<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, 2000
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, 2000, there were 84,982,472 shares of common stock, no par
value, issued and outstanding, with an additional 6,715,339 shares issued and
held in treasury.
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THE ST. JOE COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I Financial Information:
Consolidated Balance Sheets-
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income -
Three months and six months ended
June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows-
Six months ended June 30, 2000 and 1999 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 23
</TABLE>
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THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 80,699 $ 71,987
Short-term investments 89,862 69,174
Accounts receivable 45,262 38,805
Inventory 5,258 6,360
Other assets 10,373 11,158
------------ ------------
Total current assets 231,454 197,484
------------ ------------
Investments & other assets:
Marketable securities 118,375 188,884
Prepaid pension asset 68,271 63,771
Other assets 27,343 20,867
Investment in unconsolidated affiliates 83,431 80,652
Goodwill 137,623 138,392
Net assets of discontinued operations -- 215
------------ ------------
Total investments and other assets 435,043 492,781
------------ ------------
Investment in real estate 822,499 746,933
Property, plant & equipment, net 449,969 384,429
------------ ------------
Total assets $ 1,938,965 $ 1,821,627
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,142 $ 45,697
Accrued liabilities 82,120 54,641
Current portion of long-term debt 43,084 31,250
------------ ------------
Total current liabilities 175,346 131,588
Other liabilities 20,460 17,705
Deferred income taxes 274,979 278,513
Long-term debt 209,707 115,974
Minority interest in consolidated subsidiaries 343,932 336,993
------------ ------------
Total liabilities 1,024,424 880,773
Stockholders' equity:
Common stock, no par value; 180,000,000 shares
authorized; 91,697,811 shares issued 13,131 13,170
Retained earnings 992,623 961,819
Accumulated other comprehensive income 70,314 90,597
Restricted stock deferred compensation (2,910) (3,564)
Treasury stock, at cost, 6,715,339 and 5,265,827
shares respectively (158,617) (121,168)
------------ ------------
Total stockholders' equity 914,541 940,854
------------ ------------
Total liabilities and stockholders' equity $ 1,938,965 $ 1,821,627
============ ============
</TABLE>
See notes to consolidated financial statements
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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
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues $ 222,013 $ 170,131 $ 433,044 $ 352,116
----------- ----------- ----------- -----------
Expenses:
Operating expenses 165,975 141,444 324,177 285,524
Corporate expense, net 6,414 4,416 11,678 7,028
Depreciation and amortization 14,449 10,992 28,436 22,105
----------- ----------- ----------- -----------
Total expenses 186,838 156,852 364,291 314,657
----------- ----------- ----------- -----------
Operating profit 35,175 13,279 68,753 37,459
----------- ----------- ----------- -----------
Other income (expense):
Investment income 2,912 3,347 8,137 6,403
Interest expense (3,312) (1,054) (4,941) (1,301)
Other, net 1,717 2,348 3,341 4,603
----------- ----------- ----------- -----------
Total other income 1,317 4,641 6,537 9,705
----------- ----------- ----------- -----------
Income from continuing operations before income taxes
and minority interest 36,492 17,920 75,290 47,164
Income tax expense (benefit) 14,449 (19,713) 29,376 (7,314)
Minority interest 3,214 1,756 8,328 9,067
----------- ----------- ----------- -----------
Income from continuing operations 18,829 35,877 37,586 45,411
Income from discontinued operations:
Earnings from discontinued operations, net of income
taxes of $1,803 and $2,981, respectively -- 2,874 -- 4,604
Gain on sale of discontinued operations, net of income
taxes of $29,031 -- -- -- 42,800
----------- ----------- ----------- -----------
Net income $ 18,829 $ 38,751 $ 37,586 $ 92,815
=========== ========== =========== ===========
EARNINGS PER SHARE
Basic:
Income from continuing operations $ 0.22 $ 0.41 $ 0.44 $ 0.51
Earnings from discontinued operations -- 0.03 -- 0.05
Gain on sale of discontinued operations -- -- -- 0.49
----------- ----------- ----------- -----------
Net income $ 0.22 $ 0.44 $ 0.44 $ 1.05
=========== =========== =========== ===========
Diluted:
Income from continuing operations $ 0.22 $ 0.40 $ 0.43 $ 0.51
Earnings from discontinued operations -- 0.03 -- 0.05
Gain on sale of discontinued operations -- -- -- 0.48
----------- ----------- ----------- -----------
Net income $ 0.22 $ 0.43 $ 0.43 $ 1.04
----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements
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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Ended June 30
---------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 37,586 $ 92,815
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 28,436 22,105
Accrued interest increase to long-term debt 2,983 82
Minority interest 8,328 9,067
Deferred income tax expense (benefit) 6,841 (23,494)
Equity in income of unconsolidated affiliates (9,465) (8,530)
Tax benefit from exercise of stock options 871 --
Gain on sales of property and investments (35,501) (12,679)
Gain on sale of discontinued operations, net of taxes -- (42,800)
Purchases and maturities of trading investments, net (9,817) (11,854)
Cost of community residential properties sold 16,089 15,227
Expenditures for community residential properties (55,380) (46,639)
Changes in operating assets and liabilities:
Accounts receivable (6,457) 5,787
Inventory 1,102 3,840
Prepaid pension and other assets (12,879) (8,662)
Accounts payable, accrued liabilities, reserves and
other liabilities 34,833 (1,778)
Discontinued operations 215 3,638
----------- -----------
Net cash provided by operating activities 7,785 (3,875)
Cash flows from investing activities:
Purchases of property, plant and equipment (77,601) (19,671)
Purchases of and development of investments in real estate (64,309) (91,872)
Purchases of available-for-sale investments (11,822) (39,858)
Investments in joint ventures and purchase business acquisitions,
net of cash received (11,860) (22,264)
Proceeds from sale of discontinued operations -- 150,682
Maturities and redemptions of available-for-sale investments 40,404 95,679
Proceeds from dispositions of assets 54,341 47,381
Distributions from unconsolidated affiliates 15,476 16,975
----------- -----------
Net cash (used in) provided by investing activities (55,371) 137,052
Cash flows from financing activities:
Proceeds from long-term debt, net of repayments 102,419 73,062
Proceeds from exercise of stock options and stock purchase plan 5,153 --
Dividends paid to stockholders (6,830) (1,765)
Dividends paid to minority interest (980) (836)
Treasury stock purchased (43,464) (38,744)
----------- -----------
Net cash provided by financing activities 56,298 31,717
Net increase in cash and cash equivalents 8,712 164,894
Cash and cash equivalents at beginning of period 71,987 39,108
----------- -----------
Cash and cash equivalents at end of period $ 80,699 $ 204,002
=========== ===========
</TABLE>
See notes to consolidated financial statements
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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 (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position as of June 30, 2000 and the results of operations and cash flows for
the three-month and six-month periods ended June 30, 2000 and 1999. The results
of operations for the three and six-month periods ended June 30, 2000 and 1999
are not necessarily indicative of the results that may be expected for the full
year. Certain reclassifications of 1999 amounts have been made to be consistent
with current period 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 $150.0
million for the repurchase of the Company's outstanding common stock on the
open market. During the first quarter of 2000, the Company completed this
initial repurchase plan by acquiring 1,067,911 shares, for a total of 6,485,311
shares repurchased under this plan. In February 2000, the Company's Board of
Directors authorized an additional $150.0 million for the repurchase of the
Company's outstanding stock. As of June 30, 2000, the Company had repurchased
636,955 shares under this authorization for a total of 7,122,266 shares
repurchased under both repurchase plans. 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 June 30, Six Months Ended June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic 84,952,717 87,921,540 85,166,515 88,232,633
Diluted 86,922,557 89,054,056 86,729,901 89,166,208
</TABLE>
Comprehensive Income
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, 2000 and 1999, total
comprehensive income was approximately $17.3 million and $95.7 million,
respectively.
