EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS AGREEMENT (Agreement) is entered into as of August 9, 2007, by and between
FORESTAR
REAL ESTATE GROUP LLC
, a Delaware limited liability company (the Company), and
JAMES M. DeCOSMO
(the Executive).
WHEREAS, the Executive currently is employed by Temple-Inland Inc. (Temple-Inland);
WHEREAS, Temple-Inland has determined that it is appropriate, desirable and in the best
interests of Temple-Inland and its stockholders to effect (i) a spinoff to the Temple-Inland
stockholders of the equity interests of the Company (or any successor thereto), (ii) a spinoff to
the Temple-Inland stockholders of a subsidiary holding Temple-Inlands financial services
operations, and (iii) a sale of Temple-Inlands timberland holdings to an unrelated third party;
WHEREAS, the Executive currently is employed by and a party to a Change in Control Agreement
(the Existing CIC Agreement) with Temple-Inland;
WHEREAS, effective as of the effective time of the spinoff of the Company (the Separation),
the parties intend for the Existing CIC Agreement to cease to be of any force or effect;
WHEREAS, the Company desires to employ the Executive effective as of the Separation upon the
terms and conditions set forth herein; and
WHEREAS, the Executive is willing and able to accept employment with the Company on such terms
and conditions.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the Company and
the Executive hereby agree as follows:
1.
Effective Date; Employment Period
. Subject to the provisions of Section 4 hereof,
the term of this Agreement shall commence as of the date of the Separation (such date, the
Effective Date) and shall end on the third anniversary thereof, provided that, subject to Section
4 hereof, commencing on the first anniversary of the Effective Date, and on each anniversary of the
Effective Date thereafter, the term of this Agreement shall automatically be extended for an
additional year unless, not later than one year prior to each such date, the Company or the
Executive shall have given notice not to extend the term of this Agreement, and provided further
that (a) in the event that the Separation does not occur on or prior to December 28, 2007, the
parties agree to make such amendments to this Agreement as are appropriate to take into
account such event, and (b) if that certain Transformation Agreement between Kenneth M.
Jastrow and Temple-Inland dated as of August 9, 2007, terminates prior to Mr. Jastrows resignation
as Chief Executive Officer and Chairman of the Board of Directors of Temple-Inland, then this
Agreement shall automatically terminate at such time and shall be of no force or effect. No
obligations of the Company or the Executive under this Agreement (other than those of the Company
under Section 16(a) hereof) shall become effective unless and until the Separation occurs. The
obligations of the Company and the Executive under this Agreement which by their nature may require
either partial or total performance after the expiration of the term of this Agreement shall
survive such expiration. All periods during which the Executive is employed hereunder shall
hereinafter be referred to as the Employment Period.
2.
Positions and Duties
.
(a)
Position and Reporting
. During the Employment Period, the Company will employ the
Executive, and the Executive agrees to serve and accept employment, as the Chief Executive Officer
of the Company (the Chief Executive Officer), reporting directly to the Board of Directors of the
Company (the Board). As Chief Executive Officer, the Executive shall perform the customary
duties of such position, subject to the direction and control of the Board, and shall perform such
other duties, not inconsistent with such position, as the Board may require.
(b)
Board Membership
. The Company agrees to use its best efforts (including, without
limitation, the solicitation of proxies) to cause the Executive to be elected and re-elected to the
Board during the Employment Period and to be appointed and re-appointed as Chief Executive Officer.
The Executive agrees to assist in such efforts and to serve if elected or appointed, as the case
may be. Upon any termination of his employment with the Company, the Executive shall immediately
resign from the Board and the boards of directors of any subsidiaries of the Company on which he
may serve.
(c)
Other Activities
. During the Employment Period, the Executive shall devote all of
his working time to his duties hereunder, shall devote his best efforts to advance the interests of
the Company and shall not engage in any other business activities, as an employee, director,
consultant or in any other capacity, whether or not he receives any compensation therefor, without
the prior written consent of the Board; provided that the Executive may serve on up to three
corporate boards (other than the Board) with the approval of the Board, which approval shall not be
unreasonably withheld; and provided further that the corporate boards on which such service is
approved as of the Effective Date are identified on Appendix A hereto. Notwithstanding the
foregoing provisions of this subsection (c), it shall not be a violation of this Agreement for the
Executive to serve on civic or charitable boards or committees to the extent that such service does
not interfere with his duties under this Agreement.
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(d)
Place of Employment
. The Executive shall perform his services hereunder
principally at the Companys headquarters in Austin, Texas; provided that the Executive shall
temporarily perform services in other locations as may be reasonably required for the performance
of his duties hereunder.
3.
Compensation
. In consideration of the performance by the Executive of his duties
hereunder, during the Employment Period the Company shall pay or provide to the Executive the
following compensation and benefits, which the Executive agrees to accept in full satisfaction for
his services, it being understood that all standard Company deductions shall be withheld from such
compensation:
(a)
Base Salary
. The Executive shall receive a base salary equal to Five Hundred
Thousand Dollars ($500,000) per annum (the Base Salary), which Base Salary shall be paid in
accordance with the Companys normal payroll practices. The Base Salary shall be reviewed for
adjustment (on or about February of each year) by the Management Development and Executive
Compensation Committee of the Board (the MDECC); provided that any adjustment shall be made in
the sole discretion of the MDECC; and provided further that the Base Salary shall not be reduced to
a lesser amount. The term Base Salary as used herein shall be deemed to refer to any such amount
as it may be increased from time to time.
(b)
Bonuses
. The Executive shall be eligible for an annual performance-based cash
bonus on terms established in the discretion of the MDECC, but on a basis substantially no less
favorable than that applicable to other senior executives of the Company.
(c)
Employee Benefits
. The Executive shall be entitled to participate in the
retirement, health and life insurance and other welfare and fringe benefit plans and programs of
the Company on a basis (to the extent permitted by applicable law) substantially no less favorable
than that applicable to other senior executives of the Company.
(d)
Equity Grants
. The Executive shall be eligible for annual grants of equity
incentive compensation as determined in the discretion of the MDECC, provided that grants shall be
made on a basis substantially no less favorable than that applicable to other senior executives of
the Company. The terms and conditions of equity grants to the Executive shall be determined
pursuant to the terms and conditions of the plans and agreements under and subject to which they
are or were made (and further subject to the provisions of Section 5(c)(ix) hereof).
(e)
Executive Compensation Plans
. The Executive shall be eligible to participate in
any executive compensation plans that are not the subject of the
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preceding provisions of this Section 3 on a basis (to the extent permitted by applicable law)
substantially no less favorable than that applicable to other senior executives of the Company.
(f)
Certain Other Benefits
. During the Employment Period, the Company shall provide
the Executive with the following benefits on a basis (to the extent permitted by applicable law)
substantially no less favorable than that applicable to other senior executives of the Company
(and, in the case of social club memberships, on a basis substantially no less favorable than that
in effect immediately before the Separation): (A) social club memberships; (B) use of Company
aircraft, if any (subject to the imputation of income to the Executive in accordance with the
standard industry fare level methodology specified in U.S. Treasury Regulations); and (C)
umbrella liability insurance eligibility. During the Employment Period, the Company shall
provide the Executive with directors and officers liability insurance on a basis (to the extent
permitted by applicable law) substantially no less favorable than that applicable to other senior
executives and directors of the Company.
(g)
Expenses
. The Company shall reimburse the Executive for reasonable and customary
expenses incurred in connection with the Companys business in accordance with the applicable
policies of the Company in effect from time to time.
(h)
Vacation
. The Executive shall be entitled to four weeks of paid vacation per
calendar year in accordance with the applicable policies of the Company in effect from time to
time.
4.
Termination
. The Employment Period may end before the expiration date otherwise
specified in Section 1 hereof in accordance with the following provisions:
(a)
Termination by the Company for Cause
. The Company shall have the right at any
time by vote of three-quarters (
3
/
4
) of the members of the Board (exclusive of the Executive) to
terminate the Executives employment hereunder upon the occurrence of any of the following events:
(i) a material breach of this Agreement by the Executive that is not cured within fifteen (15) days
after written demand by the Company; (ii) the Executives conviction of a felony following the
exhaustion of all appeals or a plea of guilty or
nolo contendere
to a felony; (iii) the Executives
abuse of alcohol or controlled substances that has a detrimental effect upon the Executives
performance of his duties and that is not cured within thirty (30) days after written demand by the
Company; or (iv) the willful engaging by the Executive in conduct that is demonstrably and
materially injurious to the Company, monetarily or otherwise, and that is not cured within fifteen
(15) days after written demand by the Company (all such events in clauses (i) (iv), collectively,
Cause). For purposes of such determination of Cause, no act, or failure to act, on the
Executives part shall be deemed willful unless done, or
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omitted to be done, by the Executive not in good faith and without reasonable belief that the
Executives act, or failure to act, was in the best interest of the Company, and in the event of a
dispute, no claim by the Company that Cause exists shall be given effect unless the Company
establishes to the Board by clear and convincing evidence that Cause exists. The Executive shall
have the right to address the Board with counsel present before any dismissal for Cause shall
become effective.
(b)
Termination by the Company for Death or Disability
. The Executives employment
hereunder shall terminate automatically upon the death of the Executive. The Company shall have
the right to terminate the Executives employment hereunder upon the Executives Disability. For
purposes of this Agreement, Disability shall occur if by reason of any medically determinable
physical or mental impairment the Executive is unable to engage in any substantial gainful activity
for a period of six (6) consecutive months, such impairment can be expected to result in death or
last for a continuous period of not less than twelve (12) months, the Company shall have given the
Executive a written notice of intent to terminate for reasons of Disability, and, within thirty
(30) days after such notice is given, the Executive shall not have returned to the full-time
performance of his duties.
(c)
Termination by the Company without Cause
. The Company shall have the right to
terminate the Executives employment hereunder without Cause at any time by vote of the members of
the Board (exclusive of the Executive).
(d)
Voluntary Termination by the Executive
. The Executive shall be entitled
voluntarily to terminate his employment hereunder (other than under circumstances constituting
Good Reason as defined in Section 4(e) hereof) upon no less than fifteen (15) nor more than sixty
(60) days prior written notice to the Company.
(e)
Good Reason Termination by the Executive
. The Executive shall be entitled to
terminate his employment hereunder for Good Reason. For purposes of this Agreement, Good
Reason for termination by the Executive of his employment shall mean the occurrence of any of the
following (unless such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination (as such terms are defined in Section 4(f) hereof) given in
respect thereof): (i) a material reduction in the Executives authority, duties or
responsibilities, which for purposes of this Agreement shall include only the failure to be
re-elected to the Board or reappointed as either a member of the Board or Chief Executive Officer
or the assignment to the Executive of any duties substantially inconsistent with the Executives
status as a senior executive officer of the Company or a material adverse alteration in the nature
or status of the Executives responsibilities (including, as applicable and without limitation, the
Executive ceasing to be an executive officer of a public company); (ii) a material diminution in
Base Salary; (iii) a material change in the geographic location at
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which the Executive must perform services, which for purposes of this Agreement shall include
only the relocation of the Executives principal place of employment to a location more than fifty
(50) miles distant from the Companys headquarters on the Effective Date (but excluding any
relocation of the Companys headquarters within the Austin, Texas metropolitan area during the
first two years of the Employment Period) or the Companys requiring the Executive to be based
anywhere other than such principal place of employment (or permitted relocation thereof) except for
reasonably required travel on the Companys business; or (iv) a material breach by the Company of
the requirements of Section 3 hereof or Section 12(b) hereof. Notwithstanding the foregoing
provisions of this Section 4(e), the Executive may not assert Good Reason in respect of any act or
failure to act otherwise constituting Good Reason hereunder unless asserted in a Notice of
Termination given in respect thereof within 90 days following the date of the first occurrence of
such act or failure to act.
(f)
Notice of Termination
. Any termination of the Executives employment hereunder
(other than upon the death of the Executive) shall be communicated by a Notice of Termination to
the other party hereto given in accordance with Section 8 hereof. For purposes of this Agreement,
a Notice of Termination means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) if the termination is by the Company for Cause or is
by the Executive under circumstances constituting Good Reason, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the Executives employment
under the provision so indicated, and (iii) sets forth the date on which such termination shall be
effective (the Date of Termination); provided that in the case of a termination by the Executive,
the Date of Termination shall not be less than fifteen (15) nor more than 60 days, respectively,
from the date such Notice of Termination is given, and the Company may require a Date of
Termination earlier than that specified in the Notice of Termination upon payment to the Executive
of the full amount of Base Salary that would have been paid to the Executive had the Executive
continued employment between the actual Date of Termination and the Date of Termination specified
in the Notice of Termination. Except as provided in the final Sentence of Section 4(e) hereof, the
failure by any party to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Cause or Good Reason shall not waive any right of such party hereunder
or preclude such party from asserting such fact or circumstance in enforcing its rights hereunder.
Any purported termination of the Executives employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of this Section 4(f) shall not be effective.
5.
Effect of Termination of Employment
.
(a)
Cause or no Good Reason
. If the Executives employment hereunder is terminated by
the Company for Cause or by the Executive without
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Good Reason, the Executives Base Salary and other benefits specified in Section 3 hereof
shall be paid or provided through but not after the Date of Termination, and the Company shall have
no further obligations under this Agreement.
(b)
Death or Disability
. Subject to Section 5(d) hereof, if the Executives
employment hereunder is terminated by the death or Disability of the Executive, then as soon as
practicable (but in any event within five (5) days) following such termination of employment the
Company shall make a lump-sum cash payment to the Executive (or his estate, as the case may be)
equal to the sum of (i) Base Salary and (ii) the target bonus established under Section 3(b) hereof
for the period in which such termination occurs multiplied by a fraction, the numerator of which is
the number of days during the applicable performance period for which the Executive was employed
hereunder and the denominator of which is the number of days in such performance period.
(c)
Without Cause or Good Reason Termination
. Subject to Section 5(d) hereof, if the
Executives employment hereunder is terminated by the Company without Cause or by the Executive
with Good Reason, the Executive shall be entitled to the following payments and benefits (provided
that such termination of employment constitutes a separation from service within the meaning of
Section 409A of the Internal Revenue Code of 1986, as amended (the Code)):
(i) In lieu of any further salary payments to the Executive for periods subsequent to
the Date of Termination, the Company shall pay to the Executive a cash severance payment
equal to the Severance Multiple (as defined below) times the sum of (A) Base Salary
(without regard to any diminution giving rise to the Executives assertion of Good Reason)
and (B) the Executives target annual bonus pursuant to any annual bonus or incentive plan
maintained by the Company in respect of the fiscal year in which occurs the Date of
Termination (or, if higher, the greatest actual annual bonus in respect of any of the two
(three if the Severance Multiple is three) preceding fiscal years (including as applicable,
with respect to years ending at or before the Separation, annual bonuses paid by
Temple-Inland))). For purposes of this Agreement: the Severance Multiple shall be two
(2), except that the Severance Multiple shall be three (3) if the applicable Date of
Termination occurs either during the first two years beginning on the Effective Date or
after such two-year period and within the two-year period following a Change in Control as
defined in Appendix B hereto; and the Severance Period shall be the two (2) year period
beginning on the Date of Termination, except that the Severance Period shall be the three
(3) year period beginning on the Date of Termination if the Severance Multiple is three
(3). Such payment shall be made as soon as practicable (but in any event within five (5)
days) following the Date of Termination; provided that, to the extent required to satisfy
the provisions
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of Section 409A(a)(2)(B)(i) of the Code, such payments shall be made not earlier than
but as soon as practicable on or in any event within five (5) days after (with interest at
the 6-month certificate of deposit rate published in The Wall Street Journal on the Date of
Termination (or if not published on that date, on the next following date when published)
or, if less, the maximum rate that will avoid, if applicable, the imposition of any
additional excise taxes under Section 4999 of the Code (the 409A Interest Rate)) the date
that is six (6) months after the Date of Termination (the 409A Payment Date)). The
amount payable pursuant to this clause (i) shall be reduced by the amount of any cash
severance or salary continuation benefit paid or payable to the Executive under any other
plan, policy or program of the Company.
(ii) For the Severance Period, the Company shall arrange to provide the Executive and
his dependents medical, dental, life and accidental death and dismemberment benefits
substantially similar to those provided to the Executive and his dependents immediately
prior to the Date of Termination or, if more favorable to the Executive, those provided to
the Executive and his dependents immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the Executive than the cost to
the Executive immediately prior to such date or occurrence; provided, however, that such
health and welfare benefits shall be provided through an arrangement that satisfies the
requirements of Sections 105 and 106 of the Code. To the extent that benefits of the same
type are received by or made available to the Executive during the Severance Period (which
such benefits received by or made available to the Executive shall be reported by the
Executive to the insurance company or other appropriate party in accordance with any
applicable coordination of benefits provisions), the benefits otherwise receivable by the
Executive pursuant to this clause (ii) shall be made secondary to such benefits; provided
that the Company shall reimburse the Executive for the excess, if any, of the cost of such
benefits to the Executive over such cost immediately prior to the Date of Termination or,
if more favorable to the Executive, the first occurrence of an event or circumstance
constituting Good Reason.
(iii) For purposes of determining the amount of any benefit payable to the Executive
and the Executives right to any benefit otherwise payable under any nonqualified pension
plan (within the meaning of Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended (Pension Plan)), maintained by the Company , and except to the extent it
would result in a duplication of benefits under Section 5(c)(iv) hereof, the Executive
shall be treated as if he had accumulated (after the Date of Termination) twenty-four
additional months of service credit (thirty-six (36) additional months of service credit if
the Severance Multiple is three) thereunder and had been credited during such period with
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compensation at the highest rate taken into account in respect of the two-year period
(three-year period if the Severance Multiple is three) ending immediately prior to the Date
of Termination (or, if shorter, the period during which compensation is taken into account
under the Pension Plan).
(iv) In addition to the benefits to which the Executive is entitled under any defined
contribution Pension Plan, the Company shall pay the Executive on or as soon as practicable
(but in any event within five (5) days) following the Date of Termination (or to the extent
required to satisfy the provisions of Section 409A(a)(2)(B)(i) of the Code, not earlier
than but as soon as practicable on or in any event within five (5) days after (with
interest at the 409A Interest Rate) the 409A Payment Date) a lump sum amount, in cash,
equal to the sum of (A) the amount that would have been contributed thereto or credited
thereunder by the Company on the Executives behalf during the Severance Period (but not
including as amounts that would have been contributed or credited an amount equal to the
amount of any reduction in base salary, bonus or other compensation that would have
occurred in connection with such contribution or credit), determined (x) as if the
Executive made the maximum permissible contributions thereto or credits thereunder during
such period, and (y) as if the Executive earned compensation during such period at a rate
equal to the Executives highest rate of compensation (as defined in the Pension Plan)
taken into account in respect of the two-year period (three-year period if the Severance
Multiple is three) ending immediately prior to the Date of Termination (or, if shorter, the
period during which compensation is taken into account under the Pension Plan), and (B) the
excess, if any, of (x) the Executives account balance under the Pension Plan as of the
Date of Termination over (y) the portion of such account balance that is nonforfeitable
under the terms of the Pension Plan.
(v) Notwithstanding any provision of any annual or long-term incentive plan (exclusive
of equity-based plans) to the contrary, the Company shall pay to the Executive on or as
soon as practicable (but in any event within five (5) days) following the Date of
Termination (or to the extent required to satisfy the provisions of Section
409A(a)(2)(B)(i) of the Code, not earlier than but as soon as practicable on or in any
event within five (5) days after (with interest at the 409A Interest Rate) the 409A Payment
Date) a lump sum amount, in cash, equal to the sum of (A) any unpaid incentive compensation
which has been allocated or awarded to the Executive for a completed bonus cycle preceding
the Date of Termination under any such plan and which, as of the Date of Termination, is
contingent only upon the continued employment of the Executive to a subsequent date, and
(B) the aggregate value of all contingent incentive compensation awards to the Executive
for the uncompleted period under any such plan, calculated as to each such award by
multiplying the award that the Executive would have earned on
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the last day of the performance award period, assuming the achievement, at the target
level, of any individual and corporate performance goals established with respect to such
award, multiplied by the fraction obtained by dividing the number of full months and any
fractional portion of a month during such performance award period through the Date of
Termination by the total number of months contained in such performance award period (or if
such fraction is greater than
1
/
2
, multiplied by one (1)).
(vi) If the Executive would have become entitled to benefits under the Companys
post-retirement medical and life insurance plans, if any, as in effect immediately prior to
the Date of Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good Reason, had the
Executives employment terminated at any time within the Severance Period, the Company
shall provide such post-retirement medical and life insurance benefits to the Executive
commencing on the later of (i) the date on which such coverage would have first become
available and (ii) the date on which medical and life insurance benefits are no longer
provided in accordance with Section 5(c)(ii) hereof.
(vii) The Company shall reimburse the Executive for expenses incurred (as soon as
practicable and within thirty (30) business days following the date of request for
reimbursement, but in no event later than the end of the year following the year in which
the expenses were incurred) for outplacement services suitable to the Executives position
for a period of one (1) year following the Date of Termination (or, if earlier, until the
first acceptance by the Executive of an offer of employment) in an amount not exceeding 15%
of the sum of Base Salary (without regard to any diminution giving rise to the Executives
assertion of Good Reason).
(viii) For the Severance Period, the Company shall provide the Executive with
perquisites (such as any use of a Company provided club membership fee reimbursements) in
each case on the same terms and conditions that were applicable immediately prior to the
Date of Termination or, if more favorable, immediately prior to the first occurrence of an
event or circumstance constituting Good Reason, provided that all expenses shall be
reimbursed as soon as practicable and not later than the end of the year following the year
in which the expenses were incurred (subject to the flush language at the end of this
Section 5(c)) and in no event shall the amount of perquisites to which the Executive is
entitled under this subsection (viii) for any taxable year of the Executive affect the
amount of perquisites to which the Executive is entitled under this subsection (viii) for
any other taxable year.
(ix) Vesting shall accelerate and restrictions shall lapse on all unvested or
restricted equity or equity-based awards in respect of the
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Company held by the Executive as of the Date of Termination and each stock option to
acquire common stock of the Company and each stock appreciation right in respect of the
Company held by the Executive as of the Date of Termination shall remain exercisable
following the Date of Termination for the full term of such option or stock appreciation
right. The Company also shall cause Temple-Inland and the subsidiary holding
Temple-Inlands financial services operations to provide that vesting shall accelerate and
restrictions shall lapse on all unvested or restricted equity or equity-based awards in
respect of Temple-Inland and such company held by the Executive as of the Date of
Termination and that each stock option to acquire common stock of Temple-Inland and such
company and each stock appreciation right in respect of Temple-Inland and such company held
by the Executive as of the Date of Termination shall remain exercisable following the Date
of Termination for the full term of such option or stock appreciation right.
To the extent the benefits to be made available under subsections (ii) and (viii) above are not
medical expenses within the meaning of Treas. Reg. § 1.409A-1(b)(9)(v)(B) and are not short-term
deferrals within the meaning of Section 409A of the Code, then to the extent the fair market value
of such benefits during the first six months following the Date of Termination exceeds two times
the lesser of the Executives annualized compensation based upon the Executives annual rate of pay
for services during the taxable year of the Executive preceding the year in which the Date of
Termination occurs (adjusted for any increase during that year that was expected to continue
indefinitely had no separation from service occurred) or the maximum amount that may be taken into
account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which the
Date of Termination occurs, the Executive shall pay to the Company, at the time such benefits are
provided, the fair market value of such benefits, and the Company shall reimburse the Executive for
any such payment not later than the fifth day following the expiration of such six-month period.
(d)
Requirement of Release
. Notwithstanding any other provision of this Agreement, no
amounts shall be payable or otherwise due pursuant to Section 5(b) or 5(c) hereof unless (i) the
Executive (or his authorized representative, if disabled or deceased) executes a release of claims
against the Company in the form set forth as Appendix C hereto within thirty (30) days following
the Date of Termination and (ii) the Executive (or his authorized representative, if disabled or
deceased) fails to revoke such release within any period permitted by applicable law for its
revocation.
(e)
Grantor Trust Requirement
. To the extent that the payment of any amount due under
Section 5(c)(i), (iv) or (v) hereof is delayed by reason of Section 409A(a)(2)(B)(i) of the Code,
the Company shall, on or as soon as practicable after the Date of Termination, contribute the
amounts otherwise payable pursuant to Section 5(c)(i), (iv) or (v) hereof, together with six months
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interest thereon at the 409A Interest Rate, to a grantor (rabbi) trust of which the
Executive is the sole beneficiary (subject to the claims of the Companys creditors, as required
pursuant to applicable Internal Revenue Service guidance to prevent the imputation of income to the
Executive prior to distribution from the trust), pursuant to which the amounts payable pursuant to
Section 5(c)(i), (iv) and (v) hereof shall be payable from the trust, together with the appropriate
amount of interest at the 409A Interest Rate, on or as soon as practicable and in any event within
five (5) days after the Section 409A Payment Date, provided that to the extent such amount is paid
to the Executive by the Company, the trust shall pay such amount to the Company.
(f)
Excise Tax Payment
.
(i) Whether or not the Executive becomes entitled to payments and benefits pursuant to
Section 5(c) (the Severance Payments), if it is determined that any payment or benefit
received or to be received by the Executive is a parachute payment within the meaning of
Section 280G of the Code (all such payments and benefits, including the Severance Payments
as applicable, being hereinafter called Total Payments) that will be subject (in whole or
part) to the tax imposed under Section 4999 of the Code (the Excise Tax), then, subject
to the provisions of Section 5(f)(ii) hereof, the Company shall pay to the Executive on or
as soon as practicable following the day on which the Excise Tax is remitted (but not later
than the end of the taxable year following the year in which the Excise Tax is incurred) an
additional amount (the Gross-Up Payment) such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Total Payments and any federal, state
and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be
equal to the Total Payments.
(ii) In the event that the amount of the Total Payments does not exceed 110% of the
largest amount that would result in no portion of the Total Payments being subject to the
Excise Tax (the Safe Harbor), then Section 5(f)(i) hereof shall not apply and the noncash
Severance Payments shall first be reduced (if necessary, to zero), and the cash Severance
Payments shall thereafter be reduced (if necessary, to zero) so that the amount of the
Total Payments is equal to the Safe Harbor; provided, however, that, to the extent
permitted by Section 409A of the Code, the Executive may elect to have the cash Severance
Payments reduced (or eliminated) prior to any reduction of the noncash Severance Payments.
(iii) For purposes of determining whether any of the Total Payments will be subject to
the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be
treated as parachute payments within the meaning of Section 280G(b)(2) of the Code,
unless in the
12
opinion of tax counsel (Tax Counsel) reasonably acceptable to the Executive and selected
by the accounting firm which was, immediately prior to the event triggering the application
of Section 280G of the Code, the Companys independent auditor (the Auditor), such other
payments or benefits (in whole or in part) do not constitute parachute payments, including
by reason of Section 280G(b)(4)(A) of the Code, (ii) all excess parachute payments within
the meaning of Section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax
unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered, within the meaning of
Section 280G(b)(4)(B) of the Code, in excess of the base amount (within the meaning of
Section 280G of the Code) allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred
payment or benefit shall be determined by the Auditor in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. The Company shall provide the Executive with its
calculation of the amounts referred to in this Section 5(f)(iii) and such supporting
materials as are reasonably necessary for the Executive to evaluate the Companys
calculations. If the Executive disputes the Companys calculations (in whole or in part),
the reasonable opinion of Tax Counsel with respect to the matter in dispute shall prevail.
(iv) (I) In the event that (1) amounts are paid to the Executive pursuant to Section
5(f)(i), (2) there is a final determination by the Internal Revenue Service or, if such
determination is appealed, a final determination by any court of competent jurisdiction (a
Final Determination), that the Excise Tax is less than the amount taken into account
hereunder in calculating the Gross-Up Payment, and (3) after giving effect to such Final
Determination, the Severance Payments are to be reduced pursuant to Section 5(f)(ii), the
Executive shall repay to the Company, within five (5) business days following the date of
the Final Determination, the Gross-Up Payment, the amount of the reduction in the Severance
Payments, plus interest on the amount of such repayments at 120% of the rate provided in
Section 1274(b)(2)(B) of the Code.
(II) In the event that (1) amounts are paid to the Executive pursuant to
Section 5(f)(i)), (2) there is a Final Determination that the Excise Tax is less
than the amount taken into account hereunder in calculating the Gross-Up Payment,
and (3) after giving effect to such Final Determination, the Severance Payments are
not to be reduced pursuant to Section 5(f)(ii), the Executive shall repay to the
Company, within five (5) business days following the date of the Final
Determination, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax and
13
federal, state and local income and employment taxes imposed on the Gross-Up
Payment being repaid by the Executive), to the extent that such repayment results
in a reduction in the Excise Tax and a dollar-for-dollar reduction in the
Executives taxable income and wages for purposes of federal, state and local
income and employment taxes, plus interest on the amount of such repayment at 120%
of the rate provided in Section 1274(b)(2)(B) of the Code.
(III) Except as otherwise provided in paragraph (IV) below, in the event there
is a Final Determination that the Excise Tax exceeds the amount taken into account
hereunder in determining the Gross-Up Payment (including by reason of any payment
the existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall pay to the Executive, within five (5) business days
following the date of the Final Determination, the sum of (1) a Gross-Up Payment in
respect of such excess and in respect of any portion of the Excise Tax with respect
to which the Company had not previously made a Gross-Up Payment, including a
Gross-Up Payment in respect of any Excise Tax attributable to amounts payable under
clauses (2) and (3) of this paragraph (III) (plus any interest, penalties or
additions payable by the Executive with respect to such excess and such portion),
(2) if Severance Payments were reduced pursuant to Section 5(f)(ii) but after
giving effect to such Final Determination, the Severance Payments should not have
been reduced pursuant to Section 5(f)(ii), the amount by which the Severance
Payments were reduced pursuant to Section 5(f)(ii), and (3) interest on such
amounts at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.
(IV) In the event that (1) Severance Payments were reduced pursuant to Section
5(f)(ii) and (2) the aggregate value of Total Payments which are considered
parachute payments within the meaning of Section 280G(b)(2) of the Code is
subsequently redetermined in a Final Determination, but such redetermined value
still does not exceed 110% of the Safe Harbor, then, within five (5) business days
following such Final Determination, (x) the Company shall pay to the Executive the
amount (if any) by which the reduced Severance Payments (after taking the Final
Determination into account) exceeds the amount of the reduced Severance Payments
actually paid to the Executive, plus interest on the amount of such repayment at
120% of the rate provided in Section 1274(b)(2)(B) of the Code, or (y) the
Executive shall pay to the Company the amount (if any) by which the reduced
Severance Payments actually paid to the Executive exceeds the amount of the reduced
Severance Payments (after taking the Final Determination into
14
account), plus interest on the amount of such repayment at 120% of the rate
provided in Section 1274(b)(2)(B) of the Code.
(v) If the amounts of the payments described in the preceding provisions of this
subsection (f) cannot be finally determined on or before the date payment is to be made,
the Company shall pay to the Executive on such day an estimate, as determined in accordance
with this subsection (f), of the minimum amount of such payments to which the Executive is
clearly entitled and shall pay the remainder of such payments (together with interest on
the unpaid remainder at 120% of the rate provided in Section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no event later than the 30th day after
the date payment is to be made. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess shall constitute a
loan by the Company to the Executive, payable on the fifth business day after demand by the
Company (together with interest at 120% of the rate provided in Section 1274(b)(2)(B) of
the Code).
(vi) The Company also shall pay to the Executive all legal fees and expenses incurred
by the Executive in connection with any tax audit or proceeding to the extent attributable
to the application of Section 4999 of the Code to any payment or benefit provided
hereunder. Such payments shall be made within five business days after delivery of the
Executives written requests for payment accompanied with such evidence of fees and
expenses incurred as the Company reasonably may require (but in no event shall any such
payment be made after the end of the calendar year following the calendar year in which the
expenses were incurred), provided that no such payment shall be made in respect of fees or
expenses incurred by the Executive after the later of the tenth anniversary of the Date of
Termination or the Executives death, and provided further, that, upon the Executives
separation from service with the Company, in no event shall any additional such payments be
made prior to the date that is six months after the date of the Executives separation from
service to the extent such payment delay is required under Section 409A(a)(2)(B)(i) of the
Code.
6.
Confidential Information; Restrictive Covenants
.
(a) The Executive acknowledges that the Confidential Information (as defined below) obtained
by him during the course of his employment with the Company, concerning the business or affairs of
the Company and its affiliates (the Business Entities) are the property of the Company.
Therefore, the Executive will hold in strictest confidence, and not at any time (whether during or
after his employment with the Company) disclose or use for his own benefit or purposes or the
benefit or purposes of any other person, entity or enterprise,
15
other than a Business Entity, any trade secrets, non-public information, knowledge or data, or
other proprietary or confidential information, including without limitation, any such information
relating to customers, development programs, costs, marketing, trading, investment, sales
activities, promotion, credit and financial data, inventions, manufacturing or other processes,
technology, designs, financing methods, plans or the business and affairs of any Business Entity
(collectively, Confidential Information); provided that Confidential Information shall not
include (i) any information which has become publicly known or available or known in the industry,
in any case other than as a result of the Executives breach of this covenant, or (ii) any
information that was within the Executives knowledge or possession before becoming employed with
the Company; and provided further, that the Executive shall not be in violation of this covenant
if he discloses any Confidential Information as required by any subpoena or other legal process or
notice or in any disposition, judicial or administrative hearing, or trial or arbitration (though
the Executive shall, to the extent permitted, give the Company notice of any such subpoena,
process, or notice and will cooperate with all reasonable requests of the Company to obtain a
protective order regarding, or to narrow the scope of, the Confidential Information required to be
disclosed). The Executive agrees that upon termination of his employment with the Company for any
reason, he will return to the Company immediately all property of the Company including any
documents, memoranda, books, papers, plans, information, letters and other data, and all copies
thereof or therefrom, in any way relating to the business of the Business Entities.
(b) During his employment with the Company and for a period of two years thereafter
(regardless of the reason for the termination of employment, the Non-Competition Period), the
Executive will not, directly or indirectly, alone or as a partner, joint venturer, officer,
director, employee, consultant, agent, independent contractor or stockholder of any company or
business, engage (for anyone other than the Business Entities) in any Competitive Enterprise
anywhere in the United States, Canada, or Mexico. For the purpose hereof, a Competitive
Enterprise shall mean any business venture engaged in lines of business similar to those of the
Company or its affiliates. Neither the service by the Executive on corporate boards in accordance
with the provisions of Section 2(c) hereof nor the ownership by the Executive of not more than two
percent (2%) of the shares of stock of any corporation having a class of equity securities actively
traded on a national securities exchange or market shall not be deemed, in and of themselves, to
violate the prohibitions of this Section 6(b).
(c) During his employment with the Company and during the Non-Competition Period, the
Executive shall not take any action having the purpose or intended or foreseeable effect of
interfering with or otherwise damaging, in any material respect, the Companys business
relationship with any of its suppliers or customers.
16
(d) During his employment with the Company and during the Non-Competition Period, the
Executive shall not, other than for the benefit of the Business Entities, directly or indirectly,
employ, or knowingly permit any company or business organization directly or indirectly controlled
by the Executive to employ any person who is employed by the Company, or in any manner seek to
induce any such person to leave his or her employment with the Company.
(e) If the Executive materially breaches any of the provisions of this Section 6 (the
Restrictive Covenants), the Company shall have the following rights and remedies if such material
breach continues and is not cured within fifteen (15) days after written demand by the Company,
each of which shall be independent of the other and severally enforceable, and all of which shall
be in addition to, and not in lieu of, any other rights and remedies available to the Company under
law or equity:
(i) the right and remedy to have the Restrictive Covenants specifically enforced by
any court having jurisdiction (whether by temporary restraining order, preliminary
injunction, permanent injunction, injunction in aid or arbitration or otherwise) without
having to post a bond, it being acknowledged and agreed that any such breach or threatened
breach will cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company; and
(ii) the right to discontinue the payment of any amounts or benefits owing to the
Executive under this Agreement.
(f) The Executive acknowledges that: (i) the business in which the Company is engaged is
intensely competitive; (ii) the Executives employment by the Company will require that the
Executive develop, have access to and knowledge of Confidential Information; (iii) the direct or
indirect disclosure or use of any such Confidential Information to existing or potential
competitors of the Company would place the Company at a competitive disadvantage and would do
damage, monetary or otherwise, to the Company; (iv) the Executive has developed goodwill with
clients and suppliers of the Company at substantial expense to the Company; (v) the Executive will
continue to develop goodwill, through substantial investment by the Company, while working for the
Company; (vi) the engaging by the Executive in any of the activities prohibited by this Section 6
may constitute improper appropriation and/or use of such Confidential Information and/or goodwill;
(vii) the services to be rendered by the Executive to the Company are of a special and unique
character; (viii) the Executive has been fully advised by counsel in connection with his entering
into this Agreement, including as to statutory and common law regarding the enforceability of the
Restrictive Covenants; and (ix) enforcement of the Restrictive Covenants will not unduly limit the
Executives ability to support himself or his family or to earn a livelihood. The Executive
expressly acknowledges that the Confidential Information and goodwill of the Company constitute
protectible business interests
17
of the Company and that the Restrictive Covenants are fair, reasonable, valid, and enforceable.
(g) The Executive acknowledges and agrees that each of the Restrictive Covenants is given by
the Executive as part of the consideration for this Agreement and as an inducement to the Company
to enter into this Agreement.
(h) If any court determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected
and shall be given full effect, without regard to the invalid portion. In addition, if any court
construes any of the Restrictive Covenants, or any part thereof, to be unenforceable because of the
duration of such provision or the area covered thereby, such court shall have the power to reduce
the duration or area of such provision and, in its reduced form, such provision shall then be
enforceable and shall be enforced. The Executive agrees that the Restrictive Covenants, as so
amended, shall be valid and binding as though any invalid or unenforceable provision had not been
included herein.
(i) For purposes of this Section 6 and Section 7 hereof, the Company refers to the Company
and any of its parents, subsidiaries, subdivisions or affiliates.
7.
Developments
.
(a) If at any time or times during the Employment Period, the Executive (either alone or with
others) makes, conceives, discovers or reduces to practice or causes to be made, conceived,
discovered or reduced to practice, any intellectual property or any interest or rights therein
(whether or not patentable or registrable under trademark, copyright or similar statutes or subject
to analogous protection), including without limitation any invention, modification, discovery,
design, development, improvement, process, software program, original work of authorship,
trademark, documentation, formula, data, technique, know-how or trade secret (collectively referred
to as Developments) that (i) relates to the business of the Company or any customer of, or
supplier to, the Company or any of the products or services being developed, manufactured or sold
by the Company or which may be used in relation therewith, (ii) results from tasks assigned to the
Executive by the Company or (iii) results from the use of premises or personal property (whether
tangible or intangible) owned, leased or contracted for by the Company when used for Company
purposes and not for incidental personal purposes, such Developments and the benefits thereof shall
immediately become the sole and absolute property of the Company and its successors, assigns, and
nominees and the Executive (1) shall promptly make full written disclosure to the Company (or any
persons designated by it) of each such Development, (2) will hold in trust each such Development
for the sole right and benefit of the Company, and (3) hereby assigns all right, title and interest
the
18
Executive may have or acquire in each such Development and benefits and/or rights resulting
therefrom to the Company and its assigns without further compensation. The Executive further
acknowledges that all original works of authorship which are prepared by the Executive (either
alone or with others) within the scope of the Executives employment and which are protectible by
copyright are works made for hire as that term is defined in the United States Copyright Act.
(b) The Executive will, during the Employment Period and at any time thereafter, at the
request and cost of the Company, assist the Company and/or its designee in every proper way to
secure the Companys rights in the Developments and any copyrights, patents, trademarks and/or
other intellectual property rights relating thereto in any and all countries, including without
limitation the disclosure to the Company of all pertinent information and data with respect
thereto, the execution of all applications, specifications, oaths, assignments and all other
instruments which the Company shall deem necessary or desirable in order to apply for and obtain
such rights and in order to assign and convey to the Company, its successors, assigns, and nominees
the sole and exclusive rights, title and interest in and to such Developments and any copyrights,
patents, trademarks or other intellectual property rights relating thereto. In the event the
Company is unable, after reasonable effort, to secure the Executives signature on any document
relating to any United States or foreign patents, copyrights, trademarks or other analogous
protection relating to a Development, whether because of the Executives physical or mental
incapacity or for any other reason whatsoever, the Executive hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents as the Executives agent and
attorney-in-fact, to act for and in the Executives behalf and stead to execute and file any such
application or applications and to do all other lawfully permitted acts to further the prosecution
and issuance of patent, copyright, trademark or other analogous protection thereon with the same
legal force and effect as if executed by the Executive.
(c) The Executive hereby acknowledges and agrees that the provisions of this Section 7 are
reasonable and valid.
8.
Notices
. All notices or other communications hereunder shall be in writing and
shall be deemed to have been duly given (a) when delivered personally or by local courier, (b) upon
confirmation of receipt when such notice or other communication is sent by facsimile, or (c) one
day after timely delivery to an overnight delivery courier. The addresses for such notices shall
be as follows:
For notices and communications to the Company:
1300 Mopac Expressway South
Austin, TX 78746
Attention: General Counsel
19
For notices and communications to the Executive:
At the most recent address on file in the records of the Company
Any party hereto may, by notice to the other, change its address for receipt of notices hereunder.
9.
Governing Law; Interpretation
. This Agreement shall be construed under and
governed by the laws of the State of Texas, without reference to its conflicts of law principles.
The captions of this Agreement are not part of the provisions hereof and shall have no force or
effect.
10.
Withholding; Payment
. Notwithstanding any other provision of this Agreement, the
Company (or, as applicable, the trust established under Section 5(e) hereof) may withhold from
amounts payable under this Agreement all federal, state, local, and foreign taxes that are required
to be withheld by applicable laws or regulations. All cash amounts required to be paid hereunder
shall be paid in United States dollars.
11.
Amendment; Waiver
. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended, and the terms hereof may be waived, only by a written instrument
executed by the parties hereto or, in the case of a waiver, by the party waiving compliance;
provided that any such amendment, modification, supersession, cancellation, renewal, extension or
waiver by the Company must be approved by the Board. The failure of any party at any time or times
to require performance of any provision hereof shall in no manner affect the right at a later time
to enforce the same. No waiver by any party of the breach of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
12.
Successors and Assigns
.
(a) This Agreement shall be binding upon the Executive, without regard to the duration of his
employment by the Company or reasons for the cessation of such employment, and inure to the benefit
of his administrators, executors, heirs and assigns, although the obligations of the Executive are
personal and may be performed only by him. This Agreement shall also be binding upon and inure to
the benefit of the Company and its subsidiaries, successors and assigns, including any corporation
with which or into which the Company or its successors may be merged or which may succeed to their
assets or business.
(b) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
20
business and/or assets of the Company to be obligated to perform this Agreement (whether by
reason of express assumption by the successor or by operation of law) in the same manner and to the
same extent that the Company would be required to perform it if no such succession had taken place.
13.
Non-Exclusivity of Rights
. Except as may otherwise be specifically provided in
this Agreement, nothing in this Agreement shall prevent or limit the Executives continuing or
future participation in any plan, program, policy or practice provided by the Company or any of its
affiliated companies for which the Executive may qualify. Vested benefits and other amounts that
the Executive is otherwise entitled to receive under any other plan, policy, practice, or program
of, or any contract or agreement with, the Company or any of its affiliated companies on or after
the Date of Termination shall be payable in accordance with the terms of each such plan, policy,
practice, program, contract, or agreement, as the case may be, except as explicitly modified by
this Agreement.
14.
No Mitigation
. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and, except as specifically provided in Section
5(c)(ii) hereof, the amount of any payment or benefit provided for in this Agreement shall not be
reduced by any compensation or benefits earned by the Executive as the result of employment by
another employer or any self-employment.
15.
Settlement of Disputes
.
(a)
Optional Arbitration
. In consideration of the substantial payments and benefits
provided to the Executive under this Agreement, the Executive agrees that the Company may, but is
not required to, submit to arbitration any dispute or controversy arising between the Company and
the Executive including, but not limited to, any claim of discrimination under state or federal
law. If the Company elects to have any such dispute or controversy resolved by arbitration, then
any such arbitration proceedings shall be conducted in Austin, Texas in accordance with the
National Rules for Resolution of Employment Disputes of the American Arbitration Association then
in effect by a panel of three arbitrators, one chosen by each of Executive and the Company, with
the third arbitrator to be chosen by the other two arbitrators or if the two arbitrators cannot
agree upon a third arbitrator, then by the President of the American Arbitration Association;
provided
,
however
, that the Company may seek an injunction including, but not
limited to, an injunction in aid of arbitration from any court of competent jurisdiction to enforce
the Restrictive Covenants. Judgment may be entered on the arbitrators award in any court having
jurisdiction and attorney fees will be awarded to the prevailing party.
(b)
Jurisdiction and Venue if no Arbitration
. If the Company does not make the
election described in subsection (a), above, any dispute or controversy
21
arising out of Executives employment or the termination thereof, including, but not limited
to, any claim of discrimination under state or federal law, shall be brought exclusively in federal
or state court with venue in Austin, Texas and each party hereby irrevocably submits to the
jurisdiction of such courts.
(c)
Fees and Expenses
. Any reasonable fees or expenses incurred by the Executive in
connection with any proceeding described in this Section 15 shall be reimbursed by the Company as
soon as practicable following receipt of supporting documentation reasonably satisfactory to the
Company (but in any event not later than the close of the Executives taxable year following the
taxable year in which the fee or expense is incurred); provided that the Executive shall be
required to promptly return any such reimbursements to the Company if the Executive does not
prevail in such proceeding and the arbitrator or court (as the case may be) determines that the
Executives actions in respect of such proceeding were not in good faith; provided, further, that,
upon the Executives separation from service with the Company, in no event shall any additional
reimbursements be made prior to the date that is six months after the date of the Executives
separation from service to the extent such payment delay is required under Section 409A(a)(2)(B)(i)
of the Code. In no event shall any reimbursement be made to the Executive for such fees or
expenses incurred after the later of (i) the Executives death and (ii) the date that is 10 years
after the date of the Executives separation from service with the Company.
16.
Agreement Preparation Fees; Indemnification
.
(a) The Company shall promptly reimburse the Executive for reasonable and customary attorneys
fees incurred by the Executive in the negotiation and documentation of this Agreement upon receipt
of supporting documentation reasonably satisfactory to the Company.
(b) During and following the Employment Period, the Company shall indemnify Executive and hold
Executive harmless from and against any claim, loss or cause of action arising from or out of
Executives performance or status as an officer, director or employee of the Company or any of its
subsidiaries or in any other capacity, including any fiduciary capacity, in which Executive serves
at the request of Company to the maximum extent permitted by applicable law and the Companys
Certificate of Incorporation and By-Laws. Expenses incurred in defending or investigating a
threatened or pending action, suit or proceeding shall be paid by the Company in advance of the
final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the Executive to repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Company. To the extent that the Company reduces the indemnity rights
provided for under its By-Laws after execution of this Agreement, the Companys indemnity
obligations hereunder shall be unaffected (to the extent permitted by applicable law).
22
17.
Counterparts
. This Agreement may be executed in several counterparts, each of
which shall be deemed an original but which together shall constitute one and the same instrument.
18.
Severability
. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
19.
Entire Agreement
. This Agreement constitutes the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes all prior negotiations,
discussions, writings and agreements between them with respect to that subject matter. The
Existing CIC Agreement shall be of no further force or effect upon the occurrence of the Separation
and the Executive waives all rights that may have accrued thereunder. The provisions of the
preceding sentence are also for the benefit of, and shall be enforceable by, Temple-Inland.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.
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FORESTAR REAL ESTATE GROUP LLC
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By:
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/s/ Kenneth M. Jastrow, II
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Name: Kenneth M. Jastrow, II
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Title: Chairman of the Board
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EXECUTIVE
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/s/ James M. DeCosmo
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James M. DeCosmo
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APPENDIX A
Set forth below are the corporate boards on which service of the Executive is approved as of the
Effective Date pursuant to Section 2(c) of the Employment Agreement to which this Appendix A forms
a part:
1.
2.
3.
24
APPENDIX B
For purposes of this Agreement, a Change in Control shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or its Affiliates) representing
20% or more of the combined voting power of the Companys then outstanding securities,
excluding any Person who becomes such a Beneficial Owner in connection with a transaction
described in clauses (a), (b) or (c) of paragraph (III) below;
(II) within any twenty-four (24) month period, the following individuals cease for any
reason to constitute a majority of the number of directors then serving on the Board:
individuals who, on the Effective Date, constitute the Board and any new director (other
than a director whose initial assumption of office is in connection with an actual or
threatened election contest, including but not limited to a consent solicitation, relating
to the election of directors of the Company) whose appointment or election by the Board or
nomination for election by the Companys shareholders was approved or recommended by a vote
of at least two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or nomination for election was
previously so approved or recommended;
(III) there is consummated a merger, consolidation of the Company or any direct or
indirect subsidiary of the Company with any other corporation or any recapitalization of
the Company (for purposes of this paragraph (III), a Business Event) unless, immediately
following such Business Event (a) the directors of the Company immediately prior to such
Business Event continue to constitute at least a majority of the board of directors of the
Company, the surviving entity or any parent thereof, (b) the voting securities of the
Company outstanding immediately prior to such Business Event continue to represent (either
by remaining outstanding or by being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company or any
subsidiary of the Company, at least 60% of the combined voting power of the securities of
the Company or such surviving entity or any parent thereof outstanding immediately after
such Business Event, and (c) in the event of a recapitalization, no Person is or becomes
the Beneficial Owner, directly or indirectly, of securities of the Company or such
surviving entity or any parent thereof (not including in the securities Beneficially Owned
by such Person any securities acquired
25
directly from the Company or its Affiliates) representing 20% or more of the combined
voting power of the then outstanding securities of the Company or such surviving entity or
any parent thereof (except to the extent such ownership existed prior to the Business
Event);
(IV) the shareholders of the Company approve a plan of complete liquidation or
dissolution of the Company;
(V) there is consummated an agreement for the sale, disposition or long-term lease by
the Company of substantially all of the Companys assets, other than (a) such a sale,
disposition or lease to an entity, at least 50% of the combined voting power of the voting
securities of which are owned by shareholders of the Company in substantially the same
proportions as their ownership of the Company immediately prior to such sale or disposition
or (b) the distribution directly to the Companys shareholders (in one distribution or a
series of related distributions) of all of the stock of one or more subsidiaries of the
Company that represent substantially all of the Companys assets; or
(VI) any other event that the Board, in its sole discretion, determines to be a Change
in Control for purposes of this Agreement.
Notwithstanding the foregoing, a Change in Control under clauses (I) through (V) above
shall not be deemed to have occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in one or more entities
which, singly or together, immediately following such transaction or series of
transactions, own all or substantially all of the assets of the Company as constituted
immediately prior to such transaction or series of transactions.
For purposes of this definition of Change in Control:
Affiliate shall have the meaning set forth in Rule 12b-2 promulgated under Section
12 of the Exchange Act.
Beneficial Owner shall have the meaning set forth in Rule 13d-3 under the Exchange
Act.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to
time.
Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof,
26
except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of the Company
or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to
an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their ownership of
stock of the Company.
27
APPENDIX C
GENERAL RELEASE OF CLAIMS AGREEMENT
This General Release of Claims Agreement (hereinafter referred to as this Agreement) is made
by and between
FORESTAR REAL ESTATE GROUP LLC
(hereinafter referred to as the Company) and
JAMES
M. DeCOSMO
(hereinafter referred to as Employee) and is effective as of the date of Employees
signature below.
In consideration of their mutual promises and obligations set out below, Company and Employee
agree to the following terms:
1.
Conditions of Separation
.
Employees employment with Company will terminate
effective with the close of business on [DATE] (the Separation Date).
2.
Payments and Other Considerations
. The parties agree that certain portions of the
consideration described in Section 5 of the Employment Agreement between Employee and the Company
dated August 9, 2007 (Employment Agreement) would not be paid to Employee
but for his execution of this General Release of Claims Agreement.
EMPLOYEE UNDERSTANDS THAT THIS GENERAL RELEASE OF CLAIMS AGREEMENT INCLUDES A RELEASE OF ALL
KNOWN AND UNKNOWN CLAIMS.
3.
Waiver and Release of All Claims
.
In consideration of the agreements made by
Company in this Agreement, Employee on behalf of himself, his agents, representatives, executors,
attorneys, administrators, heirs or assigns, hereby releases, acquits and forever discharges
Company, its divisions, parent, subsidiaries, affiliates, predecessors, assigns, successors,
officers, officials, directors, shareholders, employees, agents, and each of them, whether past or
present (hereinafter collectively referred to as the Releasees), from any and all charges,
actions, causes of actions, claims, damages, obligations, suits, agreements, costs, expenses,
attorneys fees and with regard to the payment of all wages, benefits, back pay, debts,
obligations, compensatory damages, punitive damages, actual damages, or any other liability of any
kind whatsoever, suspected or unsuspected, known or unknown, which have or could have arisen out of
Employees employment with and/or separation of employment from Company or any Releasee and/or any
other occurrence or claim whatsoever, known or unknown, arising on or before the effective date of
this Agreement, including, but not limited to:
a. Claims which could have arisen under Title VII of the Civil Rights Act of 1964, as
amended; the Civil Rights Act of 1991; the Americans With
28
Disabilities Act; the Age Discrimination in Employment Act, as amended; the Family and
Medical Leave Act; the Fair Labor Standards Act; the Equal Pay Act; the National Labor
Relations Act; the Worker Adjustment and Retraining Notification Act; the Employee
Retirement Income Security Act; the Sarbanes-Oxley Act of 2002; the Texas Commission on
Human Rights Act, and/or any other federal, state or municipal employment discrimination
statute (including claims based on sex, sexual harassment, sexual orientation, age, race,
national origin, religion, ancestry, harassment, marital status, handicap, disability,
retaliation, any other legally protected group status, and/or attainment of benefit plan
rights); and/or
b. Claims arising out of any other federal, state, or local statute, law, constitution,
ordinance or regulation;
c. Any other claim whatsoever including, but not limited to, claims relating to implied or
express employment contracts; and/or
d. Claims based on theories of tort, whether under common law or otherwise,
but excluding claims which Employee cannot by law waive and any claims for breach of this
Agreement. Notwithstanding the general language of this release, it is understood that Employees
release of claims is not intended to waive any rights Employee may have: (i) to indemnification as
set forth under Section 16 of the Employment Agreement or (ii) as a terminating employee to: (a)
benefits under the Employment Agreement or any vested benefits under a benefit plan which by its
terms specifically provides for the vesting of benefits; (b) to apply for unemployment compensation
benefits under state law; or (c) to elect COBRA continuation coverage.
4.
Entire Agreement
.
This Agreement together with the Employment Agreement
constitutes the entire agreement between Employee and Company. No other promises or agreement
shall be binding unless hereafter in writing and signed by both parties.
5.
Time To Review, Attorney Consultation & Revocation
.
Employee acknowledges and
agrees that Company is hereby advising him that: (a) this Agreement contains a release of claims
under the Age Discrimination in Employment Act, as amended; (b) he can and should consult with an
attorney with respect to the matters contained in this Agreement; (c) he has been given a period of
at least [forty-five (45)/twenty one (21)] days to decide whether to accept its terms; (d) he may
accept this offer at any point during that time by returning this Agreement, signed by him, to
[NAME, ADDRESS], within that time period; and (e) he may revoke this Agreement any time during a
period of up to seven (7) days from the date he tenders this signed Agreement to Company.
29
Any revocation must be made in writing and be delivered by hand or otherwise within the
required time to [NAME] at the address above. Employee understands that he will receive severance
payments and benefits pursuant to the Employment Agreement only once this 7-day revocation period
has expired and this Agreement becomes final and irrevocable.
6.
Separability
.
If any portion of this Agreement is found to be unenforceable, the
remainder of this Agreement shall remain in full force and effect.
7.
Construction
.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Texas, without regard to its conflicts of law principles.
8.
Non-Admission
.
All parties acknowledge that this Agreement does not constitute an
admission by Company of any liability whatsoever, but results from the desire to expeditiously
resolve possibly disputed issues of fact and law, and further acknowledge that Company denies all
allegations of violation of any law, statute, ordinance, regulation, common law, tort or contract.
9.
Full Knowledge, Consent and Voluntary Signing of Agreement
.
Employee acknowledges
and agrees that: (a) he has carefully read this Agreement and fully understands its meaning, intent
and terms; (b) he has full knowledge of its legal consequences; (c) he agrees to all the terms of
this Agreement and is voluntarily signing below; (d) other than as stated herein, he attests that
no promise or inducement has been offered for this Agreement; and (e) he is legally competent to
execute this Agreement and accepts full responsibility therefor.
10.
Standards of Business Conduct Certification
.
Employee acknowledges that he has
read and understood the Companys Standards of Business Conduct and Ethics (SOBCE). In this
connection Employee certifies to Company that: (a) he has in the past reported through the SOBCEs
reporting procedures any violations of the SOBCE of which he was aware; (b) he is aware of no other
violations of the SOBCE which he has not previously reported; and (c) he is not aware of any
conduct by any employee of Company (or any part of the Company) that he believes may constitute a
violation of any laws or regulations relating to fraud against shareholders. The only exception(s)
to these certifications by Employee, if any, are the following
matters:_________.
[These lines to be filled-in by Employee, if applicable, at the time he signs this Agreement. If
he leaves these lines blank, Employee agrees that he has nothing to report.
Note
:
reporting information in this section does not in any way adversely affect any of Employees rights
and responsibilities set out in this Agreement.]
30
WHEREFORE, EMPLOYEE AGREES THAT HE HAS READ AND VOLUNTARILY ENTERED INTO THIS AGREEMENT WITH FULL
KNOWLEDGE OF ITS SIGNIFICANCE.
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EMPLOYEE:
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COMPANY:
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By
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JAMES M. DeCOSMO
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Title:
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Date:
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Date:
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31
EXHIBIT
99.1
[ ],
2007
Dear
Temple-Inland Stockholder:
February 25, 2007, the Board of Directors of Temple-Inland
Inc. approved a transformation plan to separate Temple-Inland
into three focused, stand-alone, public companies and sell our
strategic timberland. The plan included:
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Temple-Inland retaining its manufacturing operations
corrugated packaging and building products,
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Spinning off our financial services group Guaranty
Financial Group,
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Spinning off our real estate group Forestar Real
Estate Group, and
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Selling our strategic timberland.
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Each of the three public companies Temple-Inland,
Guaranty, and Forestar will benefit from greater
strategic focus, have appropriate capital structures to ensure
financial flexibility, and be well positioned to maximize
stockholder value. The majority of proceeds from the sale of
strategic timberland will be returned to stockholders through a
special dividend currently estimated to be approximately $1.1
billion, or $10.25 per share. The remaining proceeds will be
used to pay down debt.
We will effect the spin-off of Guaranty and Forestar by
distributing common stock on a pro rata basis through a dividend
to stockholders. The dividend will represent 100% of the
outstanding common stock of Guaranty and Forestar at the time of
the spin-off. We anticipate distributing shares of Guaranty and
Forestar on or about
[ ],
2007 to stockholders of record as of
[ ],
2007.
