<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 1-10466
St. Joe Corporation
- -------------------
(Exact name of registrant as specified in its charter)
Florida 59-0432511
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
Suite 400, 1650 Prudential Drive, Jacksonville, Florida 32207
(Address of principal executive offices) (Zip code)
(904) 396-6600
(Registrant' telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by checkmark 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 X NO
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1997 there were 30,565,937 shares of common stock, no par
value, outstanding
1
<PAGE> 2
ST JOE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I Financial Information
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income and
Retained Earnings - Three months and
Nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 9
PART II Other Information
Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE> 3
ST. JOE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30 December 31,
1997 1996
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash & cash equivalents $ 200,986 $ 449,013
Short-term investments 38,200 88,011
Accounts receivable 39,343 57,517
Inventory 12,692 18,677
Other assets 35,665 17,455
----------- -----------
Total current assets 326,886 630,673
Investment & Other Assets:
Marketable securities 337,526 282,827
Other assets 67,231 58,571
----------- -----------
Total investment and other assets 404,757 341,398
Property, plant & equipment 1,180,263 1,156,642
Accumulated depreciation (327,046) (322,475)
----------- -----------
Net property, plant & equipment 853,217 834,167
----------- -----------
Total assets $ 1,584,860 $ 1,806,238
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 26,903 $ 28,480
Accrued liabilities 25,920 21,615
Income tax payable 3,876 6,864
----------- -----------
Total current liabilities 56,699 56,959
Accrued casualty reserves and other liabilities 19,951 18,185
Deferred income taxes 279,690 254,873
Minority interest in consolidated subsidiaries 293,915 279,280
Stockholders' Equity:
Common stock, no par value; 60,000,000 shares
authorized; 30,565,937 and 30,498,650 issued
and outstanding at September 30, 1997 and
December 31, 1996 13,054 8,714
Retained earnings 843,198 1,125,161
Net unrealized gains on marketable securities
available for sale 82,043 63,066
Restricted stock deferred compensation (3,689) --
----------- -----------
Total stockholders' equity 934,606 1,196,941
----------- -----------
Total liabilities and stockholders' equity $ 1,584,860 $ 1,806,238
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
ST. JOE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 11,047 $ 30,187 $ 79,566 $ 173,401
Operating revenues 58,366 54,369 172,328 162,307
--------------------------------------------------------
Total revenues 69,413 84,556 251,894 335,708
Cost of sales 5,374 24,895 63,282 64,765
Operating expenses 39,945 40,559 118,493 120,524
Selling, general and
administrative expenses 8,207 9,507 28,103 24,373
--------------------------------------------------------
Operating profit 15,887 9,595 42,016 126,046
Other income (expense):
Dividends 926 481 2,583 2,196
Interest income 6,719 10,334 21,955 20,887
Interest expense (89) (102) (331) (426)
Gain on sales and other dispositions of property 206 2,809 3,305 5,745
Other, net 2,346 998 5,138 3,603
--------------------------------------------------------
Total other income (expense) 10,108 14,520 32,650 32,005
--------------------------------------------------------
Income before income taxes and minority interest 25,995 24,115 74,666 158,051
Income tax expense 11,432 9,139 32,981 71,211
--------------------------------------------------------
Income before minority interest 14,563 14,976 41,685 86,840
Minority interest 5,507 3,527 13,404 9,922
--------------------------------------------------------
Income from continuing operations 9,056 11,449 28,281 76,918
--------------------------------------------------------
Income from discontinued operations:
Earnings (loss) from discontinued operations
(net of income taxes of $527) -- -- -- 746
Gain on sale of discontinued operations, net of
income taxes of $61,638 -- -- -- 90,370
--------------------------------------------------------
Net income 9,056 11,449 28,281 168,034
Retained earnings at beginning of period 835,669 1,108,774 1,125,161 955,239
Dividends (1,528) (1,525) (310,244) (4,575)
--------------------------------------------------------
Retained earnings at end of period $ 843,198 $ 1,118,698 $ 843,198 $ 1,118,698
========================================================
PER SHARE DATA:
Income from continuing operations $ 0.30 $ 0.38 $ 0.93 $ 2.53
Earnings from discontinued operations -- -- -- 2.98
--------------------------------------------------------
Net income $ 0.30 $ 0.38 $ 0.93 $ 5.51
========================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
ST. JOE CORPORATION
CONSOLIDATED STATEMENT OF CASHFLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months
ended September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 28,281 $ 168,034
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation, depletion and amortization 23,635 21,232
Minority interest in income 13,404 9,922
Gain on sale of property (3,682) (5,745)
Gain on sale of discontinued operations -- (90,370)
Deferred income taxes 12,327 60,687
Changes in operating assets and liabilities:
Accounts receivable 18,174 (377)
Inventory 5,985 3,459
Other assets (26,870) (14,151)
Accounts payable, accrued liabilities and casualty reserves 6,971 27,121
Income taxes payable (2,988) 25,537
Discontinued operations-noncash charges
and working capital changes -- (68,531)
--------- ---------
Cash provided by operating activities 75,237 136,818
Cash flows from investing activities:
Purchases of property, plant and equipment (53,256) (41,135)
Investing activities of discontinued operations -- (4,327)
Purchases of investments:
Available for sale (49,615) (18,698)
Held to maturity (100,336) (216,570)
Proceeds from dispositions of assets 14,904 4,806
Proceeds from sale of discontinued operations -- 454,949
Maturities and redemptions of investments:
Available for sale 62,434 12,218
Held to maturity 114,096 153,194
--------- ---------
Cash provided by/(used in) investing activities (11,773) 344,437
Cash flows from financing activities:
Financing activities of discontinued operations (245)
Dividends paid to stockholders (310,244) (4,575)
Dividends paid to minority interest (1,247) (1,245)
--------- ---------
Cash used in financing activities (311,491) (6,065)
Net increase (decrease) in cash and cash equivalents (248,027) 475,190
Cash and cash equivalents at beginning of period 449,013 16,802
--------- ---------
Cash and cash equivalents at end of period $ 200,986 $ 491,992
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 331 $ 835
Income taxes $ 25,776 $ 93,172
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
ST JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and footnotes required by
generally accepted accounting principles for complete financial
statements are not included herein. The interim statements should be
read in conjunction with the financial statements and notes thereto
included in the Company' latest Annual Report on Form 10-K. In the
opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position
as of September 30, 1997 and December 31, 1996 and the results of
operations and cash flows for the nine month periods ended September
30, 1997 and 1996 are not necessarily indicative of the results that
may be expected for the full year.
