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| FOR > SEC Filings for FOR > Form 10-Q on 6-Nov-2008 | All Recent SEC Filings |
6-Nov-2008
Quarterly Report
• the opportunities (or lack thereof) that may be presented to us and that we may pursue;
• future residential or commercial entitlements;
• expected development timetables and projected timing for sales of lots or other parcels of land;
• development approvals and the ability to obtain such approvals;
• the anticipated price ranges of lots in our developments;
• the number, price and timing of land sales or acquisitions;
• absorption rates and expected gains on land and lot sales;
• the levels of resale inventory in our development projects and the regions in which they are located;
• the development of relationships with strategic partners;
• fluctuations in costs and expenses;
• demand for new housing, which can be affected by the availability of mortgage credit;
• government energy policies;
• demand for oil and gas;
• fluctuations in oil and gas prices;
• competitive actions by other companies;
• changes in laws or regulations and actions or restrictions of regulatory agencies;
• the results of financing efforts, including our ability to obtain financing with favorable terms;
• the ability to complete merger, acquisition or divestiture plans; regulatory or other limitations imposed as a result of a merger, acquisition or divestiture; and the success of the business following a merger, acquisition or divestiture; and
• the final resolutions or outcomes with respect to our contingent and other corporate liabilities related to our business.
• our customers may be unwilling or unable to meet lot takedown commitments due to liquidity limitations or slowing market conditions.
Other factors, including the risk factors described in Part II, Item 1A of
this Quarterly Report on Form 10-Q and in Item 1A of our 2007 Annual Report on
Form 10-K, may also cause actual results to differ materially from those
projected by our forward-looking statements. New factors emerge from time to
time and it is not possible for us to predict all such factors, nor can we
assess the impact of any such factor on our business or the extent to which any
factor, or combination of factors, may cause results to differ materially from
those contained in any forward-looking statement.
Any forward-looking statement speaks only as of the date on which such
statement is made, and, except as required by law, we expressly disclaim any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events.
Introduction
In first quarter 2008, we changed our reportable segments to reflect our
post-spin management of the operations transferred to us from Temple-Inland. All
prior period segment information has been reclassified to conform to the current
presentation. We manage our operations through three business segments:
• Real estate,
• Mineral resources, and
• Fiber resources.
Our strategy is to maximize and grow long-term stockholder value through:
• entitlement and development of real estate;
• realization of value from natural resources; and
• growth through strategic and disciplined investment in real estate.
Unless otherwise indicated, information is presented as of September 30,
2008, and references to acreage owned include all acres owned by ventures
regardless of our ownership interest in a venture.
Our operations are affected to varying degrees by supply and demand factors
and economic conditions including availability of mortgage credit; 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.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies or
estimates in first nine months 2008 from those disclosed in our 2007 Annual
Report on Form 10-K.
Recent Accounting Standards
Please read Note 3 to the Consolidated Financial Statements contained in this
Quarterly Report on Form 10-Q.
Results of Operations
Net income was $872,000, or $0.02 per diluted share, in third quarter 2008,
compared with $9,596,000, or $0.27 per diluted share, for third quarter 2007.
Net income for first nine months 2008 was $10,230,000, or $0.28 per diluted
share, compared with $24,689,000, or $0.70 per diluted share, for first nine
months 2007.
Current conditions in the residential development industry are difficult due
to the oversupply of housing, declining sales volume for existing and new homes,
flat to declining sales prices and a significant tightening of mortgage credit.
A decline in consumer confidence is also evident. Some home builders are
experiencing liquidity shortfalls and are unwilling or unable to close committed
lot purchases. All geographic markets and products have not been affected to the
same extent or with equal severity, but most have experienced declines. It is
likely these conditions will continue throughout 2008 and into 2009.
Market conditions in the oil and gas industry have declined as oil and gas
prices have decreased. Exploration and production companies have reduced capital
expenditures for lease acquisition and production due to reduced oil and gas
pricing and tightened credit markets. These conditions may impact the demand for
new mineral leases.
Fiber demand from the pulp and paper industry is stable. Pulpwood prices in
our market areas have increased modestly due to balanced demand for
containerboard. Sawtimber prices have declined due to the decrease in demand for
lumber products consistent with the decline in the housing industry.