Stockholder approval for the spin-off is not required, and you
are not obligated to take any action to participate in the
spin-off. You do not need to pay any consideration or surrender
or exchange your shares of Temple-Inland common stock. Following
the spin-off, Temple-Inland common stock will continue to trade
on the New York Stock Exchange under the symbol TIN,
Guaranty common stock is expected to trade on the New York Stock
Exchange under the symbol GFC, and Forestar common
stock is expected to trade on the New York Stock Exchange under
the symbol FOR.
We have requested a ruling from the Internal Revenue Service
indicating the spin-off of each of Guaranty and Forestar will be
tax free to stockholders for U.S. federal income tax
purposes.
The enclosed information statement, provided to all
Temple-Inland stockholders, describes the spin-off of Forestar.
A separate information statement describing the spin-off of
Guaranty will also be provided to all Temple-Inland stockholders.
Sincerely,
Kenneth M. Jastrow, II
Chairman and Chief Executive Officer
[ ],
2007
Dear Forestar Real Estate Group Stockholder:
It is our pleasure to welcome you as a stockholder of our new
company. Our management team is excited about our spin-off from
Temple-Inland Inc., and is committed to realizing the potential
that exists for us as an independent company. Our vision is to
be the most admired and respected real estate company.
Forestar Real Estate Group is focused on maximizing and growing
long-term stockholder value through entitlement and development
of real estate, realization of value from natural resources, and
accelerated growth through strategic and disciplined investment
in real estate. We currently have real estate in nine states and
twelve markets encompassing about 376,000 acres located
primarily in growth corridors in the southern half of the United
States. We also own oil and gas mineral interests in about
623,000 net acres in Texas, Louisiana, Alabama and Georgia.
We expect to have our common shares listed on the New York Stock
Exchange under the symbol FOR in connection with the
distribution of our shares by Temple-Inland Inc.
We invite you to learn more about our company by reading the
enclosed information statement. You may also visit our website,
www.forestargroup.com, to learn more about our company and our
current development projects. We would like to thank you in
advance for your support as a stockholder in Forestar.
Sincerely,
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James M. DeCosmo
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Kenneth M. Jastrow, II
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President and Chief Executive
Officer
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Chairman
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SUBJECT TO COMPLETION, DATED
AUGUST 10, 2007
INFORMATION
STATEMENT
[ ],
2007
Common
Stock
(par
value $[ ] per share)
We are sending this information statement to you to describe the
spin-off of Forestar Real Estate Group LLC from Temple-Inland
Inc. We are currently a wholly-owned subsidiary of Temple-Inland
that holds the assets and liabilities primarily related to
Temple-Inlands real estate development and minerals
operations. On February 25, 2007, the board of directors of
Temple-Inland preliminarily approved a plan to separate
Temple-Inland into three focused, stand-alone, public companies:
one for its real estate business (Forestar Real Estate Group
LLC), one for its financial services business (Guaranty
Financial Group Inc.), and one for its manufacturing operations
in corrugated packaging and building products (Temple-Inland).
Temple-Inland intends to accomplish this separation by
distributing the shares of common stock in Forestar and Guaranty
to Temple-Inland stockholders. Immediately following the
separation of Forestar and Guaranty, Temple-Inlands
stockholders will own all of the outstanding shares in each of
the three companies. The distributions are intended to be
tax-free to stockholders for U.S. federal income tax
purposes, except for cash received in lieu of any fractional
share interests.
The distribution of our shares is expected to occur on
[ ],
2007, by way of a pro rata dividend to Temple-Inland
stockholders. You, as a Temple-Inland stockholder, will be
entitled to receive
[ ] shares
of Forestar common stock for each
[ ] shares
of Temple-Inland common stock that you hold at the close of
business on
[ ],
2007, the record date of the distribution. We are currently a
limited liability company. Prior to the distribution, however,
we will convert to a Delaware corporation, Forestar Real Estate
Group Inc. Upon completion of the distribution, we will be an
independent, publicly-traded company.
On the distribution date, the distribution agent will distribute
shares of our common stock to each eligible holder of
Temple-Inland common stock by crediting book-entry accounts with
that holders proportionate number of whole shares of our
common stock. The shares will be issued in book-entry form only,
which means that no physical stock certificates will be issued.
No fractional shares of our common stock will be issued. You
will receive the net cash value of any fractional share to which
you would otherwise have been entitled.
No stockholder action is necessary to receive the shares of
common stock to which you are entitled in the distribution,
which means that:
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you do not need to make any payment for the shares, and
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you do not need to surrender any shares of Temple-Inland common
stock to receive your shares of our common stock.
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No vote of Temple-Inland stockholders is required in
connection with this distribution. We are not asking you for a
proxy and you are not requested to send us a proxy.
All of the outstanding shares of our common stock are currently
owned by Temple-Inland. Accordingly, there currently is no
public trading market for our common stock. We intend to file an
application to list our common stock on the New York Stock
Exchange under the ticker symbol FOR. Assuming that
our common stock is approved for listing on the NYSE, we
anticipate that a limited market, commonly known as a
when-issued trading market, for our common stock
will develop on or shortly before the record date for the
distribution and will continue up to and through the
distribution date. We anticipate that regular-way
trading of our common stock will begin on the first trading day
following the distribution date.
In reviewing this information statement, you should carefully
consider the matters described under the section entitled
Risk Factors
beginning on page 11.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this information statement is
truthful or complete. Any representation to the contrary is a
criminal offense.
This information statement does not constitute an offer to
sell or the solicitation of an offer to buy any securities.
This information statement was first mailed to
Temple-Inland stockholders on or about
,
2007
TABLE OF
CONTENTS
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1
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11
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18
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20
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30
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46
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54
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68
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96
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105
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111
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112
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113
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F-1
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This information statement is being furnished solely to
provide information to Temple-Inland stockholders who will
receive shares of our common stock in the distribution. It is
not and is not to be construed as an inducement or encouragement
to buy or sell any of our securities or any securities of
Temple-Inland. This information statement describes our
business, the relationship between Temple-Inland and us, and how
the spin-off affects Temple-Inland and its stockholders, and
provides other information to assist you in evaluating the
benefits and risks of holding or disposing of our common stock
that you will receive in the distribution. You should be aware
of certain risks relating to the spin-off, our business and
ownership of our common stock, which are described under the
heading Risk Factors beginning on page 11 of
this information statement.
You should not assume that the information contained in this
information statement is accurate as of any date other than the
date on the cover. Changes to the information contained in this
information statement may occur after that date, and we
undertake no obligation to update the information, except in the
normal course of our public disclosure obligations and
practices.
We own or have rights to use certain trademarks, trade names
and logos in conjunction with our business, including our
distinctive leaf-star logo. Certain other
trademarks, trade names and logos of third parties may appear in
this information statement, including specifically PGA
Tour
®
and Tournament Players
Club
®
,
each of which are trademarks of PGA Tour, Inc. The display of
such third parties trademarks, trade names and logos is
for informational purposes only, and is not intended for
marketing or promotional purposes or as an endorsement of their
business or of any of their products or services
.
SUMMARY
The following is a summary of material information discussed
in this information statement. This summary may not contain all
the details concerning the spin-off, our business, our common
stock or other information that may be important to you. You
should carefully review this entire information statement,
including the risk factors, to better understand the spin-off
and our business and financial position.
Except as otherwise indicated or unless the context otherwise
requires, the information included in this information statement
assumes the completion of the spin-off and all of the other
related transactions referred to in this information statement.
Unless the context otherwise requires, references in this
information statement to Forestar, we,
our and us refer to the real estate and
natural resources business that will be separated from
Temple-Inland Inc. in the spin-off under the name Forestar Real
Estate Group Inc., a Delaware corporation, and its subsidiaries.
Forestar will convert to a Delaware corporation prior to the
distribution. Guaranty refers to Guaranty Financial
Group Inc. and its subsidiaries, the financial services business
of Temple-Inland, also to be separated, and
Temple-Inland refers to Temple-Inland Inc., a
Delaware corporation, and its subsidiaries, unless the context
otherwise requires. Unless otherwise indicated, information is
presented as of June 30, 2007.
OUR
COMPANY
Forestar Real Estate Group, one of the largest publicly-traded
real estate development companies, is a growth company committed
to maximizing long-term stockholder value. We have about
376,000 acres of real estate located in nine states and
twelve markets and about 623,000 net acres of oil and gas
mineral interests. We invest in strategic growth corridors,
which we define as markets with significant growth
characteristics for population, employment and household
formation. In 2006, we generated revenues of $225 million
and net income of $52 million.
We operate two business segments:
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Real estate, and
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Natural resources.
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Our real estate segment secures entitlements and develops
infrastructure on our lands, primarily for single-family
residential and mixed-use communities. We own approximately
306,000 acres located in a broad area around Atlanta,
Georgia, with the balance located primarily in Texas. We also
actively invest in new projects in our strategic growth
corridors, regions of accelerated growth across the southern
half of the United States that possess key demographic and
growth characteristics that we believe make them attractive for
long-term real estate investment.
Our real estate projects are located among the fastest growing
markets in the United States. We have 24 real estate
projects representing about 27,000 acres currently in the
entitlement process and 74 active development projects in seven
states and 12 markets encompassing approximately
18,000 remaining acres. In addition, we sell land for
commercial uses to national retailers and local commercial
developers. We own and manage projects both directly and through
ventures. By using ventures, we achieve various business
objectives including more efficient capital deployment, risk
management, and leveraging a partners local market
contacts and expertise. Real estate segment revenues for 2006
were $180 million.
Our natural resources segment is focused on maximizing the value
from royalties and other lease revenues from our oil and gas
mineral interests located in Texas, Louisiana, Alabama and
Georgia. These operations have historically required low capital
investment, and we intend to use the cash flow generated by our
mineral interests to accelerate real estate value creation. In
addition, we sell wood fiber from our land, primarily in
Georgia, and lease land for recreational uses. Natural resources
segment revenues for 2006 were $45 million.
Our origins date back to the 1955 incorporation of
Lumbermens Investment Corporation, which in 2006 changed
its name to Forestar (USA) Real Estate Group Inc. We have a
decades-long legacy of residential and commercial real estate
development operations, primarily in Texas. In 1991, we formed
Temco Associates,
1
LLC as a venture to develop residential sites in Paulding
County, Georgia, and in 2002 we formed CL Realty, L.L.C. as a
venture to develop residential and mixed-use communities in
Texas and across the southeastern U.S. Those ventures
continue today. In 2001, we opened an office in the Atlanta area
to manage nearby land with a focus on its long-term real estate
development potential. In 2006, Temple-Inland began reporting
Forestar Real Estate Group as a separate business segment. We
believe our management team brings extensive knowledge,
experience and expertise to position us to maximize long-term
value for stockholders.
Our
Strengths
Forestar has a strong competitive position attributable to a
number of factors, including:
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Geographically diversified real estate portfolio with about
376,000 acres located in nine states and twelve markets,
which are among the fastest growing markets in the United States,
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Stable and significant cash flow from natural resources, which
will accelerate real estate value creation activities,
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Financial strength, with a balance sheet well positioned for
growth, and
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Management team with significant experience in entitlement,
development and acquisition of real estate, and management of
natural resources.
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Our
Strategy
Our strategy is to maximize and grow long-term stockholder value
through:
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Entitlement and development of real estate,
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Realization of value from natural resources, and
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Accelerated growth through strategic and disciplined investment
in real estate.
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We are focused on maximizing real estate values through the
entitlement and development of well-located residential and
mixed-use communities. We secure entitlements on our lands by
delivering thoughtful plans and balanced solutions that meet the
needs of the communities where we operate. Moving land through
the entitlement and development process creates significant real
estate value. Residential development activities target lot
sales to national and regional home builders who build quality
products and have strong and effective marketing and sales
programs. The lots we deliver in the majority of our communities
are for mid-priced homes, predominantly in the first and second
move-up categories, the largest segments of the new home market.
Commercial tracts are either sold to or ventured with a
commercial developer that specializes in the construction and
operation of income-producing properties.
We intend to maximize value from our oil and gas mineral
interests located in Texas, Louisiana, Alabama and Georgia by
increasing the acreage leased, lease rates and royalty
interests. These operations have historically required low
capital investment and we intend to use the cash flow generated
by our mineral interests to accelerate real estate value
creation activities. In addition, we realize value from our
undeveloped land by selling fiber and by managing it for future
real estate development and conservation uses. We also intend to
generate cash flow and create additional value through
recreational leases, mitigation banks and water rights.
We are committed to growing our business and will continue to
reinvest our capital primarily in ten strategic growth corridors
through disciplined investment in real estate opportunities that
meet our investment criteria. In 2006, we invested
$74 million in ten new projects, representing over
2,400 acres located in three of our strategic growth
corridors.
Our real estate and natural resources assets in combination with
our strategy, financial strength, management expertise,
stewardship and continuous reinvestment in our business,
position Forestar to maximize long-term value for stockholders.
2
SUMMARY
REAL ESTATE PORTFOLIO AND ACTIVITY
The following table sets forth our real estate portfolio at
June 30, 2007, and our 2006 sales and entitlement activity
(including ventures).
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June 30, 2007
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For the Year 2006
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Value Chain
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Acres
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Lots
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Sales & Entitlement Activity
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Average Sales Price
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Developed & Under
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Development
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Commercial
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642
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Sold 278 acres
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$204,800 / acre
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Residential
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2,653
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4,956
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Sold 3,539 lots
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$48,200 / lot
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Entitled
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14,584
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25,212
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Entitled 2,151 acres - 5 projects
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In Entitlement
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26,960
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Moved 4,890 acres into entitlement
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Undeveloped Land
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331,373
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Sold 3,652 acres
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$8,100 / acre
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Total
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376,212
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30,168
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SUMMARY
FINANCIAL INFORMATION
The following table sets forth summary historical financial data
as of and for the periods indicated.
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First
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Six Months
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Year-End
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2007
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2006
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2005
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2004
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(In thousands, except number of employees)
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For the period ended
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Revenue
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$
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90,741
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$
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225,560
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$
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155,487
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$
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169,301
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Net income
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$
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15,093
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$
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51,844
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$
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34,897
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$
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28,436
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At end of period
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Total assets
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$
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681,416
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$
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620,174
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$
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543,944
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$
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517,700
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Note payable to Temple-Inland and
other debt
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$
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201,842
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$
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161,117
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$
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121,948
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$
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110,997
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Temple-Inlands net
investment
(a)
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$
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431,547
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$
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418,052
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$
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381,290
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$
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368,659
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Number of employees
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65
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62
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48
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49
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(a)
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Our operations are conducted within separate legal entities and
their subsidiaries or within segments or components of segments
of Temple-Inland. As a result of the different forms of
Temple-Inlands ownership in these operations,
Temple-Inlands net investment is shown instead of
stockholders equity.
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Other
Information
We are currently a limited liability company that will be
converted to a Delaware corporation. Our principal executive
offices are located at 1300 MoPac Expressway South, Austin,
Texas 78746. Our telephone number is
512-434-3888.
Our web site is
www.forestargroup.com
. Information
contained on our web site does not constitute a part of this
information statement or the registration statement on
Form 10 of which it is a part.
3
SUMMARY
RISK FACTORS
An investment in our common stock involves risks associated
with our business, the spin-off and ownership of our common
stock. The following list of risk factors is not exhaustive.
Please read carefully the risks relating to these and other
matters described under the section entitled Risk
Factors beginning on page 11.
Risks
Relating to Our Business
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A decrease in demand for new housing in the market regions where
we operate could decrease our profitability.
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Both our real estate and natural resources businesses are
cyclical in nature.
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Development of real estate entails a lengthy, uncertain, and
costly entitlement process.
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The real estate and natural resource industries are highly
competitive and a number of entities with which we compete are
larger and have greater resources, and competitive conditions
may adversely affect our results of operations.
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Our activities are subject to environmental regulations and
liabilities that could have a negative effect on our operating
results.
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Our real estate operations are currently concentrated in Georgia
and Texas, and our oil and gas leases are currently concentrated
in Texas and Louisiana. As a result, our financial results are
dependent on the economic growth and strength of those areas.
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If we are unable to retain or attract experienced real estate
development or natural resources management personnel, our
business may be adversely affected.
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Our real estate development operations are increasingly
dependent upon national, regional, and local homebuilders, as
well as other strategic partners, who may have interests that
differ from ours and may take actions that adversely affect us.
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Risks
Relating to the Spin-off
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We may be unable to achieve some or all of the benefits that we
expect to achieve from our spin-off from Temple-Inland.
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We have no operating history as an independent, publicly-traded
company upon which you can evaluate our performance, and
accordingly, our prospects must be considered in light of the
risks that any newly independent company encounters.
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Our agreements with Temple-Inland and Guaranty may not reflect
terms that would have resulted from arms-length
negotiations among unaffiliated third parties.
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Our historical and pro forma financial information are not
necessarily indicative of our results as a separate company and,
therefore, may not be reliable as an indicator of our future
financial results.
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If the spin-off is determined to be taxable for
U.S. federal income tax purposes, we, our stockholders, and
Temple-Inland could incur significant U.S. federal income
tax liabilities.
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We must abide by certain restrictions to preserve the tax-free
treatment of the spin-off and may not be able to engage in
desirable acquisitions and other strategic transactions
following the spin-off.
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The ownership by our chairman, our executive officers and some
of our other directors of common stock, options or other equity
awards of Temple-Inland or Guaranty may create, or may create
the appearance of, conflicts of interest.
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4
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We may be unable to make, on a timely or cost-effective basis,
the changes necessary to operate as an independent,
publicly-traded company, and we may experience increased costs
after the spin-off or as a result of the spin-off.
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Until the distribution occurs Temple-Inland has the sole
discretion to change the terms of the spin-off in ways that may
be unfavorable to us.
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Risks
Relating to Our Common Stock
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There is no existing market for our common stock and a trading
market that will provide adequate liquidity may not develop for
our common stock. In addition, once our common stock begins
trading, the market price of our shares may fluctuate widely.
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Substantial sales of our common stock may occur following the
spin-off, which could cause our stock price to decline.
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Your percentage ownership in our common stock may be diluted in
the future.
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The terms of our spin-off from Temple-Inland, anti-takeover
provisions of our charter and bylaws, as well as Delaware law
and our stockholder rights agreement, may reduce the likelihood
of any potential change of control or unsolicited acquisition
proposal that you might consider favorable.
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We currently do not intend to pay any dividends on our common
stock. Accordingly, investors in our common stock must rely upon
subsequent sales after price appreciation as the sole method to
realize a gain on an investment in our common stock.
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THE
TRANSFORMATION PLAN
On February 25, 2007, the board of directors of
Temple-Inland unanimously authorized management of Temple-Inland
to pursue a transformation plan to spin off its real estate
business and its financial services business from Temple-Inland.
The spin-offs will occur through distributions to
Temple-Inlands stockholders of all of the shares of common
stock of Forestar, which will hold all of the assets and
liabilities of the real estate business of Temple-Inland, and
Guaranty, which will hold all of the assets and liabilities of
the financial services business of Temple-Inland. In addition,
Temple-Inland is selling its strategic timberland as part of the
transformation plan. On August 3, 2007, Temple-Inland
entered into a definitive agreement to sell its strategic
timberland for approximately $2.38 billion. The transaction
is expected to close in fourth quarter 2007, subject to
customary closing conditions.
We will enter into a separation and distribution agreement and
several other related agreements with Temple-Inland and Guaranty
to effect the separation and provide a framework for our
relationships with Temple-Inland and Guaranty after the
spin-off. These agreements will govern the relationships among
us, Guaranty, and Temple-Inland subsequent to the completion of
the spin-off and provide for the allocation among us, Guaranty,
and Temple-Inland of Temple-Inlands assets, liabilities
and obligations (including employee benefits and tax-related
assets and liabilities) attributable to periods prior to, at and
after our spin-off from Temple-Inland. For more information on
the separation and distribution agreement and related
agreements, see the section entitled Certain Relationships
and Related Party Transactions Agreements with
Temple-Inland and Guaranty beginning on page 99 of
this information statement.
Temple-Inlands board of directors believes that creating
three independent companies, each focused on its core business,
is the best way to manage these businesses for the benefit of
the stockholders and each of the companies, in both the short
and long term. Temple-Inland believes that the separation of the
businesses should not only enhance the strength of each
business, but should also improve the strategic, operational and
financial flexibility of each company. Although there can be no
assurance, Temple-Inland believes that, over time, the common
stock of Temple-Inland, Forestar and Guaranty should have a
greater aggregate market value, assuming the same market
conditions, than Temple-Inland common stock has in its current
configuration (adjusting for the sale of its strategic
timberland).
5
QUESTIONS
AND ANSWERS RELATING TO THE SPIN-OFF
The following are some of the questions that you may have
about the spin-off and answers to those questions. These
questions and answers are not meant to be a substitute for the
information contained in the remainder of this information
statement, including the section entitled The
Spin-off beginning on page 20. This information is
qualified in its entirety by the more detailed descriptions and
explanations contained elsewhere in this information statement.
We urge you to read this information statement carefully and in
its entirety.
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Q:
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What is the spin-off?
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A:
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The spin-off is the method by which Temple-Inland will separate
its existing business segments into three focused, stand-alone,
public companies. In the spin-off, Temple-Inland will distribute
to its stockholders all of the outstanding shares of our common
stock and all of the outstanding shares of common stock of
Guaranty. Following the spin-off, we will be a separate company
from Temple-Inland, and Temple-Inland will not retain any
ownership interest in us. The number of shares of Temple-Inland
common stock you own will not change as a result of the
spin-off, although the value of shares of Temple-Inland common
stock may initially decline as a result of the spin-off of our
company, the spin-off of Guaranty, and the sale of
Temple-Inlands strategic timberlands because the value of
those businesses will no longer be part of the value of
Temple-Inland common stock.
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Q:
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Why is the separation of Forestar from Temple-Inland
structured as a spin-off distribution?
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A:
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Temple-Inland believes that a spin-off distribution of shares of
Forestar and Guaranty to its stockholders is a tax-efficient way
to separate the businesses. The spin-off is intended to be
tax-free both to Temple-Inland and to you, as a Temple-Inland
stockholder, other than with respect to any cash paid in lieu of
fractional shares as discussed below.
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Q:
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What is being distributed in the spin-off?
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A:
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Approximately
[ ] million
shares of our common stock will be distributed in the spin-off,
based upon the number of shares of Temple-Inland common stock
outstanding on
[ ],
2007. Approximately
[ ] million
shares of Guaranty common stock will also be distributed in a
separate spin-off. The shares of our common stock to be
distributed by Temple-Inland will constitute all of the issued
and outstanding shares of our common stock immediately after the
spin-off. Each share of our common stock will have attached to
it one preferred stock purchase right created under a
stockholder rights agreement that we expect our board will adopt
prior to the spin-off. For more information on the shares being
distributed in the spin-off and the stockholder rights
agreement, see the sections entitled Description of Our
Capital Stock Common Stock beginning on
page 105 of this information statement and
Description of Our Capital
Stock Anti-takeover Effects of Our Stockholder
Rights Agreement, Our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws, and Delaware
Law Stockholder Rights Agreement beginning on
page 109 of this information statement.
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Q:
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What will I receive in the spin-off?
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A:
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As a holder of Temple-Inland common stock, you will receive a
pro rata dividend of
[ ] share
of our common stock (and a related preferred stock purchase
right) for every
[ ] shares
of Temple-Inland common stock that you hold on the record date
and do not subsequently sell in the regular way
market prior to the distribution date. For more information on
the spin-off distribution, see the section entitled The
Spin-off Distribution of the Shares beginning
on page 23 of this information statement. You will also
receive shares of Guaranty common stock in its separate spin-off.
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Q:
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When will the distribution occur?
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A:
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We expect that the distribution agent will distribute shares of
our common stock, on behalf of Temple-Inland, on or
about ,
2007, which we refer to as the distribution date.
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6
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Q:
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What are the reasons for the spin-off?
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A:
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The following potential benefits were considered by
Temple-Inlands board of directors in making the
determination to approve the spin-off:
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allowing both Temple-Inland and us to focus on our
respective core businesses;
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allowing our capital structure to be tailored to our
needs and facilitating selective acquisitions;
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achieving a higher aggregate market value for
Temple-Inland stockholders;
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enabling investors to invest directly in our
business; and
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creating more effective management incentives based
upon market performance.
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For more information on the reasons for the spin-off, see
The Spin-off Reasons for the Spin-offs
beginning on page 22 of this information statement.
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Q:
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Can Temple-Inland decide to cancel the distribution of the
shares of Forestar common stock even if all the conditions to
the spin-off have been satisfied?
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A:
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Yes. The distribution is subject to the satisfaction or waiver
of certain conditions. See the section entitled The
Spin-off Conditions to the Spin-off beginning
on page 29 of this information statement. Temple-Inland has
the right to terminate the distribution, even if all of the
conditions are satisfied, if at any time the board of directors
of Temple-Inland determines that the distribution is not in the
best interests of Temple-Inland and its stockholders or that
market conditions are such that it is not advisable to separate
the real estate business from Temple-Inland.
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Q:
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What do I have to do to participate in the spin-off?
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A:
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Nothing, but we urge you to read this entire document carefully.
If you are a holder of record of Temple-Inland common stock on
[ ],
2007, the record date for the spin-off, you will not be required
to pay any cash or deliver any other consideration, including
any shares of Temple-Inland common stock, in order to receive
shares of our common stock in the spin-off. As discussed under
the section entitled The Spin-off Trading of
Temple-Inland Common Stock Between the Record Date and
Distribution Date beginning on page 28 of this
information statement, if you sell your shares of Temple-Inland
common stock in the regular way market after the
record date and on or before the distribution date, you also
will be selling your right to receive shares of our common stock
in connection with the spin-off. You are not being asked to
provide a proxy with respect to any of your shares of
Temple-Inland common stock in connection with the spin-off.
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Q:
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How will Temple-Inland distribute shares of Forestar common
stock to me?
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A:
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Holders of shares of Temple-Inland common stock on the record
date that do not subsequently sell their shares in the
regular way market on or before the distribution
date will receive shares of our common stock through the
transfer agents book-entry registration system. These
shares will not be in certificated form. Instead of certificates
representing shares of our common stock, if you are a registered
holder of Temple-Inland common stock, the distribution agent
will mail to you an account statement that indicates the number
of shares of our common stock that have been registered in
book-entry form in your name and the method by which you may
access your account. If you hold your Temple-Inland common stock
in street name through a bank or brokerage firm,
your bank or brokerage firm will credit your account for the
number of shares of our common stock that you are entitled to
receive in the distribution. For more information, see the
section entitled The Spin-off Distribution of
the Shares beginning on page 23 of this information
statement.
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7
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Q:
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If I sell, on or before the distribution date, shares of
Temple-Inland common stock that I held on the record date, am I
still entitled to receive shares of Forestar common stock
distributable with respect to the shares of Temple-Inland common
stock I sold?
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A:
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Beginning on or shortly before the record date and continuing
through the distribution date for the spin-off,
Temple-Inlands common stock will begin to trade in two
markets on the NYSE: a regular way market and an
ex-distribution market. If you are a holder of
record of shares of Temple-Inland common stock as of the record
date for the spin-off and sell those shares in the regular
way market after the record date for the spin-off and
before the distribution date, you also will be selling the right
to receive the shares of our common stock in connection with the
spin-off. However, if you are a holder of record of shares of
Temple-Inland common stock as of the record date for the
spin-off and sell those shares in the
ex-distribution market after the record date for the
spin-off and before the distribution date, you will still
receive the shares of our common stock in the spin-off. For more
information, see the section entitled The
Spin-off Trading of Temple-Inland Common Stock
Between the Record Date and Distribution Date beginning on
page 28 of this information statement.
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Q:
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How will fractional shares be treated in the spin-off?
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A:
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We will not issue fractional shares of our common stock in the
spin-off. The distribution agent will aggregate all of the
fractional shares and sell them in the open market over several
trading days at then prevailing prices. You will then receive a
cash payment in the amount of your proportionate share of the
net sale proceeds, based on the average gross selling price per
share of our common stock after making appropriate deductions
for any required tax withholdings. For more information on
fractional shares, see the section entitled The
Spin-off Treatment of Fractional Shares
beginning on page 24 of this information statement.
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Q:
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What if I hold shares of Temple-Inland common stock in the
Temple-Inland 401(k) plan?
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A:
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In connection with the spin-off, Forestar will establish a
401(k) plan for its employees. The Forestar plan will be
generally comparable to the Temple-Inland 401(k) plan, except it
will not have a company stock fund. Participants who hold
Temple-Inland common stock in their Temple-Inland 401(k) plan on
the date of the spin-off will receive shares of Forestar and
Guaranty common stock in their 401(k) plan account. The Forestar
and Guaranty shares will be allocated to these 401(k) plan
accounts in accordance with the spin-off distribution ratio. The
401(k) plan accounts for Forestar employees will be transferred
to the new Forestar 401(k) plan after the spin-off, but their
company stock fund account will remain in the Temple-Inland
401(k) plan for a period of time that will allow participants to
elect when to divest these shares.
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Q:
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What are the U.S. federal income tax consequences of the
spin-off to Temple-Inland stockholders?
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A:
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The spin-off is conditioned upon Temple-Inlands receipt of
a private letter ruling from the Internal Revenue Service, and
an opinion of tax counsel to the effect that the spin-off,
together with certain related transactions, will qualify as a
tax-free distribution for U.S. federal income tax purposes under
Sections 355 and 368(a)(1)(D) of the Internal Revenue Code
of 1986, as amended, which we refer to as the Code. Assuming the
spin-off so qualifies under the Code, you will recognize no gain
or loss for U.S. federal income tax purposes, and no amount will
be included in your income upon the receipt of shares of our
common stock pursuant to the spin-off. You will generally
recognize gain or loss with respect to cash received in lieu of
a fractional share of our common stock. For more information
regarding the requested private letter ruling, the tax opinion,
and the potential tax consequences to you of the spin-off, see
the section entitled The Spin-off Certain U.S.
Federal Income Tax Consequences of the Spin-off beginning
on page 25 of this information statement.
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Q:
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Does Forestar intend to pay cash dividends?
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A:
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After the spin-off, we do not intend to pay a cash dividend on
our common stock for the foreseeable future. Instead, we intend
to reinvest our available cash flow into our business. Our board
of directors is free to change our dividend policy at any time,
including to establish, increase, decrease or eliminate any
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8
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dividend. For more information about our expected dividend
policy, see the section entitled Dividend Policy
beginning on page 30 of this information statement.
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Q:
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What will the relationship be among Forestar, Guaranty, and
Temple-Inland following the spin-off?
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A:
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After the spin-off, Forestar, Guaranty, and Temple-Inland will
be independent, publicly-traded companies, and Temple-Inland
will no longer have any ownership interest in us. We will,
however, be parties to agreements that will define our ongoing
relationships after the spin-off. For example, under the terms
of a transition services agreement that we expect to enter into
with Temple-Inland and Guaranty prior to the consummation of the
spin-off, Temple-Inland will provide, for a fee, for a period up
to 24 months after the spin-off, specified support services
including human resources and payroll functions, financial and
accounting functions, and information technology. We also lease
office space from Guaranty. In addition, Kenneth M.
Jastrow, II will be our Chairman and the Chairman of
Guaranty. For more information on our relationships with
Temple-Inland and Guaranty after the spin-off, see the section
entitled Certain Relationships and Related Party
Transactions beginning on page 99 of this information
statement.
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Q:
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Who is the distribution agent for the spin-off? Who is the
transfer agent for Forestar common stock?
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A:
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Computershare Investor Services, LLC is the distribution agent
for the spin-off and will be the transfer agent for our common
stock.
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Q:
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Where will Forestar common stock trade?
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A:
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Currently, there is no public market for our common stock. We
intend to apply for the listing of our common stock on the New
York Stock Exchange under the symbol FOR.
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Q:
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When will Forestar common stock trade?
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A:
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We anticipate that trading may begin on a when-issued basis
shortly before the record date. When-issued trading refers to
trading in our stock before the record date for the distribution
and made conditionally because the securities of the spun-off
entity have not yet been distributed. When-issued trades
generally settle within three trading days after the
distribution date. On the first trading day following the
distribution date, any when-issued trading in our common stock
will end and regular way trading will begin. Regular way trading
refers to trading after our stock has been distributed and
typically involves a trade that settles on the third full
trading day following the date of distribution. Shares of our
common stock generally will be freely tradable after the
spin-off. We cannot predict the trading prices for our common
stock before or after the distribution date. For more
information on the trading market for our shares, see the
section entitled The Spin-off Listing and
Trading of Our Common Stock beginning on page 28 of
this information statement.
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Q:
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How will I determine my tax basis in the Forestar common
stock I receive in the spin-off?
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A:
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Shortly after the spin-off is completed, Temple-Inland will
provide you with information that will enable you to compute
your tax basis in each of Temple-Inland, Forestar, and Guaranty
common stock. Generally, your aggregate basis in the
Temple-Inland, Forestar, and Guaranty common stock after the
spin-offs will equal the aggregate basis of Temple-Inland common
stock held by you immediately before the spin-off, allocated
between your Temple-Inland common stock and the Forestar, and
Guaranty common stock you receive in the spin-offs in proportion
to the relative fair market value of each on the date of the
spin-offs.
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You should consult your tax advisor about the particular
consequences of the spin-off to you, including the application
of U.S. federal, state, and local tax laws and foreign tax
laws.
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Q:
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Do I have appraisal rights?
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A:
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No. Holders of Temple-Inland common stock do not have
appraisal rights in connection with the spin-off.
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9
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Q:
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Will Forestar incur any debt in the spin-off?
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A:
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Yes. Prior to the spin-off, we expect to enter into a
$[450 million] revolving credit agreement with
[ ].
Borrowings will be unsecured and will bear interest at the
London Interbank Offered Rate, or LIBOR, plus [ ] percent.
Prior to the spin-off, we will draw under this credit facility
to repay our credit facility with Temple-Inland. For more
information on our credit facility and our debt, see the
sections entitled Description of Material
Indebtedness, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Capitalization, Pro Forma Financial
Information, and Certain Relationships and Related
Party Transactions.
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Q:
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Where can I get more information?
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A:
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If you have questions relating to the mechanics of the
distribution of Forestar shares, you should contact the
distribution agent:
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Computershare Investor Services, LLC
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[ADDRESS]
[TELEPHONE]
[FAX]
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Before the spin-off, if you have questions relating to the
spin-off, you should contact:
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Investor Relations
1300 MoPac Expressway South
Austin, Texas 78746
Tel:
512-434-5587
Fax:
512-434-3750
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After the spin-off, if you have questions relating to Forestar,
you should contact:
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Forestar Real Estate Group Inc.
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Investor Relations
1300 MoPac Expressway South
Austin, Texas 78746
[TELEPHONE]
[FAX]
10
RISK
FACTORS
You should carefully consider each of the following risk
factors and all of the other information set forth in this
information statement. The risk factors generally have been
separated into three groups: (1) risks relating to our
business, (2) risks relating to the spin-off, and
(3) risks relating to ownership of our common stock. Based
on the information currently known to us, we believe that the
following information identifies the most significant risk
factors affecting our company in each of these categories.
However, the risks and uncertainties we face are not limited to
those set forth in the risk factors described below. Additional
risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also adversely affect our
business, financial condition, or results of operations. In
addition, past financial performance may not be a reliable
indicator of future performance and historical trends should not
be used to anticipate results or trends in future periods.
If any of the following risks and uncertainties develops into
actual events, these events could have a material adverse effect
on our business, financial condition, or results of operations.
In such case, the trading price of our common stock could
decline.
Risks
Relating to Our Business
A
decrease in demand for new housing in the markets where we
operate could decrease our profitability.
The residential development industry is cyclical and is
significantly affected by changes in general and local economic
conditions, such as employment levels, availability of financing
for home buyers, interest rates, consumer confidence and housing
demand. Adverse changes in these conditions generally, or in the
markets where we operate, could decrease demand for lots for new
homes in these areas. A decline in housing demand could
negatively affect our real estate development activities, which
could result in a decrease in our revenues and earnings.
Furthermore, the market value of undeveloped land and buildable
lots held by us can fluctuate significantly as a result of
changing economic and real estate market conditions. If there
are significant adverse changes in economic or real estate
market conditions, we may have to hold land in inventory longer
than planned. Inventory carrying costs can be significant and
can result in losses in a poorly performing project or market.
Both
our real estate and natural resources businesses are cyclical in
nature.
The operating results of our business segments reflect the
general cyclical pattern of each segment. While the cycles of
each industry do not necessarily coincide, demand and prices in
each may drop substantially in an economic downturn. Real estate
development of residential lots is further influenced by new
home construction activity. Natural resources may be further
influenced by national and international commodity prices,
principally for oil and gas. Cyclical downturns may materially
and adversely affect our results of operations.
Development
of real estate entails a lengthy, uncertain, and costly
entitlement process.
Approval to develop real property entails an extensive
entitlement process involving multiple and overlapping
regulatory jurisdictions and often requiring discretionary
action by local governments. This process is often political,
uncertain and may require significant exactions in order to
secure approvals. Real estate projects must generally comply
with local land development regulations and may need to comply
with state and federal regulations. The process to comply with
these regulations is usually lengthy and costly and can be
expected to materially affect our real estate development
activities.
11
The
real estate and natural resource industries are highly
competitive and a number of entities with which we will compete
are larger and have greater resources, and competitive
conditions may adversely affect our results of
operations.
The real estate and natural resource industries in which we will
operate are highly competitive and are affected to varying
degrees by supply and demand factors and economic conditions,
including changes in interest rates, new housing starts, home
repair and remodeling activities, credit availability, and
housing affordability. No single company is dominant in any of
our industries.
We compete with numerous regional and local developers for the
acquisition, entitlement, and development of land suitable for
development. We also compete with some of our national and
regional home builder customers who develop real estate for
their own use in homebuilding operations, many of which are
larger and have greater resources, including greater marketing
and technology budgets. Any improvement in the cost structure or
service of our competitors will increase the competition we face.
The competitive conditions in the real estate and natural
resource industries result in:
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difficulties in acquiring suitable land at acceptable prices;
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lower sales volumes;
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lower sale prices;
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increased development costs; and
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delays in construction.
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Our business and results of operations are negatively affected
by the existence of these conditions.
Our
activities are subject to environmental regulations and
liabilities that could have a negative effect on our operating
results.
Our operations are subject to federal, state, and local
provisions regulating the discharge of materials into the
environment and otherwise related to the protection of the
environment. Compliance with these provisions may result in
delays, may cause us to invest substantial funds to ensure
compliance with applicable environmental regulations and can
prohibit or severely restrict homebuilding activity in
environmentally sensitive regions or areas.
Our
real estate operations are currently concentrated in Georgia and
Texas, and our oil and gas leases are currently concentrated in
Texas and Louisiana. As a result, our financial results are
dependent on the economic growth and strength of those
areas.
The economic growth and strength of Georgia and Texas, where the
majority of our real estate development activity is located, and
of Texas and Louisiana, where our oil and gas leases are
located, are important factors in sustaining demand for our
activities. As a result, any adverse change to the economic
growth and health of those areas could materially adversely
affect our financial results. The future economic growth in
certain portions of Georgia in particular may be adversely
affected if its infrastructure, such as roads, utilities, and
schools, are not improved to meet increased demand. There can be
no assurance that these improvements will occur.
If we
are unable to retain or attract experienced real estate
development or natural resources management personnel, our
business may be adversely affected.
Our future success depends on our ability to retain and attract
experienced real estate development and natural resources
management personnel. The market for these employees is highly
competitive. If we cannot continue to retain and attract quality
personnel, our ability to effectively operate our business may
be significantly limited.
12
Our
real estate development operations are increasingly dependent
upon national, regional, and local homebuilders, as well as
other strategic partners, who may have interests that differ
from ours and may take actions that adversely affect
us.
We are highly dependent upon our relationships with national,
regional, and local homebuilders to purchase lots in our
residential developments. If homebuilders do not view our
developments as desirable locations for homebuilding operations,
our business will be adversely affected. Also, a national
homebuilder could decide to delay purchases of lots in one of
our developments due to adverse real estate conditions wholly
unrelated to our areas of operations.
We are also involved in strategic alliances or venture
relationships as part of our overall strategy for particular
developments or regions. These venture partners may bring
development experience, industry expertise, financing
capabilities, and local credibility or other competitive assets.
Strategic partners, however, may have economic or business
interests or goals that are inconsistent with ours or that are
influenced by factors unrelated to our business. We may also be
subject to adverse business consequences if the market
reputation of a strategic partner deteriorates.
A formal agreement with a venture partner may also involve
special risks such as:
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we may not have voting control over the venture;
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the venture partner may take actions contrary to our
instructions or requests, or contrary to our policies or
objectives with respect to the real estate investments;
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the venture partner could experience financial
difficulties; and
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actions by a venture partner may subject property owned by the
venture to liabilities greater than those contemplated by the
venture agreement or have other adverse consequences.
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Risks
Relating to the Spin-off
We may
be unable to achieve some or all of the benefits that we expect
to achieve from our spin-off from Temple-Inland.
We may not be able to achieve the full strategic and financial
benefits that we expect will result from our spin-off from
Temple-Inland or such benefits may be delayed or may not occur
at all. For example, there can be no assurance that analysts and
investors will regard our corporate structure as clearer and
simpler than the current Temple-Inland corporate structure or
place a greater value on our company as a stand-alone company
than on our businesses being a part of Temple-Inland. As a
result, in the future the aggregate market price of
Temple-Inlands common stock and Forestar and Guaranty
common stock as separate companies, assuming the same market
conditions, may be less than the market price per share of
Temple-Inlands common stock (adjusted for the sale of its
strategic timberland) had the spin-offs not occurred.
We
have no operating history as an independent, publicly-traded
company upon which you can evaluate our performance, and
accordingly, our prospects must be considered in light of the
risks that any newly independent company
encounters.
We have no experience operating as an independent,
publicly-traded company and performing various corporate
functions, including human resources, tax administration, legal
(including compliance with the Sarbanes-Oxley Act of 2002 and
with the periodic reporting obligations of the Securities
Exchange Act of 1934), treasury administration, investor
relations, internal audit, insurance, information technology and
telecommunications services, as well as the accounting for items
such as equity compensation and income taxes. We may be unable
to make, on a timely or cost-effective basis, the changes
necessary to operate as an independent, publicly-traded company,
and we may experience increased costs after the spin-off or as a
result of the spin-off. Our prospects must be considered in
light of the risks, expenses and difficulties encountered by
companies in the early stages of independent business
operations, particularly companies such as ours in highly
competitive markets.
13
Our
agreements with Temple-Inland and Guaranty may not reflect terms
that would have resulted from arms-length negotiations
among unaffiliated third parties.
The agreements we expect to enter into related to our spin-off
from Temple-Inland, including the separation and distribution
agreement, employee matters agreement, tax matters agreement and
transition services agreement, will be prepared in the context
of our spin-off from Temple-Inland while we are still part of
Temple-Inland and, accordingly, may not reflect terms that would
have resulted from arms-length negotiations among
unaffiliated third parties. These agreements relate to, among
other things, the allocation of assets, liabilities, rights,
indemnifications and other obligations between Temple-Inland,
Guaranty, and us. For more information about these agreements
see the section entitled Certain Relationships and Related
Party Transactions Agreements with Temple-Inland and
Guaranty beginning on page 99 of this information
statement.
Our
historical and pro forma financial information are not
necessarily indicative of our results as a separate company and,
therefore, may not be reliable as an indicator of our future
financial results.
Our historical and pro forma financial information have been
created using our historical results of operations and
historical bases of assets and liabilities as part of
Temple-Inland. This historical financial information is not
necessarily indicative of what our results of operations,
financial position and cash flows would have been if we had been
a separate, stand-alone entity during the periods presented.
It is also not necessarily indicative of what our results of
operations, financial position, and cash flows will be in the
future and does not reflect many significant changes that will
occur in our capital structure, funding, and operations as a
result of the spin-off. While our historical results of
operations include all costs of Temple-Inlands real estate
development and minerals operations, our historical costs and
expenses do not include all of the costs that would have been or
will be incurred by us as an independent, publicly-traded
company. In addition, our historical financial information does
not reflect changes, many of which are significant, that will
occur in our cost structure, financing and operations as a
result of the spin-off. These changes include potentially
increased costs associated with reduced economies of scale and
purchasing power.
Our effective income tax rate as reflected in our historical
financial information also may not be indicative of our future
effective income tax rate. Among other things, the rate may be
materially affected by:
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changes in the mix of our earnings from the various
jurisdictions in which we operate;
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the tax characteristics of our earnings; and
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the timing and results of any reviews of our income tax filing
positions in the jurisdictions in which we transact business.
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If the
spin-off is determined to be taxable for U.S. federal income tax
purposes, we, our stockholders, and Temple-Inland could incur
significant U.S. federal income tax liabilities.
Temple-Inland has requested a private letter ruling from the
Internal Revenue Service, or IRS, that the spin-off will qualify
for tax-free treatment under applicable sections of the Code. In
addition, Temple-Inland intends to obtain an opinion from tax
counsel that the spin-off so qualifies. Although
Temple-Inlands board of directors may waive either or both
of these conditions, Temple-Inland does not intend to complete
the spin-off if it has not obtained an opinion from tax counsel
that the spin-off will qualify for tax-free treatment under
applicable sections of the Code. The IRS ruling and the opinion
will rely on certain representations, assumptions, and
undertakings, including those relating to the past and future
conduct of our business, and neither the IRS ruling nor the
opinion would be valid if such representations, assumptions, and
undertakings were incorrect. Moreover, the IRS private letter
ruling will not address all the issues that are relevant to
determining whether the spin-off will qualify for tax-free
treatment. Notwithstanding the IRS private letter ruling and
opinion, the IRS could determine that the spin-off should be
treated as a taxable transaction if it determines that any of
the representations, assumptions, or undertakings that were
included in the request for the private letter ruling are false
or have been violated or if it disagrees with the conclusions in
the opinion that are not covered by the IRS ruling. For more
information regarding the tax opinion and the private letter
14
ruling, see the section entitled The Spin-Off
Certain U.S. Federal Income Tax Consequences of the
Spin-off
beginning on page 25 of this information statement.
If the spin-off fails to qualify for tax-free treatment,
Temple-Inland would be subject to tax as if it had sold the
common stock of our company in a taxable sale for its fair
market value, and our initial public stockholders would be
subject to tax as if they had received a taxable distribution
equal to the fair market value of our common stock that was
distributed to them. Under the tax matters agreement between
Temple-Inland and us, we would generally be required to
indemnify Temple-Inland against any tax resulting from the
distribution to the extent that such tax resulted from
(1) an issuance of our equity securities, a redemption of
our equity securities, or our involvement in other acquisitions
of our equity securities, (2) other actions or failures to
act by us, or (3) any of our representations or
undertakings being incorrect or violated. For a more detailed
discussion, see the section entitled Certain Relationships
and Related Party Transactions Agreements with
Temple-Inland and Guaranty Tax Matters
Agreement, beginning on page 103 of this information
statement. Our indemnification obligations to Temple-Inland and
its subsidiaries, officers, and directors are not limited by any
maximum amount. If we are required to indemnify Temple-Inland or
such other persons under the circumstances set forth in the tax
matters agreement, we may be subject to substantial liabilities.
We
must abide by certain restrictions to preserve the tax-free
treatment of the spin-off and may not be able to engage in
desirable acquisitions and other strategic transactions
following the spin-off.
To preserve the tax-free treatment of the spin-off to
Temple-Inland, under a tax matters agreement that we will enter
into with Temple-Inland and Guaranty, for the two-year period
following the distribution, we may be prohibited, except in
specified circumstances, from:
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issuing equity securities to satisfy financing needs,
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acquiring businesses or assets with equity securities, or
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engaging in other actions or transactions that could jeopardize
the tax-free status of the distribution.
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These restrictions may limit our ability to pursue strategic
transactions or engage in new business or other transactions
that may maximize the value of our business. For more
information, see the sections entitled The
Spin-off Certain U.S. Federal Income Tax
Consequences of the Spin-off and Certain
Relationships and Related Party Transactions
Agreements with Temple-Inland and Guaranty Tax
Matters Agreement beginning on pages 25 and 103,
respectively, of this information statement.
The
ownership by our chairman, our executive officers, and some of
our other directors of common stock, options, or other equity
awards of Temple-Inland or Guaranty may create actual or
apparent conflicts of interest.
Because of their current or former positions with Temple-Inland,
our chairman, substantially all of our executive officers,
including our Chief Executive Officer and our Chief Financial
Officer, and some of our non-employee director nominees, own
shares of common stock of Temple-Inland, options to purchase
shares of common stock of Temple-Inland, or other Temple-Inland
equity awards. Following Temple-Inlands distribution of
Guaranty to its stockholders, these officers and non-employee
directors will also own shares of common stock, options to
purchase shares of common stock, and other equity awards in
Guaranty. The individual holdings of shares of common stock,
options to purchase shares of common stock, or other equity
awards of Temple-Inland and Guaranty may be significant for some
of these persons compared with their total assets. In light of
our continuing relationships with Temple-Inland and Guaranty,
these equity interests may create actual or apparent conflicts
of interest when these directors and officers are faced with
decisions that could benefit or affect the equity holders of
Temple-Inland or Guaranty in ways that do not benefit or affect
us in the same manner.
15
We may
be unable to make, on a timely or cost-effective basis, the
changes necessary to operate as an independent, publicly-traded
company, and we may experience increased costs after the
spin-off or as a result of the spin-off.
Following the completion of our spin-off, Temple-Inland will be
obligated contractually to provide to us only those transition
services specified in a transition services agreement we expect
to enter into with Temple-Inland and Guaranty. We may be unable
to replace in a timely manner or on comparable terms the
services or other benefits that Temple-Inland previously
provided to us that are not specified in any transition services
agreement. After the expiration of the transition services
agreement, we may be unable to replace in a timely manner or on
comparable terms the services specified in the agreement. Upon
expiration of the transition services agreement, many of the
services that are covered in the agreement will have to be
provided internally or by unaffiliated third parties. We may
incur higher costs to obtain these services than we incurred
previously. In addition, if Temple-Inland does not continue to
perform the services that are called for under the transition
services agreement, we may not be able to operate our business
as effectively and our profitability may decline.
Until
the distribution occurs Temple-Inland has the sole discretion to
change the terms of the spin-off in ways that may be unfavorable
to us.
Until the distribution occurs Temple-Inland will have the sole
and absolute discretion to determine and change the terms of,
and whether to proceed with, the distribution, including the
establishment of the record date and distribution date. These
changes could be unfavorable to us. In addition, Temple-Inland
may decide at any time not to proceed with the spin-off.
Risks
Relating to Our Common Stock
There
is no existing market for our common stock, and a trading market
that will provide adequate liquidity may not develop for our
common stock. In addition, once our common stock begins trading,
the market price of our shares may fluctuate
widely.
There is currently no public market for our common stock. We
anticipate that on or prior to the record date for the
distribution, trading of shares of our common stock will begin
on a when-issued basis and will continue up and
through the distribution date. However, there can be no
assurance that an active trading market for our common stock
will develop as a result of the distribution or be sustained in
the future.
We cannot predict the prices at which our common stock may trade
after the distribution. The market price of our common stock may
fluctuate widely, depending upon many factors, some of which may
be beyond our control, including:
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a shift in our investor base;
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actual or anticipated fluctuations in our operating results due
to the seasonality of our business and other factors related to
our business;
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announcements by us or our competitors of significant
acquisitions or dispositions;
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the failure of securities analysts to cover our common stock
after the distribution;
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the operating and stock price performance of other comparable
companies;
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overall market fluctuations; and
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general economic conditions.
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Stock markets in general have experienced volatility that has
often been unrelated to the operating or financial performance
of a particular company. These broad market fluctuations may
adversely affect the trading price of our common stock.
16
Substantial
sales of our common stock may occur following the spin-off,
which could cause our stock price to decline.
The shares of our common stock that Temple-Inland distributes to
its stockholders generally may be sold immediately in the public
market. Although we have no actual knowledge of any plan or
intention on the part of any stockholder to sell our common
stock following the spin-off, it is possible that some
Temple-Inland stockholders, including possibly some of our
largest stockholders, may sell our common stock received in the
distribution for various reasons, including that our business
profile or market capitalization as an independent,
publicly-traded company does not fit their investment
objectives. Moreover, index funds tied to the
Standard & Poors 500 Index, the Russell
1000 Index, and other indices hold shares of Temple-Inland
common stock. To the extent our common stock is not included in
these indices after the distribution, certain of these index
funds may likely be required to sell the shares of our common
stock that they receive in the distribution. Also, some
employees of Temple-Inland and Guaranty may be unwilling to
continue to hold our common stock in their 401(k) plan accounts
because they will not be employed by us. In addition,
participants in the Temple-Inland 401(k) Plan who retain the
shares of Forestar common stock that they receive in their
Temple-Inland 401(k) Plan account will be required to liquidate
those shares within three years after the distribution date. The
sales of significant amounts of our common stock or the
perception in the market that this will occur may result in the
lowering of the market price of our common stock.
Your
percentage ownership in our common stock may be diluted in the
future.
Your percentage ownership in our common stock may be diluted in
the future because of equity awards that have already been
granted and that we expect will be granted to our directors and
officers in the future. In addition, equity awards held by
Temple-Inland employees at the time of the spin-off will be
adjusted to include options to purchase our common stock. Prior
to the record date for the distribution, we expect Temple-Inland
will approve the Forestar Stock Incentive Plan, which will
provide for the grant of equity-based awards, including
restricted stock, restricted stock units, stock options, stock
appreciation rights, phantom equity awards and other
equity-based awards to our directors, officers and other
employees. In the future, we may issue additional equity
securities, subject to limitations imposed by the tax matters
agreement, in order to fund working capital needs, capital
expenditures and product development, or to make acquisitions
and other investments, which may dilute your ownership interest.
The
terms of our spin-off from Temple-Inland, anti-takeover
provisions of our charter and bylaws, as well as Delaware law
and our stockholder rights agreement, may reduce the likelihood
of any potential change of control or unsolicited acquisition
proposal that you might consider favorable.
The terms of our spin off from Temple-Inland could delay or
prevent a change of control that you may favor. An acquisition
or issuance of our common stock could trigger the application of
Section 355(e) of the Code. For a discussion of
Section 355(e) of the Code, please see the section entitled
The Spin Off Certain U.S. Federal Income
Tax Consequences of the Spin-off beginning on page 25
of this information statement. Under the tax matters agreement
we expect to enter into with Temple-Inland and Guaranty, we
would be required to indemnify Temple-Inland and Guaranty for
the resulting tax in connection with such an acquisition or
issuance and this indemnity obligation might discourage, delay
or prevent a change of control that you may consider favorable.
For a more detailed description of the tax matters agreement,
see the section entitled Certain Relationships and Related
Party Transactions Agreements with Temple-Inland and
Guaranty Tax Matters Agreement beginning on
page 103 of this information statement.
In addition, our certificate of incorporation and bylaws and
Delaware law contain provisions that could make it more
difficult for a third party to acquire us without the consent of
our board of directors. Our board of directors may classify or
reclassify any unissued shares of common stock or preferred
stock and may set the preferences, conversion, or other rights,
voting powers, and other terms of the classified or reclassified
shares. Our board of directors could establish a series of
preferred stock that could have the effect of delaying,
deferring, or preventing a transaction or a change in control
that might involve a premium price for our common stock or
otherwise be considered favorably by our stockholders. Our
certificate of incorporation and bylaws also provide for a
classified board structure.
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Our bylaws provide that nominations of persons for election to
our board of directors and the proposal of business to be
considered at a stockholders meeting may be made only in
the notice of the meeting, by our board of directors or by a
stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures of our bylaws. Also,
under Delaware law, business combinations, including issuances
of equity securities, between us and any person who beneficially
owns 15 percent or more of our common stock or an affiliate
of such person, are prohibited for a three-year period unless
exempted by the statute. After this three-year period, a
combination of this type must be approved by a super-majority
stockholder vote, unless specific conditions are met or the
business combination is exempted by our board of directors.
In addition, we expect our board of directors will adopt a
stockholder rights agreement that will provide that in the event
of an acquisition of or tender offer for 20 percent of our
outstanding common stock, our stockholders shall be granted
rights to purchase our common stock at a significant discount.
The stockholder rights agreement could have the effect of
significantly diluting the percentage interest of a potential
acquirer and make it more difficult to acquire a controlling
interest in our common stock without the approval of our board
of directors to redeem the rights or amend the stockholder
rights agreement to permit the acquisition.
For a more detailed description of these effects, see the
section entitled Description of Our Capital
Stock Anti-takeover Effects of Our Stockholder
Rights Agreement, Our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws, and Delaware
Law beginning on page 106 of this information
statement.
We
currently do not intend to pay any dividends on our common
stock. Accordingly, investors in our common stock must rely upon
subsequent sales after price appreciation as the sole method to
realize a gain on an investment in our common
stock.
We currently intend to retain any future earnings to support the
development and expansion of our business and do not anticipate
paying cash dividends in the foreseeable future. The declaration
and payment of any future dividends will be at the discretion of
our board of directors after taking into account various
factors, including without limitation, our financial condition,
earnings, capital requirements of our business, the terms of any
credit agreements to which we may be a party at the time, legal
requirements (including compliance with the IRS private letter
ruling), industry practice, and other factors that our board of
directors deems relevant. To the extent we do not pay dividends,
our stock may be less valuable because a return on investment
will only occur if and to the extent our stock price
appreciates, which may never occur. In addition, investors must
rely on sales of their common stock after price appreciation as
the only way to realize a return on their investment, and if the
price of our stock does not appreciate, then there will be no
return on investment. Investors seeking cash dividends should
not hold our common stock.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This information statement and other materials we have filed or
may file with the Securities and Exchange Commission contain
forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements are
identified by their use of terms and phrases such as
believe, anticipate,
could, estimate, likely,
intend, may, plan,
expect, and similar expressions, including
references to assumptions. These statements reflect our current
views with respect to future events and are subject to risk and
uncertainties. We note that a variety of factors and
uncertainties could cause our actual results to differ
significantly from the results discussed in the forward-looking
statements. Factors and uncertainties that might cause such
differences include, but are not limited to:
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general economic, market or business conditions;
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the opportunities (or lack thereof) that may be presented to us
and that we may pursue;
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future residential or commercial entitlements;
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expected development timetables and projected timing for sales
of lots or other parcels of land;
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development approvals and the ability to obtain such approvals;
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the anticipated price ranges of lots in our developments;
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the number, price, and timing of land sales or acquisitions;
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estimated land holdings for a particular use within a specified
time frame;
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absorption rates and expected gains on land and lot sales;
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the levels of resale inventory in our development projects and
the regions in which they are located;
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the development of relationships with strategic partners;
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the pace at which we release lots for sale;
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fluctuations in costs and expenses;
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demand for new housing;
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government energy policies;
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competitive actions by other companies;
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changes in laws or regulations and actions or restrictions of
regulatory agencies;
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the results of financing efforts, including our ability to
obtain financing on favorable terms, which can be affected by
various factors, including our credit ratings and general
economic conditions;
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the ability to complete merger, acquisition or divestiture
plans; regulatory or other limitations imposed as a result of a
merger, acquisition or divestiture; and the success of the
business following a merger, acquisition or divestiture; and
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the final resolutions or outcomes with respect to our contingent
and other corporate liabilities related to our business and any
related actions for indemnification made pursuant to the
separation and distribution agreement.
