<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number 1-10466
The St. Joe Company
(Exact name of registrant as specified in its charter)
Florida 59-0432511
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 400, 1650 Prudential Drive, Jacksonville, Florida 32207
(Address of principal executive offices) (Zip Code)
(904) 396-6600
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(D) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of June 30, 1999, there were 87,645,021 shares of common stock, no par
value, issued and outstanding, with an additional 4,152,790 shares issued and
held in treasury.
<PAGE> 2
THE ST. JOE COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I Financial Information:
Consolidated Balance Sheets-
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income -
Three months and six months ended 4
June 30, 1999 and 1998
Consolidated Statements of Cash Flows-
Six months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 10
PART II Other Information
Exhibits and Reports on Form 8-K 18
</TABLE>
2
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THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash & cash equivalents $ 204,002 $ 39,108
Short-term investments 65,132 65,285
Accounts receivable 34,022 38,691
Inventory 7,566 11,006
Other assets 13,673 13,234
----------- -----------
Total current assets 324,395 167,324
Investments & other assets:
Marketable securities 162,211 201,002
Investment in unconsolidated affiliates 68,640 70,235
Prepaid pension asset 59,006 53,683
Goodwill 127,052 123,389
Other assets 10,949 9,301
Net assets of discontinued operations 24,187 72,318
----------- -----------
Total investment and other assets 452,045 529,928
Investment in real estate 630,609 548,101
Property, plant & equipment, net 373,099 358,916
----------- -----------
Total assets $ 1,780,148 $ 1,604,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,435 $ 26,497
Accrued liabilities 55,165 41,961
Current portion of long-term debt 102,218 24,953
----------- -----------
Total current liabilities 187,818 93,411
Reserves and other liabilities 21,518 11,946
Deferred income taxes 297,742 289,359
Long-term debt 9,943 9,947
----------- -----------
Total liabilities 517,021 404,663
Minority interest in consolidated subsidiaries 323,893 316,309
Stockholders' equity:
Common stock, no par value; 180,000,000 shares
authorized; 91,797,811 and 91,697,811 shares
issued, respectively -- --
Additional paid-in capital 15,428 13,054
Accumulated other comprehensive income 91,072 88,200
Retained earnings 930,276 839,227
Restricted stock deferred compensation (4,218) (2,604)
Treasury stock, 4,152,790 and 2,543,590 shares,
respectively, at cost (93,324) (54,580)
----------- -----------
Total stockholders' equity 939,234 883,297
----------- -----------
Total liabilities and stockholders' equity $ 1,780,148 $ 1,604,269
=========== ===========
</TABLE>
3
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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------------------- -------------------------
1999 1998 1999 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Total revenues $ 170,131 $ 75,406 $ 352,116 $145,362
------------------------- -------------------------
Expenses:
Operating expenses 141,444 48,677 285,524 98,123
Corporate expense, net 4,416 2,657 7,028 5,392
Depreciation and amortization 10,992 8,811 22,105 17,328
------------------------- -------------------------
Total expenses 156,852 60,145 314,657 120,843
------------------------- -------------------------
Operating profit 13,279 15,261 37,459 24,519
------------------------- -------------------------
Other income:
Investment income 3,347 6,082 6,403 11,899
Other, net 1,294 2,147 3,302 4,448
------------------------- -------------------------
Total other income 4,641 8,229 9,705 16,347
------------------------- -------------------------
Income from continuing operations before income taxes
and minority interest 17,920 23,490 47,164 40,866
Income tax expense, (benefit) (19,713) 10,034 (7,314) 17,990
Minority interest 1,756 5,001 9,067 8,766
------------------------- -------------------------
Income from continuing operations 35,877 8,455 45,411 14,110
Income from discontinued operations:
Earnings from discontinued operations, net of income
taxes of $1,803, $(256), $2,891 and $870, respectively 2,874 (407) 4,604 1,420
Gain on sale of discontinued operations, net of income
taxes of $29,031 -- -- 42,800 0
------------------------- -------------------------
Net income $ 38,751 $ 8,048 $ 92,815 $ 15,530
========================= =========================
EARNINGS PER SHARE
Basic:
Income from continuing operations $ 0.41 $ 0.09 $ 0.51 0.15
Earnings from discontinued operations 0.03 -- 0.05 0.02
Gain on sale of discontinued operations -- -- 0.49 --
------------------------- -------------------------
Net income $ 0.44 $ 0.09 $ 1.05 $ 0.17
========================= =========================
Diluted:
Income from continuing operations $ 0.40 $ 0.09 $ 0.51 0.15
Earnings from discontinued operations 0.03 -- 0.05 0.02
Gain on sale of discontinued operations -- -- 0.48 --
------------------------- -------------------------
Net income $ 0.43 $ 0.09 $ 1.04 $ 0.17
========================= =========================
</TABLE>
4
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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Ended June 30
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 92,815 $ 15,530
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 22,105 16,709
Minority interest 9,067 8,766
Deferred income tax (benefit) expense (23,494) 5,717
Equity in (earnings) loss of unconsolidated affiliates (8,530) 65
Gain on sales of investment properties (23,292) (532)
Gain on sales of investments and other assets (1,233) (3,017)
Gain on sale of discontinued operations, net of taxes (42,800) --
Purchases and sales of trading investments, net (11,854) --
Changes in operating assets and liabilities:
Accounts receivable 5,787 4,467
Inventory 3,840 857
Prepaid pension and other assets (8,662) (7,625)
Accounts payable, accrued liabilities, reserves and
other liabilities (1,778) 10,851
Discontinued operations operating activities 3,638 3,092
--------- ---------
Net cash provided by operating activities 15,609 54,880
Cash flows from investing activities:
Purchases of property, plant and equipment and real estate (158,182) (50,110)
Purchases of available-for-sale investments (39,858) (382,366)
Investments in unconsolidated affiliates and acquisitions (22,264) (18,377)
Proceeds from sale of discontinued operations, net 150,682 --
Maturities and redemptions of available-for-sale investments 95,679 310,238
Proceeds from sales of investment properties 74,454 1,240
Distributions from unconsolidated affiliates 16,975 --
--------- ---------
Net cash provided by (used in) investing activities 117,486 (139,375)
Cash flows from financing activities:
Proceeds from borrowings, net of repayments 73,144 --
Dividends paid to stockholders (1,765) (3,668)
Dividends paid to minority interest (836) (835)
Purchase of treasury stock (38,744) --
--------- ---------
Net cash provided by (used in) financing activities 31,799 (4,503)
Net increase (decrease) in cash and cash equivalents 164,894 (88,998)
Cash and cash equivalents at beginning of period 39,108 158,568
--------- ---------
Cash and cash equivalents at end of period $ 204,002 $ 69,570
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 1,674 $ 143
========= =========
Income taxes paid $ 18,867 $ 8,447
========= =========
</TABLE>
5
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THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly,
certain information and footnotes required by generally accepted accounting
principles for complete financial statements are not included herein. The
interim statements should be read in conjunction with the financial statements
and notes thereto included in the Company's latest Annual Report on Form 10-K.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position as of June 30, 1999 and the results of operations and cash
flows for the six-month periods ended June 30, 1999 and 1998. The results of
operations for the three-month and six-month periods ended June 30, 1999 and
1998 are not necessarily indicative of the results that may be expected for the
full year. Certain reclassifications of 1998 amounts have been made to be
consistent with current year reporting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share
Earnings per share ("EPS") are based on the weighted average number of
common shares outstanding during the period. Diluted EPS assumes options to
purchase shares of common stock have been exercised using the treasury stock
method. In August 1998, the Company's Board of Directors authorized $150
million for the repurchase of the Company's outstanding common stock on the
open market. As of June 30, 1999, the Company had repurchased 4,152,790 shares.
