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 29, 2007
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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 Real Estate 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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1300 MoPac Expressway South
Suite 3S
Austin, Texas 78746
(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 o No þ
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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. 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 o
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Non-accelerated
filer þ
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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
On June 30, 2007, the registrants common stock was
not publicly traded.
As of February 22, 2008, there were 35,604,001 shares
of Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Selected portions of the Companys definitive proxy
statement for the 2008 annual meeting of stockholders are
incorporated by reference into Part III of this
Form 10-K.
PART I
Overview
Forestar Real Estate Group Inc. is a growth company committed to
maximizing stockholder value. We own directly or through
ventures about 373,000 acres of real estate located in ten
states and 13 markets and about 622,000 net acres of oil
and gas mineral interests. We invest primarily in strategic
growth corridors, which we define as markets with significant
growth characteristics for population, employment and household
formation. In 2007, we generated revenues of $178 million
and net income of $25 million. Unless the context otherwise
requires, reference to we, us,
our and Forestar mean Forestar Real
Estate Group Inc. and its consolidated subsidiaries. Unless
otherwise indicated, information is presented as of
December 29, 2007, and references to acreage owned includes
all acres owned by ventures regardless of our ownership interest
in a venture.
We operate two business segments:
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Real estate, and
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Natural resources.
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Our real estate segment secures entitlements and develops
infrastructure on our lands, primarily for single-family
residential and mixed-use communities. We own approximately
303,000 acres in a broad area around Atlanta, Georgia, with
the balance located primarily in Texas. We also actively invest
in new projects 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.
Our real estate projects are located among the fastest growing
markets in the United States. We have 24 real estate projects
representing almost 29,000 acres in the entitlement
process, and 78 entitled, developed or under development
projects in eight states and 12 markets encompassing
approximately 16,000 remaining acres, comprised of about 30,000
residential lots and about 1,900 commercial acres. We sell land
for commercial uses to national retailers and local commercial
developers. 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 natural 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. These operations have historically required low capital
investment, and we use the cash flow generated by our mineral
interests to accelerate real estate value creation activities.
In addition, we sell wood fiber from our land, primarily in
Georgia, and lease land for recreational uses.
Our 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. In 1991, we and
Cousins Properties Incorporated formed Temco Associates, LLC as
a venture to develop residential sites in Paulding County,
Georgia, and in 2002 we and Cousins formed CL Realty, L.L.C. as
a venture to develop residential and mixed-use communities in
Texas and across the southeastern U.S. Those ventures
continue today. In 2001, we opened an office in the Atlanta area
to manage nearby land with a focus on its long-term real estate
development potential. In 2006, Temple-Inland Inc.
(Temple-Inland)
began reporting Forestar Real Estate Group as a separate
business segment. On December 28, 2007, Temple-Inland
distributed 100% 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 100% 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.)
1
Leveraging years of real estate 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 natural resources, and
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Accelerated growth through strategic and disciplined investment
in real estate.
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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 on our lands by
delivering thoughtful plans and balanced solutions that meet the
needs of the communities where we operate. Moving land through
the entitlement and development process creates significant real
estate value. Residential development activities target lot
sales to national and regional home builders who build quality
products and have strong and effective marketing and sales
programs. The lots we deliver in the majority of our communities
are for mid-priced homes, predominantly in the first and second
move-up
categories, the largest segments of the new home market.
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 and royalty
interests. These operations have historically required low
capital investment, and we use the cash flow generated by our
mineral interests to accelerate real estate value creation
activities. In addition, we realize value from our undeveloped
land by selling fiber and by managing it for future real estate
development and conservation uses. We also generate cash flow
and create additional value through recreational leases.
We are committed to growing our business and will continue to
reinvest our capital primarily in ten strategic growth corridors
through disciplined investment in real estate opportunities that
meet our investment criteria. In 2007, we invested over
$54 million in nine new projects, representing nearly
3,700 acres located in four of our strategic growth
corridors.
Our real estate and mineral assets in combination with our
strategy, financial strength, management expertise, stewardship
and continuous reinvestment in our business, position Forestar
to maximize and grow long-term value for stockholders.
2007
Value Creation Highlights
Activities during 2007 include:
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Negotiating a 58% ownership interest in Ironstob, LLC, a venture
controlling about 17,000 acres of undeveloped land near
Atlanta, Georgia;
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Entering into an agreement with Marriott International, Inc.,
PGA Tour, Inc., and Miller Global for the development of a
JW Marriott®(a)
resort hotel, spa and two PGA
Tour®
Tournament Players
Club®(b)
(TPC) golf facilities at our Cibolo Canyons mixed-use
development near San Antonio, Texas;
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Entitling over 1,700 acres representing over 900 residential
lots, and moving nearly 4,300 acres into entitlement;
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Investing in nearly 3,700 acres representing approximately
5,100 single-family residential lots, 400 multifamily units
and about 140 commercial acres; and
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Leasing to oil and gas companies approximately 30,000 net
mineral acres for exploration and production activities.
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(a) JW
Marriott®
is a registered trademark of Marriott International, Inc.
(b) PGA
Tour®
and Tournament Players
Club®
are registered trademarks of PGA Tour, Inc.
2
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
about 373,000 acres, including approximately
303,000 acres located in a broad area around Atlanta,
Georgia, with the balance located primarily in Texas. We also
have real estate in Florida, Colorado, California, Utah,
Missouri, Tennessee, Alabama and Louisiana.
Our strategy for creating value in our real estate segment is to
move acres up the value chain by moving land located in growth
corridors but not yet entitled, through the entitlement process,
and into development. The chart below depicts our real estate
value chain, including real estate owned through ventures.
We have nearly 328,000 undeveloped acres located in the path of
population growth. As markets grow and mature, we intend to
secure the necessary entitlements, the timing for which varies
depending upon the size, location, use and complexity of a
project. We have about 29,000 acres in the entitlement
process, which includes obtaining zoning, other governmental
approvals, and access to utilities. We have about
16,000 acres entitled, developed, and under development,
comprised of about 30,000 residential lots and about 1,900
commercial acres. We use return criteria, which include return
on cost, internal rate of return, and return on cash, when
determining whether to invest initially or make additional
investment in a project. When investment in development meets
our return criteria, we will initiate the development process
with subsequent sale of lots to homebuilders or, for commercial
parcels, sale to or venture with commercial developers. We will
sell land at any point within the value chain when additional
time required for entitlement or investment in development will
not meet our return criteria. In 2007, we sold 2,617 acres
of unentitled, undeveloped land at an average price of $6,700
per acre.
3
A summary of our real estate projects in the entitlement
process(a)
at year-end 2007 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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Corinth Landing
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Coweta
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Atlanta
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850
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Crossing
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Coweta
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Atlanta
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230
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Fincher Road
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Cherokee
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Atlanta
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1,060
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Fox Hall
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Coweta
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Atlanta
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930
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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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Genesee
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Coweta
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Atlanta
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720
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Grove Park
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Coweta
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Atlanta
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150
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Home Place
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Coweta
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Atlanta
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1,500
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Jackson Park
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Jackson
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Atlanta
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690
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Lithia Springs
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Haralson
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Atlanta
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120
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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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Pickens School
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Pickens
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Atlanta
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420
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Serenity
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Carroll
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Atlanta
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440
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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
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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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630
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Total
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28,590
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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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(b) |
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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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(c) |
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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 primarily
4
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 encompassing
about 16,000 remaining acres, comprised of about 30,000
residential lots and about 1,900 commercial acres. We focus our
lot sales on the first and second
move-up
primary housing categories, the largest segments of the new home
market. First and second
move-up
segments are homes priced above entry-level products yet below
the high-end and custom home segments.
Marketing and sales of residential lots to builders is usually
conducted directly, without the need for outside real estate
brokers. Although we may discuss potential interest with
selected builders prior to commencement of a project, we
typically do not receive a binding commitment to purchase lots
prior to making our initial investment. Terms for these lot sale
transactions follow industry norms, generally consisting of
option contracts with prescribed takedown schedules. Prescribed
takedown rates vary due to several factors, including builder
profile, product type, market conditions, and the number of
builders competing within a subdivision. Payment in full is
typically received at the closing of each lot takedown.
Commercial tracts are either sold to or ventured with commercial
developers that specialize in the construction and operation of
income-producing properties, such as apartments, retail centers,
or office buildings. We sell land designated for commercial uses
to national retailers and to regional and local commercial
developers. As is typical for the industry, marketing and sale
of commercial tracts often involves outside real estate brokers.
We have about 1,900 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 466 have been sold as of year-end 2007
at an average price of $57,000 per lot. The residential
component will include not only traditional single-family homes
but also an active adult section and condominiums. Cibolo
Canyons homebuilder customers include Highland Homes, Meritage
Homes and Newmark Homes, as well as other builders. Our
commercial component is planned to include 145 acres
designated for multifamily and retail uses, of which
64 acres have been sold as of year-end 2007. Currently
under construction at Cibolo Canyons is the JW
Marriott®
San Antonio Hill Country Resort & Spa, planned to
include a 1,002 room destination resort and two TPC golf courses
to be designed by Pete Dye and Greg Norman. We have the right to
receive revenues from hotel occupancy and sales taxes generated
within the resort through 2034 and to reimbursement of certain
infrastructure costs.
5
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 2007 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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285
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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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699
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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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5
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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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466
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1,283
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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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197
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252
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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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1,393
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36
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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
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23
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83
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Katy Freeway
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Harris
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Houston
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100%
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38
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La Conterra
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Williamson
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Austin
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100%
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509
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60
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Maxwell Creek
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Collin
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Dallas/Fort Worth
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|
|
100%
|
|
|
|
594
|
|
|
|
429
|
|
|
|
|
|
|
|
|
|
Oak Creek Estates
|
|
Comal
|
|
San Antonio
|
|
|
100%
|
|
|
|
|
|
|
|
648
|
|
|
|
13
|
|
|
|
|
|
The Colony
|
|
Bastrop
|
|
Austin
|
|
|
100%
|
|
|
|
380
|
|
|
|
1,045
|
|
|
|
22
|
|
|
|
50
|
|
The Gables at North Hill
|
|
Collin
|
|
Dallas/Fort Worth
|
|
|
100%
|
|
|
|
193
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
The Preserve at Pecan Creek
|
|
Denton
|
|
Dallas/Fort Worth
|
|
|
100%
|
|
|
|
156
|
|
|
|
663
|
|
|
|
|
|
|
|
9
|
|
The Ridge at Ribelin Ranch
|
|
Travis
|
|
Austin
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
179
|
|
|
|
22
|
|
Westside at Buttercup Creek
|
|
Williamson
|
|
Austin
|
|
|
100%
|
|
|
|
1,239
|
|
|
|
289
|
|
|
|
66
|
|
|
|
|
|
Other projects (10)
|
|
Various
|
|
Various
|
|
|
100%
|
|
|
|
2,879
|
|
|
|
128
|
|
|
|
233
|
|
|
|
48
|
|
Georgia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towne West
|
|
Bartow
|
|
Atlanta
|
|
|
100%
|
|
|
|
|
|
|
|
2,674
|
|
|
|
|
|
|
|
121
|
|
Other projects (9)
|
|
Various
|
|
Atlanta
|
|
|
100%
|
|
|
|
|
|
|
|
1,777
|
|
|
|
|
|
|
|
40
|
|
Missouri and Utah
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other projects (3)
|
|
Various
|
|
Various
|
|
|
100%
|
|
|
|
775
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,547
|
|
|
|
13,728
|
|
|
|
638
|
|
|
|
982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projects in entities we consolidate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Park
|
|
Harris
|
|
Houston
|
|
|
75%
|
|
|
|
873
|
|
|
|
438
|
|
|
|
50
|
|
|
|
115
|
|
Lantana
|
|
Denton
|
|
Dallas/Fort Worth
|
|
|
55%
|
(e)
|
|
|
346
|
|
|
|
2,004
|
|
|
|
|
|
|
|
|
|
Light Farms
|
|
Collin
|
|
Dallas/Fort Worth
|
|
|
65%
|
|
|
|
|
|
|
|
2,501
|
|
|
|
|
|
|
|
|
|
Stoney Creek
|
|
Dallas
|
|
Dallas/Fort Worth
|
|
|
90%
|
|
|
|
1
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
Timber Creek
|
|
Collin
|
|
Dallas/Fort Worth
|
|
|
88%
|
|
|
|
|
|
|
|
654
|
|
|
|
|
|
|
|
|
|
Other projects (6)
|
|
Various
|
|
Various
|
|
|
Various
|
|
|
|
997
|
|
|
|
387
|
|
|
|
24
|
|
|
|
23
|
|
Tennessee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Youngs Lane
|
|
Davidson
|
|
Nashville
|
|
|
60%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,217
|
|
|
|
6,737
|
|
|
|
74
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owned and consolidated
|
|
|
|
|
|
|
|
|
|
|
9,764
|
|
|
|
20,465
|
|
|
|
712
|
|
|
|
1,136
|
|
Projects in ventures that we account for using the equity
method
|
Georgia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven Hills
|
|
Paulding
|
|
Atlanta
|
|
|
50%
|
|
|
|
627
|
|
|
|
453
|
|
|
|
26
|
|
|
|
|
|
The Georgian
|
|
Paulding
|
|
Atlanta
|
|
|
38%
|
|
|
|
287
|
|
|
|
1,098
|
|
|
|
|
|
|
|
|
|
Other projects (5)
|
|
Various
|
|
Atlanta
|
|
|
Various
|
|
|
|
1,844
|
|
|
|
188
|
|
|
|
3
|
|
|
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bar C Ranch
|
|
Tarrant
|
|
Dallas/Fort Worth
|
|
|
50%
|
|
|
|
175
|
|
|
|
1,006
|
|
|
|
|
|
|
|
|
|
Fannin Farms West
|
|
Tarrant
|
|
Dallas/Fort Worth
|
|
|
50%
|
|
|
|
236
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
Lantana
|
|
Denton
|
|
Dallas/Fort Worth
|
|
|
Various
|
(e)
|
|
|
1,764
|
|
|
|
84
|
|
|
|
3
|
|
|
|
77
|
|
Long Meadow Farms
|
|
Fort Bend
|
|
Houston
|
|
|
19%
|
|
|
|
598
|
|
|
|
1,508
|
|
|
|
24
|
|
|
|
186
|
|
Southern Trails
|
|
Brazoria
|
|
Houston
|
|
|
40%
|
|
|
|
250
|
|
|
|
812
|
|
|
|
|
|
|
|
|
|
Stonewall Estates
|
|
Bexar
|
|
San Antonio
|
|
|
25%
|
|
|
|
114
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
Summer Creek Ranch
|
|
Tarrant
|
|
Dallas/Fort Worth
|
|
|
50%
|
|
|
|
793
|
|
|
|
1,695
|
|
|
|
|
|
|
|
374
|
|
Summer Lakes
|
|
Fort Bend
|
|
Houston
|
|
|
50%
|
|
|
|
294
|
|
|
|
850
|
|
|
|
48
|
|
|
|
3
|
|
Village Park
|
|
Collin
|
|
Dallas/Fort Worth
|
|
|
50%
|
|
|
|
335
|
|
|
|
234
|
|
|
|
|
|
|
|
5
|
|
Waterford Park
|
|
Fort Bend
|
|
Houston
|
|
|
50%
|
|
|
|
|
|
|
|
493
|
|
|
|
|
|
|
|
37
|
|
Other projects (3)
|
|
Various
|
|
Various
|
|
|
Various
|
|
|
|
282
|
|
|
|
247
|
|
|
|
|
|
|
|
37
|
|
Florida
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other projects (3)
|
|
Various
|
|
Tampa
|
|
|
Various
|
|
|
|
473
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total in ventures
|
|
|
|
|
|
|
|
|
|
|
8,072
|
|
|
|
9,385
|
|
|
|
104
|
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined total
|
|
|
|
|
|
|
|
|
|
|
17,836
|
|
|
|
29,850
|
|
|
|
816
|
|
|
|
1,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
(a) |
|
A project is deemed entitled when all major discretionary
land-use approvals have been received. Some projects may require
additional permits 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. |
Our strategy includes not only entitlement and development on
our own lands but also accelerated growth through strategic and
disciplined investment in acquisitions that meet our investment
criteria. In 2007, we invested $54 million in nine real
estate projects. These projects are planned to include
approximately 5,100 single-family residential lots,
400 multifamily units and about 140 commercial acres.
Markets
We invest primarily in markets located within our strategic
growth corridors, which we define as areas with significant
growth characteristics for population, employment and household
formation. We believe these factors are the most influential on
the demand for new housing. We have identified ten strategic
growth corridors, located generally across the southern half of
the U.S., that we believe possess characteristics that make them
attractive long-term real estate investment opportunities.
Long-term demand for residential lots and commercial use land
parcels is substantially influenced by demographics such as
population growth, immigration, in-migration and household
formation. Near-term demand for new single-family housing is
primarily influenced by employment growth and affordability. Our
strategy to invest primarily in our strategic growth corridors
is designed to capitalize on opportunities afforded by both
long-term and near-term demographic and growth influences. This
strategy is also designed to reduce our exposure to localized
market volatility.
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.
7
Forestar
Strategic Growth Corridors
Competition
We face significant competition for the acquisition, entitlement
and development of real estate in our markets. Many of our
projects compete with other local developments that have similar
products and locations. We compete with other land owners for
the sale of our undeveloped land. In addition, we compete with
many national, regional and local developers and builders in
these markets. We may compete for investment opportunities,
financing, available land, raw materials and labor with entities
that possess greater financial, marketing and other resources
than us. Competition may increase the bargaining power of
property owners seeking to sell, and industry competition may
increase if there is future consolidation in the real estate
industry. 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. We are aware of no 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. Most 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, may enter or exit the real estate development
business in some locations to develop lots on which they
construct and sell homes. There are 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.
8
Natural
Resources
In our natural resources segment, we lease our oil and gas
mineral interests to exploration and production companies for
which we receive royalties and other revenues. We also sell wood
fiber from our land, primarily in Georgia, lease land for
hunting and other recreational uses, and manage our interests in
water rights.
Products
We own oil and gas mineral interests in approximately
622,000 net acres in Texas, Louisiana, Alabama and Georgia.