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Other factors, including the risk factors described in the
section of this information statement entitled Risk
Factors beginning on page 11, may also cause actual
results to differ materially from those projected by our
forward-looking statements. New factors emerge from time to time
and it is not possible for us to predict all such factors, nor
can we assess the impact of any such factor on our business or
the extent to which any factor, or combination of factors, may
cause results to differ materially from those contained in any
forward-looking statement.
Any forward-looking statement speaks only as of the date on
which such statement is made, and, except as required by law, we
expressly disclaim any obligation or undertaking to disseminate
any updates or revisions to any forward-looking statement to
reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated
events.
19
THE
SPIN-OFF
The following is a brief summary of the terms of the spin-off.
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Distributing company
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Temple-Inland Inc. After the distribution, Temple-Inland will
not own any shares of Forestar common stock.
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Spun-off company
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Forestar Real Estate Group Inc., a Delaware corporation and a
wholly-owned subsidiary of Temple-Inland. Forestar is currently
a limited liability company that will convert to a Delaware
corporation prior to the distribution. After the spin-off,
Forestar will be an independent, publicly-traded company.
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Reasons for the spin-off
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The Temple-Inland board of directors believes that creating
independent, focused companies is the best way to unlock the
full value of Temple-Inlands businesses in both the short
and long term. There will be an independent, publicly-traded
company for each of Temple-Inlands real estate business,
financial services business, and manufacturing operations in
corrugated packaging and building products. The Temple-Inland
board of directors considered this and other potential
opportunities and benefits in approving the spin-offs. See the
section below entitled Reasons for the
Spin-offs beginning on page 22 for a more detailed
description of the factors the board considered.
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Securities to be distributed
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All of the shares of common stock of Forestar owned by
Temple-Inland, which will be 100% of our shares of common stock
outstanding immediately prior to the distribution. Based on the
approximately
[ ] shares
of Temple-Inland common stock outstanding on
[ ],
2007, and applying the distribution ratio of
[ ] share
of Forestar common stock for each
[ ] shares
of Temple-Inland common stock, approximately
[ ] shares
of our common stock will be distributed to Temple-Inland
stockholders. The number of shares of common stock that
Temple-Inland will distribute to its stockholders will be
reduced to the extent that cash payments are to be made in lieu
of the issuance of fractional shares of common stock.
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Record date
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The record date for the distribution is the close of business on
[ ],
2007.
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Distribution date
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The distribution date is
[ ],
2007.
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Distribution ratio
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On the distribution date, you will receive
[ ] share
of Forestar common stock (and a related preferred stock purchase
right) for each
[ ] shares
of Temple-Inland common stock held on the record date. Cash will
be distributed in lieu of any fractional shares to which you
would otherwise be entitled.
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Trading market and symbol
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We intend to file an application to list our common stock on the
New York Stock Exchange under the ticker symbol FOR.
We anticipate that, on or prior to the record date for the
distribution, trading in shares of our common stock will begin
on a when-issued basis and will continue up to and
including the distribution date. See the section below entitled
Trading of Temple-Inland Common Stock Between
the Record Date and Distribution Date, beginning on
page 28.
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Conditions to the spin-off
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The spin-off is subject to the satisfaction or waiver by
Temple-Inland of the following conditions:
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the Securities and Exchange Commission shall have
declared effective our registration statement on Form 10
and no stop order shall be in effect;
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all permits, registrations and consents required
under the securities or blue sky laws in connection with the
distribution shall have been received;
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Temple-Inland shall have received a private letter
ruling from the IRS and an opinion of tax counsel confirming the
tax-free status of the distribution for U.S. federal income tax
purposes;
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Temple-Inland shall have received an opinion from
its financial advisors that it has adequate surplus under
Delaware law to declare the spin-off dividend and that,
following the spin-off, each of Temple-Inland and Forestar will
be solvent and adequately capitalized;
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we shall have entered into one or more credit
facilities;
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the listing of our common stock on the New York
Stock Exchange shall have been approved, subject to official
notice of issuance;
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all material governmental approvals and other
consents necessary to consummate the distribution shall have
been received; and
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no order, injunction or decree issued by any court
of competent jurisdiction or other legal restraint or
prohibition preventing consummation of the distribution or any
of the related transactions is in effect.
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The fulfillment of the these conditions will not create any
obligation on Temple-Inlands part to effect the
distribution. Temple-Inland has the right not to complete the
distribution if, at any time, Temple-Inlands board of
directors determines, in its sole discretion, that the
distribution is not in the best interests of Temple-Inland or
its stockholders or that market conditions are such that it is
not advisable to separate the real estate business from
Temple-Inland.
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Background
to the Spin-offs
On February 25, 2007, the board of directors of
Temple-Inland preliminarily approved a transformation plan to
separate Temple-Inland into three focused, stand-alone, public
companies: one for its real estate business (Forestar Real
Estate Group LLC), one for its financial services business
(Guaranty Financial Group Inc.), and one for its manufacturing
operations in corrugated packaging and building products
(Temple-Inland). The spin-offs will occur through the
distributions to Temple-Inlands stockholders on a pro rata
basis of all of the shares of common stock of Forestar, which
will hold all of the assets and liabilities of the real estate
development and minerals operations of Temple-Inland, and all of
the shares of common stock of Guaranty, which will hold all of
the assets and liabilities of the financial services business of
Temple-Inland.
In addition to the spin-offs, the transformation plan includes
Temple-Inland selling its strategic timberlands. On
August 3, 2007, Temple-Inland entered into a definitive
agreement to sell its strategic timberland for approximately
$2.38 billion. The transaction is expected to close in
fourth quarter 2007, subject
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to customary closing conditions. The total consideration is
expected to consist almost entirely of installment notes.
Roughly 30 days after the sale is closed, Temple-Inland
expects to pledge the installment notes as collateral for a
non-recourse loan. The net cash proceeds from these
transactions, after current taxes and transaction costs, are
anticipated to be approximately $1.8 billion. Following the
pledge of installment notes, Temple-Inland expects to use the
majority of these proceeds to pay a special dividend, which is
currently projected to be approximately $1.1 billion, or
$10.25 per share, to its common stockholders. The remaining
approximately $700 million of the cash proceeds will be
used to reduce debt. The transaction includes a
20-year
fiber supply agreement for pulpwood and a
12-year
fiber supply agreement for sawtimber, the terms of which are
both subject to extension. Fiber will be purchased at market
prices.
Since February 25, 2007, the Temple-Inland board of
directors has met numerous times with and without members of
Temple-Inlands senior management team present to discuss
the transformation plan. In these meetings, the board
considered, among other things, the benefits to the businesses
and to Temple-Inland stockholders that are expected to result
from the spin-offs (see Reasons for the
Spin-offs below), the capital allocation strategies and
dividend policies for the spun-off companies, the allocation of
Temple-Inlands existing assets, liabilities and businesses
among the spun-off companies, the terms of certain commercial
relationships among the spun-off companies that will exist
following the spin-offs, the corporate governance arrangements
that will be in place at each company following the spin-offs,
and the appropriate members of senior management at each company
following the spin-offs.
In furtherance of this transformation plan, on
[ ],
2007, the Temple-Inland board of directors approved the
distributions of all of the shares of our common stock and
Guarantys common stock held by Temple-Inland to holders of
Temple-Inland common stock. On
[ ],
2007, the distribution date, each Temple-Inland stockholder will
receive
[ ] share
of our common stock (and a related preferred stock purchase
right) for every
[ ] shares
of Temple-Inland common stock, and
[ ]
share of Guaranty common stock (and a related preferred stock
purchase right) for every
[ ] shares
of Temple-Inland common stock held at the close of business on
the record date, as described below. Following the spin-offs,
Temple-Inland will cease to own any of the common stock in these
companies, and Forestar and Guaranty will be independent,
publicly-traded companies. No vote of Temple-Inlands
stockholders is required or being sought in connection with the
spin-offs, and Temple-Inland stockholders have no appraisal
rights in connection with the spin-offs. You will not be
required to make any payment, surrender or exchange your shares
of Temple-Inland common stock or take any other action to
receive your shares of our common stock and Guarantys
common stock.
Reasons
for the Spin-offs
The Temple-Inland board of directors regularly reviews the
various businesses that Temple-Inland conducts to ensure that
Temple-Inlands resources are being properly utilized in a
manner that is in the best interests of Temple-Inland and its
stockholders. Over the last several years, Temple-Inland has
achieved increased revenues and earnings. During that time,
however, Temple-Inland concluded that operating as a
conglomerate made it difficult for analysts and the market
generally to understand its real value. The Temple-Inland board
of directors evaluated a number of strategic alternatives to
increase value and concluded that the spin-offs (and the sale of
Temple-Inlands strategic timberlands) would be the most
feasible and the most financially attractive approach to
continue maximizing value for its stockholders. The
Temple-Inland board of directors believes that creating
independent, focused companies is the best way to unlock the
full value of Temple-Inlands businesses in both the short
and long term.
Temple-Inland believes that the separation of its businesses
provides its stockholders and each separated company, including
us, with certain potential opportunities and benefits. Neither
we nor Temple-Inland can assure you that, following the
spin-off, any of these potential benefits will be realized to
the extent anticipated, or at all. The following are some of the
potential opportunities and benefits that the Temple-Inland
board of directors considered in approving the spin-offs:
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Allowing each of the companies to focus on their respective
core businesses.
The spin-offs will allow us,
Guaranty and Temple-Inland to become more tightly focused
companies with us focusing on the
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real estate development and minerals operations, Guaranty
focusing on its financial services business, and Temple-Inland
focusing on its corrugated packaging and building products
business, each as an independent, publicly-traded company.
Temple-Inlands lines of business have financial and
operational characteristics that are distinct from those of our
and Guarantys businesses. The spin-offs will allow
Temple-Inland to adopt more focused strategies around its core
businesses and will enable us and Guaranty to better focus on
the growth and development of our businesses. In addition, after
the spin-offs, the businesses within each company will no longer
need to compete internally for capital with businesses operating
in other industries.
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Facilitating tailored capital structures and selective
acquisitions.
Each independent, publicly-traded
company will have a capital structure designed to meet its
needs. The capital structure of each company is expected to
facilitate selective acquisitions, possibly using common stock
as currency, strategic alliances and partnerships, and internal
expansion that are important for the companies to remain
competitive in their respective industries. The Temple-Inland
board of directors believes that the anticipated aggregate
market value increase in the common stock, if achieved, should
permit each independent, publicly-traded company to effect
acquisitions with its common stock in a manner that preserves
capital with less dilution of the existing stockholders
interests than would occur by issuing pre-spin-off Temple-Inland
common stock.
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Achieving a higher aggregate market value for
stockholders.
Although there can be no assurance,
Temple-Inland believes that, over time, following the spin-offs,
the common stock of the independent, publicly-traded companies
should have a higher aggregate market value, on a fully
distributed basis and adjusting for the sale of the timberlands
and assuming the same market conditions, than if Temple-Inland
were not to complete the spin-offs.
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Enabling investors to invest directly in the separate
businesses.
Because our company, Guaranty and
Temple-Inlands other business segments operate primarily
in different industries, an equity investment in each company
may appeal to investors with different goals, interests and
concerns. The spin-offs will establish separate equity
securities for each of the companies and provide investors with
three investment options in companies focused on only one
industry or group of industries, which may be more attractive to
investors than the single investment option in one combined
company.
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Creating more effective management
incentives.
Each of the companies will be able to
create more effective management incentive and retention
programs, including options and restricted stock units, for each
of the
publicly-traded
companies. Following the spin-off, stock-based compensation and
other incentive awards awarded to employees of each of the
companies will be tied more directly to the market performance
of the company for which the employees work, improving the
ability for each company to attract, retain and motivate
qualified personnel.
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The Temple-Inland board of directors considered a number of
potentially negative factors in evaluating the spin-offs,
including the decreased capital available for investment, the
loss of synergies from operating as one company, potential
disruptions to the businesses as a result of the spin-offs, the
potential effect of the spin-offs on the anticipated credit
ratings of the separated companies, risks associated with
Temple-Inlands debt, risks of being unable to achieve the
benefits expected from the spin-offs, the reaction of
Temple-Inlands stockholders to the spin-offs, the risk
that the plan of execution might not be completed and the
one-time and ongoing costs of the spin-offs. The Temple-Inland
board of directors concluded that the potential benefits of the
spin-offs outweighed these factors.
In view of the wide variety of factors considered in connection
with the evaluation of the spin-offs and the complexity of these
matters, the Temple-Inland board of directors did not find it
useful to, and did not attempt to, quantify, rank or otherwise
assign relative weights to the factors considered.
Distribution
of the Shares
On
[ ],
2007, the distribution date, Temple-Inland will effect the
spin-off by distributing to holders of record of its common
stock (or their designees) as of
[ ],
2007, the record date, a dividend
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of
[ ] share
of our common stock (and a related preferred stock purchase
right) for every
[ ] shares
of Temple-Inland common stock held by them on the record date
and not subsequently sold in the regular way market.
Prior to the spin-off, Temple-Inland will deliver all of the
issued and outstanding shares of our common stock to
Computershare Investor Services, LLC, the distribution agent. On
the distribution date, the shares of our common stock that you
are entitled to receive in the distribution will be issued
electronically to you or to your bank or brokerage firm on your
behalf by way of direct registration in book-entry form.
Registration in book-entry form refers to a method of recording
stock ownership when no physical stock certificates are issued
to stockholders, as is the case in this distribution. Commencing
on or shortly after the distribution date, if you are the
registered holder of Temple-Inland common stock, the
distribution agent will mail to you an account statement that
indicates the number of shares of our common stock that have
been registered in book-entry form in your name and the method
by which you may access your account and, if desired, trade your
shares of our common stock. If you hold your Temple-Inland
common stock in street name through a bank or
brokerage firm, your bank or brokerage firm will credit your
account for the number of shares of our common stock that you
are entitled to receive in the distribution. If you have any
questions concerning the mechanics of the distribution or of
having shares of our common stock registered in book-entry form,
we encourage you to contact Computershare Investor Services, LLC
at the address or telephone number set forth on page 10 of
this information statement. If you have any questions concerning
the mechanics of having your shares held in street
name, we encourage you to contact your bank or brokerage
firm.
Please note that if you are a stockholder of Temple-Inland on
the record date and you sell shares of Temple-Inland common
stock after the record date but on or before the distribution
date, you also will be selling your right to receive shares of
our common stock in the distribution. In this circumstance, the
buyer of those shares, and not you, the seller, will become
entitled to receive the shares of our common stock issuable in
the distribution in respect of the shares of Temple-Inland
common stock that you sold.
See the section below entitled
Trading of Temple-Inland Common Stock Between
the Record Date and Distribution Date for more information.
A delivery of a share of our common stock in connection with the
distribution also will constitute the delivery of a preferred
stock purchase right associated with the share. The existence of
the preferred stock purchase rights may deter a potential
acquiror from making a hostile takeover proposal or a tender
offer. For a more detailed discussion of these rights, see
Description of Our Capital Stock Anti-takeover
Effects of Our Stockholder Rights Agreement, Our Amended and
Restated Certificate of Incorporation and Amended and Restated
Bylaws, and Delaware Law Stockholder Rights
Agreement.
You are not being asked to take any action in connection with
the spin-off. You also are not being asked for a proxy or to
surrender any of your shares of Temple-Inland common stock for
shares of our common stock. The number of outstanding shares of
Temple-Inland common stock will not change as a result of the
spin-off, although the value of shares of Temple-Inland common
stock will be affected.
Treatment
of Fractional Shares
Fractional shares of our common stock will not be issued as part
of the distribution nor credited to book-entry accounts. For
example, if you own fewer than
[ ] shares
of Temple-Inland common stock on the record date, which would
entitle you to receive less than one whole share of our common
stock, you will receive cash in lieu of any such fractional
shares. The distribution agent will aggregate all of the
fractional shares and sell them in the open market at then
prevailing market prices on behalf of you and similarly situated
stockholders over a period of several trading days. You will
receive cash in the amount of your proportionate share of the
net sale proceeds from the sale of the aggregated fractional
shares, based upon the average gross selling price per share of
our common stock after making appropriate deductions for any
required withholdings for U.S. federal income tax purposes.
See the section below entitled Certain
U.S. Federal Income Tax Consequences of the Spin-off
for a discussion of the U.S. federal income tax treatment
of the proceeds received from the sale of fractional shares. We
will bear the cost of brokerage fees incurred in connection with
these sales. If you are the registered holder of Temple-Inland
common stock, you
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will receive a check from the distribution agent in an amount
equal to your pro rata share of the aggregate net cash proceeds
of the sales. If you hold your Temple-Inland common stock
through a bank or brokerage firm, your bank or brokerage firm
will receive, on your behalf, your pro rata share of the
aggregate net cash proceeds of the sales and will electronically
credit your account for your share of such proceeds.
We anticipate that these sales will occur as soon after the date
of the spin-off as practicable, as determined by the
distribution agent. Neither we, Temple-Inland nor the
distribution agent will guarantee any minimum sale price for the
fractional shares. The distribution agent will have the sole
discretion to select the broker-dealer(s) through which to sell
the shares and to determine when, how and at what price to sell
the shares. Further, neither the distribution agent nor the
selected broker-dealer(s) will be our affiliate or an affiliate
of Temple-Inland.
401(k)
Plan Shares
In connection with the spin-off, Forestar will establish a
401(k) plan for its employees. The Forestar plan will be
generally comparable to the Temple-Inland 401(k) plan, except it
will not have a company stock fund. Participants who hold
Temple-Inland common stock in their Temple-Inland 401(k) plan on
the date of the spin-off will receive shares of Forestar and
Guaranty common stock in their 401(k) plan account. The Forestar
and Guaranty shares will be allocated to these 401(k) plan
accounts in accordance with the spin-off distribution ratio. The
401(k) plan accounts for Forestar employees will be transferred
to the new Forestar 401(k) plan after the spin-off, but their
company stock fund account will remain in the Temple-Inland
401(k) plan for a period of time that will allow participants to
elect when to divest these shares.
Dividend
Reinvestment Plan
If you hold shares of Temple-Inland common stock in
Temple-Inlands dividend reinvestment plan, you will be
entitled to receive in the distribution shares of our common
stock in a direct registration position with Computershare
Investor Services, LLC, our transfer agent. Instructions will be
provided to you on how to transfer your shares to a different
account. No fractional shares of our common stock will be
distributed. We do not currently intend to have our own dividend
reinvestment plan.
Certain
U.S. Federal Income Tax Consequences of the Spin-off
The following is a summary of certain material U.S. federal
income tax consequences relating to the spin-off. This summary
is based on the Code, the Treasury regulations promulgated under
the Code, and interpretations of the Code and the Treasury
regulations by the courts and the IRS, in effect as of the date
of this information statement, and all of which are subject to
change, possibly with retroactive effect. This summary does not
discuss all the tax considerations that may be relevant to you
in light of your particular circumstances, nor does it address
the consequences to Temple-Inland stockholders subject to
special treatment under the U.S. federal income tax laws,
including, without limitation:
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non-U.S. persons;
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insurance companies;
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dealers or brokers in securities or currencies;
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tax-exempt organizations;
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financial institutions;
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mutual funds;
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pass-through entities and investors in such entities;
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holders who hold their shares as a hedge or as part of a
hedging, straddle, conversion, synthetic security, integrated
investment or other risk-reduction transaction;
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holders who are subject to alternative minimum tax; or
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holders who acquired their shares upon the exercise of employee
stock options or otherwise as compensation.
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In addition, this summary does not address the U.S. federal
income tax consequences to those Temple-Inland stockholders who
do not hold their Temple-Inland common stock as a capital asset.
Finally, this summary does not address any state, local or
foreign tax consequences.
You are urged to consult your own
tax advisor concerning the U.S. federal, state and local,
and
non-U.S. tax
consequences of the spin-off.
The spin-off is conditioned upon Temple-Inlands receipt of
a private letter ruling from the IRS and an opinion of tax
counsel, in each case, to the effect that the spin-off, together
with certain related transactions, will qualify as a tax-free
distribution for U.S. federal income tax purposes under
Sections 355 and 368(a)(1)(D) of the Code. Assuming the
spin-off so qualifies, then for U.S. federal income tax
purposes:
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no gain or loss will be recognized by (and no amount will be
included in the income of) Temple-Inland common stockholders
upon their receipt of shares of our common stock in the spin-off;
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any cash received in lieu of fractional share interests in our
common stock will give rise to gain or loss equal to the
difference between the amount of cash received and the tax basis
allocable to the fractional share interests (determined as
described below), and such gain or loss will be capital gain or
loss if the Temple-Inland common stock on which the distribution
is made is held as a capital asset on the date of the spin-off;
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the aggregate basis of the Temple-Inland common stock, our
common stock, and Guaranty common stock in the hands of each
Temple-Inland common stockholder after the spin-off (including
any fractional interests to which the stockholder would be
entitled) will equal the aggregate basis of Temple-Inland common
stock held by the stockholder immediately before the spin-off,
allocated between the Temple-Inland common stock, our common
stock, and Guaranty common stock in proportion to the relative
fair market value of each on the date of the spin-off; and
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the holding period of the Forestar common stock received by each
Temple-Inland common stockholder will include the holding period
at the time of the spin-off for the Temple-Inland common stock
on which the distribution is made, provided that the
Temple-Inland common stock is held as a capital asset on the
date of the spin-off.
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Although a private letter ruling from the IRS generally is
binding on the IRS, if the factual representations or
assumptions made in the letter ruling request are untrue or
incomplete in any material respect, we will not be able to rely
on the ruling. Furthermore, the IRS will not rule on whether a
spin-off satisfies certain requirements necessary to obtain
tax-free treatment under Section 355 of the Code. Rather,
the ruling will be based upon representations by Temple-Inland
that these conditions have been satisfied, and any inaccuracy in
such representations could invalidate the ruling. Therefore, in
addition to obtaining the ruling from the IRS, Temple-Inland has
made it a condition to the spin-off that Temple-Inland obtain an
opinion of tax counsel that the spin-off, together with certain
related transactions, will qualify as a tax-free distribution
for U.S. federal income tax purposes under
Sections 355 and 368(a)(1)(D) of the Code. The opinion will
rely on the ruling as to matters covered by the ruling. In
addition, the opinion will be based on, among other things,
certain assumptions and representations as to factual matters
made by Temple-Inland and us, which if incorrect or inaccurate
in any material respect, would jeopardize the conclusions
reached by counsel in its opinion. The opinion will not be
binding on the IRS or the courts, and the IRS or the courts may
not agree with the opinion.
Notwithstanding receipt by Temple-Inland of the ruling and
opinion of counsel, the IRS could assert that the spin-off does
not qualify for tax-free treatment for U.S. federal income
tax purposes. If the IRS were successful in taking this
position, our initial public stockholders and Temple-Inland
could be subject to significant U.S. federal income tax
liability. In general, Temple-Inland would be subject to tax as
if it had sold the common stock of our company in a taxable sale
for its fair market value and our initial public stockholders
would be subject to tax as if they had received a taxable
distribution equal to the fair market value of our common stock
that was distributed to them. In addition, even if the spin-off
were to otherwise qualify under Section 355 of the Code, it
may be taxable to Temple-Inland (but not to Temple-Inlands
stockholders) under Section 355(e) of the Code, if the
spin-off were later deemed to be part of a plan (or series of
related
26
transactions) pursuant to which one or more persons acquire
directly or indirectly stock representing a 50% or greater
interest in Temple-Inland or us. For this purpose, any
acquisitions of Temple-Inland stock or of our common stock
within the period beginning two years before the spin-off and
ending two years after the spin-off are presumed to be part of
such a plan, although we or Temple-Inland may be able to rebut
that presumption.
In connection with the spin-off, we and Temple-Inland will enter
into a tax matters agreement pursuant to which we will agree to
be responsible for certain liabilities and obligations following
the spin-off. In general, under the terms of the tax matters
agreement, in the event the spin-off, together with certain
related transactions, were to fail to qualify as a
reorganization for U.S. federal income tax purposes under
Sections 355 and 368(a)(1)(D) of the Code (including as a
result of Section 355(e) of the Code) and if such failure
was not the result of actions taken after the distribution by
Temple-Inland or us, we would be responsible for
[ ]% of any such taxes. If such
failure was the result of actions taken after the distribution
by Temple-Inland, Guaranty, or us, the party responsible for
such failure would be responsible for all taxes imposed on
Temple-Inland to the extent that such taxes result from such
actions. For a more detailed discussion, see the section
entitled Certain Relationships and Related Party
Transactions Agreements with Temple-Inland and
Guaranty Tax Matters Agreement beginning on
page 103 of this information statement. Our indemnification
obligations to Temple-Inland and its subsidiaries, officers and
directors are not limited in amount or subject to any cap. If we
are required to indemnify Temple-Inland and its subsidiaries and
their respective officers and directors under the circumstances
set forth in the tax matters agreement, we may be subject to
substantial liabilities.
Current Treasury regulations require that if you are a holder of
Temple-Inland common stock who receives our common stock in the
spin-off and, immediately prior to the spin-off, own:
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at least five percent of the total outstanding stock of
Temple-Inland; or
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securities of Temple-Inland with an aggregate tax basis of
$1,000,000 or more
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then you must attach a statement relating to the spin-off to
your federal income tax return for the year in which the
spin-off occurs.
Information and backup withholding will apply with respect to
cash proceeds received in lieu of a fractional share of our
common stock only if such proceeds equal or exceed $20.
The foregoing is a summary of certain U.S. federal
income tax consequences of the spin-off under current law and is
for general information only. The foregoing does not purport to
address all U.S. federal income tax consequences or tax
consequences that may arise under the tax laws of other
jurisdictions or that may apply to particular categories of
stockholders. You should consult your tax advisor as to the
particular tax consequences of the spin-off, including the
application of U.S. federal, state, local and foreign tax
laws, and the effect of possible changes in tax laws that may
affect the tax consequences described above.
Results
of the Spin-off
After the spin-off, we will be an independent, publicly-traded
company owning and operating what had previously been
Temple-Inlands real estate development and minerals
operations. Immediately following the spin-off, we expect to
have outstanding approximately
[ ] million
shares of our common stock and approximately
[ ]
holders of record of shares of our common stock, based upon the
number of shares of Temple-Inland common stock outstanding and
the number of record holders of Temple-Inland common stock on
[ ],
2007. The actual number of shares to be distributed will be
determined on the record date.
The spin-off will not affect the number of outstanding
Temple-Inland shares or any rights of Temple-Inland
stockholders, although it will affect the market value of the
outstanding Temple-Inland common stock.
27
Listing
and Trading of Our Common Stock
Currently, there is no public market for our common stock, and
no shares of our common stock are subject to outstanding options
or warrants to purchase, or securities convertible into, our
common stock. A condition to the spin-off is the approval for
listing of our common stock on the New York Stock Exchange. We
intend to apply to have our common stock listed on the New York
Stock Exchange under the symbol FOR. After the
spin-off, Temple-Inland common stock will continue to be listed
on the New York Stock Exchange under the symbol TIN.
There currently is no trading market for our common stock,
although we expect that a limited market, commonly known as a
when-issued trading market, will develop shortly
before the record date for the distribution, and we expect
regular way trading of our common stock will begin
on the first trading day after the completion of the spin-off.
See the section below entitled Trading of
Temple-Inland Common Stock Between the Record Date and
Distribution Date for an explanation of
when-issued and regular way trading.
Neither we nor Temple-Inland can assure you as to the trading
price of our common stock after the spin-off or as to whether
the combined trading prices of our common stock, Guarantys
common stock, and Temple-Inlands common stock (on a fully
distributed basis and adjusting for the sale of
Temple-Inlands timberlands and assuming the same market
conditions) after the spin-off will be less than, equal to or
greater than the trading prices of Temple-Inlands common
stock prior to the spin-off. The trading price of our common
stock is likely to fluctuate significantly, particularly until
an orderly market develops. See the sections entitled Risk
Factors Risks Relating to the Spin-off and
Risk Factors Risks Relating to Our Common
Stock beginning on pages [ ] and
[ ], respectively, of this information statement.
The shares of our common stock distributed to
Temple-Inlands stockholders will be freely transferable,
except for shares received by individuals who are our
affiliates. Individuals who may be considered our affiliates
after the spin-off include individuals who control, are
controlled by or are under common control with us, as those
terms generally are interpreted for purposes of the federal
securities laws. This may include some or all of our executive
officers and directors. In addition, individuals who are
affiliates of Temple-Inland on the distribution date may be
deemed to be affiliates of ours. Individuals who are our
affiliates will be permitted to sell their shares of common
stock received in the spin-off only pursuant to an effective
registration statement under the Securities Act of 1933, an
appropriate exemption from registration such as the exemption
afforded by Section 4(1) of the Securities Act, or pursuant
to Rule 144. In general, under Rule 144, an affiliate
who receives shares of our common stock in the distribution is
entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of:
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1% of the then-outstanding shares of common stock; and
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the average weekly trading volume of the common stock during the
four calendar weeks preceding the date on which the notice of
the sale is filed with the Securities and Exchange Commission.
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Sales under Rule 144 are also subject to provisions
relating to notice, manner of sale, volume limitations and the
availability of current public information about us. As of the
distribution date, based on their holdings, as of
[ ],
2007, of Temple-Inland common stock and equity awards in
Temple-Inland stock that will be adjusted into equity awards for
our common stock, we estimate that our officers and directors
will collectively hold
[ ] shares
of our common stock that will be subject to Rule 144.
Trading
of Temple-Inland Common Stock Between the Record Date and
Distribution Date
Beginning on or shortly before the record date and continuing
through the distribution date for the spin-off,
Temple-Inlands common stock will begin to trade in two
markets on the NYSE: a regular way market and an
ex-distribution market. During this time, shares of
Temple-Inland common stock that are sold on the regular way
market will include an entitlement to receive shares of our
common stock and Guaranty common stock distributable in the
spin-offs. Conversely, shares sold in the
ex-distribution market will not include an
entitlement to receive shares of our common stock or Guaranty
common stock distributable in the spin-offs, as the entitlement
will remain with the original holder. Therefore, if you own
shares of Temple-Inland common stock on the record date and
thereafter sell those shares in the regular way
market on or prior to the
28
distribution date, you also will be selling the shares of our
common stock that would have been distributed to you in the
spin-off with respect to the shares of Temple-Inland common
stock you sell. If you own shares of Temple-Inland common stock
on the record date and thereafter sell those shares in the
ex-distribution market on or prior to the
distribution date, you will still receive the shares of our
common stock in the spin-off. On the first trading day following
the distribution date, shares of Temple-Inland common stock will
begin trading without any entitlement to receive shares of our
common stock.
Furthermore, we anticipate that, beginning on or shortly before
the record date and continuing through the distribution date,
there will be a when-issued market in our common
stock. When-issued trading refers to a sale or
purchase made conditionally because the security has been
authorized but not yet issued. The when-issued
trading market will be a market for shares of our common stock
that will be distributed to Temple-Inland stockholders on the
distribution date. If you own shares of Temple-Inland common
stock at the close of business on the record date, you will be
entitled to shares of our common stock distributed pursuant to
the distribution. You may trade this entitlement to shares of
our common stock, separately from the shares of Temple-Inland
common stock you own, on the when-issued market. On
the first trading day following the distribution date,
when-issued trading with respect to shares of our
common stock will end and regular way trading will
begin.
Incurrence
of Debt
Prior to the spin-off, we expect to enter into a
$[450 million] revolving credit agreement with
[ ].
Borrowings will be unsecured and will bear interest at LIBOR
plus
[ ] percent.
Prior to the spin-off, we will draw under this credit facility
to repay our credit facility with Temple-Inland. For more
information on our credit facility and our debt, see the
sections in this information statement entitled
Description of Material Indebtedness,
Managements Discussion and Analysis of Financial
Condition and Results of Operations,
Capitalization, Pro Forma Financial
Information, and Certain Relationships and Related
Party Transactions.
Conditions
to the Spin-off
We expect that the distribution will be effective on
[ ],
2007, the distribution date, provided that, among other
conditions described in this information statement, the
following conditions shall have been satisfied or waived by
Temple-Inland:
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the Securities and Exchange Commission shall have declared
effective our registration statement on Form 10 and no stop
order shall be in effect;
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all permits, registrations and consents required under the
securities or blue sky laws in connection with the distribution
shall have been received;
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Temple-Inland shall have received a private letter ruling from
the IRS and an opinion of tax counsel confirming the tax-free
status of the distribution for U.S. federal income tax
purposes;
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Temple-Inland shall have received an opinion from its financial
advisors that it has adequate surplus under Delaware law to
declare the spin-off dividend and that, following the spin-off,
each of Temple-Inland and Forestar will be solvent and
adequately capitalized;
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we shall have entered into one or more credit facilities;
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the listing of our common stock on the New York Stock Exchange
shall have been approved, subject to official notice of issuance;
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all material governmental approvals and other consents necessary
to consummate the distribution shall have been received; and
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no order, injunction or decree issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
consummation of the distribution or any of the related
transactions is in effect.
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29
The fulfillment of these conditions will not create any
obligation on Temple-Inlands part to effect the
distribution. Temple-Inland has the right not to complete the
distribution if, at any time, Temple-Inlands board of
directors determines, in its sole discretion, that the
distribution is not in the best interests of Temple-Inland or
its stockholders or that market conditions are such that it is
not advisable to separate the real estate business from
Temple-Inland.
Material
Changes to the Terms of the Spin-off
Temple-Inland will have the sole and absolute discretion to
determine (and change) the terms of, and whether to proceed
with, the distribution and, to the extent it determines to so
proceed, to determine the date of the distribution. We do not
intend to notify Temple-Inland stockholders of any modifications
to the terms of the spin-off that, in the judgment of its board
of directors, are not material. For example,
Temple-Inlands board of directors might consider material
such matters as significant changes to the distribution ratio,
the assets to be contributed or the liabilities to be assumed in
the spin-off. To the extent that the board of directors
determines that any modifications by Temple-Inland materially
change the terms of the distribution, we or Temple-Inland will
notify Temple-Inland stockholders in a manner reasonably
calculated to inform them about the modification as may be
required by law, by, for example, publishing a press release,
filing a current report on
Form 8-K,
or circulating a supplement to the information statement.
Reasons
for Furnishing this Information Statement
This information statement is being furnished solely to provide
information about us and about the spin-off to Temple-Inland
stockholders who will receive shares of our common stock in the
spin-off. It is not and should not be construed as an inducement
or encouragement to buy or sell any of our securities or any
securities of Temple-Inland. We believe that the information
contained in this information statement is accurate as of the
date set forth on the cover. Changes to the information
contained in this information statement may occur after that
date, and neither we nor Temple-Inland undertake any obligation
to update the information except in the normal course of our
respective public disclosure obligations and practices.
DIVIDEND
POLICY
We do not intend to pay a cash dividend on our common stock for
the foreseeable future. Instead we intend to reinvest our
available cash flow into our business. The establishment,
declaration and payment of dividends will be at the sole
discretion of our board of directors and will be evaluated from
time to time in light of our financial condition, earnings,
capital requirements of our business, the terms of any credit
agreements to which we may be a party, legal requirements
(including compliance with the IRS private letter ruling),
industry practice and other factors that our board of directors
deems relevant. If we do declare a dividend, there can be no
assurance that we will continue to pay dividends.
30
DESCRIPTION
OF OUR BUSINESS
Overview
Forestar Real Estate Group, one of the largest publicly-traded
real estate development companies, is a growth company committed
to maximizing stockholder value. We have about
376,000 acres of real estate located in nine states and
twelve markets and about 623,000 net acres of oil and gas
mineral interests. We invest primarily in strategic growth
corridors, which we define as markets with significant growth
characteristics for population, employment and household
formation. In 2006, we generated revenues of $225 million
and net income of $52 million.
We operate two business segments:
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Real estate, and
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Natural resources.
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Our real estate segment secures entitlements and develops
infrastructure on our lands, primarily for single-family
residential and mixed-use communities. We own approximately
306,000 acres in a broad area around Atlanta, Georgia, with the
balance located primarily in Texas. We also actively invest in
new projects in our strategic growth corridors, regions of
accelerated growth across the southern half of the United States
that possess key demographic and growth characteristics that we
believe make them attractive for long-term real estate
investment.
Our real estate projects are located among the fastest growing
markets in the United States. We have 24 real estate
projects representing about 27,000 acres currently in the
entitlement process, and 74 active development projects in seven
states and 12 markets encompassing approximately
18,000 remaining acres. In addition, we sell land for
commercial uses to national retailers and local commercial
developers. We own and manage projects both directly and through
ventures. By using ventures, we achieve various business
objectives including more efficient capital deployment, risk
management, and leveraging a partners local market
contacts and expertise.
Our natural resources segment is focused on maximizing the value
from royalties and other lease revenues from our oil and gas
mineral interests located in Texas, Louisiana, Alabama and
Georgia. These operations have historically required low capital
investment, and we intend to use the cash flow generated by our
mineral interests to accelerate real estate value creation
activities. In addition, we sell wood fiber from our land,
primarily in Georgia, and lease land for recreational uses.
Our origins date back to the 1955 incorporation of
Lumbermens Investment Corporation, which in 2006 changed
its name to Forestar (USA) Real Estate Group Inc. We have a
decades-long legacy of residential and commercial real estate
development operations, primarily in Texas. In 1991, we formed
Temco Associates, LLC as a venture to develop residential sites
in Paulding County, Georgia, and in 2002 we formed CL Realty,
L.L.C. as a venture to develop residential and mixed-use
communities in Texas and across the southeastern U.S. Those
ventures continue today. In 2001, we opened an office in the
Atlanta area to manage nearby land with a focus on its long-term
real estate development potential. In 2006, Temple-Inland began
reporting Forestar Real Estate Group as a separate business
segment. Leveraging years of real estate development experience,
we believe our management team brings extensive knowledge and
expertise to position us to maximize long-term value for our
stockholders.
Strategy
Our strategy is to maximize and grow long-term stockholder value
through:
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Entitlement and development of real estate,
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Realization of value from natural resources, and
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Accelerated growth through strategic and disciplined investment
in real estate.
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We are focused on maximizing real estate values through the
entitlement and development of well-located residential and
mixed-use communities. We secure entitlements on our lands by
delivering thoughtful plans and balanced solutions that meet the
needs of the communities where we operate. Moving land through
the entitlement and development process creates significant real
estate value. Residential development activities target lot
sales to national and regional home builders who build quality
products and have strong and effective marketing and sales
programs. The lots we deliver in the majority of our communities
are for
mid-priced
homes, predominantly in the first and second move-up categories,
the largest segments of the new home market. Commercial tracts
are either sold to or ventured with a commercial developer that
specializes in the construction and operation of
income-producing properties.
We intend to maximize value from our oil and gas mineral
interests by increasing the acreage leased, lease rates and
royalty interests. These operations have historically required
low capital investment, and we intend to use the cash flow
generated by our mineral interests to accelerate real estate
value creation activities. In addition, we realize value from
our undeveloped land by selling fiber and by managing it for
future real estate development and conservation uses. We also
intend to generate cash flow and create additional value through
recreational leases, mitigation banks and water rights.
We are committed to growing our business and will continue to
reinvest our capital primarily in ten strategic growth corridors
through disciplined investment in real estate opportunities that
meet our investment criteria. In 2006, we invested
$74 million in 10 new projects, representing over
2,400 acres located in three of our strategic growth
corridors.
Our real estate and mineral assets in combination with our
strategy, financial strength, management expertise, stewardship
and continuous reinvestment in our business, position Forestar
to maximize and grow long-term value for stockholders.
Real
Estate
In our real estate segment, we conduct a wide array of project
planning and management activities related to the acquisition,
entitlement, development and sale of real estate, primarily
residential and mixed-use communities. We own and manage our
projects either directly or through ventures, which we use to
achieve a variety of business objectives, including more
efficient capital deployment, risk management, and leveraging a
32
partners local market contacts and expertise. The
following map shows the states in which we own property and
conduct our real estate business.
Forestar
Real Estate Markets
We have real estate in nine states and 12 markets encompassing
about 376,000 acres, including approximately
306,000 acres located in a broad area around Atlanta,
Georgia, with the balance located primarily in Texas. We also
have real estate in Florida, Colorado, California, Utah,
Missouri, Alabama and Louisiana.
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Our strategy for creating value in our real estate segment is to
move acres up the value chain by moving land located in growth
corridors but not yet entitled, through the entitlement process,
and into development. The chart below depicts our real estate
value chain, including real estate owned through ventures.
Forestar
Real Estate Value Chain
Today, we have over 331,000 undeveloped acres located in
the path of population growth. As markets grow and mature, we
will secure the necessary entitlements. We currently have about
27,000 acres in the entitlement process, which includes
obtaining zoning, other governmental approvals, and access to
utilities. Duration of entitlement activities may vary depending
upon the size, location, use and complexity of a project. When
investment in development meets our return criteria, we will
initiate the development process with subsequent sale of lots to
homebuilders or, for commercial parcels, sale to or venture with
commercial developers. We will sell land at any point within the
value chain when user value has been achieved or when additional
investment in entitlement or development will not meet our
return criteria. In 2006, we sold 3,652 acres of
unentitled, undeveloped land at an average price of $8,100 per
acre.
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A summary of real estate projects in the entitlement
process
(a)
at second quarter-end 2007 follows:
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Project
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Project
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County
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Acres
(b)
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California
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Hidden Creek Estates
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Los Angeles
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700
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Terrace at Hidden Hills
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Los Angeles
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30
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Georgia
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Ball Ground
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Cherokee
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500
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Burt Creek
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Dawson/Lumpkin
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990
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Cedar Creek Preserve
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Coweta
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200
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Corinth Landing
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Coweta
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800
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Crossing
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Coweta
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230
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Euharlee II West
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Bartow
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360
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Fincher Road
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Cherokee
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950
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Friendship Road
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Cherokee
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110
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Garland Mountain
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Cherokee/Bartow
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350
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Genesee
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Coweta
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750
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Grove Park
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Coweta
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160
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Jackson Park
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Jackson
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690
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Lithia Springs
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Haralson
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260
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Mill Creek
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Coweta
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780
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Overlook
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Cherokee
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510
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Pickens School
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Pickens
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420
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Serenity
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Carroll
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400
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Wolf Creek
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Carroll
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12,180
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Yellow Creek
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Cherokee
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1,100
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Texas
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Lake Houston
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Harris/Liberty
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3,630
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Entrada
(c)
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Travis
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240
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Woodlake
Village
(c)
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Montgomery
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620
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Total
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26,960
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(a)
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A project is deemed to be in the entitlement process when
customary steps necessary for the preparation and submittal of
an application, like conducting pre-application meetings or
similar discussions with governmental officials, have commenced,
or an application has been filed. Projects listed may have
significant steps remaining, and there is no assurance that
entitlements ultimately will be received.
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(b)
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Project acres are approximate. The actual number of acres
entitled may vary.
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(c)
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We own a 50 percent interest in these projects.
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Products
The majority of our projects are single-family residential and
mixed-use communities. In some cases, commercial land uses
within a project enhance the desirability of the community by
providing convenient locations for resident support services. We
sometimes undertake projects consisting exclusively of
commercial tracts and, on occasion, we invest in a venture to
develop a single commercial project.
We develop lots for single-family homes and commercial tracts
that are substantially ready for construction of buildings for
retail, multifamily, office, industrial or other commercial
uses. We sell residential lots
35
primarily to national and regional homebuilders and, to a lesser
extent, local homebuilders. We have 74 active development
projects in seven states and 12 markets encompassing about
18,000 remaining acres. We focus our lot sales on the first
and second
move-up
primary housing categories, the largest segments of the new home
market. Marketing and sales of lots to builders is usually
conducted directly, without the need for outside real estate
brokers. Terms for these lot sale transactions follow industry
norms, generally consisting of option contracts with prescribed
takedown schedules and payment deposits.
Commercial tracts are either sold to or ventured with a
commercial developer that specializes in the construction and
operation of income-producing properties, such as apartments,
retail centers, or office buildings. We sell land designated for
commercial uses to national retailers and to regional and local
commercial developers. As is typical for the industry, marketing
and sale of commercial tracts often involves outside real estate
brokers. We have about 1,900 acres of entitled land
designated for commercial use, including approximately
285 acres of commercial property in several parcels in or
near Antioch, California. The site is zoned for industrial uses
and fronts the San Joaquin river, which connects the
San Francisco Bay with the Stockton Deep Water Ship
Channel. Portions of this site were previously used by
Temple-Inland as a paper manufacturing operation and related
support facilities. Substantially all manufacturing facilities
have been removed.
Examples of two of our current significant mixed-use projects
include Cibolo Canyons in the San Antonio market area and
Towne West in the Atlanta market area.
Cibolo Canyons is planned as a 2,900 acre mixed-use
development comprising 1,749 residential lots of which 462 have
been sold as of June 2007 at an average price of $57,000 per
lot. The residential component will include not only traditional
single-family homes but also an active adult section and
condominiums. Cibolo Canyons homebuilder customers include
Highland Homes, Meritage Homes and Newmark Homes, as well as
several regional and custom builders. Our commercial component
will include 145 acres designated for multi-family and
retail uses, of which 64 acres have been sold as of June
2007. Currently under construction at Cibolo Canyons is the JW
Marriott San Antonio Hill Country Resort & Spa,
planned to include a 1,002 room destination resort and two PGA
Tour
®
Tournament Players
Club
®
golf courses to be designed by Pete Dye and Greg Norman. We have
the right to receive revenues from hotel occupancy and sales
taxes generated within the resort through 2034 and to
reimbursement of certain infrastructure costs.
Towne West is a 971 acre mixed-use development just west of
Adairsville in Bartow County, Georgia, approximately
60 miles north of Atlanta and near the announced site of
the first Cabelas destination retail hunting, fishing and
outdoor store in the southeastern United States. Towne
Wests residential component is designed to include 2,550
lots on 650 acres, and its commercial component is designed
to include 121 acres. Planned amenities include a swimming
pool with clubhouse, tennis courts, and baseball and softball
fields.
A summary of activity within our
entitled,
(a)
developed, and under development real estate projects at second
quarter-end 2007 follows:
|
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|
|
|
|
|
|
|
|
|
|
Residential
Lots
(c)
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|
|
Commercial
Acres
(d)
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|
|
|
|
|
|
|
Sold
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|
|
|
Sold
|
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|
|
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|
|
|
|
Interest
|
|
Since
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Since
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|
Project
|
|
County
|
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Owned
(b)
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Inception
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Remaining
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Inception
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Remaining
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Projects we own
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California
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|
|
|
|
|
|
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|
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San Joaquin River
|
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Contra Costa
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100%
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|
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|
285
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Colorado
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|
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|
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|
|
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Buffalo Highlands
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Weld
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100%
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|
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|
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645
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|
|
|
|
|
|
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|
Johnstown Farms
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Weld
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100%
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|
115
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|
|
699
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|
|
|
|
|
|
|
|
Pinery West
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Douglas
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100%
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|
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|
|
|
|
|
|
|
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|
|
115
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Stonebraker
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Weld
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100%
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|
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600
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|
|
|
|
|
|
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Westlake Highlands
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Jefferson
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100%
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|
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21
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|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Lots
(c)
|
|
|
Commercial
Acres
(d)
|
|
|
|
|
|
|
|
Sold
|
|
|
|
|
|
Sold
|
|
|
|
|
|
|
|
|
Interest
|
|
Since
|
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|
|
|
|
Since
|
|
|
|
|
Project
|
|
County
|
|
Owned
(b)
|
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Inception
|
|
|
Remaining
|
|
|
Inception
|
|
|
Remaining
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrowhead Ranch
|
|
Hays
|
|
100%
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
5
|
|
Caruth Lakes
|
|
Rockwall
|
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100%
|
|
|
245
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|
|
|
629
|
|
|
|
|
|
|
|
|
|
Cibolo Canyons
|
|
Bexar
|
|
100%
|
|
|
462
|
|
|
|
1,287
|
|
|
|
64
|
|
|
|
81
|
|
Harbor Lakes
|
|
Hood
|
|
100%
|
|
|
190
|
|
|
|
388
|
|
|
|
|
|
|
|
13
|
|
Harbor Mist
|
|
Calhoun
|
|
100%
|
|
|
|
|
|
|
1,393
|
|
|
|
|
|
|
|
36
|
|
Hunters Crossing
|
|
Bastrop
|
|
100%
|
|
|
266
|
|
|
|
311
|
|
|
|
19
|
|
|
|
95
|
|
Katy Freeway
|
|
Harris
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
La Conterra
|
|
Williamson
|
|
100%
|
|
|
|
|
|
|
509
|
|
|
|
|
|
|
|
60
|
|
Maxwell Creek
|
|
Collin
|
|
100%
|
|
|
567
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
Oakcreek Estates
|
|
Comal
|
|
100%
|
|
|
|
|
|
|
648
|
|
|
|
|
|
|
|
|
|
The Colony
|
|
Bastrop
|
|
100%
|
|
|
347
|
|
|
|
1,078
|
|
|
|
22
|
|
|
|
50
|
|
The Gables at North Hill
|
|
Collin
|
|
100%
|
|
|
193
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
The Preserve at Pecan Creek
|
|
Denton
|
|
100%
|
|
|
111
|
|
|
|
708
|
|
|
|
|
|
|
|
9
|
|
The Ridge at Ribelin Ranch
|
|
Travis
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
77
|
|
Westside at Buttercup Creek
|
|
Williamson
|
|
100%
|
|
|
1,197
|
|
|
|
393
|
|
|
|
51
|
|
|
|
|
|
Other projects (10)
|
|
Various
|
|
100%
|
|
|
2,871
|
|
|
|
134
|
|
|
|
227
|
|
|
|
54
|
|
Georgia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towne West
|
|
Bartow
|
|
100%
|
|
|
|
|
|
|
2,550
|
|
|
|
|
|
|
|
121
|
|
Other projects (7)
|
|
Various
|
|
100%
|
|
|
|
|
|
|
1,264
|
|
|
|
|
|
|
|
40
|
|
Missouri and Utah
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other projects (3)
|
|
Various
|
|
100%
|
|
|
760
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,324
|
|
|
|
14,291
|
|
|
|
547
|
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projects in entities we
consolidate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Park
|
|
Harris
|
|
75%
|
|
|
689
|
|
|
|
612
|
|
|
|
36
|
|
|
|
129
|
|
Lantana
|
|
Denton
|
|
55%
(e)
|
|
|
285
|
|
|
|
2,065
|
|
|
|
|
|
|
|
|
|
Light Ranch
|
|
Collin
|
|
65%
|
|
|
|
|
|
|
2,461
|
|
|
|
|
|
|
|
|
|
Timber Creek
|
|
Collin
|
|
88%
|
|
|
|
|
|
|
654
|
|
|
|
|
|
|
|
|
|
Other projects (6)
|
|
Various
|
|
Various
|
|
|
985
|
|
|
|
351
|
|
|
|
21
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,959
|
|
|
|
6,143
|
|
|
|
57
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owned and
consolidated
|
|
|
|
|
|
|
9,283
|
|
|
|
20,434
|
|
|
|
604
|
|
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projects in ventures that we
account for using the equity method
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven Hills
|
|
Paulding
|
|
50%
|
|
|
601
|
|
|
|
479
|
|
|
|
26
|
|
|
|
|
|
The Georgian
|
|
Paulding
|
|
38%
|
|
|
284
|
|
|
|
1,101
|
|
|
|
|
|
|
|
|
|
Other projects (5)
|
|
Various
|
|
Various
|
|
|
1,843
|
|
|
|
249
|
|
|
|
3
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Lots
(c)
|
|
|
Commercial
Acres
(d)
|
|
|
|
|
|
|
|
Sold
|
|
|
|
|
|
Sold
|
|
|
|
|
|
|
|
|
Interest
|
|
Since
|
|
|
|
|
|
Since
|
|
|
|
|
Project
|
|
County
|
|
Owned
(b)
|
|
Inception
|
|
|
Remaining
|
|
|
Inception
|
|
|
Remaining
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bar C Ranch
|
|
Tarrant
|
|
50%
|
|
|
170
|
|
|
|
1,011
|
|
|
|
|
|
|
|
|
|
Fannin Farms West
|
|
Tarrant
|
|
50%
|
|
|
224
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
Lantana
|
|
Denton
|
|
Various
(e)
|
|
|
1,726
|
|
|
|
122
|
|
|
|
1
|
|
|
|
79
|
|
Long Meadow Farms
|
|
Fort Bend
|
|
19%
|
|
|
583
|
|
|
|
1,601
|
|
|
|
24
|
|
|
|
186
|
|
Southern Trails
|
|
Brazoria
|
|
40%
|
|
|
201
|
|
|
|
858
|
|
|
|
|
|
|
|
|
|
Stonewall Estates
|
|
Bexar
|
|
25%
|
|
|
85
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
Summer Creek Ranch
|
|
Tarrant
|
|
50%
|
|
|
793
|
|
|
|
1,695
|
|
|
|
|
|
|
|
374
|
|
Summer Lakes
|
|
Fort Bend
|
|
50%
|
|
|
294
|
|
|
|
850
|
|
|
|
48
|
|
|
|
3
|
|
Village Park
|
|
Collin
|
|
50%
|
|
|
313
|
|
|
|
256
|
|
|
|
|
|
|
|
5
|
|
Waterford Park
|
|
Fort Bend
|
|
50%
|
|
|
|
|
|
|
493
|
|
|
|
|
|
|
|
37
|
|
Other projects (3)
|
|
Various
|
|
Various
|
|
|
268
|
|
|
|
262
|
|
|
|
|
|
|
|
37
|
|
Florida
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other projects (3)
|
|
Various
|
|
Various
|
|
|
473
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total in ventures
|
|
|
|
|
|
|
7,858
|
|
|
|
9,734
|
|
|
|
102
|
|
|
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Total
|
|
|
|
|
|
|
17,141
|
|
|
|
30,168
|
|
|
|
706
|
|
|
|
1,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
A project is deemed entitled when all major discretionary
land-use approvals have been received. Some projects may require
additional permits for development.
|
|
(b)
|
|
Interest owned reflects our net equity interest in the project,
whether owned directly or indirectly. There are some projects
that have multiple ownership structures within them.
Accordingly, portions of these projects may appear as owned,
consolidated, and/or accounted for on the equity method.
|
|
(c)
|
|
Lots are for the total project.
|
|
(d)
|
|
Commercial acres are for the total project and are net
developable acres, which may be fewer than the gross acres
available in the project.
|
|
(e)
|
|
The Lantana project consists of a series of 19 partnerships in
which our voting interests range from 25 percent to
55 percent. We account for eight of these partnerships
using the equity method and we consolidate the remaining
partnerships.
|
Our strategy includes not only entitlement and development on
our own lands but also accelerated growth through strategic and
disciplined investment in acquisitions that meet our investment
criteria. In 2006, we acquired ten real estate projects for
approximately $74 million. These projects are planned to
include approximately 2,080 single-family residential lots and
about 360 commercial acres. Two examples of our 2006
acquisitions are Pinery West near Denver, Colorado, and La
Conterra near Austin, Texas.
Pinery West is adjacent to the City of Parker in the
rapidly-growing Douglas County area south of Denver. This
mixed-use project includes about 320 acres of
partially-entitled property with frontage on a major
thoroughfare. The project plan is to secure additional
entitlements, install road and utility infrastructure, and sell
up to 22 separate parcels in multiple phases. About
115 acres are planned for industrial, retail and other
commercial uses, and about 20 acres are planned for
residential use. The balance of the property is planned as open
space.
La Conterra is a mixed-use project on about 180 acres in
Georgetown, approximately 25 miles north of Austin. The
project is planned for 509 single-family residential lots on
about 120 acres, with a
transit-oriented
district planned for the remaining 60 acres. Plans
for this community include entrance through a divided boulevard,
and an amenity center with a swimming pool and playground. We
anticipate marketing residential lots to national homebuilders
beginning in 2008.
38
Markets
We invest primarily in strategic growth corridors, which we
define as markets with significant growth characteristics for
population, employment and household formation. We believe these
factors are the most influential on the demand for new housing.
We have identified ten strategic growth corridors, located
generally across the southern half of the U.S., that we believe
possess characteristics that make them attractive long-term real
estate investment opportunities.
Long-term demand for residential lots and commercial use land
parcels is substantially influenced by demographics such as
population growth, immigration, in-migration and household
formation. Near-term demand for new single-family housing is
primarily influenced by employment growth and affordability. Our
strategy to invest primarily in our strategic growth corridors
is designed to capitalize on opportunities afforded by both
long-term and near-term demographic and growth influences. This
strategy is also designed to reduce our exposure to localized
market volatility. Following is a map of our strategic growth
corridors.
Forestar
Strategic Growth Corridors
Our ten strategic growth corridors encompass 165,000 square
miles, or approximately 5% of the total land area in the
U.S. According to 2005 census data, 85 million people,
29% of the U.S. total, reside in these corridors. The
population density in these growth corridors is almost seven
times the national average and is projected to grow at nine
times the national average between 2000 and 2030. During that
time, the corridors are projected to garner approximately 43% of
the nations population growth and 38% of total employment
growth. Estimated housing demand from these ten growth corridors
from 2000 to 2030 exceeds 23 million new homes.
39
Forestar
Strategic Growth Corridors
I-85:
Stretches along the general line taken
by I-85 from Atlanta to Raleigh, spanning three states and a
portion of a fourth. The cities of Atlanta, Charlotte, Raleigh
and Birmingham lie within this corridor.
I-35:
Encompasses the areas generally along
the line of I-35 from Dallas to San Antonio. The major
cities within this corridor include Dallas/Ft. Worth,
Austin, and San Antonio.
I-5:
Includes the area along and around I-5,
running the length of California. It includes the major cities
in Northern California of San Francisco, San Jose, and
Sacramento, and in Southern California the major cities of Los
Angeles, San Diego, and Riverside.
Houston:
Includes the 15 counties in and
around the Houston area conforming mostly to the I-10, I-45 and
US-59 transportation infrastructure. Five of these counties are
coastal or have direct access to the Gulf of Mexico.
Denver:
Denvers growth areas encompass
the counties bordering I-25 running north and south and I-70
running east and west.
Nashville:
Formed by a triangle between
Nashville, Knoxville and Chattanooga. I-40 runs east/west
between Nashville and Knoxville and I-24 and I-75 connect
Chattanooga to Nashville and Knoxville, respectively.
Phoenix:
The area is accessed by several
highways including I-10 and I-8 running east/west, and I-17
going north/south.
Salt Lake:
Almost entirely north/south along
I-15 with the one exception of Summit County within Salt Lake
Citys outer loop 280 to the east.
Washington, D.C.:
Includes the District
of Columbia together with Maryland and Virginia.
Florida-SE Coast:
Spans three states and over
350 miles. The majority of the corridor, however, is along
the east coast following I-95 from Hilton Head, SC to Port St.
Lucie, FL, then west across Florida encompassing several
counties along the Gulf of Mexico, including the cities of
Tampa, St. Petersburg, and Orlando.
Competition
We face significant competition for the acquisition, entitlement
and development of real estate in our markets. Many of our
projects compete with other local developments that have similar
products and locations. We compete with other land owners for
the sale of our undeveloped land. In addition, we compete with
many national, regional and local developers and builders in
these markets. We may compete for investment opportunities,
financing, available land, raw materials and labor with entities
that possess greater financial, marketing and other resources
than us. Competition may increase the bargaining power of
property owners seeking to sell, and industry competition may
increase if there is future consolidation in the real estate
industry. These competitive market pressures sometimes make it
difficult to acquire, entitle, develop or sell land at prices
that meet our return criteria.
