Change in Fiscal Year
As a result of the Merger with D.R. Horton, we have elected to change our fiscal year-end from December 31 to September 30, effective January 1, 2018. This change will align our fiscal year-end reporting calendar with D.R. Horton.FORESTAR GROUP INC.
Environmental and Asset Retirement ObligationsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
We recognize environmental remediation liabilities on an undiscounted basis when environmental assessments or remediation are probable and we can reasonably estimate the cost. We adjust these liabilities as further information is obtained or circumstances change. With the sale of our remaining oil and gas entities in 2017 we no longer have asset retirement obligations related to the abandonment and site restoration requirements that result from the acquisition, construction and development of oil and gas working interest properties, which we have divested. Prior to the sale, we recorded the fair value of a liability for an asset retirement obligation in the period in which it was incurred and a corresponding increase in the carrying amount of the related long-lived asset. Accretion expense related to the asset retirement obligation and depletion expense related to capitalized asset retirement costs are included in cost of mineral resources and in discontinued operations on our consolidated statements of income (loss).
Fair Value Measurements
Financial instruments for which we did not elect the fair value option include cash and cash equivalents, accounts and notes receivables, other assets, debt, accounts payable and other liabilities. With the exception of long-term notes receivable and debt, the carrying amounts of these financial instruments approximate their fair values due to their short-term nature.
Goodwill and Other Intangible Assets
We record goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. We do not amortize goodwill or other indefinite lived intangible assets. Instead, we measure these assets for impairment based on the estimated fair values at least annually or more frequently if impairment indicators exist. We perform the annual impairment measurement in the fourth quarter of each year. Intangible assets with finite useful lives are amortized over their estimated useful lives.
In 2017, we sold our remaining owned mineral assets for approximately $85,700,000 and as a result of this sale we recorded a non-cash impairment charge of $37,900,000 related to the mineral resources reporting unit goodwill which is included in cost of mineral resources on our consolidated statements of income (loss).
At year-end 2016, we performed our annual goodwill impairment evaluation and concluded that goodwill related to our central Texas water assets was impaired because the carrying value exceeded the fair value and recorded a $3,874,000 non-cash impairment charge which is included in cost of other on our consolidated statements of income (loss).
Income Taxes
We provide deferred income taxes using current tax rates for temporary differences between the financial accounting carrying value of assets and liabilities and their tax accounting carrying values. We recognize and value income tax exposures for the various taxing jurisdictions where we operate based on laws, elections, commonly accepted tax positions, and management estimates. We include tax penalties and interest in income tax expense. We provide a valuation allowance for any deferred tax asset that is not likely to be recoverable in future periods.
When we believe a tax position is supportable but the outcome uncertain, we include the item in our tax return but do not recognize the related benefit in our provision for taxes. Instead, we record a reserve for unrecognized tax benefits, which represents our expectation of the most likely outcome considering the technical merits and specific facts of the position. Changes to liabilities are only made when an event occurs that changes the most likely outcome, such as settlement with the relevant tax authority, expiration of statutes of limitations, changes in tax law, or recent court rulings.
Property and Equipment
We carry property and equipment at cost less accumulated depreciation. We capitalize the cost of significant additions and improvements, and we expense the cost of repairs and maintenance. We capitalize interest costs incurred on major construction projects. We depreciate these assets using the straight-line method over their estimated useful lives as follows:
|
| | | | | | | | | |
| Estimated | | Year-End |
| Useful Lives | | 2017 | | 2016 |
| | | (In thousands) |
Buildings and building improvements | 10 to 40 years | | $ | 2,162 |
| | $ | 2,700 |
|
Property and equipment | 2 to 10 years | | 4,513 |
| | 4,957 |
|
| | | 6,675 |
| | 7,657 |
|
Less: accumulated depreciation | | | (4,672 | ) | | (4,541 | ) |
| | | $ | 2,003 |
| | $ | 3,116 |
|
Depreciation expense of property and equipment was $441,000 in 2017, $889,000 in 2016 and $1,067,000 in 2015.
Real Estate and Cost of Sales
We carry real
Real estate atincludes the lowercosts of cost or fair value less cost to sell. We capitalizedirect land and lot acquisition, land development, capitalized interest costs once development begins, and we continue to capitalize throughout the development period. We also capitalize infrastructure, improvements, amenities, and other developmentdirect overhead costs incurred during theland development. All indirect overhead costs, such as compensation of management personnel and insurance costs, are charged to selling, general and administrative expense as incurred.
Land and development period. We determine the cost of real estate sold usingcosts are typically allocated to individual residential lots based on the relative sales value method. When we sell real estate from projects that are not finished, we includeof the lot. Cost of sales includes applicable land and lot acquisition, land development and related costs (both incurred and estimated to be incurred) allocated to each residential lot in the cost of real estate sold estimates of futureproject. Any changes to the estimated total development costs through completion,subsequent to the initial lot sales are generally allocated based on relative sales values. These estimates of future development costs are reevaluated at least annually, with any adjustments being allocated prospectively to the remaining units available for sale. We receive cashlots.
The Company receives earnest money deposits from home buildershomebuilders for purchases of vacant developed lots from community development projects.lots. These earnest money deposits are typically released to the home buildershomebuilders as lots are developed and sold. In certain instances earnestEarnest money deposits from D.R. Horton are subject to mortgages which are secured by the real estate under contract with the
home builder.D.R. Horton. These mortgages expire when the earnest money is released to the home buildersD.R. Horton as lots are developedsold. See Note 13 for related party transactions and sold. At year-end 2017, $40,408,000 of real estate was subject to earnest money mortgages, including $25,712,000 classified as assets held for sale.balances.
We have
The Company has agreements with certain utility or improvement districts principally in Texas, whereby we agree to convey to the districts water, sewer and other infrastructure-related assets we haveit has constructed in connection with projects within their jurisdiction.jurisdiction and receive reimbursements for the cost of these improvements. The reimbursement amounts for these assets ranges from 70 to 90 percent of allowable cost asimprovements are defined by the district.district and are based on the allowable costs of the improvements. The transfer is consummated and we receivethe Company generally receives payment when the districts have a sufficient tax base to support funding of their bonds. The cost we incurincurred by the Company in constructing these assetsimprovements, net of the amount expected to be collected in the future, is included in capitalizedthe Company's land development costs,budgets and upon collection, we removein the assets from capitalized developmentdetermination of lot costs. We provide an allowance to reflect our past experiences in collecting these reimbursements.
Impairment of Real Estate Long-Lived Assets
We reviewThe Company reviews real estate long-lived assets held for use for impairment when events or circumstances indicate that their carrying value may not be recoverable. Impairment exists if the carrying amount of the long-lived asset is not recoverable from the undiscounted cash flows expected from its use and eventual disposition. We determine theThe amount of the impairment loss is determined by comparing the carrying value of the long-lived asset to its estimated fair value. Wevalue, which is generally determine fair valuedetermined based on the present value of future cash flows expected from the sale of the long-lived asset. Non-cash impairment charges related to our owned and consolidated realReal estate assetsimpairments are included in cost of sales in the consolidated statements of operations. See Note 3.
Capitalized Interest
The Company capitalizes interest costs throughout the development period (active real estate). Capitalized interest is charged to cost of sales as the related real estate is sold to the buyer. During periods in which the Company’s active real estate is lower than its debt level, a portion of the interest incurred is reflected as interest expense in the period incurred. During fiscal 2021 and 2020, the Company’s active real estate exceeded its debt level, and all interest incurred was capitalized to real estate. See Note 5.
Land Purchase Contract Deposits and Pre-Acquisition Costs
The Company enters into land and lot purchase contracts to acquire land for the development of residential lots. Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of many of the purchase contracts, the deposits are not refundable in the event the Company elects to terminate the contract. Land purchase contract deposits and capitalized pre-acquisition costs are expensed to cost of sales when the Company believes it is probable that it will not acquire the property under contract and other. In 2017, we recorded $3,420,000will not be able to recover these costs through other means. See Notes 3 and 12.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Variable Interests
Land purchase contracts can result in non-cash impairment chargesthe creation of a variable interest in the entity holding the land parcel under contract. There were no variable interest entities reported in the consolidated balance sheets at September 30, 2021 or 2020 because, with regard to each entity, the Company determined it did not control the activities that most significantly impact the variable interest entity’s economic performance.
The maximum exposure to losses related to the asset group sold inCompany’s unconsolidated variable interest entities is limited to the strategic asset sale to Starwoodamounts of the Company’s related deposits. At September 30, 2021 and one mitigation project. In 2016, we recorded $56,453,000 in non-cash impairment charges2020, the deposits related to six non-core community development projectsthese contracts totaled $10.4 million and two multifamily sites.
Reclassifications
In 2017, we have reclassified prior years' restricted cash that was$5.5 million, respectively, and are included in other assets to a separate line item on ourin the consolidated balance sheets to conform tosheets.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. The cost of significant additions and improvements is capitalized and the current year presentation.cost of repairs and maintenance is expensed as incurred. Depreciation generally is recorded using the straight-line method over the estimated useful life of the asset as follows:
Real Estate Revenue | | | | | | | | | | | | | | | | | |
| Estimated Useful Lives | | September 30, |
| | 2021 | | 2020 |
| | | (In millions) |
Leasehold improvements | 5 to 10 years | | $ | 0.9 | | | $ | 1.2 | |
Property and equipment | 2 to 10 years | | 2.9 | | | 1.1 | |
Total property and equipment | 3.8 | | | 2.3 | |
Accumulated depreciation | (0.9) | | | (1.2) | |
Property and equipment, net | $ | 2.9 | | | $ | 1.1 | |
We recognize revenue from sales of real estate when a sale
Depreciation expense was $0.4 million in fiscal 2021 and $0.3 million in both fiscal 2020 and 2019.
Income Taxes
The Company’s income tax expense is consummated,calculated using the buyer’s initial investment is adequate, any receivablesasset and liability method, under which deferred tax assets and liabilities are probable of collection, the usual risks and rewards of ownership have been transferred to the buyer, and we do not have significant continuing involvement with the real estate sold. If we determine that the earnings process is not complete, we defer recognition of any gain until earned.
We exclude from revenue amounts we collect from utility or improvement districts related to the conveyance of water, sewer and other infrastructure related assets. We exclude from revenue amounts we collect from customers that represent sales tax or other taxes that arerecognized based on the sale. Thesefuture tax consequences attributable to temporary differences between the financial statement amounts of assets and liabilities and their respective tax bases and attributable to net operating losses and tax credit carryforwards. When assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of sufficient taxable income in future periods and in the jurisdictions in which those temporary differences become deductible. The Company records a valuation allowance when it determines it is more likely than not that a portion of the deferred tax assets will not be realized. The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the Company’s deferred tax assets and liabilities.
Interest and penalties related to unrecognized tax benefits are includedrecognized in other accrued expenses until paid.the financial statements as a component of income tax expense. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a quarterly basis. The evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in increases or decreases in the Company’s income tax expense in the period in which the change is made. See Note 9.
Share-Based
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Stock-Based Compensation
We use
The Company’s stockholders formally authorize shares of its common stock to be available for future grants of stock-based compensation awards. From time to time, the Black-Scholes option pricing modelCompensation Committee of the Company’s Board of Directors authorizes the grant of stock-based compensation to determineits employees and directors from these available shares. At September 30, 2021, the outstanding stock-based compensation awards consist of restricted stock units. Grants of restricted stock units vest over a certain number of years as determined by the Compensation Committee of the Board of Directors. Restricted stock units outstanding at September 30, 2021 have a remaining vesting period of up to 4.5 years.
The compensation expense for stock-based awards is based on the fair value of stock options,the award and a Monte Carlo simulation pricing model to determine the fair value of market-leveraged stock units and for stock options with market conditions. The fair value of equity-settled awards is determined on the grant date and the fair value of cash-settled awards is determined at period end. We expense share-based awards ratably over the vesting period or earlier based on retirement eligibility.
Owned Mineral Interests
Historically, we leased our mineral interests to third-party exploration and production entities, we retained a royalty interest and may have taken an additional participation in production, including a working interest. In first quarter 2017, we sold our remaining owned mineral assets.
Oil and Gas Properties (Discontinued Operations)
We used the successful efforts method of accounting for our oil and gas producing activities. Costs to acquire mineral interests leased, costs to drill and complete development of oil and gas wells and related asset retirement costs were capitalized. Costs to drill exploratory wells were capitalized pending determination of whether the wells had proved reserves and if determined incapable of producing commercial quantities of oil and gas these costs were expensed as dry hole costs. At year-end 2017, we had no capitalized exploratory well costs pending determination of proved reserves. Exploration costs include dry hole costs, geological and geophysical costs, expired unproved leasehold costs and seismic studies, and were expensed as incurred. Production costs incurred to maintain wells and related equipment were charged to expense as incurred.
Depreciation and depletion of producing oil and gas properties was calculated using the units-of-production method. Proved developed reserves were used to compute unit rates for unamortized tangible and intangible drilling and completion costs. Proved reserves were used to compute unit rates for unamortized acquisition of proved leasehold costs. Unit-of-production amortization rates were revised whenever there was an indication of the need for revision but at least once a year and those revisions were accounted for prospectively as changes in accounting estimates. We no longer own any oil and gas working interest properties.
Impairment of Oil and Gas Properties (Discontinued Operations)
Historically, we evaluated our oil and gas properties, including facilities and equipment, for impairment whenever events or changes in circumstances indicated that the carrying value of the asset may not be recoverable. We estimate the expected undiscounted future cash flows of our oil and gas properties and compared such undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. If the carrying amount exceeded the estimated undiscounted future cash flows, we adjusted the carrying amount of the oil and gas properties to fair value. The factors used to determine fair value were subject to our judgment and expertise and included, but were not limited to, recent sales prices of comparable properties, the present value of future cash flows net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected.
Assessing unproved leasehold properties to determine impairment required significant judgment. We assessed our unproved leasehold properties periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results or future plans to develop acreage. Impairment expense for proved and unproved oil and gas properties are included in cost of mineral resources and cost of oil and gas producing activities in discontinued operations.
Oil and Gas Working Interest Revenues (Discontinued Operations)
We recognized revenue as oil and gas was produced and sold. There were a significant amount of oil and gas properties which we did not operate and, therefore, revenue was typically recorded in the month of production based on an estimate of our share of volumes produced and prices realized. We obtained the most current available production data from the operators and price indices for each well to estimate the accrual of revenue. Obtaining production data on a timely basis for some wells was not feasible; therefore we utilized past production receipts and estimated sales price information to estimate accrual of working interest revenue on all other non-operated wells each month. Revisions to such estimates were recorded as actual results became known.
A majority of our sales were made under contractual arrangements with terms that were considered to be usual and customary in the oil and gas industry. The contracts were for periods of up to five years with prices determined upon a percentage of pre-determined and published monthly index price. The terms of these contracts did not have an effect on how we recognized revenue.
Mineral Resources Revenues
We recognized revenue from mineral bonus payments when we had received an executed agreement with the exploration company transferring the rights to any oil or gas it may find and requiring drilling be done within a specified period, the payment had been collected, and we had no obligation to refund the payment. We recognized revenue from delay rentals received if drilling had not started within the specified period and when the payment had been collected. We recognized revenue from mineral royalties and non-working interests when the minerals had been delivered to the buyer, the value was determinable, and we were reasonably sure of collection.
Other Revenues
We recognized revenue from timber sales upon passage of title, which occurred at delivery; when the price was fixed and determinable; and we were reasonably sure of collection. We recognized revenue from recreational leases on a straight-line basis over the lease term. We recognize revenue fromremaining vesting period. The fair values of restricted stock units are based on the saleCompany’s stock price at the date of water rights or groundwater reservation agreementsgrant. See Note 11.
Fair Value Measurements
The FASB's authoritative guidance for fair value measurements establishes a three-level hierarchy based upon receiptthe inputs to the valuation model of an executed agreement,asset or liability. When available, the Company uses quoted market prices in active markets to determine fair value. Non-financial assets measured at fair value on a non-recurring basis principally include real estate assets which the Company reviews for indicators of impairment when payment has been collected, all conditions toevents and circumstances indicate that the agreement have been met and we have no further performance obligations. Water delivery revenues are recognized as watercarrying value is delivered and metered at the delivery point.not recoverable. See Note 14.
Note 2 — New and Pending Accounting Pronouncements
Adoption of New Accounting Standards
In March 2016,December 2019, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements2019-12 related to Employee Share-Based Payment Accounting, as part of its simplification initiative. The areas for simplification in this update
involve several aspects ofsimplifying the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities,taxes. The guidance is effective for the Company beginning October 1, 2021 and the classification on the statement of cash flows. We adopted the updated standard on January 1, 2017. Effective first quarter 2017, stock-based compensation (SBC) excess tax benefits or deficiencies are reflected in the consolidated statements of income (loss) as a component of the provision for income taxes, whereas they previously were recognized in equityis not expected to the extent additional paid-in capital pool was available. Additionally, our consolidated statements of cash flows will now present excess tax benefits as an operating activity, if applicable. Finally, we have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The adoption of this guidance did not have a material impact on ourits consolidated financial statements.position, results of operations or cash flows.
Pending Accounting Standards
In May 2014,March 2020, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity2020-04, “Reference Rate Reform,” which provides optional expedients and exceptions for applying U.S. GAAP to recognizecontracts, hedging relationships, and other transactions affected by the amountdiscontinuation of revenue to which it expectsthe London Interbank Offered Rate (LIBOR) or by another reference rate expected to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The updated standard becomes effective for annual and interim periods beginning after December 15, 2017. Due to our change in fiscal year-end, this standard is effective for us beginning October 1, 2018.discontinued. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). We currently anticipate adopting the standard using the cumulative catch-up transition method. We anticipate this standard will not have a material impact on our consolidated financial statements. While we are continuing to assess all potential impacts of the standard, we expect revenue related to lotwas effective beginning March 12, 2020 and tract sales to remain substantially unchanged. Due to the complexity of certain of our real estate sale transactions, the revenue recognition treatment required under the standard willcan be dependent on contract-specific terms, and may vary in some instances from recognition at the time of the sale closing.
applied prospectively through December 31, 2022. In February 2016,January 2021, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner that2021-01, "Reference Rate Reform - Scope," which clarified the scope and application of the original guidance. The Company will adopt these standards when LIBOR is similar to today's accounting. This guidance also eliminates today's real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteriadiscontinued and the accounting for sales-type and direct financing leases. This guidance is effective in 2019, and interim periods within that year. Early adoption is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the effect the updated standard will have on our financial position and disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), in order to address eight specific cash flow issues with the objective of reducing the existing diversity in practice. The updated standard is effective for financial statements issued for annual periods beginning after December 15, 2017 and interim periods within those fiscal years with early adoption permitted. We are currently evaluating the effect that the updated standard will have on our earnings, financial position and disclosures, but we dodoes not expect it to have a material effectimpact on ourits consolidated financial statements.statements and related disclosures.