Weighted average basic and diluted shares, taking into consideration the
options used in calculating EPS and shares repurchased for each of the periods
presented are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic 87,921,540 91,697,811 88,232,633 91,697,811
Diluted 89,054,056 93,404,656 89,166,208 93,575,633
</TABLE>
Comprehensive Income
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income", effective January 1, 1998. This Statement establishes
standards for reporting and display of comprehensive income and its components.
The Company's comprehensive income differs from net income due to changes in
the net unrealized gains on investment securities available-for-sale. For the
six months ended June 30, 1999 and 1998, total comprehensive income was $95.7
million and $30.6 million, respectively.
3. DISCONTINUED OPERATIONS
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 Talisman Sugar Corporation ("Talisman"), a wholly-owned subsidiary of the
Company, owns or leases for $133.5 million in cash. Talisman retained the right
to farm the land through the 2003 crop year. In December 1998, that sale was
closed in escrow pending the resolution of a lawsuit filed in Federal District
Court in Washington, D.C. seeking to invalidate the sale. On March 25, 1999,
Talisman entered into an Exchange Agreement ("The Exchange Agreement") with The
South Florida Water Management District; United States Sugar Corporation;
Okeelanta Corporation; South Florida Industries, Inc.; Florida Crystals
Corporation; Sugar Cane Growers Cooperative of Florida (collectively the "Sugar
Companies"); The United States Department of Interior; and The Nature
Conservancy. The Agreement allows Talisman to exit the sugar business. Talisman
assigned its right to farm the land to the Sugar Companies. In return, the
lawsuit was dismissed and the other parties agreed to pay Talisman $19 million.
6
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Talisman retains ownership of the sugar mill and has entered into an
agreement with a third party for the sale of the mill. Net proceeds of the sale
of the mill are not expected to be material. Talisman is also responsible for
the cleanup of the mill site and is obligated to complete certain defined
environmental remediation (the "Remediation"). Approximately $5 million of the
purchase price will be held in escrow pending the completion of the
Remediation. Talisman must use these funds to pay the costs of the Remediation.
Based upon the current environmental studies, Talisman does not believe the
costs of the Remediation will exceed the amount held in escrow. Talisman will
receive any remaining funds when the Remediation is complete. In the event
other environmental matters are discovered, the Sugar Companies will be
responsible for the first $.5 million of the cleanup. Talisman will be
responsible for the next $4.5 million, thereafter the parties shall share the
costs equally. In addition, approximately $1.7 million is being held in escrow,
representing the value of land subject to the Remediation. As Talisman
completes the cleanup of a particular parcel, an amount equal to the land value
on that parcel will be released from escrow. The Company recognized $42.8
million in gain, net of taxes, on the combined sale of the land and farming
rights. Included in current and noncurrent liabilities are $15.0 million of
reserves for severance costs, environmental issues and closing costs related to
the transaction.
The Company has reported its sugar operations as discontinued operations
for all periods presented. Revenues from Talisman were $ 21.2 million and $1.4
million for the three months ended June 30, 1999 and 1998, respectively and
$38.4 million and $26.7 million for the six months ended June 30, 1999 and
1998. Net income (loss) for Talisman, excluding the gain on sale of the land
and farming rights, was $2.9 million and $(.4) million for the three months
ended June 30, 1999 and 1998, respectively and $4.6 million and $1.4 million
for the six months ended June 30, 1999 and 1998, respectively.
4. BORROWINGS
Borrowings consisted of the following: (In millions)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Revolving line-of-credit, secured by marketable securities $ 59.5 $ --
------------- -----------------
Revolving line-of-credit, unsecured 12.0
------------- -----------------
Notes payable to former owners of businesses acquired 17.0 17.0
------------- -----------------
Revolving credit agreement, secured by restricted
short-term investments 19.0 17.0
------------- -----------------
Various secured and unsecured notes payable 5.4 2.1
------------- -----------------
Less: discounts on non-interest bearing notes payable (.7) (1.2)
------------- -----------------
Net borrowings 112.2 34.9
------------- -----------------
Less: current portion 102.3 25.0
------------- -----------------
Total long-term debt $ 9.9 $ 9.9
------------- -----------------
</TABLE>
In March 1999, the Company entered into a revolving line-of-credit for up
to $65.0 million secured by certain marketable securities. The agreement was
amended in June, 1999 to increase the line to $122.0 million. The line matures
in January of 2000 and bears interest at LIBOR plus 50 basis points.
In February 1999, the Company entered into an unsecured line-of-credit for
up to $35.0 million, which was amended and increased to $75.0 million in May,
1999. The line-of-credit matures in February 2000 and bears interest at LIBOR
plus 75 basis points. Under the terms of the revolving note agreement, the
Company must maintain a ratio of total liabilities to stockholders' equity of
not more than 1.0 to 1.0.
5. SEGMENT INFORMATION
The Company conducts primarily all of its business in five reportable
operating segments, which are residential real estate services, community
residential real estate, commercial real estate, forestry and transportation.
The "other" primarily consists of investment income, net of corporate general
and administrative expenses. Also, included in "other" is an investment in an
unconsolidated affiliate that was previously classified in the leisure and
resort segment. The Company's leisure and resort operations are no longer
considered a separate business unit of the Company. Intercompany transactions
have been eliminated. The Company evaluates a segment's performance based on
EBITDA. EBITDA is defined as earnings before interest expense, income taxes,
depreciation and amortization, and is net of the effects of
7
<PAGE> 8
minority interests. EBITDA also excludes gains from discontinued operations and
gains (losses) on sales of nonoperating assets. EBITDA is considered a key
financial measurement in the industries that the Company operates. The
Company's reportable segments are strategic business units that offer different
products and services. They are each managed separately and decisions about
allocations of resources are determined by management based on these strategic
business units.
