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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NO. 1-10466
THE ST. JOE COMPANY
(Exact name of registrant as specified in its charter)
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FLORIDA 59-0432511
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 400, 1650 PRUDENTIAL DRIVE 32207
JACKSONVILLE, FLORIDA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (904) 396-6600
Securities Registered Pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, No par value New York Stock Exchange
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Indicate by check mark whether this Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K. or any
amendment to this Form 10-K [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates based on the closing price on March 10, 2000 was approximately
$855,584,000.
As of March 10, 2000, there were 91,697,811 shares of Common Stock, no par
value issued and 85,230,351 shares outstanding with 6,467,460 shares of treasury
stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 9, 2000 (the "Proxy Statement") are
incorporated by reference in Part III of this Report Other documents
incorporated by reference in this Report are listed in the Exhibit Index.
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PART I
ITEM 1. BUSINESS
As used throughout this Form 10-K Annual Report, the terms "St. Joe,"
"Company" and "Registrant" mean The St. Joe Company and its consolidated
subsidiaries unless the context indicates otherwise.
St. Joe was organized as a Florida corporation in 1936 by the executors of
the estate of Alfred I. duPont, a descendant of the Delaware family that founded
the duPont Company, to implement Mr. duPont's plans to establish a paper company
in northwest Florida. Over the years, St. Joe, then known as St. Joe Paper
Company, expanded into other lines of business primarily by acquiring companies
whose assets the Company perceived to be undervalued, such as railroads, banks,
a sugar company, a communications company and corrugated box factories.
The Company, headquartered in Jacksonville, Florida, is now one of the
Southeast's largest real estate operating companies. St. Joe provides a broad
range of real estate services to meet both residential and commercial real
estate needs. The Company is one of the few real estate operating companies to
have assembled the range of real estate, financial, marketing and regulatory
expertise to take a large-scale approach to real estate development and
services.
St. Joe is the single largest private landowner in the state of Florida.
The Company owns more than one million acres, which is approximately 3% of the
land area of the state of Florida. Most of the land is timberland, land suitable
for future development or developed property.
The Company conducts primarily all its business in six operating segments.
These are:
- Community Residential Development
- Residential Real Estate Services
- Commercial Real Estate Development and Services
- Forestry
- Land Sales
- Transportation
In 1999, the Company started a hospitality development group.
The Company's businesses are concentrated in Florida and the state's
economic health and growth rate will be important factors in creating demand for
the Company's products and services.
The Company's real estate operations are cyclical and are affected by local
demographic and economic trends and the supply and rate absorption of new
construction.
The Florida economy is growing faster than the national average in many
categories. Florida ranks third nationally in terms of annual percentage change
in employment. Five of the top fifteen fastest growing metropolitan areas in the
United States are located in Florida. The number of building permits issued in
Florida for construction of new residential dwellings continues to increase and
sales of existing homes exceed the national average.
Management expects Florida's economic and population growth to continue and
believes that the Company is well positioned to benefit from increasing demand
for housing as well as office and industrial space in the Florida real estate
market.
St. Joe's strategic plan calls for accelerating its core real estate
operations. In order to aggressively optimize the value of the Company's
substantial asset base, St. Joe is focused on increasing the pace of
development, which may include joint ventures and opportunistic acquisitions.
The Company does not currently plan to enter new business lines. St. Joe's goal
is to unlock value, to build on the Company's core real estate strengths and to
build new strengths in those areas where St. Joe may have unique new management
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expertise, areas such as resorts and hospitality. The Company is focused on key
markets in the Southeast, primarily Florida.
To implement this strategy, the Company has begun to divest its non-core
business segments.
- In 1996, the Company sold the stock of St. Joe Communications and St.
Joe's interest in three cellular limited partnerships, as well as the
Company's linerboard mill and container plants.
- In early 1999, with the assistance of The Nature Conservancy, the
Company completed the sale of its sugar assets for $152.5 million.
- In October 1999, the Company announced plans to spin-off its 54%
equity interest in Florida East Coast Industries, Inc. ("FECI") to its
shareholders in a recapitalization transaction. The transaction is
expected to be completed late in the second quarter or early in the
third quarter of 2000. The transaction is subject to a number of
conditions, including the receipt of a satisfactory private letter
ruling from the Internal Revenue Service ("IRS") as to the tax-free
status of the spin-off.
- In addition, in October 1999, the Company entered into a forward sale
transaction with a major financial institution that, in effect,
provided for the monetization of its long-held portfolio of equity
investments. The Company received approximately $111.1 million in
cash. The Company must settle the transaction by October 15, 2002 by
delivering either cash or a number of the equity securities to the
financial institution.
COMMUNITY RESIDENTIAL DEVELOPMENT
In the community residential development segment, the Company develops
large-scale, mixed-use communities primarily on Company-owned lands. The
Company's land holdings include large tracts near Tallahassee, the state
capital, and in northwest Florida. These tracts include significant Gulf of
Mexico beach frontage which is suited for residential, resort and second-home
communities. This large, established land inventory provides an advantage over
competitors that must purchase real estate at current market prices before
beginning projects. Development of master-planned communities is a long-term
endeavor, with build-out typically occurring over a five- to fifteen-year
period. The Company also develops smaller scale residential communities that
make productive use of existing Company assets and acquired land.
Since November 12, 1997, the Company has been a 74% partner with a joint
venture consisting of JMB Southeast Development, L.L.C. and JMB Southeast
Development, L.P. in St. Joe/Arvida Company, L.P., ("St. Joe/Arvida"). The
principal assets of St. Joe/Arvida are the "Arvida" name, proprietary
information systems and the Arvida management team. The Company directs its
residential development efforts through St. Joe/Arvida and conducts the majority
of its residential development activity under the Arvida trademark.
In April 1999, the Company acquired all the outstanding stock of Saussy
Burbank, a homebuilder located in Charlotte, North Carolina. Saussy Burbank
builds approximately 300 homes a year, primarily in Charlotte, Asheville, and
Raleigh, North Carolina.
The community residential development segment generated revenues in 1999
from the sales of developed homesites, the sale of housing units built by the
Company, management fees and rental income, and investments in limited
partnerships and other affiliates.
The Company directs the conceptual design, planning and permitting process
for each new community. The Company then constructs or contracts for the
construction of the infrastructure for the community. The Company markets and
sells developed homesites and builds, markets and sells finished housing units.
In December 1998, the Company acquired approximately 26% of the outstanding
limited partnership interests in Arvida/JMB Partners, L.P. ("Arvida/JMB"). The
partnership's assets consist primarily of land that is being developed into five
master-planned communities. Three of the communities are in Florida, one is near
Atlanta, and one is in Western North Carolina. The principal master planned
community in the portfolio is Weston located in Broward County in South Florida.
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As of December 31, 1999, St. Joe/Arvida was developing over twenty
residential or resort communities in various stages of planning and development,
including five owned by Arvida/JMB.
The following communities are being developed on lands owned by the Company
or to be acquired by the Company:
WaterColor is located on the beaches of the Gulf of Mexico in south
Walton County, Florida. WaterColor is situated on approximately 499 acres.
All three phases of WaterColor have been approved under Florida's
Development of Regional Impact ("DRI") permitting process. St. Joe/Arvida
intends to build homes and sell developed homesites in WaterColor. Sales
began in March 2000. At full build-out, the community is planned to include
approximately 1,100 residences, a beach club, tennis club, boathouse, sixty
room inn, 100,000 square feet of commercial space, dune walkovers and
boardwalks and a lakefront park. Construction on phase one of the project
commenced in September, 1999. Plans for phase one include 212 residential
units, 20,000 square feet of retail and commercial space, a beach club, a
tennis club and boathouse. An on-site welcome center opened in the first
quarter of 2000.
SouthWood is located in southeast Tallahassee, Florida. SouthWood is
situated on approximately 3,186 acres. Plans for SouthWood include
approximately 4,250 homes and a traditional town center with restaurants,
entertainment facilities, retail shops and offices. Over thirty-five
percent of the land is designated for greenspaces including a 123-acre
central park. The community will also feature a major education center. The
DRI for SouthWood was approved by city and county officials in May 1999.
Construction of infrastructure as well as commercial and retail projects is
scheduled to commence in 2000.
Victoria Park is located in Volusia County in central Florida.
Victoria Park is situated on approximately 1,859 acres being acquired by
the Company near Interstate 4 in Deland, Florida west of Daytona Beach,
Florida. Plans for Victoria Park include approximately 3,800 single and
multi-family units with a traditional town center. The DRI has been
approved, all local permits have been issued and a permit from the U.S.
Army Corps of Engineers is currently being processed. A new elementary
school is scheduled to open adjacent to Victoria Park for the 2000-2001
school year.
WaterSound is located in Walton County, Florida, approximately three
miles east of WaterColor. WaterSound includes over one mile of beachfront
on the Gulf of Mexico. Preliminary plans for WaterSound include a resort
hotel, beach club, St. Joe/Arvida built homes, condominiums and homesites.
Sales and construction in phase one is expected to commence in the third
quarter of 2000.
RiverTown is located in St. Johns County in northeast Florida, just
south of Jacksonville, Florida along the St. Johns River. RiverTown is
situated on approximately 4,300 acres. In late 1998, the Company sold 120
acres in RiverTown to the St. Johns County School Board to be used as a
site for a new high school. This school is scheduled to open for the
2000-2001 school year. In the fourth quarter of 1999, St. Joe filed an
application for a Planned Rural Development (PRD) for riverfront homesites
in RiverTown. In January, 2000, the Company obtained approval to develop
the first 23 riverfront homesites. Sales are expected to commence in the
third quarter of 2000.
Bay New Town is located in Walton and Bay Counties, Florida.
Conceptual design and land planning is underway, however timing is
uncertain until the planning process is finished.
St. Joe Beach is located in Gulf County, Florida. St. Joe Beach
includes approximately 3.5 miles of beachfront property. Conceptual design
and land planning is underway, however timing is uncertain until the
planning process is finished.
Mexico Beach is located in Bay County, Florida. Mexico Beach includes
more than three-quarters of a mile of beachfront property. Conceptual
design and land planning is underway, however timing is uncertain until the
planning process is finished.
The Retreat is located on the beaches of the Gulf of Mexico in south
Walton County, Florida. The Retreat includes 90 single-family homesites on
87 acres. As of December 31, 1999, 86 lots had been sold or were under
contract.
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Summerwood is located in Panama City Beach, Florida. Summerwood
includes 222 homesites being developed in three phases. Phases two and
three include 154 housing units now under development. Sixty-six of the 68
lots in phase one and 45 lots in phase two have been sold. Development of
phase three is scheduled to commence in the first quarter of 2000.
James Island is located in Jacksonville, Florida, near Interstate 95
and new elementary and middle schools. James Island is situated on
approximately 194 acres recently acquired by the Company. At full build-out
the community is expected to include approximately 365 housing units. Phase
one of James Island opened in the spring of 1999. Phase two opened in
December 1999. As of December 31, 1999, 95 homes had been sold.
Woodrun is located in the Lynn Haven area of Panama City, Florida.
Woodrun includes 51 single-family homesites situated around an
environmental preserve. As of December 31, 1999, 13 homesites had been
sold.
The Hammocks is located in the Lynn Haven area of Panama City,
Florida. The Hammocks is situated on approximately 189 acres. This new
community is in the planning stage. Development is expected to begin in the
second quarter of 2000.
Camp Creek Golf is located in Walton County, Florida, approximately
four miles east of WaterColor. Plans include 36 holes of golf, with the
potential to add fairway cottages. Construction of the first 18 hole golf
course, designed by Tom Fazio, is expected to begin in the second quarter
of 2000.
St. Johns Golf and Country Club is located in St. Johns County,
Florida. St. Johns Golf and Country Club is situated on property being
acquired by the Company. The community is expected to be planned to include
a total of 799 housing units and an 18-hole championship golf course. Most
homes will be adjacent to golf, conservation land, lakes, or natural wooded
areas. Construction of infrastructure is scheduled to commence in the first
quarter of 2000.
Driftwood is located in Franklin County, Florida. Driftwood consists
of 27 homesites. Site development started in the fourth quarter of 1999 and
sales in the first quarter of 2000.
St. James Island is located in Franklin County, Florida. Conceptual
design and land planning is underway, however timing is uncertain until the
planning process is finished.
Perico Island is located in Manatee county, Florida. Perico Island is
to be situated on approximately 220 acres under contract to be acquired by
the Company. Conceptual design and land planning is underway, however
timing is uncertain until the planning process is finished.
Several of the planned developments described above are in the midst of the
entitlement process or are in the planning stage. No assurances can be given
that the necessary entitlements for development will be secured, that any of the
Company's projects can be successfully developed, if at all, or that they can be
developed in a timely manner. It is not feasible to estimate project development
costs until entitlements have been obtained. As is typical of large-scale
development projects, development of these tracts could require significant
infrastructure development costs and may raise environmental issues that require
mitigation.
RESIDENTIAL REAL ESTATE SERVICES
In July 1998, St. Joe purchased Arvida Realty Services ("ARS"), formerly
known as Prudential Florida Realty. ARS is Florida's largest independent
residential real estate brokerage company and the fifth largest in the nation.
ARS has over 95 offices throughout Florida, more than 3,000 licensed sales
professionals and approximately 600 employees affiliated with the company.
ARS offers a complete array of real estate services, including residential
real estate sales, relocation services, asset and property management, title and
mortgage services, annual and seasonal rentals and international real estate
marketing.
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ARS's operations are seasonal with the volume of transactions increasing in
the spring and summer, which corresponds to the increase in housing relocations.
This seasonality is somewhat offset by the vacation home (second home) market
which is active in the winter months.
ARS generated revenue in 1999 by closing on 34,526 units, representing
$6.54 billion in sales volume.
COMMERCIAL REAL ESTATE DEVELOPMENT AND SERVICES
The Company's commercial real estate segment develops and manages office,
industrial and retail properties throughout the Southeast United States.
This segment generated revenues in 1999 from rentals on properties owned by
the Company, including Gran Central Corporation ("GCC"). Revenues were also
generated in 1999 from property management fees, development fees, sales of
developed properties and investments in partnerships and other affiliates.
Effective as of January 1, 1998, the Company entered into an Asset
Management Agreement with GCC, a wholly owned subsidiary of Florida East Coast
Industries, Inc. ("FECI"), pursuant to which the Company assumed the management,
including permitting, development planning, construction oversight, operation
and leasing of GCC's real estate. GCC pays the Company fees for these services
based on market rates. The Company owns 54% of the common stock of FECI.
The Company has announced it plans to spin-off its interest in FECI to its
shareholders in a recapitalization transaction. The spin-off will eliminate the
Company's ownership interest in GCC's commercial and industrial real estate. At
the closing of the transaction, various service agreements between the Company
and GCC will become effective. Under the terms of these agreements, which will
extend for up to three years after the closing of the transaction, GCC will
continue to retain the Company to develop and manage certain commercial real
estate holdings of GCC. The Company also expects to develop properties with GCC
on GCC owned lands and on Company owned lands through future joint venture
agreements with GCC. The Company expects GCC to pay fees for these services
based upon market rates.
Development. The Company directs the conceptual design, planning and
permitting process for each new development. The Company then constructs or
contracts for the construction of the infrastructure and building. The Company
generally receives a development fee equal to a percentage of the cost of the
project. The amount of the fee depends on the type and location of the project.
The Company has entered into strategic partnerships that allow it to
provide development services in certain competitive markets. In February 1998,
the Company acquired a one-third interest in Codina Group, Inc. ("CGI") In March
2000, CGI bought back Duke-Weeks Realty Corporation's one-third interest in CGI.
As a consequence, the Company now owns one-half of CGI. CGI develops commercial
properties for the Company in the south Florida market. The Company has also
formed a 50/50 partnership with Means Knaus LLC ("Means Knaus"), a Texas
developer, to develop commercial properties in the Dallas and Houston, Texas
markets.
During 1999, the Company completed construction of twelve properties
totaling approximately 2 million square feet of new space, including 1.2 million
square feet constructed for GCC.
At December 31, 1999, the Company had seven properties totaling
approximately 1.1 million square feet under construction, including 500,000
square feet constructed on behalf of GCC.
In 1999, the Company developed the expansion of the corporate campus for
HomeSide Lending, an international mortgage banking company. The new
three-story, 137,000-square-foot office building is immediately adjacent to
HomeSide's existing headquarters in south Jacksonville, Florida. The new
building is a state-of-the-art "smart building" located on approximately fifteen
acres fronting Interstate 95. This build-to-suit project was completed in
September 1999. This building was sold by the Company in February, 2000.
The Company's development operations, combined with the Company's tax
strategy to reinvest asset sales proceeds into "like-kind" properties, have
created a portfolio of rental properties totaling 1.3 million square feet. With
properties in Florida and Texas, the portfolio's occupancy at December 31, 1999
is at 64%.
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As part of the Company's tax strategy to reinvest the proceeds from asset
sales into qualifying like-kind properties, in December 1999 the Company
acquired three office properties in Tampa, Florida area for $28.5 million. These
properties comprise approximately 290,000 square feet and are currently over 95%
leased.
Projects developed and currently being held for lease by the Company
include:
CNL Center: The Company, in 50/50 partnership with CNL Realty Group
("CNL") completed construction in November 1999 of a new 14-story,
346,000-square-foot building in downtown Orlando. The project is located
off Interstate 4, adjacent to City Hall and a portion of which is being
leased by CNL as its corporate headquarters.
Millenia One: The Company, in 50/50 partnership with CNL, completed
construction in the fourth quarter of 1999 of the first building at
Millenia Park, a new corporate campus in Orlando, Florida. This Class-A
building is a six-story, 158,000 square foot office building. The site is
located on 31 acres fronting Interstate 4. Plans include four buildings
totaling 750,000 square feet of Class-A office space.
Westchase Corporate Center: The Company, in 50/50 partnership with
Means/Knaus, developed a six-story Class-A 185,000-square-foot office
building located on a 5.4-acre tract in Houston, Texas. The building has
frontage along Richmond Avenue, two blocks east of the Westbelt. The
project was completed in the fourth quarter of 1999.
The Company's strategy includes acquiring land positions in its targeted
markets to enable it to continue its development of commercial properties
including build-to-suit opportunities. At December 31, 1999, the Company,
exclusive of GCC, owned approximately 230 acres of land with entitlements for
future development of approximately 5.7 million square feet of commercial
property.
Projects being developed by the Company include:
355 Alhambra: The Company, in partnership with Armando Codina,
individually, is developing a 16-story, 224,000-square-foot, Class-A office
building at 355 Alhambra in Coral Gables, Florida. CGI is the construction,
leasing and management company for this development. Construction is
scheduled to be complete in the fourth quarter of 2000.
NCCI: The Company is developing the build-to-suit headquarters for
NCCI, Inc. (National Council of Compensation Insurance) in Boca Raton,
Florida. The 310,000-square-foot, Class-A office building is under
construction. It was one of Florida's largest build-to-suit projects in
1999.
Glenlake: In 1999, the Company acquired 18 acres at Glenlake in
Atlanta, Georgia. This property includes entitlements for approximately one
million square feet of office space as well as a 450-room hotel. The site
is located in Atlanta's Central Perimeter submarket, just west of Georgia
400. The first office building is currently in the design and planning
process. Construction may commence in 2000.
Deerfield: The Company is an approximate 38% equity partner in
Deerfield Park, LLC, which owns a 550-acre mixed-use community, located at
the Windward Parkway and GA 400 interchange in the North Fulton area of
Atlanta, Georgia. The Company, in a 50/50 joint venture with Hines
Interests, LP, is developing Deerfield Commons within Deerfield. Phase one
includes a four-story, 120,000 square foot Class-A, corporate office
building. Construction commenced in the third quarter of 1999.
Pier Park: Pier Park is to be situated on approximately 275 acres.
The property is to be developed jointly with Panama City Beach, Florida.
Pier Park is planned to include retail, dining and entertainment
components.
Projects managed and/or being developed by the Company for GCC include:
Gran Park at SouthPark: Development plans for this GCC multi-use
corporate campus in Orlando, Florida include eight buildings totaling
approximately 900,000 square feet. Three buildings totaling 429,000 square
feet have been constructed and three others totaling approximately 400,000
square feet are currently under construction.
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Gran Park at Deerwood Park North: St. Joe is managing and developing
GCC's Deerwood Park North project in Jacksonville, Florida. The Company
plans to develop four Class-A office buildings for a total of 513,000
square feet. Building one is a five-story, 138,000-square-foot office
building that was completed in the third quarter of 1999.
Gran Park at Jacksonville: St. Joe is developing for GCC a new
one-million-square-foot business park in Jacksonville for a major tenant,
Bombardier Capital Inc. This project, which was launched in the third
quarter of 1998, is a component of GCC's Gran Park at Jacksonville.
Bombardier leased all of the first 125,000-square-foot building and has
options for up to 500,000 additional square feet.
Beacon Pointe at Weston: GCC entered into a venture with Duke-Weeks
Realty Corporation to develop four office buildings totaling approximately
375,000 square feet and a hotel site on GCC property located in the Weston
Park of Commerce in west Broward County, Florida. The first
100,000-square-foot Class-A office building was completed in the third
quarter of 1999.
Gran Park at Beacon Station: Beacon Station is located near Miami
International Airport and entitled for 6.5 million square feet of office
and industrial space. Construction has commenced on a 101,000 square foot
build-to-suit office building for Union Planters Bank.
Service. The Company provides property management services for projects
owned by GCC and others. The Company generally receives a property management
fee equal to a percentage of the gross rental revenues of a managed building or
project. The amount of these fees depends on the type and location of the
building or project.
The Company provides commercial real estate services through Advantis.
Advantis was formed in early 1999 by combining the businesses of Goodman Segar
Hogan Hoffler, L.P. and Florida Real Estate Advisors, Inc., firms acquired by
the Company in late 1998. Advantis provides a full array of services for its
clients including brokerage, property management and construction management.
During 1999, Advantis acquired additional commercial real estate firms at a
total purchase price exceeding $9 million. These firms were located in the
Atlanta, Georgia, Washington DC and Tallahassee, Florida markets.
The Company, through Advantis and CGI, provides property management
services for GCC properties pursuant to the Asset Management Agreement and
expects to continue to provide such services once the spin-off is completed
pursuant to a Property Management Agreement. At December 31, 1999, GCC's
portfolio totaled 5.2 million square feet with an occupancy of 85%.
