e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
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 |
For the transition period from to
Commission File Number: 001-33662
FORESTAR GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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26-1336998 |
(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.) |
6300 Bee Cave Road, Building Two, Suite 500, Austin, Texas 78746
(Address of Principal Executive Offices, Including Zip Code)
(512) 433-5200
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
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Number of Shares Outstanding as of |
Title of Each Class |
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May 5, 2010 |
Common Stock, par value $1.00 per share
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36,416,438 |
FORESTAR GROUP INC.
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FORESTAR GROUP INC.
Consolidated Balance Sheets
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(Unaudited) |
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First |
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Quarter-End |
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Year-End |
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2010 |
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2009 |
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(In thousands) |
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ASSETS |
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Cash and cash equivalents |
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$ |
6,590 |
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$ |
21,051 |
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Real estate |
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528,790 |
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542,812 |
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Assets held for sale |
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27,976 |
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31,226 |
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Investment in unconsolidated ventures |
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107,950 |
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109,597 |
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Timber |
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19,448 |
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19,845 |
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Receivables, net |
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11,542 |
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1,841 |
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Prepaid expense |
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2,302 |
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2,587 |
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Property and equipment, net |
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5,158 |
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5,234 |
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Deferred tax asset |
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45,608 |
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40,751 |
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Other assets |
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8,246 |
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9,790 |
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TOTAL ASSETS |
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$ |
763,610 |
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$ |
784,734 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Accounts payable |
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$ |
2,452 |
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$ |
4,573 |
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Accrued employee compensation and benefits |
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245 |
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4,025 |
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Accrued property taxes |
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2,794 |
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4,302 |
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Accrued interest |
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970 |
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871 |
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Income taxes payable |
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1,250 |
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2,809 |
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Other accrued expenses |
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7,050 |
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8,269 |
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Other liabilities |
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26,904 |
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24,924 |
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Debt |
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204,406 |
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216,626 |
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TOTAL LIABILITIES |
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246,071 |
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266,399 |
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COMMITMENTS AND CONTINGENCIES |
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EQUITY |
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Forestar Group Inc. shareholders equity: |
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Preferred stock, par value $0.01 per share,
25,000,000 authorized shares, none issued |
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Common stock, par value $1.00 per share,
200,000,000 authorized shares, 36,615,273
issued at March 31, 2010 and 36,255,336
issued at December 31, 2009 |
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36,615 |
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36,255 |
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Additional paid-in capital |
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386,582 |
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384,795 |
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Retained earnings |
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92,904 |
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95,876 |
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Accumulated other comprehensive loss |
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(256 |
) |
Treasury stock, at cost, 215,014 shares at
March 31, 2010 and 209,544 shares at December
31, 2009 |
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(4,266 |
) |
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(4,214 |
) |
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Total Forestar Group Inc. shareholders equity |
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511,835 |
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512,456 |
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Noncontrolling interests |
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5,704 |
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5,879 |
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TOTAL EQUITY |
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517,539 |
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518,335 |
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TOTAL LIABILITIES AND EQUITY |
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$ |
763,610 |
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$ |
784,734 |
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Please read the notes to the consolidated financial statements.
3
FORESTAR GROUP INC.
Consolidated Statements of Income
(Unaudited)
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First Quarter |
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2010 |
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2009 |
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(In thousands, except per |
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share amounts) |
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REVENUES |
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Real estate sales |
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$ |
10,750 |
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$ |
14,059 |
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Commercial operating properties and other |
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6,498 |
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4,728 |
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Real estate |
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17,248 |
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18,787 |
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Mineral resources |
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7,127 |
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5,921 |
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Fiber resources and other |
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1,983 |
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4,369 |
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26,358 |
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29,077 |
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EXPENSES |
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Cost of real estate sales |
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(5,667 |
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(4,742 |
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Cost of commercial operating properties and other |
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(5,002 |
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(3,816 |
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Cost of mineral resources |
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(322 |
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(347 |
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Cost of fiber resources |
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(351 |
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(833 |
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Other operating |
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(10,011 |
) |
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(10,201 |
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General and administrative |
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(5,576 |
) |
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(8,815 |
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(26,929 |
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(28,754 |
) |
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OPERATING (LOSS) INCOME |
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(571 |
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323 |
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Equity in earnings (loss) of unconsolidated ventures |
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371 |
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(572 |
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Interest expense |
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(4,546 |
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(5,166 |
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Other non-operating income |
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198 |
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51 |
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LOSS BEFORE TAXES |
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(4,548 |
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(5,364 |
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Income tax benefit |
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1,515 |
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2,315 |
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CONSOLIDATED NET LOSS |
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(3,033 |
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(3,049 |
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Less: Net loss (income) attributable to noncontrolling interests |
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61 |
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(843 |
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NET LOSS ATTRIBUTABLE TO FORESTAR GROUP INC. |
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$ |
(2,972 |
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$ |
(3,892 |
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC |
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36,078 |
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35,681 |
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NET LOSS PER COMMON SHARE BASIC |
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$ |
(0.08 |
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$ |
(0.11 |
) |
Please read the notes to the consolidated financial statements.
4
FORESTAR GROUP INC.
Consolidated Statements of Cash Flows
(Unaudited)
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First Quarter |
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2010 |
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2009 |
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(In thousands) |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Consolidated net loss |
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$ |
(3,033 |
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$ |
(3,049 |
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Adjustments: |
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Depreciation and amortization |
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2,788 |
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2,111 |
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Deferred income taxes |
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(4,994 |
) |
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(3,816 |
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Tax benefits not recognized for book purposes |
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16 |
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Equity in (earnings) loss of unconsolidated ventures |
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(371 |
) |
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572 |
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Distributions of earnings of unconsolidated ventures |
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99 |
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23 |
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Distributions of earnings to noncontrolling interests |
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(152 |
) |
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(1,495 |
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Share-based compensation |
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3,534 |
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1,706 |
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Non-cash real estate cost of sales |
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5,421 |
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4,770 |
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Real estate development and acquisition expenditures |
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(2,788 |
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(7,053 |
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Reimbursements from utility and improvement districts |
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183 |
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1,731 |
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Other changes in real estate |
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5 |
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(269 |
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Gain on termination of timber lease |
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(497 |
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(185 |
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Cost of timber cut |
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337 |
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796 |
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Deferred income |
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557 |
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930 |
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Asset impairments |
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600 |
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Loss on sale of assets held for sale |
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277 |
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Other |
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4 |
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28 |
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Changes in: |
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Notes and accounts receivable |
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(9,982 |
) |
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(32 |
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Prepaid expenses and other |
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269 |
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74 |
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Accounts payable and other accrued liabilities |
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(9,949 |
) |
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(10,165 |
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Income taxes payable |
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(1,560 |
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2,214 |
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Net cash used for operating activities |
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(19,836 |
) |
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(10,509 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Property, equipment, software and reforestation |
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(326 |
) |
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(1,557 |
) |
Investment in unconsolidated ventures |
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(705 |
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(830 |
) |
Return of investment in unconsolidated ventures |
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2,634 |
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1,614 |
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Proceeds from sale of assets held for sale |
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2,602 |
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Net cash provided by (used for) investing activities |
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4,205 |
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(773 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payments of debt |
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(10,370 |
) |
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(14,977 |
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Additions to debt |
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11,357 |
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26,758 |
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Return of investment to noncontrolling interest |
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(399 |
) |
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(170 |
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Exercise of stock options |
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518 |
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1 |
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Payroll taxes on restricted stock and stock options |
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(49 |
) |
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(17 |
) |
Tax benefit from share-based compensation |
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52 |
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Other |
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61 |
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24 |
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Net cash provided by financing activities |
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1,170 |
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11,619 |
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Net (decrease) increase in cash and cash equivalents |
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(14,461 |
) |
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337 |
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Cash and cash equivalents at beginning of year |
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21,051 |
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8,127 |
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Cash and cash equivalents at end of period |
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$ |
6,590 |
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$ |
8,464 |
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Please read the notes to the consolidated financial statements.
5
FORESTAR GROUP INC.
Notes to the Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
Our consolidated financial statements include the accounts of Forestar Group Inc., all
subsidiaries, ventures and other entities in which we have a controlling interest and variable
interest entities of which we are the primary beneficiary. We eliminate all material intercompany
accounts and transactions. Noncontrolling interests in consolidated pass-through entities are
recognized before income taxes. We account for our investment in other entities in which we have
significant influence over operations and financial policies using the equity method (we recognize
our share of the entities income or loss and any preferential returns and treat distributions as a
reduction of our investment). We account for our investment in other entities in which we do not
have significant influence over operations and financial policies using the cost method (we
recognize as income distribution of accumulated earnings).
We prepare our unaudited interim financial statements in accordance with U.S. generally
accepted accounting principles and Securities and Exchange Commission requirements for interim
financial statements. As a result, they do not include all the information and disclosures required
for complete financial statements. However, in our opinion, all adjustments considered necessary
for a fair presentation have been included. Such adjustments consist only of normal recurring items
unless otherwise noted. We make estimates and assumptions about future events. Actual results can,
and probably will, differ from those we currently estimate including those related to allocating
cost of sales to real estate, minerals and fiber and measuring assets for impairment. These interim
operating results are not necessarily indicative of the results that may be expected for the entire
year. For further information, please read the financial statements included in our 2009 Annual
Report on Form 10-K.
Note 2 New Accounting Pronouncements
In first quarter 2010, we adopted ASU 2009-17, Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities, ASU 2010-06, Improving Disclosures about Fair
Value Measurements and ASU 2010-09, Amendments to Certain Recognition and Disclosure Requirements.
Adoption of these pronouncements did not have a significant effect on our earnings or financial
position but did result in certain additional disclosures.
Note 3 Strategic Initiatives and Assets Held for Sale
In 2009, we announced our near-term strategic initiatives to enhance shareholder value by
generating significant cash flow, principally from the sale of about 175,000 acres of higher and
better use (HBU) timberland. In 2009, we sold about 95,000 acres of timber and timberland in
Georgia and Alabama in two transactions generating net cash proceeds of $153,851,000, which were
principally used to reduce debt and pay taxes.
At first quarter-end 2010, assets held for sale includes about 74,000 acres of undeveloped
land with a carrying value of $17,974,000 and related timber with a carrying value of $10,002,000.
We continue to actively market this land but did not sell any land in first quarter 2010 in
accordance with these initiatives.
In first quarter 2010, we sold our undivided interest in corporate aircraft resulting in net
cash proceeds of $2,602,000 and loss on the sale of assets of $277,000.
Note 4 Real Estate
Real estate consists of:
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First |
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Quarter-End |
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Year-End |
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2010 |
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2009 |
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(In thousands) |
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Entitled, developed and under development projects |
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$ |
413,645 |
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$ |
427,047 |
|
Undeveloped land |
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|
91,066 |
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|
91,011 |
|
Commercial operating properties |
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|
45,705 |
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|
49,171 |
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|
550,416 |
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|
567,229 |
|
Accumulated depreciation |
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(21,626 |
) |
|
|
(24,417 |
) |
|
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|
$ |
528,790 |
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$ |
542,812 |
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6
Included in entitled, developed and under development projects are the estimated costs of
assets we expect to convey to utility and improvement districts of $60,847,000 at first quarter-end
2010 and $60,863,000 at year-end 2009, including about $37,052,000 at first quarter-end 2010, all
of which is approved for reimbursement, and $37,062,000 at year-end 2009 related to our Cibolo
Canyons project near San Antonio, Texas. These costs relate to water, sewer and other
infrastructure assets we have submitted to utility or improvement districts for review and
approval. In first quarter 2010, we billed these districts $183,000. In first quarter 2009, we did
not bill these districts. We collected $183,000 from these districts in first quarter 2010 and
$1,731,000 in first quarter 2009. We expect to collect the remaining amounts billed when these
districts achieve adequate tax bases to support payment.
In first quarter 2010, entitled, developed and under development projects decreased by
$11,865,000 due to lender foreclosure of a lien on a condominium property in Austin, Texas, owned
by a consolidated variable interest entity. The lien secured debt guaranteed by the unrelated
general partner who managed day to day operations of the venture. Please read Note 7 for additional
information.
We did not recognize any asset impairment charges in first quarter 2010. We recognized
asset impairment charges of $600,000 in first quarter 2009 related to a condominium project in
Austin, Texas.
Depreciation expense, primarily related to commercial operating properties, was $868,000
in first quarter 2010 and $446,000 in first quarter 2009 and is included in other operating
expense.