Some of our real estate competitors are well established and
financially strong, may have greater financial resources than we
do, or may be larger than us
and/or
have
lower cost of capital and operating costs than we have and
expect to have.
Natural
Resources
In our natural resources segment, we own oil and gas mineral
interests from which we receive royalties and other revenues
related to lease activity. We also sell wood fiber from our
land, primarily in Georgia, lease land for hunting and other
recreational uses, and manage our interests in mitigation banks
and water rights.
40
Products
We own oil and gas mineral interests in approximately
623,000 net acres in Texas, Louisiana, Alabama and Georgia.
In the context of our mineral interests, net acres refers to the
gross number of surface acres multiplied by our percentage
ownership of the mineral interest. Our minerals revenue is
primarily from oil and gas royalty interests, and to a lesser
extent, bonus payments made at the inception of a new oil or gas
lease and delay rentals. Although we lease certain portions of
these oil and gas mineral interests to companies for the
exploration and production of oil and gas, we neither engage in
any such exploratory or extractive activities nor do we estimate
or maintain oil or gas reserve information related to our
mineral interests. Following is a map of our Texas and Louisiana
oil and gas mineral interests.
Forestar
Texas and Louisiana Oil and Gas Minerals
41
Our strategy for maximizing value from our oil and gas mineral
interests is to move acres up the minerals value chain by
increasing the acreage leased, lease rates and royalty
interests. The chart below depicts our minerals value chain.
Forestar
Minerals Value Chain
Of our 623,000 net acres of oil and gas mineral interests,
over 531,000 net acres are available for lease. We have
over 68,000 net acres leased for exploration activities,
and over 24,000 net acres held by production from oil and
gas wells. Leasing mineral acres for exploration and production
activities creates significant value because we participate
through a royalty interest in all revenues generated from oil
and gas production activities. Most leases are for a three-year
term and require the lessee to pay us an annual delay rental if
production has not commenced within a year of the inception of
the lease.
A summary of our oil and gas mineral interests owned, leased,
and held by production at second quarter-end 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Acres
|
|
|
Net Acres
|
|
|
Held by
|
|
State
|
|
Owned
(a)
|
|
|
Leased
(b)
|
|
|
Production
(c)
|
|
|
Texas
|
|
|
244,500
|
|
|
|
63,000
|
|
|
|
17,000
|
|
Louisiana
|
|
|
121,500
|
|
|
|
5,000
|
|
|
|
7,000
|
|
Alabama
|
|
|
57,000
|
|
|
|
0
|
|
|
|
0
|
|
Georgia
|
|
|
200,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
623,000
|
|
|
|
68,000
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Texas and Louisiana net acres are calculated as the gross number
of surface acres multiplied by our percentage ownership of the
mineral interest. Alabama and Georgia net acres are calculated
as the gross number of surface acres multiplied by our estimated
percentage ownership of the mineral interest based on county
sampling.
|
42
|
|
|
(b)
|
|
Includes leases in primary lease term only.
|
|
(c)
|
|
Acres being held by production are producing oil or gas in
paying quantities.
|
We have over 350,000 acres of timber in various stages of
growth on our undeveloped land, and approximately
23,000 acres of timber under a long-term lease with a
purchase option that includes the underlying land. In 2006, we
sold, primarily to Temple-Inland, about 1,115,000 tons of timber
from our lands. We intend to manage our timberland in accordance
with the Sustainable Forestry
Initiative
®
program of Sustainable Forestry Initiative, Inc. or a similar
program. Over 285,000 acres of our land, primarily in Georgia,
are leased for recreational purposes. Most recreational leases
are for a three-year term but may be terminated by us on
30 days notice to the lessee.
Markets
Oil and gas revenues are influenced by the prices of these
commodities as determined both regionally and on world trading
markets. Mineral leasing activity is influenced by the location
of our mineral interests relative to existing or projected oil
and gas reserves and by the proximity of successful extractive
efforts to our mineral interests. Our principal timber products
include pulpwood and sawtimber. We anticipate that we will sell
wood fiber to Temple-Inland under annual agreements at market
prices, primarily for use at Temple-Inlands Rome, Georgia
mill complex. It is likely that Temple-Inland will continue to
be our largest wood fiber customer. See Certain
Relationships and Related Party Transactions Fiber
Sales Agreement. We also sell wood fiber to other parties
at market prices.
Competition
We compete with others who own mineral interests in the vicinity
of our mineral interests. We face significant competition from
many public and private landowners for the sale of our fiber.
Some of these competitors own similar timber assets that are
located in the same or nearby markets.
Some of our competitors are well established and financially
strong, may have greater financial resources than we do, or may
be larger than us
and/or
have
lower cost of capital and operating costs than we have and
expect to have.
Legal
Structure
Forestar Real Estate Group is currently a limited liability
company that we will convert to a Delaware corporation prior to
the spin-off. The following chart presents the ownership
structure for our significant
43
subsidiaries and ventures. It does not contain all our
subsidiaries and ventures, some of which are immaterial
entities. Except as indicated, all subsidiaries shown are
100 percent owned by their immediate parent.
Facilities
Our principal executive offices are located in Austin, Texas,
where we lease approximately 23,000 square feet of office
space from Guaranty. We also lease office space in Dallas,
Texas, and in Douglasville and Cartersville, Georgia. We believe
these offices are suitable for conducting our business.
Employees
We have approximately 65 employees. None of our employees
participate in collective bargaining arrangements. We believe we
have a good relationship with our employees.
Environmental
Regulations
Our operations are subject to federal, state and local laws,
regulations and ordinances relating to protection of public
health and the environment. These laws may impose liability on
property owners or operators for the costs of removal or
remediation of hazardous or toxic substances on real property,
without regard to whether the owner or operator knew, or was
responsible for, the presence of the hazardous or toxic
substances. The presence of, or the failure to properly
remediate, such substances may adversely affect the value of a
property, as well as our ability to sell the property or to
borrow funds using that property as collateral. Environmental
claims generally are not covered by our insurance programs.
The particular environmental laws that apply to any given
development site vary according to the sites location, its
environmental condition, and the present and former uses of the
site and adjoining properties. Environmental laws and conditions
may result in delays, may cause us to incur substantial
compliance or other costs and can prohibit or severely restrict
development activity in environmentally sensitive regions or
areas, which could negatively affect our results of operations.
44
We own approximately 285 acres in several parcels in or
near Antioch, California, portions of which were sites of a
Temple-Inland paper manufacturing operation and related support
facilities that were closed in 2002. Substantially all
manufacturing facilities have been removed from the sites.
Investigations conducted by Temple-Inland disclosed the need for
remediation of environmental impacts associated with the closure
of manufacturing operations, which remediation is being
conducted voluntarily with oversight by the California
Department of Toxic Substances Control, or DTSC. The DTSC issued
Certificates of Completion for approximately 180 acres in
2006, and we anticipate that Certificates of Completion will be
issued for the remaining approximately 105 acres in 2008.
We estimate the cost for completion of remediation activities
and subsequent monitoring will be about $2 million. We will
have no right of indemnification from Temple-Inland should our
actual costs exceed our estimate.
Legal
Proceedings
We are involved directly or through ventures in various legal
proceedings that arise from time to time in the ordinary course
of doing business. We believe we have established adequate
reserves for any probable losses and that the outcome of any of
the proceedings should not have a material adverse effect on our
financial position or long-term results of operations or cash
flows. It is possible, however, that charges related to these
matters could be significant to results of operations or cash
flow in any single accounting period.
45
CAPITALIZATION
The following table shows our capitalization as of June 2007 on
both a historical basis and pro forma basis giving effect to our
anticipated post-spin-off capital structure. This table should
be read in conjunction with our historical financial statements
included in this information statement and the sections entitled
Selected Historical Financial Information, Pro
Forma Financial Information, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Description of Material
Indebtedness, and Description of Our Capital
Stock.
The pro-forma capitalization is not necessarily indicative of
our capitalization had the spin-off and our anticipated
post-spin-off capital structure been completed on the date
assumed. The pro-forma capitalization below may not reflect the
capitalization or financial condition that would have resulted
had we been operating as an independent, publicly-traded company
at that date and is not necessarily indicative of our future
capitalization or financial condition.
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
Note payable to Temple-Inland
|
|
$
|
131,561
|
|
|
$
|
|
|
Bank credit facility
|
|
|
|
|
|
|
131,561
|
|
Debt
|
|
|
70,281
|
|
|
|
70,281
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
201,842
|
|
|
|
201,842
|
|
Temple-Inlands net investment
|
|
|
431,547
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, par value
$ per
share, authorized
shares, none issued
|
|
|
|
|
|
|
|
|
Common stock, par value
$[ ] per share,
authorized shares,
issued shares
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
431,547
|
|
|
|
439,371
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
633,389
|
|
|
$
|
641,213
|
|
|
|
|
|
|
|
|
|
|
46
SELECTED
HISTORICAL FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
(a)
|
|
|
2005
|
|
|
2004
|
|
|
2003
(a)
|
|
|
2002
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
74,883
|
|
|
$
|
86,474
|
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
|
$
|
92,416
|
|
|
$
|
95,694
|
|
Natural resources
|
|
|
15,858
|
|
|
|
28,178
|
|
|
|
45,409
|
|
|
|
37,366
|
|
|
|
30,478
|
|
|
|
27,474
|
|
|
|
12,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
90,741
|
|
|
$
|
114,652
|
|
|
$
|
225,560
|
|
|
$
|
155,487
|
|
|
$
|
169,301
|
|
|
$
|
119,890
|
|
|
$
|
108,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate
(b)
|
|
$
|
26,762
|
|
|
$
|
39,104
|
|
|
$
|
70,271
|
|
|
$
|
46,418
|
|
|
$
|
43,370
|
|
|
$
|
21,259
|
|
|
$
|
27,290
|
|
Natural resources
|
|
|
10,784
|
|
|
|
22,376
|
|
|
|
33,016
|
|
|
|
24,850
|
|
|
|
18,653
|
|
|
|
14,463
|
|
|
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
37,546
|
|
|
|
61,480
|
|
|
|
103,287
|
|
|
|
71,268
|
|
|
|
62,023
|
|
|
|
35,722
|
|
|
|
28,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses not allocated to segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(8,051
|
)
|
|
|
(6,746
|
)
|
|
|
(14,048
|
)
|
|
|
(9,113
|
)
|
|
|
(10,433
|
)
|
|
|
(6,921
|
)
|
|
|
(7,109
|
)
|
Share-based
compensation
(a)
|
|
|
(1,542
|
)
|
|
|
(668
|
)
|
|
|
(1,275
|
)
|
|
|
(443
|
)
|
|
|
(154
|
)
|
|
|
(56
|
)
|
|
|
(6
|
)
|
Interest expense
|
|
|
(4,241
|
)
|
|
|
(2,848
|
)
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
|
|
(6,091
|
)
|
|
|
(5,591
|
)
|
|
|
(6,198
|
)
|
Other non-operating income
(expense)
(c)
|
|
|
112
|
|
|
|
(180
|
)
|
|
|
79
|
|
|
|
483
|
|
|
|
535
|
|
|
|
552
|
|
|
|
965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
23,824
|
|
|
|
51,038
|
|
|
|
81,814
|
|
|
|
55,756
|
|
|
|
45,880
|
|
|
|
23,706
|
|
|
|
16,082
|
|
Income tax expense
|
|
|
(8,731
|
)
|
|
|
(18,408
|
)
|
|
|
(29,970
|
)
|
|
|
(20,859
|
)
|
|
|
(17,444
|
)
|
|
|
(8,456
|
)
|
|
|
(5,780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,093
|
|
|
$
|
32,630
|
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
|
$
|
15,250
|
|
|
$
|
10,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period or year-end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
681,416
|
|
|
$
|
562,910
|
|
|
$
|
620,174
|
|
|
$
|
543,944
|
|
|
$
|
517,700
|
|
|
$
|
533,097
|
|
|
$
|
474,137
|
|
Note payable to Temple-Inland and
other debt
|
|
|
201,842
|
|
|
|
134,043
|
|
|
|
161,117
|
|
|
|
121,948
|
|
|
|
110,997
|
|
|
|
143,337
|
|
|
|
81,146
|
|
Minority interest in consolidated
ventures
|
|
|
8,043
|
|
|
|
7,999
|
|
|
|
7,746
|
|
|
|
7,292
|
|
|
|
8,078
|
|
|
|
2,558
|
|
|
|
|
|
Temple-Inlands net investment
|
|
|
431,547
|
|
|
|
391,070
|
|
|
|
418,052
|
|
|
|
381,290
|
|
|
|
368,659
|
|
|
|
354,155
|
|
|
|
343,837
|
|
Ratio of total debt to total
capitalization
|
|
|
32%
|
|
|
|
26%
|
|
|
|
28%
|
|
|
|
24%
|
|
|
|
23%
|
|
|
|
29%
|
|
|
|
19%
|
|
|
|
|
(a)
|
|
In 2006, Temple-Inland adopted the modified prospective
application of SFAS No. 123 (revised December 2004),
Share-Based Payment.
As a result, share-based
compensation expense allocated to us increased by $153,000. In
2003, Temple-Inland voluntarily adopted the prospective
transition method of SFAS No. 148,
Accounting for
Stock-Based Compensation Transition and Disclosure,
an amendment of FASB Statement No. 123.
As a result,
Temple-Inland began allocating share-based compensation expense
to us.
|
|
(b)
|
|
Beginning in 2006, we eliminated our historical one-month lag in
accounting for our investment in our two largest real estate
ventures as financial information became more readily available.
The one-time effect of eliminating this one-month lag was to
increase our equity in earnings by about $1,104,000.
|
|
(c)
|
|
In 2006, other non-operating income included $459,000 expense
associated with early repayment of debt.
|
47
PRO FORMA
FINANCIAL INFORMATION
The pro forma financial information portrays how our spin off
from Temple-Inland might have affected our historical financial
information if it had occurred at June 2007 for balance sheet
purposes and at the beginning of 2006 for income statement
purposes. As you read this, understand that the pro forma
financial information is presented for informational purposes
only and is not intended to show what our financial position or
results of operations would have been had we been operating as
an independent, publicly-traded company during these periods or
what our financial position or results of operations might be in
the future. The pro forma financial information should be read
with our historical financial statements included in this
information statement and the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
How we
prepared the Pro Forma Financial Information
We prepared the pro forma financial information based upon our
historical financial statements adjusted to reflect our estimate
of the effect of events that are directly attributable to the
spin-off, expected to have a continuing impact on our
operations, and are factually supportable. The pro forma
adjustments were derived from currently available information
and were based on assumptions that we believe are reasonable and
that reflect our current intentions.
Events
that are reflected in the Pro Forma Financial
Information
|
|
|
|
|
Repayment of a note payable to Temple-Inland with borrowings
under a new credit facility that we expect to have in place on
or prior to the spin-off.
|
|
|
|
Factually supportable incremental increases in expenses
principally related to officer and director compensation and
stock-based compensation.
|
|
|
|
Our conversion from a limited liability company to a Delaware
corporation, the authorization of preferred stock, and
distribution of our common stock to the stockholders of
Temple-Inland.
|
Events
that are not reflected in the Pro Forma Financial
Information
|
|
|
|
|
Estimated non-recurring costs that we expect to incur as a
result of the spin-off are between $2,000,000 and $3,000,000,
including costs for signage, branding, employee recruitment,
software licenses and new information systems.
|
|
|
|
Incremental expenses for stand alone company functions and
arrangements that we are developing, such as benefit
administration, governance, information technology
infrastructure, investor relations, insurance, and tax services
and incentive and share-based compensation arrangements. These
services and arrangements are currently being provided by
Temple-Inland and the allocation of the cost of these services
is included in our historical results of operations, $7,128,000
in 2006 and $4,836,000 in first six months 2007. We expect
Temple-Inland to continue to provide some of these services
until we can establish our own stand alone functions. Our
current estimate of the incremental annual cost of these
services on a stand alone basis over and above pro forma general
and administrative expense is between $5,000,000 to $7,000,000.
|
48
FORESTAR
REAL ESTATE GROUP LLC
UNAUDITED
PRO FORMA BALANCE SHEET
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Historical
|
|
|
Adjustment
|
|
|
Pro Forma
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
9,091
|
|
|
$
|
|
|
|
$
|
9,091
|
|
Prepaid expenses
|
|
|
2,082
|
|
|
|
|
|
|
|
2,082
|
|
Real estate
|
|
|
511,822
|
|
|
|
|
|
|
|
511,822
|
|
Investment in unconsolidated
ventures
|
|
|
90,837
|
|
|
|
|
|
|
|
90,837
|
|
Receivables, net
|
|
|
4,826
|
|
|
|
|
|
|
|
4,826
|
|
Timber
|
|
|
57,366
|
|
|
|
|
|
|
|
57,366
|
|
Property and equipment, net
|
|
|
1,508
|
|
|
|
|
|
|
|
1,508
|
|
Other assets
|
|
|
3,884
|
|
|
|
7,824
|
(b)
|
|
|
11,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
681,416
|
|
|
$
|
7,824
|
|
|
$
|
689,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY
|
Accounts payable
|
|
$
|
9,242
|
|
|
$
|
|
|
|
$
|
9,242
|
|
Accrued employee compensation and
benefits
|
|
|
2,010
|
|
|
|
|
|
|
|
2,010
|
|
Accrued interest
|
|
|
191
|
|
|
|
|
|
|
|
191
|
|
Accrued property taxes
|
|
|
4,833
|
|
|
|
|
|
|
|
4,833
|
|
Other accrued expenses
|
|
|
1,667
|
|
|
|
|
|
|
|
1,667
|
|
Deferred income taxes
|
|
|
12,845
|
|
|
|
|
|
|
|
12,845
|
|
Other liabilities
|
|
|
9,196
|
|
|
|
|
|
|
|
9,196
|
|
Note payable to Temple-Inland
|
|
|
131,561
|
|
|
|
(131,561
|
)
(a)
|
|
|
|
|
Debt
|
|
|
70,281
|
|
|
|
|
|
|
|
70,281
|
|
Bank credit facility
|
|
|
|
|
|
|
131,561
|
(a)
|
|
|
131,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
241,826
|
|
|
|
|
|
|
|
241,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority Interest in
Consolidated Ventures
|
|
|
8,043
|
|
|
|
|
|
|
|
8,043
|
|
TEMPLE-INLANDS NET
INVESTMENT
|
|
|
431,547
|
|
|
|
|
(b)(c)
|
|
|
|
|
STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value
$ per
share,
authorized shares,
none issued
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
Common stock, par value
$[ ] per share
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
Accumulated other comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
431,547
|
|
|
|
7,824
|
|
|
|
439,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
$
|
681,416
|
|
|
$
|
7,824
|
|
|
$
|
689,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited pro forma financial
statements.
49
FORESTAR
REAL ESTATE GROUP LLC
UNAUDITED
PRO FORMA STATEMENT OF INCOME
For the Year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Historical
|
|
|
Adjustment
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
180,151
|
|
|
$
|
|
|
|
$
|
180,151
|
|
Natural resources and other
|
|
|
45,409
|
|
|
|
|
|
|
|
45,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,560
|
|
|
|
|
|
|
|
225,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate
|
|
|
(105,756
|
)
|
|
|
|
|
|
|
(105,756
|
)
|
Cost of natural resources and other
|
|
|
(5,238
|
)
|
|
|
|
|
|
|
(5,238
|
)
|
Other operating
|
|
|
(26,601
|
)
|
|
|
|
|
|
|
(26,601
|
)
|
General and administrative
|
|
|
(16,141
|
)
|
|
|
(3,053
|
)
(b)
|
|
|
(19,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(153,736
|
)
|
|
|
(3,053
|
)
|
|
|
(156,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
|
|
71,824
|
|
|
|
(3,053
|
)
|
|
|
68,771
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
19,371
|
|
|
|
|
|
|
|
19,371
|
|
Minority interest in consolidated
ventures
|
|
|
(3,231
|
)
|
|
|
|
|
|
|
(3,231
|
)
|
Interest expense
|
|
|
(6,229
|
)
|
|
|
(3,754
|
)
(a)
|
|
|
(9,983
|
)
|
Other non-operating income
(expense)
|
|
|
79
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
|
81,814
|
|
|
|
(6,807
|
)
|
|
|
75,007
|
|
Income tax expense
|
|
|
(29,970
|
)
|
|
|
2,493
|
(d)
|
|
|
(27,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
51,844
|
|
|
$
|
(4,314
|
)
|
|
$
|
47,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER
SHARE
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited pro forma financial
statements.
50
FORESTAR
REAL ESTATE GROUP LLC
UNAUDITED
PRO FORMA STATEMENT OF INCOME
First Six Months 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Historical
|
|
|
Adjustment
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
74,883
|
|
|
$
|
|
|
|
$
|
74,883
|
|
Natural resources and other
|
|
|
15,858
|
|
|
|
|
|
|
|
15,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,741
|
|
|
|
|
|
|
|
90,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate
|
|
|
(34,057
|
)
|
|
|
|
|
|
|
(34,057
|
)
|
Cost of natural resources and other
|
|
|
(3,170
|
)
|
|
|
|
|
|
|
(3,170
|
)
|
Other operating
|
|
|
(14,443
|
)
|
|
|
|
|
|
|
(14,443
|
)
|
General and administrative
|
|
|
(10,066
|
)
|
|
|
(1,234
|
)
(b)
|
|
|
(11,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,736
|
)
|
|
|
(1,234
|
)
|
|
|
(62,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
29,005
|
|
|
|
(1,234
|
)
|
|
|
27,771
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
2,977
|
|
|
|
|
|
|
|
2,977
|
|
Minority interest in consolidated
ventures
|
|
|
(4,029
|
)
|
|
|
|
|
|
|
(4,029
|
)
|
Interest expense
|
|
|
(4,241
|
)
|
|
|
(2,716
|
)
(a)
|
|
|
(6,957
|
)
|
Other non-operating income
(expense)
|
|
|
112
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
|
23,824
|
|
|
|
(3,950
|
)
|
|
|
19,874
|
|
Income tax expense
|
|
|
(8,731
|
)
|
|
|
1,448
|
(d)
|
|
|
(7,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
15,093
|
|
|
$
|
(2,502
|
)
|
|
$
|
12,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER
SHARE
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited pro forma financial
statements.
51
FORESTAR
REAL ESTATE GROUP LLC
Notes to
Unaudited Pro Forma Financial Statements
(a) We will repay the note payable to Temple-Inland with
borrowings under a new credit facility we expect to have in
place prior to the spin-off. Based on our discussions with
potential lenders, we expect the new credit facility will allow
us to borrow up to $450,000,000 repayable in three years. We
expect the borrowings will be unsecured, will bear interest at
LIBOR plus two percent, and we will incur origination and
other fees of $4,500,000.
To reflect this in the pro forma balance sheet, we decreased the
note payable to Temple-Inland and increased bank credit facility
$131,561,000, the June 2007 balance of the note.
To reflect this in the pro forma income statement, we increased
interest expense $3,754,000 in 2006 and $2,716,000 in first six
months 2007. This increase represents the incremental increase
in interest expense due to the higher interest rate on the new
debt and the amortization of loan fees. The interest expense on
the new debt was calculated to be $6,012,000 in 2006 and
$5,084,000 in first six months 2007 compared with the actual
interest expense on the note payable to Temple-Inland of
$3,758,000 in 2006 and $3,118,000 in first six months 2007. The
interest rate on the new debt was calculated to be
7.13 percent in 2006 and 7.37 percent in first six
months 2007 based on average LIBOR rates for the respective
periods plus two percent compared with the interest rate on the
note payable to Temple-Inland of 4.20 percent in 2006 and
4.73 percent in first six months 2007. At June 2007, the
applicable rate on the new debt would have been
7.73 percent. A
1
/
8
percent change in that interest rate would change the 2006
annual interest expense by $105,000. The amortization of the
loan fees over the
three-year
term of the loan was calculated to be $1,500,000 in 2006 and
$750,000 in first six months 2007.
(b) We created our director compensation program and
increased the base salary of and granted an equity award to our
CEO. In addition, Temple-Inland contributed to us a fractional
ownership interest in its corporate aircraft.
To reflect this in the pro forma balance sheet, we increased
other assets $7,824,000 and increased Temple-Inlands net
investment $7,824,000.
To reflect this in the pro forma income statements, we increased
general and administrative expenses $3,053,000 in 2006 and
$1,234,000 in first six months 2007 to reflect the incremental
increase in cost associated with these matters. The incremental
increase represents the difference between our estimates of
their costs compared with the costs reflected in our historical
financial statements, both direct or allocated from
Temple-Inland.
(c) We will convert to a Delaware corporation and authorize
the issuance of preferred stock. In addition, we assumed a
distribution ratio
of share
of our stock for
every share
of Temple-Inland stock outstanding.
To reflect this in the pro forma balance sheet, we increased
common stock $ and additional
paid-in capital $ and we decreased
Temple-Inlands net investment
$ .
(d) We tax-effected the adjustments to the pro forma income
statement.
To reflect this in the pro forma income statement, we decreased
income tax expense $2,493,000 in 2006 and $1,448,000 in first
six months 2007 using the historical effective tax rate of 37
percent in 2006 and the assumed annual effective tax rate of
37 percent in 2007.
52
FORESTAR
REAL ESTATE GROUP LLC
Notes to
Unaudited Pro Forma Financial
Information (Continued)
(e) We computed pro forma basic and diluted earnings per
share by dividing pro forma net income by weighted average
shares outstanding assuming a distribution ratio
of share
of our stock for
every share
of Temple-Inland common stock outstanding as follows:
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Earnings for basic and diluted
earnings per share:
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
12,591
|
|
|
$
|
47,530
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding:
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding basic
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The dilutive effect of stock options represents the dilutive
effect of Temple-Inlands stock options outstanding at
second quarter-end 2007 adjusted to reflect the assumed
distribution ratio. There were no common stock equivalents
excluded from the calculation.
53
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition
and results of operations covers periods prior to the spin-off
and related transactions. As a result, the discussion and
analysis of historical periods does not reflect the impact that
the spin-off and related transactions will have on us, including
leverage, debt service requirements, and differences between
administrative costs allocated to us by Temple-Inland and actual
administrative costs that we will incur as a separate public
company.
Our historical results may not be indicative of our future
performance and do not necessarily reflect what our financial
condition and results of operations would have been had we
operated as an independent, stand-alone entity during the
periods presented, particularly because changes will occur in
our operations and capitalization as a result of the spin-off
transactions. Please read Pro Forma Financial
Information.
In addition, the statements in the discussion and analysis
regarding industry outlook, our expectations regarding the
future performance of our business and the other non-historical
statements in the discussion and analysis are forward-looking
statements. These forward-looking statements are subject to
numerous risks and uncertainties, including, but not limited to,
the risks and uncertainties described in Risk
Factors and Cautionary Statement Concerning
Forward-Looking Statements. Our actual results may differ
materially from those contained in any forward-looking
statements.
Results
of Operations
Summary
Our strategy is to maximize and grow long-term stockholder value
through:
|
|
|
|
|
Entitlement and development of real estate
|
|
|
|
Realization of value from natural resources
|
|
|
|
Accelerated growth through strategic and disciplined investment
in real estate
|
A summary of our consolidated results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
Natural resources
|
|
|
45,409
|
|
|
|
37,366
|
|
|
|
30,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
225,560
|
|
|
$
|
155,487
|
|
|
$
|
169,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
70,271
|
|
|
$
|
46,418
|
|
|
$
|
43,370
|
|
Natural resources
|
|
|
33,016
|
|
|
|
24,850
|
|
|
|
18,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
103,287
|
|
|
|
71,268
|
|
|
|
62,023
|
|
Expenses not allocated to segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
General & administrative
|
|
|
(14,048
|
)
|
|
|
(9,113
|
)
|
|
|
(10,433
|
)
|
Share-based compensation
|
|
|
(1,275
|
)
|
|
|
(443
|
)
|
|
|
(154
|
)
|
Interest expense
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
|
|
(6,091
|
)
|
Other non-operating income
(expense)
|
|
|
79
|
|
|
|
483
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
81,814
|
|
|
|
55,756
|
|
|
|
45,880
|
|
Income tax expense
|
|
|
(29,970
|
)
|
|
|
(20,859
|
)
|
|
|
(17,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
Significant aspects of our results of operations follow:
2006
|
|
|
|
|
Net income increased due to the continued strength for new
housing in the markets in which we operate and increased
activity within our natural resources segment.
|
|
|
|
Expenses increased as a result of costs associated with the
segmentation of the real estate business within Temple-Inland.
|
2005
|
|
|
|
|
Net income increased due to the continued strength for new
housing in the markets in which we operate and increased
activity within our natural resources segment.
|
2004
|
|
|
|
|
Net income included a sale of a multifamily housing development.
|
Business
Segments
We operate two business segments:
|
|
|
|
|
Real estate, and
|
|
|
|
Natural resources.
|
We evaluate performance based on earnings before unallocated
expenses and income taxes. Segment earnings consists of
operating income, equity in earnings of unconsolidated ventures,
and minority interest expense in consolidated ventures.
Unallocated expenses consist of general and administrative
expense, share-based compensation, other non-operating income
and expense, and interest expense. The accounting policies of
the segments are the same as those described in the accounting
policy note to the combined and consolidated financial
statements.
Our operations are affected to varying degrees by supply and
demand factors and economic conditions including changes in
interest rates, new housing starts, real estate values,
employment levels, changes in the market prices for oil, gas,
and timber, and the overall strength of the U.S. economy.
Real
Estate
Our real estate segment conducts a wide array of project
planning and management activities related to the acquisition,
entitlement, development and sale of real estate, primarily
residential and mixed-use communities. We own and manage our
projects either directly or through ventures. Our real estate
segment revenues are principally derived from the sales of
residential and commercial real estate and to a lesser degree
from the operation of commercial properties.
A summary of our real estate results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Revenues
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
Costs and expenses
|
|
|
(126,020
|
)
|
|
|
(87,829
|
)
|
|
|
(105,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,131
|
|
|
|
30,292
|
|
|
|
33,374
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
19,371
|
|
|
|
17,180
|
|
|
|
12,211
|
|
Minority interest expense in
consolidated ventures
|
|
|
(3,231
|
)
|
|
|
(1,054
|
)
|
|
|
(2,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
70,271
|
|
|
$
|
46,418
|
|
|
$
|
43,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning in 2006, we eliminated our historical one-month lag in
accounting for our investment in our two largest real estate
ventures as financial information became more readily available.
The one-time effect of
55
eliminating this one-month lag was to increase our equity in
earnings of unconsolidated ventures in 2006 by about $1,104,000.
Revenues and units sold consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except lots and acres)
|
|
|
Residential real estate
|
|
$
|
74,833
|
|
|
$
|
60,340
|
|
|
$
|
93,246
|
|
Commercial real estate
|
|
|
49,699
|
|
|
|
13,968
|
|
|
|
2,483
|
|
Undeveloped land
|
|
|
27,253
|
|
|
|
22,388
|
|
|
|
20,735
|
|
Commercial operating properties
and other
|
|
|
28,366
|
|
|
|
21,425
|
|
|
|
22,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real
estate lots sold
|
|
|
1,710
|
|
|
|
1,355
|
|
|
|
1,232
|
|
Commercial real estate
acres sold
|
|
|
220
|
|
|
|
264
|
|
|
|
46
|
|
Undeveloped land acres
sold
|
|
|
3,441
|
|
|
|
3,067
|
|
|
|
2,919
|
|
Residential real estate revenues principally consist of the sale
of single-family lots except in 2004 which included a sale of a
multifamily housing development for $44,000,000. Excluding the
2004 multifamily sale, residential real estate revenues improved
in both 2005 and 2006 due to the continued strength for new
housing in the markets in which we operate.
Commercial real estate revenue in 2006 included $39,000,000 from
two sales aggregating 131 acres on which we recognized
income of $14,000,000.
Commercial operating properties and other revenue in 2006
included the sale of a country club property for $4,300,000.
We expect our markets will experience downward pressure through
2008.
56
Information about our real estate projects and our ventures
follows:
|
|
|
|
|
|
|
Year-End
|
|
|
|
2006
|
|
Owned and consolidated
ventures:
|
|
|
|
|
Entitled, developed, and under
development land
|
|
|
|
|
Number of projects
|
|
|
48
|
|
Residential lots remaining
|
|
|
15,941
|
|
Commercial acres remaining
|
|
|
1,265
|
|
Undeveloped land
|
|
|
|
|
Number of projects
|
|
|
21
|
|
Acres in entitlement process
|
|
|
25,850
|
|
Acres undeveloped
|
|
|
327,850
|
|
Ventures accounted for using
the equity method:
|
|
|
|
|
Ventures lot sales (for the
year)
|
|
|
|
|
Lots sold
|
|
|
1,829
|
(a)
|
Revenue per lot sold
|
|
$
|
53,619
|
|
Ventures entitled,
developed, and under development land
|
|
|
|
|
Number of projects
|
|
|
23
|
|
Residential lots remaining
|
|
|
10,816
|
|
Commercial acres remaining
|
|
|
675
|
|
Ventures undeveloped land
|
|
|
|
|
Acres sold
|
|
|
211
|
|
Acres remaining
|
|
|
6,384
|
|
|
|
|
(a)
|
|
The elimination of the previously mentioned one month reporting
lag resulted in a one-time increase in the number of lots sold
of 122 lots.
|
Natural
Resources
Our natural resources segment manages our oil and gas mineral
interests, timber, and recreational leases. Our natural
resources segment revenues are principally derived from lease
royalties, bonus payments, and delay rentals associated with our
oil and gas mineral interests, the sale of timber, and to a
lesser degree from recreational leases of our lands.
A summary of our natural resources results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Revenues
|
|
$
|
45,409
|
|
|
$
|
37,366
|
|
|
$
|
30,478
|
|
Costs and expenses
|
|
|
(12,393
|
)
|
|
|
(12,516
|
)
|
|
|
(11,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
33,016
|
|
|
$
|
24,850
|
|
|
$
|
18,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Minerals
|
|
$
|
27,980
|
|
|
$
|
21,049
|
|
|
$
|
13,439
|
|
Timber
|
|
|
14,313
|
|
|
|
14,209
|
|
|
|
14,509
|
|
Recreational leases and other
|
|
|
3,116
|
|
|
|
2,108
|
|
|
|
2,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
45,409
|
|
|
$
|
37,366
|
|
|
$
|
30,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
Mineral revenues are principally derived from royalties and
other lease revenue. Mineral revenues fluctuate based on changes
in the market prices for oil and gas and the number of acres
leased. We sold about 1,115,000 tons of timber in 2006, 959,000
tons in 2005, and 1,052,000 tons in 2004, the majority of which
was sold to Temple-Inland. Timber revenue fluctuates based on
changes in tons sold and in the market prices of timber.
It is likely that oil, gas, and timber prices, the number of
mineral acres leased and tons of timber sold will continue to
fluctuate in 2007.
Expenses
Not Allocated to Segments
Unallocated expenses represent expenses managed on a
company-wide basis and include general and administrative
expenses, share-based compensation, and interest expense.
The change in general and administrative expense in 2006 was due
to increased compensation and benefits and other support costs
related to the segmentation of the real estate business within
Temple-Inland.
Share-based compensation is allocated from Temple-Inland and
represents the expense of Temple-Inland share-based awards
granted to our employees. The changes in 2006 and in 2005 were
primarily due to increases in Temple-Inlands share price
related to awards to be settled in cash.
The change in interest expense in 2006 was primarily related to
the payoff of a senior bank credit facility at a weighted
average rate of 6.04 percent, the funding for which came from
borrowings under our credit facility with Temple-Inland at a
weighted average rate of 4.20 percent.
Income
Taxes
Our effective tax rate, which is income tax as a percentage of
income before taxes, was 37 percent in 2006,
37 percent in 2005, and 38 percent in 2004. We
anticipate that our effective tax rate in 2007 will be about
37 percent.
Capital
Resources and Liquidity
Sources
and Uses of Cash
Our principal operating cash requirements are for the
acquisition and development of real estate, either directly or
indirectly through ventures, taxes, interest, and compensation.
Our principal sources of cash are proceeds from the sale of real
estate and timber, the cash flow from minerals and operating
properties, and borrowings. Operating cash flows are also
affected by the timing of the payment of real estate development
expenditures and the collection of proceeds from the eventual
sale of the real estate. Working capital is subject to operating
needs, the timing of sales of real estate and timber, the timing
of collection of mineral royalties or mineral lease payments,
collection of receivables, reimbursement from utility or
improvement districts, and the payment of payables and expenses.
Cash
Flows from Operating Activities
Cash flows from our real estate development activities are
classified as operating cash flows. Cash flows related to the
operation or sale of natural resources including minerals,
timber, and recreational leases are also classified as operating
cash flows.
Net cash (used for) provided by operations was $(29,071,000) in
2006, $22,044,000 in 2005, and $30,889,000 in 2004. In 2006, our
expenditures for real estate development and acquisition
significantly exceeded our non-cash real estate cost of sales
principally due to the investment in ten new real estate
projects for $74,000,000. In both 2005 and 2004, our real estate
development and acquisition expenditures slightly exceeded our
non-cash real estate cost of sales.
58
Cash
Flows from Investing Activities
Capital contributions to and capital distributions from
unconsolidated ventures are classified as investing activities.
In addition, our expenditures related to reforestation
activities in our natural resources segment are classified as
investing activities.
In 2006, net cash provided by investing activities was
$7,410,000 as capital distributions we received from our
unconsolidated ventures exceeded our contributions. Net cash
(used for) investing activities was $(6,482,000) in 2005 and
$(8,093,000) in 2004 as our contributions to unconsolidated
ventures exceeded the distributions we received in both years.
Cash
Flows from Financing Activities
Net cash provided by (used for) financing activities was
$19,069,000 in 2006, $(16,831,000) in 2005, and $(49,114,000) in
2004. In 2006, the increase in our debt, including borrowings
under our credit facility with Temple-Inland, funded our
expenditures for real estate development and acquisition in
excess of the net distributions we received from our ventures.
In 2005, the increase in our debt and cash flow from operations
funded our net contributions to our ventures.
Liquidity
and Contractual Obligations
At year-end 2006 our contractual obligations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due or Expiring by Year
|
|
|
|
Total
|
|
|
2007
|
|
|
2008-9
|
|
|
2010-11
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Note payable to
Temple-Inland
(a)
|
|
$
|
110,506
|
|
|
$
|
|
|
|
$
|
110,506
|
|
|
$
|
|
|
|
$
|
|
|
Debt
(a)
|
|
|
50,611
|
|
|
|
6,649
|
|
|
|
35,762
|
|
|
|
8,200
|
|
|
|
|
|
Contractual interest payments on
fixed rate debt
|
|
|
3,467
|
|
|
|
1,822
|
|
|
|
1,645
|
|
|
|
|
|
|
|
|
|
Purchase and development
obligations
(b)
|
|
|
4,437
|
|
|
|
4,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
11,098
|
|
|
|
1,002
|
|
|
|
1,734
|
|
|
|
1,515
|
|
|
|
6,847
|
|
Venture contributions
|
|
|
14,157
|
|
|
|
14,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
194,276
|
|
|
$
|
28,067
|
|
|
$
|
149,647
|
|
|
$
|
9,715
|
|
|
$
|
6,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Denotes items included in our balance sheet.
|
|
(b)
|
|
Development obligations include aggregate amounts in excess of
$500,000.
|
Purchase and development obligations are purchase commitments
for land acquisition and land development. Purchase obligations
for land acquisition represent obligations under option
contracts with specific performance provisions, of which we
currently have none. Development obligations represent
engineering and construction contracts for land development.
Our operating lease obligations are for timberland, facilities,
and equipment.
Venture contributions represent commitments to contribute a
stated amount to a venture as and when needed by the venture. We
have excluded from the table contributions that may be made in
the ordinary course of business for which there is no commitment
to contribute an amount that is quantifiable or identifiable to
specific dates.
Our sources of short-term funding are our operating cash flows
and borrowings under our credit facility with Temple-Inland. Our
contractual obligations due in 2007 will likely be paid from
operating cash flows and
59
from our unused borrowing capacity. At year-end 2006, we had
$89,494,000 in unused borrowing capacity under our credit
facility with Temple-Inland.
|
|
|
|
|
|
|
Credit Facility with
|
|
|
|
Temple-Inland
|
|
|
|
(In thousands)
|
|
|
Committed
|
|
$
|
200,000
|
|
Less: borrowings
|
|
|
(110,506
|
)
|
|
|
|
|
|
Unused borrowing capacity at
year-end 2006
|
|
$
|
89,494
|
|
|
|
|
|
|
Our credit facility with Temple-Inland expires on
December 31, 2008.
We have other long-term liabilities, principally deferred taxes,
that are not included in the table because they do not have
scheduled maturities. At year-end 2006, our deferred tax
liability was $14,438,000.
Off-Balance
Sheet Arrangements
From time to time, we enter into off-balance sheet arrangements
to facilitate our operating activities. At year-end 2006, our
off-balance sheet unfunded arrangements, excluding contractual
interest payments, purchase and development obligations, and
operating lease obligations, included in the table of
contractual obligations, consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiring by Year
|
|
|
|
Total
|
|
|
2007
|
|
|
2008-9
|
|
|
2010-11
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Performance bonds, letters of
credit and recourse obligations
|
|
$
|
30,889
|
|
|
$
|
24,965
|
|
|
$
|
3,974
|
|
|
$
|
72
|
|
|
$
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance bonds, letters of credit, and recourse obligations
are primarily for our real estate development activities and
include $13,267,000 of performance bonds and letters of credit
we provided on behalf of certain ventures. Our venture partners
also provide bonds and letters of credit. Generally these
performance bonds or letters of credit would be drawn on due to
lack of specific performance by the ventures, such as failure to
deliver streets and utilities in accordance with local codes and
ordinances.
Accounting
Policies
Critical
Accounting Estimates
In preparing our financial statements, we follow generally
accepted accounting principles, which in many cases require us
to make assumptions, estimates, and judgments that affect the
amounts reported. Our significant accounting policies are
included in
Note 1 to the Combined and Consolidated
Financial Statements.
Many of these principles are
relatively straightforward. There are, however, a few accounting
policies that are critical because they are important in
determining our financial condition and results and involve
significant assumptions, estimates, and judgments that are
difficult to determine. We have to make these assumptions,
estimates, and judgments currently about matters that are
inherently uncertain, such as future economic conditions,
operating results, and valuations, as well as our intentions. As
the difficulty increases, the level of precision decreases,
meaning actual results can, and probably will, differ from those
currently estimated. We base our assumptions, estimates, and
judgments on a combination of historical experiences and other
factors that we believe are reasonable. These policies are
discussed below and include:
|
|
|
|
|
Investment in Real Estate and Cost of Real Estate Sales
In allocating cost to real estate owned and real
estate sold, we must estimate current and future real estate
values. Our estimates of future real estate values sometimes
must extend over periods 15 to 20 years from today and are
dependent on numerous assumptions including our intentions and
future market and economic conditions. In addition, when we sell
real estate from projects that are not finished, we must
estimate future development costs through completion.
Differences between our estimates and actual results will affect
future carrying values and operating results.
|
60
|
|
|
|
|
Impairment of Long-Lived Assets
Measuring
assets for impairment requires estimating future fair values
based on our intentions as to holding periods, future operating
cash flows and the residual value of assets under review,
primarily undeveloped land. Depending on the asset under review,
we use varying methods to determine fair value, such as
discounting expected future cash flows, determining resale
values by market, or applying a capitalization rate to net
operating income using prevailing rates in a given market.
Changes in economic conditions, demand for real estate, and the
projected net operating income for a specific property will
inevitably change our estimates.
|
To date, we have recognized no significant changes in estimates
related to these two policies.
Pending
Accounting Pronouncements
There are four new accounting pronouncements that we will adopt
in 2007 or will be required to adopt in 2008, none of which are
expected to have a significant effect on our financial position,
results of operations, or cash flows. Please read
Note 1
to the Combined and Consolidated Financial Statements
.
Effects
of Inflation
Inflation has had minimal effects on operating results the past
three years. Our real estate, timber, and property and equipment
are carried at historical costs. If carried at current
replacement costs, the cost of real estate sold, timber cut, and
depreciation expense would have been significantly higher than
what we reported.
Litigation
Matters
We are involved in various legal proceedings that arise from
time to time in the ordinary course of doing business. We
believe we have established adequate reserves for any probable
losses, and we do not believe that the outcome of any of these
proceedings should have a material adverse effect on our
financial position, long-term results of operations, or cash
flow. It is possible, however, that charges related to these
matters could be significant to results of operations or cash
flows in any one accounting period.
Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Risk
The following table illustrates the estimated effect on our
pre-tax income of immediate, parallel, and sustained shifts in
interest rates for the next 12 months at year-end 2006,
with comparative year-end 2005 information. This estimate
assumes that debt reductions from contractual payments will be
replaced with short-term, variable-rate debt; however, that may
not be the financing alternative we choose.
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
At Year-End
|
|
Change in Interest Rates
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
+2%
|
|
$
|
(2,422
|
)
|
|
$
|
(1,674
|
)
|
+1%
|
|
|
(1,211
|
)
|
|
|
(837
|
)
|
-1%
|
|
|
1,211
|
|
|
|
837
|
|
-2%
|
|
|
2,422
|
|
|
|
1,674
|
|
Our interest rate risk is principally related to our
variable-rate debt. Interest rate changes impact earnings due to
the resulting increase or decrease in the cost of our
variable-rate debt. The interest rate sensitivity change from
year-end 2005 is principally due to an increase in variable-rate
debt.
Foreign
Currency Risk
We have no exposure to foreign currency fluctuations.
61
Commodity
Price Risk
We have no significant exposure to commodity price fluctuations.
|
|
|
ANALYSIS
OF FIRST SIX MONTHS 2007 AND 2006
|
Results
of Operations
Summary
A summary of our consolidated results follows:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
74,883
|
|
|
$
|
86,474
|
|
Natural resources
|
|
|
15,858
|
|
|
|
28,178
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
90,741
|
|
|
$
|
114,652
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
26,762
|
|
|
$
|
39,104
|
|
Natural resources
|
|
|
10,784
|
|
|
|
22,376
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
37,546
|
|
|
|
61,480
|
|
Expenses not allocated to segments:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(8,051
|
)
|
|
|
(6,746
|
)
|
Share-based compensation
|
|
|
(1,542
|
)
|
|
|
(668
|
)
|
Interest expense
|
|
|
(4,241
|
)
|
|
|
(2,848
|
)
|
Other non-operating income
(expense)
|
|
|
112
|
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
23,824
|
|
|
|
51.038
|
|
Income tax expense
|
|
|
(8,731
|
)
|
|
|
(18,408
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,093
|
|
|
$
|
32,630
|
|
|
|
|
|
|
|
|
|
|
Significant aspects of our results of operations in first six
months 2007 follow:
|
|
|
|
|
Net income decreased as a result of the overall decline in the
housing industry and a reduction in activity within our natural
resources segment.
|
|
|
|
Expenses increased as a result of costs associated with the
development of corporate functions in preparation for our
spin-off.
|
|
|
|
Interest expense increased as a result of higher debt levels and
higher interest rates.
|
Our operations are affected to varying degrees by supply and
demand factors and economic conditions including changes in
interest rates; new housing starts; real estate values;
employment levels; market prices for oil, gas and timber; and
the overall strength of the U.S. economy.
62
Real
Estate
A summary of our real estate results follows:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
74,883
|
|
|
$
|
86,474
|
|
Costs and expenses
|
|
|
(47,069
|
)
|
|
|
(60,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
27,814
|
|
|
|
26,130
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
2,977
|
|
|
|
13,692
|
|
Minority interest expense in
consolidated ventures
|
|
|
(4,029
|
)
|
|
|
(718
|
)
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
26,762
|
|
|
$
|
39,104
|
|
|
|
|
|
|
|
|
|
|
Revenues and units sold consist of:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except lots and acres)
|
|
|
Residential real estate
|
|
$
|
34,511
|
|
|
$
|
38,907
|
|
Commercial real estate
|
|
|
19,352
|
|
|
|
14,017
|
|
Undeveloped land
|
|
|
7,708
|
|
|
|
12,779
|
|
Commercial operation properties
and other
|
|
|
13,312
|
|
|
|
20,771
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
74,883
|
|
|
$
|
86,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real
estate lots sold
|
|
|
650
|
|
|
|
972
|
|
Commercial real
estate acres sold
|
|
|
62
|
|
|
|
43
|
|
Undeveloped
land acres sold
|
|
|
1,154
|
|
|
|
1,768
|
|
Revenue for first six months 2007 includes $12 million
related to the sale of 38 acres of commercial real estate
on which we recognized a gain of $10 million. Revenue for
first six months 2006 includes $14 million related to the
sale of five acres of undeveloped commercial real estate on
which we recognized a gain of $8 million. Excluding these
commercial real estate gains, the decline in segment operating
income is primarily due to a decrease in sales of undeveloped
land, and a decrease in sales of residential real estate
resulting from the overall decline in the housing industry. We
expect these trends to continue through 2008.
63
Information about our real estate projects and our real estate
ventures follows:
|
|
|
|
|
|
|
|
|
|
|
Second Quarter-End
|
|
|
|
2007
|
|
|
2006
|
|
|
Owned and consolidated
ventures:
|
|
|
|
|
|
|
|
|
Entitled, developed, and under
development land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
52
|
|
|
|
39
|
|
Residential lots remaining
|
|
|
20,434
|
|
|
|
12,617
|
|
Commercial acres remaining
|
|
|
1,224
|
|
|
|
1,034
|
|
Undeveloped land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
24
|
|
|
|
20
|
|
Acres in entitlement process
|
|
|
26,960
|
|
|
|
21,950
|
|
Acres undeveloped
|
|
|
325,115
|
|
|
|
334,779
|
|
Ventures accounted for using
the equity method:
|
|
|
|
|
|
|
|
|
Ventures lot sales (for the
first six months)
|
|
|
|
|
|
|
|
|
Lots sold
|
|
|
416
|
|
|
|
1,125
|
(a)
|
Revenue per lot sold
|
|
$
|
54,505
|
|
|
$
|
52,256
|
|
Ventures entitled,
developed, and under development land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
22
|
|
|
|
23
|
|
Residential lots remaining
|
|
|
9,734
|
|
|
|
11,772
|
|
Commercial acres remaining
|
|
|
721
|
|
|
|
669
|
|
Undeveloped land
|
|
|
|
|
|
|
|
|
Acres sold (for the first six
months)
|
|
|
|
|
|
|
75
|
|
Acres remaining
|
|
|
6,258
|
|
|
|
6,519
|
|
|
|
|
(a)
|
|
The elimination of the previously mentioned one month reporting
lag resulted in a one-time increase in the number of lots sold
of 122 lots.
|
In our owned and consolidated ventures, residential lots
remaining increased at second quarter-end 2007 due to completing
the entitlement process on nine projects representing about
3,800 residential lots and an additional 5,400 residential lots
in eight new projects.
The increase in acres in the entitlement process at second
quarter-end 2007 is primarily due to the movement of about
5,700 acres into the entitlement process from undeveloped
land which is partially offset by the movement of about
1,950 acres into entitled, developed and under development
projects.
Natural
Resources
A summary of our natural resources results are as follows:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
15,858
|
|
|
$
|
28,178
|
|
Costs and expenses
|
|
|
(5,074
|
)
|
|
|
(5,802
|
)
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
10,784
|
|
|
$
|
22,376
|
|
|
|
|
|
|
|
|
|
|
64
Revenues consist of:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Minerals
|
|
$
|
9,040
|
|
|
$
|
19,568
|
|
Timber
|
|
|
6,713
|
|
|
|
8,113
|
|
Recreational leases and other
|
|
|
105
|
|
|
|
497
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
15,858
|
|
|
$
|
28,178
|
|
|
|
|
|
|
|
|
|
|
The change in revenues was principally due to a decrease in
mineral revenues associated with a decrease in the volume of
natural gas produced and a decrease in the price of natural gas.
Expenses
Not Allocated to Segments
The change in general and administrative expenses in first six
months 2007 was due to increased costs associated with the
development of corporate functions in preparation for our
spin-off.
The change in share-based compensation was principally due to
the effect of a higher share price for Temple-Inland stock
related to awards to be settled in cash and an increase in
awards granted.
The change in interest expense was due to a higher average debt
balance and higher interest rate.
Income
Taxes
Our effective tax rate was 37 percent in first six months
2007 and 36 percent in first six months 2006. We anticipate
that our effective tax rate in 2007 will be about
37 percent.
Capital
Resources and Liquidity
Our principal operating cash requirements are for the
acquisition and development of real estate, either directly or
indirectly through ventures, taxes, interest, and compensation.
Our principal sources of cash are proceeds from the sale of real
estate and timber, the cash flow from minerals and operating
properties, and borrowings. Operating cash flows are also
affected by the timing of the payment of real estate development
expenditures and the collection of proceeds from the eventual
sale of the real estate. Working capital is subject to operating
needs, the timing of sales of real estate and timber, the timing
of collection of mineral royalties or mineral lease payments,
collection of receivables, reimbursement from utility or
improvement districts, and the payment of payables and expenses.
Cash
Flows from Operating Activities
Cash flows from our real estate development activities are
classified as operating cash flows. Cash flows related to
natural resources, including minerals, timber, and recreational
leases, are also classified as operating cash flows.
Net cash (used for) provided by operations was ($39,913,000) in
first six months 2007 and ($26,765,000) in first six months
2006. In first six months 2007 our expenditures for real estate
development and acquisition exceeded our non-cash real estate
cost of sales principally due to the investment in four new real
estate projects for $34,577,000.
Cash
Flows from Investing Activities
Capital contributions to and capital distributions from
unconsolidated ventures are classified as investing activities.
In addition, our expenditures related to reforestation
activities in our natural resources segment are classified as
investing activities.
65
Net cash (used for) provided by investing activities was
($489,000) in first six months 2007 and $11,444,000 in first six
months 2006 as capital distributions we received from our
unconsolidated ventures exceeded our capital contributions.
Cash
Flows from Financing Activities
Net cash provided by financing activities was $39,143,000 in
first six months 2007 and $9,734,000 in the first six months
2006. In first six months 2007, the increase in our debt,
including borrowings under our credit facility with
Temple-Inland, funded our expenditures for real estate
development and acquisition in excess of the net distributions
we received from our ventures. In first six months 2006, the
increase in our debt and net distributions received from our
ventures funded our net expenditures for real estate development
and acquisition.
Liquidity,
Contractual Obligations, and off-Balance Sheet
Arrangements
There have been no significant changes in our contractual
obligations and off-balance sheet arrangements since year-end
2006 except for the following:
On July 31, 2007, we entered into agreements to facilitate
third-party construction and ownership of a resort hotel, spa
and golf facilities at our Cibolo Canyons mixed-use development
near San Antonio, Texas. Under these agreements, we
transferred to the third-party owners about 700 acres of
undeveloped land and we agreed to transfer about $38,000,000
($10,000,000 by year-end 2007; $18,000,000 in
2008-2009;
and $10,000,000 in
2010-2011).
To support our commitment, Temple-Inland has guaranteed or
issued letters of credit totaling $30,000,000. Prior to the
spin-off, we will replace any unfunded Temple-Inland guarantees
or letters of credit with letters of credit issued under our new
credit facility.
In exchange, the third-party owners assigned to us certain
rights under an economic development agreement, including the
right to receive revenues from hotel occupancy and sales taxes
generated within the resort through 2034. In addition, the
construction of the resort hotel and golf facilities will
satisfy a condition to our right to obtain reimbursement of
certain infrastructure costs under an ad valorem tax and non
resort sales and use tax public improvement financing agreement
between us and a special purpose improvement district.
Our sources of short-term funding are our operating cash flows
and borrowings under our credit facility with Temple-Inland. At
second quarter-end 2007, we had $68,439,000 in unused borrowing
capacity under our credit facility with Temple-Inland.
|
|
|
|
|
|
|
Credit Facility with
|
|
|
|
Temple-Inland
|
|
|
|
(In thousands)
|
|
|
Committed
|
|
$
|
200,000
|
|
Less: borrowings
|
|
|
(131,561
|
)
|
|
|
|
|
|
Unused borrowing capacity at
second quarter-end 2007
|
|
$
|
68,439
|
|
|
|
|
|
|
It is anticipated that we will enter into a credit agreement
with a third-party financial institution prior to year-end 2007,
and that we will repay the borrowings from Temple-Inland with
borrowings under this new facility.
Accounting
Policies
Critical
Accounting Policies and Estimates
There were no changes in our critical accounting policies from
those at year-end 2006.
66
Recent
Accounting Standards
Beginning January 2007, we adopted one new accounting
pronouncement, which did not have a significant effect on our
financial position, results of operations or cash flows. Please
read
Note 1 to the Unaudited Combined and Consolidated
Financial Statements.
Litigation
Matters
There were no significant changes in the status of our
litigation since year-end 2006.
Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Risk
The following table illustrates the estimated effect on our
pre-tax income of immediate, parallel, and sustained shifts in
interest rates for the next 12 months at second quarter-end
2007, with comparative year-end 2006 information. This estimate
assumes that debt reductions from contractual payments will be
replaced with short-term, variable-rate debt; however, that may
not be the financing alternative we choose.
|
|
|
|
|
|
|
|
|
|
|
Second
|
|
|
|
|
|
|
Quarter-End
|
|
|
Year-End
|
|
Change in Interest Rates
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
+2%
|
|
$
|
(3,154
|
)
|
|
$
|
(2,422
|
)
|
+1%
|
|
|
(1,578
|
)
|
|
|
(1,211
|
)
|
-1%
|
|
|
1,578
|
|
|
|
1,211
|
|
-2%
|
|
|
3,154
|
|
|
|
2,422
|
|
Our interest rate risk is principally related to our
variable-rate debt. Interest rate changes impact earnings due to
the resulting increase or decrease in the cost of our
variable-rate debt. The interest rate sensitivity change from
year-end 2006 is principally due to an increase in variable-rate
debt.
We will repay the note payable to Temple-Inland with borrowings
under a new credit facility we expect to have in place prior to
the spin-off. However, our interest rate risk will not change
significantly because both credit facilities will bear interest
at variable rates.
Foreign
Currency Risk
There was no change in our foreign currency risk since year-end
2006.
Commodity
Price Risk
There was no change in our commodity price risk since year-end
2006.