A summary of properties managed for GCC and others follows:
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RENTABLE
STATE SQUARE FEET
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Florida..................................................... 18,825,000
Virginia.................................................... 10,843,000
North Carolina.............................................. 1,751,000
Georgia..................................................... 882,000
Washington, DC area......................................... 339,000
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32,640,000
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RENTABLE
MANAGEMENT TYPE SQUARE FEET
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Office property............................................. 13,588,000
Industrial property......................................... 9,244,000
Retail property............................................. 6,025,000
Facilities management....................................... 1,398,000
Asset management............................................ 1,262,000
Residential property........................................ 1,123,000
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32,640,000
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ST. JOE LAND COMPANY
This segment was created in 1999 to facilitate timberland sales at higher
prices than would be received with bulk timberland sales. This segment markets
parcels which are typically between five and 5,000 acres. This land is from a
portion of the timberlands long-held by St. Joe in northwest Florida and
southwest Georgia that consist of forests and meadowlands with frontage on
rivers, lakes and bays. These parcels are being marketed as large secluded home
sites, quail plantations, ranches, farms, hunting and fishing preserves and for
other recreational uses. The Company believes that there is an opportunity to
create additional value on over 200,000 acres of its timberland that are not
included in the Company's current development plans. The vast majority of the
holdings marketed by St. Joe Land Company will continue to be managed as
timberland until sold.
This segment generated revenues in 1999 from the sale of 19 parcels of land
totaling 1,018 acres.
ST. JOE HOSPITALITY
In October 1999, St. Joe created this segment as part of the Company's core
real estate business. This new business unit will act as a developer of
hospitality real estate projects including hotels, resorts and timeshare
facilities. St. Joe Hospitality intends to develop hotels at two St. Joe
residential projects at WaterColor and WaterSound in northwest Florida. St. Joe
Hospitality intends to offer fee-based development services for the hospitality
industry and will seek equity partners for St. Joe hotel projects planned for
northwest Florida. The newly formed unit is now working on projects under
preliminary development agreements in several resort markets.
FORESTRY
The segment focuses on the management and harvesting of the Company's
extensive timberland holdings. The Company grows, harvests, and sells timber and
wood fiber. The Company is the largest private holder of timberlands in Florida,
with more than 700,000 acres of planted pine forests, primarily in northwestern
Florida, and an additional 300,000 acres of mixed timberland, wetlands, and lake
and canal properties. The Company's timberlands also stretch into southern
Georgia.
This segment generated revenues in 1999 from the sale of pulpwood and bulk
land and timber sales.
St. Joe estimates that its standing pine inventory on December 31, 1999,
totaled 11.4 million tons and its hardwood inventory totaled 6.06 million tons.
The timberlands are harvested by local independent contractors pursuant to
agreements that are generally renewed annually. St. Joe's principal forestry
product is softwood pulpwood. The company also grows and sells softwood and
hardwood sawtimber.
Many of the Company's timberlands are located near key transportation links
including roads, waterways and railroads, allowing the Company to deliver fiber
to its customers on a cost-efficient basis.
In 1998, the Company renegotiated its 15-year supply contract with Florida
Coast Paper, LLC ("FCP"), the purchaser of the Company's former paper mill in
Port St. Joe, Florida, to allow it to supply pulpwood to the mill at a level
(700,000 tons per year beginning June 1, 1998) significantly lower than
historical levels. The Company sought to reduce its obligation to supply
pulpwood under the agreement in order to extend growing periods for certain
portions of its timber. FCP ceased operations on August 15, 1998 due to market
conditions resulting from the Asian economic collapse. In late November 1998,
the Company resumed wood fiber deliveries to FCP, which are being shipped to
another mill in Panama City, Florida at that mill's expense. FCP has filed for
Chapter 11 bankruptcy protection.
St. Joe maintains a nursery and research facility in Capps, Florida, which
grows seedlings for use in reforestation of its lands. The nursery conducts
research to produce faster growing, more disease-resistant species of pine
trees, and produces seedlings for planting on Company-owned plantations. In
addition, the Company, in cooperation with the University of Florida, is doing
experimental work in genetics on the development of superior pine seed.
8
<PAGE> 10
St. Joe's strategy in its forestry segment is to increase the average age
of its timber by extending growing periods before final harvesting in order to
capitalize on the higher margins of older-growth timber. The Company intends to
extend growing periods for its softwood forest from a historical average of
approximately 18-22 years to approximately 28-30 years. This change is expected
to shift the Company's product mix from approximately 85% pulpwood and 15%
higher-margin products in 1997 to approximately 60% pulpwood and 40%
higher-margin products by 2005. This strategy should ultimately increase the
revenues and returns of the Company's timber operations when a sustainable
harvest of older-growth timber is achieved, although there can be no assurances
in this regard. The Company will also seek to maximize sustainable harvest
volumes through the continued use and development of genetically improved
seedlings, soil mapping, extensive fertilization, vegetation control, thinning
and selective harvesting practices.
As part of its strategy to maximize the cash flows from its timberlands,
the Company engages in several business activities complementary to its land
holdings. The Company leases approximately 900,000 acres of its timberlands to
private clubs and state agencies for hunting
St. Joe previously announced that it intended to sell approximately 800,000
acres of its northwest Florida timberlands. The first 100,000 acres were offered
for sale on March 1, 1999. Under the Company's development plans, none of the
timberlands to be offered for sale has significant real estate development
potential in the next 15 to 20 years. The sales of additional parcels, typically
100,000 acres, were to be grouped, sized and timed in order to seek maximum
value. The Company was under no time constraints as to when it sold the
timberland, so all sales were to be subject to an acceptable bid including
price, terms and conditions. During the third quarter of 1999, the Company sold
13,275 acres of timberland for approximately $9.9 million, or $743 per acre,
which resulted in a gain of $8.7 million. However, pending improved timberland
market conditions and an evaluation of potential new markets, the Company has
suspended its plans to sell additional large parcels. 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.
TRANSPORTATION
The Company owns 54% of the common stock of FECI. The Company has announced
it plans to spin-off its interest in FECI to its shareholders in a
recapitalization transaction. The spin-off will eliminate the Company's
ownership interest in FECR.
FECI's subsidiary, Florida East Coast Railway Company ("FECR"), operates a
railroad along 350 miles of main line track between Jacksonville and Miami and
along 91 miles of branch track between Ft. Pierce and Lake Harbor, Florida. FECR
has the only coastal right-of-way between Jacksonville and West Palm Beach,
Florida and is the exclusive rail-service provider to the Port of Palm Beach,
Port Everglades and the Port of Miami. To complement and facilitate its railroad
operations, FECR also provides drayage and interstate trucking services through
its wholly owned subsidiary International Transit, Inc. ("ITI").
At Jacksonville, FECR connects with Norfolk Southern Corporation and with
CSX Transportation, Inc. FECR relies upon both of these carriers for
Florida-bound rail freight traffic that originates elsewhere in the United
States. FECR is a terminating railroad and, consequently, does not receive
traffic from one railroad to be passed over its track to another railroad.
Because all of FECR's traffic either originates in or is bound for Florida,
FECR's revenues fluctuate with economic conditions in Florida.
In 1999, FECR principally transported automotive vehicles, aggregates,
cement, trailers-on-flatcars, containers-on-flatcars and basic consumer goods
such as foodstuffs. Movement is relatively stable throughout the year with
heaviest traffic ordinarily occurring during the first and last quarters of the
year.
Florida East Coast Telecom, Inc. ("FECT"), FECI's telecommunication
subsidiary, controls 12,600 fiber miles of "dark fiber" fiber optic cable, as
well as telecommunications conduit comprising a 780-mile "telecommunication
loop" that will reach 12 of Florida's 15 largest population centers and 73% of
its total population. FECT has begun to implement a strategy which includes the
swapping of its Florida fiber assets to expand its reach, selling dark fiber and
marketing newly lit bandwidth. The spin-off will eliminate the Company's
ownership interest in FECT.
9
<PAGE> 11
The Company also owns the Apalachicola Northern Railroad Company ("ANRR"),
a short-line railroad operating between Port St. Joe and Chattahoochee, Florida,
where it connects with an unaffiliated carrier. Its transportation facilities
include 96 miles of main track, 13 miles of yard switching track and 3 miles of
other track. Although it is a common carrier, most of ANRR's business in recent
years consisted of carrying coal from Port St. Joe to Chattahoochee pursuant to
a contract with Seminole Electric Cooperative, Incorporated ("Seminole") and
carrying wood chips, pulpwood and linerboard used or produced at FCP's paper
mill in Port St. Joe, Florida. On August 15, 1998 the FCP mill shutdown and is
not expected to reopen in the near term. The other items carried by ANRR are
chemicals, stone and clay products and recyclable items.
In 1982, ANRR entered into a coal contract with Seminole. In January 1999,
Seminole halted shipments of coal and Seminole also filed a lawsuit in circuit
court in Gulf County, Florida, seeking to terminate its contract with ANRR.
Management believes it has fully performed its obligations under the contract
and is prepared to complete the contract term. Pending resolution, ANRR's
workforce has been reduced significantly, commensurate with its loss in traffic.
REGULATION
Real Estate. Development of real property in Florida entails an extensive
approval process involving overlapping regulatory jurisdictions. Real estate
projects must generally comply with the provisions of the Local Government
Comprehensive Planning and Land Development Regulation Act (the "Growth
Management Act"). In addition, development projects that exceed certain
specified regulatory thresholds require approval of a comprehensive Development
of Regional Impact ("DRI") application. Compliance with the Growth Management
Act and the DRI process is usually lengthy and costly and can be expected to
materially affect the Company's real estate development activities.
The Growth Management Act requires counties and cities to adopt
comprehensive plans guiding and controlling future real property development in
their respective jurisdictions. After a local government adopts its
comprehensive plan, all development orders and development permits that it
issues must be consistent with the plan. Each plan must address such topics as
future land use, capital improvements, traffic circulation, sanitation,
sewerage, potable water, drainage and solid wastes. The local governments'
comprehensive plans must also establish "levels of service" with respect to
certain specified public facilities and services to residents. Local governments
are prohibited from issuing development orders or permits if facilities and
services are not operating at established levels of service, or if the projects
for which permits are requested will reduce the level of service for public
facilities below the level of service established in the local government's
comprehensive plan. If the proposed development would reduce the established
level of services below the level set by the plan, the development order will
require that, at the outset of the project, the developer either sufficiently
improve the services to meet the required level or provide financial assurances
that the additional services will be provided as the project progresses.
The Growth Management Act, in some instances, can significantly affect the
ability of developers to obtain local government approval in Florida. In many
areas, infrastructure funding has not kept pace with growth. As a result,
substandard facilities and services can delay or prevent the issuance of
permits. Consequently, the Growth Management Act could adversely affect the
ability of Florida developers, including the Company and GCC, to develop real
estate projects.
The DRI review process includes an evaluation of the project's impact on
the environment, infrastructure and government services, and requires the
involvement of numerous federal, state and local environmental, zoning and
community development agencies and authorities. Local government approval of any
DRI is subject to appeal to the Governor and Cabinet by the Florida Department
of Community Affairs, and adverse decisions by the Governor or Cabinet are
subject to judicial appeal. The DRI approval process is usually lengthy and
costly, and there are no assurances as conditions, standards or requirements may
be imposed on a developer with respect to a particular project. The DRI approval
process is expected to have a material impact on the Company's real estate
development activities in the future.
In addition, a substantial portion of the developable property in Florida,
including much of the Company's property, is raw land located in areas where its
development may affect the natural habitats of
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<PAGE> 12
various endangered or protected wildlife species or in sensitive environmental
areas such as wetlands and coastal areas, which are subject to extensive and
evolving federal, state and local regulation. Accordingly, federal, state and
local wildlife protection, zoning and land use restrictions, as well as
community development requirements, may impose significant limitations on the
Company's ability to develop its real estate holdings.
The Company's ownership and development of real estate are subject to
extensive and changing federal, state and local environmental laws, the
provisions and enforcement of which may become more stringent in the future.
Pursuant to those laws, the owner or operator of real estate may be required to
perform remediation regardless of whether it caused the contamination. The sale
or development of properties may also be restricted due to environmental
concerns, the protection of endangered species, or the protection of wetlands.
In addition, violations of various statutory and regulatory programs can result
in civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. The Company is not
presently aware of any material contamination at or any material adverse
environmental development issues relating to its real estate operations.
However, there can be no assurance that environmental issues will not arise in
the future relating to the real estate operations.
ARS is subject to regulation by the Florida Real Estate Commission and must
comply with federal, state and local laws and regulations governing the
marketing of residential real estate including but not limited to licensing,
disclosure and anti-discrimination.
Advantis is subject to regulation in the states in which it operates and
must comply with all federal, state and local laws and regulations governing the
marketing and management of commercial real estate including but not limited to
licensing, disclosure and anti-discrimination.
Forestry. Forestry operations generate air emissions through controlled
burning. The forestry operations are subject to regulation under the Endangered
Species Act ("ESA"), the federal Clean Water Act, the federal Clean Air Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Toxic Substances
Control Act as well as similar state laws and regulations. Violations of various
statutory and regulatory programs can result in civil penalties, remediation
expenses, natural resource damages, potential injunctions, cease and desist
orders and criminal penalties. Some environmental statutes impose strict
liability, rendering a person liable for environmental damage without regard to
negligence or fault on the part of such person.
The ESA and counterpart state legislation protect species threatened with
possible extinction. A number of species indigenous to the Company's timberlands
have been, and in the future may be, protected under these laws, including the
red cockaded woodpecker, the bald eagle and various other species. Protection of
endangered and threatened species may include restrictions on timber harvesting,
road building and other silvicultural activities on the Company's land
containing the affected species. There can be no assurance that such laws or
future legislation or administrative or judicial action with respect to
protection of the environment will not adversely affect the Company's forestry
operations.
In conducting its harvesting activities, the Company voluntarily complies
with the "Best Management Practices" recommended by the Florida Division of
Forestry. From time to time, proposals have been made in state legislatures
regarding the regulation of timber harvesting methods. There can be no assurance
that such proposals, if adopted, will not adversely affect the Company or its
ability to harvest and sell logs or timber in the manner currently contemplated.
The Company is not presently aware of any facts that indicate that the
Company will be required to incur material costs relating to environmental
matters in relation to its forestry operations. However, there can be no
assurances that environmental regulation or regulation relating to endangered
species or wetlands will not have a material adverse effect on the forestry
operations in the future.
Transportation. Both FECR and ANRR are subject to regulation by the
Surface Transportation Board of the U.S. Department of Transportation and, in
some areas, the State of Florida. These governmental agencies must approve,
prior to implementation, changes in areas served and certain other changes in
operations of FECR and ANRR.
11
<PAGE> 13
The Company's transportation operations are subject to extensive local,
state and federal environmental laws and regulations, including the federal
Clean Air Act, CERCLA and various other state and local environmental laws and
regulations. Violations of various statutory and regulatory programs can result
in civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. Some environmental
statutes impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person. In
addition, the Company's present and historic ownership and operation of real
property, including yards, in connection with its transportation operations
involve the storage, use or disposal of hazardous substances that have
contaminated and may in the future contaminate the environment. The Company may
also be liable for the costs of cleaning up a site at which it has disposed
(intentionally or unintentionally by virtue of, for example, an accident,
derailment or leak) or to which it has transported hazardous substances. The
Company is currently involved in various remediations of properties relating to
its transportation operations. In addition, FECR, along with many other
companies, has been named a potentially responsible party in proceedings under
Federal statutes for the clean up of designated Superfund sites at Hialeah,
Florida and Jacksonville, Florida. Based on presently available information, the
Company does not believe that the costs of addressing any known environmental
issues relating to its transportation operations will be material. However, the
future cost of complying with environmental laws and containing or remediating
contamination cannot be predicted with any certainty, and there can be no
assurances that such liabilities or costs would not have a material adverse
effect on the Company in the future.
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.
In addition, the occurrence or non-occurrence of the recapitalization, the
exchange and the spin-off of the Company's interest in FECI depends on the
satisfaction of a number of conditions among which are the Company's receipt of
an Internal Revenue Service ruling concerning the tax-free status of the
spin-off and the FECI shareholders' approval of the recapitalization. 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
12
<PAGE> 14
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.
RISKS RELATING TO REAL ESTATE OPERATIONS
Market Risks. There can be no assurance that the U.S. economy, in general,
or the economy of the Southeast in particular, will continue to experience
positive growth rates or that the United States, in general, or the Southeast in
particular, will not be affected by a recession in the future. Certain
significant expenditures associated with the development, management and
servicing of real estate (such as real estate taxes, maintenance costs and debt
payments, if any) would generally not be reduced if an economic downturn caused
a reduction in revenues from the Company's properties.
Development Risks. The Company's real estate development activities
require significant capital expenditures. The Company will be required to obtain
funds for its capital expenditures and operating activities through cash flow
from operations, property sales or financings. There can be no assurances that
funds available from cash flow, property sales and financings will be sufficient
to fund the Company's required or desired capital expenditures for development.
If the Company were unable to obtain sufficient funds, it might have to defer or
otherwise limit certain development activities. Further, any new development or
any rehabilitation of older projects can require compliance with new building
codes and other regulations. The Company cannot estimate the cost of complying
with such codes and regulations, and such costs can make a new project or some
otherwise desirable uses of an existing project uneconomic.
Joint Venture Risks. The Company has entered into certain joint venture
relationships and may initiate future joint venture projects as part of its
overall development strategy. A joint venture may involve special risks
associated with the possibility that (i) the venture partner at any time may
have economic or business interests or goals that are inconsistent with those of
the Company, (ii) the venture partner may take actions contrary to the
instructions or requests of the Company, or contrary to the Company's policies
or objectives with respect to its real estate investments, or (iii) the venture
partner could experience financial difficulties. Actions by the Company's
venture partners may have the result of subjecting property owned by the joint
venture to liabilities in excess of those contemplated by the terms of the joint
venture agreement or have other adverse consequences. In addition, the Company's
joint venture partners may dedicate times and resources to existing commitments
and responsibilities.
The Florida Economy. The Company's businesses are concentrated in Florida
and the state's economic health and growth rate will be important factors in
creating demand for the Company's products and services.
The Company's real estate operations are cyclical and are affected by local
demographic and economic trends and the supply and rate absorption of new
construction.
Management expects Florida's economic and population growth to continue and
believes that the Company is well positioned to benefit from increasing demand
for housing as well as office and industrial space in the Florida real estate
market.
COMPETITION
Real Estate. The real estate industry is generally characterized by
significant competition. The Company plans to continue to expand through a
combination of residential and commercial developments throughout the southeast
but concentrated in Florida where the acquisition and/or development of property
would, in the opinion of management, result in a favorable risk-adjusted return
on investment. There are a number of residential and commercial developers and
real estate services companies that compete with the Company in seeking
properties for acquisition, resources for development and prospective sellers,
purchasers and tenants. Competition from other real estate developers and real
estate service companies may adversely affect the Company's ability to sell
homes, to attract sellers and purchasers and to attract and retain tenants. The
Company may compete with other entities that have greater financial and other
resources than the
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<PAGE> 15
Company. There can be no assurance that the existence of such competition could
not have a material adverse effect on the Company's business, operations and
cash flow.
Forestry. The forest products industry is highly competitive in terms of
price and quality. Many of the Company's competitors are fully integrated
companies with substantially greater financial and operating resources than the
Company. The products of the Company are also subject to increasing competition
from a variety of non-wood and engineered wood products. In addition, the
Company is subject to a potential increase in competition from lumber products
and logs imported from foreign sources. Any significant increase in competitive
pressures from substitute products or other domestic or foreign suppliers could
have a material adverse effect on the Company.
Transportation. Although each of the Company's railroads is typically the
only rail carrier directly serving its customers, the Company's railroads
compete directly with other railroads that could potentially deliver freight to
their markets and customers via different routes. The Company's railroads also
compete directly with other modes of transportation, including motor carriers
and, to a lesser extent, ships and barges. Competition is based primarily upon
the rate charged and the transit time required, as well as the quality and
reliability of the service provided. Any improvement in the cost or quality of
these alternate modes of transportation could increase competition from these
other modes of transportation and adversely affect the Company's business.
EMPLOYEES
The Company (excluding FECI related companies) has approximately 1,400
employees. Some ANRR employees are covered by collective bargaining agreements
that set wage levels and establish work rules and working conditions. The
Company considers its relations with its employees to be good. These employees
work in the following segments:
<TABLE>
<S> <C> <C>
- - Residential real estate..................................... 122
- - Residential real estate services............................ 600
- - Commercial real estate...................................... 504
- - Forestry.................................................... 33
- - Transportation.............................................. 18
- - Other -- including corporate................................ 113
</TABLE>
At December 31, 1999, FECI employed approximately 1,058 people.
ITEM 2. PROPERTIES
The material physical properties of the Company at December 31, 1999 are
addressed below. All properties shown are owned in fee simple, except where
otherwise indicated.
CORPORATE FACILITIES
The Company leases approximately 40,000 square feet in a building owned by
GCC in Jacksonville, Florida at market rates.
COMMUNITY RESIDENTIAL DEVELOPMENT
The Company owns thousands of acres in northwestern Florida and St. John's
County on the northeastern coast of Florida near Jacksonville, including
substantial gulf, lake and riverfront acreage, that it believes to be
potentially suited to community residential and resort development. See Item
1 -- "Community Residential Development" for a description of many of the
Company's developments.
St. Joe/Arvida's administrative offices are located in Boca Raton, Florida
and are leased from a third party.
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RESIDENTIAL REAL ESTATE SERVICES
The administrative offices of ARS are located in Clearwater, Florida. These
offices as well as brokerage offices based in 95 locations throughout Florida
are leased from third parties.
COMMERCIAL REAL ESTATE DEVELOPMENT AND SERVICES
On December 31, 1999, the Company owned 230 acres of land in Florida,
Georgia and Texas, with entitlements for future development of approximately 5.7
million square feet of commercial property.
On December 31, 1999, the Company owned rental properties in Florida and
Texas, totaling 1.3 million square feet.
On December 31, 1999, GCC's commercial and industrial portfolio included 50
buildings aggregating 5.2 million rentable square feet.
On December 31, 1999, GCC owned and managed 17,774 acres of land, which
included 365 acres on which buildings are located; 1,869 acres developed with
infrastructure ready to receive buildings; 14,358 acres of undeveloped
properties, and 1,182 acres owned by FECR. These properties are held for lease,
development and/or sale and are in fifteen counties of the state of Florida.
All Advantis offices are leased from third parties.