Note 5 Timber
We have over 225,000 acres of timber, primarily in Georgia. The cost of timber cut and sold
was $337,000 in first quarter 2010 and $796,000 in first quarter 2009.
Note 6 Noncontrolling Interests
A reconciliation of changes in shareholders equity in first quarter 2010 follows:
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Forestar |
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Noncontrolling |
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|
Group Inc. |
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Interests |
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Total |
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|
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|
(In thousands) |
|
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|
|
|
Balance at beginning of period |
|
$ |
512,456 |
|
|
$ |
5,879 |
|
|
$ |
518,335 |
|
Net (loss) income |
|
|
(2,972 |
) |
|
|
(61 |
) |
|
|
(3,033 |
) |
Unrealized gain |
|
|
256 |
|
|
|
|
|
|
|
256 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
(551 |
) |
|
|
(551 |
) |
Contributions from noncontrolling interests |
|
|
|
|
|
|
437 |
|
|
|
437 |
|
Other (primarily share-based compensation) |
|
|
2,095 |
|
|
|
|
|
|
|
2,095 |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
511,835 |
|
|
$ |
5,704 |
|
|
$ |
517,539 |
|
|
|
|
|
|
|
|
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|
|
Note 7 Variable Interest Entities
At first quarter-end 2010, we are the primary beneficiary of one variable interest entity that
is a limited partnership that we consolidate. We are the majority owner and provided the majority
of equity to the partnership which does not have sufficient equity to fund its operations. We have
the authority to approve project budgets and the issuance of additional debt. The unrelated
managing partner oversees the day to day operations and guarantees the debt but does not have any
remaining equity in the partnership. In first quarter 2010, our real estate assets decreased by
$11,865,000, debt decreased by $13,207,000 and other liabilities increased by $1,342,000 due to
lender foreclosure of a lien on the partnerships only significant asset, a condominium property in
Austin, Texas. At first quarter-end 2010, the limited partnership has total assets of $12,000 and
total liabilities of $3,089,000. The partnership liabilities will be settled as the venture is
liquidated. During first quarter 2010, we contributed $236,000 to this partnership to fund its
operations.
Also at first quarter-end 2010, we are not the primary beneficiary of three variable interest
entities that are partnerships we account for using the equity method. We are a nominal general
partner in two of these partnerships. We have the authority to approve project budgets and the
issuance of additional debt. The unrelated managing partners oversee the day to day operations and
guarantee the debt. At first quarter-end 2010, our investment in these three partnerships is
$4,127,000 and is included in investment in unconsolidated ventures. These three partnerships have
total assets of $73,068,000, substantially all
of which represent developed and undeveloped real estate and total liabilities of $85,893,000,
which principally include borrowings maturing in 2010. Our maximum exposure to loss related to
these partnerships is estimated at $37,499,000, which exceeds our investment in these partnerships
because we are a nominal general partner in two of these partnerships and as a result could be held
liable for partnership liabilities.
7
It represents the maximum loss that we could be required to
recognize assuming all of the partnerships assets are worthless and does not consider the
probability that a loss will be incurred or any actions we may take to mitigate any such loss. We
did not make any contributions to these partnerships during first quarter 2010.
Note 8 Investment in Unconsolidated Ventures
At first quarter-end 2010, we had ownership interests ranging from 25 to 50 percent in 10
ventures that we account for using the equity method. We have no real estate ventures that are
accounted for using the cost method. Our three largest ventures at first quarter-end 2010 are CL
Realty, Temco and Palisades West. We own a 50 percent interest in both CL Realty and Temco, and
Cousins Real Estate Corporation owns the other 50 percent interest. We own a 25 percent interest in
Palisades West, Cousins Properties Incorporated owns a 50 percent interest and Dimensional Fund
Advisors LP owns the remaining 25 percent interest. Information regarding these ventures follows:
|
|
|
CL Realty, L.L.C. was formed in 2002 for the purpose of developing
residential and mixed-use communities in Texas and across the
southeastern United States. At first quarter-end 2010, the venture had
14 residential and mixed-use communities, of which 10 are in Texas, 3
are in Florida and 1 is in Georgia, representing about 7,190
residential lots and 560 commercial acres. |
|
|
|
|
Temco Associates, LLC was formed in 1991 for the purpose of acquiring
and developing residential real estate sites in Georgia. At first
quarter-end 2010, the venture had 5 residential and mixed-use
communities, representing about 1,560 planned residential lots, all of
which are located in Paulding County, Georgia. The venture also owns
approximately 5,500 acres of undeveloped land in Paulding County,
Georgia. |
|
|
|
|
Palisades West LLC was formed in 2006 for the purpose of constructing
a commercial office park in Austin, Texas. The project includes two
office buildings totaling approximately 375,000 square feet and an
accompanying parking garage. Construction of the project was completed
in fourth quarter 2008 and is approximately 94 percent leased at first
quarter-end 2010. Our remaining commitment for investment in this
venture as of first quarter-end 2010 is $3,245,000. Effective fourth
quarter 2008, we entered into a 10-year operating lease for
approximately 32,000 square feet that we occupy as our corporate
headquarters. |
Combined summarized balance sheet information for our ventures accounted for using the equity
method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter-End 2010 |
|
|
Year-End 2009 |
|
|
|
|
|
|
|
|
|
|
|
Palisades |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palisades |
|
|
Other |
|
|
|
|
|
|
CL Realty |
|
|
Temco |
|
|
West |
|
|
Ventures |
|
|
Total |
|
|
CL Realty |
|
|
Temco |
|
|
West |
|
|
Ventures |
|
|
Total |
|
|
|
(In thousands) |
|
Real estate |
|
$ |
109,798 |
|
|
$ |
60,253 |
|
|
$ |
122,527 |
|
|
$ |
88,651 |
|
|
$ |
381,229 |
|
|
$ |
113,169 |
|
|
$ |
60,402 |
|
|
$ |
122,566 |
|
|
$ |
89,507 |
|
|
$ |
385,644 |
|
Total assets |
|
|
111,129 |
|
|
|
60,612 |
|
|
|
124,706 |
|
|
|
94,973 |
|
|
|
391,420 |
|
|
|
114,598 |
|
|
|
60,751 |
|
|
|
125,396 |
|
|
|
96,711 |
|
|
|
397,456 |
|
Borrowings,
principally
non-recourse
(a) |
|
|
3,244 |
|
|
|
3,028 |
|
|
|
|
|
|
|
77,817 |
|
|
|
84,089 |
|
|
|
3,568 |
|
|
|
3,061 |
|
|
|
|
|
|
|
77,113 |
|
|
|
83,742 |
|
Total liabilities |
|
|
4,405 |
|
|
|
3,277 |
|
|
|
49,698 |
(b) |
|
|
87,749 |
|
|
|
145,129 |
|
|
|
5,414 |
|
|
|
3,268 |
|
|
|
51,158 |
(b) |
|
|
88,273 |
|
|
|
148,113 |
|
Equity |
|
|
106,724 |
|
|
|
57,335 |
|
|
|
75,008 |
|
|
|
7,224 |
|
|
|
246,291 |
|
|
|
109,184 |
|
|
|
57,483 |
|
|
|
74,238 |
|
|
|
8,438 |
|
|
|
249,343 |
|
Our investment in
real estate
ventures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of their
equity
(c) |
|
|
53,362 |
|
|
|
28,667 |
|
|
|
18,696 |
|
|
|
15,194 |
|
|
|
115,919 |
|
|
|
54,592 |
|
|
|
28,742 |
|
|
|
18,559 |
|
|
|
15,673 |
|
|
|
117,566 |
|
Unrecognized
deferred
gain
(d) |
|
|
(7,059 |
) |
|
|
|
|
|
|
|
|
|
|
(910 |
) |
|
|
(7,969 |
) |
|
|
(7,059 |
) |
|
|
|
|
|
|
|
|
|
|
(910 |
) |
|
|
(7,969 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in
real estate
ventures |
|
$ |
46,303 |
|
|
$ |
28,667 |
|
|
$ |
18,696 |
|
|
$ |
14,284 |
|
|
$ |
107,950 |
|
|
$ |
47,533 |
|
|
$ |
28,742 |
|
|
$ |
18,559 |
|
|
$ |
14,763 |
|
|
$ |
109,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined summarized income statement information for our ventures accounted for using the
equity method follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
CL Realty |
|
$ |
1,727 |
|
|
$ |
1,600 |
|
Temco |
|
|
1,788 |
|
|
|
857 |
|
Palisades West |
|
|
3,315 |
|
|
|
1,729 |
|
Other ventures |
|
|
1,865 |
|
|
|
2,163 |
|
|
|
|
|
|
|
|
Total |
|
$ |
8,695 |
|
|
$ |
6,349 |
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Earnings: |
|
|
|
|
|
|
|
|
CL Realty |
|
$ |
(144 |
) |
|
$ |
504 |
|
Temco |
|
|
1,200 |
|
|
|
(420 |
) |
Palisades West |
|
|
1,124 |
|
|
|
148 |
|
Other ventures |
|
|
(1,093 |
) |
|
|
1,195 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,087 |
|
|
$ |
1,427 |
|
|
|
|
|
|
|
|
Our equity in their earnings: |
|
|
|
|
|
|
|
|
CL Realty |
|
$ |
(72 |
) |
|
$ |
252 |
|
Temco |
|
|
600 |
|
|
|
(210 |
) |
Palisades West |
|
|
279 |
|
|
|
37 |
|
Other ventures (c) |
|
|
(436 |
) |
|
|
(651 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
371 |
|
|
$ |
(572 |
) |
|
|
|
|
|
|
|
|
|
|
(a) |
|
Total includes current maturities of $81,142,000 at first quarter-end 2010 and $80,625,000 at year-end 2009. |
|
(b) |
|
Principally includes deferred income from leasehold improvements funded by tenants in excess of leasehold
improvement allowances. These amounts are recognized as rental income over the lease term and are offset by
depreciation expense related to these tenant improvements. There is no effect on venture net income. |
|
(c) |
|
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. |
|
(d) |
|
Represents deferred gains on real estate contributed by us to ventures. We are recognizing income as real
estate is sold to third parties. The deferred gains are reflected as
a reduction to our investment in
unconsolidated ventures. |
In first quarter 2010, we invested $705,000 in these ventures and received $2,733,000 in
distributions; in first quarter 2009, we invested $830,000 in these ventures and received
$1,637,000 in distributions. Distributions include both return of investments and distributions of
earnings.
At first quarter-end 2010, other ventures include four partnerships we participate in that
have about $77,817,000 of borrowings maturing in 2010. These partnerships have total assets of
about $75,811,000 and other liabilities of $9,907,000. These partnerships are managed by third
parties who intend to extend or refinance the borrowings maturing in 2010; however, there is no
assurance that this can be done. Although these borrowings are guaranteed by third parties, we may
under certain circumstances elect or be required to provide additional equity to these
partnerships. Three of these partnerships are variable interest entities we account for using the
equity method. Please read Note 7 for additional information. We do not believe that the ultimate
resolution of these matters will have a significant effect on our earnings or financial position.
Our investment in these partnerships is $4,583,000 at first quarter-end 2010.
We have provided performance bonds and letters of credit on behalf of certain ventures
totaling $2,158,000 at first quarter-end 2010. Generally these performance bonds and letters of
credit would be drawn on due to lack of specific performance by us or the ventures, such as failure
to deliver streets and utilities in accordance with local codes and ordinances.
Note 9 Receivables
Receivables consist of:
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
|
|
|
|
Quarter-End |
|
|
Year-End |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Seller financing notes receivable, average interest rate of
5.45% at first quarter-end 2010 and 5.76% at year-end 2009 |
|
$ |
1,094 |
|
|
$ |
1,112 |
|
Note receivable, interest rate of 9.00% at first quarter-end 2010 |
|
|
10,000 |
|
|
|
|
|
Accrued interest and other |
|
|
592 |
|
|
|
873 |
|
|
|
|
|
|
|
|
|
|
|
11,686 |
|
|
|
1,985 |
|
Allowance for bad debts |
|
|
(144 |
) |
|
|
(144 |
) |
|
|
|
|
|
|
|
|
|
$ |
11,542 |
|
|
$ |
1,841 |
|
|
|
|
|
|
|
|
9
Seller financing notes receivable generally are secured by a deed of trust with a minimum 10
percent down payment and are generally due within three years. Note receivable represents our loan
to a third-party equity investor in the JW Marriott ® San Antonio Hill Country Resort &
Spa. This note is due at the earliest of refinancing or sale of the resort hotel or July 31, 2013.