Supplemental Cash Flow Information
The Company paid $1.2 million and $1.6 million for interest in the
first six months of 2000 and 1999, respectively. The Company paid $15.9 million
and $18.9 million for income taxes in the first six months of 2000 and 1999,
respectively. The Company capitalized interest expense of $2.9 million and
$1.7 million in the first six months of 2000 and 1999, respectively.
Cash flows related to community residential developments are included
in operating activities on the statements of cash flows.
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3. DISCONTINUED OPERATIONS
During 1999, the Company discontinued its operations in the sugar
industry and has thus reported its sugar operations as discontinued operations
for all periods presented. Revenues from Talisman Sugar Corporation,
("Talisman"), the Company's sugar subsidiary, were approximately $21.2 million
and $38.4 million for the three and six month periods ended June 30, 1999. Net
income, after tax, for Talisman, excluding the gain on sale of the land and
farming rights, was approximately $2.9 million and $4.6 million for the three
and six-month periods ended June 30, 1999. There have been no activities at
Talisman in 2000.
4. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Minimum liability owed on sale of equity securities $ 117,424 $ 112,941
Senior revolving credit agreement, unsecured 90,000 --
Revolving credit agreement, secured by restricted
short-term investments 34,563 22,741
Notes payable to former owners of businesses acquired 10,593 10,593
Various secured and unsecured notes payable 509 1,511
Less: discounts on non-interest bearing notes payable (298) (562)
----------- -----------
Net borrowings 252,791 147,224
Less: current portion 43,084 31,250
----------- -----------
Total long-term debt $ 209,707 $ 115,974
</TABLE>
In March 2000, the Company entered into a senior unsecured revolving
credit facility for up to $200.0 million, which matures in March of 2002. The
proceeds of this debt will be used for working capital and general corporate
requirements of the Company and to fund repurchases of the Company's
outstanding common stock. This debt accrues interest at different rates based
on timing of the loan and the Company's preferences, but generally will be
either the one, two, three or six month London Interbank Offered Rate ("LIBOR")
plus a LIBOR margin in effect at the time of the loan. The agreement also
subjects the Company to certain restrictive covenants including financial
covenants relating to the Company's leverage position, interest coverage
position and minimum net worth.
The Company has long-term debt relating to the forward sale of its
portfolio of equity securities of approximately $117.4 million, which will
increase as interest expense is imputed at an annual rate of 7.9%. The
liability will also increase by the amount, if any, that the securities
increase beyond the 20% that the Company retains under the terms of the
agreement. The balance as of June 30, 2000 includes imputed interest of
approximately $ 4.3 million since December 31, 1999 and an amount relating to
certain securities increasing beyond the 20% appreciation that the Company
retains of approximately $0.2 million. This sale will ultimately settle in the
fourth quarter of 2001.
One of the Company's subsidiaries, Florida East Coast Industries, Inc.
("FECI") has entered into a $200 million revolving credit agreement with a
syndicate of financial institutions. This agreement subjects the subsidiary to
various financial covenants. No amounts were outstanding on this credit
revolver as of June 30, 2000.
5. SEGMENT INFORMATION
The Company conducts primarily all of its business in six reportable
operating segments, which are residential real estate services, community
residential development, commercial real estate development and services, land
sales, forestry and transportation. Intercompany transactions have been
eliminated. The Company evaluates a segment's performance based on Net EBITDA.
Net EBITDA is defined as earnings before interest expense, income taxes,
depreciation and amortization, and is net of the effects of minority interests.
Net EBITDA also excludes gains from discontinued operations and gains (losses)
on sales of nonoperating assets. Net EBITDA is considered a key financial
measurement in the industries that the
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Company operates. The segment labeled other primarily consists of investment
income, net of corporate general and administrative expenses. Also, included in
the segement labeled other is an investment in an unconsolidated affiliate that
was previously classified in the leisure and resort segment and costs related
to the initial operations of the Company's newly formed hospitality development
group. 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.
<TABLE>
<CAPTION>
Information by business segment follows: (In millions)
Three months Six months
ended June 30 ended June 30
------------------------- -------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Total Revenues:
Residential real estate services $ 73.8 $ 55.7 $ 124.7 $ 97.1
Community residential development 35.4 28.9 63.0 34.8
Commercial real estate development and services 35.8 27.4 84.5 108.4
Land sales 17.5 -- 37.4 --
Forestry 7.9 7.1 19.7 14.1
Transportation 51.1 51.4 103.0 99.3
Other 0.5 (.4) 0.7 (1.6)
------- ------- ------- -------
Total revenues $ 222.0 $ 170.1 $ 433.0 $ 352.1
Net EBITDA:
Residential real estate services $ 7.3 $ 4.9 $ 9.6 $ 5.1
Community residential development 9.6 9.4 14.1 11.0
Commercial real estate development and services 7.1 4.1 12.0 18.2
Land sales 14.9 -- 32.8 --
Forestry 3.5 3.4 10.4 6.7
Transportation 6.4 2.8 15.6 9.4
Other (4.4) (1.3) (7.4) (1.9)
------- ------- ------- -------
Net EBITDA $ 44.4 $ 23.3 $ 87.1 $ 48.5
Adjustments to reconcile to income from continuing operations:
Depreciation and amortization (14.4) (11.0) (28.4) (22.1)
Other income .4 .2 .5 .3
Interest expense (3.5) (1.1) (5.3) (1.3)
Income tax (expense) income (14.4) 19.7 (29.4) 7.3
Minority interest 6.3 4.8 13.1 12.7
------- ------- ------- -------
Income from continuing operations $ 18.8 $ 35.9 $ 37.6 $ 45.4
</TABLE>
There was no material change in any segment's total assets since
December 31, 1999
6. 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, worker's compensation, property damage, group
health insurance provided to employees and other types of insurance.
The Company is jointly and severally liable as guarantor on four
credit obligations entered into by partnerships in which the Company has equity
interests. The maximum amount of the guaranteed debt totals $148.6 million; the
amount outstanding at June 30, 2000 totaled $89.8 million. In addition, the
Company has
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indemnification agreements from some of its partners requiring that
they will cover a portion of the debt that the Company is guaranteeing.
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.
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
$9.1 million and $8.2 million as of June 30, 2000 and December 31, 1999,
respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
From time to time, the Company has made and will make "forward-looking
statements" as defined by the Private Securities Litigation Reform Act of 1995.