2. On April 11, 1996, St Joe Industries, Inc., a wholly owned subsidiary
of the Company, sold the stock of St. Joe Communications, Inc. (SJCI)
to TPG Communications, Inc. SJCI also sold its interest in four
cellular partnerships. These sales represent the Company' entire
communications segment. On May 30, 1996, the Company sold its
linerboard mill and container plants. The Company retained its forestry
operation. Net operating results of the communications segment and for
the linerboard mill and container plants for the three month and nine
month periods ended September 30, 1997 and 1996 are shown as earnings
from discontinued operations in the accompanying statement of income
and retained earnings.
3. On January 7, 1997, the Company adopted the 1997 Stock Incentive Plan
("the Incentive Plan"), whereby awards may be granted to certain
employees and non-employee directors of the Company in the form of
restricted shares of Company stock or options to purchase Company
stock. Awards are discretionary and are determined by the Compensation
Committee of the Board of Directors. The total amount of restricted
shares and options available for grant under the Incentive Plan is 1.85
million shares. As of September 30, 1997 awards were granted to certain
officers of the Company totaling 1.8 million shares. The options were
granted at the Company's current market price on the date of grant and
range from $57.43 to $94.13 after adjustment for the effects of the
special dividend. The options are exercisable in equal installments on
the first five anniversaries of the date of grant and expire generally
10 years after date of grant.
Effective January 6, 1997, the Company also granted Mr. Rummell,
Chairman and CEO of the Company, 67,287 restricted shares of the
Company's common stock. The restricted shares vest in equal
installments on the first five anniversaries of the date of grant. The
Company has recorded deferred compensation of $3.7 million for the
unamortized portion of this grant as of September 30, 1997.
Compensation expense related to this grant totaled approximately $.6
million in 1997.
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, permits entities to recognize
as expense over the vesting period the fair value of all stock based
awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and provide
pro forma net income and pro forma earnings per share disclosures for
employee stock option grants as if the fair-value-based method defined
in SFAS No. 123 has been applied. Under APB No. 25, compensation
expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. The
Company has selected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123. The
disclosures are not required for interim reporting.
6
<PAGE> 7
4. On January 10, 1997, the Company purchased for $5.5 million, a 38%
limited partnership interest in Deerfield Park, LLC a limited
partnership established to acquire and develop 554 acres of land in
Fulton County, Georgia. Costs incurred to date have been capitalized.
5. In September 1997, the linerboard mill at Port St. Joe, Florida, which
had been shutdown since April 1997, reopened. On August 25, 1997
the Company renegotiated certain terms of its wood fiber supply
agreement with Florida Coast Paper Company. Under the new agreement,
the Company will supply 615,400 tons of pulpwood and wood chips
between August 25, 1997 and May 30, 1998; thereafter the Company will
supply 700,000 tons per year through December, 2011 with two five year
renewal periods. Under the previous agreement, up to 1.6 million tons
per year was to be provided to Florida Coast Paper.
6. On May 5, 1997, the Company announced a proposal to the Board of
Directors of Florida East Coast Industries ("FECI") under which the
Company and FECI would merge and all shares of FECI stock owned by
others than the Company would be exchanged for cash at $102 per share.
There are approximately 9.1 million shares of FECI common stock
outstanding, of which approximately 4.9 million, or 54%, are owned by
St. Joe. The proposed merger would be subject to all required
regulatory approvals and approval by the shareholders of FECI, as well
as other customary terms and conditions. The proposal is also 6.
parties. The Company is evaluating various financing alternatives.
There can be no assurances when, if or on what terms the Company and
FECI can reach agreement with respect to the Company's proposal.
7. On September 8, 1997, the Company and Orlando - based CNL Group, Inc.
signed a letter of intent to form a real estate joint venture to invest
in and develop office and industrial properties in the central Florida
region. Pursuant to the joint venture, the Company, through two
subsidiaries, will receive a 50% ownership interest by contributing $5
million in cash to the partnership and committing to fund an additional
$25 million for new projects the venture determines to develop and/or
manage.