Other receivables are miscellaneous operating receivables arising in the normal course of business.
Note 10 Debt
Debt consists of:
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
|
|
Quarter-End |
|
Year-End |
|
|
2010 |
|
2009 |
|
|
(In thousands) |
Term loan facility average interest rate of 4.66% at first quarter-end 2010 and
4.90% at year-end 2009
|
|
$ |
125,000 |
|
|
$ |
125,000 |
|
Revolving loan facility average interest rate of 5.69% at first quarter-end 2010
|
|
|
3,000 |
|
|
|
|
|
Secured promissory note interest rate of 2.75% at first quarter-end 2010 and
2.73% at year-end 2009
|
|
|
15,216 |
|
|
|
16,716 |
|
Other indebtedness due through 2011 at variable interest rates based on prime
(3.25% at first quarter-end 2010 and year-end 2009) and fixed interest rates of
8.00%
|
|
|
61,190 |
|
|
|
74,910 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
204,406 |
|
|
$ |
216,626 |
|
|
|
|
|
|
|
|
|
|
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 first quarter-end 2010, we were in compliance with the terms,
conditions and financial covenants of these agreements.
At first quarter-end 2010, our senior credit facility provides for a $125,000,000 term loan
and a $257,700,000 revolving line of credit. The term loan and revolving line of credit may be
prepaid at any time without penalty. The senior credit facility matures December 1, 2010; however,
we have the option to extend the maturity date through June 30, 2012 for up to $350,000,000. It is
likely we will exercise our extension option. The revolving line of credit includes a sublimit for
letters of credit equal to the lesser of $100,000,000 or 22 percent of the aggregate facility
commitments, of which $3,071,000 was outstanding at first quarter-end 2010. Total borrowings under
our senior credit facility (including the face amount of letters of credit) may not exceed a
borrowing base formula, and includes a minimum liquidity requirement equal to the lesser of
$35,000,000 or 7.5 percent of the aggregate facility commitments at each quarter-end. At first
quarter-end 2010, we had $196,820,000 in net unused borrowing capacity under our senior credit
facility.
At our option, we can borrow at LIBOR plus 4.5 percent (subject to a two percent LIBOR floor)
or Prime plus 2.5 percent. All borrowings under the senior credit facility are secured by (a) all
timberland, (b) assignments of current and future leases, rents and contracts, including our
mineral leases, (c) a security interest in our primary operating account, (d) pledge of the equity
interests in current and future material operating subsidiaries or joint venture interests, or if
such pledge is not permitted, a pledge of the right to distributions from such entities, and (e)
negative pledge (without a mortgage) on all other wholly-owned assets. The senior credit facility
provides for releases of real estate to be conveyed provided that borrowing base compliance is
maintained.
At first quarter-end 2010, we have $3,747,000 in unamortized origination and other fees
related to our senior credit facility, which are included in other assets. Amortization of deferred
financing fees in connection with our senior credit facility was $1,322,000 in first quarter 2010
and $883,000 in first quarter 2009 and is included in interest expense.
At first quarter-end 2010, commercial operating properties having a book value of $23,839,000
were subject to liens in connection with $15,216,000 of debt. At first quarter-end 2010, entitled,
developed and under development projects having a book value of $129,157,000 were subject to liens
in connection with $61,190,000 of principally non-recourse debt.
In first quarter 2010, other indebtedness decreased by $13,207,000 due to lender foreclosure
of a lien on a condominium property in Austin, Texas owned by a consolidated variable interest
entity. The lien secured debt guaranteed by the unrelated general partner who managed day to day
operations of the venture. Please read Note 7 for additional information.
10
Note 11 Fair Value
Our interest rate swap agreement, which was measured at fair value using the Level 2 Market
approach, matured in March 2010. Please read Note 12 for additional information.
Non-financial assets measured at fair value on a non-recurring basis principally include real
estate assets and assets held for sale, which are measured for impairment. In first quarter 2010,
no significant non-financial assets were required to be remeasured at fair value.
We elected not to use the fair value option for cash and cash equivalents, accounts
receivable, other current assets, variable debt, accounts payable and other current liabilities.
The carrying amounts of these financial instruments approximate their fair values due to their
short-term nature or variable interest rates.
Information about our fixed rate debt that is not measured at fair value follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter-End 2010 |
|
Year-End 2009 |
|
|
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
Valuation |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Technique |
|
|
(In thousands) |
|
|
|
|
Fixed rate debt |
|
$ |
(3,431 |
) |
|
$ |
(3,484 |
) |
|
$ |
(3,431 |
) |
|
$ |
(3,505 |
) |
|
Level 2 |
Note 12 Derivative Instruments
We are exposed to certain risks arising from both our business operations and economic
conditions. We principally manage exposures to a wide variety of business and operational risks
through management of our core business activities. We manage economic risks including interest
rate and liquidity by managing the amount, sources and duration of our debt funding and through the
use of derivative instruments. Specifically, we may enter into derivative instruments to mitigate
the risk inherent in interest rate fluctuations.
At first quarter-end 2010, we do not have any derivative instruments outstanding. In first
quarter 2010, our $100,000,000 notional amount interest rate swap agreement matured, which was
classified in other liabilities at year-end 2009. As a result, we recognized an after-tax gain of
$256,000 in other comprehensive income (loss). There was no hedge ineffectiveness over the term of
the agreement.
Note 13 Capital Stock
Pursuant to our shareholder rights plan, each share of common stock outstanding is coupled
with one-quarter of a preferred stock purchase right (Right). Each Right entitles our shareholders
to purchase, under certain conditions, one one-hundredth of a share of newly issued Series A Junior
Participating Preferred Stock at an exercise price of $100. Rights will be exercisable only if
someone acquires beneficial ownership of 20 percent or more of our common shares or commences a
tender or exchange offer, upon consummation of which they would beneficially own 20 percent or more
of our common shares. We will generally be entitled to redeem the Rights at $0.001 per Right at any
time until the 10th business day following public announcement that a 20 percent position has been
acquired. The Rights will expire on December 11, 2017.
Please read Note 19 for information about additional shares of common stock that could be
issued under terms of our share-based compensation plans.
As a result of the 2007 spin-offs from Temple-Inland, at first quarter-end 2010, personnel of
Temple-Inland and the other spin-off entity held 22,000 awards that will be settled in our common
stock and options to purchase 1,296,000 shares of our common stock. Information about these stock
options follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
Average |
|
Intrinsic Value |
|
|
|
|
|
|
Weighted |
|
Remaining |
|
(Current |
|
|
|
|
|
|
Average |
|
Contractual |
|
Value Less |
|
|
Shares |
|
Exercise Price |
|
Term |
|
Exercise Price) |
|
|
(In thousands) |
|
(Per share) |
|
(In years) |
|
(In thousands) |
Outstanding |
|
|
1,296 |
|
|
$ |
20.40 |
|
|
|
4 |
|
|
$ |
3,472 |
|
Exercisable |
|
|
1,250 |
|
|
$ |
20.03 |
|
|
|
4 |
|
|
$ |
3,472 |
|
11
Note 14 Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Consolidated net income (loss) |
|
$ |
(3,033 |
) |
|
$ |
(3,049 |
) |
Change in fair value of interest rate swap agreement |
|
|
393 |
|
|
|
248 |
|
Income tax effect of change in fair value |
|
|
(137 |
) |
|
|
(87 |
) |
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
(2,777 |
) |
|
|
(2,888 |
) |
Less: Comprehensive loss (income) attributable to noncontrolling interests |
|
|
61 |
|
|
|
(843 |
) |
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to Forestar Group Inc. |
|
$ |
(2,716 |
) |
|
$ |
(3,731 |
) |
|
|
|
|
|
|
|
Note 15 Earnings (Loss) per Share
Earnings (loss) per share for first quarter 2010 and 2009 was based on weighted average basic
shares outstanding due to our net loss. Weighted average common shares outstanding used to compute
earnings per share were:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
2009 |
|
|
(In thousands) |
Weighted average common shares outstanding basic |
|
|
36,078 |
|
|
|
35,681 |
|
Dilutive effect of stock options |
|
|
|
|
|
|
|
|
Dilutive effect of restricted stock and restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted |
|
|
36,078 |
|
|
|
35,681 |
|
|
|
|
|
|
|
|
|
|
At first quarter-end 2010 and 2009, the effect of 3,070,000 and 3,074,000 stock options and
unvested shares of restricted stock were not included in the computation of diluted weighted
average shares outstanding because they were anti-dilutive as a result of our net loss in these
periods.
Note 16 Income Taxes
Our effective tax rate was a benefit of 33 percent with no benefit attributable to
noncontrolling interests in first quarter 2010 and 43 percent and 6 percent in first quarter 2009.
Our 2010 rate includes a benefit from percentage depletion and our 2009 rate includes benefits from
percentage depletion and a federal income tax rate change for qualified timber gains due to the
Food, Conservation and Energy Act of 2008 which expired in 2009.
We have not provided a valuation allowance for our deferred tax asset because we believe it is
likely it will be recoverable in future periods.
Our unrecognized tax benefits totaled $7,553,000 at first quarter-end 2010, of which
$6,177,000 would affect our effective tax rate, if recognized.
Note 17 Commitments and Contingencies
Litigation
We are involved in various legal proceedings that arise from time to time in the ordinary
course of doing business and believe that adequate reserves have been established for any probable
losses. We do not believe that the outcome of any of these proceedings should have a significant
adverse effect on our financial position, long-term results of operations or cash flows. It is
possible; however, that charges related to these matters could be significant to our results or
cash flows in any one accounting period.
12
Environmental
Environmental remediation liabilities arise from time to time in the ordinary course of doing
business, and we believe we have established adequate reserves for any probable losses. We own 288
acres near Antioch, California, portions of which were sites of a Temple-Inland paper manufacturing
operation that are in remediation. We estimate the cost to complete remediation activities will be
about $4,300,000, which is included in other accrued expenses and will likely be paid in 2010 and
2011. Our estimate requires us to make assumptions regarding the scope of required remediation, the
effectiveness of planned remediation activities, and approvals by regulatory authorities. Our
estimate is subject to revision as new information becomes available.
Note 18 Segment Information
We manage our operations through three business segments: real estate, mineral resources and
fiber resources. Real estate secures entitlements and develops infrastructure on our lands for
single-family residential and mixed-use communities and manages our undeveloped land and our
commercial operating properties. Mineral resources includes our oil, natural gas and water
interests. Fiber resources manages our timber and recreational leases.
Assets allocated by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
|
|
|
|
Quarter-End |
|
|
Year-End |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Real estate |
|
$ |
639,643 |
|
|
$ |
654,250 |
|
Mineral resources |
|
|
3,080 |
|
|
|
1,356 |
|
Fiber resources |
|
|
19,682 |
|
|
|
20,088 |
|
Assets not allocated to segments |
|
|
101,205 |
|
|
|
109,040 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
763,610 |
|
|
$ |
784,734 |
|
|
|
|
|
|
|
|
We evaluate performance based on segment earnings before unallocated items and income taxes.
Segment earnings consist of operating income, equity in earnings (loss) of unconsolidated ventures
and net income (loss) attributable to noncontrolling interests. Unallocated items consist of
general and administrative expense, share-based compensation, gain on sale of assets, interest
expense and other non-operating income and expense. The accounting policies of the segments are the
same as those described in the accounting policy note to the consolidated financial statements. Our
revenues are derived from our U.S. operations and all of our assets are located in the U.S. For
first quarter 2010, revenues of $3,180,000 from a customer of our mineral resources segment
exceeded 10 percent of our total revenues.