A summary of our consolidated results follows:
Third Quarter First Nine Months
2008 2007 2008 2007
(In thousands)
Revenues:
Real estate $ 20,930 $ 40,384 $ 73,491 $ 115,267
Mineral resources 9,539 7,217 40,193 16,257
Fiber resources 3,474 4,031 9,079 10,849
Total revenues $ 33,943 $ 51,632 $ 122,763 $ 142,373
Segment earnings:
Real estate $ 1,656 $ 12,954 $ 6,073 $ 39,730
Mineral resources 8,182 6,801 37,934 14,873
Fiber resources 1,938 1,479 6,189 4,177
Total segment earnings 11,776 21,234 50,196 58,780
Items not allocated to segments:
General and administrative expense (4,454 ) (4,204 ) (14,808 ) (12,255 )
Share-based compensation expense (1,130 ) (336 ) (4,658 ) (1,878 )
Interest expense (5,079 ) (2,220 ) (15,747 ) (6,461 )
Other non-operating income 79 342 233 454
Income before taxes 1,192 14,816 15,216 38,640
Income tax expense (320 ) (5,220 ) (4,986 ) (13,951 )
Net income $ 872 $ 9,596 $ 10,230 $ 24,689
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Significant aspects of our results of operations follow:
Third Quarter and First Nine Months 2008 and 2007
• Mineral resources segment earnings increased in first nine months 2008 as a
result of bonus payments received for leasing about 55,900 net mineral
acres. This leasing activity was located principally in East Texas and was
driven by our proximity to the Cotton Valley, James Lime and Haynesville
natural gas formations. Mineral resources earnings also benefited from
increased production volumes and higher oil and gas prices in first nine
months 2008.
• Real estate segment earnings declined principally due to decreased commercial sales activity, a continued decrease in the sales of residential real estate and increased costs associated with environmental remediation activities. First nine months 2007 includes two sales aggregating 73 acres of undeveloped commercial real estate on which we recognized gains of $14,039,000.
• Fiber resources segment earnings for first nine months 2008 increased primarily as a result of gain from partial termination of a timber lease.
• Interest expense increased as a result of higher debt levels and higher borrowing costs.
• Share-based compensation expense increased primarily due to accelerated expense recognition in conjunction with awards granted to retirement-eligible employees, and an increase in the number of participants in our plan.
• General and administrative expenses increased as a result of costs associated with the continued development of corporate functions necessary as a stand alone public company.
Real Estate
We own directly or through ventures over 368,000 acres of real estate located
in ten states and 13 markets. Our real estate segment secures entitlements and
develops infrastructure on our lands, primarily for single-family residential
and mixed-use communities. We own approximately 300,000 acres in a broad area
around Atlanta, Georgia, with the balance located primarily in Texas. We invest
in new projects principally in our strategic growth corridors, regions of
accelerated growth across the southern half of the United States that possess
key demographic and growth characteristics that we believe make them attractive
for long-term real estate investment.
A summary of our real estate results follows:
Third Quarter First Nine Months
2008 2007 2008 2007
(In thousands)
Revenues $ 20,930 $ 40,384 $ 73,491 $ 115,267
Costs and expenses (19,738 ) (27,753 ) (69,369 ) (74,808 )
1,192 12,631 4,122 40,459
Equity in earnings of unconsolidated
ventures 1,309 1,333 3,826 4,310
Minority interest expense in
consolidated ventures (845 ) (1,010 ) (1,875 ) (5,039 )
Segment earnings $ 1,656 $ 12,954 $ 6,073 $ 39,730
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In first nine months 2008, costs and expenses include a $3,500,000 charge principally related to environmental remediation activities.