FORESTRY
The Company owns, primarily in northwestern Florida, over 700,000 acres of
planted pine forests and an additional 300,000 acres of mixed timberland,
wetlands, lake and canal properties. The forestry segment's administrative
offices are based in Port St. Joe, Florida and it owns forestry management
facilities, chip plants and pulpwood procurement offices in the following
locations:
<TABLE>
FORESTRY MANAGEMENT FACILITIES PULPWOOD PROCUREMENT OFFICE CHIP PLANTS
- ------------------------------ --------------------------- --------------
<S> <C> <C>
Albany, Georgia Port St. Joe, Florida Lowry, Florida
Hosford, Florida
Newport, Florida
Port St. Joe, Florida
West Bay, Florida
Wewahitchka, Florida
</TABLE>
TRANSPORTATION
FECR owns three connected four-story buildings in St. Augustine, Florida
which are used by FECI and FECR as corporate headquarters. FECR also owns, in
fee simple, a railroad right-of-way, generally 100 feet wide, along the East
Coast of Florida extending for 351 miles used for its railroad operations and
telecommunications facilities. FECR also owns a 91 miles of branch mainline,
various rail car marshalling yards, trailer/container and automobile loading and
unloading facilities, signaling system facilities and a number of operating
offices, shops and service house buildings.
Tracks in all classes, their bridges and the fixed property and signal
improvements supporting the transportation effort, are maintained to a level
equaling the needs of service. The mainline and its passing tracks are, in
general, constructed of 132-pound per yard continuous welded rail supported on
concrete crossties. These facilities provide a reliable infrastructure for the
conduct of a transportation service suited to the business demands of its
customers, to include unrestricted movement of double-stacked containers, tri-
level automobiles and heavier axle rail cars.
The branch mainlines, way switching and yard tracks are, for the most part,
of 115-pound per yard materials supported by wood ties. These tracks and certain
mainline yard tracks are of a lesser weight of rail supported on wood ties and,
although in suitable condition, are to be improved by the installation of
heavier materials. Programs designed to address this matter may be expected to
extend over several future years.
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<PAGE> 17
FECR owns 81 diesel electric locomotives; 2,483 freight cars; 883 trailers
for highway revenue service; numerous pieces of rail-mounted and
non-rail-mounted work equipment, and numerous automobiles used in maintenance
and transportation operations. All equipment owned is in good physical
condition.
ANRR owns a three story building in Port St. Joe, Florida that is partially
used for its administrative offices. Its transportation facilities include 96
miles of main track, 13 miles of yard switching track and 3 miles of other
track. ANRR owns 14 diesel locomotives, 273 freight cars, and as well as work
equipment and automotive vehicles.
ITEM 3. LEGAL PROCEEDINGS
The Company is named as a Potentially Responsible Party ("PRP") for the
remediation of a designated Superfund site near Tampa, Florida. The United
States Environmental Protection Agency ("USEPA") has alleged that the Company
caused certain materials to be disposed at the site over a period of years in
the late 1970s or 1980s. The Company has provided USEPA with evidence indicating
the Company did not dispose of any materials at the site. The Company has
declined an invitation to join a PRP group as a de minimis party. The Company
believes that it does not have any liability and continues to vigorously oppose
any attempt to impose any liability upon the Company for the remediation of the
site.
The Company received notice of potential involvement in a Superfund Site in
Sharonville, Ohio, during the third quarter of 1996. The site was formerly owned
and operated by the Company as a container plant. It was sold in the late
1970's. At this time the extent of the contamination and magnitude of the
cleanup is unknown. The Company does not believe, based on its preliminary
investigation of the Company's use of the property, that it is responsible for
the contamination, and if found partially responsible, the Company does not
believe its liability would be material.
FECR has also been named as a PRP at several USEPA Superfund Sites.
Compliance with federal, state and local laws and regulations is a
principal goal of the company. The Company, through its subsidiaries, has
entered into a number of consent orders with state regulatory agencies to
remediate certain identified sites. The Company continues to cooperate with
federal, state and local agencies to ensure its facilities are operated in
compliance with applicable environmental laws and regulations. The Company is
not aware of any monetary sanctions to be imposed, which, in the aggregate, are
likely to exceed $100,000, nor does it believe that corrections, if any, will
necessitate significant capital outlays or cause material changes in the
business.
From time to time, the Company is involved in litigation incidental to its
business. In the Company's opinion, no litigation to which the Company is
currently a party, if decided adversely to the Company, is likely to have a
material adverse effect on the Company's results of operation or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK HOLDER
MATTERS
The Company had 1,236 common stockholders of record as of March 10, 2000.
The Company's Common Stock is quoted on the New York Stock Exchange ("NYSE")
Composite Transactions Tape under the symbol "JOE."
The range of high and low sales prices for the Common Stock as reported on
the NYSE Composite Transactions Tape for the periods indicated is set forth
below:
<TABLE>
<CAPTION>
COMMON STOCK PRICE(1) HIGH LOW
- --------------------- -------- -------
<S> <C> <C> <C> <C>
1999
First Quarter............................................... $26 $20 11/16
Second Quarter.............................................. 28 1/8 23 5/16
Third Quarter............................................... 27 1/8 21
Fourth Quarter.............................................. 24 15/16 20 5/8
1998
First Quarter............................................... 36 5/8 30 7/64
Second Quarter.............................................. 34 1/8 26 15/16
Third Quarter............................................... 28 1/16 18 7/8
Fourth Quarter.............................................. 26 3/4 20
1997
First Quarter............................................... 31 21 1/16
Second Quarter.............................................. 28 1/4 23 5/16
Third Quarter............................................... 33 5/8 27
Fourth Quarter.............................................. 38 5/16 29 5/16
</TABLE>
- ---------------
(1) Prices are rounded to the nearest 1/16th and reflect the 3-for-1 split of
the Company's Common Stock on January 12, 1998.
On March 10, 2000, the sale price of the Company's common stock on the NYSE
was $26 1/16.
DIVIDENDS
The Company paid aggregate annual cash dividends of approximately $.02,
$.08, and .07 per share to holders of the Common Stock in 1999, 1998 and 1997,
respectively. In addition, the Company distributed net proceeds of $3.33 per
share to stockholders of record on March 21, 1997 and $.34 per share to
stockholders of record on December 19, 1997, in each case arising from the sale
of the Company's linerboard and container facilities and its communications
business. Although the Company has paid dividends in the past, there can be no
assurance that such practice will continue in the future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below are qualified in
their entirety by and should be read in conjunction with the consolidated
financial statements and the notes related thereto included elsewhere herein.
The statement of operations data with respect to the years ended December 31,
1999, 1998, and 1997 and the balance sheet data as of December 31, 1999 and 1998
have been derived from the financial statements of the Company included herein,
which have been audited by KPMG LLP. The statement of operations data with
respect to the years ended December 31, 1996 and 1995 and the balance sheet data
as of December 31, 1997, 1996 and 1995 have been derived from the financial
statements of the Company previously filed with the SEC, and have also been
audited by KPMG LLP. Historical results are not necessarily indicative of the
results to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues(1)....................... $750,412 $392,181 $296,977 $376,693 $277,377
Operating expenses.......................... 589,588 286,973 215,941 210,385 213,847
Corporate expense........................... 16,361 6,569 6,514 (4,363) 3,052
Depreciation and amortization............... 49,368 38,893 28,732 27,831 26,870
Impairment losses........................... 7,162 10,238 -- -- --
-------- -------- -------- -------- --------
Operating profit............................ 87,933 49,508 45,790 142,840 33,608
Other income................................ 32,910 31,921 41,982 41,773 20,681
-------- -------- -------- -------- --------
Income from continuing operations before
income taxes and minority interest........ 120,843 81,429 87,772 184,613 54,289
Income tax expense.......................... 23,961 36,180 37,971 79,311 20,209
-------- -------- -------- -------- --------
Income from continuing operations before
minority interest......................... 96,882 45,249 49,801 105,302 34,080
Minority interest........................... 19,243 19,117 18,401 14,002 12,194
-------- -------- -------- -------- --------
Income from continuing operations........... 77,639 26,132 31,400 91,300 21,886
Income (loss) from discontinued
operations(2)............................. 5,364 2,706 4,053 (3,919) 51,933
Gain on sale of discontinued
operations(2)............................. 41,354 -- -- 88,641 --
-------- -------- -------- -------- --------
Net income.................................. $124,357 $ 28,838 $ 35,453 $176,022 $ 73,819
======== ======== ======== ======== ========
PER SHARE DATA:
Basic
Income from continuing operations........... $ 0.89 $ 0.29 $ 0.34 $ 0.99 $ 0.24
Earnings (loss) from discontinued
operations(2)............................. 0.06 0.03 0.05 (0.04) 0.57
Gain on the sale of discontinued
operations(2)............................. 0.47 -- -- 0.97 --
-------- -------- -------- -------- --------
Net income.................................. $ 1.42 $ 0.32 $ 0.39 $ 1.92 $ .81
======== ======== ======== ======== ========
Diluted
Income from continuing operations........... $ 0.88 $ 0.28 $ 0.34 $ 0.99 $ 0.24
Earnings (loss) from discontinued
operations(2)............................. 0.06 0.03 0.04 (0.04) 0.57
Gain on the sale of discontinued
operations(2)............................. 0.46 -- -- 0.97 --
-------- -------- -------- -------- --------
Net income.................................. $ 1.40 $ 0.31 $ 0.38 $ 1.92 $ 0.81
======== ======== ======== ======== ========
Dividends paid.............................. 0.02 0.07 0.07 0.07 0.07
Special distribution(3)..................... -- -- 3.67 -- --
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments(4)................... 330,045 305,395 516,422 819,761 303,500
Investment in real estate................. 746,933 548,101 459,496 425,718 340,316
Property, plant & equipment, net.......... 384,429 358,916 356,012 363,483 418,049
Total assets.............................. 1,821,627 1,604,269 1,536,768 1,794,811 1,442,952
Total stockholders' equity................ 940,854 883,297 906,804 1,196,941 1,016,067
EBITDA (Gross)(5)......................... 186,933 136,428 120,578 110,259 164,776
EBITDA(Net)(5)............................ 134,986 91,960 82,040 78,382 134,508
</TABLE>
- ---------------
(1) Operating revenues includes real estate revenues from brokerage commissions
on sales of real estate, property sales, rental revenue and management
service fees sales, timber sales and transportation revenues. Net sales for
1996 included two related one-time condemnation sales of land to the State
of Florida in exchange for $97.8 million in cash plus certain limited
development rights. Net operating results of the sugar segments,
communications segment, linerboard mill and container plants are shown
separately as income (loss) from discontinued operations for all years
presented.
(2) Net operating results of the sugar segment, communications segment,
linerboard mill and container plants are shown separately as income (loss)
from discontinued operations for all years presented. (See Note 5 to the
Consolidated Financial Statements.)
(3) Approximately $359.3 million of proceeds from the sales of the
communications segment, linerboard mill and container plants were held in
special accounts during 1996. A special distribution of a portion of the net
proceeds of the sales of $3.33 per share was paid on March 25, 1997, for
stockholders of record on March 21, 1997. The Company made a special
distribution of the remaining net proceeds of $.34 per share on December 30,
1997 to stockholders of record on December 19, 1997.
(4) Includes cash, cash equivalents, marketable securities and short-term
investments.
(5) The Company uses a supplemental performance measure along with net income to
report its operating results. This measure is Earnings Before Interest,
Taxes, Depreciation and Amortization (EBITDA). EBITDA is not a measure of
operating results or cash flows from operating activities as defined by
generally accepted accounting principles. Additionally, EBITDA is not
necessarily indicative of cash available to fund cash needs and should not
be considered as an alternative to cash flows as a measure of liquidity.
However, the Company believes that EBITDA provides relevant information
about its operations and along with net income, is useful in understanding
its operating results. Depreciation, amortization, interest expense and all
income taxes are excluded from EBITDA (Gross) as well as gains on sales of
discontinued operations and gains on the sale of non-strategic land and
other assets. Earnings from discontinued operations have been included in
EBITDA. Impairment losses and other one-time charges have been excluded from
EBITDA. EBITDA (Net) is calculated the same as EBITDA (Gross) except that
the 46% non-Company owned portion of FECI's and the 26% non-Company owned
portion of St. Joe/Arvida's, pre-tax income, depreciation, amortization and
interest are deducted.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
Consolidated Financial Statements, Item 1."Business," and Item 2. "Properties,"
included elsewhere herein. The following discussion contains forward-looking
statements. The Company's actual results may differ significantly from those
projected in the forward-looking statements.
OVERVIEW
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 1999, the
Company also started a hospitality development group that will offer fee-based
development services for
19
<PAGE> 21
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.
The Company, in the past three years, has undergone a number of important
changes in the mix of its businesses and its overall business strategy,
including hiring a new chairman and chief executive officer, a new president,
chief financial and operating officer, as well as several other senior members
of management with strong backgrounds in large-scale real estate planning and
development. Under the direction of this new management team, the Company is
focusing more closely on the development of its large land portfolio. Over the
past three years, the new management team has overseen a lengthy process of
change, which has resulted in the Company positioning itself to be a major real
estate operating company. The Company has divested itself of its sugar assets,
through the sale of Talisman Sugar Corporation ("Talisman"), a wholly owned
subsidiary of St. Joe and moved to spin-off its investment in Florida East Coast
Industries ("FECI"). Management believes that the Company has the 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.
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, owned or leased 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 allowed 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 retained ownership of the sugar mill until August, 1999 when it
was sold to a third party. 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 is 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
beyond those contemplated by the $5.0 million that is held is escrow, 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 of the sales price 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 ($41.4 million, net of taxes)
in 1999, on the combined sale of the land and farming rights.
20
<PAGE> 22
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 Gran Central Corporation (GCC) will
become effective. Under the terms of these agreements, which extend for up to
three years after the closing of the transaction, GCC will retain the Company,
through its commercial real estate affiliates, to continue to develop and manage
certain commercial real estate holdings of GCC. 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.
This transaction, expected to be completed late in the second quarter or
early in the third quarter of 2000, is subject to a number of conditions
including the receipt of an Internal Revenue Service ruling concerning the
tax-free status of the proposed spin-off. 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.
Disposition of Equity Securities
During 1999 and 1998, the Company utilized hedging strategies that
minimized the risk of loss in its investments in equity securities. In early
1999, the Company used the hedged positions as collateral for a line of credit.
On October 15, 1999, the Company settled the hedge positions for a pre-tax gain
of $5.0 million and terminated the line of credit related to these securities.
Simultaneously, the Company entered into a three-year forward sale transaction
with a major financial institution that will lead to the ultimate disposition of
the securities. Under the forward sale agreement, the Company received
approximately $111.1 million in cash and must settle the forward transaction by
October 15, 2002 by delivering either cash or a number of these equity
securities to the financial institution. The agreement permits the Company to
retain an amount of the securities that represents appreciation up to 20% of
their value on October 15, 1999 should the value of the securities increase. The
securities will continue to be recorded at fair value on the balance sheet with
additional unrealized gains and losses, net of tax, being recorded through other
comprehensive income. The Company recorded a liability in long-term debt for
approximately $111.1 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. On
October 15, 2002 the liability will be $139.4 million plus any appreciation in
the securities beyond the first 20%. The balance of this liability on December
31, 1999 is $112.9 million and is included in long-term debt.
Land Sales
Subsequent to year-end, the Company, through its wholly owned subsidiary,
the St. Joe Land Company, completed the sale of approximately 3,620 acres for
approximately $3,200 per acre, in Capps, near Tallahassee, Florida.
21
<PAGE> 23
Stock -- Repurchase Program
In August 1998, the Company's Board of Directors authorized $150 million
for the purchase of outstanding common stock through open-market purchases. At
the end of 1999, the Company had expended $124.3 million of that authorization,
purchasing 5.4 million shares at an average share price of $22.95. Subsequent to
year-end, the Company completed this program having purchased 6.5 million shares
at an average price of $23.13. In February 2000, the Company's Board of
Directors authorized a second $150 million stock repurchase plan. The Company
will purchase the Company's stock from time to time on the open market.
RESULTS OF OPERATIONS
Results for 1999 Compared to 1998
The Company reports revenues from residential real estate services,
community residential development sales, commercial real estate development and
services, land sales, timber sales, and transportation operations. Real estate
revenues are generated from brokerage commissions from sales of real estate,
property sales, rental revenues and service fees from management of commercial
properties. The Company also reports its equity in earnings of unconsolidated
affiliates as revenues. Revenues increased $358.2 million, or 91.3% from $392.2
million in 1998 to $750.4 million in 1999. Residential real estate services
revenue increased $130.2 million to $209.5 million in 1999 as a full year of
activity is included, compared to the $79.3 million earned in the last five
months of 1998 from the date of acquisition of Arvida Realty Services ("ARS").
Commercial real estate development and services revenues increased $125.8
million to $194.5 million, primarily from sales of properties, increased rents
and a full year of revenues from Advantis Real Estate Services, Inc.
("Advantis"). Community residential development revenues from property sales
increased $109.9 million to $115.4 million due primarily from lot sales at the
Retreat in northwest Florida and at its other communities, the April 1999
acquisition of Saussy Burbank, Inc. ("Saussy Burbank"), a North Carolina based
homebuilder and a full year of activity from its limited partnership investment
in Arvida/JMB Partners, L.P. ("Arvida/JMB"). Transportation revenues decreased
$3.5 million to $201.2 million, or 1.7% due to decreased revenues at
Apalachicola Northern Railroad Company ("ANRR"). Forestry revenues also
decreased $5.7 million, or 16.9% to $28.1 million, primarily due to decreased
timber and bulk land sales. Land sales from the newly formed St. Joe Land
Company were $3.9 million. Losses of $2.2 million were recorded on an investment
in an unconsolidated affiliate which are not attributable to a particular
segment.
Operating expenses for all segments totaled $589.6 million, an increase of
$302.6 million, or 105.4% from $287.0 million in 1998. Operating expenses in the
residential real estate services segment from ARS increased $123.4 million to
$196.9 million as a full year of activity is included, compared to $73.5 million
for the five months activity in 1998. Community residential development
operating expenses were $76.1 million for 1999, due to cost of sales of real
estate and increased activity, as compared to $10.3 million in 1998. Commercial
real estate development and services operating expenses increased $101.1
million, to $140.8 million primarily from increases in cost of property sales
and a full year of activity from Advantis. Transportation operating expenses
increased $12.7 million, or 8.8% to $156.9 million, primarily due to special
charges of $8.2 million and increased costs due to a new management team being
put in place at FECI. Forestry's operating expenses decreased $.4 million to
$18.4 million. Land sales had operating expenses of $.8 million, mostly from
cost of property sold. There were $(.3) million and $.5 million in operating
expenses in 1999 and 1998 not attributable to any particular segment,
respectively.
Corporate expense, which represents corporate general and administrative
expenses, increased to $16.4 million from $6.5 million in 1998, with a portion
of the increase due to the addition of some key management positions at the
Company and a one-time increase in employee benefits. Included in 1999 corporate
expense is prepaid pension income of $10.8 million compared to $12.8 million in
1998. This had a $2.0 million negative effect on corporate expense for 1999.
Additionally, in 1999 there were costs incurred by the Company of $1.0 million
relating to the proposed spin-off of FECI.
Depreciation and amortization increased $10.5 million, or 26.9%, of which
$4.8 million of the increase pertains to amortization expense, primarily of
goodwill resulting from several 1999 and 1998 acquisitions and
22
<PAGE> 24
the remainder is from increased depreciation primarily from buildings placed
into service over the past two years.
The Company recorded impairment losses totaling of $7.2 million in 1999 as
compared to $10.2 million in 1998. The 1999 impairments related to an investment
in a company involved in the entertainment industry of $5.2 million and a $2.0
million note receivable of FECI's subsidiaries.
Other income remained steady, increasing $1.0 million from $31.9 million.
Other income is made up of investment income, gains on sales and dispositions of
assets and other income. Investment income was $13.0 million in 1999, as
compared to $20.1 million in 1998, the decrease resulting from the utilization
of some of the Company's investments as a source of cash. Gain on sales and
dispositions of assets were $15.4 million in 1999, as compared to $8.4 million
in 1998, the increase resulting primarily from a timberlands sales which had a
net gain of $8.7 million. Other income was $4.5 million in 1999, as compared to
$3.4 million in 1998.
Income tax expense on continuing operations totaled $24.0 million for 1999
as compared to $36.2 million for 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
year operations. Income taxes on the change in pension surplus will be recorded
at the statutory rate in future periods. Excluding the $26.8 million deferred
income tax benefit relating to the pension plan reversal, income tax expense for
1999 would have been $50.8 million for an effective rate of 42% as compared to
an effective tax rate of 44% in 1998, excluding the excise tax effect.
Net income for 1999 was $124.4 million, or $1.40 per diluted share,
compared to $28.8 million, or $.31 per diluted share in 1998. Results for 1999
and 1998 included income from discontinued operations of the discontinued sugar
operation of $5.4 million and $2.7 million, respectively and 1999 also includes
the $41.4 million gain on the disposition of the sugar operations assets.
Results for 1998 Compared to 1997
Revenues increased $95.2 million, or 32.1% from $297.0 million in 1997 to
$392.2 million in 1998. All segments reported increased revenues when comparing
1998 to 1997. Residential real estate services revenue generated since the
acquisition of ARS as of August 1, 1998 comprised $79.3 million of this
increase. Commercial real estate development and services revenues increased
$3.1 million in 1998, or 4.6% compared to 1997 due to increased rents. Community
residential development revenues from property sales increased $.8 million in
1998, or 17.0%. Transportation revenues were up $9.7 million in 1998, as
compared to 1997, or 5.0% as a result of increased shipments. Forestry revenues
increased $2.1 million in 1998, or 6.6%, primarily from bulk land and timber
sales. Revenues of $.2 million in 1998 were not attributable to any segment.
Operating expenses for all segments totaled $287.0 million in 1998, an
increase of $71.1 million, or 32.9% from $215.9 million in 1997. Operating
expenses in the residential real estate services segment from ARS since August
1, 1998 contributed $73.4 million of the increase. Community residential
development operating expenses increased $6.8 million in 1998, or over 100% from
1997. Commercial real estate development and services operating expenses
decreased $1.6 million in 1998, or 3.9% due to real estate cost of sales on
property in 1997. Transportation operating expenses increased $1.2 million in
1998, less than 1% over 1997 operating expenses. Forestry's operating expenses
decreased $9.2 million, or 32.9% in 1998 as compared to 1997. Operating expenses
of $.5 million were not attributable to any segment in 1998.