Segment revenues and earnings are as follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
Real estate |
|
$ |
17,248 |
|
|
$ |
18,787 |
|
Mineral resources |
|
|
7,127 |
|
|
|
5,921 |
|
Fiber resources |
|
|
1,983 |
|
|
|
4,369 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
26,358 |
|
|
$ |
29,077 |
|
|
|
|
|
|
|
|
Segment earnings: |
|
|
|
|
|
|
|
|
Real estate |
|
$ |
312 |
|
|
$ |
542 |
|
Mineral resources |
|
|
6,178 |
|
|
|
4,782 |
|
Fiber resources |
|
|
1,443 |
|
|
|
2,909 |
|
|
|
|
|
|
|
|
Total segment earnings |
|
$ |
7,933 |
|
|
$ |
8,233 |
|
Items not allocated to segments (a) |
|
|
(12,420 |
) |
|
|
(14,440 |
) |
|
|
|
|
|
|
|
Loss before taxes |
|
$ |
(4,487 |
) |
|
$ |
(6,207 |
) |
|
|
|
|
|
|
|
|
|
|
(a) |
|
Items not allocated to segments consists of: |
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
General and administrative expense |
|
$ |
(4,538 |
) |
|
$ |
(7,619 |
) |
Share-based compensation expense |
|
|
(3,534 |
) |
|
|
(1,706 |
) |
Interest expense |
|
|
(4,546 |
) |
|
|
(5,166 |
) |
Other non-operating income |
|
|
198 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
$ |
(12,420 |
) |
|
$ |
(14,440 |
) |
|
|
|
|
|
|
|
13
In first quarter 2009, general and administrative expense includes about $3,200,000 paid to
outside advisors regarding an evaluation by our Board of Directors of an unsolicited shareholder
proposal.
Share-based compensation increased in first quarter 2010 principally due to our higher stock
price and greater number of vested awards.
Note 19 Share-Based Compensation
A summary of the awards granted under our 2007 Stock Incentive Plan follows.
Cash-settled awards
Cash-settled awards granted to our employees in the form of restricted stock units or stock
appreciation rights vest over two to four years from the date of grant and generally provide for
accelerated vesting upon death, disability or if there is a change in control. Vesting for some
awards is also conditioned upon achievement of a minimum one percent annualized return on assets
over a three-year period. Cash-settled stock appreciation rights have a ten-year term, generally
become exercisable ratably over three to four years and provide for accelerated or continued
vesting upon retirement, death, disability or if there is a change in control. Stock appreciation
rights were granted with an exercise price equal to the market value of our stock on the date of
grant.
Cash-settled awards granted to our directors in the form of restricted stock units are
fully vested at the time of grant and payable upon retirement.
The following table summarizes the activity of cash-settled awards granted in first quarter
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Equivalent |
|
|
Average Grant |
|
|
|
Units |
|
|
Date Fair Value |
|
|
|
(In thousands) |
|
|
(Per unit) |
|
Non-vested at beginning of period |
|
|
1,005 |
|
|
$ |
5.35 |
|
Granted |
|
|
381 |
|
|
|
12.89 |
|
Vested |
|
|
(246 |
) |
|
|
7.11 |
|
Forfeited |
|
|
(15 |
) |
|
|
6.23 |
|
|
|
|
|
|
|
|
Non-vested at end of period |
|
|
1,125 |
|
|
$ |
7.51 |
|
|
|
|
|
|
|
|
To settle vested cash awards, we paid $602,000 in first quarter 2010 and $22,000 in first
quarter 2009. The aggregate current value of non-vested awards was $12,479,000 at first quarter-end
2010.
Restricted stock
Restricted stock awards vest either ratably over or after three years, generally if we achieve
a minimum one percent annualized return on assets over such three-year period. The following table
summarizes the activity of awards granted in first quarter 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Restricted |
|
|
Average Grant |
|
|
|
Shares |
|
|
Date Fair Value |
|
|
|
(In thousands) |
|
|
(Per share) |
|
Non-vested at beginning of period |
|
|
331 |
|
|
$ |
17.43 |
|
Granted |
|
|
308 |
|
|
|
17.80 |
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Restricted |
|
|
Average Grant |
|
|
|
Shares |
|
|
Date Fair Value |
|
|
|
(In thousands) |
|
|
(Per share) |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(3 |
) |
|
|
28.20 |
|
|
|
|
|
|
|
|
Non-vested at end of period |
|
|
636 |
|
|
$ |
17.56 |
|
|
|
|
|
|
|
|
The aggregate current value of non-vested awards was $12,014,000 at first quarter-end 2010.
Stock options
Stock options have a ten-year term, generally become exercisable ratably over three to four
years and provide for accelerated or continued vesting upon retirement, death, disability or if
there is a change in control. Options were granted with an exercise price equal to the market value
of our stock on the date of grant. The following table summarizes the activity of stock option
awards granted in first quarter 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
|
Options |
|
|
Average |
|
|
Contractual |
|
|
|
Outstanding |
|
|
Exercise Price |
|
|
Term |
|
|
|
(In thousands) |
|
|
(Per share) |
|
|
(In years) |
|
Balance at beginning of period |
|
|
780 |
|
|
$ |
24.80 |
|
|
|
8 |
|
Granted |
|
|
181 |
|
|
|
17.80 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(2 |
) |
|
|
28.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
959 |
|
|
$ |
23.47 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
397 |
|
|
$ |
26.86 |
|
|
|
8 |
|
At first quarter-end 2010, the aggregate intrinsic value of stock options outstanding was
$1,746,000 and the aggregate intrinsic value of stock options exercisable was $388,000.
Stock options are valued based upon the Black-Scholes option pricing model. Awards
granted were valued based upon the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
2009 |
Expected dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected stock price volatility |
|
|
51.0 |
% |
|
|
41.8 |
% |
Risk-free interest rate |
|
|
2.3 |
% |
|
|
1.8 |
% |
Expected life of options (years) |
|
|
6 |
|
|
|
6 |
|
Weighted average estimated fair value of options granted |
|
$ |
8.98 |
|
|
$ |
3.94 |
|
We have limited historical experience as a stand-alone company so we utilized alternative
methods in determining our valuation assumptions. The expected life was based on the simplified
method utilizing the midpoint between the vesting period and the contractual life of the awards.
The expected stock price volatility was based on historical prices of our peers common stock for a
period corresponding to the expected life of the options. Pre-vesting forfeitures are estimated
based upon the pool of participants and their expected activity.
Pre-Spin Awards
Certain of our employees participated in Temple-Inlands share-based compensation plans. In
conjunction with the 2007 spin-off, these awards were equitably adjusted into separate awards of
the common stock of Temple-Inland and the spin-off entities.
15
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 at first quarter-end 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
Equivalent |
|
|
Current |
|
|
|
Units |
|
|
Value |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Awards on Forestar stock |
|
|
8 |
|
|
$ |
157 |
|
Awards on Temple-Inland stock |
|
|
25 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
668 |
|
|
|
|
|
|
|
|
|
To settle vested cash awards, we paid $1,150,000 in first quarter 2010 and $394,000 in first
quarter 2009.
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. A summary of stock option awards outstanding at first quarter-end 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Intrinsic Value |
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
(Current |
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Value Less |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term |
|
|
Exercise Price) |
|
|
|
(In thousands) |
|
|
(Per share) |
|
|
(In years) |
|
|
(In thousands) |
|
Outstanding on Forestar stock |
|
|
81 |
|
|
$ |
21.60 |
|
|
|
5 |
|
|
$ |
201 |
|
Outstanding on Temple-Inland stock |
|
|
195 |
|
|
|
18.83 |
|
|
|
5 |
|
|
|
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable on Forestar stock |
|
|
76 |
|
|
$ |
20.98 |
|
|
|
5 |
|
|
$ |
201 |
|
Exercisable on Temple-Inland stock |
|
|
180 |
|
|
|
18.35 |
|
|
|
5 |
|
|
|
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised was $297,000 in first quarter 2010. No options were
exercised in first quarter 2009.
Share-Based Compensation Expense
Share-based compensation expense consists of:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Cash-settled awards |
|
$ |
2,125 |
|
|
$ |
780 |
|
Restricted stock |
|
|
703 |
|
|
|
344 |
|
Stock options |
|
|
706 |
|
|
|
582 |
|
|
|
|
|
|
|
|
Pre-tax share-based compensation expense |
|
|
3,534 |
|
|
|
1,706 |
|
Income tax benefit |
|
|
(1,166 |
) |
|
|
(631 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,368 |
|
|
$ |
1,075 |
|
|
|
|
|
|
|
|
Pre-tax share-based compensation expense is included in:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
General and administrative expense |
|
$ |
1,038 |
|
|
$ |
1,196 |
|
Other operating expense |
|
|
2,496 |
|
|
|
510 |
|
|
|
|
|
|
|
|
|
|
$ |
3,534 |
|
|
$ |
1,706 |
|
|
|
|
|
|
|
|
In first quarter 2010, share-based compensation expense increased primarily due to increased
stock price associated with vested cash-settled awards granted to retirement-eligible employees and
additional awards granted.
We did not capitalize any share-based compensation in first quarter 2010 or 2009.
16
Unrecognized share-based compensation for post-spin awards not vested was $10,615,000 at first
quarter-end 2010. The weighted average period over which this amount will be recognized is
estimated to be 2.4 years. Unrecognized share-based compensation for pre-spin awards not vested was
$128,000 at first quarter-end 2010. The weighted average period over which this amount will be
recognized is estimated to be 0.8 years.
In first quarter 2010, we withheld shares having a value of $49,000 in connection with vesting
of restricted stock awards and exercises of stock options. These shares are accounted for as
treasury stock and are reflected in financing activities in our consolidated statement of cash
flows.
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Managements Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the financial statements and Managements Discussion and Analysis of
Financial Condition and Results of Operations in our 2009 Annual Report on Form 10-K. Unless
otherwise indicated, information is presented as of first quarter-end 2010, and references to
acreage owned includes 74,000 acres classified as assets held for sale in accordance with our
near-term strategic initiatives and all acres owned by ventures regardless of our ownership
interest in a venture.
Forward-Looking Statements
This Quarterly Report on Form 10-Q and other materials we have filed or may file with the
Securities and Exchange Commission contain forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements are identified by their use of terms and
phrases such as believe, anticipate, could, estimate, likely, intend, may, plan,
expect, and similar expressions, including references to assumptions. These statements reflect
our current views with respect to future events and are subject to risk and uncertainties. We note
that a variety of factors and uncertainties could cause our actual results to differ significantly
from the results discussed in the forward-looking statements. Factors and uncertainties that might
cause such differences include, but are not limited to:
|
|
|
general economic, market or business conditions in Texas or Georgia, where our real estate activities are
concentrated; |
|
|
|
|
the opportunities (or lack thereof) that may be presented to us and that we may pursue; |
|
|
|
|
significant customer concentration |
|
|
|
|
future residential or commercial entitlements, development approvals and the ability to obtain such approvals; |
|
|
|
|
accuracy of estimates and other assumptions related to investment in real estate, the expected timing and
pricing of land and lot sales and related cost of real estate sales, impairment of long-lived assets, income
taxes, share-based compensation and oil and gas reserves; |
|
|
|
|
the levels of resale housing inventory and potential impact of foreclosures in our development projects and
the regions in which they are located; |
|
|
|
|
the development of relationships with strategic partners; |
|
|
|
|
fluctuations in costs and expenses; |
|
|
|
|
demand for new housing, which can be affected by a number of factors including the availability of mortgage
credit; |
|
|
|
|
supply of and demand for oil and gas and fluctuations in oil and gas prices; |
|
|
|
|
competitive actions by other companies; |
|
|
|
|
changes in governmental policies, laws or regulations and actions or restrictions of regulatory agencies; |
|
|
|
|
government regulation of exploration and production technology, including hydraulic fracturing; |
|
|
|
|
the results of financing efforts, including our ability to obtain financing with favorable terms; |
|
|
|
|
our partners ability to fund their capital commitments and otherwise fulfill their operating and financial
obligations; |
|
|
|
|
water withdrawal or usage may be subject to state and local laws, regulations or permit requirements, and
there is no assurance that all our water interests or rights will be available for withdrawal or use; and
|
|
|
|
|
the final resolutions or outcomes with respect to our contingent and other liabilities related to our business. |
17
Other factors, including the risk factors described in Item 1A of our 2009 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.
Strategy
Our strategy is to maximize and grow long-term shareholder value through:
|
|
|
Entitlement and development of real estate; |
|
|
|
|
Realization of value from minerals, water and fiber resources; and |
|
|
|
|
Strategic and disciplined investment in our business. |
In 2009, we announced our near-term strategic initiatives to enhance shareholder value by
generating significant cash flow, principally from the sale of about 175,000 acres of higher and
better use (HBU) timberland. In 2009, we sold about 95,000 acres of timber and timberland in
Georgia and Alabama in two transactions generating net cash proceeds of $153,851,000, which were
principally used to reduce debt and pay taxes.
At first quarter-end 2010, assets held for sale includes about 74,000 acres of undeveloped
land with a carrying value of $17,974,000 and related timber with a carrying value of $10,002,000.
We continue to actively market this land but did not sell any land in first quarter 2010 in
accordance with these initiatives. Market conditions for timberland have deteriorated since 2009
due to limited capital availability, increased return requirements and alternative investment
options for buyers in the marketplace. As a result of these market conditions, additional time may
be required to complete these initiatives.