8. On November 12, 1997, the Company, through two subsidiaries, purchased
certain assets, including management and proprietary information
systems, of Arvida Company through a newly formed limited partnership
with JMB Southeast Development, L.L.C. and JMB Southeast Development
L.P. for the purpose of developing and/or managing residential
communities on certain lands owned by the Company, as well as the
purchase of other lands for development and management. The Company
owns 74% of the new limited partnership, St. Joe/Arvida Company, L.P.
The purchase price for the 74% partnership interest in the new entity
is not considered material to the Company's financial position.
9. The Company and its subsidiaries are involved in litigation in a number
of matters and are subject to certain claims which arise in the normal
course of business, none of which, in the opinion of management, is
expected to have a material adverse effect on the Company's
consolidated financial position or results of operations.
The Company has retained certain self-insurance risks with respect to
losses for third party liability, property damage and group health
insurance provided to employees.
The Company is subject to costs arising out of environmental laws and
regulations, which include obligations to remove or limit the effects
on the environment of the disposal or release of certain wastes or
substances at various sites, including sites which have been previously
sold. It is the Company's policy to accrue and charge against earnings
environmental cleanup costs when it is probable that a liability has
been incurred and an amount is reasonably estimable. As assessments and
cleanups proceed, these accruals are reviewed and adjusted, if
necessary, as additional information becomes available.
7
<PAGE> 8
The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of several Superfund sites. Other proceedings
involving environmental matters, such as alleged discharge of oil or
waste material into water or soil, are also pending against the
Company. The Company has accrued an allocated share of the total
estimated cleanup costs for these sites, based upon currently available
information and management's evaluation of other potentially
responsible parties. As of September 30, 1997 the aggregate
environmental related accruals were $7.0 million. Environmental
liabilities are paid over an extended period and the timing of such
payments cannot be predicted with any certainty. The Company does not
expect to incur amounts in excess of its accruals.
However, it is not possible to quantify future environmental costs with
certainty because facts develop over time, many issues relate to
actions by third parties, and there are frequent changes in
environmental regulations or the enforcement thereof. Nonetheless,
based on information presently available, management believes that the
ultimate disposition of currently known matters will not have a
material effect on the financial position, liquidity, or results of
operations of the Company.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
St. Joe Corporation is a diversified company engaged in the real estate,
forestry, transportation and sugar industries. Until the second quarter of 1996,
the Company was also engaged in communications and the manufacture and
distribution of forest products.
The Company's assets and operations are concentrated in the state of Florida,
making the Company, and particularly its real estate operations, dependent upon
the general health of the Florida economy. The Company's businesses,
particularly forestry and transportation, are influenced by the general health
of the national economy. The Company's real estate operations are also cyclical
but are primarily affected by local demographic and general economic trends, and
the supply and rate of absorption of new construction. Although the Company has
a large portfolio of income producing properties that provide stable operating
results, the Company's earnings from period to period may be significantly
affected by the nature and timing of sales of development property and
non-strategic assets.
The Company is currently undergoing a number of important changes in the mix of
its business and its overall business strategy. In the first quarter of 1997,
the Company hired a new chairman and chief executive officer as well as several
other senior members of management with strong backgrounds in large-scale real
estate planning and development. Under the direction of this new management
team, the Company is focusing more closely on the development of its large land
portfolio. Management believes that the Company's increased focus on real estate
operations will result in a larger portion of the Company's overall revenues
being attributable to real estate operations. However, many of the Company's
proposed projects will require a lengthy process to complete the development
cycle before they are sold or otherwise generate revenue. Nevertheless,
management believes that the Company's existing raw land portfolio will allow
the Company to maintain relatively low development costs and that its existing
large portfolio of income-producing properties, together with its other
businesses, will continue to generate cash to fund a significant portion of
its longer-term projects.
The Company is also undergoing certain strategic changes in its forestry
operations. The major customer for the Company's timber has been and continues
to be the Company's former linerboard mill which was sold in May, 1996. The
wood fiber supply agreement between the Company and the mill was recently
renegotiated to provide for a level of tonnage that is significantly less than
historical levels. Partly as a result of the reduced tonnage under the
agreement, the Company has decided to allow its forests to grow for longer
periods in order to age the timber and shift its focus toward higher margin
products. However, during this transition period, management believes that
revenues in the forestry segment may continue to decline.
As part of its effort to focus more intently on the Company's core assets,
management is continuing to explore the sale of its sugar operations, which for
the nine months ended September 30, 1997 generated $25.5 million of revenues.
RECENT EVENTS
On May 5, the Company announced a proposal to the Board of Directors of Florida
East Coast Industries, ("FECI"), under which the Company and FECI would merge
and all shares of FECI stock owned by others than the Company would be exchanged
for cash at $102 per share. There are approximately 9.1 million shares of FECI
common stock outstanding, of which approximately 4.9 million or 54% are owned by
St. Joe. The proposed merger would be subject to all required regulatory
approvals and approval by the shareholders of FECI, as well as other customary
terms and conditions. The proposal is also subject to negotiation of a merger
agreement containing terms and conditions mutually satisfactory to the parties.
9
<PAGE> 10
On September 8, 1997, the Company and Orlando - based CNL Group, Inc. signed a
letter of intent to form a real estate joint venture to invest in and develop
office and industrial properties in the central Florida region. Pursuant to the
joint venture, the Company , through two subsidiaries, will receive a 50%
ownership interest by contributing $5 million in cash to the partnership and
committing to fund an additional $25 million for new projects the venture
determines to develop and/or manage.
On November 12, 1997, the Company, through two subsidiaries, purchased certain
assets, including management and proprietary information systems, of Arvida
Company through a newly formed limited partnership with JMB Southeast
Development, L.L.C. and JMB Southeast Development L.P. for the purpose of
developing and/or managing residential communities on certain lands owned by the
Company, as well as the purchase of other lands for development and management.
The Company owns 74% of the new limited partnership, St. Joe/Arvida Company,
L.P. The purchase price for the 74% partnership interest in the new entity is
not considered material to the Company's financial position.
THREE MONTHS ENDED SEPTEMBER 30
Net sales decreased 63.4% from $30.2 million in the third quarter of 1996 to
$11.0 million in the third quarter of 1997. Decreases in forestry sales of $13.5
million and sugar sales of $10.8 million were offset slightly by real estate
land sales totaling $5.5 million. Operating revenues increased 7.4% from $54.3
million in the third quarter of 1996 to $58.4 million in the third quarter of
1997, primarily due to improved performance in the transportation segment.
Cost of sales decreased 78.4% from $24.9 million in the third quarter of 1996 to
$5.4 million in the third quarter of 1997. Forestry costs decreased $13.3
million and sugar costs decreased $7.5 million, consistent with decreases in
sales, and real estate costs of land and building sales increased $1.3 million.
Operating expenses decreased 1.5% from $40.6 million in the third quarter of
1996 to $40.0 million in the comparable quarter of 1997.
Selling, general and administrative expenses decreased 13.7% from $9.5 million
in the third quarter of 1996 to $8.2 million in the third quarter of 1997 due to
income recorded for the change in prepaid pension costs of $2.8 million,
partially offset by increases in staffing and related new hire costs.
Other income (expense) decreased 30.4% from $14.5 million in the third quarter
of 1996 to $10.1 million in the comparable quarter of 1997. This decrease is
primarily attributable to lower interest income from reduced investment balances
as a result of the Company's special dividend paid in March 1997.
Income tax expense was $11.4 million in 1997, for an effective rate of 44%, as
compared to $9.1 million or 38% in 1996.
Minority interest represents the 46% interest in Florida East Coast Industries,
Inc. ("FECI") not owned by the Company.
The Company reported net income of $9.1 million or $0.30 per share for the third
quarter of 1997 as compared to $11.4 million or $0.38 per share for the
comparative quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30
Net sales decreased 54.1% from $173.4 million in the first nine months of 1996
to $79.6 million in the first nine months of 1997. Sales in 1996 were unusually
high due to two related condemnation sales of land to the State of Florida in
exchange for $97.8 million in cash plus certain limited development rights.
Sales of real estate totaled $30.5 million in 1997. Operating revenues increased
6.2% from $162.3 million in 1996 to $172.3 million in 1997 primarily due to an
increase in transportation revenues of $6.8 million as well as increases in real
estate rental revenues.
10
<PAGE> 11
Cost of sales decreased 2.3% from $64.8 million in the first nine months of 1996
to $63.3 million in the first nine months of 1997, as a result of decreases in
cost of timber and other sales of $21.9 million offset by increases in cost of
real estate sales of $20.3 million. Operating expenses decreased 1.7% from
$120.5 million in the first nine months of 1996 to $118.5 million in the first
nine months of 1997 resulting from decreases in transportation costs of $3.9
million offset in part by an increase in real estate operating costs of $1.9
million.
Selling, general and administrative expenses increased 15.3% from $24.4 million
in the first nine months of 1996 to $28.1 million in the first nine months of
1997, primarily due to a one-time write-off of approximately $2.9 million for
expenses incurred in the transportation segment in connection with the possible
disposition of certain of its assets.
Other income (expense) increased 2% from $32.0 million in 1996 to $32.7 million
in 1997. The year to date increase for the first nine months of 1997 was due to
higher average investment balances compared to the first nine months of 1996.
Income tax expense on continuing operations for the nine months ended September
30, 1997 totaled $33.0 million, representing an effective rate of 44% compared
to $71.2 million for a similar effective tax rate in the 1996 comparable period.
These rates exceed statutory rates primarily because of the 50% excise tax on
prepaid pension cost totaling $4.2 million in 1997 and $11.0 million in 1996. It
is anticipated that as long as the Company continues to record prepaid pension
cost, an excise tax of 50% will be accrued.
Net income for the nine months ended September 30, 1997 was $28.3 million or
$0.93 per share compared to $168.0 million or $5.51 per share in 1996. Results
for 1996 included income from discontinued operations of $91.1 million, net of
tax.
RESULTS OF OPERATIONS
REAL ESTATE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
($ IN MILLIONS) ($ IN MILLIONS)
1997 1996 % 1997 1996 %
---- ---- -------- ---- ---- ------
Change Change
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales and $15.2 $9.9 53.5 $59.2 $124.2 -52.3
Operating Revenue
- -----------------------------------------------------------------------------------------------------------
Cost of Sales and 7.5 5.8 29.3 41.2 18.4 123.9
Operating Expense
- -----------------------------------------------------------------------------------------------------------
Selling, General and .6 1.3 -53.8 3.4 3.1 9.7
Administrative
- -----------------------------------------------------------------------------------------------------------
Operating Profit 7.1 2.8 153.6 14.6 102.7 -85.8
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The Company's real estate operations currently consist of commercial and
industrial development and management through Gran Central Corporation ("GCC"),
a subsidiary of FECI, and community residential development through Southwood
Properties Division of the Company.
THREE MONTHS ENDED SEPTEMBER 30
Real estate net sales and operating revenue increased 53.5% from $9.9 million in
the third quarter of 1996 to $15.2 million in the third quarter of 1997. Current
year's revenues include sales of miscellaneous commercial parcels of property
located throughout Florida by GCC totaling $4.9 million with cost of sales
totaling $1.3 million and residential lot sales by Southwood located in west
Florida totaling $.6
11
<PAGE> 12
million with cost of sales totaling $.1 million. Commercial rental revenues
totaled $9.7 million in the third quarter of 1997 compared to $9.8 million in
the third quarter of 1996. Rental revenues were affected this quarter compared
to prior year by loss of rental revenue due to the sale of two office buildings
in the first six months of 1997. Operating expenses related to realty revenues
were $6.1 million in 1997 for a 37.1% gross margin compared to $5.6 million for
a 42.9% gross margin in 1996. Selling, general and administrative costs were
down in 1997 due primarily to non-recurring legal expenses in 1996 related to
environmental matters. The lower gross margin for the quarter is a result of
depreciation expense on new buildings placed in service in 1997 this year.
NINE MONTHS ENDED SEPTEMBER 30
Real estate net sales decreased 52.3% from $124.2 million in the first nine
months of 1996 to $59.2 million in the first nine months of 1997. Operating
expenses and costs of sales increased 123.9% from $18.4 million in the first
nine months of 1996 to $41.2 million in the first nine months of 1997. The
decrease in sales was largely due to two related condemnation sales of land to
the State of Florida in 1996 for $97.8 million in cash plus certain limited
development rights. Costs associated with these sales were $.1 million.
In the commercial/industrial segment, conducted through GCC, rental revenues
increased 14.3% from $25.1 million in the first nine months of 1996 to $28.7
million in the first nine months of 1997. During the first nine months of 1997
eight buildings were placed in service adding approximately 973,000 leaseable
square feet. In the first nine months of 1997 land and building sales totaled
$26.5 million and include three office buildings, totaling $20.1 million, one of
which was developed and constructed specifically for the purpose of resale.
Total cost of these sales was $22.4 million.
In the community/residential segment, conducted through the Southwood Division,
land sales increased 200.7% from $1.3 million in the first nine months of 1996
to $4.0 million in the first nine months of 1997 (not including the condemnation
sales). Costs of these sales increased 66.7% from $.4 million in the first nine
months of 1996 to $1.2 million in the first nine months of 1997.
Operating expenses on realty revenue were $17.6 million for a 38.7% gross margin
in the 1997 period compared to $15.7 million in 1996 for a gross margin of
37.5%. Year to date selling, general and administrative expenses increased 9.7%
during 1997 due primarily to additional salaries and related benefits. As a
result of these factors, operating profit decreased 85.8% from $102.7 million
for the nine months ended September 30, 1996 to $14.6 million for the comparable
period in 1997.
FORESTRY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
($ IN MILLIONS) ($ IN MILLIONS)
1997 1996 % 1997 1996 %
---- ---- -------- ---- ---- --------
Change Change
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $5.4 $18.9 -71.4 23.1 44.6 -48.2
- -----------------------------------------------------------------------------------------------------------
Cost of Sales 3.9 17.2 -77.3 20.3 42.3 -52.0
- -----------------------------------------------------------------------------------------------------------
Selling, General and .5 .8 -37.5 1.7 1.4 21.4
Administrative Expenses
- -----------------------------------------------------------------------------------------------------------
Operating Profit (Loss) 1.0 .9 11.1 1.1 .9 22.2
- -----------------------------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30
As a result of the Florida Coast Paper linerboard mill shutdown for most of the
quarter, sales to the mill decreased from $14.8 million in the third quarter of
1996 to $1.4 million in 1997. This reduction in sales was partially offset by
increases in sales to other vendors totaling $2.4 million at a higher margin.
Cost of
12
<PAGE> 13
sales as a percentage of sales was lower than previous year's, as more
sales of Company grown timber with lower cut and haul costs occurred in 1997
versus 1996.
NINE MONTHS ENDED SEPTEMBER 30
Total net sales in 1997 were lower by $21.5 million compared to the first nine
months of 1996, all of which is attributable to the Florida Coast Paper
linerboard mill shutdown which lasted from April 1997 through August 1997. Costs
of sales decreased 52% from $42.3 million in 1996 to $20.3 million in 1997 due
to declining sales, although cost of sales as a percentage of sales continue to
improve as the Company sells more of its grown timber with higher margins than
procured wood. Selling, general and administrative costs were $.3 million higher
this year than last year primarily due to severance payments of approximately
$1.2 million paid to 62 terminated employees, offset by reductions in ongoing
staffing levels.
On August 25, 1997, the Company renegotiated certain terms of its wood fiber
supply agreement with Florida Coast Paper Company. Under the new agreement, the
Company will supply 615,400 tons of pulpwood and wood chips between August 25,
1997 and May 30, 1998; thereafter the Company will supply 700,000 tons per year
for a period of fifteen years with two five year renewal periods. Under the
previous agreement, up to 1.6 million tons per year were to be provided to
Florida Coast Paper. As a result of the decrease in tonnage required to be
provided to Florida Coast Paper, management expects that the Company's revenues
will be temporarily depressed, but the change should result in higher quality
older-growth timber in the future. The pricing mechanism for the wood remains
the same as in the original agreement.
13
<PAGE> 14
TRANSPORTATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
($ IN MILLIONS) ($ IN MILLIONS)
1997 1996 % 1997 1996 %
---- ---- -------- ---- ---- --------
Change Change
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $48.6 $44.8 8.5 $144.0 $137.2 5.0
- -----------------------------------------------------------------------------------------------------------
Operating Expenses 33.8 35.0 -3.4 100.9 104.8 -3.7
- -----------------------------------------------------------------------------------------------------------
Selling, General and
- -----------------------------------------------------------------------------------------------------------
Administrative 5.7 4.7 21.3 17.7 14.5 22.1
- -----------------------------------------------------------------------------------------------------------
Operating Profit 9.1 5.1 78.4 25.4 17.9 41.9
- -----------------------------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30
FEC contributed $46.3 million of operating revenues and Apalachicola Northern
Railroad Company ("ANRR") contributed $2.3 million for the third quarter of
1997. FEC's operating revenues were up $5.0 million compared to the third
quarter of 1996 due to the increase in number of shipments handled and various
rate increases achieved. ANRR's operating revenues were $1.2 million lower
than last year due to fewer freight shipments to the Florida Coast Paper
linerboard mill as a result of its shutdown between April 1997 and August 1997.
The linerboard mill, which has been a significant portion of ANRR's revenues in
the past, resumed operation in September 1997. If the linerboard mill were to
shut down again, ANRR's revenue, operating profit and net income would be
significantly impacted. Operating expenses were approximately $1.2 million lower
than in the prior year, due primarily to decreases in casualty and insurance
reserves and a reduction at ANRR of costs due to layoffs. Selling, general and
administrative expenses increased $1.0 million in the third quarter of 1997
compared to the third quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30
Total FEC transportation operating revenues year to date were $136.5 million, an
increase of $9.0 million over 1996. This increase is attributable to a
combination of an 8.2% increase in the number of shipments handled in the first
nine months of 1997 versus 1996 and various rate increases achieved since the
beginning of the year. ANRR's operating revenues were $7.5 million in 1997, $2.2
million lower than in 1996 due to the shutdown of the Florida Coast Paper
linerboard mill, its largest customer. Operating expenses for this segment were
$3.9 million lower than last year as a result of decreases in casualty reserves
totaling $2.5 million and overall reductions in operating expenses. The 1996
comparable figures for casualty and insurance costs included an accrual for an
adverse legal judgment against the Company, which was subsequently reversed on
appeal, of approximately $2.2 million. Operating profit for the transportation
segment overall has increased from 13.0% in 1996 to 17.6% in 1997 as a result.
SUGAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
($ IN MILLIONS) ($ IN MILLIONS)
1997 1996 % 1997 1996 %
---- ---- -------- ---- ---- --------
Change Change
<S> <C> <C> <C> <C> <C> <C>
Net Sales $.2 $11.0 -98.2 $25.5 $29.7 -14.1
- -----------------------------------------------------------------------------------------------------------
Cost of Sales 0 7.5 -100.0 19.3 19.9 -3.0
- -----------------------------------------------------------------------------------------------------------
Selling, General and 1.1 .9 22.2 3.5 3.5 0
Administrative Expenses
- -----------------------------------------------------------------------------------------------------------
Operating Profit (Loss) -.9 2.6 -134.6 2.7 6.3 -57.1
- -----------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
THREE MONTHS ENDED SEPTEMBER 30
There were no sugar shipments in the third quarter of 1997 due to completion of
shipments relating to the 1996 harvest in the prior quarter, however collections
from the segment's customer totaled $.2 million. Sales for the 1997 harvest year
will resume in the fourth quarter.
NINE MONTHS ENDED SEPTEMBER 30
Net sales decreased $4.2 million due to a 12.4% volume decrease (8.4 million
tons) compared to the first nine months of 1996 as a result of the timing of
shipments and fewer acres being harvested, and a sales price decrease of $7
dollars per ton. Cost of sales as a percentage of sales increased from 67.0% to
75.7% due to lower selling price, higher direct costs including cultivation
expenses, as well as higher indirect costs compared to 1996. Selling, general
and administrative expense levels were consistent with 1996. Included in
selling, general and administrative expense is the Everglades Agricultural
Privileges Tax of $905,000 and $976,000 for 1997 and 1996, respectively.
CORPORATE AND OTHER
On February 25, 1997 the Board of Directors approved an interim severance
program. The program was available to all employees (including early and regular
retirees) who elected to leave employment with the Company prior to May 2, 1997.
In total 80 employees elected to participate, and the Company incurred total
severance costs of approximately $2.5 million during 1997 of which $1.3 million
is included in corporate general and administrative expense and $1.2 million is
included in the forestry segment.
Other selling, general and administrative expenses, not allocated to segments,
for the third quarter of 1997 totaled $.3 million compared to $1.8 million in
1996. These costs for the third quarter of 1997 are net of income of $2.8
million recorded for the change in prepaid pension cost. The gross amount of
$3.1 million primarily relates to new management, increased staffing and related
new hire costs. It is anticipated that general and administrative expenses will
continue at this level for the remainder of this year. Year to date selling,
general and administrative expenses for 1997 totaled $1.7 million, which is net
of income of $8.4 million related to the change in prepaid pension costs.
FINANCIAL POSITION
Total cash and cash equivalents decreased 55.2% from $449.0 million at December
31, 1996 to $201.0 million at September 30, 1997 primarily as a result of the
distribution of the special dividend of $10 per share paid during the first
quarter totaling approximately $305 million. Additionally, it is anticipated
that the final distribution from net proceeds of the sales of operations which
occurred in 1996 of approximately $1.00 per share will be distributed on or
before December 31, 1997. Total cash, cash equivalents, short-term investments
and marketable securities were $576 million at September 30, 1997.
Capital expenditures for the year to date totaled $53.3 million, of which $50.5
related to real estate construction and land purchases. It is anticipated that
expenditures in the foreseeable future will be funded through existing available
liquidity and operations.
Stockholder's equity at September 30, 1997 was $30.60 per share, a decrease of
$8.65 from December 31, 1996, due to total dividends paid of $310.2 million,
including the special dividend and the regular $.05 per share dividend paid each
quarter.
If the merger with FECI is consummated as currently contemplated, the cost of
such merger would be approximately $424 million in cash. The Company has
historically not incurred debt in the development of its various real estate
projects or for other expenditures, funding instead from internally generated
cash flows. As the Company moves forward, debt may be incurred in those
situations where the use of financing leverage is deemed appropriate.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10 Agreement to Amend Wood Fiber Supply Agreement
Dated August 25, 1997
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No Reports on Form 8-K were filed this quarter
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
St Joe Corporation
Date: November 14, 1997 /s/ Peter Rummell
------------------- ------------------------------------
Peter Rummell
Chief Executive Officer
Date: November 14, 1997 /s/ Charles A. Ledsinger
-------------------- ------------------------------------
Charles A. Ledsinger
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
16
<PAGE> 17
Exhibit Index
10 Agreement to Amend Wood Fiber Supply Agreement
Dated August 25, 1997
27 Financial Data Schedule (for SEC use only).
17
<PAGE> 1
AGREEMENT TO AMEND WOOD FIBER
SUPPLY AGREEMENT
THIS AGREEMENT is made and entered into this 25th day of August, 1997,
between ST. JOE TIMBERLAND COMPANY, F/K/A ST. JOSEPH LAND AND DEVELOPMENT
COMPANY, a Florida corporation (hereinafter "St. Joe"), and FLORIDA COAST PAPER
COMPANY, L.L.C., a Delaware Limited Liability Company (hereinafter "Florida
Coast"), and shall hereinafter be referred to as "Amendment Agreement."
W I T N E S S E T H :
WHEREAS, St. Joe and Florida Coast entered into a Wood Fiber Supply
Agreement on May 30, 1996, attached hereto as Exhibit "A", (hereinafter "Fiber
Agreement"), and
WHEREAS, St. Joe and Florida Coast desire to change, amend, and/or
alter certain terms in the Fiber Agreement while leaving other terms in the
Fiber Agreement in place;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good an valuable consideration, St. Joe and Florida
Coast agree to the following:
1. DELIVERY AND ACCEPTANCE AMOUNTS.
1.1. During the period from August 25, 1997 through and including
May 30, 1998:
St. Joe will deliver to Florida Coast, and Florida Coast will
accept from St. Joe a total volume of 615,400 tons, in weekly
increments of 15,385 tons per week of pulpwood and wood chips;
A minimum of 13,460 tons per week of the pulpwood and wood
chips St. Joe delivers to Florida Coast and Florida Coast
accepts from St. Joe under its Paragraph 1.1 will
originate from land owned by St. Joe in fee;
St. Joe will provide to Florida Coast, within twenty
(20) days of signing this Amendment Agreement, a list of all
private pulpwood and wood chips volume obligations which St.
Joe is required to accept by May 30, 1998. This volume will
not exceed 150,000 tons;
In satisfying its volume requirements under this
Paragraph 1.1., St. Joe shall receive no credit for trade
wood, defined as wood chips received by St. Joe from solid
wood product customers in return for St. Joe selling solid
wood products to those customers.
The volume of wood chips in the mix of wood chips and
pulpwood which St. Joe delivers to Florida Coast shall not be
less than 25% and not greater than 55%.
1.2. For the period from May 31, 1998 through the end of the Fiber
Agreement:
St. Joe will deliver to Florida Coast and Florida Coast will
accept from St. Joe 13,460 tons of pulpwood and wood chips per
week, equating to an annual volume of 700,000 tons of pulpwood
and wood chips;
All pulpwood and wood chips delivered by St. Joe under
this Paragraph 1.2 shall originate from land owned by
St. Joe in fee;
In satisfying its volume requirements under this
Paragraph 1.2., St. Joe shall receive no credit for trade
wood, defined as wood chips received by St. Joe from solid
wood product
<PAGE> 2
customers in return for St. Joe selling solid wood products to
those customers.
2. SPECIFICATIONS AND PRICING FOR PULPWOOD AND FOR
WOOD CHIPS.
2.1. The following specifications shall apply to pulpwood and wood
chips delivered by St. Joe to the Florida Coast mill at Port
St. Joe:
Pulpwood shall be cut to a 2 1/2 inch small end top;
Wood chips shall meet those specifications used at the Stone
Container Corporation paper mill in Panama City, Florida, as
of the date of the signing of this Amendment Agreement. These
specifications are attached hereto and made a part hereof as
Exhibit "A".
2.2. Pulpwood which St. Joe brings to its chip plant in Lowry or
Newport for ultimate delivery to Florida Coast as wood chips,
shall be cut to a 2 1/2 inch small end top. In return, Florida
Coast will pay a $0.35 per ton premium to St. Joe for all wood
chips shipped to Florida Coast from either the Lowry or the
Newport chip plant.
2.3. St. Joe will install chip screens at the Lowry chip plant in a
commercially reasonable time, and Florida Coast will then pay
an additional $0.50 per ton premium for wood chips from the
Lowry plant for a five-year period beginning once the screens
are in place and in use. Such beginning date shall be
confirmed in writing by the parties.
2.4. The $0.35 and $0.50 premiums referred to in Paragraphs 2.2 and
2.3 above, will be added to the weekly invoice amount which
St. Joe sends to Florida Coast and shall not be subject to the
quarterly indexing of prices referred to in the Fiber
Agreement.
2.5. The volume of wood chips in the mix of wood chips and pulpwood
which St. Joe delivers to Florida Coast shall be not less than
25% and not greater than 55% of the annual 700,000 ton mix of
wood chips and pulpwood which St. Joe delivers to Florida
Coast.
2.6. Bark content shall not exceed 1% of the chip load weight. The
portion of the weekly average bark content based on sample
analysis that exceeds 1% but is less than 3.9% shall be
deducted as cull. If a load contains over 4% bark, confirmed
by a sample analysis, the entire load will be rejected.
Florida Coast shall pay St. Joe for loads rejected at the fuel
price rate. Both parties agree that the objective is to
produce and accept loads containing 1% bark or less and that
this procedure is for occasional loads only. Both parties also
agree that a bark specification does not apply to any pulpwood
deliveries.
3. CASH PAYMENT AND CANCELLATION OF INVOICES.
On the date this Amendment Agreement is signed by St. Joe and
Florida Coast, Florida Coast shall make a one-time payment of
$70,000 to St. Joe, and St. Joe shall cancel all invoices it
issued under the Fiber Agreement to Florida Coast from April
14, 1997, through August 25, 1997.
4. LIQUIDATED DAMAGES.
4.1. If Florida Coast does not accept pulpwood and wood chips at
the paper mill in Port St. Joe, Florida, as provided in
Paragraph 1 of this Amendment Agreement for a period longer
than thirty (30) consecutive days, either:
<PAGE> 3
a. Florida Coast will pay to St. Joe an amount of
$50,000 per week, prorated for each day beyond the
first thirty days which the mill does not receive
pulpwood or wood chips, or
b. Florida Coast shall instruct St. Joe to deliver the
amounts of pulpwood and wood chips stated in
Paragraph 1 above to third parties at destinations
other than the Port St. Joe mill, and shall pay to
St. Joe all additional delivery costs incurred for
delivery to the third parties. Any savings in
delivery cost realized as a result of the sale to a
third party will be credited to Florida Coast. The
specifications provided herein will apply to such
deliveries.
4.2. The provisions of Paragraph 4.1 above are intended as
liquidated damages, and specifically recognize that St. Joe
incurs substantial costs, expense, and business interruptions
if Florida Coast does not receive pulpwood or wood chips under
this contract for a period in excess of thirty (30) days.
4.3. The provisions of Paragraph 4.1 above do not apply if the Port
St. Joe mill is closed due to an Act of God or a force majeure
event.
4.4. If Florida Coast does not accept pulpwood and wood chips under
this Amendment Agreement from St. Joe, as set forth in
Paragraph 1 of this Amendment Agreement, for any reason,
including Act of God or force majeure, the weekly amount of
wood fiber not accepted will be released and deducted from the
volume for that contract year which St. Joe would otherwise be
obligated to make available to Florida Coast.
5. SURVIVAL OF FIBER AGREEMENT.
5.1. All provisions of this Amendment Agreement take precedence
over, control, and overrule any provisions of the Fiber
Agreement with which they are in conflict.
5.2. Any provisions of the Fiber Agreement not in conflict with
this Amendment Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereunto have caused this Agreement to
be executed by their duly authorized officer on this 25th day of August, 1997.
Signed, sealed and ST. JOE TIMBERLAND COMPANY
delivered in the presence of:
/s/
- ---------------------------- By: /s/
Witness as to St. Joe --------------------------------
/s/
- ---------------------------- Title: Vice President
Witness as to St. Joe -----------------------------
FLORIDA COAST PAPER COMPANY
/s/
- ---------------------------- By: /s/
Witness as to Florida Coast --------------------------------
- ---------------------------- Title: Chairman
Witness as to Florida Coast -----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ST. JOE CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 200,986
<SECURITIES> 38,200
<RECEIVABLES> 39,343
<ALLOWANCES> 0
<INVENTORY> 12,692
<CURRENT-ASSETS> 326,886
<PP&E> 1,180,263
<DEPRECIATION> 327,046
<TOTAL-ASSETS> 1,584,860
<CURRENT-LIABILITIES> 56,699
<BONDS> 0
0
0
<COMMON> 13,054
<OTHER-SE> 921,552
<TOTAL-LIABILITY-AND-EQUITY> 1,584,860
<SALES> 79,566
<TOTAL-REVENUES> 251,894
<CGS> 63,282
<TOTAL-COSTS> 118,493
<OTHER-EXPENSES> 28,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 74,666
<INCOME-TAX> 32,981
<INCOME-CONTINUING> 28,281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,281
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
</TABLE>