23
<PAGE> 25
Corporate expense, which represents corporate general and administrative
expenses, remained relatively stable at $6.5 million. Included in 1998 corporate
expense is prepaid pension income of $12.8 million compared to $10.7 million in
1997. This $2.1 million positive effect on corporate expense was offset by
comparative increases in corporate overhead. Included in the 1997 corporate
expense was $1.3 million of severance costs associated with an early retirement
program implemented that year. Additionally, costs incurred by the Company,
excluding costs expensed directly by FECI, related to corporate transaction
proposals involving FECI and the Company totaling approximately $2.0 million
were expensed in 1997.
Depreciation and amortization increased $10.2 million in 1998, or 35.5%, of
which $3.3 million of the increase pertains to amortization of goodwill
resulting from 1998 acquisitions and the remainder is increased depreciation
primarily from buildings placed into service in 1998.
The Company recorded impairment losses totaling $10.2 million in 1998 on
certain assets where it was determined that recoverability of their net carrying
amount was impaired.
Other income decreased $10.1 million in 1998 from $42.0 million as a result
of uses of cash for other investment purposes, principally acquisitions of ARS
and Goodman Segar GVA, and the purchase of treasury shares.
Income tax expense on continuing operations for 1998 totaled $36.2 million,
for an effective rate of 44.5% compared to income tax expense in 1997 totaling
$38.0 million, representing an effective rate of 43.3%. These rates exceed
statutory rates primarily because of the 50% excise tax on prepaid pension cost
totaling $6.4 million in 1998 and $5.4 million in 1997. In 1999, the Company
reversed the deferred income tax expense relating to the excise tax on pension
costs (See 1999 vs. 1998 results of operations).
Net income for 1998 was $28.8 million, or $.31 per diluted shares, compared
to $35.5 million, or $.38 per diluted share in 1997. Results for 1998 and 1997
included income from discontinued operations of the discontinued sugar operation
of $2.7 million and $4.0 million, respectively.
DISCONTINUED OPERATIONS
As a result of the sale of Talisman, sugar operations are reported as a
discontinued operation for all periods presented. Revenues for sugar increased
$3.0 million, or 7.3% from $41.0 million in 1998. Operating expenses decreased
slightly to $35.0 million in 1999, as compared to $35.2 million in 1998. Net
income for 1999 was $5.4 million as compared to $2.7 million in 1998. Revenues
for sugar decreased $8.3 million, or 16.8% from $49.3 million in 1997 to $41.0
million in 1998. Operating expenses decreased $5.6 million from $40.8 million in
1997 to $35.2 million in 1998. Net income for 1998 was $2.7 million as compared
to $4.1 million in 1997.
SEGMENT RESULTS OF OPERATIONS
Residential Real Estate Services
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1999 1998 1997
------ ----- ----
($ IN MILLIONS)
<S> <C> <C> <C>
Revenues.................................................... $209.5 $79.3 --
Operating expenses.......................................... 196.9 73.4 --
Depreciation and amortization............................... 5.5 2.2 --
Other income (expense)...................................... 0.5 0.1
Pre-tax income from continuing operations................... 7.6 3.8 --
EBITDA, Net................................................. 14.0 6.4 --
</TABLE>
On July 31, 1998, the Company completed the acquisition of its residential
real estate services company, ARS and thus the 1998 results in the table above
include only the results of five months of activity. ARS provides complete real
estate brokerage services, including, asset management, rental, property
management,
24
<PAGE> 26
property inspection, mortgage, relocation and title services. The operations of
ARS are seasonal with the volume of transactions increasing in the spring and
summer.
Results for 1999 compared to 1998
For a full year of activity in 1999, ARS had realty brokerage revenues of
$209.5 million attributable to 34,526 closed units representing $6.54 billion in
sales volume. Realty brokerage net sales and operating revenues of $79.3 million
for the five months that the Company owned ARS in 1998 are attributable to
13,236 closed real estate transaction sales, representing $2.2 billion of sales
volume. The average home sales price for 1999 was $190,000 as compared to
$177,000 in 1998. Operating expenses of $196.9 million are primarily
attributable to commissions paid on real estate transactions and underwriting
fees on title policies and $2.2 million of conversion expenses related to the
operation's name change from Prudential Florida Realty to ARS in March of 1999.
Operating expenses were 94.0% of revenues in 1999, as compared to 92.5% in 1998.
ARS made several acquisitions during 1999 to bring its office total to 98.
Community Residential Development
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1999 1998 1997
------ ----- ----
($ IN MILLIONS)
<S> <C> <C> <C>
Revenues.................................................... $115.4 $ 5.5 $4.7
Operating expenses.......................................... 76.1 10.3 3.5
Depreciation and amortization............................... (0.5) .2 .2
Other income (expense)...................................... (0.2) (.1) --
Pre-tax income (loss) from continuing operations............ 39.6 (5.1) 1.0
EBITDA, Gross............................................... 39.7 (4.9) 1.0
EBITDA, Net................................................. 40.3 (3.7) 1.2
</TABLE>
The Company's community residential development operations currently
consist of development of large-scale, mixed-use communities primarily on
Company-owned lands and through its 74% ownership of St. Joe/Arvida Company,
L.P. It also has a 26% equity interest in Arvida/JMB. The investment in
Arvida/JMB occurred in late December 1998. Arvida/JMB is recorded on the equity
method of accounting for investments.
St. Joe/Arvida Company, L.P. and Arvida/JMB are currently developing over
20 communities in various stages of planning and development.
In April 1999, the Company acquired all outstanding stock of Saussy
Burbank,, a homebuilder located in Charlotte, North Carolina, for approximately
$16.5 million in cash. Saussy Burbank builds approximately 300 homes a year and
has operations in the greater Charlotte, Raleigh and Asheville, NC market areas.
Saussy Burbank's operations are included in community residential real estate
operations since acquisition.
Results for 1999 compared to 1998
Total revenues increased $109.9 million in 1999 to $115.4 million, greater
than 100%. During 1999, 82 lots at the Retreat in Walton County, Florida closed
representing pre-tax gain of $25.7 million. This beach club resort community
includes 90 single-family housing units on 76 acres. Four of the remaining lots
were under contract as of December 31, 1999. Revenues from these sales totaled
$34.5 million with an average lot price of $420,000. Other sales this year
include 45 housing units and 10 lot sales in the Summerwood, Deerwood, Woodrun,
and Camp Creek Point developments in west Florida totaling $10.8 million and 51
housing unit sales at James Island, in Northeast Florida totaling $14.2 million.
Saussy Burbank contributed revenues of $36.5 million since its acquisition in
April of 1999. Revenues in 1999 also include $17.8 of income from the Company's
investment in Arvida/JMB and other affiliates. Management fees and rental income
of $1.6 million were also recorded during 1999. Revenues of $5.5 million in 1998
were contributed from $5.0 million in sales of real estate, including 40 lots
sold in the Summerwood, Camp Creek, Deerwood and Woods
25
<PAGE> 27
Phase III developments in West Florida and $.5 million in management fees and
rental revenues. In 1999, the Company has received DRI and county approvals for
over 11,000 Florida units including 1,140 units in WaterColor, in Walton County,
4,200 units in Victoria Park, near Orlando, 4,900 units in SouthWood in
Tallahassee and 799 units in St. John's Golf and Country Club near Jacksonville.
Development of WaterColor, located in west Florida is currently in progress and
sales should begin in early 2000.
Operating expenses, which include cost of real estate sales, increased
$65.8 million in 1999 to $76.1 million. Total cost of real estate sales related
to west Florida activity, including the Retreat and cost of real estate sales
related to James Island totaled $28.3 million resulting in Net EBITDA of $21.2
million. Cost of sales related to Saussy Burbank totaled $33.4 million with an
Net EBITDA of $1.3 million. Cost of real estate sales in 1998 was $1.3 million
relating to sales of 40 lots in the Summerwood, Camp Creek, Deerwood and Woods
Phase III developments. Other operating expenses include noncapitalizable
administrative costs, deal pursuit costs, and predevelopment costs related to
the Company's increased activity, which totaled $14.4 million in 1999 as
compared to $9.0 million in 1998. The remaining Net EBITDA is from the Company's
limited partnership investment in Arvida/JMB of $17.8 million.
Results for 1998 compared to 1997
Total revenues increased $.8 million, or 17.0% in 1998, from $4.7 million
in 1997. Revenues from real estate sales for 1998 totaled $5.0 million, an
increase of $.6 million, or 13.6% as compared to $4.4 million in 1997. Cost of
real estate sales was $1.3 million for 1998 and 1997, respectively. During 1998,
the Company sold 40 lots, located in the Summerwood, Camp Creek, Deerwood and
Woods Phase III developments, all of which are communities in West Florida.
Revenues of $.5 million were also generated from management fees and rental
income in 1998 as compared to $.2 million in 1997.
Other operating expenses were $9.0 million in 1998, an increase of $6.8
million, greater than 100% from 1997, due to non-capitalized start-up costs and
internal overhead related to the activity in West Florida.
Commercial Real Estate Development and Services
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1999 1998 1997
------ ----- ----
($ IN MILLIONS)
<S> <C> <C> <C>
Revenues.................................................... $194.5 $68.7 65.7
Operating expenses.......................................... 140.8 39.7 41.3
Depreciation and amortization............................... 18.9 13.1 8.2
Other income (expense)...................................... -- .3 (.4)
Pre-tax income from continuing operations................... 34.8 16.2 15.8
EBITDA, Gross............................................... 54.1 21.4 17.5
EBITDA, Net................................................. 30.3 16.3 11.2
</TABLE>
Operations of the commercial real estate development and services 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, including the Codina Group,
Inc. ("CGI"), to develop and manage properties throughout the southeast. The
Company owns 54% of 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, as well
as other smaller acquisitions made in 1999, have been combined and are doing
business under the name Advantis.
Results for 1999 compared to 1998
Revenues generated from rental operations in 1999 are from both St. Joe
owned operating properties and Gran Central operating properties and FECR owned
rental properties. In 1998, all revenues from rental
26
<PAGE> 28
operations were from Gran Central and FEC. Total rental revenues increased to
$53.5 million, an 18.6% increase from $45.1 million in 1998.
Revenues generated by St. Joe owned operating properties were $1.6 million
in 1999, while operating expenses relating to these revenues were $.5 million.
Revenues from management fees totaled $1.9 million in 1999. As of December 31,
1999, St. Joe had interests in, either wholly-owned or through partnerships, 11
operating buildings with 1.3 million total rentable square feet in service.
Approximately 634,000 square feet of office and industrial space is under
construction as of December 31, 1999.
Revenues generated by Gran Central owned operating properties and FECR
rental properties were $51.9 million, a 15.1% increase from $45.1 million in
1998, primarily from increases in same store revenues totaling $7.2 million and
new store revenues of $3.4 million. Revenues declined $3.8 million due to
buildings sold this year. Operating expenses on rental revenues, excluding
depreciation, remained steady at $17.8 million in 1999, the same as 1998. As of
December 31, 1999, Gran Central had 54 operating buildings with 5.8 million
total rentable square feet in service. Approximately 509,000 square feet of
office and industrial space is under construction as of December 31, 1999.
Additionally, approximately 686,000 square feet is in the predevelopment stage
and Gran Central is expected to commence construction on these properties during
2000.
Operating revenues generated from Advantis totaled $59.1 million in 1999
compared with $14.5 million for the period of 1998 that Advantis was owned by
the Company. Advantis expenses increased $42.8 million to $56.3 million for a
full year of activity from $13.5 million in 1998. Advantis' expenses include
commissions paid to brokers, property management expenses and construction
costs.
In 1999, Gran Central sold real estate properties for gross proceeds of
$77.6 million as compared to $7.9 million in 1998. The majority of the revenues
were from the sale of three industrial parks, Gran Park at McCahill, Gran Park
at Lewis Terminals, and Gran Park at Interstate South which resulted in a
pre-tax gain of $21.0 million ($11.3 million, net of the effect of FECI's
minority interest). Costs of these sales totaled $56.2 million, an increase of
$53.6 million from $2.6 million in 1998. These industrial parks consisted of 16
buildings with 1.5 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 $2.4 million to the commercial real estate
segment's revenues during 1999 compared to $1.2 million in 1998. The majority of
these revenues come from the Company's investments in Deerfield Park, LLC,
located in Atlanta, Georgia and the Codina Group in South Florida.
General and administrative expenses for the commercial group, which are
included in operating expenses, increased $4.2 million to $10.0 million from
$5.8 million in 1998. Of total general and administrative expenses for 1999,
$5.7 million are St. Joe related and $4.3 million are related to Gran Central.
This increase is due to an increase in personnel, projects and activities being
carried on by the commercial group in 1999, along with increased responsibility
for additional properties put into service in 1999. Other operating expenses
include the $56.3 million of Advantis expenses, the $56.2 million in cost of
sales for Gran Central's industrial parks, the $18.3 million in costs related to
rental revenues.
Depreciation and amortization rose by $5.8 million and is attributable to
goodwill amortization as a result of the acquisitions including the Advantis
businesses of $2.5 million and additional depreciation on operating properties
of $3.3 million.
Net EBITDA totaled $30.3 million for 1999 and was comprised of $11.3
million from sales of real estate, $14.8 million from rental operations, $1.5
million from earnings on investments in real estate developments and, $2.7
million from Advantis. Excluding Gran Central, St. Joe Commercial had Net EBITDA
of $2.4 million, compared to $.8 million in 1998. Net EBITDA in 1998 totaled
$16.3 million and was comprised primarily of Net EBITDA from Gran Central's
rental operations and the fourth quarter activity of Advantis.
27
<PAGE> 29
Results for 1998 compared to 1997
All rental revenues in 1998 and 1997 were from the operations of Gran
Central and FECR owned properties. Rental revenues comprised $45.1 million of
total commercial revenues in 1998, an increase of $6.4 million, or 16.6%
compared to 1997. The increase in rental revenues for 1998 was caused by a $2.6
million increase in rental rates, a $3.0 million increase in related occupancy
and $2.0 million generated from new buildings placed into service since 1997.
Partially offsetting these increases were reductions in revenues due to net
reductions in rent recoverable from tenants. Operating expenses on rental
revenues, excluding depreciation, were $17.8 million as compared to $15.1
million in 1997, an increase of $2.7 million, or 17.9% mostly attributable to
increased expenses on existing buildings including management expenses and
increased property taxes. New buildings placed into service since last year
contributed an additional $.8 million in operating expenses. During 1998, five
office, office/showroom/warehouse buildings were placed in service adding an
610,000 leaseable square feet. Three of these buildings were located in
Jacksonville, Florida and two were located in Orlando, Florida. As of December
31, 1998 there were 66 operating buildings with total rentable square footage of
6,223,000 square feet.
Commercial real estate services revenues generated by Advantis since its
acquisition in September, 1998 totaled $14.5 million. Costs associated with
these revenues totaled $13.5 million.
Revenues from sales of land and buildings totaled $8.0 million, a decrease
of $18.9 million, as compared to $26.9 million in 1997. Total cost of sales in
1998 was $2.6 million as compared to $22.6 million in 1997.
Equity in earnings of unconsolidated subsidiaries, consisting of the
Company's investments in CGI, Deerfield and CNL, totaled $1.2 million in 1998
compared to $.1 million in 1997.
General and administrative expenses for the commercial segment, which are
included in operating expenses, totaled $4.8 million in 1998, an increase of
$1.1 million, from $3.7 million in 1997. This was due to increased asset
management costs.
Depreciation and amortization increased $4.9 million, or 60.0%, to $13.1
million from $8.2 million in 1997 due to new buildings placed in service.
Land Sales
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total revenues.............................................. $3.9 $ -- $ --
Operating expenses.......................................... .8 -- --
Depreciation and amortization............................... -- -- --
Other income(expense)....................................... -- -- --
Pre-tax income from operations.............................. 3.1 -- --
EBITDA, Net................................................. 3.1 -- --
</TABLE>
During 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. During
1999, the St. Joe Land Company sold 19 parcels of land totaling 1,018 acres for
$3.9 million or an average price of $3,831 per acre.
Subsequent to year-end, St. Joe Land Company completed the sale of
approximately 3,620 acres for approximately $3,200 per acre, in Capps, near
Tallahassee, Florida.
28
<PAGE> 30
Forestry
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1999 1998 1997
----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Revenues.................................................... $28.1 $33.8 $31.7
Operating expenses.......................................... 18.4 18.8 28.0
Depreciation and amortization............................... 2.3 2.4 1.4
Other income (expense)...................................... 11.3 2.2 4.4
Pre-tax income from continuing operations................... 18.7 14.8 6.7
EBITDA, Net................................................. 12.2 17.1 6.3
</TABLE>
Results for 1999 compared to 1998
Total timber revenues decreased $5.7 million in 1999 to $28.1 million, or
17%, compared to 1998. Timber sales decreased $3.5 million and bulk land and
timber sales decreased $2.2 million from the prior year. Sales to The Florida
Coast Paper Company, L.L.C. ("FCP") were $18.2 million (642,806 tons) in 1999 as
compared to $19.1 million (664,784 tons) in 1998. Since August of 1998 the FCP
mill has been shutdown, and it appears unlikely that it will reopen in the near
future. 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 there was no significant loss in volume
of sales. Sales to other customers decreased $2.6 million in 1999 to $9.4
million (375,726 tons) as compared to $12.0 million (474,085 tons) in 1998.
During 1998, 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 1999 include bulk land and timber sales of $0.5 million, as compared
to $2.7 million in bulk land and timber sales in 1998.
Operating expenses, including costs of sales and general and administrative
expenses, for 1999 decreased $.4 million, or 2%, as compared to 1998 due to the
lower harvest volumes. Cost of timber sales, excluding depletion, decreased $.1
million from $17.3 million in 1998 to $17.2 million in 1999. Cost of sales as a
percentage of sales was 67.4% in 1999 compared to 43.2% in 1998. 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. The Company had no sales of
procured wood in 1999 compared to 13,700 tons in 1998. The cost of sales of
procured wood was approximately $30/ton in 1998. Cost of sales of timber grown
on Company land and sold to FCP increased by $1/ton to approximately $22/ton as
a result of additional transportation charges incurred from the diversion of
wood to the mill in Panama City. Cost of sales on sales to other customers was
$13/ton, which was approximately $3/ton more than last year due to increased
transportation charges. General and administrative expenses were $.4 million
lower in 1999 than 1998, at $1.8 million primarily due to a property tax
settlement of $.4 million paid in 1998.
Other income was $11.3 million for 1999 compared to $2.2 million for 1998.
The 1999 amount included an $8.7 million gain from a timberland sale to the
State of Florida with the assistance of The Nature Conservancy.
Results for 1998 compared to 1997
Total timber revenues increased $2.1 million, or 6.6%, from $31.7 million
in 1997 to $33.8 million in 1998. Bulk land and timber sales were $2.8 million
in 1998. Total sales to FCP were $19.1 million in 1998 compared to $20.6 million
in 1997. Sales to other customers totaled $12.0 million (474,085 tons) in 1998
compared to $11.1 million (409,912 tons) in 1997. Sales to other customers were
higher this year as the Company experienced more lump sum bid timber sales due
to increased demand in the first quarter of 1998.
Cost of timber sales, excluding depletion, decreased $8.5 million, or 32.9%
from $25.8 million in 1997 to $17.3 million in 1998. Cost of sales as a
percentage of sales was 51.2% in 1998 compared to 81.4% in 1997 due primarily to
bulk land sales with a low basis and less timber being purchased from outside
sources. The
29
<PAGE> 31
Company procured approximately 13,700 tons of wood this year to fulfill the
requirements of its timber supply agreement with FCP compared to 180,477 tons in
1997. The cost of sales of procured wood was approximately $30/ton in 1998 and
in 1997. Cost of sales of timber grown on Company land and sold to FCP decreased
by $5/ton to approximately $21/ton as a result of different product mix of sales
to FCP, from chips to pulpwood. The cost of sales for timber sold to other
customers also decreased this year due to sales of bid timber, which do not
require cutting and hauling. Cost of sales on sales to other customers was
$10/ton, which was approximately $8/ton less than last year.
Other general operating expenses were $2.3 million, relatively consistent
with 1997. General operating expenses in 1997 included $.5 million of
nonrecurring expenses related to severance payments made to terminated
employees. Included in 1998 is a nonrecurring payment of $.4 million for
settlement of property tax litigation.
Other income for 1998 and 1997 was derived primarily from various land
leases, such as hunting leases, not related to the sale of timber. Other income
in 1997 also included $1.8 million from gains on sales of machinery and
equipment.
Transportation
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Revenues.................................................... $201.2 $204.7 $195.0
Operating expenses.......................................... 156.9 144.2 143.0
Depreciation and amortization............................... 19.8 18.8 18.6
Impairment loss............................................. 0.0 8.0 --
Other income (expense)...................................... 1.1 .8 2.8
Pre-tax income from continuing operations................... 25.6 34.5 36.2
EBITDA, Gross............................................... 51.8 61.0 55.9
EBITDA, Net................................................. 30.8 34.0 31.3
</TABLE>
The Company's transportation operations consist of Florida East Coast
Railway Company ("FEC"), ANRR and International Transit, Inc. ("ITI").
Results for 1999 compared to 1998
FECI's transportation segment includes the railway, trucking and telecom
operations of FECI. FECI's operating revenues decreased $0.2 million to $194.6
million for 1999 as compared to $194.8 million for 1998. Railway revenues
remained strong and offset the weakness in intermodal traffic with increases in
all other categories of traffic. Also, during 1998, FECI recognized income of
approximately $3.0 million in connection with a non-monetary exchange
transaction whereby FECI received fiber optic cable rights. Aggregate traffic,
automotive traffic, and all other carload traffic increased in 1999, as compared
to 1998. Intermodal traffic continued to decline which is attributable to both
the continued impact of the service redesign first implemented in 1998 of one of
FECI's connecting carriers decision to stop marketing intermodal service to
certain terminals and offshore transshipments of loads previously handled in
Florida.
ANRR's operating revenues were $6.5 million reflecting a decrease in
revenues of $3.4 million, or 34%, due to lost traffic due to the FCP mill
shutdown and from lost traffic from ANRR's largest customer, Seminole Electric
Cooperative, Inc. ("Seminole"). In 1999, included in the $6.5 million of
revenues recorded by ANRR were contractual payments from Seminole of $4.5
million. These payments will cease during the first quarter of 2000. 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
30
<PAGE> 32
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.