In November, 2016,October 2021, the FASB issued ASU 2016-18, Statement2021-08, which requires application of Cash Flows (Topic 230). ThisASC 606, “Revenue from Contracts with Customers,” to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination. ASU requires that a statement2021-08 creates an exception to the general recognition and measurement principle in ASC 805 and will result in recognition of cash flow explaincontract assets and contract liabilities consistent with those recorded by the change duringacquiree immediately before the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash investments. This standardacquisition date. The guidance is effective for fiscal yearsthe Company beginning after December 15, 2017.October 1, 2023 and interim periods therein, with early adoption permitted. The adoption of ASU 2016-18 will modify our current disclosures and reclassifications relating to the consolidated statements of cash flows, but we do not expect it to have a material effect on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718), in order to provide guidance about which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The updated standardCompany is effective for financial statements issued for annual periods beginning after December 15, 2017. We are currently evaluating the effect that the updated standard will haveimpact of this guidance on our earnings,its consolidated financial position, results of operations and disclosures, but we do not expect itcash flows.
Note 2 — Segment Information
The Company manages its operations through its real estate segment, which is its core business and generates substantially all of its revenues. The real estate segment primarily acquires land and develops infrastructure for single-family residential communities, and its revenues generally come from sales of residential single-family finished lots to have a material effect on our consolidated financial statements.local, regional and national homebuilders. The Company has other business activities for which the related assets and operating results are immaterial, and therefore are included within the Company's real estate segment.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 3 — Merger
On October 5, 2017, we merged with a subsidiary of D.R. Horton and we continued as the surviving entity (the "Merger"). In the Merger, each existing share of our common stock issued and outstanding immediately prior to the effective time (the “Former Forestar Common Stock”) (except for shares of our common stock that were held by us as treasury shares or by us or D.R. Horton or our or their respective subsidiaries) were converted into the right to receive, at the election of the holders of such shares of Former Forestar Common Stock, either an amount in cash equal to the Cash Consideration ($17.75 per share) or one new share of our common stock (the “New Forestar Common Stock”), subject to proration procedures applicable to oversubscription and undersubscription for the Cash Consideration described in the Merger Agreement. The aggregate amount of Cash Consideration paid by D.R. Horton to holders of Former Forestar Common Stock in the Merger was $558,256,000. In the Merger, 10,487,873 shares of New Forestar Common Stock (representing 25% of the outstanding shares
of New Forestar Common Stock immediately after the effective time) were issued to the holders of our common stock and 31,451,063 shares of New Forestar Common Stock (representing 75% of the outstanding share of the New Forestar Common Stock immediately after the effective time) were issued to D.R. Horton.
Subject to the terms of the Merger Agreement, at the effective time, each equity award made or otherwise denominated in shares of Former Forestar Common Stock that was outstanding immediately prior to the effective time under our equity compensation plans was cancelled and of no further force or effect as of the effective time. In exchange for the cancellation of the equity awards, each holder of such an equity award received from us the Cash Consideration for each share of Former Forestar Common Stock underlying such equity award (and in the case of equity awards that were stock options or stock appreciation rights, less the applicable exercise or strike price, but not less than $0), whether or not otherwise vested as of the effective time. With respect to any of our market-leveraged stock units, the number of shares of Former Forestar Common Stock subject to such equity awards were determined pursuant to the terms set forth in the applicable award agreements and based on a per share value equal to $17.75.
In connection with merger activities, we incurred $43,819,000 in transaction costs in 2017, of which, $41,475,000 are included in general and administrative expenses and $2,344,000 in other operating expenses on our consolidated statements of income (loss). These costs include a $20,000,000 merger termination fee paid to Starwood Capital Group, $7,683,000 in executive severance and change in control costs, $7,170,000 in transaction and other fees paid to our financial advisor, $4,617,000 in professional services and other costs and $4,349,000 related to the acceleration of vesting and settlement of equity awards.
Note 4 — Real Estate
Real estate consists of:
| | | | | | | | | | | |
| September 30, |
| 2021 | | 2020 |
| (In millions) |
Developed and under development projects | $ | 1,824.7 | | | $ | 1,304.3 | |
Undeveloped land | 80.5 | | | 5.4 | |
| $ | 1,905.2 | | | $ | 1,309.7 | |
|
| | | | | | | |
| At Year-End |
| 2017 | | 2016 |
| (In thousands) |
Entitled, developed and under development projects | $ | 127,442 |
| | $ | 263,859 |
|
Other real estate costs (principally land in entitlement in 2016) | 2,938 |
| | 29,144 |
|
| $ | 130,380 |
| | $ | 293,003 |
|
Our estimated reimbursements from utility and improvement districts included inIn fiscal 2021, the Company invested $779.7 million for the acquisition of residential real estate were $9,775,000and $850.7 million for the development of residential real estate. At September 30, 2021 and 2020, undeveloped land primarily consists of undeveloped land which the Company has the contractual right to sell to D.R. Horton within approximately one year of its purchase or, if D.R. Horton elects, at year-end 2017 and $45,157,000an earlier date, at year-end 2016, which included $14,749,000 relateda sales price equal to our Cibolo Canyons project near San Antonio. In 2017, we collected $19,606,000 in reimbursements that were previously submitted to these districts. These costs are principally for water, sewer and other infrastructure assets that we have incurred and submitted or will submit to utility or improvement districts for approval and reimbursement. We expect to be reimbursed by utility and improvement districts when these districts achieve adequate tax basis or otherwise have funds available to support payment. At year-end 2017, estimated reimbursements of $27,915,000, which include $14,127,000 related to Cibolo Canyons, are classified as assets held for sale. Please readNote 22 — Subsequent Eventfor additional information regarding our strategic asset sale to Starwood.
In 2017, we recognized non-cash impairment charges of $3,420,000 related to the asset group sold in the strategic asset sale to Starwood and one non-core mitigation project. In 2016, we recognized non-cash impairment charges of $56,453,000 related to six non-core community development projects and two multifamily sites. These impairments were a result of our key initiative to review our entire portfolio of assets which resulted in business plan changes, inclusive of cash tax savings considerations, to market these properties for sale, which resulted in adjustment of the carrying value to fair value.
In 2017, we sold over 19,000 acres of timberland and undeveloped land in Georgia and Texas for $46,197,000 generating combined net proceeds of $45,396,000. These transactions resulted in a gain on sale of assets of $28,674,000.
In 2016, we sold the Radisson Hotel & Suites, a 413 room hotel in Austin, for $130,000,000, generating $128,764,000 in net proceeds before paying in full the associated debt of $15,400,000 and recognized a gain on sale of $95,336,000. We also sold Eleven, a wholly-owned 257-unit multifamily property in Austin, for $60,150,000, generating $59,719,000 in net proceeds before paying in full the associated debt of $23,936,000 and recognized a gain on sale of $9,116,000. In addition, we sold Dillon, a planned 379-unit multifamily property that was under construction in Charlotte, for $25,979,000, generating $25,428,000 in net proceeds and recognized a gain on sale of $1,223,000, and Music Row, a planned 230-unit multifamily property that was under construction in Nashville, for $15,025,000, generating $14,703,000 in net proceeds and recognized a gain on sale of $3,968,000. We also sold Downtown Edge, a multifamily site in Austin, for $5,000,000, generating $4,975,000 in net proceeds and recognized a loss of $3,870,000.
In 2016, we sold over 58,300 acres of timberland and undeveloped land in Georgia and Alabama for $104,172,000 generating net proceeds of $103,238,000. These transactions resulted in a gain on sale of assets of $48,891,000.
Depreciation expense related to commercial and income producing properties was $0 in 2017, $816,000 in 2016 and $6,810,000 in 2015 and is included in other operating expense.
We provided a performance bond and standby letter of credit in support of a bond issuance by CCSID. In 2014, we received $50,550,000 from CCSID principally related to its issuance of $48,900,000 Hotel Occupancy Tax (HOT) and Sales and Use Tax Revenue Bonds. These bonds are obligations solely of CCSID and are payable from HOT and sales and use taxes levied by CCSID. To facilitate the issuance of the bonds, we provided a $6,846,000 letter of credit to the bond trustee as security for certain debt service fund obligations in the event CCSID tax collections are not sufficient to support payment of the bonds in accordance with their terms. The letter of credit must be maintained until the earlier of redemption of the bonds or scheduled bond maturity in 2034. We also entered into an agreement with the owner of the Resort to assign its senior rights to us in exchange for consideration provided by us, including a surety bond to be drawn if CCSID tax collections are not sufficient to support ad valorem tax rebates payable. The surety bond decreases as CCSID makes annual ad valorem tax rebate payments, which obligation is scheduled to be retired in full by 2020. At year-end 2017, the surety bond was $5,312,000. Our rights to receive the excess HOT and sales taxes from CCSID was excluded from the strategic asset sale to Starwood.
Note 5 — Investment in Unconsolidated Ventures
We participate in real estate ventures for the purpose of acquiring and developing residential, multifamily and mixed-use communities in which we may or may not have a controlling financial interest. U.S. GAAP requires consolidation of Variable Interest Entities (VIEs) in which an enterprise has a controlling financial interest and is the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE. We examine specific criteria and use judgment when determining whether a venture is a VIE and whether we are the primary beneficiary. We perform this review initiallyland at the time we enter into venture agreementsof sale plus additional consideration of 12% to 16% per annum.
Each quarter, the Company reviews the performance and reassess upon reconsideration events.
At year-end 2017, we had ownership interests in 15 ventures that we accountedoutlook for using the equity method, noneall of which are a VIE.
Combined summarized balance sheet informationits real estate for our ventures accounted for using the equity method follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Venture Assets | | Venture Borrowings (a) | | Venture Equity | | Our Investment |
| At Year-End |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| (In thousands) |
242, LLC (b) (e) | $ | 19,525 |
| | $ | 26,503 |
| | $ | — |
| | $ | 1,107 |
| | $ | 19,357 |
| | $ | 23,136 |
| | $ | 9,131 |
| | $ | 10,934 |
|
CL Ashton Woods, LP (c) | 124 |
| | 2,653 |
| | — |
| | — |
| | 104 |
| | 2,198 |
| | 83 |
| | 1,107 |
|
CL Realty, LLC | 4,528 |
| | 8,048 |
| | — |
| | — |
| | 4,344 |
| | 7,899 |
| | 2,172 |
| | 3,950 |
|
CREA FMF Nashville LLC (b) | 2,315 |
| | 56,081 |
| | — |
| | 37,446 |
| | 684 |
| | 17,091 |
| | 342 |
| | 4,923 |
|
Elan 99, LLC (e) | 49,080 |
| | 49,652 |
| | 36,348 |
| | 36,238 |
| | 11,204 |
| | 13,100 |
| | 10,078 |
| | 11,790 |
|
FMF Littleton LLC | 66,849 |
| | 70,282 |
| | 45,836 |
| | 44,446 |
| | 20,289 |
| | 23,798 |
| | 5,144 |
| | 6,128 |
|
FMF Peakview LLC | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
FOR/SR Forsyth LLC | 11,598 |
| | 10,672 |
| | 1,551 |
| | 1,568 |
| | 10,041 |
| | 8,990 |
| | 9,037 |
| | 8,091 |
|
HM Stonewall Estates, Ltd | — |
| | 852 |
| | — |
| | — |
| | — |
| | 852 |
| | — |
| | 477 |
|
LM Land Holdings, LP (c) | 19,479 |
| | 25,538 |
| | — |
| | 3,477 |
| | 12,074 |
| | 20,945 |
| | 5,935 |
| | 9,685 |
|
MRECV DT Holdings LLC (e) | 3,043 |
| | 4,155 |
| | — |
| | — |
| | 3,043 |
| | 4,144 |
| | 2,594 |
| | 3,729 |
|
MRECV Edelweiss LLC/MRECV Lender VIII LLC (e) | 8,127 |
| | 3,484 |
| | — |
| | — |
| | 8,127 |
| | 3,484 |
| | 7,189 |
| | 3,358 |
|
MRECV Juniper Ridge LLC (e) | 3,936 |
| | 4,156 |
| | — |
| | — |
| | 3,936 |
| | 4,156 |
| | 3,331 |
| | 3,741 |
|
MRECV Meadow Crossing II LLC (e) | 3,129 |
| | 2,492 |
| | — |
| | — |
| | 3,129 |
| | 2,491 |
| | 2,738 |
| | 2,242 |
|
Miramonte Boulder Pass, LLC (e) | 7,573 |
| | 10,738 |
| | 1,398 |
| | 4,006 |
| | 4,843 |
| | 5,265 |
| | 4,633 |
| | 5,330 |
|
Temco Associates, LLC | 4,448 |
| | 4,368 |
| | — |
| | — |
| | 4,345 |
| | 4,253 |
| | 2,172 |
| | 2,126 |
|
Other ventures | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| $ | 203,754 |
| | $ | 279,674 |
| | $ | 85,133 |
| | $ | 128,288 |
| | $ | 105,520 |
| | $ | 141,802 |
| | $ | 64,579 |
| | $ | 77,611 |
|
Combined summarized income statement information for our ventures accounted for using the equity method follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | Earnings (Loss) | | Our Share of Earnings (Loss) |
| For the Year |
| 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| (In thousands) |
242, LLC (b) (e) | $ | 13,073 |
| | $ | 5,835 |
| | $ | 20,995 |
| | $ | 8,021 |
| | $ | 1,259 |
| | $ | 9,588 |
| | $ | 4,096 |
| | $ | 668 |
| | $ | 4,919 |
|
CL Ashton Woods, LP | 3,179 |
| | 2,870 |
| | 9,820 |
| | 1,456 |
| | 914 |
| | 3,881 |
| | 1,816 |
| | 1,332 |
| | 5,000 |
|
CL Realty, LLC | 499 |
| | 567 |
| | 856 |
| | (1,155 | ) | | 237 |
| | 424 |
| | (578 | ) | | 119 |
| | 212 |
|
CREA FMF Nashville LLC (b) (d) | 5,440 |
| | 4,955 |
| | 1,227 |
| | 17,267 |
| | (1,420 | ) | | (1,696 | ) | | 7,563 |
| | 1,103 |
| | (1,696 | ) |
Elan 99, LLC (e) | 4,596 |
| | 1,392 |
| | — |
| | (1,896 | ) | | (2,739 | ) | | (49 | ) | | (1,712 | ) | | (2,465 | ) | | (44 | ) |
FMF Littleton LLC | 6,366 |
| | 3,116 |
| | 120 |
| | 192 |
| | (571 | ) | | (367 | ) | | 48 |
| | (143 | ) | | (92 | ) |
FMF Peakview LLC | — |
| | 939 |
| | 2,057 |
| | — |
| | (248 | ) | | (1,116 | ) | | — |
| | (50 | ) | | (223 | ) |
FOR/SR Forsyth LLC | — |
| | — |
| | — |
| | (148 | ) | | (65 | ) | | — |
| | (134 | ) | | (58 | ) | | — |
|
HM Stonewall Estates, Ltd. | 496 |
| | 2,112 |
| | 3,990 |
| | 243 |
| | 832 |
| | 1,881 |
| | 103 |
| | 361 |
| | 952 |
|
LM Land Holdings, LP (c) | 22,127 |
| | 10,001 |
| | 10,956 |
| | 10,629 |
| | 7,288 |
| | 8,251 |
| | 3,563 |
| | 2,458 |
| | 3,342 |
|
MRECV DT Holdings LLC (e) | 1,196 |
| | 495 |
| | — |
| | 1,173 |
| | 477 |
| | 167 |
| | 911 |
| | 429 |
| | — |
|
MRECV Edelweiss LLC/MRECV Lender VIII LLC (e) | 1,018 |
| | 416 |
| | — |
| | 1,016 |
| | 409 |
| | 151 |
| | 789 |
| | 368 |
| | 137 |
|
MRECV Juniper Ridge LLC (e) | 1,445 |
| | 379 |
| | — |
| | 1,445 |
| | 380 |
| | 106 |
| | 1,089 |
| | 342 |
| | — |
|
MRECV Meadow Crossing II LLC (e) | 638 |
| | 267 |
| | — |
| | 638 |
| | 220 |
| | — |
| | 496 |
| | 198 |
| | — |
|
Miramonte Boulder Pass, LLC (e) | 5,483 |
| | 4,923 |
| | — |
| | 177 |
| | (399 | ) | | (250 | ) | | (197 | ) | | (200 | ) | | (125 | ) |
PSW Communities, LP | — |
| | — |
| | 29,986 |
| | — |
| | — |
| | 2,688 |
| | — |
| | — |
| | 1,169 |
|
TEMCO Associates, LLC | 192 |
| | 1,344 |
| | 9,485 |
| | 92 |
| | 440 |
| | 2,358 |
| | 46 |
| | 220 |
| | 1,179 |
|
Other ventures | — |
| | 6,519 |
| | 36,237 |
| | — |
| | 2,105 |
| | 33,303 |
| | — |
| | 1,441 |
| | 1,278 |
|
| $ | 65,748 |
| | $ | 46,130 |
| | $ | 125,729 |
| | $ | 39,150 |
| | $ | 9,119 |
| | $ | 59,320 |
| | $ | 17,899 |
| | $ | 6,123 |
| | $ | 16,008 |
|
_____________________
| |
(a)
| Total includes current maturities of $84,098,000 at year-end 2017, of which $79,515,000 is non-recourse to us, and $89,756,000 at year-end 2016, of which $78,557,000 is non-recourse to us.
|
| |
(b)
| Includes unamortized deferred gains on real estate contributed by us to ventures. We recognize deferred gains as income as real estate is sold to third parties. Deferred gains of $548,000 are reflected as a reduction to our investment in unconsolidated ventures at year-end 2017.
|
| |
(c)
| Includes unrecognized basis difference of $448,000 which is reflected as an increase of our investment in unconsolidated ventures at year-end 2017. This difference will be amortized as expense over the life of the investment and included in our share of earnings (loss) from the respective venture.
|
| |
(d)
| Our share of venture earnings in 2016 includes reallocation of prior year cumulative losses incurred by the venture as a result of equity contribution by the venture partner in 2016 in accordance with the partnership agreement. |
| |
(e)
| Included in our strategic asset sale to Starwood on February 8, 2018. Please read Note 22 - Subsequent Event for additional information regarding this transaction.
|
In 2017, we invested $4,548,000 in these venturesindicators of potential impairment and received $34,439,000 in distributions; in 2016, we invested $6,089,000 in these venturesperforms detailed impairment evaluations and received $13,419,000 in distributions; and in 2015, we invested $26,349,000 in these ventures and received $24,909,000 in distributions. Distributions include both return of investments and distributions of earnings.
In 2017, CREA FMF Nashville LLC (Acklen), sold a 320-unit multifamily project in Nashville for $71,750,000 and recognized a gain of $18,986,000. Our share of earnings was $7,783,000 and we received a distribution of $11,956,000 asanalyses when necessary. As a result of this sale.
