points and lifestyles, appealing to several different target markets, including primary and second-home buyers. After six years of pre-development work, salesConstruction at RiverTown started in 2006 and sales are scheduledexpected to startbegin in late 2006 with the first closings expected by year-end.2007.
St. Johns Golf and Country Club is a primary residential community situated on approximately 820880 acres we acquired in St. Johns County in 2001. The community includes an 18-hole golf course and isclub house facility. Of the 799 units planned, to have approximately 799 houses790 had been sold or were under contract at completion. Most homes will be adjacent to a golf course, conservation land, lakes or natural wooded areas. Sales of all remaining units are expected to occur by the end of 2006.
Victoria Park is situated on approximately 1,859 acres in Volusia County near Interstate 4 in the historic college town of Deland between Daytona Beach and Orlando. Plans for Victoria Park include approximately 4,200 single and multi-family units built among parks, lakes and conservation areas with a traditional town center andareas. Victoria Park includes an award-winning 18-hole golf course which is currently open for play.course.
Artisan Park, located in Celebration, near Orlando, is being developed through a joint venture in which we own 74%. Artisan Park is situated on approximately 160175 acres which we acquired in 2002. Artisan Park is planned to include approximately 267 single-family units, 47 townhomes, and 302 condominiums as well as parks, trails and a community clubhouse with a pool and educational and recreational programming. Sales of all remaining units are expected to occur byAt the end of 2006.2006, 89 units remained for sale at Artisan Park.
Infrastructure construction has started on SevenShores, located in the City of Bradenton in Manatee CountyCounty. SevenShores is entitled for 686 condominium units on Tampa Bay. Planned as an upscale686-unit condominium community on 352192 acres, it is being designed as an environmentally sensitive community. Constructionwith a club house, related amenities, and sales activitiesaccess to a marina. Vertical construction will not commence at Perico IslandSevenShores until internally set presale requirements are expected to begin later in 2006.satisfied.
Several of our planned developments are in the midst of the entitlement process or are in the planning stage. We cannot assure you that:
| • | the necessary entitlements for development will be secured; | |
| • | any of our projects can be successfully developed, if at all; or | |
| • | our projects can be developed in a timely manner. |
It is not feasible to estimate project development costs until entitlements have been obtained. Large-scale development projects can require significant infrastructure development costs and may raise environmental issues that require mitigation.
Commercial Real Estate
Our Commercial Real Estatecommercial real estate segment develops and sells real estate for commercial purposes. We also own a portfolio of office industrial and retail properties located throughout the southeastern United States.
Development and Sales. We focus on commercial development in Northwest Florida because of our large land holdings along roadways and near or within business districts in the region. We also develop parcels within or near existing Towns & Resortsresidential development projects. For each new development, we direct the conceptual design, planning and permitting process and then contract for the construction of the horizontal infrastructure and any vertical building.
We developfocus on developing and sell properties focused onselling the following products:
| • | Retail properties | |
| • | Multi-family parcels | |
| • | Office parks | |
| • | Commerce |
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Investment Property Portfolio. Our commercial development operations, combined with our tax deferral strategy of reinvesting qualifying asset sale proceeds into like-kind properties, have enabled us to create a portfolio of rental properties17 office buildings totaling 2.82.3 million square feet. Our portfolio of investment properties was 85% leased, based on net rentable square feet, as of December 31, 2005. See Management’s Discussion2006. In January 2007, we engaged a real
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estate brokerage firm to market the office building portfolio for sale. The likelihood and Analysistiming of Financial Conditiona possible transaction is subject to market reaction and Results of Operations for additional information on our investment property portfolio.other variables.
Rural Land Sales
Our Land Salesrural land sales segment markets parcels for a variety of rural residential and recreational uses on a portion of our long-held timberlands in Northwest Florida. We are developing a rangeThe pricing of innovative products for rural settingsthese parcels varies significantly based on size, location, terrain, timber quality and other local factors. Some parcels include the benefits of limited development activity including RiverCamps, WhiteFence Farms, Florida Ranches, FloridaWildimproved roads, ponds, fencing, gates and WoodLands.
common use areas. In 2005, our Land Sales2006, this segment sold 28,95834,335 acres of rural land at an average price of $2,378$2,621 per acre, excluding RiverCamps.acre.
The vast majority of the holdings marketed by our Land Salesrural land sales segment will continue to be managed as timberland until sold. The revenues and income from our timberland operations are reflected in the results of our forestry segment.
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Forestry
Our Forestryforestry segment focuses on the management and harvesting of our extensive timberlandtimber holdings. We grow, harvest and sell timber and wood fiber. Our principal forestry product is softwood pulpwood. We also grow and sell softwood and hardwood sawtimber. In addition, we own and operate a cypress sawmill and mulch plant, (“Sunshine State Cypress”)Cypress, which converts cypress logs into wood products and mulch.
On December 31, 2005,2006, our standing pine inventory totaled approximately 23.123.9 million tons and our hardwood inventory totaled approximately 8.58.7 million tons. Our timberlands are harvested by local independent contractors under agreements that are generally renewed annually. Our timberlands are located near key transportation links, including roads, waterways and railroads.
Our strategy is to actively manage, with the best available silviculture practices, portions of our timberlands that produce adequate amounts of timber to meet our pulpwood supply agreement obligation with Smurfit-Stone Container Corporation, which expires June 30, 2012. We also harvest and sell additional timber to regional sawmills that produce products other than pulpwood. In addition, our forestry operation is focused on selective harvesting, thinning and site preparation of timberlands that may later be sold or developed by other JOE divisions.
The real estate development business is highly competitive and fragmented. We compete with numerous developers of varying sizes, ranging from local to regional in scope, some of which have greater financial resources than we have. Sales of existing homes and home sites also provide competition for homesite purchases in our new residential developments. In our residential real estate segment, we compete primarily on the basis of community design, quality, uniqueness, amenities and developer reputation. We believe that our financial stability, relative to most others in our industry, has also become an increasingly favorable competitive factor.
Supplemental Information
Information regarding the revenues, earnings and total assets of each of our operating segments can be found in note 13Note 14 to our Consolidated Financial Statements included in this Report. Subtantially all of our revenues are generated from domestic customers. All of our assets are located in the United States.
During 2006 and early 2007, we streamlined our operations and reduced employee headcount in the Management’s Discussion and Analysis Section. The Private Securities Litigation Reform Actconnection with a series of 1995 provides a safe-harbor for forward-looking information to encourage companies to provide prospective information about themselves without fearorganizational changes. As of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ, possibly materially, from those in the information. Any statements in this Form 10-K that are not historical facts are forward-looking statements. You can find many of these forward-looking statements by looking for words such as “intend”, “anticipate”, “believe”, “estimate”, “expect”, “plan”, “should”, “forecast” or similar expressions. In particular, forward-looking statements include, among others, statements about the following:February 1, 2007, we had 938 full-time employees
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and 145 part-time employees. This represents an approximately 24% reduction in the number of | ||
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| Full-Time | Part-Time | Total | ||||||||||
| Residential real estate development | 426 | 15 | 441 | |||||||||
| Residential clubs and resorts | 312 | 127 | 439 | |||||||||
| Commercial real estate | 12 | — | 12 | |||||||||
| Rural land sales | 13 | — | 13 | |||||||||
| Forestry | 28 | 1 | 29 | |||||||||
| Other — including corporate | 147 | 2 | 149 | |||||||||
| Total | 938 | 145 | 1,083 | |||||||||
Website Access to Reports
We will make available, free of charge, access to our Annual Report onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K, and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC, through our internet home page at www.JOE.com.
In 2006, we submitted to the New York Stock Exchange (NYSE) the Certification of our Chief Executive Officer required by Section 303A.12(a) of the NYSE Listed Company Manual, relating to our compliance with the NYSE’s corporate governance lising standards. There were no qualifications to the certification. We have also filed as Exhibits 31.1 and 31.2 to this Annual Report onForm 10-K the Chief Executive Officer and Chief Financial Officer certifications required to be filed with the Securities and Exchange Commission pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| Item 1A. | Risk Factors |
Our business faces numerous risks, including those set forth below. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.
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A downturn in national or regional economic conditions, especially in Florida, could adversely impact our business.
Our real estate sales, revenues, financial condition and results of operations could decline due to a deterioration of the national or certain regional economies. Our sales and revenues would be especially affected by a downturn in economic conditions in Florida, where most of our developments are located. In addition, we generate a disproportionate amount of our resort and seasonal sales in our Northwest Florida communities from customers in the Southeast region of the United States, which sales would be impacted by a deterioration of economic conditions in that region. In addition, a significant percentage of our planned residential units are resort and seasonal products, purchases of which are particularly sensitive to the state of the economy.
A continued downturn in the demand for real estate, especially residential real estate products, could adversely impact our business.
The majority of our revenues are generated from the sale of residential real estate products. Our ability to generate revenues in our residential real estate segment is directly related to thedemand for these products. As described above, a deterioration of economic conditions, whether national or regional, can adversely affect demand for real estate. The real estate market, primarilyindustry, however, is cyclical and can experience downturns based on
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consumer perceptions of real estate markets and other cyclical factors wholly unrelated to general economic conditions. Since late 2005, the United States, and Florida in Florida, and to the national and local economyparticular, has experienced a significant downturn in general. Over the last several years, somecertain residential real estate markets while economic conditions have generally remained healthy. As investors who have increasingly utilized real estate as an investment. Florida resortinvestment over the last several years seek to liquidate their real estate has benefited from this trend, creating demand for our products. During 2005, the demand for resort real estateinvestments, resale inventories of existing homes and lots have risen dramatically, especially in Northwest Florida lessened, causing a decrease in sales of our resort residential products.markets. If this trend were tothese trends continue, the demand for our residential real estate products could further decline, negatively impacting our net income and potentially further impacting selling pricesand/or absorption rates.
The occurrence of hurricanes and other natural disasters in Florida could adversely affect our business.
Because of its location between the primary residential real estate markets have generally remained healthyGulf of Mexico and the Atlantic Ocean, Florida is particularly susceptible to the occurrence of hurricanes. Depending on where any particular hurricane makes landfall, our developments in Florida, especially our regionscoastal properties in Northwest Florida, could experience significant, if not catastrophic, damage. Such damage could materially delay sales in affected communities or could lessen demand for products in those communities. Importantly, regardless of actual destruction in a development, continuedthe occurrence of hurricanes in Florida and the southeastern United States could negatively impact demand for our primary residential products is dependent on long-term prospects for job growth and strong in-migration population expansion in our regions of development.
In addition to hurricanes, the occurrence of other natural disasters in Florida, such as tornadoes, floods, fires, unusually heavy or prolonged rain and droughts, could have a material adverse effect on our ability to develop and sell properties or realize income from our projects. The occurrence of natural disasters could also causehave a long-term negative effect on the attractiveness of Florida as a location for resort, seasonaland/or primary residences.
Increases in real estate property taxesand/or insurance premiums could reduce customer demand for lots and homes in our developments.
Property insurance companies doing business in Florida have reacted to recent hurricanes by increasing premiums, requiring higher deductibles, reducing limits, restricting coverages, imposing exclusions, refusing to insure certain property owners, and in some instances, ceasing insurance operations in the state. These actions have been most dramatically applied to coastal communities. A significant number of our developments are located in such coastal communities. This trend of rising insurance rates could continue if there are severe hurricanes in the future.
Florida has recently experienced dramatic increases in property values due to the record-setting real estate activity in the first half of this decade. As a result, local governments have been, and floodmay continue, aggressively re-assessing the value of homes and real estate for property tax purposes. These larger assessments increase the total real estate property taxes due from property owners annually.
Increases in real estate insurance rates and deductibles,premiumsand/or property taxes could influence potential customers who may consider those annual costs in making housing choices to decide not to purchase a lot or home in one of our developments, which could reduce demand forhave a material adverse effect on our properties.financial condition and results of operations.
Our business is concentrated in Florida, primarily Northwest Florida. As a result, our financial results are dependent on the |
The economic growth and health of Florida, particularly Northwest Florida where the majority of our land is located, are important factors in sustaining demand for our products and services. As a result, any adverse
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change to the economic growth and health of Florida, particularly Northwest Florida, could materially adversely affect our financial results. The future economic growth in certain portions of Northwest Florida may be adversely affected if its infrastructure, such as roads, airports, medical facilities and schools, are not improved to meet increased demand. There can be no assurance that these improvements will occur.
The most significant infrastructure improvement currently being considered in Northwest Florida is the proposed relocation of the Panama City-Bay County International Airport to a site in western Bay County located on land that we own. In September 2006, the Federal Aviation Administration is considering five alternatives to expandissued its Record of Decision approving the capacity of the Panama City — Bay County International Airport. Two of these alternatives involve expansion of the
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move forward with the relocation of the airport, but the Army Corps of Engineers must issue a Section 404 permit before construction can commence. The relocation of the airport is a conditionalso dependent on adequate funding. We have agreed to certain of our land-use entitlementsdonate 4,000 acres to the Airport Authority when relocation funding and all permits are in Bay County.place. We also believe that the relocation of the airport is important to the overall economic development of Northwest Florida. The FAA has issued a draft EIS with respect to the proposed alternatives. The FAA will be conducting additional analysis over the next several months on the redevelopment of the existing Panama City — Bay County International Airport for non-airport uses. This additional work will result in a delay in the release of the Final EIS for the relocation of the airport which will be located on property donated by JOE. The Airport Authority now expects that the Final EIS will be made public in May of 2006, and the subsequent FAA Record of Decision will be issued in September of 2006. In addition to the EIS process, other regulatory steps remain before a final decision is reached on the relocation of the airport. The relocation is also dependent on adequate funding. If the relocation of the airport does not occur, our business prospects could be materially affected.
Changes in the demographics affecting projected population growth in Florida, particularly Northwest Florida, including a decrease in the migration of Baby Boomers, could adversely affect our business.
Florida has experienced strong recent population growth, including the migration of Baby Boomers to the state. ThisWe believe that Baby Boomers seeking retirement or vacation homes in Florida will be important target customers for our real estate products in the future, and we intend to continue to plan and market products to them. In addition, the success of our primary communities will be dependent on strong in-migration population expansion in our regions of development, primarily Northwest Florida. If persons considering moving to Florida do not view Northwest Florida as an attractive primary, second home or retirement destination, our business could be adversely affected.
Florida’s population growth is expected to continue into the foreseeable future.future, although population growth in 2007 is expected to be less than the growth experienced in 2006. Florida’s population growth could be negatively affected in the future by factors such as the occurrence of hurricanes, the high cost of real estate and increasing insurance costs. In addition, other states such as Georgia, North and South Carolina and Tennessee have implemented marketing initiatives designed to attract retiring Baby Boomers seeking retirement or vacation homes in Florida represent aand the workforce population who may have otherwise considered moving to Florida. Any significant portion of purchasers in many of our developments, and we intend to continue to plan and market future developments to Baby Boomers. Any decrease in the demographic trend of increasing population in Florida, including the migration of Baby Boomers, moving to Florida could adversely affect our business.
Increases |
Many purchasers of our real estate products obtain mortgage loans to finance a substantial portion of the purchase price, including the construction price of a home that may be constructed on the property. Further, our homebuilder customers depend on purchasers who rely on mortgage financing. In general, housing demand is adversely affected by increases in interest rates and by decreases in the availability of mortgage financing. In addition, changes in the federal income tax laws which would remove or limit the deduction for home sites we develop, commercial properties we develop or sell, and land we sell. Increasedmortgage interest could have an adverse impact on demand for our residential products. In addition to residential real estate, increased interest rates could also negatively impact pricing for our products. A reduction in demandcommercial properties or pricing would materiallyother land we develop or sell. If interest rates increase and the ability or willingness of prospective buyers to finance real estate purchases is adversely affectaffected, our profitability.sales, revenues, financial condition and results of operations may be negatively affected.
Our real estate operations are cyclical.
Our business is affected by demographic and economic trends and the supply and rate of absorption of lot sales and new construction. As a result, our real estate operations are cyclical, which may cause our quarterly revenues and operating results to fluctuate significantly from quarter to quarter and to differ from the
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expectations of public market analysts and investors. If this occurs, our stock’s trading price could also fluctuate significantly.
We are exposed to risks associated with real estate sales and development.
Our real estate development activities entail risks that include:
| • | construction delays or cost overruns, which may increase project development costs; | |
| • | compliance with building codes and other local regulations; | |
| • | ||
| an inability to obtain required governmental permits and authorizations; | ||
| • | an inability to secure tenants or anchors necessary to support commercial projects; and | |
| • | failure to achieve anticipated occupancy levels or | |
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If we are not able to raise sufficient cash to enhance and maintain our operations and to develop our real estate development activitiesholdings, our revenues, financial condition and results of operations could be negatively impacted.
We operate in a capital intensive industry and require significant capital expenditures.expenditures to maintain our competitive position. We obtain funds for our capital expenditures through cash flow from operations, property sales and financings. Failure to secure needed additional financing, if and when needed, may limit our development activities which could reduce our revenues and results of operations. We expect to make significant capital expenditures in the future to enhance and maintain the operations of our properties and to develop our real estate holdings. In the event that our plans or financings. assumptions change or prove to be inaccurate, or if our cash flow proves to be insufficient, due to unanticipated expenses or otherwise, we may seek to minimize cash expendituresand/or obtain additional financing in order to support our plan of operations. Additional funding, whether obtained through public or private debt or equity financing, or from strategic alliances, may not be available when needed or may not be available on terms acceptable to us, if at all.
We cannot be sure thatrely on a senior revolving credit facility with adjustable interest rates to provide cash for operationsand/or capital expenditures. Increases in interest rates can make it more expensive for us to obtain the funds available from these sources will be sufficientwe need to fundoperate our required or desired capital expenditures for development.business.
Our credit facility, as well as our outstanding senior notes, contain financial covenants that we must meet on a quarterly basis. These restrictive covenants require, among other things, that we generate cash in excess of our fixed charges and that we not exceed certain debt levels. If we are unable to obtain sufficient funds, we may have to defer or otherwise limit our development activities. Our residential projects require significant capital expenditures for infrastructure development before we can begin our selling efforts. If we are unsuccessful in our selling efforts, we may not be able to recovergenerate sufficient cash from operations to satisfy these capital expenditures.covenants, we could have an event of default under our credit facility, senior notes and certain other debt. Such a default could cause these lenders to immediately accelerate amounts due under our credit facility, senior notes and certain other debt. They could also seek to negotiate additional or more severe restrictive covenants or increased pricing. Any of these events could have a material adverse effect on our financial condition and results of operations.
Our business is subject to extensive regulation which makes it difficult and expensive for us to conduct our operations.
Development of real estate entails a lengthy, uncertain and costly entitlements process.
Approval to develop real property in Florida entails an extensive entitlements process involving multiple and overlapping regulatory jurisdictions and often requiring discretionary action by local government. This process is often political, uncertain and may require significant exactions in order to secure approvals. Real estate projects must generally comply with the provisions of the Local Government Comprehensive Planning and Land Development Regulation Act (the “Growth Management Act”) and local land development regulations. In addition, development projects that exceed certain specified regulatory thresholds require approval of a comprehensive Development of Regional Impact, or DRI, application. Compliance with the Growth Management Act, local land development regulations and the DRI process is usually lengthy and costly and can be expected to materially affect our real estate development activities.
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The Growth Management Act requires local governments to adopt comprehensive plans guiding and controlling future real property development in their respective jurisdictions and to evaluate, assess and keep those plans current. Local governments that failIncluded in all comprehensive plans is a future land use map which sets forth allowable land use development rights. Since most of our land has an “agricultural” land use, we are required to keep their plans current may be prohibited by lawseek an amendment to amend their plansthe future land use map to allow for new development. develop residential, commercial and mixed use projects. Approval of these comprehensive plan map amendments is highly discretionary.
All development orders and development permits must be consistent with the plan. Each plan must address such topics as future land use and capital improvements and make adequate provision for a multitude of public services including transportation, schools, solid waste disposal, sanitation, sewerage, potable water supply, drainage, affordable housing, open space and parks. The local governments’ comprehensive plans must also establish “levels of service” with respect to certain specified public facilities, including roads and schools, and services to residents. In many areas, infrastructure funding has not kept pace with growth, causing facilities to operate below established levels of service. 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 requesteddevelopment 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 service below the level set by the plan, the development order will require thatunless the developer either sufficiently improveimproves the services up front to meet the required level or provideprovides financial assurances that the additional services will be provided as the project progresses. In addition, local governments that fail to keep their plans current may be prohibited by law from amending their plans to allow for new development.
The DRI review process includes an evaluation of a project’s impact on the environment, infrastructure and government services, and requires the involvement of numerous state and local environmental, zoning and community development agencies. 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 conditions, standards or requirements may be imposed on a developer with respect to a particular project, which may materially increase the cost of the project. The DRI approval process is expected to have a material impact on our real estate development activities in the future.
Changes in the Growth Management Act or the DRI review process or the interpretation thereof, new enforcement of these laws, the enactment of new laws regarding the development of real property or the identification of new facts could lead to new or greater liabilities that could materially adversely affect our business, profitability or financial condition.
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Environmental and other regulations may have an adverse effect on our business.
Our properties are subject to federal, state and local environmental regulations and restrictions that may impose significant limitations on our development ability. In most cases, approval to develop requires multiple permits which involve a long, uncertain and costly regulatory process. Most of our land holdings contain jurisdictional wetlands, some of which may be unsuitable for development or prohibited from development by law. Development approval most often requires mitigation for impacts that require land to be conserved at a disproportionate ratio versus the land approved for development. Much of our property is undeveloped land located in areas where development may have to avoid, minimize or mitigate for impacts to the natural habitats of various protected wildlife or plant species. Much of our property is in coastal areas that usually have a more restrictive permitting burden and must address issues such as coastal high hazard, hurricane evacuation, floodplains and dune protection.
In addition, our current or past ownership, operation and leasing of real property, and our current or past transportation and other operations are subject to extensive and evolving federal, state and local environmental laws and other regulations. The provisions and enforcement of these environmental laws and regulations may become more stringent in the future. Violations of these laws and regulations can result in:
• civil penalties;
• remediation expenses;
• natural resource damages;
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• personal injury damages;
• potential injunctions;
• cease and desist orders; and
• criminal penalties.
In addition, some of these environmental laws impose strict liability, which means that we may be held liable for any environmental damages on our property regardless of fault.
Some of our past and present real property, particularly properties used in connection with our previous transportation and papermill operations, were involved in the storage, use or disposal of hazardous substances that have contaminated and may in the future contaminate the environment. We may bear liability for this contamination and for the costs of cleaning up a site at which we have disposed of or to which we have transported hazardous substances. The presence of hazardous substances on a property may also adversely affect our ability to sell or develop the property or to borrow funds using the property as collateral.
Changes in laws or the interpretation thereof, new enforcement of laws, the identification of new facts or the failure of other parties to perform remediation at our current or former facilities could lead to new or greater liabilities that could materially adversely affect our business, profitability or financial condition.
We are increasingly dependent upon national, regional and local homebuilders, as well as other strategic partners, who may have interests that differ from ours and may take actions that adversely affect us.
With our exit from the homebuilding business in Florida, we are now highly dependent upon our relationships with national, regional and local homebuilders to provide construction services at our residential developments. If homebuilders do not view our developments as desirable locations for homebuilding operations, our business will be adversely affected.
We may also be involved in other strategic alliances or joint venture relationships and may initiate future joint venture projects as part of our overall development strategy. Astrategy for particular developments or regions. These joint venture involvespartners may bring development experience, industry expertise, financing capabilities, brand recognition and credibility or other competitive assets. Strategic partners, however, may have economic or business interests or goals that are inconsistent with ours or that are influenced by factors unrelated to our business. For example, a national homebuilder could decide to delay purchases of lots in one of our developments due to adverse real estate conditions in its areas of operations wholly unrelated to our region. We may also be subject to adverse business consequences if the market reputation of a strategic partner deteriorates.
A formal partnership with a joint venture partner may also involve special risks such as:
| • | we may not have voting control over the joint venture; | |
| • | the venture partner may take actions contrary to our instructions or requests, or contrary to our policies or objectives with respect to the real estate investments; | |
| • | the venture partner could experience financial |
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Changes in our income tax estimates could affect our profitability.
In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws. To the extent adjustments are required in any given period, we will include the
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adjustments in the tax provision in our financial statements. These adjustments could materially impact our financial position, cash flow and results of operations.
Significant competition could have an adverse effect on our business.
The real estate industry is generally characterized by significant competition.
A number of residential and commercial developers, some with greater financial and other resources, compete with us in seeking properties for acquisition, resources for development and prospective purchasers and tenants. Competition from other real estate developers and real estate services companies may adversely affect our ability to:
| • | sell homes and home sites; | |
| • | attract purchasers; | |
| • | attract and retain tenants; | |
| • | sell undeveloped rural land; | |
| • | attract and retain experienced real estate development personnel; and | |
| • | obtain construction materials and labor. |
The forest products industry is highly competitive.
Many of our competitors in the forest products industry are fully integrated companies with substantially greater financial and operating resources. Our forest products are also subject to increasing competition from a variety of non-wood and engineered wood products. In addition, we are subject to 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 our forestry operations.
If we are unable to attract or retain experienced real estate development personnel, our business may be adversely affected.
Our future success largely depends on our ability to attract and retain experienced real estate development personnel. The market for these employees is highly competitive. If we cannot continue to
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attract and retain quality personnel, our ability to effectively operate our business may be significantly limited. In addition, we are highly dependent upon the strategic vision and operating experience of Peter Rummell, our Chairman and Chief Executive Officer. Mr. Rummell’s existing employment agreement with the Company expires in August 2008. We do not have key-person life insurance on Mr. Rummell.
Decline in rental income could adversely affect our financial results.
We own a large2.3 million square foot portfolio of commercial real estate rental properties. Our profitability could be adversely affected if:
| • | a significant number of our tenants are unable to meet their obligations to us; | |
| • | we are unable to lease space at our properties when the space becomes available; and | |
| • | the rental rates upon a renewal or a new lease are significantly lower than expected. |
| Item 1B. | Unresolved Staff Comments |
We have no unresolved comments from the Securities and Exchange Commission regarding our periodic or current reports.
| Item 2. | Properties |
We own our principal executive offices located in Jacksonville, Florida.
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We own approximately 838,000805,000 acres, the majority of which are located in Northwest Florida, including substantialover 200 miles of gulf, lake and riverfront acreage. Most of our raw land assets are managed as timberlands until designated for development. At December 31, 2006, approximately 332,000 acres were encumbered under a wood fiber supply agreement with Smurfit-Stone Container Corporation which expires on June 30, 2012. For more information on our real estate assets, see Item 1. Business.
| Item 3. | Legal Proceedings |
We 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 our consolidated financial position, results of operations or liquidity. However, the aggregate amount being sought by the claimants in these matters is presently estimated to be several million dollars.
We are 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 our policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available.
Pursuant to the terms of various agreements by which we disposed of our sugar assets in 1999, we are obligated to complete certain defined environmental remediation. Approximately $5.0$6.7 million of the sales proceeds are being heldwas placed in escrow pending the completion of the remediation. We have separately funded the costs of remediation. Remediation was substantially completed in 2003. Completion of remediation on one of the subject parcels occurred during the third quarter of 2006, resulting in the release of approximately $2.9 million of the escrowed funds to us on August 1, 2006. We expect the remaining remediation to be completed and the amounts$3.8 million held in escrow to be released to us during 2006.the Company in early 2007. The release of escrow funds will not have any effect on our earnings.
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Our former paper mill site in Gulf County and certain adjacent real property north of the paper mill site are subject to various Consent Agreements and Brownfield Site Rehabilitation Agreements with the Florida Department of Environmental Protection. The paper mill site has been assessed and rehabilitated by Smurfit-Stone Container Corporation in accordance with these agreements. TheWe are in the process of rehabilitating the adjacent real property north of the paper mill site has been assessed by us,in accordance with rehabilitation to be performed in 2006.these agreements. Management does not believe ourthe liability for any remaining required rehabilitation on these properties will be material.
Other proceedings involving environmental matters such as alleged discharge of oil or waste material into water or soil are pending against us. 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 our consolidated financial position, results of operations or liquidity.
| Item 4. | Submission of Matters to a Vote of Security Holders |
None.
PART II
| Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
We had approximately 87,00072,000 beneficial owners of our common stock as of March 2, 2006.February 21, 2007. Our common stock is quoted on the New York Stock Exchange (“NYSE”) Composite Transactions Tape under the symbol “JOE.”
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The range of high and low prices for our common stock as reported on the NYSE Composite Transactions Tape and the dividends declared for the periods indicated is set forth below:
| Common | |||||||||||||
| Stock Price | |||||||||||||
| Dividends | |||||||||||||
| High | Low | Declared | |||||||||||
2005 | |||||||||||||
| First Quarter | $ | 75.90 | $ | 60.21 | $ | 0.14 | |||||||
| Second Quarter | 83.52 | 64.31 | 0.14 | ||||||||||
| Third Quarter | 85.25 | 59.79 | 0.16 | ||||||||||
| Fourth Quarter | 70.85 | 58.50 | 0.16 | ||||||||||
2004 | |||||||||||||
| First Quarter | $ | 41.99 | $ | 36.39 | $ | 0.12 | |||||||
| Second Quarter | 42.27 | 35.06 | 0.12 | ||||||||||
| Third Quarter | 49.08 | 39.38 | 0.14 | ||||||||||
| Fourth Quarter | 64.75 | 46.97 | 0.14 | ||||||||||
| Common | ||||||||||||
| Stock Price | Dividends | |||||||||||
| High | Low | Declared | ||||||||||
2006 | ||||||||||||
| First Quarter | $ | 68.41 | $ | 56.50 | $ | 0.16 | ||||||
| Second Quarter | 62.75 | 40.93 | 0.16 | |||||||||
| Third Quarter | 58.36 | 42.40 | 0.16 | |||||||||
| Fourth Quarter | 58.24 | 51.05 | 0.16 | |||||||||
2005 | ||||||||||||
| First Quarter | $ | 75.90 | $ | 60.21 | $ | 0.14 | ||||||
| Second Quarter | 83.52 | 64.31 | 0.14 | |||||||||
| Third Quarter | 85.25 | 59.79 | 0.16 | |||||||||
| Fourth Quarter | 70.85 | 58.50 | 0.16 | |||||||||
On March 9, 2006,February 22, 2007, the closing price of our common stock on the NYSE was $56.82.$55.56.
