Forestar Group - 10-Q quarterly report FY

 

 

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

Please read the notes to the consolidated financial statements.

Please read the notes to the consolidated financial statements.

Please read the notes to the consolidated financial statements.

     Prior to December 28, 2007, we were a wholly-owned subsidiary of Temple-Inland Inc. On December 28, 2007, Temple-Inland distributed all of the issued and outstanding shares of our common stock to its shareholders in a transaction commonly referred to as a spin-off.

     Our consolidated financial statements include the accounts of Forestar Group Inc., all subsidiaries, ventures and other entities in which we have a controlling interest, and variable interest entities of which we are the primary beneficiary. We eliminate all material intercompany accounts and transactions. Noncontrolling interests in consolidated pass-through entities are recognized before income taxes. We account for our investment in other entities in which we have significant influence over operations and financial policies using the equity method (we recognize our share of the entities’ income or loss and any preferential returns and treat distributions as a reduction of our investment). We account for our investment in other entities in which we do not have significant influence over operations and financial policies using the cost method (we recognize as income distribution of accumulated earnings).

     We prepare our unaudited interim financial statements in accordance with U.S. generally accepted accounting principles and Securities and Exchange Commission requirements for interim financial statements. As a result, they do not include all the information and disclosures required for complete financial statements. However, in our opinion, all adjustments considered necessary for a fair presentation have been included. Such adjustments consist only of normal recurring items unless otherwise noted. We make estimates and assumptions about future events. Actual results can, and probably will, differ from those we currently estimate including those related to allocating cost of sales to real estate, minerals and fiber and measuring assets for impairment. These interim operating results are not necessarily indicative of the results that may be expected for the entire year. For further information, please read the financial statements included in our 2008 Annual Report on Form 10-K.

     Certain prior year items have been reclassified to conform to the current year’s presentation.

     In first quarter 2009, we adopted the following new accounting pronouncements:

     In second quarter 2009, we adopted the following new accounting pronouncements:

     In third quarter 2009, we adopted the following new accounting pronouncement:

     In addition, the following pending pronouncements have not yet been adopted, and we are currently evaluating the effect, if any, on our earnings or financial position:

     In first quarter 2009, we announced our near-term strategic initiatives to enhance shareholder value by generating significant cash flow, principally from the sale of about 175,000 acres of higher and better use (HBU) timberland. As a result, we classified to assets held for sale about 171,000 acres of undeveloped land located in Alabama, Georgia and Texas with a carrying value of $51,390,000 and related timber with a carrying value of $24,749,000.

     In second quarter 2009, we sold about 75,000 acres of timber and timberland in Georgia and Alabama for $119,702,000 to Hancock Timber Resource Group, which acquired the assets on behalf of its investor clients. The transaction generated net proceeds of $116,116,000, which were principally used to reduce debt, and resulted in a gain on sale of $79,214,000. In third quarter 2009, we sold about 20,000 acres of timber and timberland in Georgia for $38,901,000 to St. Regis Paper Company, LLC, affiliate of Holland M. Ware. The transaction generated net proceeds of $37,735,000, which were principally used to reduce our debt and fund our third quarter estimated income tax payment, and resulted in a gain on sale of $24,833,000.

     At third quarter-end 2009, assets held for sale includes about 74,000 acres of undeveloped land with a carrying value of $18,137,000 and related timber with a carrying value of $10,357,000. These assets are actively being marketed. Also included is our undivided 15 percent interest in corporate aircraft contributed to us by Temple-Inland at spin-off with a carrying value of $3,098,000. Our interest is being disposed of pursuant to the terms of an aircraft joint ownership agreement, which expires December 28, 2009.

     Real estate consists of:

     Included in entitled, developed and under development projects are the estimated costs of assets we expect to convey to utility and improvement districts of $55,239,000 at third quarter-end 2009 and $76,173,000 at year-end 2008, including $29,259,000 at third quarter-end 2009 and $49,529,000 at year-end 2008 related to our Cibolo Canyons project near San Antonio, Texas. 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 $3,109,000 in first nine months 2009 and $18,058,000 in first nine months 2008. We collected $22,299,000 from these districts in first nine months 2009, of which $20,270,000 related to our Cibolo Canyons project and was accounted for as a reduction of our investment in the mixed-use development. We collected $374,000 from these districts in first nine months 2008. We expect to collect the remaining amounts billed when these districts achieve adequate tax bases to support payment.