In 2017, venture earnings from 242, LLC benefited from the sale of 46 commercial acres for $9,719,000 generating $6,612,000 in earnings to the venture. Based on our 50% interest in the venture, our pro-rata share of the earnings associated with this sale was $3,306,000 and our pro-rata share of the total distributable cash was $4,348,000.
In 2017, CL Realty, LLC, a venture in which we own a 50% interest, sold certain mineral assets to us for $2,400,000. Subsequent to closing of this transaction, we received $1,200,000 from the venture, representing our pro-rata share of distributable cash. In 2017, the venture recognized a non-cash impairment charge of $3,756,000 associated with a commercial tract on the Texas coast.
In 2016, we sold our interest in FMF Peakview LLC (3600), a 304-unit multifamily joint venture near Denver, generating $13,917,000 in net proceeds and recognized a gain of $10,363,000 which is included in gain on sale of assets.
We provided construction and development services for some of these ventures for which we receive fees. Fees for these servicesprocess there were $741,000 in 2017, $2,466,000 in 2016 and $1,856,000 in 2015, and are included inno real estate revenues.impairment charges recorded in fiscal 2021 or 2020 and $0.8 million of impairment charges were recorded during fiscal 2019.
Note 6 — GoodwillDuring fiscal 2021, 2020 and Other Intangible Assets
Carrying value of goodwill2019, earnest money and other intangible assets follows:
|
| | | | | | | |
| Year-End |
| 2017 | | 2016 |
| (In thousands) |
Goodwill | $ | — |
| | $ | 37,900 |
|
Identified intangibles, net | 448 |
| | — |
|
| $ | 448 |
| | $ | 37,900 |
|
Goodwillpre-acquisition cost write-offs related to our mineral assets was $0 at year-end 2017land purchase contracts that the Company has terminated or expects to terminate were $3.0 million, $0.9 million and $37,900,000 at year-end 2016. In 2017, we recognized a non-cash impairment charge of $37,900,000 related to goodwill attributable to our mineral resources reporting unit as a result of selling our remaining owned mineral assets. In 2016, we recognized a goodwill non-cash impairment charge of $3,874,000 related to interests in groundwater leases in central Texas. Impairment$0.2 million, respectively. Real estate impairments and land option charges are included in cost of mineral resources and cost of other on oursales in the consolidated statements of income (loss)operations.
Note 4 — Revenues
Revenues consist of:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, |
| 2021 | | 2020 | | 2019 |
| (In millions) |
Residential lot sales | $ | 1,293.1 | | | $ | 880.3 | | | $ | 351.7 | |
Tract sales and other | 32.7 | | | 51.5 | | | 76.6 | |
| $ | 1,325.8 | | | $ | 931.8 | | | $ | 428.3 | |
Total revenue from D.R. Horton was $1.2 billion, $887.6 million and $326.6 million in fiscal 2021, 2020 and 2019, respectively.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 — Capitalized Interest
The following table summarizes the Company’s interest costs incurred, capitalized and expensed in fiscal 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, |
| 2021 | | 2020 | | 2019 |
| (In millions) |
Capitalized interest, beginning of year | $ | 48.7 | | | $ | 23.7 | | | $ | 3.2 | |
Interest incurred | 41.5 | | | 43.3 | | | 25.3 | |
Interest charged to cost of sales | (36.5) | | | (18.3) | | | (4.8) | |
Capitalized interest, end of year | $ | 53.7 | | | $ | 48.7 | | | $ | 23.7 | |
Note6 — Other Assets, Accrued Expenses and Other Liabilities
The Company's other assets at September 30, 2021 and 2020 were as follows:
| | | | | | | | | | | |
| September 30, |
| 2021 | | 2020 |
| (In millions) |
Receivables, net | $ | 0.4 | | | $ | 0.4 | |
Earnest money notes receivable on sales contracts | 0.7 | | | 4.8 | |
Lease right of use assets | 6.9 | | | 3.6 | |
Prepaid expenses | 15.4 | | | 4.9 | |
Land purchase contract deposits | 10.4 | | | 5.5 | |
Other | 5.3 | | | 5.7 | |
| $ | 39.1 | | | $ | 24.9 | |
The Company's accrued expenses and other liabilities at September 30, 2021 and 2020 were as follows:
| | | | | | | | | | | |
| September 30, |
| 2021 | | 2020 |
| (In millions) |
Accrued employee compensation and benefits | $ | 7.9 | | | $ | 6.2 | |
Accrued property taxes | 3.4 | | | 3.8 | |
Lease liabilities | 7.3 | | | 3.8 | |
Accrued interest | 8.5 | | | 14.0 | |
Contract liabilities | 5.8 | | | 0.2 | |
Deferred income | 6.8 | | | 9.3 | |
Income taxes payable | 6.8 | | | 0.5 | |
Other accrued expenses | 8.9 | | | 10.2 | |
Other liabilities | 1.3 | | | 1.4 | |
| $ | 56.7 | | | $ | 49.4 | |
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 7 — Debt
The Company's notes payable at their carrying amounts consist of the following:
| | | | | | | | | | | |
| September 30, |
| 2021 | | 2020 |
| (In millions) |
Unsecured: | | | |
Revolving credit facility | $ | — | | | $ | — | |
8.0% senior notes due 2024 (1) | — | | | 345.2 | |
3.85% senior notes due 2026 (1) | 395.5 | | | — | |
5.0% senior notes due 2028 (1) | 296.5 | | | 295.9 | |
Other note payable | 12.5 | | | — | |
| $ | 704.5 | | | $ | 641.1 | |
______________
(1)Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $8.0 million and $8.9 million at September 30, 2021 and 2020, respectively.
Bank Credit Facility
In April 2021, the Company's senior unsecured revolving credit facility was amended to increase its capacity to $410 million with an uncommitted accordion feature that could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments. The maturity date of the facility was extended to April 16, 2025. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the revolving credit commitment. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of the Company's real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. Borrowings and repayments under the facility were $58.0 million each during fiscal 2021. At September 30, 2021, there were no borrowings outstanding and $60.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $349.7 million.
The revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. At September 30, 2021, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.
Senior Notes
The Company has outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act. The notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness and may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreements. The notes are guaranteed by each of the Company's subsidiaries to the extent such subsidiaries guarantee the Company's revolving credit facility.
In April 2021, the company issued $400 million principal amount of 3.85% senior notes (the "2026 notes") that mature May 15, 2026 with interest payable semi-annually. On or after May 15, 2023, the 2026 notes may be redeemed at 101.925% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1%. The net
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
proceeds from this issuance were primarily used to redeem the Company's $350 million principal amount of 8.0% senior notes due April 15, 2024 on May 7, 2021. The redemption price of $365.6 million included a call premium of $14.0 million and accrued and unpaid interest of $1.6 million. The Company recognized an $18.1 million loss on extinguishment of debt upon the redemption of such notes.
The Company's $300 million principal amount of 5.0% senior notes mature March 1, 2028 (the "2028 notes") with interest payable semi-annually. On or after March 1, 2023, the 2028 notes may be redeemed at 102.5% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2028 notes can be redeemed at par on or after March 1, 2026 through maturity. The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.
Identified intangibles,
The indentures governing the senior notes require that, upon the occurrence of both a change of control and a rating decline (each as defined in the indentures), the Company offer to purchase the applicable series of notes at 101% of their principal amount. If the Company or its restricted subsidiaries dispose of assets, under certain circumstances, the Company will be required to either invest the net represent indefinite lived groundwater leasescash proceeds from such asset sales in its business within a specified period of time, repay certain senior secured debt or debt of its non-guarantor subsidiaries, or make an offer to purchase a principal amount of the notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount. The indentures contain covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments; incur additional debt or issue mandatorily redeemable equity; incur liens on assets; merge or consolidate with another company or sell or otherwise dispose of all or substantially all of the Company’s assets; enter into transactions with affiliates; and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments. At September 30, 2021, the Company was in compliance with all of the limitations and restrictions associated with our central Texas water assetsits senior note obligations.
Effective April 30, 2020, the Board of Directors authorized the repurchase of up to $30 million of the Company’s debt securities. The authorization has no expiration date. All of the $30 million authorization was remaining at year-end 2017September 30, 2021.
Other Note Payable
The Company also has a note payable of $12.5 million that was issued as part of a transaction to acquire real estate for development. The note is non-recourse and were includedis secured by the underlying real estate, accrues interest at 4.0% per annum and matures in assets heldOctober 2023.
Note 8 — Earnings per Share
The computations of basic and diluted earnings per share are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, |
| 2021 | | 2020 | | 2019 |
| (In millions, except share and per share amounts) |
Numerator: | | | | | |
Net income attributable to Forestar Group Inc. | $ | 110.2 | | | $ | 60.8 | | | $ | 33.0 | |
Denominator: | | | | | |
Weighted average common shares outstanding — basic | 48,901,987 | | | 48,037,018 | | | 41,974,429 | |
Dilutive effect of stock-based compensation | 73,674 | | | 57,093 | | | 30,712 | |
Total weighted average shares outstanding — diluted | 48,975,661 | | | 48,094,111 | | | 42,005,141 | |
| | | | | |
Basic net income per common share attributable to Forestar Group Inc. | $ | 2.25 | | | $ | 1.26 | | | $ | 0.79 | |
Diluted net income per common share attributable to Forestar Group Inc. | $ | 2.25 | | | $ | 1.26 | | | $ | 0.79 | |
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 — Income Taxes
The components of the Company's income tax expense are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, |
| 2021 | | 2020 | | 2019 |
| (In millions) |
Current tax expense (benefit): | | | | | |
Federal | $ | 14.3 | | | $ | (7.6) | | | $ | (0.3) | |
State and other | 2.6 | | | 0.9 | | | 0.3 | |
| 16.9 | | | (6.7) | | | — | |
Deferred tax expense: | | | | | |
Federal | 15.8 | | | 21.2 | | | 9.1 | |
State and other | 3.4 | | | 1.9 | | | 0.3 | |
| 19.2 | | | 23.1 | | | 9.4 | |
Income tax expense | $ | 36.1 | | | $ | 16.4 | | | $ | 9.4 | |
A reconciliation of the federal statutory rate to the Company's effective income tax rate follows:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, |
| 2021 | | 2020 | | 2019 |
Federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
State, net of federal benefit | 3.3 | | | 2.9 | | | 1.3 | |
Valuation allowance | — | | | (0.1) | | | (0.3) | |
Tax benefits previously unrecognized | — | | | (2.0) | | | — | |
Non-controlling interests | — | | | (0.3) | | | (1.4) | |
Tax rate benefit in carryback years | — | | | (1.0) | | | — | |
Other | 0.3 | | | 0.5 | | | — | |
Effective tax rate | 24.6 | % | | 21.0 | % | | 20.6 | % |
The effective tax rate for sale at year-end 2016. In 2017, we recognizedfiscal 2020 includes a non-cash impairment chargetax benefit of $1,233,000$2.3 million related to the indefinite lived groundwater leases. Impairmentnet operating loss (NOL) carryback provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which allowed the Company to carryback a portion of its fiscal 2018 NOL. The carryback provisions resulted in the recognition of previously unrecognized tax benefits and the revaluation of deferred tax assets due to the utilization of NOLs at a higher tax rate in the carryback period. The effective tax rate for all years includes an expense for state income taxes and nondeductible expenses and a benefit related to noncontrolling interests.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Significant components of deferred taxes are:
| | | | | | | | | | | |
| September 30, |
| 2021 | | 2020 |
| (In millions) |
Deferred tax assets: | | | |
Real estate | $ | 14.2 | | | $ | 10.5 | |
Employee benefits | 1.9 | | | 1.5 | |
Net operating loss carryforwards | 1.4 | | | 1.7 | |
Accruals not deductible until paid | 0.2 | | | 0.2 | |
Total deferred tax assets | 17.7 | | | 13.9 | |
Valuation allowance | (1.2) | | | (1.5) | |
Total deferred tax assets, net of valuation allowance | 16.5 | | | 12.4 | |
Deferred tax liabilities: | | | |
Deferral of profit on lot sales | (40.9) | | | (18.1) | |
Total deferred tax liabilities | (40.9) | | | (18.1) | |
Deferred tax liability, net | $ | (24.4) | | | $ | (5.7) | |
At September 30, 2021 and 2020, the Company had no federal NOL carryforwards as a result of NOL carryback claims and taxable income in fiscal 2020. At September 30, 2021, the Company had tax benefits of $1.4 million related to state NOL carryforwards, of which $0.9 million will expire between 2030 and 2038 while the remaining $0.5 million do not have an expiration date.
The Company has a valuation allowance of $1.2 million and $1.5 million at September 30, 2021 and 2020, respectively, because it is more likely than not that a portion of the Company's state deferred tax assets, primarily NOL carryforwards, will not be realized because the Company is no longer operating in some states or the NOL carryforward periods are too brief to realize the related deferred tax asset. The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on its deferred tax assets. Any reversal of the valuation allowance in future periods will impact the effective tax rate.
The Company is subject to a Tax Sharing Agreement with D.R. Horton. The agreement sets forth an equitable method for reimbursements of tax liabilities or benefits between the Company and D.R. Horton related to state and local income, margin or franchise tax returns that are filed on a unitary basis with D.R. Horton. In accordance with the agreement, the Company reimbursed D.R. Horton $0.5 million and $0.2 million in fiscal 2021 and 2020, respectively, for its tax expense generated in fiscal 2020 and 2019.
The Company files income tax returns in the U.S. and in various state jurisdictions. The federal statute of limitations for tax years prior to 2016 is closed and the statute of limitations in major state jurisdictions for tax years prior to 2017 is closed. The Company is not currently being audited by the IRS or any state jurisdictions.
A reconciliation of the beginning and ending amount of tax benefits not recognized for book purposes is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, |
| 2021 | | 2020 | | 2019 |
| (In millions) |
Unrecognized tax benefits, beginning of year | $ | — | | | $ | 1.6 | | | $ | 1.6 | |
Decrease for tax positions taken in prior years | — | | | (1.6) | | | — | |
Unrecognized tax benefits, end of year | $ | — | | | $ | — | | | $ | 1.6 | |
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company had no unrecognized tax benefits at September 30, 2021 as a result of the recognition of $1.6 million of previously unrecognized tax benefits during fiscal 2020. All of the $1.6 million of recognized tax benefits affected the Company’s effective tax rate and was attributable to the NOL carryback provisions of the CARES Act allowing previously uncertain tax attributes to be recognized.
The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. In fiscal years 2021, 2020 and 2019, no significant interest related to unrecognized tax benefits was recognized. At September 30, 2021, there were no accrued interest or penalties.
Note 10 — Stockholders' Equity
At September 30, 2021, the Company had an effective shelf registration statement filed with the Securities and Exchange Commission (SEC) in September 2018 registering $500 million of equity securities, of which $100 million was reserved for sales under the at-the-market equity offering program that became effective in August 2020. In fiscal 2021, the Company issued 1.4 million shares of common stock under its at-the-market equity offering program for proceeds of $33.4 million, net of commissions and other issuance costs totaling $1.0 million. At September 30, 2021, $359.9 million remained available for issuance under the shelf registration statement, of which $65.6 million is reserved for sales under the at-the-market equity offering program.
In October 2021, after the expiration of the existing registration statement and at-the market equity offering program, a new shelf registration statement became effective registering $750 million of equity securities.
Note 11 — Employee Benefit Plans
Retirement Plans
The Company has a 401(k) plan for all employees who have been with the Company for a period of six months or more. The Company matches portions of employees’ voluntary contributions. Additional employer contributions in the form of profit sharing may also be made at the Company’s discretion. The Company recorded expense of $0.6 million, $0.4 million and $0.2 million for matching contributions in fiscal 2021, 2020 and 2019, respectively.
Restricted Stock Units (RSUs)
The Company’s Stock Incentive Plan provides for the granting of stock options and restricted stock units to executive officers, other key employees and non-management directors. Restricted stock unit awards may be based on performance (performance-based) or on service over a requisite time period (time-based). RSU equity awards represent the contingent right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are satisfied and have no voting rights during the vesting period.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
During fiscal 2021, 2020 and 2019, the Company granted time-based RSUs that vest annually in equal installments over periods of three to five years. The following table provides additional information related to time-based RSU activity during those periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended September 30, |
| 2021 | | 2020 | | 2019 |
| Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value | | Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value | | Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value |
Outstanding at beginning of year | 285,863 | | | $ | 17.47 | | | 200,960 | | | $ | 19.68 | | | 86,500 | | | $ | 18.09 | |
Granted | 234,000 | | | 23.13 | | | 181,325 | | | 16.11 | | | 149,400 | | | 20.24 | |
Vested | (92,159) | | | 19.08 | | | (79,432) | | | 19.58 | | | (23,740) | | | 18.03 | |
Cancelled | (40,550) | | | 19.66 | | | (16,990) | | | 19.10 | | | (11,200) | | | 18.39 | |
Outstanding at end of year | 387,154 | | | $ | 20.70 | | | 285,863 | | | $ | 17.47 | | | 200,960 | | | $ | 19.68 | |
The total fair value of shares vested on the vesting date during both fiscal 2021 and 2020 was $1.6 million. Total stock-based compensation expense related to the Company's restricted stock units for fiscal 2021, 2020 and 2019 was $2.6 million, $2.0 million and $1.3 million, respectively, and fiscal 2021, 2020 and 2019 included $0.7 million, $0.5 million and $0.6 million, respectively, of expense recognized for employees that were retirement eligible on the date of grant. These expenses are included in selling, general and administrative expense in the Company's consolidated statements of operations. At September 30, 2021, there was $5.0 million of unrecognized compensation expense related to unvested time-based RSU awards. This expense is expected to be recognized over a weighted average period of 2.6 years.
Note 12 — Commitments and Contingencies
Contractual Obligations and Off-Balance Sheet Arrangements
In support of the Company's residential lot development business, it issues letters of credit under the revolving credit facility and has a surety bond program that provides financial assurance to beneficiaries related to the execution and performance of certain development obligations. At September 30, 2021, the Company had outstanding letters of credit of $60.3 million under the revolving credit facility and surety bonds of $479.3 million issued by third parties to secure performance under various contracts. The Company expects that its performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms. When the Company completes its performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving the Company with no continuing obligations. The Company has no material third-party guarantees.
Litigation
The Company is involved in various legal proceedings that arise from time to time in the ordinary course of business and believes that adequate reserves have been established for any probable losses. The Company does not believe that the outcome of any of these proceedings will have a significant adverse effect on its financial position, long-term results of operations or cash flows. It is possible, however, that charges related to these matters could be significant to the Company's results or cash flows in any one accounting period.
Land Purchase Contracts
The Company enters into land purchase contracts to acquire land for the development of residential lots. At September 30, 2021, the Company had total deposits of $10.4 million related to contracts to purchase land with a total remaining purchase price of approximately $597.5 million. The majority of land and lots under contract are currently expected to be purchased within two years. None of the land purchase contracts were subject to specific performance provisions at September 30, 2021.