67
MANAGEMENT
Directors
and Executive Officers
The following table sets forth information as of July 31,
2007 regarding the individuals who are expected to serve as
members of our board of directors and as our executive officers
following the spin-off. Temple-Inland will elect our directors
prior to the consummation of the spin-off.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
James M. DeCosmo
|
|
|
49
|
|
|
Director nominee and Chief
Executive Officer
|
Christopher L. Nines
|
|
|
36
|
|
|
Chief Financial Officer
|
Craig A. Knight
|
|
|
60
|
|
|
Chief Investment Officer
|
Charles T. Etheredge, Jr.
|
|
|
44
|
|
|
Executive Vice President
|
David M. Grimm
|
|
|
46
|
|
|
Chief Administrative Officer,
General Counsel and Secretary
|
Charles D. Jehl
|
|
|
39
|
|
|
Chief Accounting Officer
|
Kenneth M. Jastrow, II
|
|
|
60
|
|
|
Chairman of the Board
|
Louis R. Brill
|
|
|
65
|
|
|
Director nominee
|
Kathleen Brown
|
|
|
61
|
|
|
Director nominee
|
William G. Currie
|
|
|
60
|
|
|
Director nominee
|
James A. Johnson
|
|
|
63
|
|
|
Director nominee
|
Thomas H. McAuley
|
|
|
62
|
|
|
Director nominee
|
William Powers, Jr.
|
|
|
61
|
|
|
Director nominee
|
James A. Rubright
|
|
|
60
|
|
|
Director nominee
|
Richard M. Smith
|
|
|
61
|
|
|
Director nominee
|
James M. DeCosmo has served as our President and Chief Executive
Officer since 2006. He has served as Group Vice President of
Temple-Inland since 2005, and previously served as Vice
President, Forest from 2000 to 2005 and as Director of Forest
Management from 1999 to 2000. Prior to joining Temple-Inland, he
held various land management positions throughout the
southeastern United States.
Christopher L. Nines has served as our Chief Financial Officer
since April 2007. He joined
Temple-Inland
in 2001 as Corporate Finance Director and has served as Director
of Investor Relations since 2003. Prior to joining
Temple-Inland, he was Senior Vice President of Finance for
ConnectSouth Communications, Inc. from 2000 to 2001.
Craig A. Knight has served as our Chief Investment Officer since
2006. He joined Temple-Inland in 1994 as President of
Lumbermens Investment Corporation, which changed its name
in 2006 to Forestar (USA) Real Estate Group Inc. Prior to
joining Temple-Inland, Mr. Knight was a principal in the
real estate development firm of Heath and Knight Properties from
1991 to 1994, and was a partner with Centre Development
from 1978 to 1994.
Charles T. Etheredge, Jr. has served as our Executive Vice
President since 2006. He joined Temple-Inland in 1992 as a
member of Guaranty Banks commercial real estate lending
segment, where he served as Senior Vice President and Managing
Director for the Eastern Region from 1999 to 2006, and as
Vice President and Division Manager from 1997 to 1999.
David M. Grimm has served as our Chief Administrative Officer
and Secretary since April 2007, in addition to holding the
office of General Counsel and Secretary since 2006.
Mr. Grimm has served
Temple-Inland
as Group General Counsel from 2005 to 2006, Associate General
Counsel from 2003 to 2005, Senior Corporate Attorney from 1993
to 2003, and Corporate Attorney from 1992 to 1993. Prior to
joining
Temple-Inland,
Mr. Grimm was an attorney in private practice in Dallas,
Texas.
Charles D. Jehl has served as our Chief Accounting officer since
2006. He served as Chief Operations Officer and Chief Financial
Officer of Guaranty Insurance Services, Inc. from 2005 to 2006,
and as Senior
68
Vice President and Controller from 2000 to 2005. From 1989 to
1999, Mr. Jehl held various financial management positions
within Temple-Inlands financial services segment.
Kenneth M. Jastrow, II will become Chairman of our board
upon the completion of the spin-off. Until the spin-off,
Mr. Jastrow will continue to serve as Chairman of the Board
and Chief Executive Officer of
Temple-Inland,
positions he has held since 2000. Mr. Jastrow previously
served Temple-Inland in various capacities since 1991, including
President, Chief Operating Officer, Chief Financial Officer, and
Group Vice President. Mr. Jastrow also serves on the boards
of MGIC Investment Corporation and KB Home, for which he
currently serves as acting lead director.
Louis R. Brill is expected to join our board prior to the
completion of the spin-off. He was Vice President and Chief
Accounting Officer for Temple-Inland from 2000 until his
retirement in 2006. He joined
Temple-Inland
in 1999 as Vice President and Controller. From 1976 through
1999, Mr. Brill was a partner of Ernst & Young
LLP.
Kathleen Brown is expected to join our board prior to the
completion of the spin-off. She currently serves as Senior
Advisor, Goldman, Sachs & Co., where she heads the
Western Region of the Public Sector and Infrastructure Group.
She joined Goldman, Sachs & Co. in 2001.
Ms. Brown served as Treasurer of the State of California
from 1991 through 1994. Her private sector experience includes
work as an attorney with the law firm of
OMelveny & Myers and service as President of the
Private Bank for the Investment Management Group at Bank of
America. Ms. Brown was the Democratic Party nominee for
Governor of California in 1994, co-chair of the Presidential
Commission on Capital Budgeting, and a board member of the Los
Angeles Unified School District. She currently serves on the
board of the Los Angeles Chamber of Commerce.
William G. Currie is expected to join our board prior to the
completion of the spin-off. Mr. Currie has had a 35-plus
year career with Universal Forest Products, Inc., one of the
United States leading manufacturers and distributors of
wood and wood-alternative products. Since 1989 he has served as
Chief Executive Officer and since 2006 he has served as
Executive Chairman of the Board of Universal Forest Products,
previously serving as Vice Chairman since 2000.
James A. Johnson is expected to join our board prior to the
completion of the spin-off. He has served on the board of
Temple-Inland since 2000. Mr. Johnson is Vice Chairman of
Perseus LLC, a merchant bank and private equity fund management
firm, which Mr. Johnson joined in 2001. Mr. Johnson served
as Chairman and Chief Executive Officer of Johnson Capital
Partners until 2001, as Chairman of the Executive Committee of
the Board of Fannie Mae in 1999 and as Chairman and Chief
Executive Officer of Fannie Mae from 1991 through 1998. He also
serves on the boards of Target Corporation, The Goldman Sachs
Group, Inc., KB Home, and UnitedHealth Group.
Thomas H. McAuley is expected to join our board prior to the
completion of the spin-off. He is the President of Inland
Capital Markets Groups, Inc., a subsidiary of the Inland Real
Estate Group, a Chicago, Illinois based real estate and
financial services company, a position he has held since 2005.
From 1995 to 2003, he was Chairman and Chief Executive Officer
of IRT Property Company, an Atlanta, Georgia based Real Estate
Investment Trust traded on the NYSE. Prior to this position, he
was Regional Partner with Faison & Associates, a
Charlotte, North Carolina real estate development and management
company. He is a licensed real estate broker in Florida, Georgia
and South Carolina and has been a member of the International
Council of Shopping Centers since 1984 and the National
Association of Real Estate Investment Trusts since 1995. He
currently serves on the boards of directors of Inland Real
Estate Corporation, The Westervelt Company (formerly Gulf States
Paper Company), Bank of Atlanta and RBC Centura Card Bank.
William Powers, Jr. is expected to join our board prior to
the completion of the spin-off. He has been President of the
University of Texas at Austin since 2006. He is also a
University Distinguished Teaching Professor and holds the Hines
H. Baker and Thelma Kelley Baker Chair in Law at the University
of Texas School of Law, where he served as Dean from 2000 to
2005. Other university appointments have been with the Southern
Methodist University School of Law, the University of Michigan
School of Law, and the University of Washington School of Law.
He served as Chair of the Special Investigation Committee, Enron
Corp., which in 2002 produced the Powers Report.
69
James A. Rubright is expected to join our board prior to the
completion of the spin-off. He is Chairman and Chief Executive
Officer of Rock-Tenn Company, one of North Americas
leading manufacturers of packaging products, merchandising
displays and recycled paperboard. Mr. Rubright joined
Rock-Tenn Company, as Chief Executive Officer in 1999.
Previously, he served as Executive Vice President of Sonat Inc.
in Birmingham, Alabama, overseeing its interstate natural gas
pipeline and energy marketing businesses. Prior to joining Sonat
Inc. he was a partner at the law firm of King &
Spalding LLP in Atlanta, Georgia. Mr. Rubright also serves
on the boards of AGL Resources Inc., an energy company, and
Oxford Industries, Inc., a manufacturer and seller of branded
and private label apparel. Mr. Rubright currently serves as
Chairman of the Board of the American Forest & Paper
Association, a trade association for wood, paper and wood
products.
Richard M. Smith is expected to join our board prior to the
completion of the spin-off. He has served on the board of
Temple-Inland since 2006. Mr. Smith is Chairman and
Editor-in-Chief
of Newsweek. Prior to becoming Chairman in 1998, he served as
President from 1991 until 1998. Mr. Smith was Chairman of
the Magazine Publishers of America from 1996 to 1997 and the
founding chairman of the Magazine Publishers of Americas
New Media Committee. Mr. Smith previously served on the
board of the American Society of Magazine Editors.
The Board
of Directors
Effective upon the spin-off, we expect that our board of
directors will consist of ten to twelve directors. Our
certificate of incorporation will provide that the directors
will be divided into three classes, which will as nearly as
possible be equal in size. One class will be elected for a term
expiring at the annual meeting of stockholders to be held in
2008, another class will be elected for a term expiring at the
annual meeting of stockholders to be held in 2009, and another
class will be elected for a term expiring at the annual meeting
of stockholders to be held in 2010, with each class to hold
office until its successors are elected and qualified.
Commencing with the annual meeting of stockholders to be held in
2008, directors for each class will be elected at the annual
meeting of stockholders held in the year in which the term for
that class expires, and thereafter will serve for a term of
three years.
Director
Independence
Effective upon the spin-off, our board of directors will adopt
corporate governance guidelines that will set forth our director
independence standards. In order for a director to be considered
independent, the board of directors must
affirmatively determine that the director has no material
relationship with us. In each case, the board will consider all
relevant facts and circumstances. We will designate directors
such that at least a majority of our directors will be
independent, in accordance with our corporate governance
guidelines and the rules of the New York Stock Exchange.
All directors other than Messrs. Jastrow, DeCosmo and
Brill are expected to meet the New York Stock Exchange corporate
governance listing standards for independence. Mr. DeCosmo
does not meet these independence standards because he is one of
our officers. Messrs. Jastrow and Brill do not meet these
standards because of their prior employment with Temple-Inland,
which, under the NYSE independence standards, will preclude
independence until three years after termination of such
employment, or 2010 for Mr. Jastrow and 2009 for
Mr. Brill.
There is no family relationship between any of the individuals
who are expected to serve as members of our board of directors
and as our executive officers following the spin-off.
Board
Committees
Our board of directors will establish three committees: an Audit
Committee, a Management Development and Executive Compensation
Committee, (which we refer to as the Compensation Committee) and
a Nominating and Governance Committee. All members of the Audit
Committee, the Compensation Committee and the Nominating and
Governance Committee will be independent directors under the New
York Stock Exchange corporate governance listing standards. Each
of our committees will be governed by a written
70
charter, which will be approved by our board of directors and
will be available on our website at
www.forestargroup.com
following the spin-off. Any changes to the committee
charters will be reflected on our website.
Our board committees will have the following functions:
Audit
Committee
The Audit Committee will:
|
|
|
|
|
assist the board in its oversight of:
|
|
|
|
|
|
the integrity of our financial statements;
|
|
|
|
compliance with legal and regulatory requirements;
|
|
|
|
the independent registered public accounting firms
qualifications and independence;
|
|
|
|
the performance of the internal audit function and independent
registered public accounting firm; and
|
|
|
|
|
|
prepare the report that the rules of the Securities and Exchange
Commission require be included in the annual proxy statement.
|
The Audit Committee will have the sole authority to retain,
compensate, and terminate the independent registered public
accounting firm. We will appoint members to the Audit Committee
prior to the spin-off. All members of the Audit Committee will
be financially literate and independent as defined in the NYSE
corporate governance listing standards. There will be at least
one audit committee financial expert serving on the Audit
Committee.
Management
Development and Executive Compensation Committee (Compensation
Committee)
The Compensation Committee will be responsible for:
|
|
|
|
|
determining and approving, either as a committee or together
with other independent directors (as directed by the board) the
CEOs compensation;
|
|
|
|
establishing the compensation philosophies, goals, and programs
for executive officers;
|
|
|
|
advising the board on the performance, salaries, and incentive
compensation of the executive officers;
|
|
|
|
establishing compensation plans for non-executive employees and
approving annual bonus pools;
|
|
|
|
advising the board with respect to employee benefit programs;
|
|
|
|
advising the board with respect to equity and long-term
incentive plans;
|
|
|
|
advising the board regarding management succession and
development plans;
|
|
|
|
conducting an annual review of executive officers expense
reports;
|
|
|
|
conducting an annual review of executive officers personal
usage of company-owned facilities and equipment;
|
|
|
|
reviewing our practices and policies with respect to equal
employment opportunities;
|
|
|
|
performing an annual performance evaluation of the committee; and
|
|
|
|
preparing a Compensation Committee report on executive
compensation for inclusion in our annual proxy statement filed
with the Securities and Exchange Commission.
|
The Compensation Committee may engage a compensation consultant
to provide market data regarding executive compensation and
advice about proposed compensation programs and amounts.
71
We will appoint members to the Compensation Committee prior to
the spin-off. All members of the Compensation Committee will be
independent as defined in the New York Stock Exchange corporate
governance listing standards.
Nominating
and Governance Committee
The Nominating and Governance Committee will be responsible for:
|
|
|
|
|
periodically reviewing the structure of the board, at least
annually, to assure that the proper skills and experience are
represented on the board;
|
|
|
|
recommending nominees to serve on the board of directors;
|
|
|
|
reviewing potential conflicts of prospective board members;
|
|
|
|
recommending the size of the board;
|
|
|
|
recommending the membership of the committees;
|
|
|
|
reviewing relevant corporate governance issues;
|
|
|
|
reviewing performance and qualifications of board members before
they stand for reelection;
|
|
|
|
reviewing stockholder proposals and recommending to the board
action to be taken regarding stockholder proposals;
|
|
|
|
reviewing outside directorships in other publicly held companies
by our senior officers;
|
|
|
|
acting in an advisory capacity to the board of directors
regarding activities that relate to issues of social and public
concern, and significant legislative, regulatory and social
trends; and
|
|
|
|
recommending director compensation to the full board.
|
The Nominating and Governance Committee may engage a
compensation consultant to provide market data regarding
director compensation and advice about proposed director
compensation programs and amounts.
We will appoint members to the Nominating and Governance
Committee prior to the spin-off. All members of the Nominating
and Governance Committee will be independent as defined in the
New York Stock Exchange corporate governance listing standards.
Executive
Committee
Our board also will have the authority to establish an Executive
Committee, which would have the authority to exercise all the
authority of the board of directors in the management of the
business and affairs except:
|
|
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|
|
matters related to the composition of the board;
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|
|
changes in the bylaws; and
|
|
|
|
certain other significant corporate matters.
|
Corporate
Governance
In accordance with the rules of the New York Stock Exchange,
after the spin-off, our board will meet in regularly scheduled
executive sessions without management and at least once a year
in executive session with only independent directors.
We will expect all board members to attend our annual meeting of
stockholders, health permitting.
In addition, we will adopt a code of ethics for senior financial
officers, including our Chief Executive Officer, Chief Financial
Officer and Chief Accounting Officer, as well as standards of
business conduct and
72
ethics, applicable to all of our employees. Waivers, if any, of
our code of ethics for senior financial officers will be
disclosed on our website.
After the spin-off, our code of ethics for senior financial
officers, standards of business conduct and ethics, corporate
governance guidelines and charters for the Audit Committee,
Compensation Committee and Nominating and Governance Committee
will be posted on our website at
www.forestargroup.com
under the heading Corporate Governance. We will
provide a copy of these documents, without charge, to any
stockholder upon request.
Communications
with Directors
After the spin-off, procedures for stockholders and other
interested persons to send communications to our board will be
posted on our website at
www.forestargroup.com
.
Director
Nominating Process
The Nominating and Governance Committee will select nominees on
the basis of recognized achievements and their ability to bring
various skills and experience to the deliberations of the board,
as will be described in more detail in the corporate governance
guidelines. Nominees will be required to be independent as
defined in the corporate governance listing standards of the New
York Stock Exchange and will not have a prohibited conflict of
interest with our business. Priority will be given to
individuals with outstanding business experience and who
currently serve or have served as the chief executive officer of
a company.
The Nominating and Governance Committee will consider director
candidates recommended by the directors. After reviewing a
potential directors qualifications, a suitable candidate
will be invited to meet with our Chief Executive Officer and
full board to determine if the candidate is a good fit with the
rest of our board.
The Nominating and Governance Committee will consider director
candidates recommended by stockholders who are entitled to vote
for the election of directors at the annual meeting of
stockholders and comply with the notice procedures set forth in
our bylaws. Recommendations by stockholders that are made in
this manner will be evaluated in the same manner as
recommendations for other candidates.
Director
Compensation
We anticipate adopting the following fee schedule for service by
our outside directors:
Director
Fee Schedule
|
|
|
Annual Retainer Fee
|
|
$50,000 (paid $12,500 per quarter)
|
Annual Non-executive Chair Retainer
|
|
$250,000 (paid $62,500 per quarter)
|
Annual Audit Committee Chair
Retainer
|
|
$15,000
|
Annual Other Committee Chair
Retainer
|
|
$5,000
|
Meeting Fees
|
|
$1,500 for each meeting in excess
of
5 per year for the board of directors and
Executive Committee combined; $1,500
for each meeting in excess of 5 per
year for each committee
|
Annual Restricted Stock Unit Grant
|
|
$75,000
|
Mr. DeCosmo will not receive a fee for his service on our
board other than his compensation as an employee.
Mr. Jastrows Non-executive Chair Retainer is not
eligible for a match under the fee deferral plan described below.
73
Fee
Deferral Plan
Instead of immediate payment in cash, directors will be able to
defer all fees into restricted stock units (a promise to make a
payment measured by the value of our common stock), or RSUs,
payable in common stock at retirement. The RSUs will be credited
quarterly based on the closing price of our common stock on
regularly scheduled board meeting dates. RSUs will have an
aggregate value of 1.5 times the amount of fees deferred except
for the non-executive chair retainer which will have an
aggregate value of one times the amount of fees deferred. RSUs
are vested when granted. Dividends will be credited as
additional RSUs if and when paid to stockholders. At retirement,
a director is paid the number of common shares equal to the
number of RSUs credited to his or her account.
For example, assume a director defers fees on a date when our
closing stock price is $25. The $12,500 quarterly fee times 1.5
= $18,750 initial value. The $18,750 is divided by the closing
stock price of $25 on the date of deferral = 750 RSUs. At
retirement, the director receives 750 shares of common
stock. Additional shares would be credited and paid to the
extent any dividends are paid on the underlying shares.
The directors fee deferral plan provides for accelerating
payment in the event the directors service terminates due
to a change in control.
Stock
Ownership Guidelines
Directors will be required to own stock or RSUs equal to
$150,000 (3 times their $50,000 annual retainer) by the end of
three years from initial election.
Insurance
and Indemnification
All directors will be covered under our business travel accident
insurance policy while traveling on our business. They will also
be covered under our director and officer liability insurance
policies for claims alleged in connection with their service as
a director. We will enter into indemnification agreements with
each of our directors agreeing to indemnify them to the fullest
extent permitted by law for claims alleged in connection with
their service as a director.
Director
Compensation Pre-Spin Off
In 2006, Mr. Jastrow was an employee of Temple-Inland and
director of Temple-Inland and Guaranty Bank. As a result, he
received no compensation for service as a director other than
his employee pay. Prior to the spin-off, two of our director
nominees served on Temple-Inlands board: James A. Johnson
and Richard M. Smith. We have computed the value of the fees our
director nominees earned under the Temple-Inland director
compensation programs for 2006 as shown in the following chart
in accordance with SEC requirements. We calculated the aggregate
grant date fair value of phantom stock and stock options in
accordance with Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 123R, or
FAS 123R. Assumptions used in the FAS 123R calculation
are described in Note 1 Share-Based
Compensation to the Consolidated Financial Statements contained
in Temple-Inlands 2006
Form 10-K.
FAS 123R requires us to calculate the value of the RSUs
acquired through deferral of fees and match using the stock
price on the date the fees are earned. However, directors do not
receive any payment for the Temple-Inland fees until they retire
from the Temple-Inland board. At retirement, a director receives
actual shares of common stock (or the cash equivalent for fees
earned in 2006 and 2007) equal in value to the RSUs shares
credited to their account. The value of the shares and cash
credited on the date the director retires may be different than
the value of RSUs received at the time the fee is earned. The
RSUs credited to and stock options held by directors will be
adjusted following the distribution in the same way applicable
to awards held by our named executive officers, as described
below, under Executive Compensation
Compensation Actions in Preparation for the Spin-off
Existing Equity Awards beginning on page 86 of this
information statement. Moreover, the fees shown below are not
representative of fees that will be earned under the
post-spin-off director compensation program.
74
DIRECTOR
COMPENSATION FOR FISCAL YEAR 2006
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Change in Pension
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Value and
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Nonqualified
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Non-Equity
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Deferred
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Fees Earned or
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Option
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Incentive Plan
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Compensation
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All Other
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Paid in Cash
|
|
|
Stock Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Total
|
|
Name(1)
|
|
($)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)
|
|
|
($)
|
|
|
($)(5)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
James A. Johnson(4)
|
|
$
|
0
|
|
|
$
|
296,275
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
11,000
|
|
|
$
|
307,275
|
|
Richard M. Smith
|
|
$
|
0
|
|
|
$
|
62,708
|
|
|
$
|
195,400
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
258,108
|
|
|
|
|
(1)
|
|
Mr. Jastrow was an employee of Temple-Inland prior to the
spin-off and received no compensation for his service as a
director other than employee pay.
|
|
(2)
|
|
Temple-Inland paid no cash fees in 2006. The fees shown in
column (c) consist of fees that were earned in 2006 but
deferred until retirement. The deferred fees earn a match of
133% and are converted into phantom shares. The resulting
phantom shares credited to each directors account in 2006,
along with the directors normal retirement date, are as
follows: Mr. Johnson 6,477 shares, normal
retirement date in 2016; Mr. Smith
1,647 shares, normal retirement date in 2018.
|
|
(3)
|
|
At fiscal year end 2006, our directors held the following
aggregate number of Temple-Inland stock options:
Mr. Johnson 36,000; Mr. Smith
20,000. Expiration dates for these options range from 2009
through 2017. To see option exercise prices, vesting dates, and
terms for each directors options, you may look at each
directors latest Form 4 under Investor Relations, SEC
Filings, on Temple-Inlands website at
www.templeinland.com.
|
|
(4)
|
|
Temple-Inland directors may retire at any time, but must retire
by the annual meeting following their 72nd birthday. Under a
plan that was frozen in 2000, Mr. Johnson will receive, at
retirement, a lump-sum payment of $35,000 from Temple-Inland as
a retirement benefit. Retirement benefits will be paid to
Mr. Johnsons surviving spouse if he does not live to
receive the payment. This plan was discontinued in 2000 and no
additional accruals will be made under the Temple-Inland plan.
|
|
(5)
|
|
In 2006, the Temple-Inland Foundation, a tax-exempt foundation
funded by contributions from
Temple-Inland
and Guaranty Bank, made a $5,000 donation to a charity or
educational institution chosen by each director.
Temple-Inland
directors are also eligible for the Foundations matching
gifts program, which matches donations made by employees and
directors
3-for-1
for
the first $1,000;
2-for-1
for
the next $1,000; and
1-for-1
for
the next $1,000, for total possible matching donations of up to
$6,000 per person.
|
Executive
Compensation
We have separated our discussion of executive compensation into
the following sections:
|
|
|
|
|
The philosophy, oversight, objectives, methodology, and elements
of the executive compensation program we intend to implement in
connection with the spin-off
|
|
|
|
Compensation actions we have taken in preparation for the
spin-off
|
|
|
|
Historical compensation of our named executive officers (those
executives named in the summary compensation table on
page 87 of this information statement) prior to the
spin-off under the Temple-Inland executive compensation program
|
Compensation
Discussion and Analysis
Compensation
Philosophy
Our compensation programs will be focused on creating long-term
stockholder value, and will emphasize performance measurements
such as real estate value creation as our primary measurement.
Our executive compensation program also will be designed to
attract and retain high-performing executives and to motivate
and reward our executives for superior performance of specific
corporate and individual goals.
75
Compensation
Oversight
Our Compensation Committee will be composed entirely of
independent, outside directors and will establish and administer
compensation programs and philosophies. Our Chief Administrative
Officer and our CEO will work closely with our Compensation
Committee and recommend executive compensation amounts, except
that the CEO will not participate in discussions regarding his
own compensation. These executives will consult with the other
executive officers about compensation amounts for executives and
other employees who report to them. Our Compensation Committee
will have final approval of all compensation amounts or formulas
applicable to benefit plans in which executive officers
participate.
Our Compensation Committee will also
|
|
|
|
|
establish, administer, and approve bonus programs for
non-executive employees and approve the aggregate amount of
bonus pools for each business segment. Each executive officer
will recommend individual bonus amounts for employees under his
or her direction, and the CEO will approve or revise the
individual amounts;
|
|
|
|
approve all stock award recipients and the amount of each award.
No executive will be involved in setting the amount or exercise
price of the awards;
|
|
|
|
delegate to the CEO the responsibility for approving health and
welfare programs for all employees. Executive officers
participate in the same health and welfare programs as other
salaried employees; and
|
|
|
|
delegate to certain of our executive officers the responsibility
of maintaining the tax qualification status of our 401(k) plan,
to approve 401(k) plan provisions and formulas applicable to
employees who are not executive officers, and to oversee the
administration of the 401(k) and other benefit plans.
|
In addition, an investment committee, whose members will be
executive officers, will oversee 401(k) plan fund choices. This
investment committee will report annually to the board.
Objectives
of the Executive Compensation Program
Our executive compensation program is designed to attract,
retain, and motivate key executives to maximize real estate
value creation, or REVC, and performance. We define REVC as the
value created by moving property through the development process
while meeting or exceeding our return expectations. Cash bonuses
will be considered on an annual basis based on overall REVC and
achievement of individual performance objectives. Stock awards
will reward long-term performance and align our executives
interests with stockholders by encouraging stock ownership. Both
cash bonuses and stock awards will be designed to align the
executives interests with our business strategy and
motivate performance to maximize REVC and achievement of
individual performance objectives. Stock awards will also help
retain executives because they will contain forfeiture
provisions if the executive terminates employment other than for
retirement, death or disability. A 401(k) plan match and health
and welfare benefits will help retain executives. Change in
control agreements will help ensure that our executives continue
to work in the best interests of our stockholders and help
alleviate concerns during any potential change in control
situations that might otherwise lead the executives to work
somewhere else, or otherwise to work other than in the best
interests of the company or its stockholders.
Compensation
Methodology
Peer Groups.
In connection with the spin-off,
the Temple-Inland Compensation Committee benchmarked the various
elements of our executive compensation program in order to gauge
our compensation levels relative to that of the market and our
competitors. Temple-Inland retained Hewitt Associates, LLC, or
Hewitt,
76
to assist with payroll and compensation issues relative to the
spin-off. Hewitt, our management team and the Temple-Inland
Compensation Committee selected the following companies for the
initial review:
Avatar
Holdings Inc.
Bluegreen
Corporation
Consolidated-Tomoka
Land Co.
Crescent
Real Estate Equities Company
Forest
City Enterprises, Inc.
GenCorp
Inc.
Plum
Creek Timber Company, Inc.
Rayonier
Inc.
The
St. Joe Company
Tejon
Ranch Company
WCI
Communities, Inc.
We will continue to refine this peer group following the
spin-off.
Compensation Consultant.
It is anticipated
that we will engage one or more compensation consultants
(collectively referred to as Compensation Consultant) after the
spin-off. We anticipate that the Compensation Consultant will
provide annual market and other specific information on
executive pay and also attend our Compensation Committee
meetings on request of the Compensation Committee. Our
Compensation Committee periodically will meet in executive
session with the Compensation Consultant. The Compensation
Consultant also will serve as consultant to the Nominating and
Governance Committee on director compensation.
With the Compensation Committees approval, we will also
retain the Compensation Consultant to prepare the change in
control calculations for disclosure in the proxy statement and
to model the number of shares to be requested for new stock
plans. From time to time, the Compensation Consultant
occasionally may perform limited assignments for us regarding
non-executive employees on a non-exclusive basis along with
other compensation consultants.
After the spin-off, we will continue to employ several methods
to benchmark our executive compensation practices against other
companies. First, we anticipate using publicly available market
surveys to match the roles of our named executive officers to
roles in the surveys. Second, we intend to conduct total
compensation studies which will be reviewed for accuracy and
appropriateness by our Compensation Consultant. Third, we
anticipate that our Compensation Consultant will conduct an
analysis of the named executive officers to assist us with
establishing a budget for overall long-term incentive awards and
will assist our Compensation Committee with setting compensation
for the named executive officers. For further comparison, we
will evaluate the base salary, annual incentive awards, and
long-term incentives provided to the named executive officers of
the companies in our peer group. We will extract this data from
publicly available sources.
Determination of CEO Pay and Evaluation of CEO
Performance.
Our full board will complete an
evaluation of the CEO each year from information compiled
confidentially and first provided to the Compensation Committee.
The Compensation Committee will report the results of that
review to the full board in executive session. Factors evaluated
will include financial and non-financial performance measures
and objectives, including leadership, ethics, strategic
planning, financial results, succession planning, human
resources/equal employment opportunity, communications, external
relations, and board relations.
Our independent directors will determine CEO pay with assistance
from the Compensation Committee and Compensation Consultant.
Elements
of Executive Compensation.
We will provide our named executive officers with a competitive
compensation package that includes the following elements:
|
|
|
|
|
Cash compensation including salaries, commissions and annual
bonuses based on performance measurements;
|
77
|
|
|
|
|
Stock awards including options and REVC-based restricted stock;
|
|
|
|
401(k) plan and a supplemental executive retirement plan, or
SERP;
|
|
|
|
Health and welfare benefits; and
|
|
|
|
Change in control agreements.
|
Salaries.
We will strive to maintain salaries
at competitive levels considering the performance and longevity
of the employees service. To ensure that our compensation
remains competitive, the Compensation Committee from time to
time will review information from independent surveys of the
peer group companies listed above. Since the market for
executive talent extends beyond any particular industry, the
survey data will include both companies in our industry as well
as companies outside our industry. At the request of the
Compensation Committee, the Compensation Consultant will use
data from the peer group companies to establish the relationship
between revenues and compensation from which a market value of
pay can be calculated for a specific revenue size, using a
statistical technique known as regression analysis, as well as
other recognized and standard techniques. Surveys indicate base
salaries for most of our named executive officers during 2006
were generally in the mid-ranges of the applicable comparative
companies. In making its salary decisions, our Compensation
Committee will place emphasis on the particular executives
experience, responsibilities, and performance. No specific
formula will be applied to determine the weight of each factor.
We anticipate that our Compensation Committee will adopt a
policy of using incentive bonus awards rather than base salary
to reward outstanding performance.
We anticipate requesting that the Compensation Committee
increase the base salaries of our named executive officers,
other than our CEO, as of the spin-off to remain competitive
with market practices, support executive recruitment and
retention objectives and establish internal equity among
executives. These increases are intended to reflect the
additional responsibilities that the named executive officers
will incur in connection with their new roles as managers of a
publicly-traded company. In addition, they will be consistent
with practice among our competitors as reflected in the peer
group described above.
Bonuses.
Bonuses will be based largely on our
performance and the employees personal performance in
meeting specified objectives. Our Compensation Committee will
also consider the degree to which the employees actions
have laid the groundwork for future earnings. The types and
relative importance of specific financial and other business
factors will vary among the executives depending on their
positions and the particular operations or functions for which
they are responsible. For example, executives may be given a
bonus for accomplishing specific objectives or projects,
including successful completion of acquisitions, entitlements,
or developments.
We intend to adopt, subject to our sole stockholders
approval, an incentive bonus plan. All of our named executive
officers will participate under the plan following the spin-off.
We anticipate that under the bonus formula, each named executive
officer will be eligible to receive a bonus payment if he meets
pre-established performance criteria. Our Compensation Committee
will retain discretion to pay less than the amount indicated by
any bonus formula that is adopted.
We expect that the executives annual bonus opportunity as
a percent of salary will be set at the 50th percentile of
our peer group, with upside potential to reward for above-target
performance, and downside potential if a threshold performance
level is not met. Individual targets will vary according to
role, in accordance with market practice. These bonus
opportunities are intended to reflect the substantial
responsibilities that our named executive officers will incur in
connection with their new roles as managers of a
publicly-traded
company and reflect our pay-for-performance philosophy.
Stock Incentive Awards.
We plan to adopt the
Forestar Real Estate Group 2007 Stock Incentive Plan, or SIP, an
incentive stock plan. No awards have been granted under this
plan to date. However, the plan will give us the ability to
provide our eligible employees, including each of our named
executive officers, grants of stock compensation awards based on
our shares in the future if our Compensation Committee
determines that it is in our best interest and that of our
stockholders to do so. For performance-based equity grants, we
will use performance metrics that are appropriate for the size,
scope and industry of our company. From time to
78
time, we intend to grant equity awards to our executive officers
outside the annual award process, such as in connection with the
hiring of a new executive, for retention purposes, to reward
exemplary performance,
and/or
for
promotional recognition. The CEO will provide initial award
recommendations to our Compensation Committee for approval. We
will not have a program, plan, or practice specifically designed
to coordinate the grant of ad hoc awards with the release of
information about us. We will adopt standardized grant dates for
our equity awards to ensure that there is no potential
discretion in selecting the timing of the awards.
The expected principal features of the SIP are summarized below.
General.
Awards granted under the SIP may be
in the form of stock options, stock appreciation rights,
restricted stock, restricted stock units, performance units,
other stock-based awards or any combination of those awards. The
SIP provides that awards may be made under the SIP for ten years
following the spin-off.
Administration.
Under the terms of the SIP,
the SIP will be administered by our Compensation Committee, or
by such other committee or subcommittee as may be appointed by
our board, and which consists entirely of two or more
outside directors within the meaning of Section
162(m) of the Code. Unless and until the board appoints any
other committee or subcommittee, the SIP will be administered by
our Compensation Committee. Under the terms of the SIP, our
Compensation Committee can make rules and regulations and
establish such procedures for the administration of the SIP as
it deems appropriate.
Shares Available.
The SIP provides that the
aggregate number of shares of our common stock that may be
subject to awards under the SIP cannot exceed
[
l
],
subject to adjustment in certain circumstances to prevent
dilution or enlargement. No more than
[
l
]
shares may be granted as awards that are not options. No
participant may be granted awards covering in excess of
[
l
]
shares per year. Shares underlying awards that expire or are
forfeited or terminated without being exercised will again be
available for the grant of additional awards within the limits
provided by the SIP. In addition, shares that expire or are
forfeited or terminated without being exercised or that are
settled for cash will again be available for the grant of
additional awards under the SIP, within the limits provided by
the SIP.
Eligibility.
The SIP provides for awards to
our directors, officers, and employees. As of the date of the
spin-off, we anticipate that there will be approximately
[
l
]
directors, officers and employees eligible to participate in the
SIP. Our named executive officers and each of the directors are
among the individuals who will be eligible to receive awards
under the SIP.
Stock Options.
Subject to the terms and
provisions of the SIP, options to purchase common stock may be
granted to eligible individuals at any time and from time to
time as determined by our Compensation Committee. Options may be
granted as incentive stock options, within the meaning of
Section 422 of the Code, or as non-qualified stock options.
Subject to the limits provided in the SIP, our Compensation
Committee determines the number of options granted to each
recipient. Each option grant will be evidenced by a stock option
agreement that specifies whether the options are intended to be
incentive stock options or non-qualified stock options and such
additional limitations, terms and conditions as our Compensation
Committee may determine.
The exercise price for each option granted is determined in
accordance with the method as defined in the SIP, except that
the option exercise price may not be less than 100% of the fair
market value of a share of our common stock on the date of grant.
All options granted under the SIP will expire no later than ten
years from the date of grant. The method of exercising an option
granted under the SIP will be set forth in the stock option
agreement for that particular option.
At the discretion of our Compensation Committee, a stock option
agreement evidencing the award of stock options may contain
limitations on the exercise of options under certain
circumstances upon or after the termination of employment or in
the event of death, disability or retirement. Stock options are
nontransferable except by will or by the laws of descent and
distribution or, in the case of non-qualified stock options, as
otherwise expressly permitted by our Compensation Committee. The
granting of an option does not afford the
79
recipient the rights of a stockholder, and such rights accrue
only after the exercise of an option and the registration of
shares of our common stock in the recipients name.
Restricted Stock.
The SIP provides for the
award of shares of our common stock that are subject to
forfeiture and restrictions on transferability, or Restricted
Stock, as set forth in the SIP and as may be otherwise
determined by our Compensation Committee. Except for these
restrictions and any others imposed by our Compensation
Committee, upon the grant of Restricted Stock the recipient will
have rights of a stockholder with respect to the Restricted
Stock, including the right to vote the Restricted Stock and to
receive all dividends and other distributions paid or made with
respect to the Restricted Stock. During the restriction period
set by our Compensation Committee, the recipient may not sell,
transfer, pledge, exchange or otherwise encumber the Restricted
Stock. Any award of Restricted Stock will be subject to vesting
during a restriction period following the date of grant, and
vesting may be conditioned upon the achievement of service or
performance goals established by our Compensation Committee.
Restricted Stock Units.
The SIP authorizes our
Compensation Committee to grant restricted stock units.
Restricted stock units are not shares of our common stock and do
not entitle the recipients to the rights of a stockholder, but
rather entitle the holder upon their settlement to the value of
one share of our common stock. Restricted stock units granted
under the SIP may or may not be subject to performance
conditions. The recipient may not sell, transfer, pledge or
otherwise encumber restricted stock units granted under the SIP
prior to their vesting. Restricted stock units will be settled
in shares of our common stock or cash, in an amount based on the
fair market value of our common stock on the settlement date.
Any award of restricted stock units will be subject to vesting
during a restriction period following the date of grant, and
vesting may be conditioned upon the achievement of certain
service or performance goals established by our Compensation
Committee.
Performance Units.
The SIP provides for the
award of performance units. The payment of the value of a
performance unit is conditioned upon the achievement of
performance goals to be set by the Compensation Committee in
granting the performance unit and may be paid in cash, shares of
our common stock, or a combination thereof. The maximum value of
the cash that may be paid to a participant pursuant to a
performance unit granted in any year is $
[
l
].
Other Stock-Based Awards.
The SIP also
provides for grants of other stock-based awards under the plan
with terms determined by our Compensation Committee.
Performance Goals.
The SIP provides that
performance goals may be established by the committee in
connection with the grant of Restricted Stock, RSUs, performance
units or other stock-based awards. In the case of an award
intended to qualify for the performance-based compensation
exception of Section 162(m) of the Code, such goals shall
be based on the attainment of specified levels of one or more of
the following measures: satisfactory internal or external
audits, achievement of balance sheet or income statement
objectives, cash flow, customer satisfaction metrics and
achievement of customer satisfaction goals, dividend payments,
earnings (including before or after taxes, interest,
depreciation, and amortization), earnings growth, earnings per
share, economic value added, expenses, improvement of financial
ratings, internal rate of return, market share, net asset value,
net income, net operating gross margin, net operating profit
after taxes, or NOPAT, net sales growth, NOPAT growth, operating
income, operating margin, pro forma income, regulatory
compliance, return measures (including return on assets,
designated assets, capital, committed capital, net capital
employed, equity, sales, or stockholder equity, and return
versus the companys cost of capital), revenues, real
estate value creation, sales, stock price (including growth
measures and total stockholder return), comparison to stock
market indices, implementation or completion of one or more
projects or transactions, working capital, or any other
objective goals that the Compensation Committee establishes.
Performance goals may be absolute in their terms or measured
against or in relationship to other companies. Performance goals
may be particular to an award recipient or the department,
branch, affiliate, or division in which the award recipient
works, or may be based on the performance of the company, one or
more affiliates, or the company and one or more affiliates, and
may cover such period as the Compensation Committee may specify.
Such performance goals will be set by our Compensation Committee
within the time period and other requirements prescribed by
Section 162(m) of the Code and the regulations promulgated
thereunder.
80
Change in Control.
Vesting of awards may be
accelerated in the event of certain change in control situations.
Awards Under the SIP.
Because it is within the
discretion of our Compensation Committee to determine which
officers and employees receive awards and the amount and type of
awards received, it is not presently possible to determine the
number of individuals to whom awards will be made in the future
under the SIP or the amount of the awards.
Following the spin-off, we anticipate requesting the
Compensation Committee to make grants of awards under the SIP.
The initial grants made following the spin-off will include
special launch grant amounts to the named executive
officers, excluding the CEO, and a number of other members of
the management team. The purpose of such launch
grants will be to align the interests of the management
team with the interests of our stockholders commencing
immediately upon the spin-off.
Amendment.
Our board may amend, alter or
discontinue the SIP at any time. No such amendment or
termination, however, may impair the rights of any holder of
outstanding awards without his or her consent, and no award may
be amended or otherwise subject to any action that would be
treated, for accounting purposes, as a repricing of
such award.
Federal Income Tax Consequences.
The following
is a summary of certain federal income tax consequences of
awards made under the SIP, based upon the laws in effect on the
date hereof. The discussion is general in nature and does not
take into account a number of considerations which may apply in
light of the circumstances of a particular participant under the
SIP. The income tax consequences under applicable state and
local tax laws may not be the same as under federal income tax
laws.
Non-Qualified Stock Options.
A participant
will not recognize taxable income at the time of grant of a
non-qualified stock option, and we will not be entitled to a tax
deduction at such time. A participant will recognize
compensation taxable as ordinary income (and subject to income
tax withholding in respect of an employee) upon exercise of a
non-qualified stock option equal to the excess of the fair
market value of the shares purchased over their exercise price,
and we generally will be entitled to a corresponding deduction.
Incentive Stock Options.
A participant will
not recognize taxable income at the time of grant of an
incentive stock option. A participant will not recognize taxable
income (except for purposes of the alternative minimum tax) upon
exercise of an incentive stock option. If the shares acquired by
exercise of an incentive stock option are held for the longer of
two years from the date the option was granted and one year from
the date the shares were transferred, any gain or loss arising
from a subsequent disposition of such shares will be taxed as
long-term capital gain or loss, and we will not be entitled to
any deduction. If, however, such shares are disposed of within
such two or one year periods, then in the year of such
disposition the participant will recognize compensation taxable
as ordinary income equal to the excess of the lesser of the
amount realized upon such disposition and the fair market value
of such shares on the date of exercise over the exercise price
(although there will be no withholding obligation), and we
generally will be entitled to a corresponding deduction.
Restricted Stock.
A participant will not
recognize taxable income at the time of grant of shares of
Restricted Stock, and we will not be entitled to a tax deduction
at such time, unless the participant makes an election under
Section 83(b) of the Code to be taxed at such time. If such
election is made, the participant will recognize compensation
taxable as ordinary income (and subject to income tax
withholding in respect of an employee) at the time of the grant
equal to the excess of the fair market value of the shares at
such time over the amount, if any, paid for such shares. If such
election is not made, the participant will recognize
compensation taxable as ordinary income (and subject to income
tax withholding in respect of an employee) at the time the
restrictions lapse in an amount equal to the excess of the fair
market value of the shares at such time over the amount, if any,
paid for such shares. We generally are entitled to a
corresponding deduction at the time the ordinary income is
recognized by the participant, except to the extent the
deduction limits of Section 162(m) of the Code apply. In
addition, a participant receiving dividends with respect to
Restricted Stock for which the above-described election has not
been
81
made and prior to the time the restrictions lapse will recognize
compensation taxable as ordinary income (and subject to income
tax withholding in respect of an employee), rather than dividend
income. We will generally be entitled to a corresponding
deduction, except to the extent the deduction limits of Section
162(m) of the Code apply.
Restricted Stock Units.
A participant will not
recognize taxable income at the time of grant of a restricted
stock unit, and we will not be entitled to a tax deduction at
such time. A participant will recognize compensation taxable as
ordinary income (and subject to income tax withholding in
respect of an employee) at the time of settlement of the award
equal to the fair market value of any shares delivered and the
amount of cash paid by us, and we generally will be entitled to
a corresponding deduction, except to the extent the deduction
limits of Section 162(m) of the Code apply.
Performance Units.
A participant will not
recognize taxable income at the time of grant of performance
units, and we will not be entitled to a tax deduction at such
time. A participant will recognize compensation taxable as
ordinary income (and subject to income tax withholding in
respect of an employee) at the time of settlement of the award
equal to the fair market value of any shares or property
delivered and the amount of cash paid by us, and we generally
will be entitled to a corresponding deduction, except to the
extent the deduction limits of Section 162(m) of the Code
apply.
Section 162(m).
Section 162(m) of
the Code limits the deductibility of certain compensation of the
CEO and the next three most highly compensated officers of
publicly-held corporations, other than the CFO. Compensation
paid to such an officer during a year in excess of
$1 million that is not performance-based (or does not
comply with other exceptions) would not be deductible on our
federal income tax return for that year. It is intended that
compensation attributable to stock options granted under the SIP
will qualify as performance-based. Our Compensation Committee
will evaluate from time to time the relative benefits to us of
qualifying other awards under the SIP for deductibility under
Section 162(m) of the Code.
Stock
Ownership Guidelines.
To further align our executives financial interests with
those of our stockholders, we anticipate adopting the following
minimum stock ownership guidelines for our named executive
officers:
Value of
Ownership of Stock as a Multiple of Annual Salary
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Multiple of
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Position
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Salary
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Chief Executive Officer
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5x
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Other Named Executive Officers
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3x
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Shares owned by the executive and their immediate family members
will count toward the ownership guidelines. Shares held in our
401(k) plan, Restricted Stock, performance stock units, and
performance units also will count.
The named executive officers will have five years following
the spin-off or their initial election to meet the stock
ownership guidelines.
Retirement and 401(k) Plan.
We will offer a
401(k) plan after the spin-off. Employees who transfer to us
from Temple-Inland in connection with the spin-off will receive
vesting credit under our 401(k) plan for the years of service
they were continuously employed by Temple-Inland.
Our 401(k) plan will allow us to match an employees
contribution in accordance with the following formula: for each
dollar that an employee contributes to their 401(k) savings
account, we will contribute a match of $1 up to 3% of the
employees compensation; thereafter, for each dollar that
an employee contributes of their next 3% of pay, we will
contribute a match of $0.50. The maximum annual matching
contribution will be $4,500 for any employee considered highly
compensated for the year under Section 414(q)(1)(B) of the
Code (earnings of $100,000 in 2007). The match is vested 100%
after two years of employment. In addition,
82
we will make a retirement contribution equal to 3.5% of the
employees compensation. The retirement contribution is
vested after two years of employment. Employees will be
offered a wide range of investment choices under the plan for
their payroll contributions, and our match and retirement
contribution will be invested proportionally in the same funds
selected by the employees for their own payroll contributions.
Our 401(k) plan will not grant extra years of credited service
to executives. Extra years of credited service will be granted
only under our change in control agreements, but not for any
other reason.
The Code limits the amount of compensation that can be used in
calculations under a tax-qualified defined contribution
retirement plan such as our 401(k) plan. In 2007, this limit was
$225,000. Because we wish to provide our executives with a
continuing ability to save for their retirement, we will credit
under the SERP an amount equal to 3.5% of the executives
pay in excess of this limit. The SERP, which is not a tax
qualified plan, is unfunded and contains a provision for
acceleration of payment in the event of a change in control. The
SERP will not cover pay that is based on commissions.
Health and Welfare Benefits.
We will offer the
same health and welfare benefits to all salaried employees.
These benefits include medical benefits, dental benefits, vision
benefits, life insurance, salary continuation for short-term
disability, long-term disability insurance, accidental death and
dismemberment insurance, dependent care spending account, health
care spending account, health savings account, and other similar
benefits.
Change in Control Agreements.
We entered into
change in
control/severance
agreements with selected executives, including the named
executive officers other than the CEO. The CEO is party to an
employment agreement the terms of which are summarized below
under Compensation Action in Preparation for
Spin-off Employment Agreement. We believe that
the change in
control/severance
agreements will help us to attract and retain our named
executive officers by reducing the personal uncertainty and
anxiety that arises from the possibility of a future business
combination. During a potential change in control, we do not
want executives leaving to pursue other employment out of
concern for the security of their jobs or being unable to
concentrate on their work. To enable executives to focus on the
best interest of our stockholders, we offer change in control
agreements that generally provide severance benefits to
executives whose employment terminates as a result of a change
in control. These agreements generally require a double
trigger of both a change in control and a termination of
employment before any benefits are paid.
For the first two years following the spin-off, however, only a
qualifying termination of employment (as defined in the
agreements) is required for the named executive officers with
change in control/severance agreements because Forestar assumed
the responsibility for their Temple-Inland change in control
agreements at the spin-off. Mr. DeCosmo had a severance
contract with Temple-Inland requiring payments of three times
his compensation and all other named executive officers had
severance contracts with Temple-Inland requiring payments of
twice their compensation upon a qualifying termination of
employment following a change in control of Temple-Inland.
The following events constitute a change in control for purposes
of the change in control agreements:
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any person or entity acquiring or becoming beneficial owner as
defined in SEC regulations of 20% or more of the combined voting
power of our securities;
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the pre-event directors ceasing to constitute a majority of our
directors within any
24-month
period;
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consummation of a merger, consolidation, or recapitalization
(unless the directors continue to represent a majority of the
directors on the board, at least 60% of the pre-event ownership
survives, and, in the event of a recapitalization, no person
owns 20% or more of the voting power of the securities);
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the stockholders approve a liquidation or dissolution;
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83
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consummation of an agreement to sell, lease, or dispose of
substantially all the assets of Forestar; or
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any other event that the board determines to be a change in
control.
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Our Stock Incentive Plan uses similar change in control events
including:
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acquisition of 20% voting power through a tender or exchange
offer;
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the board or stockholders approve a consolidation or merger;
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the board or stockholders approve a liquidation or
dissolution; or
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the board or stockholders approve a sale, lease, exchange or
transfer of substantially all assets.
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As noted above, payments under the change in control/severance
agreements are generally triggered by two events, a change in
control plus a qualifying termination of employment. A
qualifying termination of employment includes both involuntary
termination without cause and voluntary termination by the
executive for good reason. Good reason includes assignment of
duties substantially inconsistent with the executives
status as a senior executive officer, substantial reduction in
base salary, relocation of place of employment more than
50 miles, failure to pay compensation, or failure to
provide benefits or a reduction in benefits.
Under the change in control/severance agreements and Stock
Incentive Plan, the named executive officers other than
Mr. DeCosmo would receive the following under qualifying
circumstances:
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their current cycle bonus pro rated if the termination is before
the end of the first half of the cycle; full bonus if during the
second half of the cycle;
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lump sum severance equal to two times their current salary and
two times target bonus, or if higher, the salary or actual bonus
in any of the last three years;
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health and welfare benefits provided for two years at no
greater cost;
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acceleration of vesting of all options, restricted shares,
restricted stock units, and performance stock units;
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two years of additional service credit for SERP benefits, if any;
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lump sum payment equal to two years match under our
401(k) plan;
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any retiree medical benefits to which the executive is entitled;
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reimbursement for outplacement services not to exceed 15% of
base salary and target bonus; and
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two years continuation of perquisites.
|
The change in control agreements also contain
gross-up
provisions in the event the officer is required to pay excise
tax on these amounts. The gross up will only be paid if the
change in control payments exceed 110% of the amount that would
not be subject to excise tax; otherwise, payments are reduced to
the maximum amount that will not trigger the excise tax.
The amount of severance and benefits was determined based on
competitive market practices for executives at this level.
Executives at this level generally require a longer timeframe to
find comparable jobs because there are fewer jobs at this level
in the market. The executives often have a large percentage of
their personal wealth dependent on the status of our company,
given the requirement to hold a multiple of their salary in
stock and the fact that a large part of their compensation is
stock-based.
In exchange for the promise of this compensation and benefits,
the executive agrees to continue working during any potential
change in control event until the earliest of six months
from the potential change in control event, until the date of
the change in control event, or until the executive is
terminated by the company or terminates employment for good
reason.
84
Executive Perquisites.
We intend to take a
minimalist approach to perquisites. We will provide umbrella
insurance coverage and club memberships for our executives.
Severance Benefits.
Generally speaking,
severance is a matter that is individually negotiated with the
executive and the amount depends on the circumstances of his or
her departure. As discussed below, the CEO is the only executive
who has an employment agreement with pre-established severance
benefits, other than the change in control/agreements discussed
above. In return for the post-employment benefits, the CEO
agrees not to compete with us for two years after departure.
Clawback of Compensation.
If an
executive leaves under circumstances that call into question
whether any compensation amounts paid to him or her were validly
earned, we would pursue any legal rights we deemed appropriate
under the circumstances.
Tax Deductibility Policy.
Section 162(m)
of the Code generally limits the tax deductibility of
compensation of the CEO and the other three most highly
compensated executive officers (other than the CFO) of a
publicly-held company to $1 million per executive unless
the compensation constitutes performance-based
compensation. We intend that compensation paid to our named
executive officers not be subject to the limitation on tax
deductibility under Section 162(m) of the Code so long as
this can be achieved in a manner consistent with our other
compensation objectives.
Compensation
Actions in Preparation for the Spin-off
Base Salary Increase.
The following salary
increase for the CEO has been approved by our board after
considering market data provided by Hewitt:
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Current
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Anticipated
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Annual
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Annual
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Executive
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Title
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Salary Rate
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Salary Rate
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James M. DeCosmo
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|
President and Chief Executive
Officer
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$
|
309,000
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$
|
500,000
|
|
Equity Award.
Mr. DeCosmo was also given
on May 4, 2007 an award of 25,000 shares of
Temple-Inland restricted stock that will vest on May 4,
2010. The market price of Temple-Inland common stock on
May 4, 2007 was $61.23.
Employment Agreement.
We executed an
employment agreement with Mr. DeCosmo on August 9,
2007 that will become effective as of the spin-off. The
agreement has a three-year term, but is automatically extended
by one year on the first anniversary of the effective date and
each anniversary thereafter unless notice of nonrenewal is given
at least one year in advance of such anniversary date.
During the term of the agreement, Mr. DeCosmo will receive
a base salary, which may not be reduced below its level at the
time the agreement becomes effective ($500,000) or any increase
subsequently granted. He will be eligible for a
performance-based annual cash bonus, employee benefits, equity
(long-term incentive plan) grants, and umbrella insurance. There
are no parameters on the performance-based annual cash bonus,
such as a maximum amount, and it is entirely within the
discretion of our Compensation Committee except that it shall be
substantially no less favorable than the bonus program
applicable to our other senior executives.
Upon a qualifying termination of employment (defined generally
in the same manner as under the change in control agreements
described above) during the first two years following the
effective date of the agreement or within two years following a
change in control (defined in the same manner as under the
change in control agreements described above), Mr. DeCosmo
would be generally entitled to the same benefits (including
excise tax gross-up protection) as described above under the
change in control agreements, except that Mr. DeCosmo would
receive a multiple of three times pay and benefits, and also
would be credited with three extra years of service for purposes
of determining his eligibility for any retiree medical or life
insurance benefits. If Mr. DeCosmo were to experience such
a qualifying termination of employment after the first two years
of the agreement and not within two years following a change in
control, he would be entitled to those same benefits, except
that the severance would be based on two times salary and bonus,
health and welfare benefits and perquisites would continue for
two years, and imputed service credit would be limited to an
additional two years. Upon termination of employment for death
or disability, Mr. DeCosmo would receive a cash lump-sum
85
payment equal to the sum of his annual base salary and a
pro-rata portion of his annual target bonus. Mr. DeCosmo
would be required to execute a release of claims, and he has
agreed that he will not compete with us for two years following
his termination of employment for any reason.
Retirement Benefits.
All liabilities for
accrued benefits under Temple-Inlands qualified defined
benefit plan for the Forestar named executive officers will be
retained by Temple-Inland. The actuarial present values of the
accumulated pension benefits of our named executive officers who
participate in Temple-Inlands qualified defined benefit
plan and SERP as of the end of 2006, as well as other
information about each of Temple-Inlands defined benefit
pension plans, are reported in the Pension Benefits table on
page 92.
In connection with the spin-off, Mr. DeCosmo will receive a
distribution in 2008 of all amounts he has accrued under the
Temple-Inland SERP, which is estimated to be approximately
$169,910. This amount will be paid by Temple-Inland.
Existing Equity Awards.
Each of the named
officers is currently employed by us or Temple-Inland. In such
capacity, the named officers were granted stock options and
other equity awards with respect to Temple-Inland common stock.
Details with respect to such grants as of the end of 2006 are
set forth below under the table entitled Outstanding
Equity Awards at Year-End 2006.
In connection with the spin-offs of Forestar and Guaranty, all
outstanding options will be equitably adjusted into three
separate options: one relating to Guaranty common stock, one
relating to Forestar common stock, and one relating to
Temple-Inland common stock. Such adjustment is expected to be
made so that immediately following the distribution the number
of shares relating to each option and the per share option
exercise price of the original Temple-Inland stock option will
be proportionally allocated among the three types of stock
options based upon the relative per share trading prices of the
Forestar, Guaranty, and Temple-Inland common stock immediately
following the distribution. All Forestar and Guaranty options
issued as part of this adjustment and the Temple-Inland options
will continue to be subject to their current vesting schedules.
Further, for purposes of vesting and the post-termination
exercise periods applicable to such stock options,
Temple-Inlands Compensation Committee determined that
continued employment with Forestar, Guaranty, or Temple-Inland
will be viewed as continued employment with the issuer of the
options.
Restricted Stock and RSUs and performance stock units will be
adjusted in the same manner stockholders of Temple-Inland have
their shares adjusted, including participation in quarterly
dividends and special dividends, and will continue to vest over
the normal vesting cycle. These equitable adjustments are
intended to preserve the economic value of the awards
immediately prior to the distribution.
Historical
Compensation of Our Executive Officers Prior to Spin Off Under
The Temple-Inland Executive Compensation Program
The following tables contain compensation information for
services in all capacities to Temple-Inland for the periods
shown for our CEO, CFO, and three other executive officers who
for fiscal 2006 had the highest compensation. We refer to these
persons collectively as our named executive officers. All of the
information included in these tables reflects compensation
earned by the individuals for services with Temple-Inland and
its subsidiaries. All references in the following tables to
stock options, Restricted Stock, PSUs, and RSUs, relate to
awards of stock options, Restricted Stock, PSUs and RSUs granted
by Temple-Inland in regard to Temple-Inland common stock.
The amounts and forms of compensation reported below do not
necessarily reflect the compensation these persons will receive
following the spin-off, which could be higher or lower, because
historical compensation was determined by Temple-Inland and
future compensation levels will be determined based on the
compensation policies, programs and procedures to be established
by our Compensation Committee.
86
SUMMARY
COMPENSATION TABLE FOR YEAR 2006
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Change in
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Pension Value
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and
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Nonqualified
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Non-Equity
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Deferred
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Stock
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Option
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Incentive Plan
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Compensation
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All Other
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Salary
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Bonus
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Awards(1)
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Awards
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Compensation
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Earnings(2)
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Compensation(3)
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Total
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Name and Principal Position
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Year
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($)
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($)
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($)
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($)
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($)
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($)
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($)
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($)
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(a)
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(b)
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(c)
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(d)
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(e)
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(f)
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(g)
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(h)
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(i)
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(j)
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James M. DeCosmo
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2006
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$
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294,231
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$
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0
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$
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450,584
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|
|
$
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118,183
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$
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740,000
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$
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33,920
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$
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34,351
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$
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1,671,268
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President and CEO
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Christopher L. Nines
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2006
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$
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148,317
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$
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300,000
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|
$
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82,498
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|
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$
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44,701
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|
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$
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0
|
|
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$
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5,672
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|
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$
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8,550
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$
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589,738
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Chief Financial Officer
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Craig A. Knight
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2006
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$
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222,596
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$
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550,000
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$
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223,952
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$
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154,125
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$
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0
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$
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5,243
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$
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7,000
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$
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1,162,916
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Chief Investment Officer
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Charles T. Etheredge, Jr.