In the context of our mineral interests, net acres refers to the
gross number of surface acres multiplied by our percentage
ownership of the mineral interest. Our minerals revenue is
primarily from oil and gas royalty interests, and to a lesser
extent, bonus payments made at the inception of a new oil or gas
lease and delay rentals. Although we lease certain portions of
these oil and gas mineral interests to third parties for the
exploration and production of oil and gas, we do not drill wells
or engage in any other exploratory or extractive activities. 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 acreage leased, lease rates and royalty
interests. The chart below depicts our minerals value chain.
Of our 622,000 net acres of oil and gas mineral interests,
about 520,000 net acres are available for lease. Almost
half of the acres available for lease are in Georgia and
Alabama, which have historically had very little oil and gas
exploration activity. Included in mineral acreage available for
lease is about 46,000 net acres subject to a geophysical
option. The option gives the holder the right to lease these
acres upon satisfaction of certain conditions. We have about
77,000 net acres leased for exploration activities, and
about 25,000 net acres held by production from 331 oil and
gas wells that are owned and operated by others.
Leasing mineral acres for exploration and production activities
creates significant value because we retain a royalty interest
in all revenues generated by the lessee from oil and gas
production activities. The significant terms of these
arrangements include granting the exploration company the rights
to any oil or gas it may find
9
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 found (royalties). If no oil or gas
is found 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. From our retained royalty interests, we
received an average net price in 2007, 2006 and 2005 per barrel
of oil of $65.24, $64.14, and $52.41, respectively, and per
thousand cubic feet of gas of $6.69, $7.95, and $7.04,
respectively.
A summary of our oil and gas mineral interests owned, leased,
and held by production at year-end 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Acres
|
|
|
Net Acres
|
|
|
Held by
|
|
State
|
|
Owned(a)
|
|
|
Leased(b)
|
|
|
Production(c)
|
|
|
Texas
|
|
|
244,000
|
|
|
|
64,000
|
|
|
|
18,000
|
|
Louisiana
|
|
|
121,000
|
|
|
|
4,000
|
|
|
|
7,000
|
|
Alabama
|
|
|
57,000
|
|
|
|
9,000
|
|
|
|
0
|
|
Georgia
|
|
|
200,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
622,000
|
|
|
|
77,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Texas and Louisiana net acres are calculated as the gross number
of surface acres multiplied by our percentage ownership of the
mineral interest. Alabama and Georgia net acres are calculated
as the gross number of surface acres multiplied by our estimated
percentage ownership of the mineral interest based on county
sampling. |
|
(b) |
|
Includes leases in primary lease term only. |
|
(c) |
|
Acres being held by production are producing oil or gas in
paying quantities. |
We have about 350,000 acres of timber on our undeveloped
land, and over 18,000 acres of timber under lease. In 2007,
we sold at estimated market prices, primarily to Temple-Inland,
about 1,215,000 tons of timber from our lands. We manage our
timberland in accordance with the Sustainable Forestry
Initiative®
program of Sustainable Forestry Initiative, Inc. Over
285,000 acres of our land, primarily in Georgia, are leased
for recreational purposes. Most recreational leases are for a
three-year term but may be terminated by us on
30 days notice to the lessee.
We also have 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 both regionally and on world trading
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. 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 has a five-year term 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.
10
Competition
We compete with others who own mineral interests in the vicinity
of our mineral interests. In locations where our mineral
interests are close to producing wells and proven reserves,
other parties will compete to lease our mineral interests.
Conversely, where our mineral interests are close to areas where
reserves have not been discovered we may receive nominal
interest in leasing our minerals. However, when oil and gas
prices are higher, we are likely to receive greater interest in
leasing our minerals close to these areas because the economics
for exploration companies will support more exploration
activities. Portions of our Texas and Louisiana minerals are
close to producing wells and proven reserves.
We face significant competition from many public and private
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
significant portion of our wood fiber is reasonably close to
such facilities, so we expect continued demand for our wood
fiber.
Some of our competitors are well established and financially
strong, may have greater financial resources than we do, or may
be larger than us
and/or have
lower cost of capital and operating costs than we have and
expect to have.
Employees
We have 88 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. 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 in environmentally sensitive regions or
areas, which could negatively affect our results of operations.
We own approximately 285 acres in several parcels in or
near Antioch, California, portions of which were sites of a
Temple-Inland paper manufacturing operation and related support
facilities that were closed in 2002. Substantially all
manufacturing facilities have been removed from the sites.
Investigations conducted by Temple-Inland disclosed the need for
remediation of environmental impacts associated with the closure
of manufacturing operations, which remediation is being
conducted voluntarily with oversight by the California
Department of Toxic Substances Control, or DTSC. The DTSC issued
Certificates of Completion for approximately 180 acres in
2006, and we anticipate that Certificates of Completion will be
issued for the remaining approximately 105 acres in 2009.
We estimate the cost we will likely incur to complete
remediation activities will be about $6 million. We will
have no right of indemnification from Temple-Inland should our
actual costs exceed our estimate.
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Legal
Structure
Forestar Real Estate Group Inc. is a Delaware corporation. The
following chart presents the ownership structure for our
significant subsidiaries and ventures. It does not contain all
our subsidiaries and ventures, some of which are immaterial
entities. Except as indicated, all subsidiaries shown are
100 percent owned by their immediate parent.
Our principal executive offices are located at 1300 MoPac
Expressway South, Suite 3S, Austin, Texas 78746. 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 and Exchange Act of 1934, as amended (or the
Exchange Act); and
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corporate governance information that includes our
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corporate governance guidelines,
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audit committee charter,
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management development and executive compensation committee
charter,
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nominating and governance committee charter,
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standards of business conduct and ethics,
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code of ethics for senior financial officers, and
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information on how to communicate directly with our board of
directors.
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We will also provide printed copies of any of these documents to
any stockholder 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
(http://www.sec.gov)
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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-25 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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Chief Executive Officer
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Christopher L. Nines
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Chief Financial Officer
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Craig A. Knight
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Chief Investment Officer
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Charles T. Etheredge, Jr.
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Executive Vice President
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David M. Grimm
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Chief Administrative Officer, General Counsel and Secretary
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Charles D. Jehl
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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 2000, he held land management positions with
several companies throughout the southeastern United States.
Christopher L. Nines has served as our Chief Financial Officer
since April 2007. He served as Temple-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.
David M. Grimm has served as our Chief Administrative Officer
since April 2007, in addition to holding the offices of General
Counsel and Secretary since 2006. Mr. Grimm served
Temple-Inland as Group General Counsel from 2005 to 2006,
Associate General Counsel from 2003 to 2005, and held various
other legal positions from 1992 to 2003. Prior to joining
Temple-Inland, Mr. Grimm was an attorney in private
practice in Dallas, Texas.
Charles D. Jehl has served as our Chief Accounting Officer since
2006. He served as Chief Operations Officer and Chief Financial
Officer of Guaranty Insurance Services, Inc. from 2005 to 2006,
and as Senior Vice President and Controller from 2000 to 2005.
From 1989 to 1999, Mr. Jehl held various financial
management positions within Temple-Inlands financial
services segment.
Risks
Relating to Our Business
A
decrease in demand for new housing in the markets where we
operate could decrease our profitability.
The residential development industry is cyclical and is
significantly affected by changes in general and local economic
conditions, such as employment levels, availability of financing
for home buyers, interest rates, consumer confidence and housing
demand. Adverse changes in these conditions generally, or in the
markets
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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 buildable
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 in a poorly performing project or market.
Both
our real estate and natural 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. Natural 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 and can be
expected to materially affect our real estate development
activities.
The
real estate and natural 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 natural 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, and
housing affordability. 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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Our business and results of operations are negatively affected
by the existence of these conditions.
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Our
activities are subject to environmental regulations and
liabilities that could have a negative effect on our operating
results.
Our operations are subject to federal, state, and local
provisions regulating the discharge of materials into the
environment and otherwise related to the protection of the
environment. Compliance with these provisions may result in
delays, may cause us to invest substantial funds to ensure
compliance with applicable environmental regulations and can
prohibit or severely restrict homebuilding activity in
environmentally sensitive regions or areas.
Our
real estate operations are currently concentrated in Georgia and
Texas. As a result, our financial results are dependent on the
economic growth and strength of those areas.
The economic growth and strength of Georgia and Texas, where the
majority of our real estate development activity is located, are
important factors in sustaining demand for our activities. As a
result, any adverse change to the economic growth and health of
those areas could materially adversely affect our financial
results. The future economic growth in certain portions of
Georgia in particular may be adversely affected if its
infrastructure, such as roads, utilities, and schools, are not
improved to meet increased demand. There can be no assurance
that these improvements will occur.
If we
are unable to retain or attract experienced real estate
development or natural resources management personnel, our
business may be adversely affected.
Our future success depends on our ability to retain and attract
experienced real estate development and natural resources
management personnel. The market for these employees is highly
competitive. If we cannot continue to retain and attract quality
personnel, our ability to effectively operate our business may
be significantly limited.
Our
real estate development operations are increasingly dependent
upon national, regional, and local homebuilders, as well as
other strategic partners, who may have interests that differ
from ours and may take actions that adversely affect
us.
We are highly dependent upon our relationships with national,
regional, and local homebuilders to purchase lots in our
residential developments. If homebuilders do not view our
developments as desirable locations for homebuilding operations,
our business will be adversely affected. Also, a national
homebuilder could decide to delay purchases of lots in one of
our developments due to adverse real estate conditions wholly
unrelated to our areas of operations.
We are also involved in strategic alliances or venture
relationships as part of our overall strategy for particular
developments or regions. These venture partners may bring
development experience, industry expertise, financing
capabilities, and local credibility or other competitive assets.
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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Significant
reductions in cash flow from slowing real estate or natural
resources market conditions could lead to higher levels of
indebtedness, limiting our financial and operating
flexibility.
Under our senior credit facility, we have a $175 million
term loan and a revolving line of credit with a borrowing limit
of $290 million. We had drawn $175 million of the term
loan and none of the revolving line of credit at year-end 2007.
Amounts due under our senior credit facility are secured by
certain of our assets.
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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 or
natural resources market conditions could lead to higher levels
of indebtedness, limiting our financial and operating
flexibility, and ultimately limiting our ability to comply with
our debt covenants. If we fail to comply with the terms of any
of our debt covenants, our lenders will have the right to
accelerate the maturity of that debt and foreclose upon the
collateral securing that debt. Realization of any of these
factors could adversely affect our financial condition and
results of operations.
Risks
Relating to the Spin-off
We may
be unable to achieve some or all of the benefits that we
expected to achieve from our spin-off from
Temple-Inland.
We may not be able to achieve the full strategic and financial
benefits that we expected would result from our spin-off from
Temple-Inland or such benefits may be delayed or may not occur
at all. For example, there can be no assurance that analysts and
investors will regard our corporate structure as clearer and
simpler than the former Temple-Inland corporate structure or
place a greater value on our company as a stand-alone company
than on our businesses being a part of Temple-Inland.
We
have only a limited operating history as an independent,
publicly-traded company upon which you can evaluate our
performance, and accordingly, our prospects must be considered
in light of the risks that any newly independent company
encounters.
We have only a limited experience operating as an independent,
publicly-traded company and performing various corporate
functions, including human resources, tax administration, legal
(including compliance with the Sarbanes-Oxley Act of 2002 and
with the periodic reporting obligations of the Securities
Exchange Act of 1934), treasury administration, investor
relations, internal audit, insurance, information technology and
telecommunications services, as well as the accounting for items
such as equity compensation and income taxes. We may be unable
to make, on a timely or cost-effective basis, the changes
necessary to operate as an independent, publicly-traded company,
and we may experience increased costs associated with performing
these functions. Our prospects must be considered in light of
the risks, expenses and difficulties encountered by companies in
the early stages of independent business operations,
particularly companies such as ours in highly competitive
markets.
Our
agreements with Temple-Inland and Guaranty may not reflect terms
that would have resulted from arms-length negotiations
among unaffiliated third parties.
The agreements that we have entered into related to our spin-off
from Temple-Inland, including the separation and distribution
agreement, employee matters agreement, tax matters agreement and
transition services agreement, were prepared in the context of
our spin-off from Temple-Inland while we were still part of
Temple-Inland and, accordingly, may not reflect terms that would
have resulted from arms-length negotiations among
unaffiliated third parties. These agreements relate to, among
other things, the allocation of assets, liabilities, rights,
indemnifications and other obligations between Temple-Inland,
Guaranty, and us.
Our
historical financial information 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 has been created using our
historical results of operations and historical bases of assets
and liabilities as part of Temple-Inland. This historical
financial information is not necessarily indicative of what our
results of operations, financial position and cash flows would
have been if we had been a separate, stand-alone entity during
the periods presented.
It also is not necessarily indicative of what our results of
operations, financial position and cash flows will be in the
future and does not reflect many significant changes that have
occurred or will occur in our capital structure, funding, and
operations as a result of the spin-off. While our historical
results of operations include all costs of Temple-Inlands
real estate development and minerals operations, our historical
costs and
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expenses do not include all of the costs that would have been or
will be incurred by us as an independent, publicly-traded
company. In addition, our historical financial information does
not reflect changes, many of which are significant, that we
anticipate will occur or have occurred in our cost structure,
financing and operations as a result of the spin-off. These
changes include potentially increased costs associated with
reduced economies of scale and purchasing power.
Our effective income tax rate as reflected in our historical
financial information also may not be indicative of our future
effective income tax rate. Among other things, the rate may be
materially affected by:
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changes in the mix of our earnings from the various
jurisdictions in which we operate;
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the tax characteristics of our earnings; and
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the timing and results of any reviews of our income tax filing
positions in the jurisdictions in which we transact business.
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If the
spin-off is determined to be taxable for U.S. federal income tax
purposes, we, our stockholders, and Temple-Inland could incur
significant U.S. federal income tax liabilities.
Temple-Inland has received a private letter ruling from the
Internal Revenue Service, or IRS, that the spin-off qualifies
for tax-free treatment under applicable sections of the Code. In
addition, Temple-Inland has received an opinion from tax counsel
that the spin-off so qualifies. The IRS ruling and the opinion
rely on certain representations, assumptions, and undertakings,
including those relating to the past and future conduct of our
business, and neither the IRS ruling nor the opinion would be
valid if such representations, assumptions, and undertakings
were incorrect. Moreover, the IRS private letter ruling does not
address all the issues that are relevant to determining whether
the spin-off qualifies for tax-free treatment. Notwithstanding
the IRS private letter ruling and opinion, the IRS could
determine that the spin-off should be treated as a taxable
transaction if it determines that any of the representations,
assumptions, or undertakings that were included in the request
for the private letter ruling are false or have been violated or
if it disagrees with the conclusions in the opinion that are not
covered by the IRS ruling.
If the spin-off fails to qualify for tax-free treatment,
Temple-Inland would be subject to tax as if it had sold the
common stock of our company in a taxable sale for its fair
market value, and our initial public stockholders would be
subject to tax as if they had received a taxable distribution
equal to the fair market value of our common stock that was
distributed to them. 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. Our indemnification
obligations to Temple-Inland and its subsidiaries, officers, and
directors are not limited by any maximum amount. If we are
required to indemnify Temple-Inland or such other persons under
the circumstances set forth in the tax matters agreement, we may
be subject to substantial liabilities.
We
must abide by certain restrictions to preserve the tax-free
treatment of the spin-off and may not be able to engage in
desirable acquisitions and other strategic transactions
following the spin-off.
To preserve the tax-free treatment of the spin-off to
Temple-Inland, under the tax matters agreement that we entered
into with Temple-Inland and Guaranty, for the two-year period
following the distribution, we may be prohibited, except in
specified circumstances, from:
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issuing equity securities to satisfy financing needs,
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acquiring businesses or assets with equity securities, or
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engaging in mergers or asset transfers that could jeopardize the
tax-free status of the distribution.
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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.
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The
ownership by our chairman, our executive officers, and some of
our other directors of common stock, options, or other equity
awards of Temple-Inland or Guaranty may create actual or
apparent conflicts of interest.
Because of their current or former positions with Temple-Inland,
our chairman, substantially all of our executive officers,
including our Chief Executive Officer and our Chief Financial
Officer, and some of our non-employee directors, own shares of
common stock of Temple-Inland, options to purchase shares of
common stock of Temple-Inland, or other Temple-Inland equity
awards. These officers and non-employee directors also own
shares of common stock, options to purchase shares of common
stock, and other equity awards in Guaranty. The individual
holdings of shares of common stock, options to purchase shares
of common stock, or other equity awards of Temple-Inland and
Guaranty may be significant for some of these persons compared
with their total assets. In light of our continuing
relationships with Temple-Inland and Guaranty, these equity
interests may create actual or apparent conflicts of interest
when these directors and officers are faced with decisions that
could benefit or affect the equity holders of Temple-Inland or
Guaranty in ways that do not benefit or affect us in the same
manner.
We may
be unable to make, on a timely or cost-effective basis, the
changes necessary to operate as an independent, publicly-traded
company, and we may experience increased costs after the
spin-off or as a result of the spin-off.
Following the spin-off, Temple-Inland is obligated contractually
to provide to us only those transition services specified in the
transition services agreement we have entered into with
Temple-Inland and Guaranty. We may be unable to replace in a
timely manner or on comparable terms the services or other
benefits that Temple-Inland previously provided to us that are
not specified in any transition services agreement. After the
expiration of the transition services agreement, we may be
unable to replace in a timely manner or on comparable terms the
services specified in the agreement. Upon expiration of the
transition services agreement, many of the services that are
covered in the agreement will have to be provided internally or
by unaffiliated third parties. We may incur higher costs to
obtain these services than we incurred previously. In addition,
if Temple-Inland does not continue to perform the services that
are called for under the transition services agreement, we may
not be able to operate our business as effectively and our
profitability may decline.
Risks
Relating to Our Common Stock
The
market price of our shares may fluctuate widely.
The market price of our common stock may fluctuate widely,
depending upon many factors, some of which may be beyond our
control, including:
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a shift in our investor base;
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actual or anticipated fluctuations in our operating results due
to the seasonality of our business and other factors related to
our business;
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announcements by us or our competitors of significant
acquisitions or dispositions;
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the operating and stock price performance of other comparable
companies;
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overall market fluctuations; and
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general economic conditions.
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Stock markets in general have experienced volatility that has
often been unrelated to the operating or financial performance
of a particular company. These broad market fluctuations may
adversely affect the trading price of our common stock.
Your
percentage ownership in our common stock may be diluted in the
future.