These statements can be identified by the fact that they do not relate strictly
to historical or current facts. Forward-looking statements often use words such
as "anticipate," "expect," "estimate," "intend," "plan," "goal," "believe" or
other words of similar meaning. Forward-looking statements give the Company's
current expectations or forecasts of future events, circumstances or results.
The Company's disclosure in this report, including in the MD&A section,
contains forward-looking statements. The Company may also make forward-looking
statements in our other documents filed with the SEC and in other written
materials. In addition, the Company's senior management may make
forward-looking statements orally to analysts, investors, representatives of
the media and others. Any forward-looking statements made by or on behalf of
the Company speak only as of the date they are made. The Company does not
undertake to update forward-looking statements to reflect the impact of
circumstances or events that arise after the date the forward-looking statement
was made. The reader should, however, consult any further disclosures of a
forward-looking nature the Company may make in its other documents filed with
the SEC and in other written materials. All forward-looking statements, by
their nature, are subject to risks and uncertainties. The Company's actual
future results may differ materially from those set forth in the Company's
forward-looking statements. In particular, discussions regarding the size and
number of commercial buildings, residential units, development timetables,
development approvals and the ability to obtain approvals, anticipated price
ranges of developments, the number of units that can be supported upon full
build-out of development, and the absorption rate and expected gain on land
sales are forward-looking statements. Additional risk factors that may cause
actual results to differ materially form those expressed in forward looking
statements in this Form 10-Q are described in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 filed with the Securities
Exchange Commission. In addition, the occurrence or non-occurrence of the
recapitalization, the exchange and the spin-off of the Company's interest in
Florida East Coast Industries, Inc. ("FECI") depends on the satisfaction of a
number of conditions among which is the Company's receipt of an Internal
Revenue Service ruling concerning the tax-free status of the spin-off. The
anticipated benefits of the recapitalization, the exchange and the spin-off may
be affected by (1) general economic conditions; (2) economic developments that
have a particularly adverse effect on the Company or FECI and; (3) conditions
in the securities markets on which the Company's and FECI's securities trade.
Such statements are based on current expectations and are subject to certain
risks discussed in this report and in our other periodic reports filed with the
SEC. Other factors besides those listed in this report or discussed in the
Company's other reports to the SEC could also adversely affect the Company's
results and the reader should not consider any such list of factors to be a
complete set of all potential risks or uncertainties.
OVERVIEW
The St. Joe Company is a diversified company which conducts primarily
all of its business in six reportable operating segments, which are residential
real estate services, community residential development, commercial real estate
development and services, transportation, forestry, and land sales. In late
1999, the Company also started a hospitality development group that will offer
fee-based development services for hospitality real estate projects including
hotels, resorts, and timeshare facilities. During the fourth quarter of 1998,
the Company discontinued its sugar operations line of business for accounting
purposes and all sugar operations ceased by the fourth quarter of 1999.
Management believes that the Company has a strategy in place for its
non-strategic assets and has begun to execute its long term strategies,
particularly in developing its vast holdings in Northwest Florida and elsewhere
in the State of Florida by receiving DRI (primary discretionary land use
approval for large scale projects in Florida) or county approvals for
WaterColor in Northwest Florida, SouthWood in Tallahassee, St. John's Golf and
Country Club in St. John's County and Victoria Park near Orlando. Management
believes that the Company is now in position to execute and deliver their
long-term plan with regards to these developments and the growth of its other
real estate businesses.
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DISCONTINUED OPERATIONS
During 1999, the Company discontinued its operations in the sugar
industry and has thus reported its sugar operations as discontinued operations
for all periods presented. Revenues from Talisman Sugar Corporation,
("Talisman"), the Company's sugar subsidiary, were approximately $21.2 million
and $38.4 million for the three and six month periods ended June 30, 1999. Net
income, after tax, for Talisman, excluding the gain on sale of the land and
farming rights, was approximately $2.9 million and $4.6 million for the three
and six month periods ended June 30, 1999. There have been no activities at
Talisman in 2000.
RECENT EVENTS
FECI Spin-off (Proposed)
The Company owns 19,609,216 shares of FECI's common stock, which
represents an approximate 54% equity interest.
On October 27, 1999, the Company and FECI announced that they have
agreed to undertake a recapitalization of FECI to facilitate a pro rata
tax-free spin-off to the Company's shareholders of the Company's 54% equity
interest in FECI.
As part of the recapitalization, the Company will exchange all of its
shares of FECI common stock for an equal number of shares of a new class of
FECI common stock. The holders of the new class of FECI common stock will be
entitled to elect 80% of the members of the Board of Directors of FECI, but the
new FECI common stock will otherwise have substantially identical rights to the
existing common stock. The new class of FECI common stock will be distributed
pro rata to the Company's shareholders in a tax-free distribution. The Company
will not retain any equity interest in FECI after the spin-off is completed.
At the closing of the transaction, various service agreements between
the Company and FECI's wholly owned subsidiary Flagler Development Company
("Flagler"), formerly known as Gran Central Corporation, will become effective.
Under the terms of these agreements, which extend for up to three years after
the closing of the transaction, Flagler will retain the Company, through its
commercial real estate affiliates, to continue to develop and manage certain
commercial real estate holdings of Flagler. The terms of these agreements have
been approved by both the Company's and FECI's Boards of Directors, and in the
judgement of the boards, reflect arms-length terms and conditions typically
found in today's marketplace.
The Boards of Directors of the Company and FECI have unanimously
approved the transaction and on March 8, 2000, the minority shareholders of
FECI approved the transaction. This transaction is subject to the receipt of an
Internal Revenue Service ruling concerning the tax-free status of the proposed
spin-off and is expected to be completed as quickly as possible after receipt
of a positive IRS ruling.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
THREE MONTHS ENDED JUNE 30
Total revenues increased $51.9 million, or 31%, to $222.0 million for
the second quarter of 2000 as compared to $170.1 million in the second quarter
of 1999. The residential real estate services segment through Arvida Realty
Services ("ARS") contributed $73.8 million in the second quarter of 2000, a 33%
increase over $55.7 million in the second quarter of 1999. The community
residential development segment, through sales recorded at its northwest and
northeast Florida residential communities and sales of homes by Saussy Burbank,
recorded $35.4 million in the second quarter of 2000, a 23% increase over $28.9
million in the second quarter of 1999. The commercial real estate development
and services segment, through both Flagler and St. Joe Commercial, contributed
$35.8 million in the second quarter of 2000, a 31% increase over $27.4 million
in the second quarter of 1999. The land sales segment of the Company,
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<PAGE> 12
started during the fourth quarter of 1999, recorded revenues of $17.5 million
in the second quarter of 2000. The forestry segment reported revenues of $7.9
million during the second quarter of 2000, an 11% increase over $7.1 million
during the second quarter of 1999. The transportation segment, primarily
through its Florida East Coast Railroad ("FECR") subsidiary, recorded $51.1
million in revenues, a slight decrease from the $51.4 million recorded in 1999.
Revenues of $0.5 million were recorded which are not attributable to a
reportable segment in 2000 as compared to a $0.4 million loss recorded on a
investment in an unconsolidated affiliate which was not attributable to a
particular segment in 1999.