     We recognized asset impairment charges of $3,050,000 in first nine months 2009 related to a condominium project in Texas. We did not recognize any asset impairment charges in first nine months 2008 on our owned or consolidated real estate projects. Asset impairment charges are included in cost of real estate sales.

     Depreciation expense primarily related to commercial operating properties was $1,367,000 in first nine months 2009 and $1,303,000 in first nine months 2008 and is included in other operating expense.

     We have about 231,000 acres of timber, primarily in Georgia. The cost of timber cut was $2,577,000 in first nine months 2009 and $2,046,000 in first nine months 2008.

     At third quarter-end 2009, we had ownership interests ranging from 25 to 50 percent in 10 ventures that we account for using the equity method. We have no real estate ventures that are accounted for using the cost method. Our three largest ventures at third quarter-end 2009 are CL Realty, Temco and Palisades West. We own a 50 percent interest in both CL Realty and Temco, and Cousins Real Estate Corporation owns

the other 50 percent interest. We own a 25 percent interest in Palisades West, Cousins Properties Incorporated owns a 50 percent interest and Dimensional Fund Advisors LP owns the remaining 25 percent interest. Information regarding these ventures follows:

     Combined summarized balance sheet information for our ventures accounted for using the equity method follows:

     Combined summarized income statement information for our ventures accounted for using the equity method follows:

     In first nine months 2009, we invested $1,916,000 in these ventures and received $2,930,000 in distributions; in first nine months 2008, we invested $14,962,000 in these ventures and received $7,051,000 in distributions. Distributions include both return of investments and distributions of earnings.

     Debt consists of:

     Our senior credit facility and other debt agreements contain terms, conditions and financial covenants customary for such agreements including minimum levels of interest coverage and limitations on leverage. At third quarter-end 2009, we were in compliance with the terms, conditions and financial covenants of these agreements.

     In second and third quarters 2009, we have reduced our term loan by $50,000,000 and repaid our revolving line of credit in the amount of $70,000,000 from proceeds received as a result of selling about 95,000 acres of timber and timberland in Georgia and Alabama, in accordance with our near-term strategic initiatives.

     At third quarter-end 2009, our senior credit facility provides for a $125,000,000 term loan and a $257,700,000 revolving line of credit. The term loan and revolving line of credit may be prepaid at any time without penalty. The senior credit facility matures December 1, 2010. However, we amended our credit facility in third quarter 2009 to provide us with the option to extend the maturity date through June 30, 2012 for up to $350,000,000. The revolving line of credit includes a sublimit for letters of credit equal to the lesser of $100,000,000 or 22 percent of the aggregate facility commitments, of which $3,071,000 was outstanding at third quarter-end 2009. Total borrowings under our senior credit facility (including the face amount of letters of credit) may not exceed a borrowing base formula, and includes a minimum liquidity requirement equal to the lesser of $35,000,000 or 7.5 percent of the aggregate facility commitments at each quarter-end. At third quarter-end 2009, we had $173,725,000 in net unused borrowing capacity under our senior credit facility.

     At our option, we can borrow at LIBOR plus 4.5 percent (subject to a two percent LIBOR floor) or Prime plus 2.5 percent. All borrowings under the senior credit facility are secured by (a) all timberland and high-value timberland, (b) assignments of current and future leases, rents

and contracts, including our mineral leases, (c) a security interest in our primary operating account, (d) pledge of the equity interests in current and future material operating subsidiaries or joint venture interests, or if such pledge is not permitted, a pledge of the right to distributions from such entities, and (e) negative pledge (without a mortgage) on all other wholly-owned assets. The senior credit facility provides for releases of real estate to be conveyed provided that borrowing base compliance is maintained.

     We have incurred origination and other fees related to our senior credit facility of $14,027,000, of which $6,500,000 is unamortized at third quarter-end 2009 and is included in other assets. Amortization of deferred financing fees in connection with our senior credit facility was $3,841,000 in first nine months 2009 and $2,622,000 in first nine months 2008 and is included in interest expense.