FECI's transportation segment's operating expenses increased $15.3 million,
or 11% to $151.8 million, compared to $136.5 million in 1998. Exclusive of the
special charges totaling $8.2 million, the increase of $7.1 million relates to
increases in transportation's general and administrative expenses due to a new
management team being put in place, the setup of the new telecom division and
the settlement of a 1997 lawsuit for $2.7 million. ANRR's operating expenses
decreased $2.4 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 $33.8 million, of
which $33.7 million was contributed by FECI's transportation segment and $.1
million was contributed by ANRR. Net EBITDA, which excludes the minority
interest in FECI was $30.8 million for 1999, $29.2 million contributed by FECI's
transportation segment and 1.6 million contributed by ANRR.
Results for 1998 compared to 1997
Operating revenues in the transportation segment were $204.7 million in
1998, an increase of $9.7 million, or 5.0% compared to 1997. Total FECI
transportation operating revenues were $194.8 million, an increase of $9.8
million from $185.0 in 1997. Approximately $3.8 million of this increase was
attributable to fiber optic income, which includes a $3.0 million gain
recognized in the second quarter of 1998 related to a non-monetary exchange
negotiated with Williams Network whereby FECI received the right to control 36
fiber optic communications fibers along FECI's right-of-way, in exchange for the
surrender of certain future operating lease payments. The rail segment of FECI
contributed a $3.0 million increase in revenues compared to 1997 and the
trucking segment contributed $2.9 million of the increase. The increase in rail
revenues was primarily attributed to an 11.1% increase in shipments of aggregate
products and a 24.5% increase in automobile carload traffic caused by a robust
Florida economy. This was offset by a 4.8% decrease in shipments of intermodal
traffic and other types of carload traffic.
ANRR's transportation revenues remained relatively constant at $9.9 million
in 1998, as compared to 1997.
Overall operating expenses increased to $144.2 million in 1998, a $1.2
million increase, less than 1%, from $143.0 in 1997. Transportation expenses
related to FECI increased $1.5 million, ANRR transportation expenses decreased
$.1 million and general and administrative expenses decreased $.2 million. The
increase in FECI's transportation expenses primarily related to increases in
repair and maintenance cost, train operations cost and ancillary transportation
services offset by decreases in fuel expense of approximately $2.1 million.
As a result of the uncertainty surrounding future operations of ANRR,
management determined that the 1998 carrying value of ANRR's net assets should
be reduced by approximately $8.0 million to management's estimate of fair value,
and accordingly, an impairment loss totaling that amount was recorded in the
fourth quarter of 1998.
FINANCIAL POSITION AND CAPITAL RESOURCES
In August 1998, the St. Joe Board of Directors authorized $150 million for
the purchase of outstanding common stock through open-market purchases. At the
end of 1999, the Company had expended $124.3 million of that authorization,
purchasing 5.4 million shares at an average share price of $22.95. Subsequent to
year end, 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.
For 1999, cash provided by operations was $35.7 million. Included in cash
flows from operations were expenditures of $60.1 million relating to its
community residential development segment. During 1999, the
31
<PAGE> 33
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. Significant
proceeds from investing activities were also received from the sales of Gran
Central's industrial parks in 1999, sales of investment securities and from the
timberland sale to the State of Florida and the monetization of the Company's
equity securities in the transaction described below. The Company is also in the
process of obtaining a new line of credit to replace an existing $75 million
line as described below. Capital expenditures in 1999 were $45.7 million.
During 1999 and 1998, the Company utilized hedging strategies that
minimized the risk of loss in its investments in equity securities. In early
1999, the Company used the hedged positions as collateral for a line of credit.
On October 15, 1999, the Company settled the hedge positions for a pre-tax gain
of $5.0 million and terminated the line of credit related to these securities.
Simultaneously, the Company entered into a three-year forward sale transaction
with a major financial institution that will lead to the ultimate disposition of
the securities. Under the forward sale agreement, the Company received
approximately $111.1 million in cash and must settle the forward transaction by
October 15, 2002 by delivering either cash or a number of these equity
securities to the financial institution. The agreement permits the Company to
retain an amount of the securities that represents appreciation up to 20% of
their value on October 15, 1999 should the value of the securities increase. The
securities will continue to be recorded at fair value on the balance sheet with
additional unrealized gains and losses, net of tax, being recorded through other
comprehensive income. The Company recorded a liability in long-term debt for
approximately $111.1 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. On
October 15, 2002 the liability will be $139.4 million plus any appreciation in
the securities beyond the first 20%. The balance of this liability on December
31, 1999 is $112.9 million and is included in long-term debt.
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
does not believe FAS 133 will materially effect its financial statements.
The Company is in the process of obtaining a syndicated unsecured line of
credit in the amount of $200 million that will replace an existing $75 million
dollar line of credit. The credit facility is expected to close late in the
first quarter of 2000 and 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
and negative pledge restrictions.
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 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 was led by the Senior Vice President of Finance and
Planning and consisted of representatives of the Company's Information Systems
Departments or financial departments for each subsidiary, and had access to key
associates in all areas of the Company's operations. The Company went through
several phases to examine all information technology ("IT") systems and non-IT
systems which may have embedded technology. The Company went through an
assessment phase, a remediation phase, a test phase, an implementation phase and
a check-off phase, all of which were substantially 100% complete by December 31,
1999 and noted that all critical systems were Year 2000 ready at that date.
Subsequent to year-end, there have been no problems relating to Year 2000 issues
with respect to the Company's systems or vendors and no contingency plans have
had to be executed. The Company spent less than $1.0 million to address and
modify Year 2000 problems, excluding FECI.
32
<PAGE> 34
Subsequent to year end, there were no apparent problems relating to Year 2000
issues at FECI. FECI spent less than $10.0 million to address and modify Year
2000 problems.
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.
As of December 31, 1999, the Company does not use derivative financial
instruments to hedge its investment portfolio. The Company manages its interest
rate exposure by monitoring the effects of market changes in interest rates.
QUANTITATIVE DISCLOSURES
The table below presents principal amounts and related weighted average
interest rates by year of maturity for the Company's investment portfolio and
its long-term debt. The weighted average interest rates for the various fixed
rate investments and its long-term debt are based on the actual rates as of
December 31, 1999.
<TABLE>
<CAPTION>
EXPECTED CONTRACTUAL MATURITIES
-------------------------------------------- FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
------- ------- -------- ------ ---- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term Investments
Trading:
Tax Exempt Municipal Bonds........ $23,019 $16,784 $ 5,096 $1,907 $-- $ -- $ 46,806 $ 46,281
Wtd. Avg. Interest Rate......... 4.81% 5.85% 5.80% 6.23% 5.10%
Available for sale:
Commercial Paper.................. 22,741 -- -- -- -- -- 22,741 22,741
Wtd. Avg. Interest Rate......... 5.04% 5.04%
Other Investments
Available for sale:
U.S. Govt. Securities............. 30,973 -- -- -- -- -- 30,973 31,012
Wtd. Avg. Interest Rate......... 5.78% 5.78%
Tax Exempt Municipal Bonds............ 1,074 3,039 986 -- -- 2,864 7,963 7,963
Wtd. Avg. Interest Rate......... 5.5% 5.85% 5.10% 7.25%
Equity Securities and Options..... 1,688 -- -- -- -- -- 1,688 148,644
Other Debt Securities............. -- 788 -- -- -- -- 788 1,265
Wtd. Avg. Interest Rate......... 5.00% 5.00%
Long-term Debt
Minimum Liability on Forward Sale of
Equity Securities................. 112,941 112,941 112,941
Wtd. Avg. Interest Rate......... 7.90% 7.90%
Revolving Credit Agreement.......... 22,741 22,741 22,741
Wtd. Avg. Interest Rate......... 1.50% 1.50%
Other Long-term debt................ 8,509 2,602 431 11,542 11,542
Wtd. Avg. Interest Rate......... 6.00% 6.00% 6.00% 6.00%
</TABLE>
As the table incorporates only those exposures that exist as of December
31, 1999, it does not consider exposures or positions that could arise after
that date. As a result, the Company's ultimate realized gain or loss will depend
on future changes in interest rate and market values.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements on page F-2 to F-21, inclusive and the Independent
Auditors' Report on page F-1 are filed as part of this Report and incorporated
herein by reference thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
33
<PAGE> 35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the definitive proxy statement involving the
election of directors in connection with the Annual Meeting of Stockholders of
St. Joe to be held on May 9, 2000 (the "Proxy Statement"), which section is
incorporated herein by reference. The Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1999, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be set forth in the sections
entitled "Executive Compensation" in the Proxy Statement, which sections are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information to be set forth in the sections
entitled "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock
Ownership of Management" in the Proxy Statement, which sections are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth in the section entitled
"Certain Transactions" in the Proxy Statement, which section is incorporated
herein by reference.
34
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to Financial
Statements and Financial Statement Schedules and Independent Auditors' Report
are filed as part of this Report.
2. Financial Statement Schedules
The financial statement schedules and Independent Auditors' Report listed
in the accompanying Index to Financial Statements and Financial Statement
schedules are filed as part of this report.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as part
of this Report.
(B) Reports on Form 8-K
None
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Item 14(A) 1. And 2.
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Income........................... F-3
Consolidated Statements of Changes in Stockholders'
Equity.................................................... F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6
Independent Auditors' Report -- Financial Statement
Schedules................................................. S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
Schedule III -- Real Estate and Accumulated Depreciation.... S-3
</TABLE>
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission on the
schedule or because the information required is included in the Consolidated
Financial Statements, and the Notes to the Consolidated Financial Statements.
35
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C> <C>
2.01 -- Limited Partnership Agreement of St. Joe/Arvida Company,
L.P. (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424 (b))
2.02 -- Agreement of Limited Partnership of St. Joe/CNL Development,
Ltd. (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424 (b))
2.03 -- Stock Purchase Agreement dated as of September 1, 1995
between St. Joe Industries Inc. and TPG Communications, Inc.
(Incorporated herein by reference to Exhibits filed with The
Registrant's Quarterly Report on Form 10-Q for the third
quarter ended September 30, 1995)
2.04 -- Asset Purchase Agreement dated as of November 1, 1995 by and
among St. Joe Forest Products Company, St. Joe Container
Company and St. Joe Paper Company, on the one Hand and Four
M Corporation and St. Joe Paper company in the other hand
(the "Asset Purchase Agreement") (incorporated herein by
reference and Exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the third quarter ended September
30, 1995)
2.05 -- Amendments dated December 14, 1995; December 20, 1995;
January 10, 1996 and January 12, 1996 to the Asset Purchase
Agreement (incorporated herein by reference to the
Registrant's Proxy Statement for the Special Meeting of
Stockholders on April 24, 1996)
2.06 -- Agreement for Purchase and Sale of Assets and Stock between
St. Joe Real Estate Services, Inc. et.al. and CMT Holding,
Ltd. (Incorporated herein by reference to Exhibits filed in
the Registrant's Quarterly Report on Form 10-Q for the
second quarter ended June 30, 1998)
2.07 -- Purchase Agreement by and among Dominion Capital, Inc.,
Goodman-Segar-Hogan-Hoffler, Inc et.al. and St. Joe
Commercial Property Services, Inc dated September 24, 1998
(Incorporated herein by reference to Exhibits filed in the
Registrant's Quarterly Report on Form 10-Q for the third
quarter ended September 30, 1998)
3.01 -- Articles of Incorporation, as amended (Incorporated herein
by reference to Exhibits filed with the Company's Prospectus
filed February 11, 1998 under Rule 424 (b))
3.02 -- Articles of Amendment dated January 8, 1998 (Incorporated
herein by reference to Exhibits filed with the Company's
Prospectus filed February 11, 1998 under Rule 424 (b)
3.03 -- Amended By-Laws dated March 18, 1997 (Incorporated herein by
reference to Exhibit 3(b) filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996
3.04 -- Restated and Amended Articles of Incorporation of the St.
Joe Company dated May 12 1998 (Incorporated herein by
reference to Exhibits filed in the Registrant's Quarterly
Report on Form 10-Q for the first quarter ended March 31,
1998
3.05 -- Exchange and Purchase and Sale Agreement by and among The
South Florida Water Management District: United States Sugar
Corporation; Okeelanta Corporation, South Florida
Industries, Inc, and Florida Crystals Corporation and The
St. Joe Company; The United States Department of the
Interior; and The Nature Conservancy dated March 25,1999
(Incorporated herein by reference to Exhibits filed in the
Registrant's Quarterly Report on Form 10-Q for the first
quarter ended March 31, 1999.))
4.01 -- Registration Rights Agreement between the Registrant and the
Alfred I. DuPont Testamentary Trust, dated December 16, 1997
(Incorporated herein by reference to Exhibits filed with the
Company's Prospectus filed February 11, 1998 under Rule 424
(b))
10.01 -- Employment Agreement of Peter Rummell, dated January 7,
1997(Incorporated herein by reference to Exhibits filed with
the Company's Prospectus filed February 11, 1998 under Rule
424 (b))
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C> <C>
10.02 -- Employment Agreement of Robert M. Rhodes, dated November 5,
1997 (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424 (b))
10.03 -- Employment Agreement of J. Malcolm Jones, dated February 26,
1997 (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424 (b))
10.04 -- Employment Agreement of Michael F. Bayer, dated February 1,
1997 (Incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424 (b))
10.05 -- Form of Severance Agreement (Incorporated herein by
reference to Exhibits filed with the Company's Prospectus
filed February 11, 1998 under Rule 424 (b))
10.06 -- Distribution and Recapitalization Agreement (Incorporated
herein by reference to Exhibits filed in the Registrant's
Quarterly Report on Form 10-Q for the first quarter ended
September 30, 1999.))
10.07 -- Indemnification Agreement (Incorporated herein by reference
to Exhibits filed in the Registrant's Quarterly Report on
Form 10-Q for the first quarter ended September 30, 1999.))
10.08 -- Master Agreement (Incorporated herein by reference to
Exhibits filed in the Registrant's Quarterly Report on Form
10-Q for the first quarter ended September 30, 1999.))
21.01 -- Subsidiaries of The St. Joe Company*
23.01 -- Consent of Independent Accountants*
27.01 -- Financial Data Schedule (for SEC use only)*
99.01 -- Supplemental Calculation of Selected Consolidated Financial
Data*
</TABLE>
- ---------------
* Filed herewith
37
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE ST. JOE COMPANY
By: /s/ KEVIN M. TWOMEY
------------------------------------
Kevin M. Twomey
President, Chief Financial Officer,
Chief Operating Officer
(Principal Financial Officer)
Date: March 15, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March , 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PETER S. RUMMELL Chairman of the Board, Chief March 15, 2000
- ------------------------------------- Executive Officer (Principal
Peter S. Rummell Executive Officer)
/s/ KEVIN M. TWOMEY President, Chief Operating Officer, March 15, 2000
- ------------------------------------- Chief Financial Officer (Principal
Kevin M. Twomey Financial Officer)
/s/ JANNA L. CONNOLLY Vice President/Controller (Principal March 15, 2000
- ------------------------------------- Accounting Officer)
Janna L. Connolly
/s/ MICHAEL L. AINSLIE Director March 16, 2000
- -------------------------------------
Michael L. Ainslie
/s/ JACOB C. BELIN Director March 17, 2000
- -------------------------------------
Jacob C. Belin
/s/ RUSSELL B. NEWTON, JR. Director March 16, 2000
- -------------------------------------
Russell B. Newton, Jr.
/s/ JOHN J. QUINDLEN Director March 16, 2000
- -------------------------------------
John J. Quindlen
/s/ WALTER L. REVELL Director March 16, 2000
- -------------------------------------
Walter L. Revell
/s/ FRANK S. SHAW, JR. Director March 16, 2000
- -------------------------------------
Frank S. Shaw, Jr.
/s/ WINFRED L. THORNTON Director March 16, 2000
- -------------------------------------
Winfred L. Thornton
/s/ JOHN D. UIBLE Director March 17, 2000
- -------------------------------------
John D. Uible
</TABLE>
38
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The St. Joe Company:
We have audited the accompanying consolidated balance sheets of The St. Joe
Company and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flow for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The St. Joe
Company and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Jacksonville, Florida
February 8, 2000
F-1
<PAGE> 41
THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 71,987 $ 39,108
Short-term investments.................................... 69,174 65,285
Accounts receivable....................................... 38,805 38,691
Inventory................................................. 6,360 11,006
Other assets.............................................. 11,158 13,234
---------- ----------
Total current assets.............................. 197,484 167,324
---------- ----------
INVESTMENTS AND OTHER ASSETS:
Marketable securities..................................... 188,884 201,002
Prepaid pension asset..................................... 63,771 53,683
Other assets.............................................. 20,867 9,301
Investment in unconsolidated affiliates................... 80,652 70,235
Goodwill.................................................. 138,392 123,389
Net assets of discontinued operations..................... 215 72,318
---------- ----------
Total investments and other assets................ 492,781 529,928
---------- ----------
Investment in real estate................................... 746,933 548,101
Property, plant & equipment, net............................ 384,429 358,916
---------- ----------
Total assets...................................... $1,821,627 $1,604,269
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 45,697 $ 26,497
Accrued liabilities....................................... 48,445 43,173
Income tax payable (receivable)........................... 6,196 (1,212)
Current portion of long-term debt......................... 31,250 24,953
---------- ----------
Total current liabilities......................... 131,588 93,411
Other liabilities........................................... 17,705 11,946
Deferred income taxes....................................... 278,513 289,359
Long-term debt.............................................. 115,974 9,947
Minority interest in consolidated subsidiaries.............. 336,993 316,309
Commitments and contingencies (Notes 10, 15)
---------- ----------
Total liabilities................................. 880,773 720,972
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 180,000,000 shares authorized;
91,697,811 issued at December 31, 1999 and 1998........ 13,170 13,054
Retained earnings......................................... 961,819 839,227
Accumulated other comprehensive income.................... 90,597 88,200
Restricted stock deferred compensation.................... (3,564) (2,604)
Treasury stock at cost, 5,265,827 and 2,543,590 shares
held at December 31, 1999 and 1998..................... (121,168) (54,580)
---------- ----------
Total stockholders' equity........................ 940,854 883,297
---------- ----------
Total liabilities and stockholders' equity........ $1,821,627 $1,604,269
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 42
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Operating revenues.......................................... $750,412 $392,181 $296,977
-------- -------- --------
Expenses:
Operating expenses........................................ 589,588 286,973 215,941
Corporate expense, net.................................... 16,361 6,569 6,514
Depreciation and amortization............................. 49,368 38,893 28,732
Impairment losses......................................... 7,162 10,238 --
-------- -------- --------
Total expenses.................................... 662,479 342,673 251,187
-------- -------- --------
Operating profit.................................. 87,933 49,508 45,790
-------- -------- --------
Other income:
Investment income, net.................................... 13,006 20,118 30,695
Gains on sales and other dispositions of assets........... 15,360 8,362 4,438
Other, net................................................ 4,544 3,441 6,849
-------- -------- --------
Total other income................................ 32,910 31,921 41,982
-------- -------- --------
Income from continuing operations before income taxes and
minority interest......................................... 120,843 81,429 87,772
-------- -------- --------
Income tax expense (benefit):
Current................................................... 35,467 23,569 24,731
Deferred.................................................. (11,506) 12,611 13,240
-------- -------- --------
Total income tax expense.......................... 23,961 36,180 37,971
-------- -------- --------
Income from continuing operations before minority
interest.................................................. 96,882 45,249 49,801
Minority interest........................................... 19,243 19,117 18,401
-------- -------- --------
Income from continuing operations........................... 77,639 26,132 31,400
-------- -------- --------
Income from discontinued operations:
Earnings from discontinued operations, net of income taxes
of $3,368, $1,699, and $2,550 respectively............. 5,364 2,706 4,053
Gain on sale of discontinued operations, net of income
taxes of $30,477....................................... 41,354 -- --
-------- -------- --------
Net income........................................ $124,357 $ 28,838 $ 35,453
======== ======== ========
EARNINGS PER SHARE
Basic
Income from continuing operations........................... $ 0.89 $ 0.29 $ 0.34
Earnings from discontinued operations....................... 0.06 0.03 0.05
Gain on sale of discontinued operations..................... 0.47 -- --
-------- -------- --------
Net income........................................ $ 1.42 $ 0.32 $ 0.39
======== ======== ========
Diluted
Income from continuing operations........................... $ 0.88 $ 0.28 $ 0.34
Earnings from discontinued operations....................... 0.06 0.03 0.04
Gain on sale of discontinued operations..................... 0.46 -- --
-------- -------- --------
Net income........................................ $ 1.40 $ 0.31 $ 0.38
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 43
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED OTHER RESTRICTED STOCK
-------------------- RETAINED COMPREHENSIVE DEFERRED TREASURY
SHARES AMOUNT EARNINGS INCOME COMPENSATION SHARES TOTAL
---------- ------- ---------- ----------------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996........................ 91,495,950 $ 8,714 $1,125,161 $63,066 $ -- $ -- $1,196,941
Comprehensive income:
Net income.................. -- -- 35,453 -- -- -- 35,453
Increase in net unrealized
gain on available-for-sale
securities, net of tax of
$10,590................... -- -- -- 16,493 -- -- 16,493
----------
Total comprehensive
income.............. 51,946
---------- ------- ---------- ------- ------- --------- ----------
Dividends ($.07 per share).... -- -- (6,113) -- -- -- (6,113)
Special distributions ($3.67
per share).................. -- -- (336,838) -- -- -- (336,838)
Increase in restricted stock
deferred compensation....... 201,861 4,340 -- -- (4,340) -- --
Amortization of restricted
stock deferred
compensation................ -- -- -- -- 868 -- 868
---------- ------- ---------- ------- ------- --------- ----------
Balance at December 31,
1997........................ 91,697,811 13,054 817,663 79,559 (3,472) -- 906,804
---------- ------- ---------- ------- ------- --------- ----------
Comprehensive income:
Net income.................. -- -- 28,838 -- -- -- 28,838
Increase in net unrealized
gain on available-for-sale
securities, net of tax of
$4,781.................... -- -- -- 8,641 -- -- 8,641
----------
Total comprehensive
income.............. -- -- -- -- -- -- 37,479
----------
Dividends ($.08 per share).... -- -- (7,274) -- -- -- (7,274)
Amortization of restricted
stock deferred
compensation................ -- -- -- -- 868 -- 868
Purchase of treasury shares... (2,543,590) -- -- -- -- (54,580) (54,580)
---------- ------- ---------- ------- ------- --------- ----------
Balance at December 31,
1998........................ 89,154,221 13,054 839,227 88,200 (2,604) (54,580) 883,297
---------- ------- ---------- ------- ------- --------- ----------
Comprehensive income:
Net income.................. -- -- 124,357 -- -- -- 124,357
Increase in net unrealized
gain on available-for-sale
securities, net of tax of
$1,312.................... -- -- -- 2,397 -- -- 2,397
----------
Total comprehensive
income.............. -- -- -- -- -- -- 126,754
----------
Dividends ($.02 per share).... -- -- (1,765) -- -- -- (1,765)
Increase in restricted stock
deferred compensation....... 100,000 -- -- -- (2,194) 2,194 --
Issuance of common stock...... 32,853 116 -- -- -- 750 866
Amortization of restricted
stock deferred
compensation................ -- -- -- -- 1,234 -- 1,234
Purchase of treasury shares... (2,855,090) -- -- -- -- (69,532) (69,532)
---------- ------- ---------- ------- ------- --------- ----------
Balance at December 31,
1999........................ 86,431,984 $13,170 $ 961,819 $90,597 $(3,564) $(121,168) $ 940,854
========== ======= ========== ======= ======= ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 44
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
--------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 124,357 $ 28,838 $ 35,453
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 49,368 38,893 28,732
Minority interest in income............................ 19,243 19,117 18,401
Gain on sale of property and investments............... (28,039) (6,193) (1,717)
Equity in income of unconsolidated affiliates.......... (20,470) (1,925) --
Gain on sale of discontinued operations................ (41,354) -- --
Deferred income tax (benefit) expense.................. (11,506) 12,611 13,240
Impairment losses...................................... 7,162 10,238 --
Purchases and maturities of trading investments, net... (14,234) (34,755) --
Cost of community residential properties sold.......... 24,339 1,138 1,301
Expenditures for community residential properties...... (60,078) (10,816) --
Changes in operating assets and liabilities:
Accounts receivable.................................. 1,004 6,676 2,178
Inventory............................................ 5,046 1,376 (483)
Other assets......................................... (24,701) (17,221) (8,158)
Accounts payable, accrued liabilities, casualty
reserves and other................................ (29,451) 3,490 8,424
Income taxes payable................................. 7,408 (3,513) (16,060)
Discontinued operations-noncash charges and working
capital changes................................... 27,610 2,457 (3,238)
--------- ---------- ---------
Net cash provided by operating activities................... 35,704 50,411 78,073
Cash flows from investing activities:
Purchases of property, plant and equipment............. (45,673) (28,368) (64,137)
Purchase of investments in real estate................. (236,083) (95,895) --
Investing activities of discontinued operations........ -- -- (305)
Purchases of investments:
Available for sale................................... (142,992) (972,047) (87,796)
Held to maturity..................................... -- -- (100,350)
Investments in joint ventures and purchase business
acquisitions, net of cash received................... (49,433) (148,859) (20,154)
Proceeds from dispositions of assets................... 95,510 3,589 9,984
Proceeds from sale of discontinued operations.......... 150,682 -- --
Maturities and redemptions of investments:
Available for sale................................... 167,197 1,134,449 108,810
Held to maturity..................................... -- -- 119,644
Distributions from unconsolidated affiliates........... 23,944 -- --
Proceeds from sale of note receivable.................. -- -- 10,400
--------- ---------- ---------
Net cash used in investing activities....................... (36,848) (107,131) (23,904)
Cash flows from financing activities:
Proceeds from long-term debt, net......................... 106,992 872 --
Dividends and special distributions paid to
stockholders........................................... (1,765) (7,274) (342,950)
Dividends paid to minority interest....................... (1,672) (1,668) (1,664)
Treasury stock purchased.................................. (69,532) (54,580) --
--------- ---------- ---------
Net cash provided by (used in) financing activities......... 34,023 (62,650) (344,614)
Net increase (decrease) in cash and cash equivalents........ 32,879 (119,370) (290,445)
Cash and cash equivalents at beginning of year.............. 39,108 158,478 448,923
--------- ---------- ---------
Cash and cash equivalents at end of year.................... $ 71,987 $ 39,108 $ 158,478
========= ========== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 45
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS
The St. Joe Company, (the "Company") is a diversified corporation engaged
in residential and commercial real estate, forestry, hospitality and leisure
resort development, and transportation operations. Until recently, the Company
also had ongoing sugar operations, which it discontinued for accounting purposes
in the fourth quarter of 1998 and ceased all operations by the end of 1999.