Information by business segment follows: (In millions)
<TABLE>
<CAPTION>
Three months Six months
------------ ----------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total Revenues:
Residential real estate services $ 55.7 $ -- $ 97.1 $ --
Community residential real estate 28.9 .8 34.8 1.2
Commercial real estate 27.4 11.0 108.4 20.7
Forestry 7.1 9.1 14.1 19.7
Transportation 51.4 54.4 99.3 103.7
Other (.4) .1 (1.6) .1
------- ------- ------- -------
Total revenues $ 170.1 75.4 $ 352.1 $ 145.4
EBITDA:
Residential real estate services $ 4.9 $ -- $ 5.1 $ --
Community residential real estate 9.4 (.8) 11.0 (1.7)
Commercial real estate 4.1 3.8 18.2 6.0
Forestry 3.4 4.0 6.7 8.9
Transportation 2.8 9.6 9.4 17.3
Other (1.3) 4.4 (1.9) 6.8
------- ------- ------- -------
EBITDA $ 23.3 $ 21.0 $ 48.5 $ 37.3
Adjustments to reconcile to income from continuing operations:
Depreciation and amortization (11.0) (8.8) (22.1)
(17.3)
Other income (expense) .2 .2 .3 .7
Interest expense (benefit) (1.1) -- (1.3) (.1)
Income tax (expense) income 19.7 (10.0) 7.3 (18.0)
Minority interest 4.8 6.1 12.7 11.5
------- ------- ------- -------
Income from continuing operations $ 35.9 $ 8.5 $ 45.4 $ 14.1
</TABLE>
There was no material change in any segment's total assets except as it
relates to the sale of discontinued operations, see note 3.
6. INCOME TAXES
In light of recent events, including several acquisitions, which have
significantly increased the number of participants in the Company's pension
plan, along with plan modifications and the Company's growth strategy,
management has reevaluated how the pension plan surplus can be utilized.
Management believes it is now probable that the Company will utilize the
pension surplus over time without incurring the 50% excise tax. Therefore, the
Company has reversed the deferred tax liability related to the 50% excise tax
amounting to $26.8 million as a deferred income tax benefit in its current
quarter operations. Income taxes on the change in pension surplus will be
recorded at the statutory rate in future periods.
7. CONTINGENCIES
The Company and its affiliates 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,
results of operations or liquidity.
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 guarantor on three credit obligations entered into by
partnerships in which the Company has equity interests. The maximum amount of
the guaranteed debt totals $99.4 million; the amount outstanding at June 30,
1999 totaled $66.2 million.
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
8
<PAGE> 9
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 $5.0 million by the Company.
The Company also agreed to reimburse up to $1.0 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.
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 consolidated 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
$10.7 million and $7.3 million as of June 30, 1999 and December 31, 1998,
respectively.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q, including "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 includes,
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 that 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 herein in the section entitled "Year 2000 Compliance".
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.
OVERVIEW
The St Joe Company (herein referred to as "St. Joe" or the "Company") is a
diversified company engaged in the real estate, forestry and transportation
industries. During the fourth quarter of 1998, the Company began treating its
sugar operations as a discontinued operation for accounting purposes.
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.
DISCONTINUED OPERATIONS
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 Talisman Sugar Corporation ("Talisman"), a wholly owned subsidiary of St.
Joe, owns or leases for $133.5 million in cash. Talisman retained the right to
farm the land through the 2003 crop year. In December 1998, that sale was
closed in escrow pending the resolution of a lawsuit filed in Federal District
Court in Washington, D.C. seeking to invalidate the sale. On March 25, 1999,
Talisman entered into an Exchange Agreement ("The Exchange Agreement") with The
South Florida
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<PAGE> 11
Water Management District; United States Sugar Corporation; Okeelanta
Corporation; South Florida Industries, Inc.; Florida Crystals Corporation;
Sugar Cane Growers Cooperative of Florida (collectively the "Sugar Companies");
The United States Department of Interior; and The Nature Conservancy. The
Agreement allows Talisman to exit the sugar business. Talisman assigned its
right to farm the land to the Sugar Companies. In return, the lawsuit was
dismissed and the other parties agreed to pay Talisman $19.0 million.
Talisman retains ownership of the sugar mill and has entered into an
agreement with a third party for the sale of the mill. Net proceeds of the sale
of the mill are not expected to be material. Talisman is also responsible for
the cleanup of the mill site and is obligated to complete certain defined
environmental remediation (the "Remediation"). Approximately $5.0 million of
the purchase price will be held in escrow pending the completion of the
Remediation. Talisman must use its funds to pay the costs of the Remediation.
Based upon the current environmental studies, Talisman does not believe the
costs of the Remediation will exceed the amount held in escrow. Talisman will
receive any remaining funds when the Remediation is complete. In the event
other environmental matters are discovered, the Sugar Companies will be
responsible for the first $0.5 million of the cleanup. Talisman will be
responsible for the next $4.5 million, thereafter the parties shall share the
costs equally.
In addition, approximately $1.7 million is being held in escrow,
representing the value of land subject to the Remediation. As Talisman
completes the cleanup of a particular parcel, an amount equal to the land value
on that parcel will be released from escrow.
The Company recognized $71.8 million in gain ($42.8 million, net of
taxes), on the combined sale of the land and farming rights.
RECENT EVENTS
In July, 1999 the Company sold 13,275 acres of timberland for
approximately $9.9 million. However, pending improved timberland market
conditions and an evaluation of potential new markets, the Company has
suspended the auction process of an additional 86,000 acres previously
announced. Market conditions have weakened largely due to mill closures, low
pulp prices and competitive sales efforts by other parties on three million
acres of timberland in the region.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
THREE MONTHS ENDED JUNE 30
Total revenues increased $94.7 million, or 126%, to $170.1 million for the
second quarter of 1999 as compared to $75.4 million in the second quarter of
1998. The residential real estate services segment contributed $55.7 million in
revenues as a result of the July 1998 acquisition of Arvida Realty Services
("ARS"). The community residential real estate segment recorded $28.9 million
in revenues; an increase of $28.1 million during the second quarter of 1999 as
a result of sales of lots at the Retreat in west Florida. The commercial real
estate segment also reported an increase in revenue of $16.4 million to $27.4
million, primarily from the Advantis service businesses. The forestry segment
reported revenues of $7.1 million, a decrease of $2.0 million during the second
quarter of 1999 as compared to the second quarter of 1998. The transportation
segment contributed $51.4 million in revenues, a decrease of $3.0 million
resulting principally from a $3.0 million fiber optic gain recorded in the
second quarter of 1998. Losses of $.4 million were recorded on an investment in
an unconsolidated affiliate which are not attributable to a particular segment.