     At third quarter-end 2009, commercial operating properties having a book value of $24,108,000 were subject to liens in connection with $19,216,000 of debt.

     At third quarter-end 2009, entitled, developed and under development projects having a book value of $157,255,000 were subject to liens in connection with $80,750,000 of principally non-recourse debt.

     The Fair Value Measurements and Disclosures Topic of the FASB Codification provides a framework for measuring fair value and classifying these measurements in the fair value hierarchy. The fair value hierarchy is as follows:

     Financial liabilities measured at fair value on a recurring basis include our interest rate swap agreement. The fair value of the interest rate swap agreement was determined using quoted prices for similar instruments in active markets (Level 2). In first nine months 2009, the fair value of our interest rate swap increased, and as a result, we recognized an after-tax gain of $629,000 in accumulated other comprehensive income.

     Non-financial assets measured at fair value on a non-recurring basis include real estate assets and assets held for sale which were measured for impairment. In first nine months 2009, certain assets were remeasured and reported at fair value due to events or circumstances that indicated the carrying value may not be recoverable. We determined estimated fair value of real estate assets based on the present value of future probability weighted cash flows expected from the sale of the long-lived assets. As a result, we recognized asset impairment of $3,050,000 in first nine months 2009. The carrying value for these assets may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date. We determined estimated fair value of assets held for sale, which represents our undivided 15 percent interest in corporate aircraft contributed to us by Temple-Inland at spin-off, based on an aircraft broker’s opinion of current value. As a result, we recognized asset impairments of $1,994,000 in first nine months 2009.

     The carrying amounts and fair values of our financial instruments follow:

     At third quarter-end 2009 and year-end 2008, carrying amounts of cash and cash equivalents, receivables and accounts payable approximate their fair values due to the short-term nature of these assets and liabilities. The interest rate swap agreement is carried at its fair value. The carrying amount of debt approximates fair value since it is primarily made up of variable-rate borrowings. We estimated the fair value of our fixed-rate borrowings using quoted prices for similar instruments in active markets (Level 2).

     We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks including interest rate and liquidity by managing the amount, sources and duration of our debt funding and through the use of derivative instruments. Specifically, we may enter into derivative instruments to mitigate the risk inherent in interest rate fluctuations.

     Our objective for using interest rate derivatives is to manage exposure to significant movements in interest rates. To accomplish this objective, we use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for our fixed-rate payment over the life of the agreements without exchange of the underlying notional amount.

     At third quarter-end 2009, our $100,000,000 notional amount interest rate swap agreement, which matures in March 2010, requires that we pay a fixed interest rate of 6.57 percent and receive a floating interest rate of one month LIBOR plus 4 percent (4.26 percent at third quarter-end 2009).

     We defer and include in other comprehensive income the effective portion of changes in the fair value of our cash flow hedge. We recognize the ineffective portion of the hedge as income or loss. The effectiveness of the hedge relationship is periodically assessed by comparing the present value of the cumulative change in the expected future cash flows on the variable leg of the swap with the present value of the cumulative change in the expected future hedged cash flows. In first nine months 2009 and 2008, there was no hedge ineffectiveness.

     The table below presents the fair value of our derivative instrument as well as its classification on the consolidated balance sheets:

     The change in fair value of our interest rate swap recognized in other comprehensive income was a gain of $629,000 in first nine months 2009 and a gain of $463,000 in first nine months 2008. No amounts were reclassified from other comprehensive income into income in first nine months 2009 or 2008.

     Please read Note 9 — Fair Value for a description of how the above derivative instrument is valued.

     Pursuant to our shareholder rights plan, each share of common stock outstanding is coupled with one-quarter of a preferred stock purchase right (Right). Each Right entitles our shareholders to purchase, under certain conditions, one one-hundredth of a share of newly issued Series A Junior Participating Preferred Stock at an exercise price of $100. Rights will be exercisable only if someone acquires beneficial ownership of

20 percent or more of our common shares or commences a tender or exchange offer, upon consummation of which they would beneficially own 20 percent or more of our common shares. We will generally be entitled to redeem the Rights at $0.001 per Right at any time until the 10th business day following public announcement that a 20 percent position has been acquired. The Rights will expire on December 11, 2017.