While the Company's real estate operations are in various states throughout the
southeast, the majority of the real estate operations, as well as the
transportation operations are principally within the state of Florida. Forestry
has operations in both Florida and Georgia. Consequently, the Company's
performance, and particularly that of its real estate operations, is
significantly affected by the general health of the Florida economy.
Real Estate
The Company currently conducts its real estate operations in four principal
segments: commercial real estate development and services, community residential
development, residential real estate services, and land sales. The Company owns
and develops commercial properties throughout the southeastern United States
through Gran Central Corporation ("GCC"), a wholly-owned subsidiary of Florida
East Coast Industries, Inc. ("FECI"), a 54% owned subsidiary of the Company, and
through several wholly owned subsidiaries and partnership ventures. Through its
wholly-owned subsidiary, Advantis Real Estate Services Inc. ("Advantis"), the
Company provides commercial real estate services including brokerage, property
management and construction management. The Company is also a partner in several
joint ventures that develop and manage commercial property in Florida, Georgia
and Texas. The Company's community residential development division owns large
tracts of land in west Florida near Tallahassee, Florida and northwest Florida
including significant Gulf of Mexico frontage. The Company is developing and
managing residential communities on certain lands owned by the Company, as well
as through its 74% owned limited partnership, St. Joe/Arvida Company, L.P.
("Arvida"). The Company also has a 26% interest in the limited partnership
interests of Arvida/JMB Partners, L.P., a limited partnership that is developing
residential communities, three in Florida, one near Atlanta, Georgia and one in
North Carolina. During 1999, The Company also acquired Saussy Burbank, Inc., a
homebuilder located in Charlotte N.C. The Company owns a residential real estate
brokerage, sales and services business in Florida through its 1998 acquisition
of Prudential Florida Realty, which has since changed its name to Arvida Realty
Services ("ARS"). The St. Joe Land Company ("St. Joe Land") was created during
1999 to sell parcels of land from a portion of the total of 800,000 acres of
timberland held by the Company in northwest Florida and southwest Georgia. In
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.
Forestry
The Company is the largest private owner of timberlands in Florida. The
principal product of the Company's forestry operations is softwood pulpwood. In
addition, the Company produces and sells sawtimber. Prior to 1998, the majority
of the wood harvested by the Company was sold under a long term wood fiber
supply agreement to the Company's former linerboard mill, which it sold to
Florida Coast Paper Company, L.L.C. ("FCP") in May, 1996.
After the closure of the mill for several months in 1997, the Company
renegotiated its 15 year supply contract with FCP to allow it to supply pulpwood
to the mill at a level (700,000 tons per year beginning June 1, 1998)
significantly lower than historical levels. During latter 1998 and 1999, the
mill has been closed and the Company has been redirecting pulpwood to another
mill at FCP's request. The Company intends to
F-6
<PAGE> 46
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
extend growing periods for certain portions of its timber and to sell such
timber in the form of higher-margin products, which the Company anticipates will
increase the long-term profitability of its forestry operations. The Company
will also have some of its timber resources sold through the Company's new real
estate division, St. Joe Land.
Transportation
FECI's subsidiary, Florida East Coast Railway ("FECR"), provides rail and
freight service between Jacksonville and Miami, Florida and branch line track
between Fort Pierce and Lake Harbor, Florida. FECR has the only coastal
right-of-way between Jacksonville and West Palm Beach, Florida. The principal
commodities carried by rail include trailers-on-flatcar, containers-on-flatcar,
crushed stone, cement, automobile vehicles and parts. FECR also has a trucking
operation, which is an interstate, irregular route, common carrier with
terminals located throughout the eastern half of the United States. In 1999,
FECR created a new subsidiary related to its telecom businesses. The Company
also owns the Apalachicola Northern Railroad Company ("ANRR"), a short-line
railroad that operates between Port St. Joe and Chattahoochee, Florida. Its
principal commodities include coal, pulpwood, pulpboard woodchips, and tall oil
chemicals.
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 Florida East Coast Industries, Inc.
(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 Gran Central Corporation (GCC) will
become effective. Under the terms of these agreements, which extend for up to
three years after the closing of the transaction, GCC will retain the Company,
through its commercial real estate affiliates, to continue to develop and manage
certain commercial real estate holdings of GCC. 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.
This transaction, expected to be completed in mid-2000, is subject to a
number of conditions including the receipt of an Internal Revenue Service ruling
concerning the tax-free status of the proposed spin-off. 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. Investments in joint ventures in
which the Company does not have financial control are
F-7
<PAGE> 47
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounted for by the equity method. All significant intercompany transactions
and balances have been eliminated.
Revenue Recognition
Operating revenues consist of real estate property sales, brokerage
commissions, real estate service fees and real estate development fees, rental
revenues, transportation revenues, revenues from sales of forestry products and
equity in the income of unconsolidated investments. Revenues from real estate
property sales and brokerage commissions earned therefrom are recognized upon
closing of sales contracts or upon settlement of condemnation proceedings. Real
estate service fees are recognized in the period in which the services are
performed. Real estate development fees are recognized as billed, which
approximates the percentage of completion method of accounting. Rental revenues
are recognized upon completion of rental and lease contracts, using the
straight-line basis over the life of the contract. Transportation revenues are
substantially recognized upon completion of transportation services at
destination. Revenues from sales of forestry products are recognized generally
on delivery of the product to the customer.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, bank demand accounts, money
market accounts, and repurchase agreements having original maturities at
acquisition date of 90 days or less.
Inventories
Inventories consist of transportation materials and supplies and are stated
at the lower of cost or market. Costs for substantially all inventories are
determined under the first in, first out (FIFO) or the average cost method.
Investment in Real Estate
Investment in real estate is carried at lower of cost or fair value.
Depreciation is computed on straight-line and accelerated methods over the
useful lives of the assets ranging from 15 to 40 years. Depletion of timber is
determined by the units of production method. An adjustment to depletion is
recorded, if necessary, based on the continuous forest inventory ("CFI")
analysis prepared every 5 years.
Property, Plant and Equipment
Depreciation is computed using both straight-line and accelerated methods
over the useful lives of various assets. Railroad properties are depreciated and
amortized using the group depreciation method. Gains and losses on normal
retirements of these items are credited or charged to accumulated depreciation.
Goodwill and Deferred Compensation
Goodwill associated with the Company's business combinations is being
amortized on a straight-line basis over periods ranging from 10 years to 30
years. Deferred compensation is being amortized on a straight-line basis over a
five-year vesting period, which is deemed to be the period for which services
are performed. During 1998, the Company wrote-off $2,238 of intangibles
determined to be unrealizable.
Earnings Per Common Share
Earnings per common share ("EPS") are based on the weighted average number
of common shares outstanding during the year as adjusted for the three-for-one
stock split effective January 12, 1998. Diluted EPS assumes weighted average
options to purchase 862,034, 1,323,498, and 1,379,495 shares of common stock in
1999, 1998, and 1997 have been exercised using the treasury stock method. In
August 1998, the
F-8
<PAGE> 48
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's Board of Directors authorized $150,000 for the repurchase of the
Company's outstanding common stock from time to time on the open market. As of
December 31, 1999 the Company had repurchased 5,398,680 shares. Subsequent to
year-end, the Company completed the repurchase plan by purchasing an additional
1,086,631 shares, for a total of 6,485,311 shares repurchased. In February 2000
the Company's Board of Directors authorized an additional $150,000 for the
repurchase of the Company's outstanding stock. Weighted average basic and
diluted shares taking into consideration the treasury shares repurchased and the
weighted average options used in calculating EPS for each of the years presented
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic.............................................. 87,690,518 90,961,941 91,695,046
Diluted............................................ 88,552,552 92,285,439 93,074,541
</TABLE>
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to apply the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants as if the fair-value based method defined in SFAS No. 123 has been
applied. Under APB No. 25, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. The Company has elected to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
Comprehensive Income
The Company's comprehensive income differs from net income due to changes
in the net unrealized gains on marketable securities available for sale. The
Company has elected to disclose comprehensive income in its Consolidated
Statement of Changes in Stockholders' Equity.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Investments
Investments consist principally of corporate debt securities, government
sponsored agency securities, mortgage backed securities, municipal bonds, common
stocks, preferred stocks, and U.S. Government obligations. Investments maturing
in three months to one year are classified as short term. Those having
maturities in excess of one year are classified as marketable securities.
The Company classifies its debt and marketable equity securities in one of
three categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities for which the
Company has the ability and intent to hold the security until maturity. All
other securities not included in trading or held-to-maturity are classified as
available-for-sale.
F-9
<PAGE> 49
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related income tax effect and minority interest in
consolidated subsidiaries, on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized.
The Company accounts for hedges against its' equity securities at fair
value. Unrealized gains or losses are reported as a separate component of
stockholders' equity along with the underlying equity securities' net unrealized
gain or loss.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Realized gains and losses for securities classified as available-for-sale
and held-to-maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount exceeds the fair value of the asset. During 1999, the Company recorded a
$5,183 write-down encompassing its entire investment in Entros, its former
entertainment segment, and a $1,979 write-down of a note receivable of FECI's
subsidiaries, deemed to be uncollectible. During 1998, the Company recorded an
$8,000 write-down of transportation property, plant and equipment owned by its
wholly-owned subsidiary,ANRR.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
Supplemental Cash Flow Information
The Company paid $3,790, $543 and $389 for interest and $63,882, $29,690
and $33,686 for income taxes in 1999, 1998, and 1997, respectively. The Company
capitalized interest expense of $2,701 in 1999.
The Company's non-cash activities included issuance of $1,350 and $15,480
of long-term debt in purchase business combinations in 1999 and 1998 and
contributed $7,762 in property to an investment in an unconsolidated affiliate
in 1999.
Cash flows related to community residential developments are included in
operating activities on the statement of cash flow.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-10
<PAGE> 50
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. BUSINESS COMBINATIONS
During 1999, the Company acquired various entities related to its
operations in commercial real estate brokerage services and residential real
estate brokerage services and also purchased a homebuilder in Charlotte, NC.
Advantis acquired 3 companies and remaining minority-interests in two other
companies for a total purchase price of approximately $9,100, resulting in
goodwill of $8,998 which is being amortized on a straight-line basis over 15
years. ARS acquired 9 companies for a total purchase price of approximately
$7,400, resulting in goodwill of $6,935 which is being amortized on a
straight-line basis over 20 years. The Company also acquired Saussy Burbank, a
Charlotte, NC homebuilder for approximately $16,500, resulting in goodwill of
$6,363 which is being amortized on a straight-line basis over 10 years. In
addition, in future years, the Company may pay contingent consideration relating
to the acquisition of Saussy Burbank of $3.6 million. The amount of such
consideration will depend upon the satisfaction of certain performance criteria
relating to the assets acquired. All of these acquisitions were accounted for as
purchases and as such, the results of their operations are included in the
consolidated financial statements from the date of acquisition. None of the 1999
acquisitions were significant to the operations of the Company in the year in
which they were acquired or the year preceding the acquisition.
On July 31, 1998, the Company completed the purchase of Prudential Florida
Realty ("PFR"), currently known as ARS, from CMT Holding, Ltd. ARS is a
residential real estate brokerage, sales and services company in Florida. Under
the terms of the purchase and sale agreement, the Company acquired certain
assets of CMT Holding, Ltd. for a total purchase price of $98,815; of which
$88,815 has been paid in cash and $10,000 was a two-year note. Additionally, a
contingent payment of $10,000 will be paid over a three-year period (2001
through 2003) if certain performance targets are met. The ARS acquisition was
accounted for under the purchase method of accounting and the resulting goodwill
of $89,356 is being amortized on a straight-line basis over 20 years.
On September 24, 1998, the Company acquired Goodman Segar Hogan Hoffler,
L.P. ("GSHH"), a commercial, retail, office and industrial real estate services
company based in Norfolk, Virginia. GSHH manages commercial properties and
brokers real estate transactions in the southeastern United States. Under the
terms of the purchase agreement, the Company acquired all outstanding
partnership interests of GSHH for a total purchase price of $15,650, of which
$11,190 was paid in cash at closing and $4,480 was a three-year note. The GSHH
acquisition was accounted for under the purchase method of accounting and the
resulting goodwill of $16,773 is being amortized on a straight-line basis over
15 years.
On December 21, 1998, the Company purchased the assets of Florida Real
Estate Advisors, Inc. ("FREA'), a commercial, retail, office and industrial real
estate services company based in Tampa, Florida. FREA manages commercial
properties in central and south Florida. Under the terms of the purchase and
sale agreement, the Company acquired certain assets of FREA for a total purchase
price of $8,550, of which approximately $6,000 was paid in cash at closing and
the remainder was a three-year note. The FREA acquisition was accounted for
under the purchase method of accounting and the resulting goodwill of $8,211 is
being amortized on a straight-line basis over 15 years. In 1999, the operations
of GSHH and FREA were combined and they operate as Advantis.
F-11
<PAGE> 51
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of operations of the acquired companies are included in the
consolidated statements of income from the dates of their respective
acquisitions. Following is a summary of the unaudited pro forma results of
operations of the Company for the year ended December 31, 1998 assuming the ARS,
GSHH and FREA acquisitions had occurred on January 1, 1998:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Total revenues.............................................. $534,840
Net income.................................................. 28,942
Earnings per share:
Basic..................................................... .32
Diluted................................................... .31
</TABLE>
Adjustments to the Company's results of operations to reflect proforma
results include goodwill amortization, and reductions in interest income for the
use of invested cash. The pro forma results do not necessarily represent results
of operations that would have occurred if the acquisitions had taken place on
the basis assumed above, nor are they indicative of the results of future
combined operations. The amounts are based upon certain assumptions and
estimates, and do not reflect any benefit from economies that might be achieved
from combined operations.
4. INVESTMENT IN UNCONSOLIDATED AFFILIATES
Investments in unconsolidated affiliates as of December 31, consist of:
<TABLE>
<CAPTION>
OWNERSHIP 1999 1998
--------- ------- -------
<S> <C> <C> <C>
Arvida/JMB Partners, L.P. ............................... 26% $45,785 $45,938
Codina Group, Inc. ...................................... 33 10,345 9,758
Beacon Station (Gran Central)............................ 50 9,050 0
WBP One, L.P. (Gran Central)............................. 50 5,671 1,705
Deerfield Park, LLC...................................... 38 3,412 6,002
The I'on Company LLC..................................... 13 1,845 0
St. Joe/CNL Realty Group, LTD............................ 50 1,776 1,597
Deerfield Commons........................................ 50 1,729 0
McNeill Burbank.......................................... 50 740 0
St. Joe Commercial Texas L.P. ........................... 50 260 0
Al-Zar LTD............................................... 1 39 144
Entros, Inc. ............................................ 44 0 5,091
------- -------
$80,652 $70,235
======= =======
</TABLE>
Any differences between the cost of the investments and the underlying
equity in an unconsolidated investee's net assets are being amortized over the
remaining lives of the investee's assets, ranging from five to fifteen years.
F-12
<PAGE> 52
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized unaudited financial information for the unconsolidated
investments on a combined basis, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
UNAUDITED UNAUDITED
<S> <C> <C>
BALANCE SHEET:
Investment property, net.................................... $326,472 $208,659
Other assets................................................ 190,361 204,100
-------- --------
Total assets...................................... 516,833 412,759
======== ========
Notes payable and other debt................................ 139,054 81,948
Other liabilities........................................... 98,102 89,378
Equity...................................................... 279,677 241,433
-------- --------
Total liabilities and equity...................... $516,833 $412,759
======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
UNAUDITED UNAUDITED UNAUDITED
<S> <C> <C> <C>
STATEMENT OF INCOME:
Total revenues............................................ $440,288 $36,730 $5,254
Total expenses............................................ 341,629 32,368 5,123
-------- ------- ------
Net income...................................... $ 98,659 $ 4,362 $ 131
======== ======= ======
</TABLE>
5. DISCONTINUED OPERATIONS
Sugar
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 $19.0
million.
Talisman retained ownership of the sugar mill until March 1999 when it was
sold to a third party. 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 is 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 $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
F-13
<PAGE> 53
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
particular parcel, an amount equal to the land value on that parcel will be
released from escrow. The Company recognized $41.4 million in gain, net of
taxes, on the combined sale of the land and farming rights. Included in current
and noncurrent liabilities are $6.1 million of liabilities related to severance
costs, environmental issues and closing costs.
The Company has reported its sugar operations as discontinued operations
for all periods presented. Revenues from Talisman were $43,951, $40,955, and
$49,320 in 1999, 1998 and 1997 respectively. Earnings for Talisman, net of tax,
were $5,364, $2,706, and $4,053 in 1999, 1998 and 1997, respectively.
6. SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES:
Investments as of December 31, 1999, consist of:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED FAIR HOLDING HOLDING
COST VALUE GAIN LOSS
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Short term investments (maturing within one
year)
Trading
Cash..................................... $ 152 $ 152 -- --
Tax exempt municipal bonds............... 46,806 46,281 -- 525
------- -------- ------- ---
46,958 46,433 -- 525
------- -------- ------- ---
Available for sale
Commercial paper......................... 22,741 22,741 -- --
------- -------- ------- ---
69,699 69,174 -- 525
======= ======== ======= ===
Marketable securities
Available for sale
U.S. Government securities
Maturing in one to five years.......... 30,973 31,012 39 --
Tax exempt municipal bonds
Maturing in one to five years.......... 5,271 5,271 -- --
Maturing in five to ten years.......... -- -- -- --
Maturing in more than ten years........ 2,692 2,692 -- --
Equity securities........................ 1,688 148,644 146,956 --
Other corporate debt
Maturing in one to five years.......... 788 1,265 477 --
------- -------- ------- ---
$41,412 $188,884 147,472 --
======= ======== ======= ===
</TABLE>
Included in short-term investments is $22,741 of restricted commercial
paper collateralizing the ARS line of credit.