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The following table describes the Company’s purchases of its common stock during the fourth quarter of 2005.2006.
| (c) | (d | |||||||||||||||
| Total Number of | Maximum Dollar | |||||||||||||||
| (a) | (b) | Shares Purchased as | Amount that May | |||||||||||||
| Total Number | Average | Part of Publicly | Yet Be Purchased | |||||||||||||
| of Shares | Price Paid | Announced Plans or | Under the Plans or | |||||||||||||
| Period | Purchased(1) | per Share | Programs(2) | Programs | ||||||||||||
| (In thousands) | ||||||||||||||||
| Month Ended | ||||||||||||||||
| October 31, 2005 | 196,100 | $ | 63.75 | 196,100 | $ | 47,316 | ||||||||||
| Month Ended | ||||||||||||||||
| November 30, 2005 | 626,000 | $ | 65.57 | 626,000 | $ | 6,272 | ||||||||||
| Month Ended | ||||||||||||||||
| December 31, 2005 | 45,668 | $ | 63.75 | 40,500 | $ | 153,520 | ||||||||||
| (c) | (d) | |||||||||||||||
| Total Number of | Maximum Dollar | |||||||||||||||
| (a) | (b) | Shares Purchased as | Amount that May | |||||||||||||
| Total Number | Average | Part of Publicly | Yet Be Purchased | |||||||||||||
| of Shares | Price Paid | Announced Plans or | Under the Plans or | |||||||||||||
Period | Purchased(1) | per Share | Programs(2) | Programs | ||||||||||||
| (In thousands) | ||||||||||||||||
| Month Ended October 31, 2006 | — | $ | — | — | $ | 103,793 | ||||||||||
| Month Ended November 30, 2006 | — | $ | — | — | $ | 103,793 | ||||||||||
| Month Ended December 31, 2006 | 73,816 | $ | 53.28 | — | $ | 103,793 | ||||||||||
| (1) | Includes shares surrendered to the Company by executives as payment for the strike prices and taxes due on exercised stock optionsand/or taxes due on vested restricted stock equal in the aggregate to | |
| (2) | For |
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The following performance graph compares the Company’s cumulative shareholder returns for the period December 31, 2001, through December 31, 2006, assuming $100 was invested on December 31, 2001, in the Company’s common stock, in the Russell 1000 Index and in the Wilshire Real Estate Securities Index. The total return assumes dividends are reinvested. The stock price performance shown on the graph below is not necessarily indicative of future price performance.
| 12/31/01 | 12/31/02 | 12/31/03 | 12/31/04 | 12/31/05 | 12/31/06 | |||||||||||||||||||||||||
| The St. Joe Company | $ | 100 | $ | 108 | $ | 136 | $ | 237 | $ | 250 | $ | 202 | ||||||||||||||||||
| Russell 1000 Index | 100 | 78 | 102 | 113 | 121 | 139 | ||||||||||||||||||||||||
| Wilshire Real Estate | 100 | 97 | 124 | 159 | 174 | 227 | ||||||||||||||||||||||||
| Sources: | Bloomberg L.P. The St. Joe Company |
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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 related notes included elsewhere herein. The statement of income data with respect to the years ended December 31, 2006, 2005 2004 and 20032004 and the balance sheet data as of December 31, 20052006 and 20042005 have been derived from the consolidated financial statements of the Company included herein, which have been audited by KPMG LLP. The statement of income data with respect to the years ended December 31, 20022003 and 20012002 and the balance sheet data as of December 31, 2004, 2003 2002 and 20012002 have been derived from the financial statements of the Company previously filed with the SEC, andwhich also have been audited by KPMG LLP. Historical results are not necessarily indicative of the results to be expected in the future.
| Year Ended December 31, | |||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||||||
Statement of Income Data: | |||||||||||||||||||||
| Total revenues(1) | $ | 938,192 | $ | 843,631 | $ | 678,853 | $ | 558,196 | $ | 501,539 | |||||||||||
| Total expenses | 757,403 | 703,766 | 538,825 | 453,838 | 420,980 | ||||||||||||||||
| Operating profit | 180,789 | 139,865 | 140,028 | 104,358 | 80,559 | ||||||||||||||||
| Other income (expense) | (7,687 | ) | (6,484 | ) | (4,031 | ) | 124,983 | (4,060 | ) | ||||||||||||
| Income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes, and minority interest | 173,102 | 133,381 | 135,997 | 229,341 | 76,499 | ||||||||||||||||
| Equity in income (loss) of unconsolidated affiliates | 13,016 | 5,600 | (2,168 | ) | 10,940 | 24,126 | |||||||||||||||
| Income tax expense | 64,332 | 52,525 | 48,429 | 88,875 | 37,484 | ||||||||||||||||
| Income from continuing operations before minority interest | 121,786 | 86,456 | 85,400 | 151,406 | 63,141 | ||||||||||||||||
| Minority interest | 7,820 | 2,594 | 553 | 1,366 | 524 | ||||||||||||||||
| Income from continuing operations | 113,966 | 83,862 | 84,847 | 150,040 | 62,617 | ||||||||||||||||
| Income (loss) from discontinued operations(2) | (630 | ) | 1,014 | (8,932 | ) | 3,436 | 7,588 | ||||||||||||||
| Gain on sale of discontinued operations(2) | 13,322 | 5,224 | — | 20,887 | — | ||||||||||||||||
| Net income | $ | 126,658 | $ | 90,100 | $ | 75,915 | $ | 174,363 | $ | 70,205 | |||||||||||
| Per Share Data: | |||||||||||||||||||||
Basic | |||||||||||||||||||||
| Income from continuing operations | $ | 1.52 | $ | 1.11 | $ | 1.12 | $ | 1.91 | $ | 0.78 | |||||||||||
| Income (loss) from discontinued operations(2) | (0.01 | ) | 0.01 | (0.12 | ) | 0.04 | 0.09 | ||||||||||||||
| Gain on the sale of discontinued operations(2) | 0.18 | 0.07 | — | 0.27 | — | ||||||||||||||||
| Net income | $ | 1.69 | $ | 1.19 | $ | 1.00 | $ | 2.22 | $ | 0.87 | |||||||||||
Diluted | |||||||||||||||||||||
| Income from continuing operations | $ | 1.50 | $ | 1.09 | $ | 1.09 | $ | 1.84 | $ | 0.74 | |||||||||||
| Income(loss) from discontinued operations | (0.01 | ) | 0.01 | (0.11 | ) | 0.04 | 0.09 | ||||||||||||||
| Gain on the sale of discontinued operations | 0.17 | 0.07 | — | 0.26 | — | ||||||||||||||||
| Net income | $ | 1.66 | $ | 1.17 | $ | 0.98 | $ | 2.14 | $ | 0.83 | |||||||||||
| Dividends declared and paid | $ | 0.60 | $ | 0.52 | $ | 0.32 | $ | 0.08 | $ | 0.08 | |||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||
Statement of Income Data: | ||||||||||||||||||||
| Total revenues(1) | $ | 748,192 | $ | 932,124 | $ | 838,002 | $ | 675,401 | $ | 556,148 | ||||||||||
| Total expenses | 669,965 | 753,108 | 699,904 | 536,402 | 452,254 | |||||||||||||||
| Operating profit | 78,227 | 179,016 | 138,098 | 138,999 | 103,894 | |||||||||||||||
| Other income (expense) | (15,954 | ) | (6,391 | ) | (5,227 | ) | (3,426 | ) | 125,591 | |||||||||||
| Income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes, and minority interest | 62,273 | 172,625 | 132,871 | 135,573 | 229,485 | |||||||||||||||
| Equity in income (loss) of unconsolidated affiliates | 9,307 | 13,016 | 5,600 | (2,168 | ) | 10,940 | ||||||||||||||
| Income tax expense | 25,157 | 64,153 | 52,334 | 48,270 | 88,929 | |||||||||||||||
| Income from continuing operations before minority interest | 46,423 | 121,488 | 86,137 | 85,135 | 151,496 | |||||||||||||||
| Minority interest | 6,137 | 7,820 | 2,594 | 553 | 1,366 | |||||||||||||||
| Income from continuing operations | 40,286 | 113,668 | 83,543 | 84,582 | 150,130 | |||||||||||||||
| Income (loss) from discontinued operations(2) | 366 | (332 | ) | 1,333 | (8,667 | ) | 3,346 | |||||||||||||
| Gain on sale of discontinued operations(2) | 10,368 | 13,322 | 5,224 | — | 20,887 | |||||||||||||||
| Net income | $ | 51,020 | $ | 126,658 | $ | 90,100 | $ | 75,915 | $ | 174,363 | ||||||||||
| Per Share Data: | ||||||||||||||||||||
Basic | ||||||||||||||||||||
| Income from continuing operations | $ | 0.54 | $ | 1.52 | $ | 1.11 | $ | 1.11 | $ | 1.91 | ||||||||||
| Income (loss) from discontinued operations(2) | — | (0.01 | ) | 0.01 | (0.11 | ) | 0.04 | |||||||||||||
| Gain on the sale of discontinued operations(2) | 0.15 | 0.18 | 0.07 | — | 0.27 | |||||||||||||||
| Net income | 0.69 | $ | 1.69 | $ | 1.19 | $ | 1.00 | $ | 2.22 | |||||||||||
Diluted | ||||||||||||||||||||
| Income from continuing operations | $ | 0.54 | $ | 1.49 | $ | 1.09 | $ | 1.09 | $ | 1.84 | ||||||||||
| Income (loss) from discontinued operations | — | (0.01 | ) | 0.01 | (0.11 | ) | 0.04 | |||||||||||||
| Gain on the sale of discontinued operations | 0.15 | 0.18 | 0.07 | — | 0.26 | |||||||||||||||
| Net income | $ | 0.69 | $ | 1.66 | $ | 1.17 | $ | 0.98 | $ | 2.14 | ||||||||||
| Dividends declared and paid | $ | 0.64 | $ | 0.60 | $ | 0.52 | $ | 0.32 | $ | 0.08 | ||||||||||
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| December 31, | ||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
| Investment in real estate | $ | 1,036,174 | $ | 942,630 | $ | 886,076 | $ | 806,701 | $ | 736,734 | ||||||||||
| Cash and investments(3) | 202,605 | 94,816 | 57,403 | 73,273 | 200,225 | |||||||||||||||
| Property, plant & equipment, net | 40,176 | 33,562 | 36,272 | 42,907 | 49,826 | |||||||||||||||
| Total assets | 1,591,946 | 1,403,629 | 1,275,730 | 1,169,887 | 1,340,559 | |||||||||||||||
| Debt | 554,446 | 421,110 | 382,176 | 320,915 | 498,015 | |||||||||||||||
| Total stockholders’ equity | 488,998 | 495,411 | 487,315 | 480,093 | 518,073 | |||||||||||||||
| December 31, | ||||||||||||||||||||
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
| Investment in real estate | $ | 1,213,562 | $ | 1,036,174 | $ | 942,630 | $ | 886,076 | $ | 806,701 | ||||||||||
| Cash and investments(3) | 36,935 | 202,605 | 94,816 | 57,403 | 73,273 | |||||||||||||||
| Property, plant and equipment, net | 44,593 | 40,176 | 33,562 | 36,272 | 42,907 | |||||||||||||||
| Total assets | 1,560,395 | 1,591,946 | 1,403,629 | 1,275,730 | 1,169,887 | |||||||||||||||
| Debt | 627,056 | 554,446 | 421,110 | 382,176 | 320,915 | |||||||||||||||
| Total stockholders’ equity | 461,080 | 488,998 | 495,411 | 487,315 | 480,093 | |||||||||||||||
| (1) | Total revenues includes real estate revenues from property sales, timber sales, rental revenues and other revenues, primarily club operations and management and brokerage fees, and transportation revenues in | |
| (2) | Discontinued operations include the operations and subsequent sale of four commercial office buildings in 2006, four commercial office buildings and Advantis Real Estate Services Company (“Advantis”) in 2005, two commercial office buildings sold in 2004 and the sales in 2002 of Arvida Realty Services (“ARS”) and two commercial office buildings. (See | |
| (3) | Includes cash, cash equivalents and marketable securities. |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
We make forward-looking statements in this Report, particularly in the Management’s Discussion and Analysis, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Report that are not historical facts are forward-looking statements. You can find many of these forward-looking statements by looking for words such as “intend”, “anticipate”, “believe”, “estimate”, “expect”, “plan”, “should”, “forecast” or similar expressions. In particular, forward-looking statements include, among others, statements about the following:
| • | future operating performance, revenues, earnings, cash flows, and short and long-term revenue and earnings growth rates; | |
| • | future residential and commercial entitlements; | |
| • | expected development timetables and projected timing for sales or closings of homes or home sites in a community; | |
| • | development approvals and the ability to obtain such approvals, including possible legal challenges; | |
| • | the anticipated price ranges of developments; | |
| • | the number of units or commercial square footage that can be supported upon full build out of a development; | |
| • | the number, price and timing of anticipated land or building sales or acquisitions; | |
| • | estimated land holdings for a particular use within a specific time frame; | |
| • | absorption rates and expected gains on land and home site sales; | |
| • | the levels of resale inventory in our developments and the regions in which they are located; | |
| • | the development of relationships with strategic partners, including homebuilders; | |
| • | the pace at which we release new products for sale; | |
| • | comparisons to historical projects; |
22
| • | the amount of dividends we pay; and | |
| • | the number of shares of company stock which may be purchased under the company’s existing or future share-repurchase program. |
Forward-looking statements are not guarantees of future performance and are subject to numerous assumptions, risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by a forward-looking statement include the risk factors described above under the heading “Risk Factors.” These statements are made as of the date hereof based on our current expectations, and we undertake no obligation to update the information contained in this Report. New information, future events or risks may cause the forward-looking events we discuss in this Report not to occur.
Overview
The St. Joe Company is one of Florida’sthe largest real estate operating companies.development companies in Florida. We believe we have one of the largest inventories of private land suitable for development in the State of Florida, with a very low cost basis.Florida. The majority of our land is located in Northwest Florida.Florida and has a very low cost basis. In order to optimize the value of these core real estate assets, our business plan calls for uswe seek to reposition our substantial timberland holdings for higher and better uses. We increase the value of our raw land assets most of which are currently managed as timberland, through the entitlement, development and subsequent sale of residential and commercial parcels, home sites and homes, or through the direct sale of unimproved land. In addition, we reinvest the proceeds of qualifying asset sales into like-kind properties under our tax deferral strategy, which has enabled us to create a significant portfolio of commercial rental properties.
We have four operating segments: Towns & Resorts,residential real estate, commercial real estate, rural land sales and forestry.
Our Towns & Resortsresidential real estate segment generates revenues from:
| • | the sale of developed home sites to retail customers and builders; | |
| • | the sale of parcels of entitled, undeveloped land; | |
| • | the sale of housing units built by us; | |
| • | rental income; | |
| • | resort and club operations; | |
| • | investments in limited partnerships and joint ventures; | |
| • | brokerage, title issuance and mortgage origination fees on certain transactions within our | |
| • | management fees. |
Our commercial real estate segment generates revenues from:
| • | the rentaland/or sale of commercial buildings ownedand/or developed by us; and | |
| • | the sale of developed and undeveloped land for retail, multi-family, office and industrial uses. |
21
Our rural land sales segment generates revenues from:
| • | the sale of parcels of undeveloped land; and | |
| • | the sale of developed home sites primarily within rural settings. |
Our forestry segment generates revenues from:
| • | the sale of pulpwood and timber; and | |
| • | the sale of cypress lumber and mulch. |
Our ability to obtain land-use entitlements for our properties is a key requirement in repositioning our land to higher and better uses and for the generation of revenues. We continue to plan and obtain entitlements for an increasingly diverse set of land uses including residential, retail, office, industrial and multi-family marina and hotel uses.
23
At the end of 2005,2006, we had land-use entitlements in hand or in process for approximately 41,70044,300 residential units and 14.614.5 million square feet of commercial space, with an additional 600627 acres zoned for commercial uses.
During 2006, Florida, like many other states across the nation, experienced a dramatic slowdown in its real estate market, primarily in Florida, and the economy in general. Economic, political and weather-related conditions could have adverse effects on consumer buying behavior, construction costs, availability of labor and materials, the cost and availability of insurance, the availability of and changes in prices of fuel and energy, and other factors affecting us and themarkets. This real estate industryslowdown was reflected in generalour results of operations for the year in which we experienced a 60% decline in net income. The slowdown has also led to high levels of residential resale inventories in our Florida markets, although recently we have seen an increasing level of sales-center traffic in our residential projects.
Due to existing market conditions, we are making a number of adjustments in our communities. The pricing of some of our resort and coastal real estateseasonal product is being revised to reflect current market conditions. We are also lengthening the required time periods for home-site purchasers to start construction of their homes. And, with completed homes now in particular. Additionally, increases in interest rates could reduce thegreater demand for homes we build andthan home sites, we develop, particularly primary housing and home sites, and commercial properties we develop or sell.
We are committed to long-term value creation, further diversification of our development business and generating land sales over a broader range of uses and price points. Regardless of negative short-term market conditions, we believe that long-term prospects for Florida, driven by job growth and coupled with strong in-migration population expansion, will be favorable over the long term.
During the third quarter, we announced that we are exiting the Florida homebuilding business to focus on maximizing the value of our landholdings through place making. For the last several years, we have built homes in our towns in part because there was limited homebuilding capacity in Northwest Florida slowedFlorida. As markets in the thirdregion have matured, homebuilding capacity from national, regional and fourth quarterslocal homebuilders has expanded significantly. Under our exit plan, our homebuilding operations will wind down by mid-2008.
We are continuing to develop our relationships with national, regional and local homebuilders (see Residential Real Estate Segment below). We have executed purchase and option contracts with several national and regional homebuilders for the purchase of 2005developed lots in various communities. These transactions involve land positions in pre-development phases of our communities as well as phases currently under development. These transactions provide opportunities for us to accelerate value realization, while at the same time decreasing capital intensity and increasing efficiency in how we deliver housing to the market. We expect national and regional homebuilders to be important business partners going forward.
During late 2006 and early 2007, we implemented certain corporate organizational changes designed to position JOE for the years ahead. We eliminated certain redundancies among our field and corporate operations, and put in place a regional management structure to oversee our various product lines within specific geographical areas. We believe our new organization will facilitate the development of groups of projects with multifaceted real estate product types. As discussed further below, as a result of our exit from Florida homebuilding and corporate reorganization, we recorded a restructuring charge of $13.4 million during 2006. We expect to incur an active hurricane season as well as macroeconomic and real estate supply and demand factors. While sales activityadditional charge of $3.0 million in our primary residential communities remained robust through most of 2005, there are some signs of slowing in the most recent months compared to strong sales for the same period last year, potentially as a result of these same macroeconomic and real estate supply and demand factors.2007.
Critical Accounting Estimates
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The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principlesU.S. generally accepted in the United States of America.accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on our historical experience and on various other assumptions that management believes are reasonable under the circumstances. Additionally, we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
24
We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Investment in Real Estate and Cost of Real Estate Sales. Costs associated with a specific real estate project are capitalized once we determine that the project is economically probable. We capitalize costs directly associated with development and construction of identified real estate projects. Indirect costs that clearly relate to a specific project under development, such as internal costs of a regional project field office, are also capitalized. We capitalize interest based on the amount of underlying expenditures (up to total interest expense), and real estate taxes on real estate projects under development. If we determine not to complete a project, any previously capitalized costs are expensed in the period such determination is made.
Real estate inventory costs include land and common development costs ( such as roads, sewers and amenities, homeamenities), multi-family construction costs, capitalized property taxes, capitalized interest and certain indirect costs. A portion of real estate inventory and estimates for costs to complete are allocated to each unit based on the relative sales value of each unit as compared to the estimated sales value of the total project. These estimates are reevaluated at least annually, with any adjustments being allocated prospectively to the remaining units available for sale. The accounting estimate related to inventory valuation is susceptible to change due to the use of assumptions about future sales proceeds and related real estate expenditures. Management’s assumptions about future housing and home site sales prices, sales volume and sales velocity require significant judgment because the real estate market is cyclical and is highly sensitive to changes in economic conditions. In addition, actual results could differ from management’s estimates due to changes in anticipated development, construction and overhead costs. Although we have not made significant adjustments affecting real estate gross profit margins in the past, there can be no assurances that estimates used to generate future real estate gross profit margins will not differ from our current estimates. Construction costs for single-family homes are determined based upon actual costs incurred.
Revenue Recognition —Percentage-ofPercentage-of-Completion.-Completion. In accordance with Statement of Financial Accounting Standards No. 66,Accounting for Sales of Real Estate, revenue for multi-family residences under construction is recognized using thepercentage-ofpercentage-of-completion-completion method when (1) construction is beyond a preliminary stage, (2) the buyer is committed to the extent of being unable to require a refund except for nondelivery of the unit, (3) sufficient units have already been sold to assure that the entire property will not revert to rental property, (4) sales price is assured, and (5) aggregate sales proceeds and costs can be reasonably estimated. Revenue is then recognized in proportion to the percentage of total costs incurred in relation to estimated total costs.
23
Impairment of Long-lived Assets and Goodwill. Our long-lived assets, primarily real estate held for investment, are carried at cost unless circumstances indicate that the carrying value of the assets may not be recoverable. We review long-lived assets for impairment whenever events or changes in circumstances indicate suchIf we determine that an evaluation is warranted. This review involves a number of assumptions and estimates used in determining whether impairment exists including estimation of undiscounted cash flows. due to the inability to recover an asset’s carrying value, a provision for loss is recorded to the extent that the carrying value exceeded estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell.
Depending on the asset, we use varying methods to determine fair value, such as (i) discounting expected future cash flows, (ii) determining resale values by market, or (iii) applying a capitalization rate to net operating income using prevailing rates in a given market. These methods of determiningThe fair value determined under these methods can fluctuate up or down significantly as a result of a number of factors, including changes in the general economy of our markets, and demand for real estate. If we determine that impairment exists due toestate and the inability to recover an asset’s carrying value,projected net operating income for a provision for loss is recorded to the extent that the carrying value exceeds estimated fair value. If such assets were held for sale, the provision for loss is recorded to the extent that the carrying value exceeds estimated fair value less costs to sell.specific property.
Goodwill is carried at the lower of cost or fair value and is tested for impairment at least annually, or whenever events or changes in circumstances indicate such an evaluation is warranted, by comparing the carrying amount of the net assets of each reporting unit with goodwill to the fair value of the reporting unit taken as a whole. The impairment review involves a number of assumptions and estimates including estimating discounted future cash flows, net operating income, future economic conditions, fair value of assets held and discount rates. If this comparison indicates that the goodwill of a particular reporting unit is impaired, the
25
aggregate of the fair value of each of the individual assets and liabilities of the reporting unit are compared to the fair value of the reporting unit to determine the amount of goodwill impairment, if any.
Intangible Assets. We allocate the purchase price of acquired properties to tangible and identifiable intangible assets and liabilities acquired based on their respective fair values, using customary estimates of fair value, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. These fair values can fluctuate up or down significantly as a result of a number of factors and estimates, including changes in the general economy of our markets, demand for real estate, lease terms, amortization periods and fair market values assigned to leases as well as fair value assigned to customer relationships.
Pension Plan. The Company sponsorsWe sponsor a cash balance defined-benefit pension plan covering a majority of our employees. Currently, our pension plan is over-funded and contributes income to the Company. The accounting for pension benefits is determined by standardized accounting and actuarial methods using numerous estimates, including discount rates, expected long-term investment returns on plan assets, employee turnover, mortality and retirement ages, and future salary increases. Changes in these key assumptions can have a significant impact on the income contributed by the pension plan. We engage the services of an independent actuary and investment consultant to assist us in determining these assumptions and in the calculation of pension income. For example, in 2005,2006, a 1% increase in the assumed long-term rate of return on pension assets would have resulted in a $2.4$2.3 million increase in pre-tax income ($1.51.4 million net of tax). A 1% decrease in the assumed long-term rate of return would have caused an
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equivalent decrease in pre-tax income. A 1% increase or decrease in the assumed discount rate would have resulted in less than a $0.1$0.3 million increasechange in pre-tax income.
Stock-Based Compensation. We currently use the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors (term of option), risk-free interest rate and expected dividends.
We estimate the expected term of options granted by incorporating the contractual term of the options and analyzing employees, actual and expected exercise behaviors. We estimate the volatility of our common stock by using historical volatility in market price over a period consistent with the expected term, and other factors. We base the risk-free interest rate that we use in the option valuation model on U.S. Treasury seven year issues with remaining terms similar to the expected term on the options. We anticipate paying cash dividends in the foreseeable future and therefore use an estimated dividend yield in the option valuation model.
Income Taxes. In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We record a valuation allowance against our deferred tax assets based upon our analysis of the timing and reversal of future taxable amounts and our history and future expectations of taxable income. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws. To the extent adjustments are required in any given period, we will include the adjustments in the tax provision in our financial statements. These adjustments could materially impact our financial position, cash flow and results of operation.
Recently Issued Accounting Standards
In December 2004,June 2006, the Financial Accounting Standards Board ( “FASB”)(FASB) issued Statement of Financial Accounting StandardsFASB Interpretation No. 152,48,Accounting for Real Estate Time-Sharing TransactionsUncertainty in Income Taxes, an Interpretation of SFAS Statement No. 109(“FAS 152”FIN 48”). FAS 152FIN 48 clarifies the accounting and reporting for salesuncertainties in income tax law. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of
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uncertain tax positions taken or expected to be taken in income tax returns. We will adopt this Interpretation in the first quarter of 2007. The cumulative effects, if any, of applying FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. We are currently evaluating the impact of FIN 48 on our consolidated financial statements, but are not yet in a position to determine its impact.
In September 2006, the FASB issued SFAS Statement No. 157,Fair Value Measurements(“SFAS 157”). SFAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. SFAS 157 applies only to fair-value measurements that are already required or permitted by other transactions involving real estate time-sharing transactionsaccounting standards and is expected to increase the consistency of those measurements. SFAS 157 is effective for financial statements for fiscal years beginning after JuneNovember 15, 2005. Upon adoption, we2007. We do not expect FAS 152 tobelieve SFAS 157 will have a material effectadverse impact on our financial position or results of operations.
In September 2006, the SEC Staff issued Staff Accounting Bulletin No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in December 2004,Current Year Financial Statements(“SAB 108”). SAB 108 provides guidance for SEC registrants on how the FASBeffects of uncorrected errors originating in previous years should be considered when quantifying errors in the current year. SAB 108 was issued Statementto eliminate diversity in practice for quantifying uncorrected prior year misstatements (including prior year unadjusted audit differences) and to address weaknesses in methods commonly used to quantify such misstatements. These methods are the income statement or rollover method and the balance sheet or iron curtain method. The Company has historically followed the income statement method. Under SAB 108, SEC registrants will now have to evaluate errors under both methods. SAB 108 provides transitional guidance that allows registrants to report the effect of Financial Accounting Standards No. 153,Exchanges of Nonmonetary Assets(“FAS 153”). FAS 153 eliminates a previous exception from fair value reporting for nonmonetary exchanges of similar productive assets and introduces an exception from fair value reporting for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary change is considered to have commercial substance if the future cash flows of the entity are expected to change significantlyadoption as a resultcumulative adjustment to beginning of the exchange. FAS 153year retained earnings. If a cumulative adjustment is applicable to nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005, with earlier application permitted. The impact of adopting FAS 153 did not have a material adverse impact on the Company’s financial position or results of operations.
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In September 2006, the SEC Emerging Issues Task Force (EITF) issuedEITF IssueNo. 06-8, Applicability of the Assessment of a Buyer’s Continuing Investment under FAS No. 66 for the Sale of Condominiums (“EITF06-8”). EITF06-8 states that in assessing the collectibility of the sales price pursuant to paragraph 37(d) of FAS 66, an entity should evaluate the adequacy of the buyer’s initial and continuing investment to conclude that the sales price is collectible. If an entity is unable to meet the criteria of paragraph 37, including an assessment of collectibility using the initial and continuing investment tests described inparagraphs 8-12 of FAS 66, then the entity should apply the deposit method as described inparagraphs 65-67 of FAS 66. EITF06-8 is effective for the Company’s fiscal year beginning after June 15, 2005. As a result, we plan to adopt FAS 123(R) as of January 1, 2006. FAS 123(R) requires a public entity2008. We have not yet assessed the impact of EITF06-8 on our consolidated financial statements, but we believe that we will be required, in most cases, to measurecollect additional deposits from buyers in order to recognize revenue under the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions), eliminating the alternative previously allowed to use the intrinsic valuepercentage-of-completion method of accounting. The grant date fair value willIf we are unable to meet the requirements of EITF06-8, we would be estimatedrequired to recognize revenue using option-pricing models adjusted for the unique characteristicsdeposit method, which would delay revenue recognition until consumation of the instruments using methods similar to those required previously and currently used by us to calculate pro forma net income and earnings per share disclosures. The cost will be recognized ratably over the period during which the employee is required to provide services in exchange for the award. Upon implementation of FAS 123(R), we will recognize compensation cost over the vesting period in our financial statements for the unvested portion of existing options granted prior to the compliance date and the cost of stock options granted to employees after the compliance date based on the fair value of the stock options at grant date. We will continue to expense restricted stock compensation over the stock’s vesting period, which is deemed to be the period for which services are performed. Additionally, the 15% discount at which employees may purchase the Company’s common stock through payroll deductions will be recognized as compensation expense.sale.
Results of Operations
Net income for 20052006 was $126.6$51.0 million, or $0.69 per diluted share, compared with $126.7 million, or $1.66 per diluted share, compared within 2005, and $90.1 million, or $1.17 per diluted share, in 2004, and $75.92004. Results for 2006 reported in discontinued operations included after-tax gains on sales of four office buildings totaling $10.4 million, or $0.98$0.15 per diluted share, in 2003.share. Results for 2005 reported in discontinued operations includeincluded an after-tax loss of $5.9 million, or $0.08 per diluted share, resulting from the sale of Advantis Real Estate Services Company (“Advantis”), our former commercial real estate services unit. Discontinued operations for 2005 also includeincluded after-tax gains on sales of four office buildings totaling $19.2 million, or $0.25 per diluted share. The results for 2003 included a non-cash charge of $8.8 million, or $0.11 per diluted share, to reduce the carrying value of goodwill associated with Advantis.