Operating expenses totaled approximately $166.0 million, an increase
of $24.6 million, or 17%, for the second quarter of 2000 as compared to $141.4
million for the second quarter of 1999. The residential real estate services
segment contributed $67.1 million in costs in the second quarter of 2000, a 31%
increase over the $51.1 million in costs recorded in the second quarter of
1999. The community residential development segment recorded $26.2 million in
costs in the second quarter of 2000, a 35% increase over the $19.4 million
recorded in 1999. The commercial real estate development and services segment
contributed $25.2 million in costs recorded in the second quarter of 2000, a
25% increase over $20.2 million recorded in 1999. The land sales segment
contributed $2.8 million in costs in the second quarter of 2000. The forestry
segment reported costs of $5.0 million in the second quarter of 2000, an 11%
increase over the $4.5 million recorded in 1999. The transportation segment
costs were $39.1 million in the second quarter of 2000, a 16% decrease from the
$46.3 million recorded in 1999. The decrease is due primarily to non-recurring
special charges recorded at FECR in 1999 totaling $8.2 million. Operating
expenses of approximately $0.6 million and $(0.1) million in 2000 and 1999 were
not attributable to a reportable segment.
Corporate expense increased 46% from $4.4 million to $6.4 million,
primarily due to the effects of increased salary and other benefits costs.
Corporate expense included prepaid pension income of $2.0, a decrease of $0.7
for the second quarter of 2000 as compared to the second quarter of 1999.
Depreciation and amortization totaled $14.4 million, an increase of
$3.4 million, or 31%, primarily due to additional depreciation expense on
assets acquired and/or placed in service in late 1999.
Other income (expense) decreased $3.3 million, or 72% to $1.3 million
in the second quarter of 2000 compared to $4.6 million in 1999. The decrease
primarily resulting from the company's increased interest expense totaling $3.3
million in the second quarter of 2000 as compared to $1.1 million in 1999.
Income tax expense (benefit) on continuing operations totaled $14.4
million for the second quarter of 2000 as compared to a benefit of (19.7)
million for the second quarter of 1999. During the second quarter of 1999, 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. From 1996 through the first quarter of 1999, the Company
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 events occurring in 1998 and 1999, including several acquisitions, which
significantly increased the number of participants in the pension plan, along
with plan modifications and the Company's growth strategy, management
reevaluated how the pension plan surplus could 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 reversed the
deferred tax liability related to the 50% excise tax amounting to $26.8 million
as a deferred income tax benefit in its 1999 second quarter operations. Income
taxes on the change in pension surplus will continue to be recorded at the
statutory rate in future periods.
The effective tax rate for the second quarter of 2000 was 40%. The
effective tax rate for the second quarter of 1999, excluding the $26.8 million
reversal was also 40%.
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. There were no discontinued operations in 2000.
Net income for the second quarter of 2000 was $18.8 million or $0.22
per diluted share as compared to $38.8 million or $0.43 per diluted share for
the second quarter of 1999. Excluding the FECI special charges
12
<PAGE> 13
of $8.2 million ($2.7 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 $80.9 million, or 23%, to $433.0 million for
the six months of 2000 as compared to $352.1 million in the first six months of
1999. The residential real estate services segment contributed $124.7 million
in revenues, a 28% increase over the $97.1 million recorded in 1999. The
community residential development segment recorded $63.0 million in revenues
during the first six months of 2000, an 81% increase over $34.8 million
recorded in 1999. The commercial real estate development and services segment
recorded revenue of $84.5 million during the first six months of 2000, a 22%
decrease from $108.4 million during the first six months of 1999, primarily due
to the sale of two industrial parks located in south Florida in the first
quarter of 1999 totaling $50.4 million. The land sales segment, formed in the
fourth quarter of 1999, recorded revenues of $37.4 million for the first six
months of 2000. The forestry segment reported revenues of $19.7 million during
the first six months of 2000, a 40% increase over the $14.1 million recorded in
1999. The transportation segment contributed $103.0 million in revenues during
the first six months of 2000, a 4% increase from the $99.3 million recorded in
1999. Revenues of $0.7 million were recorded that were not attributable to a
reportable segment in 2000 as compared to a loss of $1.6 million that was
recorded on an investment in an unconsolidated affiliate which was not
attributable to a particular segment in 1999.
Operating expenses totaled approximately $324.2 million, an increase
of 14%, for the first six months of 2000 as compared to $285.5 million for the
first six months of 1999. Residential real estate services costs were $ 116.2
million for the first six months of 2000, a 26% increase over the $92.6 million
recorded in 1999. The community residential development segment recorded $49.3
million in costs for the first six months of 2000, a 105% increase over the
$24.1 million recorded in 1999. The increase was primarily due to increased
development in 2000 at many of the Company's residential communities in Florida
and a full six months of Saussy Burbank activity. The commercial real estate
development and services segment recorded costs of $65.5 million, a 17%
decrease from the $78.4 million recorded in 1999, primarily due to cost of
sales of the two industrial parks located in south Florida sold in 1999. The
land sales segment recorded costs of $4.9 million for the first six months of
2000. The forestry segment reported operating expenses of $10.6 million, a 22%
increase over the $8.7 million recorded in 1999. The transportation segment
costs were $76.9 million, a 6% decrease compared to $81.7 million primarily
relating to non-recurring special charges totaling $8.2 million incurred during
the second quarter of 1999 offset by many cost cutting measures adopted by
FECR's management in late 1999 and 2000. Operating expenses of $0.8 million
were recorded in 2000 that were not attributable to a reportable segment.
Corporate expense increased 67% from $7.0 million to $11.7 million,
primarily associated with increased salaries and benefits costs. Corporate
expense included prepaid pension income of $4.5 million, a decrease of $0.8
million for the first six months of 2000 as compared to 1999.
Depreciation and amortization totaled $28.4 million for the first six
months of 2000, a 29% increase over the $22.1 million recorded in 1999,
primarily due to a $4.9 million increase in depreciation expense relating to
buildings placed into service in the last two quarters of 1999 and the first
two quarters of 2000 and a $1.4 million increase in amortization expense
relating to 1999 acquisitions.
Other income (expense) decreased $3.2 million, or 33% in the first six
months of 2000 compared to 1999, due primarily to an increase of interest
expense of $3.6 million from $1.3 million in 1999 to $4.6 million in 2000.
Income tax expense (income) on continuing operations totaled $29.4
million for the first six months of 2000 as compared to a benefit of ($7.3)
million for 1999. 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 39% in 2000.
Income from discontinued operations for 1999 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 the first six months of 1999.
13
<PAGE> 14
Net income for the six months of 2000 was $37.6 million or $0.43 per
diluted share as compared to $92.8 million or $1.04 per diluted share for 1999.
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
(In millions)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 73.8 $ 55.7 $ 124.7 $ 97.1
Operating expenses 67.1 51.1 116.2 92.6
Depreciation and amortization 1.7 1.3 3.3 2.6
Other income (expense) .4 .2 .6 .2
Pretax income from continuing operations 5.4 3.5 5.8 2.1
EBITDA, net 7.3 4.9 9.6 5.1
</TABLE>
The residential real estate services segment is comprised of the
operation of the Company's ARS subsidiary. 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.