F-14
<PAGE> 54
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments as of December 31, 1998 consist of:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED FAIR HOLDING HOLDING
COST VALUE GAIN LOSS
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Short term investments (maturing within one
year)
Trading
Cash..................................... $ 90 $ 90 -- --
Tax exempt municipal bonds............. 34,827 34,765 -- (62)
------- -------- ------- ---
34,917 34,855 -- (62)
------- -------- ------- ---
Available for sale
Commercial paper......................... 17,613 17,613 -- --
Tax exempt municipal bonds............... 12,811 12,817 -- (6)
------- -------- ------- ---
65,341 65,285 -- (68)
======= ======== ======= ===
Marketable securities
Available for sale
U.S. Government securities
Maturing in one to five years.......... 3,600 3,707 107
Tax exempt municipal bonds
Maturing in one to five years.......... 32,429 33,155 726
Maturing in five to ten years.......... 12,010 12,896 886 --
Maturing in more than ten years........ 4,766 4,740 -- (26)
Equity securities........................ 1,681 143,976 142,295 --
Other corporate debt
Maturing in one to five years.......... 2,062 2,528 466 --
------- -------- ------- ---
$56,548 $201,002 144,480 (26)
======= ======== ======= ===
</TABLE>
Included in short-term investments is $17,000 of restricted commercial
paper collateralizing the ARS line of credit.
During 1999 and 1998, the Company utilized hedging strategies that
minimized the risk of loss in its investments in equity securities. In early
1999, the Company used the hedged positions as collateral for a line of credit.
On October 15, 1999, the Company settled the hedge positions for a pre-tax gain
of $5,023 and terminated the line of credit related to these securities.
Simultaneously, the Company entered into a three-year forward sale transaction
with a major financial institution that will lead to the ultimate disposition of
the securities. Under the forward sale agreement, the Company received
approximately $111,100 in cash and must settle the forward transaction by
October 15, 2002 by delivering either cash or a number of shares to the
financial institution. The agreement also allows that the Company may retain an
amount of the securities that represents appreciation up to 20% of their value
on October 15, 1999 should the value of the securities increase. The securities
will continue to be recorded at fair value on the balance sheet with additional
unrealized gains and losses, net of tax, being recorded through other
comprehensive income. The Company recorded a liability in long-term debt for
approximately $111,100, 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. On October
15, 2002 the liability will be $139,400 plus any appreciation in the securities
beyond the first 20%. The balance of this liability on December 31, 1999 is
$112,941 and is included in long-term debt (See note 10).
F-15
<PAGE> 55
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENT IN REAL ESTATE
Real estate as of December 31 consists of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Operating property.......................................... $669,532 $569,258
Development property........................................ 64,720 13,560
Investment property......................................... 74,299 20,176
-------- --------
808,551 602,994
-------- --------
Accumulated depreciation.................................... 61,618 54,893
-------- --------
$746,933 $548,101
======== ========
</TABLE>
Included in operating property are the Company's timberlands, and land and
buildings used for commercial rental purposes. Development property consists of
community residential land currently under development. Investment property is
the Company's land held for future use.
Real estate properties having net book value of approximately $299,725 at
December 31, 1999 are leased under non-cancelable operating leases with expected
aggregate rentals of approximately $150,500 of which $44,200, $38,900, $30,500,
$21,800, and $13,600 is due in the years 2000 through 2004, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, as of December 31 consists of:
<TABLE>
<CAPTION>
ESTIMATED
1999 1998 USEFUL LIFE
-------- -------- -----------
<S> <C> <C> <C>
Transportation property and equipment.................. $411,098 $392,062 12-30
Machinery and equipment................................ 232,846 227,771 12-30
Office equipment....................................... 6,069 3,782 10
Autos, trucks, and airplane............................ 3,505 3,043 3-10
-------- --------
653,518 626,658
Accumulated depreciation............................... 269,089 267,742
-------- --------
$384,429 $358,916
======== ========
</TABLE>
9. ACCRUED LIABILITIES
Accrued liabilities as of December 31 consist of:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Payroll and benefits........................................ $21,990 $11,483
Payroll taxes............................................... 60 149
Property and other taxes.................................... 553 9,029
Accrued casualty reserves................................... 16,812 18,869
Other accrued liabilities................................... 26,735 15,589
------- -------
66,150 55,119
Less: noncurrent accrued casualty reserves and other
liabilities............................................... 17,705 11,946
------- -------
$48,445 $43,173
======= =======
</TABLE>
F-16
<PAGE> 56
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM DEBT
Long-term debt and credit agreements at December 31, 1999 and 1998
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Minimum liability owed on forward sale of equity securities,
secured by the equity securities, matures October 2002,
with interest imputed at 7.9% per annum................... $112,941 $ --
Revolving credit agreement, interest payable monthly at 1.5%
per annum; secured by restricted short-term investments;
matures July 31, 2000..................................... 22,741 17,000
Non-interest bearing note payable to CMT Holdings, Ltd. due
in equal annual installments beginning July 28, 1999, net
of discount imputed at 6% of $.2 million and $.6 million
at December 31, 1999 and 1998, respectively............... 4,857 9,396
Non-interest bearing notes payable to former owners of
Goodman Segar GVA due in three annual installments
beginning September 24, 1999, net of discount imputed at
6% of $.2 million and $.3 million at December 31, 1999 and
1998, respectively........................................ 2,401 4,101
Non-interest bearing note payable to former owners of
Florida Real Estate Advisors due in three annual
installments beginning December 21, 1999, net of discount
imputed at 6% of $.1 million and $.3 million at December
31, 1999 and 1998, respectively........................... 1,558 2,272
Non-interest bearing note payable to former owners of Morris
McNair & Associates due in three annual installments
beginning October 1, 2000, net of discount imputed at 6 %
of $.1 million at December 31, 1999....................... 1,215 --
Various secured and unsecured notes and capital leases,
bearing interest at rates from the Prime rate (8.5% at
December 31, 1999) to 11.25%.............................. 1,511 2,131
-------- -------
Total long-term debt.............................. 147,224 34,900
-------- -------
Less: current portion....................................... 31,250 24,953
-------- -------
Net long-term debt................................ $115,974 $ 9,947
======== =======
</TABLE>
The aggregate maturities of long-term debt subsequent to December 31, 1999
are as follows; 2000, $31,250; 2001, $2,602; 2002, $113,372.
Based on the current terms and rates of the Company's long-term debt,
carrying value approximates fair value, except for the revolving credit
agreement. The terms and conditions of the revolving credit agreement are
commensurate with the nature of the underlying security.
11. INCOME TAXES
Total income tax expense for the years ended December 31 was allocated as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income from continuing operations......................... $23,961 $36,180 $37,971
Earnings from discontinued operations..................... 3,368 1,699 2,550
Gain on the sale of discontinued operations............... 30,477 -- --
Stockholders' equity, for recognition of unrealized gain
on debt and marketable equity securities................ 1,027 4,781 10,590
------- ------- -------
$58,833 $42,660 $51,111
======= ======= =======
</TABLE>
F-17
<PAGE> 57
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense attributable to income from continuing operations
differed from the amount computed by applying the statutory federal income tax
rate of 35% to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Tax at the statutory federal rate........................ $ 42,295 $28,500 $30,720
Dividends received deduction and tax free interest....... (1,227) (2,890) (1,752)
Excise tax on reversion of prepaid pension asset......... (26,841) 6,411 5,352
State income taxes (net of federal benefit).............. 4,132 3,178 3,144
Undistributed earnings of FECI........................... 1,405 1,513 1,382
Other, net............................................... 4,197 (532) (875)
-------- ------- -------
$ 23,961 $36,180 $37,971
======== ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of December 31
are presented below:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued casualty and other reserves....................... $ 8,383 $ 9,056
Impairment loss........................................... 5,085 3,086
Deferred compensation..................................... 2,591 1,397
Other..................................................... 2,946 553
-------- --------
Total deferred tax assets......................... $ 19,006 $ 14,092
-------- --------
Deferred tax liabilities:
Tax in excess of book depreciation........................ $106,044 $110,062
Deferred gain on land sales and involuntary conversions... 90,389 73,306
Deferred gain on subsidiary's defeased bonds.............. 658 1,444
Unrealized gain on debt and marketable equity
securities............................................. 56,728 55,701
Prepaid pension asset recognized for financial
reporting.............................................. 24,600 47,549
Undistributed earnings of FECI............................ 8,938 7,390
Other..................................................... 7,535 4,864
-------- --------
Total gross deferred tax liabilities.............. 294,892 300,316
-------- --------
Net deferred tax liability........................ $275,886 $286,224
======== ========
</TABLE>
Based on the timing of reversal of future taxable amounts and the Company's
history of reporting taxable income, the Company believes that the deferred tax
assets will be realized and a valuation allowance is not considered necessary.
The current deferred tax assets of $2,627 and $3,135 are recorded in other
current assets as of December 31, 1999 and 1998, respectively.
The Company has not recognized a deferred tax liability of approximately
$17,842 for the undistributed earnings of FECI that arose in 1992 and prior
years because the Company does not currently expect those unremitted earnings to
reverse and become taxable to the Company in the foreseeable future. A deferred
tax liability will be recognized when the Company expects that it will recover
those undistributed earnings in a taxable manner, such as through receipt of
dividends or sale of the investment. As of December 31, 1999, the undistributed
earnings of the subsidiary for which no deferred tax liability was provided were
approximately $48,454.
F-18
<PAGE> 58
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. EMPLOYEE BENEFITS PLANS
The Company sponsors defined benefit pension plans that cover substantially
all of its salaried employees excluding FECI. The benefits are based on the
employees' years of service or years of service and compensation during the last
five or ten years of employment. The Company complies with the minimum funding
requirements of ERISA.
A summary of the net periodic pension credit follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Service cost................................................ $ 2,986 $ 312
Interest cost............................................... 7,563 7,558
Expected return on assets................................... (17,092) (16,499)
Transition asset............................................ (2,519) (2,566)
Actuarial gain.............................................. (1,604) (2,220)
Prior service costs......................................... 573 593
-------- --------
Total pension income.............................. $(10,093) $(12,822)
======== ========
</TABLE>
A reconciliation of projected benefit obligation as of December 31 follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Projected benefit obligation, beginning of year............. $114,912 $112,487
Service cost................................................ 2,986 312
Interest cost............................................... 7,563 7,558
Actuarial loss (gain)....................................... 5,487 (3,587)
Benefits paid............................................... (10,661) (8,857)
Plan amendment.............................................. 1,681 6,999
-------- --------
Projected benefit obligation, end of year................... $121,968 $114,912
======== ========
</TABLE>
A reconciliation of plan assets as of December 31 follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Fair value of assets, beginning of year..................... $242,118 $231,790
Actual return on assets..................................... 21,575 19,185
Benefits paid............................................... (10,661) (8,857)
-------- --------
Fair value of assets, end of year........................... $253,032 $242,118
======== ========
</TABLE>
A reconciliation of funded status as of December 31 follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Pension benefit obligation
Accumulated benefit obligation............................ $ 118,921 $ 113,452
Projected benefit obligation.............................. 121,968 114,912
Market value of assets...................................... 253,032 242,118
Funded status............................................... (131,064) (127,206)
Unrecognized net transition asset........................... 3,821 6,159
Unrecognized prior service costs............................ (7,619) (6,519)
Unrecognized net gain....................................... 71,091 73,883
--------- ---------
(Prepaid) pension cost...................................... $ (63,771) $ (53,683)
========= =========
</TABLE>
F-19
<PAGE> 59
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted-average discount rates for the plans were 6.75% and 7% in 1999
and 1998. The rate of increase in future compensation levels used in determining
the actuarial present value of the projected benefit obligation for salaried
employees was 3.25% and 6% in 1999 and 1998. The expected long-term rates of
return on assets were 8% in 1999 and 1998.
The Company's pension plans are in an overfunded position with the
reduction in employees resulting from the sales of several of the Company's
operations, and in prior years the Company thought it unlikely that the
overfunding would be realized other than by a plan termination and reversion of
assets and a 50% excise tax was included on the tax effects of the prepaid
asset. During 1999, due to recent events such as acquisitions which greatly
increased the number of participants in the Company's pension plan, along with
plan modifications and the Company's growth strategy, management reevaluated how
the pension 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 1999. Income taxes on the pension surplus will be recorded at the
statutory rate in future periods.
During 1998, the Company's board of directors approved a partial subsidy to
fund certain postretirement medical benefits of currently retired participants,
and their beneficiaries, in connection with the previous disposition of several
subsidiaries. No such benefits are to be provided to active employees. The board
reviews the subsidy annually and may further modify or eliminate such subsidy at
their discretion. The actuarial present value of this unfunded postretirement
benefit obligation approximated $6,900 and $8,700 at December 31, 1999 and 1998.
Postretirement benefit expense approximated $1,300 and $1,400, for 1999 and
1998. This actuarially determined obligation was computed based on actual claims
experience of this group of retirees and a discount rate of 7% and 7.75% for
1999 and 1998 and an ultimate medical trend rate of 5% in both 1999 and 1998. A
1% increase in the medical cost trend would increase this obligation by $600 at
December 31, 1999.
(a) Deferred Compensation Plans and ESOP
The Company also has other defined contribution plans that cover
substantially all its salaried employees. Contributions are at the employees'
discretion and are matched by the Company up to certain limits. Expense for
these defined contribution plans was $893, $951, and $963, in 1999, 1998, and
1997, respectively.
In February 1999, the Company adopted (retroactive to January 1, 1998), the
"St. Joe Supplemental Executive Retirement Plan ("SERP"). The SERP is a
non-qualified retirement plan to permit certain selected management and highly
compensated employees to defer receipt of current compensation and to provide
certain supplemental retirement and death benefits. The Company has recorded
expense in 1999 related to the SERP of $1,939.
Beginning in November 1999, the Company also implemented an employee stock
purchase plan ("JoeShare"), whereby all employees may purchase the Company's
common stock through payroll deductions at a 15% discount from the fair market
value. As of December 31, 1999, 4,317 shares of the Company's treasury stock had
been sold to employees under the JoeShare Plan.
(b) Stock Based Compensation Plans
Effective January 6, 1997, the Company granted Mr. Rummell, Chairman and
CEO of the Company, 201,861 restricted shares of the Company's common stock and
in February 1999, the Company granted Mr. Twomey, President, CFO and COO,
100,000 restricted shares. The restricted shares vest in equal installments on
the first five anniversaries of the date of each grant. The Company recorded
deferred compensation of approximately $3,600 for the unamortized portion of
these grants as of December 31, 1999.
F-20
<PAGE> 60
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Compensation expense related to these grants totaled approximately $1,234 in
1999, and $900 in 1998 and 1997.
On January 7, 1997, the Company adopted the 1997 Stock Incentive Plan (the
"1997 Incentive Plan"), whereby awards may be granted to certain employees and
non-employee directors of the Company in the form of restricted shares of
Company stock or options to purchase Company stock. Awards are discretionary and
are determined by the Compensation Committee of the Board of Directors. The
total amount of restricted shares and options available for grant under the
Incentive Plan is 6.03 million shares. The options are exercisable in equal
installments on the first anniversaries of the date of grant and expire
generally 10 years after date of grant.
On February 24, 1998, the Company adopted the 1998 Stock Incentive Plan
(the "1998 Incentive Plan") whereby awards may be granted to employees and
non-employee directors of the Company in the form of restricted shares of
Company stock, options to purchase Company stock or stock appreciation rights
(SAR's). The total amount of restricted shares, options, and stock appreciation
rights available for grant under the 1998 Incentive Plan was one million. On May
9, 1999, the Company converted all of its outstanding SAR's to options. As of
December 31, 1999, there were 891,000 options to purchase common stock
outstanding under the 1998 Incentive Plan. The terms of the options are similar
to the terms under the 1997 Incentive Plan.
On February 22, 1999, the Company adopted the 1999 Stock Incentive Plan
(the "1999 Incentive Plan") with similar terms to the 1997 Incentive Plan. The
total amount of restricted shares or options under the 1999 Plan is 1.5 million
shares
Stock option activity during the period indicated is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at December 31, 1996................................ -- --
Granted................................................... 5,643,480 $21.69
--------- ------
Balance at December 31, 1997................................ 5,643,480 21.69
Forfeited................................................. (252,000) 24.10
--------- ------
Balance at December 31, 1998................................ 5,391,480 21.57
--------- ------
Granted................................................... 1,130,500 24.02
SARS converted to options................................. 891,000 25.39
Forfeited................................................. (105,000) 31.83
--------- ------
Balance at December 31, 1999................................ 7,307,980 $22.27
========= ======
</TABLE>
All options have been granted at the Company's current market price on the date
of grant and ranged from $19.14 to $34.44 after adjustment for the effects of
the special distribution paid on March 31, 1997.
The per share weighted-average fair value of stock options
granted/converted during 1997 and 1999 was $10.39 and $13.00 on the date of
grant using the Black Scholes option-pricing model with the following weighted
average assumptions: 1997 -- .8% expected dividend yield, risk-free interest
rate of 5.89%, weighted average expected volatility of 23.06 % and an expected
life of 7.5 years; 1999 -- .3% expected dividend yield, risk-free interest rate
of 6.81%, weighted average expected volatility of 25.76 % and an expected life
of 7.5 years.
F-21
<PAGE> 61
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion No. 25 in accounting for its 1999, 1998 and
1997 Incentive Plans and, accordingly, no compensation cost has been recognized
for its stock options in the consolidated financial statements. Had the Company
determined compensation costs based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income would have been
reduced to the pro forma amounts indicated below:
Net income -- pro forma -$116,630 in 1999, $22,540 in 1998 and $29,600
in 1997
Per share -- pro forma -- $1.32 and $1.31 per basic and diluted share in
1999, $.25 and $.24 per basic and diluted share in 1998 and $.32 per
basic and diluted share in 1997
The following table presents information regarding all options outstanding at
December 31, 1999.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF REMAINING RANGE OF WEIGHTED AVERAGE
OPTIONS OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES EXERCISE PRICE
- ------------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
5,817,480 7.6 years $19.14 - $23.56 $20.26
1,490,500 8.2 years $24.07 - $34.44 $30.11
---------
7,307,980 7.7 years $19.14 - $34.44 $22.27
</TABLE>
The following table presents information regarding options exercisable at
December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS RANGE OF WEIGHTED AVERAGE
EXERCISABLE EXERCISE PRICES EXERCISE PRICE
- ----------- --------------- ----------------
<S> <C> <C>
1,873,392 $19.14 - $23.56 $19.65
409,200 $24.07 - $34.44 $31.18
---------
2,282,592 $19.14 - $34.44 $21.71
</TABLE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
1999
Operating revenues................................ $216,813 $181,483 $170,131 $181,985
Operating profit.................................. 27,241 23,233 13,279 24,180
Net income from continuing operations............. 17,826 14,402 35,877 9,534
(Loss) income from discontinued operations........ (1,213) 527 2,874 44,530
Net income........................................ 16,613 14,929 38,751 54,064
Earnings per share -- Basic....................... .19 .18 .44 .61
Earnings per share -- Diluted..................... .19 .17 .43 .61
1998
Operating revenues................................ $138,490 $108,329 $ 75,406 $ 69,956
Operating profit.................................. 5,615 19,374 15,261 9,258
Net income from continuing operations............. 2,293 9,730 8,455 5,654
Income (loss) from discontinued operations........ 1,779 (493) (407) 1,827
Net income........................................ 4,072 9,237 8,048 7,481
Earnings per share -- Basic....................... .05 .10 .09 .08
Earnings per share -- Diluted..................... .05 .10 .09 .08
</TABLE>
14. 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
F-22
<PAGE> 62
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
services, transportation, forestry, and land sales. Residential real estate
services provides complete real estate brokerage services, including asset
management, rental, property management, property inspection, mortgage
brokerage, relocation and title services. The community residential development
segment develops and manages residential communities. The commercial real estate
development and services segment owns, leases, develops and manages commercial,
retail, office and industrial properties throughout the Southeast.
Transportation consists of the railroad, telecom and trucking operations of FEC
and ANRR. The forestry segment's operations produces and sells softwood pulpwood
and sawtimber. Land sales sells parcels of land included in the Company's vast
holdings of timberlands.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Total revenues represent sales
to unaffiliated customers, as reported in the Company's consolidated income
statements. All 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 is considered a key
financial measurement in the industries that the Company operates. Net EBITDA
excludes gains from discontinued operations and gains on sales of non-strategic
lands and other assets, impairment losses and other one-time charges. The
"Other" Net EBITDA primarily consists of investment income, net of general and
administrative expenses and is presented to reconcile to consolidated results.
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:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING REVENUES
Residential real estate services................. $ 209,538 $ 79,255 $ --
Community residential development................ 115,401 5,516 4,685
Commercial real estate development and
services...................................... 194,514 68,688 65,614
Transportation................................... 201,187 204,662 194,961
Forestry......................................... 28,103 33,844 31,700
Land Sales....................................... 3,900 -- --
Other............................................ (2,231) 216 17
---------- ---------- ----------
Consolidated operating revenues.................... $ 750,412 $ 392,181 $ 296,977
========== ========== ==========
Net EBITDA:
Residential real estate services................. $ 13,997 $ 6,369 $ --
Community residential development................ 40,267 (3,677) 1,185
Commercial real estate development and
services...................................... 30,340 16,328 11,162
Transportation................................... 30,800 34,003 31,294
Forestry......................................... 12,191 17,088 6,291
Land Sales....................................... 3,060 -- --
Other............................................ (4,739) 16,038 23,810
---------- ---------- ----------
Consolidated Net EBITDA............................ $ 125,916 $ 86,149 $ 73,742
---------- ---------- ----------
</TABLE>
F-23
<PAGE> 63
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
ADJUSTMENTS TO RECONCILE TO
INCOME FROM CONTINUING OPERATIONS
Depreciation and amortization.................... (49,368) (38,893) (28,732)
Other income (expense)........................... 6,662 748 4,446
Interest expense................................. (3,325) (804) (389)
Impairment loss.................................. (7,162) (10,238) --
Income taxes..................................... (23,961) (36,180) (37,971)
Minority interest................................ 28,877 25,350 20,304
---------- ---------- ----------
Income from continuing operations........ $ 77,639 $ 26,132 $ 31,400
========== ========== ==========
TOTAL ASSETS:
Residential real estate services................. $ 137,758 $ 128,870 $ --
Community residential development................ 116,857 33,830 10,166
Commercial real estate development and
services...................................... 579,975 476,716 434,870
Transportation................................... 469,213 471,723 $ 433,336
Forestry......................................... 157,488 137,406 121,758
Unallocated corporate investments................ 360,121 283,406 461,863
Discontinued operations.......................... 215 72,318 74,775
---------- ---------- ----------
Total assets............................. $1,821,627 $1,604,269 $1,536,768
========== ========== ==========
CAPITAL EXPENDITURES:
Residential real estate services................. $ 5,728 $ 639 $ --
Community residential development................ 64,036 29,964 1,036
Commercial real estate development and
services...................................... 226,567 66,820 45,806
Transportation................................... 40,474 31,332 13,549
Forestry......................................... 2,998 3,305 3,156
Other............................................ 2,031 3,019 590
---------- ---------- ----------
Total Capital Expenditures............... $ 341,834 $ 135,079 $ 64,137
========== ========== ==========
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
The Company has obligations under various noncancelable long-term operating
leases for office space and equipment. Some of these leases contain escalation
clauses for operating costs, property taxes and insurance. In addition, the
Company has various obligations under other office space and equipment leases of
less than one year. Total rent expense was $13,107 and $5,417 and $1,906 for the
years ended December 31, 1999, 1998 and 1997, respectively.