We report revenues from our four operating segments: Towns & Resorts,residential real estate, commercial real estate, rural land sales and forestry. Real estate sales are generated from sales of residential homes and home sites, parcels
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of developed and undeveloped land, and commercial buildings which are not reported as discontinued operations. Rental revenue is generated primarily from lease income related to our portfolio of investment and development properties as a component of the commercial real estate segment. Timber sales are generated from the forestry segment. Other revenues are primarily club operations and management fees from the Towns & Resortsresidential real estate segment.
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Consolidated Results
Revenues and Expenses. The following table sets forth a comparison of the revenues and expenses for the three years ended December 31, 2005.2006.
| Years Ended December 31, | 2005 vs. 2004 | 2004 vs. 2003 | ||||||||||||||||||||||||||||
| 2005 | 2004 | 2003 | Difference | % Change | Difference | % Change | ||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||
| Real estate sales | $ | 824.8 | $ | 734.3 | $ | 592.2 | $ | 90.5 | 12 | % | $ | 142.1 | 24 | % | ||||||||||||||||
| Rental | 40.7 | 30.8 | 21.6 | 9.9 | 32 | 9.2 | 43 | |||||||||||||||||||||||
| Timber sales | 28.0 | 35.2 | 36.6 | (7.2 | ) | (20 | ) | (1.4 | ) | (4 | ) | |||||||||||||||||||
| Other | 44.7 | 43.3 | 28.5 | 1.4 | 3 | 14.8 | 52 | |||||||||||||||||||||||
| Total | $ | 938.2 | $ | 843.6 | $ | 678.9 | $ | 94.6 | 11 | % | $ | 164.7 | 24 | % | ||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||
| Cost of real estate sales | 526.1 | 485.4 | 354.1 | 40.7 | 8 | 131.3 | 37 | |||||||||||||||||||||||
| Cost of rental revenues | 15.9 | 12.8 | 11.3 | 3.1 | 24 | 1.5 | 13 | |||||||||||||||||||||||
| Cost of timber sales | 20.0 | 21.8 | 24.2 | (1.8 | ) | (8 | ) | (2.4 | ) | (10 | ) | |||||||||||||||||||
| Cost of other revenues | 39.7 | 37.6 | 27.2 | 2.1 | 6 | 10.4 | 38 | |||||||||||||||||||||||
| Other operating expenses | 69.6 | 69.0 | 62.5 | 0.6 | 1 | 6.5 | 10 | |||||||||||||||||||||||
| Total | $ | 671.3 | $ | 626.6 | $ | 479.3 | $ | 44.7 | 7 | % | $ | 147.3 | 31 | % | ||||||||||||||||
| Years Ended December 31, | 2006 vs. 2005 | 2005 vs. 2004 | ||||||||||||||||||||||||||
| 2006 | 2005 | 2004 | Difference | % Change | Difference | % Change | ||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||
| Real estate sales | $ | 638.2 | $ | 824.8 | $ | 734.3 | $ | (186.6 | ) | (23 | )% | $ | 90.5 | 12 | % | |||||||||||||
| Rental | 41.0 | 34.6 | 25.1 | 6.4 | 18 | 9.5 | 38 | |||||||||||||||||||||
| Timber sales | 29.9 | 28.0 | 35.2 | 1.9 | 7 | (7.2 | ) | (20 | ) | |||||||||||||||||||
| Other | 39.1 | 44.7 | 43.4 | (5.6 | ) | (12 | ) | 1.3 | 3 | |||||||||||||||||||
| Total | $ | 748.2 | $ | 932.1 | $ | 838.0 | $ | (183.9 | ) | (20 | )% | $ | 94.1 | 11 | % | |||||||||||||
| Expenses: | ||||||||||||||||||||||||||||
| Cost of real estate sales | 407.1 | 526.1 | 485.4 | (119.0 | ) | (23 | ) | 40.7 | 8 | |||||||||||||||||||
| Cost of rental revenues | 16.9 | 13.9 | 10.9 | 3.0 | 22 | 3.0 | 27 | |||||||||||||||||||||
| Cost of timber sales | 21.9 | 20.0 | 21.8 | 1.9 | 10 | (1.8 | ) | (8 | ) | |||||||||||||||||||
| Cost of other revenues | 41.7 | 39.8 | 37.6 | 1.9 | 5 | 2.2 | 6 | |||||||||||||||||||||
| Other operating expenses | 77.4 | 69.4 | 68.9 | 8.0 | 11 | 0.5 | 1 | |||||||||||||||||||||
| Total | $ | 565.0 | $ | 669.2 | $ | 624.6 | $ | (104.2 | ) | (16 | )% | $ | 44.6 | 7 | % | |||||||||||||
The increases2006 decreases in revenues from real estate sales and costs of real estate sales were in each case primarily due to increaseddecreased sales in the Towns & Resortsresidential real estate segment and, land sales segments. These increasesto a lesser extent, the commercial real estate segment. The decreases were partially offset by a decreasean increase in sales of commercial land and buildings. Results for the 2004 commercial real estate segment included a 93-acre sale for $26.5 million.rural land. Additionally, during 2006 and 2005, four buildings were sold in each year by the commercial real estate segment and recorded as discontinued operations, and during 2004, two buildings were sold by the commercial real estate segment and recorded as discontinued operations. Also, in 2004, costs of real estate sales increased due to actual construction costs in excess of estimates at WaterSound Beach, one of our residential communities. (For a more detailed discussion of this increase, seeRevenue Recognition —Percentage-of-Completionunder Critical Accounting Estimates above.) The increases in rental revenues and costs of rental revenues were in each case primarily due to the purchase of commercial buildings.
Timber revenue decreased each yearincreased in 2006 due to a reductionan increase in volume harvested from Company-owned landsharvest volumes and in 2005 price decreases. Timber revenue in 2004 was lower than 2003decreased due to an intentional reduction in production at the cypress mill operation for the purpose of improving margins and profitability, partially offset by price increases.decreases. Cost of timber revenuessales increased in 2006 due to increased logging costs caused primarily by higher fuel prices and road maintenance costs. Cost of timber sales decreased in 2005 due to lower costs in the timber operation resulting from lower salessales.
The 2006 decrease in other revenues and in 2004,related gross profit of other revenues was primarily due to decreased resale brokerage activity and increased efficiencies in the cypress mill operation.resort costs. Other revenues and costscost of other revenues increased from 2004 toin 2005 primarily due to increases in resort operations, and from 2003 to 2004 primarily due to increases in resale brokerage activity in the Towns & Resorts segment.operations. Other operating expenses increased primarilyin 2006 due to increasesincreased marketing costs, increased project administration expenses and increased insurance costs in the land salesour residential real estate segment. For further discussion of revenues and expenses, see Segment Results below.
Corporate Expense. Corporate expense, representing corporate general and administrative expenses, increased $3.3 million, or 7%, to $51.3 million in 2006 over 2005. The increase was primarily due to increased stock compensation and other compensation costs. Stock compensation costs increased $3.8 million primarily as a result of the acceleration of restricted stock amortization related to the retirement of our former President/COO and stock compensation expense recorded under SFAS 123R. Other compensation costs
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increased $3.5 million substantially related to retirementand/or severance costs of our former President/COO and CFO. These cost increases were primarily offset by a reduction in bonus expense of $3.2 million. In 2005, corporate expense increased $4.2 million, or 10%, to $48.0 million from $43.7 million in 2005 over 2004. The increase was due to an increase in non-capitalizable entitlements costs, a decrease in pension credit and an increase in compensation costs. Corporate expense increased $9.3 million, or 27%, to $43.8 million in 2004 from $34.5 million in 2003. The increase was due to increases in compensation costs, increases in audit and audit related fees, and miscellaneous other corporate expenses.
Depreciation and Amortization. Depreciation and amortization increased $6.7$2.9 million, or 8%, to $38.8 million in 2006 compared to $35.9 million in 2005. The increase was primarily due to an increase in depreciation resulting from the purchase of one commercial operating property. In 2005, depreciation and amortization increased $6.3 million, or 21%, to $38.1$35.9 million in 2005 compared to $31.4$29.6 million in 2004. The increase was primarily due to a $3.4 million increase
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Impairment Losses. During 2006, we recorded a $1.5 million impairment loss related to the goodwill of our wholly owned affiliate, Sunshine State Cypress, Inc., included in our forestry segment. No impairment losses were recorded in 2005. During 2004, we recorded a $2.0 million impairment loss related to one of our Towns & Resortsresidential projects in North Carolina pursuant to StatementCarolina.
Restructuring Charge. We recorded a restructuring charge of Accounting Standards No. 144,Accounting for$13.4 million during 2006 in connection with our exit from the Impairment or Disposal of Long-Lived Assets. See Discontinued Operations for a discussion of the $14.1 million pretax Advantis impairment loss recorded in 2003. During 2003, we also recorded an impairment loss of $0.3Florida homebuilding business and corporate reorganization. The charge included $9.3 million related to commercial properties.the write-off of previously capitalized homebuilding costs and $4.1 million related to one-time termination benefits.
Other Income (Expense). Other income (expense) consists of investment income, interest expense, gains on sales and dispositions of assets and other, income.net. Other income (expense) was $(7.7)$(15.9) million in 2006, $(6.4) million in 2005, $(6.5)and $(5.2) million in 2004 and $(4.0) million in 2003.2004. Investment income increased to $5.1 million in 2006 from $3.5 million in 2005 and $0.8 million in 2004 due primarily to higher invested cash balances. Investment income was $0.8 million in 2004 compared to $0.9 million in 2003. Interest expense increased to $15.2$20.6 million in 2006 from $13.9 million in 2005 primarily due to an increase in the average amount of debt outstanding in 2006. Interest expense increased to $13.9 million in 2005 from $10.2$9.9 million in 2004, primarily due to an increase in the average amount of debt outstanding in 2005. Interest expense increased $2.4 millionOther, net decreased in 2004 from $7.8 million in 2003,2006 primarily due to an increase in the average amounta litigation provision of debt in 2004. Other income was $4.0$4.9 million in 2005, $2.8 million in 2004 and $2.9 million in 2003.relating to a 1996 sales commission dispute.
Equity in Income (Loss) of Unconsolidated Affiliates. We have investments in affiliates that are accounted for by the equity method of accounting. Equity in income (loss) of unconsolidated affiliates totaled $9.3 million in 2006, $13.0 million in 2005 and $5.6 million in 2004 and $(2.2)2004. Equity income decreased $3.7 million in 2003.
Income Tax Expense. Income tax expense on continuing operations totaled $64.3$25.2 million in 2006, $64.1 million in 2005 $52.5and $52.3 million in 2004 and $48.4 million in 2003.2004. Our effective tax rate was 38% in 2006, 36% in 2005 and 38% in 2004 and 36% in 2003. Our effective rate decreased in 2005 as a result of our on-going re-evaluation of our estimates of deferred tax assets and liabilities. Our effective tax rate increased in 2004 due to an increase in restricted stock deferred compensation, a portion of which is not deductible for tax purposes.2004.
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Discontinued Operations. Discontinued operations include the operations and subsequent sales of four commercial buildings sold in 2006, the sale of Advantis and four commercial office buildings in 2005, and the operations and sales of two commercial office buildings sold in 2004. These entities’ results are not included in income from continuing operations. See “Commercial Real Estate” below for further discussion regarding our discontinued operations.
Segment Results
Residential Real Estate
Our residential real estate services companies, we utilized a discounted cash flow method to determine the fair value of Advantis and recorded an impairment loss to reduce the carrying amount of Advantis’ goodwill from $28.9 million to $14.8 million. This resulted in an impairment loss of $14.1 million pre-tax, or $8.8 million net of tax. Under the terms of the sale, we will continue to use Advantis to manage and lease certain of our commercial properties, and Advantis may be involved in certain land sales in the future. We believe the management contracts are at market rates and that our on-going involvement with Advantis is not material to either them or us.
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Residential sales prices, asslowed significantly in 2006, particularly in our resort markets. As a result of the slowdown, inventories of resale homes and home sites have risen dramatically in our markets. These resale inventory levels will continue to impact sales of our products in the majority of our markets throughout 2007. Although we believe these inventory levels may be trending downward by the end of 2007, we continue to believe it could take until 2008 before a supply-demand balance begins to return.
During the third quarter of 2006, we announced that we are exiting the Florida homebuilding business to focus on maximizing the value of our landholdings through place making. There was no material impact to our financial results in 2006 related to our exit from Florida homebuilding, other than the restructuring charge. The exit move was made possible by our expanding relationships with local, regional and national homebuilders. We have executed purchase and option contracts with several national and regional homebuilders for the purchase of developed lots in various JOE communities. These transactions involve land positions in pre-development phases as well as phases currently under development. These transactions provide opportunities for us to accelerate value realization, while at the same time decreasing capital intensity and increasing efficiency in the delivery of finished homes to the market.
During the period from April 1 through December 31, 2006, we had a total of 1,209 developed home sites under contract or under option with David Weekley Homes and Beazer Homes, of which 783 remain to be closed. We expect national and regional homebuilders to be important business partners going forward.
The table below sets forth our activity with national homebuilders from April 1 through December 31, 2006:
Residential Real Estate
National Homebuilder Summary
of Home Site Commitments and Purchases
April 1, 2006 through December 31, 2006
National Homebuilder Summary
of Home Site Commitments and Purchases
April 1, 2006 through December 31, 2006
| Total Units | Total Units | Average Price | Remaining Units | |||||||||||||
| Committed(1) | Closed12/31/06 | Closed Units | To Close | |||||||||||||
Beazer Homes | ||||||||||||||||
| Beckrich Point | 70 | — | N/A | 70 | ||||||||||||
| Laguna West | 350 | — | N/A | 350 | ||||||||||||
| SouthWood | 163 | 107 | $ | 42,941 | 56 | |||||||||||
| Victoria Park | 179 | 179 | $ | 66,369 | — | |||||||||||
David Weekley Homes | ||||||||||||||||
| Hawks Landing | 99 | 10 | $ | 60,900 | 89 | |||||||||||
| Palmetto Trace | 56 | 48 | $ | 77,688 | 8 | |||||||||||
| ParkPlace | 70 | — | N/A | 70 | ||||||||||||
| RiverCamps on Crooked Creek | 3 | 3 | $ | 209,667 | — | |||||||||||
| SouthWood | 140 | — | N/A | 140 | ||||||||||||
| Victoria Park | 72 | 72 | $ | 102,444 | — | |||||||||||
| WaterSound | 7 | 7 | $ | 144,248 | — | |||||||||||
| Total | 1,209 | 426 | 783 | |||||||||||||
| (1) | Includes amounts under contract or under option. |
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The table below sets forth the results of operations of our residential real estate supply and demand factors noted above, we may not be ablesegment for the three years ended December 31, 2006. The historical results of RiverCamps on Crooked Creek have been reclassified from the rural land sales segment to offset such costs with increased prices in the near future. Consequently, we believe our margins may be adversely affected by any additional increases in labor and construction material costs. It will remain unclear for some time what direct and indirect impactsresidential real estate segment to conform to the 2005 hurricane season and the potential impact of these other factors will have on the Company.current period’s presentation.
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In millions) | ||||||||||||
| Revenues: | ||||||||||||
| Real estate sales | $ | 499.6 | $ | 693.2 | $ | 579.0 | ||||||
| Rental revenues | 1.7 | 1.6 | 1.1 | |||||||||
| Other revenues | 38.3 | 43.6 | 41.5 | |||||||||
| Total revenues | 539.6 | 738.4 | 621.6 | |||||||||
| Expenses: | ||||||||||||
| Cost of real estate sales | 381.1 | 482.8 | 420.4 | |||||||||
| Cost of rental revenues | 1.8 | 1.7 | 1.2 | |||||||||
| Cost of other revenues | 41.6 | 39.6 | 37.5 | |||||||||
| Other operating expenses | 56.6 | 49.0 | 48.9 | |||||||||
| Depreciation and amortization | 11.3 | 10.0 | 10.1 | |||||||||
| Impairment loss | — | — | 2.0 | |||||||||
| Restructuring charge | 12.3 | — | — | |||||||||
| Total expenses | 504.7 | 583.1 | 520.1 | |||||||||
| Other income (expense) | 1.7 | 0.1 | (0.2 | ) | ||||||||
| Pre-tax income from continuing operations | $ | 36.6 | $ | 155.4 | $ | 101.3 | ||||||
Revenues and costs of sales associated with multi-family units and Private Residence Club (“PRC”) units under construction are recognized using thepercentage-ofpercentage-of-completion-completion method of accounting. Revenue on contracted units is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. If a deposit is received for less than 10% for a multi-family unit or a PRC unit,percentage-ofpercentage-of-completion-completion accounting is not utilized. Instead, full accrual accounting criteria are used, which recognizerequires recognition of revenue when sales contracts are closed. All deposits are non-refundable (subject to a15-day waitingrescission period as required by law), except for non-delivery of the unit. In the event a contract does not close for reasons other than non-delivery, we are entitled to retain the deposit. However,In such instances, the revenue and margin related to the previously recorded contract is reversed. Revenues and cost of sales associated with multi-family units where construction has been completed before contracts are signedentered into and deposits made are recognized on the full accrual method of accounting as contracts are closed.
Our townhomes are attached building units sold individually along with a parcel of land. Revenues and cost of sales for our townhomes are accounted for using the full accrual method. These units differ from multi-family and PRC units, in which buyers hold title to a unit or fractional share of a unit, respectively, within a building and an interest in the underlying land held in common with other building association members.
Profit is also used fordeferred on home site sales when required development is not complete at the time of the sale. Currently, we are usingpercentage-of-completion accounting fordeferring a portion of profit from home site sales at WaterSound West Beach, SummerCamp and SummerCamp. Cash is collectedRiverCamps on Crooked Creek. Homesite sales are recorded at the time of the sale, whileclosing, but a portion of revenue and gross profit on home sitethe sales at those communities is recognizeddeferred based on constructionrequired development not yet completed in relation to total required development costs.
31 2005:
| Years Ended December 31, | ||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||
| (In millions) | ||||||||||||||
| Revenues: | ||||||||||||||
| Real estate sales | $ | 663.0 | $ | 575.0 | $ | 467.3 | ||||||||
| Rental revenues | 1.6 | 1.1 | 0.8 | |||||||||||
| Other revenues | 43.3 | 41.5 | 26.8 | |||||||||||
| Total revenues | 707.9 | 617.6 | 494.9 | |||||||||||
| Expenses: | ||||||||||||||
| Cost of real estate sales | 472.7 | 419.1 | 332.9 | |||||||||||
| Cost of rental revenues | 1.7 | 1.2 | 1.6 | |||||||||||
| Cost of other revenues | 39.4 | 36.5 | 26.6 | |||||||||||
| Other operating expenses | 47.2 | 48.7 | 44.6 | |||||||||||
| Depreciation and amortization | 9.9 | 10.0 | 8.6 | |||||||||||
| Impairment loss | — | 2.0 | — | |||||||||||
| Total expenses | 570.9 | 517.5 | 414.3 | |||||||||||
| Other income (expense) | 0.1 | (0.2 | ) | — | ||||||||||
| Pre-tax income from continuing operations | $ | 137.1 | $ | 99.9 | $ | 80.6 | ||||||||
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Year Ended December 31, 2005:2006 Compared to Year Ended December 31, 2005
| 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||
| Units | Avg. | Contracts | Units | Avg. | Contracts | Avg. | Units | Avg. | Contracts | Avg. | ||||||||||||||||||||||||||||||||||||||
| Closed | Price | Accepted(1) | Avg. Price | Closed | Price | Accepted(1) | Price | Closed | Price | Accepted(1) | Price | |||||||||||||||||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||
WaterColor | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | 50 | $ | 660.6 | 50 | $ | 660.6 | 148 | $ | 488.4 | 96 | $ | 616.3 | 206 | $ | 285.8 | 249 | $ | 277.4 | ||||||||||||||||||||||||||||||
| Single/ Multifamily Homes | 8 | 885.5 | — | N/A | 11 | 896.8 | 12 | 942.6 | 30 | 673.8 | 19 | 786.7 | ||||||||||||||||||||||||||||||||||||
| PRC Shares | 1 | 285.0 | 1 | 285.0 | 87 | N/A | 64 | 215.5 | — | N/A | 23 | 189.6 | ||||||||||||||||||||||||||||||||||||
WaterSound Beach | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | 46 | 1,128.4 | 46 | 1,128.4 | 29 | 523.2 | 17 | 626.4 | 93 | 399.0 | 105 | 396.5 | ||||||||||||||||||||||||||||||||||||
| Single-Family Homes | — | N/A | — | N/A | 1 | 5,100.0 | 2 | 3,197.0 | — | N/A | — | N/A | ||||||||||||||||||||||||||||||||||||
| Multifamily Homes | 48 | 1,501.1 | (1 | ) | (1,250.0 | ) | 51 | 1,172.8 | 50 | 1,466.2 | 30 | 1,177.3 | 34 | 1,142.4 | ||||||||||||||||||||||||||||||||||
WaterSound | ||||||||||||||||||||||||||||||||||||||||||||||||
West Beach | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | 10 | 719.4 | 11 | 722.3 | — | N/A | — | N/A | — | N/A | — | N/A | ||||||||||||||||||||||||||||||||||||
| Single-Family Homes | — | N/A | — | N/A | — | N/A | — | N/A | — | N/A | — | N/A | ||||||||||||||||||||||||||||||||||||
Palmetto Trace | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | 15 | 75.0 | 15 | 75.0 | — | N/A | — | N/A | — | N/A | — | N/A | ||||||||||||||||||||||||||||||||||||
| Single-Family Homes | 141 | 214.5 | 104 | 276.5 | 92 | 149.5 | 106 | 167.5 | 88 | 154.3 | 101 | 156.8 | ||||||||||||||||||||||||||||||||||||
The Hammocks | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | — | N/A | — | N/A | 70 | 37.8 | 70 | 37.8 | 30 | 30.4 | 24 | 30.3 | ||||||||||||||||||||||||||||||||||||
| Single-Family Homes | 79 | 164.7 | 71 | 154.2 | 77 | 149.9 | 81 | 161.4 | 48 | 142.6 | 72 | 149.3 | ||||||||||||||||||||||||||||||||||||
WindMark Beach | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | — | N/A | — | N/A | 4 | 1,006.3 | 4 | 1,006.3 | 13 | 567.3 | 10 | 518.0 | ||||||||||||||||||||||||||||||||||||
Bridgeport | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | 31 | 23.7 | 36 | 23.7 | — | N/A | — | N/A | — | N/A | — | N/A | ||||||||||||||||||||||||||||||||||||
SouthWood | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | 63 | 124.8 | 67 | 125.2 | 58 | 97.7 | 60 | 97.6 | 63 | 84.6 | 64 | 89.1 | ||||||||||||||||||||||||||||||||||||
| Single-Family Homes | 216 | 254.1 | 209 | 290.8 | 174 | 235.6 | 210 | 250.0 | 133 | 203.2 | 151 | 228.6 | ||||||||||||||||||||||||||||||||||||
SummerCamp | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | 64 | 350.2 | 64 | 350.2 | — | N/A | — | N/A | — | N/A | — | N/A | ||||||||||||||||||||||||||||||||||||
| Single-Family Homes | — | N/A | 1 | 902.4 | — | N/A | — | N/A | — | N/A | — | N/A | ||||||||||||||||||||||||||||||||||||
St. Johns G & CC | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | 43 | 68.4 | 35 | 70.2 | 35 | 83.6 | 20 | 61.0 | 40 | 55.7 | 63 | 70.2 | ||||||||||||||||||||||||||||||||||||
| Single-Family Homes | 111 | 412.3 | 47 | 488.6 | 104 | 350.3 | 125 | 386.5 | 124 | 319.1 | 122 | 339.5 | ||||||||||||||||||||||||||||||||||||
31
| 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||
| Units | Avg. | Contracts | Units | Avg. | Contracts | Avg. | Units | Avg. | Contracts | Avg. | ||||||||||||||||||||||||||||||||||||||
| Closed | Price | Accepted(1) | Avg. Price | Closed | Price | Accepted(1) | Price | Closed | Price | Accepted(1) | Price | |||||||||||||||||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||
Hampton Park/James Island | ||||||||||||||||||||||||||||||||||||||||||||||||
| Single-Family Homes | 13 | 419.8 | 4 | 502.5 | 72 | 360.6 | 30 | 377.4 | 109 | 328.5 | 92 | 341.5 | ||||||||||||||||||||||||||||||||||||
Victoria Park | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | 64 | 130.9 | 61 | 135.3 | 53 | 76.9 | 54 | 79.3 | 32 | 72.0 | 33 | 75.2 | ||||||||||||||||||||||||||||||||||||
| Single-Family Homes | 299 | 267.4 | 261 | 303.9 | 179 | 221.9 | 270 | 245.4 | 124 | 196.2 | 169 | 204.6 | ||||||||||||||||||||||||||||||||||||
Artisan Park(2) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | 16 | 425.6 | 16 | 425.6 | 17 | 211.5 | 17 | 211.5 | 10 | 127.9 | 10 | 127.9 | ||||||||||||||||||||||||||||||||||||
| Single-Family Homes | 95 | 529.3 | 85 | 654.7 | 64 | 404.8 | 86 | 452.1 | — | N/A | 47 | 400.8 | ||||||||||||||||||||||||||||||||||||
| Multifamily Homes | 86 | 294.2 | 88 | 472.7 | — | N/A | 149 | 325.3 | — | N/A | — | N/A | ||||||||||||||||||||||||||||||||||||
Paseos(2) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Single-Family Homes | 117 | 450.8 | 1 | 773.0 | 124 | 396.2 | 182 | 482.9 | 15 | 365.7 | 108 | 391.5 | ||||||||||||||||||||||||||||||||||||
Rivercrest(2) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Single-Family Homes | 491 | 168.5 | 294 | 203.8 | 298 | 152.2 | 729 | 171.2 | 167 | 146.3 | 231 | 146.6 | ||||||||||||||||||||||||||||||||||||
Saussy Burbank | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home Sites | — | N/A | — | N/A | — | N/A | — | N/A | 32 | 24.0 | 32 | 24.0 | ||||||||||||||||||||||||||||||||||||
| Single-Family Homes | 699 | 254.9 | 783 | 257.9 | 748 | 221.3 | 698 | 229.4 | 555 | 208.2 | 607 | 207.2 | ||||||||||||||||||||||||||||||||||||
Total | 2,806 | 2,349 | 2,496 | 3,132 | 1,942 | 2,366 | ||||||||||||||||||||||||||||||||||||||||||
32
Real estate sales include sales of homes and home sites, as well as sales of land. Cost of real estate sales for homes and home sites includes direct costs (e.g., development and construction costs), selling costs and other indirect costs (e.g., construction overhead, capitalized interest, warranty and project administration costs).
The following table sets forth the components of our real estate sales and cost of real estate sales related to homes and home sites:
| Year Ended December 31, 2006 | Year Ended December 31, 2005 | |||||||||||||||||||||||
| Homes | Home Sites | Total | Homes | Home Sites | Total | |||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||
| Sales | $ | 429.4 | $ | 69.3 | $ | 498.7 | $ | 537.6 | $ | 155.3 | $ | 692.9 | ||||||||||||
| Cost of sales: | ||||||||||||||||||||||||
| Direct costs | 292.1 | 31.4 | 323.5 | 375.4 | 33.3 | 408.7 | ||||||||||||||||||
| Selling costs | 21.9 | 1.7 | 23.6 | 27.8 | 5.4 | 33.2 | ||||||||||||||||||
| Other indirect costs | 30.3 | 2.9 | 33.2 | 37.1 | 3.7 | 40.8 | ||||||||||||||||||
| Total cost of sales | 344.3 | 36.0 | 380.3 | 440.3 | 42.4 | 482.7 | ||||||||||||||||||
| Gross profit | $ | 85.1 | $ | 33.3 | $ | 118.4 | $ | 97.3 | $ | 112.9 | $ | 210.2 | ||||||||||||
| Gross profit margin | 20 | % | 48 | % | 24 | % | 18 | % | 73 | % | 30 | % | ||||||||||||
The overall decreases in real estate sales, gross profit and gross profit margin were due primarily to a decrease in home site closings in our Northwest Florida resort communities and a decrease in primary home closings in various communities.