Operating expenses totaled approximately $141.4 million, an increase of
$92.7 million, or 190%, for the second quarter of 1999 as compared to $48.7
million for the second quarter of 1998. The residential real estate services
contributed $51.1 million in costs as a result of the ARS acquisition. The
community residential real estate segment recorded $19.4 million in operating
expenses, an increase of $17.4 million during the second quarter of 1999
primarily due to the acquisition of Saussy Burbank. The commercial real estate
segment also reported an increase in operating expenses of $15.4 million to
$20.2 million, as a result of expenses associated with the Advantis service
businesses. The forestry segment reported operating expenses of $4.5 million, a
decrease of $.9 million during the second quarter of 1999 as compared to the
11
<PAGE> 12
second quarter of 1998. The transportation segment costs were $46.3 million, an
increase of $9.9 million primarily relating to one-time charges incurred this
quarter.
Corporate expense increased 63% from $2.7 million to $4.4 million,
primarily due to increased overhead and potential acquisition costs. Corporate
expense included prepaid pension income of $2.7, an increase of $0.3 for the
second quarter of 1999 as compared to the second quarter of 1998.
Depreciation and amortization totaled $11.0 million, an increase of $2.2
million, or 25% , primarily due to additional goodwill amortization related to
the acquisitions of ARS and the Advantis businesses.
Other income (expense) decreased $3.6 million, or 44% in the second
quarter due to substantially lower interest income. As a result of recent
acquisitions and the utilization of cash to continue the repurchase of the
Company's outstanding common stock, average balances of invested cash were
substantially lower in the second quarter of 1999.
Income tax expense (benefit) on continuing operations totaled ($19.7)
million for the second quarter of 1999 as compared to $10.0 million for the
second quarter of 1998. During the second quarter of this year, the Company
recorded a $26.8 million deferred income tax benefit related to the excise tax
on its pension surplus. In 1996, the Company sold the majority of its paper
operations, which resulted in a substantial reduction in employees. Management,
at the time, determined that the over-funded status of the pension plans would
probably not be realized other than by a plan termination and reversion of
assets. Since 1996, the Company has recorded deferred income tax expense on its
pension surplus at the statutory rate plus a 50% excise tax that would be
imposed if the company were to liquidate its pension plans and revert the
assets back to the Company. In light of recent events, including several
acquisitions, which have significantly increased the number of participants in
the pension plan, along with plan modifications and the Company's growth
strategy, management has reevaluated how the pension plan surplus can be
utilized. Management believes it is now probable that the Company will utilize
the pension surplus over time without incurring the 50% excise tax. Therefore,
the Company has reversed the deferred tax liability related to the 50% excise
tax amounting to $26.8 million as a deferred income tax benefit in its current
quarter operations. Income taxes on the change in pension surplus will be
recorded at the statutory rate in future periods.
The effective tax rate for the second quarter of 1999, excluding the $26.8
million reversal was 40%, as compared to 38% for 1998, excluding the effects of
the excise tax.
Income from discontinued operations, net of tax, related to the run-off of
the sugar business totaled $2.9 million for the second quarter of 1999 as
compared to $(.4) million in the second quarter of 1998.
Net income for the second quarter of 1999 was $38.7 million or $0.43 per
diluted share as compared to $8.0 million or $0.09 per diluted share for the
second quarter of 1998. Excluding the FECI special charges of $8.2 million
($2.8 million, net of tax and minority interest), and the $26.8 million
deferred income tax benefit related to the pension surplus excise tax , net
income for the second quarter of 1999 would have been $14.7 million, or $0.17
per diluted share.
SIX MONTHS ENDED JUNE 30
Total revenues increased $206.7 million, or 142%, to $352.1 million for
the six months of 1999 as compared to $145.4 million in the first six months of
1998. The residential real estate services contributed $97.1 million in
revenues. The community residential real estate segment recorded $34.8 million
in revenues; an increase of $33.6 million during the first six months of 1999
as a result of sales of lots at the Retreat in west Florida and equity in
earnings in unconsolidated affiliates. The commercial real estate segment also
reported an increase in revenue of $87.7 million to $108.4 million, primarily
related to the sale of two industrial parks located in south Florida in the
first quarter of 1999, and from the Advantis service businesses. The forestry
segment reported revenues of $14.1 million, a decrease of $5.6 million during
1999 as compared to 1998. The transportation segment contributed $99.3 million
in revenues, a decrease of $4.4 million resulting from a $3.0 million fiber
optic gain recorded in the second quarter of 1998. Losses of $1.6 million were
recorded on an investment in an unconsolidated affiliate which are not
attributable to a particular segment.
12
<PAGE> 13
Operating expenses totaled approximately $285.5 million, an increase of
$187.4 million, or 191%, for the first six months of 1999 as compared to $98.1
million for the fist six months of 1998. Residential real estate services costs
were $92.6 million as a result of the ARS acquisition. The community
residential real estate segment recorded $24.1 million in operating expenses,
an increase of $20.7 million during 1999. The commercial real estate segment
also reported an increase in operating expenses of $68.5 million to $78.4
million, as a result of cost of sales of the two industrial parks located in
south Florida and expenses associated with the Advantis service businesses. The
forestry segment reported operating expenses of $8.7 million, a decrease of
$2.9 million during 1999 as compared to 1998. The transportation segment costs
were $81.7 million, an increase of $8.3 million primarily relating to one-time
charges totaling $8.2 million incurred this quarter.
Corporate expense increased 30% from $5.4 million to $7.0 million,
primarily associated with increased overhead, and legal and consulting fees
related to potential acquisitions and other deal pursuit costs. Corporate
expense included prepaid pension income of $5.3, an increase of $0.6 for 1999
as compared to 1998.
Depreciation and amortization totaled $22.1 million, an increase of $4.8
million, or 28%, primarily due to additional goodwill amortization related to
the acquisitions of ARS and the Advantis businesses and increased depreciation
on buildings placed into service since last year.
Other income (expense) decreased $6.6 million, or 40% in 1999 due to
substantially lower interest income. As a result of recent acquisitions and the
utilization of cash to continue the repurchase of the Company's outstanding
common stock, average balances of invested cash were substantially lower in
1999.