Results of Operations
Net loss was ($2,972,000), or ($0.08) per share, in first quarter 2010, compared with net loss
of ($3,892,000) or ($0.11) per share, in first quarter 2009.
A summary of our consolidated results follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
Real estate |
|
$ |
17,248 |
|
|
$ |
18,787 |
|
Mineral resources |
|
|
7,127 |
|
|
|
5,921 |
|
Fiber resources |
|
|
1,983 |
|
|
|
4,369 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
26,358 |
|
|
$ |
29,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings: |
|
|
|
|
|
|
|
|
Real estate |
|
$ |
312 |
|
|
$ |
542 |
|
Mineral resources |
|
|
6,178 |
|
|
|
4,782 |
|
Fiber resources |
|
|
1,443 |
|
|
|
2,909 |
|
|
|
|
|
|
|
|
Total segment earnings |
|
|
7,933 |
|
|
|
8,233 |
|
Items not allocated to segments: |
|
|
|
|
|
|
|
|
General and administrative expense |
|
|
(4,538 |
) |
|
|
(7,619 |
) |
Share-based compensation expense |
|
|
(3,534 |
) |
|
|
(1,706 |
) |
Interest expense |
|
|
(4,546 |
) |
|
|
(5,166 |
) |
Other non-operating income |
|
|
198 |
|
|
|
51 |
|
|
|
|
|
|
|
|
Loss before taxes |
|
|
(4,487 |
) |
|
|
(6,207 |
) |
Income tax benefit |
|
|
1,515 |
|
|
|
2,315 |
|
|
|
|
|
|
|
|
Net loss attributable to Forestar Group Inc. |
|
$ |
(2,972 |
) |
|
$ |
(3,892 |
) |
|
|
|
|
|
|
|
18
Significant aspects of our results of operations follow:
First Quarter 2010
|
|
|
Real estate segment earnings declined principally due to lower
undeveloped land sales as a result of deteriorating market conditions
primary due to limited capital and alternate investment options to
buyers in the marketplace. |
|
|
|
|
Mineral resources segment earnings increased principally due to higher
lease bonus revenues related to leasing activity in the East Texas
Basin which resulted in higher lease bonus revenue per acre. |
|
|
|
|
Fiber resources segment earnings decreased principally due to
reduction in volume as a result of selling over 110,000 acres of
timberland in 2009 and wet weather conditions. |
|
|
|
|
Share-based compensation increased primarily due to additional awards
granted, the effect of our higher stock price associated with vested
cash-settled awards and accelerated expense recognition in conjunction
with awards granted to retirement-eligible employees. |
First Quarter 2009
|
|
|
Real estate segment earnings declined principally due to a
continued decrease in the sales of residential real estate,
decreased commercial sales activity and increased costs
associated with asset impairments and legal reserves. |
|
|
|
|
Mineral resources segment earnings declined principally due
to lower lease bonus revenues, lower oil prices and
increased costs associated with developing and staffing our
mineral resources organization. |
|
|
|
|
Fiber resources segment revenues increased as result of
increased prices related to a higher mix of larger pine
sawtimber sold. |
|
|
|
|
General and administrative expense includes about
$3,200,000 paid to outside advisors regarding an evaluation
by our Board of Directors of an unsolicited shareholder
proposal. |
Current Market Conditions
Current market conditions in the single-family residential industry continue to be difficult,
characterized by product oversupply, depressed sales volumes and prices, high unemployment rates
and low consumer confidence. While all markets are being negatively affected by overall poor
economic conditions, not all geographic areas and products have been affected to the same extent or
with equal severity. These difficult market conditions may continue throughout 2010.
Oil prices have increased due to oil producers reducing production and inventories to
match lower worldwide demand as well as the anticipation that future demand will outpace supply
growth as economic activity improves. Natural gas prices have remained depressed as production
remains strong and demand is low resulting in increased inventory levels. Exploration and
production companies remained conservative reducing capital expenditures for drilling and lease
acquisition due to lower natural gas prices. These conditions may impact the demand for new mineral
leases, new exploration activity and the amount of royalty revenues we receive.
Pulpwood demand is relatively stable in our markets. The average price at which we sold
fiber products is up principally due to increased pulpwood prices as
a result of wet weather conditions.
Business Segments
We manage our operations through three business segments:
|
|
|
Real estate, |
|
|
|
|
Mineral resources, and |
|
|
|
|
Fiber resources. |
19
We evaluate performance based on earnings before unallocated items and income taxes.
Segment earnings consist of operating income, equity in earnings (loss) of unconsolidated ventures
and net income (loss) attributable to noncontrolling interests. Unallocated items consist of
general and administrative expense, share-based compensation, gain on sale of assets, interest
expense and other non-operating income and expense. The accounting policies of the segments are the
same as those described in the accounting policy note to the consolidated financial statements.
We operate in cyclical industries. Our operations are affected to varying degrees by
supply and demand factors and economic conditions including changes in interest rates, availability
of mortgage credit, consumer sentiment, new housing starts, real estate values, employment levels,
changes in the market prices for oil, natural gas, and timber, and the overall strength or weakness
of the U.S. economy.
Real Estate
We own directly or through ventures over 249,000 acres of real estate located in nine states
and 12 markets. Our real estate segment secures entitlements and develops infrastructure on our
lands, primarily for single-family residential and mixed-use communities. We own about 187,000
acres in a broad area around Atlanta, Georgia, with the balance located primarily in Texas. We
target investments principally in our strategic growth corridors, regions across the southern half
of the United States that possess key demographic and growth characteristics that we believe make
them attractive for long-term real estate investment. We own and manage our projects either
directly or through ventures. Our real estate segment revenues are principally derived from the
sales of residential single-family lots, undeveloped land 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:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
17,248 |
|
|
$ |
18,787 |
|
Cost of sales |
|
|
(10,669 |
) |
|
|
(8,558 |
) |
Operating expenses |
|
|
(6,596 |
) |
|
|
(8,165 |
) |
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
2,064 |
|
Equity in (loss) earnings of unconsolidated ventures |
|
|
268 |
|
|
|
(679 |
) |
Less: Net loss (income) attributable to noncontrolling interests |
|
|
61 |
|
|
|
(843 |
) |
|
|
|
|
|
|
|
Segment earnings |
|
$ |
312 |
|
|
$ |
542 |
|
|
|
|
|
|
|
|
In first quarter 2010, operating expenses principally consist of $2,089,000 in property taxes,
$1,696,000 in employee compensation and benefits and $815,000 in depreciation expense. Property
taxes decreased $737,000 principally due to selling over 110,000 acres of timberland in 2009.
Depreciation expenses increased $287,000 principally due to improvements related to commercial
operating properties. In first quarter 2009, operating expenses principally consist of $2,826,000
in property taxes, $1,802,000 in employee compensation and benefits and $528,000 in depreciation
expense.
Revenues in our owned and consolidated ventures consist of:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Residential real estate |
|
$ |
5,890 |
|
|
$ |
5,612 |
|
Commercial real estate |
|
|
157 |
|
|
|
143 |
|
Undeveloped land |
|
|
4,703 |
|
|
|
8,304 |
|
Commercial operating properties |
|
|
6,157 |
|
|
|
4,592 |
|
Other |
|
|
341 |
|
|
|
136 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
17,248 |
|
|
$ |
18,787 |
|
|
|
|
|
|
|
|
20
Units sold in our owned and consolidated ventures consist of:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
2009 |
Residential real estate: |
|
|
|
|
|
|
|
|
Lots sold |
|
|
102 |
|
|
|
78 |
|
Revenue per lot sold |
|
$ |
57,433 |
|
|
$ |
71,928 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
Acres sold |
|
|
1.3 |
|
|
|
0.3 |
|
Revenue per acre sold |
|
$ |
121,705 |
|
|
$ |
424,696 |
|
Undeveloped land: |
|
|
|
|
|
|
|
|
Acres sold |
|
|
2,088 |
|
|
|
2,192 |
|
Revenue per acre sold |
|
$ |
2,253 |
|
|
$ |
3,789 |
|
Residential real estate revenues principally consist of the sale of single-family lots to
national, regional and local homebuilders. In first quarter 2010, average residential lot prices
were negatively impacted by the higher mix of smaller lots principally due to the increased demand
for entry level houses as a result of the federal housing tax credit program. In first quarter
2009, residential real estate revenues declined as result of decreased demand for single-family
lots due to the overall decline in the housing industry.
In first quarter 2010, revenue per acre sold from undeveloped land decreased as a result of
selling land from our more rural locations. In first quarter 2009, revenue per acre sold from
undeveloped land included one transaction consisting of 984 acres which sold for $4,900 per acre
increasing the average price per acre.
Information about our real estate projects and our real estate ventures follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter-End |
|
|
2010 |
|
2009 |
Owned and consolidated ventures: |
|
|
|
|
|
|
|
|
Entitled, developed and under development projects |
|
|
|
|
|
|
|
|
Number of projects |
|
|
53 |
|
|
|
54 |
|
Residential lots remaining |
|
|
20,084 |
|
|
|
20,467 |
|
Commercial acres remaining |
|
|
1,701 |
|
|
|
1,704 |
|
Undeveloped land and land in the entitlement process |
|
|
|
|
|
|
|
|
Number of projects |
|
|
19 |
|
|
|
22 |
|
Acres in entitlement process |
|
|
30,370 |
|
|
|
32,520 |
|
Acres undeveloped (a) |
|
|
196,159 |
|
|
|
307,093 |
|
Ventures accounted for using the equity method: |
|
|
|
|
|
|
|
|
Ventures lot sales (for the period) |
|
|
|
|
|
|
|
|
Lots sold |
|
|
93 |
|
|
|
29 |
|
Average price per lot sold |
|
$ |
40,731 |
|
|
$ |
73,647 |
|
Ventures entitled, developed and under development projects |
|
|
|
|
|
|
|
|
Number of projects |
|
|
21 |
|
|
|
21 |
|
Residential lots remaining |
|
|
9,702 |
|
|
|
9,298 |
|
Commercial acres sold (for the period) |
|
|
0.3 |
|
|
|
3.8 |
|
Average price per acre sold |
|
$ |
372,727 |
|
|
$ |
196,996 |
|
Commercial acres remaining |
|
|
761 |
|
|
|
645 |
|
Ventures undeveloped land and land in the entitlement process |
|
|
|
|
|
|
|
|
Number of projects |
|
|
1 |
|
|
|
2 |
|
Acres in entitlement process |
|
|
840 |
|
|
|
1,080 |
|
Acres sold (for the period) |
|
|
|
|
|
|
|
|
Average price per acre sold |
|
$ |
|
|
|
$ |
|
|
Acres undeveloped |
|
|
5,517 |
|
|
|
5,641 |
|
|
|
|
(a) |
|
Includes 74,000 acres classified as assets held for sale. |
We underwrite development projects based on a variety of assumptions incorporated into our
development plans, including the timing and pricing of lot sales and commercial parcels, and costs
to complete development. Our development plans are periodically reviewed in comparison to our
return projections and expectations, and we may revise our plans as business conditions warrant. If
as a result of changes to our development plans the anticipated future net cash flows are reduced
such that our basis in a project is not fully recoverable, we may be required to recognize a
non-cash impairment charge for such project.
21
Mineral Resources
We own directly or through ventures about 620,000 net acres of oil and natural gas mineral
interests. Our mineral resources segment is focused on maximizing the value from royalties and
other lease revenues from our oil and natural gas mineral interests located principally in Texas,
Louisiana, Georgia and Alabama. At first quarter-end 2010, we have about 94,000 net acres under
lease and about 31,000 net acres held by production.
A summary of our mineral resources results follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
7,127 |
|
|
$ |
5,921 |
|
Cost of sales |
|
|
(322 |
) |
|
|
(347 |
) |
Operating expenses |
|
|
(730 |
) |
|
|
(899 |
) |
|
|
|
|
|
|
|
|
|
|
6,075 |
|
|
|
4,675 |
|
Equity in earnings of unconsolidated ventures |
|
|
103 |
|
|
|
107 |
|
|
|
|
|
|
|
|
Segment earnings |
|
$ |
6,178 |
|
|
$ |
4,782 |
|
|
|
|
|
|
|
|
Cost of sales represent our share of oil and natural gas production severance taxes, which are
calculated based on a percentage of oil and natural gas produced and costs related to our
non-operating working interests.