The following table sets forth home and home site sales activity by geographic region and property type, excluding Rivercrest and Paseos, two 50% owned affiliates accounted for using the equity method of accounting.
| Year Ended December 31, 2006 | Year Ended December 31, 2005 | |||||||||||||||||||||||||||||||
| Closed | Cost of | Gross | Closed | Cost of | Gross | |||||||||||||||||||||||||||
| Units | Revenues | Sales | Profit | Units | Revenues | Sales | Profit | |||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||||||||
| Northwest Florida: | ||||||||||||||||||||||||||||||||
| Resort | ||||||||||||||||||||||||||||||||
| Single-family homes | 20 | $ | 21.8 | $ | 16.8 | $ | 5.0 | 8 | $ | 7.1 | $ | 5.1 | $ | 2.0 | ||||||||||||||||||
| Multi-family homes | — | — | — | — | 48 | 21.2 | 13.2 | 8.0 | ||||||||||||||||||||||||
| Private Residence Club | — | — | — | — | 1 | 0.3 | 0.1 | 0.2 | ||||||||||||||||||||||||
| Home sites | 67 | 32.5 | 12.0 | 20.5 | 281 | 126.6 | 29.6 | 97.0 | ||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||
| Single-family homes | 206 | 62.8 | 49.9 | 12.9 | 301 | 77.7 | 64.3 | 13.4 | ||||||||||||||||||||||||
| Townhomes | 43 | 6.7 | 5.4 | 1.3 | 135 | 20.5 | 17.4 | 3.1 | ||||||||||||||||||||||||
| Home sites | 231 | 14.6 | 8.4 | 6.2 | 109 | 10.1 | 5.7 | 4.4 | ||||||||||||||||||||||||
| Northeast Florida: | ||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||
| Single-family homes | 54 | 28.1 | 21.8 | 6.3 | 124 | 51.2 | 39.5 | 11.7 | ||||||||||||||||||||||||
| Home sites | 7 | 1.1 | 0.5 | 0.6 | 43 | 3.4 | 0.9 | 2.5 | ||||||||||||||||||||||||
| Central Florida: | ||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||
| Single-family homes | 183 | 81.5 | 56.7 | 24.8 | 353 | 118.8 | 92.6 | 26.2 | ||||||||||||||||||||||||
| Multi-family homes | 136 | 27.6 | 17.9 | 9.7 | 86 | 51.3 | 38.6 | 12.7 | ||||||||||||||||||||||||
| Townhomes | 60 | 18.8 | 16.1 | 2.7 | 41 | 11.4 | 10.1 | 1.3 | ||||||||||||||||||||||||
| Home sites | 258 | 21.1 | 15.2 | 5.9 | 80 | 15.2 | 6.2 | 9.0 | ||||||||||||||||||||||||
| North and South Carolina: | ||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||
| Single-family homes | 621 | 179.3 | 157.1 | 22.2 | 693 | 177.2 | 158.6 | 18.6 | ||||||||||||||||||||||||
| Townhomes | 16 | 2.8 | 2.5 | 0.3 | 6 | 0.9 | 0.8 | 0.1 | ||||||||||||||||||||||||
| Total | 1,902 | $ | 498.7 | $ | 380.3 | $ | 118.4 | 2,309 | $ | 692.9 | $ | 482.7 | $ | 210.2 | ||||||||||||||||||
32
In 2006 and 2005, our Northwest Florida resort and seasonal communities included WaterColor, WaterSound Beach, WaterSound West Beach, WaterSound, WindMark Beach, RiverCamps on Crooked Creek and SummerCamp, while primary communities included Hawks Landing, Palmetto Trace, The Hammocks and SouthWood. In Northeast Florida the only primary community was St. Johns Golf and Country Club. The Central Florida communities included Artisan Park and Victoria Park, both of which are primary. North and South Carolina included Saussy Burbank’s primary communities in Charlotte, Raleigh and Charleston.
In our Northwest Florida resort communities, closed units, revenues and gross profit decreased significantly in 2006 compared to 2005 as the demand for resort residential product has decreased. The gross profit from home site sales decreased to $20.5 million in 2006 from $97.0 million in 2005 due primarily to decreases in the number of home sites closed in SummerCamp, RiverCamps on Crooked Creek, WaterColor and WaterSound Beach. The decreases resulting from these reduced closings were partially offset by closings in WaterSound and WindMark Beach as sales of home sites in these communities commenced in the second and third quarters of 2006, respectively. No gross profit was recognized from multi-family residences in 2006, compared to $8.0 million in 2005 for the multi-family residences at WaterSound Beach which were completed in 2005.
Since required development was not complete at WaterSound West Beach, SummerCamp and RiverCamps on Crooked Creek at the time home sites were closed in these communities, percentage of completion accounting was used, and deferred profit will be recognized as the required infrastructure is completed. From project inception through the end of 2006, remaining unrecognized deferred profit at WaterSound West Beach was $1.4 million, substantially all of which we expect to recognize by the end of 2007; at RiverCamps on Crooked Creek it was $1.1 million, substantially all of which we expect to recognize by the end of the first quarter of 2007; and at SummerCamp it was $9.2 million, all of which we expect to recognize over the next several years.
In our Northwest Florida primary communities, closed units, revenues and gross profit decreased in 2006 as compared to 2005 due to market conditions. The gross profit from single-family home sales decreased $0.5 million in 2006 from 2005 as a result of a decrease of 95 units closed. Due primarily to an increase in the average sales price of homes closed in Palmetto Trace and Southwood (the average price of single-family residences closed in these communities in 2006 was $305,000 compared to $258,000 in 2005), the decrease in gross profit was not as significant as the decrease in unit closings. Townhome revenues and the number of townhomes closed decreased in 2006 as compared to 2005 as we have closed most of the townhomes previously offered for sale in these communities. Home site closings and gross profit increased in 2006 compared with 2005 due primarily to increased closings in Palmetto Trace and Hawks Landing resulting from our expanding relationships with national and regional homebuilders, although the average price decreased, reflecting a change in the type of product sold. The average price of a home site sold in 2006 was $63,000 compared to $93,000 in 2005.
In our Northeast Florida communities, closed units, revenues and gross profit decreased in 2006 as compared to 2005 as a result of a lack of product availability. The decreases were partially offset by an increase in the average price of a single-family residence to $520,000 in 2006 compared to $413,000 in 2005. St. Johns Golf and Country Club is nearing its completion in early 2007, while James Island and Hampton Park were completed during 2005. Future home site product will become available in Northeast Florida at RiverTown, with sales expected to begin in 2007.
In our Central Florida communities, the gross profit on single-family home sales decreased to $24.8 million in 2006 from $26.2 million in 2005 as a result of unit closings decreasing to 183 from 353. Due to our ability to achieve stronger pricing on contracts in these communities last year (the average price of single-family residences closed in these communities in 2006 was $445,000 compared to $337,000 in 2005), the decrease in gross profit was not as significant as the decrease in unit closings. Gross profit percentages recognized usingpercentage-of-completion accounting on multi-family residences increased to 35% in 2006 from 25% in 2005 due primarily to our ability to raise prices to more than offset increased construction costs. Home site closings and revenue increased in 2006 compared with 2005 due primarily to third quarter sales to David Weekly Homes and fourth quarter sales to Beazer Homes. The average price of a home site in 2006
33
was $82,000 compared to $190,000 in 2005 due to a change in the type of product sold to these homebuilders. Increased sales of townhomes during 2006 resulted in increased revenues and gross profit of $7.4 million and $1.4 million, respectively, as compared to 2005.
In our North and South Carolina communities, the gross profit on single-family home sales increased to $22.2 million in 2006 from $18.6 million in 2005 due primarily to price increases on comparable homes. The average price of a home closed in 2006 was $289,000 compared to $256,000 in 2005.
Other revenues included revenues from the WaterColor Inn and WaterColor vacation rental program, other resort and club operations, management fees and brokerage activities. Other revenues were $38.3 million in 2006 with $41.6 million in related costs, compared to revenues totaling $43.6 million in 2005 with $39.6 million in related costs. The decrease in other revenues and related deficit was primarily due to the decrease in resale brokerage activity and increased resort costs. The decrease in resale brokerage activity coincided with the slowdown in residential sales. The increase in resort costs included salaries and salary related costs in our Northwest Florida resort operations, which was due primarily to costs associated with new resort operations in WaterSound Beach during 2006.
Other operating expenses included salaries and benefits, marketing, project administration, support personnel and other administrative expenses. Other operating expenses increased to $56.6 million in 2006 from $49.0 million in 2005 due to increased marketing costs associated with a regional brand campaign, increased project administration expenses resulting from new projects at Seven Shores, RiverTown and the second phase of Windmark Beach, and increased insurance costs.
We recorded a restructuring charge in our residential real estate segment of $12.3 million in 2006 in connection with our exit from the Florida homebuilding business and corporate reorganization. The charge included $9.3 million related to the write off of previously capitalized homebuilding costs and $3.0 million related to one-time termination benefits for affected employees.
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Real estate sales include sales of homes and home sites, as well as sales of land. Cost of real estate sales for homes and home sites includes direct costs (e.g., development and construction costs), selling costs and other indirect costs (e.g., construction overhead, capitalized interest, warranty and project administration costs).
The following table sets forth the components of our real estate sales and cost of real estate sales:
| Year Ended December 31, 2005 | Year Ended December 31, 2004 | ||||||||||||||||||||||||
| Homes | Home Sites | Total | Homes | Home Sites | Total | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||
| Sales | $ | 537.6 | $ | 125.1 | $ | 662.7 | $ | 462.0 | $ | 109.8 | $ | 571.8 | |||||||||||||
| Cost of Sales: | |||||||||||||||||||||||||
| Direct costs | 375.4 | 25.4 | 400.8 | 323.4 | 26.6 | 350.0 | |||||||||||||||||||
| Selling costs | 27.8 | 3.9 | 31.7 | 24.7 | 5.2 | 29.9 | |||||||||||||||||||
| Other indirect costs | 37.1 | 3.0 | 40.1 | 34.8 | 3.7 | 38.5 | |||||||||||||||||||
| Total Cost of Sales | 440.3 | 32.3 | 472.6 | 382.9 | 35.5 | 418.4 | |||||||||||||||||||
| Gross Profit | $ | 97.3 | $ | 92.8 | $ | 190.1 | $ | 79.1 | $ | 74.3 | $ | 153.4 | |||||||||||||
| Gross Profit Margin | 18 | % | 74 | % | 29 | % | 17 | % | 68 | % | 27 | % | |||||||||||||
| Year Ended December 31, 2005 | Year Ended December 31, 2004 | |||||||||||||||||||||||
| Homes | Home Sites | Total | Homes | Home Sites | Total | |||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||
| Sales | $ | 537.6 | $ | 155.3 | $ | 692.9 | $ | 462.0 | $ | 113.8 | $ | 575.8 | ||||||||||||
| Cost of sales: | ||||||||||||||||||||||||
| Direct costs | 375.4 | 33.3 | 408.7 | 323.4 | 27.5 | 350.9 | ||||||||||||||||||
| Selling costs | 27.8 | 5.4 | 33.2 | 24.7 | 5.4 | 30.1 | ||||||||||||||||||
| Other indirect costs | 37.1 | 3.7 | 40.8 | 34.8 | 3.8 | 38.6 | ||||||||||||||||||
| Total cost of sales | 440.3 | 42.4 | 482.7 | 382.9 | 36.7 | 419.6 | ||||||||||||||||||
| Gross profit | $ | 97.3 | $ | 112.9 | $ | 210.2 | $ | 79.1 | $ | 77.1 | $ | 156.2 | ||||||||||||
| Gross profit margin | 18 | % | 73 | % | 30 | % | 17 | % | 68 | % | 27 | % | ||||||||||||
34
The changes in the components of our real estate sales and cost of real estate sales from the year ended December 31, 2005, to the year ended December 31, 2004, are set forth below by geographic region and product type. A more detailed explanation of the changes follows the table.
| Year Ended December 31, 2005 | Year Ended December 31, 2004 | |||||||||||||||||||||||||||||||||
| Closed | Cost of | Gross | Closed | Cost of | Gross | |||||||||||||||||||||||||||||
| Units | Revenues | Sales | Profit | Units | Revenues | Sales | Profit | |||||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||||||||||
| Northwest Florida: | ||||||||||||||||||||||||||||||||||
| Resort | ||||||||||||||||||||||||||||||||||
| Single-family homes | 8 | $ | 7.1 | $ | 5.1 | $ | 2.0 | 12 | $ | 15.0 | $ | 10.0 | $ | 5.0 | ||||||||||||||||||||
| Multi-family homes | 48 | 21.2 | 13.2 | 8.0 | 51 | 55.4 | 34.2 | 21.2 | ||||||||||||||||||||||||||
| Private Residence Club | 1 | 0.3 | 0.1 | 0.2 | 87 | 17.0 | 9.4 | 7.6 | ||||||||||||||||||||||||||
| Home sites | 170 | 96.4 | 19.5 | 76.9 | 181 | 90.9 | 26.5 | 64.4 | ||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||
| Single-family homes | 301 | 77.7 | 64.3 | 13.4 | 239 | 52.0 | 47.8 | 4.2 | ||||||||||||||||||||||||||
| Townhomes | 135 | 20.5 | 17.4 | 3.1 | 104 | 14.3 | 13.1 | 1.2 | ||||||||||||||||||||||||||
| Home sites | 109 | 10.1 | 5.7 | 4.4 | 128 | 8.1 | 4.4 | 3.7 | ||||||||||||||||||||||||||
| Northeast Florida: | ||||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||
| Single-family homes | 124 | 51.2 | 39.5 | 11.7 | 176 | 62.4 | 52.2 | 10.2 | ||||||||||||||||||||||||||
| Home sites | 43 | 3.4 | 0.9 | 2.5 | 35 | 2.9 | 1.1 | 1.8 | ||||||||||||||||||||||||||
| Central Florida: | ||||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||
| Single-family homes | 386 | 126.4 | 99.6 | 26.8 | 237 | 63.6 | 51.3 | 12.3 | ||||||||||||||||||||||||||
| Multi-family homes | 86 | 51.3 | 38.6 | 12.7 | — | 14.8 | 12.0 | 2.8 | ||||||||||||||||||||||||||
| Townhomes | 8 | 3.8 | 3.1 | 0.7 | 6 | 2.0 | 1.7 | 0.3 | ||||||||||||||||||||||||||
| Home sites | 80 | 15.2 | 6.2 | 9.0 | 70 | 7.8 | 3.6 | 4.2 | ||||||||||||||||||||||||||
| North and South Carolina: | ||||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||
| Single-family homes | 693 | 177.2 | 158.6 | 18.6 | 735 | 163.6 | 149.3 | 14.3 | ||||||||||||||||||||||||||
| Townhomes | 6 | 0.9 | 0.8 | 0.1 | 13 | 2.0 | 1.8 | 0.2 | ||||||||||||||||||||||||||
| Total | 2,198 | $ | 662.7 | $ | 472.6 | $ | 190.1 | 2,074 | $ | 571.8 | $ | 418.4 | $ | 153.4 | ||||||||||||||||||||
| Year Ended December 31, 2005 | Year Ended December 31, 2004 | |||||||||||||||||||||||||||||||||||
| Closed | Cost of | Gross | Closed | Cost of | Gross | |||||||||||||||||||||||||||||||
| Units | Revenues | Sales | Profit | Units | Revenues | Sales | Profit | |||||||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||||||||||||
| Northwest Florida: | ||||||||||||||||||||||||||||||||||||
| Resort | ||||||||||||||||||||||||||||||||||||
| Single-family homes | 8 | $ | 7.1 | $ | 5.1 | $ | 2.0 | 12 | $ | 15.0 | $ | 10.0 | $ | 5.0 | ||||||||||||||||||||||
| Multi-family homes | 48 | 21.2 | 13.2 | 8.0 | 51 | 55.4 | 34.2 | 21.2 | ||||||||||||||||||||||||||||
| Private Residence Club | 1 | 0.3 | 0.1 | 0.2 | 87 | 17.0 | 9.4 | 7.6 | ||||||||||||||||||||||||||||
| Home sites | 281 | 126.6 | 29.6 | 97.0 | 222 | 94.9 | 27.7 | 67.2 | ||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||||
| Single-family homes | 301 | 77.7 | 64.3 | 13.4 | 239 | 52.0 | 47.8 | 4.2 | ||||||||||||||||||||||||||||
| Townhomes | 135 | 20.5 | 17.4 | 3.1 | 104 | 14.3 | 13.1 | 1.2 | ||||||||||||||||||||||||||||
| Home sites | 109 | 10.1 | 5.7 | 4.4 | 128 | 8.1 | 4.4 | 3.7 | ||||||||||||||||||||||||||||
| Northeast Florida: | ||||||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||||
| Single-family homes | 124 | 51.2 | 39.5 | 11.7 | 176 | 62.4 | 52.2 | 10.2 | ||||||||||||||||||||||||||||
| Home sites | 43 | 3.4 | 0.9 | 2.5 | 35 | 2.9 | 1.1 | 1.8 | ||||||||||||||||||||||||||||
| Central Florida: | ||||||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||||
| Single-family homes | 353 | 118.8 | 92.6 | 26.2 | 237 | 63.6 | 51.3 | 12.3 | ||||||||||||||||||||||||||||
| Multi-family homes | 86 | 51.3 | 38.6 | 12.7 | — | 14.8 | 12.0 | 2.8 | ||||||||||||||||||||||||||||
| Townhomes | 41 | 11.4 | 10.1 | 1.3 | 6 | 2.0 | 1.7 | 0.3 | ||||||||||||||||||||||||||||
| Home sites | 80 | 15.2 | 6.2 | 9.0 | 70 | 7.8 | 3.6 | 4.2 | ||||||||||||||||||||||||||||
| North and South Carolina: | ||||||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||||
| Single-family homes | 693 | 177.2 | 158.6 | 18.6 | 735 | 163.6 | 149.3 | 14.3 | ||||||||||||||||||||||||||||
| Townhomes | 6 | 0.9 | 0.8 | 0.1 | 13 | 2.0 | 1.8 | 0.2 | ||||||||||||||||||||||||||||
| Total | 2,309 | $ | 692.9 | $ | 482.7 | $ | 210.2 | 2,115 | $ | 575.8 | $ | 419.6 | $ | 156.2 | ||||||||||||||||||||||
In 2005 and 2004, our Northwest Florida resort and seasonal communities includeincluded WaterColor, WaterSound Beach, WaterSound West Beach, WaterSound, WindMark Beach, RiverCamps on Crooked Creek and SummerCamp. Our Northwest FloridaSummerCamp, while primary communities includeincluded Hawks Landing, Palmetto Trace, The Hammocks Palmetto Trace, SouthWood and Port St. Joe primary housing. Our principalSouthWood. In Northeast Florida the primary
33
communities includewere St. Johns Golf and Country Club, Hampton Park and James Island. OurThe Central Florida communities all of which are primary, includeincluded Artisan Park and Victoria Park.Park, both of which are primary. North and South Carolina include all of theincluded Saussy Burbank’s primary communities of Saussy Burbank, all of which are primary. As of December 31, 2005, a total of six completed homesin Charlotte, Raleigh and 60 resort home sites have been released for sale but remained in inventory at WaterColor, WaterSound Beach, WaterSound West Beach and SummerCamp.Charleston.
In our Northwest Florida resort communities, revenue and closed units decreased in 2005 compared to 2004 due to reduced activity in the second half of the year in our resort residential projects as the 2005 hurricane season depressed normal traffic flow to the region. The gross profit percentage from single-family residence sales decreased to 28% in 2005 from 33% in 2004, primarily due to the mix of relative location and size of the home sales closed in each period. The average price of a single-family residence sold in 2005 was $888,000 compared to $1,250,000 in 2004. The decrease in average sales price is due primarily to the sale of the Southern Accents Showhouse at WaterSound Beach in 2004 at a price of $5.1 million. Gross profit recognized on the sale of multi-family residences decreased in 2005 due to the completion of profit recognition
35
on certain multi-family residences in 2004. The gross profit percentage from home site sales increased to 80%77% in 2005 from 71% in 2004 due primarily to an increase in average prices of home sites sold and a change in the mix of relative locations of the closed home sites. The average price of home sites sold in 2005 was $671,000 compared to $502,000 in 2004.
Since required infrastructure and amenity development was not complete at WaterSound West Beach, SummerCamp and RiverCamps on Crooked Creek at the time the home sites were sold, a portionclosed in these communities, percentage of completion accounting was used and deferred profit will be recognized as the grossrequired infrastructure is completed. From project inception through the end of 2005, remaining unrecognized deferred profit had to be deferred based on the amount of required development not yet completed in relation to total estimated required development costs. As a result, for the year ended December 31, 2005, at WaterSound West Beach we deferred $4.0 million in revenuewas $3.0 million; at RiverCamps on Crooked Creek it was $3.2 million; and $3.0 million of gross profit, substantially all of which we expect to recognize in 2006. Atat SummerCamp for the year ended December 31, 2005, we deferred $13.6 million in revenue and $8.7 million of gross profit, substantially all of which we expect to recognize over the period from January 1, 2006, through the end of 2008.it was $8.0 million.
In our Northwest Florida primary communities, units closed and revenues increased due to strong demand which supported price increases. The gross profit percentage from single-family home sales increased to 17% in 2005 from 8% in 2004, primarily due to an increase in the average sales price and the mix of location and size of the home sales closed. The average price of a single-family residence soldclosed in 2005 was $258,000 compared to $218,000 in 2004. Also during 2004, gross profit was reduced by a $1.7 million expense recorded for warranty costs in excess of warranty reserves at a previously completed community. Townhome gross profit percentages also increased in 2005 due primarily to an increase in sales prices of approximately 10% and the mix of locations of the townhomes closed. Home site gross profit percentages decreased to 44% in 2005 from 46% in 2004 due primarily to the closing of lower margin home sites in our Port St. Joe primary housing developments during 2005.
In our Northeast Florida communities, closed units and revenues decreased in 2005 as a result of a lack of product availability in James Island and Hampton Park, which were substantially sold out in 2004 and completed during 2005. This trend is expected to continue as St. Johns Golf and Country Club is expected to be completed in 2006 and RiverTown is not expected to begin generating significant revenues until 2007 or 2008. The gross profit percentage from single-family residence sales increased to 23% in 2005 from 16% in 2004 primarily due to the strong demand supporting higher prices as we approachapproached sellout in these communities. The average price of a single-family residence soldclosed in 2005 was $413,000 compared to $355,000 in 2004. Home site gross profit percentages increased to 74% in 2005 from 62% in 2004 due primarily to the mix of sizes and locations of the home sites sold during each period.
In our Central Florida communities, the gross profit percentage on single-family home sales increased to 21%22% in 2005 from 19% in 2004. The increase, which was a result of our ability to achieve stronger pricing in these primary communities, was partly offset by increasing construction costs following the 2004 hurricane season. Gross profit recognized on the sale of multi-family residences increased $9.9 million in
34
2005 due to the accelerated sales and construction activity and the resulting profit recognition underpercentage-ofpercentage-of-completion-completion accounting. Gross profit percentages on multi-family residences increased to 25% in 2005 from 19% in 2004 due primarily to our ability to raise prices to more than offset increased construction costs. The gross profit percentage from home site sales increased to 59% in 2005 from 54% in 2004 due primarily to the increased average price of home sites to $190,000 in 2005 compared to $112,000 in 2004. Sales of condominium units in Artisan Park have slowed in 2005 due to the increased supply of units in the Orlando area as a result of condominium conversion projects. Another factor in the slower sales iswas competition from the resale of units sold to investors earlier in the life of the project. Despite these factors, we still expect the sellout of the remaining condominium units in 2006.
In our North and South Carolina communities, the gross profit percentage on single-family home sales increased to 10% in 2005 from 9% in 2004 due primarily to price increases on comparable homes, lower buyer incentives and changes in the mix of relative locations of homes closed in each period. During 2004 we also recorded an impairment loss of $2.0 million related to one of Saussy Burbank’s community development projects.
Other revenues included revenues from the WaterColor Inn, other resort and club operations, management fees and brokerage activities. Other revenues were $43.3$43.6 million in 2005 with $39.4$39.6 million in related costs, compared to revenues totaling $41.5 million in 2004 with $36.5$37.5 million in related costs. The decrease in the gross profit of other revenues was primarily due to the decrease in resale brokerage activity.
Other operating expenses include salaries and benefits, marketing, project administration, support personnel and other administrative expenses. Other operating expenses in 2004 included $3.0 million of nonrecurring uninsured losses related to storm damage while similar losses incurred in 2005 were $1.0 million.
36
| Year Ended December 31, 2004 | Year Ended December 31, 2003 | ||||||||||||||||||||||||
| Homes | Home Sites | Total | Homes | Home Sites | Total | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||
| Sales | $ | 462.0 | $ | 109.8 | $ | 571.8 | $ | 348.4 | $ | 115.7 | $ | 464.1 | |||||||||||||
| Cost of Sales: | |||||||||||||||||||||||||
| Direct costs | 323.4 | 26.6 | 350.0 | 242.1 | 34.3 | 276.4 | |||||||||||||||||||
| Selling costs | 24.7 | 5.2 | 29.9 | 17.8 | 5.8 | 23.6 | |||||||||||||||||||
| Other indirect costs | 34.8 | 3.7 | 38.5 | 27.9 | 3.4 | 31.3 | |||||||||||||||||||
| Total Cost of Sales | 382.9 | 35.5 | 418.4 | 287.8 | 43.5 | 331.3 | |||||||||||||||||||
| Gross Profit | $ | 79.1 | $ | 74.3 | $ | 153.4 | $ | 60.6 | $ | 72.2 | $ | 132.8 | |||||||||||||
| Gross Profit Margin | 17 | % | 68 | % | 27 | % | 17 | % | 62 | % | 29 | % | |||||||||||||
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| Year Ended December 31, 2004 | Year Ended December 31, 2003 | |||||||||||||||||||||||||||||||||
| Closed | Cost of | Gross | Closed | Cost of | Gross | |||||||||||||||||||||||||||||
| Units | Revenues | Sales | Profit | Units | Revenues | Sales | Profit | |||||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||||||||||
| Northwest Florida: | ||||||||||||||||||||||||||||||||||
| Resort | ||||||||||||||||||||||||||||||||||
| Single-family homes | 12 | $ | 15.0 | $ | 10.0 | $ | 5.0 | 12 | $ | 9.6 | $ | 6.3 | $ | 3.3 | ||||||||||||||||||||
| Multi-family homes | 51 | 55.4 | 34.2 | 21.2 | 48 | 74.7 | 47.9 | 26.8 | ||||||||||||||||||||||||||
| Private Residence Club | 87 | 17.0 | 9.4 | 7.6 | — | 1.2 | 0.7 | 0.5 | ||||||||||||||||||||||||||
| Home sites | 181 | 90.9 | 26.5 | 64.4 | 312 | 102.5 | 36.3 | 66.2 | ||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||
| Single-family homes | 239 | 52.0 | 47.8 | 4.2 | 180 | 35.6 | 31.3 | 4.3 | ||||||||||||||||||||||||||
| Townhomes | 104 | 14.3 | 13.1 | 1.2 | 89 | 11.9 | 10.5 | 1.4 | ||||||||||||||||||||||||||
| Home sites | 128 | 8.1 | 4.4 | 3.7 | 93 | 6.6 | 3.3 | 3.3 | ||||||||||||||||||||||||||
| Northeast Florida: | ||||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||
| Single-family homes | 176 | 62.4 | 52.2 | 10.2 | 233 | 75.4 | 64.2 | 11.2 | ||||||||||||||||||||||||||
| Home sites | 35 | 2.9 | 1.1 | 1.8 | 40 | 2.2 | 1.0 | 1.2 | ||||||||||||||||||||||||||
| Central Florida: | ||||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||
| Single-family homes | 237 | 63.6 | 51.3 | 12.3 | 124 | 24.3 | 21.7 | 2.6 | ||||||||||||||||||||||||||
| Multi-family homes | — | 14.8 | 12.0 | 2.8 | — | — | — | — | ||||||||||||||||||||||||||
| Townhomes | 6 | 2.0 | 1.7 | 0.3 | — | — | — | — | ||||||||||||||||||||||||||
| Home sites | 70 | 7.8 | 3.6 | 4.2 | 42 | 3.6 | 2.1 | 1.5 | ||||||||||||||||||||||||||
| North and South Carolina: | ||||||||||||||||||||||||||||||||||
| Primary | ||||||||||||||||||||||||||||||||||
| Single-family homes | 735 | 163.6 | 149.3 | 14.3 | 542 | 113.9 | 103.6 | 10.3 | ||||||||||||||||||||||||||
| Townhomes | 13 | 2.0 | 1.8 | 0.2 | 13 | 1.8 | 1.6 | 0.2 | ||||||||||||||||||||||||||
| Home sites | — | — | — | — | 32 | 0.8 | 0.8 | 0.0 | ||||||||||||||||||||||||||
| Total | 2,074 | $ | 571.8 | $ | 418.4 | $ | 153.4 | 1,760 | $ | 464.1 | $ | 331.3 | $ | 132.8 | ||||||||||||||||||||
36
37
Commercial Real Estate. Our commercial real estate segment plans, develops and entitles our land holdings for a broad portfolio of retail, office and commercial uses. We sell and develop commercial land and provide development opportunities for national and regional retailers in Northwest Florida. We believe that national and regional retail developers have now discovered Northwest Florida and continue to express a high level of interest in the region. We also offer land for commercial and light industrial uses within large and small-scale commerce parks, as well as for a wide range of multi-family for-sale and for-rent projects.