Your percentage ownership in our common stock may be diluted in
the future because of equity awards that have already been
granted and that we expect will be granted to our directors and
officers in the future. Our 2007 Stock Incentive Plan provides
for the grant of equity-based awards, including restricted
stock, restricted stock units, stock options, stock appreciation
rights, phantom equity awards and other equity-based awards to
our directors, officers and other employees. In the future, we
may issue additional equity securities,
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subject to limitations imposed by the tax matters agreement, in
order to fund working capital needs, capital expenditures and
product development, or to make acquisitions and other
investments, which may dilute your ownership interest.
The
terms of our spin-off from Temple-Inland, anti-takeover
provisions of our charter and bylaws, as well as Delaware law
and our stockholder rights agreement, may reduce the likelihood
of any potential change of control or unsolicited acquisition
proposal that you might consider favorable.
The terms of our spin off from Temple-Inland could delay or
prevent a change of control that you may favor. An acquisition
or issuance of our common stock could trigger the application of
Section 355(e) of the Code, which could cause the spin off
to be taxable to Temple-Inland. Under the tax matters agreement
we have entered into with Temple-Inland and Guaranty, we would
be required to indemnify Temple-Inland and Guaranty for the
resulting tax in connection with such an acquisition or issuance
and this indemnity obligation might discourage, delay or prevent
a change of control that you may consider favorable.
In addition, our certificate of incorporation and bylaws and
Delaware law contain provisions that could make it more
difficult for a third party to acquire us without the consent of
our board of directors. Our board of directors may classify or
reclassify any unissued shares of common stock or preferred
stock and may set the preferences, conversion, or other rights,
voting powers, and other terms of the classified or reclassified
shares. Our board of directors could establish a series of
preferred stock that could have the effect of delaying,
deferring, or preventing a transaction or a change in control
that might involve a premium price for our common stock or
otherwise be considered favorably by our stockholders. Our
certificate of incorporation and bylaws also provide for a
classified board structure.
Our bylaws provide that nominations of persons for election to
our board of directors and the proposal of business to be
considered at a stockholders meeting may be made only in
the notice of the meeting, by our board of directors or by a
stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures of our bylaws. Also,
under Delaware law, business combinations, including issuances
of equity securities, between us and any person who beneficially
owns 15 percent or more of our common stock or an affiliate
of such person, are prohibited for a three-year period unless
exempted by the statute. After this three-year period, a
combination of this type must be approved by a super-majority
stockholder vote, unless specific conditions are met or the
business combination is exempted by our board of directors.
In addition, we have entered into a stockholder rights agreement
with a rights agent that provides that in the event of an
acquisition of or tender offer for 20 percent or more of
our outstanding common stock, our stockholders shall be granted
rights to purchase our common stock at a significant discount.
The stockholder rights agreement could have the effect of
significantly diluting the percentage interest of a potential
acquirer and make it more difficult to acquire a controlling
interest in our common stock without the approval of our board
of directors to redeem the rights or amend the stockholder
rights agreement to permit the acquisition.
We
currently do not intend to pay any dividends on our common
stock. Accordingly, investors in our common stock must rely upon
subsequent sales after price appreciation as the sole method to
realize a gain on an investment in our common
stock.
We currently intend to retain any future earnings to support the
development and expansion of our business and do not anticipate
paying cash dividends in the foreseeable future. The declaration
and payment of any future dividends will be at the discretion of
our board of directors after taking into account various
factors, including without limitation, our financial condition,
earnings, capital requirements of our business, the terms of any
credit agreements to which we may be a party at the time, legal
requirements (including compliance with the IRS private letter
ruling), industry practice, and other factors that our board of
directors deems relevant. To the extent we do not pay dividends,
our stock may be less valuable because a return on investment
will only occur if and to the extent our stock price
appreciates, which may never occur. In addition, investors must
rely on sales of their common stock after price appreciation as
the only way to realize a return on their investment, and if the
price of our stock does not appreciate, then there will be no
return on investment. Investors seeking cash dividends should
not hold our common stock.
19
Additional
Risks
Additional
risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also adversely affect our
business, financial condition or results of operations, the
spin-off, or the trading price of our common
stock.
The risks and uncertainties we face are not limited to those set
forth in the risk factors described above. Although we believe
that the risks identified above are our material risks in each
of these categories, our assessment is based on the information
currently known to us. Additional risks and uncertainties that
are not presently known to us or that we do not currently
believe to be material, if they occur, also may materially
adversely affect our business, financial condition or results of
operations, the spin-off, or the trading price of our common
stock.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
Our principal executive offices are located in Austin, Texas,
where we lease approximately 23,000 square feet of office
space from Guaranty. We also lease office space in Dallas,
Texas, and in several locations near Atlanta, Georgia. We
believe these offices are suitable for conducting our business.
For a description of our properties in our real estate and
natural resources segments, see Business Real
Estate and Business Natural
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
record date for our spin off was the close of business on
December 14, 2007, and our spin off was completed on
December 28, 2007. A limited market, commonly known as a
when-issued trading market, began shortly before the
record date for the spin off, and regular way
trading of our common stock began on the first trading day after
the spin off. Thus, there was no regular way trading
in our common stock during our 2007 fiscal year. The high and
low sales prices for our common stock for the period from
December 12, 2007 to December 29, 2007 were:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Price Range
|
|
|
|
High
|
|
|
Low
|
|
|
Fourth Quarter (since December 12, 2007)
|
|
$
|
24.45
|
|
|
$
|
20.00
|
|
Shareholders
Our stock transfer records indicated that as of
February 22, 2008, there were approximately 4,450 holders
of record of our common stock.
20
Dividend
Policy
We currently intend to retain any future earnings to support the
development and expansion of our business and do not anticipate
paying cash dividends in the foreseeable future. The declaration
and payment of any future dividends will be at the discretion of
our 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.
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 year-end 2007 about our
equity compensation plan under which our common stock may be
issued follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Shares of
|
|
|
|
|
|
|
|
|
|
Our Common Stock
|
|
|
|
(a)
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Shares of
|
|
|
(b)
|
|
|
Future Issuance Under
|
|
|
|
Our Common Stock to be
|
|
|
Weighted-Average
|
|
|
Equity Compensation
|
|
|
|
Issued Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Plans (Exceeding
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected in
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Column(a))
|
|
|
2007 stock incentive plan
|
|
|
1,982,030
|
|
|
$
|
19.32
|
|
|
|
1,817,970
|
|
Other equity compensation plans approved by our security holders
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Equity compensation plans not approved by our security holders
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,982,030
|
|
|
|
|
|
|
|
1,817,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Graph
We composed an index of our peers consisting of Avatar Holdings
Inc., Consolidated-Tomoka Land Co., Tejon Ranch Co. and The St.
Joe Company (Peer Index). From the date trading in
our common stock began (December 12, 2007) until
year-end 2007, our cumulative total stockholder return compared
to the S&P SmallCap 600 Index and to the Peer Index was as
shown in the following graph (assuming $100 invested on
December 12, 2007):
21
|
|
Item 6.
|
Selected
Financial Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
142,729
|
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
|
$
|
92,416
|
|
Natural resources
|
|
|
35,257
|
|
|
|
45,409
|
|
|
|
37,366
|
|
|
|
30,478
|
|
|
|
27,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
177,986
|
|
|
$
|
225,560
|
|
|
$
|
155,487
|
|
|
$
|
169,301
|
|
|
$
|
119,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate(a)
|
|
$
|
39,507
|
|
|
$
|
70,271
|
|
|
$
|
46,418
|
|
|
$
|
43,370
|
|
|
$
|
21,259
|
|
Natural resources
|
|
|
26,531
|
|
|
|
33,016
|
|
|
|
24,850
|
|
|
|
18,653
|
|
|
|
14,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
66,038
|
|
|
|
103,287
|
|
|
|
71,268
|
|
|
|
62,023
|
|
|
|
35,722
|
|
Items not allocated to segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(17,413
|
)
|
|
|
(14,048
|
)
|
|
|
(9,113
|
)
|
|
|
(10,433
|
)
|
|
|
(6,921
|
)
|
Share-based
compensation(b)
|
|
|
(1,397
|
)
|
|
|
(1,275
|
)
|
|
|
(443
|
)
|
|
|
(154
|
)
|
|
|
(56
|
)
|
Interest expense
|
|
|
(9,229
|
)
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
|
|
(6,091
|
)
|
|
|
(5,591
|
)
|
Other non-operating income
(expense)(c)
|
|
|
705
|
|
|
|
79
|
|
|
|
483
|
|
|
|
535
|
|
|
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
38,704
|
|
|
|
81,814
|
|
|
|
55,756
|
|
|
|
45,880
|
|
|
|
23,706
|
|
Income tax expense
|
|
|
(13,909
|
)
|
|
|
(29,970
|
)
|
|
|
(20,859
|
)
|
|
|
(17,444
|
)
|
|
|
(8,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,795
|
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
|
$
|
15,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At year-end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
748,726
|
|
|
$
|
620,174
|
|
|
$
|
543,944
|
|
|
$
|
517,700
|
|
|
$
|
533,097
|
|
Debt
|
|
$
|
266,015
|
|
|
$
|
161,117
|
|
|
$
|
121,948
|
|
|
$
|
110,997
|
|
|
$
|
143,337
|
|
Minority interest in consolidated ventures
|
|
$
|
8,629
|
|
|
$
|
7,746
|
|
|
$
|
7,292
|
|
|
$
|
8,078
|
|
|
$
|
2,558
|
|
Stockholders/Parents Equity
|
|
$
|
433,201
|
|
|
$
|
418,052
|
|
|
$
|
381,290
|
|
|
$
|
368,659
|
|
|
$
|
354,155
|
|
Ratio of total debt to total capitalization
|
|
|
38
|
%
|
|
|
28
|
%
|
|
|
24
|
%
|
|
|
23
|
%
|
|
|
29
|
%
|
|
|
|
(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. In
2003, Temple-Inland voluntarily adopted the prospective
transition method of SFAS No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure,
an amendment of FASB Statement No. 123. As a result,
Temple-Inland began allocating share-based compensation expense
to us. |
|
(c) |
|
In 2006, other non-operating income (expense) included $459,000
expense associated with early repayment of debt. |
|
|
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 subject
to risk and uncertainties. We note that a variety of factors and
uncertainties could cause our actual
22
results to differ significantly from the results discussed in
the forward-looking statements. Factors and uncertainties that
might cause such differences include, but are not limited to:
|
|
|
|
|
general economic, market or business conditions;
|
|
|
|
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;
|
|
|
|
estimated land holdings for a particular use within a specified
time frame;
|
|
|
|
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;
|
|
|
|
the pace at which we release lots for sale;
|
|
|
|
fluctuations in costs and expenses;
|
|
|
|
demand for new housing;
|
|
|
|
government energy policies;
|
|
|
|
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 on favorable terms, which can be affected by
various factors, including our credit ratings and general
economic conditions;
|
|
|
|
the ability to complete merger, acquisition or divestiture
plans; regulatory or other limitations imposed as a result of a
merger, acquisition or divestiture; and the success of the
business following a merger, acquisition or divestiture; and
|
|
|
|
the final resolutions or outcomes with respect to our contingent
and other corporate liabilities related to our business and any
related actions for indemnification made pursuant to the
separation and distribution agreement.
|
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.
Introduction
Our spin-off from Temple-Inland occurred after the close of
business on December 28, 2007, and our 2007 fiscal year
ended December 29, 2007. Except for the last day of our
fiscal year, the following discussion and analysis of our
financial condition and results of operations covers periods
prior to the spin-off and related transactions. It does not
reflect the impact that the spin-off and related transactions
will have on us, including leverage, debt service requirements,
and differences between administrative costs allocated to us by
Temple-Inland and actual administrative costs that we will incur
as a separate public company.
23
Our historical results may not be indicative of our future
performance and do not necessarily reflect what our financial
condition and results of operations would have been had we
operated as an independent, stand-alone entity during the
periods presented, particularly because changes will occur in
our operations and capitalization as a result of the spin-off.
In addition, the statements in the discussion and analysis
regarding industry outlook, our expectations regarding the
future performance of our business and the other non-historical
statements in the discussion and analysis are forward-looking
statements. These forward-looking statements are subject to
numerous risks and uncertainties, including, but not limited to,
the risks and uncertainties described in Item 1A Risk
Factors of this Annual Report on
Form 10-K
and Forward-Looking Statements above. Our actual
results may differ materially from those contained in any
forward-looking statements.
Results
of Operations for the Years Ended 2007, 2006 and 2005
Summary
Our strategy is to maximize and grow long-term stockholder value
through:
|
|
|
|
|
Entitlement and development of real estate,
|
|
|
|
Realization of value from natural resources, and
|
|
|
|
Accelerated growth through strategic and disciplined investment
in real estate.
|
A summary of our consolidated results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
142,729
|
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
Natural resources
|
|
|
35,257
|
|
|
|
45,409
|
|
|
|
37,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
177,986
|
|
|
$
|
225,560
|
|
|
$
|
155,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
39,507
|
|
|
$
|
70,271
|
|
|
$
|
46,418
|
|
Natural resources
|
|
|
26,531
|
|
|
|
33,016
|
|
|
|
24,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
66,038
|
|
|
|
103,287
|
|
|
|
71,268
|
|
Items not allocated to segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
General & administrative
|
|
|
(17,413
|
)
|
|
|
(14,048
|
)
|
|
|
(9,113
|
)
|
Share-based compensation
|
|
|
(1,397
|
)
|
|
|
(1,275
|
)
|
|
|
(443
|
)
|
Interest expense
|
|
|
(9,229
|
)
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
Other non-operating income (expense)
|
|
|
705
|
|
|
|
79
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
38,704
|
|
|
|
81,814
|
|
|
|
55,756
|
|
Income tax expense
|
|
|
(13,909
|
)
|
|
|
(29,970
|
)
|
|
|
(20,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,795
|
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant aspects of our results of operations follow:
2007
|
|
|
|
|
Net income decreased as a result of the overall decline in the
housing industry and a reduction in activity within our natural
resources segment.
|
|
|
|
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.
|
24
2006
|
|
|
|
|
Net income increased due to the continued strength for new
housing in the markets in which we operate and increased
activity within our natural resources segment.
|
|
|
|
Expenses increased as a result of costs associated with the
segmentation of the real estate business within Temple-Inland.
|
Current
Market Conditions
Current conditions in the residential development industry are
difficult due to an oversupply of housing, declining sales
volume for existing and new homes, flat to declining sales
prices, and a significant tightening of mortgage credit. A
decline in consumer confidence is also evident. 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 2008.
Business
Segments
We operate two business segments:
|
|
|
|
|
Real estate, and
|
|
|
|
Natural 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.
Our operations are affected to varying degrees by supply and
demand factors and economic conditions including changes in
interest rates, availability of mortgage credit, new housing
starts, real estate values, employment levels, changes in the
market prices for oil, gas, and timber, and the overall strength
of the U.S. economy.
Real
Estate
Our real estate segment conducts 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. Our real estate
segment revenues are principally derived from the sales of
residential 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
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
142,729
|
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
Costs and expenses
|
|
|
(101,183
|
)
|
|
|
(126,020
|
)
|
|
|
(87,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,546
|
|
|
|
54,131
|
|
|
|
30,292
|
|
Equity in earnings of unconsolidated ventures
|
|
|
3,732
|
|
|
|
19,371
|
|
|
|
17,180
|
|
Minority interest expense in consolidated ventures
|
|
|
(5,771
|
)
|
|
|
(3,231
|
)
|
|
|
(1,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
39,507
|
|
|
$
|
70,271
|
|
|
$
|
46,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, costs and expenses include asset impairments of
$6,518,000 related to residential real estate projects and a
commercial golf club operation in Texas. The decrease in equity
in earnings of unconsolidated ventures is due principally to the
overall decline in the housing industry.
25
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 of unconsolidated ventures in
2006 by about $1,104,000.
Revenues and units sold consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except lots and acres)
|
|
|
Residential real estate
|
|
$
|
58,467
|
|
|
$
|
74,833
|
|
|
$
|
60,340
|
|
Commercial real estate
|
|
|
41,484
|
|
|
|
49,699
|
|
|
|
13,968
|
|
Undeveloped land
|
|
|
17,939
|
|
|
|
27,253
|
|
|
|
22,388
|
|
Commercial operating properties
|
|
|
20,383
|
|
|
|
19,590
|
|
|
|
17,349
|
|
Other
|
|
|
4,456
|
|
|
|
8,776
|
|
|
|
4,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
142,729
|
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate lots sold
|
|
|
1,076
|
|
|
|
1,710
|
|
|
|
1,355
|
|
Commercial real estate acres sold
|
|
|
166
|
|
|
|
220
|
|
|
|
264
|
|
Undeveloped land acres sold
|
|
|
2,486
|
|
|
|
3,441
|
|
|
|
3,067
|
|
Residential real estate revenues principally consist of the sale
of single-family lots to national, regional and local
homebuilders. In 2007, residential real estate revenues
decreased as a result of the overall decline in the housing
industry.
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.
Undeveloped land sales revenues decreased in 2007 as a result of
significant tightening of credit standards.
Other revenues in 2006 included the sale of a country club
property for $4,300,000.
26
Information about our real estate projects and our ventures
follows:
|
|
|
|
|
|
|
|
|
|
|
Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
Owned and consolidated ventures:
|
|
|
|
|
|
|
|
|
Entitled, developed, and under development land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
56
|
|
|
|
48
|
|
Residential lots remaining
|
|
|
20,465
|
|
|
|
15,941
|
|
Commercial acres remaining
|
|
|
1,136
|
|
|
|
1,265
|
|
Undeveloped land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
22
|
|
|
|
19
|
|
Acres in entitlement process
|
|
|
27,720
|
|
|
|
24,990
|
|
Acres sold (for the year)
|
|
|
2,486
|
|
|
|
3,441
|
|
Acres undeveloped
|
|
|
320,458
|
|
|
|
327,850
|
|
Ventures accounted for using the equity method:
|
|
|
|
|
|
|
|
|
Ventures lot sales (for the year)
|
|
|
|
|
|
|
|
|
Lots sold
|
|
|
631
|
|
|
|
1,829(a
|
)
|
Revenue per lot sold
|
|
$
|
55,877
|
|
|
$
|
53,619
|
|
Ventures entitled, developed, and under development land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
22
|
|
|
|
23
|
|
Residential lots remaining
|
|
|
9,385
|
|
|
|
10,816
|
|
Commercial acres remaining
|
|
|
719
|
|
|
|
675
|
|
Ventures undeveloped land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
2
|
|
|
|
2
|
|
Acres in entitlement process
|
|
|
870
|
|
|
|
860
|
|
Acres sold (for the year)
|
|
|
131
|
|
|
|
211
|
|
Acres undeveloped
|
|
|
7,363
|
|
|
|
6,384
|
|
|
|
|
(a) |
|
The elimination of the previously mentioned one month reporting
lag resulted in a one-time increase in the number of lots sold
of 122 lots. |
Natural
Resources
Our natural resources segment manages our oil and gas mineral
interests, timber, and recreational leases. Our natural
resources segment revenues are principally derived from lease
royalties, bonus payments, and delay rentals associated with our
oil and gas mineral interests, the sale of timber, and to a
lesser degree from recreational leases of our lands.