In first quarter 2010, operating expenses principally consist of $269,000 in employee
compensation and benefits and $73,000 in property taxes. The decrease in employee compensation and
benefits principally relates to lower incentive compensation. In first quarter 2009, operating
expenses principally consist of $443,000 in employee compensation and benefits and $66,000 in
property taxes.
In first quarter 2010 and 2009, equity in earnings of unconsolidated ventures includes our
share of royalty revenue from a venture located within the Barnett Shale natural gas formation.
Revenues consist of:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Royalties |
|
$ |
3,504 |
|
|
$ |
3,478 |
|
Other lease revenues |
|
|
3,623 |
|
|
|
2,443 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
7,127 |
|
|
$ |
5,921 |
|
|
|
|
|
|
|
|
Additional information about our royalties (a) follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
2009 |
Oil production (barrels) |
|
|
29,400 |
|
|
|
27,300 |
|
Average price per barrel |
|
$ |
71.26 |
|
|
$ |
46.78 |
|
Natural gas production (millions of cubic feet) |
|
|
373.2 |
|
|
|
394.7 |
|
Average price per thousand cubic feet |
|
$ |
4.30 |
|
|
$ |
6.16 |
|
|
|
|
(a) |
|
Includes 100 percent of venture activity. Our share of
activity in ventures accounted for using the equity method
was 53 Mcf of natural gas in first quarter 2010 and 27 Mcf
in first quarter 2009 from one venture in which we have a
50 percent interest. |
In first quarter 2010, other lease revenue included $3,185,000 in lease bonus payments as a
result of leasing over 2,100 net mineral acres for an average of $1,495 per acre and $432,000
related to delay rental payments. In first quarter 2009, other lease revenues include $2,121,000 in
lease bonus payments as a result of leasing over 6,100 net mineral acres for an average of $347 per
acre and $322,000 related to delay rental payments.
22
In addition, we have water interest in about 1.6 million acres, including a 45 percent
nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes or
sold from approximately 1.4 million acres in Texas, Louisiana, Georgia and Alabama. We have not
received any income from this interest.
Fiber Resources
Our fiber resources segment focuses principally on the management of our timber holdings. We
have over 225,000 acres of timber, primarily in Georgia, and about 18,000 acres of timber under
lease. We sell wood fiber from our land and lease land for hunting and other recreational uses. In
2009, we sold over 110,000 acres and we are actively marketing an additional 74,000 acres
classified as held for sale. As a result of the reduced acreage from executing these land sales,
future segment revenues and earnings are anticipated to be lower.
A summary of our fiber resources results follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
1,983 |
|
|
$ |
4,369 |
|
Cost of sales |
|
|
(351 |
) |
|
|
(833 |
) |
Operating expenses |
|
|
(686 |
) |
|
|
(812 |
) |
|
|
|
|
|
|
|
|
|
|
946 |
|
|
|
2,724 |
|
Other operating income |
|
|
497 |
|
|
|
185 |
|
|
|
|
|
|
|
|
Segment earnings |
|
$ |
1,443 |
|
|
$ |
2,909 |
|
|
|
|
|
|
|
|
In first quarter 2010, operating expenses principally consist of $453,000 in employee
compensation and benefits, of which $197,000 related to employee severance costs. In first quarter
2009, operating expenses principally consist of $387,000 in employee compensation and benefits.
In first quarter 2010 and 2009, other operating income represents a gain from partial
termination of a timber lease.
Revenues consist of:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Fiber |
|
$ |
1,504 |
|
|
$ |
3,755 |
|
Recreational leases and other |
|
|
479 |
|
|
|
614 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
1,983 |
|
|
$ |
4,369 |
|
|
|
|
|
|
|
|
Fiber sold consists of:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2010 |
|
2009 |
Pulpwood tons sold |
|
|
83,100 |
|
|
|
206,600 |
|
Average pulpwood price per ton |
|
$ |
10.92 |
|
|
$ |
8.15 |
|
Sawtimber tons sold |
|
|
29,600 |
|
|
|
90,700 |
|
Average sawtimber price per ton |
|
$ |
20.14 |
|
|
$ |
22.84 |
|
Total tons sold |
|
|
112,700 |
|
|
|
297,300 |
|
Average price per ton |
|
$ |
13.34 |
|
|
$ |
12.63 |
|
In first quarter 2010, tons sold decreased due to reduction in volume as a result of selling
over 110,000 acres of timberland in 2009 and wet weather conditions. The majority of our sales were
to Temple-Inland at market prices.
Items Not Allocated to Segments
Unallocated items represent income and expenses managed on a company-wide basis and include
general and administrative expenses, share-based compensation, gain on sale of assets, interest
expense and other non-operating income and expense.
23
General and administrative expense principally consists of accounting and finance, tax, legal,
human resources, internal audit, information technology and our Board of Directors. These functions
support all of our business segments and are not allocated.
In first quarter 2010, general and administrative expense principally consists of $1,388,000
in employee compensation and benefits, $762,000 in professional services, $370,000 in depreciation
expense, $316,000 related to insurance cost and $297,000 in occupancy. The decrease in employee
compensation and benefits principally relates to lower incentive compensation. In first quarter
2009, general and administrative expense principally consists of $1,725,000 in employee
compensation and benefits, $432,000 in depreciation expense, $316,000 related to insurance costs,
$284,000 in occupancy and $3,828,000 in professional services, of which about $3,200,000 was paid
to outside advisors regarding an evaluation by our Board of Directors of an unsolicited shareholder
proposal.
Income Taxes
Our effective tax rate was a benefit of 33 percent with no benefit attributable to
noncontrolling interests in first quarter 2010 and 43 percent and 6 percent in first quarter 2009.
Our 2010 rate includes a benefit from percentage depletion and our 2009 rate includes benefits from
percentage depletion and a federal income tax rate change for qualified timber gains due to the
Food, Conservation and Energy Act of 2008 which expired in 2009.
We anticipate that our effective tax rate in 2010 will be about 35 percent of which about 3
percent will be attributable to noncontrolling interests.
Capital Resources and Liquidity
Sources and Uses of Cash
We operate in cyclical industries and our cash flows fluctuate accordingly. Our principal
operating cash requirements are for the acquisition and development of real estate, either directly
or indirectly through ventures, taxes, interest and compensation. Our principal sources of cash are
proceeds from the sale of real estate and timber, the cash flow from minerals and commercial
operating properties, borrowings, and reimbursements from utility and improvement districts.
Operating cash flows are affected by the timing of the payment of real estate development
expenditures and the collection of proceeds from the eventual sale of the real estate, the timing
of which can vary substantially depending on many factors including the size of the project, state
and local permitting requirements and availability of utilities, and by the timing of oil and
natural gas leasing and production activities. Working capital is subject to operating needs, the
timing of sales of real estate and timber, the timing of collection of mineral royalties or mineral
lease payments, collection of receivables, reimbursement from utility and improvement districts and
the payment of payables and expenses.
Cash Flows from Operating Activities
Cash flows from our real estate development activities, undeveloped land sales, timber sales,
mineral and recreational leases and reimbursements from utility and improvement districts are
classified as operating cash flows.
In first quarter 2010, net cash (used for) operating activities was ($19,836,000) principally
consisting of funding a $10,000,000 loan to a third-party equity investor in the JW Marriott
® San Antonio Hill Country Resort & Spa, state taxes of $5,048,000 and property taxes of
$3,669,000. In first quarter 2009, net cash (used for) operating activities was ($10,509,000) as
expenditures for real estate development exceeded non-cash cost of sales due to our development of
existing real estate projects, principally in the major markets of Texas where sales activity
supports investment in development. In addition, in first quarter
2009 we invested $3,433,000 in our Cibolo Canyons mixed-use project
near San Antonio, Texas.
Cash Flows from Investing Activities
Capital contributions to and capital distributions from unconsolidated ventures are classified
as investing activities. In addition, proceeds from the sale of property and equipment, software
costs and expenditures related to reforestation activities are also classified as investing
activities.
In first quarter 2010, net cash provided by investing activities was $4,205,000. We received
$2,602,000 in proceeds related to the sale of our undivided interest in corporate aircraft and
received $1,929,000 in net distributions from our
unconsolidated ventures. In first quarter 2009, net cash (used for) investing activities was
($773,000) as property, equipment and software costs exceeded our net distributions from our
unconsolidated ventures.
24
Cash Flows from Financing Activities
In first quarter 2010, net cash provided by financing activities was $1,170,000 as our
repayments of debt principally offset our additions to debt. In first quarter 2009, net cash
provided by financing activities was $11,619,000 as the increase in our debt funded our
expenditures for real estate development, principally in the major markets of Texas.
Non-Cash Financial Information
In first quarter 2010, our real estate assets decreased by $11,865,000, debt decreased by
$13,207,000 and other liabilities increased by $1,342,000 due to lender foreclosure of a lien on a
condominium property in Austin, Texas owned by a consolidated variable interest entity. The limited
partnership has no other significant assets. The lien secured debt guaranteed by the unrelated
general partner who managed day to day operations of the partnership. At first quarter-end 2010,
the limited partnership has total assets of $12,000 and total
liabilities of $3,089,000. The partnership liabilities will be
settled as the partnership is liquidated.
Liquidity, Contractual Obligations and Off-Balance Sheet Arrangements
There have been no significant changes in our liquidity, contractual obligations or
off-balance sheet arrangements since year-end 2009.
At first quarter-end 2010, our senior credit facility provides for a $125,000,000 term loan
and a $257,700,000 revolving line of credit. The term loan and revolving line of credit may be
prepaid at any time without penalty. The senior credit facility matures December 1, 2010; however,
we have the option to extend the maturity date through June 30, 2012 for up to $350,000,000. It is
likely we will exercise our extension option. At first quarter-end 2010, we had $196,820,000 in net
unused borrowing capacity under our 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 first quarter-end 2010, we were in compliance with the terms,
conditions and financial covenants of these agreements. Based on our current operating projections,
we believe that we will remain in compliance with our senior credit facility covenants in the
future.
The following table details our compliance with the financial covenants calculated as
provided in the senior credit facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
|
|
|
|
Quarter-End |
Financial Covenant |
|
Requirement |
|
2010 |
Interest Coverage Ratio (a) |
|
|
≥ 1.75:1.0 |
|
|
|
7.36:1.0 |
|
Revenues/Capital Expenditures Ratio (b) |
|
|
≥ 1.00:1.0 |
|
|
|
4.80:1.0 |
|
Total Leverage Ratio (c) |
|
|
≤ 40 |
% |
|
|
18.8 |
% |
Minimum Liquidity (d) |
|
> $29 million |
|
$232 million |
Net Worth (e) |
|
> $403 million |
|
$518 million |
Collateral Value to Loan Commitment Ratio(f) |
|
|
≥ 1.75:1.0 |
|
|
|
2.25:1.0 |
|
|
|
|
(a) |
|
Calculated as EBITDA (earnings before interest,
taxes, depreciation and amortization), plus non-cash
compensation expense, plus other non-cash expenses,
divided by interest expense. This covenant is applied
at the end of each quarter on a rolling four quarter
basis. |
|
(b) |
|
Calculated as total gross revenues, plus our pro
rata share of the operating revenues from
unconsolidated ventures, divided by capital
expenditures. Capital expenditures are defined as
consolidated development and acquisition expenditures
plus our pro rata share of unconsolidated ventures
development and acquisition expenditures. This covenant
is applied at the end of each quarter on a rolling four
quarter basis. |
|
(c) |
|
Calculated as total funded debt divided by
adjusted asset value. Total funded debt includes
indebtedness for borrowed funds, secured liabilities
and reimbursement obligations with respect to letters
of credit or similar instruments. Adjusted asset value
is defined as the sum of unrestricted cash and cash
equivalents, timberlands, high value timberlands, raw
entitled lands, entitled land under development,
minerals business, other real estate owned at book
value without regard to any indebtedness and our pro
rata share of joint ventures book value without regard
to any indebtedness. This covenant is applied at the end of each quarter. |
25
|
|
|
(d) |
|
Calculated as the amount available for drawing
under the revolving commitment, plus unrestricted cash,
plus cash equivalents which are not pledged or
encumbered and the use of which is not restricted by
the terms of any agreement. At first quarter-end 2010,
the minimum liquidity is required to be at least equal
to the lesser of $35,000,000 or 7.5 percent of the
aggregate commitment under the senior credit facility.