As a contrast to demand for residential real estate products, demand for Florida commercial real estate in 2006 was strong, consistent with 2005 and 2004. The table below sets forth the results of continuing operations of our commercial real estate development segment for the three years ended December 31, 2005.2006.
| Years Ended December 31, | ||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||
| (In millions) | ||||||||||||||
| Revenues: | ||||||||||||||
| Real estate sales | $ | 62.7 | $ | 87.2 | $ | 25.6 | ||||||||
| Rental revenues | 39.1 | 29.7 | 20.7 | |||||||||||
| Other revenues | 1.2 | 1.9 | 1.7 | |||||||||||
| Total revenues | 103.0 | 118.8 | 48.0 | |||||||||||
| Expenses: | ||||||||||||||
| Cost of real estate sales | 33.8 | 58.9 | 7.1 | |||||||||||
| Cost of rental revenues | 14.2 | 11.6 | 9.7 | |||||||||||
| Other operating expenses | 9.1 | 10.5 | 7.4 | |||||||||||
| Depreciation and amortization | 19.4 | 13.3 | 8.5 | |||||||||||
| Impairment loss | — | — | 0.3 | |||||||||||
| Total expenses | 76.5 | 94.3 | 33.0 | |||||||||||
| Other income (expense) | (3.8 | ) | (2.8 | ) | (3.1 | ) | ||||||||
| Pre-tax income from continuing operations | $ | 22.7 | $ | 21.7 | $ | 11.9 | ||||||||
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In millions) | ||||||||||||
| Revenues: | ||||||||||||
| Real estate sales | $ | 48.5 | $ | 62.7 | $ | 87.2 | ||||||
| Rental revenues | 39.3 | 33.1 | 24.1 | |||||||||
| Other revenues | 0.9 | 1.2 | 1.9 | |||||||||
| Total revenues | 88.7 | 97.0 | 113.2 | |||||||||
| Expenses: | ||||||||||||
| Cost of real estate sales | 18.6 | 33.8 | 58.9 | |||||||||
| Cost of rental revenues | 15.1 | 12.2 | 9.7 | |||||||||
| Other operating expenses | 7.9 | 8.9 | 10.4 | |||||||||
| Depreciation and amortization | 20.5 | 17.3 | 11.5 | |||||||||
| Restructuring charge | 0.1 | — | — | |||||||||
| Total expenses | 62.2 | 72.2 | 90.5 | |||||||||
| Other income (expense) | (4.8 | ) | (2.5 | ) | (1.6 | ) | ||||||
| Pre-tax income from continuing operations | $ | 21.7 | $ | 22.3 | $ | 21.1 | ||||||
Real Estate Sales. Real estateLand sales were comprised of land and office building sales in which we had continuing involvement for the three years ended December 31, 2005, as follows:
| Years Ended December 31, | ||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||
| (In millions) | ||||||||||||||
| Real estate sales: | ||||||||||||||
| Land | $ | 62.7 | $ | 62.4 | $ | 25.6 | ||||||||
| Buildings | — | 24.8 | ��� | |||||||||||
| Total real estate sales | 62.7 | 87.2 | 25.6 | |||||||||||
| Cost of real estate sales: | ||||||||||||||
| Land | 34.1 | 37.0 | 7.1 | |||||||||||
| Buildings | (0.3 | ) | 21.9 | — | ||||||||||
| Total cost of real estate sales | 33.8 | 58.9 | 7.1 | |||||||||||
| Pretax gain: | ||||||||||||||
| Land | 28.6 | 25.4 | 18.5 | |||||||||||
| Buildings | 0.3 | 2.9 | — | |||||||||||
| Total pretax gain from real estate sales | $ | 28.9 | $ | 28.3 | $ | 18.5 | ||||||||
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| Number of | Acres | Gross | Gross Price | Pre-tax Gain | ||||||||||||||||||||||
| Land | Sales | Sold | Proceeds | per Acre | Revenue | on Sales | ||||||||||||||||||||
| (In millions) | (In thousands) | (In millions) | (In millions) | |||||||||||||||||||||||
| Year Ended December 31, 2005: | ||||||||||||||||||||||||||
| Northwest Florida | 36 | 220 | $ | 30.9 | $ | 140.5 | $ | 29.9 | (a) | $ | 21.9 | (a) | ||||||||||||||
| Other | 8 | 276 | 32.8 | 118.8 | 32.8 | 6.7 | ||||||||||||||||||||
| Total/ Average | 44 | 496 | 63.7 | 128.4 | 62.7 | (a) | 28.6 | (a) | ||||||||||||||||||
| Year Ended December 31, 2004: | ||||||||||||||||||||||||||
| Northwest Florida | 40 | 384 | 43.6 | 113.6 | 43.6 | 24.0 | ||||||||||||||||||||
| Other | 5 | 36 | 18.8 | 522.2 | 18.8 | 1.4 | ||||||||||||||||||||
| Total/ Average | 45 | 420 | 62.4 | 148.6 | 62.4 | 25.4 | ||||||||||||||||||||
| Year Ended December 31, 2003: | ||||||||||||||||||||||||||
| Northwest Florida | 45 | 385 | 24.5 | 63.6 | 24.5 | 18.2 | ||||||||||||||||||||
| Other | 4 | 11 | 1.1 | 100.0 | 1.1 | 0.4 | ||||||||||||||||||||
| Total/ Average | 49 | 396 | $ | 25.6 | $ | 64.6 | $ | 25.6 | $ | 18.6 | ||||||||||||||||
| Number of | Acres | Average Price | Gross | Gross Profit | ||||||||||||||||||||
Land | Sales | Sold | per Acre(c) | Proceeds | Revenue | on Sales | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Year Ended December 31, 2006: | ||||||||||||||||||||||||
| Northwest Florida | 28 | 244 | $ | 200.4 | $ | 48.9 | $ | 48.5 | (a) | $ | 29.9 | (a) | ||||||||||||
| Other | — | — | — | — | — | — | ||||||||||||||||||
| Total/Average | 28 | 244 | $ | 200.4 | $ | 48.9 | $ | 48.5 | (a) | $ | 29.9 | (a) | ||||||||||||
| Year Ended December 31, 2005: | ||||||||||||||||||||||||
| Northwest Florida | 36 | 220 | $ | 140.5 | $ | 30.9 | $ | 29.9 | (b) | $ | 21.9 | (b) | ||||||||||||
| Other | 8 | 276 | 118.8 | 32.8 | 32.8 | 6.7 | ||||||||||||||||||
| Total/Average | 44 | 496 | $ | 128.4 | $ | 63.7 | $ | 62.7 | (b) | $ | 28.6 | (b) | ||||||||||||
| Year Ended December 31, 2004: | ||||||||||||||||||||||||
| Northwest Florida | 40 | 384 | $ | 113.6 | $ | 43.6 | $ | 43.6 | $ | 24.0 | ||||||||||||||
| Other | 5 | 36 | 522.2 | 18.8 | 18.8 | 1.4 | ||||||||||||||||||
| Total/Average | 45 | 420 | $ | 148.6 | $ | 62.4 | $ | 62.4 | $ | 25.4 | ||||||||||||||
| (a) | Net of |
37
| (b) | Net of deferred revenue and gain on sales, based onpercentage-of-completion accounting, of $1.0 million and $0.7 million, | |
| (c) | Average price per acre in thousands. |
The change in averageper-acre prices reflectsreflected a change in the mix of commercial land sold in each period, with varying compositions of retail, office, light industrial, multi-family and other commercial uses.
In 2006, compared to 2005 and 2004, the numbercommercial segment shifted its multifamily focus from smaller local builders to regional and national companies. This shift resulted in fewer multifamily sales but increased pricing to $232,000 per acre for the year 2006, compared with average pricing of acres sold, gross proceeds, revenue$105,000 per acre in 2005 and pre-tax gain$25,000 per acre in 2004.
For additional information about our Commerce Parks, see the table “Summary of Additional Commercial Land-Use Entitlements” in the Business section above.
Rental Revenues. Rental revenues generated by our commercial real estate segment on sales decreasedowned operating properties increased $6.2 million, or 19%, in 2005. However,2006 compared to 2005 primarily due to the gross profit percentage on land salesacquisition of one building in December of 2005, with approximately 225,000 rentable square feet. The year ended December 31, 2006 also included recognition of $0.8 million of termination fees related to three tenants terminating their leases early. Cost of rental revenues increased $2.9 million, or 24%, in 2006 compared to 46%2005, primarily due to the building acquisition and increased operating costs. Rental revenues increased $9.0 million, or 37%, for 2005 as compared to 41% for 2004 asdue to the Pier Park project has a higher cost basis than our other Northwest Florida commercial land projects.
| Acres | |||||||||||||||||
| Project | Sold/Under | Current Asking Price | |||||||||||||||
| Commerce Parks | County | Acres | Contract | per Acre | |||||||||||||
Existing and Under Construction: | |||||||||||||||||
| South Walton Commerce | Walton | 39 | 14 | $ | 335,000 — 600,000 | ||||||||||||
| Beach Commerce | Bay | 157 | 140 | 200,000 — 500,000 | |||||||||||||
| Beach Commerce II | Bay | 108 | — | 150,000 — 225,000 | |||||||||||||
| Nautilus Court | Bay | 11 | 8 | 523,000 — 610,000 | |||||||||||||
| Port St. Joe Commerce | Gulf | 58 | 58 | Sold out | |||||||||||||
| Port St. Joe Commerce II | Gulf | 40 | 11 | 65,000 — 135,000 | |||||||||||||
| Airport Commerce | Leon | 45 | — | 75,000 — 260,000 | |||||||||||||
| Hammock Creek Commerce | Gadsden | 165 | 27 | 50,000 — 150,000 | |||||||||||||
Predevelopment: | |||||||||||||||||
| Cedar Grove Commerce | Bay | 68 | — | ||||||||||||||
| Mill Creek Commerce | Bay | 40 | — | ||||||||||||||
| Total | 731 | 258 | |||||||||||||||
Further information about our commercial income producing properties is presented in the table below.
| December 31, 2006 | December 31, 2005 | December 31, 2004 | ||||||||||||||||||||||||||||||||||||
| Net | Net | Net | ||||||||||||||||||||||||||||||||||||
| Number of | Rentable | Percentage | Number of | Rentable | Percentage | Number of | Rentable | Percentage | ||||||||||||||||||||||||||||||
| Properties | Square Feet | Leased | Properties | Square Feet | Leased | Properties | Square Feet | Leased | ||||||||||||||||||||||||||||||
Buildings purchased with tax-deferred proceeds by location: | ||||||||||||||||||||||||||||||||||||||
| Florida | ||||||||||||||||||||||||||||||||||||||
| Jacksonville | 1 | 136,000 | 83 | % | 1 | 136,000 | 69 | % | 1 | 136,000 | 69 | % | ||||||||||||||||||||||||||
| Northwest Florida | 3 | 156,000 | 100 | 3 | 156,000 | 95 | 3 | 156,000 | 95 | |||||||||||||||||||||||||||||
| Orlando | 2 | 317,000 | 95 | 2 | 317,000 | 71 | 2 | 317,000 | 71 | |||||||||||||||||||||||||||||
| Atlanta | 8 | 1,289,000 | 78 | 8 | 1,289,000 | 73 | 8 | 1,289,000 | 73 | |||||||||||||||||||||||||||||
| Virginia | 3 | 354,000 | 97 | 3 | 354,000 | 96 | 2 | 129,000 | 96 | |||||||||||||||||||||||||||||
| Subtotal/Average | 17 | 2,252,000 | 85 | 17 | 2,252,000 | 76 | % | 16 | 2,027,000 | 76 | % | |||||||||||||||||||||||||||
Development property: | ||||||||||||||||||||||||||||||||||||||
| Florida | ||||||||||||||||||||||||||||||||||||||
| Northwest Florida | 2 | 37,000 | 96 | 2 | 37,000 | 93 | % | — | — | — | ||||||||||||||||||||||||||||
| Subtotal/Average | 2 | 37,000 | 96 | 2 | 37,000 | 93 | % | — | — | — | ||||||||||||||||||||||||||||
| Total/Average | 19 | 2,289,000 | 85 | 19 | 2,289,000 | 76 | % | 16 | 2,027,000 | 76 | % | |||||||||||||||||||||||||||
The lease for the sole tenant in one of our Virginia buildings will expire in February 2008. At this time a replacement tenant has not yet been recorded as Discontinued Operations (see“Discontinued Operations” below).obtained. We are continuing to aggressively market the vacant spaces in Atlanta and Virginia.
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In January 2007, we entered into an exclusive listing agreement with Eastdil Secured, LLC, a real estate brokerage firm, for the marketing and potential disposition of our office building portfolio. The portfolio is located in seven markets throughout the Southeast and consists of 17 buildings with approximately 2.3 million net rentable square feet. The likelihood and timing of the possible sale will depend upon market reaction and other variables. The portfolio does not currently meet the criteria for classification as “assets held for sale”.
Depreciation and amortization, primarily consisting of depreciation on income producing properties and amortization of lease intangibles, increased to $20.5 million in 2006 compared to $17.3 million in 2005, due to the building placed in service in December 2005.
Total proceeds from building sales recorded in continuing operations in 2004 were $24.8 million, with a pre-tax gain of $2.9 million. Building sales in 2004 consisted of:
| • | ||
| • |
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| December 31, 2005 | December 31, 2004 | December 31, 2003 | ||||||||||||||||||||||||||||||||||||
| Net | Net | Net | ||||||||||||||||||||||||||||||||||||
| Number of | Rentable | Percentage | Number of | Rentable | Percentage | Number of | Rentable | Percentage | ||||||||||||||||||||||||||||||
| Properties | Square Feet | Leased | Properties | Square Feet | Leased | Properties | Square Feet | Leased | ||||||||||||||||||||||||||||||
Buildings purchased with tax-deferred proceeds by location: | ||||||||||||||||||||||||||||||||||||||
| Florida | ||||||||||||||||||||||||||||||||||||||
| Jacksonville | 1 | 136,000 | 69 | % | 1 | 136,000 | 57 | % | (b | ) | (b | ) | (b | ) | ||||||||||||||||||||||||
| Northwest Florida | 3 | 156,000 | 96 | 3 | 156,000 | 84 | 2 | 122,000 | 79 | % | ||||||||||||||||||||||||||||
| Orlando | 2 | 317,000 | 94 | 2 | 317,000 | 69 | 2 | 317,000 | 78 | |||||||||||||||||||||||||||||
| Tampa | 2 | 147,000 | 91 | 2 | 147,000 | 82 | 2 | 147,000 | 86 | |||||||||||||||||||||||||||||
| South Florida | (a | ) | (a | ) | (a | ) | (a | ) | (a | ) | (a | ) | 1 | 100,000 | 86 | |||||||||||||||||||||||
| Atlanta | 8 | 1,289,000 | 79 | 8 | 1,289,000 | 89 | 5 | 863,000 | 87 | |||||||||||||||||||||||||||||
| Charlotte | 1 | 158,000 | 100 | 1 | 158,000 | 100 | 1 | 158,000 | 100 | |||||||||||||||||||||||||||||
| Virginia | 3 | 354,000 | 96 | 2 | 129,000 | 99 | (b | ) | (b | ) | (b | ) | ||||||||||||||||||||||||||
| Subtotal/ Average | 20 | 2,557,000 | 85 | % | 19 | 2,332,000 | 85 | % | 13 | 1,707,000 | 86 | % | ||||||||||||||||||||||||||
Development property: | ||||||||||||||||||||||||||||||||||||||
| Florida | ||||||||||||||||||||||||||||||||||||||
| Northwest Florida | 2 | 66,000 | 96 | % | 1 | 30,000 | 100 | % | (b | ) | (b | ) | (b | ) | ||||||||||||||||||||||||
| Jacksonville | (a | ) | (a | ) | (a | ) | (a | ) | (a | ) | (a | ) | 1 | 99,000 | 83 | % | ||||||||||||||||||||||
| Subtotal/ Average | 2 | 66,000 | 96 | % | 1 | 30,000 | 100 | % | 1 | 99,000 | 83 | % | ||||||||||||||||||||||||||
| Total/ Average | 22 | 2,623,000 | 86 | % | 20 | 2,362,000 | 85 | % | 14 | 1,806,000 | 86 | % | ||||||||||||||||||||||||||
Discontinued Operations. Discontinued operations related to this segment for 2005 include2006 included the sale and results of operations of Advantis and the sales and results of operations of four commercial buildings sold in 2005.2006. Discontinued operations for 2004 include2005 included those four buildings, the sale and results of operations of four commercial buildings sold in 2005, and the sale and results of operations of Advantis and those four commercial buildings, as well as the sales and results of operations of two commercial buildings sold in 2004.2005.
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Building sales included in discontinued operations for 2006 consisted of the following:
| • | The sale of Nextel II, with net rentable square feet of 30,000 in Panama City, Florida, on December 20 for proceeds of $4.9 million and a pre-tax gain of $1.7 million; | |
| • | The sale of One Crescent Ridge, with net rentable square feet of 158,000 in Charlotte, North Carolina, on September 29 for proceeds of $31.3 million and a pre-tax gain of $10.6 million; and | |
| • | The sales of Prestige Place One & Two, with net rentable square feet of 147,000 in Tampa, Florida, on June 28 for proceeds of $18.1 million and a pre-tax gain of $4.4 million. |
Building sales included in discontinued operations for 2005 consisted of the following:
| • | 1133 | |
| • | Lakeview, with 127,000 net rentable square feet in Tampa, Florida, sold on September 7 for proceeds of $18.0 million and a pre-tax gain of $4.1 million; | |
| • | Palm Court, with 62,000 net rentable square feet in Tampa, Florida, sold | |
| • | Harbourside, with 153,000 net rentable square feet in |
On September 7, 2005, we sold Advantis for $11.4 million (including $7.5 million in notes receivable from the purchaser) at a pre-tax loss of $9.9 million. Under the terms of the sale, we continue to use Advantis to manage certain commercial properties and also involve Advantis in certain sales of our land.
Building sales included in discontinued operations in 2004 consisted of the following:
| • | 1750 K Street, with 152,000 net rentable square feet in Washington, DC, sold on July 30 for proceeds of $47.3 million ($21.9 million, net of the assumption of a mortgage by the purchaser) and a pre-tax gain of $7.5 million; and | |
| • | Westchase Corporate Center, with 184,000 net rentable square feet in Houston, Texas, sold on August 16 for proceeds of $20.3 million and a pre-tax gain of $0.2 million. |
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Rural Land Sales. Our rural land sales segment markets for sale tracts of land of varying sizes for rural recreational, conservation, residential and timberland uses. The land sales segment prepares land for sale for these uses through harvesting, thinning and other silviculture practices, and in some cases, limited infrastructure development.
The table below sets forth the results of operations of our rural land sales segment for the three years ended December 31, 2005.2006.
| Years Ended December 31, | ||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||
| (In millions) | ||||||||||||||
| Revenues | ||||||||||||||
| Real estate sales | $ | 99.0 | $ | 72.1 | $ | 99.2 | ||||||||
| Other revenues | 0.2 | — | — | |||||||||||
| Total revenues | 99.2 | 72.1 | 99.2 | |||||||||||
| Expenses: | ||||||||||||||
| Cost of real estate sales | 19.6 | 7.3 | 14.0 | |||||||||||
| Cost of other revenues | 0.1 | 1.0 | 0.6 | |||||||||||
| Other operating expenses | 10.6 | 6.9 | 6.8 | |||||||||||
| Depreciation and amortization | 0.3 | 0.4 | 0.2 | |||||||||||
| Total expenses | 30.6 | 15.6 | 21.6 | |||||||||||
| Other income | 0.3 | 0.2 | 0.1 | |||||||||||
| Pre-tax income from continuing operations | $ | 68.9 | $ | 56.7 | $ | 77.7 | ||||||||
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In millions) | ||||||||||||
| Revenues | ||||||||||||
| Real estate sales | $ | 89.9 | $ | 68.9 | $ | 68.0 | ||||||
| Expenses: | ||||||||||||
| Cost of real estate sales | 7.4 | 9.4 | 6.0 | |||||||||
| Cost of other revenues | — | 0.1 | — | |||||||||
| Other operating expenses | 10.6 | 8.8 | 6.7 | |||||||||
| Depreciation and amortization | 0.3 | 0.2 | 0.2 | |||||||||
| Restructuring charge | 0.2 | — | — | |||||||||
| Total expenses | 18.5 | 18.5 | 12.9 | |||||||||
| Other income | 1.1 | 0.3 | 0.2 | |||||||||
| Pre-tax income from continuing operations | $ | 72.5 | $ | 50.7 | $ | 55.3 | ||||||
Rural land sales activity for 2005, 2004 and 2003, excluding RiverCamps, wasthe three years ended December 31, 2006 are as follows:
| Number | Number of | Average Price | Gross Sales | Gross | ||||||||||||||||
| Period | of Sales | Acres | Per Acre | Price | Profit | |||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||
| 2005 | 142 | 28,958 | $ | 2,378 | $ | 68.9 | $ | 59.3 | ||||||||||||
| 2004 | 172 | 20,175 | $ | 3,375 | $ | 68.1 | $ | 62.0 | ||||||||||||
| 2003 | 173 | 64,903 | $ | 1,487 | $ | 96.5 | $ | 84.3 | ||||||||||||
| Number | Number of | Average Price | Gross Sales | Gross | ||||||||||||||||
Period | of Sales | Acres | Per Acre | Price | Profit | |||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||
| 2006 | 84 | 34,336 | $ | 2,621 | $ | 89.9 | $ | 82.5 | ||||||||||||
| 2005 | 142 | 28,958 | $ | 2,378 | $ | 68.9 | $ | 59.3 | ||||||||||||
| 2004 | 172 | 20,175 | $ | 3,375 | $ | 68.1 | $ | 62.0 | ||||||||||||
During 2006, we sold two large tracts of land totaling 15,469 acres for an average price of $1,700 per acre. We continually evaluate the pricing and timing of land sales based upon a careful analysis of the present value of the land.
Land sales for 2005 included the sales of two parcels totaling 1,046 acres of WoodLands in southwest Georgia for $2.5 million, or $2,390 per acre. Earlier in 2005, we paid $1,225 per acre for approximately 47,000 acres in Southwestsouthwest Georgia.
Land sales for 2004 included two parcels with an aggregate of 20,000 feet of frontage on North Bay in Bay County, Florida, and a parcel with approximately 5,000 feet of frontage on East Bay in Bay County. The two North Bay parcels, of approximately 349 and 323 acres, sold
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for $8.7 million, or approximately $25,000 per acre, and $8.7 million, or approximately $27,000 per acre, respectively. The East Bay parcel of 866 acres sold for $10.0 million, or approximately $11,550 per acre.
Since average sales prices per acre vary according to the characteristics of each particular piece of land being sold, our average prices may vary from one period to another. Land sales in 2003 included seven large parcels totaling 34,999 acres sold to conservation groups and governmental agencies for an average price of $1,157 per acre.
The historical results of RiverCamps on Crooked Creek closed 111 home sites with proceeds of $34.9 million. Since required infrastructure and amenity development was not complete athave been reclassified from the time of sale, percentage of completion accounting is used. Gross profit was recognized based on construction completed in relation to total construction costs. As a result of using percentage-of-completion accounting, therural land sales segment recognized $30.2 million in revenue in 2005 from these sales, with related costs of $10.1 million. As of December 31, 2005, there was a balance of $7.5 million in deferred profit for homesites sold through December 31, 2005 at RiverCamps on Crooked Creek, substantially all of which is expected to be recognized in income by the end of 2006. During 2004, 41 home sites at RiverCamps on Crooked Creek were closed with proceeds of $9.3 million. Revenue recognized as a result of percentage of completion accounting was $5.2 million, with related costs of $2.0 million. Work also continues on other potential RiverCamps locations in Northwest Florida. In 2003, RiverCamps generated $2.7 million in revenues with $1.8 million in related costs, including revenues of $0.7 million and related costs of $0.7 million forresidential real estate segment to conform to the sale of the 2003 HGTV Dream Home, located on East Bay in Bay County.current year presentation.
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Forestry. The table below sets forth the results of operations of our forestry segment for the three years ended December 31, 2006.
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In millions) | ||||||||||||
| Revenues: | ||||||||||||
| Timber sales | $ | 29.9 | $ | 27.9 | $ | 35.2 | ||||||
| Expenses: | ||||||||||||
| Cost of timber sales | 21.9 | 20.0 | 21.8 | |||||||||
| Other operating expenses | 2.3 | 2.2 | 2.6 | |||||||||
| Depreciation and amortization | 2.9 | 4.2 | 4.1 | |||||||||
| Impairment loss | 1.5 | — | — | |||||||||
| Total expenses | 28.6 | 26.4 | 28.5 | |||||||||
| Other income | 3.1 | 3.1 | 2.4 | |||||||||
| Pre-tax income from continuing operations | $ | 4.4 | $ | 4.6 | $ | 9.1 | ||||||
Total revenues for the forestry segment increased $2.0 million, or 7%, compared to 2005. Sales under our fiber agreement with Smurfit-Stone Container Corporation were $13.0 million (692,600 tons) in 2006 and $12.0 million (678,000 tons) in 2005. Sales to other customers totaled $11.3 million (623,300 tons) in 2006 as compared to $9.9 million (529,000 tons) in 2005. The increase in revenue and tons sold to outside customers resulted from our ability to harvest more solid wood products due to better operating conditions and planning. Revenues for the cypress mill operation were $5.6 million in 2006 and $6.0 million in 2005. Revenues from the cypress mill were lower in 2006 due to the lack of customer demand for our mulch product.
Cost of sales for the forestry segment increased $1.9 million in 2006 compared to 2005. Costs of sales as a percentage of revenue were 73% in 2006 and 72% in 2005. The increase in cost of sales was due to increased logging costs caused by higher diesel fuel prices and increased road maintenance expense. Cost of sales for the cypress mill operation were $4.9 million or 88% of revenues in 2006 and $4.5 million or 75% of revenues in 2005.
| Years Ended December 31, | ||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||
| (In millions) | ||||||||||||||
| Revenues: | ||||||||||||||
| Timber sales | $ | 27.9 | $ | 35.2 | $ | 36.6 | ||||||||
| Expenses: | ||||||||||||||
| Cost of timber sales | 20.0 | 21.8 | 24.2 | |||||||||||
| Other operating expenses | 2.2 | 2.6 | 2.6 | |||||||||||
| Depreciation and amortization | 4.1 | 4.1 | 4.1 | |||||||||||
| Total expenses | 26.3 | 28.5 | 30.9 | |||||||||||
| Other income (expense) | 3.1 | 2.4 | 2.4 | |||||||||||
| Pre-tax income from continuing operations | $ | 4.7 | $ | 9.1 | $ | 8.1 | ||||||||
During 2006, the Company utilized a discounted cash flow method to determine the fair value of Sunshine State Cypress and recorded an impairment loss to reduce the carrying amount of goodwill from $8.8 million to $7.3 million. This resulted in an impairment loss of $1.5 million pre-tax, or $0.9 million net of tax.
Revenues for the forestry segment in 2005 decreased $7.3 million, or 21%, compared to 2004. Revenues for the forestry segment in 2004 decreased 4% compared to 2003. Total sales under the fiber agreement with Smurfit-Stone Container Corporation were $12.0 million (678,000 tons) in 2005 and $13.0 million (681,000 tons) in 2004, and $11.8 million (677,000 tons) in 2003.2004. Sales to other customers totaled $9.9 million (529,000 tons) in 2005 and $14.5 million (653,000 tons) in 2004 and $16.3 million (837,000 tons) in 2003.2004. The 2005 decrease in revenues under the fiber agreement was primarily due to lower pulpwood prices under the terms of the agreement. The 2004 increase in revenues under the fiber agreement was primarily due to increasing prices under the terms of the agreement. In 2005 and 2004, sales to other customers decreased due to management’s decision to reduce the harvested volume from clear-cut operations in order to retain more timber on certain tracts planned for later sale for recreational or residential purposes. Revenues from the cypress mill operation were $6.0 million in 2005 and $7.7 million in 2004 and $8.5 million in 2003.2004. Revenues from the cypress mill were lower in 2005 due to lower prices as a result of the increased supply of fallen timber caused by hurricanes. In 2004, revenues from the cypress mill decreased as we intentionally reduced production to help improve margins and profitability in response to challenges in finding wood supplies at acceptable prices.
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Cost of timber sales decreased $1.8 million, or 8%, in 2005 and decreased $2.4 million, or 10%, incompared to 2004. Cost of sales as a percentage of revenues was 72% in 2005 and 62% in 2004 and 66% in 2003.2004. The 2005 increase in cost of sales as a percentage of revenues was due primarily to increased logging costs caused by fuel shortages from Hurricane Katrina, road maintenance and timber inventory costs. The 2004 decrease in cost of sales as a percentage of revenues was due to increased efficiencies in our cypress mill operation and slightly lower cost of sales for timber in 2004 compared to 2003. Cost of sales for the cypress mill operation were $4.5 million, or 75% of revenues, in 2005, and $5.4 million, or 70% of revenues, in 2004, and $7.4 million, or 87% of revenues, in 2003.2004. Cost of sales for timber was $15.5 million, or 71% of revenues, in 2005 and $16.4 million, or 59% of revenues, in 2004, and $16.8 million, or 60% of revenues, in 2003.2004.
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Liquidity and Capital Resources
We generate cash from:
| • | Operations; | |
| • | Sales of land holdings, other assets and subsidiaries; | |
| • | Borrowings from financial institutions and other debt; and | |
| • | Issuances of equity, primarily from the exercise of employee stock options. |
We use cash for:
| • | Operations; | |
| • | Real estate development; | |
| • | Construction and homebuilding; | |
| • | Repurchases of our common stock; | |
| • | Payments of dividends; | |
| • | Repayments of debt; | |
| • | Payments of taxes; and | |
| • | Investments in joint ventures and acquisitions. |
Management believes that our financial condition is strong and that our cash, real estate and other assets, operating cash flows, and borrowing capacity, taken together, providewe have 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. In light of current real estate market conditions, however, we have significantly adjusted our capital investment plans and continue to evaluate the appropriateness of our plans. We also intend to continue to be prudent in our approach toward share repurchase activity in 2007 considering our other capital commitments. If our liquidity were not adequate to fund operatingour cash requirements, capital development, stock repurchases and dividends, we would have various alternatives available to change our cash flow, including reducing or eliminating our stockshare repurchase program, reducing or eliminating dividends, changing our capital structure, altering the timing of our development projectsand/or selling existing assets.
Cash Flows from Operating Activities
Cash flows related to assets ultimately planned to be sold, including Towns & Resorts developmentsresidential real estate development and related amenities, sales of undeveloped and developed land by ourthe rural land sales and commercial segments, and oursegment, the Company’s timberland operations and land developed by the commercial real estate segment, are included in operating activities.activities on the statement of cash flows. Distributions of income from unconsolidated affiliates are also included in cash flows from operating activities.
Net cash (used in) provided by operations was ($143.9) million during 2006 compared to $192.0 million in 2005 2004 and 2003 was $192.1 million, $128.2 million and $136.8 million, respectively. During such periods, expendituresin 2004. Expenditures relating to our Towns & Resortsresidential real estate segment in 2006, 2005 and 2004 were $531.4 million, $515.7 million $488.8 million, and $342.5$488.8 million, respectively. Expenditures for operating properties in 2006, 2005 and 2004 totaled $55.6 million, $33.9 and 2003 totaled $33.9 million, $62.6 million and $17.8 million, respectively, and were made up of commercial land development and residential club and resort property development.
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The changes in other tax related balance sheet accounts were primarily related to $125.1 million in estimated tax payments related to the 2006 tax year. These tax payments were primarily attributable to the recognition of previously deferred gains on land sales and involuntary conversions, which have now met the criteria for recognition in our 2006 tax return. We also expect to make significant tax payments in 2007 related to an IRS audit of the years2001-2004. The balances expected to be affected by any tax settlement include other liabilities, taxes payable and deferred taxes. We expect to continue to make significant cash payments of income taxes, including deferred taxes, in future years.