A summary of our natural resources results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
35,257
|
|
|
$
|
45,409
|
|
|
$
|
37,366
|
|
Costs and expenses
|
|
|
(10,969
|
)
|
|
|
(12,393
|
)
|
|
|
(12,516
|
)
|
Other operating income
|
|
|
2,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
26,531
|
|
|
$
|
33,016
|
|
|
$
|
24,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income in 2007 represents a gain from partial
termination of a timber lease in connection with the formation
of a venture.
27
Revenues consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Minerals
|
|
$
|
20,818
|
|
|
$
|
27,980
|
|
|
$
|
21,049
|
|
Timber
|
|
|
13,722
|
|
|
|
14,313
|
|
|
|
14,209
|
|
Recreational leases and other
|
|
|
717
|
|
|
|
3,116
|
|
|
|
2,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
35,257
|
|
|
$
|
45,409
|
|
|
$
|
37,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral revenues are principally derived from royalties and
other lease revenue. Mineral revenues fluctuate based on changes
in the market prices for oil and gas and the number of acres
leased. We sold about 1,215,000 tons of timber in 2007,
1,115,000 tons in 2006, and 959,000 tons in 2005, the majority
of which was sold to Temple-Inland based on an estimate of
market prices at the time of delivery. Average price paid per
ton was $11 in 2007, $13 in 2006, and $15 in 2005. Timber
revenue fluctuates based on changes in tons sold and in the
market prices of timber.
In 2007, Temple-Inland retained a greater portion of
recreational lease revenues than in prior years. In 2008, we
anticipate our recreational lease revenues will be about
$2,000,000.
Items Not
Allocated to Segments
Unallocated items represent income and expenses managed on a
company-wide basis and include general and administrative
expenses, share-based compensation, other non-operating income
and expense, and interest expense.
The change in general and administrative expense in 2007 was
principally due to increased compensation and benefits and other
support costs associated with the development of corporate
functions as a stand alone company. The change in general and
administrative expense in 2006 was principally due to
incremental support costs related to the segmentation of the
real estate business within Temple-Inland.
Share-based compensation was allocated from Temple-Inland and
represents the expense of Temple-Inland share-based awards
granted to our employees. The changes in 2007 and in 2006 were
primarily due to increases in Temple-Inlands share price
related to awards to be settled in cash.
The change in interest expense in 2007 is principally due to
higher debt levels. The decline in 2006 as compared to 2005 was
primarily related to the payoff of a senior bank credit facility
at a weighted average rate of 6.04 percent, the funding for
which came from borrowings under our credit facility with
Temple-Inland at a weighted average rate of 4.20 percent.
Income
Taxes
Our effective tax rate, which is income tax as a percentage of
income before taxes, was 36 percent in 2007,
37 percent in 2006, and 37 percent in 2005. We
anticipate that our effective tax rate in 2008 will be about
36 percent.
Capital
Resources and Liquidity
Sources
and Uses of Cash
Our principal operating cash requirements are for the
acquisition and development of real estate, either directly or
indirectly through ventures, taxes, interest, and compensation.
Our principal sources of cash are proceeds from the sale of real
estate and timber, the cash flow from minerals and commercial
operating properties, and borrowings. Operating cash flows are
also affected by the timing of the payment of real estate
development expenditures and the collection of proceeds from the
eventual sale of the real estate, the timing of which can vary
substantially depending on many factors including the size of
the project, state and local permitting requirements, and
availability of utilities. Working capital is subject to
operating needs, the timing of sales of real estate and timber,
the timing of collection of mineral royalties or mineral lease
payments, collection of receivables, reimbursement from utility
or improvement districts, and the payment of payables and
expenses.
28
Cash
Flows from Operating Activities
Cash flows from real estate development activities are
classified as operating cash flows. Cash flows related to the
operation or sale of natural resources including minerals,
timber, and recreational leases are also classified as operating
cash flows.
Net cash (used for) provided by operations was $(66,284,000) in
2007, $(29,071,000) in 2006, and $21,094,000 in 2005. 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 hotel occupancy and sales taxes
through 2034 at our Cibolo Canyons mixed-use development near
San Antonio, Texas, and distributions to minority interests of
$11,948,000. In 2006, expenditures for real estate development
and acquisition significantly exceeded non-cash real estate cost
of sales principally due to the investment in ten new real
estate projects for $74,000,000. In 2005, real estate
development and acquisition expenditures exceeded non-cash real
estate cost of sales.
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 natural resources segment are classified as investing
activities.
In 2007, net cash (used for) investing activities was
$(10,828,000) as capital contributed to unconsolidated ventures
exceeded distributions received. In 2006, net cash provided by
investing activities was $7,410,000 as capital distributions we
received from unconsolidated ventures exceeded contributions.
Net cash (used for) investing activities was $(5,532,000) in
2005 as contributions to unconsolidated ventures exceeded the
distributions we received.
Cash
Flows from Financing Activities
Net cash provided by (used for) financing activities was
$74,282,000 in 2007, $19,069,000 in 2006, and $(16,831,000) in
2005. In 2007, the increase in debt funded expenditures for real
estate development and acquisition. In 2006, the increase in
debt, including borrowings under our credit facility with
Temple-Inland, funded expenditures for real estate development
and acquisition in excess of the net distributions we received
from ventures. In 2005, the increase in debt and cash flow from
operations funded net contributions to ventures.
Liquidity
and Contractual Obligations
At year-end 2007, contractual obligations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due or Expiring by Year
|
|
|
|
Total
|
|
|
2008
|
|
|
2009-10
|
|
|
2011-12
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Debt(a)
|
|
$
|
266,015
|
|
|
$
|
57,960
|
|
|
$
|
200,191
|
|
|
$
|
7,864
|
|
|
$
|
|
|
Contractual interest payments on fixed rate debt
|
|
|
2,308
|
|
|
|
1,468
|
|
|
|
840
|
|
|
|
|
|
|
|
|
|
Purchase and development obligations
|
|
|
45,511
|
|
|
|
35,511
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
12,897
|
|
|
|
1,570
|
|
|
|
1,980
|
|
|
|
1,300
|
|
|
|
8,047
|
|
Venture contributions
|
|
|
11,911
|
|
|
|
11,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
338,642
|
|
|
$
|
108,420
|
|
|
$
|
213,011
|
|
|
$
|
9,164
|
|
|
$
|
8,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Denotes items included in our balance sheet. |
Purchase and development obligations are purchase commitments
for land acquisition and land development. Purchase obligations
for land acquisition represent obligations under option
contracts with specific performance provisions, of which we
currently have none. Development obligations represent
engineering and construction contracts for land development and
our commitment to support third-party construction and
29
ownership of a resort hotel, spa and golf facilities at our
Cibolo Canyons mixed-use development near San Antonio,
Texas. At year-end 2007, our unfunded commitment related to
Cibolo Canyons was $29,625,000, of which $19,625,000 is expected
to be funded in 2008 and the remainder in
2009-10.
Our operating lease obligations are for timberland, facilities
and equipment.
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.
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 2008 will likely be paid from operating cash
flows and from borrowings under our senior credit facility. At
year-end 2007, we had $218,567,000 in unused borrowing capacity
under our senior credit facility.
|
|
|
|
|
|
|
Senior
|
|
|
|
Credit Facility
|
|
|
|
(In thousands)
|
|
|
Committed
|
|
$
|
416,915
|
|
Less: borrowings
|
|
|
(175,000
|
)
|
Less: letters of credit
|
|
|
(23,348
|
)
|
|
|
|
|
|
Unused borrowing capacity at year-end 2007
|
|
$
|
218,567
|
|
|
|
|
|
|
Senior
Credit Facility
Our senior credit facility and other debt agreements contain
terms, conditions, and financial covenants customary for such
agreements including minimum levels of interest coverage and
limitations on leverage. At year-end 2007, we had complied with
the terms, conditions, and financial covenants of these
agreements.
Our senior credit facility provides for a $175,000,000 term loan
and a $265,000,000 revolving line of credit. We may, upon notice
to the lenders, request an increase in the credit facility to
provide for a total of $500,000,000. In first quarter 2008, we
increased our revolving line of credit to $290,000,000. The
revolving line of credit includes a $100,000,000 sublimit
available for letters of credit, and a $25,000,000 swing line
sublimit. Total borrowings under our senior credit facility
(including the face amount of letters of credit) may not exceed
a borrowing base formula. Also, at the end of each quarter, we
are required to have at least $35,000,000 in available liquidity.
We may elect interest rates on our borrowings calculated by
reference to either (a) the higher of a base rate or the
federal funds effective rate plus 0.50%, plus a margin of 2.00%,
or (b) LIBOR plus a margin of 4.00%. The senior credit
facility matures December 1, 2010. The revolving line of
credit may be prepaid at any time without penalty. The term loan
may be prepaid at any time; however, repayment during the first
12 months requires a fee of 2.00% of the principal amount
and repayment during the next six months requires a fee of 1.00%
of the principal amount. There is no prepayment fee for the term
loan after 18 months.
All borrowings under the credit facility are secured by
(a) a pledge of approximately 250,000 acres of land,
(b) assignments of current and future leases, rents and
contracts, (c) a security interest in the primary operating
account of Forestar (USA) Real Estate Group Inc.,
(d) pledge of the equity interests in current and future
material operating subsidiaries or joint venture interests, or
if such pledge is not permitted, a pledge of the right to
distributions from such entities, and (e) negative pledge
(without a mortgage) on all other wholly-owned assets. The
credit facility provides for releases of real estate provided
that borrowing base compliance is maintained.
Our senior credit facility contains certain affirmative and
negative covenants that are usual and customary for similar
facilities, including limitations on indebtedness, acquisitions
and divestitures, and distributions. The senior credit facility
also contains certain financial covenants that are usual and
customary for similar
30
facilities, including, a minimum interest coverage ratio (EBITDA
to interest incurred), a minimum ratio of total revenues to
capital expenditures, a maximum leverage ratio (funded debt to
adjusted asset value as defined in the agreement), a minimum
liquidity requirement, and a minimum tangible net worth
requirement.
Off-Balance
Sheet Arrangements
From time to time, we enter into off-balance sheet arrangements
to facilitate our operating activities. At year-end 2007, our
off-balance sheet unfunded arrangements, excluding contractual
interest payments, purchase and development obligations, and
operating lease obligations, included in the table of
contractual obligations, consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiring by Year
|
|
|
|
Total
|
|
|
2008
|
|
|
2009-10
|
|
|
2011-12
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Performance bonds, letters of credit and recourse obligations
|
|
$
|
48,969
|
|
|
$
|
36,791
|
|
|
$
|
10,324
|
|
|
$
|
108
|
|
|
$
|
1,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance bonds, letters of credit, and recourse obligations
are primarily for our real estate development activities and
include $3,344,000 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 the ventures, such as
failure to deliver streets and utilities in accordance with
local codes and ordinances.
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. These policies are discussed below
and include:
|
|
|
|
|
Investment in Real Estate and Cost of Real Estate Sales
In allocating cost 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.
|
Pending
Accounting Pronouncements
There are six new accounting pronouncements that we will adopt
in 2008 or will be required to adopt in 2009. Please read
Note 1 to the Consolidated Financial Statements.
31
Effects
of Inflation
Inflation has had minimal effects on operating results the past
three years. Our real estate, timber, and property and equipment
are carried at historical costs. If carried at current
replacement costs, the cost of real estate sold, timber cut, and
depreciation expense would have been significantly higher than
what we reported.
Litigation
Matters
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
The following table illustrates the estimated effect on our
pre-tax income of immediate, parallel, and sustained shifts in
interest rates for the next 12 months at year-end 2007,
with comparative year-end 2006 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
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
+2%
|
|
$
|
(4,774
|
)
|
|
$
|
(2,422
|
)
|
+1%
|
|
|
(2,387
|
)
|
|
|
(1,211
|
)
|
−1%
|
|
|
2,387
|
|
|
|
1,211
|
|
−2%
|
|
|
4,774
|
|
|
|
2,422
|
|
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. The interest rate sensitivity change from
year-end 2006 is principally due to an increase in variable-rate
debt.
Foreign
Currency Risk
We have no exposure to foreign currency fluctuations.
Commodity
Price Risk
We have no significant exposure to commodity price fluctuations.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
The Consolidated Financial Statements and related notes and
schedules are indexed on page
F-1, and are
attached as pages
F-1 through
F-25, 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
At year-end 2007, under the supervision and with the
participation of our management, including our Chief Executive
Officer (our principal executive officer) and our Chief
Financial Officer (our principal financial officer), we
evaluated the effectiveness of our disclosure controls and
procedures (as defined under
Rule 13a-15(e)
of the Securities Exchange Act of 1934, as amended (the
Exchange Act)). Based on this evaluation, our Chief
Executive Officer and our Chief Financial Officer concluded
that, as of December 29, 2007, our disclosure controls and
procedures were effective.
(b) Internal Control over Financial Reporting
32
This annual report does not include a report of
managements assessment regarding internal control over
financial reporting or an attestation report of the
companys registered public accounting firm due to a
transition period established by rules of the Securities and
Exchange Commission for newly public companies.
(c) Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over
financial reporting that occurred during fourth quarter 2007
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
The information required by this item will be contained in our
definitive proxy statement to be filed in connection with our
2008 annual meeting of stockholders, except for the information
regarding our executive officers, which is presented in
Part I, Item 1 of this Annual Report on
Form 10-K.
The information required by this item contained in our
definitive proxy statement is incorporated herein by reference.
|
|
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
2008 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
2008 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
2008 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
2008 annual meeting of stockholders and is incorporated herein
by reference.
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-25 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.
33
Schedules other than those listed above are omitted as the
required information is either inapplicable or the information
is presented in our Consolidated Financial Statements and notes
thereto.
(3) Exhibits
The exhibits listed in the Exhibit Index in (b) below
are filed or incorporated by reference as part of this Annual
Report 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).
|
|
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).
|
|
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 Non-Employee Director
Deferred Compensation 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).
|
34
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
10
|
.10
|
|
Form of Change in Control Agreement between the Company and its
named executive officers (incorporated by reference to
Exhibit 10.10 of Amendment No. 5 to the 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 (incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
filed with the Commission on February 19, 2008).
|
|
10
|
.13
|
|
Form of Restricted Stock Agreement (incorporated by reference to
Exhibit 10.2 of the Companys Current Report on
Form 8-K
filed with the Commission on February 19, 2008).
|
|
10
|
.14
|
|
Form of Restricted Stock Units Agreement (incorporated by
reference to Exhibit 10.3 of the Companys Current
Report on
Form 8-K
filed with the Commission on February 19, 2008).
|
|
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. |
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Forestar Real Estate
Group Inc.
James M. DeCosmo
President and Chief Executive Officer
Date: March 4, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
/s/ James
M. DeCosmo
James
M. DeCosmo
|
|
Director, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 4, 2008
|
|
|
|
|
|
/s/ Christopher
L. Nines
Christopher
L. Nines
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
March 4, 2008
|
|
|
|
|
|
/s/ Charles
D. Jehl
Charles
D. Jehl
|
|
Chief Accounting Officer
(Principal Accounting Officer)
|
|
March 4, 2008
|
|
|
|
|
|
/s/ Kenneth
M. Jastrow, II
Kenneth
M. Jastrow, II
|
|
Chairman of the Board
|
|
March 4, 2008
|
|
|
|
|
|
/s/ Louis
R. Brill
Louis
R. Brill
|
|
Director
|
|
March 4, 2008
|
|
|
|
|
|
/s/ Kathleen
Brown
Kathleen
Brown
|
|
Director
|
|
March 4, 2008
|
|
|
|
|
|
/s/ William
G. Currie
William
G. Currie
|
|
Director
|
|
March 4, 2008
|
|
|
|
|
|
/s/ Michael
E. Dougherty
Michael
E. Dougherty
|
|
Director
|
|
March 4, 2008
|
|
|
|
|
|
/s/ James
A. Johnson
James
A. Johnson
|
|
Director
|
|
March 4, 2008
|
|
|
|
|
|
/s/ Thomas
H. McAuley
Thomas
H. McAuley
|
|
Director
|
|
March 4, 2008
|
|
|
|
|
|
/s/ William
Powers, Jr.
William
Powers, Jr.
|
|
Director
|
|
March 4, 2008
|
|
|
|
|
|
/s/ James
A. Rubright
James
A. Rubright
|
|
Director
|
|
March 4, 2008
|
|
|
|
|
|
/s/ Richard
M. Smith
Richard
M. Smith
|
|
Director
|
|
March 4, 2008
|
36
Index to
Financial Statements
|
|
|
|
|
|
|
Page
|
|
Audited Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
|
|
F-3
|
|
Consolidated Statements of Income
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
Financial Statement Schedule
|
|
|
|
|
|
|
|
S-1
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED ACCOUNTING FIRM
The Board
of Directors and Shareholders of Forestar Real Estate Group
Inc.:
We have audited the accompanying consolidated balance sheets of
Forestar Real Estate Group Inc., as of December 29, 2007
and December 30, 2006, and the related consolidated
statements of income, shareholders/parents equity,
and cash flows for each of the three years in the period ended
December 29, 2007. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of
Forestar Real Estate Group Inc. management. Our responsibility
is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Forestar Real Estate Group Inc. at
December 29, 2007 and December 30, 2006, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 29,
2007 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.