THREE MONTHS ENDED JUNE 30
Residential real estate services revenues were $73.8 million for the
second quarter of 2000, a 33% increase over $55.7 million for the second
quarter of 1999. Realty brokerage revenues in the second quarter of 2000 were
attributable to 10,295 closed units representing $2.2 billion in sales volume
as compared to 8,730 closed units representing $1.6 billion of sales volume in
1999. The average home sales price for the second quarter of 2000 increased to
$214,000 as compared to $185,000 for the second quarter of 1999.
Operating expenses were $67.1 million for the first quarter of 2000, a
31% increase over $51.1 million during the second quarter of 1999 and represent
commissions paid on real estate transactions, underwriting fees on title
policies and administrative expenses of the ARS operations.
SIX MONTHS ENDED JUNE 30
Residential real estate services revenues were $124.7 million for the
first six months of 2000, a 28% increase over $97.1 million for the first six
months of 1999. Realty brokerage revenues in the first six months of 2000 were
attributable to 17,393 closed units representing $3.6 billion in sales volume
as compared to 15,049 closed units representing $2.7 billion of sales volume in
1999. The average home sales price for the first six months of 2000 increased
to $210,000 as compared to $186,000 for the first six months of 1999.
Operating expenses were $116.2 million for the first six months of
2000, a 26% increase over $92.6 million during the first six months of 1999 and
represent commissions paid on real estate transactions, underwriting fees on
title policies and administrative expenses of the ARS operations.
14
<PAGE> 15
COMMUNITY RESIDENTIAL DEVELOPMENT
(In millions)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ 35.4 $ 28.9 $ 63.0 $ 34.8
Operating expenses 26.2 19.4 49.3 24.1
Depreciation and amortization -- (.8) -- (.8)
Other income (expense) .2 (.1) .2 (.1)
Pretax income from continuing operations 9.3 10.2 13.9 11.4
EBITDA, gross 9.6 9.5 14.2 10.6
EBITDA, net 9.6 9.4 14.1 11.0
</TABLE>
The Company's community residential development operations currently
consist of community development through its residential development on land
owned 100% by the Company, its 26% equity interest in Arvida/JMB Partners, L.P.
("Arvida/JMB") and its 74% ownership of St. Joe/Arvida Company, L.P. Arvida/JMB
is recorded on the equity method of accounting for investments. These two
partnerships manage a total of 23 communities in various stages of planning and
development primarily focused in northwest, northeast and central Florida.
WaterColor, a coastal resort community in Walton County, Florida began sales in
April of this year. The lots at WaterColor had an average sales price of
approximately $286,000, while the condominium residences averaged approximately
$414,000. All sales thus far have been inland from the beach with the first 22
of the WaterColor beachfront product, premium Gulf-front residential units,
going on the market this August. These units will average over 3,000 square
feet and will be priced at more than $1 million each. WaterColor will
eventually be a 1,140 unit beachfront resort and residential community.
Approximately three miles east of WaterColor on about a mile of beachfront
property, sales of beachfront condominiums at WaterSound are expected to get
underway in the third quarter of 2000. This community has begun site work on an
18-hole golf course which will be adjacent to WaterSound and will be opening by
the end of 2000. Also in the second half of 2000, construction is set to begin
at Victoria Park, near Orlando and at the Hammocks, in Bay County in northwest
Florida.
In April 1999, the Company acquired all outstanding stock of Saussy
Burbank, Inc. ("Saussy Burbank"), a homebuilder located in Charlotte, North
Carolina, for $16.5 million in cash and assumption of liabilities of
approximately $8.8 million. Saussy Burbank builds approximately 250 to 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
Real estate sales totaled $30.8 million with related costs of sales of
$20.9 million during the second quarter of 2000 as compared to sales of $25.7
million in 1999 with related cost of sales of $14.8 million. During the second
quarter of 2000, 25 lots and multi-family unit sales at WaterColor closed
generating pre-tax gain of $5.7 million. Revenues from these sales totaled $8.5
million with related cost of sales of $2.8 million. At the Retreat, the final
two lots were sold during the second quarter of 2000 for sales of $0.7 million,
thus all of this resort community's 90 lots will have been sold at an average
price of approximately $419,000. In the second quarter of 1999, sales at the
Retreat amounted to $11.5 million. Sales this quarter at James Island in
northeast Florida totaled $6.3 million on closings of 22 units at an average
price of approximately $286,000. Related cost of sales at James Island were
$5.5 million. In 1999, James Island had sales of $0.3 million in the second
quarter. Other sales this quarter included housing and lots in the Summerwood,
Woodrun, and Camp Creek Point developments in west Florida totaling in the
aggregate $1.3 million and at Driftwood and SouthWood in the Tallahassee,
Florida area of $1.1 million. Related cost of sales for these developments
totaled $1.5 million in 2000. In 1999, these other developments had sales
aggregating $2.5 million. In the second quarter of 1999, cost of sales for all
Florida residential community development (the Retreat, James Island,
Summerwood, Woodrun, and Camp Creek) totaled $4.2 million. Saussy Burbank,
acquired in April 1999, contributed revenues in the second quarter of 2000 from
homebuilding totaling $12.9 million with related cost of sales of $11.1 million
on closing of 64 units at an average price of approximately $201,000 as
compared to the second quarter of 1999 when Saussy Burbank had sales of $11.4
million with cost of sales of $10.6 million. Other revenues from management
fees and rental income totaled $0.4 million with related costs of $0.6 million
in the second quarter of 2000 as compared to $0.3 million in revenues and $0.6
in related costs in 1999. The community residential development operations also
had other operating expenses, including salaries and benefits of personnel and
15
<PAGE> 16
other administrative expenses, of $4.7 million during the second quarter of
2000 as compared to $4.0 million in 1999.
Income from the Company's investment in Arvida/JMB was $4.0 million
for the second quarter of 2000, as compared to $2.6 million in 1999. During the
second quarter of 2000, the Company also had income from other joint ventures
of $0.2 million as compared to $0.3 million in 1999.
SIX MONTHS ENDED JUNE 30
Real estate sales totaled $54.7 million with related costs of sales of
$39.7 million during the first six months of 2000 as compared to sales of $27.3
million in 1999 with related cost of sales of $15.7 million. During the first
six months of 2000, 25 lots and multi-family unit sales at WaterColor closed
generating pre-tax gain of $5.7 million. Revenues from these sales totaled $8.5
million with related cost of sales of $2.8 million. At the Retreat, the final
eight lots were sold during the first six months of 2000 for a sales of $3.2
million with related cost of sales of $0.4 million. In the first six months of
1999, sales at the Retreat amounted to $11.5 million. Sales for the first six
months of 2000 at James Island in northeast Florida totaled $12.9 million on
closings of 45 units at an average price of approximately $287,000. Related
cost of sales at James Island were $11.5 million. In 1999, James Island had
sales of $0.3 million in the first six months. Other sales during the first six
months included housing and lots in the Summerwood, Woodrun, Camp Creek Point
and other various developments in west Florida totaling in the aggregate $3.6
million and at Driftwood and SouthWood in the Tallahassee, Florida area of $1.5
million. Related cost of sales for these developments totaled $3.4 million. In
1999, Summerwood, Deerwood, Woodrun and Camp Creek Point had sales aggregating
$4.1 million. In 1999, cost of sales for all Florida residential community
development (the Retreat, James Island, Summerwood, Woodrun, and Camp Creek)
totaled $5.1 million. Saussy Burbank, acquired in April 1999, contributed
revenues in the first six months of 2000 from homebuilding totaling $25.0
million with related cost of sales of $21.6 million on closing of 124 units at
an average price of approximately $201,000 as compared to the first six months
of 1999 when Saussy Burbank had sales of $11.4 million with cost of sales of
$10.6 million since its April 1999 acquisition. Other revenues from management
fees and rental income totaled $0.6 million with related costs of $1.3 million
in the first six months of 2000 as compared to $0.5 million in revenues and
$1.0 in related costs in 1999. The community residential development operations
also had other operating expenses of $8.3 million during the first six months
of 2000 as compared to $7.4 million in 1999.