Income tax expense (income) on continuing operations totaled ($7.3)
million for the 1999 as compared to $18.0 million for 1998. Excluding the $26.8
million deferred income tax benefit previously discussed, income tax expense
for the six months of 1999 would have been $19.5 million for an effective rate
of 41% as compared to an effective tax rate of 38% in 1998, excluding the
excise tax effect.
Income from discontinued operations includes the $42.8 million gain, net
of tax, on the sale of Talisman's land and farming rights which occurred in the
first quarter of 1999. Net earnings from discontinued operations totaled $4.6
million for 1999 as compared to $1.4 million in 1998.
Net income for the six months of 1999 was $92.8 million or $1.04 per
diluted share as compared to $15.5 million or $0.17 per diluted share for 1998.
Excluding the FECI special charges of $8.2 million ($2.8 million, net of tax
and minority interest), the $26.8 million deferred income tax benefit related
to the pension surplus excise tax, and the $71.8 million ($42.8 net of tax)
gain on sale of discontinued operations, net income for 1999 would have been
$26.0 million, or $0.29 per diluted share.
RESIDENTIAL REAL ESTATE SERVICES
<TABLE>
<CAPTION>
(In Millions)
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1999 1998 1999 1998
------- ---- ------- ----
<S> <C> <C> <C> <C>
Revenues $ 55.7 -- $ 97.1 --
Operating expenses 51.1 -- 92.6 --
Depreciation and amortization 1.3 -- 2.6 --
Other income (expense) .2 -- .2 --
Pretax income from continuing operations 3.5 -- 2.1 --
EBITDA 4.9 5.1 --
</TABLE>
On July 31, 1998, the Company completed the acquisition of its residential
real estate services company, ARS. ARS provides a complete array of real estate
brokerage services, including residential real estate sales, relocation and
referral, asset management, mortgage and title services, annual and seasonal
rentals and international real estate marketing. The operations of ARS are
seasonal with the volume of transactions increasing in the spring and summer
due to housing relocations.
13
<PAGE> 14
THREE MONTHS ENDED JUNE 30
Realty brokerage revenues in the second quarter of 1999 were attributable
to 8,730 closed units representing $1.6 billion of sales volume. The average
home sales price for the second quarter of 1999 increased to $185,000 as
compared to $177,000 for the same period in 1998.
Operating expenses of $51.1 million represent commissions paid on real
estate transactions, underwriting fees on title policies and administrative
expenses of the ARS operations.
SIX MONTHS ENDED JUNE 30
In the first six months of 1999, ARS closed 15,049 units representing
a sales volume of $2.7 billion. Average home sales price was $186,000.
Operating expenses for the first six months of 1999 included $2.2 million of
conversion expenses related to the operation's name change from Prudential
Florida Realty to ARS.
COMMUNITY RESIDENTIAL REAL ESTATE
<TABLE>
<CAPTION>
(In Millions)
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 28.9 $ .8 $ 34.8 $ 1.2
Operating expenses 19.4 2.0 24.1 3.4
Depreciation and amortization (.8) -- (.8) --
Other income (expense) (.1) -- (.1) --
Pretax income from continuing operations 10.2 (1.2) 11.4 (2.2)
EBITDA 9.4 (.8) 11.0 (1.7)
</TABLE>
The Company's community residential real estate operations currently
consist of community development through its 74% ownership of St. Joe/Arvida
Company, L.P. and its 26% equity interest in Arvida/JMB Partners, L.P.
("Arvida/JMB"). The investment in Arvida/JMB occurred in late December 1998.
Arvida/JMB is recorded on the equity method of accounting for investments.
Arvida currently is managing a total of 23 communities in various stages
of planning and development.
In April 1999, the Company acquired all outstanding stock of Saussy
Burbank, Inc. ("Saussy Burbank"), a homebuilder located in Charlotte, North
Carolina, for $14.6 million in cash. Saussy Burbank builds approximately 300
homes a year and has operations in the greater Charlotte, Raleigh and Asheville
market areas. Saussy Burbank's operations are included in community residential
real estate operations since acquisition.
THREE MONTHS ENDED JUNE 30
During this quarter 32 lots at The Retreat in Walton County, Florida
closed representing EBITDA of $8.9 million. Revenues from these sales totaled
$11.5 million with an average lot price of $359,000. This beach club resort
community includes 90 single-family housing units on 76 acres. The remaining
lots will be sold during the third and fourth quarters of this year. Other
sales this quarter included housing and lots in the Summerwood, Woodrun, and
Camp Creek Point developments in west Florida totaling in the aggregate $2.5
million and James Island, in northeast Florida totaling $.3 million. Related
cost of sales totaled $1.8 million. Saussy Burbank contributed revenues from
homebuilding totaling $11.4 million with related cost of sales of $10.6
million. Other revenues from management fees and rental income totaled $.3
million.
Equity in earnings of Arvida/JMB and other unconsolidated affiliates
totaled $2.9 million this quarter. There was no equity in earnings of
unconsolidated affiliates in 1998.
Other operating expenses related to the increased level of activity for
project and general administration as well as marketing totaled $4.4 million in
the second quarter of 1999 compared to $1.7 million in 1998.
14
<PAGE> 15
Last year's revenue for the quarter of $.8 million were from Summerwood
and Woods III lot sales with cost of sales of $.3 million.
SIX MONTHS ENDED JUNE 30
In addition to the Retreat sales which totaled $11.5 million, and Saussy
Burbank's revenues of $11.4 million, sales year to date included housing and
lot sales in the Summerwood, Deerwood, Woodrun and Camp Creek Point
developments in west Florida totaling $4.4 million. Other revenues for the six
months of 1999 were generated by the Company's equity in earnings of Arvida/JMB
and other affiliates totaling $7.0 million. The Company also had revenues of
$0.5 million from management fees and rental income during 1999. Revenues in
1998 were from real estate lot sales and management fees totaling $1.2 million
with cost of sales of $.3 million.
Total cost of sales related to west Florida activity, including the Retreat
totaled $5.1 million resulting in net EBITDA of $10.7 million. Cost of sales
related to Saussy Burbank totaled $10.6 million with a net EBITDA of $.9
million. Other operating expenses include noncapitalizable administrative costs,
deal pursuit costs, and predevelopment costs related to the Company's increased
activity which totaled $8.4 million in 1999 as compared to $3.1 million in 1998.
