|
|
|
|
|
|
|
4,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cherokee County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,835
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
3,985
|
|
|
|
|
|
|
|
3,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
2,472
|
|
|
|
|
|
|
|
470
|
|
|
|
|
|
|
|
2,942
|
|
|
|
|
|
|
|
2,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coweta County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,059
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
2,118
|
|
|
|
|
|
|
|
2,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
2,794
|
|
|
|
|
|
|
|
547
|
|
|
|
|
|
|
|
3,341
|
|
|
|
|
|
|
|
3,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dawson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,570
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
2,579
|
|
|
|
|
|
|
|
2,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
702
|
|
|
|
|
|
|
|
899
|
|
|
|
|
|
|
|
1,601
|
|
|
|
|
|
|
|
1,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elbert County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,617
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
1,646
|
|
|
|
|
|
|
|
1,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floyd County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,687
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
3,750
|
|
|
|
|
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-3
Forestar
Group Inc.
Schedule III
Consolidated Real Estate and Accumulated
Depreciation (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
Improvements
|
|
|
|
|
|
Gross Amount Carried at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
Less Cost of
|
|
|
Carrying
|
|
|
Land & Land
|
|
|
Buildings &
|
|
|
|
|
|
Accumulated
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Sales and Other
|
|
|
Costs(a)
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Gilmer County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,031
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
3,052
|
|
|
|
|
|
|
|
3,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,339
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
3,358
|
|
|
|
|
|
|
|
3,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hall County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
906
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
975
|
|
|
|
|
|
|
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Haralson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
7,582
|
|
|
|
|
|
|
|
239
|
|
|
|
|
|
|
|
7,821
|
|
|
|
|
|
|
|
7,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
701
|
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
877
|
|
|
|
|
|
|
|
877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heard County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
10,949
|
|
|
|
|
|
|
|
341
|
|
|
|
|
|
|
|
11,290
|
|
|
|
|
|
|
|
11,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jackson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
996
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
1,056
|
|
|
|
|
|
|
|
1,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
491
|
|
|
|
|
|
|
|
271
|
|
|
|
|
|
|
|
762
|
|
|
|
|
|
|
|
762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumpkin County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,120
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
3,124
|
|
|
|
|
|
|
|
3,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meriwether County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,700
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
1,750
|
|
|
|
|
|
|
|
1,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paulding County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,406
|
|
|
|
|
|
|
|
1,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pickens County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,379
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
3,471
|
|
|
|
|
|
|
|
3,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polk County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,740
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
4,778
|
|
|
|
|
|
|
|
4,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troup County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,178
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
4,391
|
|
|
|
|
|
|
|
4,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
944
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
|
|
1,454
|
|
|
|
|
|
|
|
1,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anderson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
821
|
|
|
|
|
|
|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-4
Forestar
Group Inc.
Schedule III
Consolidated Real Estate and Accumulated
Depreciation (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
Improvements
|
|
|
|
|
|
Gross Amount Carried at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
Less Cost of
|
|
|
Carrying
|
|
|
Land & Land
|
|
|
Buildings &
|
|
|
|
|
|
Accumulated
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Sales and Other
|
|
|
Costs(a)
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Angelina County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,368
|
|
|
|
|
|
|
|
1,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,034
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
1,048
|
|
|
|
|
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Montgomery County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land in Entitlement Process
|
|
|
|
|
|
|
2,675
|
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
2,970
|
|
|
|
|
|
|
|
2,970
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Rusk County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sabine County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
508
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
539
|
|
|
|
|
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Augustine County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,720
|
|
|
|
|
|
|
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
6,599
|
|
|
|
|
|
|
|
719
|
|
|
|
|
|
|
|
7,318
|
|
|
|
|
|
|
|
7,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
685
|
|
|
|
|
|
|
|
521
|
|
|
|
|
|
|
|
1,206
|
|
|
|
|
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Undeveloped Land
|
|
$
|
|
|
|
$
|
129,514
|
|
|
$
|
|
|
|
$
|
14,235
|
|
|
$
|
|
|
|
$
|
143,749
|
|
|
$
|
|
|
|
$
|
143,749
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Operating Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travis County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radisson Hotel & Suites
|
|
$
|
16,000
|
|
|
|
|
|
|
$
|
16,316
|
|
|
$
|
26,402
|
|
|
|
|
|
|
|
|
|
|
$
|
42,718
|
|
|
$
|
42,718
|
|
|
$
|
(21,667
|
)
|
|
|
|
|
|
|
|
|
Hood County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harbor Lakes Golf Club
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
|
1,269
|
|
|
|
(301
|
)
|
|
|
2000
|
|
|
|
1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Operating Properties
|
|
$
|
16,000
|
|
|
$
|
|
|
|
$
|
17,585
|
|
|
$
|
26,402
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43,987
|
|
|
$
|
43,987
|
|
|
$
|
(21,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
102,502
|
|
|
$
|
420,057
|
|
|
$
|
17,585
|
|
|
$
|
185,177
|
|
|
$
|
10,311
|
|
|
$
|
589,143
|
|
|
$
|
43,987
|
|
|
$
|
633,130
|
|
|
$
|
(22,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We do not capitalize carrying costs until development begins. |
S-5
Forestar
Group Inc.
Schedule III
Consolidated Real Estate and Accumulated Depreciation
Reconciliation of real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of year
|
|
$
|
572,984
|
|
|
$
|
468,724
|
|
|
$
|
392,107
|
|
Amounts capitalized
|
|
|
100,639
|
|
|
|
181,430
|
|
|
|
178,835
|
|
Amounts retired or adjusted
|
|
|
(40,493
|
)
|
|
|
(77,170
|
)
|
|
|
(102,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at close of period
|
|
$
|
633,130
|
|
|
$
|
572,984
|
|
|
$
|
468,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of year
|
|
$
|
(20,774
|
)
|
|
$
|
(20,907
|
)
|
|
$
|
(18,957
|
)
|
Depreciation expense
|
|
|
(1,770
|
)
|
|
|
(2,014
|
)
|
|
|
(2,008
|
)
|
Amounts retired or adjusted
|
|
|
|
|
|
|
2,147
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at close of period
|
|
$
|
(22,544
|
)
|
|
$
|
(20,774
|
)
|
|
$
|
(20,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-6