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2006
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$
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205,892
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$
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225,000
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$
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42,953
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$
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30,033
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$
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0
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$
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9,624
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$
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64,674
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$
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578,177
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Executive Vice President
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Charles D. Jehl
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2006
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$
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165,769
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$
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300,000
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$
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44,059
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$
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24,808
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$
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0
|
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$
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8,911
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$
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5,200
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$
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548,747
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Chief Accounting Officer
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(1)
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The fair value of restricted stock, performance stock units, and
stock options was determined in accordance with Statement of
Financial Accounting Standards No. 123(R). Fair value of
the option awards was determined using the Black-Scholes-Merton
option pricing model. The following table lists the fair values
by grant date:
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Estimated
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Expected
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Fair Value
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Expected
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Stock
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Risk-Free
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of Options
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Dividend
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Price
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Interest
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Life of
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Grant Date
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Granted
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Yield
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Volatility
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Rate
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Option
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2/7/2003
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$
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5.81
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2.5
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%
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29.3
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%
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2.9
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%
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8
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5/7/2003
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$
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6.60
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2.5
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%
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29.3
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%
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3.9
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%
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8
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2/6/2004
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$
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8.31
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2.9
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%
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28.8
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%
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|
4.2
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%
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8
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2/4/2005
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$
|
11.13
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2.3
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%
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28.2
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%
|
|
|
4.1
|
%
|
|
|
8
|
|
|
|
|
|
2/3/2006
|
|
$
|
11.53
|
|
|
|
2.4
|
%
|
|
|
25.1
|
%
|
|
|
4.4
|
%
|
|
|
6
|
|
|
|
|
|
|
|
|
(2)
|
|
Represents the change in the actuarial present value of
accumulated pension benefits from September 30, 2005 to
September 30, 2006. There were no above-market or
preferential earnings on deferred compensation.
|
|
(3)
|
|
Includes $13,614 in mortgage subsidies for Mr. DeCosmo and
$57,244 in relocation expenses for Mr. Etheredge. Includes
$4,000 in company match under a 401(k) plan and match for
charitable contributions for each officer.
|
STOCK-BASED COMPENSATION
Additional information about stock-based compensation awards
granted and vested in 2006 and awards outstanding at year-end
2006 follows.
87
The following table summarizes grants of stock-based
compensation awards made in 2006 to the named executive officers.
2006
GRANTS OF PLAN-BASED AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Awards:
|
|
|
Exercise
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
or Base
|
|
|
Date Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
Securities
|
|
|
Price of
|
|
|
Value of
|
|
|
|
|
|
|
Estimated Future Payouts Under Non-equity Incentive Plan
Awards
|
|
|
Estimated Future Payouts Under Equity Incentive Plan
Awards(1)
|
|
|
Stock or
|
|
|
Underlying
|
|
|
Option
|
|
|
Stock and
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Options
|
|
|
Awards
|
|
|
Option
|
|
Name
|
|
Grant Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)(1)
|
|
|
(#)(2)
|
|
|
($/Sh)(3)
|
|
|
Awards
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
(l)
|
|
|
DeCosmo
|
|
|
2/3/2006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,900
|
|
|
|
18,400
|
|
|
|
18,400
|
|
|
|
0
|
|
|
|
18,450
|
|
|
$
|
46.20
|
|
|
$
|
1,062,809
|
|
Nines
|
|
|
2/3/2006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,625
|
|
|
|
6,400
|
|
|
$
|
46.20
|
|
|
$
|
195,067
|
|
Knight
|
|
|
2/3/2006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,625
|
|
|
|
7,500
|
|
|
|
0
|
|
|
|
5,000
|
|
|
|
10,000
|
|
|
$
|
46.20
|
|
|
$
|
692,800
|
|
Etheredge
|
|
|
2/3/2006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,100
|
|
|
|
5,125
|
|
|
$
|
46.20
|
|
|
$
|
156,111
|
|
Jehl
|
|
|
2/3/2006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,100
|
|
|
|
5,125
|
|
|
$
|
46.20
|
|
|
$
|
156,111
|
|
|
|
|
(1)
|
|
The dollar value is calculated by multiplying the number of
shares awarded by the average of the high and low NYSE sales
price of unrestricted stock on the date of grant. The amount
shown for Mr. DeCosmo includes 8,400 restricted stock units
that are vested if minimum return on investment, or ROI,
criteria are met (1% ROI over fiscal years 2006, 2007, and
2008). It also included performance-based restricted stock units
(Performance Stock Units): Mr. DeCosmo-10,000 and
Mr. Knight-7,500. Performance stock units were originally
granted subject to performance criteria under which the awards
would vest 0%, 75%, or 100% depending upon Temple-Inlands
achievement of certain ROI performance criteria during the
three-year
vesting period (fiscal years 2006, 2007 and 2008 are referred to
as the Award Period) as compared with its peer group. No payment
would be made unless Temple-Inlands average ROI ranking as
compared to the peer group over the award period is in the first
or second quartile of ROI rankings. If Temple-Inlands
average ROI over the award period placed it within the first
quartile, up to 100% of the performance stock units may be paid.
If
Temple-Inlands
average ROI over the award period placed it within the second
quartile, up to 75% of the performance stock units may be paid.
The Compensation Committee retained discretion to reduce the
size of the award, but not to increase it. On August 9,
2007 the Compensation Committee determined that the performance
criteria would be frustrated by the spin-off and other
transformation events, and converted all of the performance
stock units to restricted stock units with 1% minimum ROI
criteria that will vest on the third anniversary of the original
grant. Mr. DeCosmos restricted stock units were
canceled on August 9, 2007 and new units in the same amount
and vesting at the original vesting date were issued so that the
1% minimum ROI criteria could be updated. The restricted stock
units have a potential vesting date of February 3, 2009.
Cash compensation will be paid equal to the amount of regular
quarterly dividends these shares would otherwise earn.
|
|
(2)
|
|
Options to purchase Temple-Inland common stock. Exercise prices
have never been repriced. Withholding taxes may be paid with
exercised shares. No general or freestanding stock appreciation
rights, or SARS, were granted. All grants to the named executive
officers include a provision for acceleration of vesting in
certain change of control situations. All options awarded to the
executives become exercisable in 25% increments on
February 3 of 2007, 2008, 2009, and 2010 and have a ten
year term expiring February 3, 2016.
|
|
(3)
|
|
Valued by averaging the high and the low sales prices of
Temple-Inland stock on the NYSE on the board meeting date when
the grants were approved. The closing price on such date was
$45.79.
|
88
OUTSTANDING
EQUITY AWARDS AT YEAR-END 2006
The following table summarizes stock-based compensation awards
outstanding at year-end 2006 for the named executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Unearned
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
|
Value of
|
|
|
Shares,
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
Units or
|
|
|
Shares,
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
Other
|
|
|
Units or Other
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
|
|
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Grant
|
|
|
Vesting
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
(#)(1)
|
|
|
($)(1)
|
|
|
(#)
|
|
|
(#)(1)
|
|
|
Date
|
|
|
Date
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
James M. DeCosmo
|
|
|
2,000
|
|
|
|
|
|
|
$
|
27.64
|
|
|
|
02/04/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/00
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
25.65
|
|
|
|
02/02/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/02/01
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
$
|
27.66
|
|
|
|
02/01/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/01/02
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
21.51
|
|
|
|
02/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
21.51
|
|
|
|
02/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
02/07/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,612
|
|
|
$
|
46.20
|
|
|
|
02/06/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,613
|
|
|
$
|
46.20
|
|
|
|
02/06/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,612
|
|
|
$
|
46.20
|
|
|
|
02/06/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,613
|
|
|
$
|
46.20
|
|
|
|
02/06/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
$
|
36,824
|
|
|
|
|
|
|
|
|
|
|
|
02/02/01
|
|
|
|
02/02/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
$
|
92,060
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
276,180
|
|
|
|
6,000
|
|
|
$
|
276,180
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,400
|
|
|
$
|
386,652
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
460,300
|
|
|
|
02/06/04
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,500
|
|
|
|
35,450
|
|
|
|
|
|
|
|
|
|
|
|
17,200
|
|
|
$
|
791,716
|
|
|
|
16,000
|
|
|
$
|
736,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher L. Nines
|
|
|
500
|
|
|
|
|
|
|
$
|
23.05
|
|
|
|
08/01/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/01/03
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
$
|
23.05
|
|
|
|
08/01/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/01/03
|
|
|
|
08/01/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
$
|
92,060
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
$
|
4,603
|
|
|
|
|
|
|
|
|
|
|
|
02/01/02
|
|
|
|
02/01/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
$
|
92,060
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,625
|
|
|
$
|
120,829
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
13,150
|
|
|
|
|
|
|
|
|
|
|
|
6,725
|
|
|
$
|
309,552
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Unearned
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
|
Value of
|
|
|
Shares,
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
Units or
|
|
|
Shares,
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
Other
|
|
|
Units or Other
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
|
|
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Grant
|
|
|
Vesting
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
(#)(1)
|
|
|
($)(1)
|
|
|
(#)
|
|
|
(#)(1)
|
|
|
Date
|
|
|
Date
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig A. Knight
|
|
|
8,000
|
|
|
|
|
|
|
$
|
27.75
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/98
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
$
|
27.64
|
|
|
|
02/04/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/00
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
25.65
|
|
|
|
02/02/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/02/01
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
$
|
27.66
|
|
|
|
02/01/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/01/02
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
$
|
21.51
|
|
|
|
02/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
|
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
21.51
|
|
|
|
05/01/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
02/07/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
$
|
36,824
|
|
|
|
|
|
|
|
|
|
|
|
02/01/01
|
|
|
|
02/02/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
$
|
92,060
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
$
|
92,060
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
$
|
230,150
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
$
|
345,225
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
03/15/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,250
|
|
|
|
18,750
|
|
|
|
|
|
|
|
|
|
|
|
17,300
|
|
|
$
|
796,319
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Unearned
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
|
Value of
|
|
|
Shares,
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
Units or
|
|
|
Shares,
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
Other
|
|
|
Units or Other
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
|
|
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Grant
|
|
|
Vesting
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
(#)(1)
|
|
|
($)(1)
|
|
|
(#)
|
|
|
(#)(1)
|
|
|
Date
|
|
|
Date
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles T. Etheredge,
Jr.
|
|
|
500
|
|
|
|
|
|
|
$
|
27.66
|
|
|
|
02/01/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/01/02
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
$
|
21.51
|
|
|
|
02/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
|
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
$
|
21.51
|
|
|
|
02/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
02/07/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,282
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
$
|
27,618
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
$
|
27,618
|
|
|
|
|
|
|
|
|
|
|
|
02/06/05
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
|
$
|
96,663
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,200
|
|
|
|
8,625
|
|
|
|
|
|
|
|
|
|
|
|
3,300
|
|
|
$
|
151,899
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles D. Jehl
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
$
|
23.05
|
|
|
|
08/01/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/01/03
|
|
|
|
08/01/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,282
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
$
|
27,618
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
$
|
27,618
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
|
$
|
96,663
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.625
|
|
|
|
|
|
|
|
|
|
|
|
3,300
|
|
|
$
|
151,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Value based on the closing market price of Temple-Inlands
common stock on December 29, 2006 of $46.03. Restricted
stock units vest three years after the date of grant. Restricted
stock units awarded in 2006 to Mr. DeCosmo vest three years
after the date of grant if minimum ROI criteria are met.
Performance stock units vest three years after the date of grant
and were subject to satisfaction of performance criteria, but
(as described above) the performance units were canceled and new
restricted stock units were issued with minimum 1% ROI criteria
due to the spin-off. Market value shown assumes all performance
criteria are met and the maximum value is paid.
|
91
2006
OPTION EXERCISES AND STOCK VESTED
The following table summarizes stock-based compensation awards
exercised or vested in 2006 by the named executive officers. No
restricted shares or performance shares vested in 2006. The
shares shown in columns (d) and (e) below are
dividends earned on phantom stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Shares Acquired
|
|
|
Value Realized
|
|
|
Shares Acquired
|
|
|
Value Realized
|
|
|
|
|
Name of Executive Officer
|
|
on Exercise
|
|
|
Upon Exercise
|
|
|
on Vesting
|
|
|
Upon Vesting
|
|
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
|
|
|
James M. DeCosmo
|
|
|
0
|
|
|
$
|
0
|
|
|
|
49
|
|
|
$
|
2,140
|
|
|
|
|
|
Christopher L. Nines
|
|
|
6,350
|
|
|
$
|
98,664
|
|
|
|
49
|
|
|
$
|
2,137
|
|
|
|
|
|
Craig A. Knight
|
|
|
19,650
|
|
|
$
|
353,725
|
|
|
|
50
|
|
|
$
|
2,136
|
|
|
|
|
|
Charles T. Etheredge, Jr.
|
|
|
0
|
|
|
$
|
0
|
|
|
|
16
|
|
|
$
|
640
|
|
|
|
|
|
Charles D. Jehl
|
|
|
1,800
|
|
|
$
|
27,945
|
|
|
|
14
|
|
|
$
|
639
|
|
|
|
|
|
2006
PENSION BENEFITS
The following table summarizes the actuarial present value of
the accumulated benefits under our pension plans at year-end
2006 for the named executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Present Value of
|
|
|
Payments
|
|
|
|
|
|
Years Credited
|
|
|
Accumulated
|
|
|
During Last
|
|
|
|
|
|
Service
|
|
|
Benefit
|
|
|
Fiscal Year
|
|
Name
|
|
Plan Name
|
|
(#)
|
|
|
($)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
James M. DeCosmo
|
|
Temple-Inland
Retirement Plan
|
|
|
7.25
|
|
|
$
|
83,170
|
|
|
$
|
|
|
|
|
Supplemental
Retirement Plan(2)
|
|
|
7.25
|
|
|
$
|
24,445
|
|
|
$
|
|
|
Christopher L. Nines
|
|
Temple-Inland
Retirement Plan
|
|
|
5.583
|
|
|
$
|
22,571
|
|
|
$
|
|
|
|
|
Supplemental
Retirement Plan(2)
|
|
|
5.583
|
|
|
$
|
248
|
|
|
$
|
|
|
Craig K. Knight
|
|
Temple-Inland
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
|
|
Supplemental
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
Charles T. Etheredge, Jr.
|
|
Temple-Inland
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
|
|
Supplemental
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
Charles D. Jehl
|
|
Temple-Inland
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
|
|
Supplemental
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
(1)
|
|
Mr. DeCosmo and Mr. Nines participated in
Temple-Inlands defined benefit plan. Retirement benefits
under the tax qualified defined benefit plan are calculated
using final average compensation based on the highest five of
the employees last ten years of service. Final average
compensation normally includes salaries and bonuses, but the
Board can designate a payment as ineligible under the plan.
Final average compensation excludes other forms of compensation
such as dividends, severance pay, relocation, long-term
disability, stock options, restricted stock units, and
performance stock units. The formula for normal retirement is
.95% of final average compensation plus .65% of final average
compensation in excess of Social
|
92
|
|
|
|
|
Security covered compensation multiplied by years of service up
to 35 years and .8% of final average compensation
multiplied by years of service over 35 years. For example,
assume an employee has a final average pay of $1 million
and has worked for 40 years. His pension is determined as
follows: [((.0095 x $1,000,000) + (.0065 x
($1,000,000−$48,816))) x 35] + (.008 x $1,000,000 x 5) =
$588,894 (annual life only benefit). Five years of service or
attainment of age 65 is required to vest in the retirement
benefit. Normal retirement age is 65, but benefits are generally
not reduced for retirement at age 62 if the executive has
20 years of vesting service. Lump sum distributions for
benefits with a present value greater than $10,000 are not
permitted under this plan. Benefits are paid in the form of a
monthly annuity for the life of the executive and his or her
spouse or other contingent annuitant depending on the option the
executive selects. The amount of the monthly benefit is affected
by the age or life expectancy of the employee and spouse and how
much will be paid to the survivor if the employee dies based on
the payment election selected by the employee. However, the
total value of the benefit does not vary. For example, assume
Employee A and Employee B each have accrued benefits
with a total value of $100,000. Employee A is age 65
and Employee B is 55. Employee A will receive a larger
monthly benefit than Employee B because Employee B is
younger and has a longer life expectancy, so his or her payments
are spread over a longer time. Early retirement may be taken at
age 55 or later if the employee has five years of service,
but benefits are reduced for each year prior to age 62 by
factors ranging from 3% to 6% based on years of service.
|
|
|
|
Until the spin-off Mr. DeCosmo and Mr. Nines are
participants in a Temple-Inland Supplemental Executive
Retirement Plan, a non-qualified pension plan that covers pay in
excess of the limits set by Section 401(a)(17) of the Code
(which, in 2006, was $220,000). These amounts will be
distributed to Mr. DeCosmo and Mr. Nines following the
spin-off.
|
2006
NONQUALIFIED DEFERRED COMPENSATION
The following table summarizes deferred compensation for 2006
for the named executive officers:
NONQUALIFIED
DEFERRED COMPENSATION YEAR 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
Contributions
|
|
|
Contributions
|
|
|
Earnings
|
|
|
Withdrawals/
|
|
|
Balance
|
|
|
|
in Last FY
|
|
|
in Last FY
|
|
|
in Last FY
|
|
|
Distributions
|
|
|
at Last FYE
|
|
Name
|
|
($)
|
|
|
($)(1)
|
|
|
($)(1)
|
|
|
($)
|
|
|
($)(2)
|
|
(a)
|
|
(b)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
James M. DeCosmo
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
172
|
|
|
$
|
0
|
|
|
$
|
7,917
|
|
Chris Nines
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
169
|
|
|
$
|
0
|
|
|
$
|
7,779
|
|
Craig A. Knight
|
|
$
|
0
|
|
|
$
|
93
|
|
|
$
|
5,321
|
|
|
$
|
0
|
|
|
$
|
177,142
|
|
Charles T. Etheredge, Jr.
|
|
$
|
0
|
|
|
$
|
7,381
|
|
|
$
|
2,294
|
|
|
$
|
0
|
|
|
$
|
83,401
|
|
Charles D. Jehl
|
|
$
|
0
|
|
|
$
|
8,604
|
|
|
$
|
357
|
|
|
$
|
0
|
|
|
$
|
20,988
|
|
|
|
|
(1)
|
|
Earnings include dividend equivalent units credited under the
Temple-Inland phantom stock plan equal to the amount of
dividends that would be earned on these units if they were
actual Temple-Inland common stock as follows: Messrs.
DeCosmo$172; Nines$169; Knight$171;
Etheredge$51; and Jehl$50. This is the same dividend
rate paid to Temple-Inland stockholders of $.25 per share per
quarter in 2006 and is not preferential. Earnings on defined
contribution retirement plan accounts for 2006 were based on the
rate earned under Vanguards Intermediate-Term Treasury
Fund, the same fund used in the underlying tax-qualified defined
contribution plan. None of the above named executive officers
participated in setting this rate, which was selected by
Temple-Inland when the plan was established. In 2006, the
earnings rate for this fund was 3.14%. The defined contribution
retirement account is distributed in cash at age 65 or
earlier if the executive retires and requests it.
|
|
(2)
|
|
None of the amounts in the other columns were previously
reported.
|
93
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following table summarizes the estimated amounts our named
executive officers would have become entitled to under the
Temple-Inland change in control and termination agreements
(which are substantially similar to ours described above)
assuming different termination events occurred at year-end 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
Value of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Year
|
|
|
Stock
|
|
|
Restricted
|
|
|
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
Options
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Retirement
|
|
|
Welfare
|
|
|
|
|
|
Excise Tax
|
|
|
Aggregate
|
|
|
|
Severance
|
|
|
Payment
|
|
|
That Vest
|
|
|
Vests
|
|
|
Vests(3)
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Outplacement
|
|
|
& Gross-Up
|
|
|
Payments
|
|
|
James M. DeCosmo, Chairman and
CEO
|
Change In Control(4)
|
|
$
|
2,194,863
|
|
|
$
|
408,000
|
|
|
$
|
208,846
|
|
|
$
|
405,064
|
|
|
$
|
1,123,132
|
|
|
$
|
467,989
|
|
|
$
|
23,096
|
|
|
$
|
45,000
|
|
|
$
|
1,749,861
|
|
|
$
|
6,625,851
|
|
Retirement(6)
|
|
$
|
|
|
|
$
|
408,000
|
|
|
$
|
208,846
|
|
|
$
|
405,064
|
|
|
$
|
1,123,132
|
|
|
$
|
203,562
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,348,604
|
|
Death
|
|
$
|
|
|
|
$
|
408,000
|
|
|
$
|
208,846
|
|
|
$
|
405,064
|
|
|
$
|
1,123,132
|
|
|
$
|
90,989
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,236,031
|
|
Disability
|
|
$
|
|
|
|
$
|
408,000
|
|
|
$
|
208,846
|
|
|
$
|
405,064
|
|
|
$
|
1,123,132
|
|
|
$
|
203,562
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,348,604
|
|
Voluntary Termination(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
467,989
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
467,989
|
|
Involuntary Termination(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
203,562
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
203,562
|
|
Christopher L. Nines, Chief
Financial Officer
|
Change In Control(4)
|
|
$
|
919,174
|
|
|
$
|
300,000
|
|
|
$
|
85,116
|
|
|
$
|
309,552
|
|
|
$
|
|
|
|
$
|
74,538
|
|
|
$
|
18,592
|
|
|
$
|
22,500
|
|
|
$
|
568,098
|
|
|
$
|
2,297,570
|
|
Retirement(6)
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
85,116
|
|
|
$
|
309,552
|
|
|
$
|
|
|
|
$
|
41,253
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
735,921
|
|
Death
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
85,116
|
|
|
$
|
309,552
|
|
|
$
|
|
|
|
$
|
20,858
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
715,526
|
|
Disability
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
85,116
|
|
|
$
|
309,552
|
|
|
$
|
|
|
|
$
|
41,253
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
735,921
|
|
Voluntary Termination(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,253
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,253
|
|
Involuntary Termination(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,253
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,253
|
|
Craig A. Knight, Chief
Investment Officer
|
Change In Control(4)
|
|
$
|
1,577,600
|
|
|
$
|
550,000
|
|
|
$
|
134,926
|
|
|
$
|
328,347
|
|
|
$
|
345,225
|
|
|
$
|
184,856
|
|
|
$
|
17,042
|
|
|
$
|
33,750
|
|
|
$
|
959,208
|
|
|
$
|
4,130,954
|
|
Retirement(5)
|
|
$
|
|
|
|
$
|
550,000
|
|
|
$
|
134,926
|
|
|
$
|
328,347
|
|
|
$
|
345,225
|
|
|
$
|
169,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,527,769
|
|
Death
|
|
$
|
|
|
|
$
|
550,000
|
|
|
$
|
134,926
|
|
|
$
|
328,347
|
|
|
$
|
345,225
|
|
|
$
|
169,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,527,769
|
|
Disability
|
|
$
|
|
|
|
$
|
550,000
|
|
|
$
|
134,926
|
|
|
$
|
328,347
|
|
|
$
|
345,225
|
|
|
$
|
169,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,527,769
|
|
Voluntary Termination(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
169,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
169,271
|
|
Involuntary Termination(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
169,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
169,271
|
|
Charles T. Etheredge, Jr.,
Executive Vice President
|
Change In Control(4)
|
|
$
|
964,862
|
|
|
$
|
250,000
|
|
|
$
|
60,340
|
|
|
$
|
151,899
|
|
|
$
|
|
|
|
$
|
111,216
|
|
|
$
|
22,816
|
|
|
$
|
33,750
|
|
|
$
|
436,828
|
|
|
$
|
2,031,711
|
|
Retirement(5)
|
|
$
|
|
|
|
$
|
250,000
|
|
|
$
|
60,340
|
|
|
$
|
151,899
|
|
|
$
|
|
|
|
$
|
81,053
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
543,292
|
|
Death
|
|
$
|
|
|
|
$
|
250,000
|
|
|
$
|
60,340
|
|
|
$
|
151,899
|
|
|
$
|
|
|
|
$
|
81,053
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
543,292
|
|
Disability
|
|
$
|
|
|
|
$
|
250,000
|
|
|
$
|
60,340
|
|
|
$
|
151,899
|
|
|
$
|
|
|
|
$
|
81,053
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
543,292
|
|
Voluntary Termination(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81,053
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81,053
|
|
Involuntary Termination(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81,053
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81,053
|
|
Charles D. Jehl, Chief
Accounting Officer
|
Change in Control(4)
|
|
$
|
979,600
|
|
|
$
|
300,000
|
|
|
$
|
35,050
|
|
|
$
|
156,502
|
|
|
$
|
|
|
|
$
|
51,294
|
|
|
$
|
22,689
|
|
|
$
|
27,750
|
|
|
$
|
532,157
|
|
|
$
|
2,105,042
|
|
Retirement(5)
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
35,050
|
|
|
$
|
156,502
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
510,239
|
|
Death
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
35,050
|
|
|
$
|
156,502
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
510,239
|
|
Disability
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
35,050
|
|
|
$
|
156,502
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
510,239
|
|
Voluntary Termination(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,687
|
|
Involuntary Termination(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
|
|
(1)
|
|
Termination not for cause or by executive for good reason.
During the two-year period following the spin-off, benefits will
be the same as those set forth for Change in Control.
|
|
(2)
|
|
Termination for cause or by executive without good reason.
|
|
(3)
|
|
Except in the case of a change in control, assumes performance
criteria is met.
|
|
(4)
|
|
Assumes a target bonus based on 12.5% ROI, and that the IRS
considers the whole payment to be a parachute
payment subject to the 20% excise tax.
|
|
(5)
|
|
Payable in a lump sum.
|
|
(6)
|
|
Payable in a series of monthly installments.
|
TREATMENT
OF STOCK AWARDS OTHER THAN UPON CHANGE IN CONTROL
In 2006, none of the named executive officers had an employment
contract or an agreement providing for severance payments in the
event of termination of employment other than upon a change in
control event. Under the Temple-Inland Stock Incentive Plan, an
employee whose employment terminates has three months to
exercise any options that are exercisable. All other options and
all restricted stock units and performance stock units are
forfeited. The employee retains any dividends earned prior to
termination.
94
Termination
by Death, Disability or Retirement
Except as provided under Mr. DeCosmos employment
agreement described above, on termination of employment by death
or disability, executives receive no payment other than through
life insurance or disability insurance purchased by the
executive and available to salaried employees generally. Mr.
DeCosmo would receive a cash lump-sum payment equal to the sum
of his annual base salary and a pro-rata portion of his annual
target bonus. Under our Stock Incentive Plan, all options will
immediately vest upon death or total disability and will remain
exercisable for 12 months (death) or 36 months
(disability). Restricted stock units and performance stock units
will vest immediately, but performance stock units will only be
paid if performance criteria are met.
At year-end 2006, Mr. Knight was eligible for early
retirement. In addition to the pension benefits described
elsewhere in this information statement, if he retired effective
December 31, 2006 he would have received a pro-rated
vesting of his 2,667 restricted stock units. At
December 31, 2006, no portion of Mr. Knights
Temple-Inland performance stock units would vest.
Compensation
Committee Interlocks and Insider Participation
Mr. DeCosmo is our only executive officer who will serve as a
member of our board of directors, but he will not serve on our
Compensation Committee. Following the spin-off, none of our
executive officers will serve as a member of the compensation
committee of any entity that has one or more executive officers
serving on our Compensation Committee.
95
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Before the spin-off, all of the outstanding shares of our common
stock are and will be owned beneficially and of record by
Temple-Inland. None of our directors, director nominees or the
persons expected to become our executive officers currently owns
any shares of our common stock, but those who own Temple-Inland
common stock will receive shares of our common stock in the
spin-off on the same basis as the shares held by other
Temple-Inland stockholders.
There were 106,015,364 shares of Temple-Inland common stock
outstanding on July 31, 2007. The following table sets
forth the number and percentage of outstanding shares of
Temple-Inland common stock beneficially owned as of such date,
unless otherwise specified, by (1) each person who is known
by us to beneficially own more than 5 percent of
Temple-Inland common stock, (2) each director and each
person nominated to serve as a director, (3) each of our
named executive officers listed in the Summary
Compensation Table and (4) all of our directors, director
nominees and executive officers as a group. Each person or
entity listed below has sole voting power and sole investment
power with respect to such shares, except as otherwise noted.
The address of each director, director nominee and executive
officer is
c/o Forestar
Real Estate Group, 1300 MoPac Expressway South, Austin, Texas
78746.
The table also sets forth the number and percentage of our
shares of common stock each of these persons and entities is
expected to receive in the spin-off, assuming that there are no
changes in their holdings of Temple-Inland common stock after
July 31, 2007 and assuming, based on our estimates as of
[ ],
2007, a distribution ratio of
[ ] shares
of our common stock for every
[ ] shares
of Temple-Inland common stock held as of the record date, with
no fractional shares. Following the spin-off, we will have
outstanding an aggregate of approximately
[ ] shares
of our common stock based on 106,015,364 shares of
Temple-Inland common stock outstanding on July 31, 2007,
excluding treasury shares and assuming no exercise of
Temple-Inland options, and applying the distribution ratio. The
beneficial owners listed in the table may have also been granted
stock-based awards whose value is derived from the value of
Temple-Inland common stock, including options, restricted stock,
restricted stock units, and performance stock units. These
stock-based awards are not shown in the table because, except in
the limited cases specified in the employee matters agreement,
the awards will be adjusted based on the market price of shares
of our common stock on the distribution date and, therefore, we
cannot estimate the number of shares of common stock that,
immediately after the spin-off, each person will be entitled to
acquire within 60 days. See the section entitled
Management Executive Compensation
Compensation Actions in Preparation for the Spin-off
Existing Equity Awards beginning on page 86 of this
information statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Beneficially Owned
|
|
|
Name and Address
|
|
Temple-Inland
|
|
Forestar
|
|
Percent
|
of Beneficial Owner
|
|
Common Stock
|
|
Common Stock
|
|
of Class(1)
|
|
5% or Greater
Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl C. Icahn and affiliated
entities
|
|
|
8,733,439(2)
|
|
|
|
|
|
|
|
8.24
|
%
|
c/o Icahn
Associates Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
767 Fifth Avenue,
47th Floor
|
|
|
|
|
|
|
|
|
|
|
|
|
New York, New York 10153
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin Mutual Advisers, LLC
|
|
|
7,388,940(3)
|
|
|
|
|
|
|
|
6.97
|
%
|
101 John F. Kennedy Parkway
|
|
|
|
|
|
|
|
|
|
|
|
|
Short Hills, NJ 07078
|
|
|
|
|
|
|
|
|
|
|
|
|
State Street Bank and
Trust Company
|
|
|
6,179,546(4)
|
|
|
|
|
|
|
|
5.83
|
%
|
225 Franklin Street
|
|
|
|
|
|
|
|
|
|
|
|
|
Boston, Massachusetts 02110
|
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Beneficially Owned
|
|
|
Name and Address
|
|
Temple-Inland
|
|
Forestar
|
|
Percent
|
of Beneficial Owner
|
|
Common Stock
|
|
Common Stock
|
|
of Class(1)
|
|
Non-Employee
Directors(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth M. Jastrow, II(8)
|
|
|
1,291,656
|
|
|
|
|
|
|
|
1.22
|
%
|
Louis R. Brill**
|
|
|
42,086
|
|
|
|
|
|
|
|
*
|
|
Kathleen Brown**
|
|
|
0
|
|
|
|
|
|
|
|
|
|
William G. Currie**
|
|
|
0
|
|
|
|
|
|
|
|
|
|
James A. Johnson**
|
|
|
41,600
|
|
|
|
|
|
|
|
*
|
|
Thomas H. McAuley**
|
|
|
0
|
|
|
|
|
|
|
|
|
|
William Powers, Jr.**
|
|
|
0
|
|
|
|
|
|
|
|
|
|
James A. Rubright**
|
|
|
630
|
|
|
|
|
|
|
|
|
|
Richard M. Smith**
|
|
|
0
|
|
|
|
|
|
|
|
*
|
|
Named Executive
Officers(5)(6)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
James M. DeCosmo
|
|
|
45,102
|
|
|
|
|
|
|
|
*
|
|
Christopher L. Nines
|
|
|
11,850
|
|
|
|
|
|
|
|
*
|
|
Craig A. Knight
|
|
|
48,966
|
|
|
|
|
|
|
|
*
|
|
Charles T. Etheredge, Jr.
|
|
|
8,391
|
|
|
|
|
|
|
|
*
|
|
Charles D. Jehl
|
|
|
3,238
|
|
|
|
|
|
|
|
*
|
|
All of the above executive
officers and directors and other executive officers as a group
(14 persons)(7)
|
|
|
1,493,519
|
|
|
|
|
|
|
|
1.41
|
%
|
|
|
|
*
|
|
Represents less than 1% of outstanding shares of common stock.
|
|
**
|
|
Director nominee.
|
|
(1)
|
|
Represents the percentage of Temple-Inland common stock
outstanding on July 31, 2007, and the percentage of our
common stock that we expect to be outstanding based on the
expected number of our shares to be distributed.
|
|
(2)
|
|
Based solely on information reported on Schedule 13D/A (the
Report), dated July 30, 2007 and filed with the
SEC on such date, by High River Limited Partnership (High
River), Hopper Investments, LLC (Hopper),
Barberry Corp., Icahn Partners Master Fund LP (Icahn
Master), Icahn Partners Master Fund II LP
(Icahn Master II), Icahn Partners Master
Fund III LP (Icahn Master III), Icahn Offshore
LP, CCI Offshore Corp., Icahn Partners LP (Icahn
Partners), Icahn Onshore LP, CCI Onshore Corp., and Carl
C. Icahn. The Report indicates that 1,746,687 shares of
common stock are held of record by High River,
3,285,356 shares of common stock are held of record by
Icahn Master, 888,293 shares of common stock are held of
record by Icahn Master II, 336,907 shares of common stock
are held of record by Icahn Master III, and
2,476,196 shares of common stock are held of record by
Icahn Partners (collectively, the Record Holders).
The Report states that Barberry Corp. is the sole member of
Hopper, which is the general partner of High River; CCI Offshore
Corp. is the general partner of Icahn Offshore LP, which is the
general partner of each of Icahn Master, Icahn Master II
and Icahn Master III; CCI Onshore Corp. is the general partner
of Icahn Onshore LP, which is the general partner of Icahn
Partners. The Report further states that each of Barberry, CCI
Offshore Corp. and CCI Onshore Corp. is 100 percent owned
by Carl C. Icahn and, as such, Mr. Icahn is in a
position indirectly to determine the voting and investment
decisions made by each of the Record Holders.
|
|
(3)
|
|
Based solely on information reported on
Form 13F-HR
for the quarter ended March 31, 2007 and filed with the SEC
on May 5, 2007 by Franklin Resources, Inc., as reporting
manager for Franklin Mutual Advisers, LLC. Separately, Franklin
Mutual Advisers, LLC, in its capacity as investment advisor for
numerous investment advisory clients, reported beneficial
ownership of 10,010,013 shares on Schedule 13G/A,
dated January 19, 2007 and filed with the SEC on
February 1, 2007, and indicated sole voting and investment
power with respect to such shares. Because the number of shares
reported on the Schedule 13G/A does not represent the
reported percentage of ownership in Temple-Inland common stock
by Franklin Mutual Advisers, LLC, we have applied
Regulation S-K
Item 403, Instruction 3, in determining the number of
shares of common stock beneficially owned.
|
97
|
|
|
(4)
|
|
Based solely on information reported on
Form 13F-HR
for the quarter ended March 31, 2007 and filed with the SEC
on May 15, 2007 by State Street Corporation, as reporting
manager for State Street Bank and Trust Company.
Separately, State Street Bank and Trust Company, in its
capacity as investment advisor for numerous investment advisory
clients, reported beneficial ownership of 6,410,408 shares
on Schedule 13G/A, dated February 12, 2007 and filed
with the SEC on such date, and indicated sole voting and
investment power with respect to such shares. Because the number
of shares reported on the
Schedule 13G/A
does not represent the reported percentage of ownership in
Temple-Inland common stock by State Street Bank and
Trust Company, we have applied
Regulation S-K
Item 403, Instruction 3, in determining the number of
shares of common stock beneficially owned.
|
|
(5)
|
|
Includes shares of common stock issuable upon exercise of
qualifying options within 60 days from July 31, 2007:
Messrs. Jastrow 959,313; Brill
13,000; Johnson 36,000; DeCosmo 31,862;
Nines 5,100; Knight 41,750;
Etheredge 6,781 and Jehl 2,581: and all
directors and executive officers (14 persons) as a
group 1,096,387.
|
|
(6)
|
|
Includes shares held by trustees under Temple-Inland 401(k)
plans for Messrs. Jastrow 8,450;
DeCosmo 1,220; Nines 820;
Knight 5,216; Etheredge 565 and
Jehl 57; and all directors and executive officers
(14 persons) as a group 16,328. SEC rules
consider these shares to be beneficially owned.
|
|
(7)
|
|
Includes 150 shares owned by relatives of all directors and
executive officers (14 persons) as a group. SEC rules
consider these shares to be beneficially owned, but the
individuals disclaim any beneficial interest in such shares.
|
|
(8)
|
|
Includes 71,312 shares pledged by Mr. Jastrow as
security for a revolving line of credit against which no amounts
were outstanding as of July 31, 2007.
|
98
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Following the spin-off, we will operate as an independent,
publicly-traded company. To effect the spin-off and to provide a
framework for our initial relationship with Temple-Inland and
Guaranty, we expect to enter into certain agreements with
Temple-Inland and Guaranty. The following is a summary of the
expected material terms of those agreements. The summaries below
are qualified in their entirety by reference to the full text of
the agreements. Additional or modified agreements, arrangements,
and transactions, which will be negotiated at arms length,
may be entered into between or among Temple-Inland, Guaranty and
us after the spin-off.
Related
Party Transaction Policy
We will adopt a written policy and procedures for the review,
approval or ratification of any related party transactions. The
policy will provide that any transaction, arrangement or
relationship between us and a related party must be reviewed by
the Nominating and Governance Committee, unless pre-approved
under the policy. Under the policy, the Nominating and
Governance Committee, in the course of the review of a
potentially material related party transaction, will consider,
among other things, whether the transaction is in our best
interest, whether the transaction is entered into on an
arms length basis, whether the transaction conforms to our
code of business conduct and ethics and whether the transaction
impacts a directors independence under the New York Stock
Exchange independence listing standards.
Agreements
with Temple-Inland and Guaranty
We will enter into a separation and distribution agreement and
several other agreements with Temple-Inland and Guaranty to
effect the separation and provide a framework for our
relationships with Temple-Inland and Guaranty after the
separation. These agreements will govern the relationships
between the parties subsequent to the completion of the
transformation plan and provide for the allocation between the
parties of Temple-Inlands assets, liabilities, and
obligations (including employee benefits and tax-related assets
and liabilities) attributable to periods prior to our separation
from Temple-Inland. In addition to the separation and
distribution agreement (which contains many of the key
provisions related to our separation from Temple-Inland and the
distribution of our shares of common stock to Temple-Inland
stockholders), these agreements include:
|
|
|
|
|
the tax matters agreement;
|
|
|
|
the transition services agreement; and
|
|
|
|
the employee matters agreement.
|
These principal agreements will be filed as exhibits to the
registration statement on Form 10 of which this information
statement is a part, and the summaries below of each of these
agreements set forth the terms of the agreements that we believe
are material. These summaries are qualified in their entireties
by reference to the full text of the applicable agreements,
which are incorporated by reference into this information
statement.
The terms of the agreements described below that will be in
effect following our separation have not yet been finalized.
Changes to the terms of these agreements, some of which may be
material, may be made prior to our separation from
Temple-Inland. No changes may be made after our separation from
Temple-Inland without our consent if such changes would
adversely affect us.
Separation
Costs
Temple-Inland expects to incur pre-tax costs of approximately
$[ ] million for professional
services including, legal, accounting, financial advisors, and
other business consultants related to the spin-off of Forestar
and Guaranty.
99
We expect to incur pre-tax separation costs of approximately
$[ ]
for:
|
|
|
|
|
building the required information systems to run our company on
a stand-alone basis; and
|
|
|
|
relocating and recruiting employees.
|
Certain of the separation costs, primarily costs for the
development of new information systems, are expected to be
capitalized.
Separation
and Distribution Agreement
The separation and distribution agreement will set forth our
agreements with Temple-Inland and Guaranty regarding the
principal transactions necessary to effect the separation. It
will also set forth other agreements that govern certain aspects
of our relationship with Temple-Inland and Guaranty after the
completion of the transformation plan. We intend to enter into
the separation and distribution agreement before the
distribution of our common stock to Temple-Inland stockholders.
Transfer of Assets and Assumption of
Liabilities.
The separation and distribution
agreement will identify assets to be transferred, liabilities to
be assumed, and contracts to be assigned to each of us and
Temple-Inland as part of Temple-Inlands transformation
plan, and will describe when and how these transfers,
assumptions, and assignments will occur, although, many of the
transfers, assumptions, and assignments will have already
occurred prior to the parties entering into the separation
and distribution agreement. In particular, the separation and
distribution agreement will provide that, subject to the terms
and conditions contained in the separation and distribution
agreement:
|
|
|
|
|
All of the assets and liabilities (including whether accrued,
contingent, or otherwise) associated with the real estate
development and minerals operations of Temple-Inland will be
retained by or transferred to us or one of our subsidiaries.
|
|
|
|
All of the assets and liabilities (including whether accrued,
contingent, or otherwise) associated with the financial services
business of Temple-Inland will be retained by or transferred to
Guaranty or one of its subsidiaries.
|
|
|
|
All of the assets and liabilities (including whether accrued,
contingent, or otherwise) associated with the manufacturing and
corrugated products business of Temple-Inland will be retained
by or transferred to Temple-Inland or one of its subsidiaries
(other than us or one of our subsidiaries).
|
|
|
|
Liabilities (including whether accrued, contingent, or
otherwise) related to, arising out of or resulting from
businesses of Temple-Inland that were previously terminated or
divested will be allocated among the parties to the extent
formerly owned or managed by or associated with such parties or
their respective businesses.
|
|
|
|
Each party or one of its subsidiaries will assume or retain any
liabilities (including under applicable federal and state
securities laws) relating to, arising out of or resulting from
any registration statement or similar disclosure document that
offers for sale by such party any security after the separation.
|
|
|
|
Each party or one of its subsidiaries will assume or retain any
liabilities (including under applicable federal and state
securities laws) relating to, arising out of or resulting from
any registration statement or similar disclosure document that
offers for sale any security prior to the separation to the
extent such liabilities arise out of, or result from, matters
related to their respective businesses.
|
|
|
|
Temple-Inland will assume or retain any liability relating to,
arising out of or resulting from any registration statement or
similar disclosure document related to the separation (including
the Form 10 and this information statement), but only to
the extent such liability derives from a material misstatement
or omission contained in the portions of this information
statement that relate to Temple-Inland. Forestar and Guaranty
will assume or retain any other liability relating to,
|
100
|
|
|
|
|
arising out of or resulting from their registration statements
or similar disclosure documents related to the separation
(including their respective Forms 10 and information
statements).
|
|
|
|
|
|
Except as otherwise provided in the separation and distribution
agreement or any ancillary agreement, we will be responsible for
any costs or expenses incurred by us or Temple-Inland in
connection with the separation other than costs and expenses
relating to legal counsel, financial advisors, and accounting
advisory work related to the separation.
|
The allocation of liabilities with respect to taxes will be
governed solely by the tax matters agreement.
Except as may expressly be set forth in the separation and
distribution agreement or any ancillary agreement, all assets
will be transferred on an as is, where
is basis and the respective transferees will bear the
economic and legal risks that any conveyance will prove to be
insufficient to vest in the transferee good title, free and
clear of any security interest, that any necessary consents or
governmental approvals are not obtained, and that any
requirements of laws or judgments are not complied with.
Information in this information statement with respect to the
assets and liabilities of the parties following the separation
is presented based on the allocation of such assets and
liabilities pursuant to the separation and distribution
agreement, unless the context otherwise requires. Certain of the
liabilities and obligations to be assumed by one party or for
which one party will have an indemnification obligation under
the separation and distribution agreement and the other
agreements relating to the separation are, and following the
separation may continue to be, the legal or contractual
liabilities or obligations of another party. Each such party
that continues to be subject to such legal or contractual
liability or obligation will rely on the applicable party that
assumed the liability or obligation or the applicable party that
undertook an indemnification obligation with respect to the
liability or obligation, as applicable, under the separation and
distribution agreement, to satisfy the performance and payment
obligations or indemnification obligations with respect to such
legal or contractual liability or obligation.
Further Assurances.
To the extent that any
transfers of assets or assumptions of liabilities contemplated
by the separation and distribution agreement have not been
consummated on or prior to the date of the separation, the
parties will agree to cooperate to effect such transfers or
assumptions as promptly as practicable following the date of the
separation. In addition, each of the parties will agree to
cooperate with each other and use commercially reasonable
efforts to take or to cause to be taken all actions, and to do,
or to cause to be done, all things reasonably necessary under
applicable law or contractual obligations to consummate and make
effective the transactions contemplated by the separation and
distribution agreement and the ancillary agreements.
The Distribution.
The separation and
distribution agreement will also govern the rights and
obligations of the parties regarding the proposed distribution.
Prior to the distribution, we will distribute to Temple-Inland
as a stock dividend the number of shares of our common stock
distributable in the distribution. Temple-Inland will cause its
agent to distribute to Temple-Inland stockholders as of the
applicable record date all the issued and outstanding shares of
our common stock. Temple-Inland will have the sole and absolute
discretion to determine (and change) the terms of, and whether
to proceed with, the distribution and, to the extent it
determines to so proceed, to determine the date of the
distribution.
Conditions.
The separation and distribution
agreement will provide that the distribution is subject to
several conditions that must be satisfied or waived by
Temple-Inland in its sole discretion, including our conversion
to a Delaware corporation:
|
|
|
|
|
the Securities and Exchange Commission shall have declared
effective our registration statement on Form 10 and no stop
order shall be in effect;
|
|
|
|
all permits, registrations and consents required under the
securities or blue sky laws in connection with the distribution
shall have been received;
|
|
|
|
Temple-Inland shall have received a private letter ruling from
the IRS and an opinion of tax counsel confirming the tax-free
status of the distribution for U.S. federal income tax
purposes;
|
101
|
|
|
|
|
Temple-Inland shall have received an opinion from its financial
advisors that it has adequate surplus under Delaware law to
declare the spin-off dividend and that, following the spin-off,
each of Temple-Inland and Forestar will be solvent and
adequately capitalized;
|
|
|
|
we shall have entered into one or more credit facilities;
|
|
|
|
the listing of our common stock on the New York Stock Exchange
shall have been approved, subject to official notice of issuance;
|
|
|
|
all material governmental approvals and other consents necessary
to consummate the distribution shall have been received; and
|
|
|
|
no order, injunction or decree issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
consummation of the distribution or any of the related
transactions shall be in effect.
|
The fulfillment of these conditions will not create any
obligation on Temple-Inlands part to effect the
distribution. Temple-Inland has the right not to complete the
distribution if, at any time, Temple-Inlands board of
directors determines, in its sole discretion, that the
distribution is not in the best interests of Temple-Inland or
its stockholders or that market conditions are such that it is
not advisable to separate the real estate business from
Temple-Inland.
Releases and Indemnification.
Except as
otherwise provided in the separation and distribution agreement
or any ancillary agreement, each party will release and forever
discharge the other party and its subsidiaries and affiliates
from all liabilities existing or arising from any acts or events
occurring or failing to occur or alleged to have occurred or to
have failed to occur or any conditions existing or alleged to
have existed on or before the separation. The releases will not
extend to obligations or liabilities under any agreements
between the parties that remain in effect following the
separation pursuant to the separation and distribution agreement
or any ancillary agreement.
In addition, the separation and distribution agreement will
provide for cross-indemnities that, except as otherwise provided
in the separation and distribution agreement, are principally
designed to place financial responsibility for the obligations
and liabilities of our business with us, the financial
responsibility for the obligations and liabilities of
Guarantys business with Guaranty, and financial
responsibility for the obligations and liabilities of
Temple-Inlands business with Temple-Inland. Specifically,
each party will, and will cause its subsidiaries and affiliates
to, indemnify, defend and hold harmless the other parties, their
affiliates and subsidiaries and each of their officers,
directors, employees, and agents for any losses arising out of
or otherwise in connection with:
|
|
|
|
|
the liabilities each such party assumed or retained pursuant to
the separation and distribution agreement;
|
|
|
|
the operation of each such partys business, whether prior
to or after the distribution; and
|
|
|
|
any breach by such party of the separation and distribution
agreement or ancillary agreement.
|
Indemnification with respect to taxes will be governed solely by
the tax matters agreement.
Legal Matters.
Except as otherwise set forth
in the separation and distribution agreement (or as further
described below), each party to the separation and distribution
agreement will assume the liability for, and control of, all
pending and threatened legal matters related to its own business
or assumed or retained liabilities and will indemnify the other
party for any liability arising out of or resulting from such
assumed legal matters. Each party to a claim will agree to
cooperate in defending any claims against the other party for
events that took place prior to, on or after the date of
separation.
Insurance.
Following the separation, we will
be responsible for obtaining and maintaining our own insurance
coverage and will no longer be an insured party under
Temple-Inlands insurance policies, except in specified
circumstances to be set forth in the separation and distribution
agreement.
102
Other Matters Governed by the Separation and Distribution
Agreement.
Other matters governed by the
separation and distribution agreement include access to
financial and other information, intellectual property,
confidentiality, access to and provision of records and
treatment of outstanding guarantees and similar credit support.
Tax
Matters Agreement
The tax matters agreement with Temple-Inland and Guaranty
generally will govern Temple-Inlands, Guarantys and
our respective rights, responsibilities and obligations after
the distribution with respect to taxes, including ordinary
course of business taxes and taxes, if any, incurred as a result
of any failure of the spin-off, together with certain related
transactions, to qualify as a tax-free distribution for
U.S. federal income tax purposes within the meaning of
Sections 355 and 368(a)(1)(D) of the Code (including as a
result of Section 355(e) of the Code). Under the tax
matters agreement, we expect that, with certain exceptions, we
generally will be responsible for the payment of all income and
non-income taxes attributable to our operations, and the
operations of our direct and indirect subsidiaries, whether or
not such tax liability is reflected on a consolidated or
combined tax return filed by Temple-Inland.
Notwithstanding the foregoing, we expect that, under the tax
matters agreement, we also generally will be responsible for any
taxes imposed on Temple-Inland that arise from the failure of
the spin-off, together with certain related transactions, to
qualify as a tax-free distribution for U.S. federal income
tax purposes within the meaning of Sections 355 and
368(a)(1)(D) of the Code, to the extent such failure to qualify
is attributable to actions, events or transactions relating to
our stock, assets or business, or a breach of the relevant
representations or covenants made by us in the tax matters
agreement. In addition, we generally will be responsible for
[ ]% of any taxes that arise from
the failure of the spin-off, together with certain related
transactions, to qualify as a tax-free distribution for
U.S. federal income tax purposes within the meaning of
Sections 355 and 368(a)(1)(D) of the Code, if such failure
is for any reason for which neither we nor Temple-Inland is
responsible. The tax matters agreement also is expected to
impose restrictions on our and Temple-Inlands ability to
engage in certain actions following our separation from
Temple-Inland and to set forth the respective obligations among
us, Guaranty and Temple-Inland with respect to the filing of tax
returns, the administration of tax contests, assistance and
cooperation and other matters.
Transition
Services Agreement
The transition services agreement with Temple-Inland and
Guaranty will provide for an orderly transition to being an
independent, publicly-traded company. Under the transition
services agreement, Temple-Inland or Guaranty will agree to
provide us with various services, including services relating to
treasury and risk management, environmental management, tax
compliance, telecommunications services and information
technology services.
Under the transition services agreement, we will pay a fee to
Temple-Inland or Guaranty, as the case may be, for these
services, which fee is generally intended to allow Temple-Inland
or Guaranty, as the case may be, to recover all of their direct
and indirect costs, generally without profit. The transition
services agreement is being negotiated in the context of a
parent-subsidiary relationship and in the context of the
separation of Temple-Inland into three companies. Unless
specifically indicated below, all services to be provided under
the transition services agreement will be provided for a
specified period of time not to exceed 24 months, although
the parties may mutually agree to terminate some or all of those
services in advance of the specified time period. After the
expiration of the arrangements contained in the transition
services agreement, we may not be able to replace these services
in a timely manner or on terms and conditions, including cost,
as favorable as those we have received from Temple-Inland. We
are developing a plan to increase our own internal capabilities
in the future to reduce our reliance on Temple-Inland and
Guaranty for these services. We will have the right to receive
reasonable information with respect to the charges to us by
Temple-Inland and Guaranty and other service providers for
transition services provided by them.
103
We currently provide some tax compliance services for
Temple-Inland. Under the transition services agreement we will
continue to provide certain of these services for a specified
period of time in exchange for an arms length fee intended
to cover our direct and indirect cost of providing these
services.
Employee
Matters Agreement
The employee matters agreement with Temple-Inland and Guaranty
will allocate liabilities and responsibilities relating to
employee compensation and benefit plans and programs and other
related matters in connection with the separation, including the
treatment of outstanding incentive awards and certain retirement
and welfare benefit obligations. The employee matters agreement
will also provide that outstanding Temple-Inland stock options
and other stock-based incentive compensation awards will be
equitably adjusted in connection with the distribution. For
further information see Management Executive
Compensation Compensation Actions In Preparation for
the Spin-off Existing Equity Awards beginning
on page 86 of this information statement.
Our participation in the Temple-Inland benefit plan arrangements
will cease effective with the spin-off, but our benefit plans
generally will credit service with Temple-Inland before the
spin-off. We expect the employee matters agreement will provide
as a general matter that we and each of Temple-Inland and
Guaranty will retain liability for employees historically
associated with our and their respective businesses. However,
Temple-Inland will retain all liabilities under its
tax-qualified pension plan, its SERP, and its stock deferral and
payment plan.
Corporate
Aircraft
We will enter into an agreement with Temple-Inland pursuant to
which Temple-Inland will contribute to us an undivided
20 percent interest in aircraft currently owned by
Temple-Inland. Temple-Inland will retain the remaining interest.
Under the terms of the agreement, we will pay 20 percent of
the fixed costs associated with ownership of the aircraft and
will pay our portion of the variable costs of operation based on
our usage. The agreement will have a two-year term at which time
it can be renewed or terminated.
Office
Space Lease
We lease 23,000 square feet of office space in Austin,
Texas from Guaranty pursuant to an existing lease that expires
in 2013. We are currently discussing amending the lease for a
shorter term.
Fiber
Sales Agreement
We anticipate that we will sell timber to Temple-Inland under
annual agreements at market prices, primarily for use at
Temple-Inlands Rome, Georgia mill complex.
Director
Interlocks
Kenneth M. Jastrow, II, Temple-Inlands current CEO and
Chairman, will be our Chairman and Guarantys Chairman
after the spin-off. Mr. Jastrow will resign from his
positions at Temple-Inland at or shortly prior to the spin-off.
In addition, James A. Johnson and Richard M. Smith will serve as
directors for both Forestar and Temple-Inland.
Messrs. Jastrow, Johnson and Smith have agreed to recuse
themselves from any matters related to Forestar arising under
the separation agreements.
104
DESCRIPTION
OF OUR CAPITAL STOCK
The following description is a summary of the material terms
of our capital stock and reflects our certificate of
incorporation and bylaws that will be in effect at the time of
the spin-off. The summaries and descriptions below do not
purport to be complete statements of the relevant provisions of
our certificate of incorporation or of our bylaws. For a
complete description, we refer you to our amended and restated
certificate of incorporation and our amended and restated
bylaws, which are filed as exhibits to our registration
statement on Form 10 of which this information statement is
a part, and to the General Corporation Law of the State of
Delaware.
Sales of
Unregistered Securities
In the past three years, we have not sold any of our securities,
including sales of reacquired securities, new issues, securities
issued in exchange for property, services, or other securities,
and new securities resulting from the modification of
outstanding securities, that were not registered under the
Securities Act of 1933.
Authorized
Capital Stock
Immediately following the distribution, our authorized capital
stock will consist of million
shares of common stock, par value
$
per share, and million shares
of preferred stock, par value
$
per share.
Common
Stock
Shares Outstanding.
Immediately
following the distribution, we expect that
approximately million shares
of our common stock will be issued and outstanding based upon
approximately shares
of Temple-Inland common stock that we expect to be outstanding
on the record date and applying the distribution ratio of
[ ] shares
of our common stock for every
[ ] shares
of Temple-Inland common stock held as of the record date. All
outstanding shares of our common stock, when issued, will be
fully paid and non-assessable. This means the full purchase
price for the outstanding shares of our common stock has been
paid and the holders of such shares will not be assessed any
additional amounts for such shares. Any additional shares of
common stock that we may issue in the future will also be fully
paid and non-assessable.
Dividends.
Subject to prior dividend
rights of the holders of any preferred shares, holders of shares
of our common stock will be entitled to receive dividends when,
as and if declared by our board out of funds legally available
for that purpose. For more information, see Dividend
Policy beginning on page 30 of this information
statement.
Voting Rights.
Each outstanding share
of our common stock will be entitled to one vote per share on
each matter to be voted on by the holders of our common stock.
The holders of our common stock will not be entitled to
cumulative voting of their shares in elections of directors.
Other Rights.
In the event of any
liquidation, dissolution, or winding up of our company, after
the satisfaction in full of the liquidation preferences of
holders of any preferred shares, holders of shares of our common
stock will be entitled to ratable distribution of the remaining
assets available for distribution to stockholders. The shares of
our common stock will not be subject to redemption by operation
of a sinking fund or otherwise. Holders of shares of our common
stock will not be entitled to pre-emptive rights.
Preferred
Stock
Our amended and restated certificate of incorporation will
authorize our board, without the approval of our stockholders,
to issue shares of our preferred stock and to fix by resolution
the designations, preferences, and relative, participating,
optional, or other special rights, and such qualifications,
limitations, or restrictions on such shares, including, without
limitation, redemption rights, dividend rights, liquidation
preferences, and conversion or exchange rights of any class or
series of preferred stock, and to fix the number of classes or
series of preferred stock, the number of shares constituting any
such class or series and the voting powers for each class or
series.
105
The authority possessed by our board to issue preferred stock
could potentially be used to discourage attempts by third
parties to obtain control of our company through a merger,
tender offer, proxy contest, or otherwise by making such
attempts more difficult or more costly. Our board may issue
preferred stock with voting rights or conversion rights that, if
exercised, could adversely affect the voting power of the
holders of common stock. There are no current agreements or
understandings with respect to the issuance of preferred stock
and our board has no present intention to issue any shares of
preferred stock, other than pursuant to the stockholder rights
agreement discussed below. As of the completion of the
distribution, [ ] million
shares of our junior participating cumulative preferred stock
will be reserved for issuance upon exercise of our preferred
stock purchase rights (see Stockholder Rights
Agreement).