The future minimum rental commitments under noncancelable long-term
operating leases due over the next five years are as follows:
<TABLE>
<S> <C>
2000........................................................ $13,274
2001........................................................ 10,903
2002........................................................ 8,115
2003........................................................ 6,097
2004........................................................ 6,815
-------
$45,204
</TABLE>
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.
F-24
<PAGE> 64
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 December 31, 1999 totaled $72.9 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 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 $8.2 million and
$7.3 million as of December 31, 1999 and 1998, respectively.
F-25
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Stockholders
The St. Joe Company:
Under date of February 8, 2000, we reported on the consolidated balance
sheets of The St. Joe Company and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999, as contained in this annual report on Form 10-K for the year
1999. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statement schedules based on our
audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG LLP
Jacksonville, Florida
February 8, 2000
S-1
<PAGE> 66
THE ST. JOE COMPANY
SCHEDULE II (CONSOLIDATED)
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
------------------------------------------------
BALANCE AT ADDITIONS
BEGINNING CHARGED BALANCE AT
OF YEAR TO EXPENSE PAYMENTS END OF YEAR
---------- ---------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
RESERVES INCLUDED IN LIABILITIES
1999
Casualty and other reserves...................... $18,869 $13,301 $15,358 $16,812(a)(b)
1998
Casualty and other reserves...................... 21,924 6,223 9,278 $18,869(a)
1997
Casualty and other reserves...................... $25,096 $ 5,316 $ 8,488 $21,924(a)
</TABLE>
All periods presented have been restated to exclude discontinued
operations.
- ---------------
(a) Includes $7,767, $9,338 and $10,353 in current liabilities at December 31,
1999, December 31, 1998 and December 31, 1997, respectively. The remainder
is included in "Reserves and Other Long-Term Liabilities."
(b) 1999 additions include $1,390 related to discontinued operations and charged
to expense in prior years.
S-2
<PAGE> 67
THE ST. JOE COMPANY
SCHEDULE III (CONSOLIDATED) -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CARRIED AT CLOSE OF PERIOD
INITIAL COST TO COMPANY COSTS --------------------------------------
-------------------------------------- CAPITALIZED BUILDINGS
BUILDINGS & SUBSEQUENT TO LAND & LAND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION IMPROVEMENTS IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Bay County, Florida
Land w/Infrastructure......... $-- $ 2,337 $ -- $ 9,755 $ 12,092 $ -- $ 12,092
Office and Misc. Buildings.... -- 2 329 2,285 163 2,453 2,616
Timberlands................... -- 4,125 -- 13,789 17,914 -- 17,914
Brevard County, Florida
Unimproved Land............... -- 246 -- 11,147 11,393 -- 11,393
Broward County, Florida
Rail Warehouse................ -- 33 -- 1,760 405 1,388 1,793
Land w/Infrastructure......... -- 4,210 -- 882 5,092 -- 5,092
Unimproved Land............... -- 75 -- 2,344 2,419 -- 2,419
Leasehold improvements........ -- -- -- 379 -- 379 379
Calhoun County, Florida
Timberlands -- 1,199 -- 7,014 8,213 -- 8,213
Dade County, Florida
Double Front Load Warehouse... -- 727 -- 6,497 2,058 5,166 7,224
Rail Warehouses............... -- 1,373 -- 12,849 3,909 10,313 14,222
Office/Showroom/Warehouses.... -- 1,833 -- 18,812 5,947 14,698 20,645
Office/Warehouses............. -- 2,348 -- 23,282 6,983 18,647 25,630
Front Load Warehouses......... -- 3,089 -- 24,360 8,774 18,675 27,449
Office/Service Center......... -- 254 -- 3,010 900 2,364 3,263
Transit Warehouse............. -- 140 -- 1,436 140 1,436 1,576
Land w/infrastructure......... -- 14,553 -- 22,963 36,630 886 37,516
Unimproved Land & Misc.
Assets...................... -- 4,867 -- 1,742 6,585 24 6,609
Leasehold improvements......... -- -- -- 238 -- 238 238
Construction in Progress....... -- -- -- 11,551 -- 11,551 11,551
Duval County, Florida
Office Buildings.............. -- 1,675 11,366 103,011 18,477 97,575 116,052
Office/Showroom/Warehouses.... -- 362 -- 38,262 5,901 32,723 38,624
Office/Warehouses............. -- 332 -- 11,410 3,834 7,908 11,742
Front Load Warehouse.......... -- 19 -- 2,806 347 2,478 2,825
Rail Warehouses............... -- 18 -- 2,885 326 2,577 2,903
Land w/Infrastructure......... -- 1,546 -- 9,426 10,972 -- 10,972
Unimproved Land & Misc.
Assets...................... -- 316 -- 12,900 12,747 469 13,216
City & Residential Lots....... -- 351 82 -- 351 82 433
Timberlands................... -- 96 -- 220 316 -- 316
Flagler County, Florida
Unimproved Land............... -- 998 -- 3,405 4,403 -- 4,403
Franklin County, Florida
Unimproved Land............... -- 68 -- -- 68 -- 68
Timberlands................... -- 1,306 -- 4,389 5,695 -- 5,695
Gadsden County, Florida
Timberlands................... -- 1,504 -- 5,264 6,768 -- 6,768
Gulf County, Florida
Misc. Buildings............... -- 114 237 897 1,011 237 1,248
Timberlands................... -- 5,342 -- 18,659 24,001 -- 24,001
Jefferson County, Florida
Misc. Buildings............... -- -- -- 181 -- 181 181
Timberlands -- 2,002 -- 6,884 8,886 -- 8,886
Leon County, Florida
Land w/Infrastructure......... -- 603 -- 9,640 10,243 -- 10,243
Misc. Buildings............... -- 36 242 -- -- 278 278
Timberlands................... -- 1,218 -- 3,379 4,597 -- 4,597
<CAPTION>
DEPRECIABLE LIFE
USED
IN CALCULATION
IN
ACCUMULATED DATE CAPITALIZED LATEST INCOME
DESCRIPTION DEPRECIATION OR ACQUIRED STATEMENT
- ----------- ------------ ---------------- ----------------
<S> <C> <C> <C>
Bay County, Florida
Land w/Infrastructure......... $ 37 Various 20 years
Office and Misc. Buildings.... 717 Various 10 to 30 years
Timberlands................... 1,203 Various 20 years
Brevard County, Florida
Unimproved Land............... -- Various --
Broward County, Florida
Rail Warehouse................ 816 1986 3 to 40 years
Land w/Infrastructure......... 17 1992 3 to 40 years
Unimproved Land............... -- Various --
Leasehold improvements........ 94 Various Lesser of lease
term to 5 years
Calhoun County, Florida
Timberlands 552 Various 20 years
Dade County, Florida
Double Front Load Warehouse... 1,687 1993 3 to 40 years
Rail Warehouses............... 3,506 1988 3 to 40 years
Office/Showroom/Warehouses.... 5,603 1988 3 to 40 years
Office/Warehouses............. 5,434 1990 3 to 40 years
Front Load Warehouses......... 5,872 1991 3 to 40 years
Office/Service Center......... 557 1994 3 to 40 years
Transit Warehouse............. 365 Various 3 to 40 years
Land w/infrastructure......... 2,548 Various 3 to 40 years
Unimproved Land & Misc.
Assets...................... 22 Various 3 to 40 years
Leasehold improvements......... 66 Various Lesser of lease
term to 5 years
Construction in Progress....... -- 1999 --
Duval County, Florida
Office Buildings.............. 14,643 1985 3 to 40 years
Office/Showroom/Warehouses.... 5,633 1987 3 to 40 years
Office/Warehouses............. 1,775 1994 3 to 40 years
Front Load Warehouse.......... 224 1998 3 to 40 years
Rail Warehouses............... 255 1998 3 to 40 years
Land w/Infrastructure......... 1,435 1998 3 to 40 years
Unimproved Land & Misc.
Assets...................... 162 1998 5 years
City & Residential Lots....... 74 Various 10 to 20 years
Timberlands................... 21 Various 20 years
Flagler County, Florida
Unimproved Land............... -- Various --
Franklin County, Florida
Unimproved Land............... --
Timberlands................... 383 Various 20 years
Gadsden County, Florida
Timberlands................... 455 Various 20 years
Gulf County, Florida
Misc. Buildings............... 50 Various 10 to 30 years
Timberlands................... 1,612 Various 20 years
Jefferson County, Florida
Misc. Buildings............... -- Various 10 to 30 years
Timberlands 597 Various 20 years
Leon County, Florida
Land w/Infrastructure......... 34 Various 20 years
Misc. Buildings............... -- Various --
Timberlands................... 309 Various 20 years
</TABLE>
S-3
<PAGE> 68
THE ST. JOE COMPANY
SCHEDULE III (CONSOLIDATED) -- REAL ESTATE AND
ACCUMULATED DEPRECIATION -- (CONTINUED)
<TABLE>
<CAPTION>
CARRIED AT CLOSE OF PERIOD
INITIAL COST TO COMPANY COSTS --------------------------------------
-------------------------------------- CAPITALIZED BUILDINGS
BUILDINGS & SUBSEQUENT TO LAND & LAND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION IMPROVEMENTS IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Liberty County, Florida
Misc. Buildings............... -- -- -- 73 -- 73 73
Timberlands................... -- 2,385 -- 11,049 13,434 -- 13,434
Martin County, Florida
Land w/Infrastructure......... -- 585 -- 3,986 4,571 -- 4,571
Unimproved Land............... -- 30 -- 1,407 1,437 -- 1,437
Orange County, Florida
Office Building............... -- -- -- 27,837 4,770 23,067 27,837
Office/Showroom/Warehouse..... -- -- -- 9,245 2,129 7,116 9,245
Land w/Infrastructure......... -- -- -- 6,542 6,495 47 6,542
Leasehold improvements........ -- -- -- 29 -- 29 29
Construction in Progress...... -- 10,838 -- 77 10,915 -- 10,915
Unimproved Land............... -- -- -- 16,915 16,915 -- 16,915
Palm Beach County, Florida
Unimproved Land............... -- 164 -- 66 230 -- 230
Leasehold improvements........ -- -- -- 221 -- 221 221
Construction in progress...... -- -- -- 20,355 20,355 20,355
Pinellas County, Florida
Office Buildings.............. -- -- 28,671 -- -- 28,671 28,671
Leasehold improvements........ -- -- -- 288 -- 288 288
Seminole County, Florida
Leasehold improvements........ -- -- -- 39 -- 39 39
St. Johns County, Florida
Land w/Infrastructure......... -- 4,144 -- 16,885 21,029 -- 21,029
Leasehold Improvements........ -- -- -- 10 -- 10 10
Volusia County, Florida
Land w/infrastructure......... -- 1,382 -- 2,709 4,091 -- 4,091
Unimproved Land............... -- 439 -- 3,188 3,627 -- 3,627
Wakulla County, Florida
Misc. Buildings............... -- -- -- 112 -- 112 112
Unimproved Land............... -- 8 -- -- 8 -- 8
Timberlands................... -- 1,238 -- 4,162 5,400 -- 5,400
Walton County, Florida
Land w/Infrastructure......... -- 71 -- 11,832 11,673 230 11,903
Timberlands................... -- 0 -- 1,651 1,651 -- 1,651
Other Florida Counties
Unimproved Land............... -- 477 -- 246 723 -- 723
Misc. Land.................... -- -- -- 3,501 3,246 255 3,501
Leasehold improvements........ -- -- -- 358 -- 358 358
Timberlands................... -- 864 -- 2,305 3,169 -- 3,169
Construction in Progress...... -- -- -- 26,049 -- 26,049 26,049
Georgia
Leasehold improvements........ -- -- -- 182 -- 182 182
Office Buildings.............. -- 18,947 -- 141 18,947 141 19,088
Timberlands................... -- 897 -- 2,876 3,773 -- 3,773
North Carolina
Land w/infrastructure......... -- 15,735 -- -- 15,735 -- 15,735
Leasehold improvements........ -- -- -- 48 -- 48 48
<CAPTION>
DEPRECIABLE LIFE
USED
IN CALCULATION
IN
ACCUMULATED DATE CAPITALIZED LATEST INCOME
DESCRIPTION DEPRECIATION OR ACQUIRED STATEMENT
- ----------- ------------ ---------------- ----------------
<S> <C> <C> <C>
Liberty County, Florida
Misc. Buildings............... -- Various --
Timberlands................... 902 Various 20 years
Martin County, Florida
Land w/Infrastructure......... 338 Various 3 to 40 years
Unimproved Land............... -- Various --
Orange County, Florida
Office Building............... 1,516 Various 3 to 40 years
Office/Showroom/Warehouse..... 496 Various 3 to 40 years
Land w/Infrastructure......... 60 1995, 1998 3 to 40 years
Leasehold improvements........ 8 Various Lesser of lease
term to 5 years
Construction in Progress...... -- 1998 --
Unimproved Land............... -- 1999 --
Palm Beach County, Florida
Unimproved Land............... -- Various --
Leasehold improvements........ 51 Various Lesser of lease
term to 5 years
Construction in progress...... -- 1999 --
Pinellas County, Florida
Office Buildings.............. -- 1999 10 to 30 years
Leasehold improvements........ 39 Various Lesser of lease
term to 5 years
Seminole County, Florida
Leasehold improvements........ 10 Various Lesser of lease
term to 5 years
St. Johns County, Florida
Land w/Infrastructure......... -- Various --
Leasehold Improvements........ 1 Various Lesser of lease
term to 5 years
Volusia County, Florida
Land w/infrastructure......... -- Various --
Unimproved Land............... -- Various --
Wakulla County, Florida
Misc. Buildings............... 41 Various 10 to 30 years
Unimproved Land............... -- Various --
Timberlands................... 363 Various 20 years
Walton County, Florida
Land w/Infrastructure......... -- Various --
Timberlands................... 111 Various 20 years
Other Florida Counties
Unimproved Land............... -- Various --
Misc. Land.................... 290 Various 20 years
Leasehold improvements........ 78 Various Lesser of lease
term to 5 years
Timberlands................... 213 Various 20 years
Construction in Progress...... -- 1999 --
Georgia
Leasehold improvements........ 8 Various Lesser of lease
term to 5 years
Office Buildings.............. -- Various --
Timberlands................... 253 Various 20 years
North Carolina
Land w/infrastructure......... -- Various --
Leasehold improvements........ 5 Various Lesser of lease
term to 5 years
</TABLE>
S-4
<PAGE> 69
THE ST. JOE COMPANY
SCHEDULE III (CONSOLIDATED) -- REAL ESTATE AND
ACCUMULATED DEPRECIATION -- (CONTINUED)
<TABLE>
<CAPTION>
CARRIED AT CLOSE OF PERIOD
INITIAL COST TO COMPANY COSTS --------------------------------------
-------------------------------------- CAPITALIZED BUILDINGS
BUILDINGS & SUBSEQUENT TO LAND & LAND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION IMPROVEMENTS IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Virginia
Office Buildings.............. -- 5,572 -- 17 5,572 17 5,589
Leasehold improvements........ -- -- -- 97 -- 97 97
Tennessee
Unimproved Land............... -- 36 -- -- 36 -- 36
Texas
Office Buildings.............. -- 28,858 -- 18,640 47,498 -- 47,498
Construction in Progress 12,665 12,665 1999
District of Columbia
Leasehold improvements -- -- -- 119 -- 119 119
-- -------- ------- -------- ------------ -------- --------
TOTALS................... $-- $151,988 $40,927 $615,636 $ 455,635 $352,916 $808,551
-- -------- ------- -------- ------------ -------- --------
<CAPTION>
DEPRECIABLE LIFE
USED
IN CALCULATION
IN
ACCUMULATED DATE CAPITALIZED LATEST INCOME
DESCRIPTION DEPRECIATION OR ACQUIRED STATEMENT
- ----------- ------------ ---------------- ----------------
<S> <C> <C> <C>
Virginia
Office Buildings.............. -- 1999 10 to 30 years
Leasehold improvements........ 7 Various Lesser of lease
term to 5 years
Tennessee
Unimproved Land............... -- Various --
Texas
Office Buildings.............. 62 1998 10 to 30 years
Construction in Progress --
District of Columbia
Leasehold improvements 9 Various Lesser of lease
term to 5 years
-------
TOTALS................... $61,618
-------
</TABLE>
- ---------------
Notes:
(A) The aggregate cost of real estate owned at December 31, 1999 for federal
income tax purposes is approximately $475,200
(B) Reconciliation of real estate owned (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of
Year................. $ 602,994 $507,779 $474,438
Amounts Capitalized.... 310,254 109,915 50,410
Amounts Retired or
Adjusted............. (104,697) (14,700) (17,069)
--------- -------- --------
Balance at Close of
Period............... $ 808,551 $602,994 $507,779
========= ======== ========
</TABLE>
(C) Reconciliation of accumulated depreciation (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of
Year................. $ 54,893 $ 42,343 $ 36,025
Depreciation Expense... 14,817 12,784 8,878
Amounts Retired or
Adjusted............. (8,092) (234) (2,560)
--------- -------- --------
Balance at Close of
Period............... $ 61,618 $ 54,893 $ 42,343
========= ======== ========
</TABLE>
(D) The timberland properties have been included as investment properties and
prior year amounts have been reclassified to conform to this presentation.
S-5
<PAGE> 1
EXHIBIT 21.01
THE ST. JOE COMPANY
SUBSIDIARY LIST
OWNER OF 100% DIRECT OWNERSHIP INTEREST
COMPANY NAME
Advantis Construction Company
Advantis Real Estate Services Company
Apalachicola Northern Railroad Company
Arvida Community Sales, Inc.
Arvida Housing L.P., Inc.
Arvida Mid-Atlantic Homes, Inc.
Arvida Realty Company
Arvida West Florida Contracting, Inc.
CCK Real Estate, Inc.
Goodman-Segar-Hogan-Hoffler, L.P.
St. Joe Capital I, Inc.
St. Joe Capital II, Inc.
St. Joe Commercial Development, Inc.
St. Joe Commercial Property Services, Inc.
St. Joe Commercial, Inc.
St. Joe Development, Inc.
St. Joe Employment, Inc.
St. Joe Foundation, Inc.
St. Joe Hospitality, Inc.
St. Joe Land Company
St. Joe Real Estate Services, Inc.
St. Joe Residential Acquisitions, Inc.
St. Joe Terminal Company
St. Joe Timberland Company, L.L.C.
St. Joe Utilities Company
St. Joe Westfields, Inc.
St. Joe/Alhambra Development Company
St. Joe/Alhambra Management Company
St. Joe/Arvida Company, Inc.
St. Joe/Arvida West Florida Resort Holdings, L.L.C.
St. Joe/Central Florida Development, Inc.
St. Joe/Central Florida Management, Inc.
St. Joe/CNL Plaza, Inc.
St. Joe/Legacy, Inc.
Talisman Sugar Corporation
The Port St. Joe Marina
Arvida Capitol Contracting, Inc.
Arvida Central Florida Contracting, Inc.
Arvida Northeast Florida Contracting, Inc.
<PAGE> 1
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The St. Joe Company:
We consent to incorporation by reference in the registration statements (No.
333-23571 and No. 333-43007) on Form S-8 of The St. Joe Company, of our reports
dated February 8, 2000, relating to the consolidated balance sheets of The St.
Joe Company as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity, and cash flow for each
of the years in the three-year period ended December 31, 1999, and all related
schedules, which reports appear in the December 31, 1999, annual report on Form
10-K of The St. Joe Company.
KPMG LLP
Jacksonville, Florida
March 16, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ST. JOE CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 71,987
<SECURITIES> 258,058
<RECEIVABLES> 38,805
<ALLOWANCES> 0
<INVENTORY> 6,360
<CURRENT-ASSETS> 197,484
<PP&E> 653,518
<DEPRECIATION> (269,089)
<TOTAL-ASSETS> 1,821,627
<CURRENT-LIABILITIES> 131,568
<BONDS> 0
0
0
<COMMON> 13,170
<OTHER-SE> 927,684
<TOTAL-LIABILITY-AND-EQUITY> 1,821,627
<SALES> 750,412
<TOTAL-REVENUES> 750,412
<CGS> 652,317
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,162
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 120,843
<INCOME-TAX> 23,961
<INCOME-CONTINUING> 77,639
<DISCONTINUED> 46,718
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,357
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.40
</TABLE>
<PAGE> 1
EXHIBIT 99.01
The St. Joe Company
Supplemental Calculation of Selected Consolidated Financial Data
The following table calculates EBITDA (Gross) and EBITDA (Net) as set forth
in Note (5) to Item 6. Selected Consolidated Financial Data.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Income from continuing and discontinued
operations before income taxes and minority interest $129,574 $85,834 $94,374 $181,715 $136,664
Add back:
Depreciation and amortization 49,706 40,340 30,233 28,758 28,551
Interest expense 3,325 804 389 600 2,235
Less:
Gain on sales of other assets (14,623) (788) (4,417) (3,423) (2,674)
Impairment losses and other one-time charges 18,951 10,238 -- -- --
Condemnation sales -- -- -- (97,391) --
-------- ------- ------- -------- --------
EBITDA - Gross 186,933 136,428 120,578 110,259 164,776
-------- ------- ------- -------- --------
Less minority interest % of Income before income taxes (30,778) (31,261) (28,960) (22,134) (19,574)
Depreciation and amortization (15,114) (13,225) (10,194) (10,813) (10,254)
Interest expense (174) (163) (179) (276) (1,028)
Gain on sales of other assets 5 181 795 1,346 589
Impairment losses and other one-time charges (5,886) -- -- -- --
-------- ------- ------- -------- --------
EBITDA - Net $134,986 $91,960 $82,040 $ 78,382 $134,508
-------- ------- ------- -------- --------
</TABLE>