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Other Commitments
The Company leases facilities and equipment under non-cancelable long-term operating lease agreements. In addition, the Company has various obligations under other office space and equipment leases of less than one year. Rent expense for facilities and equipment was $1.7 million in fiscal 2021, $1.1 million in fiscal 2020 and $0.7 million in fiscal 2019. Future minimum rental commitments, by fiscal year, under non-cancelable operating leases having an initial or remaining term in excess of one year are: 2022 — $1.9 million; 2023 — $2.0 million; 2024 — $1.9 million; 2025 — $1.5 million; 2026 — $1.0 million; and none thereafter.
Note 13 — Related Party Transactions
The Company has a Shared Services Agreement with D.R. Horton whereby D.R. Horton provides the Company with certain administrative, compliance, operational and procurement services. During fiscal 2021, 2020 and 2019, selling, general and administrative expense in the consolidated statements of operations included $4.0 million, $5.0 million and $2.1 million for these shared services, $4.7 million, $2.7 million and $1.4 million reimbursed to D.R. Horton for the cost of health insurance and other employee benefits and $6.1 million, $4.0 million and $1.2 million for other corporate and administrative expenses paid by D.R. Horton on behalf of the Company.
The Company is subject to a Tax Sharing Agreement with D.R. Horton. The agreement sets forth an equitable method for reimbursements of tax liabilities or benefits between the Company and D.R. Horton related to state and local income, margin or franchise tax returns that are filed on a unitary basis with D.R. Horton. In accordance with the agreement, the Company reimbursed D.R. Horton $0.5 million and $0.2 million in fiscal 2021 and 2020, respectively, for its tax expense generated in fiscal 2020 and 2019, and D.R. Horton reimbursed the Company $0.4 million in fiscal 2019 for its tax benefit generated in the nine months ended September 30, 2018.
Under the terms of the Master Supply Agreement with D.R. Horton, both companies identify land development opportunities to expand Forestar's portfolio of assets. At September 30, 2021 and 2020, the Company owned approximately 64,400 and 42,400 residential lots, of which D.R. Horton had the following involvement.
| | | | | | | | | | | |
| September 30, |
| 2021 | | 2020 |
| (Dollars in millions) |
Residential lots under contract to sell to D.R. Horton | 21,000 | | | 14,000 | |
Residential lots subject to right of first offer with D.R. Horton | 18,200 | | | 16,400 | |
Earnest money deposits from D.R. Horton for lots under contract | $ | 143.1 | | | $ | 92.2 | |
Earnest money notes from D.R. Horton for lots under contract | $ | 0.7 | | | $ | 4.8 | |
Remaining purchase price of lots under contract with D.R. Horton | $ | 1,582.7 | | | $ | 1,022.2 | |
During fiscal 2021, 2020 and 2019, the Company's residential lot sales totaled 15,915, 10,373 and 4,132 and lot sales revenues were $1.3 billion, $880.3 million and $351.7 million. Lot and land sales to D.R. Horton during those periods were as follows.
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, |
| 2021 | | 2020 | | 2019 |
| (Dollars in millions) |
Residential single-family lots sold to D.R. Horton | 14,839 | | | 10,164 | | | 3,728 | |
Residential lot sales revenues from sales to D.R. Horton | $ | 1,212.1 | | | $ | 859.7 | | | $ | 311.7 | |
Tract acres sold to D.R. Horton | 85 | | | 143 | | | 290 | |
Tract sales revenues from sales to D.R. Horton | $ | 25.9 | | | $ | 25.6 | | | $ | 10.9 | |
FORESTAR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In addition, the net impact of the change in contract liabilities decreased revenues on lot sales to D.R. Horton by $5.6 million in fiscal 2021 and increased revenues on lot sales to D.R. Horton by $2.3 million and $4.0 million in fiscal 2020 and 2019, respectively.
During fiscal 2021, 2020 and 2019, the Company reimbursed D.R. Horton approximately $30.8 million, $27.0 million and $34.5 million, for previously paid earnest money and $61.3 million, $36.3 million and $13.1 million for pre-acquisition and other due diligence and development costs related to land purchase contracts whereby D.R. Horton assigned its rights under these land purchase contracts to the Company.
During fiscal 2021, 2020 and 2019, the Company paid D.R. Horton $5.7 million, $6.2 million and $2.4 million for land development services. These amounts are included in cost of other on oursales in the Company’s consolidated statements of income (loss).operations.
Note 7—Held for Sale
At year-end 2017, assets held for sale principally included certain real estate projects sold on February 8, 2018,September 30, 2021 and water wells related2020, undeveloped land primarily consists of undeveloped land which the Company has the contractual right to our nonparticipating royalty interests in water rights located in east Texas. Please read Note 22 - Subsequent Event for additional information regarding our strategic asset salesell to Starwood.
The major classesD.R. Horton within approximately one year of assets and liabilities held for sale were as follows: |
| | | | | | | |
| At Year-End |
| 2017 | | 2016 |
Assets Held for Sale: | (In thousands) |
Real estate | $ | 180,247 |
| | $ | 19,931 |
|
Timber | — |
| | 1,682 |
|
Other intangible assets | — |
| | 1,681 |
|
Oil and gas properties and equipment, net | — |
| | 782 |
|
Property and equipment, net | 1,360 |
| | 6,301 |
|
| $ | 181,607 |
| | $ | 30,377 |
|
| | | |
Liabilities Held for Sale: | | | |
Accounts payable | 1,017 |
| | — |
|
Other liabilities | — |
| | 103 |
|
| $ | 1,017 |
| | $ | 103 |
|
Note 8 — Discontinued Operations
We have divested all of our oil and gas working interest properties. As a result of this significant change in our operations, we have reported the results of operations and financial position of these assets as discontinued operations within the consolidated statements of income (loss) and consolidated balance sheets for all periods presented.
Summarized results from discontinued operations were as follows:
|
| | | | | | | | | | | |
| For the Year |
| 2017 | | 2016 | | 2015 |
| | | |
Revenues | $ | 15 |
| | $ | 5,862 |
| | $ | 43,845 |
|
Cost of oil and gas producing activities | (52 | ) | | (6,578 | ) | | (221,402 | ) |
Other operating expenses | 226 |
| | (7,754 | ) | | (10,363 | ) |
Income (loss) from discontinued operations before income taxes | $ | 189 |
| | $ | (8,470 | ) | | $ | (187,920 | ) |
Gain (loss) on sale of assets before income taxes | (197 | ) | | (13,664 | ) | | (706 | ) |
Income tax benefit | 46,039 |
| | 5,269 |
| | 2,496 |
|
Income (loss) from discontinued operations, net of taxes | $ | 46,031 |
| | $ | (16,865 | ) | | $ | (186,130 | ) |
In third quarter 2017, we sold the common stock of Forestar Petroleum Corporation for $100,000. This transaction completed the sale of all our oil and gas assets and related entities. This transaction resulted in a significant tax loss, and the corresponding tax benefit is reported in discontinued operations in 2017.
In 2016, we recorded a net loss of $13,664,000 on the sale of 199,263 net mineral acres leased from others and 379 gross (95 net) producing oil and gas working interest wells in Nebraska, Kansas, Oklahoma and North Dakota for total net proceeds of $80,374,000, which includes $3,269,000 in reimbursement of capital costs incurred on in-progress wells that were assumed by the buyer. Other operating expenses in 2017 include a benefit of $1,043,000 due to a reduction ofits purchase or, if D.R. Horton elects, at an accrual resulting from a change in estimate related to potential environmental liabilities to plug and abandon certain oil and gas wells in Wyoming. Other operating expenses in 2016 include loss contingency charges of $2,990,000 related to litigation and $1,155,000 related to potential environmental liabilities to plug and abandon certain oil and gas wells in Wyoming.
In 2015, we recorded a net loss of $706,000 on the sale of 109,000 net mineral acres leased from others and the disposition of 39 gross (7 net) producing oil and gas wells in Nebraska, Texas, Colorado, North Dakota and Oklahoma for total net proceeds of $17,800,000.
Cost of sales includes non-cash impairment charges of $0 in 2017, $612,000 in 2016 and $163,029,000 in 2015 related to our proved properties and unproved leasehold oil and gas working interests.
The major classes of assets and liabilities of discontinued operations at year-end 2017 and 2016 are as follows:
|
| | | | | | | |
| At Year-End |
| 2017 | | 2016 |
| (In thousands) |
Assets of Discontinued Operations: | | | |
Receivables, net of allowance for bad debt | $ | — |
| | $ | 6 |
|
Prepaid expenses | — |
| | 8 |
|
| $ | — |
| | $ | 14 |
|
| | | |
Liabilities of Discontinued Operations: | | | |
Accounts payable | $ | — |
| | $ | 67 |
|
Other accrued expenses | — |
| | 5,228 |
|
| $ | — |
| | $ | 5,295 |
|
Cash (used in) or provided by operating activities and investing activities of discontinued operations are as follows:
|
| | | | | | | | | | | |
| For the Year |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Operating activities: | | | | | |
Asset impairments | $ | — |
| | $ | 612 |
| | $ | 105,337 |
|
Changes in accounts payable and other accrued liabilities | (3,000 | ) | | — |
| | — |
|
Dry hole and unproved leasehold impairment charges | — |
| | — |
| | 67,639 |
|
Loss (gain) on sale of assets | 197 |
| | 13,664 |
| | 706 |
|
Depreciation, depletion and amortization | — |
| | 2,202 |
| | 28,391 |
|
| $ | (2,803 | ) | | $ | 16,478 |
| | $ | 202,073 |
|
| | | | | |
Investing activities: | | | | | |
Oil and gas properties and equipment | $ | — |
| | $ | (579 | ) | | $ | (49,717 | ) |
Proceeds from sales of assets | 200 |
| | 77,105 |
| | 17,800 |
|
| $ | 200 |
| | $ | 76,526 |
| | $ | (31,917 | ) |
Note 9 — Receivables
Receivables consist of:
|
| | | | | | | |
| At Year-End |
| 2017 | | 2016 |
| (In thousands) |
Other receivables and accrued interest | 2,557 |
| | 1,505 |
|
Loans secured by real estate, average interest rate of 5.40% at year-end 2017 and 4.94% at year-end 2016 | 3,776 |
| | 7,452 |
|
| 6,333 |
| | 8,957 |
|
Allowance for bad debts | (26 | ) | | (26 | ) |
| $ | 6,307 |
| | $ | 8,931 |
|
Other loans secured by real estate generally are secured by a deed of trust and due within three to five years.
Note 10 — Debt
Debt consists of:
|
| | | | | | | |
| At Year-End |
| 2017 | | 2016 |
| (In thousands) |
8.50% senior secured notes due 2022 | — |
| | 5,200 |
|
3.75% convertible senior notes due 2020, net of discount | 108,139 |
| | 104,673 |
|
Other indebtedness due through 2018 at variable and fixed interest rates ranging from 5.0% to 5.50% | 290 |
| | 485 |
|
| $ | 108,429 |
| | $ | 110,358 |
|
Letter of Credit Facility
On October 5, 2017, we entered into a Letter of Credit Facility Agreement providing for a $30,000,000 secured standby letter of credit facility (the “LC Facility”). The LC Facility is secured by $30,000,000 in cash deposited with the administrative agent. In addition, we have $10,000,000 on deposit with a participating lender. The total of these two deposits are classified as restricted cash on our consolidated balance sheets. At year-end 2017, $14,072,000 was outstanding under the LC Facility.
Termination of Senior Credit Facility
On October 5, 2017, in connection with entry into the LC Facility, we terminated our existing senior credit facility (the “Prior Credit Facility”). The Prior Credit Facility provided for a $50,000,000 revolving line of credit that was scheduled to mature on May 15, 2018. This Prior Credit Facility could be prepaid at any time without penalty and included a $50,000,000 sublimit for letters of credit. All outstanding letters of credit at the time of termination were transferred to the new LC Facility.
8.50% Senior Secured Notes due 2022
On October 30, 2017, we redeemed the remaining $5,315,000 aggregate principal amount of outstanding 8.50% Senior Secured Notes due 2022 (the “Notes”). The Notes were redeemed for $5,928,000 and the redemption resulted in a $524,000 loss on extinguishment of debt.
In 2016, we completed a cash tender offer for our Notes, pursuant to which we purchased $215,495,000 principal amount of the outstanding Notes. Total consideration paid was $245,604,000, which included $29,091,000 in premium and $1,018,000 in accrued and unpaid interest. In addition, we received consent from holders of the Notes to eliminate or modify certain covenants, events of default and other provisions contained in the indenture governing the Notes, and to release the subsidiary guarantees and collateral securing the Notes. We also purchased $9,750,000 principal amount of the Notes in open market transactions. The cash tender offer and open market purchases resulted in a $35,681,000 loss on extinguishment of debt, which included the premium paid to repurchase the Notes, write-off of unamortized debt issuance costs of $5,416,000 and $1,301,000 in other costs.
3.75% Convertible Senior Notes due 2020
In 2013, we issued $125,000,000 aggregate principal amount of 3.75% Convertible Senior Notes due 2020 (Convertible Notes). Interest on the Convertible Notes is payable semiannuallyearlier date, at a rate of 3.75 percent per annum and they mature on March 1, 2020. The Convertible Notes had an initial conversion rate of 40.8351 per $1,000 principal amount. The initial conversion rate was subjectsales price equal to adjustment upon the occurrence of certain events. Prior to November 1, 2019, the Convertible Notes are convertible only upon certain circumstances, and thereafter are convertible at any time prior to the close of business on the second scheduled trading day prior to maturity.
On October 5, 2017, we had $120,000,000 aggregate principal amount of Convertible Notes outstanding. In connection with the consummation of the Merger, we entered into a Third Supplemental Indenture (together with the base indenture and the prior supplemental indentures, the "Indenture") to the Indenture relating to our Convertible Notes.
Pursuant to the Third Supplemental Indenture, the Convertible Notes are no longer convertible into shares of our pre-merger common stock (“Former Forestar Common Stock”) and instead are convertible into cash and shares of our post-merger common stock (“New Forestar Common Stock”) based on the per-share weighted average of the cash and shares of New Forestar Common Stock received by our stockholders that affirmatively made an election in connection with the Merger. As a result of such elections, for each share of Former Forestar Common Stock a holder of Convertible Notes was previously entitled to receive upon conversion of Convertible Notes, such holder is instead entitled to receive $579.77062 in cash and 8.17192 shares of New Forestar Common Stock per $1,000 principal amount of Notes surrendered for conversion.
The completion of the Merger constituted a Fundamental Change, as defined in the Indenture. On October 12, 2017, in accordance with the Indenture, we gave notice of the Fundamental Change to holders of the Convertible Notes and made an offer to purchase (a “Fundamental Change Offer”) all or any part (equal to $1,000 or an integral multiple of $1,000) of every holder’s Convertible Notes. Under this offer, we repurchased $1,077,000 of Notes, and recorded a loss on extinguishment of debt of $87,000.
At year-end 2017, unamortized debt discount of our Convertible Notes was $9,726,000. The effective interest rate on the liability component was 8 percent and the carrying amount of the equity component was $16,847,000. We intend to settle the principal amount of Convertible Notes in cash upon conversion, with any excess conversion value to be settled in shares of our common stock.
In 2016, we purchased $5,000,000 of 3.75% Convertible Senior Notes due 2020 at 93.25 percent of face value in open market transactions for $4,663,000 and we allocated $4,452,000 to extinguish the debt and $211,000 to reacquire the equity component within the convertible notes based on the fair value of the debt component. We recognized a $110,000 loss on extinguishment of debt based on the difference between the fair value of the debt component prior to conversion and the carrying value of the debt component. Total lossland at the time of sale plus additional consideration of 12% to 16% per annum.
At September 30, 2021 and 2020, accrued expenses and other liabilities on extinguishmentthe Company's consolidated balance sheets included $6.7 million and $8.4 million owed to D.R. Horton for any accrued and unpaid shared service charges, land purchase contract deposits and due diligence and other development cost reimbursements.
Deferred Fees and Debt Maturities
At year-end 2017 and 2016, we have $1,058,000 and $1,633,000 in unamortized deferred fees which were deducted from our debt. Amortization of deferred financing fees was $979,000 in 2017, $3,598,000 in 2016 and $4,002,000 in 2015 and is included in interest expense.FORESTAR GROUP INC.
Debt maturities during the next five years are: 2018 — $290,000; 2019 — $0; 2020 — $108,139,000; 2021 — $0; 2022 — $0 and thereafter — $0.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 1114 — Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants. In arriving at a fair value measurement, we usethe Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of inputs used to establish fair value are the following:
•Level 1 — Quoted prices in active markets for identical assets or liabilities;
•Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
We
The Company elected not to use the fair value option for cash and cash equivalents accounts and notes receivable, otherdebt.
For the financial assets debt, accounts payable and other liabilities.liabilities that the Company does not reflect at fair value, the following tables present both their respective carrying value and fair value at September 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value at September 30, 2021 |
| Carrying Value | | Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
Cash and cash equivalents (a) | $ | 153.6 | | | $ | 153.6 | | | $ | — | | | $ | — | | | $ | 153.6 | |
Debt (b) (c) | 704.5 | | | — | | | 711.2 | | | 12.5 | | | 723.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value at September 30, 2020 |
| Carrying Value | | Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
Cash and cash equivalents (a) | $ | 394.3 | | | $ | 394.3 | | | $ | — | | | $ | — | | | $ | 394.3 | |
Debt (b) | 641.1 | | | — | | | 673.5 | | | — | | | 673.5 | |
_____________________
(a) The carrying amountsfair values of these financial instrumentscash and cash equivalents approximate their faircarrying values due to their short-term nature or variable interest rates. We determineand are classified as Level 1 within the fair value hierarchy.
(b) At September 30, 2021 and 2020, debt primarily consisted of fixed rate financial instruments using quoted prices for similar instruments in active markets.
Information about our fixed rate financial instruments not measured atthe Company's senior notes. The fair value follows:of the senior notes is determined based on quoted market prices in markets that are not active, which is classified as Level 2 within the fair value hierarchy.
(c) The fair values of the Company's other note payable approximates its carrying value due to its short-term nature and is classified as Level 3 within the fair value hierarchy. |
| | | | | | | | | | | | | | | | | |
| Year-End 2017 | | Year-End 2016 | | |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Valuation Technique |
| (In thousands) |
Fixed rate debt | $ | (109,197 | ) | | $ | (109,114 | ) | | $ | (111,506 | ) | | $ | (109,789 | ) | | Level 2 |
Non-financial assets measured at fair value on a non-recurring basis primarily include real estate assets assets held for sale, goodwill and intangible assets, which are measured for impairment.
In 2017, we recognized a non-cash impairment charge of $37,900,000 related to goodwill attributable to our mineral resources reporting unit as a result of selling our remaining owned mineral assets. We recognized non-cash impairment charges of $5,852,000 related to our non-core water assets in central Texas and Georgia and $420,000 related to a non-core mitigation project in Georgia. We also recorded a non-cash impairment charge of $3,000,000 related to the asset group to be disposed of in the strategic asset sale to Starwood on February 8, 2018. We based the valuations of our water assets and mitigation project primarily on past and current negotiations with expected buyers.