Anti-takeover
Effects of Our Stockholder Rights Agreement, Our Amended and
Restated Certificate of Incorporation and Amended and Restated
Bylaws and Delaware Law
Our stockholder rights agreement, which we expect our board of
directors will adopt prior to the distribution date, and some
provisions of our amended and restated certificate of
incorporation and amended and restated bylaws and of Delaware
law could make the following more difficult:
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acquisition of us by means of a tender offer or merger;
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acquisition of us by means of a proxy contest or
otherwise; or
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removal of our incumbent officers and directors.
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Our stockholder rights agreement, which is summarized below, and
certain provisions in our amended and restated certificate of
incorporation and amended and restated bylaws, which are
summarized below, are expected to discourage coercive takeover
practices and inadequate takeover bids. The provisions
summarized below are designed to encourage persons seeking to
acquire control of us to first negotiate with our board. We
believe that the benefits of the potential ability to negotiate
with the proponent of an unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging those
proposals because negotiation with such proponent could result
in an improvement of their terms.
Election
and Removal of Directors
Our amended and restated certificate of incorporation provides
that our board is divided into three classes. The term of the
first class of directors expires at our 2008 annual meeting of
stockholders, the term of the second class of directors expires
at our 2009 annual meeting of stockholders and the term of the
third class of directors expires at our 2010 annual meeting of
stockholders. At each of our annual meetings of stockholders,
the successors of the class of directors whose term expires at
that meeting of stockholders will be elected for a three-year
term, one class being elected each year by our stockholders. In
addition, a director may only be removed from office for cause
by the affirmative vote of holders of a majority of shares of
common stock entitled to vote in the election of directors. This
system of electing and removing directors may discourage a third
party from waging a proxy contest or otherwise attempting to
obtain control of us because it generally makes it more
difficult for stockholders to replace a majority of the
directors.
Size
of Board and Vacancies
Our amended and restated certificate of incorporation and
amended and restated bylaws provide that our board will fix the
exact number of directors to comprise our board. Newly created
directorships resulting from any increase in our authorized
number of directors will be filled by a majority of our board
then in office and any vacancies in our board resulting from
death, resignation, retirement, disqualification, removal from
office or other cause will be filled generally by the majority
vote of our remaining directors in office, even if less than a
quorum is present, except that any vacancy caused by the removal
of a director for cause by a majority vote of our stockholders
may be filled by a majority vote of our stockholders.
106
Elimination
of Stockholder Action by Written Consent
Our amended and restated certificate of incorporation and
amended and restated bylaws expressly eliminate the right of our
stockholders to act by written consent. Stockholder action must
take place at the annual or a special meeting of our
stockholders.
Stockholder
Meetings
Under our amended and restated certificate of incorporation and
amended and restated bylaws, special meetings of our
stockholders may only be called by our Chairman or pursuant to a
written request by a majority of our entire board.
Requirements
for Advance Notification of Stockholder Nominations and
Proposals
Our amended and restated bylaws will have advance notice
procedures for stockholders to make nominations of candidates
for election as directors or to bring other business before a
meeting of the stockholders. The business to be conducted at an
annual meeting will be limited to business properly brought
before the annual meeting by or at the direction of our board or
a duly authorized committee thereof or by a stockholder of
record who has given timely written notice to our secretary of
that stockholders intention to bring such business before
the meeting.
Our amended and restated bylaws will govern stockholder
nominations of candidates for election as directors except with
respect to the rights of holders of our preferred stock. Under
our amended and restated bylaws, nominations of persons for
election to our board may be made at an annual meeting by a
stockholder of record on the date of giving notice to our
secretary and as of the record date for the determination of
stockholders entitled to vote at the meeting, if the stockholder
submits a timely notice of nomination. A notice of a stockholder
nomination will be timely only if it is delivered to us at our
principal executive offices not less than 75 days nor more
than 100 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders. However,
if the annual meeting is called for a date more than
50 days prior to the anniversary date, notice must be
received not later than the close of business on the
10th day following the day on which such notice of the
meeting date was mailed or public disclosure of the meeting date
was made, whichever occurs first.
The notice of a stockholder nomination must contain specified
information, including, without limitation:
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the name, age, business and, if known, residence addresses of
each nominee;
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the principal occupation or employment of such nominee;
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the number of shares of our common stock beneficially owned by
each such nominee and the nominating stockholder;
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the consent of each nominee to serve as a director if so
elected; and
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any other information concerning the nominee that would be
required to be included in a proxy statement or other filings
pursuant to the proxy rules of the SEC.
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Our amended and restated bylaws will govern the notification
process of all other stockholder proposals to be brought before
an annual meeting. Under our amended and restated bylaws, notice
of a stockholder proposal will be timely only if it is delivered
to us at our principal executive offices not less than
75 days nor more than 100 days prior to the
anniversary of the date of the immediately preceding annual
meeting of stockholders. However, in the event that the annual
meeting is called for a date more than 50 days prior to the
anniversary date, notice must be received not later than the
close of business on the 10th day following the day on
which such notice of the meeting date was mailed or public
disclosure of the meeting date was made, whichever occurs first.
The notice of a stockholder proposal must contain specified
information as described in our amended and restated bylaws.
If the chairman of the meeting determines that the stockholder
nomination or proposal was not properly brought before the
meeting in accordance with the provisions of our amended and
restated bylaws, that person
107
will not be eligible for election as a director or that business
will not be conducted at the meeting, as the case may be.
The advance notice provisions may preclude a contest for the
election of directors or the consideration of stockholder
proposals if the proper procedures are not followed.
Additionally, the advance notice provisions may deter a third
party from conducting a solicitation to elect its own slate of
directors or approve its own proposal, without regard to whether
consideration of those nominees or proposals might be harmful or
beneficial to us and our stockholders.
Delaware
Anti-takeover Law
Upon the distribution, we will be governed by Section 203
of the General Corporation Law of the State of Delaware, or the
DGCL.
Section 203, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years
following the time that such stockholder became an interested
stockholder, unless:
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prior to such time, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
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upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85.0% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding specified shares; or
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at or subsequent to such time, the business combination is
approved by the board of directors and authorized at an annual
or special meeting of stockholders, by the affirmative vote of
at least
66
2
/
3
%
of the outstanding voting stock that is not owned by the
interested stockholder. The stockholders cannot authorize the
business combination by written consent.
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The application of Section 203 may limit the ability of
stockholders to approve a transaction that they may deem to be
in their best interests.
In general, Section 203 defines business
combination to include:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 10% or more of the assets of the corporation to
or with the interested stockholder;
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any of its stock
to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested
stockholder as any person that, together with affiliates
and associates, owns, or within three years prior to the
determination of interested stockholder status did own, 15% or
more of a corporations voting stock.
The existence of this provision may have an anti-takeover effect
with respect to transactions not approved in advance by our
board of directors and the anti-takeover effect includes
discouraging attempts that might result in a premium over the
market price for the shares of our common stock.
108
Amendment
of Amended and Restated Bylaws
Our amended and restated bylaws and amended and restated
certificate of incorporation provide that the bylaws may only be
amended by the vote of a majority of our board or by the
affirmative vote of at least 80% of the voting power of the
outstanding stock entitled to vote generally in the election of
our board.
Amendment
of the Amended and Restated Certificate of
Incorporation
Following our conversion to a Delaware corporation, our amended
and restated certificate of incorporation will provide that the
provisions of our amended and restated certificate of
incorporation relating to:
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the size, classification, election, removal, nomination and
filling of vacancies with respect to the board of directors;
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stockholder action by written consent and ability to call
special meetings; and
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any provision relating to the amendment of any of these
provisions;
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may only be amended by the affirmative vote of at least 80% of
the voting power of the outstanding stock entitled to vote
generally in the election of our board. As provided by Delaware
law, any other provision of our amended and restated certificate
of incorporation may only be amended by the vote of a majority
of the voting power of the outstanding stock entitled to vote
generally in the election of our board.
No
Cumulative Voting
Our amended and restated certificate of incorporation does not
provide for cumulative voting in the election of directors.
Undesignated
Preferred Stock
The authorization in our amended and restated certificate of
incorporation of undesignated preferred stock makes it possible
for our board to issue our preferred stock with voting or other
rights or preferences that could impede the success of any
attempt to change control of us. The provision in our amended
and restated certificate of incorporation authorizing such
preferred stock may have the effect of deferring hostile
takeovers or delaying changes of control of our management.
Stockholder
Rights Agreement
We expect our board will adopt a stockholder rights agreement on
or prior to the distribution date. Pursuant to the stockholder
rights agreement, one preferred stock purchase right will be
issued for each outstanding share of our common stock. Each
right issued will be subject to the terms of the stockholder
rights agreement.
Our board believes that the stockholder rights agreement will
protect our stockholders from coercive or otherwise unfair
takeover tactics. In general terms, our stockholder rights
agreement works by imposing a significant penalty upon any
person or group that acquires 20% or more of our outstanding
common stock, without the approval of our board.
We provide the following summary description below. Please note,
however, that this description is only a summary, is not
complete, and should be read together with our entire
stockholder rights agreement, which will be filed as an exhibit
to the registration statement of which this information
statement forms a part. Our board will authorize the issuance of
one right for each share of our common stock outstanding on the
date the distribution is completed.
The Rights.
Our rights will initially
trade with, and will be inseparable from, our common stock. Our
rights will not be represented by certificates. New rights will
accompany any new shares of common stock we issue after the date
the separation is completed until the date on which the rights
are separated from our common stock and exercisable as described
below.
109
Exercise Price.
Each right will allow
its holder to purchase from us one one-thousandth of a share of
our junior participating cumulative preferred stock, which we
refer to as our preferred stock, for
$ ,
once the rights become separated from our common stock and
exercisable. Prior to its exercise, a right does not give its
holder any dividend, voting or liquidation rights.
Exercisability.
Each right will not be
separated from our common stock and exercisable until:
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ten business days after the public announcement that a person or
group has become an acquiring person by acquiring
beneficial ownership of 20% or more of our outstanding common
stock or, if earlier,
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ten business days (or a later date determined by our board
before the rights are separated from our common stock) after a
person or group begins or publicly announces an intention to
begin a tender or exchange offer that, if completed, would
result in that person or group becoming an acquiring person.
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Until the date the rights become exercisable, book-entry
ownership of our common stock will evidence the rights, and any
transfer of shares of our common stock will constitute a
transfer of the rights associated with the shares of common
stock. After the date the rights separate from our common stock,
our rights will be evidenced by book-entry credits. Any of our
rights held by an acquiring person will be void and may not be
exercised.
Consequences
of a Person or Group Becoming an Acquiring
Person.
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Flip In.
If a person or group becomes an
acquiring person, all holders of our rights except the acquiring
person may, for the then applicable exercise price, purchase
shares of our common stock with a market value of twice the then
applicable exercise price, based on the market price of our
common stock prior to such acquisition.
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Flip Over.
If we are acquired in a merger or
similar transaction after the date the rights become
exercisable, all holders of our rights except the acquiring
person may, for the then applicable exercise price, purchase
shares of the acquiring corporation with a market value of twice
the then applicable exercise price, based on the market price of
the acquiring corporations stock prior to such merger.
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Expiration.
Our rights will expire
on ,
2017, unless earlier redeemed by the board in accordance with
the stockholder rights agreement.
Redemption.
Our board may redeem our
rights for $0.01 per right at any time before a person or group
becomes an acquiring person. If our board redeems any of our
rights, it must redeem all of our rights. Once our rights are
redeemed, the only right of the holders of our rights will be to
receive the redemption price of $0.01 per right. The redemption
price will be adjusted if we have a stock split or issue stock
dividends on our common stock.
Exchanges.
After a person or group
becomes an acquiring person, but before an acquiring person owns
50% or more of our outstanding common stock, our board may
extinguish the rights by exchanging one share of our common
stock or an equivalent security for each right, other than
rights held by the acquiring person.
Anti-Dilution Provisions.
The purchase
price for one one-hundredth of a share of our preferred stock,
the number of shares of our preferred stock issuable upon the
exercise of a right and the number of our outstanding rights may
be subject to adjustment in order to prevent dilution that may
occur from a stock dividend, a stock split or a reclassification
of our preferred stock. No adjustments to the purchase price of
our preferred stock will be required until the cumulative
adjustments would amount to at least 1% of the purchase price.
Amendments.
The terms of our
stockholder rights agreement may be amended by our board without
the consent of the holders of our common stock. After the rights
separate from our common stock and become exercisable, the board
may not amend the agreement in a way that adversely affects the
interests of the holders of the rights.
110
Restrictions
on Payment of Dividends
Following our conversion to a Delaware corporation, we will
continue to be governed by Delaware law. Delaware law allows a
corporation to pay dividends only out of surplus, as determined
under Delaware law.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
Computershare Investor Services LLC.
NYSE
Listing
We intend to file an application to list our shares of common
stock on the New York Stock Exchange. We expect that our shares
will trade under the ticker symbol FOR.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
The following summary is qualified in its entirety by reference
to the complete text of the statutes referred to below, our
amended and restated certificate of incorporation, and our
amended and restated bylaws.
Following our conversion to a Delaware corporation, we will be
incorporated under the laws of the state of Delaware.
Section 145 of the DGCL provides that a corporation may
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that
indemnification only extends to expenses (including
attorneys fees) incurred in connection with the defense or
settlement of such action, and the statute requires court
approval before there can be any indemnification where the
person seeking indemnification has been found liable to the
corporation. The statute provides that it is not exclusive of
other indemnification that may be granted by a
corporations by-laws, disinterested director vote,
stockholder vote, agreement or otherwise.
Our amended and restated bylaws will provide for the
indemnification of directors, officers and certain authorized
representatives of the corporation to the fullest extent
permitted by the DGCL, except that our bylaws will provide for
indemnification in a derivative action or suit initiated by a
director, officer or authorized representative of the
corporation only if our board of directors authorized the
initiation of that action or suit. In addition, as permitted by
the DGCL, our amended and restated certificate of incorporation
will provide that our directors shall have no personal liability
to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except (1) for any breach of
the directors duty of loyalty to us or our stockholders,
(2) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of law,
(3) under Section 174 of the DGCL or (4) for any
transaction from which a director derived an improper personal
benefit.
Following the spin-off, we intend to enter into individual
indemnification agreements with each member of our board of
directors and each of our senior officers. The indemnification
agreements will be intended to assure that our directors and
senior officers are indemnified to the maximum extent permitted
under applicable law.
111
DESCRIPTION
OF MATERIAL INDEBTEDNESS
We expect to have in place one primary bank credit agreement,
which will provide us with an unsecured,
[ ]-year
$450 million, revolving credit facility that will expire on
the
[ ].
The aggregate borrowings of up to
$[ ] million that are expected
to be provided by the primary bank credit facility may be used
to fund
[ ]
and to meet short-term requirements. Up to
$[ ] million under this
facility may be used for issuing letters of credit, and up to
$[ ] million for
same-day
borrowings. Borrowings will bear interest at LIBOR plus
[ ] percent.
The primary bank credit agreement will contain various covenants
that limit, among other things, subsidiary indebtedness, liens,
and certain fundamental business changes. The covenants also
require us to meet certain financial tests: ratio of net
indebtedness to EBITDA, EBITDA to net interest expense, and a
liquidity test described below. The liquidity covenant requires
us
to .
The primary bank credit facility is expected to be signed in
[fourth] quarter 2007 and available to us to draw upon at the
separation. Prior to the separation $100 million will be
drawn down and the proceeds distributed to Temple-Inland to
satisfy certain intercompany debt.
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WHERE YOU
CAN FIND MORE INFORMATION
We have filed a registration statement on Form 10 with the
SEC with respect to the shares of our common stock being
distributed as contemplated by this information statement. This
information statement is a part of, and does not contain all of
the information set forth in, the registration statement and the
exhibits and schedules to the registration statement. For
further information with respect to the spin-off, our company
and our common stock, please refer to the registration
statement, including its exhibits. Statements made in this
information statement relating to any contract or other document
are not necessarily complete, and you should refer to the
exhibits attached to the registration statement for copies of
the actual contract or document. You may review and copy the
registration statement, including its exhibits, at the
SECs public reference room, located at
100 F Street, N.E., Washington, D.C. 20549, as
well as on the Internet web site maintained by the SEC at
www.sec.gov
. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room.
In connection with the spin-off, we will become subject to the
information and reporting requirements of the Exchange Act and,
in accordance with the Exchange Act, we will file periodic
reports, proxy statements and other information with the SEC.
Our future filings will be available from the SEC as described
above.
After the spin-off, we will make available free of charge
through our Internet web site (
www.forestargroup.com
) our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements, reports filed pursuant to section 16, and
amendments to those reports as soon as reasonably practicable
after we file these materials with the SEC. You may also request
a copy of our future SEC filings at no cost, by writing or
telephoning us at:
Forestar Real Estate Group
1300 MoPac Expressway South
Austin, Texas 78746
(512) 434-3888
We will furnish holders of our common stock with annual reports
containing consolidated financial statements prepared in
accordance with U.S. generally accepted accounting
principles and audited and reported on, with an opinion
expressed, by an independent registered public accounting firm.
You should rely only on the information contained in this
information statement or to which we have referred you. We have
not authorized any person to provide you with different
information or to make any representation not contained in this
information statement.
Information contained on any web site referenced in this
information statement is not incorporated by reference into this
information statement or the registration statement of which
this information statement is a part.
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Index to
Financial Statements
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Page
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Audited Financial Statements
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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F-25
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Unaudited Interim Combined and
Consolidated Financial Statements
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F-29
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F-30
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F-31
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F-32
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F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Managers and Member of Forestar Real Estate Group
LLC, a wholly owned subsidiary of Temple-Inland Inc.:
We have audited the accompanying combined and consolidated
balance sheets of Forestar Real Estate Group LLC, a wholly owned
subsidiary of Temple-Inland Inc., as of December 30, 2006
and December 31, 2005, and the related combined and
consolidated statements of income, Temple-Inlands net
investment, and cash flows for each of the three years in the
period ended December 30, 2006. Our audits also included
the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the
responsibility of Forestar Real Estate Group LLC management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined and
consolidated financial position of Forestar Real Estate Group
LLC at December 30, 2006 and December 31, 2005, and
the combined and consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 30, 2006 in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
Austin, Texas
August 9, 2007
F-2
Forestar
Real Estate Group LLC
COMBINED
AND CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
10,350
|
|
|
$
|
12,942
|
|
Prepaid expense
|
|
|
2,378
|
|
|
|
2,369
|
|
Real estate
|
|
|
447,817
|
|
|
|
373,150
|
|
Investment in unconsolidated
ventures
|
|
|
90,444
|
|
|
|
76,846
|
|
Receivables, net of allowance for
bad debts of $226 in 2006 and 2005
|
|
|
6,091
|
|
|
|
11,326
|
|
Timber
|
|
|
58,966
|
|
|
|
60,998
|
|
Property and equipment, net of
accumulated depreciation of $2,387 in 2006 and $2,273 in 2005
|
|
|
1,688
|
|
|
|
1,755
|
|
Other assets
|
|
|
2,440
|
|
|
|
4,558
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
620,174
|
|
|
$
|
543,944
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
TEMPLE-INLANDS NET INVESTMENT
|
Accounts payable
|
|
$
|
4,838
|
|
|
$
|
4,042
|
|
Accrued employee compensation and
benefits
|
|
|
2,114
|
|
|
|
660
|
|
Accrued interest
|
|
|
210
|
|
|
|
121
|
|
Accrued property taxes
|
|
|
4,577
|
|
|
|
3,124
|
|
Other accrued expenses
|
|
|
2,810
|
|
|
|
4,336
|
|
Deferred income taxes
|
|
|
14,438
|
|
|
|
19,349
|
|
Other liabilities
|
|
|
4,272
|
|
|
|
1,782
|
|
Note payable to Temple-Inland
|
|
|
110,506
|
|
|
|
12,829
|
|
Debt
|
|
|
50,611
|
|
|
|
109,119
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
194,376
|
|
|
|
155,362
|
|
Minority Interest in
Consolidated Ventures
|
|
|
7,746
|
|
|
|
7,292
|
|
Temple-Inlands Net
Investment
|
|
|
418,052
|
|
|
|
381,290
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
TEMPLE-INLANDS NET INVESTMENT
|
|
$
|
620,174
|
|
|
$
|
543,944
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the financial statements.
F-3
Forestar
Real Estate Group LLC
COMBINED
AND CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
Natural resources and other
|
|
|
45,409
|
|
|
|
37,366
|
|
|
|
30,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,560
|
|
|
|
155,487
|
|
|
|
169,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate
|
|
|
(105,756
|
)
|
|
|
(71,364
|
)
|
|
|
(88,774
|
)
|
Cost of natural resources and other
|
|
|
(5,238
|
)
|
|
|
(4,733
|
)
|
|
|
(4,627
|
)
|
Other operating
|
|
|
(26,601
|
)
|
|
|
(23,365
|
)
|
|
|
(23,244
|
)
|
General and administrative
|
|
|
(16,141
|
)
|
|
|
(10,439
|
)
|
|
|
(11,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(153,736
|
)
|
|
|
(109,901
|
)
|
|
|
(127,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
71,824
|
|
|
|
45,586
|
|
|
|
41,440
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
19,371
|
|
|
|
17,180
|
|
|
|
12,211
|
|
Minority interest in consolidated
ventures
|
|
|
(3,231
|
)
|
|
|
(1,054
|
)
|
|
|
(2,215
|
)
|
Interest expense
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
|
|
(6,091
|
)
|
Other non-operating income
(expense)
|
|
|
79
|
|
|
|
483
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
|
81,814
|
|
|
|
55,756
|
|
|
|
45,880
|
|
Income tax expense
|
|
|
(29,970
|
)
|
|
|
(20,859
|
)
|
|
|
(17,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the financial statements.
F-4
Forestar
Real Estate Group LLC
COMBINED
AND CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
CASH PROVIDED BY (USED FOR)
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,355
|
|
|
|
2,249
|
|
|
|
2,781
|
|
Deferred income taxes
|
|
|
(4,912
|
)
|
|
|
1,578
|
|
|
|
(1,328
|
)
|
Equity in earnings of
unconsolidated ventures
|
|
|
(19,371
|
)
|
|
|
(17,180
|
)
|
|
|
(12,211
|
)
|
Distributions of earnings of
unconsolidated ventures
|
|
|
1,519
|
|
|
|
4,090
|
|
|
|
4,305
|
|
Minority interest in consolidated
ventures
|
|
|
3,231
|
|
|
|
1,054
|
|
|
|
2,215
|
|
Distributions to minority interest
|
|
|
(517
|
)
|
|
|
(1,989
|
)
|
|
|
(2,870
|
)
|
Non-cash real estate cost of sales
|
|
|
85,949
|
|
|
|
53,741
|
|
|
|
70,250
|
|
Real estate development and
acquisition expenditures
|
|
|
(159,246
|
)
|
|
|
(65,117
|
)
|
|
|
(73,605
|
)
|
Cost of timber cut and in 2004
asset impairments
|
|
|
3,441
|
|
|
|
3,218
|
|
|
|
4,466
|
|
Other
|
|
|
286
|
|
|
|
4,333
|
|
|
|
10,441
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
2,357
|
|
|
|
(2,586
|
)
|
|
|
(919
|
)
|
Prepaid expenses and other
|
|
|
452
|
|
|
|
1,926
|
|
|
|
47
|
|
Accounts payable and other accrued
liabilities
|
|
|
3,541
|
|
|
|
1,830
|
|
|
|
(1,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,071
|
)
|
|
|
22,044
|
|
|
|
30,889
|
|
CASH PROVIDED BY (USED FOR)
INVESTING
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment, and
reforestation
|
|
|
(3,991
|
)
|
|
|
(1,616
|
)
|
|
|
(1,922
|
)
|
Investment in unconsolidated
ventures
|
|
|
(17,611
|
)
|
|
|
(29,612
|
)
|
|
|
(15,971
|
)
|
Return of investment in
unconsolidated ventures
|
|
|
22,208
|
|
|
|
19,880
|
|
|
|
8,481
|
|
Notes receivable sold or collected
|
|
|
5,493
|
|
|
|
3,767
|
|
|
|
212
|
|
Other
|
|
|
1,311
|
|
|
|
1,099
|
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,410
|
|
|
|
(6,482
|
)
|
|
|
(8,093
|
)
|
CASH PROVIDED BY (USED FOR)
FINANCING
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to Temple-Inland, net
|
|
|
97,678
|
|
|
|
1,802
|
|
|
|
382
|
|
Payments of debt
|
|
|
(89,144
|
)
|
|
|
(29,733
|
)
|
|
|
(36,343
|
)
|
Proceeds from issuance of debt
|
|
|
30,636
|
|
|
|
38,882
|
|
|
|
11,966
|
|
Net transfers to Temple-Inland
|
|
|
(20,241
|
)
|
|
|
(27,931
|
)
|
|
|
(25,124
|
)
|
Other
|
|
|
140
|
|
|
|
149
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,069
|
|
|
|
(16,831
|
)
|
|
|
(49,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(2,592
|
)
|
|
|
(1,269
|
)
|
|
|
(26,318
|
)
|
Cash and cash equivalents at
beginning of year
|
|
|
12,942
|
|
|
|
14,211
|
|
|
|
40,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
year-end
|
|
$
|
10,350
|
|
|
$
|
12,942
|
|
|
$
|
14,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the financial statements.
F-5
Forestar
Real Estate Group LLC
COMBINED
AND CONSOLIDATED STATEMENTS OF
TEMPLE-INLANDS
NET INVESTMENT
|
|
|
|
|
|
|
Temple-Inlands
|
|
|
|
Net Investment
|
|
|
|
(In thousands)
|
|
|
Balance at year-end
2003
|
|
$
|
354,155
|
|
Net income
|
|
|
28,436
|
|
Net transfers (to) from
Temple-Inland
|
|
|
(13,932
|
)
|
|
|
|
|
|
Balance at year-end
2004
|
|
$
|
368,659
|
|
Net income
|
|
|
34,897
|
|
Net transfers (to) from
Temple-Inland
|
|
|
(22,266
|
)
|
|
|
|
|
|
Balance at year-end
2005
|
|
$
|
381,290
|
|
Net income
|
|
|
51,844
|
|
Net transfers (to) from
Temple-Inland
|
|
|
(15,082
|
)
|
|
|
|
|
|
Balance at year-end
2006
|
|
$
|
418,052
|
|
|
|
|
|
|
Please read the notes to the financial statements.
F-6
Forestar
Real Estate Group LLC
|
|
Note 1
|
Summary
of Significant Accounting Policies
|
Background
On February 26, 2007, Temple-Inland announced that its
Board of Directors had preliminarily approved a transformation
plan which included the spin-off of its real estate operations
to Temple-Inland shareholders as an independent publicly held
company. Prior to the spin-off, Temple-Inland will contribute
the assets, liabilities, operations and cash flow of its real
estate development and minerals operations to us. We are
currently a limited liability company that will convert to a
Delaware corporation before the spin-off. Our operations will
consist of the real estate segment of Temple-Inland and several
smaller real estate operations and assets previously included in
Temple-Inlands other business segments, and the minerals
operations previously included in Temple-Inlands forest
products segment.
The terms Forestar, we, and
our in these financial statements refer to the
operations that will be spun off to Temple-Inland shareholders.
We conduct a wide array of project planning and management
activities related to the acquisition, entitlement, development
and sale of real estate, primarily residential and mixed-use
communities. We own and manage our projects either directly or
through ventures. We have real estate projects in nine states
and 12 markets encompassing about 376,000 acres,
including approximately 306,000 acres of land located in a
broad area around Atlanta, Georgia, with the balance located
principally in Texas. We secure entitlements and develop
infrastructure on these lands, focusing on single-family
residential and mixed-use communities. We also own commercial
operating properties, and about 623,000 net acres of oil
and gas mineral interests. In addition, of our
376,000 acres, over 350,000 acres have timber. Our revenues
are principally derived from sales of developed and undeveloped
real estate and timber, operations of commercial income
producing properties, and mineral interests and recreational
leases.
Basis
of Presentation
Our combined and consolidated financial statements reflect the
historical accounts of the real estate development and minerals
operations to be contributed to us and have been derived from
the historical financial statements and accounts of
Temple-Inland. These operations were conducted within separate
legal entities and their subsidiaries or within segments or
components of segments of Temple-Inland. As a result, this is
the first time we have issued separate historical financial
statements for these operations. In addition, as a result of the
different forms of Temple-Inlands ownership in these
operations, Temple-Inlands net investment is shown instead
of stockholders equity.
These financial statements also include all subsidiaries,
ventures, and other entities in which we have a controlling
interest and variable interest entities of which we are the
primary beneficiary. We eliminate all material intercompany
accounts and transactions. Minority interest in consolidated
pass through entities is recognized before income taxes. We
account for our investment in other entities in which we have
significant influence over operations and financial policies
using the equity method (we recognize our share of the
entities income or loss and any preferential returns and
treat distributions as a reduction of our investment). We
account for our investment in other entities in which we do not
have significant influence over operations and financial
policies using the cost method (we recognize as income only
distribution of accumulated earnings).
We prepare our financial statements in accordance with generally
accepted accounting principles, which require us to make
estimates and assumptions about future events. Actual results
can, and probably will, differ from those we currently estimate.
Examples of significant estimates include those related to
allocating costs to real estate and measuring assets for
impairment.
F-7
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Historical earnings per share are not presented since our common
stock that will be issued in the spin-off was not part of the
capital structure of Temple-Inland for the periods presented. We
will present basic and diluted earnings per share for Forestar
in the first report issued after the effective date of the
spin-off.
Our fiscal year ends on the Saturday closest to
December 31, which from time to time means that a fiscal
year will include 53 weeks instead of 52 weeks. All of
the periods presented had 52 weeks. Fiscal year 2006 ended
on December 30, 2006, fiscal year 2005 ended on
December 31, 2005, and fiscal year 2004 ended on
January 1, 2005. We intend to change our year-end to
December 31 upon completion of the spin-off.
We have historically used Temple-Inland as a source of capital
and for services such as environmental, finance, financial
reporting, human resources, internal audit, insurance, legal,
tax and technology. The estimated costs of these services were
allocated to us and are included in general and administrative
expense. In addition, we have also included other expenses
incurred by Temple-Inland but not directly attributable to us
such as costs associated with investor relations and executive
officers. The allocations were based on actual usage or in some
cases estimated usage based on Temple-Inlands net
investment in us relative to its other segments, revenues,
operating profits, employee count, or similar measures. These
allocated costs, which include salaries and benefits, totaled
$7,128,000 in 2006, $4,684,000 in 2005, and $3,649,000 in 2004.
We believe the assumptions and methodology used to derive the
allocations in our financial statements are reasonable; however,
they may not necessarily be indicative of what expenses would
have been had we been a separate standalone company in the past
or what expenses might be incurred in the future. We have no
practical way of determining what expenses we would have
incurred if we would have been a standalone company in the past.
Cash
and Cash Equivalents
Cash and cash equivalents include cash and other short-term
instruments with original maturities of three months or less.
Cash
Flows
Expenditures for the acquisition and development of real estate
are classified as operating activities. Expenditures for the
acquisition of commercial operating properties are classified as
investing activities.
Capitalized
Software
We capitalize purchased software costs as well as the direct
internal and external costs associated with software we develop
for our own use. We amortize these capitalized costs using the
straight-line method over estimated useful lives ranging from
three to seven years. The carrying value of capitalized software
was $1,071,000 at year-end 2006 and $22,000 at year-end 2005 and
is included in other assets. The amortization of these
capitalized costs was $6,000 in 2006, $9,000 in 2005 and $8,000
in 2004 and is included in general and administrative expense.
Environmental
Obligations and Asset Retirement Obligations
We recognize environmental remediation liabilities on an
undiscounted basis when environmental assessments or remediation
are probable and we can reasonably estimate the cost. We adjust
these liabilities as further information is obtained or
circumstances change. We currently do not have any asset
retirement obligations.
F-8
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value of Financial Instruments
In the absence of quoted market prices, we estimate the fair
value of financial instruments. Our estimates are affected by
the assumptions we make, including the discount rate and
estimates of the amount and timing of future cash flows. Where
these fair values approximate carrying value, no separate
disclosure of fair value is shown.
Impairment
of Long-Lived Assets
We review long-lived assets held for use for impairment when
events or circumstances indicate that their carrying value may
not be recoverable. Impairment exists if the carrying amount of
the long-lived asset is not recoverable from the undiscounted
cash flows expected from its use and eventual disposition. We
determine the amount of the impairment loss by comparing the
carrying value of the long-lived asset to its estimated fair
value. In the absence of quoted market prices, we determine
estimated fair value generally based on the present value of
future probability weighted cash flows expected from the use and
eventual disposition of the long-lived asset.
Income
Taxes
We are included in Temple-Inlands consolidated tax return.
Our income tax expense was computed as if we filed a separate
tax return. We provided deferred income taxes using current tax
rates for temporary differences between the financial accounting
carrying value of assets and liabilities and their tax
accounting carrying values. We recognize and value income tax
exposures for the various taxing jurisdictions where we operate
based on laws, elections, commonly accepted tax positions, and
management estimates. We include tax penalties and interest in
income tax expense.
Property
and Equipment
We carry property and equipment at cost less accumulated
depreciation. We capitalize the cost of significant additions
and improvements, and we expense the cost of repairs and
maintenance. We capitalize interest costs incurred on major
construction projects. We depreciate these assets using the
straight-line method over their estimated useful lives as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Value
|
|
|
|
Estimated
|
|
|
At Year-End
|
|
|
|
Useful Lives
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
Buildings and building improvements
|
|
|
10 to 40 years
|
|
|
$
|
1,845
|
|
Office and other equipment
|
|
|
2 to 10 years
|
|
|
|
2,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,075
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(2,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,688
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense of property and equipment was $341,000 in
2006, $364,000 in 2005 and $399,000 in 2004. We expense
operating leases ratably over the shorter of the useful life or
the lease term.
Real
Estate
We carry real estate at the lower of cost or fair value less
cost to sell. We capitalize interest costs and property taxes
once development begins, and we continue to capitalize
throughout the development period. We also capitalize
infrastructure, improvements, amenities, and other development
costs incurred during the development period. We determine the
cost of real estate sold using the relative sales value method.
When we
F-9
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
sell real estate from projects that are not finished, we include
in the cost of real estate sold estimates of future development
costs though completion, allocated based on relative sales
values. These estimates of future development costs are
reevaluated at least annually, with any adjustments being
allocated prospectively to the remaining units available for
sale.
Commercial properties are carried at cost less accumulated
depreciation computed using the straight-line method over their
estimated useful lives (three to 39 years).
We have agreements with utility or improvement districts,
principally in Texas, whereby we agree to convey to the
districts water, sewer and other infrastructure related assets
we have constructed in connection with projects within their
jurisdiction. The reimbursement for these assets ranges from 70
to 100 percent of allowable cost as defined by the
district. The transfer is consummated and we receive payment
when the districts have a sufficient tax base to support funding
of their bonds. The cost we incur in constructing these assets
is included in capitalized development costs, and upon
collection, we remove the assets from capitalized development
costs. We provide an allowance, which is not significant, to
reflect our past experiences related to claimed allowable
development costs.
Revenue
We recognize revenue from sales of real estate when a sale is
consummated, the buyers initial investment is adequate,
any receivables are probable of collection, the usual risks and
rewards of ownership have been transferred to the buyer, and we
do not have significant continuing involving with the real
estate sold. If we determine that the earnings process is not
complete, we defer recognition of any gain until earned.
We recognize commercial operating revenues as the services are
performed.
We recognize revenue from mineral leases over the term of the
lease and from mineral royalties when the minerals have been
delivered to the buyer, the value is determinable, and we are
reasonably sure of collection. We recognize revenue from timber
sales upon passage of title, which occurs at delivery, the price
is fixed and determinable, and we are reasonably sure of
collection. We recognize revenue from hunting and recreational
leases on the straight-line basis over the lease term if we are
reasonably sure of collection.
We exclude from revenue amounts we collect from utility or
improvement districts related to the conveyance of water, sewer,
and other infrastructure related assets. We also exclude from
revenue, amounts we collect related to timber cost on land being
developed. Their proceeds reduce related capitalized development
cost.
Share-Based
Compensation
We participate in Temple-Inlands share-based compensation
plans and as a result certain of our employees received
share-based compensation awards under those plans. The expense
for those awards was allocated to us by Temple-Inland and was
determined by Temple-Inland using the following accounting
principles:
|
|
|
|
|
Beginning January 2006, Temple-Inland adopted the modified
prospective application method contained in Statement of
Financial Accounting Standards No. 123 (revised December
2004),
Share-Based Payment
(SFAS 123(R))
,
to
account for share-based payments. As a result, Temple-Inland
applied this pronouncement to new awards or modifications of
existing awards in 2006. Prior to adopting SFAS 123(R),
Temple-Inland had been expensing, over the service period, the
fair value of share-based compensation awards granted, modified,
or settled in 2003 through 2005, using the prospective
transition method of accounting contained in
SFAS No. 148,
Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment
of FASB Statement No. 123.
|
F-10
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Prior to 2003, Temple-Inland used the intrinsic value method in
accounting for stock options. As a result, Temple-Inland did not
allocate to us share-based compensation expense related to those
stock options granted prior to 2003 in 2005 and 2004.
|
The following table illustrates the effect on our net income as
if the fair value method had been applied to the options granted
to our employees prior to 2003:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Net income, as reported
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
Add: Share-based compensation
expense, net of related tax effects, included in the
determination of reported net income
|
|
|
277
|
|
|
|
95
|
|
Deduct: Total share-based
compensation expense, net of related tax effects, determined
under the fair value based method for all awards
|
|
|
(321
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
34,853
|
|
|
$
|
28,368
|
|
|
|
|
|
|
|
|
|
|
Please read Note 12 for additional information about
share-based compensation.
Timber
We carry timber at cost, less the cost of timber cut. We expense
the cost of timber cut based on the relationship of the timber
carrying value to the estimated volume of recoverable timber
multiplied by the amount of timber cut. We include the cost of
timber cut in cost of natural resources in the income statement
and in non-cash expenses in the statement of cash flows. We
determine the estimated volume of recoverable timber using
statistical information and other data related to growth rates
and yields gathered from physical observations, models, and
other information gathering techniques. Changes in yields are
generally due to adjustments in growth rates and similar matters
and are accounted for prospectively as changes in estimates. We
capitalize reforestation costs incurred in developing viable
seedling plantations (up to two years from planting), such as
site preparation, seedlings, planting, fertilization, insect and
wildlife control, and herbicide application. We expense all
other costs, such as property taxes and costs of forest
management personnel, as incurred. Once the seedling plantation
is viable, we expense all costs to maintain the viable
plantations, such as fertilization, herbicide application,
insect and wildlife control, and thinning, as incurred.
Pending
Accounting Pronouncements
SFAS No. 157,
Fair Value Measures
This new standard defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. This guidance applies
to fair value measurements already required or permitted and
will be effective for our first quarter 2008. Based on our
current understanding, we do not expect that adoption will have
a significant effect on our earnings or financial position.
FASB Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes
(FIN 48) This
interpretation clarifies the accounting for and disclosure of
uncertainties associated with certain aspects of measurement and
recognition of income taxes. This guidance lowers the
recognition threshold from more likely than not to
reasonably possible, changes the valuation method
from a single amount to a probable weighted-average amount, and
is effective for us beginning first quarter 2007. We do not
expect that adoption will have a significant effect on our
earnings or financial position.
SFAS No. 150,
Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity
The provisions of this standard that address the
accounting for certain mandatorily redeemable non-controlling
interests have been deferred indefinitely pending further FASB
action. The deferred provisions
F-11
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
would principally affect the way we account for minority
interests in partnerships we control; the classification of such
interests as liabilities, which we presently do; and accounting
for changes in the fair value of the minority interest by a
charge to earnings, which we currently do not do. While the
effect of the deferred provisions would be dependent on the
changes in the fair value of the partnerships net assets,
it is possible that the future effects could be significant.
Because the minority interests are not readily marketable, it is
difficult to determine their fair value. However, we believe the
difference between the carrying value of the minority interests
and their estimated fair value was not significant at year-end
2006 or 2005.
SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
SFAS No. 159 permits the election of
fair value as the initial and subsequent measurement method for
many financial assets and liabilities. Subsequent changes in the
fair value would be recognized in earnings as they occur.
Electing the fair value option requires the disclosure of the
fair value of those assets and liabilities on the balance sheet
or in the notes to the financial statements.
SFAS No. 159 is effective for our first quarter 2008.
We do not anticipate electing this option.
Real estate consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Entitled, developed, and under
development land
|
|
$
|
292,534
|
|
|
$
|
233,130
|
|
Undeveloped land
|
|
|
133,170
|
|
|
|
117,187
|
|
Commercial operating properties
|
|
|
43,020
|
|
|
|
41,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468,724
|
|
|
|
392,107
|
|
Accumulated depreciation
|
|
|
(20,907
|
)
|
|
|
(18,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
447,817
|
|
|
$
|
373,150
|
|
|
|
|
|
|
|
|
|
|
Included in entitled, developed, and under development land are
the estimated cost of assets we expect to convey to utility or
improvement districts of $14,213,000 in 2006 and $3,050,000 in
2005. These costs relate to water, sewer and other
infrastructure assets for which the utility or improvement
districts have agreed to reimburse us. We billed these districts
$12,357,000 in 2006 and $4,413,000 in 2005 and we collected from
these districts $10,701,000 in 2006 and $4,421,000 in 2005. We
expect to collect the remaining amounts billed in 2006 within
12 months.
Depreciation expense primarily related to commercial operating
properties was $2,008,000 in 2006, $1,876,000 in 2005, and
$2,374,000 in 2004 and is included in other operating expense.
Please read Schedule III for additional information.
F-12
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3
|
Investment
in Unconsolidated Ventures
|
At year-end 2006, we had ownership interests ranging from 25 to
50 percent in 15 ventures that we account for using the
equity method. Our two largest ventures at year-end 2006 are CL
Realty and Temco, in both of which we own a 50 percent
interest and an unrelated publicly-held company owns the other
50 percent interest.
Combined summarized balance sheet information for our ventures
accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End 2006
|
|
|
At Year-End 2005
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
CL Realty
|
|
|
Temco
|
|
|
Ventures
|
|
|
Total
|
|
|
CL Realty
|
|
|
Temco
|
|
|
Ventures
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Real estate
|
|
$
|
113,289
|
|
|
$
|
58,273
|
|
|
$
|
44,666
|
|
|
$
|
216,228
|
|
|
$
|
106,156
|
|
|
$
|
60,698
|
|
|
$
|
51,048
|
|
|
$
|
217,902
|
|
Total assets
|
|
|
117,779
|
|
|
|
65,765
|
|
|
|
99,523
|
|
|
|
283,067
|
|
|
|
106,084
|
|
|
|
68,286
|
|
|
|
74,880
|
|
|
|
249,250
|
|
Borrowings, principally
non-recourse
(a)
|
|
|
5,357
|
|
|
|
3,745
|
|
|
|
56,407
|
|
|
|
65,509
|
|
|
|
1,814
|
|
|
|
4,645
|
|
|
|
68,367
|
|
|
|
74,826
|
|
Total liabilities
|
|
|
9,456
|
|
|
|
4,979
|
|
|
|
67,469
|
|
|
|
81,904
|
|
|
|
2,330
|
|
|
|
8,595
|
|
|
|
72,264
|
|
|
|
83,189
|
|
Equity
|
|
|
108,323
|
|
|
|
60,786
|
|
|
|
32,054
|
|
|
|
201,163
|
|
|
|
103,754
|
|
|
|
59,691
|
|
|
|
2,616
|
|
|
|
166,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our investment in real estate
ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of their
equity
(b)
|
|
|
54,162
|
|
|
|
30,393
|
|
|
|
13,919
|
|
|
|
98,474
|
|
|
|
51,877
|
|
|
|
29,846
|
|
|
|
3,448
|
|
|
|
85,171
|
|
Unrecognized deferred
gain
(c)
|
|
|
(7,416
|
)
|
|
|
|
|
|
|
(614
|
)
|
|
|
(8,030
|
)
|
|
|
(8,325
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate ventures
|
|
$
|
46,746
|
|
|
$
|
30,393
|
|
|
$
|
13,305
|
|
|
$
|
90,444
|
|
|
$
|
43,552
|
|
|
$
|
29,846
|
|
|
$
|
3,448
|
|
|
$
|
76,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Combined summarized income statement information for our
ventures accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
51,367
|
|
|
$
|
42,823
|
|
|
$
|
16,091
|
|
Temco
|
|
|
51,470
|
|
|
|
31,239
|
|
|
|
27,890
|
|
Other ventures
|
|
|
33,053
|
|
|
|
108,966
|
|
|
|
62,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
135,890
|
|
|
$
|
183,028
|
|
|
$
|
106,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
16,892
|
|
|
$
|
11,362
|
|
|
$
|
3,539
|
|
Temco
|
|
|
16,986
|
|
|
|
8,566
|
|
|
|
10,461
|
|
Other ventures
|
|
|
(2,609
|
)
|
|
|
72,698
|
|
|
|
15,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,269
|
|
|
$
|
92,626
|
|
|
$
|
29,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our equity in their earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL
Realty
(c)(d)
|
|
$
|
8,431
|
|
|
$
|
5,681
|
|
|
$
|
1,769
|
|
Temco
(d)
|
|
|
8,493
|
|
|
|
4,283
|
|
|
|
5,230
|
|
Other
ventures
(b)
|
|
|
1,538
|
|
|
|
5,730
|
|
|
|
3,474
|
|
Recognition of deferred
gain
(c)
|
|
|
909
|
|
|
|
1,486
|
|
|
|
1,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,371
|
|
|
$
|
17,180
|
|
|
$
|
12,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes current maturities of debt of $12,375,000 in 2006 and
$10,484,000 in 2005.
|
|
(b)
|
|
Our share of the equity in other ventures, reflects our
ownership interests ranging from 25 to 50 percent, excluding
venture losses that exceed our investment where we are not
obligated to fund those losses. Our equity in earnings of
partnerships in 2005 and 2004 included a number of partnerships
in which we owned a five to ten percent interest. Our
investments in these partnerships were liquidated prior to
year-end 2005. At year-end 2006, we have no real estate ventures
that are accounted for using the cost method.
|
|
(c)
|
|
In 2003, we contributed real estate with a $13,800,000 carrying
value to CL Realty in exchange for $13,800,000 cash and a
50 percent interest in the partnership. We deferred the
$14,587,000 gain on the sale and are recognizing it as the
partnership sells the real estate to third parties. The deferred
gain is reflected as an offset to our investment in
unconsolidated ventures.
|
|
(d)
|
|
Beginning in 2006, we eliminated our historic one-month lag in
accounting for our investment in CL Realty and Temco as
financial information became more readily available. The
one-time effect of eliminating this one-month lag was to
increase our equity in earnings for 2006 by $754,000 for
CL Realty and $350,000 for Temco.
|
In 2006, we invested $17,611,000 in these ventures and received
$23,727,000 in distributions, in 2005 we invested $29,612,000
and received $23,970,000 in distributions, and in 2004 we
invested $15,971,000 and received $12,786,000 in distributions.
Distributions include both return of investments and
distributions of earnings.
F-14
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We provide development services for some of these ventures for
which we receive a fee. Fees for these services were $729,000 in
2006, $1,126,000 in 2005, and $765,000 in 2004 and are included
in real estate revenues.
In 2005, Temco purchased about 7,000 acres of timber and
timberland from Temple-Inland. This acreage was purchased
pursuant to the terms of a long-standing option agreement, which
was about to expire.
Receivables consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Seller financing notes receivable,
average interest rate of 7.8% in 2006 and 5.5% in 2005
|
|
$
|
1,729
|
|
|
$
|
5,785
|
|
Notes receivable, average interest
rate of 9.6% in 2006 and 2005
|
|
|
1,755
|
|
|
|
2,389
|
|
Accrued interest and other
|
|
|
2,833
|
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,317
|
|
|
$
|
11,552
|
|
Allowance for bad debts
|
|
|
(226
|
)
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,091
|
|
|
$
|
11,326
|
|
|
|
|
|
|
|
|
|
|
Seller financing notes receivable are generally secured by a
deed of trust with a 10 percent down payment and mature
through 2009. In November 2006, we ceased providing seller
financing in connection with the sale of residential lots.
Notes receivable are funds advanced to potential venture
partners and will be converted to an equity interest in a
venture or collected. It is anticipated that these notes will be
satisfied by year-end 2008.
Other receivables are miscellaneous operating receivables
arising in the normal course of business. We expect to collect
$1,300,000 in 2007 and the remainder in 2008.
We own timber on over 350,000 acres located primarily in
Georgia. We capitalized reforestation expenditures of $1,409,000
in 2006, $1,553,000 in 2005, and $1,501,000 in 2004. The cost of
timber cut was $3,441,000 in 2006, $3,218,000 in 2005, and
$3,749,000 in 2004.
Debt consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Senior bank credit
facility average interest rate of 6.04% in 2005
|
|
$
|
|
|
|
$
|
74,000
|
|
7.3% secured promissory note
maturing in 2008
|
|
|
16,978
|
|
|
|
17,486
|
|
Other indebtedness due through
2011 at variable interest rates based on prime (8.25% at
year-end 2006) and at fixed interest rates ranging from
6.00% to 9.50% secured primarily by real estate including
non-recourse debt of consolidated ventures
|
|
|
33,633
|
|
|
|
17,633
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,611
|
|
|
$
|
109,119
|
|
|
|
|
|
|
|
|
|
|
F-15
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our debt agreements contain terms, conditions, and financial
covenants customary for such agreements including minimum levels
of interest coverage and limitations on leverage. At year-end
2006, we had complied with the terms, conditions, and financial
covenants of these agreements.
At year-end 2006, commercial operating properties having a book
value of $23,500,000 were subject to liens in connection with
$16,978,000 of debt, and entitled developed and under
development land having a book value of $87,865,000 were subject
to liens in connection with $33,633,000 of debt. Please read
Schedule III for additional information.
Maturities of our debt during the next five years are:
2007 $6,649,000; 2008 $30,821,000;
2009 $4,941,000; 2010 $0;
2011 $8,200,000; and thereafter $0.
We capitalized and deducted from interest expense interest
incurred on real estate development projects of $543,000 in
2006, $1,444,000 in 2005, and $1,018,000 in 2004. We paid
interest of $4,309,000 in 2006, $7,171,000 in 2005, and
$6,133,000 in 2004 of which $2,881,000 in 2006 was paid to
Temple-Inland.
|
|
Note 7
|
Fair
Value of Financial Instruments
|
The carrying values of financial assets and liabilities,
including cash, receivables, and accounts payable at year-end
2006 and 2005 approximate fair values because of the short
maturity of these instruments. The carrying amount of notes
receivable and notes payable approximates fair value at year-end
2006 and 2005 since the notes are at floating rates or fixed
rates, which approximate current market rates for notes with
similar risks and maturities.
Income tax expense consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Current tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
(29,954
|
)
|
|
$
|
(16,327
|
)
|
|
$
|
(15,892
|
)
|
State and other
|
|
|
(4,928
|
)
|
|
|
(2,954
|
)
|
|
|
(2,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,882
|
)
|
|
|
(19,281
|
)
|
|
|
(18,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
3,708
|
|
|
|
(1,416
|
)
|
|
|
1,192
|
|
State and other
|
|
|
1,204
|
|
|
|
(162
|
)
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,912
|
|
|
|
(1,578
|
)
|
|
|
1,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(29,970
|
)
|
|
$
|
(20,859
|
)
|
|
$
|
(17,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (paid) refunded to
Temple-Inland, net
|
|
$
|
(125
|
)
|
|
$
|
(3,444
|
)
|
|
$
|
(4,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2006, Texas enacted a margin tax to replace the franchise
tax, which for us results in a lower overall Texas tax rate. As
a result, in 2006 we recognized a one-time, non-cash benefit of
$780,000 related to the reduction of previously provided
deferred state income taxes.
In 2006, the Internal Revenue Service completed the examinations
of Temple-Inlands tax returns through 2003.
F-16
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the federal statutory rate to the effective
income tax rate on continuing operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Federal statutory rate
|
|
|
35%
|
|
|
|
35%
|
|
|
|
35%
|
|
State, net of federal benefit
|
|
|
3
|
|
|
|
3
|
|
|
|
4
|
|
Other
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
37%
|
|
|
|
37%
|
|
|
|
38%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of deferred taxes are:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Deferred Tax
Liabilities:
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
(9,237
|
)
|
|
$
|
(16,003
|
)
|
Timber
|
|
|
(6,439
|
)
|
|
|
(6,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,676
|
)
|
|
|
(22,881
|
)
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
|
829
|
|
|
|
325
|
|
Accruals not deductible until paid
|
|
|
409
|
|
|
|
2,964
|
|
Other
|
|
|
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
1,238
|
|
|
|
3,532
|
|
Less valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
|
|
3,532
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax
Liability
|
|
$
|
(14,438
|
)
|
|
$
|
(19,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Note 9
|
Litigation
and Environmental Contingencies
|
We are involved in various legal proceedings that arise from
time to time in the ordinary course of doing business and
believe that adequate reserves have been established for any
probable losses.
Liabilities in connection with environmental remediation arise
from time to time in the ordinary course of doing business and
we believe we have established adequate reserves for any
probable losses.
We 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.
|
|
Note 10
|
Commitments
and Other Contingencies
|
We lease timberland, facilities, and equipment under operating
lease agreements. Future minimum rental commitments under
non-cancelable operating leases having a remaining term in
excess of one year are: 2007 $1,002,000;
2008 $864,000; 2009 $870,000;
2010 $791,000; 2011 $724,000; and
thereafter $6,847,000.
Rent expense on timberland was $414,000 in 2006, $392,000 in
2005 and $368,000 in 2004. Other rent expense was $445,000 in
2006, $328,000 in 2005, and $261,000 in 2004.
F-17
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with our unconsolidated venture operations, we
have provided performance bonds and letters of credit
aggregating $13,267,000 at year-end 2006. Generally these
performance bonds and letters of credit would be drawn on due to
lack of specific performance by the ventures, such as failure to
deliver streets and utilities in accordance with local codes and
ordinances. In addition, we have agreed to contribute an
additional $14,157,000 to one of our ventures as and when needed.
|
|
Note 11
|
Segment
Information
|
We operate two business segments: real estate and natural
resources. Real estate secures entitlements and develops
infrastructure on our lands for single-family residential and
mixed-use communities, and manages our undeveloped land and our
commercial operating properties. Natural resources manages our
mineral interests, timber, and recreational leases.
We evaluate performance based on segment earnings before
unallocated expenses and income taxes. Segment earnings consists
of operating income, equity in earnings of unconsolidated
ventures, and minority interest expense in consolidated
ventures. Unallocated expenses consist of corporate general and
administrative expense, share-based compensation, other
non-operating income (expense), and interest expense. The
accounting policies of the segments are the same as those
described in the accounting policy note to the combined and
consolidated financial statements. Our revenues are derived from
our U.S. operations and all of our assets are located in
the U.S. No single customer accounts for more than
10 percent of our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses Not
|
|
|
|
|
|
|
|
|
|
Natural
|
|
|
Allocated to
|
|
|
|
|
|
|
Real Estate
|
|
|
Resources
|
|
|
Segments
(a)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
For the year or at year-end
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
180,151
|
|
|
$
|
45,409
|
|
|
$
|
|
|
|
$
|
225,560
|
|
Depreciation and amortization
|
|
|
2,298
|
|
|
|
57
|
|
|
|
|
|
|
|
2,355
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
19,371
|
|
|
|
|
|
|
|
|
|
|
|
19,371
|
|
Income (loss) before taxes
|
|
|
70,271
|
|
|
|
33,016
|
|
|
|
(21,473
|
)
|
|
|
81,814
|
|
Total assets
|
|
|
546,911
|
|
|
|
59,414
|
|
|
|
13,849
|
|
|
|
620,174
|
|
Investment in unconsolidated
ventures
|
|
|
90,444
|
|
|
|
|
|
|
|
|
|
|
|
90,444
|
|
Capital
expenditures
(b)
|
|
|
2,558
|
|
|
|
1,433
|
|
|
|
|
|
|
|
3,991
|
|
For the year or at year-end
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
118,121
|
|
|
$
|
37,366
|
|
|
$
|
|
|
|
$
|
155,487
|
|
Depreciation and amortization
|
|
|
2,184
|
|
|
|
65
|
|
|
|
|
|
|
|
2,249
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
17,180
|
|
|
|
|
|
|
|
|
|
|
|
17,180
|
|
Income (loss) before taxes
|
|
|
46,418
|
|
|
|
24,850
|
|
|
|
(15,512
|
)
|
|
|
55,756
|
|
Total assets
|
|
|
467,155
|
|
|
|
61,478
|
|
|
|
15,311
|
|
|
|
543,944
|
|
Investment in unconsolidated
ventures
|
|
|
76,846
|
|
|
|
|
|
|
|
|
|
|
|
76,846
|
|
Capital
expenditures
(b)
|
|
|
63
|
|
|
|
1,553
|
|
|
|
|
|
|
|
1,616
|
|
For the year or at year-end
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
138,823
|
|
|
$
|
30,478
|
|
|
$
|
|
|
|
$
|
169,301
|
|
Depreciation and amortization
|
|
|
2,686
|
|
|
|
95
|
|
|
|
|
|
|
|
2,781
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
12,211
|
|
|
|
|
|
|
|
|
|
|
|
12,211
|
|
Income (loss) before taxes
|
|
|
43,370
|
|
|
|
18,653
|
|
|
|
(16,143
|
)
|
|
|
45,880
|
|
Total assets
|
|
|
437,173
|
|
|
|
63,518
|
|
|
|
17,009
|
|
|
|
517,700
|
|
Investment in unconsolidated
ventures
|
|
|
53,423
|
|
|
|
|
|
|
|
|
|
|
|
53,423
|
|
Capital
expenditures
(b)
|
|
|
421
|
|
|
|
1,501
|
|
|
|
|
|
|
|
1,922
|
|
F-18
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(a)
|
|
Expenses not allocated to segments consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Corporate general and
administrative
|
|
$
|
(8,911
|
)
|
|
$
|
(5,818
|
)
|
|
$
|
(7,371
|
)
|
Expense allocation from
Temple-Inland (see Note 15)
|
|
|
(5,137
|
)
|
|
|
(3,295
|
)
|
|
|
(3,062
|
)
|
Share-based compensation
allocation from Temple-Inland (see Note 12)
|
|
|
(1,275
|
)
|
|
|
(443
|
)
|
|
|
(154
|
)
|
Interest expense
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
|
|
(6,091
|
)
|
Other non-operating income
(expense)
|
|
|
79
|
|
|
|
483
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21,473
|
)
|
|
$
|
(15,512
|
)
|
|
$
|
(16,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
|
Consists of expenditures for property and equipment and
reforestation.
|
|
|
Note 12
|
Share-Based
Compensation
|
We participate in Temple-Inlands share-based compensation
plans and as a result certain of our employees received
share-based compensation awards under these plans. Those
shareholder approved share-based compensation plans permit
awards to key employees in the form of restricted or performance
units, restricted stock, or options to purchase shares of
Temple-Inland common stock. The awards are generally granted
annually in February.