Revenues in our owned and consolidated ventures consist of:
Third Quarter First Nine Months
2008 2007 2008 2007
(In thousands)
Residential real estate $ 5,467 $ 13,064 $ 30,398 $ 47,575
Commercial real estate 3,551 15,236 9,243 34,587
Undeveloped land 5,513 5,700 14,741 13,408
Commercial operating properties 5,118 5,066 16,491 15,502
Other 1,281 1,318 2,618 4,195
Total revenues $ 20,930 $ 40,384 $ 73,491 $ 115,267
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Units sold in our owned and consolidated ventures consist of:
Third Quarter First Nine Months
2008 2007 2008 2007
Residential real estate:
Lots sold 97 215 596 865
Revenue per lot sold $ 60,229 $ 56,811 $ 50,716 $ 53,538
Commercial real estate:
Acres sold 16 83 53 145
Revenue per acre sold $ 223,140 $ 182,705 $ 174,180 $ 238,159
Undeveloped land:
Acres sold 1,287 770 3,140 1,924
Revenue per acre sold $ 4,284 $ 7,400 $ 4,695 $ 6,968
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Residential real estate revenues principally consist of the sale of
single-family lots to national, regional and local homebuilders. In third
quarter and first nine months 2008, residential real estate revenues declined as
a result of decreased demand for single-family lots due to the overall decline
in the housing industry and significant tightening of mortgage credit
availability. We expect this trend to continue throughout the remainder of 2008
and into 2009.
In first nine months 2007, commercial real estate revenue includes
$22,992,000 from two sales aggregating 73 acres on which we recognized gains of
$14,039,000.
In first nine months 2008, the Ironstob venture, in which we own a 58 percent
interest, sold about 409 acres of undeveloped land for about $6,100 per acre.
Information about our real estate projects and our real estate ventures follows:
Third Quarter-End
2008 2007
Owned and consolidated ventures:
Entitled, developed and under development land
Number of projects 56 53
Residential lots remaining 20,623 20,358
Commercial acres remaining 1,589 1,170
Undeveloped land and land in the entitlement process
Number of projects 24 22
Acres in entitlement process 32,680 25,890
Acres sold (for first nine months) 3,140 1,924
Acres undeveloped 311,597 324,449
Ventures accounted for using the equity method:
Ventures' lot sales (for first nine months)
Lots sold 205 533
Revenue per lot sold $ 55,942 $ 55,755
Ventures' entitled, developed and under development land
Number of projects 21 22
Residential lots remaining 9,346 9,558
Commercial acres remaining 666 720
Ventures' undeveloped land and land in the entitlement process
Number of projects 2 2
Acres in entitlement process 1,080 860
Acres sold (for first nine months) 486 -
Acres undeveloped 5,641 6,258
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In our owned and consolidated ventures, the increase in acres in the
entitlement process at third quarter-end 2008 is primarily due to the movement
of about 9,800 acres into the entitlement process from undeveloped land which
was partially offset by the movement of about 3,200 acres into entitled,
developed and under development land.
Mineral Resources
We own directly or through ventures about 622,000 net acres of oil and gas
mineral interests. Our mineral resources segment is focused on maximizing the
value from royalties and other lease revenues from our oil and gas mineral
interests located in Texas, Louisiana, Alabama and Georgia. At third quarter-end
2008, we have about 117,000 net acres under lease and about 27,000 net acres
held by production.
A summary of our mineral resources results follows:
Third Quarter First Nine Months
2008 2007 2008 2007
(In thousands)
Revenues $ 9,539 $ 7,217 $ 40,193 $ 16,257
Operating expenses (1,484 ) (416 ) (3,421 ) (1,384 )
8,055 6,801 36,772 14,873
Equity in earnings of unconsolidated ventures 127 - 1,162 -
Segment earnings $ 8,182 $ 6,801 $ 37,934 $ 14,873
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In first nine months 2008, equity in earnings of unconsolidated ventures includes our share of a lease bonus payment as a result of leasing 241 net mineral acres for $1,568,000. In first nine months 2008, costs and expenses include $1,282,000 related to oil and gas production severance taxes. In first nine months 2007, oil and gas production severance taxes were reflected as a reduction of revenues.
Revenues consist of:
Third Quarter First Nine Months
2008 2007 2008 2007
(In thousands)
Royalties $ 7,790 $ 2,860 $ 16,230 $ 8,834
Other lease revenues 1,749 4,357 23,963 7,423
Total revenues $ 9,539 $ 7,217 $ 40,193 $ 16,257
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In third quarter 2008, other lease revenues include $1,084,000 in lease bonus
payments as result of leasing over 3,200 net mineral acres. In first nine months
2008, other lease revenues include $21,650,000 in lease bonus payments as result
of leasing about 55,900 net mineral acres. This leasing activity was located
principally in East Texas and was driven by our proximity to the Cotton Valley,
James Lime and Haynesville natural gas formations.