In 2016, we recognized non-cash impairment charges of $56,453,000 related to six non-core community development projects and two multifamily sites as a result of the review of our entire portfolio of assets and marketing these properties for sale, of which four non-core community development projects and one multifamily site were sold in 2016. We based our valuations primarily on executed purchase and sale agreements, current negotiations and letters of intent with expected buyers and third party broker price opinions. In 2016, we recognized non-cash impairment charges of $612,000 related to non-core oil and gas working interest properties that were sold in 2016.
Non-financial assets measured at fair value on a non-recurring basis are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year-End 2017 | | Year-End 2016 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| (In thousands) |
Non-financial Assets and Liabilities: | | | | | | | | | | | | | | |
Real estate held for sale | $ | — |
| | $ | 180,247 |
| | $ | — |
| | $ | 180,247 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Central Texas water assets | $ | — |
| | $ | — |
| | $ | 1,987 |
| | $ | 1,987 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | |
Note 12 — Capital Stock
On October 5, 2017, our stockholders received New Forestar Common Stock in connection with the Merger. Please see Note 3 — Merger for additional information.
On December 15, 2016, we issued 7,857,000 shares of our common stock upon settlement of the stock purchase contract related to the 6.00% tangible equity units. In 2016, we repurchased 283,976 shares of our common stock for $3,537,000. We have repurchased 3,777,308 shares of our common stock for $57,696,000 since we announced our 2009 strategic initiative of
repurchasing up to 20 percent or up to 7,000,000 shares of our common stock. The foregoing purchase authorization terminated upon closing of the Merger with D.R. Horton on October 5, 2017.
Note 13 — Net Income (Loss) per Share
Basic and diluted earnings (loss) per share are computed using the treasury stock method in 2017 and the two-class method for 2016 and 2015. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security. We previously determined that our 6.00% tangible equity units issued in 2013 were participating securities. Per share amounts are computed by dividing earnings available to common shareholders by the weighted average shares outstanding during each period. In periods with a net loss, no such adjustment is made to earnings as the holders of the participating securities have no obligation to fund losses.
The computations of basic and diluted earnings (loss) per share are as follows:
|
| | | | | | | | | | | |
| For the Year |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Numerator: | | | | | |
Continuing operations | | | | | |
Net income (loss) from continuing operations | $ | 6,301 |
| | $ | 77,044 |
| | $ | (26,241 | ) |
Less: Net (income) attributable to noncontrolling interest | (2,078 | ) | | (1,531 | ) | | (676 | ) |
Earnings (loss) available for diluted earnings per share | $ | 4,223 |
| | $ | 75,513 |
| | $ | (26,917 | ) |
Less: Undistributed net income from continuing operations allocated to participating securities | — |
| | (13,493 | ) | | — |
|
Earnings (loss) from continuing operations available to common shareholders for basic earnings per share | $ | 4,223 |
| | $ | 62,020 |
| | $ | (26,917 | ) |
| | | | | |
Discontinued operations | | | | | |
Net income (loss) from discontinued operations available for diluted earnings per share | 46,031 |
| | (16,865 | ) | | (186,130 | ) |
Less: Undistributed net income from discontinued operations allocated to participating securities | — |
| | 3,014 |
| | — |
|
Earnings (loss) from discontinued operations available to common shareholders for basic earnings per share | 46,031 |
| | (13,851 | ) | | (186,130 | ) |
Denominator: | | | | | |
Weighted average common shares outstanding — basic | 42,143 |
| | 34,546 |
| | 34,266 |
|
Weighted average common shares upon conversion of participating securities (a) | — |
| | 7,515 |
| | — |
|
Dilutive effect of stock options, restricted stock and equity-settled awards | 238 |
| | 273 |
| | — |
|
Total weighted average shares outstanding — diluted | 42,381 |
| | 42,334 |
| | 34,266 |
|
Anti-dilutive awards excluded from diluted weighted average shares outstanding | 1,093 |
| | 2,102 |
| | 10,864 |
|
_____________________
| |
(a)
| Our earnings per share calculation reflects the weighted average shares issuable upon settlement of the prepaid stock purchase contract component of our 6.00% tangible equity units. |
On December 15, 2016, we issued 7,857,000 shares of our common stock upon settlement of the stock purchase contract related to the 6.00% tangible equity units.
We intend to settle the principal amount of the Convertible Notes in cash upon conversion with any excess conversion value to be settled in shares of our common stock. Therefore, only the amount in excess of the par value of the Convertible Notes will be included in our calculation of diluted net income per share using the treasury stock method. As such, the Convertible Notes have no impact on diluted net income per share until the price of our common stock exceeds the conversion price of the Convertible Notes of $51.42. The price of our common stock in 2017 did not exceed the conversion price which resulted in no additional diluted outstanding shares.
Note 14 — Income Taxes
Income tax expense from continuing operations consists of:
|
| | | | | | | | | | | |
| For the Year |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Current tax provision: | | | | | |
U.S. Federal | $ | (44,177 | ) | | $ | (15,089 | ) | | $ | 6,740 |
|
State and other | (3,378 | ) | | (1,520 | ) | | (418 | ) |
| (47,555 | ) | | (16,609 | ) | | 6,322 |
|
Deferred tax provision: | | | | | |
U.S. Federal | 1,678 |
| | 1,382 |
| | (38,262 | ) |
State and other | 57 |
| | (75 | ) | | (3,191 | ) |
| 1,735 |
| | 1,307 |
| | (41,453 | ) |
Income tax expense | $ | (45,820 | ) | | $ | (15,302 | ) | | $ | (35,131 | ) |
A reconciliation of the federal statutory rate to the effective income tax rate on continuing operations follows:
|
| | | | | | | | |
| For the Year |
| 2017 | | 2016 | | 2015 |
Federal statutory rate (benefit) | 35 | % | | 35 | % | | 35 | % |
State, net of federal benefit | 3 |
| | — |
| | 10 |
|
Valuation allowance | (42 | ) | | (19 | ) | | 348 |
|
Tax rate change due to new tax act | 40 |
| | — |
| | — |
|
Noncontrolling interests | (1 | ) | | (1 | ) | | (3 | ) |
Installment sale ace adjustment | — |
| | 2 |
| | — |
|
Stock based compensation | 11 |
| | — |
| | 5 |
|
Goodwill | 25 |
| | — |
| | — |
|
Merger costs | 18 |
| | — |
| | — |
|
Oil and gas percentage depletion | — |
| | — |
| | (1 | ) |
Other | (1 | ) | | — |
| | 1 |
|
Effective tax rate | 88 | % | | 17 | % | | 395 | % |
The effective tax rate for all years includes an expense for state income taxes and non-deductible expenses, reduced by a tax benefit related to noncontrolling interests. The effective tax rate for 2017 also includes an expense for non-deductible goodwill related to the sale of our owned mineral assets and non-deductible transaction costs related to the Merger with D.R. Horton. Other 2017 differences, including the remeasurement of our deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act ("Tax Act"), are fully offset by a change in our valuation allowance. The effective tax rate for 2016 includes a change in valuation allowance due to a decrease in our deferred tax assets. The effective rate for 2015 includes the establishment of a valuation allowance against our deferred tax assets.
Significant components of deferred taxes are:
|
| | | | | | | |
| At Year-End |
| 2017 | | 2016 |
| (In thousands) |
Deferred Tax Assets: | | | |
Real estate | $ | 37,513 |
| | $ | 50,759 |
|
Employee benefits | 1,510 |
| | 13,185 |
|
Net operating loss carryforwards | 2,305 |
| | 2,804 |
|
Oil and gas properties | — |
| | 1,672 |
|
AMT credits | 1,690 |
| | 5,900 |
|
Income producing properties | 794 |
| | 2,055 |
|
Oil and gas percentage depletion carryforwards | — |
| | 3,478 |
|
Accruals not deductible until paid | 196 |
| | 552 |
|
Gross deferred tax assets | 44,008 |
| | 80,405 |
|
Valuation allowance | (39,578 | ) | | (73,405 | ) |
Deferred tax asset net of valuation allowance | 4,430 |
| | 7,000 |
|
Deferred Tax Liabilities: | | | |
Undeveloped land | — |
| | (1,359 | ) |
Convertible debt | (2,402 | ) | | (5,035 | ) |
Timber | — |
| | (283 | ) |
Gross deferred tax liabilities | (2,402 | ) | | (6,677 | ) |
Net Deferred Tax Asset (Liability) | $ | 2,028 |
| | $ | 323 |
|
The Tax Act was enacted on December 22, 2017, and reduced the federal corporate tax rate from 35 percent to 21 percent for all corporations effective January 1, 2018. ASC 740 requires companies to reflect the effects of a tax law change in the period in which the law is enacted. Accordingly, we have remeasured our deferred tax assetsCompany reviews for indicators of potential impairment and liabilities along with the corresponding valuation allowance asperforms impairment evaluations when necessary.
On October 5, 2017, D.R. Horton acquired 75 percent of our common stock resulting in an ownership change under Section 382. Section 382 limits our ability to use certain tax attributes and built-in losses and deductions in a given year. Any tax attributes or built-in losses and deductions that are limited in the current year are expected to be fully utilized in future years.
At year-end 2017, we had approximately $9,200,000 and $69,200,000 of federal and state net operating loss carryforwards, which include certain recognized built-in losses that are deferred under Section 382. These carryforwards are subject to a full valuation allowance and $45,600,000 of the state carryforwards are attributable to states in which we are not currently doing business due to our exit from the oil and gas business. If not utilized, the federal carryforwards will expire in 2037 and the state carryforwards will expire in 2020 to 2037. We had approximately $1,690,000 of AMT credit carryforwards which are refundable over the next four years if not used to offset current taxes.FORESTAR GROUP INC.
At year-end 2017 and 2016, we have provided a valuation allowance for our deferred tax asset of $39,578,000 and $73,405,000 for the portion of the deferred tax asset that is more likely than not to be unrealizable. The decrease in the valuation allowance for the year was primarily attributable to the remeasurement of deferred tax assets and liabilities as a result of the tax rate decrease from the Tax Act.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In determining our valuation allowance, we assessed available positive and negative evidence to estimate whether sufficient future taxable income would be generated to permit use of the existing deferred tax asset. A significant piece of objective evidence was the cumulative loss incurred over the three-year period ended December 31, 2017, principally driven by impairments of oil and gas and real estate assets. Such evidence limited our ability to consider other subjective evidence, such as our projected future taxable income.
The amount of deferred tax asset considered realizable could be adjusted if negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence, such as our projected future taxable income.
We file income tax returns in the U.S. and in various state jurisdictions. All federal statutes of limitations for tax years prior to 2012 are closed. As a result of filing refund claims for the 2012 through 2014 tax years for carrybacks from the 2015 tax year, the Internal Revenue Service (“IRS”) initiated and completed an audit of our 2012 through 2015 tax years during 2017 resulting in no change to our tax liability. As a result, the IRS cannot re-open the 2012 through 2015 tax years for audit unless they identify an issue that meets the criteria for re-opening an audit under Section 5 of Rev. Proc. 2005-32. We believe there are no such issues in our 2012 through 2015 tax years that meet this criteria and, therefore, we believe the IRS will not re-open our 2012 through 2015 tax years for audit. We are no longer subject to state income tax examinations before 2013.
A reconciliation of the beginning and ending amount of tax benefits not recognized for book purposes is as follows:
|
| | | | | | | | | | | |
| At Year-End |
| (In thousands) |
| 2017 | | 2016 | | 2015 |
Balance at beginning of year | $ | 2,499 |
| | $ | — |
| | $ | — |
|
Increases (decreases) for tax positions of current year | — |
| | 2,499 |
| | — |
|
Decreases for dispositions and other | (1,449 | ) | | — |
| | — |
|
Balance at end of year | $ | 1,050 |
| | $ | 2,499 |
| | $ | — |
|
If the total amount of unrecognized tax benefits were recognized at year-end 2017, it would result in a $1,050,000 deferred tax asset and a corresponding tax benefit.
We recognize interest accrued related to unrecognized tax benefits in income tax expense. In 2017, 2016 and 2015, we recognized no interest related to unrecognized tax benefits. At year-end 2017 and 2016, we had no accrued interest or penalties.
Note 15 — Litigation and Environmental Contingencies
Litigation
We are involved in various legal proceedings that arise from time to time in the ordinary course of business and believe that adequate reserves have been established for any probable losses. We do not believe that the outcome of any of these proceedings should have a significant adverse effect on our financial position, long-term results of operations or cash flows. It is possible, however, that charges related to these matters could be significant to our results or cash flows in any one accounting period.
Environmental
Environmental remediation liabilities arise from time to time in the ordinary course of doing business, and we believe we have established adequate reserves for any probable losses that we can reasonably estimate. In 2016, we sold all but 25 of our 289 acres near Antioch, California, approximately 80 acres of which had not yet received a certificate of completion under the voluntary remediation program in which we were participating. The buyer of the former paper manufacturing sites assumed responsibility for environmental, remediation and monitoring activities, subject to limited exclusions, and obtained a $20,000,000, ten year pollution legal liability insurance policy naming us as an additional insured.
With the sale of our remaining oil and gas entities in third quarter 2017 we no longer have asset retirement obligations related to the abandonment and site restoration requirements that result from the acquisition, construction and development of oil and gas properties. At year-end 2016, we had accrued $1,155,000 related to potential environmental liabilities to plug and abandon certain oil and gas wells in Wyoming which is included in liabilities of discontinued operations.
Note 16 — Commitments and Other Contingencies
We lease facilities and equipment under non-cancelable long-term operating lease agreements. In addition, we have various obligations under other office space and equipment leases of less than one year. Rent expense on facilities and equipment, including amounts recorded as discontinued operations, was $2,101,000 in 2017, $1,923,000 in 2016 and $3,872,000 in 2015. Future minimum rental commitments under non-cancelable operating leases having an initial or remaining term in excess of one year are: 2018 — $1,313,000; 2019 — $208,000; 2020 — $180,000; 2021 — $61,000; 2022 — $0; and thereafter —$0.
We lease office space in Austin, Texas, as our corporate headquarters and in other locations in support of our business operations. The total remaining contractual obligations for these leases is $1,762,000.
In support of our core community development business, we have a $40,000,000 surety bond program that provides financial assurance to beneficiaries related to execution and performance of our land development business. At year-end 2017, there were $14,708,000 outstanding under this program.
Note 17 — Segment Information
We manage our operations through three business segments: real estate, mineral resources and other. Real estate secures entitlements and develops infrastructure on our lands for single-family residential and mixed-use communities, and manages our undeveloped land, commercial and income producing properties. Mineral resources managed our owned mineral assets. Other managed our timber, recreational leases and water resource assets.
We have divested all of our oil and gas working interest properties. As a result of this significant change in our operations, we have reported the results of operations and financial position of these assets as discontinued operations for all periods presented. In addition, we changed the name of the oil and gas segment to mineral resources to reflect the strategic shift from oil and gas working interest investments to owned mineral interests. We also changed the name of the other natural resources segment to other.
We evaluate performance based on segment earnings (loss) before unallocated items and income taxes. Segment earnings (loss) consist of operating income, equity in earnings (loss) of unconsolidated ventures, gain on sales of assets, interest income on loans secured by real estate and net (income) loss attributable to noncontrolling interests. Items not allocated to our business segments consist of general and administrative expense, share-based and long-term incentive compensation, gain on sale of strategic timberland, interest expense, loss on extinguishment of debt and other corporate non-operating income and expense. The accounting policies of the segments are the same as those described in Note 1 — Summary of Significant Accounting Policies. Our revenues are derived from our U.S. operations and all of our assets are located in the U.S. In 2017, one homebuilder accounted for $20,923,000 of our total real estate segment revenues. In 2016 and 2015, no single customer accounted for more than 10 percent of our total revenues, other than the customer associated with the sale of our Midtown Cedar Hill multifamily project in 2015.
|
| | | | | | | | | | | | | | | | | | | | |
| Real Estate | | Mineral Resources | | Other | | Items Not Allocated to Segments | | | Total |
| (In thousands) |
For the year or at year-end 2017 | | | | | | | | | | |
Revenues | $ | 112,746 |
| | $ | 1,502 |
| | $ | 74 |
| | $ | — |
| | | $ | 114,322 |
|
Depreciation, depletion and amortization | 131 |
| | 28 |
| | 25 |
| | 5,279 |
| | | 5,463 |
|
Equity in earnings of unconsolidated ventures | 16,500 |
| | 1,395 |
| | 4 |
| | — |
| | | 17,899 |
|
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc. | 47,281 |
| | 45,552 |
| | (6,393 | ) | | (36,397 | ) | (a) | | 50,043 |
|
Total assets | 386,222 |
| | — |
| | 3,346 |
| | 372,344 |
| | | 761,912 |
|
Investment in unconsolidated ventures | 64,579 |
| | — |
| | — |
| | — |
| | | 64,579 |
|
Capital expenditures | 52 |
| | 2,400 |
| | — |
| | — |
| | | 2,452 |
|
For the year or at year-end 2016 | | | | | | | | | | |
Revenues | $ | 190,273 |
| | $ | 5,076 |
| | $ | 1,965 |
| | $ | — |
| | | $ | 197,314 |
|
Depreciation, depletion and amortization | 976 |
| | 145 |
| | 352 |
| | 7,772 |
| | | 9,245 |
|
Equity in earnings of unconsolidated ventures | 5,778 |
| | 173 |
| | 172 |
| | — |
| | | 6,123 |
|
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc. | 121,420 |
| | 3,327 |
| | (4,625 | ) | | (29,307 | ) | (a) | | 90,815 |
|
Total assets (b) | 403,062 |
| | 38,907 |
| | 11,531 |
| | 279,694 |
| | | 733,194 |
|
Investment in unconsolidated ventures | 77,611 |
| | — |
| | — |
| | — |
| | | 77,611 |
|
Capital expenditures | 5,783 |
| | — |
| | 299 |
| | 56 |
| | | 6,138 |
|
For the year or at year-end 2015 | | | | | | | | | | |
Revenues | $ | 202,830 |
| | $ | 9,094 |
| | $ | 6,652 |
| | $ | — |
| | | $ | 218,576 |
|
Depreciation, depletion and amortization | 7,605 |
| | 383 |
| | 540 |
| | 8,166 |
| | | 16,694 |
|
Equity in earnings of unconsolidated ventures | 15,582 |
| | 275 |
| | 151 |
| | — |
| | | 16,008 |
|
Income (loss) before taxes from continuing operations attributable to Forestar Group Inc. | 67,678 |
| | 4,230 |
| | (608 | ) | | (63,086 | ) | (a) | | 8,214 |
|
Investment in unconsolidated ventures | 82,453 |
| | — |
| | — |
| | — |
| | | 82,453 |
|
Capital expenditures | 13,644 |
| | 59 |
| | 745 |
| | 242 |
| | | 14,690 |
|
_____________________
| |
(a)
| Items not allocated to segments consist of: |
|
| | | | | | | | | | | |
| For the Year |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
General and administrative expense | $ | (50,354 | ) | | $ | (18,274 | ) | | $ | (24,802 | ) |
Share-based and long-term incentive compensation expense | (7,201 | ) | | (4,425 | ) | | (4,474 | ) |
Gain on sale of assets | 28,674 |
| | 48,891 |
| | — |
|
Interest expense | (8,532 | ) | | (19,985 | ) | | (34,066 | ) |
Loss on extinguishment of debt, net | (611 | ) | | (35,864 | ) | | — |
|
Other corporate non-operating income | 1,627 |
| | 350 |
| | 256 |
|
| $ | (36,397 | ) | | $ | (29,307 | ) | | $ | (63,086 | ) |
| |
(b)
| Total assets excludes assets of discontinued operations of $14,000 and $104,967,000 in 2016 and 2015. |
Note 18 — Share-Based and Long-Term Incentive Compensation
Share-based and long-term incentive compensation expense consists of:
|
| | | | | | | | | | | |
| For the Year |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Cash-settled awards | $ | 634 |
| | $ | 717 |
| | $ | (3,127 | ) |
Equity-settled awards | 5,001 |
| | 2,444 |
| | 5,026 |
|
Restricted stock | — |
| | 22 |
| | (8 | ) |
Stock options | 1,008 |
| | 854 |
| | 2,355 |
|
Total share-based compensation | $ | 6,643 |
| | $ | 4,037 |
| | $ | 4,246 |
|
Deferred cash | 558 |
| | 388 |
| | 228 |
|
| $ | 7,201 |
| | $ | 4,425 |
| | $ | 4,474 |
|
Share-based and long-term incentive compensation expense is included in:
|
| | | | | | | | | | | |
| For the Year |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
General and administrative | $ | 6,177 |
| | $ | 3,323 |
| | $ | 2,451 |
|
Other operating | 1,024 |
| | 1,102 |
| | 2,023 |
|
| $ | 7,201 |
| | $ | 4,425 |
| | $ | 4,474 |
|
In 2017, share-based compensation expense included $4,349,000 in charges related to the acceleration of vesting and settlement of outstanding equity awards in connection with the Merger. Excluded from share-based compensation expense in the table above are fees earned by our previous directors in the amount of $449,000 for 2017, $725,000 for 2016 and $1,203,000 for 2015 for which they elected to defer payment until retirement in the form of share-settled units. These deferred fees were settled in 2017 as a result of the Merger. These expenses are included in general and administrative expense on our consolidated statements of income (loss).