     Please read Note 16 — Share-Based Compensation for information about additional shares of common stock that could be issued under terms of our share-based compensation plans.

     As a result of our spin-off from Temple-Inland, all of Temple-Inland’s outstanding share-based compensation awards were equitably adjusted into separate awards: one related to our common stock, one related to Temple-Inland common stock and one related to Guaranty Financial Group, Inc. common stock. Guaranty was another wholly-owned subsidiary of Temple-Inland that was spun off on December 28, 2007. All awards issued as part of this adjustment are subject to their original vesting schedules and terms.

     At third quarter-end 2009, Temple-Inland directors and employees held 23,000 equity-settled restricted stock awards on our stock. The following table summarizes outstanding stock option awards on our stock held by Temple-Inland and Guaranty directors and employees at third quarter-end 2009:

     Other comprehensive income consists of:

     Our basic and diluted weighted average common shares outstanding used to compute net income per share are as follows:

     At third quarter-end 2009, the effect of 1,704,000 stock options and unvested shares of restricted stock were not included in the computation of diluted weighted average shares outstanding because their impact would have been anti-dilutive.

     At third quarter-end 2008, the effect of 1,645,000 stock options and unvested shares of restricted stock were not included in the computation of diluted weighted average shares outstanding because their impact would have been anti-dilutive.

     We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business and believe that adequate reserves have been established for any probable losses. We do not believe that the outcome of any of these proceedings should have a significant adverse effect on our financial position, long-term results of operations or cash flows. It is possible, however, that charges related to these matters could be significant to our results or cash flows in any one accounting period.

     Environmental remediation liabilities arise from time to time in the ordinary course of doing business, and we believe we have established adequate reserves for any probable losses. We own 288 acres near Antioch, California, portions of which were sites of a Temple-Inland paper manufacturing operation that are in remediation. In 2008, we increased our reserves for environmental remediation by about $2,900,000. We estimate the cost to complete remediation activities will be about $1,800,000, which is included in other accrued expenses. Our estimate requires us to make assumptions regarding the scope of required remediation, effectiveness of planned remediation activities and approvals by regulatory authorities. Our estimate is subject to revision as new information becomes available.

     We manage our operations through three segments: real estate, mineral resources and fiber resources. Real estate secures entitlements and develops infrastructure on our lands for single-family residential and mixed-use communities and manages our undeveloped land and commercial operating properties. Mineral resources includes our oil, gas and water interests. Fiber resources manages our timber and recreational leases.

     Assets allocated by segment are as follows:

     We evaluate performance based on segment earnings before unallocated items and income taxes. Segment earnings consist of operating income, equity in earnings of unconsolidated ventures and net income attributable to noncontrolling interests. Unallocated items consist of general and administrative expense, share-based compensation, gain on sale of assets, interest expense and other non-operating income and expense. All our revenues are derived from U.S. operations and all our assets are located in the U.S. For first nine months 2009, revenues from one customer of our mineral resources segment exceeded 10% of our total revenues.

     Segment revenues and earnings are as follows:

     In third quarter 2009, general and administrative expense includes a $1,753,000 impairment charge related to our undivided 15 percent interest in corporate aircraft contributed to us by Temple-Inland at spin-off. In first nine months 2009, general and administrative expense also includes $3,180,000 paid to outside advisors regarding an evaluation by our Board of Directors of an unsolicited shareholder proposal.

     Share-based compensation increased in third quarter and first nine months 2009 principally due to our higher stock price and a greater number of cash-settled awards granted in 2009.

     In third quarter 2009, gain on sale of assets principally represents our gain from selling about 20,000 acres of timber and timberland in Georgia for $38,901,000 to St. Regis Paper Company, LLC, affiliate of Holland M. Ware. In first nine months 2009, gain on sale of assets also includes our gain from selling about 75,000 acres of timber and timberland in Georgia and Alabama for $119,702,000 to Hancock Timber Resource Group, which acquired the assets on behalf of its investor clients, in second quarter 2009.

     A summary of the awards granted under our 2007 Stock Incentive Plan follows.