The expenditures for operating activities relating to our Towns & Resortsresidential real estate and commercial real estate segments arewere primarily for site infrastructure development, general amenity construction, andconstruction of
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single-family homes, construction of homesmulti-family buildings and commercial space. Approximately 40-45%land development. In 2006, approximately 50% of these expenditures arewere for home construction that generally takes place after the signing of a binding contract with a buyer to purchase the home followingupon completion of construction. AsDue to our exit from Florida homebuilding, we expect a consequence, if contract activity slows,significant reduction in construction expenditures related to single-family homes after we finish the homes currently under construction in Florida. Total expenditures for single-family home construction will also slow. We expect this general expenditure level and relationship between expenditures and housing contracts to continue in the future.future are expected to decline significantly and the resulting percentage of total expenditures may significantly change depending on the total amount of non-homebuilding construction activity in future periods.
Over the next several years, our need for cash for operations will increaseremain significant as development activity increases.continues. During 2006, we will have fourhad five new residential communities under development which will requirerequiring significant up-front capital investment. In additioninvestment, and these communities will continue to cash neededrequire capital expenditures.
Cash Flows from Investing Activities
The Company’s buildings developed for increased development costs, we will most likely be required to make significant cash payments of income taxes for 2005commercial rental purposes and future years.
Net cash provided by (used in) investing activities was $29.9 million in 2006 compared to $(31.9) million in 2005 and $(32.4) million in 2004. Net cash provided in 2006 primarily was a result of $52.8 million in proceeds related to the sales of discontinued operations. Net cash used in investing activities in 2005 was $31.9 million and included $88.8 million in proceeds from sales of discontinued operations, net of cash included in assets sold. Purchases of investments in real estate in 2005 included $20.9 million for the purchase of a commercial office building and related intangible assets net of assumption of a mortgage on the property of $29.9 million, the purchases of 16 acres of property in Manatee County for $18.0 million and 47,303 acres of timberland in Southwest Georgia for $58.3 million, in tax-deferred like-kind exchanges and $9.6 million of other real estate investments. Net cash used in investing activities in 2004 was $32.4 million and included $64.4 million for the purchase of five commercial office buildings and related intangible assets, $41.1 million in proceeds from the sale of discontinued operations and $17.7 million of other real estate investments. Net cash used in investing activities in 2003 was $139.6 million and included $93.4 million for the purchase of four commercial buildings and related intangible assets and $25.3 million for the development of commercial buildings and purchases of other real estate investments.
The purchase of commercial buildings and land, comprising the majority of the cash used in investing activities, generally follow the sale of real estate, principally land sales on a tax-deferred basis. The tax deferral requires the reinvestment of proceeds from qualifying sales within a required time frame. We make these investments in buildings and land only when we can acquire these assets at attractive prices. It is becoming increasingly difficult to acquire assets that meet our pricing and other criteria for reinvestment, and as a result we may not purchase commercial buildings and vacant land to the extent we have in the past. Additionally, ifas our sales activity slows,has slowed, the amount of cash available for purchase activities has decreased.
We have recently entered into a listing agreement for the marketing and potential disposition of our office building portfolio. Our portfolio is located in seven markets throughout the Southeast and consists of seventeen buildings with approximately 2.3 million of net rentable square feet. The potential sale proceeds related purchase activity may also slow.to this asset disposition could have a significant positive impact on investing cash flows in 2007 if such a sale were to occur.
Cash Flows from Financing Activities
Net cash used in financing activities was $51.7 million in 2006, $52.3 million in 2005 and $58.4 million in 2004 and $13.1 million in 2003.2004. As a result of the significant new development and investing activities anticipated over the next several years, we expect our debt to increase compared to December 31, 2005,2006 levels. WeIn 2007, we have approximately $6.9$229.3 million of debt maturing, in 2006. For 2006,and we expect to spend $125$50 million to $175$100 million for dividend payments and the repurchase of sharesshares. Based on these factors, we expect a meaningful increase in debt during 2007. This debt increase may not occur, however, and dividend payments.our debt may in fact decrease if we were to sell our office building portfolio (as described above).
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The New Credit Facility contains financial covenants including maximum debt ratios and minimum fixed charge coverage and net worth requirements. ThereThe balance outstanding at December 31, 2006 was $60.0 million; no balance was outstanding balance on the New Credit Facility at December 31, 2005, and no outstanding balance on the Senior Credit Facility at December 31, 2004.2005. Management believes that we were in compliance with the covenants of the New Credit Facility at December 31, 2005.2006.
In February 2007, we increased the size of the Credit Facility to $500 million. None of the material terms of the Credit Facility were changed in connection with the expansion. Proceeds from the increased Credit Facility will be used for the repayment of debt maturing in 2007, development and construction projects and general corporate purposes.
Senior notes issued in private placements had senior notesan outstanding in the aggregate principal amount of $275 million. During 2005, one$307.0 million at December 31, 2006 and $407.0 million at December 31, 2005. These senior notes have financial performance covenants similar to those in the Credit Facility. In July 2006, we entered into an amendment agreement with the 2002 noteholders that modifies certain financial covenants. The amendment provides increased leverage capacity along with increased flexibility in maintaining minimum net worth levels. The covenant modifications were subject to certain conditions, including prepayment of our $100 million outstanding 2004 senior notes. We paid these notes in November 2006.
The proceeds of the senior notes matured and we paid the principal amount of $18 million. The remaining balance on these notes at December 31, 2005, is $257 million. In addition, on August 25, 2005, we issued senior notes in a private placement having an aggregate principal amount of $150 million, with $65 million maturing on August 25, 2015, at a fixed interest rate of 5.28%, $65 million maturing on August 25, 2017, at a fixed interest rate of 5.38%, and $20 million maturing on August 25, 2020, at a fixed interest rate of 5.49%. The proceeds will bewere used to finance development and construction projects, to reduce revolving debt andas well as for general corporate purposes. Interest is payable semiannually. These notes contain financial covenants similar to those in the New Credit Facility.
During 2005, we assumed an existing mortgage of $29.9 million on a commercial building we purchased.
We have used community development district (“CDD”) bonds to finance the construction of infrastructure improvements at foursix of our projects. The principal and interest payments on the bonds are paid by assessments on, or from sales proceeds of, the properties benefited by the improvements financed by the bonds. We record a liability for future assessments which are fixed or determinable and will be levied against our properties. In 2005, we paid $10.5 million in principal to one of the community development districts to pay off a portion of the CDD bonds. In accordance with Emerging Issues Task Force Issue91-10,Accounting for Special Assessments and Tax Increment Financing, we have recorded as debt $14.7 million, $26.4$43.1 million and $30.0$14.7 million related to CDD bonds as of December 31, 2005, 20042006 and 2003,2005, respectively.
Through December 31, 2005,2006, our Board of Directors had authorized a total of $950.0 million for the repurchase of our outstanding common stock from shareholders from time to time (the “Stock Repurchase Program”), of which $153.5$103.8 million remained available at December 31, 2005.2006. There is no expiration date for the Stock Repurchase Program, and the specific timing and amount of repurchases will vary based on available cash, market conditions, securities law limitations and other factors. From the inception of the Stock Repurchase Program to December 31, 2005,2006, the Company repurchased from shareholders 26,997,41127,945,611 shares. During 2006, 2005 2004 and 2003,2004, the Company repurchased from shareholders 948,200, 1,705,000 1,561,565 and 2,555,1741,561,565 shares, respectively. Given the challenges presented by the current operating environment, we will be prudent in our approach to share repurchase activity over the near term until the depth and duration of the current downturn in the residential market is more readily discernible. As a result, we did not purchase any of our shares on the open market during the fourth quarter of 2006.
Executives have surrendered a total of 2,105,1422,253,559 shares of our stock since 1998 in payment of strike prices and taxes due on exercised stock options and vested restricted stock. For 2006, 2005 and 2004, and 2003,148,417 shares worth $7.6 million, 68,648 shares worth $4.8 million and 884,633 shares worth $35.3 million and 812,802 shares worth $25.6 million, respectively, were surrendered by executives, of which $7.6 million, $2.3 million $13.9 million and $8.6$13.9 million, respectively, were for the cash payment of taxes due on exercised stock options and vested restricted stock.
Off-Balance Sheet Arrangements
We are not currently a party to any material off-balance sheet arrangements as defined in Item 303 ofRegulation S-K.
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Contractual Obligations and Commercial Commitments at December 31, 2006
| Payments Due by Period | ||||||||||||||||||||
| Less Than | More Than | |||||||||||||||||||
Contractual Cash Obligations | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Debt | $ | 627.1 | $ | 229.3 | $ | 84.2 | $ | 29.8 | $ | 283.8 | ||||||||||
| Interest related to debt | 139.2 | 30.5 | 40.6 | 34.8 | 33.3 | |||||||||||||||
| Purchase obligations(1) | 128.2 | 13.6 | 114.6 | — | — | |||||||||||||||
| Operating leases | 2.1 | 1.2 | 0.8 | 0.1 | — | |||||||||||||||
| Total Contractual Cash Obligations | $ | 896.6 | $ | 274.6 | $ | 240.2 | $ | 64.7 | $ | 317.1 | ||||||||||
| Payments Due by Period | ||||||||||||||||||||
| Less Than | More Than | |||||||||||||||||||
| Contractual Cash Obligations | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Debt | $ | 554.4 | $ | 6.9 | $ | 137.6 | $ | 50.5 | $ | 359.4 | ||||||||||
| Interest related to debt | 189.6 | 33.1 | 56.7 | 43.2 | 56.6 | |||||||||||||||
| Purchase obligations(1) | 70.5 | 61.0 | 9.5 | — | — | |||||||||||||||
| Operating leases | 2.9 | 1.4 | 1.2 | 0.3 | — | |||||||||||||||
| Total Contractual Cash Obligations | $ | 817.4 | $ | 102.4 | $ | 205.0 | $ | 94.0 | $ | 416.0 | ||||||||||
| (1) | These aggregate amounts include individual contracts in excess of |
| Amount of Commitment Expirations Per Period | ||||||||||||||||||||
| Total Amounts | Less Than | More Than | ||||||||||||||||||
| Other Commercial Commitments | Committed | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Surety bonds | $ | 46.4 | $ | 45.7 | $ | 0.7 | $ | — | $ | — | ||||||||||
| Standby letters of credit | 30.2 | 30.2 | — | — | — | |||||||||||||||
| Total Commercial Commitments | $ | 76.6 | $ | 75.9 | $ | 0.7 | $ | — | $ | — | ||||||||||
| Amount of Commitment Expirations Per Period | ||||||||||||||||||||
| Total Amounts | Less Than | More Than | ||||||||||||||||||
Other Commercial Commitments | Committed | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Surety bonds | $ | 64.3 | $ | 63.9 | $ | 0.4 | $ | — | $ | — | ||||||||||
| Standby letters of credit | 25.0 | 25.0 | — | — | — | |||||||||||||||
| Total Commercial Commitments | $ | 89.3 | $ | 88.9 | $ | 0.4 | $ | — | $ | — | ||||||||||
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Our primary market risk exposure is interest rate risk related to our long-term debt. As of December 31, 2005,2006, there was no balance$60.0 million outstanding under our $250 million New Credit Facility, which matures on July 21, 2009. This debt accrues interest at different rates based on timing of the loan and our preferences, but generally will be either the one, two, three or six month London Interbank Offered Rate (“LIBOR”) plus a LIBOR margin in effect at the time of the loan. This loan potentially subjects us to interest rate risk relating to the change in the LIBOR rates. We manage our interest rate exposure by monitoring the effects of market changes in interest rates. If LIBOR had been 100 basis points higher or lower, the effect on net income with respect to interest expense on the $250 million credit facility would have been a respective decrease or increase in the amount of $0.4$0.6 million pre-tax ($0.30.4 million net of tax.)
We have recently expanded the available principal amount of the Credit Facility to $500 million, and we expect the outstanding balance borrowed under the Credit Facility to increase in the near term. An increase in borrowing under the Credit Facility will cause a corresponding increase in interest rate risk.
The table below presents principal amounts and related weighted average interest rates by year of maturity for our long-term debt. The weighted average interest rates for our fixed-rate long-term debt are based on the actual rates as of December 31, 2005.2006. Weighted average variable rates are based on implied forward rates in the yield curve at December 31, 2005.2006.
Expected Contractual Maturities
| Fair | ||||||||||||||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | Value | |||||||||||||||||||||||||||
| $ in millions | ||||||||||||||||||||||||||||||||||
| Long-term Debt | ||||||||||||||||||||||||||||||||||
| Fixed Rate | $ | 5.7 | $ | 69.2 | $ | 52.9 | $ | 41.0 | $ | 1.1 | $ | 359.4 | $ | 529.3 | $ | 547.2 | ||||||||||||||||||
| Wtd. Avg. Interest Rate | 3.1 | % | 6.6 | % | 7.4 | % | 5.7 | % | 5.6 | % | 5.4 | % | 5.7 | % | ||||||||||||||||||||
| Variable Rate | $ | 1.2 | $ | 0.2 | $ | 15.3 | $ | 8.2 | $ | 0.2 | — | $ | 25.1 | $ | 25.1 | |||||||||||||||||||
| Wtd. Avg. Interest Rate | 5.0 | % | 4.2 | % | 5.2 | % | 4.2 | % | 3.8 | % | — | 4.9 | % | |||||||||||||||||||||
| Fair | ||||||||||||||||||||||||||||||||
| 2007 | 2008 | 2009 | 2010 | 2011 | Thereafter | Total | Value | |||||||||||||||||||||||||
| $ in millions | ||||||||||||||||||||||||||||||||
| Long-term Debt | ||||||||||||||||||||||||||||||||
| Fixed Rate | $ | 69.2 | $ | 52.9 | $ | 17.1 | $ | 1.1 | $ | 1.1 | $ | 283.8 | $ | 425.2 | $ | 417.8 | ||||||||||||||||
| Wtd. Avg. Interest Rate | 6.6 | % | 7.4 | % | 6.5 | % | 5.6 | % | 5.6 | % | 5.4 | % | 5.9 | % | ||||||||||||||||||
| Variable Rate | $ | 160.1 | $ | 4.2 | $ | 10.0 | $ | 17.6 | $ | 10.0 | — | $ | 201.9 | $ | 201.9 | |||||||||||||||||
| Wtd. Avg. Interest Rate | 5.7 | % | 4.2 | % | 4.4 | % | 4.0 | % | 4.0 | % | — | 5.3 | % | |||||||||||||||||||
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Management estimates the fair value of long-term debt based on current rates available to us for loans of the same remaining maturities. As the table incorporates only those exposures that exist as of December 31, 2005,2006, it does not consider exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss will depend on future changes in interest rate and market values.
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| Item 8. | Financial Statements and Supplementary Data |
The Financial Statements in pages F-2 to F-32F-33 and the Report of Independent Registered Public Accounting Firm onpage F-1 are filed as part of this Report and incorporated by reference thereto.
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.
(b) Management’s Annual Report on Internal Control Over Financial Reporting.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRules 13a-15(f) and15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005.2006. In making this assessment, management used the criteria described inInternal Control-IntegratedControl — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment and those criteria, management believes that the Company’s internal control over financial reporting as of December 31, 2005,2006 was effective.
The Company’s independent auditors, KPMG LLP, an independent registered public accounting firm, has issued a report on management’s assessment of the Company’s internal control over financial reporting, which report appears below.
(c) Report of Independent Registered Public Accounting Firm.
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The Board of Directors and Shareholders
The St. Joe Company:
We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that The St. Joe Company maintained effective internal control over financial reporting as of December 31, 2005,2006, based on criteria established inInternal
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Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The St. Joe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that The St. Joe Company maintained effective internal control over financial reporting as of December 31, 2005,2006, is fairly stated, in all material respects, based on criteria established inInternal Control — Integrated Frameworkissued by COSO. Also, in our opinion, The St. Joe Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005,2006, based on criteria established inInternal Control — Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 20052006 and 2004,2005, 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, 20052006 and the related financial statement schedule, and our report dated March 13, 2006February 28, 2007 expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.
/s/ KPMG LLP
Certified Public Accountants
Jacksonville, Florida
February 28, 2007
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(d) Changes in Internal Control over Financial Reporting. During the fourth quarter and year ended December 31, 2005,2006, there have not been any changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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| Item 9B. | Other Information |
Amendment of a Material Definitive Agreement and Creation of a Direct Financial Obligation
In July 2005, we entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) with Wachovia Bank, National Association, as Agent, Bank of America, N.A., as Syndication Agent, each of SunTrust Bank and Wells Fargo Bank, National Association, as Co-Documentation Agents, and the other lenders party thereto. The Credit Agreement provided for a $250 million revolving credit facility that matures on July 21, 2009. A description of the Credit Agreement may be found in our Current Report onForm 8-K filed on July 28, 2005, which description is incorporated by reference. A complete copy of the Credit Agreement was filed as Exhibit 10.1 to thatForm 8-K.
On February 26, 2007, we exercised our right, pursuant to Section 2.16 of the Credit Agreement, to increase the aggregate amount of commitments under the Credit Agreement from $250 million to $500 million. This increase is set forth in a first amendment (the “Amendment”) to the Credit Agreement. The Amendment also provides for minor modifications to certain restrictive covenants and definitions with the effect of permitting qualified installment sales of timberland by us and excluding from financial covenant calculations the notes created in connection with such transactions. The Amendment does not change any pricing, maturity or other material terms of the Credit Agreement. The proceeds of any borrowings under the Credit Agreement may be used for general corporate purposes, which may include debt payments and development expenditures.
A copy of the Amendment is filed as Exhibit 10.2 to this Annual Report onForm 10-K. The foregoing description of the Amendment does not purport to be complete, and is qualified in its entirety by reference to the full text of the Amendment, which is incorporated by reference.
From time to time, certain lenders party to the Credit Agreement and their affiliates have provided, and may in the future provide, investment banking and commercial banking services and general financial and other services to us for which they have in the past received, and may in the future receive, customary fees. We are currently a party to a mortgage company joint venture with an affiliate of Wells Fargo Bank, National Association. Certain lenders and their affiliates provide other loan, securities, credit and banking services to us, all on commercial terms.
Results of Operations and Financial Condition
On February 28, 2007 we issued a press release announcing an update to the Company’s financial results for the quarter and year ended December 31, 2006. A judicial decision released on February 26, 2007 resulted in a modification to our litigation reserves as of December 31, 2006. The updated results reflect fourth quarter 2006 net income of $22.3 million, or $0.30 per share, down from $23.8 million, or $0.32 per share, as previously reported February 6, 2007, and full year 2006 net income of $51.0 million, or $0.69 per share, down from net income of $52.5 million, or $0.71 per share. A copy of the press release is furnished as Exhibit 99.1 hereto.
PART III
| Item 10. | Directors, |
Information concerning our directors, nominees for director, and executive officers and our Code of Conductcertain corporate governance matters is described in our proxy statement relating to our 20062007 annual meeting of shareholders to be held on May 16, 200615, 2007 (the “proxy statement”). This information is set forth in the proxy statement under the captions “Proposal No. 1 — Election of Directors”, “Executive Officers”, and “Corporate Governance and Related Matters”. This information is incorporated by reference.
| Item 11. | Executive Compensation |
Information concerning compensation of our executive officers for the year ended December 31, 2005,2006, is presented under the caption “Executive Compensation and Other Information” in our proxy statement. This information is incorporated by reference.
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Information concerning the security ownership of certain beneficial owners and of management is set forth under the caption “Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” in our proxy statement and is incorporated by reference.
Equity Compensation Plan Information
Our shareholders have approved all of our equity compensation plans. These plans are designed to further align our directors’ and management’s interests with the Company’s long-term performance and the long-term interests of our shareholders.
The following table summarizes the number of shares of our common stock that may be issued under our equity compensation plans as of December 31, 2005:2006:
| Number of Securities | ||||||||||||
| Number of Securities | Remaining Available for | |||||||||||
| to be Issued | Weighted-Average | Future Issuance Under | ||||||||||
| Upon Exercise of | Exercise Price of | Equity Compensation Plans | ||||||||||
| Outstanding Options, | Outstanding Options, | (Excluding Securities Reflected | ||||||||||
| Plan Category | Warrants and Rights | Warrants and Rights | in the First Column) | |||||||||
| Equity compensation plans approved by security holders | 1,051,451 | $ | 30.64 | 1,477,677 | ||||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||||
| Total | 1,051,451 | $ | 30.64 | 1,477,677 | ||||||||
| Number of Securities | ||||||||||||
| Number of Securities | Remaining Available for | |||||||||||
| to be Issued | Weighted-Average | Future Issuance Under | ||||||||||
| Upon Exercise of | Exercise Price of | Equity Compensation Plans | ||||||||||
| Outstanding Options, | Outstanding Options, | (Excluding Securities Reflected | ||||||||||
Plan Category | Warrants and Rights | Warrants and Rights | in the First Column) | |||||||||
| Equity compensation plans approved by security holders | 780,909 | $ | 32.42 | 1,306,902 | ||||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||||
| Total | 780,909 | $ | 32.42 | 1,306,902 | ||||||||
For additional information regarding our equity compensation plans, refer to Note 2 to the consolidated financial statements under the heading “Stock-based Compensation”.
| Item 13. | Certain Relationships and Related Transactions and Director Independence |
Information concerning certain relationships and related transactions during 20052006 and director independence is set forth under the captioncaptions “Certain Relationships and Related Transactions” and “Director Independence” in our proxy statement. This information is incorporated by reference.
| Item 14. | Principal Accountant Fees and Services |
Information concerning our independent auditors is presented under the caption “Audit Committee Information” in our proxy statement and is incorporated by reference.
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PART IV
| Item 15. | Exhibits and Financial Statement Schedule |
(a)(1)Financial Statements
The financial statements listed in the accompanying Index to Financial Statements and Financial Statement Schedule and Report of Independent Registered Public Accounting Firm are filed as part of this Report.
(2) Financial Statement Schedule
The financial statement schedule listed in the accompanying Index to Financial Statements and Financial Statement Schedule is filed as part of this Report.
(3) Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed or incorporated by reference as part of this Report.