COMMERCIAL REAL ESTATE
<TABLE>
<CAPTION>
(In Millions)
Three Months Ended Six months ended
June 30, June 30,
-------------------- -------------------
1999 1998 1999 1998
------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ 27.4 11.0 108.4 20.7
Operating expenses 20.2 4.8 78.4 9.9
Depreciation and amortization 4.2 2.8 7.9 5.5
Other income (expense) .1 .1 .1 .1
Pretax income from continuing operations 3.1 3.5 22.2 5.4
EBITDA 4.1 3.8 18.2 6.0
</TABLE>
Operations of the commercial real estate segment include the development
of St. Joe properties, development and management of the Gran Central
Corporation ("Gran Central") real estate portfolio, the Advantis service
businesses and investments in affiliates to develop properties throughout the
southeast. The Company owns 54% of Florida East Coast Industries, Inc. ("FECI")
and Gran Central is the wholly owned real estate subsidiary of FECI.
In September 1998, the Company acquired Goodman, Segar, Hogan, Hoffler,
L.P. and in December 1998, the Company acquired the assets of Florida Real
Estate Advisors, Inc. These commercial real estate services businesses have
been combined and are doing business under the name Advantis.
THREE MONTHS ENDED JUNE 30
In the second quarter of 1999, rental revenues increased to $12.6 million,
from $10.8 million in the second quarter of 1998, a 17% improvement. The
increase in rental revenue was primarily comprised of increases on same store
properties totaling $1.6 million, of which $.5 million was caused by increased
rental rates and $1.1 million was caused by increases in occupancy. Occupancy
on same-store properties rose from 83% on June 30, 1998 to 90% at the end of
the quarter. Rental revenues increased $.4 million due to new buildings placed
in service since the second quarter of 1998. Increases in miscellaneous rental
revenues and rents recoverable from tenants totaled $.7 million. Offsetting
these increases were net revenues lost from sold buildings of $1.2 million.
Advantis contributed $13.7 million of brokerage, property management and
construction revenues for the first quarter of 1999. Advantis brokered over 400
leasing and investment sales transactions valued at $266 million during the
quarter and managed a portfolio of properties with approximately 30 million
square feet of space.
15
<PAGE> 16
Other revenues of $1.1 million were generated from management fees as
compared to $.2 million in 1998.
Operating expenses in the commercial real estate segment increased $15.4
million resulting from a $.2 million increase in costs related to operating
properties and the addition of Advantis expenses of $13.4 million. Advantis
expenses include commissions paid to brokers, property management expenses and
construction costs. Advantis costs this quarter included $.5 million of
expenditures for the rollout of the new Advantis name. Other operating expenses
related to asset management and administrative expenses totaled $1.8 million
primarily due to systems conversion and increased overhead.
Depreciation and amortization rose by $1.4 million and is attributable to
goodwill amortization as a result of the acquisitions of the Advantis
businesses.
EBITDA totaled $4.1 million for the second quarter of 1999 and was
comprised of $3.9 million from rental operations, $.4 million from Advantis and
($.2) million from unallocated commercial administrative expenses. EBITDA in
the second quarter of 1998 of $3.8 million was all derived from rental
operations.
SIX MONTHS ENDED JUNE 30
For the six months ended June 30, 1999 Gran Central sold real estate
properties for gross proceeds of $50.4 million. The majority of the revenues
were from the sale of two industrial parks, Gran Park at McCahill and Gran Park
at Lewis Terminals, which resulted in a pre-tax gain of $10.4 million ($5.6
million, net of the effect of FECI's minority interest). These south Florida
parks consisted of 10 buildings with 1.2 million square feet. As of June 30,
1999, there were 59 operating buildings with 5.5 million total rentable square
feet. Approximately 2.1 million square feet of office and industrial space is
under construction as of June 30, 1999. Additionally, approximately 1.5 million
square feet is in the predevelopment stage and the Company is expected to
commence construction on these properties during the remainder of 1999 through
2000.
The Company has investments in various real estate developments and
affiliates that are accounted for by the equity method of accounting. Earnings
from these investments contributed $3.1 million to the commercial real estate
segment's revenues during the first six months of 1999. Land sales from the
Company's investment in the Deerfield Park, L.L.C. venture resulted in earnings
to the Company of $2.8 million. There were no earnings from investments in
joint ventures in 1998.
Revenues generated from rental operations increased to $26.1 million, a
27% increase from $20.4 million in 1998, primarily from increases in same store
revenues totaling $3.9 million and new store revenues of $.8 million. Revenues
declined $.9 million due to buildings sold this year. Other increases in
miscellaneous rental revenues and recoverables accounted for $1.9 million.
Operating revenues generated from Advantis totaled $28.0 million in 1999.
Revenues from management fees totaled $.8 million in 1999.
Operating expenses in the commercial real estate segment increased
$68.5 million resulting from $39.1 million in costs of real estate sales, $26.5
million in Advantis expenses and $.8 million in increased costs related to
operating properties. Advantis expenses include commissions paid to brokers,
property management expenses and construction costs. Administrative expenses
related to asset management increased $2.1 million in 1999 from $1.9 million in
1998.
Depreciation and amortization rose by $2.4 million and is attributable to
goodwill amortization as a result of the acquisitions of the Advantis
businesses and additional depreciation on operating properties.
EBITDA totaled $18.2 million for the six months ended June 30, 1999 and
was comprised of $6.1 million from sales of real estate, $7.6 million from
rental operations, $3.0 million from earnings on investments in real estate
developments and affiliates, and $1.5 million from Advantis. EBITDA in 1998
totaled $6.0 million and was all derived from rental operations.
16
<PAGE> 17
FORESTRY
<TABLE>
<CAPTION>
(In Millions)
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 7.1 $ 9.1 $ 14.1 $ 19.7
Operating expenses 4.5 5.4 8.7 11.6
Depreciation and amortization .6 .6 1.2 1.3
Other income (expense) .8 .3 1.4 .8
Pretax income from continuing operations 2.8 3.4 5.6 7.6
EBITDA 3.4 4.0 6.7 8.9
</TABLE>
THREE MONTHS ENDED JUNE 30
Total revenues for the forestry segment decreased $2.0 million, or 22% in
the second quarter of 1999 compared to 1998 due to a reduction in timber sales.
Total sales to Florida Coast Paper Company, L.L.C. ("FCP"), the Company's major
pulpwood customer, were $5.0 million (171,000 tons) in 1999 as compared to $6.4
million (219,000 tons) in 1998. Since August of 1998 the FCP mill has been
shutdown and has filed for Chapter 11 bankruptcy protection. Under the terms
and conditions of the amended fiber supply agreement with FCP, the Company has
been redirecting the volumes of pulpwood from the FCP mill in Port St. Joe,
Florida, to another mill. Sales to other customers decreased to $2.0 million
(86,000 tons) from $2.7 million (110,000 tons) a year ago. The decrease in
sales to other customers is the result of poor market conditions. Revenues also
include bulk land sales of $0.2 million during the second quarter of 1999;
there were no bulk land sales in 1998. The average sales price of timber sold
held constant at approximately $28 per ton in comparing the second quarter of
1999 to the second quarter of 1998.