Share-Based Compensation
The fair value of awards granted to retirement-eligible employees and expensed at the date of grant was $9,000 in 2017, $600,000 in 2016 and $517,000 in 2015. Unrecognized share-based compensation expense related to non-vested equity-settled awards was $1,424,000 at year-end 2017. The weighted average period over which this amount will be recognized is estimated to be four years. We did not capitalize any share-based compensation in 2017, 2016 or 2015.
In 2017 and 2016, we issued 322,586 and 300,491 shares out of our treasury stock associated with vesting of stock-based awards or exercise of stock options, net of 75,870 and 25,082 shares withheld having a value of $981,000 and $222,000 for payroll taxes in connection with vesting of stock-based awards or exercise of stock options which are reflected in financing activities in our consolidated statements of cash flows.
Cash-settled awards
Cash-settled awards granted to our employees in the form of restricted stock units or stock appreciation rights generally vest over three to five years from the date of grant and generally provide for accelerated vesting upon death, disability or if there is a change in control. Cash-settled stock appreciation rights have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. Stock appreciation rights are granted with an exercise price equal to the market value of our stock on the date of grant.
Cash-settled awards granted to our directors in the form of restricted stock units are fully vested at the time of grant and payable upon retirement.
The following table summarizes the activity of cash-settled restricted stock unit awards in 2017:
|
| | | | |
| Equivalent Units | | Weighted Average Grant Date Fair Value |
| (In thousands) | | (Per unit) |
Non-vested at beginning of period | 42 |
| | $14.98 |
Granted | — |
| | — |
Vested | (30 | ) | | 15.66 |
Forfeited | (12 | ) | | 13.15 |
Non-vested at end of period | — |
| | — |
The weighted average grant date fair value of cash-settled restricted stock unit awards was $13.26 per unit for 2015. The fair value of cash-settled restricted stock unit awards settled was $2,178,000 in 2017, $1,195,000 in 2016, and $2,469,000 in 2015.
The following table summarizes the activity of cash-settled stock appreciation rights in 2017:
|
| | | | | | | | |
| Rights Outstanding | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value (Current Value Less Exercise Price) |
| (In thousands) | | (Per share) | | (In years) | | (In thousands) |
Balance at beginning of period | 374 |
| | $12.97 | | 3 | | $773 |
Granted | — |
| | — | | | | |
Exercised | (234 | ) | | 10.14 | | | | |
Forfeited | (140 | ) | | 17.69 | | | | |
Balance at end of period | — |
| | — | | 0 | | — |
Exercisable at end of period | — |
| | — | | 0 | | — |
The intrinsic value of cash-settled stock appreciation rights settled was $1,581,000 in 2017, $154,000 in 2016 and $206,000 in 2015.
The fair value of accrued cash-settled awards at year-end 2017 was $0 since all outstanding equity awards were accelerated as a result of the Merger and $1,758,000 at year-end 2016 and was included in other liabilities in our consolidated balance sheets.
Equity-settled awards
Equity-settled awards granted to our employees and directors include restricted stock units (RSU), which vest after three years for directors and five years for employees from the date of grant, market-leveraged stock units (MSU), which vest after three years from date of grant and performance stock units (PSU), which generally vest after three years from the date of grant if certain performance goals are met. The following table summarizes the activity of equity-settled awards in 2017:
|
| | | | | | |
| Equivalent Units | | Weighted Average Grant Date Fair Value |
| (In thousands) | | (Per unit) |
Non-vested at beginning of period | 555 |
| | $ | 14.70 |
|
Granted | 198 |
| | 14.55 |
|
Vested | (653 | ) | | 14.28 |
|
Forfeited | (14 | ) | | 14.59 |
|
Non-vested at end of period | 86 |
| | 17.54 |
|
In 2017 and 2016, we granted 198,000 and 313,000 RSU awards. The grant date fair value was based on the market value of the stock on the date of the grant. In 2015, we granted 234,000 MSU awards. The vesting of these awards was accelerated in accordance with their terms upon change in control of the company and settled in cash in 2017 in connection with the Merger. We estimated the grant date fair value of MSU awards using a Monte Carlo simulation pricing model and the following assumptions: |
| | | | |
| | For the Year |
| | 2015 |
Expected stock price volatility | | 32.9 | % |
Risk-free interest rate | | 1.0 | % |
Expected dividend yield | | — | % |
Weighted average grant date fair value of MSU awards (per unit) | | $ | 15.11 |
|
The weighted average grant date fair value of equity-settled awards (RSU, MSU and PSU) per unit in 2017, 2016 and 2015 was $14.55, $9.04 and $12.99. The fair value of equity-settled awards settled was $14,894,000, $2,884,000 and $4,451,000 in 2017, 2016 and 2015.
Stock options
Stock options have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. All options have been granted with an exercise price equal to the market value of our stock on the date of grant. In the first quarter of 2016, stock options were issued to each of two new directors to acquire 20,000 shares of common stock of which 6,500 shares vest on the first and second anniversary of the date of grant and the remaining 7,000 shares vest on the third anniversary of the date of grant. Expense associated with annual restricted stock units and non-qualified stock options to our board of directors is included in share-based compensation expense. The following table summarizes the activity of stock option awards in 2017:
|
| | | | | | | | | | | | | |
| Options Outstanding | | Weighted Average Exercise or Settlement Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value (Current Value Less Exercise Price) |
| (In thousands) | | (Per share) | | (In years) | | (In thousands) |
Balance at beginning of period | 1,836 |
| | $ | 19.39 |
| | 5 |
| | $ | 449 |
|
Granted | — |
| | — |
| | | | |
Exercised or settled in merger | (768 | ) | | 14.07 |
| | | | |
Forfeited | (1,068 | ) | | 23.21 |
| | | | |
Balance at end of period | — |
| | — |
| | — |
| | — |
|
Exercisable at end of period | — |
| | — |
| | — |
| | — |
|
We estimated the grant date fair value of stock options using the Black-Scholes option pricing model and the following assumptions:
|
| | | | | | | | |
| | For the Year |
| | 2016 | | 2015 |
Expected stock price volatility | | 39.5 | % | | 45.6 | % |
Risk-free interest rate | | 1.5 | % | | 1.8 | % |
Expected life of options (years) | | 6 |
| | 6 |
|
Expected dividend yield | | — | % | | — | % |
Weighted average grant date fair value of options (per share) | | $ | 8.60 |
| | $ | 6.51 |
|
We determine the expected life using the simplified method which utilizes the midpoint between the vesting period and the contractual life of the awards. The expected stock price volatility assumption was determined using a blend of historical and implied volatility.
The intrinsic value of options exercised was $2,603,000 in 2017, $61,000 in 2016 and $0 in 2015.
Long-Term Incentive Compensation
In 2017 and 2016, we granted $1,180,000 and $620,000 of long-term incentive compensation in the form of deferred cash compensation. The 2017 deferred cash awards vest annually over three years, and the 2016 deferred cash awards vest after two years. The 2016 award provides for accelerated vesting upon retirement, disability, death, or if there is a change in control. Expense associated with deferred cash awards is recognized ratably over the vesting period or earlier based on retirement eligibility or accelerated vesting under the change of control provision. The 2016 award and the first payment on the 2017 award were settled in cash based upon their terms in connection with the Merger.
Note 19 — Retirement Plans
Our defined contribution retirement plans include a 401(k) plan, which is funded, and a supplemental plan for certain employees, which is unfunded. The expense of our defined contribution retirement plans was $660,000 in 2017, $978,000 in 2016 and $1,060,000 in 2015. The unfunded liability for our supplemental plan was $374,000 at year-end 2017 and $334,000 at year-end 2016 and is included in other liabilities.
Note 20 — Supplemental Oil and Gas Disclosures (Unaudited)
The following unaudited information regarding our oil and gas reserves has been prepared and is presented pursuant to requirements of the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB).
As of year-end 2017, we had divested all of our oil and gas working interest properties. As a result of this significant change in our operations, we have reported the results of operations and financial position of these assets as discontinued operations within our consolidated statements of income (loss) and consolidated balance sheets for all periods presented. However, all information presented in this unaudited supplemental oil and gas disclosures footnote includes all oil and gas reserve estimates and results of operations. In addition, we have sold our remaining mineral assets and no longer own any oil and gas or mineral assets.
We engaged independent petroleum engineers, Netherland, Sewell & Associates, Inc., to assist in preparing estimates of our proved oil and gas reserves, all of which were located in the U.S., and future net cash flows as of year-end 2016 and 2015.
These estimates were based on the economic and operating conditions existing at year-end 2016 and 2015. Proved developed reserves are those quantities of petroleum from existing wells and facilities, which by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward for known reservoirs and under defined economic conditions, operating methods and government regulations.
For 2016 and 2015, the primary internal technical person in charge of overseeing our reserves estimates had a Bachelor of Science in Physics and Mathematics and a Master's of Science in Civil Engineering. He had over 40 years of domestic and international experience in the exploration and production business including 40 years of reserve evaluations. He had been a registered Professional Engineer for over 25 years.
As part of our internal control over financial reporting, for 2016 and 2015 we had a process for reviewing well production data and division of interest percentages prior to submitting well level data to NSAI to assist us in preparing reserve estimates. Our primary internal technical person and other members of management reviewed the reserve estimates prepared by NSAI, including the underlying assumptions and estimates upon which they are based, for accuracy and reasonableness.
SEC rules require disclosure of proved reserves using the twelve-month average beginning-of-month price (which we refer to as the average price) for the year. These same average prices also were used in calculating the amount of (and changes in) future net cash inflows related to the standardized measure of discounted future net cash flows.
For 2016 and 2015, the average spot price per barrel of oil based on the West Texas Intermediate price was $42.75 and $50.28 and the average price per MMBTU of gas based on the Henry Hub spot was $2.48 and $2.59. All prices were then adjusted for quality, transportation fees and differentials.
The process of estimating proved reserves and future net cash flows is complex involving decisions and assumptions in evaluating the available engineering and geologic data and prices for oil and gas and the cost to produce these reserves and other factors, many of which are beyond our control. As a result, these estimates were imprecise and could be expected to change as future information became available.
Estimated Quantities of Proved Oil and Gas Reserves
Estimated quantities of proved oil and gas reserves are summarized as follows: |
| | | | | |
| Reserves |
| Oil (a) (Barrels) | | Gas (Mcf) |
| (In thousands) |
Consolidated entities: | | | |
Year-end 2014 | 7,672 |
| | 12,649 |
|
Revisions of previous estimates | (855 | ) | | (1,675 | ) |
Extensions and discoveries | 224 |
| | 173 |
|
Acquisitions | — |
| | — |
|
Sales | (704 | ) | | (1,223 | ) |
Production | (1,158 | ) | | (1,967 | ) |
Year-end 2015 | 5,179 |
| | 7,957 |
|
Revisions of previous estimates | (11 | ) | | 631 |
|
Extensions and discoveries | 29 |
| | — |
|
Acquisitions | — |
| | — |
|
Sales | (4,460 | ) | | (3,756 | ) |
Production | (291 | ) | | (996 | ) |
Year-end 2016 | 446 |
| | 3,836 |
|
Revisions of previous estimates | — |
| | — |
|
Extensions and discoveries | — |
| | — |
|
Acquisitions | — |
| | — |
|
Sales | (446 | ) | | (3,836 | ) |
Production | — |
| | — |
|
Year-end 2017 | — |
| | — |
|
Our share of ventures accounted for using the equity method: | | | |
Year-end 2014 | — |
| | 1,751 |
|
Revisions of previous estimates | — |
| | (320 | ) |
Production | — |
| | (168 | ) |
Year-end 2015 | — |
| | 1,263 |
|
Revisions of previous estimates | — |
| | 79 |
|
Production | — |
| | (143 | ) |
Year-end 2016 | — |
| | 1,199 |
|
Sales | — |
| | (1,199 | ) |
Year-end 2017 | — |
| | — |
|
Total consolidated and our share of equity method ventures: | | | |
Year-end 2015 | | | |
Proved developed reserves | 5,179 |
| | 9,220 |
|
Proved undeveloped reserves | — |
| | — |
|
Total Year-end 2015 | 5,179 |
| | 9,220 |
|
Year-end 2016 | | | |
Proved developed reserves | 446 |
| | 5,035 |
|
Proved undeveloped reserves | — |
| | — |
|
Total Year-end 2016 | 446 |
| | 5,035 |
|
Year-end 2017 | | | |
Proved developed reserves | — |
| | — |
|
Proved undeveloped reserves | — |
| | — |
|
Total Year-end 2017 | — |
| | — |
|
_____________________
| |
(a)
| Includes natural gas liquids (NGLs). |
We did not have any estimated reserves or wells with production of synthetic oil, synthetic gas or products of other non-renewable natural resources that are intended to be upgraded into synthetic oil and gas as of year-end 2017, 2016 or 2015.
In 2017, we sold oil and gas wells located primarily in Texas and Louisiana. Our net reserves for those properties as of year-end 2016 were 446,000 barrels of oil and 5,035,000 Mcf of gas.
In 2016, we sold oil and gas wells located primarily in Oklahoma, Kansas, Nebraska and North Dakota. Our net reserves for those properties as of year-end 2015 less our share of 2016 production were 4,155,000 barrels of oil, 305,000 barrels of NGL, and 3,756,000 Mcf of gas. Oklahoma properties sold were mainly mature gas wells. Kansas and Nebraska produce oil from the Lansing/Kansas City formation. The North Dakota oil wells produce from the Bakken/Three Forks formation.
In 2015, oil and gas properties having reserves consisting of approximately 704,000 barrels of oil and 1,223,000 Mcf of gas located primarily in the Texas Panhandle and Bakken/Three Forks formations were sold. Due to the significant decline in oil and gas prices during 2015, net negative revisions of previous estimates were 855,000 barrels of oil and 1,995,000 Mcf of gas. At year-end 2015, we had no barrels of oil equivalent (BOE) of proved undeveloped (PUD) reserves based on our plan to exit non-core oil and gas working interest assets compared with 2,703,000 BOE of PUD reserves at year-end 2014.
In 2016 and 2015, reserve additions from new wells drilled and completed during the year are shown for both consolidated entities and ventures accounted for using the equity method under extensions and discoveries. There were no new well additions in 2017, no new well additions in 2016 and 36 new well additions in 2015.
Capitalized Costs Relating to Oil and Gas Producing Activities
Capitalized costs related to our oil and gas producing activities classified as assets held for sale at year-end 2016 are as follows:
|
| | | | | | | |
| At Year-End |
| 2017 | | 2016 |
| (In thousands) |
Consolidated entities: | | | |
Unproved oil and gas properties | $ | — |
| | $ | 374 |
|
Proved oil and gas properties | — |
| | 5,159 |
|
Total costs | — |
| | 5,533 |
|
Less accumulated depreciation, depletion and amortization | — |
| | (4,751 | ) |
| $ | — |
| | $ | 782 |
|
We have not capitalized any costs for our share in ventures accounted for using the equity method.
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development
Costs incurred in oil and gas property acquisition, exploration and development activities, whether capitalized or expensed, follows:
|
| | | | | | | | | | | |
| For the Year |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Consolidated entities: | | | | | |
Acquisition costs | | | | | |
Proved properties | $ | — |
| | $ | — |
| | $ | — |
|
Unproved properties | — |
| | 15 |
| | 4,832 |
|
Exploration costs | — |
| | 21 |
| | 17,922 |
|
Development costs | — |
| | 537 |
| | 27,609 |
|
| $ | — |
| | $ | 573 |
| | $ | 50,363 |
|
We have not incurred any costs for our share in ventures accounted for using the equity method. In 2015, acquisition of leasehold interests, exploration expenses, and development costs have decreased as a result of our increased focus on exiting and selling our leasehold working interests.
Drilling and Other Exploratory and Development Activities
The following tables set forth the number of gross and net oil and gas wells in which we participated:
|
| | | | | | | | | | | | | | | | | | | | | |
Gross Wells |
| | | | Exploratory | | Development |
Year | | Total | | Oil | | Gas | | Dry | | Oil | | Gas | | Dry |
2017 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
2016 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
2015 (a) | | 38 |
| | 2 |
| | — |
| | 1 |
| | 34 |
| | — |
| | 1 |
|
_____________________
| |
(a)
| Of the gross wells drilled in 2015, we operated 3 wells or 8 percent. The remaining wells represent our participations in wells operated by others. The exploratory dry hole was located in Oklahoma. |
|
| | | | | | | | | | | | | | | | | | | | | |
Net Wells |
| | | | Exploratory | | Development |
Year | | Total | | Oil | | Gas | | Dry | | Oil | | Gas | | Dry |
2017 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
2016 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
2015 | | 6.3 |
| | 0.7 |
| | — |
| | 0.8 |
| | 4.3 |
| | — |
| | 0.5 |
|
Present Activities
None.