     Cash-settled awards granted to our employees in the form of restricted stock units or stock appreciation rights vest over two to four years from the date of grant and generally provide for accelerated vesting upon death, disability or if there is a change in control. Vesting for some awards is also conditioned upon achievement of a minimum one percent annualized return on assets over a three-year period.

     Cash-settled awards granted to our directors in the form of restricted stock units are fully vested at the time of grant and payable upon retirement.

     The following table summarizes the activity of awards granted under our plan for first nine months 2009:

     In first nine months 2009, we paid $22,000 to settle vested cash awards. The aggregate current value of non-vested awards at third quarter-end 2009 is $10,421,000.

     There were no equity-settled awards in the form of restricted stock units granted in first nine months 2009, and there were no unvested equity-settled restricted stock unit awards at third quarter-end 2009.

     Restricted stock awards vest after three years if we achieve a minimum one percent annualized return on assets over such three-year period. The following table summarizes the activity of awards granted under our plan for first nine months 2009:

     The aggregate current value of non-vested awards at third quarter-end 2009 is $5,426,000.

     Stock options have a ten-year term, generally become exercisable ratably over three to four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. Options were granted with an exercise price equal to the market value of our stock on the date of grant. The following table summarizes the activity of awards granted under our plan for first nine months 2009:

     The aggregate intrinsic value of stock options outstanding was $1,276,000 at third quarter-end 2009. There was no aggregate intrinsic value of stock options exercisable at third quarter-end 2009.

     Stock options are valued based upon the Black-Scholes option pricing model. Awards granted in first nine months 2009 were valued based upon the following assumptions:

     We have limited historical experience as a stand alone company so we utilized alternative methods in determining our valuation assumptions. The expected life was based on the simplified method utilizing the midpoint between the vesting period and the contractual life of the awards. The expected stock price volatility was based on historical prices of our peers’ common stock for a period corresponding to the expected life of the options. Pre-vesting forfeitures are estimated based upon the pool of participants and their expected activity.

     Prior to the spin-off, we participated in Temple-Inland’s share-based compensation plans, and as a result, certain of our employees received share-based compensation in the form of restricted or performance stock units, restricted stock or options to purchase shares of Temple-Inland’s common stock. Concurrent with Temple-Inland’s distribution of our common stock, all outstanding Temple-Inland awards were adjusted into three separate awards: one related to Forestar common stock, one related to Guaranty common stock and one related to Temple-Inland common stock.

     Cash-settled awards generally vest and are paid after three years from the date of grant or the attainment of defined performance goals, generally measured over a three-year period. A summary of cash-settled awards outstanding to our employees at third quarter-end 2009, following the adjustments described previously, follows:

     In first nine months 2009, we paid $394,000 to settle vested cash awards.

     Stock options have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. Options were granted with an exercise price equal to the market value of Temple-Inland common stock on the date of grant. A summary of stock option awards outstanding to our employees at third quarter-end 2009, following the adjustments described previously, follows:

     The intrinsic value of options exercised was $138,000 in first nine months 2009.

     Share-based compensation expense for post-spin and pre-spin awards consists of:

     Share-based compensation increased in third quarter and first nine months 2009 principally due to our higher stock price and a greater number of cash-settled awards granted in 2009.

     The fair value of awards granted to retirement-eligible employees and expensed at the date of grant was $135,000 in first nine months 2009 and $1,321,000 in first nine months 2008.

     Pre-tax share-based compensation expense is included in:

     We did not capitalize any share-based compensation in first nine months 2009 or 2008.

     Unrecognized share-based compensation for post-spin awards not vested was $5,968,000 at third quarter-end 2009. The weighted average period over which this amount will be recognized is estimated to be 2.0 years. Unrecognized share-based compensation for pre-spin awards not vested was $253,000 at third quarter-end 2009. The weighted average period over which this amount will be recognized is estimated to be 0.8 years.

     In connection with restricted stock vested and stock options exercised, we withheld shares having a value of $44,000 for payment of payroll taxes in first nine months 2009. These shares are accounted for as treasury stock. Payroll taxes on restricted stock and stock options are reflected in financing activities in our consolidated statement of cash flows.