Ernst & Young LLP
Austin, Texas
March 4, 2008
F-2
FORESTAR
REAL ESTATE GROUP INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands
|
|
|
|
except share data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,520
|
|
|
$
|
10,350
|
|
Prepaid expense
|
|
|
2,267
|
|
|
|
2,378
|
|
Real estate
|
|
|
552,210
|
|
|
|
447,817
|
|
Investment in unconsolidated ventures
|
|
|
101,687
|
|
|
|
90,444
|
|
Receivables, net of allowance for bad debts of $226 in 2007 and
2006
|
|
|
3,767
|
|
|
|
6,091
|
|
Timber
|
|
|
54,593
|
|
|
|
58,966
|
|
Property and equipment, net of accumulated depreciation of
$2,455 in 2007 and $2,387 in 2006
|
|
|
1,568
|
|
|
|
1,688
|
|
Deferred tax asset
|
|
|
5,106
|
|
|
|
|
|
Other assets
|
|
|
20,008
|
|
|
|
2,440
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
748,726
|
|
|
$
|
620,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS/PARENTS EQUITY
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,002
|
|
|
$
|
4,838
|
|
Accrued employee compensation and benefits
|
|
|
3,857
|
|
|
|
2,114
|
|
Accrued interest
|
|
|
896
|
|
|
|
210
|
|
Accrued property taxes
|
|
|
4,459
|
|
|
|
4,577
|
|
Other accrued expenses
|
|
|
15,318
|
|
|
|
2,810
|
|
Deferred tax liability
|
|
|
|
|
|
|
14,438
|
|
Other liabilities
|
|
|
8,349
|
|
|
|
4,272
|
|
Note payable to Temple-Inland
|
|
|
|
|
|
|
110,506
|
|
Debt
|
|
|
266,015
|
|
|
|
50,611
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
306,896
|
|
|
|
194,376
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST IN CONSOLIDATED VENTURES
|
|
|
8,629
|
|
|
|
7,746
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS/PARENTS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share, 25,000,000
authorized shares, none issued
|
|
|
|
|
|
|
|
|
Common stock, par value $1.00 per share, 200,000,000 authorized
shares, 35,380,385 issued
|
|
|
35,380
|
|
|
|
|
|
Additional paid-in capital
|
|
|
373,026
|
|
|
|
|
|
Retained earnings
|
|
|
24,795
|
|
|
|
|
|
Temple-Inlands net investment
|
|
|
|
|
|
|
418,052
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS/PARENTS EQUITY
|
|
|
433,201
|
|
|
|
418,052
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS/PARENTS
EQUITY
|
|
$
|
748,726
|
|
|
$
|
620,174
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the consolidated financial statements.
F-3
FORESTAR
REAL ESTATE GROUP INC.
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands except per share data)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales
|
|
$
|
117,890
|
|
|
$
|
151,785
|
|
|
$
|
96,696
|
|
Commercial operating properties and other
|
|
|
24,839
|
|
|
|
28,366
|
|
|
|
21,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
142,729
|
|
|
|
180,151
|
|
|
|
118,121
|
|
Natural resources and other
|
|
|
35,257
|
|
|
|
45,409
|
|
|
|
37,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,986
|
|
|
|
225,560
|
|
|
|
155,487
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate sales
|
|
|
(58,046
|
)
|
|
|
(90,629
|
)
|
|
|
(57,404
|
)
|
Cost of commercial operating properties and other
|
|
|
(17,936
|
)
|
|
|
(17,307
|
)
|
|
|
(16,212
|
)
|
Cost of natural resources and other
|
|
|
(6,793
|
)
|
|
|
(5,238
|
)
|
|
|
(4,733
|
)
|
Other operating
|
|
|
(27,320
|
)
|
|
|
(25,418
|
)
|
|
|
(22,071
|
)
|
General and administrative
|
|
|
(18,624
|
)
|
|
|
(15,144
|
)
|
|
|
(9,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,719
|
)
|
|
|
(153,736
|
)
|
|
|
(109,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
49,267
|
|
|
|
71,824
|
|
|
|
45,586
|
|
Equity in earnings of unconsolidated ventures
|
|
|
3,732
|
|
|
|
19,371
|
|
|
|
17,180
|
|
Minority interest in consolidated ventures
|
|
|
(5,771
|
)
|
|
|
(3,231
|
)
|
|
|
(1,054
|
)
|
Interest expense
|
|
|
(9,229
|
)
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
Other non-operating income (expense)
|
|
|
705
|
|
|
|
79
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
|
38,704
|
|
|
|
81,814
|
|
|
|
55,756
|
|
Income tax expense
|
|
|
(13,909
|
)
|
|
|
(29,970
|
)
|
|
|
(20,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
24,795
|
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER COMMON SHARE BASIC AND DILUTED
|
|
$
|
0.70
|
|
|
$
|
1.47
|
|
|
$
|
0.99
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC
AND DILUTED
|
|
|
35,380
|
|
|
|
35,380
|
|
|
|
35,380
|
|
Please read the notes to the consolidated financial statements.
F-4
FORESTAR
REAL ESTATE GROUP INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS/PARENTS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Parents
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Equity
|
|
|
Total
|
|
|
|
(In thousands except share data)
|
|
|
Balances at January 1, 2005
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
368,659
|
|
|
$
|
368,659
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,897
|
|
|
|
34,897
|
|
Net transactions with parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,266
|
)
|
|
|
(22,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
381,290
|
|
|
$
|
381,290
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,844
|
|
|
|
51,844
|
|
Net transactions with parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,082
|
)
|
|
|
(15,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 30, 2006
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
418,052
|
|
|
$
|
418,052
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,795
|
|
|
|
|
|
|
|
24,795
|
|
Net transactions with parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,646
|
)
|
|
|
(9,646
|
)
|
Spin-off from Temple-Inland
|
|
|
35,380,385
|
|
|
|
35,380
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
373,026
|
|
|
|
|
|
|
|
(408,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 29, 2007
|
|
|
35,380,385
|
|
|
$
|
35,380
|
|
|
|
(53
|
)
|
|
$
|
|
|
|
$
|
373,026
|
|
|
$
|
24,795
|
|
|
$
|
|
|
|
$
|
433,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the consolidated financial statements.
F-5
FORESTAR
REAL ESTATE GROUP INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,795
|
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,915
|
|
|
|
2,355
|
|
|
|
2,249
|
|
Deferred income taxes
|
|
|
(19,544
|
)
|
|
|
(4,912
|
)
|
|
|
1,578
|
|
Equity in earnings of unconsolidated ventures
|
|
|
(3,732
|
)
|
|
|
(19,371
|
)
|
|
|
(17,180
|
)
|
Distributions of earnings of unconsolidated ventures
|
|
|
2,863
|
|
|
|
1,519
|
|
|
|
4,090
|
|
Minority interest in consolidated ventures
|
|
|
5,771
|
|
|
|
3,231
|
|
|
|
1,054
|
|
Distributions to minority interest
|
|
|
(11,948
|
)
|
|
|
(517
|
)
|
|
|
(1,989
|
)
|
Non-cash real estate cost of sales
|
|
|
46,975
|
|
|
|
86,393
|
|
|
|
53,741
|
|
Real estate development and acquisition expenditures
|
|
|
(140,013
|
)
|
|
|
(159,886
|
)
|
|
|
(65,117
|
)
|
Reimbursements from utility or improvement districts
|
|
|
10,628
|
|
|
|
5,790
|
|
|
|
1,000
|
|
Other changes in real estate
|
|
|
(1,364
|
)
|
|
|
(2,174
|
)
|
|
|
2,730
|
|
Gain on termination of timber lease
|
|
|
(2,243
|
)
|
|
|
|
|
|
|
|
|
Cost of timber cut
|
|
|
4,060
|
|
|
|
3,441
|
|
|
|
3,218
|
|
Asset impairments
|
|
|
6,518
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(65
|
)
|
|
|
286
|
|
|
|
653
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
659
|
|
|
|
(313
|
)
|
|
|
(3,586
|
)
|
Prepaid expenses and other
|
|
|
(66
|
)
|
|
|
(298
|
)
|
|
|
1,926
|
|
Accounts payable and other accrued liabilities
|
|
|
7,507
|
|
|
|
3,541
|
|
|
|
1,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(66,284
|
)
|
|
|
(29,071
|
)
|
|
|
21,094
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment, software, and reforestation
|
|
|
(3,198
|
)
|
|
|
(3,991
|
)
|
|
|
(1,616
|
)
|
Investment in unconsolidated ventures
|
|
|
(14,492
|
)
|
|
|
(17,611
|
)
|
|
|
(29,612
|
)
|
Return of investment in unconsolidated ventures
|
|
|
3,239
|
|
|
|
22,208
|
|
|
|
20,830
|
|
Notes receivable sold or collected
|
|
|
491
|
|
|
|
5,493
|
|
|
|
3,767
|
|
Proceeds from sale of property and equipment
|
|
|
166
|
|
|
|
1,311
|
|
|
|
1,099
|
|
Proceeds from termination of timber lease
|
|
|
2,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(10,828
|
)
|
|
|
7,410
|
|
|
|
(5,532
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to Temple-Inland, net
|
|
|
(93,063
|
)
|
|
|
97,678
|
|
|
|
1,802
|
|
Payments of debt
|
|
|
(22,534
|
)
|
|
|
(89,144
|
)
|
|
|
(29,733
|
)
|
Proceeds from issuance of debt
|
|
|
226,446
|
|
|
|
30,636
|
|
|
|
38,882
|
|
Dividends and other transfers to Temple-Inland
|
|
|
(27,704
|
)
|
|
|
(20,241
|
)
|
|
|
(27,931
|
)
|
Deferred financing fees
|
|
|
(10,010
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
1,147
|
|
|
|
140
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
74,282
|
|
|
|
19,069
|
|
|
|
(16,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,830
|
)
|
|
|
(2,592
|
)
|
|
|
(1,269
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
10,350
|
|
|
|
12,942
|
|
|
|
14,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at year-end
|
|
$
|
7,520
|
|
|
$
|
10,350
|
|
|
$
|
12,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
10,014
|
|
|
$
|
4,309
|
|
|
$
|
7,171
|
|
Income taxes
|
|
$
|
33,428
|
|
|
$
|
125
|
|
|
$
|
3,444
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest
|
|
$
|
695
|
|
|
$
|
543
|
|
|
$
|
1,444
|
|
Please read the notes to the consolidated financial statements.
F-6
FORESTAR
REAL ESTATE GROUP INC.
|
|
Note 1
|
Summary
of Significant Accounting Policies
|
Background
On February 26, 2007, Temple-Inland Inc.
(Temple-Inland) announced that its Board of
Directors approved a transformation plan which included the
spin-off of its real estate operations to Temple-Inland
shareholders as an independent publicly held company. 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.
On December 28, 2007, Temple-Inland distributed 100% of the
issued and outstanding shares of our common stock to the holders
of record of Temple-Inland common stock as of the close of
business on December 14, 2007. Each Temple-Inland
stockholder received one share of our common stock for every
three shares of Temple-Inland common stock held. (Also on
December 28, 2007, Temple-Inland distributed 100% of the
issued and outstanding shares of Guaranty Financial Group, Inc.,
a wholly-owned subsidiary of Temple-Inland that operated
Temple-Inlands financial services business.) We converted
to a Delaware corporation before the spin-off.
The terms Forestar, we, and
our in these financial statements refer to the
operations that were spun off to Temple-Inland stockholders.
Basis
of Presentation
Our consolidated financial statements reflect the historical
accounts of the real estate development and minerals operations
contributed to us and have been derived from the historical
financial statements and accounts of Temple-Inland. These
operations were conducted within separate legal entities and
their subsidiaries or within segments or components of segments
of Temple-Inland. In addition, as a result of the different
forms of Temple-Inlands ownership in these operations,
Temple-Inlands net investment is shown for periods prior
to the spin-off instead of stockholders equity.
These financial statements also include 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).
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.
Our fiscal year ends on the Saturday closest to
December 31, which from time to time means that a fiscal
year will include 53 weeks instead of 52 weeks. All of
the periods presented had 52 weeks. Fiscal year 2007 ended
on December 29, 2007, fiscal year 2006 ended on
December 30, 2006, and fiscal year 2005 ended on
December 31, 2005. Effective fiscal year 2008, our fiscal
year will coincide with the calendar year.
We have historically used Temple-Inland as a source of capital
and for services such as environmental, finance, financial
reporting, human resources, internal audit, insurance, legal,
tax and technology. The estimated costs of these services were
allocated to us and are included in general and administrative
expense.
F-7
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition, we have also included other expenses incurred by
Temple-Inland but not directly attributable to us such as costs
associated with investor relations and executive officers. The
allocations were based on actual usage or in some cases
estimated usage based on Temple-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,
$7,128,000 in 2006 and $4,684,000 in 2005.
We believe the assumptions and methodology used to derive the
allocations in our financial statements are reasonable; however,
they may not necessarily be indicative of what expenses would
have been had we been a separate stand-alone company in the past
or what expenses might be incurred in the future. We have no
practical way of determining what expenses we would have
incurred if we would have been a stand-alone company in the past.
Cash
and Cash Equivalents
Cash and cash equivalents include cash and other short-term
instruments with original maturities of three months or less. At
year end 2007, restricted cash included in cash and cash
equivalents was $147,000.
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 $2,720,000 at year-end 2007 and $1,071,000 at year-end 2006
and is included in other assets. The amortization of these
capitalized costs was $370,000 in 2007, $6,000 in 2006 and
$9,000 in 2005 and is included in general and administrative
expense.
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 the absence of quoted market prices, we estimate the fair
value of financial instruments. Our estimates are affected by
the assumptions we make, including the discount rate and
estimates of the amount and timing of future cash flows. Where
these fair values approximate carrying value, no separate
disclosure of fair value is shown.
Impairment
of Long-Lived Assets
We review long-lived assets held for use for impairment when
events or circumstances indicate that their carrying value may
not be recoverable. Impairment exists if the carrying amount of
the long-lived asset is not recoverable from the undiscounted
cash flows expected from its use and eventual disposition. We
determine the amount of the impairment loss by comparing the
carrying value of the long-lived asset to its estimated fair
value. In the absence of quoted market prices, we determine
estimated fair value generally based on the present value of
future probability weighted cash flows expected from the use and
eventual disposition of the long-lived asset. We recognized
asset impairments of $6,518,000 in 2007, none in 2006 and none
in 2005. Impairment expense is included in cost of real estate
sales.
F-8
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
We were included in Temple-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
provided 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.
Beginning first quarter 2007, we adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). We determined that no material unrecognized
deferred tax assets or liabilities existed at the date of
adoption, and accordingly, the adoption of FIN 48 did not
impact our financial condition or results of operations. In
addition, we believe that no material unrecognized deferred tax
assets or liabilities existed at year-end 2007. We classify
interest and penalties related to underpayments of income tax as
income tax expense.
Mineral
Interests
We acquire real estate that may include the subsurface rights
associated with the property, including minerals. We lease some
of our mineral interests to third party exploration and
production entities and retain a royalty interest. We use the
successful efforts method to account for our mineral interests.
We do not incur exploration, development, geological or
geophysical costs, and we do not drill wells. We capitalize the
costs of acquiring 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
recovered all previously-capitalized acquisition costs and did
not capitalize any costs in 2007 or 2006.
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.
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
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
Buildings and building improvements
|
|
|
10 to 40 years
|
|
|
$
|
1,745
|
|
Office and other equipment
|
|
|
2 to 10 years
|
|
|
|
2,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,023
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(2,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,568
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense of property and equipment was $392,000 in
2007, $341,000 in 2006 and $364,000 in 2005. We expense
operating leases ratably over the shorter of the useful life or
the lease term.
F-9
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Real
Estate
We carry real estate at the lower of cost or fair value less
cost to sell. We capitalize interest costs and property taxes
once development begins, and we continue to capitalize
throughout the development period. We also capitalize
infrastructure, improvements, amenities, and other development
costs incurred during the development period. We determine the
cost of real estate sold using the relative sales value method.
When we sell real estate from projects that are not finished, we
include in the cost of real estate sold estimates of future
development costs though completion, allocated based on relative
sales values. These estimates of future development costs are
reevaluated at least annually, with any adjustments being
allocated prospectively to the remaining units available for
sale.
Commercial properties are carried at cost less accumulated
depreciation computed using the straight-line method over their
estimated useful lives (three to 39 years).
We have agreements with utility or improvement districts,
principally in Texas, whereby we agree to convey to the
districts water, sewer and other infrastructure-related assets
we have constructed in connection with projects within their
jurisdiction. The reimbursement for these assets ranges from 70
to 100 percent of allowable cost as defined by the
district. The transfer is consummated and we receive payment
when the districts have a sufficient tax base to support funding
of their bonds. The cost we incur in constructing these assets
is included in capitalized development costs, and upon
collection, we remove the assets from capitalized development
costs. We provide an allowance, which is not significant, to
reflect our past experiences related to claimed allowable
development costs.
Reclassifications
Certain prior years general and administrative expenses
have been reclassified to other operating expenses to conform to
the current years 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.
Natural
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 when the minerals have
been delivered to the buyer, the value is determinable, and we
are reasonably sure of collection.
We recognize revenue from timber sales upon passage of title,
which occurs at delivery; when the price is fixed and
determinable; and we are reasonably sure of collection. We
recognize revenue from hunting and recreational leases on the
straight-line basis over the lease term if we are reasonably
sure of collection.
F-10
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Share-Based
Compensation
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 awards was allocated to us by
Temple-Inland and was determined by Temple-Inland using the
following accounting principles:
|
|
|
|
|
Beginning January 2006, Temple-Inland adopted the modified
prospective application method contained in Statement of
Financial Accounting Standards No. 123 (revised December
2004), Share-Based Payment (SFAS 123(R)) , to
account for share-based payments. As a result, Temple-Inland
applied this pronouncement to new awards or modifications of
existing awards in 2006. Prior to adopting SFAS 123(R),
Temple-Inland had been expensing, over the service period, the
fair value of share-based compensation awards granted, modified,
or settled in 2003 through 2005, using the prospective
transition method of accounting contained in
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment
of FASB Statement No. 123.
|
|
|
|
Prior to 2003, Temple-Inland used the intrinsic value method in
accounting for stock options. As a result, Temple-Inland did not
allocate to us share-based compensation expense related to those
stock options granted prior to 2003 in 2005.
|
The following table illustrates the effect on our net income as
if the fair value method had been applied to the options granted
to our employees prior to 2003:
|
|
|
|
|
|
|
For the Year
|
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Net income, as reported
|
|
$
|
34,897
|
|
Add: Share-based compensation expense, net of related tax
effects, included in the determination of reported net income
|
|
|
277
|
|
Deduct: Total share-based compensation expense, net of related
tax effects, determined under the fair value based method for
all awards
|
|
|
(321
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
34,853
|
|
|
|
|
|
|
Please read Note 13 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 natural resources in the income statement
and in non-cash expenses in the statement of cash flows. We
determine the estimated volume of recoverable timber using
statistical information and other data related to growth rates
and yields gathered from physical observations, models, and
other information gathering techniques. Changes in yields are
generally due to adjustments in growth rates and similar matters
and are accounted for prospectively as changes in estimates. We
capitalize reforestation costs incurred in developing viable
seedling plantations (up to two years from planting), such as
site preparation, seedlings, planting, fertilization, insect and
wildlife control, and herbicide application. We expense all
other costs, such as property taxes and costs of forest
management personnel, as incurred. Once the seedling plantation
is viable, we expense all costs to maintain the viable
plantations, such as fertilization, herbicide application,
insect and wildlife control, and thinning, as incurred.