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INDEX TO EXHIBITS
| Exhibit | ||||
| Number | Description | |||
| 3 | .1 | Restated and Amended Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of the registrant’s registration statement on Form S-3 (File 333-116017)). | ||
| 3 | .2 | Amended and Restated By-laws of the registrant (incorporated by reference to Exhibit 3 to the registrant’s Current Report on Form 8-K dated December 14, 2004). | ||
| 4 | .1 | Agreement to Terminate Registration Rights Agreement between the registrant and the Alfred I. duPont Testamentary Trust, dated August 5, 2005 (incorporated by reference to Exhibit 4.1 to the registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2005). | ||
| 10 | .1 | Third Amended and Restated Credit Agreement dated as of July 22, 2005, among the registrant, Wachovia Bank, National Association, as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K dated July 28, 2005). | ||
| 10 | .2 | Note Purchase Agreement dated as of February 7, 2002, among the registrant and the purchasers party thereto ($175 million Senior Secured Notes) (incorporated by reference to Exhibit 10.25 of the registrant’s annual report on Form 10-K for the year ended December 31, 2003) | ||
| 10 | .3 | Note Purchase Agreement dated as of June 8, 2004, among the registrant and the purchasers party thereto ($100 million Senior Notes) (incorporated by reference to Exhibit 10.3 of the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. | ||
| 10 | .4 | Note Purchase Agreement dated as of August 25, 2005 by and among the registrant and the purchasers party thereto ($150 million Senior Notes)(incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K dated August 30, 2005). | ||
| 10 | .5 | Employment Agreement between the registrant and Peter S. Rummell dated August 19, 2003 (incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). | ||
| 10 | .6 | Employment Agreement between the registrant and Kevin M. Twomey dated August 19, 2003 (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). | ||
| 10 | .7 | Employment Agreement of Michael N. Regan, dated November 3, 1997 (incorporated by reference to Exhibit 10.17 of the registrant’s registration statement on Form S-1 (File 333-89146)). | ||
| 10 | .8 | Form of Severance Agreement for Mr. Regan (incorporated by reference to Exhibit 10.07 to the registrant’s registration statement on Form S-3 (File No. 333-42397)). | ||
| 10 | .9 | Severance Agreement between Christine M. Marx and the registrant dated as of March 24, 2003 (incorporated by reference to Exhibit 99.04 to the registrant’s Form 10-Q for the quarter ended March 31, 2003). | ||
| 10 | .10 | Severance Agreement between Wm. Britton Greene and the registrant, dated January 5, 2005 (incorporated by reference to Exhibit 10.26 of the registrant’s annual report on Form 10-K for the year ended December 31, 2004). | ||
| 10 | .11 | Severance Agreement between Anthony M. Corriggio and the registrant, dated March 14, 2005 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated March 18, 2005). | ||
| 10 | .12 | Severance Agreement between Christopher T. Corr and the registrant, dated March 1, 2002. | ||
| 10 | .13 | Severance Agreement between J. Everitt Drew and the registrant, dated December 3, 2004. | ||
| 10 | .14 | Directors’ Deferred Compensation Plan, dated December 28, 2001 (incorporated by reference to Exhibit 10.10 of the registrant’s registration statement on Form S-1 (File 333-89146)). | ||
| 10 | .15 | Deferred Capital Accumulation Plan, as amended and restated effective January 1, 2002 (incorporated by reference to Exhibit 10.11 of the registrant’s registration statement on Form S-1 (File 333-89146)). | ||
| 10 | .16 | First Amendment to the Deferred Capital Accumulation Plan, dated May 22, 2003 and effective as of June 1, 2003. | ||
| Exhibit | ||||
| Number | Description | |||
| 3 | .1 | Restated and Amended Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of the registrant’s registration statement onForm S-3 (File333-116017)). | ||
| 3 | .2 | Amended and Restated By-laws of the registrant (incorporated by reference to Exhibit 3 to the registrant’s Current Report onForm 8-K dated December 14, 2004). | ||
| 10 | .1 | Third Amended and Restated Credit Agreement dated as of July 22, 2005, among the registrant, Wachovia Bank, National Association, as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 of the registrant’s current report onForm 8-K dated July 28, 2005). | ||
| 10 | .2 | First Amendment to Third Amended and Restated Credit Agreement dated February 26, 2007. | ||
| 10 | .3 | Note Purchase Agreement dated as of February 7, 2002, among the registrant and the purchasers party thereto ($175 million Senior Secured Notes) (incorporated by reference to Exhibit 10.25 of the registrant’s annual report onForm 10-K for the year ended December 31, 2003). | ||
| 10 | .4 | First Amendment to Note Purchase Agreements dated June 8, 2004, by and among the registrant and certain holders of the registrant’s 2002 Senior Notes party thereto (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report onForm 8-K filed on July 31, 2006). | ||
| 10 | .5 | Second Amendment to Note Purchase Agreements dated July 28, 2006, by and among the registrant and the holders of the registrant’s 2002 Senior Notes party thereto (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report onForm 8-K filed on July 31, 2006). | ||
| 10 | .6 | Note Purchase Agreement dated as of August 25, 2005 by and among the registrant and the purchasers party thereto ($150 million Senior Notes)(incorporated by reference to Exhibit 10.1 of the registrant’s Current Report onForm 8-K dated August 30, 2005). | ||
| 10 | .7 | Credit Agreement dated July 28, 2006 by and among the registrant, Bank of America, N.A. and Banc of America Securities, LLC (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report onForm 8-K filed on July 31, 2006). | ||
| 10 | .8 | Employment Agreement between the registrant and Peter S. Rummell dated August 19, 2003 (incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2003). | ||
| 10 | .9 | Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.4 to the registrant’s Current Report onForm 8-K filed on July 31, 2006). | ||
| 10 | .10 | First Amendment to Employment Agreement of Michael N. Regan dated January 5, 2007 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report onForm 8-K filed on January 9, 2007). | ||
| 10 | .11 | Directors’ Deferred Compensation Plan, dated December 28, 2001 (incorporated by reference to Exhibit 10.10 of the registrant’s registration statement onForm S-1 (File333-89146)). | ||
| 10 | .12 | Deferred Capital Accumulation Plan, as amended and restated effective January 1, 2002 (incorporated by reference to Exhibit 10.11 of the registrant’s registration statement onForm S-1 (File333-89146)). | ||
| 10 | .13 | First Amendment to the Deferred Capital Accumulation Plan, dated May 22, 2003 and effective as of June 1, 2003 (incorporated by reference to Exhibit 10.16 of the registrant’s Annual Report onForm 10-K for the year ended December 31, 2005). | ||
| 10 | .14 | Second Amendment to the Deferred Capital Accumulation Plan, dated November 2, 2005 and effective as of September 8, 2005 (incorporated by reference to Exhibit 10.17 of the registrant’s Annual Report onForm 10-K for the year ended December 31, 2005). | ||
| 10 | .15 | Third Amendment to the Deferred Capital Accumulation Plan, dated as of November 30, 2005 and effective as of January 1, 2005 (incorporated by reference to Exhibit 10.18 of the registrant’s Annual Report onForm 10-K for the year ended December 31, 2005). | ||
| 10 | .16 | Fourth Amendment to The St. Joe Company Deferred Capital Accumulation Plan (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report onForm 8-K filed on September 22, 2006). | ||
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52
| Exhibit | ||||
| Number | Description | |||
| 10 | .17 | Second Amendment to the Deferred Capital Accumulation Plan, dated November 2, 2005 and effective as of September 8, 2005. | ||
| 10 | .18 | Third Amendment to the Deferred Capital Accumulation Plan, dated as of November 30, 2005 and effective as of January 1, 2005. | ||
| 10 | .19 | Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2002 (incorporated by reference to Exhibit 10.15 of the registrant’s registration statement on Form S-1 (File 333-89146)). | ||
| 10 | .20 | First Amendment to the Supplemental Executive Retirement Plan, dated May 22, 2003 and effective as of June 1, 2003. | ||
| 10 | .21 | Second Amendment to the Supplemental Executive Retirement Plan, dated November 2, 2005 and effective as of September 8, 2005. | ||
| 10 | .22 | 1999 Employee Stock Purchase Plan, dated November 30, 1999 (incorporated by reference to Exhibit 10.12 of the registrant’s registration statement on Form S-1 (File 333-89146)). | ||
| 10 | .23 | Amendment to the 1999 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.13 of the registrant’s registration statement on Form S-1 (File 333-89146)). | ||
| 10 | .24 | 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.21 of the registrant’s registration statement on Form S-1 (File 333-89146)). | ||
| 10 | .25 | 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.22 of the registrant’s registration statement on Form S-1 (File 333-89146)). | ||
| 10 | .26 | 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.23 of the registrant’s registration statement on Form S-1 (File 333-89146)). | ||
| 10 | .27 | 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.24 of the registrant’s registration statement on Form S-1 (File 333-89146)). | ||
| 10 | .28 | Form of Stock Option Agreement (incorporated by reference to Exhibit 10.23 of the registrant’s annual report on Form 10-K for the year ended December 31, 2003). | ||
| 10 | .29 | Form of Restricted Stock Agreement-Bonus Award (incorporated by reference to Exhibit 10.24 of the registrant’s annual report on Form 10-K for the year ended December 31, 2003). | ||
| 10 | .30 | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10 of the registrant’s Current Report on Form 8-K dated September 23, 2004). | ||
| 10 | .31 | Summary of Non-Employee Director Compensation (incorporated by reference to the registrant’s Current Report on Form 8-K dated January 5, 2005). | ||
| 10 | .32 | Form of Non-Employee Director Stock Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated January 5, 2005). | ||
| 10 | .33 | Form of 2005 Director Investment Election Form (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K dated January 5, 2005). | ||
| 10 | .34 | Summary of Awards to Executive Officers Under the 2004 Annual Incentive Plan (incorporated by reference to the information set forth under the caption “Awards Under the 2004 Annual Incentive Plan” contained in the registrant’s Current Report on Form 8-K dated March 1, 2005). | ||
| 10 | .35 | Summary of 2005 Executive Officer Salaries (incorporated by reference to the information set forth under the caption “Approval of 2005 Base Salaries” contained in the registrant’s Current Report on Form 8-K dated March 1, 2005). | ||
| 10 | .36 | Summary of the 2005 Annual Incentive Plan (incorporated by reference to the information set forth under the caption “Approval of the 2005 Annual Incentive Plan” contained in the registrant’s Current Report on Form 8-K dated March 1, 2005). | ||
| 10 | .37 | Summary of Awards to Certain Executive Officers and a Director (incorporated by reference to the information set forth in the registrant’s Current Report on Form 8-K dated September 21, 2005). | ||
| Exhibit | ||||
| Number | Description | |||
| 10 | .17 | Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2002 (incorporated by reference to Exhibit 10.15 of the registrant’s registration statement onForm S-1 (File333-89146)). | ||
| 10 | .18 | First Amendment to the Supplemental Executive Retirement Plan, dated May 22, 2003 and effective as of June 1, 2003 (incorporated by reference to Exhibit 10.20 of the registrant’s Annual Report onForm 10-K for the year ended December 31, 2005). | ||
| 10 | .19 | Second Amendment to the Supplemental Executive Retirement Plan, dated November 2, 2005 and effective as of September 8, 2005 (incorporated by reference to Exhibit 10.21 of the registrant’s Annual Report onForm 10-K for the year ended December 31, 2005). | ||
| 10 | .20 | Third Amendment to The St. Joe Company Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report onForm 8-K filed on September 22, 2006). | ||
| 10 | .21 | 1999 Employee Stock Purchase Plan, dated November 30, 1999 (incorporated by reference to Exhibit 10.12 of the registrant’s registration statement onForm S-1 (File333-89146)). | ||
| 10 | .22 | Amendment to the 1999 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.13 of the registrant’s registration statement onForm S-1 (File333-89146)). | ||
| 10 | .23 | Second Amendment to the St. Joe Company 1999 Employee Stock Purchase Plan. | ||
| 10 | .24 | Third Amendment to the St. Joe Company 1999 Employee Stock Purchase Plan. | ||
| 10 | .25 | Fourth Amendment to the St. Joe Company 1999 Employee Stock Purchase Plan. | ||
| 10 | .26 | 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.21 of the registrant’s registration statement onForm S-1 (File333-89146)). | ||
| 10 | .27 | 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.22 of the registrant’s registration statement onForm S-1 (File333-89146)). | ||
| 10 | .28 | 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.23 of the registrant’s registration statement onForm S-1 (File333-89146)). | ||
| 10 | .29 | 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.24 of the registrant’s registration statement onForm S-1 (File333-89146)). | ||
| 10 | .30 | Form of Stock Option Agreement (incorporated by reference to Exhibit 10.23 of the registrant’s annual report onForm 10-K for the year ended December 31, 2003). | ||
| 10 | .31 | Form of Restricted Stock Agreement-Bonus Award (incorporated by reference to Exhibit 10.24 of the registrant’s annual report onForm 10-K for the year ended December 31, 2003). | ||
| 10 | .32 | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10 of the registrant’s Current Report onForm 8-K dated September 23, 2004). | ||
| 10 | .33 | Form of Amendment to Restricted Stock Agreements and Stock Option Agreements (incorporated by reference to Exhibit 10.6 to the registrant’s Quarterly Report onForm 10-Q for the period ended September 30, 2006). | ||
| 10 | .34 | Form of Stock Option Agreement for use with grants on or after July 27, 2006 (incorporated by reference to Exhibit 10.6 to the registrant’s Current Report onForm 8-K filed on July 31, 2006). | ||
| 10 | .35 | Form of Restricted Stock Agreement for use with grants on or after July 27, 2006 (incorporated by reference to Exhibit 10.5 to the registrant’s Current Report onForm 8-K filed on July 31, 2006). | ||
| 10 | .36 | Summary of Non-Employee Director Compensation (incorporated by reference to the registrant’s Current Report onForm 8-K dated January 5, 2005). | ||
| 10 | .37 | Description of Additional Compensation for Lead Director (incorporated by reference to the information contained in the registrant’s Current Report onForm 8-K dated May 15, 2006). | ||
| 10 | .38 | Form of Non-Employee Director Stock Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report onForm 8-K dated January 5, 2005). | ||
| 10 | .39 | Form of Director Investment Election Form (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report onForm 8-K dated January 5, 2005). | ||
51
53
| Exhibit | ||||
| Number | Description | |||
| 10 | .38 | Summary of Awards to Executive Officers Under the 2005 Annual Incentive Plan (incorporated by reference to the information set forth under the caption “Awards Under the 2005 Annual Incentive Plan” contained in the registrant’s Current Report on Form 8-K dated February 17, 2006). | ||
| 10 | .39 | Summary of 2006 Executive Officer Salaries (incorporated by reference to the information set forth under the caption “Approval of 2006 Base Salaries” contained in the registrant’s Current Report on Form 8-K dated February 17, 2006). | ||
| 10 | .40 | Annual Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K dated February 17, 2006). | ||
| 10 | .41 | Summary of 2006 provisions of the Annual Incentive Plan (incorporated by reference to the information set forth under the caption “Approval of the 2006 Annual Incentive Plan” contained in the registrant’s current report on Form 8-K dated February 17, 2006). | ||
| 21 | .1 | Subsidiaries of The St. Joe Company. | ||
| 23 | .1 | Consent of KPMG LLP, independent registered public accounting firm for the registrant. | ||
| 31 | .1 | Certification by Chief Executive Officer. | ||
| 31 | .2 | Certification by Chief Financial Officer. | ||
| 32 | .1 | Certification by Chief Executive Officer. | ||
| 32 | .2 | Certification by Chief Financial Officer. | ||
| Exhibit | ||||
| Number | Description | |||
| 10 | .40 | Annual Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s current report onForm 8-K dated February 17, 2006). | ||
| 10 | .41 | Summary of 2006 provisions of the Annual Incentive Plan (incorporated by reference to the information set forth under the caption “Approval of the 2006 Annual Incentive Plan” contained in the registrant’s current report onForm 8-K filed on February 17, 2006). | ||
| 10 | .42 | Summary of 2007 provisions of the Annual Incentive Plan (incorporated by reference to the information set forth in the registrant’s current report onForm 8-K filed on February 16, 2007). | ||
| 14 | .1 | Code of Conduct (revised December 4, 2006)(incorporated by reference to the registrant’s Current Report onForm 8-K filed on December 7, 2006). | ||
| 21 | .1 | Subsidiaries of The St. Joe Company. | ||
| 23 | .1 | Consent of KPMG LLP, independent registered public accounting firm for the registrant. | ||
| 31 | .1 | Certification by Chief Executive Officer. | ||
| 31 | .2 | Certification by Chief Financial Officer. | ||
| 32 | .1 | Certification by Chief Executive Officer. | ||
| 32 | .2 | Certification by Chief Financial Officer. | ||
| 99 | .1 | Press Release dated February 28, 2007. | ||
52
54
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 authorized representative.
The St. Joe Company
| By: | /s/Peter S. Rummell |
Peter S. Rummell
Chairman, Chief Executive Officer and President
Dated: February 28, 2007
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 in the capacities and as of the dates indicated.February 28, 2007.
55
56
Signature | Title | |||
/s/ Peter S. Rummell Peter S. Rummell | Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) | |||
/s/ WM. Britton Greene Wm. Britton Greene | Chief Operating Officer | |||
/s/ Michael N. Regan Michael N. Regan | Chief Financial Officer (Principal Financial and Accounting Officer) | |||
/s/ Michael L. Ainslie Michael L. Ainslie | Director | |||
/s/ Hugh M. Durden Hugh M. Durden | Director | |||
/s/ Thomas A. Fanning Thomas A. Fanning | Director | |||
/s/ Harry H. Frampton, III Harry H. Frampton, III | Director | |||
/s/ Dr. Adam W. Herbert, Jr. Dr. Adam W. Herbert, Jr. | Director | |||
/s/ Delores M. Kesler Delores M. Kesler | Director | |||
/s/ John S. Lord John S. Lord | Director | |||
/s/ Walter L. Revell Walter L. Revell | Director | |||
/s/ William H. Walton, III William H. Walton, III | Director | |||
53
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
| F-1 | ||||
| F-2 | ||||
| F-3 | ||||
| S-1 |
54
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
The St. Joe Company:
We have audited the accompanying consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 20052006 and 2004,2005, 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, 2005.2006. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule III — Consolidated Real Estate and Accumulated Depreciation. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, 20052006 and 2004,2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 20052006, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, effective January 1, 2006, The St. Joe Company adopted the fair value method of accounting for stock-based compensation as required by Statement of Financial Accounting Standards No. 123(R),Share Based Payment. Also as discussed in Notes 2 and 13 to the consolidated financial statements, The St. Joe Company adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, as of December 31, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of The St. Joe Company’s internal control over financial reporting as of December 31, 2005,2006, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 13, 2006February 28, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
/s/ KPMG LLP
Certified Public Accountants
Jacksonville, Florida
February 28, 2007
F-1
F-1
THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (Dollars in thousands) | ||||||||
| ASSETS | ||||||||
| Investment in real estate | $ | 1,036,174 | $ | 942,630 | ||||
| Cash and cash equivalents | 202,605 | 94,816 | ||||||
| Accounts receivable, net | 58,905 | 89,813 | ||||||
| Prepaid pension asset | 95,044 | 94,079 | ||||||
| Property, plant and equipment, net | 40,176 | 33,562 | ||||||
| Goodwill, net | 36,733 | 51,679 | ||||||
| Other intangible assets, net | 46,385 | 47,415 | ||||||
| Other assets | 75,924 | 49,635 | ||||||
| $ | 1,591,946 | $ | 1,403,629 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES: | ||||||||
| Debt | $ | 554,446 | $ | 421,110 | ||||
| Accounts payable | 75,309 | 76,916 | ||||||
| Accrued liabilities | 139,087 | 135,425 | ||||||
| Deferred income taxes | 315,912 | 264,374 | ||||||
| Total liabilities | 1,084,754 | 897,825 | ||||||
| Minority interest in consolidated subsidiaries | 18,194 | 10,393 | ||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Common stock, no par value; 180,000,000 shares authorized; 103,931,705 and 103,123,017 issued at December 31, 2005 and December 31, 2004, respectively | 300,626 | 263,044 | ||||||
| Retained earnings | 1,074,990 | 994,172 | ||||||
| Restricted stock deferred compensation | (19,656 | ) | (19,649 | ) | ||||
| Treasury stock at cost, 29,003,415 and 27,229,767 shares held at December 31, 2005 and December 31, 2004, respectively | (866,962 | ) | (742,156 | ) | ||||
| Total stockholders’ equity | 488,998 | 495,411 | ||||||
| $ | 1,591,946 | $ | 1,403,629 | |||||
| December 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
| (Dollars in thousands) | ||||||||
ASSETS | ||||||||
| Investment in real estate | $ | 1,213,562 | $ | 1,036,174 | ||||
| Cash and cash equivalents | 36,935 | 202,605 | ||||||
| Accounts receivable, net | 25,839 | 58,905 | ||||||
| Notes receivable | 26,029 | 25,701 | ||||||
| Prepaid pension asset | 100,867 | 95,044 | ||||||
| Property, plant and equipment, net | 44,593 | 40,176 | ||||||
| Goodwill, net | 35,233 | 36,733 | ||||||
| Other intangible assets, net | 32,669 | 46,385 | ||||||
| Other assets | 44,668 | 50,223 | ||||||
| $ | 1,560,395 | $ | 1,591,946 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES: | ||||||||
| Debt | $ | 627,056 | $ | 554,446 | ||||
| Accounts payable | 117,131 | 75,309 | ||||||
| Accrued liabilities | 123,496 | 135,156 | ||||||
| Income tax payable | 9,984 | 3,931 | ||||||
| Deferred income taxes | 211,115 | 315,912 | ||||||
| Total liabilities | 1,088,782 | 1,084,754 | ||||||
| Minority interest in consolidated subsidiaries | 10,533 | 18,194 | ||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Common stock, no par value; 180,000,000 shares authorized; 104,372,697 and 103,931,705 issued at December 31, 2006 and 2005, respectively | 308,060 | 300,626 | ||||||
| Restricted stock deferred compensation | — | (19,656 | ) | |||||
| Retained earnings | 1,078,312 | 1,074,990 | ||||||
| Accumulated other comprehensive income | (1,033 | ) | — | |||||
| Treasury stock at cost, 30,100,032 and 29,003,415 shares held at December 31, 2006 and 2005, respectively | (924,259 | ) | (866,962 | ) | ||||
| Total stockholders’ equity | 461,080 | 488,998 | ||||||
| $ | 1,560,395 | $ | 1,591,946 | |||||
See notes to consolidated financial statements.
F-2
F-2
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
| Years Ended December 31, | ||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||
| (Dollars in thousands, except per share | ||||||||||||||
| amounts) | ||||||||||||||
| Revenues: | ||||||||||||||
| Real estate sales | $ | 824,801 | $ | 734,251 | $ | 592,211 | ||||||||
| Rental revenues | 40,708 | 30,781 | 21,560 | |||||||||||
| Timber sales | 27,974 | 35,218 | 36,552 | |||||||||||
| Other revenues | 44,709 | 43,381 | 28,530 | |||||||||||
| Total revenues | 938,192 | 843,631 | 678,853 | |||||||||||
| Expenses: | ||||||||||||||
| Cost of real estate sales | 526,179 | 485,370 | 354,092 | |||||||||||
| Cost of rental revenues | 15,890 | 12,842 | 11,311 | |||||||||||
| Cost of timber sales | 19,995 | 21,782 | 24,212 | |||||||||||
| Cost of other revenues | 39,705 | 37,627 | 27,235 | |||||||||||
| Other operating expenses | 69,575 | 69,026 | 62,488 | |||||||||||
| Corporate expense, net | 48,005 | 43,759 | 34,467 | |||||||||||
| Depreciation and amortization | 38,054 | 31,366 | 24,744 | |||||||||||
| Impairment losses | — | 1,994 | 276 | |||||||||||
| Total expenses | 757,403 | 703,766 | 538,825 | |||||||||||
| Operating profit | 180,789 | 139,865 | 140,028 | |||||||||||
| Other income (expense): | ||||||||||||||
| Investment income, net | 3,543 | 841 | 864 | |||||||||||
| Interest expense | (15,217 | ) | (10,182 | ) | (7,773 | ) | ||||||||
| Other, net | 3,987 | 2,857 | 2,878 | |||||||||||
| Total other income (expense) | (7,687 | ) | (6,484 | ) | (4,031 | ) | ||||||||
| Income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes, and minority interest | 173,102 | 133,381 | 135,997 | |||||||||||
| Equity in income (loss) of unconsolidated affiliates | 13,016 | 5,600 | (2,168 | ) | ||||||||||
| Income tax expense: | ||||||||||||||
| Current | 20,788 | 19,098 | 6,910 | |||||||||||
| Deferred | 43,544 | 33,427 | 41,519 | |||||||||||
| Total income tax expense | 64,332 | 52,525 | 48,429 | |||||||||||
| Income from continuing operations before minority interest | 121,786 | 86,456 | 85,400 | |||||||||||
| Minority interest | 7,820 | 2,594 | 553 | |||||||||||
| Income from continuing operations | 113,966 | 83,862 | 84,847 | |||||||||||
| Discontinued operations: | ||||||||||||||
| (Loss) income from discontinued operations (net of income taxes of $(378), $610, and $(5,803), respectively) | (630 | ) | 1,014 | (8,932 | ) | |||||||||
| Gain on sales of discontinued operations, net (net of income taxes of $7,994 and $3,135, respectively) | 13,322 | 5,224 | — | |||||||||||
| Total income (loss) from discontinued operations | 12,692 | 6,238 | (8,932 | ) | ||||||||||
| Net income | $ | 126,658 | $ | 90,100 | $ | 75,915 | ||||||||
F-3
| Years Ended December 31, | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
| (Dollars in thousands, except | |||||||||||||
| per share amounts) | |||||||||||||
EARNINGS PER SHARE | |||||||||||||
Basic | |||||||||||||
| Income from continuing operations | $ | 1.52 | $ | 1.11 | $ | 1.12 | |||||||
| (Loss) income from discontinued operations | (0.01 | ) | 0.01 | (0.12 | ) | ||||||||
| Gain on sale of discontinued operations | 0.18 | 0.07 | — | ||||||||||
| Net income | $ | 1.69 | $ | 1.19 | $ | 1.00 | |||||||
Diluted | |||||||||||||
| Income from continuing operations | $ | 1.50 | $ | 1.09 | $ | 1.09 | |||||||
| (Loss) income from discontinued operations | (0.01 | ) | 0.01 | (0.11 | ) | ||||||||
| Gain on sale of discontinued operations | 0.17 | 0.07 | — | ||||||||||
| Net income | $ | 1.66 | $ | 1.17 | $ | 0.98 | |||||||
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (Dollars in thousands, except | ||||||||||||
| per share amounts) | ||||||||||||
| Revenues: | ||||||||||||
| Real estate sales | $ | 638,126 | $ | 824,800 | $ | 734,251 | ||||||
| Rental revenues | 41,003 | 34,640 | 25,152 | |||||||||
| Timber sales | 29,937 | 27,974 | 35,218 | |||||||||
| Other revenues | 39,126 | 44,710 | 43,381 | |||||||||
| Total revenues | 748,192 | 932,124 | 838,002 | |||||||||
| Expenses: | ||||||||||||
| Cost of real estate sales | 407,077 | 526,057 | 485,370 | |||||||||
| Cost of rental revenues | 16,933 | 13,867 | 10,904 | |||||||||
| Cost of timber sales | 21,899 | 19,995 | 21,782 | |||||||||
| Cost of other revenues | 41,649 | 39,827 | 37,626 | |||||||||
| Other operating expenses | 77,385 | 69,436 | 68,885 | |||||||||
| Corporate expense, net | 51,262 | 48,005 | 43,759 | |||||||||
| Depreciation and amortization | 38,844 | 35,921 | 29,584 | |||||||||
| Impairment losses | 1,500 | — | 1,994 | |||||||||
| Restructuring charge | 13,416 | — | — | |||||||||
| Total expenses | 669,965 | 753,108 | 699,904 | |||||||||
| Operating profit | 78,227 | 179,016 | 138,098 | |||||||||
| Other income (expense): | ||||||||||||
| Investment income, net | 5,138 | 3,542 | 841 | |||||||||
| Interest expense | (20,566 | ) | (13,920 | ) | (9,964 | ) | ||||||
| Other, net | (526 | ) | 3,987 | 3,896 | ||||||||
| Total other income (expense) | (15,954 | ) | (6,391 | ) | (5,227 | ) | ||||||
| Income from continuing operations before equity in income of unconsolidated affiliates, income taxes, and minority interest | 62,273 | 172,625 | 132,871 | |||||||||
| Equity in income of unconsolidated affiliates | 9,307 | 13,016 | 5,600 | |||||||||
| Income tax expense (benefit): | ||||||||||||
| Current | 127,718 | 20,609 | 18,908 | |||||||||
| Deferred | (102,561 | ) | 43,544 | 33,426 | ||||||||
| Total income tax expense | 25,157 | 64,153 | 52,334 | |||||||||
| Income from continuing operations before minority interest | 46,423 | 121,488 | 86,137 | |||||||||
| Minority interest | 6,137 | 7,820 | 2,594 | |||||||||
| Income from continuing operations | 40,286 | 113,668 | 83,543 | |||||||||
| Discontinued operations: | ||||||||||||
| Income (loss) from discontinued operations (net of income tax expense (benefit) of $225, $(199) and $800, respectively) | 366 | (332 | ) | 1,333 | ||||||||
| Gain on sales of discontinued operations (net of income taxes of $6,354, $7,994 and $3,135, respectively) | 10,368 | 13,322 | 5,224 | |||||||||
| Income from discontinued operations | 10,734 | 12,990 | 6,557 | |||||||||
| Net income | $ | 51,020 | $ | 126,658 | $ | 90,100 | ||||||
EARNINGS PER SHARE | ||||||||||||
Basic | ||||||||||||
| Income from continuing operations | $ | 0.54 | $ | 1.52 | $ | 1.11 | ||||||
| Income from discontinued operations | $ | 0.15 | $ | 0.17 | $ | 0.08 | ||||||
| Net income | $ | 0.69 | $ | 1.69 | $ | 1.19 | ||||||
Diluted | ||||||||||||
| Income from continuing operations | $ | 0.54 | $ | 1.49 | $ | 1.09 | ||||||
| Income from discontinued operations | $ | 0.15 | $ | 0.17 | $ | 0.08 | ||||||
| Net income | $ | 0.69 | $ | 1.66 | $ | 1.17 | ||||||
See notes to consolidated financial statements.
F-3
F-4
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Common Stock | |||||||||||||||||||||||||
| Restricted Stock | |||||||||||||||||||||||||
| Outstanding | Retained | Deferred | Treasury | ||||||||||||||||||||||
| Shares | Amount | Earnings | Compensation | Stock | Total | ||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||||||||||
| Balance at December 31, 2002 | 76,004,398 | $ | 122,709 | $ | 892,622 | $ | (512 | ) | $ | (534,726 | ) | $ | 480,093 | ||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||
| Net income | — | — | 75,915 | — | — | 75,915 | |||||||||||||||||||
| Total comprehensive income | — | — | — | — | — | 75,915 | |||||||||||||||||||
| Issuances of restricted stock | 609,251 | 20,995 | — | (20,995 | ) | — | — | ||||||||||||||||||
| Dividends ($0.32 per share) | — | — | (24,537 | ) | — | — | (24,537 | ) | |||||||||||||||||
| Issuances of common stock | 2,784,418 | 40,398 | — | — | — | 40,398 | |||||||||||||||||||
| Tax benefit on exercises of stock options | — | 15,685 | — | — | — | 15,685 | |||||||||||||||||||
| Amortization of restricted stock deferred compensation | — | — | — | 2,700 | — | 2,700 | |||||||||||||||||||
| Purchases of treasury shares | (3,367,976 | ) | — | — | — | (102,939 | ) | (102,939 | ) | ||||||||||||||||
| Balance at December 31, 2003 | 76,030,091 | $ | 199,787 | $ | 944,000 | $ | (18,807 | ) | $ | (637,665 | ) | $ | 487,315 | ||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||
| Net income | — | — | 90,100 | — | — | 90,100 | |||||||||||||||||||
| Total comprehensive income | — | — | — | — | — | 90,100 | |||||||||||||||||||
| Issuances of restricted stock | 161,465 | 7,486 | — | (7,486 | ) | — | — | ||||||||||||||||||
| Forfeitures of restricted stock | (3,123 | ) | (130 | ) | — | 130 | — | — | |||||||||||||||||
| Dividends ($0.52 per share) and other distributions | — | — | (39,928 | ) | — | — | (39,928 | ) | |||||||||||||||||
| Issuances of common stock | 2,140,406 | 36,591 | — | — | — | 36,591 | |||||||||||||||||||
| Tax benefit on exercises of stock options | — | 19,310 | — | — | — | 19,310 | |||||||||||||||||||
| Amortization of restricted stock deferred compensation | — | — | — | 6,514 | — | 6,514 | |||||||||||||||||||
| Purchases of treasury shares | (2,446,198 | ) | — | — | — | (104,998 | ) | (104,998 | ) | ||||||||||||||||
| Issuance of treasury shares | 10,609 | — | — | — | 507 | 507 | |||||||||||||||||||
| Balance at December 31, 2004 | 75,893,250 | $ | 263,044 | $ | 994,172 | $ | (19,649 | ) | $ | (742,156 | ) | $ | 495,411 | ||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||
| Net income | — | — | 126,658 | — | — | 126,658 | |||||||||||||||||||
| Total comprehensive income | — | — | — | — | — | 126,658 | |||||||||||||||||||
| Issuances of restricted stock | 165,741 | 11,083 | — | (11,083 | ) | — | — | ||||||||||||||||||
| Forfeitures of restricted stock | (20,891 | ) | (998 | ) | — | 998 | — | — | |||||||||||||||||
| Dividends ($0.60 per share) and other distributions | — | — | (45,840 | ) | — | — | (45,840 | ) | |||||||||||||||||
| Issuances of common stock | 663,838 | 15,488 | — | — | — | 15,488 | |||||||||||||||||||
| Tax benefit on exercises of stock options | — | 12,009 | — | — | — | 12,009 | |||||||||||||||||||
| Amortization of restricted stock deferred compensation | — | — | — | 10,078 | — | 10,078 | |||||||||||||||||||
| Purchases of treasury shares | (1,773,648 | ) | — | — | — | (124,806 | ) | (124,806 | ) | ||||||||||||||||
| Balance at December 31, 2005 | 74,928,290 | $ | 300,626 | $ | 1,074,990 | $ | (19,656 | ) | $ | (866,962 | ) | $ | 488,998 | ||||||||||||
| Accumulated | Restricted | |||||||||||||||||||||||||||
| Common Stock | Other | Stock | ||||||||||||||||||||||||||
| Outstanding | Retained | Comprehensive | Deferred | Treasury | ||||||||||||||||||||||||
| Shares | Amount | Earnings | Income | Compensation | Stock | Total | ||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||||||||||||||
| Balance at December 31, 2003 | 76,030,091 | $ | 199,787 | $ | 944,000 | $ | — | $ | (18,807 | ) | $ | (637,665 | ) | $ | 487,315 | |||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||
| Net income | — | — | 90,100 | — | — | — | 90,100 | |||||||||||||||||||||
| Total comprehensive income | — | — | — | — | — | — | 90,100 | |||||||||||||||||||||
| Issuances of restricted stock | 161,465 | 7,486 | — | — | (7,486 | ) | — | — | ||||||||||||||||||||
| Forfeitures of restricted stock | (3,123 | ) | (130 | ) | — | — | 130 | — | — | |||||||||||||||||||
| Dividends ($0.52 per share) and other distributions | — | — | (39,928 | ) | — | — | — | (39,928 | ) | |||||||||||||||||||
| Issuances of common stock | 2,140,406 | 36,591 | — | — | — | — | 36,591 | |||||||||||||||||||||
| Excess tax benefit on exercises of stock options | — | 19,310 | — | — | — | — | 19,310 | |||||||||||||||||||||
| Amortization of restricted stock deferred compensation | — | — | — | — | 6,514 | — | 6,514 | |||||||||||||||||||||
| Purchases of treasury shares | (2,446,198 | ) | — | — | — | — | (104,998 | ) | (104,998 | ) | ||||||||||||||||||
| Issuance of treasury shares | 10,609 | — | — | — | — | 507 | 507 | |||||||||||||||||||||
| Balance at December 31, 2004 | 75,893,250 | $ | 263,044 | $ | 994,172 | $ | — | $ | (19,649 | ) | $ | (742,156 | ) | $ | 495,411 | |||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||
| Net income | — | — | 126,658 | — | — | — | 126,658 | |||||||||||||||||||||
| Total comprehensive income | — | — | — | — | — | — | 126,658 | |||||||||||||||||||||
| Issuances of restricted stock | 165,741 | 11,083 | — | — | (11,083 | ) | — | — | ||||||||||||||||||||
| Forfeitures of restricted stock | (20,891 | ) | (998 | ) | — | — | 998 | — | — | |||||||||||||||||||
| Dividends ($0.60 per share) and other distributions | — | — | (45,840 | ) | — | — | — | (45,840 | ) | |||||||||||||||||||
| Issuances of common stock | 663,838 | 15,488 | — | — | — | — | 15,488 | |||||||||||||||||||||
| Excess tax benefit on exercises of stock options | — | 12,009 | — | — | — | — | 12,009 | |||||||||||||||||||||
| Amortization of restricted stock deferred compensation | — | — | — | — | 10,078 | — | 10,078 | |||||||||||||||||||||
| Purchases of treasury shares | (1,773,648 | ) | — | — | — | — | (124,806 | ) | (124,806 | ) | ||||||||||||||||||
| Balance at December 31, 2005 | 74,928,290 | 300,626 | 1,074,990 | — | (19,656 | ) | (866,962 | ) | 488,998 | |||||||||||||||||||
| Reclassification of deferred compensation | (19,656 | ) | 19,656 | — | ||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||
| Net income | — | — | 51,020 | — | — | — | 51,020 | |||||||||||||||||||||
| Transition adjustment for pension and postretirement benefits, net of tax of $0.6 million | — | — | — | (1,033 | ) | — | — | (1,033 | ) | |||||||||||||||||||
| Total comprehensive income | — | — | — | — | — | — | 49,987 | |||||||||||||||||||||
| Issuances of restricted stock | 244,465 | — | — | — | — | — | — | |||||||||||||||||||||
| Forfeitures of restricted stock | (104,254 | ) | — | — | — | — | — | — | ||||||||||||||||||||
| Dividends ($0.64 per share) | — | — | (47,698 | ) | — | — | — | (47,698 | ) | |||||||||||||||||||
| Issuances of common stock | 300,781 | 8,562 | — | — | — | — | 8,562 | |||||||||||||||||||||
| Excess tax benefit on options exercised and vested restricted stock | — | 4,761 | — | — | — | — | 4,761 | |||||||||||||||||||||
| Amortization of stock-based compensation | — | 13,767 | — | — | — | — | 13,767 | |||||||||||||||||||||
| Purchases of treasury shares | (1,096,617 | ) | — | — | — | — | (57,297 | ) | (57,297 | ) | ||||||||||||||||||
| Balance at December 31, 2006 | 74,272,665 | $ | 308,060 | $ | 1,078,312 | $ | (1,033 | ) | $ | — | $ | (924,259 | ) | $ | 461,080 | |||||||||||||
F-4
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (Dollars in thousands) | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 51,020 | $ | 126,658 | $ | 90,100 | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||
| Depreciation and amortization | 40,364 | 40,775 | 36,838 | |||||||||
| Stock-based compensation | 13,767 | 10,078 | 7,944 | |||||||||
| Minority interest in income | 6,137 | 7,820 | 2,594 | |||||||||
| Equity in income of unconsolidated joint ventures | (9,307 | ) | (13,016 | ) | (5,600 | ) | ||||||
| Distributions of income from unconsolidated affiliates | 12,786 | 16,585 | 4,075 | |||||||||
| Deferred income tax (benefit) expense | (96,868 | ) | 37,575 | 33,427 | ||||||||
| Excess tax benefits from stock-based compensation | — | 12,009 | 19,310 | |||||||||
| Impairment losses | 1,500 | — | 1,994 | |||||||||
| Cost of operating properties sold | 398,691 | 514,276 | 524,933 | |||||||||
| Expenditures for operating properties | (586,982 | ) | (549,583 | ) | (551,416 | ) | ||||||
| Gains on sale of discontinued operations | (16,722 | ) | (21,313 | ) | (4,839 | ) | ||||||
| Write-off of previously capitalized home building costs | 9,340 | — | — | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | 33,050 | 14,347 | (28,005 | ) | ||||||||
| Notes receivable and other assets | (17,937 | ) | (33,114 | ) | (37,191 | ) | ||||||
| Accounts payable and accrued liabilities | 18,416 | 13,190 | 33,612 | |||||||||
| Income taxes payable | (1,243 | ) | 15,767 | 429 | ||||||||
| Net cash (used in) provided by operating activities | (143,988 | ) | 192,054 | 128,205 | ||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchases of property, plant and equipment | (14,018 | ) | (19,909 | ) | (9,958 | ) | ||||||
| Purchases of investments in real estate | (6,923 | ) | (106,822 | ) | (82,093 | ) | ||||||
| Purchases of short-term investments, net of maturities and redemptions | (7 | ) | — | — | ||||||||
| Investments in unconsolidated affiliates | (1,942 | ) | 5 | (3,411 | ) | |||||||
| Proceeds from sale of discontinued operations | 52,876 | 88,823 | 52,883 | |||||||||
| Distributions of capital from unconsolidated affiliates | — | 5,973 | 10,200 | |||||||||
| Net cash provided by (used in) investing activities | 29,986 | (31,930 | ) | (32,379 | ) | |||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from revolving credit agreements | 335,000 | 205,000 | 145,000 | |||||||||
| Repayment of revolving credit agreements | (275,000 | ) | (205,000 | ) | (185,000 | ) | ||||||
| Proceeds from other long-term debt | 100,026 | 359,363 | 119,481 | |||||||||
| Repayments of other long-term debt | (106,223 | ) | (258,916 | ) | (44,952 | ) | ||||||
| Distributions to minority interests | (13,799 | ) | (2,879 | ) | (2,765 | ) | ||||||
| Proceeds from exercises of stock options | 8,562 | 13,056 | 15,140 | |||||||||
| Dividends paid to stockholders | (47,698 | ) | (45,840 | ) | (39,928 | ) | ||||||
| Excess tax benefits from stock-based compensation | 4,761 | — | — | |||||||||
| Treasury stock purchases | (57,297 | ) | (119,979 | ) | (69,159 | ) | ||||||
| Investment by minority interest partner | — | 2,860 | 3,770 | |||||||||
| Net cash used in financing activities | (51,668 | ) | (52,335 | ) | (58,413 | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | (165,670 | ) | 107,789 | 37,413 | ||||||||
| Cash and cash equivalents at beginning of year | 202,605 | 94,816 | 57,403 | |||||||||
| Cash and cash equivalents at end of year | $ | 36,935 | $ | 202,605 | $ | 94,816 | ||||||
See notes to consolidated financial statements.