Income from the Company's investment in Arvida/JMB was $7.3 million
for the first six months of 2000, as compared to $6.8 million in 1999. During
the first six months of 2000, the Company also had income from other joint
ventures of $0.4 million compared with 0.2 million during 1999.
COMMERCIAL REAL ESTATE DEVELOPMENT AND SERVICES
(In millions)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ 35.8 $ 27.4 $ 84.5 108.4
Operating expenses 25.2 20.2 65.5 78.4
Depreciation and amortization 5.9 4.2 11.7 7.9
Other income (expense) .2 .1 .2 .1
Pretax income from continuing operations 4.9 3.1 7.5 22.2
EBITDA, gross 11.0 7.3 19.4 30.2
EBITDA, net 7.1 4.1 12.0 18.2
</TABLE>
Operations of the commercial real estate development and services
segment include the development of St. Joe properties ("St. Joe Commercial"),
development and management of the Flagler real estate portfolio, the Advantis
service businesses and investments in affiliates, including the Codina Group,
Inc. ("CGI"), to develop and manage properties throughout the southeast. The
Company owns 54% of FECI and Flagler is the wholly owned real estate subsidiary
of FECI.
16
<PAGE> 17
THREE MONTHS ENDED JUNE 30
Revenues generated from rental operations in the second quarter of
2000 are from both St. Joe Commercial owned operating properties and Flagler
operating properties and FECR owned rental properties. Revenues generated from
rental operations in the second quarter of 1999 were primarily from Flagler and
FECR owned rental properties. Rental revenues in the second quarter of 2000
were $16.7 million, an increase of 33% over the $12.6 million during the second
quarter of 1999.
Rental revenues generated by St. Joe Commercial owned operating
properties were $1.9 million during the second quarter of 2000 compared to $0.2
million in 1999, while operating expenses relating to these revenues were $0.8
million and $0.1 million, respectively. As of June 30, 2000, St. Joe Commercial
had interests in, either wholly owned or through partnerships, 12 operating
buildings with 1.4 million total rentable square feet in service. Approximately
0.5 million square feet of office and industrial space is under construction as
of June 30, 2000.
Rental revenues generated by Flagler owned operating properties and
FECR rental properties during the second quarter of 2000 were $14.8 million, a
19% increase over $12.4 million in 1999, resulting primarily from increases in
same store revenues totaling $0.4 million and new store revenues of $2.4
million which were offset by a decrease of $0.4 million relating to properties
that were sold since second quarter 1999. Operating expenses on rental
revenues, excluding depreciation, increased to $5.0 million for the second
quarter of 2000, from $4.0 million in 1999. As of June 30, 2000, Flagler had 51
operating buildings with 5.3 million total rentable square feet in service.
Approximately 333,000 square feet of office and industrial space is under
construction as of June 30, 2000. Additionally, approximately 586,000 square
feet is in the predevelopment stage and Flagler is expected to commence
construction on some or all of these properties during 2000.
Operating revenues generated from Advantis totaled $17.4 million
during the second quarter of 2000 compared with $14.6 million for the second
quarter of 1999, an increase of 19% due primarily to increases of 32% in
brokerage revenues and 13% in brokerage transactions. Advantis expenses were
$16.4 million during the second quarter of 2000 compared with $14.1 million in
1999. The increase in gross profits is also primarily due to the increase in
brokerage activity. Advantis' expenses include commissions paid to brokers,
property management expenses and construction costs.
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 $1.7 million to the commercial real estate
segment's revenues during the second quarter of 2000 compared to $0.2 million
in 1999. The second quarter 2000 earnings were comprised primarily from $1.7
million contributed by land sales in 2000 from the Company's investment in
Deerfield Park, LLC, located in Atlanta, Georgia which did not occur during the
second quarter of 1999.
General and administrative expenses for the commercial group, which
are included in operating expenses, increased $1.0 million, or 50% to $3.0
million for the second quarter of 2000 from $2.0 million in the second quarter
of 1999. Of total general and administrative expenses for the second quarter of
2000, $1.5 million are St. Joe Commercial related and $1.5 million are related
to Flagler. For 1999, St. Joe Commercial related expenses were $0.6 million and
$1.4 million were related to Flagler. Other operating expenses for the second
quarter of 2000 include the $16.4 million of Advantis expenses and the $5.8
million in costs related to rental revenues.
Depreciation and amortization increased by $1.7 million to $5.9
million and is attributable to additional depreciation on operating properties.
Of the $1.7 million increase in depreciation, $1.4 million was from Flagler
operating properties and $0.3 million was from St. Joe Commercial related
operating properties.
Net EBITDA totaled $7.1 million for the second quarter of 2000 and was
comprised of $4.2 million from rental operations, $1.7 million from earnings on
investments in real estate developments, and $1.2 million
17
<PAGE> 18
from Advantis. Excluding Flagler, St. Joe Commercial had Net EBITDA of $2.6
million, compared to $0.2 million in 1999.
SIX MONTHS ENDED JUNE 30
Revenues generated from rental operations in the first six months of
2000 are from both St. Joe Commercial owned operating properties and Flagler
operating properties and FECR owned rental properties. Revenues generated from
rental operations in the first six months of 1999 were from primarily Flagler
and FECR owned rental properties. Rental revenues in the first six months of
2000 were $31.2 million, an increase of 20% over the $26.1 million during the
first six months of 1999.
Rental revenues generated by St. Joe Commercial owned operating
properties were $3.8 million during the first six months of 2000, while
operating expenses relating to these revenues were $1.3 million. St. Joe
Commercial had $0.3 million of rental revenues in the first six months of 1999
with $0.1 million in operating expenses related to those revenues
Rental revenues generated by Flagler owned operating properties and
FECR rental properties during the first six months of 2000 were $27.4 million,
an 8% increase over $25.8 million in 1999, resulting primarily from increases
in same store revenues totaling $0.9 million and new store revenues of $3.8
million and being offset by decreases of $2.8 million in rental income relating
to properties sold in the first quarter of 1999. Operating expenses on rental
revenues, excluding depreciation, increased to $10.1 million for the first six
months of 2000, from $8.8 million in 1999.