Pending
Accounting Pronouncements
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity
The provisions of this standard that address the
accounting for certain mandatorily redeemable non-controlling
interests have been deferred indefinitely pending further FASB
action. The deferred provisions would principally affect the way
we account for minority interests in partnerships we control;
the classification
F-11
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of such interests as liabilities, which we presently do; and
accounting for changes in the fair value of the minority
interest by a charge to earnings, which we currently do not do.
While the effect of the deferred provisions would be dependent
on the changes in the fair value of the partnerships net
assets, it is possible that the future effects could be
significant. Because the minority interests are not readily
marketable, it is difficult to determine their fair value.
However, we believe the difference between the carrying value of
the minority interests and their estimated fair value was not
significant at year-end 2007 or 2006.
SFAS No. 157, Fair Value Measures
This new standard defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. This guidance applies
to fair value measurements already required or permitted and
will be effective for our first quarter 2008. We do not expect
that adoption will have a significant effect on our earnings or
financial position.
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities
SFAS No. 159 permits the election of
fair value as the initial and subsequent measurement method for
many financial assets and liabilities. We do not anticipate
electing this option.
SFAS No. 160, Noncontrolling Interests
SFAS No. 160 clarifies the
classification of noncontrolling interests in consolidated
statement of financial position and the accounting for and
reporting of transactions between the reporting entity and
holders of such noncontrolling interst. 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.
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 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.
EITF 07-6,
Accounting for the Sale of Real Estate Subject to the
Requirements of FASB Statement No. 66, Accounting for Sales
of Real Estate, When the Agreement Includes a Buy-Sell Clause
EITF 07-6
requires consideration of buy-sell clauses to determine the
effect on profit recognition in connection with a partial sale
of real estate.
EITF 07-6
is effective for our first quarter 2008. We do not expect that
adoption will have a significant effect on our earnings or
financial position.
Real estate consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Entitled, developed, and under development land
|
|
$
|
388,493
|
|
|
$
|
292,534
|
|
Undeveloped land
|
|
|
141,012
|
|
|
|
133,170
|
|
Commercial operating properties
|
|
|
43,479
|
|
|
|
43,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
572,984
|
|
|
|
468,724
|
|
Accumulated depreciation
|
|
|
(20,774
|
)
|
|
|
(20,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
552,210
|
|
|
$
|
447,817
|
|
|
|
|
|
|
|
|
|
|
F-12
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Included in entitled, developed, and under development land are
the estimated cost of assets we expect to convey to utility or
improvement districts of $40,843,000 in 2007 and $14,213,000 in
2006. 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
$37,137,000 in 2007 and $6,614,000 in 2006 and we collected from
these districts $10,628,000 in 2007 and $5,790,000 in 2006. We
expect to collect the remaining amounts billed in 2007 when
these districts achieve adequate tax bases to support payment,
which is typically 12 to 24 months.
We recognized asset impairments of $6,518,000 in 2007, none in
2006 and none in 2005. Impairment expense is included in cost of
real estate sales and in 2007, is related to residential
projects and a commercial golf club operation in Texas.
Depreciation expense primarily related to commercial operating
properties was $2,014,000 in 2007, $2,008,000 in 2006, and
$1,876,000 in 2005 and is included in other operating expense.
Please read Schedule III for additional information.
|
|
Note 3
|
Investment
in Unconsolidated Ventures
|
At year-end 2007, we had ownership interests ranging from 25 to
50 percent in 15 ventures that we account for using the
equity method. Our two largest ventures at year-end 2007 are CL
Realty and Temco, in both of which we own a 50 percent
interest and Cousins Real Estate Corporation owns the other
50 percent interest. Information regarding CL Realty
and Temco follows:
|
|
|
|
|
CL Realty, L.L.C. was formed in 2002 for the purpose of
developing residential and mixed-use communities in Texas and
across the southeastern United States. At year-end 2007, the
venture had 15 residential and mixed-use communities, of which
10 are in Texas, 3 are in Florida, and 2 are in Georgia.
|
|
|
|
Temco Associates, LLC was formed in 1991 for the purpose of
acquiring and developing residential real estate sites in
Georgia. At year-end 2007, the venture had 5 residential and
mixed-use communities, all of which are located in Georgia. The
venture also owns approximately 6,100 acres of undeveloped
land in Georgia.
|
Combined summarized balance sheet information for our ventures
accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End 2007
|
|
|
At Year-End 2006
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
CL Realty
|
|
|
Temco
|
|
|
Ventures
|
|
|
Total
|
|
|
CL Realty
|
|
|
Temco
|
|
|
Ventures
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Real estate
|
|
$
|
122,659
|
|
|
$
|
59,992
|
|
|
$
|
75,061
|
|
|
$
|
257,712
|
|
|
$
|
113,289
|
|
|
$
|
58,273
|
|
|
$
|
44,666
|
|
|
$
|
216,228
|
|
Total assets
|
|
|
124,419
|
|
|
|
63,481
|
|
|
|
125,323
|
|
|
|
313,223
|
|
|
|
117,779
|
|
|
|
65,765
|
|
|
|
99,523
|
|
|
|
283,067
|
|
Borrowings, principally
non-recourse(a)
|
|
|
6,350
|
|
|
|
3,397
|
|
|
|
62,888
|
|
|
|
72,635
|
|
|
|
5,357
|
|
|
|
3,745
|
|
|
|
56,407
|
|
|
|
65,509
|
|
Total liabilities
|
|
|
9,903
|
|
|
|
4,437
|
|
|
|
82,565
|
|
|
|
96,905
|
|
|
|
9,456
|
|
|
|
4,979
|
|
|
|
67,469
|
|
|
|
81,904
|
|
Equity
|
|
|
114,516
|
|
|
|
59,044
|
|
|
|
42,758
|
|
|
|
216,318
|
|
|
|
108,323
|
|
|
|
60,786
|
|
|
|
32,054
|
|
|
|
201,163
|
|
Our investment in real estate ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of their
equity(b)
|
|
|
57,258
|
|
|
|
29,522
|
|
|
|
22,590
|
|
|
|
109,370
|
|
|
|
54,162
|
|
|
|
30,393
|
|
|
|
13,919
|
|
|
|
98,474
|
|
Unrecognized deferred
gain(c)
|
|
|
(7,069
|
)
|
|
|
|
|
|
|
(614
|
)
|
|
|
(7,683
|
)
|
|
|
(7,416
|
)
|
|
|
|
|
|
|
(614
|
)
|
|
|
(8,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate ventures
|
|
$
|
50,189
|
|
|
$
|
29,522
|
|
|
$
|
21,976
|
|
|
$
|
101,687
|
|
|
$
|
46,746
|
|
|
$
|
30,393
|
|
|
$
|
13,305
|
|
|
$
|
90,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Combined summarized income statement information for our
ventures accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
7,392
|
|
|
$
|
51,367
|
|
|
$
|
42,823
|
|
Temco
|
|
|
8,305
|
|
|
|
51,470
|
|
|
|
31,239
|
|
Other ventures
|
|
|
14,762
|
|
|
|
33,053
|
|
|
|
108,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,459
|
|
|
$
|
135,890
|
|
|
$
|
183,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
3,400
|
|
|
$
|
16,892
|
|
|
$
|
11,362
|
|
Temco
|
|
|
258
|
|
|
|
16,986
|
|
|
|
8,566
|
|
Other ventures
|
|
|
(176
|
)
|
|
|
(2,609
|
)
|
|
|
72,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,482
|
|
|
$
|
31,269
|
|
|
$
|
92,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our equity in their earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL
Realty(c)(d)
|
|
$
|
1,700
|
|
|
$
|
8,431
|
|
|
$
|
5,681
|
|
Temco(d)
|
|
|
129
|
|
|
|
8,493
|
|
|
|
4,283
|
|
Other
ventures(b)
|
|
|
1,557
|
|
|
|
1,538
|
|
|
|
5,730
|
|
Recognition of deferred
gain(c)
|
|
|
346
|
|
|
|
909
|
|
|
|
1,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,732
|
|
|
$
|
19,371
|
|
|
$
|
17,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes current maturities of debt of $36,337,000 in 2007 and
$12,375,000 in 2006. |
|
(b) |
|
Our share of the equity in other ventures reflects our ownership
interests ranging from 25 to 50 percent, excluding venture
losses that exceed our investment where we are not obligated to
fund those losses. Our equity in earnings of partnerships in
2005 included a number of partnerships in which we owned a five
to ten percent interest. Our investments in these partnerships
were liquidated prior to year-end 2005. At year-end 2007 and
2006, we have no real estate ventures that are accounted for
using the cost method. |
(c) |
|
In 2003, we contributed real estate with a $13,800,000 carrying
value to CL Realty in exchange for $13,800,000 cash and a
50 percent interest in the partnership. We deferred the
$14,587,000 gain on the sale and are recognizing it as the
partnership sells the real estate to third parties. The deferred
gain is reflected as an offset to our investment in
unconsolidated ventures. |
(d) |
|
Beginning in 2006, we eliminated our historic one-month lag in
accounting for our investment in CL Realty and Temco as
financial information became more readily available. The
one-time effect of eliminating this one-month lag was to
increase our equity in earnings for 2006 by $754,000 for CL
Realty and $350,000 for Temco. |
In 2007, we invested $14,492,000 in these ventures and received
$6,102,000 in distributions, in 2006, we invested $17,611,000 in
these ventures and received $23,727,000 in distributions, and in
2005 we invested $29,612,000 and received $24,920,000 in
distributions. Distributions include both return of investments
and distributions of earnings.
We provide development services for some of these ventures for
which we receive a fee. Fees for these services were $344,000 in
2007, $729,000 in 2006, and $1,126,000 in 2005 and are included
in real estate revenues.
F-14
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Receivables consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Seller financing notes receivable, average interest rate of 7.8%
in 2007 and 2006
|
|
$
|
411
|
|
|
$
|
1,729
|
|
Notes receivable, average interest rate of 9.6% in 2007 and 2006
|
|
|
1,314
|
|
|
|
1,755
|
|
Accrued interest and other
|
|
|
2,268
|
|
|
|
2,833
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,993
|
|
|
$
|
6,317
|
|
Allowance for bad debts
|
|
|
(226
|
)
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,767
|
|
|
$
|
6,091
|
|
|
|
|
|
|
|
|
|
|
Seller financing notes receivable are generally secured by a
deed of trust with a 10 percent down payment and mature
through 2009. In November 2006, we ceased providing seller
financing in connection with the sale of residential lots.
Notes receivable are funds advanced to potential venture
partners and will be converted to an equity interest in a
venture or collected. It is anticipated that these notes will be
satisfied by year-end 2008.
Other receivables are miscellaneous operating receivables
arising in the normal course of business. We expect to collect
$1,200,000 in 2008.
We have about 350,000 acres of timber on our undeveloped
land, located primarily in Georgia. We capitalized reforestation
expenditures of $411,000 in 2007, $1,409,000 in 2006, and
$1,553,000 in 2005. The cost of timber cut was $3,881,000 in
2007, $3,441,000 in 2006, and $3,218,000 in 2005.
Debt consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Term loan facility interest payable at LIBOR +4%
(8.63% at year-end 2007), maturing in 2010
|
|
$
|
175,000
|
|
|
$
|
|
|
Secured promissory note interest payable at 7.3%,
maturing in 2008
|
|
|
16,431
|
|
|
|
16,978
|
|
Other indebtedness due through 2011 at variable interest rates
based on prime (7.25% at year-end 2007) and at fixed
interest rates ranging from 6.00% to 9.50% secured primarily by
real estate including non-recourse debt of consolidated ventures
|
|
|
74,584
|
|
|
|
33,633
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
266,015
|
|
|
$
|
50,611
|
|
|
|
|
|
|
|
|
|
|
Our senior credit facility and other debt agreements contain
terms, conditions, and financial covenants customary for such
agreements including minimum levels of interest coverage and
limitations on leverage. At year-end 2007, we had complied with
the terms, conditions, and financial covenants of these
agreements.
Our senior credit facility provides for a $175,000,000 term loan
and a $265,000,000 revolving line of credit. We may, upon notice
to the lenders, request an increase in the credit facility to
provide for a total of $500,000,000. In first quarter 2008, we
increased our revolving line of credit to $290,000,000. The
revolving line of credit includes a $100,000,000 sublimit
available for letters of credit, and a $25,000,000 swing line
sublimit. Total borrowings under our senior credit facility
(including the face amount of letters of credit) may not exceed
a borrowing base formula. Also, at the end of each quarter, we
are required to have at least
F-15
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$35,000,000 in available liquidity. At year-end 2007, we had
$218,567,000 in unused borrowing capacity under our senior
credit facility.
We may elect interest rates on our borrowings calculated by
reference to either (a) the higher of a base rate or the
federal funds effective rate plus 0.50%, plus a margin of 2.00%,
or (b) LIBOR plus a margin of 4.00%. The senior credit
facility matures December 1, 2010. The revolving line of
credit may be prepaid at any time without penalty. The term loan
may be prepaid at any time; however, repayment during the first
12 months requires a fee of 2.00% of the principal amount
and repayment during the next six months requires a fee of 1.00%
of the principal amount. There is no prepayment fee for the term
loan after 18 months.
All borrowings under the credit facility are secured by
(a) a pledge of approximately 250,000 acres of land,
(b) assignments of current and future leases, rents and
contracts, (c) a security interest in the primary operating
account of Forestar (USA) Real Estate Group Inc.,
(d) pledge of the equity interests in current and future
material operating subsidiaries or joint venture interests, or
if such pledge is not permitted, a pledge of the right to
distributions from such entities, and (e) negative pledge
(without a mortgage) on all other wholly-owned assets. The
credit facility provides for releases of real estate provided
that borrowing base compliance is maintained.
Our senior credit facility contains certain affirmative and
negative covenants that are usual and customary for similar
facilities, including limitations on indebtedness, acquisitions
and divestitures, and distributions. The senior credit facility
also contains certain financial covenants that are usual and
customary for similar facilities, including, a minimum interest
coverage ratio (EBITDA to interest incurred), a minimum ratio of
total revenues to capital expenditures, a maximum leverage ratio
(funded debt to adjusted asset value as defined in the
agreement), a minimum liquidity requirement, and a minimum
tangible net worth requirement.
In 2007, we incurred origination and other fees related to our
credit facility, $9,871,000 of which is unamortized and is
included in other assets. Amortization of deferred financing
fees in connection with our senior credit facility was $139,000
in 2007, none in 2006 and none in 2005.
At year-end 2007, commercial operating properties having a book
value of $22,189,000 were subject to liens in connection with
$16,431,000 of debt, and entitled, developed and under
development land having a book value of $157,834,000 was subject
to liens in connection with $74,584,000 of debt. Please read
Schedule III for additional information.
Maturities of our debt during the next five years are:
2008 $57,960,000; 2009 $18,485,000;
2010 $181,706,000; 2011 $7,864,000;
2012 $0; and thereafter $0.
|
|
Note 7
|
Fair
Value of Financial Instruments
|
The carrying values of financial assets and liabilities,
including cash, receivables, and accounts payable at year-end
2007 and 2006 approximate fair values because of the short
maturity of these instruments. The carrying amount of notes
receivable and notes payable approximates fair value at year-end
2007 and 2006 since the notes are at floating rates or fixed
rates, which approximate current market rates for notes with
similar risks and maturities.
F-16
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8
|
Earnings
Per Share
|
We computed earnings per share for the year 2007 by dividing net
income by the number of our shares of common stock distributed
by Temple-Inland as follows:
|
|
|
|
|
|
|
(In thousands,
|
|
|
|
except per share)
|
|
|
Net income
|
|
$
|
24,795
|
|
Weighted average shares outstanding basic and diluted
|
|
|
35,380
|
|
|
|
|
|
|
Earnings per common share basic and diluted
|
|
$
|
0.70
|
|
|
|
|
|
|
Weighted average shares outstanding represent the number of
shares of common stock outstanding at year-end 2007 because all
our common stock was held by Temple-Inland prior to spin-off.
There was only one day after our spin-off that our stock was
outstanding during fiscal year 2007, so weighted average shares
outstanding is equal to the number of shares outstanding at
year-end 2007.
Our directors and certain employees have share-based
compensation awards including cash-settled awards, restricted
stock, stock-settled units, and options on our stock. Those
awards are described more fully in Note 13.
Additionally, directors and key employees of Temple-Inland and
Guaranty also hold similar awards as a result of conversion of
Temple-Inland awards outstanding at the date of distribution of
our stock. We do not recognize share-based compensation expense
for vesting of the awards of Temple-Inland or Guaranty directors
or employees. However, upon vesting of stock-settled units or
exercise by a Temple-Inland or Guaranty award holder of an
option on our stock, we issue shares of our stock. Upon
issuance, the resulting shares have a dilutive effect on our
basic earnings per common share. Additionally, outstanding
options have a dilutive effective on our diluted earnings per
share. Because these awards on our stock, and those held by our
employees as discussed in Note 13, were not
outstanding until the Temple-Inland awards were converted to
awards in our stock on December 28, 2007, they had no
effect on our diluted earnings per share in 2007. Outstanding
option awards will be included in our determination of diluted
earnings per share in future years. Had we included the
outstanding option awards in our calculations for 2007, proforma
(unaudited) diluted earnings per share would have been $0.69.
