Cousins Properties Incorporated 2006 Annual Report - SNL Financial

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COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Reimbursements from third party and unconsolidated joint venture management contracts were $16.1 million, $15.1 million and $13.2 million for the years ended December 31, 2006, 2005 and 2004, respectively. Rental Property Revenues: In accordance with SFAS No. 13, “Accounting for Leases,” income on leases which include scheduled increases in rental rates over the lease term (other than scheduled increases based on the Consumer Price Index) and/or periods of free rent is recognized on a straight-line basis. The Company recognizes revenues for recoveries from tenants of operating expenses the Company paid on the tenant’s behalf. These operating expenses include items such as real estate taxes, insurance and other property operating costs. During 2006, 2005 and 2004, the Company recognized $13.3 million, $10.9 million and $10.8 million, respectively, in revenues for recoveries from tenants. The Company makes valuation adjustments to all tenant-related revenue based upon the tenant’s credit and business risk. The Company generally suspends the accrual of income on specific tenants where rental payments or reimbursements are delinquent 90 days or more. Residential Lot Sales: Sales and related cost of sales of developed lots to homebuilders are recognized in accordance with the full accrual method as outlined in SFAS No. 66, “Accounting for Sales of Real Estate.” If a substantial continuing obligation exists related to the sale or any other criteria for the full accrual method is not met, the Company would use the percentage of completion method to recognize revenues on lot sales. Multi-Family Residential Sales: Sales and related cost of sales of multi-family residential units are recognized in accordance with SFAS No. 66. Individual unit sales that meet the criteria in paragraph 37 of SFAS No. 66 are accounted for under the percentage of completion method. The Company recognizes profits on multi-family residential unit sales under the percentage of completion method when, among other factors, (1) construction is beyond a preliminary stage, which usually coincides with completion of the building’s foundation and (2) buyers make sufficient non-refundable deposits under their contracts (5% of the sales price for primary residences and 10% of the sales price for secondary residences is generally considered sufficient). Sales and related cost of sales for all other unit sales are recognized as deposits until all criteria for sales recognition under SFAS No. 66 are met. In November 2006, the FASB ratified the consensus in EITF No. 06-08, “Applicability of the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums” (“EITF 06-08”), which provides guidance for determining the adequacy of a buyer’s continuing investment and the appropriate profit recognition in the sale of individual units in a condominium project. EITF 06-08 requires that companies evaluate the adequacy of a buyer’s continuing investment in recognizing condominium revenues on the percentage of completion method by applying paragraph 12 of Statement No. 66 to the level and timing of deposits received on contracts for condominium sales. This rule is effective for the Company on January 1, 2008, although earlier adoption is permitted. The Company does not anticipate the impact of adopting EITF 06-08 will have a material effect on its financial position or results of operations for current projects, but anticipates that the accounting under EITF 06-08 will have a material effect on the timing of revenue recognition for any future multi-family residential projects the Company undertakes. Gain on Sale of Investment Properties: The Company recognizes gain on sale of investment properties in accordance with the provisions of SFAS No. 66. SFAS No. 66 requires that the sale be consummated, the buyer’s initial and continuing investment be adequate to demonstrate commitment to pay, any receivable obtained not be subject to future subordination and the usual risks and rewards of ownership be transferred. SFAS No. 66 also requires that the seller not have a substantial continuing involvement with the property. If the Company has a commitment to the buyer and that commitment is a specific dollar amount, this commitment is accrued and the gain on sale that the Company recognizes is reduced. If the Company has a construction commitment to the buyer, an estimate is made of this commitment and a portion of the sale is deferred until the commitment has been fulfilled. F-10
Income Taxes COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Cousins has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, Cousins must distribute annually at least 90% of its adjusted taxable income, as defined in the Code, to its stockholders and satisfy certain other organizational and operating requirements. It is management’s current intention to adhere to these requirements and maintain Cousins’ REIT status. As a REIT, Cousins generally will not be subject to federal income tax at the corporate level on the taxable income it distributes to its shareholders. If Cousins fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Cousins may be subject to certain state and local taxes on its income and property, and to federal income taxes on its undistributed taxable income. CREC uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities result from temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future periods. In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Income Tax Uncertainties” (“FIN 48”). FIN 48 defines the threshold for recognizing tax return positions in the