At first quarter-end 2010, the requirement was
$29,000,000. This covenant is applied at the end of
each quarter. |
|
(e) |
|
Calculated as the amount by which consolidated
total assets exceeds consolidated total liabilities. At
first-quarter-end 2010, the requirement is
$403,000,000, computed as: $350,000,000, plus 85
percent of the aggregate net proceeds received by us
from any equity offering, plus 75 percent of all
positive net income, on a cumulative basis. This
covenant is applied at the end of each quarter. |
|
(f) |
|
Calculated as the total collateral value of
timberland, high value timberland and our minerals
business, divided by total aggregate loan commitment.
This covenant is applied at the end of each quarter. |
At first quarter-end 2010,
we participate in four partnerships that
have about $77,817,000 of borrowings maturing in 2010. These partnerships have total assets of
about $75,811,000 and other liabilities of $9,907,000. These partnerships are managed by third
parties who intend to extend or refinance the borrowings maturing in 2010; however, there is no
assurance that this can be done. Although these borrowings are guaranteed by third parties, we may
under certain circumstances elect or be required to provide additional equity to these
partnerships. Three of these partnerships are variable interest entities we account for using the
equity method. We do not believe that the ultimate resolution of these matters will have a
significant effect on our earnings or financial position. Our investment in these partnerships is
$4,583,000 at first quarter-end 2010.
Cibolo Canyons San Antonio, Texas
Cibolo Canyons consists of the JW Marriott® San Antonio Hill Country Resort & Spa
development owned by third parties and a mixed-use development we own. We have about $88,278,000
invested in Cibolo Canyons at first quarter-end 2010.
Resort Hotel, Spa and Golf Development
In 2007, we entered into agreements to facilitate third-party construction and ownership of
the JW Marriott ® San Antonio Hill Country Resort & Spa, which includes a 1,002 room
destination resort and two PGA Tour ® Tournament Players Club ® (TPC) golf
courses. Under these agreements, we agreed to transfer to third-party owners about 700 acres of
undeveloped land, to provide about $30,000,000 cash and to provide approximately $12,700,000 of
other consideration principally consisting of golf course construction materials, substantially all
of which has been provided.
In exchange for our commitment to the resort, the third-party owners assigned to us certain
rights under an agreement between the third-party owners and a legislatively created Special
Purpose Improvement District (SPID). This agreement includes the right to receive from the SPID 9
percent of hotel occupancy revenues and 1.5 percent of other resort sales revenues collected as
taxes by the SPID through 2034. The amount we receive will be net of annual ad valorem tax
reimbursements by the SPID to the third-party owners of the resort through 2020. In addition, these
payments will be net of debt service, if any, on bonds issued by the SPID collateralized by hotel
occupancy tax and other resort sales tax through 2034.
The amounts we collect under this agreement are dependent on several factors including the
amount of revenues generated by and ad valorem taxes imposed on the resort and the amount of any
applicable debt service incurred by the SPID. As a result, there is significant uncertainty as to
the amount and timing of collections under this agreement. Until these uncertainties are clarified,
amounts collected under the agreement will be accounted for as a reduction of our investment in the
resort development. The resort began operations on January 22, 2010, and we expect to begin
receiving collections in first quarter 2011.
At first quarter-end 2010, we have $42,869,000 invested in the resort development.
In addition, in January 2010, pursuant to a 2009 commitment, we loaned $10,000,000 to a
third-party equity investor in the resort development. The loan bears interest at 9 percent,
increasing to 12 percent after July 2012, and is repayable at the earliest of refinancing or sale
of the resort hotel or July 31, 2013. Borrowings are collateralized by pledges of funding
commitments from the borrower, including our right to direct capital calls and to enforce
rights under the fund operating agreement in the event of nonpayment.
26
Mixed-Use Development
The mixed-use development we own consists of 2,100 acres planned to include about 1,700
residential lots and about 145 commercial acres designated for multifamily and retail uses, of
which 605 lots and 64 commercial acres have been sold through first quarter-end 2010.
In 2007, we entered into an agreement with the SPID providing for reimbursement
of certain
infrastructure costs related to the mixed-use development. Reimbursements are subject to review and
approval by the SPID and unreimbursed amounts accrue interest at 9.75 percent. The SPIDs funding
for reimbursements is principally derived from its ad valorem tax collections and bond proceeds
collateralized by ad valorem taxes, less debt service on these bonds and annual administrative and
public service expenses. Through first quarter-end 2010, we have submitted and received approval
for reimbursement of about $57,322,000 of infrastructure costs and
have received reimbursements totaling $20,270,000. At first quarter-end 2010, we have
$37,052,000 in approved and pending reimbursements, excluding interest.
Since the amount we will be reimbursed is dependent on several factors, including timing of
SPID approval and the SPID having an adequate tax base to generate funds that can be used to
reimburse us, there is uncertainty as to the amount and timing of reimbursements under
this agreement. We expect to recover our investment from lot and tract sales and reimbursement of approved infrastructure costs from the SPID.
We have not recognized income from
interest due, but not collected. As these uncertainties are clarified, we will modify our
accounting accordingly.
At first quarter-end 2010, we have $45,409,000 invested in the mixed-use development.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies or estimates in
first quarter 2010 from those disclosed in our 2009 Annual Report on Form 10-K.
Recent Accounting Standards
Please
read Note 2 to the Consolidated Financial Statements contained in this Quarterly Report
on Form 10-Q.
Statistical and Other Data
A summary of our real estate projects in the entitlement process (a) at first
quarter-end 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project |
Project |
|
County |
|
Market |
|
Acres(b) |
California |
|
|
|
|
|
|
|
|
Hidden Creek Estates |
|
Los Angeles |
|
Los Angeles |
|
|
700 |
|
Terrace at Hidden Hills |
|
Los Angeles |
|
Los Angeles |
|
|
30 |
|
Georgia |
|
|
|
|
|
|
|
|
Ball Ground |
|
Cherokee |
|
Atlanta |
|
|
500 |
|
Burt Creek |
|
Dawson |
|
Atlanta |
|
|
970 |
|
Crossing |
|
Coweta |
|
Atlanta |
|
|
230 |
|
Dallas Highway |
|
Haralson |
|
Atlanta |
|
|
1,060 |
|
Fincher Road |
|
Cherokee |
|
Atlanta |
|
|
3,890 |
|
Fox Hall |
|
Coweta |
|
Atlanta |
|
|
960 |
|
Garland Mountain |
|
Cherokee/Bartow |
|
Atlanta |
|
|
350 |
|
Home Place |
|
Coweta |
|
Atlanta |
|
|
1,510 |
|
Jackson Park |
|
Jackson |
|
Atlanta |
|
|
700 |
|
Martins Bridge |
|
Banks |
|
Atlanta |
|
|
970 |
|
Mill Creek |
|
Coweta |
|
Atlanta |
|
|
770 |
|
Serenity |
|
Carroll |
|
Atlanta |
|
|
440 |
|
Waleska |
|
Cherokee |
|
Atlanta |
|
|
150 |
|
Wolf Creek |
|
Carroll/Douglas |
|
Atlanta |
|
|
12,230 |
|
Yellow Creek |
|
Cherokee |
|
Atlanta |
|
|
1,060 |
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project |
Project |
|
County |
|
Market |
|
Acres(b) |
Texas |
|
|
|
|
|
|
|
|
Lake Houston |
|
Harris/Liberty |
|
Houston |
|
|
3,700 |
|
San Jacinto |
|
Montgomery |
|
Houston |
|
|
150 |
|
Woodlake Village (c) |
|
Montgomery |
|
Houston |
|
|
840 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
31,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
A project is deemed to be in the entitlement process when
customary steps necessary for the preparation and submittal
of an application, like conducting pre-application meetings
or similar discussions with governmental officials, have
commenced, or an application has been filed. Projects
listed may have significant steps remaining, and there is
no assurance that entitlements ultimately will be received. |
|
(b) |
|
Project acres, which are the total for the project
regardless of our ownership interest, are approximate. The
actual number of acres entitled may vary. |
|
(c) |
|
We own a 50 percent interest in this project. |
A summary of activity within our projects in the development process, which includes
entitled (a), developed and under development real estate projects, at first quarter-end
2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Lots(c) |
|
Commercial Acres(d) |
|
|
|
|
|
|
|
|
|
|
Lots Sold |
|
|
|
|
|
Acres Sold |
|
|
|
|
|
|
|
|
Interest |
|
Since |
|
Lots |
|
Since |
|
Acres |
Project |
|
County |
|
Market |
|
Owned(b) |
|
Inception |
|
Remaining |
|
Inception |
|
Remaining |
Projects we own |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin River |
|
Contra Costa/ Sacramento |
|
Oakland |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288 |
|
Colorado |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo Highlands |
|
Weld |
|
Denver |
|
|
100 |
% |
|
|
|
|
|
|
164 |
|
|
|
|
|
|
|
|
|
Johnstown Farms |
|
Weld |
|
Denver |
|
|
100 |
% |
|
|
115 |
|
|
|
493 |
|
|
|
2 |
|
|
|
8 |
|
Pinery West |
|
Douglas |
|
Denver |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115 |
|
Stonebraker |
|
Weld |
|
Denver |
|
|
100 |
% |
|
|
|
|
|
|
603 |
|
|
|
|
|
|
|
13 |
|
Westlake Highlands |
|
Jefferson |
|
Denver |
|
|
100 |
% |
|
|
12 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrowhead Ranch |
|
Hays |
|
Austin |
|
|
100 |
% |
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
6 |
|
Caruth Lakes |
|
Rockwall |
|
Dallas/Fort Worth |
|
|
100 |
% |
|
|
285 |
|
|
|
364 |
|
|
|
|
|
|
|
|
|
Cibolo Canyons |
|
Bexar |
|
San Antonio |
|
|
100 |
% |
|
|
605 |
|
|
|
1,142 |
|
|
|
64 |
|
|
|
81 |
|
Harbor Lakes |
|
Hood |
|
Dallas/Fort Worth |
|
|
100 |
% |
|
|
199 |
|
|
|
250 |
|
|
|
1 |
|
|
|
13 |
|
Harbor Mist |
|
Calhoun |
|
Corpus Christi |
|
|
100 |
% |
|
|
|
|
|
|
200 |
|
|
|
|
|
|
|
|
|
Hunters Crossing |
|
Bastrop |
|
Austin |
|
|
100 |
% |
|
|
322 |
|
|
|
169 |
|
|
|
38 |
|
|
|
68 |
|
La Conterra |
|
Williamson |
|
Austin |
|
|
100 |
% |
|
|
69 |
|
|
|
440 |
|
|
|
|
|
|
|
60 |
|
Maxwell Creek |
|
Collin |
|
Dallas/Fort Worth |
|
|
100 |
% |
|
|
678 |
|
|
|
333 |
|
|
|
10 |
|
|
|
|
|
Oak Creek Estates |
|
Comal |
|
San Antonio |
|
|
100 |
% |
|
|
67 |
|
|
|
581 |
|
|
|
13 |
|
|
|
|
|
The Colony |
|
Bastrop |
|
Austin |
|
|
100 |
% |
|
|
410 |
|
|
|
2,242 |
|
|
|
22 |
|
|
|
49 |
|
The Gables at North Hill |
|
Collin |
|
Dallas/Fort Worth |
|
|
100 |
% |
|
|
195 |
|
|
|
88 |
|
|
|
|
|
|
|
|
|
The Preserve at Pecan Creek |
|
Denton |
|
Dallas/Fort Worth |
|
|
100 |
% |
|
|
270 |
|
|
|
548 |
|
|
|
|
|
|
|
9 |
|
The Ridge at Ribelin Ranch |
|
Travis |
|
Austin |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
179 |
|
|
|
16 |
|
Westside at Buttercup Creek |
|
Williamson |
|
Austin |
|
|
100 |
% |
|
|
1,303 |
|
|
|
218 |
|
|
|
66 |
|
|
|
|
|
Other projects (7) |
|
Various |
|
Various |
|
|
100 |
% |
|
|
1,550 |
|
|
|
19 |
|
|
|
197 |
|
|
|
23 |
|
Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towne West |
|
Bartow |
|
Atlanta |
|
|
100 |
% |
|
|
|
|
|
|
2,674 |
|
|
|
|
|
|
|
121 |
|
Other projects (13) |
|
Various |
|
Atlanta |
|
|
100 |
% |
|
|
|
|
|
|
2,934 |
|
|
|
|
|
|
|
705 |
|
Missouri and Utah |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other projects (2) |
|
Various |
|
Various |
|
|
100 |
% |
|
|
448 |
|
|
|
316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,528 |
|
|
|
14,019 |