At year-end 2007, Temple-Inland and Guaranty directors and
employees held 211,000 stock-settled units on our stock. The
following information summarizes outstanding stock option awards
on our stock held by Temple-Inland and Guaranty directors and
employees at year-end 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,894
|
|
|
$
|
11.41
|
|
|
|
6
|
|
|
$
|
21,190
|
|
Exercisable
|
|
|
1,103
|
|
|
|
11.55
|
|
|
|
4
|
|
|
|
12,860
|
|
F-17
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income tax expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
(28,782
|
)
|
|
$
|
(29,954
|
)
|
|
$
|
(16,327
|
)
|
State and other
|
|
|
(3,133
|
)
|
|
|
(4,928
|
)
|
|
|
(2,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,915
|
)
|
|
|
(34,882
|
)
|
|
|
(19,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
16,509
|
|
|
|
3,708
|
|
|
|
(1,416
|
)
|
State and other
|
|
|
1,497
|
|
|
|
1,204
|
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,006
|
|
|
|
4,912
|
|
|
|
(1,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(13,909
|
)
|
|
$
|
(29,970
|
)
|
|
$
|
(20,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2006, Texas enacted a margin tax to replace the franchise
tax, which for us results in a lower overall Texas tax rate. As
a result, in 2006 we recognized a one-time, non-cash benefit of
$780,000 related to the reduction of previously provided
deferred state income taxes.
In 2006, the Internal Revenue Service completed the examinations
of Temple-Inlands tax returns through 2003.
A reconciliation of the federal statutory rate to the effective
income tax rate on continuing operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Federal statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State, net of federal benefit
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Other
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
36
|
%
|
|
|
37
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of deferred taxes are:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
34,735
|
|
|
$
|
14,737
|
|
Employee benefits
|
|
|
1,141
|
|
|
|
829
|
|
Accruals not deductible until paid
|
|
|
840
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
36,716
|
|
|
|
15,975
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Undeveloped land
|
|
|
(24,123
|
)
|
|
|
(23,974
|
)
|
Timber
|
|
|
(6,153
|
)
|
|
|
(6,439
|
)
|
Other
|
|
|
(1,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(31,610
|
)
|
|
|
(30,413
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset (Liability)
|
|
$
|
5,106
|
|
|
$
|
(14,438
|
)
|
|
|
|
|
|
|
|
|
|
F-18
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We, or Temple-Inland prior to our spin-off, file income tax
returns in the U.S. federal jurisdiction and various state
jurisdictions. With few exceptions, we are no longer subject to
U.S. federal, state and local income tax examinations by
tax authorities for years before 2004.
|
|
Note 10
|
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.
Liabilities in connection with environmental remediation arise
from time to time in the ordinary course of doing business and
we believe we have established adequate reserves for any
probable losses. We own approximately 285 acres in several
parcels in or near Antioch, California, portions of which were
sites of a Temple-Inland paper manufacturing operation and
related support facilities that need remediation. We estimate
the cost we will likely incur to complete remediation activities
will be about $5,790,000, which is included in other accrued
expenses at year-end 2007.
We do not believe that the outcome of any of these proceedings
or matters 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.
|
|
Note 11
|
Commitments
and Other Contingencies
|
We lease timberland, facilities, and equipment under operating
lease agreements. Future minimum rental commitments under
non-cancelable operating leases having a remaining term in
excess of one year are: 2008 $1,570,000;
2009 $1,180,000; 2010 $800,000;
2011 $720,000; 2012 $580,000; and
thereafter $8,047,000. Rent expense on timberland
was $428,000 in 2007, $414,000 in 2006, and $392,000 in 2005.
Other rent expense was $536,000 in 2007, $445,000 in 2006, and
$328,000 in 2005.
We have a commitment to support third-party construction and
ownership of a resort hotel, spa and golf facilities at our
Cibolo Canyons mixed-use development near San Antonio,
Texas. At year-end 2007, our unfunded commitment was
$29,625,000, of which $19,625,000 is expected to be funded in
2008 and the remainder in
2009-10.
In connection with our unconsolidated venture operations, we
have provided performance bonds and letters of credit
aggregating $3,344,000 at year-end 2007. Generally these
performance bonds and letters of credit would be drawn on due to
lack of specific performance by the ventures, such as failure to
deliver streets and utilities in accordance with local codes and
ordinances. In addition, we own a 25 percent interest in a
venture to which all the members have committed to make
additional proportionate capital contributions, our share of
which is $11,911,000 at year-end 2007.
Temple-Inland has received a private letter ruling from the
Internal Revenue Service that the spin-off qualifies for
tax-free treatment under applicable sections of the Internal
Revenue Code, and has also received an opinion of tax counsel
that the spin-off so qualifies. However, if the spin-off fails
to qualify for tax-free treatment, under the tax matters
agreement between Temple-Inland and us we would generally be
required to indemnify Temple-Inland against any tax resulting
from the distribution of our shares of stock to the extent that
such tax resulted from (1) an issuance of our equity
securities, a redemption of our equity securities, or our
involvement in other acquisitions of our equity securities,
(2) other actions or failures to act by us, or (3) any
of our representations or undertakings being incorrect or
violated.
F-19
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12
|
Segment
Information
|
We operate two business segments: real estate and natural
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 properties. Natural resources manages our
mineral interests, 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
|
|
|
Natural
|
|
|
Allocated to
|
|
|
|
|
|
|
Estate
|
|
|
Resources
|
|
|
Segments(a)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
For the year or at year-end 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
142,729
|
|
|
$
|
35,257
|
|
|
$
|
|
|
|
$
|
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
|
|
|
|
26,531
|
|
|
|
(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
|
|
|
$
|
45,409
|
|
|
$
|
|
|
|
$
|
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
|
|
|
|
33,016
|
|
|
|
(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
|
|
For the year or at year-end 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
118,121
|
|
|
$
|
37,366
|
|
|
$
|
|
|
|
$
|
155,487
|
|
Depreciation and amortization
|
|
|
2,184
|
|
|
|
65
|
|
|
|
|
|
|
|
2,249
|
|
Equity in earnings of unconsolidated ventures
|
|
|
17,180
|
|
|
|
|
|
|
|
|
|
|
|
17,180
|
|
Income (loss) before taxes
|
|
|
46,418
|
|
|
|
24,850
|
|
|
|
(15,512
|
)
|
|
|
55,756
|
|
Total assets
|
|
|
467,155
|
|
|
|
61,478
|
|
|
|
15,311
|
|
|
|
543,944
|
|
Investment in unconsolidated ventures
|
|
|
76,846
|
|
|
|
|
|
|
|
|
|
|
|
76,846
|
|
Capital
expenditures(b)
|
|
|
63
|
|
|
|
1,553
|
|
|
|
|
|
|
|
1,616
|
|
|
|
|
(a) |
|
Items not allocated to segments consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands)
|
|
Corporate general and administrative
|
|
$
|
(11,119
|
)
|
|
$
|
(8,911
|
)
|
|
$
|
(5,818
|
)
|
Expense allocation from Temple-Inland (see Note 16)
|
|
|
(6,294
|
)
|
|
|
(5,137
|
)
|
|
|
(3,295
|
)
|
Share-based compensation allocation from Temple-Inland (see
Note 13)
|
|
|
(1,397
|
)
|
|
|
(1,275
|
)
|
|
|
(443
|
)
|
Interest expense
|
|
|
(9,229
|
)
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
Other non-operating income
|
|
|
705
|
|
|
|
79
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(27,334
|
)
|
|
$
|
(21,473
|
)
|
|
$
|
(15,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
Consists of expenditures for property and equipment and
reforestation. |
F-20
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13
|
Share-Based
Compensation
|
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 in the form of
restricted or performance 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. This adjustment was made so that
immediately following the adjustment the number of shares
relating to each award and, for options, the per share option
exercise price of the original Temple-Inland award, was
proportionally allocated among Forestar, Guaranty and
Temple-Inland awards based on relative per share trading prices
of their common stock immediately prior to the distribution. All
awards issued as part of this adjustment continue to be subject
to their original vesting schedules.
After Temple-Inlands distribution of our stock, our
employees no longer participate in the Temple-Inland share-based
compensation plans. We have a stock incentive plan which permits
awards in various forms, including restricted stock and stock
options. At year end 2007, the only awards outstanding were the
awards resulting from the adjustments to the Temple-Inland
awards.
The expense for the share-based compensation awards granted to
our employees was allocated to us by Temple-Inland. We will
recognize share-based compensation expense associated with
future vesting of our employees awards in Forestar,
Guaranty and Temple-Inland stock.
Information about outstanding awards to our employees follows:
Cash-settled
awards
Cash-settled awards generally vest and are paid after three
years from the date of grant or the attainment of defined
performance goals, generally measured over a three-year period.
A summary of cash-settled awards outstanding to our directors
and employees at year-end 2007, following the adjustments
described previously, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Equivalent
|
|
|
Current
|
|
|
|
Units
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Awards on Forestar stock
|
|
|
40
|
|
|
$
|
914
|
|
Awards on Guaranty stock
|
|
|
40
|
|
|
|
587
|
|
Awards on Temple-Inland stock
|
|
|
121
|
|
|
|
2,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,637
|
|
|
|
|
|
|
|
|
|
|
Of the $3,637,000 aggregate current value of awards to be
settled in cash, we had recognized cumulative compensation
expense of $1,480,000 through year-end 2007. There were no
awards settled in cash in 2007, 2006 or 2005. The fair value at
date of grant for cash-settled awards granted by Temple-Inland
to our employees was $3,849,000 in 2007 and $1,995,000 in 2006.
There were no vested cash awards to be settled at year-end 2007.
F-21
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
stock
Restricted stock awards generally vest after three to six years,
and provide for accelerated vesting upon retirement, death,
disability, or if there is a change in control. Compensation
costs are recognized ratably over the service period. There were
no restricted stock awards granted in 2007. A summary of
restricted stock awards outstanding to our employees at year-end
2007, following the adjustments described previously, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
Current
|
|
|
|
Shares
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Awards on Forestar stock
|
|
|
5
|
|
|
$
|
113
|
|
Awards on Guaranty stock
|
|
|
5
|
|
|
|
72
|
|
Awards on Temple-Inland stock
|
|
|
16
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
There were no restricted stock awards that vested in 2007.
Stock
options
Stock options have a ten-year term, generally become exercisable
ratably over four years and provide for accelerated or continued
vesting upon retirement, death, disability, or if there is a
change in control. Options were granted with an exercise price
equal to the market value of Temple-Inland common stock on the
date of grant. A summary of stock option awards outstanding to
our directors and employees at year-end 2007, following the
adjustments described previously, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 on Forestar stock
|
|
|
89
|
|
|
$
|
20.84
|
|
|
|
7
|
|
|
$
|
156
|
|
Outstanding on Guaranty stock
|
|
|
89
|
|
|
|
13.37
|
|
|
|
7
|
|
|
|
100
|
|
Outstanding on Temple-Inland stock
|
|
|
266
|
|
|
|
16.61
|
|
|
|
7
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable on Forestar stock
|
|
|
44
|
|
|
$
|
14.50
|
|
|
|
5
|
|
|
$
|
360
|
|
Exercisable on Guaranty stock
|
|
|
44
|
|
|
|
9.30
|
|
|
|
5
|
|
|
|
231
|
|
Exercisable on Temple-Inland stock
|
|
|
133
|
|
|
|
11.56
|
|
|
|
5
|
|
|
|
803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised was $310,000 in 2007,
$497,000 in 2006 and $286,000 in 2005. The aggregate fair value
of stock options granted to our directors and employees by
Temple-Inland was $2,565,000 in 2007, $2,176,000 in 2006 and
$1,075,000 in 2005.
Temple-Inland estimated the fair value of the options granted
using the Black-Scholes-Merton option-pricing model and the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected dividend yield
|
|
|
2.3
|
%
|
|
|
2.4
|
%
|
|
|
2.3
|
%
|
Expected stock price volatility
|
|
|
22.8
|
%
|
|
|
25.1
|
%
|
|
|
28.2
|
%
|
Risk-free interest rate
|
|
|
4.9
|
%
|
|
|
4.4
|
%
|
|
|
4.2
|
%
|
Expected life of options in years
|
|
|
6
|
|
|
|
6
|
|
|
|
8
|
|
Weighted average estimated fair value of options granted
|
|
$
|
12.47
|
|
|
$
|
11.53
|
|
|
$
|
11.13
|
|
F-22
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The expected life of options was based on historical experience.
The expected stock price volatility was based on historical
prices of Temple-Inland common stock for a period corresponding
to the expected life of the options with appropriate
consideration given to current conditions and events. Historical
data was used to estimate pre-vesting forfeitures stratified
into two groups based on job level.
Share-based
compensation expense
Pre-tax share-based compensation expense allocated to us by
Temple-Inland consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash-settled awards
|
|
$
|
763
|
|
|
$
|
635
|
|
|
$
|
82
|
|
Restricted stock
|
|
|
142
|
|
|
|
224
|
|
|
|
194
|
|
Stock options
|
|
|
492
|
|
|
|
416
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax share-based compensation expense
|
|
$
|
1,397
|
|
|
$
|
1,275
|
|
|
$
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax share-based compensation expense included in other
operating and general and administrative expense follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
General and administrative
|
|
$
|
1,211
|
|
|
$
|
1,096
|
|
|
$
|
368
|
|
Other operating
|
|
|
186
|
|
|
|
179
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,397
|
|
|
$
|
1,275
|
|
|
$
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of awards granted to retirement-eligible
employees and expensed at the date of grant was $166,000 in
2007, all of which was related to stock options.
We did not capitalize any share-based compensation in 2007, 2006
or 2005.
Unrecognized share-based compensation for all awards not vested
was $3,161,000 at year-end 2007. It is likely that this cost
will be recognized as expense over the next three years.
|
|
Note 14
|
Pension
and Postretirement Plans
|
Prior to the spin-off, we participated in Temple-Inlands
pension and postretirement plans, and as a result, certain of
our employees are entitled to receive benefits under those
plans. The pension and postretirement expense for our employees
allocated to us by Temple-Inland was $218,000 in 2007, $716,000
in 2006, and $946,000 in 2005.
Subsequent to the spin-off, our employees no longer participate
in the Temple-Inland post-retirement plans, and as a result,
will not accrue any additional benefits. The liability for their
benefits as of the spin-off date has been retained by
Temple-Inland.
F-23
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15
|
Summary
of Quarterly Results of Operations (Unaudited)
|
Summarized quarterly financial results for 2007 and 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
34,432
|
|
|
$
|
56,309
|
|
|
$
|
51,632
|
|
|
$
|
35,613
|
|
Operating income
|
|
|
2,602
|
|
|
|
26,404
|
|
|
|
16,370
|
|
|
|
3,891
|
|
Equity in earnings of unconsolidated ventures
|
|
|
1,523
|
|
|
|
1,454
|
|
|
|
1,333
|
|
|
|
(578
|
)
|
Income before taxes
|
|
|
1,043
|
|
|
|
22,781
|
|
|
|
14,816
|
|
|
|
64
|
|
Net income
|
|
|
660
|
|
|
|
14,433
|
|
|
|
9,596
|
|
|
|
106
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
60,107
|
|
|
$
|
54,545
|
|
|
$
|
68,796
|
|
|
$
|
42,112
|
|
Operating income
|
|
|
25,997
|
|
|
|
15,095
|
|
|
|
19,038
|
|
|
|
11,694
|
|
Equity in earnings of unconsolidated ventures
|
|
|
10,154
|
|
|
|
3,538
|
|
|
|
1,850
|
|
|
|
3,829
|
|
Income before taxes
|
|
|
33,994
|
|
|
|
17,044
|
|
|
|
18,067
|
|
|
|
12,709
|
|
Net income
|
|
|
21,213
|
|
|
|
11,418
|
|
|
|
11,278
|
|
|
|
7,935
|
|
|
|
Note 16
|
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 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
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Legal, human resources and other administrative costs
|
|
$
|
2,842
|
|
|
$
|
2,178
|
|
|
$
|
1,986
|
|
Variable compensation
|
|
|
883
|
|
|
|
1,146
|
|
|
|
372
|
|
Accounting and finance
|
|
|
1,425
|
|
|
|
954
|
|
|
|
785
|
|
Information technology support
|
|
|
935
|
|
|
|
664
|
|
|
|
33
|
|
Internal audit, governance and other
|
|
|
209
|
|
|
|
195
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,294
|
|
|
|
5,137
|
|
|
|
3,295
|
|
Share-based compensation
|
|
|
1,397
|
|
|
|
1,275
|
|
|
|
443
|
|
Pension and postretirement
|
|
|
218
|
|
|
|
716
|
|
|
|
946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,909
|
|
|
$
|
7,128
|
|
|
$
|
4,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the spin-off, we paid income taxes to Temple-Inland as
if we filed a separate income tax return. Please read
Note 9 for additional information. In addition, rent
paid to a former subsidiary of Temple-Inland was $190,000 in
2007, $178,000 in 2006, and $151,000 in 2005.
We own an undivided 15 percent interest in corporate aircraft
contributed to us by Temple-Inland at spin-off. Under the terms
of the joint ownership agreement, we pay 15 percent of the fixed
costs associated with ownership of the aircraft and pay our
portion of the variable costs based on our usage. The agreement
has a two-year term at which time it can be renewed or
terminated. At year-end 2007, the carrying value of the aircraft
of $5,686,000 is included in other assets.
F-24
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Natural resources and other revenues include sales of timber to
Temple-Inland of $12,167,000 in 2007, $8,867,000 in 2006, and
$9,615,000 in 2005. Cost of natural resources and other includes
cost of timber sold to Temple-Inland of $3,241,000 in 2007,
$2,140,000 in 2006, and $2,001,000 in 2005.
Temple-Inland
Credit Facility
In 2006, we established a credit facility with Temple-Inland.
Under this facility, when we required funds we borrowed and when
we had excess funds we used them to repay amounts borrowed. In
2006, the average daily balance was $84,313,000, the maximum
month-end balance was $110,506,000, the weighted average
interest rate on borrowing was 4.46 percent, and the
related interest expense was $3,758,000.
A summary of the activity in the Temple-Inland credit facility
follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
110,506
|
|
|
$
|
12,829
|
|
Additions
|
|
|
131,150
|
|
|
|
186,777
|
|
Repayments
|
|
|
(241,656
|
)
|
|
|
(89,100
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
|
|
|
$
|
110,506
|
|
|
|
|
|
|
|
|
|
|
Additions to the Temple-Inland credit facility consisted of
acquisition and development costs, venture contributions, and
other operating, general and administrative expenses, and income
taxes. Repayments to the Temple-Inland credit facility were made
when our daily sources of funds from operations exceeded our
uses of funds. The Temple-Inland credit facility was repaid in
full prior to our separation.
|
|
Note 17
|
Supplemental
Oil and Gas Disclosures (Unaudited)
|
We lease our oil and gas mineral interests, principally those in
Louisiana and Texas, to third party oil and gas exploration and
production entities for the exploration and production of oil
and gas.