Operating revenues generated from Advantis totaled $33.3 million
during the first six months of 2000 compared with $28.0 million for the first
six months of 1999. Advantis expenses were $33.1 million during the first six
months of 2000 compared with $26.4 million in 1999. Advantis' expenses include
commissions paid to brokers, property management expenses and construction
costs. Gross profits were down in 2000 as compared to 1999 even though Advantis
had more brokerage revenues because commissions paid as a percentage of those
revenues was higher. St. Joe Commercial also had management fees earned of $0.8
million in 1999.
In the first six months of 2000, St. Joe Commercial sold the Homeside
Lending Building for gross proceeds of $16.0 million and had cost of sales of
approximately $14.4 million resulting in a $1.6 million pre-tax gain.
In the first six months of 2000, Flagler sold real estate properties
for gross proceeds of $2.2 million with cost of sales of $0.4 million. In 1999
Flagler had revenues of $50.4 million which 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). Total costs of these 1999 sales totaled $39.1
million. The two industrial parks sold in 1999 consisted of 10 buildings with
1.2 million square feet.
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 $1.8 million to the commercial real estate
segment's revenues during the first six months of 2000 compared to $3.1 million
in 1999. The first six months earnings were comprised primarily from $1.7
million and $2.7 million contributed by 2000 and 1999 land sales, respectively
from the Company's investment in Deerfield Park, LLC, located in Atlanta,
Georgia.
General and administrative expenses for the commercial group, which
are included in operating expenses, increased $2.2 million to $6.2 million for
the first six months of 2000 from $4.0 million in the first six months of 1999.
Of total general and administrative expenses for the first six months of 2000,
$3.2 million are St. Joe Commercial related and $3.1 million are related to
Flagler. For 1999, St. Joe Commercial related expenses were $1.9 million and
$2.1 million were related to Flagler. The increase at St. Joe Commercial is
primarily due to increased salaries and benefits charges. The increase in
expenses at Flagler is primarily due to transition costs associated with
Flagler's new management team. Other operating expenses for the first six
months of 2000 include the $33.1 million of Advantis expenses, the $14.8
million in cost of sales, and the $11.4 million in costs related to rental
revenues.
18
<PAGE> 19
Depreciation and amortization increased by $3.8 million to $11.7
million and is attributable to goodwill amortization of $0.3 million as a
result of acquisitions completed by Advantis in 1999 and additional
depreciation on operating properties of $3.5 million. Of the $3.5 million
increase in depreciation, $2.6 million was from Flagler operating buildings and
$0.9 million was from St. Joe Commercial related operating properties.
Net EBITDA totaled $12.0 million for the first six months of 2000 and
was comprised of $1.5 million from sales of real estate, $8.0 million from
rental operations, $1.8 million from earnings on investments in real estate
developments, and $0.7 million from Advantis. Excluding Flagler, St. Joe
Commercial had Net EBITDA of $1.7 million, compared to $3.9 million in 1999.
Net EBITDA in the first six months of 1999 included the $2.8 million
contribution from the Company's equity investment in Deerfield Park, LLC which
contributed $1.7 million in 2000.
<TABLE>
<CAPTION>
LAND SALES
(In millions)
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
------ ---- ------ ----
<S> <C> <C> <C> <C>
Revenues $ 17.5 -- $ 37.4 --
Operating expenses 2.8 -- 4.9 --
Depreciation and amortization -- -- -- --
Other income (expense) .2 -- .3 --
Pretax income from continuing operations 14.9 -- 32.8 --
EBITDA, net 14.9 -- 32.8 --
</TABLE>
During the fourth quarter of 1999, the St. Joe Land Company was
created to sell parcels of land, typically 5 to 5,000 acres, from a portion of
the total of 800,000 acres of timberland held by The Company in northwest
Florida and southwest Georgia. These parcels could be used as large secluded
home sites, quail plantations, ranches, farms, hunting and fishing preserves
and for other recreational uses.
THREE MONTHS ENDED JUNE 30
During the second quarter of 2000, the land sales division had
revenues of $17.5 million and a total gain of approximately $15.3 million,
which represented sales of 7,914 acres at an average price of $2,211 per acre.
This amount included a sale of one parcel of 4,094 acres for a total gain of
approximately $10.1 million.
SIX MONTHS ENDED JUNE 30
During the first six months of 2000, the land sales division had
revenues of $37.4 million and a total gain of approximately $33.5 million,
which represented sales of 16,686 acres at an average price of $2,241 per acre.
This amount included the first quarter sale of approximately 3,620 acres for
approximately $3,200 per acre, in Capps, near Tallahassee, Florida.
FORESTRY
(In millions)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ 7.9 $ 7.1 $ 19.7 $ 14.1
Operating expenses 5.0 4.5 10.6 8.7
Depreciation and amortization .7 .6 1.5 1.2
Other income (expense) .7 .8 1.4 1.4
Pretax income from continuing operations 2.8 2.8 9.0 5.6
EBITDA, net 3.5 3.4 10.4 6.7
</TABLE>
19
<PAGE> 20
THREE MONTHS ENDED JUNE 30
Total revenues for the forestry segment increased $0.8 million, or 11%
in the second quarter of 2000 compared to 1999 due to an increase in timber
sales. Total sales to Florida Coast Paper Company, L.L.C. ("FCP"), the
Company's major pulpwood customer, were $3.9 million (159,000 tons) in 2000 as
compared to $5.0 million (171,000 tons) in 1999. In August of 1998 the FCP mill
in Port St. Joe was shutdown. Under the terms and conditions of the amended
fiber supply agreement with FCP, the Company began redirecting the volumes of
pulpwood from the FCP mill in Port St. Joe to another mill in Panama City,
Florida, thus sales of pulpwood resumed in November of 1998 and continued
through June 30, 2000 and there was no significant loss in volume of sales.
Effective July 1, 2000, a new fiber agreement with Jefferson Smurfit (U.S.),
also known as Smurfit-Stone Container Corporation went into effect. The
agreement is for twelve years and it requires an annual pulpwood volume of
700,000 tons per year that must come from company-owned fee simple lands.
311,870 acres are encumbered, subject to certain restrictions, by this
agreement, although the obligation may be transferred to a third party if a
parcel is sold. Sales to other customers increased to $4.0 million (153,000
tons) in the second quarter of 2000 from $1.9 million (86,000 tons) a year ago.
The increase in sales to other customers is the result of price and local
demand increasing for solid wood products in 2000. Revenues also include bulk
land sales of $0.2 million during the second quarter of 1999; none in 2000.
Operating expenses for the second quarter of 2000 increased $0.5
million, or 11% compared to 1999 due to higher harvest volumes. Cost of sales
were $4.7 million in 2000 as compared to $4.1 million in 1999. Other operating
expenses were $0.3 million in 2000 decreasing from $0.4 million in 1999.
SIX MONTHS ENDED JUNE 30
Total revenues for the six months ended June 30, 2000 increased $5.6
million, or 40%, compared to the first six months of 2000, primarily from
timber sales. Sales to FCP were $8.7 million (347,000 tons) in 2000 as compared
to $9.3 million (311,000 tons) in 1999. Sales to other customers increased to
$10.2 million (344,000 tons) in 2000 from $4.5 million (194,000 tons) in 1999.