     Our effective tax rate was 35 percent in third quarter 2009 and 37% in first nine months 2009, both of which include less than a 1 percent benefit attributable to noncontrolling interests. Our effective tax rate was 16 percent, which includes an 11 percent benefit attributable to noncontrolling interests, in third quarter 2008 and 29 percent, which includes a 4 percent benefit attributable to noncontrolling interests, in first nine months 2008. Our 2008 rates also include benefits from percentage depletion and a federal income tax rate change for qualified timber gains due to the Food, Conservation and Energy Act of 2008. As a result of recently adopted sections of the Consolidation Topic of the FASB Codification related to consolidation of noncontrolling interests, income before income taxes includes income from pass-through entities allocable to noncontrolling interests for which there is no income tax provided.

     We anticipate that our effective tax rate in 2009 will be about 37 percent of which less than 1 percent will be attributable to noncontrolling interests.

     We have not provided a valuation allowance for our deferred tax asset because we believe it is likely it will be recoverable in future periods.

     At third quarter-end 2009, we have liabilities of $6,066,000 related to tax benefits not recognized for book purposes, which are included in other liabilities.

     We have evaluated subsequent events through November 5, 2009, the date of issuance of these financial statements.

     Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2008 Annual Report on Form 10-K. Unless otherwise indicated, information is presented as of September 30, 2009, and references to acreage owned include all acres owned by ventures regardless of our ownership interest in a venture.

     This Quarterly Report on Form 10-Q and other materials we have filed or may file with the Securities and Exchange Commission contain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “likely,” “intend,” “may,” “plan,” “expect,” and similar expressions, including references to assumptions. These statements reflect our current views with respect to future events and are subject to risk and uncertainties. We note that a variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements. Factors and uncertainties that might cause such differences include, but are not limited to:

     Other factors, including the risk factors described in Item 1A of our 2008 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.

     Prior to December 28, 2007, we were a wholly-owned subsidiary of Temple-Inland Inc. On December 28, 2007, Temple-Inland distributed all our issued and outstanding shares of common stock to its shareholders in a transaction commonly referred to as a spin-off. In 2008, we operated our first full year as a stand-alone public company and the following discussion and analysis reflect the post-spin results of operations and the effect on our financial condition.

     Our strategy is to maximize and grow long-term shareholder value through:

     In first quarter 2009, we announced our near-term strategic initiatives to enhance shareholder value by generating significant cash flow, principally from the sale of about 175,000 acres of higher and better use (HBU) timberland. As a result, we classified to assets held for sale about 171,000 acres of undeveloped land located in Alabama, Georgia and Texas with a carrying value of $51,390,000 and related timber with a carrying value of $24,749,000.

     In accordance with our strategic initiatives, in second quarter 2009, we sold about 75,000 acres of timber and timberland in Georgia and Alabama for $119,702,000 to Hancock Timber Resource Group, which acquired the assets on behalf of its investor clients. The transaction generated net proceeds of $116,116,000, which were principally used to reduce debt, and resulted in a gain on sale of $79,214,000. In addition, in third quarter 2009, we sold about 20,000 acres of timber and timberland in Georgia for $38,901,000 to St. Regis Paper Company, LLC, affiliate of Holland M. Ware. The transaction generated net proceeds of $37,735,000 and resulted in a gain on sale of $24,833,000.

     At third quarter-end 2009, assets held for sale includes about 74,000 acres of undeveloped land with a carrying value of $18,137,000 and related timber with a carrying value of $10,357,000. These assets are actively being marketed. Also included is our undivided 15 percent interest in corporate aircraft contributed to us by Temple-Inland at spin-off with a carrying value of $3,098,000. Our interest is being disposed of pursuant to the terms of an aircraft joint ownership agreement, which expires December 28, 2009.

     Net income was $19,476,000, or $0.54 per basic and diluted share, in third quarter 2009, compared with $872,000, or $0.02 per basic and diluted share, in third quarter 2008. Net income for first nine months 2009 was $66,501,000, or $1.86 per basic share and $1.85 per diluted share, compared with $10,230,000, or $0.29 per basic share and $0.28 per diluted share, in first nine months 2008.

     A summary of our consolidated results follows: