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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996).
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NO. 1-10466
ST. JOE CORPORATION
(Exact name of registrant as specified in its charter)
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FLORIDA 59-0432511
(State or other jurisdiction of (I.R.S. of Employer
incorporation or organization) Identification No.)
SUITE 400, 1650 PRUDENTIAL DRIVE
JACKSONVILLE, FLORIDA 32207
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (904) 396-6600
Securities Registered Pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, No par value New York Stock Exchange
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Indicate by check mark whether this 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 [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates based on the closing price on March 13, 1998 was $1,336,820,338.
As of March 13, 1998, there were 91,697,811 shares of Common Stock, no par
value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 12, 1998 (the "Proxy Statement") are
incorporated by reference in Part III of this Report and portions of the
Registrant's prospectus filed February 11, 1998 under Rule 424(b) (the
"Prospectus"), are incorporated by reference in Part I of this Report. Other
documents incorporated by reference in this Report are listed in the Exhibit
Index.
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This Form 10-K, including the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that are not historical facts. Such forward-looking information may
include, without limitation, statements that the Company does not expect that
lawsuits, environmental costs, commitments, contingent liabilities, labor
negotiations or other matters will have a material adverse effect on its
consolidated financial condition, results of operations or liquidity and other
similar expressions concerning matters that are not historical facts, and
projections as to the Company's financial results. Such statements are subject
to certain risks and uncertainties which could cause actual results to differ
materially from those anticipated in the forward-looking statements. Important
factors that could cause such differences include but are not limited to
contractual relationships, industry competition, regulatory developments,
natural events such as weather conditions, floods and earthquakes, forest fires,
the effects of adverse general economic conditions, changes in the real estate
markets and interest rates, fuel prices and the ultimate outcome of
environmental investigations or proceedings and other types of claims and
litigation. See the information set forth under the caption "Risk Factors" in
the Prospectus.
As a result of these and other factors, the Company may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition,
operating results, and stock price. An investment in the Company involves
various risks, including those mentioned above and elsewhere in this report and
those which are detailed from time-to-time in the Company's other filings with
the Securities and Exchange Commission.
Readers should not place undue reliance on forward-looking statements,
which reflect management's view only as of the date hereof. The Company
undertakes no obligation to publicly release revisions to these forward-looking
statements that reflect events or circumstances after the date hereof or reflect
the occurrence of unanticipated events.
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PART I
ITEM 1. BUSINESS
As used throughout this Form 10-K Annual Report, the terms "St. Joe,"
"Company" and "Registrant" mean St. Joe Corporation and its consolidated
subsidiaries unless the context indicates otherwise.
CONTINUING OPERATIONS
General. St. Joe is a diversified company engaged in the real estate,
forestry, transportation and sugar industries in the State of Florida. The
Company is the single largest private landowner in Florida, owning more than 1.1
million acres, or approximately 3% of the land area of the state (an area
slightly smaller than the land area of the State of Delaware). Although the vast
majority of the Company's properties consist of timberlands, St. Joe owns a
large portfolio of income producing properties and sizable tracts suitable for
commercial, industrial and residential as well as resort and entertainment
development. The Company is currently engaged in four principal lines of
business:
- Real Estate -- the development, ownership and management of commercial,
industrial and residential properties as well as the prospective
development of resort and entertainment properties;
- Forestry -- the management and harvesting of extensive timberland
holdings;
- Transportation -- the operation of two railroads within Florida; and
- Sugar -- the cultivation, harvesting and processing of sugar cane.
St. Joe is currently undergoing a number of important changes in its mix of
businesses and its overall business strategy. In early 1997, the Company hired a
new chairman and chief executive officer, Peter Rummell, the former president of
Disney Development Company and Chairman of Walt Disney Imagineering, as well as
several other senior members of management with strong backgrounds in
large-scale real estate development, the complex Florida entitlement process,
and financial and asset management. Under the direction of this new management
team, the Company intends to focus more closely on the development of its large
land portfolio. In addition, the Company is implementing a new strategy in its
forestry segment by extending the harvest rotation of certain sections of its
timberlands in order to effect a shift toward higher-margin products. In order
to focus more closely on its core assets, the Company sold its linerboard mill
as well as its container and communications businesses in 1996. In addition, on
December 6, 1997, management announced that it had reached an agreement in
principle to sell the Company's sugar lands to certain federal and state
government agencies on or before June 6, 1998, although the Company will retain
the right to farm the sugar lands through the 2002-2003 crop year.
The Company was organized as a Florida corporation in 1936 by the executors
of the Estate of Alfred I. duPont to implement Mr. duPont's plans to establish a
paper company in northwestern Florida. The Company subsequently expanded into
other lines of business primarily by acquiring companies in financial difficulty
whose assets the Company perceived to be undervalued. Since 1940, the Company
has continued to purchase additional parcels of real property located throughout
Florida and over time has acquired a sizable portfolio of land. Included in
these holdings are approximately 45,000 acres in northwestern Florida and
approximately 6.435 acres in St. Johns County on the northeastern coast of
Florida near Jacksonville that the Company has identified as potentially
suitable for development over the near to long term. For a presentation of
certain financial data on a segment by segment basis, see "Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Real Estate. The Company currently conducts its real estate operations in
two principal segments: commercial/industrial development and management and
community/residential development.
The Company owns and manages commercial and industrial properties through
Gran Central Corporation ("GCC"), a wholly owned subsidiary of Florida East
Coast Industries, Inc. ("FECI"), in which the Company has a 54% equity interest.
At December 31, 1997, GCC owned and operated 59 buildings with approximately 5.6
million square feet of rentable commercial/industrial space. On the same date,
GCC's
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buildings in service for one year or more were 90% leased, 82% for its portfolio
as a whole, including newly constructed buildings. GCC's buildings are primarily
Class "A" office space and high-quality commercial/industrial facilities
constructed after 1987. At December 31, 1997, GCC had an additional 479,000
square feet under construction and had entitlements to develop an additional
approximately 14.2 million square feet of buildings, primarily in its Miami,
Jacksonville and Orlando parks. GCC also owns over 15,400 acres of unentitled
land that management believes are suitable for future commercial, industrial and
residential development, primarily situated adjacent to the Florida East Coast
Railway Company ("FEC") rights-of-way in markets that the Company believes will
provide significant growth opportunities. The primary focus of GCC's development
activities has been the Miami, Jacksonville and Orlando areas, all of which are
highly active with local, regional and national development companies competing
for land and tenants. The Company plans to continue operating in these markets,
and to evaluate Florida and southeastern markets to increase the geographic
diversity of its current portfolio.
Because GCC was formed to conduct the real estate activities of FEC, its
undeveloped properties are generally located near transportation corridors along
the eastern coast of Florida. GCC's developable holdings include sizable parcels
adjacent to FEC tracks which are suitable for development into office and
industrial parks, offering both rail and non-rail-served parcels. Certain of
GCC's other holdings are in urban or suburban locations offering opportunities
for development of office building structures or business parks containing both
office building sites and sites for flexible space structures such as
office/showroom/warehouse buildings.
On December 3, 1997, the Company formed a 50/50 joint venture ("St.
Joe/CNL") with Orlando-based CNL Group, Inc. to develop and acquire commercial
real estate in the central Florida area. CNL is a large privately held real
estate, finance and development company with substantial market knowledge and
relationships in the Orlando and central Florida commercial and industrial
markets. St. Joe/CNL's strategy is to accumulate a portfolio of profitable,
stabilized real estate assets through a combination of development and
acquisition and hold those assets in anticipation of ultimate sale. St. Joe/CNL
will initially focus on single and multi-tenant office buildings and industrial
and flex space, primarily in 17 central Florida counties and along the U.S.
Interstate Highway 4 corridor, including Tampa, Orlando and Daytona Beach. St.
Joe/CNL has significant investments planned for the greater Orlando market,
including a 14-story 345,000 square foot downtown Orlando office building,
together with an approximately 1,800-space parking garage, which will serve as
CNL's new corporate headquarters.
On February 25, 1998, the Company completed a transaction with the Codina
Group, Inc. ("Codina") and Weeks Corporation by which the Company and Weeks,
among other things, each purchased a one-third interest in Codina, a
commercial/industrial developer, active principally in southern Florida. The
Company intends to develop commercial, industrial and office property, as well
as manage Gran Central's existing properties in southern Florida, through its
interest in Codina.
In the community/residential development sector, the Company's strategy is
to develop large-scale, mixed-use communities primarily on Company-owned land.
Development of master-planned communities is a long-term endeavor, with
build-out typically occurring over a five- to fifteen-year period. The Company
also intends to develop smaller scale residential projects that offer productive
use of existing Company and acquired land.
On November 12, 1997, the Company purchased a 74% general partnership
interest in a limited partnership, St. Joe/Arvida Company, L.P., through a joint
venture with JMB Southeast Development, L.L.C. and JMB Southeast Development,
L.P. (the "Arvida Venture"). The principal assets acquired through the Arvida
Venture were the "Arvida" name, proprietary information systems and the Arvida
management team. The Company expects to direct most of its future community and
residential development efforts through the Arvida Venture and to conduct the
majority of its residential development activity under the Arvida trademark.
Although the Company has not in the past built homes, the Company intends to
initiate home-building through the Arvida Venture.
The Company is currently master-planning two tracts of land near the Town
of Seaside, Florida and one large tract in Tallahassee as part of its
development program. The Company intends to develop the tracts near Seaside as
second-home resort communities in order to take advantage of the Gulf of Mexico
frontage of the
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tracts. The Company intends to develop the Tallahassee tract, approximately
3,000 acres located six miles from downtown Tallahassee, as a residential and
mixed-use planned community. The master-planning of these tracts is expected to
be completed in mid-to-late 1998, and the Company anticipates submission of such
plans to the relevant government authorities for approval soon thereafter. The
Company believes that its raw land inventory will provide a long-term supply of
well-situated land and waterfront properties that may be suitable for
development in the future. In particular, the Company owns two developable
parcels in St. Johns County, on the northeastern coast of Florida, a 4,300 acre
parcel with 4.5 miles of riverfront on the St. Johns River, and, through GCC, a
2,150 acre parcel in St. Johns County located on the Intracoastal Waterway.
Management believes these properties are suitable for development into mixed-use
communities and the Company expects to begin master-planning in late 1998. As is
typical of large scale development projects, development of these tracts could
require significant infrastructure development costs and may raise environmental
issues that require mitigation.
In addition, the Company has certain smaller developments underway or
entitled in Bay and Walton counties. In conjunction with the Arvida Venture, the
Company intends to construct homes at these development sites and then sell them
to end purchasers. The Company owns several other developable properties in the
northwestern portion of Florida. A large portion of this property is situated
along major U.S. and state highways and has significant gulf, lake or river
frontage. The most significant tracts include parcels situated near Panama City
Beach, Mexico Beach, St. Joe Beach and the town of Apalachicola. The Company
believes that these properties offer development opportunities that it expects
to develop over the long term.
Several of the projects described above, including the tracts near the town
of Seaside and the Tallahassee tract, are still in the master-planning stage and
have not yet been submitted to state and local authorities for their review. No
assurances can be given that the necessary entitlements for development will be
secured, that any of the Company's projects can be successfully developed, if at
all, or that they can be developed in a timely manner. It is not feasible to
estimate project development costs until entitlements have been obtained.
The Company plans actively to pursue development of resorts and
recreational facilities as a new business line. As part of its strategy to
pursue resort and recreational facility development, on December 3, 1997, the
Company purchased 100% of the capital stock of Riverside Golf Management Company
("Riverside") from Steven Melnyk. Riverside is currently the manager of three
daily-fee public courses in Jacksonville, Florida, Atlanta, Georgia and Clemson,
South Carolina. The Company acquired Riverside, its information systems, current
management contracts and the right to use the name "Champions Club" on any
course it develops or manages east of the Mississippi River. Management intends
to utilize Riverside in conjunction with the Arvida Venture to create attractive
residential communities with a golf course component. Riverside will also
develop golf courses unrelated to Company residential developments.
Forestry. The Company's forestry operations, conducted through its wholly
owned subsidiary, St. Joe Timberland Company, are in the business of growing,
harvesting and selling timber and wood fiber. The Company is the largest private
holder of timberlands in Florida, with over 700,000 acres of planted pine
forests, primarily in northwestern Florida, and an additional 300,000 acres of
mixed timberland, wetlands, lake and canal properties. The Company estimates
that its standing pine inventory on January 1, 1998 totaled 10.6 million tons
and its hardwood inventory totaled 5.9 million tons. Six forestry units and a
wood procurement unit manage the timberlands. The timberlands are harvested by
local independent contractors pursuant to agreements which are generally renewed
annually. The Company also owns a wood chipping facility located at Lowry,
Florida. The principal product of the Company's forestry operations is softwood
pulpwood, but the Company also produces and sells softwood and hardwood
sawtimber. During 1997 the Company harvested 798,000 tons of softwood pulpwood
and sawtimber.
The Company's timberlands are located in northwestern Florida and southern
Georgia, near key transportation links including roads, waterways and railroads,
allowing the Company to deliver fiber to its customers on a cost-efficient
basis. The Company's principal productive timberlands are near the facilities of
The Florida Coast Paper Company, L.L.C. ("FCP") in Port St. Joe, the Company's
major customer. Numerous other major conversion facilities located near the
Company's timber assets could serve to further expand the markets for the
Company's timber products.
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On May 30, 1996, the Company sold its former linerboard mill and container
plants as part of its strategy of focusing its forestry operations on the
business of growing and harvesting timber. By divesting itself of these assets,
the Company can now focus on achieving the highest margin usage for its
products, consistent with sustainable harvest practices, without the competing
imperative of supplying fiber to manufacturing operations that typically only
operate efficiently at full capacity. As a result, the Company can now seek to
operate its forestry operations as a stable and sustainable business, shielded
from the highly cyclical nature of the conversion business.
The Company renegotiated its 15-year supply contract with FCP after closure
of the mill for five months in 1997 to allow it to supply pulpwood to the mill
at a level (700,000 tons per year beginning June 1, 1998) significantly lower
than historical levels. The Company sought to reduce its obligation to supply
pulpwood under the agreement in order to extend growing periods for certain
portions of its timber and to provide flexibility to sell timber in different
markets.
The Company's strategy in its forestry segment is to increase the average
age of its timber by extending growing periods before final harvesting in order
to capitalize on the higher margins of older-growth timber. The Company intends
to extend growing periods for its softwood forests from a historical average of
approximately 18-22 years to approximately 28-30 years. This change is expected
to shift the Company's product mix from approximately 85% pulpwood and 15%
higher-margin products in 1997 to approximately 60% pulpwood and 40%
higher-margin products by 2005. Although revenues in the forestry segment will
likely be flat or decline slightly in the near term, this strategy should
ultimately increase the revenues and returns of the Company's timber operations
when a sustainable harvest of older-growth timber is achieved, although there
can be no assurances in this regard. The Company will also seek to maximize
sustainable harvest volumes through the continued use and development of
genetically improved seedlings, soil mapping, extensive fertilization,
vegetation control, thinning and selective harvesting practices. In addition,
the Company is considering potential transactions to increase the nearer term
value of the Company's timberlands, such as asset swaps, sales, joint ventures
and lease arrangements.
As part of its strategy to maximize the cash flows from its timberlands,
the Company engages in several business activities complementary to its land
holdings. The Company leases approximately 881,000 acres of its timberlands to
private clubs and state agencies for hunting, 280 acres in north Gadsden County
for the mining of fuller's earth, and 600 acres to Martin Marietta for the
mining of limerock. Revenues from these businesses totaled $1,260,000 in 1997
and $369,000 in 1996. The Company has not conducted an exhaustive survey of its
timberlands for potential mineral reserves.
Transportation. FECI's subsidiary, Florida East Coast Railway Company
("FEC"), operates a railroad along 351 miles of main line track between
Jacksonville and Miami, Florida and along 91 miles of branch track between Fort
Pierce and Lake Harbor, Florida. FEC also maintains approximately 157 miles of
switching track and 184 miles of other track. FEC has the only coastal
right-of-way between Jacksonville and West Palm Beach, Florida and is the
exclusive rail-service provider to the Port of Palm Beach, Port Everglades and
the Port of Miami. To complement and facilitate its railroad operations, FEC
also provides drayage and interstate trucking services through its wholly owned
subsidiary International Transit, Inc. ("ITI").
TRAFFIC
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YEAR ENDED DECEMBER 31, 1997
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COMMODITY UNITS % REVENUE %
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(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
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TOFC/COFC................................................... 255.7 63% $ 54,677 39%
Crushed stone............................................... 93.2 23 36,683 26
Vehicles.................................................... 18.0 4 19,730 14
Foodstuffs.................................................. 10.6 3 7,941 6
Cement...................................................... 6.8 2 3,707 3
Other....................................................... 18.6 5 17,611 12
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Total............................................. 402.9 100% $140,349 100%
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At Jacksonville, FEC connects with Norfolk Southern Corporation and with
CSX Transportation, Inc. ("CSXT"). FEC relies upon both of these carriers for
Florida-bound rail freight traffic which originates elsewhere in the United
States. In 1997, approximately 47% of FEC's revenues were attributable to
traffic that originated on other railroads, approximately 6% were attributable
to traffic that originated on FEC but was bound for other destinations and 47%
were attributable to traffic that both originated and terminated on FEC's
system. FEC is a terminating railroad and, consequently, does not receive
traffic from one railroad to be passed over its track to another railroad.
Because all of FEC's traffic either originates in or is bound for Florida, FEC's
revenues fluctuate seasonally and with economic conditions in southern Florida,
rising as the economy of southern Florida expands and declining as it contracts.
In 1997, FEC principally transported trailers on freight cars, containers
on freight cars, crushed stone, vehicles, foodstuffs and cement.
ITI operates a common motor carrier with service throughout the
southeastern United States. FECI acquired an 80% interest in ITI on April 1,
1995, and the remaining 20% on June 25, 1997, as a strategic purchase designed
to enable FEC to reach intermodal traffic not being solicited by FEC's
connections due to the short-haul nature of the traffic.
In addition to its rail and other related services, FEC leases the use of
its rights-of-way to various tenants, including several telecommunications
companies' fiber-optics systems, pursuant to long-term leases. Under such
leases, FEC currently receives approximately $2.5 million per year in revenue,
nearly all of which represents profit.
The Company also owns the Apalachicola Northern Railroad Company ("ANRR"),
a short-line railroad operating between Port St. Joe and Chattahoochee, Florida,
where it connects with an unaffiliated carrier. Its transportation facilities
include 96 miles of main track, 13 miles of yard switching track and 3 miles of
other track. Although it is a common carrier, most of ANRR's business consists
of carrying coal from Port St. Joe to Chattahoochee pursuant to a contract with
Seminole Electric Cooperative, Incorporated ("Seminole") and carrying wood
chips, pulpwood and linerboard used or produced at FCP's paper mill in Port St.
Joe, Florida. The other items carried by ANRR are tall oil, chemicals, stone and
clay products and recyclable items.
Between April and September 1997, the linerboard mill at Port St. Joe,
Florida shut down. Shipment of wood and wood products produces a significant
portion of ANRR's revenues. ANRR entered into a coal contract with Seminole in
order to mitigate the financial impact of the shutdown and limit its dependence
on a single customer. Nevertheless, if the linerboard mill shuts down in the
future or if Seminole does not renew its contract, which expires in 2004, ANRR's
revenue, operating profit and net income would be significantly impacted.
Sugar. The Company owns Talisman Sugar Corporation, a grower of sugarcane
located in the Belle Glade area in south central Florida. Talisman owns
approximately 48,000 acres of agricultural land and leases approximately 6,000
acres. The Company also operates a sugar mill at which sugarcane is converted
into raw sugar. Talisman sells its entire production to Everglades Sugar
Refinery, Inc., a wholly owned subsidiary of Savannah Foods & Industries, Inc.,
pursuant to an annually renewed contract. The amount Talisman is paid for its
sugar under the current contract is a function of market prices.
On December 6, 1997, the Company signed an agreement in principle with the
United States of America and the State of Florida (the "Governments"), under
which the Governments agreed to purchase substantially all of the sugar lands
that the Company owns or leases for $133.5 million in cash. Under the agreement,
the Company will retain the right to farm the transferred lands through the
2002-2003 crop year. Thereafter, the Company will be required to deliver the
lands in compliance with all federal and state environmental laws and will be
responsible for and bear the expenses of environmental cleanup of such lands and
the sugar mill. At that time, the Company has agreed to close its sugar mill and
remove it and all associated structures designated by the Governments. The
Company will retain any salvage value from the disposition of its mill. The
Company and the Governments have agreed to enter into an appropriate purchase
agreement reflecting these terms by June 6, 1998. The proposed transaction is
subject to board and government approval, and there
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can be no assurances that an agreement will be concluded or that the sale of the
Company's sugar lands will be consummated.
The Company's sugar mill has a grinding capacity of approximately 11,500
tons of sugarcane per day. The Company ground approximately 1,081,000 tons of
sugarcane in 1997, 1,202,000 tons in 1996, and approximately 1,386,000 tons in
1995 from Company operated lands. Total raw sugar production for the Company was
approximately 105,000 tons in 1997, 117,000 tons in 1996, and 138,000 tons in
1995. The sugar mill is virtually energy self-sufficient, with almost all of its
energy requirements supplied through the use of bagasse, a byproduct of the
mill's cane grinding operations.
Sugarcane plantings generally yield two harvests before replanting is
necessary. The Company harvests its sugarcane crop in one-year cycles, as do
other Florida producers. The Company generally plants sugarcane in the fall of
each year. Harvesting of a crop generally commences in October of each year and
continues into the following March. During the 1996-1997 crop year, Talisman
grew sugarcane on approximately 43,000 acres of land.
The majority of the Florida sugarcane producers, including Talisman,
harvests sugarcane using mechanical cane harvesters which reduce significantly
the labor requirements, resulting in substantial cost savings and more efficient
and timely grinding of the sugarcane. Mechanized harvesting, however, is less
precise than manual harvesting, results in greater amounts of chaff and trash
being mixed in with the harvested sugarcane, causes small amounts of sucrose to
be lost through leaching into the trash and chaff, damages cane fields more than
manual harvesting, and results in slightly lower cane yields in subsequent
crops. Yields of sucrose from such harvested sugarcane and its crop yields per
acre are generally slightly lower than those cut by hand. These negative
effects, however, are far outweighed by cost savings and other efficiencies that
result from mechanized harvesting.
Entertainment. The Company is also evaluating potential development
opportunities in the location-based entertainment business, both inside and
outside of Florida, and to be developed by the Company alone or in conjunction
with joint venture partners. On January 22, 1998, the Company entered into a
memorandum of understanding (the "Memorandum") with the National Football League
("NFL") to build and operate NFL entertainment centers in locations nationwide.
The venture, in which the Company will own a 40% interest, plans to operate
facilities that provide interactive NFL football entertainment experiences in
club settings complemented by food service, bar and retail sales. Under the
Memorandum, the Company has agreed to initially contribute up to $25 million to
the venture, which will seek to develop at least seven projects in various U.S.
cities. The proposed transaction is subject to the execution of a definitive
agreement and appropriate corporate approvals, and there can be no assurance
that the transaction will be consummated or, if consummated, that the venture
will be successful.
On February 25, 1998, the Company acquired a 33% interest in ENTROS, a
location-based entertainment company headquartered in Seattle, Washington that
creates and produces interactive games in club settings and produces game-based
programming for corporate events.
Location-based entertainment takes the form of stand-alone facilities,
often part of regional or national chains, that provide multiple forms of
entertainment experiences in a single setting. Such facilities may offer only
entertainment or may offer a combination of entertainment, food and beverage and
retail experiences. The Company's management has extensive experience in the
entertainment segment of the real estate development industry and is seeking
avenues to take advantage of that experience.
DISCONTINUED OPERATIONS
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 interests in three remaining cellular
limited partnerships. The Company had previously sold one cellular limited
partnership in 1995. These sales represented the Company's entire communications
segment.
On May 30, 1996, the Company sold its linerboard mill and container plants.
The Company remains contingently liable for up to $10 million relating to
On-Site Environmental Liabilities, as defined in the sales
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agreement. The Company further agreed to reimburse up to $1 million for certain
remediation activities at the linerboard mill, if such activities were required
under environmental laws.
Approximately $359.3 million of proceeds from these sales was distributed
to shareholders in 1997. See "Item 6 -- Selected Consolidated Financial Data,
note 6."
The sale of these operations has materially lowered the Company's revenues
from historical levels, and future net income, earnings per share and cash flows
may also be materially different from historical levels.
REGULATION
Real Estate. Development of real property in Florida entails an extensive
approval process involving overlapping regulatory jurisdictions. Real estate
projects must generally comply with the provisions of the Local Government
Comprehensive Planning and Land Development Regulation Act (the "Growth
Management Act"). In addition, development projects that exceed certain
specified regulatory thresholds require approval of a comprehensive Development
of Regional Impact ("DRI") application. Compliance with the Growth Management
Act and the DRI process is usually lengthy and costly and can be expected to
materially affect the Company's real estate development activities.
The Growth Management Act requires counties and cities to adopt
comprehensive plans guiding and controlling future real property development in
their respective jurisdictions. After a local government adopts its
comprehensive plan, all development orders and development permits that it
issues must be consistent with the plan. Each such plan must address such topics
as future land use, capital improvements, traffic circulation, sanitation,
sewerage, potable water, drainage and solid wastes. The local governments'
comprehensive plans must also establish "levels of service" with respect to
certain specified public facilities and services to residents. Local governments
are prohibited from issuing development orders or permits if facilities and
services are not operating at established levels of service, or if the projects
for which permits are requested will reduce the level of service for public
facilities below the level of service established in the local government's
comprehensive plan. If the proposed development would reduce the established
level of services below the level set by the plan, the development order will
require that, at the outset of the project, the developer either sufficiently
improve the services to meet the required level or provide financial assurances
that the additional services will be provided as the project progresses.
The Growth Management Act is in some instances significantly affecting the
ability of developers to obtain local government approval in Florida. In many
areas, infrastructure funding has not kept pace with growth. As a result,
substandard facilities and services are delaying or preventing the issuance of
permits. The Growth Management Act could adversely affect the ability of Florida
developers, including the Company and GCC, to develop real estate projects.
The DRI review process includes an evaluation of the project's impact on
the environment, infrastructure and government services, and requires the
involvement of numerous federal, state and local environmental, zoning and
community development agencies and authorities. Local government approval of any
DRI is subject to appeal to the Governor and Cabinet by the Florida Department
of Community Affairs, and adverse decisions by the Governor or Cabinet are
subject to judicial appeal. The DRI approval process is usually lengthy and
costly, and there are no assurances as to what specific factors will be
considered in the approval process, or what conditions, standards or
requirements may be imposed on a developer with respect to a particular project.
The DRI approval process is expected to have a material impact on the Company's
real estate development activities in the future.
In addition, a substantial portion of the developable property in Florida,
including much of the Company's property, is raw land located in areas where its
development may affect the natural habitats of various endangered or protected
wildlife species or in sensitive environmental areas such as wetlands and
coastal areas, which are subject to extensive and evolving federal, state and
local regulation. Accordingly, federal, state and local wildlife protection,
zoning and land use restrictions, as well as community development requirements,
may become increasingly restrictive and, as a result, significant limitations
may be imposed on the Company's ability to develop its real estate holdings in
accordance with their most profitable uses.
7
<PAGE> 10
The Company's ownership and development of real estate are subject to
extensive and changing federal, state and local environmental laws, the
provisions and enforcement of which may become more stringent in the future.
Pursuant to those laws, the owner or operator of real estate may be required to
perform remediation regardless of whether it caused the contamination. The sale
or development of properties may also be restricted due to environmental
concerns, the protection of endangered species, or the protection of wetlands.
In addition, violations of various statutory and regulatory programs can result
in civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. The Company is not
presently aware of any material contaminations at or any material adverse
environmental development issues relating to its real estate operations.
However, there can be no assurance that environmental issues will not arise in
the future relating to the real estate operations.
Forestry. The Company's forestry operations are subject to extensive and
changing federal, state and local environmental laws and regulations, the
provisions and enforcement of which may become more stringent in the future.
Forestry operations generate air emissions through controlled burning and
discharge industrial wastewater and stormwater. The forestry operations are
subject to regulation under the ESA, the federal Clean Water Act, the federal
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act and the
Toxic Substances Control Act as well as similar state laws and regulations.
Violations of various statutory and regulatory programs can result in civil
penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. Some environmental
statues impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person.
The Endangered Species Act ("ESA") and counterpart state legislation
protect species threatened with possible extinction. A number of species
indigenous to the Company's timberlands have been, and in the future may be,
protected under these laws, including the red cockaded woodpecker, the bald
eagle and various other species. Protection of endangered and threatened species
may include restrictions on timber harvesting, road building and other
silvicultural activities on the Company's land containing the affected species.
There can be no assurance that such laws or future legislation or administrative
or judicial action with respect to protection of the environment will not
adversely affect the Company's forestry operations.
In conducting its harvesting activities, the Company voluntarily complies
with the "Best Management Practices" recommended by the Florida Division of
Forestry. From time to time, proposals have been made in state legislatures
regarding the regulation of timber harvesting methods. There can be no assurance
that such proposals, if adopted, will not adversely affect the Company or its
ability to harvest and sell logs or timber in the manner currently contemplated.
The Company is not presently aware of any facts that indicate that the
Company will be required to incur material costs relating to environmental
matters in relation to its forestry operations. However, there can be no
assurances that environmental regulation or regulation relating to endangered
species or wetlands will not have a material adverse effect on the forestry
operations in the future.
Transportation. Both FEC and ANRR are subject to regulation by the Surface
Transportation Board of the U.S. Department of Transportation and, in some
areas, the State of Florida. These governmental agencies must approve, prior to
implementation, changes in areas served and certain other changes in operations
of FEC and ANRR.
The Company's transportation operations are subject to extensive local,
state and federal environmental laws and regulations, including the federal
Clean Air Act, CERCLA and various other state and local environmental laws and
regulations. Violations of various statutory and regulatory programs can result
in civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. Some environmental
statutes impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person. In
addition, the Company's present and historic ownership and operation of real
property, including yards, in connection with its transportation operations
involve the storage, use or disposal of hazardous substances that have
contaminated and may in the future contaminate the environment. The Company may
also be liable for the costs of cleaning up a site at which it has disposed
(intentionally or unintentionally by virtue of, for example, an
8
<PAGE> 11
accident, derailment or leak) or to which it has transported hazardous
substances. The Company is currently involved in various remediations of
properties relating to its transportation operations. In addition, FEC, along
with many other companies, has been named a potentially responsible party in
proceedings under Federal statutes for the clean up of designated Superfund
sites at Hialeah, Florida; Jacksonville, Florida; and Portsmouth, Virginia. See
Item 3 -- "Legal Proceedings". Based on presently available information, the
Company does not believe that the costs of addressing any known environmental
issues relating to its transportation operations will be material. However, the
future cost of complying with environmental laws and containing or remediating
contamination cannot be predicted with any certainty, and there can be no
assurances that such liabilities or costs would not have a material adverse
effect on the Company in the future.
Sugar. The Company's sugar operations are subject to and may be severely
restricted by various federal, state and local environmental laws, including,
but not limited to, the federal Clean Water Act, the federal Clean Air Act and
CERCLA. Violations of these laws can result in civil penalties, remediation
expenses, natural resource damages, potential injunctions, cease and desist
orders and criminal penalties. The Company's sugar operations are located in the
Florida Everglades, which are the subject of extensive environmental review by a
variety of government entities. In 1994, the State of Florida enacted the
Everglades Forever Act which significantly affects agriculture in the Everglades
Agricultural Area ("EAA"). The Act calls for the creation of six Stormwater
Treatment Areas ("STA") as buffers between the Everglades Protection Area and
the EAA. The Act imposes substantial taxes on Talisman (approximately $1.3
million was paid in each of 1997 and 1996) and other agricultural interests to
pay for construction of the STAs. As part of its environmental compliance
efforts, Talisman has installed equipment to monitor the quality and quantity of
water being pumped out of its pumping stations as required by the local Water
Management District.
Except as described above, the Company is not presently aware of any
material environmental issues relating to its sugar operations. However, there
can be no assurance that environmental issues that could have a material adverse
effect on the Company will not arise in the future relating to its sugar
operations.
COMPETITION
Real Estate. The real estate industry is generally characterized by
significant competition. The Company plans to continue to expand through a
combination of office, industrial and residential developments in Florida where
the acquisition and/or development of property would, in the opinion of
management, result in a favorable risk-adjusted return on investment. There are
a number of office, industrial and residential developers and real estate
companies that compete with the Company in seeking properties for acquisition,
resources for development and prospective tenants. Competition from other real
estate developments may adversely affect the Company's ability to attract and
retain tenants, rental rates and expenses of operation (particularly in light of
the higher vacancy rates of many competing properties which may result in lower-
priced space being available in such properties). The Company may compete with
other entities that have greater financial and other resources than the Company.
There can be no assurance that the existence of such competition could not have
a material adverse effect on the Company's business, operations and cash flow.
Forestry. The forest products industry is highly competitive in terms of
price and quality. Many of the Company's competitors are fully integrated
companies with substantially greater financial and operating resources than the
Company. The products of the Company are also subject to increasing competition
from a variety of non-wood and engineered wood products. In addition, the
Company is subject to a potential increase in competition from lumber products
and logs imported from foreign sources. Any significant increase in competitive
pressures from substitute products or other domestic or foreign suppliers could
have a material adverse effect on the Company.
Transportation. Although each of the Company's railroads is typically the
only rail carrier directly serving its customers, the Company's railroads
compete directly with other railroads that could potentially deliver freight to
their markets and customers via different routes. The Company's railroads also
compete directly with other modes of transportation, including motor carriers
and, to a lesser extent, ships and barges. Competition is based primarily upon
the rate charged and the transit time required, as well as the quality and
9
<PAGE> 12
reliability of the service provided. Any improvement in the cost or quality of
these alternate modes of transportation could increase competition from these
other modes of transportation and adversely affect the Company's business.
Sugar. The sugar industry is highly competitive. The Company competes with
foreign and domestic sugarcane and sugar beet processors, as well as
manufacturers of corn sweeteners and artificial sweeteners such as aspartame and
saccharin. Sugar is a volatile commodity subject to wide price fluctuations in
the marketplace.
NEW PRODUCTS
During 1997, no refinements of products or new products were introduced
which would require the investment of a material amount of St. Joe's assets or
which otherwise would be considered material.
SOURCES AND AVAILABILITY OF RAW MATERIALS
During 1997 and 1998 to date, all of the raw materials the Company uses
were available in adequate supply from multiple sources.
PATENTS, TRADEMARK AND LICENSES
St. Joe obtained five new trademarks in 1997 through the acquisitions of
Arvida and Riverside Golf including the right to the "Arvida" trademark. The
Company has no pending applications for trademarks.
SEASONALITY
The sugarcane production and processing segment is seasonal with one
sugarcane crop being harvested each year. Little significant seasonality exists
for products or services in the other segments of the Company.
WORKING CAPITAL
In general, the working capital practices followed by the Company are
typical of industries in which it operates. The sugar segment will occasionally
ship product in advance of its contractual delivery date. The pre-shipment is
then stored by the buyer and collaterized by a letter of credit in favor of the
Company.
CUSTOMERS
In the real estate segment, the Company is not dependent on any significant
customer. GCC's largest commercial tenant occupied approximately 3.6% of leased
space in 1997.
FEC's two largest customers in 1997 were Rinker Materials Corporation and
Tarmac-Florida, Inc. ANRR's largest customers are Seminole Electrical and FCP.
The Company's business could be adversely affected if its customers suffer
significant reductions in their businesses or reduce shipments of commodities
transported by the Company.
The FCP linerboard mill, which was sold in 1996, remains the largest major
customer of the forestry segment pursuant to the wood fiber supply agreement. As
discussed in Part I Item I, the Company renegotiated its contract with FCP in
1997 to provide for lower supply obligations in the future. In the sugar
segment, Talisman has a contract with Everglades Sugar Refinery, Inc. to
purchase the entire raw sugar production. This contract runs through the
1997/1998 crop year and is automatically renewed each crop thereafter. Either
party can decline to renew by giving notice to the other party no later than
October 1 of the fourth year prior to the termination date.
10
<PAGE> 13
RESEARCH AND DEVELOPMENT
St. Joe maintains a nursery and research facility in Capps, Florida, which
grows seedlings for use in reforestation of its lands. The nursery conducts
research to produce faster-growing, more disease-resistant species of pine
trees, and produces seedlings for planting on Company-owned plantations. In
addition, the Company in cooperation with the University of Florida, is doing
experimental work in genetics on the development of superior pine seed. This
experimentation work is in genetics, plantation and fertilization. The amounts
spent during the last three fiscal years on Company-sponsored research and
development activities were not material.
INVESTMENTS
The Company, in addition to its operations, has cash, cash equivalents and
investments in U.S. government securities, corporate debt securities, municipal
securities, and common and preferred stocks. At December 31, 1997, the market
value of the Company's cash, cash equivalents, and marketable securities was
approximately $517 million, valued as follows: cash and money market deposits
$159 million, government and municipal securities with less than a one year
term, $49 million; government and municipal securities with greater than one
year term, $152 million; corporate debt securities with less than a one year
term, $2 million; and corporate debt securities with a greater than one year
term and corporate equity securities, $155 million.
EMPLOYEES
The Company (excluding its subsidiaries) had approximately 53 employees at
December 31, 1997. The Company effected a substantial reduction in its workforce
during 1996 primarily due to the sale of its former linerboard mill and
container operations. None of the Company's employees are covered by collective
bargaining agreements. The Company considers its relations with its employees to
be good.
The Company's forestry operations, through St. Joe Timberland Company, had
28 employees at December 31, 1997. The Company effected a 72% reduction in its
forestry workforce during 1997 in order to improve the cost structure of
forestry operations. The reduction in employment was primarily due to the
outsourcing of replanting land preparation operations to independent
contractors. The Company estimates that this outsourcing will achieve cost
savings of approximately $1 million per year on an ongoing basis.
At December 31, 1997, FECI had 1,215 employees, including 729 FEC employees
and ANRR had 84 employees. At December 31, 1997, Talisman had 721 employees.
Approximately 700 FEC and most ANRR employees are covered by collective
bargaining agreements which set wage levels and establish work rules and working
conditions. Most of FEC's non-salaried employees are represented by the United
Transportation Union or the International Brotherhood of Electrical Workers. The
Company and FEC consider their working relationship with the various unions that
represent railroad employees to be satisfactory. Approximately 137 Talisman
employees are covered by collective bargaining agreements. They are represented
by the International Association of Machinists and Aerospace Workers. Talisman
believes its relations with its employees to be satisfactory.
ITEM 2. PROPERTIES
The material physical properties of the Company at December 31, 1997 are
listed below and are grouped by industry segment. All properties shown are owned
in fee simple, except where otherwise indicated.
CORPORATE FACILITIES
The Company occupies approximately two floors of a four story building
owned by its subsidiary, GCC, in Jacksonville, Florida.
11
<PAGE> 14
REAL ESTATE
Commercial/Industrial Development and Properties. At December 31, 1997,
GCC's commercial and industrial income-producing portfolio included ten projects
with 59 buildings aggregating 5,591,994 square feet. At December 31, 1997, these
buildings were 82.4% leased. GCC's income-producing projects are detailed below:
GCC INCOME-PRODUCING PROJECTS
(AT DECEMBER 31, 1997)
<TABLE>
<CAPTION>
NUMBER RENTABLE LEASED AVERAGE
OF SQUARE SQUARE PERCENT MONTHLY BASE RENT/ YEAR
LOCATION BUILDINGS TYPE FEET FEET LEASED BASE RENT SQUARE FOOT BULIT
- -------- --------- ------------ --------- --------- ------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
duPont Center............... 2 Office 162,669 159,668 98.2% $ 188,590 14.17
Jacksonville, FL
Gran Park at Deerwood(1).... 3 Office 385,213 296,842 77.1 410,720 16.60 1996-97
Jacksonville, FL
Gran Park at Interstate
South..................... 6 Industrial 260,064 220,161 84.7 126,134 6.88 1986-88
Jacksonville, FL
Gran Park at
Jacksonville(2)........... 3 Industrial 354,153 108,060 30.5 71,819 7.98 1997
Jacksonville, FL
Gran Park at the
Avenues(3)................ 8 Mixed use 713,877 587,372 82.3 480,655 9.80 1992-97
Jacksonville, FL
Gran Park at Riviera
Beach..................... 5 Industrial 311,392 280,907 90.2 98,810 4.22 1982-91
Riviera Beach, FL
Gran Park at McCahill(4).... 5 Industrial 878,439 566,420 64.5 248,973 5.28 1992-97
Miami, FL
Gran Park at Miami(5)....... 24 Industrial 2,422,101 2,301,985 95.0 1,062,902 5.54 1988-97
Miami, FL
Hialeah, FL................. 2 Industrial 50,150 24,075 48.0 11,975 5.97 1975/87
Pompano Beach, FL........... 1 Industrial 53,936 53,936 100.0 23,040 5.13 1987
-- --------- --------- ----- ---------- ------
Total................... 59 5,591,994 4,599,426 82.3%(6) $2,723,618 $ 7.11
== ========= ========= ===== ========== ======
</TABLE>
- ---------------
(1) An office building totaling 126,228 square feet was constructed and placed
in service during 1997 at Gran Park at Deerwood and has not yet been fully
leased.
(2) All buildings in Gran Park at Jacksonville were constructed and placed in
service in 1997.
(3) An office/showroom/warehouse building totaling 70,400 square feet was
constructed and placed in service during 1997 at Gran Park at the Avenues
and has not yet been fully leased.
(4) Two 159,520 square feet warehouse buildings were constructed and placed in
service in 1997 at Gran Park at McCahill and have not yet been fully leased.
(5) An office/warehouse building totaling 103,200 square feet was constructed
and placed in service during 1997 at Gran Park at Miami.
(6) At December 31, 1997, GCC's buildings in service for one year or more were
approximately 90% leased.
During 1997, GCC's holdings grew significantly through the construction and
placing in rental status of eight buildings offering approximately 973,000
square feet of leasable space. New construction in 1997 included one office
building at Gran Park at Deerwood; one office/showroom/warehouse, one front load
warehouse and one rail building at Gran Park at Jacksonville; one
office/showroom/warehouse at Gran Park at the Avenues; two office/warehouses at
Gran Park at McCahill; and one office/warehouse at Gran Park at Miami.
At December 31, 1997, buildings under construction included a 134,200
square foot office building at Gran Park at Deerwood, of which 85,000 square
feet has been pre-leased, a 62,800 square foot office/showroom/warehouse at Gran
Park at Jacksonville, and both a 150,000 square foot office building and a
132,000 square foot office/showroom/warehouse at Gran Park at Southpark, a new
park being established by
12
<PAGE> 15
the Company in Orlando, Florida. Following completion, expected in the first
half of 1998, these buildings will add approximately 479,000 square feet to
GCC's total leasable space.
GCC has received expressions of interest from prospective tenants relating
to leasing portions of its recently completed buildings and current sites under
construction and is actively seeking to lease its currently vacant space.
In addition to those buildings presently under construction, GCC expects to
commence construction in 1998 on a 134,200 square foot office building at
Deerwood North, a 62,800 square foot office/showroom/ warehouse at Gran Park at
Jacksonville and a 134,200 square foot office building at Gran Park at
Southpark.
GCC owns approximately 17,680 acres of land within fourteen counties,
including several high-growth areas along Florida's east coast, such as West
Palm Beach, Melbourne-Titusville, Daytona Beach, Jacksonville, Miami-Hialeah and
the Fort Pierce area. GCC's land holdings were as follows at December 31, 1997:
GCC LAND HOLDINGS (ACRES)
(AT DECEMBER 31, 1997)
<TABLE>
<CAPTION>
COUNTY VACANT DEVELOPED ENTITLED TOTAL
- ------ ------ --------- -------- ------
<S> <C> <C> <C> <C>
Brevard............................................. 2,396 -- -- 2,396
Broward............................................. 46 6 -- 52
Dade................................................ 605 260 757 1,622
Duval............................................... 423 121 981 1,525
Flagler............................................. 3,462 -- -- 3,462
Indian River........................................ 5 -- -- 5
Martin.............................................. 661 -- -- 661
Manatee............................................. 897 -- -- 897
Palm Beach.......................................... 147 31 -- 178
Orange.............................................. -- -- 85 85
St. Johns........................................... 3,321 -- -- 3,321
St. Lucie........................................... 567 -- -- 567
Seminole............................................ 1 -- -- 1
Volusia............................................. 2,908 -- -- 2,908
------ --- ----- ------
Total:............................................ 15,439 418 1,823 17,680
====== === ===== ======
</TABLE>
Residential Development and Properties. The Company owns approximately
45,000 acres in northwestern Florida and approximately 6,435 acres (2,150 of
which are held through GCC) in St. John's County on the northeastern coast of
Florida near Jacksonville, including substantial gulf, lake and riverfront
acreage, that it believes to be potentially suited to community/residential and
resort development. The Company continually evaluates its holdings and local
market conditions to determine the market's readiness for additional development
and, as a result, may identify additional significant developable tracts among
its over 1.1 million acres in the future.
13
<PAGE> 16
The Company's most significant land holdings potentially suitable for
community and residential development are set forth below:
LAND HOLDINGS FOR COMMUNITY AND RESIDENTIAL DEVELOPMENT
(AT DECEMBER 31, 1997)
<TABLE>
<CAPTION>
COUNTY ACRES
- ------ ------
<S> <C>
Bay......................................................... 25,933
Franklin.................................................... 7,003
Leon........................................................ 9,556
St. John's.................................................. 6,435
Walton...................................................... 1,583
Wakulla..................................................... 1,143
------
51,653
</TABLE>
Approximately 244 acres listed above are currently entitled for
development.
FORESTRY
The Company owns over 700,000 acres of planted pine forests, primarily in
northwestern Florida, and an additional 300,000 acres of mixed timberland,
wetlands, lake and canal properties. It also owns forestry management
facilities, chip plants and pulpwood procurement offices in the following
locations:
<TABLE>
<CAPTION>
FORESTRY MANAGEMENT FACILITIES CHIP PLANTS ADMINISTRATIVE OFFICE
- ------------------------------ ----------- ---------------------
<S> <C> <C>
Albany, Georgia Lowry, Florida Port St. Joe, Florida
Hosford, Florida Newport, Florida
Newport, Florida
Port St. Joe, Florida
West Bay, Florida
Wewahitchka, Florida
</TABLE>
TRANSPORTATION
FEC owns three four-story buildings in downtown St. Augustine, Florida
which it uses for its corporate headquarters. It also owns approximately 7,750
acres of land along the east coast of Florida which is devoted to its railroad
operation. Its transportation facilities include 351 miles of main line track
between Jacksonville and Miami, Florida, mostly 132# on concrete crossties, and
along 91 miles of branch track between Fort Pierce and Lake Harbor, Florida. FEC
also maintains approximately 157 miles of switching track and 184 miles of other
track. FEC owns 82 diesel electric locomotives, approximately 2,633 freight
cars, 1,141 trailer units for highway service, and numerous pieces of work
equipment and automotive vehicles.
ANRR owns a three-story building in Port St. Joe which it uses partially
for its corporate offices. Its transportation facilities include 96 miles of
main track, 13 miles of yard switching track and 3 miles of other track. ANRR
owns 14 diesel locomotives, 273 freight cars, and numerous pieces of work
equipment and automotive vehicles.
SUGAR
The Company owns approximately 48,000 acres of agricultural land and leases
approximately 6,000 acres. The Company also owns and operates a raw sugar mill
and various types of agricultural equipment.
ITEM 3. LEGAL PROCEEDINGS
The Company is named as a Potentially Responsible Party ("PRP") for the
remediation of a designated Superfund site near Tampa, Florida. The United
States Environmental Protection Agency ("USEPA") has alleged that the Company
caused certain materials to be disposed at the site over a period of years in
the late
14
<PAGE> 17
1970s or 1980s. The Company has provided USEPA with certain evidence indicating
the Company did not dispose of any materials at the site. The Company has
declined an invitation to join a PRP group as a de minimis party. While the
Company believes that its liability would be de minimis, it nonetheless
continues to deny liability and vigorously opposes any attempt to impose any
liability upon the Company for the remediation of the site.
The Company received notice of potential involvement in a Superfund Site in
Sharonville, Ohio, during the third quarter of 1996. The site was formerly owned
and operated by the Company as a container plant. It was sold in the late
1970's. At this time the extent of the contamination and magnitude of the
cleanup is unknown. The Company does not believe, based on its preliminary
investigation of the Company's use of the property, that it is responsible for
the contamination, and if found partially responsible, the Company does not
believe its liability would be material.
FEC has been named as a PRP for the remediation of two designated Superfund
sites near Jacksonville, Florida. On the first site, the USEPA has alleged that
FEC caused certain materials to be disposed at the site over a period of years.
The USEPA has offered all named PRPs an opportunity to participate in the pilot
allocation program. This program is similar to binding arbitration. If FEC
participates in this program, its share of the liability for the remediation
will be fixed. The USEPA has also offered to negotiate a separate settlement
with certain parties, including FEC. FEC believes that, whichever alternative is
chosen, its liability for the remediation of the site will not be material. On
the second site, FEC was contacted by the USEPA during 1996, at which time FEC
was asked to provide certain information about the manner in which FEC disposes
of steel drums. The USEPA is attempting to determine whether or not FEC should
be a PRP at the steel drum site in Jacksonville, Florida. There is some evidence
that FEC may have sent a small number of steel drums to the site for disposal.
FEC believes its responsibility, if any, for the remediation of the site will
not be material.
FEC has been named as a PRP for the remediation of a designated Superfund
site in Portsmouth, Virginia. The USEPA has alleged that FEC caused certain
materials to be sent to the site over a period of years. These materials were
utilized by the owner of the site in the course of its business which, FEC
believes, caused the site to become contaminated. The owner of the site has
filed suit in the United States District Court for the Eastern District of
Virginia, Norfolk Division seeking to impose liability upon the defendants,
including FEC, for remediation of the site. A settlement between the owner of
the site and FEC was achieved late in 1996. The settlement as to FEC, of
approximately $.2 million, was approved by the Court and the USEPA. Unless
additional contamination is discovered at the site or it becomes necessary to
remediate areas beyond the original clean-up, FEC will have no further liability
at the site.
FEC was contacted by the USEPA during 1996, seeking reimbursement of costs
associated with the remediation of a Superfund site in Hialeah, Florida, part of
which includes a FEC right-of-way. An individual operated a business on this
site for a number of years. The owner of the business slightly encroached upon
FEC's right-of-way. Upon discovering this, FEC entered into a lease agreement
with the business owner rather than require the building be removed. The
individual has ceased doing business. The USEPA is seeking reimbursement from
FEC of the approximately $2 million spent in remediation on the grounds that FEC
was an "owner" of the site. Settlement negotiations are ongoing at this time and
the ultimate cost is not expected to be material.
Compliance with federal, state and local laws and regulations is a
principal goal of the company. The Company, through its subsidiaries, has
entered into a number of consent orders with state regulatory agencies to
remediate certain identified sites. The Company continues to cooperate with
federal, state and local agencies to ensure its facilities are operated in
compliance with applicable environmental laws and regulations. The Company is
not aware of any monetary sanctions to be imposed, which, in the aggregate, are
likely to exceed $100,000, nor does it believe that corrections, if any, will
necessitate significant capital outlays or cause material changes in the
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company had 1040 common stockholders of record as of March 13, 1998.
The Company's Common Stock is quoted on the New York Stock Exchange ("NYSE")
Composite Transactions Tape under the symbol "SJP."
The range of high and low sales prices for the Common Stock as reported on
the NYSE Composite Transactions Tape for the periods indicated is set forth
below.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE(1)
---------------
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter............................................. $31 $21 1/1
Second Quarter............................................ 28 1/4 23 5/16
Third Quarter............................................. 33 5/8 27
Fourth Quarter............................................ 38 5/16 29 5/16
1996
First Quarter............................................. 20 3/4 17 15/16
Second Quarter............................................ 21 15/16 19 5/16
Third Quarter............................................. 21 15/16 19 15/16
Fourth Quarter............................................ 23 3/16 21 3/16
1995
First Quarter............................................. $22 11/16 $17 3/4
Second Quarter............................................ 22 1/16 20
Third Quarter............................................. 21 1/2 20
Fourth Quarter............................................ $21 9/16 $17 1/2
</TABLE>
- ---------------
(1) Prices are rounded to the nearest 1/16th and reflect the 3-for-1 split of
the Company's Common Stock on January 12, 1998.
On March 13, 1998, the sale price of the Company's common stock on the NYSE
was $33 7/8.
DIVIDENDS
The Company paid aggregate annual cash dividends of approximately $.07 per
share to holders of the Common Stock in 1997, 1996 and 1995. In addition, the
Company distributed net proceeds of $3.33 per share to stockholders of record on
March 21, 1997 and $.34 per share to stockholders of record on December 19,
1997, in each case arising from the sale of the Company's linerboard and
container facilities and its communications business. Although the Company has
historically paid quarterly cash dividends of approximately $.02 per share,
there can be no assurance that such practice will continue in the future.
16
<PAGE> 19
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below are qualified in
their entirety by and should be read in conjunction with the consolidated
financial statements and the notes related thereto included elsewhere herein.
The statement of operations data with respect to the years ended December 31,
1997, 1996 and 1995 and the balance sheet data as of December 31, 1997 and 1996
have been derived from the financial statements of the Company included herein,
which have been audited by KPMG Peat Marwick LLP. The statement of operations
data with respect to the years ended December 31, 1994 and 1993 and the balance
sheet data as of December 31, 1994, and 1993 have been derived from the
financial statements of the Company previously filed with the SEC, and have also
been audited by KPMG Peat Marwick LLP. Historical results are not necessarily
indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales(1)......................... $ 112,340 $ 211,397 $ 120,292 $ 118,676 $ 116,639
Operating revenues(2)................ 233,912 219,792 214,632 212,230 195,818
---------- ---------- ---------- ---------- ----------
Total revenues....................... 346,252 431,189 334,924 330,906 312,457
Cost of sales........................ 87,758 112,163 116,014 111,014 105,644
Operating expenses................... 161,518 139,640 139,875 133,091 129,704
Selling, general and administrative
expenses........................... 44,215 31,215 31,718 26,836 22,145
---------- ---------- ---------- ---------- ----------
Operating profit..................... 52,761 148,171 47,317 59,965 54,964
Other income......................... 41,613 40,857 18,770 25,164 12,330
---------- ---------- ---------- ---------- ----------
Income from continuing operations
before income taxes and minority
interest........................... 94,374 189,028 66,087 85,129 67,294
Income tax expense................... 40,520 83,117 24,535 31,446 30,328
---------- ---------- ---------- ---------- ----------
Income from continuing operations
before minority Interest........... 53,854 105,911 41,552 53,683 36,966
Minority interest.................... 18,401 14,002 12,194 15,827 10,241
---------- ---------- ---------- ---------- ----------
Income from continuing operations.... 35,453 91,909 29,358 37,856 26,725
Cumulative effect of change in
accounting principle(3)............ 20,518
Income (loss) from discontinued
Operations(4)...................... -- (4,528) 44,461 4,253 (14,600)
Gain on sale of discontinued
Operations(4)...................... -- 88,641 -- -- --
---------- ---------- ---------- ---------- ----------
Net income........................... $ 35,453 $ 176,022 $ 73,819 $ 42,109 $ 32,643
========== ========== ========== ========== ==========
PER SHARE DATA (5):
Basic
Income from continuing operations.... $ 0.39 $ 1.00 $ 0.32 $ 0.41 $ 0.29
Earnings (loss) from discontinued
operations(4)...................... -- (0.05) 0.49 0.05 (0.16)
Gain on the sale of discontinued
operations(4)...................... -- 0.97 -- -- --
Cumulative effect of change in
accounting principle(3)............ -- -- -- -- 0.23
---------- ---------- ---------- ---------- ----------
Net income........................... $ 0.39 $ 1.92 $ 0.81 $ 0.46 $ 0.36
========== ========== ========== ========== ==========
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Diluted
Income from continuing operations.... $ 0.38 $ 1.00 $ 0.32 $ 0.41 $ 0.29
Earnings (loss) from discontinued
operations(4)...................... -- (0.05) 0.49 0.05 (0.16)
Gain on the sale of discontinued
operations(4)...................... -- 0.97 -- -- --
Cumulative effect of change in
accounting principle(3)............ -- -- -- -- 0.23
---------- ---------- ---------- ---------- ----------
Net income........................... $ 0.38 $ 1.92 $ 0.81 $ 0.46 $ 0.36
========== ========== ========== ========== ==========
Dividends paid....................... $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.07
Special distribution(6).............. 3.67 -- -- -- --
AT DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Cash and cash equivalents(7)......... $ 516,512 $ 819,851 $ 303,590 $ 275,417 $ 256,292
Total property, plant and equipment,
net................................ 859,137 834,167 804,974 756,954 722,043
Total assets......................... 1,546,641 1,806,238 1,530,994 1,449,390 1,395,833
Total stockholders' equity(8)........ 906,804 1,196,941 1,016,067 936,982 901,710
OTHER FINANCIAL DATA:
EBDDT (Gross)(9)..................... 75,460 72,682 73,992 58,327 68,469
EBDDT (Net)(9)....................... 64,328 61,799 62,410 45,068 56,514
EBITDA (Gross)(9).................... 122,872 117,572 94,199 100,828 94,008
EBITDA (Net)(9)...................... 83,443 85,695 63,931 66,161 66,553
</TABLE>
- ---------------
(1) Net sales includes real estate, land and building sales, forestry and timber
sales and sugar sales. Net sales for 1996 included two related one-time
condemnation sales of land to the State of Florida in exchange for $97.8
million in cash plus certain limited development rights. Net operating
results of the communications segment, linerboard mill and container plants
are shown separately as income (loss) from discontinued operations for all
years presented.
(2) Operating revenues includes real estate rental revenue and transportation
revenue.
(3) Cumulative effect of adopting Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes."
(4) Net operating results of the communications segment, linerboard mill and
container plants are shown separately as income (loss) from discontinued
operations for all years presented. (See Note 2 to the Consolidated
Financial Statements.)
(5) Per share data is rounded to the nearest $.01 to reflect the 3-for-1 split
of the Company's Common Stock on January 12, 1998.
(6) Approximately $359.3 million of proceeds from the sales of the
communications segment, linerboard mill and container plants were held in
special accounts during 1996. A special distribution of a portion of the net
proceeds of the sales of $3.33 per share was paid on March 25, 1997, for
stockholders of record on March 21, 1997. The Company made a special
distribution of the remaining net proceeds of $.34 per share on December 30,
1997 to stockholders of record on December 19, 1997.
(7) Includes cash, cash equivalents, marketable securities and short-term
investments.
(8) The Company adopted the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" at December 31, 1993. This
adoption increased stockholders' equity by $41.5 million.
(9) The Company uses supplemental performance measures along with net income to
report its operating results. These measures are Earnings Before
Depreciation and Deferred Taxes (EBDDT) on a gross and net basis and
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) on a
gross and
18
<PAGE> 21
net basis. EBDDT and EBITDA are not measures of operating results or cash
flows from operating activities as defined by generally accepted accounting
principles. Additionally, EBDDT and EBITDA are not necessarily indicative of
cash available to fund cash needs and should not be considered as an
alternative to cash flows as a measure of liquidity. However, the Company
believes that EBDDT and EBITDA provide relevant information about its
operations and along with net income, are useful in understanding its
operating results. EBDDT (Gross) is calculated as net income plus
depreciation and amortization and deferred taxes. Excluded from EBDDT
(Gross) due to their non-operating, unusual and/or nonrecurring character
are earnings and gains from discontinued operations and gains on sales on
non-strategic land and other assets. EBDDT (Net) is the same as EBDDT
(Gross) except that the 46% non-Company owned portion of FECI's
depreciation, amortization and deferred taxes are deducted from EBDDT
(Gross).
EBITDA (Gross) is calculated as income before income taxes, depreciation,
amortization, and interest. EBITDA (Gross) excludes earnings and gains from
discontinued operations and gains on sales of non-strategic land and other
assets. EBITDA (Net) is the same as EBITDA (Gross) except that the 46%
non-Company owned portion of FECI's pre-tax income, depreciation,
amortization and interest are deducted.
The cumulative effect in 1993 of a change in accounting principle has been
excluded from all calculations of EBDDT and EBITDA.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 7.
Management's discussion and analysis should be read in conjunction with the
Consolidated Financial Statements, Item 1. "Business," and Item 2. "Properties,"
included elsewhere herein. The following discussion contains forward-looking
statements. The Company's actual results may differ significantly from those
projected in the forward-looking statements.
OVERVIEW
St. Joe Corporation is a diversified company engaged in the real estate,
forestry, transportation and sugar industries. The Company has also recently
entered into the resort development and entertainment businesses. Until the
second quarter of 1996, the Company was also engaged in communications and the
manufacture and distribution of paper products.
The Company's assets and operations are concentrated in the State of
Florida. Consequently, the Company's performance, and particularly that of its
real estate operations, is significantly affected by the general health of the
Florida economy. The Company's businesses, particularly the forestry and
transportation segments, are also influenced by the general health of the
national economy. The Company's real estate operations are cyclical and are
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 nonstrategic assets.
The Company recently underwent a number of important changes in the mix of
its businesses 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 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 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, Florida Coast Paper ("FCP"), which
was sold in May 1996. The wood fiber supply agreement between the Company and
the mill was renegotiated in September 1997 to provide that the Company supply
timber at significantly less than historical levels. Partly as a result of its
reduced supply obligations 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 remain flat or
decline slightly in the near term.
On December 6, 1997, the Company announced that it had reached an agreement
in principle to sell its sugar lands to certain federal and state government
agencies for $133.5 million in cash. Under the preliminary agreement, the
Company would also retain the right to farm the sugar lands through the
2002-2003 crop year. The proposed transaction is subject to both government and
Board of Directors approval.
20
<PAGE> 23
RECENT EVENTS
On January 22, 1998, the Company entered into a memorandum of understanding
(the "Memorandum") with the National Football League ("NFL") to build and
operate NFL entertainment centers in locations nationwide. The venture, in which
the Company will own a 40% interest, plans to operate facilities that provide
interactive NFL football entertainment experiences in club settings complemented
by food service, bar and retail sales. Under the Memorandum, the Company has
agreed to initially contribute up to $25 million to the venture, which will seek
to develop at least seven projects in various U.S. cities. The proposed
transaction is subject to the execution of a definitive agreement and
appropriate corporate approvals.
On February 24, 1998, the Company completed a transaction with the Codina
Group, Inc. ("Codina") and Weeks Corporation by which the Company and Weeks,
among other things, each purchased a one-third interest in Codina, a
commercial/industrial developer, active principally in southern Florida. The
Company intends to develop commercial, industrial and office property, as well
as manage Gran Central's existing properties in southern Florida, through its
interest in Codina. The purchase price of this transaction is not material to
the Company's financial position.
On February 24, 1998, the Company acquired a 33% interest in ENTROS, a
location-based entertainment company headquartered in Seattle, Washington that
creates and produces interactive games in club settings and produces game-based
programming for corporate events. The purchase price for the Company's 33% was
not material to the Company's financial position.
RESULTS OF OPERATIONS
Net sales include real estate property sales, timber sales and sugar sales.
Net sales decreased 46.9% from $211.4 million in 1996 to $112.3 million in 1997.
Net 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 $31.3 million in 1997.
Sales of real estate in 1996, excluding the two related condemnation sales were
$2.4 million. Forestry sales decreased $25.0 million from $56.7 million in 1996
to $31.7 million in 1997 due primarily to the FCP linerboard mill shutdown and
lower sales under its supply agreement with FCP. Sugar sales decreased $5.2
million from $54.5 million in 1996 to $49.3 million in 1997 due primarily to
fewer harvested acres. Operating revenues includes realty rental revenue and
transportation revenue. Operating revenues increased 6.4% in 1997 from $219.8
million in 1996 to $233.9 million in 1997, primarily due to an increase in
transportation revenues of $9.5 million as well as increases in real estate
rental revenues totaling $4.5 million.
Net sales increased 75.7% in 1996 from $120.3 million in 1995 as a result
of increases in real estate sales of $97.5 million, primarily from the
previously mentioned condemnation sales, offset by decreases in net sales in the
forestry segment of $3.4 million and in the sugar segment of $3.0 million.
Operating revenues increased 2.4% in 1996 from $214.6 million in 1995 as a
result of increases in real estate rental income of $4.1 million and increases
in transportation revenues of $1.1 million.
Cost of sales decreased 4.0% from $91.4 million in 1996 to $87.8 million in
1997, as a result of decreases in cost of timber sales of $25.3 million and cost
of sugar sales of $1.7 million offset by increases in cost of real estate sales
of $23.4 million. Operating expenses increased .7% from $160.4 million in 1996
to $161.5 million in 1997 resulting from decreases in transportation costs of
$1.8 million offset in part by an increase in real estate operating costs of
$3.0 million. Cost of sales decreased 7.7% in 1996 from $99.0 million in 1995
primarily due to decreases in cost of timber sales. Operating expenses increased
2.2% in 1996 from $156.9 million in 1995 due primarily to increases in real
estate operating costs.
Selling, general and administrative expenses increased 41.6% from $31.2
million in 1996 to $44.2 million in 1997, attributable primarily to increased
corporate overhead, the majority of which is due to the hiring of the additional
staff necessary to enable the Company to implement its strategic plan. Also
included in general and administrative expenses are $5.5 million of nonrecurring
costs, including costs incurred by FECI relating to the possible sale and/or
merger of FECI and its affiliates. Partially offsetting these costs in 1997 is
prepaid
21
<PAGE> 24
pension income of approximately $10.6 million. Selling, general and
administrative expenses decreased 1.5% in 1996 from $31.7 million in 1995.
Other income (expense) increased 1.7% from $40.9 million in 1996 to $41.6
million in 1997 due to gains on sales and dispositions of assets offset by a
7.6% decrease in interest income as a result of lower invested balances during
1997. Invested balances decreased in 1997 because of distributions of sales
proceeds to stockholders of $3.67 per share. Other income (expense) increased
117.7% in 1996 from $18.8 million in 1995 primarily as a result of interest
income earned from investment of the proceeds from the sales of the
communications segment, the linerboard mill and the container plants in 1996.
Income tax expense on continuing operations for 1997 totaled $40.5 million,
representing an effective rate of 42.9%, compared to $83.1 million in 1996, for
an effective tax rate of 43.9%. These rates exceed statutory rates primarily
because of the 50% excise tax on prepaid pension cost totaling $5.4 million in
1997 and $13.2 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 1997 was $35.5 million, or $0.39 basic and $0.38 diluted per
share, compared to $176.0 million, or $1.92 basic and diluted per share in 1996.
Results for 1996 included income from discontinued operations of $84.1 million,
net of tax, and condemnation proceeds, of $60.0 million, net of tax, which
together represent $1.57 basic and diluted per share. Net income for 1995 was
$73.8 million, or $0.81 basic and diluted per share, including income from
discontinued operations of $44.5 million, net of tax, or $0.49 basic and diluted
per share.
REAL ESTATE
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1997 1996 1995
----- ------ -----
($ IN MILLIONS)
<S> <C> <C> <C>
Net Sales and Operating Revenue............................. $70.3 $134.5 $32.9
Cost of Sales and Operating Expense......................... 47.6 21.2 18.8
Selling, General and Administrative Expenses................ 4.6 3.8 2.5
Operating Profit............................................ 18.1 109.5 11.6
</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 the
Southwood Properties Division of the Company ("Southwood").
On November 12, 1997, the Company, through two subsidiaries, purchased
certain assets, including the personnel, trademark 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 was not material to the Company's financial position.
On December 3, 1997, the Company and Orlando-based CNL Group, Inc. formed a
real estate joint venture to invest in and develop office and industrial
properties primarily in the central Florida region. The Company, through two
subsidiaries, received a 50% ownership interest in the joint venture. The
Company committed to provide $5 million of equity and to lend up to $25 million
for new projects the venture determines to develop or acquire.
Results for 1997 compared to 1996
Real estate net sales and operating revenue decreased $64.2 million, or
47.7%, from $134.5 million in 1996 to $70.3 million in 1997. Cost of sales and
operating expenses increased $26.4 million, or 124.5% from $21.2 million in 1996
to $47.6 million in 1997. The decrease in sales was largely due to two related
22
<PAGE> 25
condemnation sales of land to the State of Florida in 1996 for $97.8 million in
cash plus certain limited development rights. Cost associated with these sales
were $.1 million. Real estate land and building sales totaled $31.3 million in
1997 as compared to $2.4 million in 1996, excluding the two condemnation sales.
The increase in costs of sales and operating expenses was due to a higher cost
basis on 1997 land and building sales. Selling, general and administrative
expenses increased by $.8 million, to $4.6 million or 21.1%, during 1997, due
primarily to additional salaries and related benefits.
In the commercial/industrial division, conducted through GCC, rental
revenues increased $4.5 million, or 13.2%, from $34.1 million in 1996 to $38.6
million in 1997. Operating expenses in the commercial/industrial division were
$22.5 million for a 41.7% gross margin in 1997 compared to $19.8 million in 1996
for a gross margin of 41.9%. The increase in expenses in 1997 was primarily due
to additional property taxes as well as depreciation on new buildings placed in
service in 1997. During 1997 eight buildings were placed in service adding
approximately 973,000 leasable square feet. Under construction at year-end were
four additional buildings which will add an additional 479,000 square feet. In
1997, land and building sales totaled $26.9 million and included three
buildings, totaling $20.1 million, one of which was developed and constructed
specifically for the purpose of resale. The total cost of land and building
sales was $22.6 million. At December 31,1997, GCC had 59 buildings in service
with approximately 5.6 million square feet of rentable space.
In the community/residential division, land sales increased $3.0 million,
or 214.3%, from $1.4 million in 1996 to $4.4 million in 1997 (not including the
condemnation sales). Cost of these sales increased 225.0% from $.4 million in
1996 to $1.3 million in 1997.
As a result of these factors, operating profit for the overall real estate
segment decreased 83.5% from $109.5 million in 1996 to $18.1 million in 1997.
Excluding the condemnation sales in 1996, operating profit for the real estate
segment would have increased 53.4% from $11.8 million in 1996 to $18.1 million
in 1997.
Results for 1996 compared to 1995
Real estate net sales and operating revenues increased $101.6 million, or
308.8%, from $32.9 million in 1995 due primarily to the previously mentioned
condemnation sales of land to the State of Florida. Rental income in the
commercial/industrial segment increased by $4.1 million in 1996 over 1995.
Approximately $1.8 million of the increase came from existing properties, while
$2.3 million came as a result of new buildings added in 1996. Operating profit
grew as a result by $97.9 million, or 844.0%, from 1995.
At December 31, 1996 GCC had 55 commercial/industrial buildings in service
with approximately 4.7 million square feet of rentable space and at December
31,1995, GCC had 50 buildings with 3.8 million square feet of rentable space.
FORESTRY
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1997 1996 1995
----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Net Sales................................................... $31.7 $56.7 $60.1
Cost of Sales............................................... 27.1 52.4 58.6
Selling, General and Administrative Expenses................ 2.3 1.9 2.1
Operating Profit (Loss)..................................... 2.3 2.4 (.6)
</TABLE>
Results for 1997 compared to 1996
Total net sales decreased $25.0 million, or 44.1%, from $56.7 million in
1996 to $31.7 million in 1997. This decrease is attributable to the FCP
linerboard mill shutdown, which lasted from April 1997 through September 1997,
and to decreased sales as a result of the renegotiated terms of its wood fiber
supply agreement with FCP. In 1997 the Company harvested 798,000 tons of
softwood pulpwood and sawtimber consisting of 661,000 tons of softwood pulpwood
and 137,000 tons of softwood sawtimber and other products.
23
<PAGE> 26
Cost of sales decreased 48.2% from $52.4 million in 1996 to $27.1 million in
1997 due to declining sales. Cost of sales as a percentage of sales also
improved because the Company sold more timber grown by it with higher margins
and less procured wood. Selling, general and administrative costs increased $.4
million from $1.9 million in 1996 to $2.3 million in 1997 primarily due to
severance payments of approximately $1.2 million paid to 62 terminated
employees, offset by reductions in ongoing staffing levels. As a result of the
higher selling, general and administrative expenses in 1997, operating profit
remained relatively constant at $2.3 million in 1997 compared to $2.4 million in
1996.
On August 25, 1997, the Company renegotiated certain terms of its wood
fiber supply agreement with FCP. 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 at the option of FCP. Under the
previous agreement, up to 1.6 million tons per year were to be provided to FCP.
As a result of the decrease in tonnage required to be provided to FCP,
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.
Results for 1996 compared to 1995
Total net sales decreased $3.4 million, or 5.6%, from $60.1 million in 1995
to $56.7 million in 1996. Cost of sales decreased $6.2 million, or 10.6%, from
$58.6 million in 1995 to $52.4 million in 1996. Cost of sales decreased due to a
combination of factors: 1) reduced cut-and-haul costs as Company timber was cut
closer to its delivery point; 2) reduced cost of purchases as the Company was
better able to manage its supply needs; and 3) timber inventory was adjusted in
1996 as a result of the five-year continuous forest inventory ("CFI")
statistical analysis of the Company's timber which was completed in November of
1995 and recorded in 1996. The CFI analysis resulted in a $.3 million reduction
in 1996's depletion cost. Operating profit increased to $2.4 million in 1996
from $(.6) million in 1995 because of the cost of sales reduction and slightly
lower general and administrative expenses.
TRANSPORTATION
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Operating Revenues.......................................... $195.0 $185.5 $184.4
Operating Expenses.......................................... 137.8 139.6 139.9
Selling, General and Administrative Expenses................ 23.8 19.1 18.7
Operating Profit............................................ 33.4 26.8 25.8
</TABLE>
The Company's transportation operations consist of Florida East Coast
Railway Company ("FEC"), Apalachicola Northern Railroad Company ("ANRR") and
International Transit, Inc. ("ITI").
Results for 1997 compared to 1996
Operating revenues in the transportation segment were $195.0 million in
1997, an increase of 5.1% over 1996 operating revenue of $185.5 million. Total
FEC transportation operating revenues increased $12.0 million, or 6.9%, from
$173.0 million in 1996 to $185.0 million in 1997. This increase is attributable
to significant increases in shipments of rock, intermodal and carload traffic
handled in 1997 versus 1996. Traffic increased by approximately 35,500
shipments, or 7.8%, in 1997, reflecting the strong Florida economy. ANRR's
operating revenues were $10.0 million in 1997, $2.5 million lower than in 1996
due to the five-month shutdown of the FCP linerboard mill, its largest customer.
Operating expenses for this segment were $137.8 million, $1.8 million lower than
last year as a result of a $2.5 million decrease in casualty insurance costs and
overall reductions in operating expenses, offset by a depreciation adjustment at
ANRR of $1.7 million. Casualty and insurance costs in 1996 included an accrual
for an adverse legal judgment against the Company of approximately $2.2 million,
which was subsequently reversed on appeal in 1997. Selling, general and
24
<PAGE> 27
administrative expenses increased 24.6% over 1996 from $19.1 million in 1996 to
$23.8 million in 1997, primarily attributable to special charges of $3.5 million
for expenses concerning the various proposals from the Company regarding FECI.
Operating profit margin for the transportation segment overall increased from
14.4% in 1996 to 17.1% in 1997 as an accumulation of these factors.
Results for 1996 compared to 1995
Operating revenues increased $1.1 million, or less than 1%, for 1996
compared to 1995. FEC's total traffic decreased by approximately 3,100
shipments, or 1%, although operating revenues were higher due to increased
trucking revenue, which had a negligible effect on gross profit. ANRR's
operating revenues and its operating profit decreased $.7 million due to reduced
shipments of wood products and coal. Gross profit overall increased $.9 million,
or 3.5%, in the transportation segment in 1996 compared to 1995.
SUGAR
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Net Sales................................................... $49.3 $54.5 $57.5
Cost of Sales............................................... 36.8 38.5 38.6
Selling, General and Administrative Expenses................ 5.5 7.7 5.6
Operating Profit (Loss)..................................... 7.0 8.3 13.3
</TABLE>
Results for 1997 compared to 1996
Net sales decreased $5.2 million, or 9.5%, from $54.5 million in 1996 to
$49.3 million in 1997, due primarily to an 8.0% volume decrease (9,923 tons)
resulting from the timing of shipments and fewer acres being harvested and a
sales price decrease of $7.03 per ton from $440.01 per ton to $432.98 per ton.
Cost of sales as a percentage of sales increased from 70.6% to 74.6% due to
lower selling price, higher direct costs including cultivation expenses, and
higher indirect costs compared to 1996. Selling, general and administrative
expenses decreased $2.2 million, or 28.6%, from $7.7 million in 1996 to $5.5
million in 1997. Included in 1996 selling, general and administrative expenses
were $2.5 million of advertising and public relations costs related to the
opposition and defeat of the proposed Florida sugar sales tax referendum. Also
included in selling, general and administrative expense is the Everglades
Agricultural Privileges Tax of $1.3 million for 1997 and 1996, respectively. As
a result, operating profit fell 15.7% from $8.3 million in 1996 to $7.0 million
in 1997.
Results for 1996 compared to 1995
Net sales decreased $3.0 million in 1996, or 5.2%, from $57.5 million in
1995 due to decreased sales volume of 3,095 tons (2.4%), combined with a $13.07
(2.9%) per ton decrease in sales price. Cost of sales as a percentage of sales
increased from 67.1% in 1995 to 70.6% in 1996 due to increased harvesting and
cultivation expenses. Additionally, selling, general and administrative expenses
increased approximately $2.1 million as a result of the advertising and public
relations costs previously mentioned. Operating profit as a result decreased
$5.0 million from 1995 to 1996.
CORPORATE AND OTHER
Corporate selling, general and administrative expense increased $9.3
million, or 664.3%, in 1997 compared to 1996. Changes in senior management and
increases in staffing to refocus the direction of the Company to enable the
Company to implement its strategic plan have caused an increase of approximately
$10.1 million to $14.0 million in recurring corporate selling, general and
administrative costs. Also, in February 1997, an interim severance program was
implemented. 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
25
<PAGE> 28
administrative expense and $1.2 million is included in the forestry segment.
Additionally, costs incurred by the Company, excluding costs expensed directly
by FECI, related to various proposals to dispose of FEC and GCC and merge FECI
with the Company totaling approximately $2.0 million were expensed in 1997.
Partially offsetting these corporate costs in 1997 is prepaid pension income of
approximately $10.6 million. Selling, general and administrative expenses in
1996 were ($1.4) million, or $4.2 million lower than 1995 and included an
increase in the prepaid pension asset totaling $5.5 million offset by $4.1
million of general and administrative costs.
FINANCIAL POSITION AND CAPITAL RESOURCES
Total cash and cash equivalents decreased 64.7% from $449.0 million at
December 31, 1996, to $158.6 million at December 31, 1997 primarily as a result
of the special distribution of $3.33 per share paid during the first quarter
totaling approximately $305.7 million. The Company distributed the remaining net
proceeds of the sales of operations which occurred in 1996 of approximately $.34
per share in a special distribution on December 30, 1997, totaling $31.2
million. During 1997, the Company also paid regular dividends of approximately
$.07 per share or $6.1 million. Total cash, cash equivalents, short-term
investments and marketable securities were $516.5 million at December 31, 1997.
Capital expenditures for the year to date totaled $66.6 million, of which
$46.8 million related to real estate construction and land purchases.
Stockholders' equity at December 31, 1997, was $9.89 per share, a decrease
of $3.19 from December 31, 1996, due to total distributions of $343.0 million,
including the special distributions and the regular dividend paid each quarter.
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. However, as the Company moves forward, debt may
be incurred in those situations where the use of financing leverage is deemed
appropriate.
The Company has several computer systems which will require modifications
or upgrading to accommodate the year 2000 and thereafter. The Company believes
that all systems can be changed by the end of 1999 and does not expect the cost
of the changes to be material to the Company's financial condition or results of
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements on page F-2 to F-19, inclusive and the Independent
Auditor's Report on page F-1 are filed as part of this Report and incorporated
herein by reference thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the definitive proxy statement involving the
election of directors in connection with the Annual Meeting of Stockholders of
St. Joe to be held on May 12, 1998 (the "Proxy Statement"), which section is
incorporated herein by reference. The Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1997, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
26
<PAGE> 29
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be set forth in the sections
entitled "Executive Compensation" in the Proxy Statement, which sections are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information to be set forth in the sections
entitled "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock
Ownership of Management" in the Proxy Statement, which sections are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth in the section entitled
"Certain Transactions" in the Proxy Statement, which section is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The financial statements listed in the accompanying Index to Financial
Statements and Financial Statement Schedules and Independent Auditors' Report
are filed as part of this Report.
2. FINANCIAL STATEMENT SCHEDULES
The financial statement schedules and Independent Auditors' Report
listed in the accompanying Index to Financial Statements and Financial
Statement schedules are filed as part of this report.
3. EXHIBITS
The exhibits listed on the accompanying Index to Exhibits are filed as
part of this Report.
(B) REPORTS ON FORM 8-K
Current Report on Form 8-K dated November 25, 1997.
Current Report on Form 8-K dated December 10, 1997.
27
<PAGE> 30
ST. JOE CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEM 14(A) 1. AND 2.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Income........................... F-3
Consolidated Statements of Changes in Stockholders'
Equity.................................................... F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6
Independent Auditors' Report -- Financial Statement
Schedules................................................. S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
Schedule III -- Real Estate and Accumulated Depreciation.... S-3
</TABLE>
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission on the
schedule or because the information required is included in the Consolidated
Financial Statements, and the Notes to the Consolidated Financial Statements.
28
<PAGE> 31
ST. JOE CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENTS PAGE
- ------- --------- ----
<C> <C> <S> <C>
2.01 -- Limited Partnership Agreement of St. Joe/Arvida Company,
L.P. (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424(b))................................................
2.02 -- Agreement of Limited Partnership of St. Joe/CNL Development,
Ltd. (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424(b))................................................
2.03 -- Stock Purchase Agreement dated as of September 1, 1995
between St. Joe Industries Inc. and TPG Communications, Inc.
(incorporated herein by reference to Exhibits filed with the
Registrant's Quarterly Report on Form 10-Q for the third
quarter ended September 30, 1995)...........................
2.04 -- Asset Purchase Agreement dated as of November 1, 1995 by and
among St. Joe Forest Products Company, St. Joe Container
Company and St. Joe Paper Company, on the one hand and Four
M corporation and St. Joe Paper Company in the other hand
(the "Asset Purchase Agreement") (incorporated herein by
reference and Exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the third quarter ended September
30, 1995)...................................................
2.05 -- Amendments dated December 14, 1995; December 20, 1995;
January 10, 1996 and January 12, 1996 to the Asset Purchase
Agreement (incorporated herein by reference to the
Registrant's Proxy Statement for the Special Meeting of
Stockholders on April 24, 1996).............................
3.01 -- Articles of Incorporation, as amended (Incorporated herein
by reference to Exhibits filed with the Company's Prospectus
filed February 11, 1998 under Rule 424(b))..................
3.02 -- Articles of Amendment dated January 8, 1998 (Incorporated
herein by reference to Exhibits filed with the Company's
Prospectus filed February 11, 1998 under Rule 424(b)).......
3.03 -- Amended By-Laws dated March 18, 1997 (incorporated herein by
reference to Exhibit 3(b) filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996........................................................
4.01 -- Registration Rights Agreement between the Registrant and the
Alfred I. duPont Testamentary Trust, dated December 16, 1997
(Incorporated herein by reference to Exhibits filed with the
Company's Prospectus filed February 11, 1998 under Rule
424(b)).....................................................
10.01 -- Employment Agreement of Peter Rummell, dated January 7, 1997
(Incorporated herein by reference to Exhibits filed with the
Company's Prospectus filed February 11, 1998 under Rule
424(b)).....................................................
10.02 -- Employment Agreement of Charles A. Ledsinger Jr. dated April
24, 1997 (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424(b))................................................
10.03 -- Employment Agreement of Robert M. Rhodes, dated November 5,
1997 (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424(b))................................................
10.04 -- Employment Agreement of David D. Fitch, dated September 19,
1997 (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424(b))................................................
10.05 -- Employment Agreement of J. Malcolm Jones, dated February 26,
1997 (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424(b))................................................
10.06 -- Employment Agreement of Michael F. Bayer, dated February 1,
1997 (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424(b))................................................
10.07 -- Form of Severance Agreement (Incorporated herein by
reference to Exhibits filed with the Company's Prospectus
filed February 11, 1998 under Rule 424(b))..................
21.01 -- Subsidiaries of St. Joe Corporation......................... *
23.01 -- Consent of Independent Accountants.......................... *
24.01 -- Powers of Attorney.......................................... *
27.01 -- Financial Data Schedule (for SEC use only).................. *
99.01 -- Supplemental Calculation of Selected Consolidated Financial
Data........................................................ *
</TABLE>
- ---------------
* Filed herewith
29
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ CHARLES A. LEDSINGER, JR.
------------------------------------
Charles A. Ledsinger, Jr.
President, Chief Operating Officer,
Chief Financial Officer
(Principal Financial Officer)
Date: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 26, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PETER S. RUMMELL Chairman of the Board and Chief March 26, 1998
- ----------------------------------------------------- Executive Officer
Peter S. Rummell
/s/ CHARLES A. LEDSINGER, JR. President, Chief Operating March 26, 1998
- ----------------------------------------------------- Officer and Chief Financial
Charles A. Ledsinger, Jr. Officer (Principal Financial
and Accounting Officer)
/s/ ROBERT M. RHODES Senior Vice President and March 26, 1998
- ----------------------------------------------------- General Counsel
Robert M. Rhodes
/s/ JACOB C. BELIN Director March 26, 1998
- -----------------------------------------------------
Jacob C. Belin
/s/ RUSSELL B. NEWTON, JR. Director March 26, 1998
- -----------------------------------------------------
Russell B. Newton, Jr.
/s/ JOHN J. QUINDLEN Director March 26, 1998
- -----------------------------------------------------
John J. Quindlen
/s/ WALTER L. REVELL Director March 26, 1998
- -----------------------------------------------------
Walter L. Revell
/s/ FRANK S. SHAW, JR. Director March 26, 1998
- -----------------------------------------------------
Frank S. Shaw, Jr.
/s/ WINFRED L. THORNTON Director March 26, 1998
- -----------------------------------------------------
Winfred L. Thornton
/s/ JOHN D. UIBLE Director March 26, 1998
- -----------------------------------------------------
John D. Uible
</TABLE>
30
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
St. Joe Corporation:
We have audited the accompanying consolidated balance sheets of St. Joe
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of St. Joe
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Jacksonville, Florida
February 24, 1998
F-1
<PAGE> 34
ST. JOE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 158,568 $ 449,013
Short-term investments.................................... 51,034 88,011
Accounts receivable....................................... 58,623 57,517
Inventory................................................. 15,605 18,677
Other assets.............................................. 18,562 17,455
---------- ----------
Total current assets.............................. 302,392 630,673
INVESTMENT AND OTHER ASSETS:
Marketable securities..................................... 306,910 282,827
Prepaid pension asset..................................... 40,861 30,157
Other assets.............................................. 37,341 28,414
---------- ----------
Total investment and other assets................. 385,112 341,398
Property, plant and equipment, net.......................... 859,137 834,167
---------- ----------
Total assets...................................... $1,546,641 $1,806,238
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 29,735 $ 28,480
Accrued liabilities....................................... 18,777 21,615
Income tax payable........................................ 2,150 6,864
---------- ----------
Total current liabilities......................... 50,662 56,959
Accrued casualty reserves and other liabilities............. 15,014 18,185
Deferred income taxes....................................... 275,695 254,873
Minority interest in consolidated subsidiaries.............. 298,466 279,280
STOCKHOLDERS' EQUITY:
Common stock, no par value; 180,000,000 shares authorized;
91,697,811 and 91,495,950 issued and outstanding at
December 31, 1997 and December 31, 1996,
respectively........................................... 13,054 8,714
Retained earnings......................................... 817,663 1,125,161
Net unrealized gains on marketable securities available
for sale............................................... 79,559 63,066
Restricted stock deferred compensation.................... (3,472) --
---------- ----------
Total stockholders' equity........................ 906,804 1,196,941
---------- ----------
Total liabilities and stockholders' equity........ $1,546,641 $1,806,238
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 35
ST. JOE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................................... $112,340 $211,397 $120,292
Operating revenues.......................................... 233,912 219,792 214,632
-------- -------- --------
Total revenues.................................... 346,252 431,189 334,924
Cost of sales............................................... 87,758 91,406 98,989
Operating expenses.......................................... 161,518 160,397 156,900
Selling, general and administrative expenses................ 44,215 31,215 31,718
-------- -------- --------
Operating profit.................................. 52,761 148,171 47,317
Other income
Dividends................................................. 3,445 2,968 2,595
Interest income........................................... 27,639 29,914 12,666
Interest expense.......................................... (389) (600) (2,235)
Gain on sales and other dispositions of property.......... 4,417 3,423 2,674
Other, net................................................ 6,501 5,152 3,070
-------- -------- --------
Total other income................................ 41,613 40,857 18,770
-------- -------- --------
Income from continuing operations before income taxes and
minority interest......................................... 94,374 189,028 66,087
Income tax expense
Current................................................... 28,622 30,288 5,778
Deferred.................................................. 11,898 52,829 18,757
-------- -------- --------
Total income tax expense.......................... 40,520 83,117 24,535
-------- -------- --------
Income from continuing operations before minority
interest.................................................. 53,854 105,911 41,552
Minority interest........................................... 18,401 14,002 12,194
-------- -------- --------
Income from continuing operations........................... 35,453 91,909 29,358
-------- -------- --------
Income from discontinued operations
Earnings (loss) from discontinued operations (net of
income taxes of ($2,785) and $26,116, respectively).... -- (4,528) 44,461
Gain on sale of discontinued operations, net of income
taxes of $48,705....................................... -- 88,641 --
-------- -------- --------
Net income.................................................. $ 35,453 $176,022 $ 73,819
======== ======== ========
EARNINGS PER SHARE
Basic
Income from continuing operations........................... $ 0.39 $ 1.00 $ 0.32
Earnings from discontinued operations....................... -- (0.05) 0.49
Gain on sale of discontinued operations..................... -- 0.97 --
-------- -------- --------
Net income........................................ $ 0.39 $ 1.92 $ 0.81
======== ======== ========
Diluted
Income from continuing operations........................... $ 0.38 $ 1.00 $ 0.32
Earnings from discontinued operations....................... -- (0.05) 0.49
Gain on sale of discontinued operations..................... -- 0.97 --
-------- -------- --------
Net income........................................ $ 0.38 $ 1.92 $ 0.81
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 36
ST. JOE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
COMMON STOCK GAIN ON
--------------------------------- MARKETABLE RESTRICTED STOCK
RETAINED SECURITIES AVAILABLE DEFERRED
SHARES AMOUNT EARNINGS FOR SALE COMPENSATION TOTAL
---------- ------- ---------- -------------------- ---------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994...................... 91,495,950 $ 8,714 $ 887,520 $40,747 $ -- $ 936,981
Net income................ -- -- 73,819 -- -- 73,819
Dividends ($.07 per
share).................. -- -- (6,100) -- -- (6,100)
Increase in net unrealized
gain, net of tax........ -- -- -- 11,367 -- 11,367
---------- ------- ---------- ------- ------- ----------
Balance at December 31,
1995...................... 91,495,950 8,714 955,239 52,114 -- 1,016,067
---------- ------- ---------- ------- ------- ----------
Net income................ -- -- 176,022 -- -- 176,022
Dividends ($.07 per
share).................. -- -- (6,100) -- -- (6,100)
Increase in net unrealized
gain, net of tax........ -- -- -- 10,952 -- 10,952
---------- ------- ---------- ------- ------- ----------
Balance at December 31,
1996...................... 91,495,950 8,714 1,125,161 63,066 -- 1,196,941
---------- ------- ---------- ------- ------- ----------
Net income................ -- -- 35,453 -- -- 35,453
Dividends ($.07 per
share).................. -- -- (6,113) -- -- (6,113)
Special distributions
($3.67 per share)....... -- -- (336,838) -- -- (336,838)
Increase in net unrealized
gain, net of tax........ -- -- -- 16,493 -- 16,493
Restricted stock
granted................. 201,861 4,340 -- -- (4,340) --
Amortization of restricted
stock deferred
compensation............ -- -- -- -- 868 868
---------- ------- ---------- ------- ------- ----------
Balance at December 31,
1997...................... 91,697,811 $13,054 $ 817,663 $79,559 $(3,472) $ 906,804
========== ======= ========== ======= ======= ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 37
ST. JOE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 35,453 $ 176,022 $ 73,819
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization......... 32,527 28,758 28,551
Minority interest in income...................... 18,401 14,002 12,194
Gain on sale of property and note receivable..... (4,817) (3,423) (2,674)
Gain on sale of discontinued operations.......... -- (88,641) --
Deferred income tax expense...................... 11,898 52,829 18,757
Changes in operating assets and liabilities:
Accounts receivable............................ (1,106) (13,127) (3,139)
Inventory...................................... 3,072 1,915 (828)
Other assets................................... (10,586) (8,893) (4,790)
Accounts payable, accrued liabilities, casualty
reserves and other.......................... (4,301) 5,435 (4,279)
Income taxes payable........................... (4,714) 11,178 (7,012)
Discontinued operations -- noncash charges and
working capital changes..................... -- (58,710) 43,483
--------- --------- ---------
Net cash provided by operating activities............. 75,827 117,345 154,082
Cash flows from investing activities:
Purchases of property, plant and equipment.......... (66,629) (64,271) (78,816)
Investing activities of discontinued operations..... -- (4,327) (28,102)
Purchases of investments:
Available for sale............................... (87,796) (21,928) (31,247)
Held to maturity................................. (100,350) (180,797) (168,607)
Investments in joint ventures and acquisitions...... (20,154) -- --
Proceeds from dispositions of assets................ 14,417 9,743 5,119
Proceeds from sale of discontinued operations....... -- 445,055 --
Maturities and redemptions of investments:
Available for sale............................... 108,810 18,291 29,058
Held to maturity................................. 119,644 121,111 135,480
Proceeds from sale of note receivable............... 10,400 -- --
--------- --------- ---------
Net cash provided by/(used in) investing activities... (21,658) 322,877 (137,115)
Cash flows from financing activities:
Dividends and special distributions paid to
stockholders..................................... (342,950) (6,100) (6,100)
Dividends paid to minority interest................. (1,664) (1,666) (1,655)
Repayment of debt................................... -- -- (28,882)
Financing activities of discontinued operations..... -- (245) (9,917)
--------- --------- ---------
Net cash used in financing activities................. (344,614) (8,011) (46,554)
Net increase (decrease) in cash and cash
equivalents......................................... (290,445) 432,211 (29,587)
Cash and cash equivalents at beginning of year........ 449,013 16,802 46,389
--------- --------- ---------
Cash and cash equivalents at end of year.............. $ 158,568 $ 449,013 $ 16,802
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... $ 389 $ 1,009 $ 4,541
Income taxes..................................... $ 33,686 $ 120,789 $ 45,283
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 38
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS
St. Joe Corporation (the "Company") is a diversified corporation engaged in
real estate, forestry, transportation and sugar operations. The Company has also
recently entered into resort and entertainment operations. Forestry has
operations in both Florida and Georgia, while the remaining businesses operate
principally within the state of Florida. Consequently, the Company's
performance, and particularly that of its real estate operations, is
significantly affected by the general health of the Florida economy.
Real Estate
The Company currently conducts its real estate operations in two principal
segments: commercial/ industrial development and management and
community/residential development. The Company owns and manages commercial and
industrial properties primarily through Gran Central Corporation ("GCC"), a
wholly-owned subsidiary of Florida East Coast Industries, Inc. ("FECI"). GCC's
buildings are primarily Class "A" office space and high quality
commercial/industrial facilities located in Jacksonville, Miami, and the Orlando
area of Florida. The Company's community/residential development division
consists of large tracts of land in west Florida near Tallahassee, Florida and
northwest Florida including significant Gulf of Mexico frontage. 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 joint venture 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. ("Arvida").
Forestry
The Company is the largest private owner of timberlands in Florida. The
principal product of the Company's forestry operations is softwood pulpwood. In
addition, the Company produces and sells sawtimber. The majority of the wood
harvested by the Company is sold under a long term wood fiber supply agreement
to the Company's former linerboard mill, which it sold to Florida Coast Paper
Company, L.L.C. ("FCP") in May, 1996.
After the closure of the mill for several months in 1997, the Company
renegotiated its 15 year supply contract with FCP to allow it to supply pulpwood
to the mill at a level (700,000 tons per year beginning June 1, 1998)
significantly lower than historical levels.
The Company sought to reduce its obligation to supply pulpwood under the
agreement and intends to extend growing periods for certain portions of its
timber and to sell such timber in the form of higher-margin products, which the
Company anticipates will increase the long-term profitability of its forestry
operations.
Transportation
FECI's subsidiary, Florida East Coast Railway ("FEC"), provides rail and
freight service between Jacksonville and Miami, Florida and branch line track
between Fort Pierce and Lake Harbor, Florida. FEC has the only coastal
right-of-way between Jacksonville and West Palm Beach, Florida. The principal
commodities carried by rail include trailers-on-flatcar, containers-on-flatcar,
crushed stone, cement, automobile vehicles and parts. FEC also has a trucking
operation which is an interstate, irregular route, common carrier with terminals
located throughout the eastern half of the United States. The Company also owns
the Apalachicola Northern Railroad Company ("ANRR"), a short-line railroad that
operates between Port St. Joe and Chattahoochee, Florida. Its principal
commodities include coal, pulpwood, pulpboard woodchips, and tall oil chemicals.
F-6
<PAGE> 39
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sugar
Talisman Sugar Corporation ("Talisman"), a wholly-owned subsidiary of the
Company, grows sugarcane in the Belle Glade region of south central Florida.
Talisman processes this sugarcane at its mill facility and sells all of the
output of raw sugar to the Everglades Sugar Refinery, Inc., a subsidiary of
Savannah Foods & Industries, Inc. The Company has agreed in principle to sell
its sugar lands to certain federal and state government agencies on or before
June 6, 1998 for $133.5 million in cash. In the event the proposed sale is
consummated, Talisman would retain the right to farm the sugar lands through the
2002-2003 crop year. The proposed transaction is subject to both government and
board approval.
2. DISCONTINUED OPERATIONS
Communications
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. for $96,098. TPG Communications, Inc. assumed $17,963 of
SJCI interest bearing debt. SJCI sold its interest in three remaining cellular
partnerships for an aggregate of $25,113. The Company recorded a $39,154 gain on
the sale net of tax. SJCI's revenues through the April 11, 1996 sale date were
$9,335. Revenues in 1995 were $32,826. During 1995, the Company had previously
sold a cellular partnership interest for $2,104. Earnings for SJCI were $1,120,
and $6,767 for 1996 and 1995, respectively.
Forest Products
On May 30, 1996, the Company sold its linerboard mill and container plants.
Proceeds from the sale included $323,844 cash and a $10,000 senior subordinated
note, (the "Promissory Note"). The gain on the sale was $49,487, net of tax.
Revenues for the linerboard mill and container plants through May 30, 1996 were
$156,305 and for the year ended December 31, 1995 were $438,399. Earnings (loss)
for the linerboard mill and container plants were ($5,648) and $37,694 for 1996
and 1995, respectively. On November 25, 1997, the Company sold the Promissory
Note to an unrelated third party for approximately $10,400 which resulted in a
pre-tax gain of approximately $400.
On March 31, 1997, a special distribution of a portion of the net proceeds
of the sales of $3.33 per share was paid to shareholders of record on March 21,
1997, and on December 30, 1997, the remaining net proceeds of $.34 per share
were distributed to shareholders of record on December 19, 1997.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. Investments in joint ventures in
which the Company does not have control are carried using the equity method. All
significant intercompany transactions and balances have been eliminated except
for sales of continuing operations of $18,988 and $59,535 derived from
discontinued operations in the years ended December 31, 1996 and 1995,
respectively. The unrealized profit in ending inventories relating to these
sales has been eliminated.
F-7
<PAGE> 40
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments in joint ventures as of December 31, consist of:
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Deerfield Park, LLC......................................... $5,618 $ --
St. Joe/CNL Realty Group, LTD............................... 1,438 --
Al-Zar, LTD................................................. 144 144
------ ----
$7,200 $144
====== ====
</TABLE>
Revenue Recognition
Net sales include real estate property sales, timber sales and sugar sales.
Operating revenues include realty rental revenue and transportation revenue.
Revenue from realty land sales is recognized upon closing of sales
contracts for sale of land or upon settlement of condemnation proceedings.
Rental revenues are recognized upon completion of rental and lease contracts,
using the straight-line basis for recording the revenues over the life of the
contract. Transportation revenues are substantially recognized upon completion
of transportation services at destination. Revenues from sales of forestry
products and sugar are recognized generally on delivery of the product to the
customer.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents include cash on hand, bank demand accounts, money market accounts,
and repurchase agreements having original maturities at acquisition dates of
three months or less.
Inventories
Inventories are stated at the lower of cost or market. Costs for
substantially all inventories are determined under the first in, first out
(FIFO) or the average cost method.
Property, Plant and Equipment
Depreciation is computed using both straight-line and accelerated methods
over the useful lives of various assets.
Depletion of timber is determined by the units of production method. An
adjustment to depletion is recorded, if necessary, based on the continuous
forest inventory ("CFI") analysis prepared every five years.
Railroad properties are depreciated and amortized using the straight-line
method at rates established by regulatory agencies. Gains and losses on normal
retirements of these items are credited or charged to accumulated depreciation.
Deferred Cane Crop Costs
Sugarcane plantings generally yield two annual harvests, depending on
weather conditions and soil quality, before replanting is necessary. New
planting costs are amortized on a straight-line basis over two years.
Amortization of Goodwill and Deferred Compensation
Goodwill, primarily associated with the acquisition of Arvida, is being
amortized on a straight-line basis over a period of 30 years. Deferred
compensation is being amortized on a straight-line basis over a five-year
vesting period, which is deemed to be the period for which services are
performed.
F-8
<PAGE> 41
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Common Share
Earnings per common share ("EPS") are based on the weighted average number
of common shares outstanding during the year as adjusted for the three-for-one
stock split effective January 12, 1998 totaling 91,695,046 shares in 1997 and
91,495,950 shares in 1996 and 1995. Diluted EPS assumes weighted average options
to purchase 1,379,495 shares of common stock have been exercised using the
treasury stock method. During 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share". All periods
presented have been restated to reflect the provisions of SFAS No. 128.
Stock-Based Compensation
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 elected to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109 "Accounting for Income Taxes." Under SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. SFAS 109 also requires the recognition of a
deferred tax liability on the undistributed earnings of subsidiaries applied on
a prospective basis.
Investments
Investments consist principally of corporate debt securities, government
sponsored agency securities, mortgage backed securities, municipal bonds, common
stocks, preferred stocks, and U.S. Government obligations. Investments maturing
in three months to one year are classified as short term. Those having
maturities in excess of one year are classified as marketable securities.
The Company follows the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS 115, the Company
classifies its debt and marketable equity securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities for which the Company has the
ability and intent to hold the security until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related income tax effect and minority interest in
consolidated subsidiaries, on available-for-sale
F-9
<PAGE> 42
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until realized.
A decline in the market of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Realized gains and losses for securities classified as available-for-sale
and held-to-maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
Long-Lived Assets
The Company complies with the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This Statement requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount exceeds the fair value of the asset.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
Restatements
All share numbers and per share amounts have been restated to reflect the
three-for-one split of the Company's common stock, which became effective on
January 12, 1998.
4. INVENTORY
Inventory as of December 31 consist of:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Materials and supplies...................................... $12,383 $13,530
Sugar....................................................... 3,222 5,147
------- -------
$15,605 $18,677
======= =======
</TABLE>
F-10
<PAGE> 43
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. MARKETABLE SECURITIES
Marketable securities as of December 31, 1997, consist of:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED FAIR HOLDING HOLDING
COST VALUE GAIN LOSS
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Short term investments (maturing within one
year)
Available-for-sale
U.S. Government securities............... $ 48,902 $ 48,940 $ 38 $--
Other corporate debt securities.......... 2,094 2,094 -- --
-------- -------- -------- ---
$ 50,996 51,034 $ 38 --
======== ======== ======== ===
Marketable securities
Available-for-sale
U.S. Government securities
Maturing in one to five years.......... $107,659 $108,242 $ 583 $--
Maturing in five to ten years.......... 767 788 21 --
Tax exempt municipals
Maturing in one to five years.......... 19,750 20,158 408 --
Maturing in five to ten years.......... 18,326 19,304 978 --
Maturing in more than ten years........ 3,408 3,388 -- 20
Equity securities........................ 17,351 146,349 128,998 --
Mortgage backed securities
Maturing in one to five years.......... 110 110 -- --
Maturing in five to ten years.......... 833 845 12 --
Maturing in more than ten years........ 3,443 3,512 67 --
Other corporate debt securities
Maturing in one to five years.......... 2,358 2,345 -- 13
Maturing in five to ten years.......... 857 1,761 904 --
Maturing in more than ten years........ 95 108 13 --
-------- -------- -------- ---
$174,957 $306,910 $131,986 $33
======== ======== ======== ===
</TABLE>
During 1997, consistent with the Company's expected capital expenditure
needs, approximately $137 million of securities classified as held to maturity
were transferred to available for sale. Net unrealized gains were not material.
Marketable securities as of December 31, 1996, consist of:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED FAIR HOLDING HOLDING
COST VALUE GAIN LOSS
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Short term investments (maturing within one
year)
Held to maturity
U.S. Government securities............... $ 87,007 $ 87,226 $ 296 $ 77
Tax exempt municipals.................... 1,004 1,005 1 --
-------- -------- -------- ------
$ 88,011 $ 88,231 $ 297 $ 77
======== ======== ======== ======
Marketable securities
Available-for-sale
U.S. Government securities
Maturing in one to five years.......... $ 1,226 $ 1,226 $ 3 $ 3
Maturing in five to ten years.......... 152 151 -- 1
</TABLE>
F-11
<PAGE> 44
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED FAIR HOLDING HOLDING
COST VALUE GAIN LOSS
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Tax exempt municipals
Maturing in one to five years............ 10,624 10,945 321 --
Maturing in five to ten years............ 19,726 20,336 610 --
Maturing in more than ten years.......... 4,281 4,265 -- 16
Equity securities........................... 13,534 117,128 103,594 --
Mortgage backed securities
Maturing in one to five years............ 71 71 -- --
Maturing in five to ten years............ 342 343 1 --
Maturing in more than ten years.......... 3,210 3,255 45 --
Other corporate debt securities
Maturing in one to five years............ 920 931 11 --
Maturing in five to ten years............ 463 468 5 --
Maturing in more than ten years.......... 95 105 10 --
-------- -------- -------- ------
54,644 159,224 104,600 20
-------- -------- -------- ------
Held to maturity
U.S. Government securities
Maturing in one to five years.......... 114,371 113,454 333 1,250
Tax exempt municipals
Maturing in one to five years.......... 7,079 7,121 42 --
Maturing in more than ten years........ 56 725 669 --
Mortgage backed securities
Maturing in one to five years.......... -- 400 400 --
Maturing in more than ten years........ 41 44 3 --
Other corporate securities
Maturing in one to five years.......... 2,056 2,475 502 83
-------- -------- -------- ------
123,603 124,219 1,949 1,333
-------- -------- -------- ------
$178,247 $283,443 $106,549 $1,353
======== ======== ======== ======
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities as of December 31 consist of:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Payroll and benefits........................................ $ 1,753 $ 5,716
Payroll taxes............................................... 109 403
Property and other taxes.................................... 1,709 4,248
Accrued casualty reserves................................... 20,157 18,984
Other accrued liabilities................................... 10,063 10,449
------- -------
33,791 39,800
Less: noncurrent accrued casualty reserves and other
Liabilities............................................... 15,014 18,185
------- -------
$18,777 $21,615
======= =======
</TABLE>
F-12
<PAGE> 45
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, as of December 31 consist of:
<TABLE>
<CAPTION>
ESTIMATED
1997 1996 USEFUL LIFE
---------- ---------- -----------
<S> <C> <C> <C>
Land and timber............................... $ 136,941 $ 134,811 --
Land improvements............................. 19,877 19,770 20
Buildings..................................... 4,407 3,702 45
Machinery and equipment....................... 623,746 630,847 12-30
Office equipment.............................. 2,089 1,150 10
Autos, trucks, and airplane................... 3,098 2,829 3-10
Construction in progress...................... 29,780 3,844 --
Investment property........................... 374,204 359,689 Various
---------- ----------
1,194,142 1,156,642
Accumulated depreciation...................... 335,005 322,475
---------- ----------
$ 859,137 $ 834,167
========== ==========
</TABLE>
Real estate properties having net book value of $219.3 million at December
31, 1997 are leased under non-cancelable operating leases with expected
aggregate rentals of $107.1 million of which $30.7, $26.3, $21.8, $17.9 and
$10.4 million is due in the years 1998 through 2002, respectively.
8. INCOME TAXES
Total income tax expense for the years ended December 31 was allocated as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Income from continuing operations.................. $40,521 $ 83,117 $24,535
Earnings (loss) from discontinued operations....... -- (2,785) 26,116
Gain on the sale of discontinued operations........ -- 48,705 --
Stockholders' equity, for recognition of unrealized
gain on debt and marketable equity securities.... 10,590 9,428 8,778
------- -------- -------
$51,111 $138,465 $59,429
======= ======== =======
</TABLE>
Income tax expense attributable to income from continuing operations
differed from the amount computed by applying the statutory federal income tax
rate of 35% to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Tax at the statutory federal rate......................... $33,031 $66,159 $23,131
Dividends received deduction and tax free interest........ (1,752) (4,311) (1,277)
Excise tax on reversion of prepaid pension asset ......... 5,352 13,228 --
State income taxes (net of federal benefit)............... 3,382 5,839 1,916
Undistributed earnings of FECI............................ 1,382 1,262 916
Other, net................................................ (875) 940 (151)
------- ------- -------
$40,520 $83,117 $24,535
======= ======= =======
</TABLE>
F-13
<PAGE> 46
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of December 31
are presented below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued casualty and other reserves....................... $ 9,999 $ 11,915
Other..................................................... 1,531 1,287
-------- --------
Total deferred tax assets......................... 11,530 13,202
-------- --------
Deferred tax liabilities:
Tax in excess of financial depreciation................... 110,100 112,023
Deferred gain on land sales............................... 7,224 7,224
Deferred gain on subsidiary's defeased bonds.............. 1,700 1,929
Unrealized gain on debt and marketable equity
securities............................................. 50,920 40,330
Deferred gain on involuntary conversion of land........... 65,715 66,682
Prepaid pension asset recognized for financial
reporting.............................................. 36,192 26,712
Other..................................................... 11,906 8,042
-------- --------
Total gross deferred tax liabilities.............. 283,758 262,942
-------- --------
Net deferred tax liability........................ $272,228 $249,740
======== ========
</TABLE>
Based on the timing of reversal of future taxable amounts and the Company's
history of reporting taxable income, the Company believes that the deferred tax
assets will be realized and a valuation allowance is not considered necessary.
The current net deferred tax assets of $3,467 and $5,133 are recorded in other
current assets as of December 31, 1997 and 1996, respectively.
The Company has not recognized a deferred tax liability of approximately
$17,842 for the undistributed earnings of FECI that arose in 1992 and prior
years because the Company does not currently expect those unremitted earnings to
reverse and become taxable to the Company in the foreseeable future. A deferred
tax liability will be recognized when the Company expects that it will recover
those undistributed earnings in a taxable manner, such as through receipt of
dividends or sale of the investment. As of December 31, 1997, the undistributed
earnings of the subsidiary for which no deferred tax liability was provided were
approximately $48,454.
9. EMPLOYEE BENEFITS PLANS
The Company sponsors defined benefit pension plans which covered
approximately 6% and 10% of its employees in 1997 and 1996, respectively. The
benefits are based on the employees' years of service or years of service and
compensation during the last five or ten years of employment. The Company's
funding policy is to contribute annually the maximum contribution required by
ERISA.
A summary of the net periodic pension credit follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Service cost................................................ $ 184 $ 1,659
Interest cost............................................... 7,322 7,923
Actual return on assets..................................... (48,914) (26,606)
Net amortization and deferral............................... 32,052 11,555
-------- --------
Total pension income.............................. $ (9,356) $ (5,469)
======== ========
</TABLE>
F-14
<PAGE> 47
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
\A summary of the plans' funded status as of December 31 was:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$111,397 and $105,627 in 1997 and 1996, respectively...... $111,567 $106,368
======== ========
Projected benefit obligation for service rendered to date... 112,487 108,726
Plan assets at fair value, primarily listed stocks and U.S.
bonds..................................................... 231,790 193,937
-------- --------
Plan assets in excess of projected benefit obligation....... 119,303 85,211
Unrecognized net (gain) loss................................ (69,831) (42,011)
Unrecognized prior service cost............................. 114 768
Unrecognized transition asset............................... (8,725) (12,829)
Additional cost for special termination benefits............ -- (982)
-------- --------
Prepaid pension cost........................................ $ 40,860 $ 30,157
======== ========
</TABLE>
The weighted-average discount rates for the plans were 7% in 1997 and 1996.
The rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation for salaried
employees was 6% in 1997 and 1996. The expected long-term rates of return on
assets was 8% in 1997 and 1996.
As discussed in note 2, several of the Company's operations were sold
during 1996, which significantly reduced the number of employees covered under
the defined benefit plans. The defined benefit plans' assets were not a part of
the sales. In accordance with SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", the Company recognized a curtailment gain of
approximately $3.7 million ($.5 million net of tax). The Company also recognized
in 1997 a settlement gain of $2.0 million ($.2 million net of tax) resulting
from certain lump-sum distributions paid during the year.
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.
The Company recognized a curtailment loss of approximately $.6 million ($.1
million net of tax)as a result of those who elected early retirement.
The Company's pension plans are in an overfunded position and with the
reduction in employees resulting from the sales of several of the Company's
operations, it is unlikely that the overfunding will be realized other than by a
plan termination and reversion of excess assets. Accordingly, a 50% excise tax
has been included in the tax effects of the pension income as well as the
curtailment gain and settlement loss. The Company has no immediate plans to
terminate the pension plans and is in the process of evaluating other
alternatives.
(d) Deferred Compensation Plans and ESOP
The Company also has other defined contribution plans which cover
substantially all its salaried employees. Contributions are at the employees'
discretion and are matched by the Company up to certain limits. Expense for
these defined contribution plans was $963, $1,081, and $1,322, in 1997, 1996,
and 1995, respectively.
The Company had an Employee Stock Ownership Plan (the "ESOP") for the
purpose of purchasing stock of the Company for the benefit of qualified
employees. On November 21, 1996 the Pension committee of the Board of Directors
of the Company voted to terminate the ESOP effective December 31, 1996.
Contributions to the ESOP were limited to .5% of compensation of employees
covered under the ESOP.
F-15
<PAGE> 48
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Stock-Based Compensation Plans
Effective January 6, 1997, the Company granted Mr. Rummell, Chairman and
CEO of the Company, 201,861 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
approximately $3.5 million for the unamortized portion of this grant as of
December 31, 1997. Compensation expense related to this grant totaled
approximately $.9 million in 1997.
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 6.03 million shares. During 1997, awards were granted to
certain officers of the Company totaling 5.6 million shares. The options are
exercisable in equal installments on the first anniversaries of the date of
grant and expire generally 10 years after date of grant.
The options were granted at the Company's current market price on the date
of grant and range from $19.14 to $31.83 after adjustment for the effects of the
special distribution paid on March 31, 1997. At December 31, 1997 there were .4
million additional shares available for grant under the Incentive Plan.
The per share weighted average fair value of stock options granted during
1997 was $10.39 on the date of grant using the Black Scholes option-pricing
model with the following weighted average assumptions: 1997 -- .8% expected
dividend yield, risk-free interest rate of 5.89%, weighted average expected
volatility of 23.06% and an expected life of 7.5 years.
The Company applies APB Opinion No. 25 in accounting for its Incentive Plan
and, accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had the Company determined
compensation costs based on the fair value at the grant date for its stock
options under SFAS No. 123, The Company's net income would have been reduced to
the pro forma amounts indicated below:
Net income -- pro forma -- $29.6 million
Per share -- pro forma -- $.32 per share basic and diluted
The following table presents information regarding all options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF REMAINING RANGE OF WEIGHTED AVERAGE
OPTIONS OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES EXERCISE PRICE
- ------------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
981,000 9.7 years $19.14- $24.92 $19.67
4,662,480 9.1 years $28.23- $31.83 $31.25
---------
5,643,480 9.3 years $19.14- $31.83 $21.69
</TABLE>
There are no options currently exercisable at December 31, 1997.
F-16
<PAGE> 49
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------
DECEMBER 31, SEPTEMBER 30 JUNE 30 MARCH 31
------------- ------------ ------- --------
<S> <C> <C> <C> <C>
1997
Net sales and operating revenues............. $94,358 $69,413 $94,102 $ 88,379
Operating profit............................. 10,745 15,887 15,874 10,255
Net income from continuing operations........ 7,173 9,056 11,214 8,010
Income (loss) from discontinued operations... -- -- -- --
Net Income................................... 7,173 9,056 11,214 8,010
Earnings per share -- Basic.................. .09 .10 .12 .09
Earnings per share -- Diluted................ .09 .10 .12 .08
1996
Net sales and operating revenues............. 95,481 84,556 80,190 170,962
Operating profit............................. 22,125 9,595 23,053 93,398
Net income from continuing operations........ 14,991 11,449 5,790 59,679
Income from discontinued operations.......... (7,003)* -- 82,227 8,889
Net income................................... 7,988 11,449 88,017 68,568
Earnings per share -- Basic.................. 0.08 0.13 0.96 0.75
</TABLE>
- ---------------
* The total gain on discontinued operations declined by approximately $7 million
during the fourth quarter as a result of finalizing the postclosing working
capital adjustments, closing expenses and the pension curtailment gain,
previously estimated.
11. SEGMENT INFORMATION
Total net sales and operating revenues represent sales to unaffiliated
customers, as reported in the Company's consolidated statements of income and
intercompany sales which occurred principally between the Forestry and
Transportation segments and discontinued operations. Operating profit is net
sales and operating revenues less directly traceable costs and expenses. In
computing operating profit, the following items have not been considered: other
income (expense) and provision for income taxes.
Identifiable assets by lines of business are those assets that are used in
the Company's operations in each segment. Other assets are composed of cash,
marketable securities and miscellaneous nonsegment assets.
F-17
<PAGE> 50
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information by lines of business segment follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales and operating revenues
Transportation................................ $ 194,961 $ 185,484 $ 184,450
Real Estate................................... 70,254 134,530 32,870
Forestry...................................... 31,700 56,679 60,057
Sugar......................................... 49,320 54,496 57,547
Resort........................................ 17 -- --
---------- ---------- ----------
Consolidated..................................... $ 346,252 $ 431,189 $ 334,924
========== ========== ==========
Operating profit:
Transportation................................ $ 33,379 $ 26,711 $ 25,763
Real Estate................................... 18,021 109,450 11,621
Forestry...................................... 2,282 2,337 (555)
Sugar......................................... 7,023 8,281 13,310
Resort........................................ (17) -- --
Other......................................... (7,927) 1,392 (2,822)
---------- ---------- ----------
Consolidated..................................... $ 52,761 $ 148,171 $ 47,317
========== ========== ==========
Assets:
Transportation................................ $ 433,336 $ 413,100 $ 407,969
Real Estate................................... 549,027 373,799 290,013
Forestry...................................... 121,758 114,710 111,848
Sugar......................................... 78,059 77,824 72,647
Resort........................................ 1,711 -- --
Discontinued operations....................... -- -- 296,001
Other......................................... 362,750 826,805 352,516
---------- ---------- ----------
Consolidated..................................... $1,546,641 $1,806,238 $1,530,994
========== ========== ==========
Capital expenditures:
Transportation................................ $ 13,459 $ 15,800 $ 28,204
Real Estate................................... 46,842 43,708 45,029
Forestry...................................... 3,156 4,672 5,413
Sugar......................................... 339 91 170
Resort........................................ 109 -- --
Other......................................... 2,724 -- --
---------- ---------- ----------
Consolidated..................................... $ 66,629 $ 64,271 $ 78,816
========== ========== ==========
Depreciation and depletion:
Transportation................................ $ 19,196 $ 18,067 $ 18,840
Real Estate................................... 8,881 7,808 5,733
Forestry...................................... 803 1,148 2,307
Sugar......................................... 1,642 1,735 1,671
Resort........................................ -- -- --
Other......................................... 321 -- --
---------- ---------- ----------
Consolidated..................................... $ 31,659 $ 28,758 $ 28,551
========== ========== ==========
</TABLE>
F-18
<PAGE> 51
ST. JOE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. CONTINGENCIES
The Company and its subsidiaries are involved in litigation on 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.
On May 30, 1996 the Company sold its linerboard mill and container plants.
As part of the sale, the Company remains contingently liable for up to $10
million relating to On-Site Environmental Liabilities, as defined in the sales
agreement, as long as they are discovered within three years of the closing date
of the sale and the Company has, except in limited circumstances, received
invoices for them within five years of the closing date. The Company has no
obligation for costs incurred by the buyer to comply with Title V of the Clean
Air Act or the Cluster Rules. On-Site Environmental Liabilities arising from
environmental conditions caused from activities both before and after the
closing date are to be allocated among the parties based on relative
contribution. The agreement provided the exclusive remedy for On-Site
Environmental Liabilities which relate to matters within the property lines of
real property conveyed under the agreement. The Company's obligation to pay $10
million for On-Site Environmental Liabilities existing on the closing date is
subject to cost-sharing with the buyer according to the following schedule: the
first $2.5 million by buyer, the next $2.5 million by the Company; the next $2.5
million by the buyer; the next $2.5 million by the Company; the next $2.5
million by the buyer and the next $5 million by the Company. The Company also
agreed to reimburse up to $1 million for certain remediation activities at the
linerboard mill, if such activities were required under environmental laws under
the following schedule: the first $.2 million by the Company, the next $.3
million by the buyer, the next $.3 million by the Company, the next $.3 million
by the buyer, the next $.5 million by the Company, the next $.5 million by the
buyer with any remaining amounts treated as On-Site Environmental Liabilities.
No known matters exist which, pursuant to this contingent liability, would
require funding or accrual in the Company's financial statements.
The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of Superfund sites. The Company has accrued an allocated
share of the total estimated cleanup costs for these sites. Based upon
management's evaluation of the other potentially responsible parties, the
Company does not expect to incur additional amounts even though the Company has
joint and several liability. Other proceedings involving environmental matters
such as alleged discharge of oil or waste material into water or soil are
pending against the Company.
It is not possible to quantify future environmental costs because many
issues relate to actions by third parties or changes in environmental
regulation. However, 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, results of operations or liquidity
of the Company. Environmental liabilities are paid over an extended period and
the timing of such payments cannot be predicted with any confidence. Aggregate
environmental-related accruals were $7,270 and $5,500 as of December 31, 1997
and 1996, respectively.
F-19
<PAGE> 52
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Stockholders
St. Joe Corporation:
Under date of February 24, 1998, we reported on the consolidated balance
sheets of St. Joe Corporation and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, as contained in this annual report on Form 10-K for the year
1997. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statement schedules based on our
audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Jacksonville, Florida
February 24, 1998
S-1
<PAGE> 53
ST. JOE CORPORATION
SCHEDULE II (CONSOLIDATED)
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
RESERVES INCLUDED IN LIABILITIES OF YEAR EXPENSE PAYMENTS END OF YEAR
- -------------------------------- ---------- ---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1997
Accrued casualty reserves.................. $28,183.00 $ 5,381.00 $8,488.00 $25,076.00(a)
1996
Accrued casualty reserves.................. 16,635.00 19,698.00 8,150.00 28,183.00(a)(b)
1995
Accrued casualty reserves.................. 21,019.00 4,742.00 9,126.00 16,635.00(a)
</TABLE>
- ---------------
(a) Includes $12,135, $12,445, and $7,322 in current liabilities at December 31,
1996, and 1995, respectively. The remainder is included in "Accrued
casualty reserves and other liabilities."
(b) 1996 additions include $5,272 related to discontinued operations and charged
to expense in prior years.
S-2
<PAGE> 54
ST. JOE CORPORATION
SCHEDULE III (CONSOLIDATED)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
-----------------------------------------------------
COSTS
CAPITALIZED
BUILDINGS & SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
- ----------------------------------- ------------ ------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DUVAL COUNTY
Office Buildings (8)............... -- 604 -- 64,599
Office/Showroom/Warehouses (8)..... -- 1,502 -- 32,712
Office/Warehouse (2)............... -- -- -- 11,708
Front Load Warehouse............... -- -- 2,690
Rail Warehouse..................... -- -- 2,827
Land w/Infrastructure.............. -- 6,593 -- 11,807
Unimproved Land & Misc Assets...... -- 659 -- 397
City & Residential Lots............ 362 82 --
ST. JOHNS COUNTY
Unimproved Land.................... -- 2,631 -- 408
Land with Infrastructure........... -- 10 -- 677
FLAGLER COUNTY
Unimproved Land.................... -- 3,218 -- 1,184
VOLUSIA COUNTY
Unimproved Land.................... -- 3,098 -- 529
BREVARD COUNTY
Office/Showroom/Warehouse (1)...... -- -- -- --
Land w/Infrastructure.............. -- 3,633 -- 106
Unimproved Land.................... -- 3,874 -- 3
INDIAN RIVER
Unimproved Land.................... -- 1 -- --
ST. LUCIE COUNTY
Unimproved Land.................... -- 639 -- 4
MARTIN COUNTY
Land w/Infrastructure.............. -- 1,734 -- 2,416
Unimproved Land.................... -- 2,535 -- 237
PUTNAM COUNTY
Unimproved Land.................... -- 2 -- --
PALM BEACH COUNTY
Office/Showroom/Warehouse (1)...... -- 113 -- 2,984
Rail Warehouses (2)................ -- 449 -- 4,253
Cross Docks (4).................... -- 117 -- 3,787
Land w/Infrastructure.............. -- 1,581 -- --
Unimproved Land.................... -- 847 -- 28
<CAPTION>
CARRIED AT CLOSE OF PERIOD
---------------------------------------
DATE
CAPITALIZED
LAND & LAND BUILDINGS AND ACCUMULATED OR
DESCRIPTION IMPROVEMENTS IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED
- ----------------------------------- ------------ ------------- -------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DUVAL COUNTY
Office Buildings (8)............... 11,375 53,828 65,203 8,030 1985
Office/Showroom/Warehouses (8)..... 6,627 27,587 34,214 5,695 1987
Office/Warehouse (2)............... 3,834 7,874 11,708 990 1994
Front Load Warehouse............... 598 2,092 2,690 19 --
Rail Warehouse..................... 632 2,195 2,827 22 --
Land w/Infrastructure.............. 18,400 -- 18,400 716 --
Unimproved Land & Misc Assets...... 725 331 1,056 194 --
City & Residential Lots............ 362 82 444 68 --
ST. JOHNS COUNTY
Unimproved Land.................... 3,039 -- 3,039 -- Various
Land with Infrastructure........... 688 -- 688 -- --
FLAGLER COUNTY
Unimproved Land.................... 4,402 -- 4,402 -- Various
VOLUSIA COUNTY
Unimproved Land.................... 3,627 -- 3,627 -- Various
BREVARD COUNTY
Office/Showroom/Warehouse (1)...... -- -- -- --
Land w/Infrastructure.............. 3,739 -- 3,739 Various
Unimproved Land.................... 3,877 -- 3,877 -- Various
INDIAN RIVER
Unimproved Land.................... 1 -- 1 -- Various
ST. LUCIE COUNTY
Unimproved Land.................... 643 -- 643 -- Various
MARTIN COUNTY
Land w/Infrastructure.............. 4,150 -- 4,150 190 Various
Unimproved Land.................... 2,772 -- 2,772 -- Various
PUTNAM COUNTY
Unimproved Land.................... 2 -- 2 -- --
PALM BEACH COUNTY
Office/Showroom/Warehouse (1)...... 599 2,498 3,097 977 --
Rail Warehouses (2)................ 557 4,145 4,702 1,371 --
Cross Docks (4).................... 1,262 2,642 3,904 1,179 --
Land w/Infrastructure.............. 1,581 -- 1,581 -- --
Unimproved Land.................... 875 -- 875 -- --
</TABLE>
S-3
<PAGE> 55
ST. JOE CORPORATION
SCHEDULE III (CONSOLIDATED)
REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
-----------------------------------------------------
COSTS
CAPITALIZED
BUILDINGS & SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
- ----------------------------------- ------------ ------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BROWARD COUNTY
Rail Warehouse (1)................. -- 85 -- 1,708
Land w/Infrastructure.............. -- 999 -- 122
Unimproved Land.................... -- 1,186 -- 111
MANATEE COUNTY
Unimproved Land.................... -- 14 -- 87
DADE COUNTY
Cross Dock (1)..................... -- 137 -- 1,018
Double Front Load Warehouse (1).... -- 768 -- 6,275
Rail Warehouses (6)................ -- 808 -- 28,251
Office/Showroom/Warehouses (5)..... -- 1,003 -- 18,475
Office/Warehouses (4).............. -- 1,462 -- 32,421
Front Load Warehouses (8).......... -- 1,943 -- 28,633
Office/Service Center (1).......... -- 285 -- 2,705
Transit Warehouse (1).............. -- 6 -- 283
Land w/Infrastructure.............. -- 14,576 -- 32,812
Unimproved Land & Misc Assets...... -- 3,757 -- 294
ORANGE COUNTY
Land w/Infrastructure.............. -- -- -- 8,799
GULF COUNTY
Unimproved Land.................... -- -- -- --
BAY COUNTY
Land w/Infrastructure.............. 1 -- 643
Office Building.................... 2 -- 2,078
Unimproved Land.................... 516 -- 141
LEON COUNTY
Land w/Infrastructure.............. 603 -- 30
WALTON COUNTY
Land w/ Infrastructure............. -- 71 -- 565
Other Counties.....................
Unimproved Land.................... 202 30 2,656
TOTALS -- 62,627 112 311,464
<CAPTION>
CARRIED AT CLOSE OF PERIOD
---------------------------------------
DATE
CAPITALIZED
LAND & LAND BUILDINGS AND ACCUMULATED OR
DESCRIPTION IMPROVEMENTS IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED
- ----------------------------------- ------------ ------------- -------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BROWARD COUNTY
Rail Warehouse (1)................. 405 1,388 1,793 686 1986
Land w/Infrastructure.............. 1,121 -- 1,121 -- Various
Unimproved Land.................... 1,297 -- 1,297 -- Various
MANATEE COUNTY
Unimproved Land.................... 101 -- 101 -- Various
DADE COUNTY
Cross Dock (1)..................... 137 1,018 1,155 289 1987
Double Front Load Warehouse (1).... 1,985 5,058 7,043 1,211 1993
Rail Warehouses (6)................ 8,119 20,940 29,059 4,517 1988
Office/Showroom/Warehouses (5)..... 5,766 13,712 19,478 4,149 1988
Office/Warehouses (4).............. 9,155 24,728 33,883 3,692 1990
Front Load Warehouses (8).......... 9,783 20,793 30,576 4,242 1991
Office/Service Center (1).......... 873 2,117 2,990 327 1994
Transit Warehouse (1).............. 3 286 289 63 Various
Land w/Infrastructure.............. 46,536 852 47,388 1,002 Various
Unimproved Land & Misc Assets...... 4,011 40 4,051 130 Various
ORANGE COUNTY
Land w/Infrastructure.............. 8,799 -- 8,799 -- 1995
GULF COUNTY
Unimproved Land.................... -- -- -- -- --
BAY COUNTY
Land w/Infrastructure.............. 644 -- 644 -- --
Office Building.................... -- 2,080 2,080 463 --
Unimproved Land.................... 657 -- 657 13 --
LEON COUNTY --
Land w/Infrastructure.............. 633 -- 633 17 --
WALTON COUNTY
Land w/ Infrastructure............. 637 -- 637 -- --
Other Counties..................... --
Unimproved Land.................... 2,818 71 2,889 67 --
TOTALS 177,846 196,357 374,204 40,319
</TABLE>
S-4
<PAGE> 56
Notes:
(A) The aggregate cost of real estate owned at December 31, 1997, for federal
income tax purposes is approximately $266,443,000.
(B) Reconciliation of real estate owned (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance at the Beginning of Year.......................... 342,586 274,526 249,180
Amounts Capitalized....................................... 46,823 68,705 26,499
Amounts Retired or Adjusted............................... (15,205) (645) (1,153)
------- ------- -------
Balance at the Close of Period............................ 374,204 342,586 274,526
======= ======= =======
(C) Reconciliation of accumulated depreciation (in
thousands of dollars):
Balance at Beginning of Year.............................. 33,998 26,356 20,596
Depreciation Expense...................................... 8,881 7,710 5,760
Amounts Retired or Adjusted............................... (2,560) (68)
------- ------- -------
Balance at the Close of Period............................ 40,319 33,998 26,356
======= ======= =======
</TABLE>
S-5
<PAGE> 1
EXHIBIT 21.01
ST. JOE CORPORATION
SUBSIDIARIES LISTING
St. Joe Corporation
Florida East Coast Industries, Inc.
Gran Central Corporation
Dade County Land Holding Company, Inc.
Florida East Coast Railway Company
Florida East Coast Deliveries, Inc.
Florida East Coast Highway Dispatch Company
Florida East Coast Inspections, Inc.
Florida Express Carrier, Inc.
Operations Unlimited, Inc.
Railroad Concrete Crosstie Corporation
Railroad Track Construction Company
Jacksonville Properties, Inc.
St. Joe Timberland Company
Apalachicola Northern Railroad Company
St. Joe Terminal Company
Talisman Sugar Corporation
St. Joe Utilities Company
St. Joe/Arvida Company, Inc.
St. Joe Development, Inc.
St. Joe/Arvida Company, L.P.
St. Joe/Central Florida Management, Inc.
St. Joe/Central Florida Development, Inc.
St. Joe/James Island Development, Inc.
St. Joe/Arcadia Management, Inc.
Riverside Golf Management, Inc.
* All subsidiaries are incorporated in the State of Florida
<PAGE> 1
EXHIBIT 23.01
Independent Auditors' Consent
The Board of Directors
St. Joe Corporation:
We consent to the incorporation by reference in the registration statements (No.
333-23571 and 333-43007) on Form S-8 of St. Joe Corporation of our reports dated
February 24, 1998, relating to the consolidated balance sheet of St. Joe
corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997, and related
schedules, which reports appear in the December 31, 1997 annual report on Form
10-K of St. Joe Corporation.
KPMG Peat Marwick LLP
Jacksonville, Florida
March 23, 1998
<PAGE> 1
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of ST. JOE CORPORATION, a
Florida corporation, do hereby constitute and appoint Charles A. Ledsinger, Jr.,
as the lawful attorney-in-fact and agent with full power and authority to do any
and all acts and things and to execute any and all instruments which said
attorney and agent determines may be necessary or advisable or required to
enable said corporation to comply with the Securities Act of 1933, as amended,
and any rules or regulations or requirements of the Securities and Exchange
Commission in connection with this Registration Statement. Without limiting the
generality of the foregoing power and authority, the powers granted include the
power and authority to sign the names of the undersigned officers and directors
in the capacities indicated below to this Registration Statement, to any and all
amendments, both pre-effective and post-effective, and supplements to this
Registration Statement, and to any and all instruments or documents filed as
part of or in conjunction with this Registration Statement or Amendments or
Supplements thereof, and each of the undersigned hereby ratifies and confirms
all that said attorney and agent shall do or cause to be done by virtue hereof.
This Power of Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ PETER S. RUMMELL Chairman of the Board and Chief March 25, 1998
- --------------------- Executive Officer
Peter S. Rummell
/S/ CHARLES A. LEDSINGER President, Chief Operating Officer and March 25, 1998
- ------------------------ Chief Financial Officer (Principal
Charles A. Ledsinger, Jr. Financial and Accounting Officer
/s/ ROBERT M. RHODES Senior Vice President and March 25, 1998
- -------------------- General Counsel
Robert M. Rhodes
/s/ JACOB C. BELIN Director March 25, 1998
- ------------------
Jacob C. Belin
/s/ RUSSELL B. NEWTON, JR. Director March 25, 1998
- --------------------------
Russell B. Newton, Jr.
/s/ JOHN J. QUINDLEN Director March 25, 1998
- --------------------
John J. Quindlen
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ WALTER L. REVELL Director March 25, 1998
- --------------------
Walter L. Revell
/s/ FRANK S. SHAW, JR. Director March 25, 1998
- ----------------------
Frank S. Shaw, Jr.
/s/ WINFRED L. THORNTON Director March 25, 1998
- -----------------------
Winfred L. Thornton
/s/ JOHN D. UIBLE Director March 25, 1998
- -----------------
John D. Uible
</TABLE>
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ST. JOE CORPORATION FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 158,568
<SECURITIES> 51,034
<RECEIVABLES> 58,623
<ALLOWANCES> 0
<INVENTORY> 15,605
<CURRENT-ASSETS> 18,562
<PP&E> 1,194,142
<DEPRECIATION> (335,005)
<TOTAL-ASSETS> 1,546,641
<CURRENT-LIABILITIES> 50,662
<BONDS> 0
0
0
<COMMON> 13,054
<OTHER-SE> 893,750
<TOTAL-LIABILITY-AND-EQUITY> 1,546,641
<SALES> 112,340
<TOTAL-REVENUES> 346,252
<CGS> 87,758
<TOTAL-COSTS> 293,491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (389)
<INCOME-PRETAX> 94,374
<INCOME-TAX> 40,520
<INCOME-CONTINUING> 35,453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,453
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.38
</TABLE>
<PAGE> 1
EXHIBIT 99.01
St. Joe Corporation
Supplemental Calculation of Selected Consolidated Financial Data
The following table calculates EBDDT (Gross), EBDDT (Net) and EBITDA (Gross)
and EBITDA (Net) as set forth in Note (9) to Item 6. Selected Consolidated
Financial Data.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income 35,453 176,022 73,819 42,109 32,643
Plus:
Depreciation and amortization 32,527 28,758 28,551 27,612 26,216
Deferred taxes 11,898 52,829 18,757 6,754 16,674
(Income) loss from discontinued operations -- 4,528 (44,461) (4,253) 14,600
Less:
Gain on sale of discontinued operations -- (88,641) -- -- --
Gain on condemnation sales -- (97,391) -- -- --
Cumulative effect of accounting -- -- -- -- --
adjustment -- -- -- -- 20,518)
Gain on sales of other assets (4,417) (3,423) (2,674) (13,895) (1,146)
------------------------------------------------------
EBDDT - Gross 75,460 72,682 73,992 58,327 68,469
======================================================
Less 46% minority interest of FECI
Depreciation (11,085) (10,813) (10,254) (10,004) (9,354)
Deferred taxes (47) (70) (1,328) (3,255) (2,601)
------------------------------------------------------
EBDDT - Net 64,328 61,799 62,410 45,068 56,514
======================================================
Income from continuing operations
before income taxes and minority
interest 94,374 189,028 66,087 85,129 67,294
Add back:
Depreciation and amortization 32,527 28,758 28,551 27,612 26,216
Interest expense 389 600 2,235 1,982 1,644
Less:
Gain on sales of other assets (4,417) (3,423) (2,674) (13,895) (1,146)
Condemnation sales (97,391)
------------------------------------------------------
EBITDA - Gross 122,872 117,572 94,199 100,828 94,008
======================================================
Less 46% minority interest of FECI
Income before income taxes (28,960) (22,134) (19,574) (25,609) (17,591)
Depreciation and amortization (11,085) (10,813) (10,254) (10,004) (9,354)
Interest expense (179) (276) (1,028) (912) (756)
Gain on sales of other assets 795 1,346 589 1,857 246
------------------------------------------------------
EBITDA - Net 83,443 85,695 63,931 66,161 66,553
======================================================
</TABLE>