In third quarter 2008, royalty revenue includes our share of over 23,000
barrels of oil and approximately 437 million cubic feet (mmcf) of natural gas
production related to our royalty interests. In first nine months 2008, royalty
revenue includes our share of about 66,500 barrels of oil and approximately 970
mmcf of natural gas production related to our royalty interests. In third
quarter and first nine months 2008, royalty revenues benefited from increased
production volume, higher oil and natural gas prices and new production
activity.
A summary of our oil and gas mineral interests unleased, leased and held by
production at third quarter-end 2008 follows:
Held By
State Unleased Leased(a) Production(b) Total(c)
(Net acres)
Texas 120,000 104,000 20,000 244,000
Louisiana 110,000 4,000 7,000 121,000
Alabama 48,000 9,000 - 57,000
Georgia 200,000 - - 200,000
478,000 117,000 27,000 622,000
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(a) Includes leases in primary lease term only.
(b) Acres being held by production are producing oil or gas in paying quantities.
(c) 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.
Fiber Resources
Our fiber resources segment focuses principally on the management of our
timber holdings. We have about 343,000 acres of timber on our undeveloped land
and over 18,000 acres of timber under lease. We sell wood fiber from our land,
primarily in Georgia, and lease land for hunting and other recreational uses.
A summary of our fiber resources results follows:
Third Quarter First Nine Months
2008 2007 2008 2007
(In thousands)
Revenues $ 3,474 $ 4,031 $ 9,079 $ 10,849
Costs and expenses (1,581 ) (2,552 ) (4,311 ) (6,672 )
1,893 1,479 4,768 4,177
Other operating income 45 - 1,421 -
Segment earnings $ 1,938 $ 1,479 $ 6,189 $ 4,177
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In first nine months 2008, cost and expenses decreased as result of
establishing our post-spin operating structure. In first nine months 2007, costs
and expenses were allocated to us from Temple-Inland. In first nine months 2008,
other operating income principally reflects a gain from partial termination of a
timber lease related to 409 acres of land sold from the Ironstob venture.
Revenues consist of:
Third Quarter First Nine Months
2008 2007 2008 2007
(In thousands)
Fiber $ 2,885 $ 3,616 $ 7,495 $ 10,329
Recreational leases and other 589 415 1,584 520
Total revenues $ 3,474 $ 4,031 $ 9,079 $ 10,849
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Fiber sold consists of:
Third Quarter First Nine Months
2008 2007 2008 2007
Tons sold 296,530 292,142 767,983 898,374
Revenue per ton sold $ 9.73 $ 12.38 $ 9.76 $ 11.50
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In third quarter and first nine months 2008, revenue per ton decreased
compared with 2007. In 2008, we harvested and sold higher levels of pulpwood
than sawtimber due to the stable demand for containerboard. The majority of our
sales were to Temple-Inland at market prices.
In first nine months 2007, Temple-Inland retained a greater portion of
recreational lease revenues. In 2008, we anticipate our recreational lease
revenues will be about $2,000,000.
Items Not Allocated to Segments
The increase in interest expense was due to a higher average debt balance and
higher borrowing costs.
The increase in share-based compensation expense was a result of recognizing
accelerated expense for retirement eligible employees and fully vested awards to
members of our board, and from an increase in the number of participants in our
plan.
The increase in general and administrative expenses in third quarter 2008 and
first nine months 2008 was due to increased costs associated with our corporate
functions now that we are a stand alone public company.
Income Taxes
Our effective tax rate was 27 percent in third quarter 2008 and 33 percent in
first nine months 2008. Our effective tax rate was 35 percent in third quarter
2007 and 36 percent for first nine months 2007. We anticipate that our effective
tax rate in 2008 will be about 33 percent.
The 2008 rate reflects a one-time tax benefit for the adjustment of deferred
taxes resulting from a federal income tax rate change for qualified timber gains
due to the Food, Conservation and Energy Act of 2008 which was enacted in
June 2008.
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, and
taxes, interest and compensation. Our principal sources of cash are proceeds
from the sale of real estate and timber, the cash flow from minerals and
commercial operating properties and borrowings. Operating cash flows are also
affected by the timing of the payment of real estate development and acquisition
. . .
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