Operating expenses for the quarter decreased $.9 million, or 17% compared
to 1998 due to reduced harvest volumes. Cost of sales as a percentage of sales
were lower in 1998 as compared to 1999 because the lump sum bid timber sales in
1998 caused increased sales of wood without cut and haul expenses.
Other income for the second quarter of 1999 increased $0.5 million due to
hunting lease income.
SIX MONTHS ENDED JUNE 30
Total revenues for the six months ended June 30, 1999 decreased $5.6
million, or 28%, compared to the first six months of 1998. Sales to FCP were
$9.3 million (311,000 tons) in 1999 as compared to $12.7 million (444,000 tons)
in 1998. Sales to other customers decreased to $4.5 million (194,000 tons) in
1999 from $7.0 million (260,000 tons) in 1998. In 1998, the Company conducted
several lump sum bid timber sales to take advantage of favorable market
conditions, which is not the case this year. Revenues in 1999 include bulk land
sales of $.3 million; there were no bulk land sales in 1998.
Operating expenses for the first six months of 1999 decreased $2.9
million, or 25%, as compared to the first six months of 1998 due to the lower
harvest volumes. Cost of sales as a percentage of sales was lower in 1998 due
to the lump sum timber sales in 1998, which do not incur cut and haul charges.
Other income increased $.6 million, or 75%, from 1998, caused primarily by
hunting lease income produced this year.
TRANSPORTATION
<TABLE>
<CAPTION>
(In Millions)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 51.4 $ 54.4 $ 99.3 $ 103.7
Operating expenses 46.3 36.4 81.7 73.4
Depreciation and amortization 4.9 4.6 9.7 9.1
Other income (expense) .2 .2 .2 .4
Pretax income from continuing operations .4 13.6 8.1 21.6
EBITDA 2.8 9.6 9.4 17.3
</TABLE>
17
<PAGE> 18
THREE MONTHS ENDED JUNE 30
Total Florida East Coast Railway ("FEC") transportation operating revenues
decreased $1.7 million, or 3%, to $49.6 million for the second quarter of 1999
as compared to $51.3 million in the second quarter of 1998. During the second
quarter of 1998, FEC recognized income of approximately $3.0 million in
connection with a nonmonetary exchange transaction whereby FEC received fiber
optic cable rights. Railway revenues remained strong due to the robust Florida
economy with increases in all categories of traffic except for intermodal.
Aggregate traffic increased 6%, automotive traffic increased by 10%, and all
other carload traffic increased 24% in the second quarter of 1999, as compared
to the same period for 1998. Intermodal traffic declined 14% which is
attributable to a decision by one of FEC's connecting carriers to stop
marketing intermodal service to certain terminals.
Apalachicola Northern Railroad Company ("ANRR") operating revenues were
$1.8 million reflecting a decrease in revenues of $1.3 million, or 42%, due to
lost traffic due to the FCP mill shutdown and from lost traffic from ANRR's
largest customer, Seminole Electric Cooperative, Inc. ("Seminole") Seminole
halted shipments of coal in January 1999, and filed a lawsuit seeking to
terminate its contract with ANRR to provide transportation of coal from Port
St. Joe, Florida to Chattahoochee, Florida. ANRR has fully performed its
obligations under the contract and is prepared to complete the contract term,
which continues until November 2004 and has filed suit to enforce the contract.
ANRR's workforce has been reduced significantly, commensurate with its loss in
traffic, but the railroad intends to operate a minimal schedule sufficient to
provide service to existing customers.
FEC's operating expenses increased $9.9 million, or 27% to $46.3 million,
compared to $36.4 million in 1998. During the quarter, FECI recorded special
charges totaling approximately $8.2 million related principally to a
reorganization and workforce reduction in its railway operations. Other
operating expense increases were attributable to expenses associated with
information technology, train derailments and consulting fees. ANRR's operating
expenses decreased $0.2 million commensurate with the reduction in their
workforce and traffic.
Excluding the effects of the special charges, pre-tax income from
operations for the transportation segment would have been $8.6 million of which
$8.9 million was contributed by FEC and ($.3) million by ANRR. Net EBITDA would
have been $7.3 million for the second quarter of 1999, all of which was
attributed to FEC.
SIX MONTHS ENDED JUNE 30
FEC's transportation operating revenues decreased $1.7 million, or 1%, to
$96.4 million for the six months of 1999 as compared to $98.1 million for the
six months of 1998 due to the fiber optic income previously explained.
ANRR's operating revenues decreased $2.6 million, or 46% to $3.0 million
in 1999 from $5.6 million in 1998 reflecting a decrease in revenues of $1.3
million, or 42%, due to the lawsuit with Seminole.
FEC's operating expenses increased $8.6 million, or 12% to $78.1 million,
compared to $69.5 million in 1998. Exclusive of the special charges totaling
$8.2 million, the increase of $.4 million relates to increases in
transportation's general and administrative expenses offset partially by
decreases in fuel and personal injury expenses. ANRR's operating expenses
decreased $0.3 million commensurate with the reduction in their workforce and
traffic.
Excluding the effects of the special charges, pre-tax income from
operations for the transportation segment would have been $16.3 million, of
which $17.9 million was contributed by FEC and ($1.6) million was contributed
by ANRR. Net EBITDA would have been $14.5 million for the second quarter of
1999, all contributed by FEC.
FINANCIAL POSITION
In August 1998, the Company's Board of Directors authorized $150 million
for the repurchase of the Company's outstanding common stock on the open
market. The Board believes that the current price of the Company's common
shares does not reflect the value of the Company's assets or its future
prospects. As of June 30, 1999 the Company had repurchased 4,152,790 shares of
its common stock at a cumulative cost of $93.8 million, with $39.2 million
expended during 1999.
18
<PAGE> 19
For the six months ended June 30, 1999, cash provided by operations was
$15.6 million During 1999, the Company received $152.5 million, net of closing
costs of $1.8 million, from the proceeds of the sale of the Talisman land and
farming rights. As of June 30, 1999 $24.2 million of the proceeds have been
reinvested in real estate operations. Significant proceeds from investing
activities were also received from the sales of Gran Central's industrial parks
in the first quarter of 1999 and from sales of investment securities. These
proceeds will be reinvested into the Company's real estate operations. Capital
expenditures totaled $158.2 million for the first six months of 1999.