Mineral interest acquisition costs were immaterial and we
incurred no exploration or development costs in 2007, 2006 and
2005. The unamortized costs of our oil and gas mineral interests
were not material at year-end 2007 and 2006.
Our royalty revenues were allocated to us by Temple-Inland. They
are contractually defined and based on a percentage of
production and are received in cash. Our royalty revenues
fluctuate based on changes in the market prices for oil and gas
and other factors affecting the third party oil and gas
exploration and production entities including the cost of
development and production.
Information about the results of operations of our oil and gas
mineral interests follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Royalty revenues
|
|
$
|
13,114
|
|
|
$
|
17,381
|
|
|
$
|
15,767
|
|
Production costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, amortization and valuation provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(2,237
|
)
|
|
|
(1,675
|
)
|
|
|
(1,420
|
)
|
Income tax expenses
|
|
|
(3,327
|
)
|
|
|
(5,029
|
)
|
|
|
(4,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of operations
|
|
$
|
7,550
|
|
|
$
|
10,677
|
|
|
$
|
9,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
FORESTAR
REAL ESTATE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other lease revenues, principally bonus and delay rentals, were
$7,704,000 in 2007, $10,599,000 in 2006 and $5,282,000 in 2005.
Estimates of oil and gas reserve information related to our
royalty interests are unknown to us. We do not make such
estimates and our lessees do not make this information available
to us. Our approximate share of oil and gas produced related to
our royalty interests follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
2007
|
|
2006
|
|
2005
|
|
Oil (barrels)
|
|
|
95,000
|
|
|
|
126,000
|
|
|
|
113,000
|
|
Gas (thousands of cubic feet (Mcf))
|
|
|
967,000
|
|
|
|
1,212,000
|
|
|
|
1,522,000
|
|
F-26
Forestar
Real Estate Group Inc.
Schedule III
Consolidated Real Estate and Accumulated Depreciation
Year-End
2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Entitled, Developed, and Under Development
Projects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CALIFORNIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contra Costa County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin River
|
|
|
|
|
|
$
|
12,225
|
|
|
$
|
279
|
|
|
$
|
(3,715
|
)
|
|
|
|
|
|
$
|
8,510
|
|
|
$
|
279
|
|
|
$
|
8,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COLORADO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinery West
|
|
$
|
5,201
|
|
|
|
7,308
|
|
|
|
|
|
|
|
926
|
|
|
|
|
|
|
|
8,234
|
|
|
|
|
|
|
|
8,234
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Weld County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo Highlands
|
|
|
|
|
|
|
3,001
|
|
|
|
|
|
|
|
427
|
|
|
|
|
|
|
|
3,428
|
|
|
|
|
|
|
|
3,428
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Johnstown Farms
|
|
|
|
|
|
|
2,749
|
|
|
|
|
|
|
|
8,851
|
|
|
$
|
188
|
|
|
|
11,788
|
|
|
|
|
|
|
|
11,788
|
|
|
|
|
|
|
|
2002
|
|
|
|
2002
|
|
Stonebraker
|
|
|
|
|
|
|
3,878
|
|
|
|
|
|
|
|
1,046
|
|
|
|
|
|
|
|
4,924
|
|
|
|
|
|
|
|
4,924
|
|
|
|
|
|
|
|
2005
|
|
|
|
2005
|
|
GEORGIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coweta County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fox Hall
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
3,592
|
|
|
|
|
|
|
|
3,758
|
|
|
|
|
|
|
|
3,758
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
Bartow County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towne West
|
|
|
|
|
|
|
936
|
|
|
|
|
|
|
|
735
|
|
|
|
|
|
|
|
1,671
|
|
|
|
|
|
|
|
1,671
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bastrop County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunters Crossing
|
|
|
|
|
|
|
3,613
|
|
|
|
|
|
|
|
8,446
|
|
|
|
311
|
|
|
|
12,370
|
|
|
|
|
|
|
|
12,370
|
|
|
|
|
|
|
|
2001
|
|
|
|
2001
|
|
The Colony
|
|
|
1,036
|
|
|
|
6,728
|
|
|
|
427
|
|
|
|
12,882
|
|
|
|
160
|
|
|
|
19,770
|
|
|
|
427
|
|
|
|
20,197
|
|
|
|
|
|
|
|
1999
|
|
|
|
1999
|
|
Bexar County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cibolo Canyons
|
|
|
|
|
|
|
25,568
|
|
|
|
|
|
|
|
37,886
|
|
|
|
226
|
|
|
|
63,680
|
|
|
|
|
|
|
|
63,680
|
|
|
|
|
|
|
|
2004
|
|
|
|
1986
|
|
Burnet County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Double Horn Creek
|
|
|
|
|
|
|
2,087
|
|
|
|
|
|
|
|
401
|
|
|
|
45
|
|
|
|
2,533
|
|
|
|
|
|
|
|
2,533
|
|
|
|
|
|
|
|
1999
|
|
|
|
1999
|
|
Calhoun County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caracol
|
|
|
10,527
|
|
|
|
8,603
|
|
|
|
|
|
|
|
7,911
|
|
|
|
|
|
|
|
16,514
|
|
|
|
|
|
|
|
16,514
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Harbor Mist
|
|
|
|
|
|
|
2,822
|
|
|
|
|
|
|
|
526
|
|
|
|
|
|
|
|
3,348
|
|
|
|
|
|
|
|
3,348
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Collin County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Farms
|
|
|
16,824
|
|
|
|
30,103
|
|
|
|
|
|
|
|
4,501
|
|
|
|
|
|
|
|
34,604
|
|
|
|
|
|
|
|
34,604
|
|
|
|
|
|
|
|
2007
|
|
|
|
2007
|
|
Maxwell Creek
|
|
|
|
|
|
|
9,904
|
|
|
|
|
|
|
|
1,177
|
|
|
|
332
|
|
|
|
11,413
|
|
|
|
|
|
|
|
11,413
|
|
|
|
|
|
|
|
2000
|
|
|
|
2000
|
|
The Gables at North Hill
|
|
|
|
|
|
|
2,160
|
|
|
|
|
|
|
|
(463
|
)
|
|
|
63
|
|
|
|
1,760
|
|
|
|
|
|
|
|
1,760
|
|
|
|
|
|
|
|
2004
|
|
|
|
2001
|
|
Timber Creek
|
|
|
3,431
|
|
|
|
7,282
|
|
|
|
|
|
|
|
211
|
|
|
|
|
|
|
|
7,493
|
|
|
|
|
|
|
|
7,493
|
|
|
|
|
|
|
|
2007
|
|
|
|
2007
|
|
Comal County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oak Creek Estates
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
4,185
|
|
|
|
143
|
|
|
|
6,249
|
|
|
|
|
|
|
|
6,249
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Dallas County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stoney Creek
|
|
|
11,390
|
|
|
|
18,600
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
18,580
|
|
|
|
|
|
|
|
18,580
|
|
|
|
|
|
|
|
2007
|
|
|
|
2007
|
|
S-1
Forestar
Real Estate Group Inc.
Schedule III
Consolidated Real Estate and Accumulated
Depreciation (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Denton County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lantana
|
|
|
19,034
|
|
|
|
31,451
|
|
|
|
|
|
|
|
9,156
|
|
|
|
|
|
|
|
40,607
|
|
|
|
|
|
|
|
40,607
|
|
|
|
|
|
|
|
2000
|
|
|
|
1999
|
|
The Preserve at Pecan Creek
|
|
|
|
|
|
|
5,855
|
|
|
|
|
|
|
|
2,627
|
|
|
|
313
|
|
|
|
8,795
|
|
|
|
|
|
|
|
8,795
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Harris County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Park
|
|
|
1,154
|
|
|
|
3,946
|
|
|
|
|
|
|
|
609
|
|
|
|
1,595
|
|
|
|
6,150
|
|
|
|
|
|
|
|
6,150
|
|
|
|
|
|
|
|
2002
|
|
|
|
2001
|
|
Hays County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrowhead Ranch
|
|
|
|
|
|
|
12,001
|
|
|
|
|
|
|
|
466
|
|
|
|
|
|
|
|
12,467
|
|
|
|
|
|
|
|
12,467
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Hood County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harbor Lakes
|
|
|
|
|
|
|
3,514
|
|
|
|
|
|
|
|
5,142
|
|
|
|
312
|
|
|
|
8,968
|
|
|
|
|
|
|
|
8,968
|
|
|
$
|
(517
|
)
|
|
|
2000
|
|
|
|
1998
|
|
Nueces County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tortuga Dunes
|
|
|
|
|
|
|
12,080
|
|
|
|
|
|
|
|
1,579
|
|
|
|
|
|
|
|
13,659
|
|
|
|
|
|
|
|
13,659
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
Rockwall County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caruth Lakes
|
|
|
|
|
|
|
1,624
|
|
|
|
|
|
|
|
6,361
|
|
|
|
100
|
|
|
|
8,085
|
|
|
|
|
|
|
|
8,085
|
|
|
|
|
|
|
|
1997
|
|
|
|
1996
|
|
Tarrant County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Parks at Deer Creek
|
|
|
|
|
|
|
3,538
|
|
|
|
|
|
|
|
(1,294
|
)
|
|
|
350
|
|
|
|
2,594
|
|
|
|
|
|
|
|
2,594
|
|
|
|
|
|
|
|
1999
|
|
|
|
1998
|
|
Travis County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presidio at Judges Hill
|
|
|
4,787
|
|
|
|
1,500
|
|
|
|
|
|
|
|
5,563
|
|
|
|
|
|
|
|
7,063
|
|
|
|
|
|
|
|
7,063
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
The Ridge at Ribelin Ranch
|
|
|
|
|
|
|
23,751
|
|
|
|
|
|
|
|
(22,284
|
)
|
|
|
|
|
|
|
1,467
|
|
|
|
|
|
|
|
1,467
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Williamson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westside at Buttercup Creek
|
|
|
|
|
|
|
13,149
|
|
|
|
|
|
|
|
(5,351
|
)
|
|
|
186
|
|
|
|
7,984
|
|
|
|
|
|
|
|
7,984
|
|
|
|
|
|
|
|
1993
|
|
|
|
1993
|
|
Chandler Road Properties
|
|
|
|
|
|
|
3,552
|
|
|
|
|
|
|
|
(2,137
|
)
|
|
|
|
|
|
|
1,415
|
|
|
|
|
|
|
|
1,415
|
|
|
|
|
|
|
|
2004
|
|
|
|
2004
|
|
La Conterra
|
|
|
|
|
|
|
4,024
|
|
|
|
|
|
|
|
1,682
|
|
|
|
3
|
|
|
|
5,709
|
|
|
|
|
|
|
|
5,709
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
MISSOURI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clay County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Somerbrook
|
|
|
|
|
|
|
3,061
|
|
|
|
|
|
|
|
(233
|
)
|
|
|
13
|
|
|
|
2,841
|
|
|
|
|
|
|
|
2,841
|
|
|
|
|
|
|
|
2003
|
|
|
|
2001
|
|
TENNESSEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Davidson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Youngs Lane
|
|
|
1,200
|
|
|
|
2,051
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
2,101
|
|
|
|
|
|
|
|
2,101
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
UTAH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weber County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort Bingham Estates
|
|
|
|
|
|
|
3,284
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
88
|
|
|
|
3,361
|
|
|
|
|
|
|
|
3,361
|
|
|
|
|
|
|
|
2003
|
|
|
|
1998
|
|
Other
|
|
|
|
|
|
|
33,681
|
|
|
|
|
|
|
|
(23,090
|
)
|
|
|
3,303
|
|
|
|
13,894
|
|
|
|
|
|
|
|
13,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Entitled, Developed, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Development Projects
|
|
$
|
74,584
|
|
|
$
|
311,716
|
|
|
$
|
706
|
|
|
$
|
68,340
|
|
|
$
|
7,731
|
|
|
$
|
387,787
|
|
|
$
|
706
|
|
|
$
|
388,493
|
|
|
$
|
(517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-2
Forestar
Real Estate 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
|
|
|
|
|
|
$
|
7,193
|
|
|
|
|
|
|
$
|
18
|
|
|
|
|
|
|
$
|
7,211
|
|
|
|
|
|
|
$
|
7,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleburne County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
5,594
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
5,610
|
|
|
|
|
|
|
|
5,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CALIFORNIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
3,219
|
|
|
|
|
|
|
|
3,851
|
|
|
|
|
|
|
|
7,070
|
|
|
|
|
|
|
|
7,070
|
|
|
|
|
|
|
|
|
|
|
|
1997
|
|
GEORGIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,383
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
2,416
|
|
|
|
|
|
|
|
2,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bartow County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
5,585
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
5,671
|
|
|
|
|
|
|
|
5,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carroll County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
8,417
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
8,524
|
|
|
|
|
|
|
|
8,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
9,308
|
|
|
|
|
|
|
|
2,086
|
|
|
|
|
|
|
|
11,394
|
|
|
|
|
|
|
|
11,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chattooga County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,472
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
4,496
|
|
|
|
|
|
|
|
4,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cherokee County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,835
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
3,966
|
|
|
|
|
|
|
|
3,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
2,472
|
|
|
|
|
|
|
|
364
|
|
|
|
|
|
|
|
2,836
|
|
|
|
|
|
|
|
2,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coweta County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,742
|
|
|
|
|
|
|
|
264
|
|
|
|
|
|
|
|
3,006
|
|
|
|
|
|
|
|
3,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
2,990
|
|
|
|
|
|
|
|
1,072
|
|
|
|
|
|
|
|
4,062
|
|
|
|
|
|
|
|
4,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dawson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,784
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
2,810
|
|
|
|
|
|
|
|
2,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
702
|
|
|
|
|
|
|
|
713
|
|
|
|
|
|
|
|
1,415
|
|
|
|
|
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elbert County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,629
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
1,634
|
|
|
|
|
|
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floyd County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,935
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
3,973
|
|
|
|
|
|
|
|
3,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-3
Forestar
Real Estate 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
|
|
|
|
|
|
|
3,058
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
3,078
|
|
|
|
|
|
|
|
3,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,339
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
3,357
|
|
|
|
|
|
|
|
3,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hall County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
906
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
925
|
|
|
|
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Haralson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
8,100
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
|
|
8,290
|
|
|
|
|
|
|
|
8,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
195
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heard County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
10,970
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
11,078
|
|
|
|
|
|
|
|
11,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jackson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
996
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
1,066
|
|
|
|
|
|
|
|
1,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
491
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
559
|
|
|
|
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumpkin County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,120
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
3,124
|
|
|
|
|
|
|
|
3,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meriwether County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,874
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
1,909
|
|
|
|
|
|
|
|
1,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pickens County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,590
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
3,671
|
|
|
|
|
|
|
|
3,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
187
|
|
|
|
|
|
|
|
485
|
|
|
|
|
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polk County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,807
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
4,835
|
|
|
|
|
|
|
|
4,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troup County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
5,122
|
|
|
|
|
|
|
|
623
|
|
|
|
|
|
|
|
5,745
|
|
|
|
|
|
|
|
5,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anderson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
821
|
|
|
|
|
|
|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-4
Forestar
Real Estate 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
|
|
|
|
|
|
|
1,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,460
|
|
|
|
|
|
|
|
1,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,034
|
|
|
|
|
|
|
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Montgomery County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land in Entitlement Process
|
|
|
|
|
|
|
2,675
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
2,707
|
|
|
|
|
|
|
|
2,707
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Rusk County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sabine County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
508
|
|
|
|
|
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Augustine County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,720
|
|
|
|
|
|
|
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
6,907
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
|
|
7,166
|
|
|
|
|
|
|
|
7,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
685
|
|
|
|
|
|
|
|
157
|
|
|
|
|
|
|
|
842
|
|
|
|
|
|
|
|
842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Undeveloped Land
|
|
$
|
|
|
|
$
|
130,205
|
|
|
$
|
|
|
|
$
|
10,807
|
|
|
$
|
|
|
|
$
|
141,012
|
|
|
$
|
|
|
|
$
|
141,012
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Operating Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travis County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radisson Hotel & Suites
|
|
$
|
16,431
|
|
|
|
|
|
|
$
|
16,316
|
|
|
$
|
25,894
|
|
|
|
|
|
|
|
|
|
|
$
|
42,210
|
|
|
$
|
42,210
|
|
|
$
|
(20,021
|
)
|
|
|
|
|
|
|
|
|
Hood County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harbor Lakes Golf Club
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
|
1,269
|
|
|
|
(236
|
)
|
|
|
2000
|
|
|
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Operating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
$
|
16,431
|
|
|
$
|
|
|
|
$
|
17,585
|
|
|
$
|
25,894
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43,479
|
|
|
$
|
43,479
|
|
|
$
|
(20,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
91,015
|
|
|
$
|
441,921
|
|
|
$
|
18,291
|
|
|
$
|
105,041
|
|
|
$
|
7,731
|
|
|
$
|
528,799
|
|
|
$
|
44,185
|
|
|
$
|
572,984
|
|
|
$
|
(20,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We do not capitalize carrying costs until development begins. |
S-5
Forestar
Real Estate Group Inc.
Schedule III
Consolidated Real Estate and Accumulated Depreciation
Reconciliation of real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of year
|
|
$
|
468,724
|
|
|
$
|
392,107
|
|
|
$
|
383,798
|
|
Amounts capitalized
|
|
|
181,430
|
|
|
|
178,835
|
|
|
|
74,858
|
|
Amounts retired or adjusted
|
|
|
(77,170
|
)
|
|
|
(102,218
|
)
|
|
|
(66,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at close of period
|
|
$
|
572,984
|
|
|
$
|
468,724
|
|
|
$
|
392,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(20,907
|
)
|
|
$
|
(18,957
|
)
|
|
$
|
(18,273
|
)
|
Depreciation expense
|
|
|
(2,014
|
)
|
|
|
(2,008
|
)
|
|
|
(1,876
|
)
|
Amounts retired or adjusted
|
|
|
2,147
|
|
|
|
58
|
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at close of period
|
|
$
|
(20,774
|
)
|
|
$
|
(20,907
|
)
|
|
$
|
(18,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-6