|
|
|
592 |
|
|
|
1,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projects in entities we consolidate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Park |
|
Harris |
|
Houston |
|
|
75 |
% |
|
|
1,099 |
|
|
|
212 |
|
|
|
50 |
|
|
|
105 |
|
Lantana |
|
Denton |
|
Dallas/Fort Worth |
|
|
55 |
% (e) |
|
|
508 |
|
|
|
1,792 |
|
|
|
|
|
|
|
|
|
Light Farms |
|
Collin |
|
Dallas/Fort Worth |
|
|
65 |
% |
|
|
|
|
|
|
2,517 |
|
|
|
|
|
|
|
|
|
Stoney Creek |
|
Dallas |
|
Dallas/Fort Worth |
|
|
90 |
% |
|
|
78 |
|
|
|
676 |
|
|
|
|
|
|
|
|
|
Timber Creek |
|
Collin |
|
Dallas/Fort Worth |
|
|
88 |
% |
|
|
|
|
|
|
614 |
|
|
|
|
|
|
|
|
|
Other projects (5) |
|
Various |
|
Various |
|
Various |
|
|
953 |
|
|
|
254 |
|
|
|
26 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,638 |
|
|
|
6,065 |
|
|
|
76 |
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owned and consolidated |
|
|
|
|
|
|
|
|
|
|
9,166 |
|
|
|
20,084 |
|
|
|
668 |
|
|
|
1,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Lots(c) |
|
Commercial Acres(d) |
|
|
|
|
|
|
|
|
|
|
Lots Sold |
|
|
|
|
|
Acres Sold |
|
|
|
|
|
|
|
|
Interest |
|
Since |
|
Lots |
|
Since |
|
Acres |
Project |
|
County |
|
Market |
|
Owned(b) |
|
Inception |
|
Remaining |
|
Inception |
|
Remaining |
Projects in ventures that we
account for using the equity
method |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven Hills |
|
Paulding |
|
Atlanta |
|
|
50 |
% |
|
|
635 |
|
|
|
449 |
|
|
|
26 |
|
|
|
113 |
|
The Georgian |
|
Paulding |
|
Atlanta |
|
|
38 |
% |
|
|
288 |
|
|
|
1,097 |
|
|
|
|
|
|
|
|
|
Other projects (4) |
|
Various |
|
Atlanta |
|
Various |
|
|
1,820 |
|
|
|
77 |
|
|
|
3 |
|
|
|
|
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bar C Ranch |
|
Tarrant |
|
Dallas/Fort Worth |
|
|
50 |
% |
|
|
208 |
|
|
|
991 |
|
|
|
|
|
|
|
|
|
Entrada |
|
Travis |
|
Austin |
|
|
50 |
% |
|
|
|
|
|
|
821 |
|
|
|
|
|
|
|
3 |
|
Fannin Farms West |
|
Tarrant |
|
Dallas/Fort Worth |
|
|
50 |
% |
|
|
285 |
|
|
|
96 |
|
|
|
|
|
|
|
15 |
|
Lantana |
|
Denton |
|
Dallas/Fort Worth |
|
|
Various |
(e) |
|
|
1,436 |
|
|
|
34 |
|
|
|
14 |
|
|
|
75 |
|
Long Meadow Farms |
|
Fort Bend |
|
Houston |
|
|
19 |
% |
|
|
614 |
|
|
|
1,492 |
|
|
|
72 |
|
|
|
138 |
|
Southern Trails |
|
Brazoria |
|
Houston |
|
|
40 |
% |
|
|
394 |
|
|
|
633 |
|
|
|
|
|
|
|
|
|
Stonewall Estates |
|
Bexar |
|
San Antonio |
|
|
25 |
% |
|
|
229 |
|
|
|
160 |
|
|
|
|
|
|
|
|
|
Summer Creek Ranch |
|
Tarrant |
|
Dallas/Fort Worth |
|
|
50 |
% |
|
|
796 |
|
|
|
1,772 |
|
|
|
|
|
|
|
363 |
|
Summer Lakes |
|
Fort Bend |
|
Houston |
|
|
50 |
% |
|
|
325 |
|
|
|
798 |
|
|
|
56 |
|
|
|
|
|
Village Park |
|
Collin |
|
Dallas/Fort Worth |
|
|
50 |
% |
|
|
347 |
|
|
|
213 |
|
|
|
3 |
|
|
|
2 |
|
Waterford Park |
|
Fort Bend |
|
Houston |
|
|
50 |
% |
|
|
|
|
|
|
493 |
|
|
|
|
|
|
|
37 |
|
Other projects (2) |
|
Various |
|
Various |
|
Various |
|
|
296 |
|
|
|
228 |
|
|
|
|
|
|
|
15 |
|
Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other projects (3) |
|
Various |
|
Tampa |
|
Various |
|
|
497 |
|
|
|
348 |
|
|
|
|
|
|
|
|
|
Total in ventures |
|
|
|
|
|
|
|
|
|
|
8,170 |
|
|
|
9,702 |
|
|
|
174 |
|
|
|
761 |
|
Combined total |
|
|
|
|
|
|
|
|
|
|
17,336 |
|
|
|
29,786 |
|
|
|
842 |
|
|
|
2,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
A project is deemed entitled when all major discretionary
governmental land-use approvals have been received. Some
projects may require additional permits and/or
non-governmental authorizations for development. |
|
(b) |
|
Interest owned reflects our net equity interest in the
project, whether owned directly or indirectly. There are
some projects that have multiple ownership structures
within them. Accordingly, portions of these projects may
appear as owned, consolidated or accounted for using the
equity method. |
|
(c) |
|
Lots are for the total project, regardless of our ownership
interest. Lots remaining represent vacant developed lots,
lots under development and future planned lots. |
|
(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 15 partnerships
in which our voting interests range from 25 percent to 55
percent. We account for three of these partnerships using
the equity method and we consolidate the remaining
partnerships. |
A summary of our significant commercial and income producing properties at first quarter-end
2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
Project |
|
County |
|
Market |
|
Owned(a) |
|
Type |
|
Description |
Radisson Hotel |
|
Travis |
|
Austin |
|
|
100 |
% |
|
Hotel |
|
413 guest rooms and suites |
Palisades West |
|
Travis |
|
Austin |
|
|
25 |
% |
|
Office |
|
375,000 square feet |
Las Brisas |
|
Williamson |
|
Austin |
|
|
59 |
% |
|
Multifamily |
|
414 unit luxury apartment |
|
|
|
(a) |
|
Interest owned reflects our net equity interest in the project, whether owned directly or indirectly. |
A summary of our oil and gas mineral interests (a) at first quarter-end 2010
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held By |
|
|
State |
|
Unleased |
|
Leased(b) |
|
Production(c) |
|
Total(d) |
|
|
|
|
|
|
(Net acres) |
|
|
|
|
Texas |
|
|
140,000 |
|
|
|
88,000 |
|
|
|
24,000 |
|
|
|
252,000 |
|
Louisiana |
|
|
133,000 |
|
|
|
4,000 |
|
|
|
7,000 |
|
|
|
144,000 |
|
Georgia |
|
|
180,000 |
|
|
|
|
|
|
|
|
|
|
|
180,000 |
|
Alabama |
|
|
40,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
42,000 |
|
California |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
Indiana |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
495,000 |
|
|
|
94,000 |
|
|
|
31,000 |
|
|
|
620,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes ventures. |
|
(b) |
|
Includes leases in primary lease term only. |
29
|
|
|
(c) |
|
Acres being held by production are producing oil or natural gas in paying quantities. |
|
(d) |
|
Texas, Louisiana, California and Indiana net acres are calculated as the gross
number of surface acres multiplied by our percentage ownership of the mineral
interest. 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. Excludes 463 net mineral acres located in
Colorado. |
A summary of our Texas and Louisiana mineral acres (a) by county and parish at
first quarter-end 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas |
|
Louisiana |
County |
|
Net
Acres |
|
Parish |
|
Net
Acres |
Trinity |
|
|
47,000 |
|
|
Beauregard |
|
|
79,000 |
|
Angelina |
|
|
42,000 |
|
|
Vernon |
|
|
39,000 |
|
Houston |
|
|
29,000 |
|
|
Calcasieu |
|
|
17,000 |
|
Anderson |
|
|
25,000 |
|
|
Allen |
|
|
7,000 |
|
Cherokee |
|
|
24,000 |
|
|
Rapides |
|
|
1,000 |
|
Sabine |
|
|
22,000 |
|
|
Other |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red River |
|
|
15,000 |
|
|
|
|
|
|
|
144,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newton |
|
|
13,000 |
|
|
|
|
|
|
|
|
|
San Augustine |
|
|
13,000 |
|
|
|
|
|
|
|
|
|
Jasper |
|
|
11,000 |
|
|
|
|
|
|
|
|
|
Other |
|
|
11,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our interest rate risk is principally related to our variable-rate debt. Interest rate changes
impact earnings due to the resulting increase or decrease in the cost of our variable-rate debt,
which was $200,975,000 at first quarter-end 2010 and $213,195,000 at year-end 2009. In 2009, our
outstanding variable rate debt includes $100,000,000 notional amount interest rate swap, which
matured on March 1, 2010.
The following table illustrates the estimated effect on our pre-tax income of immediate,
parallel, and sustained shifts in interest rates for the next 12 months on our variable-rate debt
at first quarter-end 2010, with comparative year-end 2009 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.
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
|
|
Quarter-End |
|
Year-End |
Change in Interest Rates |
|
2010 |
|
2009 |
|
|
(In thousands) |
+2%
|
|
$ |
(3,853 |
) |
|
$ |
(4,100 |
) |
+1%
|
|
|
(2,010 |
) |
|
|
(2,132 |
) |
-1%
|
|
|
2,010 |
|
|
|
2,132 |
|
-2%
|
|
|
4,020 |
|
|
|
4,264 |
|
Foreign Currency Risk
We have no exposure to foreign currency fluctuations.
Commodity Price Risk
We have no significant exposure to commodity price fluctuations.
30
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (or
the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such
period, our disclosure controls and procedures are effective in recording, processing, summarizing
and reporting, on a timely basis, information required to be disclosed by us in the reports that we
file or submit under the Exchange Act and are effective in ensuring that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by
this report that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. 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, long-term results of operations or cash flows. It is
possible, however, that circumstances beyond our control or significant subsequent developments
could result in additional charges related to these matters that could be significant to results of
operations or cash flow in any single accounting period.
Item 1A. Risk Factors
There are no material changes from the risk factors disclosed in our 2009 Annual Report on
Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
Total Number |
|
Number of |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Shares That |
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
May Yet be |
|
|
Total |
|
Average |
|
Part of Publicly |
|
Purchased |
|
|
Number of |
|
Price |
|
Announced |
|
Under the |
|
|
Shares |
|
Paid per |
|
Plans or |
|
Plans |
Period |
|
Purchased(b) |
|
Share |
|
Programs |
|
or Programs |
Month 1 (1/1/2010 1/31/2010) |
|
|
2,320 |
|
|
$ |
19.02 |
|
|
|
|
|
|
|
7,000,000 |
|
Month 2 (2/1/2010 2/28/2010) |
|
|
281 |
|
|
$ |
18.37 |
|
|
|
|
|
|
|
7,000,000 |
|
Month 3 (3/1/2010 3/31/2010) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
7,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,601 |
|
|
$ |
18.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On February 11, 2009, we announced that our Board of
Directors authorized the repurchase of up to 7,000,000
shares of our common stock. We have not purchased any
shares under this authorization, which has no expiration
date. We have no repurchase plans or programs that expired
during the period covered by the table above and no
repurchase plans or programs that we intend to terminate
prior to expiration or under which we no longer intend to
make further purchases. |
|
(b) |
|
Represents shares withheld to pay taxes in connection with
vesting of restricted stock awards and exercises of stock
options. |
31
Item 3. Defaults Upon Senior Securities
None.
Item 4. (Removed and Reserved)
Item 5. Other Information
None.
Item 6. Exhibits
|
|
|
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. |
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31 .2*
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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. |
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32 .1*
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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. |
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32 .2*
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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. |
32
SIGNATURES
Pursuant to the requirements 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.
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FORESTAR GROUP INC.
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Date: May 7, 2010 |
By: |
/s/ Christopher L. Nines
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Christopher L. Nines |
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Chief Financial Officer |
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By: |
/s/ Charles D. Jehl
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Charles D. Jehl |
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Chief Accounting Officer |
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33