financial statements as those which are “more-likely-than-not” to be sustained upon examination by the taxing authority. FIN 48 also provides guidance on derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, accounting for income tax uncertainties in interim periods and the level of disclosures associated with any recorded income tax uncertainties. FIN 48 is effective January 1, 2007 for the Company. The Company does not anticipate the effect of adopting the provisions of FIN 48 will be material to its financial position or results of operations. Stock-Based Compensation The Company has several types of stock-based compensation plans which are described in Note 7. In December 2004, the FASB issued SFAS No. 123 (revised 2004) (“SFAS 123R”), “Share-Based Payment.” This standard requires the recognition of compensation expense for the grant-date fair value of all share-based awards granted after the date the standard is adopted, and for the fair value of the unvested portion of awards issued prior to the date the standard is adopted. The Company adopted SFAS 123R using the modified prospective method of adoption in the fiscal quarter beginning January 1, 2006. Additional disclosures related to stock-based compensation are included in Note 7. For periods prior to 2006, the Company accounted for its stock-based compensation under APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation.” APB No. 25 required the recording of compensation expense for some stock-based compensation, including restricted stock, but did not require companies to record compensation expense on stock options where the exercise price was equal to the market value of the underlying stock on the date of grant. Accordingly, the Company did not record compensation expense for stock options in the Consolidated Statements of Income prior to January 1, 2006, as all stock options granted have an exercise price equal to the market value of the underlying common stock on the date of grant. Compensation expense for stockbased compensation previously expensed under APB No. 25 did not materially change under SFAS 123R. The Company uses the Black-Scholes model to value its new stock option grants under SFAS 123R. SFAS 123R also requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation. In addition, SFAS 123R requires the Company to reflect the benefits of tax deductions in excess of recognized compensation cost to be reported as both a financing cash inflow and an operating cash outflow upon adoption. The effect on operating and financing cash flows was approximately $2.6 million in 2006 related to these tax benefits. The Company adopted the transition method described in FSP FAS 123R-3, “Transition Election Related to Accounting for the Tax Effect of Share-Based Payment Awards.” F-11
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Outstanding Performance Cousins Pro
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FORWARD-LOOKING STATEMENTS Certain
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Had significant leasing activity, n
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Certain environmental laws impose l
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Environmental issues. Environmental
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Financing Risks If interest rates o
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eceive less cash than the amount of
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income, Cousins is subject to tax o
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16 Description and Location Year De
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18 Lease Expirations — Office As
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20 Description and Location Year De
Page 23 and 24: Lease Expirations — Industrial As
Page 25 and 26: Additional Information Related to O
Page 27 and 28: (3) Total Project GLA includes anch
Page 29 and 30: Description Year Commenced Estimate
Page 31 and 32: Description and Location(1) Zoned U
Page 33 and 34: Mr. DuPree rejoined the Company in
Page 35 and 36: Performance Graph The following gra
Page 37 and 38: General and Administrative Expenses
Page 39 and 40: For the foreseeable future, the Com
Page 41 and 42: collectibility of unit purchase pri
Page 43 and 44: Decrease of approximately $1.2 mill
Page 45 and 46: The vesting period for stock option
Page 47 and 48: esidential lot development and land
Page 49 and 50: Stock-Based Compensation. The Compa
Page 51 and 52: capitalization at December 31, 2006
Page 53 and 54: Cash Flows from Investing Activitie
Page 55 and 56: eceivable. The table presents sched
Page 57 and 58: Item 9. Changes in and Disagreement
Page 59 and 60: We have also audited, in accordance
Page 61 and 62: 10(a)(v)* Form of Restricted Stock
Page 63 and 64: SIGNATURES Pursuant to the requirem
Page 65 and 66: Cousins Properties Incorporated IND
Page 67 and 68: COUSINS PROPERTIES INCORPORATED AND
Page 73: fair values at the date of acquisit
Page 77 and 78: outstanding. The income amounts use
Page 89 and 90: Company and 28% to GDL, after each
Page 99 and 100: The following supplemental pro form
Page 107 and 108: 14. PROFIT SHARING/401(K) PLAN The
Page 109 and 110: S-2 Description Encumbrances COUSIN
Page 111 and 112: S-4 Description Encumbrances COUSIN
Page 113 and 114: COUSINS PROPERTIES INCORPORATED STA
Page 115 and 116: Subsidiary State of Incorporation C
Page 117 and 118: I, Thomas D. Bell, Jr., certify tha
Page 119 and 120: Exhibit 32.1 CERTIFICATION PURSUANT
Page 121 and 122: Shareholder Information INDEPENDENT
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Cousins Properties Incorporated 2006 Annual Report - SNL Financial

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