The Company utilized borrowings from its secured and unsecured
lines-of-credit to continue its repurchase of the Company's outstanding common
stock and for other working capital purposes. These credit facilities give the
Company the ability to borrow up to $197 million, see note 4 in the notes to
consolidated financial statements.
Management believes that its financial condition is strong and that its
cash, investments, other liquid assets, operating cash flows, and borrowing
capacity, taken together, provide adequate resources to fund ongoing operating
requirements and future capital expenditures related to the expansion of
existing businesses including the continued investment in real estate
developments.
YEAR 2000 COMPLIANCE
The Company has created a Year 2000 Project Team to address potential
problems within the Company's operations that could result from the century
change in the Year 2000. The project team is led by the Senior Vice President
of Finance and Planning and consists of representatives of the Company's
Information Systems Departments or financial departments for each subsidiary,
and has access to key associates in all areas of the Company's operations. The
project team has used and continues to use outside consultants on an as-needed
basis.
As part of the project the Company has been examining all software
information technology ("IT") and non-IT systems which may have embedded
technology. The project team's methodology for addressing both the IT and
non-IT areas consists of five phases:
(1) an Assessment Phase to inventory computer based systems and
applications (including embedded systems) and to determine what revisions
or replacements would be necessary for Year 2000 readiness;
(2) a Remediation Phase to repair or replace components to enable them
to successfully transition to the Year 2000;
(3) a Test Phase to test components after remediation to verify that
the Remediation Phase was successful;
(4) an Implementation Phase to transition the Year 2000 ready systems
back into production environment;
(5) and a Check-off Phase to formally signoff that a component,
system, process or procedure is Year 2000 ready.
Excluding the Company's FECI subsidiary, which is discussed separately
below, management believes that the five phases are currently approximately
100%, 100%, 98%, 92% and 90% complete, and that all critical systems will be
Year 2000 ready by the end of 1999.
The Company expects to spend up to $1.0 million to address and modify Year
2000 problems, excluding FECI. Approximately $0.3 million has been spent by the
Company through June 30, 1999.
As a part of the Year 2000 review, the Company is examining its
relationships with certain key outside vendors and others with whom it has
significant business relationships to determine to the extent practical the
degree of such parties' Year 2000 compliance. The Company has received or is
seeking assurance from several third party vendors that they are or will be
Year 2000 ready. Management believes that the failure
19
<PAGE> 20
of any other third party vendors to be Year 2000 ready will not have a material
adverse effect on the Company.
Should the Company or a third party with whom the Company deals have a
systems failure due to the century change, the Company believes that the most
significant impact would likely be the inability to timely process its payments
for services and receipts of revenues. The Company does not expect any such
impact to be material to its operations.
The Company is in the process of developing contingency plans for Year
2000 matters. These plans include identification of and communications with,
mission critical vendors, suppliers, service providers and customers. These
plans also include preparations for the Year 2000 event as well as for the
potential problems that could occur with major suppliers or customers of the
Company that could impact Company operations. These plans are expected to be
complete by September 1999.
The Company has been advised by FECI that its Year 2000 Project efforts
are proceeding on schedule and it anticipates that all "mission critical"
systems should be Year 2000 capable by the third quarter of 1999.
FECI expects to spend approximately $9.3 million for its Year 2000 effort
of which approximately two-thirds has been committed or expended through June
30, 1999. FECI has informed St. Joe that the Year 2000 problem is not expected
to materially affect its day-to-day operations, nor will it adversely affect its
financial position, results of operations or liquidity. FECI has informed St.
Joe that it believes its Year 2000 planning effort is adequate to address all
major risks. FECI has implemented reasonable measures, engaged experienced Year
2000 consultants and personnel, and established a high level of awareness
concerning Year 2000 issues. FECI believes that it has provided an environment,
which will enable it to adequately review and update its systems to become Year
2000 ready by the end of 1999.
20
<PAGE> 21
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.01 Financial Data Schedule (for SEC use only)
99.01 Supplemental Calculation of Selected Consolidated Financial Data
(b) Reports on Form 8-K
None.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The St Joe Company
Date: August 13, 1999 /Peter S. Rummell/
-----------------
Peter S. Rummell
Chairman of the Board and
Chief Executive Officer
Date: August 13, 1999 /Kevin M. Twomey/
----------------
Kevin M. Twomey
President and Chief Financial Officer
Date: August 13, 1999 /Michael N. Regan/
-----------------
Michael N. Regan
Senior Vice President, Finance and Planning
Date: August 13, 1999 /Janna L. Connolly/
------------------
Janna L. Connolly
Controller
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ST. JOE CORPORATION FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 204,002
<SECURITIES> 65,132
<RECEIVABLES> 34,022
<ALLOWANCES> 0
<INVENTORY> 7,566
<CURRENT-ASSETS> 13,673
<PP&E> 1,370,914
<DEPRECIATION> (367,206)
<TOTAL-ASSETS> 1,780,148
<CURRENT-LIABILITIES> 187,818
<BONDS> 0
0
0
<COMMON> 15,428
<OTHER-SE> 923,806
<TOTAL-LIABILITY-AND-EQUITY> 1,780,148
<SALES> 352,116
<TOTAL-REVENUES> 352,116
<CGS> 285,524
<TOTAL-COSTS> 314,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 47,164
<INCOME-TAX> (7,314)
<INCOME-CONTINUING> 45,411
<DISCONTINUED> 47,404
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,815
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.04
</TABLE>
<PAGE> 1
THE ST JOE COMPANY
SUPPLEMENTAL CALCULATION OF SELECTED CONSOLIDATED FINANCIAL DATA
EXHIBIT 99.01
(DOLLARS IN THOUSANDS)
THE FOLLOWING TABLE CALCULATES EBITDA (GROSS AND NET):
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income from continuing and discontinued operations before
income taxes and minority interest $ 17,919 $ 23,490 $ 47,163 $ 40,855
Additions:
Depreciation and amortization 10,991 8,811 22,105 17,328
Interest expense 1,054 57 1,301 143
Deductions:
Gain on sales of nonoperating assets (225) (217) (258) (531)
-------- -------- -------- --------
EBITDA, Gross 29,739 32,141 70,311 57,795
Less minority interest percentages:
Income before income taxes (2,567) (8,098) (14,448) (14,155)
Depreciation and amortization (3,553) (3,131) (6,923) (6,191)
Interest expense (24) (26) (64) (65)
Gain on sales of nonoperating assets (343) 72 (367) (103)
-------- -------- -------- --------
EBITDA, Net $ 23,252 $ 20,958 $ 48,509 $ 37,281
</TABLE>