After the spin-off, our employees will no longer receive new
awards under the Temple-Inland share-based compensation plans.
It is anticipated that all outstanding share-based awards will
be equitably adjusted into three separate awards: one related to
Forestar common stock, one related to Temple-Inland common
stock, and one related to Guaranty common stock. Such adjustment
is expected to be made so that immediately following the
spin-off the number of shares relating to each award and, for
options, the per share option exercise price of the original
Temple-Inland stock option, will be proportionally allocated
between Forestar, Guaranty, and Temple-Inland awards based on
relative per share trading prices of their common stock
immediately following the spin-off. These equitable adjustments
are intended to preserve the economic value of the awards
immediately prior to the spin-off. All Forestar and Guaranty
awards issued as part of this adjustment and the Temple-Inland
awards will continue to be subject to their current vesting
schedules.
The expense for the share-based compensation awards granted to
our employees was allocated to us by Temple-Inland. Information
about these Temple-Inland awards follows:
Restricted
or performance units
Restricted or performance units generally have a three-year
term; vest after three years from the date of grant or the
attainment of stated ROI based performance goals, generally
measured over a three-year period; and are settled in cash or
common stock as determined on the date of grant. The restricted
and performance units provide for accelerated vesting upon
retirement, death, disability, or if there is a change in
control. A
F-19
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
bonus deferral plan is also offered that can be settled in cash
or stock. A summary of activity for 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average Grant
|
|
|
Aggregate
|
|
|
|
Temple-Inland
|
|
|
Date Fair Value
|
|
|
Current
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
Not vested beginning of 2006
|
|
|
12
|
|
|
$
|
33
|
|
|
|
|
|
Granted
|
|
|
39
|
|
|
|
46
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested year-end 2006
|
|
|
51
|
|
|
|
43
|
|
|
$
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested year-end 2006 subject
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time vesting requirements
|
|
|
27
|
|
|
|
|
|
|
$
|
1,259
|
|
Performance requirements
|
|
|
24
|
|
|
|
|
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
$
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested year-end 2006 to be
settled in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
45
|
|
|
|
|
|
|
$
|
2,046
|
|
Stock
|
|
|
6
|
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
$
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no vested restricted or performance units to be
settled at year-end 2006.
Restricted
stock
Restricted stock awards generally vest after three to six years,
and provide for accelerated vesting upon retirement, death,
disability, or if there is a change in control. Compensation
costs are recognized ratably over the service period. There were
no restricted stock awards granted in 2006. There were 13,000
restricted stock awards outstanding at year-end 2006 with a
weighted average grant date fair value of $36 per share and an
aggregate current value of $589,000 or $46.03 per share. There
were no restricted stock awards that vested in 2006.
F-20
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
options
Stock options have a ten-year term, generally become exercisable
ratably over four years and provide for accelerated or continued
vesting upon retirement, death, disability, or if there is a
change in control. Options are granted with an exercise price
equal to the market value of Temple-Inland common stock on the
date of grant. A summary of activity for 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
(Current value
|
|
|
|
Temple-Inland
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
less exercise
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Term
|
|
|
price)
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Outstanding beginning of 2006
|
|
|
154
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
47
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(27
|
)
|
|
|
28
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding year-end 2006
|
|
|
174
|
|
|
|
33
|
|
|
|
7
|
|
|
$
|
2,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable year-end 2006
|
|
|
87
|
|
|
|
27
|
|
|
|
5
|
|
|
$
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised was $497,000 in 2006,
$286,000 in 2005, and $338,000 in 2004.
Temple-Inland estimated the fair value of the options granted
using the Black-Scholes-Merton option-pricing model and the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Expected dividend yield
|
|
|
2.4%
|
|
|
|
2.3%
|
|
|
|
2.9%
|
|
Expected stock price volatility
|
|
|
25.1%
|
|
|
|
28.2%
|
|
|
|
28.8%
|
|
Risk-free interest rate
|
|
|
4.4%
|
|
|
|
4.2%
|
|
|
|
4.4%
|
|
Expected life of options in years
|
|
|
6
|
|
|
|
8
|
|
|
|
8
|
|
Weighted average estimated fair
value of options granted
|
|
$
|
11.53
|
|
|
$
|
11.13
|
|
|
$
|
8.31
|
|
The expected life of options was based on historical experience.
The expected stock price volatility was based on historical
prices of Temple-Inland common stock for a period corresponding
to the expected life of the options with appropriate
consideration given to current conditions and events. Historical
data was used to estimate pre-vesting forfeitures stratified
into two groups based on job level.
Share-based
compensation expense
Pre-tax share-based compensation expense allocated to us by
Temple-Inland consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Restricted or performance
units cash
|
|
$
|
635
|
|
|
$
|
82
|
|
|
$
|
|
|
Restricted or performance
units stock
|
|
|
224
|
|
|
|
194
|
|
|
|
64
|
|
Stock options
|
|
|
416
|
|
|
|
167
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax share-based compensation
expense
|
|
$
|
1,275
|
|
|
$
|
443
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pre-tax share-based compensation expense included in other
operating and general and administrative expense follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
General and administrative
|
|
$
|
1,096
|
|
|
$
|
368
|
|
|
$
|
113
|
|
Other operating
|
|
|
179
|
|
|
|
75
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,275
|
|
|
$
|
443
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of awards granted to retirement-eligible
employees and expensed at the date of grant was $153,000 in
2006, all of which was related to stock options. The amount of
share-based compensation capitalized was not significant.
Unrecognized share-based compensation for all awards not vested
was $1,996,000 at year-end 2006. It is likely that this cost
will be recognized as expense over the next four years.
|
|
Note 13
|
Pension
and Postretirement Plans
|
We participate in Temple-Inlands pension and
postretirement plans and as a result certain of our employees
are entitled to receive benefits under those plans. The pension
and postretirement expense for our employees allocated to us by
Temple-Inland was $716,000 in 2006, $946,000 in 2005, and
$433,000 in 2004.
After the spin-off, our employees will no longer participate in
the Temple-Inland post-retirement plans, and as a result, will
not accrue any additional benefits. The liability for their
benefits as of the spin-off date will be retained by
Temple-Inland.
|
|
Note 14
|
Summary
of Quarterly Results of Operations (Unaudited)
|
Selected quarterly financial results for 2006 and 2005 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
2006
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands)
|
|
|
Total revenues
|
|
$
|
60,107
|
|
|
$
|
54,545
|
|
|
$
|
68,796
|
|
|
$
|
42,112
|
|
Operating income
|
|
|
25,997
|
|
|
|
15,095
|
|
|
|
19,038
|
|
|
|
11,694
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
10,154
|
|
|
|
3,538
|
|
|
|
1,850
|
|
|
|
3,829
|
|
Income before taxes
|
|
|
33,994
|
|
|
|
17,044
|
|
|
|
18,067
|
|
|
|
12,709
|
|
Net income
|
|
|
21,213
|
|
|
|
11,418
|
|
|
|
11,278
|
|
|
|
7,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
2005
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands)
|
|
|
Total revenues
|
|
$
|
36,417
|
|
|
$
|
35,285
|
|
|
$
|
36,306
|
|
|
$
|
47,479
|
|
Operating income
|
|
|
8,063
|
|
|
|
9,509
|
|
|
|
9,562
|
|
|
|
18,452
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
4,062
|
|
|
|
4,277
|
|
|
|
4,929
|
|
|
|
3,912
|
|
Income before taxes
|
|
|
10,550
|
|
|
|
12,165
|
|
|
|
12,740
|
|
|
|
20,301
|
|
Net income
|
|
|
6,603
|
|
|
|
7,614
|
|
|
|
7,974
|
|
|
|
12,706
|
|
F-22
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15
|
Related
Party Transactions
|
We reimburse Temple-Inland for expenses incurred on our behalf
and allocated to us. Additional allocated expense incurred by
Temple-Inland but not directly attributable to us are reflected
as capital contributions, net of tax. Please read Note 1
for additional information.
A summary of allocated expenses from Temple-Inland follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Legal, human resources and other
administrative costs
|
|
$
|
2,178
|
|
|
$
|
1,986
|
|
|
$
|
1,842
|
|
Variable compensation
|
|
|
1,146
|
|
|
|
372
|
|
|
|
196
|
|
Accounting and finance
|
|
|
954
|
|
|
|
785
|
|
|
|
871
|
|
Information technology support
|
|
|
664
|
|
|
|
33
|
|
|
|
35
|
|
Internal audit, governance and
other
|
|
|
195
|
|
|
|
119
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,137
|
|
|
|
3,295
|
|
|
|
3,062
|
|
Share based compensation
|
|
|
1,275
|
|
|
|
443
|
|
|
|
154
|
|
Pension and postretirement
|
|
|
716
|
|
|
|
946
|
|
|
|
433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,128
|
|
|
$
|
4,684
|
|
|
$
|
3,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We pay income taxes to Temple-Inland as if we filed a separate
income tax return. Please read Note 8 for additional
information. In addition, rent paid to a subsidiary of
Temple-Inland was $178,000 in 2006, $151,000 in 2005, and
$151,000 in 2004.
Sales of timber to Temple-Inland were $8,867,000 in 2006,
$9,615,000 in 2005 and $10,649,000 in 2004.
Temple-Inland
Credit Facility
In 2006, we established a credit facility with Temple-Inland.
Under this facility, when we need funds we borrow and when we
have excess funds we use them to repay amounts borrowed.
Borrowings under this agreement accrued interest at
4.86 percent at year-end 2006. In 2006, the average daily
balance was $84,313,000, the maximum month-end balance was
$110,506,000, the weighted average interest rate on borrowing
was 4.46 percent, and the related interest expense was
$3,758,000. Before we established the credit facility with
Temple-Inland, we supported our cash needs through our
operations, intercompany payables, or capital contributions from
Temple-Inland.
A summary of the activity in the Temple-Inland credit facility
and intercompany payables follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
12,829
|
|
|
$
|
11,027
|
|
Additions
|
|
|
186,777
|
|
|
|
5,688
|
|
Repayments
|
|
|
(89,100
|
)
|
|
|
(3,886
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
110,506
|
|
|
$
|
12,829
|
|
|
|
|
|
|
|
|
|
|
Additions to the Temple-Inland credit facility consist of
acquisition and development costs, venture contributions, and
other operating, general and administrative expenses, and income
taxes. Repayments to the Temple-Inland credit facility are made
when our daily sources of funds from operations exceed our uses
of funds.
F-23
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 16
|
Other
Information (Unaudited)
|
As part of its transformation plan, Temple-Inland will
contribute certain assets to Forestar. In addition, expenses
incurred by Temple-Inland on our behalf have been allocated to
us. As a result, the amounts previously reported by
Temple-Inland for its real estate segment differ from those
included in this Form 10 for Forestar. A reconciliation
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported by
|
|
|
|
|
|
|
|
|
As Reported in
|
|
|
|
Temple-Inland for
|
|
|
|
|
|
Allocated
|
|
|
This Form 10
|
|
|
|
Real Estate Segment
|
|
|
Reclassification
(a)
|
|
|
Expenses
(b)
|
|
|
for Forestar
|
|
|
|
(In thousands)
|
|
|
For the year or at year-end
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
175,339
|
|
|
$
|
50,221
|
|
|
|
|
|
|
$
|
225,560
|
|
Depreciation and amortization
|
|
|
2,250
|
|
|
|
105
|
|
|
|
|
|
|
|
2,355
|
|
Income (loss) before taxes
|
|
|
61,939
|
|
|
|
25,410
|
|
|
|
(5,535
|
)
|
|
|
81,814
|
|
Total assets
|
|
|
544,063
|
|
|
|
76,111
|
|
|
|
|
|
|
|
620,174
|
|
Capital expenditures
|
|
|
2,558
|
|
|
|
1,433
|
|
|
|
|
|
|
|
3,991
|
|
For the year or at year-end
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
113,071
|
|
|
$
|
42,416
|
|
|
|
|
|
|
$
|
155,487
|
|
Depreciation and amortization
|
|
|
2,047
|
|
|
|
202
|
|
|
|
|
|
|
|
2,249
|
|
Income (loss) before taxes
|
|
|
43,293
|
|
|
|
16,201
|
|
|
|
(3,738
|
)
|
|
|
55,756
|
|
Total assets
|
|
|
422,055
|
|
|
|
121,889
|
|
|
|
|
|
|
|
543,944
|
|
Capital expenditures
|
|
|
63
|
|
|
|
1,553
|
|
|
|
|
|
|
|
1,616
|
|
For the year or at year-end
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
152,265
|
|
|
$
|
17,036
|
|
|
|
|
|
|
$
|
169,301
|
|
Depreciation and amortization
|
|
|
2,620
|
|
|
|
161
|
|
|
|
|
|
|
|
2,781
|
|
Income (loss) before taxes
|
|
|
36,115
|
|
|
|
12,981
|
|
|
|
(3,216
|
)
|
|
|
45,880
|
|
Total assets
|
|
|
380,507
|
|
|
|
137,193
|
|
|
|
|
|
|
|
517,700
|
|
Capital expenditures
|
|
|
421
|
|
|
|
1,501
|
|
|
|
|
|
|
|
1,922
|
|
|
|
|
(a)
|
|
Reclassified to reflect the transfer of an additional
138,000 acres of real estate and timber, principally
undeveloped land, about 623,000 net acres of oil and gas
mineral interests, and several small real estate development
projects and assets previously included in Temple-Inlands
other business segments. These reclassifications were made as if
they had occurred at the beginning of the earliest period
presented and they were made based on carrying values or
historical amounts. Total assets include cash and cash
equivalents which were previously not allocated to the real
estate segment in the historical Temple-Inland financial
statements.
|
|
(b)
|
|
Please read Note 1 for additional information.
|
F-24
FORESTAR
REAL ESTATE GROUP AND CONSOLIDATED VENTURES
SCHEDULE III COMBINED AND CONSOLIDATED REAL
ESTATE AND ACCUMULATED DEPRECIATION
Year-End 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
Improvements
|
|
|
|
|
|
Gross Amount Carried at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
less Cost of
|
|
|
Carrying
|
|
|
Land & Land
|
|
|
Buildings &
|
|
|
|
|
|
Accumulated
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Sales and Other
|
|
|
Costs
(a)
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
|
(Dollars in thousands)
|
|
Entitled, Developed, and Under
Development Projects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CALIFORNIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contra Costa
County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin River
|
|
|
|
|
|
$
|
12,225
|
|
|
$
|
279
|
|
|
$
|
(3,517
|
)
|
|
|
|
|
|
$
|
8,708
|
|
|
$
|
279
|
|
|
$
|
8,987
|
|
|
$
|
(88
|
)
|
|
|
|
|
|
|
|
|
COLORADO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinery West
|
|
$
|
5,475
|
|
|
|
7,308
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
7,601
|
|
|
|
|
|
|
|
7,601
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Weld County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo Highlands
|
|
|
|
|
|
|
3,001
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
3,335
|
|
|
|
|
|
|
|
3,335
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Johnstown Farms
|
|
|
|
|
|
|
2,749
|
|
|
|
|
|
|
|
7,764
|
|
|
$
|
188
|
|
|
|
10,701
|
|
|
|
|
|
|
|
10,701
|
|
|
|
|
|
|
|
2002
|
|
|
|
2002
|
|
Stonebraker
|
|
|
|
|
|
|
3,878
|
|
|
|
|
|
|
|
488
|
|
|
|
|
|
|
|
4,366
|
|
|
|
|
|
|
|
4,366
|
|
|
|
|
|
|
|
2005
|
|
|
|
2005
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bastrop County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunters Crossing
|
|
|
|
|
|
|
3,613
|
|
|
|
|
|
|
|
8,006
|
|
|
|
308
|
|
|
|
11,927
|
|
|
|
|
|
|
|
11,927
|
|
|
|
|
|
|
|
2001
|
|
|
|
2001
|
|
The Colony
|
|
|
1,072
|
|
|
|
6,728
|
|
|
|
427
|
|
|
|
5,336
|
|
|
|
38
|
|
|
|
12,102
|
|
|
|
427
|
|
|
|
12,529
|
|
|
|
|
|
|
|
1999
|
|
|
|
1999
|
|
Bexar County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cibolo Canyons
|
|
|
|
|
|
|
25,568
|
|
|
|
|
|
|
|
21,199
|
|
|
|
220
|
|
|
|
46,987
|
|
|
|
|
|
|
|
46,987
|
|
|
|
|
|
|
|
2004
|
|
|
|
1986
|
|
Olympia Hills
|
|
|
|
|
|
|
3,330
|
|
|
|
|
|
|
|
(1,458
|
)
|
|
|
584
|
|
|
|
2,456
|
|
|
|
|
|
|
|
2,456
|
|
|
|
|
|
|
|
|
|
|
|
1995
|
|
Burnet County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Double Horn Creek
|
|
|
|
|
|
|
2,087
|
|
|
|
|
|
|
|
850
|
|
|
|
45
|
|
|
|
2,982
|
|
|
|
|
|
|
|
2,982
|
|
|
|
|
|
|
|
1999
|
|
|
|
1999
|
|
Calhoun County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caracol
|
|
|
7,366
|
|
|
|
8,603
|
|
|
|
|
|
|
|
4,527
|
|
|
|
|
|
|
|
13,130
|
|
|
|
|
|
|
|
13,130
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Collin County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maxwell Creek
|
|
|
|
|
|
|
9,904
|
|
|
|
|
|
|
|
1,822
|
|
|
|
234
|
|
|
|
11,960
|
|
|
|
|
|
|
|
11,960
|
|
|
|
|
|
|
|
2000
|
|
|
|
2000
|
|
The Gables at North Hill
|
|
|
|
|
|
|
2,160
|
|
|
|
|
|
|
|
(302
|
)
|
|
|
63
|
|
|
|
1,921
|
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
2004
|
|
|
|
2001
|
|
Comal County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oakcreek Estates
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
3,943
|
|
|
|
62
|
|
|
|
5,926
|
|
|
|
|
|
|
|
5,926
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Denton County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lantana
|
|
|
19,660
|
|
|
|
31,451
|
|
|
|
|
|
|
|
13,374
|
|
|
|
|
|
|
|
44,825
|
|
|
|
|
|
|
|
44,825
|
|
|
|
|
|
|
|
2000
|
|
|
|
1999
|
|
The Preserve at Pecan Creek
|
|
|
|
|
|
|
5,855
|
|
|
|
|
|
|
|
3,851
|
|
|
|
119
|
|
|
|
9,825
|
|
|
|
|
|
|
|
9,825
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Harris County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Park
|
|
|
60
|
|
|
|
3,946
|
|
|
|
|
|
|
|
4,239
|
|
|
|
1,595
|
|
|
|
9,780
|
|
|
|
|
|
|
|
9,780
|
|
|
|
|
|
|
|
2002
|
|
|
|
2001
|
|
Katy Freeway
|
|
|
|
|
|
|
1,710
|
|
|
|
704
|
|
|
|
1,640
|
|
|
|
|
|
|
|
1,710
|
|
|
|
2,344
|
|
|
|
4,054
|
|
|
|
(1,992
|
)
|
|
|
|
|
|
|
|
|
Hood County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harbor Lakes
|
|
|
|
|
|
|
3,514
|
|
|
|
|
|
|
|
9,123
|
|
|
|
258
|
|
|
|
12,895
|
|
|
|
|
|
|
|
12,895
|
|
|
|
(403
|
)
|
|
|
2000
|
|
|
|
1998
|
|
Nueces County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tortuga Dunes
|
|
|
|
|
|
|
12,080
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
12,221
|
|
|
|
|
|
|
|
12,221
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
Rockwall County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caruth Lakes
|
|
|
|
|
|
|
1,624
|
|
|
|
|
|
|
|
5,373
|
|
|
|
63
|
|
|
|
7,060
|
|
|
|
|
|
|
|
7,060
|
|
|
|
|
|
|
|
1997
|
|
|
|
1996
|
|
Tarrant County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kingsridge
|
|
|
|
|
|
|
2,383
|
|
|
|
|
|
|
|
(1,393
|
)
|
|
|
66
|
|
|
|
1,056
|
|
|
|
|
|
|
|
1,056
|
|
|
|
|
|
|
|
2002
|
|
|
|
2001
|
|
The Parks at Deer Creek
|
|
|
|
|
|
|
3,538
|
|
|
|
|
|
|
|
666
|
|
|
|
350
|
|
|
|
4,554
|
|
|
|
|
|
|
|
4,554
|
|
|
|
|
|
|
|
1999
|
|
|
|
1998
|
|
Travis County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presidio at Judges Hill
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
740
|
|
|
|
|
|
|
|
2,240
|
|
|
|
|
|
|
|
2,240
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
The Ridge at Ribelin Ranch
|
|
|
|
|
|
|
23,751
|
|
|
|
|
|
|
|
(16,366
|
)
|
|
|
|
|
|
|
7,385
|
|
|
|
|
|
|
|
7,385
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Williamson
County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westside at Buttercup Creek
|
|
|
|
|
|
|
13,149
|
|
|
|
|
|
|
|
(2,888
|
)
|
|
|
147
|
|
|
|
10,408
|
|
|
|
|
|
|
|
10,408
|
|
|
|
|
|
|
|
1993
|
|
|
|
1993
|
|
Chandler Road Properties
|
|
|
|
|
|
|
3,552
|
|
|
|
|
|
|
|
(689
|
)
|
|
|
|
|
|
|
2,863
|
|
|
|
|
|
|
|
2,863
|
|
|
|
|
|
|
|
2004
|
|
|
|
2004
|
|
La Conterra
|
|
|
|
|
|
|
4,024
|
|
|
|
|
|
|
|
266
|
|
|
|
|
|
|
|
4,290
|
|
|
|
|
|
|
|
4,290
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
MISSOURI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clay County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Somerbrook
|
|
|
|
|
|
|
3,061
|
|
|
|
|
|
|
|
(348
|
)
|
|
|
10
|
|
|
|
2,723
|
|
|
|
|
|
|
|
2,723
|
|
|
|
|
|
|
|
2003
|
|
|
|
2001
|
|
UTAH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weber
County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort Bingham Estates
|
|
|
|
|
|
|
3,284
|
|
|
|
|
|
|
|
(761
|
)
|
|
|
33
|
|
|
|
2,556
|
|
|
|
|
|
|
|
2,556
|
|
|
|
|
|
|
|
2003
|
|
|
|
1998
|
|
Other
|
|
|
|
|
|
|
24,037
|
|
|
|
|
|
|
|
(17,699
|
)
|
|
|
2,653
|
|
|
|
8,991
|
|
|
|
|
|
|
|
8,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Entitled, Developed,
and Under Development Projects
|
|
$
|
33,633
|
|
|
$
|
235,534
|
|
|
$
|
1,410
|
|
|
$
|
48,554
|
|
|
$
|
7,036
|
|
|
$
|
289,484
|
|
|
$
|
3,050
|
|
|
$
|
292,534
|
|
|
$
|
(2,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
FORESTAR
REAL ESTATE GROUP AND CONSOLIDATED VENTURES
SCHEDULE III COMBINED AND CONSOLIDATED REAL
ESTATE AND ACCUMULATED
DEPRECIATION (Continued)
Year-End 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
Improvements
|
|
|
|
|
|
Gross Amount Carried at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
less Cost of
|
|
|
Carrying
|
|
|
Land & Land
|
|
|
Buildings &
|
|
|
|
|
|
Accumulated
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Sales and Other
|
|
|
Costs
(a)
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
|
(Dollars in thousands)
|
|
Undeveloped Land:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALABAMA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cherokee County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
$
|
3,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,544
|
|
|
|
|
|
|
$
|
3,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleburne County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,486
|
|
|
|
|
|
|
|
2,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CALIFORNIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles
County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
3,219
|
|
|
|
|
|
|
$
|
2,847
|
|
|
|
|
|
|
|
6,066
|
|
|
|
|
|
|
|
6,066
|
|
|
|
|
|
|
|
|
|
|
|
1997
|
|
GEORGIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,821
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
2,836
|
|
|
|
|
|
|
|
2,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bartow County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
6,680
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
6,782
|
|
|
|
|
|
|
|
6,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
520
|
|
|
|
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carroll County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
5,471
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
5,511
|
|
|
|
|
|
|
|
5,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
12,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,021
|
|
|
|
|
|
|
|
12,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chattooga
County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,951
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
1,965
|
|
|
|
|
|
|
|
1,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cherokee County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,679
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
4,772
|
|
|
|
|
|
|
|
4,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
3,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,034
|
|
|
|
|
|
|
|
3,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coweta County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,777
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
3,018
|
|
|
|
|
|
|
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
2,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,895
|
|
|
|
|
|
|
|
2,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dawson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,259
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
3,266
|
|
|
|
|
|
|
|
3,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,104
|
|
|
|
|
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elbert County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,012
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
2,015
|
|
|
|
|
|
|
|
2,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floyd County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,623
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
3,656
|
|
|
|
|
|
|
|
3,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gilmer County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,571
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
3,591
|
|
|
|
|
|
|
|
3,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,834
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
2,848
|
|
|
|
|
|
|
|
2,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hall County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,207
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
1,225
|
|
|
|
|
|
|
|
1,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Haralson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
9,607
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
9,728
|
|
|
|
|
|
|
|
9,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heard County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
9,586
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
9,633
|
|
|
|
|
|
|
|
9,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jackson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,166
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
1,292
|
|
|
|
|
|
|
|
1,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
885
|
|
|
|
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumpkin County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,645
|
|
|
|
|
|
|
|
3,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meriwether
County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,027
|
|
|
|
|
|
|
|
2,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pickens County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,068
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
4,141
|
|
|
|
|
|
|
|
4,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polk County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,164
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
3,190
|
|
|
|
|
|
|
|
3,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troup County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,877
|
|
|
|
|
|
|
|
459
|
|
|
|
|
|
|
|
5,336
|
|
|
|
|
|
|
|
5,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
FORESTAR
REAL ESTATE GROUP AND CONSOLIDATED VENTURES
SCHEDULE III COMBINED AND CONSOLIDATED REAL
ESTATE AND ACCUMULATED
DEPRECIATION (Continued)
Year-End 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
Improvements
|
|
|
|
|
|
Gross Amount Carried at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
less Cost of
|
|
|
Carrying
|
|
|
Land & Land
|
|
|
Buildings &
|
|
|
|
|
|
Accumulated
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Sales and Other
|
|
|
Costs
(a)
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
|
(Dollars in thousands)
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anderson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,062
|
|
|
|
|
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Angelina County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,308
|
|
|
|
|
|
|
|
1,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,632
|
|
|
|
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rusk County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
422
|
|
|
|
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sabine County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401
|
|
|
|
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Augustine
County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,358
|
|
|
|
|
|
|
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
5,907
|
|
|
|
|
|
|
|
1,491
|
|
|
|
|
|
|
|
7,398
|
|
|
|
|
|
|
|
7,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
4,225
|
|
|
|
|
|
|
|
2,054
|
|
|
|
|
|
|
|
6,279
|
|
|
|
|
|
|
|
6,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Undeveloped Land
|
|
$
|
|
|
|
$
|
125,326
|
|
|
$
|
|
|
|
$
|
2,911
|
|
|
$
|
|
|
|
$
|
133,170
|
|
|
$
|
|
|
|
$
|
133,170
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Operating
Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travis
County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radisson Hotel & Suites
|
|
$
|
16,978
|
|
|
|
|
|
|
$
|
16,316
|
|
|
$
|
25,435
|
|
|
|
|
|
|
|
|
|
|
$
|
41,751
|
|
|
$
|
41,751
|
|
|
$
|
(18,251
|
)
|
|
|
|
|
|
|
|
|
Hood
County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harbor Lakes
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
|
1,269
|
|
|
|
(173
|
)
|
|
|
2000
|
|
|
|
1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Operating
Properties
|
|
$
|
16,978
|
|
|
$
|
|
|
|
$
|
17,585
|
|
|
$
|
25,435
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43,020
|
|
|
$
|
43,020
|
|
|
$
|
(18,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,611
|
|
|
$
|
360,860
|
|
|
$
|
18,995
|
|
|
$
|
81,833
|
|
|
$
|
7,036
|
|
|
$
|
422,654
|
|
|
$
|
46,070
|
|
|
$
|
468,724
|
|
|
$
|
(20,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
We do not capitalize carrying costs until development begins.
|
F-27
FORESTAR
REAL ESTATE GROUP AND CONSOLIDATED VENTURES
SCHEDULE III COMBINED AND CONSOLIDATED REAL
ESTATE AND
ACCUMULATED DEPRECIATION (Continued)
Year-End 2006
Reconciliation of real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of year
|
|
$
|
392,107
|
|
|
$
|
383,798
|
|
|
$
|
394,833
|
|
Amounts capitalized
|
|
|
178,835
|
|
|
|
74,858
|
|
|
|
83,506
|
|
Amounts retired or adjusted
|
|
|
(102,218
|
)
|
|
|
(66,549
|
)
|
|
|
(94,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at close of period
|
|
$
|
468,724
|
|
|
$
|
392,107
|
|
|
$
|
383,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(18,957
|
)
|
|
$
|
(18,273
|
)
|
|
$
|
(20,629
|
)
|
Depreciation expense
|
|
|
(2,008
|
)
|
|
|
(1,829
|
)
|
|
|
(2,373
|
)
|
Amounts retired or adjusted
|
|
|
58
|
|
|
|
1,145
|
|
|
|
4,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at close of period
|
|
$
|
(20,907
|
)
|
|
$
|
(18,957
|
)
|
|
$
|
(18,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
Forestar
Real Estate Group Inc.
|
|
|
|
|
|
|
|
|
|
|
Second
|
|
|
|
|
|
|
Quarter-End
|
|
|
Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
9,091
|
|
|
$
|
10,350
|
|
Prepaid expenses
|
|
|
2,082
|
|
|
|
2,378
|
|
Real estate
|
|
|
511,822
|
|
|
|
447,817
|
|
Investment in unconsolidated
ventures
|
|
|
90,837
|
|
|
|
90,444
|
|
Receivables, net of allowance for
bad debts of $226 in 2007 and 2006
|
|
|
4,826
|
|
|
|
6,091
|
|
Timber
|
|
|
57,366
|
|
|
|
58,966
|
|
Property and equipment, net of
accumulated depreciation of $2,447 in 2007 and $2,387 in 2006
|
|
|
1,508
|
|
|
|
1,688
|
|
Other assets
|
|
|
3,884
|
|
|
|
2,440
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
681,416
|
|
|
$
|
620,174
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
TEMPLE-INLANDS NET INVESTMENT
|
Accounts payable
|
|
$
|
9,242
|
|
|
$
|
4,838
|
|
Accrued employee compensation and
benefits
|
|
|
2,010
|
|
|
|
2,114
|
|
Accrued interest
|
|
|
191
|
|
|
|
210
|
|
Accrued property taxes
|
|
|
4,833
|
|
|
|
4,577
|
|
Other accrued expenses
|
|
|
1,667
|
|
|
|
2,810
|
|
Deferred income taxes
|
|
|
12,845
|
|
|
|
14,438
|
|
Other liabilities
|
|
|
9,196
|
|
|
|
4,272
|
|
Note payable to Temple-Inland
|
|
|
131,561
|
|
|
|
110,506
|
|
Debt
|
|
|
70,281
|
|
|
|
50,611
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
241,826
|
|
|
|
194,376
|
|
Minority Interest in
Consolidated Ventures
|
|
|
8,043
|
|
|
|
7,746
|
|
Temple-Inlands Net
Investment
|
|
|
431,547
|
|
|
|
418,052
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
TEMPLE-INLANDS NET INVESTMENT
|
|
$
|
681,416
|
|
|
$
|
620,174
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited financial statements.
F-29
Forestar
Real Estate Group LLC
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
74,883
|
|
|
$
|
86,474
|
|
Natural resources and other
|
|
|
15,858
|
|
|
|
28,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,741
|
|
|
|
114,652
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
Cost of real estate
|
|
|
(34,057
|
)
|
|
|
(50,520
|
)
|
Cost of natural resources and other
|
|
|
(3,170
|
)
|
|
|
(2,587
|
)
|
Other operating
|
|
|
(14,443
|
)
|
|
|
(12,704
|
)
|
General and administrative
|
|
|
(10,066
|
)
|
|
|
(7,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,736
|
)
|
|
|
(73,560
|
)
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
29,005
|
|
|
|
41,092
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
2,977
|
|
|
|
13,692
|
|
Minority interest in consolidated
ventures
|
|
|
(4,029
|
)
|
|
|
(718
|
)
|
Interest expense
|
|
|
(4,241
|
)
|
|
|
(2,848
|
)
|
Other non-operating income
(expense)
|
|
|
112
|
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
|
23,824
|
|
|
|
51,038
|
|
Income tax expense
|
|
|
(8,731
|
)
|
|
|
(18,408
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
15,093
|
|
|
$
|
32,630
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited financial statements.
F-30
Forestar
Real Estate Group Inc.
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
CASH PROVIDED BY (USED FOR)
OPERATIONS
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,093
|
|
|
$
|
32,630
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,323
|
|
|
|
1,130
|
|
Deferred income taxes
|
|
|
(1,593
|
)
|
|
|
(3,295
|
)
|
Equity in earnings of
unconsolidated ventures
|
|
|
(2,977
|
)
|
|
|
(13,692
|
)
|
Distributions of earnings of
unconsolidated ventures
|
|
|
1,593
|
|
|
|
339
|
|
Minority interest in consolidated
ventures
|
|
|
4,029
|
|
|
|
718
|
|
Distributions to minority interests
|
|
|
(4,447
|
)
|
|
|
(150
|
)
|
Non-cash real estate cost of sales
|
|
|
24,957
|
|
|
|
38,885
|
|
Real estate development and
acquisition expenditures
|
|
|
(88,616
|
)
|
|
|
(81,153
|
)
|
Impairment, cost of timber cut and
other non-cash expenses
|
|
|
1,952
|
|
|
|
1,514
|
|
Other
|
|
|
1,019
|
|
|
|
2,508
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
2,252
|
|
|
|
(3,879
|
)
|
Prepaid assets and other
|
|
|
(1,145
|
)
|
|
|
(1,167
|
)
|
Accounts payable and other accrued
liabilities
|
|
|
6,647
|
|
|
|
(1,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,913
|
)
|
|
|
(26,765
|
)
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR)
INVESTING
|
|
|
|
|
|
|
|
|
Property, equipment, and
reforestation
|
|
|
(1,744
|
)
|
|
|
(1,532
|
)
|
Investment in unconsolidated
ventures
|
|
|
(2,202
|
)
|
|
|
(3,066
|
)
|
Return of investment in
unconsolidated ventures
|
|
|
2,800
|
|
|
|
14,731
|
|
Notes receivable sold
|
|
|
491
|
|
|
|
|
|
Other
|
|
|
166
|
|
|
|
1,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(489
|
)
|
|
|
11,444
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR)
FINANCING
|
|
|
|
|
|
|
|
|
Note payable to Temple-Inland, net
|
|
|
24,718
|
|
|
|
85,089
|
|
Payments of debt
|
|
|
(6,828
|
)
|
|
|
(84,897
|
)
|
Proceeds from issuance of debt
|
|
|
26,498
|
|
|
|
11,903
|
|
Investments of capital by minority
interest
|
|
|
726
|
|
|
|
140
|
|
Net transfers to Temple-Inland
|
|
|
(5,971
|
)
|
|
|
(2,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
39,143
|
|
|
|
9,734
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(1,259
|
)
|
|
|
(5,587
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
10,350
|
|
|
|
12,942
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
period-end
|
|
$
|
9,091
|
|
|
$
|
7,355
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited financial statements
F-31
|
|
Note 1
|
Nature of
Business and Basis of Presentation
|
Background
On February 26, 2007, Temple-Inland announced that its
Board of Directors had preliminarily approved a transformation
plan which included the spin-off of its real estate operations
to Temple-Inland shareholders as an independent publicly held
company. Prior to the spin-off, Temple-Inland will contribute
the assets, liabilities, operations and cash flow of its real
estate development and minerals operations to us. We are
currently a limited liability company that will convert to a
Delaware corporation before the spin-off. Our operations will
consist of the real estate segment of Temple-Inland, several
smaller real estate operations and assets previously included in
Temple-Inlands other business segments, and the minerals
operations previously included in Temple-Inlands forest
products segment.
Basis
of Presentation
Our combined and consolidated financial statements reflect the
historical accounts of the real estate development and minerals
operations to be contributed to us and have been derived from
the historical financial statements and accounts of
Temple-Inland. We prepared the accompanying unaudited interim
combined and consolidated financial statements in accordance
with generally accepted accounting principles and Securities and
Exchange Commission requirements for interim financial
statements. As a result, they do not include all of the
information and disclosures required by generally accepted
accounting principles for complete financial statements.
However, in our opinion, all adjustments considered necessary
for a fair presentation have been included. These adjustments
are normal recurring accruals, except as noted. These interim
operating results are not necessarily indicative of the results
that may be expected for the entire year. These combined and
consolidated financial statements should be read in conjunction
with our audited combined and consolidated financial statements
for year-end 2006.
We prepare our financial statements in accordance with generally
accepted accounting principles, which require us to make
estimates and assumptions about future events. Actual results
can, and probably will, differ from those we currently estimate.
Examples of significant estimates include those related to
allocating costs to real estate and measuring assets for
impairment.
Historical earnings per share are not presented since our common
stock that will be issued in the spin-off was not part of the
capital structure of Temple-Inland for the periods presented. We
will present basic and diluted earnings per share for Forestar
in the first report issued after the effective date of the
spin-off.
New
Accounting Pronouncement
Beginning in January 2007, we adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48). This
pronouncement clarifies the accounting for and disclosure of
uncertainties associated with certain aspects of measurement and
recognition of income taxes. The adoption of FIN 48 did not
result in any adjustments to our financial statements. We do not
have any unrecognized tax benefits at the beginning of 2007 or
second quarter-end 2007 which would affect our effective rate if
recognized.
F-32
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Real estate consists of:
|
|
|
|
|
|
|
|
|
|
|
Second
|
|
|
|
|
|
|
Quarter-End
|
|
|
Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Entitled, developed, and under
development land
|
|
$
|
354,753
|
|
|
$
|
292,534
|
|
Undeveloped land
|
|
|
133,741
|
|
|
|
133,170
|
|
Commercial operating properties
|
|
|
43,195
|
|
|
|
43,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
531,689
|
|
|
|
468,724
|
|
Accumulated depreciation
|
|
|
(19,867
|
)
|
|
|
(20,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
511,822
|
|
|
$
|
447,817
|
|
|
|
|
|
|
|
|
|
|
Included in entitled, developed, and under development land are
the estimated cost of assets we expect to convey to utility or
improvement districts of $40,781,000 at second quarter-end 2007
and $14,213,000 at year-end 2006. These costs relate to water,
sewer and other infrastructure assets for which the utility or
improvement districts have agreed to reimburse us. We billed
these districts $26,140,000 in first six months 2007 and
$3,097,000 in first six months 2006, and we collected from these
districts $597,000 in first six months 2007 and none in first
six months 2006. We expect to collect the remaining amounts
billed in first six months 2007 when these districts achieve
adequate tax bases to support payment, which is typically within
12 to 24 months.
Depreciation expense primarily related to commercial operating
properties was $1,006,000 for first six months 2007 and $960,000
for the first six months 2006 and is included in other operating
expense.
|
|
Note 3
|
Investment
in Unconsolidated Ventures
|
Combined summarized balance sheet information for our ventures
accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter-End 2007
|
|
|
Year-End 2006
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
CL Realty
|
|
|
Temco
|
|
|
Ventures
|
|
|
Total
|
|
|
CL Realty
|
|
|
Temco
|
|
|
Ventures
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Real estate
|
|
$
|
116,091
|
|
|
$
|
59,456
|
|
|
$
|
48,629
|
|
|
$
|
224,176
|
|
|
$
|
113,289
|
|
|
$
|
58,273
|
|
|
$
|
44,666
|
|
|
$
|
216,228
|
|
Total assets
|
|
|
125,735
|
|
|
|
64,132
|
|
|
|
97,618
|
|
|
|
287,485
|
|
|
|
117,779
|
|
|
|
65,765
|
|
|
|
99,523
|
|
|
|
283,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings, principally
non-recourse
(a)
|
|
|
3,884
|
|
|
|
3,512
|
|
|
|
59,654
|
|
|
|
67,050
|
|
|
|
5,357
|
|
|
|
3,745
|
|
|
|
56,407
|
|
|
|
65,509
|
|
Total liabilities
|
|
|
14,286
|
|
|
|
4,986
|
|
|
|
68,007
|
|
|
|
87,279
|
|
|
|
9,456
|
|
|
|
4,979
|
|
|
|
67,469
|
|
|
|
81,904
|
|
Equity
|
|
|
111,449
|
|
|
|
59,146
|
|
|
|
29,611
|
|
|
|
200,206
|
|
|
|
108,323
|
|
|
|
60,786
|
|
|
|
32,054
|
|
|
|
201,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our investment in real estate
ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of their
equity
(b)
|
|
|
55,730
|
|
|
|
29,573
|
|
|
|
13,282
|
|
|
|
98,585
|
|
|
|
54,162
|
|
|
|
30,393
|
|
|
|
13,919
|
|
|
|
98,474
|
|
Unrecognized deferred
gain
(c)
|
|
|
(7,134
|
)
|
|
|
|
|
|
|
(614
|
)
|
|
|
(7,748
|
)
|
|
|
(7,416
|
)
|
|
|
|
|
|
|
(614
|
)
|
|
|
(8,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate ventures
|
|
$
|
48,596
|
|
|
$
|
29,573
|
|
|
$
|
12,668
|
|
|
$
|
90,837
|
|
|
$
|
46,746
|
|
|
$
|
30,393
|
|
|
$
|
13,305
|
|
|
$
|
90,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Combined summarized income statement information for our
ventures accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
7,970
|
|
|
$
|
33,421
|
|
Temco
|
|
|
3,595
|
|
|
|
35,740
|
|
Other ventures
|
|
|
7,625
|
|
|
|
9,947
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,190
|
|
|
$
|
79,108
|
|
|
|
|
|
|
|
|
|
|
Earnings:
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
3,553
|
|
|
$
|
12,955
|
|
Temco
|
|
|
359
|
|
|
|
11,251
|
|
Other ventures
|
|
|
816
|
|
|
|
(2,190
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,728
|
|
|
$
|
22,016
|
|
|
|
|
|
|
|
|
|
|
Our equity in their earnings:
|
|
|
|
|
|
|
|
|
CL
Realty
(c)(d)
|
|
$
|
1,776
|
|
|
$
|
6,468
|
|
Temco
(d)
|
|
|
180
|
|
|
|
5,625
|
|
Other
ventures
(b)
|
|
|
740
|
|
|
|
1,108
|
|
Recognition of deferred
gain
(c)
|
|
|
281
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,977
|
|
|
$
|
13,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes current maturities of debt of $7,655,000 at second
quarter-end 2007 and $12,375,000 at year-end 2006.
|
|
(b)
|
|
Our share of the equity in other ventures, reflects our
ownership interests ranging from 25 to 50 percent, excluding
venture losses that exceed our investment where we are not
obligated to fund those losses.
|
|
(c)
|
|
In 2003, we contributed real estate with a $13,800,000 carrying
value to CL Realty in exchange for $13,800,000 cash and a
50 percent interest in the partnership. We deferred the
$14,587,000 gain on the sale and are recognizing it as the
partnership sells the real estate to third parties. The deferred
gain is reflected as an offset to our investment in
unconsolidated ventures.
|
|
(d)
|
|
Beginning in 2006, we eliminated our historic one-month lag in
accounting for our investment in CL Realty and Temco as
financial information became more readily available. The
one-time effect of eliminating this one-month lag was to
increase our equity in earnings for 2006 by $754,000 for CL
Realty and $350,000 for Temco.
|
In first six months 2007 we invested $2,202,000 in these
ventures and received $4,393,000 in distributions, and in first
six months 2006 we invested $3,066,000 and received $15,070,000
in distributions. Distributions include both return of
investments and distributions of earnings.
We provide development services for some of these ventures for
which we receive a fee. Fees for these services were $179,000 in
first six months 2007 and $462,000 in first six months 2006 and
are included in real estate revenues.
F-34
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Receivables consists of:
|
|
|
|
|
|
|
|
|
|
|
Second
|
|
|
|
|
|
|
Quarter-End
|
|
|
Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Seller financing notes receivable,
average interest rate of 8.0% in 2007 and 7.8% in 2006
|
|
$
|
689
|
|
|
$
|
1,729
|
|
Notes receivable, average interest
rate of 9.6% in 2007 and 2006
|
|
|
1,286
|
|
|
|
1,755
|
|
Accrued interest and other
|
|
|
3,077
|
|
|
|
2,833
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,052
|
|
|
$
|
6,317
|
|
Allowance
|
|
|
(226
|
)
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,826
|
|
|
$
|
6,091
|
|
|
|
|
|
|
|
|
|
|
Seller financing notes receivable are generally secured by a
deed of trust with a 10 percent down payment and mature
through 2009. In November 2006, we ceased providing seller
financing in connection with the sale of residential lots.
Notes receivable are funds advanced to potential venture
partners and will be converted to an equity interest in a
venture or collected. It is anticipated that these notes will be
satisfied by year-end 2008.
Other receivables are miscellaneous operating receivables
arising in the normal course of business. We expect to collect
$1,900,000 in 2007 and the remainder in 2008.
We capitalized reforestation expenditures of $352,000 in first
six months 2007 and $704,000 in first six months 2006. The cost
of timber cut was $1,952,000 in first six months 2007 and
$1,514,000 in first six months 2006.
Debt consists of:
|
|
|
|
|
|
|
|
|
|
|
Second
|
|
|
|
|
|
|
Quarter-End
|
|
|
Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
7.3% secured promissory note
maturing in 2008
|
|
$
|
16,709
|
|
|
$
|
16,978
|
|
Other indebtedness due through
2011 at variable interest rates based on prime (8.25% at second
quarter-end 2007) and at fixed interest rates ranging from 6.00%
to 9.50% secured primarily by real estate including non-recourse
debt of consolidated ventures
|
|
|
53,572
|
|
|
|
33,633
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,281
|
|
|
$
|
50,611
|
|
|
|
|
|
|
|
|
|
|
Our debt agreements contain terms, conditions, and financial
covenants customary for such agreements including minimum levels
of interest coverage and limitations on leverage. At second
quarter-end 2007, we had complied with the terms, conditions,
and financial covenants of these agreements.
F-35
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At second quarter-end 2007, commercial operating properties
having a book value of $22,820,000 were subject to liens in
connection with $16,709,000 of debt, and entitled development
and under development land having a book value of $135,763,000
were subject to liens in connection with $53,572,000 of debt.
We capitalized and deducted from interest expense interest
incurred on real estate development projects of $450,000 first
six months 2007 and $433,000 in first six months 2006. We paid
interest of $3,271,000 in first six months 2007, of which
$2,344,000 was paid to Temple-Inland, and $770,000 in first six
months 2006, all of which was related to third party debt.
|
|
Note 7
|
Segment
Information
|
We operate two business segments: real estate and natural
resources.
We evaluate performance based on segment earnings before
unallocated expenses and income taxes. Unallocated expenses
consist of corporate general and administrative expense,
share-based compensation, other non-operating income (expense),
and interest expense. The accounting policies of the segments
are the same as those described in the accounting policy note to
the combined and consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses Not
|
|
|
|
|
|
|
|
|
|
Natural
|
|
|
Allocated to
|
|
|
|
|
|
|
Real Estate
|
|
|
Resources
|
|
|
Segments
(a)
|
|
|
Total
|
|
|
For the first six months 2007
or at second quarter-end 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
74,883
|
|
|
$
|
15,858
|
|
|
$
|
|
|
|
$
|
90,741
|
|
Depreciation and amortization
|
|
|
1,297
|
|
|
|
26
|
|
|
|
|
|
|
|
1,323
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
2,977
|
|
|
|
|
|
|
|
|
|
|
|
2,977
|
|
Income (loss) before taxes
|
|
|
26,762
|
|
|
|
10,784
|
|
|
|
(13,722
|
)
|
|
|
23,824
|
|
Total assets
|
|
|
610,364
|
|
|
|
57,775
|
|
|
|
13,277
|
|
|
|
681,416
|
|
Investment in unconsolidated
ventures
|
|
|
90,837
|
|
|
|
|
|
|
|
|
|
|
|
90,837
|
|
Capital
expenditures
(b)
|
|
|
1,392
|
|
|
|
352
|
|
|
|
|
|
|
|
1,744
|
|
For the first six months 2006
or at second quarter-end 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
86,474
|
|
|
$
|
28,178
|
|
|
$
|
|
|
|
$
|
114,652
|
|
Depreciation and amortization
|
|
|
1,102
|
|
|
|
28
|
|
|
|
|
|
|
|
1,130
|
|
Equity in earnings of
unconsolidated ventures
|
|
|
13,692
|
|
|
|
|
|
|
|
|
|
|
|
13,692
|
|
Income (loss) before taxes
|
|
|
39,104
|
|
|
|
22,376
|
|
|
|
(10,442
|
)
|
|
|
51,038
|
|
Total assets
|
|
|
492,283
|
|
|
|
60,664
|
|
|
|
9,963
|
|
|
|
562,910
|
|
Investment in unconsolidated
ventures
|
|
|
78,513
|
|
|
|
|
|
|
|
|
|
|
|
78,513
|
|
Capital
expenditures
(b)
|
|
|
828
|
|
|
|
704
|
|
|
|
|
|
|
|
1,532
|
|
F-36
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(a)
|
|
Expenses not allocated to segments consists of:
|
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
General and administrative
|
|
$
|
(5,516
|
)
|
|
$
|
(4,350
|
)
|
Expense allocation from Temple
Inland (see Note 8)
|
|
|
(2,535
|
)
|
|
|
(2,396
|
)
|
Share based compensation
allocation from Temple-Inland (see Note 7)
|
|
|
(1,542
|
)
|
|
|
(668
|
)
|
Interest expense
|
|
|
(4,241
|
)
|
|
|
(2,848
|
)
|
Other non-operating income
(expense)
|
|
|
112
|
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(13,722
|
)
|
|
$
|
(10,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
|
Consists of expenditures for property and equipment and
reforestation.
|
|
|
Note 8
|
Share-Based
Compensation
|
The expense for the share-based compensation awards granted to
our employees was allocated to us by Temple-Inland. Information
about these Temple-Inland awards follows:
Restricted
or performance units
A summary of activity for the first six months 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average Grant
|
|
|
Aggregate
|
|
|
|
Temple-Inland
|
|
|
Date Fair Value
|
|
|
Current
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
Not vested beginning of 2007
|
|
|
51
|
|
|
$
|
43
|
|
|
|
|
|
Granted
|
|
|
66
|
|
|
|
55
|
|
|
|
|
|
Vested
|
|
|
(6
|
)
|
|
|
30
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested second quarter-end 2007
|
|
|
111
|
|
|
|
51
|
|
|
$
|
6,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no vested restricted or performance units to be
settled at second quarter-end 2007.
Restricted
stock
There were 11,000 restricted stock awards outstanding at second
quarter-end 2007 with a weighted average grant date fair value
of $37.07 per share and an aggregate current value of
$677,000. The fair value of restricted stock vested in first six
months 2007 was $92,000.
F-37
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
options
A summary of activity for the first six months 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
(Current value
|
|
|
|
Temple-Inland
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
less exercise
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Term
|
|
|
price)
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Outstanding beginning of 2007
|
|
|
174
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
50
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at second quarter-end
2007
|
|
|
224
|
|
|
|
37
|
|
|
|
7
|
|
|
$
|
5,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at second quarter-end
2007
|
|
|
119
|
|
|
|
29
|
|
|
|
5
|
|
|
$
|
3,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temple-Inland estimated the fair value of the options granted
using the Black-Scholes-Merton option-pricing model and the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
Expected dividend yield
|
|
|
2.3%
|
|
|
|
2.4%
|
|
Expected stock price volatility
|
|
|
22.8%
|
|
|
|
25.1%
|
|
Risk-free interest rate
|
|
|
4.9%
|
|
|
|
4.4%
|
|
Expected life of options in years
|
|
|
6
|
|
|
|
6
|
|
Weighted average estimated fair
value of options granted
|
|
$
|
12.47
|
|
|
$
|
11.53
|
|
Share-based
compensation expense
Pre-tax share-based compensation expense allocated to us by
Temple-Inland consists of:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Restricted or performance
units cash
|
|
$
|
1,140
|
|
|
$
|
268
|
|
Restricted or performance
units stock
|
|
|
74
|
|
|
|
119
|
|
Stock options
|
|
|
328
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
Pre-tax share-based compensation
expense
|
|
$
|
1,542
|
|
|
$
|
668
|
|
|
|
|
|
|
|
|
|
|
F-38
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pre-tax share-based compensation expense included in other
operating and general and administrative expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
General and administrative
|
|
$
|
1,369
|
|
|
$
|
563
|
|
Other operating
|
|
|
173
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,542
|
|
|
$
|
668
|
|
|
|
|
|
|
|
|
|
|
The fair value of awards granted to retirement-eligible
employees and expensed at the date of grant was $166,000 in
first six months 2007, all of which was related to stock
options. There was no share-based compensation capitalized in
first six months of 2007 or first six months of 2006.
Unrecognized share-based compensation for all awards not vested
was $5,994,000 at second quarter-end 2007. It is likely that
this cost will be recognized as expense over the next four years.
|
|
Note 9
|
Related
Party Transactions
|
We reimburse Temple-Inland for expenses incurred on our behalf
and allocated to us. Additional allocated expense incurred by
Temple-Inland but not directly attributable to us are reflected
as capital contributions, net of tax.
A summary of allocated expenses from Temple-Inland follows:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Legal, human resources and other
administrative costs
|
|
$
|
1,512
|
|
|
$
|
1,105
|
|
Variable compensation
|
|
|
397
|
|
|
|
412
|
|
Accounting and finance
|
|
|
712
|
|
|
|
463
|
|
Information technology support
|
|
|
467
|
|
|
|
328
|
|
Internal audit, governance and
other
|
|
|
97
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,185
|
|
|
|
2,396
|
|
Share based compensation
|
|
|
1,542
|
|
|
|
668
|
|
Pension and postretirement
|
|
|
109
|
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,836
|
|
|
$
|
3,422
|
|
|
|
|
|
|
|
|
|
|
Sales of timber to Temple-Inland were $6,160,000 in first six
months 2007 and $4,557,000 in first six months 2006.
Temple-Inland
Credit Facility
In 2006, we established a credit facility with Temple-Inland.
Under this facility, when we need funds we borrow and when we
have excess funds we use them to repay amounts borrowed.
Borrowings under this agreement accrued interest at
4.73 percent at second quarter-end 2007. In first six
months 2007, the average daily balance was $137,949,000, the
maximum month-end balance was $145,288,000, the weighted average
interest rate on borrowing was 4.52 percent, and the
related interest expense was $3,118,000. In first six months
2006, the average daily balance was $81,100,000, the maximum
month-end balance was $97,918,000,
F-39
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the weighted average interest rate on borrowings was
4.38 percent, and the related interest expense was
$1,775,000.
A summary of the activity in the Temple-Inland credit facility
follows:
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
110,506
|
|
|
$
|
12,829
|
|
Additions
|
|
|
58,105
|
|
|
|
125,789
|
|
Repayments
|
|
|
(37,050
|
)
|
|
|
(40,700
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
131,561
|
|
|
$
|
97,918
|
|
|
|
|
|
|
|
|
|
|
Additions to the Temple-Inland credit facility consist of
acquisition and development costs, venture contributions, and
other operating, general and administrative expenses, and income
taxes. Repayments to the Temple-Inland credit facility are made
when our daily sources of funds from operations exceed our uses
of funds.
|
|
Note 10
|
Other
Information (Unaudited)
|
As part of its transformation plan, Temple-Inland will
contribute certain assets to Forestar. In addition, expenses
incurred on our behalf by Temple-Inland have been allocated to
us. As a result, the amounts previously reported by
Temple-Inland for its real estate segment differ from those
included in this Form 10 for Forestar. A reconciliation
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported by
|
|
|
|
|
|
|
|
|
|
|
|
|
Temple-Inland
|
|
|
|
|
|
|
|
|
As Reported in
|
|
|
|
for Real Estate
|
|
|
|
|
|
Allocated
|
|
|
This Form 10
|
|
|
|
Segment
|
|
|
Reclassification
(a)
|
|
|
Expenses
(b)
|
|
|
for Forestar
|
|
|
|
(In thousands)
|
|
|
For the first six months or at
second quarter-end 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
73,340
|
|
|
$
|
17,401
|
|
|
|
|
|
|
$
|
90,741
|
|
Depreciation and amortization
|
|
|
1,288
|
|
|
|
35
|
|
|
|
|
|
|
|
1,323
|
|
Income (loss) before taxes
|
|
|
21,818
|
|
|
|
5,382
|
|
|
|
(3,376
|
)
|
|
|
23,824
|
|
Total assets
|
|
|
603,148
|
|
|
|
78,268
|
|
|
|
|
|
|
|
681,416
|
|
Capital expenditures
|
|
|
1,392
|
|
|
|
352
|
|
|
|
|
|
|
|
1,744
|
|
For the first six months or at
second quarter-end 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
82,675
|
|
|
$
|
31,977
|
|
|
|
|
|
|
$
|
114,652
|
|
Depreciation and amortization
|
|
|
1,062
|
|
|
|
68
|
|
|
|
|
|
|
|
1,130
|
|
Income (loss) before taxes
|
|
|
35,170
|
|
|
|
18,496
|
|
|
|
(2,628
|
)
|
|
|
51,038
|
|
Total assets
|
|
|
484,743
|
|
|
|
78,167
|
|
|
|
|
|
|
|
562,910
|
|
Capital expenditures
|
|
|
828
|
|
|
|
704
|
|
|
|
|
|
|
|
1,532
|
|
|
|
|
(a)
|
|
Reclassified to reflect the transfer of an additional
138,000 acres of real estate and timber, principally
undeveloped land, about 623,000 net acres of mineral
interests, and several small real estate development projects
and assets previously included in Temple-Inlands other
business segments. These reclassifications were made as if they
had occurred at the beginning of the earliest period presented
and they were made based on historical carrying amounts.
|
|
(b)
|
|
Represents an allocation of expenses incurred by Temple-Inland
but not directly attributable to us.
|
F-40
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 11
|
Subsequent
Event
|
On July 31, 2007, we entered into agreements to facilitate
third-party construction and ownership of a resort hotel, spa
and golf facilities at our Cibolo Canyons mixed-use development
near San Antonio, Texas. Under these agreements, we
transferred to the third-party owners about 700 acres of
undeveloped land, and we agreed to transfer about $38,000,000
($10,000,000 by year-end 2007; $18,000,000 in
2008-2009;
and $10,000,000 in
2010-2011).
In exchange, the third-party owners assigned to us certain
rights under an economic development agreement, including the
right to receive revenues from hotel occupancy and sales taxes
generated within the resort through 2034. In addition, the
construction of the resort hotel and golf facilities will
satisfy a condition to our right to obtain reimbursement of
certain infrastructure costs under an ad valorem tax and
non-resort sales and use tax public improvement financing
agreement between us and a special purpose improvement district.
F-41