In the first three months of 2000, the Company conducted several lump sum bid
timber sales to take advantage of favorable market conditions, which was not
the case in 1999. Revenues in 2000 include bulk land sales of $0.8 million
compared to $0.3 million in 1999.
Operating expenses for the first six months of 2000 increased $1.9
million to $10.6 million. Cost of sales were $9.7 million in the first six
months of 2000 as compared to $7.9 million in 1999. Cost of sales as a
percentage of sales was lower in 2000 than in 1999, due to the lump sum timber
sales in 2000, which do not incur cut and haul charges. Other operating
expenses were $0.9 million in 2000 and $0.8 million in 1999.
TRANSPORTATION
(In millions)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- --------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 51.1 $ 51.4 $ 103.0 $ 99.3
Operating expenses 39.1 46.3 76.9 81.7
Depreciation and amortization 5.3 4.9 10.3 9.7
Other income (expense) (.5) .2 1.9 .2
Pretax income from continuing operations 6.2 .4 17.7 8.1
EBITDA, gross 12.0 5.2 28.6 17.9
EBITDA, net 6.4 2.8 15.6 9.4
</TABLE>
THREE MONTHS ENDED JUNE 30,
20
<PAGE> 21
The transportation segment includes the railway, trucking and telecom
operations of FECI. Total FECI transportation operating revenues increased to
$50.5 million, or 2% for the second quarter of 2000 as compared to $49.6
million for the second quarter of 1999. Transportation revenues were fairly
stagnant increasing $0.1 million to $48.5 million in the second quarter of 2000
from $48.4 million in 1999. Increases in aggregate traffic of 2%, automotive
traffic of 4%, and all other carload traffic of 3% were offset by a decrease in
intermodal traffic of 5% during the second quarter of 2000 compared to the same
period of 1999. Transportation revenues for 2000 also included $2.0 million in
revenues from FECI's telecommunications division compared with $1.2 million in
1999.
FECR's operating expenses decreased to $38.4 million, or 14% in the
second quarter of 2000 from $44.5 million in 1999, primarily due to the $8.2
million in special charges that FECR took in the second quarter of 1999
relating to a reorganization and workforce reduction in its railway operations.
The railway has made additional changes which have increased savings in other
areas as well. Operating expenses also include $3.2 million in charges relating
to FECI's telecommunication division in 2000 as compared to $0.7 million in
2000
Apalachicola Northern Railroad Company ("ANRR") operating revenues
decreased $1.2 million to $0.6 million in 2000 as compared to 1999. Up until
early in the second quarter of 2000, included in revenues recorded by ANRR were
contractual payments from Seminole Electric Cooperative, Inc. ("Seminole").
Seminole halted shipments of coal in January 1999. ANRR's workforce has been
reduced significantly, commensurate with its loss in traffic. The railroad
intends to maintain a staff adequate to operate a minimal schedule sufficient
to provide service to existing customers.
ANRR's operating expenses decreased $1.0 million to $0.7 million in
the second quarter of 2000 as compared to $1.8 in the second quarter of 1999,
commensurate with the loss in traffic.
SIX MONTHS ENDED JUNE 30
The transportation segment includes the railway, trucking and telecom
operations of FECI. Total FECI transportation operating revenues increased to
$101.2 million, or 5% for the first six months of 2000 as compared to $96.4
million for the first six months of 1999. Transportation revenues for 2000
included $4.5 million in revenues from FECI's telecommunications division
compared with $2.2 million in 1999.
FECR's operating expenses decreased to $75.5 million, or 3% in the
first six months of 2000 from $78.1 million in 1999, primarily due to the
special charges that FECR took in the first six months of 1999 mentioned above.
Operating expenses also include $5.4 million in charges relating to FECI's
telecommunication division in 2000 as compared to $0.7 million in 2000
ANRR's operating revenues decreased $1.1 million to $1.8 million in
2000 as compared to 1999. Up until early in the second quarter of 2000,
included in revenues recorded by ANRR were contractual payments from Seminole
Electric Cooperative, Inc. ("Seminole"). Seminole halted shipments of coal in
January 1999 but were required to continue making contractual payments to ANRR.
ANRR's workforce has been reduced significantly, commensurate with its loss in
traffic. The railroad intends to maintain a staff adequate to operate a minimal
schedule sufficient to provide service to existing customers.
ANRR's operating expenses decreased $2.2 million to $1.4 million in
the first six months of 2000 as compared to $3.6 in the first six months of
1999, commensurate with the loss in traffic.
FINANCIAL POSITION
In August 1998, the St. Joe Board of Directors authorized $150 million
for the purchase of outstanding common stock through open-market purchases.
During the first quarter of 2000, the Company completed this program having
purchased 6.5 million shares at an average price of $23.13. In February 2000,
the St. Joe Board of Directors authorized a second $150 million stock
repurchase plan. 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. The Company will purchase the Company's stock from time to time on
the open market.
21
<PAGE> 22
For the period ended June 30, 2000, cash provided by operations was
$6.9 million. Included in cash flows from operations were expenditures of $55.4
million relating to its community residential development segment. The Company
also obtained a $200 million line of credit, of which it has drawn $90.0
million as of June 30, 2000. Capital expenditures, other than community
residential development expenditures, during the first quarter of 2000 were
$141.9 million consisting of building acquisitions, real estate development and
FECI transportation and telecom expenditures.
The $200 million credit facility has an initial term of 2 years. This
facility will be available for general corporate purposes, including
repurchases of the Company's outstanding common stock. The facility includes
financial performance covenants relating to its leverage position, interest
coverage and a minimum net worth requirement and also negative pledge
restrictions.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("FAS 133"), which is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. FAS 133 establishes accounting
and reporting standards for derivative instruments and hedging activities. FAS
133 requires entities to recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company has not yet determined the impact of FAS 133 on its financial
statements but does not believe it will materially effect its 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.
ITEM 7A. MARKET RISK
The Company's primary market risk exposure is interest rate risk
primarily related to the Company's investment portfolio and its long-term debt.
This portfolio is materially comprised of fixed rate municipal securities with
active secondary or resale markets to ensure portfolio liquidity and commercial
paper. In March 2000, the Company entered into a senior unsecured revolving
credit facility for up to $200.0 million, which matures in March of 2002, with
$90 million outstanding as of June 30, 2000. This debt accrues interest at
different rates based on timing of the loan and the Company's preferences, but
generally will be either the one, two, three or six month London Interbank
Offered Rate ("LIBOR") plus a LIBOR margin in effect at the time of the loan.
This loan subjects the Company to interest rate risk relating to the change in
the LIBOR rates. The Company manages its interest rate exposure by monitoring
the effects of market changes in interest rates.
22
<PAGE> 23
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
Item 5 - Other Events - May 18, 2000
23
<PAGE> 24
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 14, 2000 /s/ Peter S. Rummell
--------------------------------------------
Peter S. Rummell
Chairman of the Board and
Chief Executive Officer
Date: August 14, 2000 /s/ Kevin M. Twomey
--------------------------------------------
Kevin M. Twomey
President, Chief Operating Officer, and
Chief Financial Officer
Date: August 14, 2000 /s/ Janna L. Connolly
--------------------------------------------
Janna L. Connolly
Vice President, Controller
(Chief Accounting Officer)
24