Delivery Commitments
We have no oil or gas delivery commitments.
Wells and Acreage
We had no interest in any productive wells as of year-end 2017.
At year-end 2017, 2016 and 2015, we had royalty interests in 0, 473 and 534 gross wells. In addition, at year-end 2017, 2016 and 2015, we had working interests in 0, 32 and 400 gross wells.
Standardized Measure of Discounted Future Net Cash Flows
Estimates of future cash flows from proved oil and gas reserves are shown in the following table. Estimated income taxes are calculated by applying the appropriate tax rates to the estimated future pre-tax net cash flows less depreciation of the tax basis of properties and the statutory depletion allowance.
|
| | | | | | | | | | | |
| At Year-End |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Consolidated entities: | | | | | |
Future cash inflows | $ | — |
| | $ | 24,304 |
| | $ | 216,588 |
|
Future production and development costs | — |
| | (2,988 | ) | | (93,623 | ) |
Future income tax expenses | — |
| | (3,926 | ) | | (22,218 | ) |
Future net cash flows | — |
| | 17,390 |
| | 100,747 |
|
10% annual discount for estimated timing of cash flows | — |
| | (7,077 | ) | | (33,951 | ) |
Standardized measure of discounted future net cash flows | $ | — |
| | $ | 10,313 |
| | $ | 66,796 |
|
Our share in ventures accounted for using the equity method: | | | | | |
Future cash inflows | $ | — |
| | $ | 2,010 |
| | $ | 2,283 |
|
Future production and development costs | — |
| | (216 | ) | | (245 | ) |
Future income tax expenses | — |
| | (537 | ) | | (774 | ) |
Future net cash flows | — |
| | 1,257 |
| | 1,264 |
|
10% annual discount for estimated timing of cash flows | — |
| | (585 | ) | | (562 | ) |
Standardized measure of discounted future net cash flows | $ | — |
| | $ | 672 |
| | $ | 702 |
|
Total consolidated and our share of equity method ventures | $ | — |
| | $ | 10,985 |
| | $ | 67,498 |
|
Future net cash flows were computed using prices used in estimating proved oil and gas reserves, year-end costs, and statutory tax rates (adjusted for tax deductions) that relate to proved oil and gas reserves.
Changes in the standardized measure of discounted future net cash flow follows:
|
| | | | | | | | | | | |
| For the Year |
| Consolidated | | Our Share of Equity Method Ventures | | Total |
| (In thousands) |
Year-end 2014 | $ | 163,841 |
| | $ | 1,775 |
| | $ | 165,616 |
|
Changes resulting from: | | | | | |
Net change in sales prices and production costs | (136,536 | ) | | (1,112 | ) | | (137,648 | ) |
Net change in future development costs | 92 |
| | — |
| | 92 |
|
Sales of oil and gas, net of production costs | (31,732 | ) | | (428 | ) | | (32,160 | ) |
Net change due to extensions and discoveries | 11,747 |
| | — |
| | 11,747 |
|
Net change due to acquisition of reserves | — |
| | — |
| | — |
|
Net change due to divestitures of reserves | (15,855 | ) | | — |
| | (15,855 | ) |
Net change due to revisions of quantity estimates | (15,164 | ) | | (267 | ) | | (15,431 | ) |
Previously estimated development costs incurred | 15,096 |
| | — |
| | 15,096 |
|
Accretion of discount | 22,600 |
| | 286 |
| | 22,886 |
|
Net change in timing and other | 4,018 |
| | (210 | ) | | 3,808 |
|
Net change in income taxes | 48,689 |
| | 658 |
| | 49,347 |
|
Aggregate change for the year | (97,045 | ) | | (1,073 | ) | | (98,118 | ) |
Year-end 2015 | 66,796 |
| | 702 |
| | 67,498 |
|
Changes resulting from: | | | | | |
Net change in sales prices and production costs | (3,585 | ) | | (60 | ) | | (3,645 | ) |
Net change in future development costs | — |
| | — |
| | — |
|
Sales of oil and gas, net of production costs | (5,663 | ) | | (208 | ) | | (5,871 | ) |
Net change due to extensions and discoveries | 410 |
| | — |
| | 410 |
|
Net change due to acquisition of reserves | — |
| | — |
| | — |
|
Net change due to divestitures of reserves | (63,535 | ) | | — |
| | (63,535 | ) |
Net change due to revisions of quantity estimates | 1,304 |
| | 63 |
| | 1,367 |
|
Previously estimated development costs incurred | — |
| | — |
| | — |
|
Accretion of discount | 2,992 |
| | 113 |
| | 3,105 |
|
Net change in timing and other | (128 | ) | | (80 | ) | | (208 | ) |
Net change in income taxes | 11,722 |
| | 142 |
| | 11,864 |
|
Aggregate change for the year | (56,483 | ) | | (30 | ) | | (56,513 | ) |
Year-end 2016 | 10,313 |
| | 672 |
| | 10,985 |
|
Changes resulting from: | | | | | |
Net change in sales prices and production costs | — |
| | — |
| | — |
|
Net change in future development costs | — |
| | — |
| | — |
|
Sales of oil and gas, net of production costs | — |
| | — |
| | — |
|
Net change due to extensions and discoveries | — |
| | — |
| | — |
|
Net change due to acquisition of reserves | — |
| | — |
| | — |
|
Net change due to divestitures of reserves | (10,313 | ) | | (672 | ) | | (10,985 | ) |
Net change due to revisions of quantity estimates | — |
| | — |
| | — |
|
Previously estimated development costs incurred | — |
| | — |
| | — |
|
Accretion of discount | — |
| | — |
| | — |
|
Net change in timing and other | — |
| | — |
| | — |
|
Net change in income taxes | — |
| | — |
| | — |
|
Aggregate change for the year | (10,313 | ) | | (672 | ) | | (10,985 | ) |
Year-end 2017 | $ | — |
| | $ | — |
| | $ | — |
|
Results of Operations for Oil and Gas Producing Activities
Our royalty interests were contractually defined and based on a percentage of production at prevailing market prices. We received our percentage of production in cash. Similarly, for operating properties our working interests and the associated net revenue interests were contractually defined and we paid our proportionate share of the capital and operating costs to develop and operate the well and we marketed our share of the production. Our revenues fluctuated based on changes in the market prices for oil and gas, the decline in production from existing wells, and other factors affecting oil and gas exploration and production activities, including the cost of development and production.
Information about the results of operations of our oil and gas interests follows:
|
| | | | | | | | | | | |
| For the Year |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Consolidated entities | | | | | |
Revenues | $ | 1,399 |
| | $ | 10,111 |
| | $ | 51,553 |
|
Production costs | (209 | ) | | (4,392 | ) | | (19,820 | ) |
Exploration costs | (34 | ) | | (124 | ) | | (11,864 | ) |
Depreciation, depletion, amortization | — |
| | (2,157 | ) | | (28,774 | ) |
Non-cash impairment of proved oil and gas properties and unproved leasehold interests | (224 | ) | | (612 | ) | | (164,831 | ) |
Oil and gas administrative expenses | (1,197 | ) | | (8,700 | ) | | (11,700 | ) |
Accretion expense | — |
| | (56 | ) | | (144 | ) |
Income tax (expense) benefit | (7 | ) | | (20 | ) | | 14,717 |
|
Results of operations | (272 | ) | | (5,950 | ) | | (170,863 | ) |
Our share in ventures accounted for using the equity method: | | | | | |
Revenues | $ | 100 |
| | $ | 284 |
| | $ | 428 |
|
Production costs | (19 | ) | | (76 | ) | | (102 | ) |
Oil and gas administrative expenses | (2 | ) | | (35 | ) | | (51 | ) |
Income tax (expense) benefit | — |
| | — |
| | 21 |
|
Results of operations | $ | 79 |
| | $ | 173 |
| | $ | 296 |
|
Total results of operations | $ | (193 | ) | | $ | (5,777 | ) | | $ | (170,567 | ) |
Production costs represent our share of oil and gas production severance taxes, and lease operating expenses. Exploration costs principally represent exploratory dry hole costs, geological and geophysical and seismic study costs.
Note 21 — Summary of Quarterly Results of Operations (Unaudited)
Summarized
Consolidated quarterly financial results for 2017 and 2016 follows:
|
| | | | | | | | | | | | | | | |
| First Quarter (a) | | Second Quarter (a) | | Third Quarter (a) | | Fourth Quarter (a) |
| (In thousands, except per share amounts) |
2017 | | | | | | | |
Total revenues | $ | 22,305 |
| | $ | 28,015 |
| | $ | 33,136 |
| | $ | 30,866 |
|
Gross profit (loss) | (28,332 | ) | | 11,559 |
| | 11,251 |
| | 10,065 |
|
Operating income (loss) | 36,235 |
| | 6,965 |
| | 12,381 |
| | (15,816 | ) |
Equity in earnings of unconsolidated ventures | 6,362 |
| | 2,747 |
| | 1,764 |
| | 7,026 |
|
Income (loss) from continuing operations before taxes attributable to Forestar Group Inc. | 40,998 |
| | 8,120 |
| | 13,223 |
| | (12,298 | ) |
Income from discontinued operations, net of taxes | 418 |
| | 1,229 |
| | 37,193 |
| | 7,191 |
|
Net income (loss) attributable to Forestar Group Inc. | 25,205 |
| | (2,579 | ) | | 45,202 |
| | (17,574 | ) |
| | | | | | | |
Net income (loss) per share — basic | | | | | | | |
Continuing operations | $ | 0.59 |
| | $ | (0.09 | ) | | $ | 0.19 |
| | $ | (0.59 | ) |
Discontinued operations | $ | 0.01 |
| | $ | 0.03 |
| | $ | 0.88 |
| | $ | 0.17 |
|
Net income (loss) per share — basic | $ | 0.60 |
| | $ | (0.06 | ) | | $ | 1.07 |
| | $ | (0.42 | ) |
| | | | | | | |
Net income (loss) per share — diluted | | | | | | | |
Continuing operations | $ | 0.58 |
| | (0.09 | ) | | 0.19 |
| | $ | (0.58 | ) |
Discontinued operations | $ | 0.01 |
| | 0.03 |
| | 0.87 |
| | $ | 0.18 |
|
Net income (loss) per share — diluted | $ | 0.59 |
| | (0.06 | ) | | 1.06 |
| | $ | (0.40 | ) |
| | | | | | | |
2016 | | | | | | | |
Total revenues | $ | 37,618 |
| | $ | 47,992 |
| | $ | 47,207 |
| | $ | 64,497 |
|
Gross profit (loss) | 18,579 |
| | (24,953 | ) | | 17,403 |
| | 17,352 |
|
Operating income | 13,590 |
| | 69,528 |
| | 6,256 |
| | 50,980 |
|
Equity in earnings of unconsolidated ventures | 47 |
| | 188 |
| | 3,637 |
| | 2,251 |
|
Income from continuing operations before taxes attributable to Forestar Group Inc. | 5,992 |
| | 26,591 |
| | 7,163 |
| | 51,069 |
|
Income (loss) from discontinued operations, net of taxes | (8,216 | ) | | (2,048 | ) | | (7,164 | ) | | 563 |
|
Net income (loss) attributable to Forestar Group Inc. | (4,376 | ) | | 9,614 |
| | 9,665 |
| | 43,745 |
|
| | | | | | | |
Net income (loss) per share — basic | | | | | | | |
Continuing operations | $ | 0.11 |
| | $ | 0.28 |
| | $ | 0.40 |
| | $ | 1.03 |
|
Discontinued operations | $ | (0.24 | ) | | $ | (0.05 | ) | | $ | (0.17 | ) | | $ | 0.01 |
|
Net income (loss) per share — basic | $ | (0.13 | ) | | $ | 0.23 |
| | $ | 0.23 |
| | $ | 1.04 |
|
| | | | | | | |
Net income (loss) per share — diluted | | | | | | | |
Continuing operations | $ | 0.09 |
| | $ | 0.28 |
| | $ | 0.40 |
| | $ | 1.02 |
|
Discontinued operations | $ | (0.19 | ) | | $ | (0.05 | ) | | $ | (0.17 | ) | | $ | 0.01 |
|
Net income (loss) per share — diluted | $ | (0.10 | ) | | $ | 0.23 |
| | $ | 0.23 |
| | $ | 1.03 |
|
_____________________
(a)Non-cash impairment charges related to real estate, water assets and unproved leasehold interests and proved oil and gas properties included in our quarterly financial results are as follows: |
| | | | | | | | | | | | | | | |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| (In thousands) |
2017 |
|
| |
|
| |
|
| |
|
|
Continuing operations | $ | 37,900 |
| | $ | — |
| | $ | — |
| | $ | 9,272 |
|
Discontinued operations | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
2016 |
| |
| |
| |
|
Continuing operations | $ | — |
| | $ | 48,826 |
| | $ | 7,627 |
| | $ | 3,874 |
|
Discontinued operations | $ | — |
| | $ | 612 |
| | $ | — |
| | $ | — |
|
Note 22 — Subsequent Event
On February 8, 2018, we entered into and closed on a Purchase and Sale Agreement with Starwood Land, L.P. to sell 24 legacy projects for $232,000,000. This strategic asset sale included projects owned both directly and indirectly through ventures and consisted of approximately 750 developed and under development lots, over 4,000 future undeveloped lots (including all real estate associated with the Cibolo Canyons mixed-use development), 730 unentitled acres in California, an interest in one multifamily operating property and a multifamily development site. The agreement contains representations, warranties and indemnities customary for a real estate industry asset sale and includes certain adjustment provisions to the purchase price. The estimated total net proceeds after certain purchase price adjustments, closing costs and other costs associated with selling these projects is expected to be approximately $216,000,000.
At year-end 2017, we have recorded the estimated fair value of these assets on our balance sheet and as a result have recognized a non-cash impairment charge of $3,000,000 related to the asset group. The owned real estate projects are classified as assets held for sale and our equity interests in ventures continued to be classified as investment in unconsolidated ventures at year-end 2017. The non-cash impairment is included in cost of real estate sales and other on our consolidated statements of income (loss). This transaction is not expected to have a material impact on our fiscal 2018 pre-tax earnings but is expected to generate tax losses which are currently anticipated to substantially reduce our income tax expenseoperations for fiscal 2018.year 2021 and 2020 were (in millions, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal 2021 |
| 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
Total revenues | $ | 307.1 | | | $ | 287.1 | | | $ | 312.9 | | | $ | 418.7 | |
Income before income taxes | 29.2 | | | 37.6 | | | 21.1 | | | 58.8 | |
Income tax expense | 7.1 | | | 9.2 | | | 5.2 | | | 14.7 | |
Net income | 22.1 | | | 28.4 | | | 15.9 | | | 44.1 | |
Net income attributable to noncontrolling interests | 0.1 | | | — | | | 0.1 | | | 0.1 | |
Net income attributable to Forestar Group Inc. | 22.0 | | | 28.4 | | | 15.8 | | | 44.0 | |
| | | | | | | |
Net income per share — basic | $ | 0.46 | | | $ | 0.59 | | | $ | 0.32 | | | $ | 0.89 | |
Net income per share — diluted | $ | 0.46 | | | $ | 0.59 | | | $ | 0.32 | | | $ | 0.89 | |
| | | | | | | |
| Fiscal 2020 |
| 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
Total revenues | $ | 247.2 | | | $ | 159.1 | | | $ | 177.9 | | | $ | 347.6 | |
Income before income taxes | 22.2 | | | 13.7 | | | 10.3 | | | 32.0 | |
Income tax expense | 5.4 | | | 3.3 | | | 0.2 | | | 7.5 | |
Net income | 16.8 | | | 10.4 | | | 10.1 | | | 24.5 | |
Net (loss) income attributable to noncontrolling interests | (0.1) | | | 0.8 | | | — | | | 0.3 | |
Net income attributable to Forestar Group Inc. | 16.9 | | | 9.6 | | | 10.1 | | | 24.2 | |
| | | | | | | |
Net income per share — basic | $ | 0.35 | | | $ | 0.20 | | | $ | 0.21 | | | $ | 0.50 | |
Net income per share — diluted | $ | 0.35 | | | $ | 0.20 | | | $ | 0.21 | | | $ | 0.50 | |
59
Forestar Group Inc.
Schedule III — Consolidated Real Estate and Accumulated Depreciation
Year-End 2017
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount Carried at End of Period | | | | |
Description | Encumbrances | | Land | | Buildings & Improvements | | Improvements less Cost of Sales and Other | | Carrying Costs(a) | | Land & Land Improvements | | Buildings & Improvements | | Total | | Accumulated Depreciation | | Date of Construction | | Date Acquired |
Real Estate, Net | | | | | | | | | | | | | | | | | |
CALIFORNIA | | | | | | | | | | | | | | | | | | | | | |
Contra Costa County | | | | | | | | | | | | | | | | | | | | | |
San Joaquin River | | | 12,225 |
| | | | (10,558 | ) | | | | 1,667 |
| | | | 1,667 |
| | | | | | (b) |
COLORADO | | | | | | | | | | | | | | | | | | | | | |
Douglas County | | | | | | | | | | | | | | | | | | | | | |
Cielo | | | 3,933 |
| | | | 3,187 |
| | | | 7,120 |
| | | | 7,120 |
| | | | | | 2016 |
FLORIDA | | | | | | | | | | | | | | | | | | | | | |
Brevard County | | | | | | | | | | | | | | | | | | | | | |
The Preserves at Stonebriar | | | 3,002 |
| | | | 244 |
| | | | 3,246 |
| | | | 3,246 |
| | | | | | 2017 |
Manatee County | | | | | | | | | | | | | | | | | | | | | |
Palisades | | | 4,516 |
| | | | 370 |
| | | | 4,886 |
| | | | 4,886 |
| | | | | | 2017 |
Sarasota County | | | | | | | | | | | | | | | | | | | | | |
Fox Creek | | | 12,257 |
| | | | 742 |
| | | | 12,999 |
| | | | 12,999 |
| | | | | | 2017 |
GEORGIA | | | | | | | | | | | | | | | | | | | | | |
Cobb County | | | | | | | | | | | | | | | | | | | | | |
West Oaks | | | 1,669 |
| | | | 748 |
| | | | 2,417 |
| | | | 2,417 |
| | | | 2015 | | 2015 |
Gwinnett County | | | | | | | | | | | | | | | | | | | | | |
Independence | | | 15,937 |
| | | | 2,651 |
| | | | 18,588 |
| | | | 18,588 |
| | | | 2017 | | 2017 |
Paulding County | | | | | | | | | | | | | | | | | | | | | |
Harris Place | | | 265 |
| | | | (219 | ) | | | | 46 |
| | | | 46 |
| | | | | | 2012 |
Seven Hills | | | 2,964 |
| | | | 1,198 |
| | 61 |
| | 4,223 |
| | | | 4,223 |
| | | | | | 2012 |
NORTH CAROLINA | | | | | | | | | | | | | | | | | | | | | |
Cabbarrus County | | | | | | | | | | | | | | | | | | | | | |
Moss Creek | | | 1,254 |
| | | | 116 |
| | | | 1,370 |
| | | | 1,370 |
| | | | 2017 | | 2016 |
SOUTH CAROLINA | | | | | | | | | | | | | | | | | | | | | |
York County | | | | | | | | | | | | | | | | | | | | | |
Habersham | | | 3,877 |
| | | | (948 | ) | | 506 |
| | 3,435 |
| | | | 3,435 |
| | | | 2014 | | 2013 |
TENNESEE | | | | | | | | | | | | | | | | | | | | | |
Williamson County | | | | | | | | | | | | | | | | | | | | | |
Morgan Farms | | | 6,841 |
| | | | (4,168 | ) | | 225 |
| | 2,898 |
| | | | 2,898 |
| | | | 2013 | | 2013 |
Weatherford Estates | | | 856 |
| | | | (922 | ) | | 139 |
| | 73 |
| | | | 73 |
| | | | 2015 | | 2014 |
Wilson County | | | | | | | | | | | | | | | | | | | | | |
Beckwith Crossing | | | 1,294 |
| | | | 1,070 |
| | 275 |
| | 2,639 |
| | | | 2,639 |
| | | | 2015 | | 2014 |
| | | | | | | | | | | | | | | | | | | | | |
TEXAS | | | | | | | | | | | | | | | | | | | | | |
Calhoun County | | | | | | | | | | | | | | | | | | | | | |
Caracol |
|
| | 8,603 |
| | | | (8,025 | ) | |
|
| | 578 |
| | | | 578 |
| | | | 2006 | | 2006 |
Collin County | | | | | | | | | | | | | | | | | | | | | |
Lakes of Prosper | | | 8,951 |
| | | | (9,094 | ) | | 453 |
| | 310 |
| | | | 310 |
| | | | | | 2012 |
Parkside | | | 2,177 |
| | | | (1,937 | ) | | 307 |
| | 547 |
| | | | 547 |
| | | | 2014 | | 2013 |
Timber Creek | | | 7,282 |
| | | | 6,410 |
| | 212 |
| | 13,904 |
| | | | 13,904 |
| | | | 2007 | | 2007 |
Denton County | | | | | | | | | | | | | | | | | | | | | |
Lantana |
|
| | 27,673 |
| | | | (19,680 | ) | | 585 |
| | 8,578 |
| | | | 8,578 |
| | | | 2000 | | 1999 |
River's Edge | | | 1,227 |
| | | | 445 |
| | | | 1,672 |
| | | | 1,672 |
| | | | | | 2014 |
The Preserve at Pecan Creek | | | 5,855 |
| | | | (681 | ) | | 256 |
| | 5,430 |
| | | | 5,430 |
| | | | 2006 | | 2005 |
Fort Bend County | | | | | | | | | | | | | | | | | | | | | |
Southern Colony | | | 3,024 |
| | | | 4,090 |
| | | | 7,114 |
| | | | 7,114 |
| | | | | | 2017 |
Willow Creek Farms | 290 |
| | 3,479 |
| | | | (1,741 | ) | | 60 |
| | 1,798 |
| | | | 1,798 |
| | | | 2012 | | 2012 |
Harris County | | | | | | | | | | | | | | | | | | | | | |
City Park |
|
| | 3,946 |
| | | | (3,794 | ) | | 229 |
| | 381 |
| | | | 381 |
| | | | 2002 | | 2001 |
Imperial Forest | | | 5,345 |
| | | | (634 | ) | | 5 |
| | 4,716 |
| | | | 4,716 |
| | | | 2015 | | 2014 |
Kaufman County | | | | | | | | | | | | | | | | | | | | | |
Lakewood Trails | | | 8,009 |
| | | | 340 |
| | | | 8,349 |
| | | | 8,349 |
| | | | | | 2017 |
Tarrant County | | | | | | | | | | | | | | | | | | | | | |
Summer Creek Ranch | | | 2,887 |
| | | | (1,651 | ) | | | | 1,236 |
| | | | 1,236 |
| | | | | | 2012 |
The Bar C Ranch | | | 1,365 |
| | | | 3,623 |
| | 430 |
| | 5,418 |
| | | | 5,418 |
| | | | | | 2012 |
Other | | | — |
| | | | 4,742 |
| | — |
| | 4,742 |
| | | | 4,742 |
| | | | | | |
Total Real Estate, Net | $ | 290 |
| | $ | 160,713 |
| | $ | — |
| | $ | (34,076 | ) | | $ | 3,743 |
| | $ | 130,380 |
| | $ | — |
| | $ | 130,380 |
| | $ | — |
| | | | |
| | | | | | | | | | | | | | | | | | | | | |
Real Estate Held for Sale (c) | | | | | | | | | | | | | | | | | | | | | |
CALIFORNIA | | | | | | | | | | | | | | | | | | | | | |
Los Angeles County | | | | | | | | | | | | | | | | | | | | | |
Land In Entitlement Process | | | $ | 3,950 |
| | | | $ | 21,752 |
| | | | $ | 25,702 |
| | | | $ | 25,702 |
| | | | | | 1997 |
COLORADO | | | | | | | | | | | | | | | | | | | | | |
Douglas County | | | | | | | | | | | | | | | | | | | | | |
Pinery West | | | 7,308 |
| | | | 3,849 |
| | | | 11,157 |
| | | | 11,157 |
| | | | 2006 | | 2006 |
Weld County | | | | | | | | | | | | | | | | | | | | | |
Buffalo Highlands | | | 3,001 |
| | | | (295 | ) | | | | 2,706 |
| | | | 2,706 |
| | | | 2006 | | 2005 |
Johnstown Farms | | | 2,749 |
| | | | 4,073 |
| | $ | 100 |
| | 6,922 |
| | | | 6,922 |
| | | | 2002 | | 2002 |
Stonebraker | | | 3,878 |
| | | | (1,786 | ) | | | | 2,092 |
| | | | 2,092 |
| | | | 2005 | | 2005 |
NORTH CAROLINA | | | | | | | | | | | | | | | | | | | | | |
Mecklenburg County | | | | | | | | | | | | | | | | | | | | | |
Walden | | | 12,085 |
| | | | 5,446 |
| | 350 |
| | 17,881 |
| | | | 17,881 |
| | | | 2016 | | 2015 |
SOUTH CAROLINA | | | | | | | | | | | | | | | | | | | | | |
Lancaster County | | | | | | | | | | | | | | | | | | | | | |
Ansley Park | | | 5,089 |
| | | | 4,198 |
| | 315 |
| | 9,602 |
| | | | 9,602 |
| | | | 2017 | | 2015 |
TENNESEE | | | | | | | | | | | | | | | | | | | | | |
Williamson County | | | | | | | | | | | | | | | | | | | | | |
Scales Farmstead | | | 3,575 |
| | | | 4,848 |
| | 455 |
| | 8,878 |
| | | | 8,878 |
| | | | | | 2015 |
TEXAS | | | | | | | | | | | | | | | | | | | | | |
Bastrop County | | | | | | | | | | | | | | | | | | | | | |
Hunter’s Crossing | | | 3,613 |
| | | | 3,970 |
| | | | 7,583 |
| | | | 7,583 |
| | | | 2001 | | 2001 |
Bexar County | | | | | | | | | | | | | | | | | | | | | |
Cibolo Canyons | | | 17,305 |
| | | | 22,088 |
| | 1,696 |
| | 41,089 |
| | | | 41,089 |
| | | | 2004 | | 1986 |
Dallas County | | | | | | | | | | | | | | | | | | | | | |
Stoney Creek | | | 12,822 |
| | | | 1,712 |
| | 608 |
| | 15,142 |
| | | | 15,142 |
| | | | 2007 | | 2007 |
Fort Bend County | | | | | | | | | | | | | | | | | | | | | |
Summer Lakes | | | 4,269 |
| | | | (1,100 | ) | | 89 |
| | 3,258 |
| | | | 3,258 |
| | | | 2013 | | 2012 |
Summer Park | | | 4,804 |
| | | | (2,490 | ) | | 17 |
| | 2,331 |
| | | | 2,331 |
| | | | 2013 | | 2012 |
Harris County | | | | | | | | | | | | | | | | | | | | | |
Barrington | | | 8,950 |
| | | | (7,892 | ) | | | | 1,058 |
| | | | 1,058 |
| | | | | | 2011 |
Hays County | | | | | | | | | | | | | | | | | | | | | |
Arrowhead Ranch | | | 12,856 |
| | | | 7,639 |
| | 286 |
| | 20,781 |
| | | | 20,781 |
| | | | 2015 | | 2007 |
Travis County | | | | | | | | | | | | | | | | | | | | | |
West Austin multifamily site | | | 7,274 |
| | | | (1,525 | ) | | | | 5,749 |
| | | �� | 5,749 |
| | | | | | 2014 |
Other (d) | | | | | | | (1,684 | ) | | | | (1,684 | ) | | | | (1,684 | ) | | | | | | |
Total Real Estate Held for Sale (c) | $ | — |
| | $ | 113,528 |
| | $ | — |
| | $ | 62,803 |
| | $ | 3,916 |
| | $ | 180,247 |
| | $ | — |
| | $ | 180,247 |
| | $ | — |
| | | | |
Total Investment in Real Estate | $ | 290 |
| | $ | 274,241 |
| | $ | — |
| | $ | 28,727 |
| | $ | 7,659 |
| | $ | 310,627 |
| | $ | — |
| | $ | 310,627 |
| | $ | — |
| | | | |
| | | | | | | | | | | | | | | | | | | | | |
(a) We do not capitalize carrying costs until development begins.
(b) The acquisition date is not available.
(c) Included in the strategic asset sale to Starwood on February 8, 2018. Please readNote 22 — Subsequent Eventfor additional information regarding this transaction.
(d) Includes $3,000,000 in non-cash impairment charges in fourth quarter 2017 associated with the asset group sold to Starwood.
Reconciliation of real estate (a):
|
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
Balance at beginning of year | | $ | 293,003 |
| | $ | 618,844 |
| | $ | 607,133 |
|
Amounts capitalized | | 105,611 |
| | 89,780 |
| | 124,633 |
|
Amounts retired or adjusted | | (87,987 | ) | | (415,621 | ) | | (112,922 | ) |
Balance at close of period | | $ | 310,627 |
| | $ | 293,003 |
| | $ | 618,844 |
|
Reconciliation of accumulated depreciation:
|
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
Balance at beginning of year | | $ | — |
| | $ | (32,129 | ) | | $ | (31,377 | ) |
Depreciation expense | | — |
| | (816 | ) | | (6,810 | ) |
Amounts retired or adjusted | | — |
| | 32,945 |
| | 6,058 |
|
Balance at close of period | | $ | — |
| | $ | — |
| | $ | (32,129 | ) |
(a) Includes real estate classified as assets held for sale as of year-end 2017.
|
| |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
|
| |
Item 9A. | Controls and Procedures. |
Item 9A. Controls and Procedures.
(a) Disclosure controls and procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (or the(the Exchange Act)), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Internal control over financial reporting
Management’s report on internal control over financial reporting and the report of our independent registered public accounting firm are included in Part II, Item 8 of this Annual Report on Form 10-K.
(c) Changes in Internal Controlinternal control over Financial Reportingfinancial reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter 2017ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
| |
Item 9B. | Other Information.
|
Item 9B. Other Information.
None.
PART III
|
| |
Item 10. | Directors, Executive Officers and Corporate Governance. |
Item 10. Directors, Executive Officers and Corporate Governance.
Set forth below is certain information about the members of our Board of Directors:
|
| | | | | | |
Name | | Age | | Year First Elected to the Board | | Principal Occupation |
Samuel R. Fuller | | 74 | | 2017 | | Retired Chief Financial Officer of D.R. Horton, Inc. |
M. Ashton Hudson | | 45 | | 2016 | | President and General Counsel of Rock Creek Capital Group, Inc. |
G.F. (Rick) Ringler, III | | 70 | | 2017 | | Retired Senior Vice President - Commercial and Real Estate Lending for Frost Bank |
Donald C. Spitzer | | 68 | | 2017 | | Retired Partner-in-Charge of KPMG |
Donald J. Tomnitz | | 69 | | 2017 | | Executive Chairman of Forestar Group Inc. |
The remaining information required by this item is incorporated herein by reference fromset forth under the captions “Election of Directors,” “Delinquent Section 16(a) Reports,” if applicable, and “Board Matters” in our definitive proxy statement, involvingProxy Statement for the election2022 Annual Meeting of directors, to be filed pursuant to Regulation 14A with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K (or Definitive Proxy Statement). Certain information required by this item concerning executive officers is included in Part I of this report.Stockholders.
|
| |
Item 11. | Executive Compensation. |
Item 11. Executive Compensation.
The information required by this item is incorporated by reference fromset forth under the captions “Director Compensation,” “Executive Compensation” and “CEO Pay Ratio” in our Definitivedefinitive Proxy Statement.Statement for the 2022 Annual Meeting of Stockholders.
|
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference fromset forth under the captions “Securities Authorized for Issuance under Equity Compensation Plans” and “Voting Securities and Principal Stockholders” in our Definitivedefinitive Proxy Statement.Statement for the 2022 Annual Meeting of Stockholders.
|
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference fromset forth under the captions “Certain Relationships and Related Party Transactions” and “Board Matters” in our Definitivedefinitive Proxy Statement.Statement for the 2022 Annual Meeting of Stockholders.
|
| |
Item 14. | Principal Accountant Fees and Services. |
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference fromset forth under the caption “Proposal to Ratify the Selection of Ernst & Young as our DefinitiveIndependent Registered Public Accounting Firm” in our definitive Proxy Statement.Statement for the 2022 Annual Meeting of Stockholders.
PART IV
|
| |
Item 15. | Exhibits and Financial Statement Schedules. |
Item 15. Exhibits and Financial Statement Schedules.
| |
(a) | Documents filed as part of this report. |
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(1) | Financial Statements
(a)The following documents are filed as part of this report. (1)Financial Statements |
Our Consolidated Financial Statementsconsolidated financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K.
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(2) | Financial Statement Schedules
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Schedule III — Consolidated Real Estate and Accumulated Depreciation is included in Part II, Item 8 of this Annual Report on Form 10-K.(2)Financial Statement Schedules
Schedules other than those listed aboveAll financial statement schedules are omitted asbecause they are not applicable or the required information is either inapplicableincluded in the consolidated financial statements or the information is presented in our Consolidated Financial Statements and notes thereto.
(3)Exhibits
The exhibits listed in the Exhibit Index in (b) below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
(b)Exhibits
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Exhibit Number
| | Exhibit |
2.1 | | |
3.1 | |
|
3.2 | |
|
4.13.3 | | |
3.4 | | |
4.1 | | |
4.2 | | |
4.3 | | |
4.4 | |
|
4.510.1† | | |
10.1† | | |
10.2† | | |
| | | | | | | | |
10.3† | | |
10.4† | | |
10.5†10.4† | | |
10.6† | |
|
10.7†10.5† | | |
10.8†*10.6† | | |
10.9† | | |
10.10†10.7 | | |
10.11† | | |
10.12† | | |
10.13† | | |
10.14† | | |
10.15† | | |
10.16†* | | |
10.17 | | |
10.18 | | |
10.19 | | |
10.2010.8 | | |
10.2110.9 | | |
10.22†10.10† | | |
10.11† | | |
10.12† | | |
10.13† | | |
10.14† | | |
10.15† | | |
10.16 | | |
10.17† | | |
10.18† | | |
10.19 | | Amendment No. 1 to Credit Agreement, dated October 21, 2015, between2, 2019 by and among Forestar Group Inc., JPMorgan Chase Bank, N.A., as administrative agent, and Phillip J. Weberthe Lenders named therein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on October 26, 2015)3, 2019). |
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10.21 | | |
10.24† | | SeparationAmendment No. 2 to Credit Agreement, and Release, dated as of April 13, 2017,16, 2021 by and between Forestar Group Inc.among the Company, JPMorgan Chase Bank, N.A., as administrative agent, and David M. Grimmthe Lenders named therein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on April 14, 2017)20, 2021). |
10.2521.1* | | |
10.26 | | |
21.1* | | |
23.1* | | |
31.1* | | |
31.2* | | |
32.1* | | |
32.2* | | |
101.1*101.INS** | | The following materials fromXBRL Instance Document - the Company’s Annual Report on Form 10-K forinstance document does not appear in the year ended December 31, 2017, formatted inInteractive Data File because its XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income (Loss), (iii) Consolidated Statement of Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements. |
_____________________
tags are embedded within the Inline XBRL document. |
101.SCH** | | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL** | Filed herewith. |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF** | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
†101.LAB** | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE** | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104** | | Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101). |
_____________________ |
* | | Filed or furnished herewith. |
** | | Submitted electronically herewith. |
† | | Management contract or compensatory plan or arrangement. |
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Item 16. | Form 10-K Summary. |
Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | Forestar Group Inc. |
| FORESTAR GROUP INC.
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Date: | November 18, 2021 | By: | /s/ James D. Allen |
| By: | /s/ Charles | James D. JehlAllen |
| | Charles D. Jehl |
| | Executive Vice President and Chief Financial Officer |
Date: February 28, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature | | Title | | Date |
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/s/ Daniel C. Bartok | | Chief Executive Officer (Principal Executive Officer) | | November 18, 2021 |
Daniel C. Bartok | | | |
| | | | |
Signature | | Capacity | | Date |
/s/ Daniel C. BartokJames D. Allen | | Chief Executive Officer
(Principal Executive Officer)
| | February 28, 2018 |
Daniel C. Bartok | | |
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/s/ Charles D. Jehl | | Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer)
| | February 28, 2018November 18, 2021 |
CharlesJames D. JehlAllen | | | |
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/s/ Donald J. Tomnitz | | Executive Chairman of the Board
| | February 28, 2018November 18, 2021 |
Donald J. Tomnitz | | | |
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/s/ Samuel R. Fuller | | Director | | February 28, 2018November 18, 2021 |
Samuel R. Fuller | | | |
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/s/ M. Ashton HudsonLisa H. Jamieson | | Director | | February 28, 2018November 18, 2021 |
M. Ashton HudsonLisa H. Jamieson | | | |
| | | | |
/s/ G.F. (Rick) Ringler, III | | Director | | February 28, 2018November 18, 2021 |
G.F. (Rick) Ringler, III | | | |
| | | | |
/s/ Donald C. Spitzer | | Director | | February 28, 2018November 18, 2021 |
Donald C. Spitzer | | |
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