F-5
F-5
THE ST. JOE COMPANY
| Years Ended December 31, | |||||||||||||||
| 2005 | 2004 | 2003 | |||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||
| Net income | $ | 126,658 | $ | 90,100 | $ | 75,915 | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
| Depreciation and amortization | 40,775 | 36,838 | 31,504 | ||||||||||||
| Deferred compensation | 10,078 | 7,944 | 2,382 | ||||||||||||
| Minority interest in income | 7,820 | 2,594 | 553 | ||||||||||||
| Equity in income of unconsolidated joint ventures | (13,016 | ) | (5,600 | ) | 2,168 | ||||||||||
| Distributions of operations from unconsolidated affiliates | 16,585 | 4,075 | 10,620 | ||||||||||||
| Deferred income tax expense | 37,575 | 33,427 | 36,238 | ||||||||||||
| Tax benefit on exercise of stock options | 12,009 | 19,310 | 15,685 | ||||||||||||
| Impairment loss | — | 1,994 | 14,359 | ||||||||||||
| Cost of operating properties sold | 514,276 | 524,933 | 354,636 | ||||||||||||
| Expenditures for operating properties | (549,583 | ) | (551,416 | ) | (360,260 | ) | |||||||||
| Gains on sale of discontinued operations | (21,313 | ) | (4,839 | ) | — | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||
| Accounts receivable | 14,347 | (28,005 | ) | (35,711 | ) | ||||||||||
| Other assets | (33,114 | ) | (37,191 | ) | (8,034 | ) | |||||||||
| Accounts payable and accrued liabilities | 13,190 | 33,612 | 10,968 | ||||||||||||
| Income taxes payable | 15,767 | 429 | (14,190 | ) | |||||||||||
| Net cash provided by operating activities | $ | 192,054 | $ | 128,205 | $ | 136,833 | |||||||||
| Cash flows from investing activities: | |||||||||||||||
| Purchases of property, plant and equipment | (19,909 | ) | (9,958 | ) | (6,909 | ) | |||||||||
| Purchases of investments in real estate | (106,822 | ) | (82,093 | ) | (118,758 | ) | |||||||||
| Purchases of short-term investments, net of maturities and redemptions | — | — | 511 | ||||||||||||
| Investments in joint ventures and purchase business acquisitions | 5 | (3,411 | ) | (25,615 | ) | ||||||||||
| Proceeds from dispositions of assets | 88,823 | 52,883 | 6,540 | ||||||||||||
| Distributions of capital from unconsolidated affiliates | 5,973 | 10,200 | 4,583 | ||||||||||||
| Net cash used in investing activities | $ | (31,930 | ) | $ | (32,379 | ) | $ | (139,648 | ) | ||||||
| Cash flows from financing activities: | |||||||||||||||
| Proceeds from revolving credit agreements, net of repayments | — | (40,000 | ) | 40,000 | |||||||||||
| Proceeds from other long-term debt | 359,363 | 119,481 | 34,022 | ||||||||||||
| Repayments of other long-term debt | (258,916 | ) | (44,952 | ) | (12,761 | ) | |||||||||
| Distributions to minority interests | (2,879 | ) | (2,765 | ) | — | ||||||||||
| Proceeds from exercises of stock options | 13,056 | 15,140 | 23,351 | ||||||||||||
| Dividends paid to stockholders and other distributions | (45,840 | ) | (39,928 | ) | (24,537 | ) | |||||||||
| Treasury stock purchases | (119,979 | ) | (69,159 | ) | (77,290 | ) | |||||||||
| Investment by minority interest partner | 2,860 | 3,770 | 4,160 | ||||||||||||
| Net cash used in financing activities | $ | (52,335 | ) | $ | (58,413 | ) | $ | (13,055 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | 107,789 | 37,413 | (15,870 | ) | |||||||||||
| Cash and cash equivalents at beginning of year | 94,816 | 57,403 | 73,273 | ||||||||||||
| Cash and cash equivalents at end of year | $ | 202,605 | $ | 94,816 | $ | 57,403 | |||||||||
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Nature of Operations |
The St. Joe Company (the “Company”) is a real estate operatingdevelopment company primarily engaged in town, resort,residential, commercial and industrial development, and rural land sales. The Company also has significant interests in timber. While the Company’s real estate operations are in several states throughout the Southeast, the majority of theits real estate operations, as well as theits timber operations, are within the state of Florida. Consequently, the Company’s performance, and particularly that of its real estate operations, is significantly affected by the general health of the Florida economy.
During the year ended December 31, 2006, the Company sold four of its commercial buildings. During the year ended December 31, 2005, the Company sold its commercial real estate services unit, Advantis Real Estate Services Company (“Advantis”) to Advantis’the Advantis management team. Also in 2005, the Company sold four of its commercial buildings. During the year ended December 31, 2004, the Company sold two of its commercial buildings. The Company has reported the sale of Advantis and the sales of the commercial buildings and their operations prior to sale as discontinued operations for all periods presented.
Real Estate
The Company currently conducts primarily all of its business in four reportable operating segments: residential real estate (formerly Towns & Resorts,Resorts), commercial real estate, rural land sales, and forestry.
The Towns & Resortsresidential real estate segment develops large-scale, mixed use resort, primary and seasonal residential communities and sells housing units and home sites and manages residential communities. The Company owns large tracts of land in Northwest Florida, including large tracts near Tallahassee, the state capital, and significant Gulf of Mexico beach frontage and waterfront properties. In addition, the Company conducts residential homebuilding in North Carolina and South Carolina through Saussy Burbank, Inc. (“Saussy Burbank”), a wholly owned subsidiary. The Company is also a partner in fourfive joint ventures that primarily own and develop residential property.
The Company’s commercial real estate segment owns and leases commercial, retail, office and industrial properties throughout the Southeastin Florida, owns and leases office buildings in Georgia and Virginia, and sells developed and undeveloped land and buildings.
The rural land sales segment sells parcels of land and develops homesites for a variety of rural residential and recreational uses onfrom a portion of the Company’s long-held timberlands located primarily in Northwest Florida.
Forestry
The forestry segment focuses on the management and harvesting of the Company’s extensive timberland holdings, as well as on the ongoing management of lands which may ultimately be used by other divisions of the Company. The Company believes it is the largest private owner of land in Florida, most of which is currently managed as timberland. The principal products of the Company’s forestry operations are pine pulpwood and timber and cypress products.
A significant portion of the wood harvested by the Company is sold under a long-term wood fiber supply agreement with Jefferson Smurfit,the Smurfit-Stone Container Corporation, also known as the Smurfit-Stone Container Corporation.Jefferson Smurfit. The12-year agreement, which ends on June 30, 2012, requires an annual pulpwood volume of 700,000 tons per year that must come from company-owned fee simple lands. At December 31, 2005,2006, approximately 338,000332,000 acres were encumbered, subject to certain restrictions, by this agreement, although the obligation may be transferred to a third party if a parcel is sold.
F-6
F-7
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 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 and controlled subsidiaries. The operations of Advantis and sixten commercial buildings are included in discontinued operations through the dates that they were sold. Investments in joint ventures and limited partnerships in which the Company does not have majority voting control are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated.
In DecemberMay 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46R (“FIN 46R”),Consolidation of Variable Interest Entities,to replace Interpretation No. 46 (“FIN 46”) which was issued in January 2003. FIN 46R addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and whether it should consolidate the entity. FIN 46R was applicable immediately to variable interest entities created after January 31, 2003 and as of the first interim period ending after March 15, 2004 to those created before February 1, 2003 and not already consolidated under FIN 46 in previously issued financial statements. The Company does not normally participate in variable interest entities. The Company has adopted FIN 46R, evaluated the applicability of FIN 46R to structures created before January 31, 2003 and determined that none of such existing structures would have qualified for consolidation or disclosure of a significant variable interest as of December 31, 2003. In addition, the Company determined that no variable interest entities have been created after January 31, 2003 that would require consolidation in accordance with FIN 46R.
Revenue Recognition
Revenues consist primarily of real estate sales, timber sales, rental revenues, and other revenues (primarily consisting of revenues from club operations and management and brokerage fees).
Revenues from real estate sales, including sales of residential homes (including detached single-family and attached townhomes) and home sites, land, and commercial buildings, are recognized upon closing of sales contracts in accordance with Statement of Financial Accounting Standards No. 66,“Accounting for Sales of Real Estate”Estate(“FASSFAS 66”). A portion of real estate inventory and estimates for costs to complete are allocated to each housing unit based on the relative sales value of each unit as compared to the sales value of the total project. Revenues for multi-family residences and Private Residence Club (“PRC”) units under construction are recognized, in accordance with FASSFAS 66, using thepercentage-ofpercentage-of-completion-completion method of accounting when (1) construction is beyond a preliminary stage, (2) the buyer has made sufficient deposit and is committed to the extent of being unable to require a refund except for nondelivery of the unit, (3) sufficient units have already been sold to assure that the entire property will not revert to rental property, (4) sales price is collectible, and
F-8
(5) aggregate sales proceeds and costs can be reasonably estimated. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. Any amounts due under sales contracts, to the extent recognized as revenue, are recorded as contracts receivable. We reviewThe Company reviews the collectibility of contracts receivable and, in the event of cancellation or default, adjustadjusts thepercentage-ofpercentage-of-completion-completion calculation accordingly. Contracts receivable total $40.7$11.9 million and $65.6$40.7 million at December 31, 20052006 and 2004,2005, respectively. Revenue for multi-family residences and PRC units is recognized at closing using the full accrual method of accounting if the criteria for using thepercentage-ofpercentage-of-completion-completion method are not met before construction is substantially completed.
Percentage-of-completion accounting is also used for our home site sales when required development is not complete at the time of sale. Cash is collected atsale and for commercial and other land sales if there are uncompleted development costs yet to be incurred for the time of sale, while gross profit on home site sales at those communities is recognized based on construction completed in relation to total construction costs.property sold.
Revenues from sales of forestry products are recognized generally on delivery of the product to the customer.
F-7
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Rental revenues are recognized as earned, using the straight-line method over the life of the lease. Certain leases provide for tenant occupancy during periods for which no rent is due or where minimum rent payments change during the lease term. Accordingly, a receivable is recorded representing the difference between the straight — line rent and the rent that is contractually due from the tenant. Tenant reimbursements are included in rental revenues.
Other revenues consist of resort and club operations and management fees. Such fees are recorded as the services are provided.
F-9
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.
Investment in Real Estate
Investment in real estate is carried at cost, net of depreciation and timber depletion. 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 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. Gains
Goodwill and losses on normal retirements of these items are credited or charged to accumulated depreciation.Intangible Assets
Pursuant to Statement of Financial Accounting Standards No. 141,Business Combinations(“FAS 141”), and Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets(“FAS 142”), it is the Company’s policy to test goodwill and intangible assets with indefinite useful lives for impairment at least annually for impairment,unless conditions warrant earlier action, to use the purchase method of accounting for all business combinations, and to ensure that, in order for intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill, the applicable criteria specified in FAS 141 are met.
The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, buildings on an as-if vacant basis, and tenant improvements. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Identifiable intangible assets include amounts allocated to acquired leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships.
Above- and below-market rate lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the acquired leases and (ii) management’s estimate of fair market lease rates for corresponding leases, measured over a period equal to the non-cancelable term of the acquired lease. Above-market and below-market lease values are amortized to rental income over the remaining terms of the respective leases.
In-place lease value consists of a variety of components including, but not necessarily limited to, (i) the value associated with avoiding costs of originating the acquired in-place leases (i.e., the market cost to execute
F-8
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
a lease, including leasing commission, legal, and other related costs); (ii) the value associated with lost revenue from existing leases during the re-leasing period; (iii) the value associated with lost revenue related to tenant reimbursable operating costs estimated to be incurred during the re-leasing period (i.e., real estate taxes, insurance, and other operating expenses); and (iv) the value associated with avoided incremental tenant improvement costs or other inducements to secure a tenant lease. In-place
F-10
lease values are recognized as amortization expense over the remaining estimated occupancy period of the respective tenants.
Further, the value of the customer relationship acquired is considered by management. Customer relationship values are recognized as amortizationamortized to expense over a period based on renewal probabilities for the respective tenants.
Stock-Based Compensation
During the first quarter of 2006, the Company adopted the provisions of FASB Statement of Financial Accounting Standards No. 123 — revised 2004,Share-Based Payment (“SFAS 123R”), which replaced Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation(“FASSFAS 123”), permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, FAS 123 allows entities to apply the provisions of Accounting Principles Boardand supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees(“APB 25”), and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if. Under the fair-value based method defined in FAS 123 has been applied. Under APB 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.
Stock Options and Non-vested Restricted Stock
The Company has four stock incentive plans (the 1997 Stock Incentive Plan, the 1998 Stock Incentive Plan, the 1999 Stock Incentive Plan and the 2001 Stock 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 common stock or options to purchase Company common stock. Awards are discretionary and are determined by the Compensation Committee of the Board of Directors. TheAwards vest based upon service conditions. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the plan).The total amount of restricted shares and options originally available for grant under each of the Company’s four plans werewas 8.5 million shares, 1.4 million shares, 2.0 million shares, and 3.0 million shares, respectively. All non-vested restricted shares generally vest over two-year, three-year, or four-year periods, beginning on the date of each grant, but are considered outstanding under the treasury stock method at the time of grant for purposes of determining earnings per share since the holders are entitled to dividends and voting rights. Stock option awards are granted with an exercise price equal to market price of the Company’s stock at the date of grant. The options are exercisable in equal installments on the first through fourth or fifth anniversaries, as applicable, of the date of grant and generally expire generally 107-10 years after the date of grant. At December 31, 2005, there were 1,477,677 ungranted shares remaining available for grant.
The Company currently uses the Company granted certain membersBlack-Scholes option pricing model to determine the fair value of stock options. The determination of the management team andfair value of stock-based payment awards on the Company’s Boarddate of Directorsgrant using an option-pricing model is affected by the stock price as well as assumptions regarding a totalnumber of 165,741, 161,465 and 644,812 restricted sharesother variables. These variables include expected stock price volatility over the term of the Company’s common stock, respectively. Effective August 19, 2003, the Company granted 303,951 restricted shares of the Company’s common stock to Mr. Rummell, Chairmanawards, actual and CEO of the Company, and 243,161 restricted shares to Mr. Twomey, President and COO. The weighted average grant-
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F-9
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company estimates the expected term of restrictedoptions granted by incorporating the contractual term of the options and analyzing employees actual and expected exercise behaviors. The Company estimates the volatility of its common stock grantedby using historical volatility in 2005, 2004,market price over a period consistent with the expected term, and 2003 were $66.10, $46.35 and $32.57, respectively. All restricted shares vest over three-year, four-year, or five-year periods, beginningother factors. The Company bases the risk-free interest rate that it uses in the option valuation model on U.S. Treasury seven year issues with remaining terms similar to the expected term on the date of each grant.options. The Company carried deferred compensation of $19.7 million, $19.6 millionanticipates paying cash dividends in the foreseeable future and $18.8 million fortherefore uses an estimated dividend yield in the unamortized portions of restricted shares granted as of December 31, 2005, 2004 and 2003, respectively. Compensation expense related to restricted stock grants totaled $10.1 million, $6.5 million, and $2.7 million for the years ended December 31, 2005, 2004, and 2003, respectively. Deferred compensation is being amortized on a straight-line basis over three- to five-year vesting periods, which are deemed to be the periods for which services are performed.option valuation model.
| Number of | Weighted Average | |||||||
| Shares | Exercise Price | |||||||
| Balance at December 31, 2002 | 6,484,330 | $ | 18.11 | |||||
| Granted | 573,200 | 32.20 | ||||||
| Forfeited | (170,651 | ) | 19.67 | |||||
| Exercised | (2,679,528 | ) | 15.16 | |||||
| Balance at December 31, 2003 | 4,207,351 | 21.95 | ||||||
| Granted | 29,000 | 40.21 | ||||||
| Forfeited | (209,781 | ) | 28.66 | |||||
| Exercised | (2,140,406 | ) | 17.01 | |||||
| Balance at December 31, 2004 | 1,886,164 | 27.09 | ||||||
| Granted | 40,000 | 72.09 | ||||||
| Forfeited | (210,875 | ) | 29.78 | |||||
| Exercised | (663,838 | ) | 23.33 | |||||
| Balance at December 31, 2005 | 1,051,451 | $ | 30.64 | |||||
Presented below are the per share weighted-average fair value of stock options granted/converted during 2006, 2005, 2004, and 20032004 using the Black Scholes option-pricing model, along with the assumptions used.
| 2005 | 2004 | 2003 | ||||||||||
| Per share weighted-average fair value | $ | 23.21 | $ | 11.53 | $ | 8.97 | ||||||
| Expected dividend yield | 0.78 | % | 1.20 | % | 1.31 | % | ||||||
| Risk free interest rate | 4.32 | % | 3.78 | % | 3.87 | % | ||||||
| Weighted average expected volatility | 23.0 | % | 23.0 | % | 23.1 | % | ||||||
| Expected life (in years) | 7 | 7 | 7 | |||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Per share weighted-average fair value | $ | 17.62 | $ | 23.21 | $ | 11.53 | ||||||
| Expected dividend yield | 1.03 | % | 0.78 | % | 1.20 | % | ||||||
| Risk free interest rate | 4.67 | % | 4.32 | % | 3.78 | % | ||||||
| Weighted average expected volatility | 23.5 | % | 23.0 | % | 23.0 | % | ||||||
| Expected life (in years) | 7 | 7 | 7 | |||||||||
Total stock-based compensation recognized on the consolidated statements of income for the three years ended December 31, 2006 as corporate expense is as follows (in thousands):
| 2006 | 2005 | 2004 | ||||||||||
| Stock option expense | $ | 2,784 | $ | — | $ | — | ||||||
| Restricted stock expense | 10,983 | 10,078 | 6,514 | |||||||||
| Employee stock purchase plan expense | 205 | — | — | |||||||||
| Total | $ | 13,972 | $ | 10,078 | $ | 6,514 | ||||||
The total income tax benefit recognized in the consolidated statements of income for stock-based compensation arrangements was $6.0 million, $2.6 million and $0.9 million for the years ended December 31, 2006, 2005 and 2004, respectively.
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F-10
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth the pro forma amounts indicated belowof net income and net income per share for the respective periods in 2005 and 2004 that would have resulted if the Company had accounted for employee stock plans under the fair value recognition provisions of SFAS 123 (in thousands except per share amounts):
| 2005 | 2004 | 2003 | ||||||||||
| Net income as reported | $ | 126,658 | $ | 90,100 | $ | 75,915 | ||||||
| Add: stock-based employee compensation expense included in reported net income, net of taxes | 6,299 | 4,071 | 1,724 | |||||||||
| Deduct: total stock-based employee compensation expense determined under fair value based methods for all awards, net of taxes | (9,282 | ) | (8,289 | ) | (7,407 | ) | ||||||
| Net income — pro forma | $ | 123,675 | $ | 85,882 | $ | 70,232 | ||||||
| Per share — Basic: | ||||||||||||
| Earnings per share as reported | $ | 1.69 | $ | 1.19 | $ | 1.00 | ||||||
| Earnings per share — pro forma | $ | 1.65 | $ | 1.14 | $ | 0.93 | ||||||
| Per share — Diluted: | ||||||||||||
| Earnings per share as reported | $ | 1.66 | $ | 1.17 | $ | 0.98 | ||||||
| Earnings per share — pro forma | $ | 1.63 | $ | 1.13 | $ | 0.92 | ||||||
| 2005 | 2004 | |||||||
| Net income as reported | $ | 126,658 | $ | 90,100 | ||||
| Add: stock-based employee compensation expense included in reported net income, net of taxes | 6,299 | 4,071 | ||||||
| Deduct: total stock-based employee compensation expense determined under fair value based methods for all awards, net of taxes | (9,282 | ) | (8,289 | ) | ||||
| Net income — pro forma | $ | 123,675 | $ | 85,882 | ||||
| Per share — Basic: | ||||||||
| Earnings per share as reported | $ | 1.69 | $ | 1.19 | ||||
| Earnings per share — pro forma | $ | 1.65 | $ | 1.14 | ||||
| Per share — Diluted: | ||||||||
| Earnings per share as reported | $ | 1.66 | $ | 1.17 | ||||
| Earnings per share — pro forma | $ | 1.63 | $ | 1.13 | ||||
The following table sets forth the summary of option activity outstanding under the stock option program for the year ended December 31, 2006:
| Number of | Weighted Average | |||||||
| Shares | Exercise Price | |||||||
| Balance at December 31, 2005 | 1,051,451 | $ | 30.64 | |||||
| Granted | 119,873 | 54.24 | ||||||
| Forfeited | (89,634 | ) | 53.85 | |||||
| Exercised | (300,781 | ) | 28.46 | |||||
| Balance at December 31, 2006 | 780,909 | $ | 32.42 | |||||
The weighted average grant date fair value of options granted during the years ended December 31, 2006, 2005 and 2004 was $17.62, $23.21 and $11.53, respectively.
The total intrinsic value of options exercised during the years ended December 31, 2006, 2005 and 2004 was $8.0 million, $32.0 million and $51.5 million, respectively. The intrinsic value is calculated as the difference between the market value as of exercise date and the exercise price of the shares.
The following table presents information regarding all options outstanding at December 31, 2005:2006:
| Weighted Average | Range of | Weighted Average | ||||||||||
| Number of Options Outstanding | Remaining Contractual Life | Exercise Prices | Exercise Price | |||||||||
| 107,149 | 3.6 years | $ | 14.67-$21.99 | $ | 18.94 | |||||||
| 853,302 | 6.6 years | $ | 22.00-$32.99 | $ | 29.75 | |||||||
| 51,000 | 7.6 years | $ | 33.00-$49.50 | $ | 37.39 | |||||||
| 40,000 | 9.2 years | $ | 49.51-$74.25 | $ | 72.09 | |||||||
| 1,051,451 | 6.5 years | $ | 14.67-$74.25 | $ | 30.64 | |||||||
| Weighted Average | Range of | Weighted Average | ||||||||||
Number of Options Outstanding | Remaining Contractual Life | Exercise Prices | Exercise Price | |||||||||
| 79,514 | 2.7 years | $ | 15.96-$23.94 | $ | 18.91 | |||||||
| 569,406 | 5.9 years | $ | 23.95-$35.91 | $ | 29.96 | |||||||
| 29,000 | 7.1 years | $ | 35.92-$53.86 | $ | 40.21 | |||||||
| 102,989 | 9.7 years | $ | 53.87-$72.09 | $ | 54.24 | |||||||
| 780,909 | 6.1 years | $ | 15.96-$72.09 | $ | 32.42 | |||||||
F-11
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents information regarding options exercisable at December 31, 2005:2006:
| Range of | Weighted Average | |||||||
| Number of Options Exercisable | Exercise Prices | Exercise Price | ||||||
| 107,149 | $ | 14.67-$21.99 | $ | 18.94 | ||||
| 472,392 | $ | 22.00-$32.99 | $ | 29.62 | ||||
| 26,250 | $ | 33.00-$49.50 | $ | 35.35 | ||||
| — | $ | 49.51-$74.25 | $ | — | ||||
| 605,791 | $ | 14.67-$74.25 | $ | 27.98 | ||||
| Weighted Average | Range of | Weighted Average | ||||||||||
Number of Options Exercisable | Remaining Contractual Life | Exercise Prices | Exercise Price | |||||||||
| 79,514 | 2.7 years | $ | 15.96-$23.94 | $ | 18.91 | |||||||
| 502,293 | 5.9 years | $ | 23.95-$35.91 | $ | 29.69 | |||||||
| 14,500 | 7.1 years | $ | 35.92-$53.86 | $ | 40.21 | |||||||
| 596,307 | 6.1 years | $ | 15.96-$72.09 | $ | 28.51 | |||||||
The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2006 was $16.5 million and $14.9 million, respectively. In computing compensation from share based payments as of December 31, 2006, the Company has estimated that of the 184,602 unvested options outstanding, 147,682 options are expected to vest. The aggregate intrinsic value of such options expected to vest was $1.3 million at December 31, 2006. The intrinsic value is calculated as the difference between the market value as of December 31, 2006 and the grant date fair value. The closing price as of December 31, 2006 was $53.57 per share as reported by the New York Stock Exchange.
Cash received for strike prices from options exercised under stock-based payment arrangements for the years ended December 31, 2006, 2005 and 2004 was $8.6 million, $13.1 million and $15.1 million, respectively. The actual tax benefit realized for the tax deductions from options exercised under stock-based arrangements totaled $3.0 million, $12.0 million and $19.3 million, respectively, for the years ended December 31, 2006, 2005 and 2004.
| Weighted Average | ||||||||
| Number of | Grant Date | |||||||
Non-Vested Restricted Shares | Shares | Fair Value | ||||||
| Balance at December 31, 2005 | 890,738 | $ | 40.34 | |||||
| Granted | 244,465 | 51.40 | ||||||
| Forfeited | (104,254 | ) | 53.59 | |||||
| Vested | (408,603 | ) | 34.55 | |||||
| Balance at December 31, 2006 | 622,346 | $ | 46.20 | |||||
The weighted average grant date fair value of restricted shares granted during the years ended December 31, 2006, 2005 and 2004 was $51.40, $66.86 and $46.35, respectively.
The total fair value of restricted stock that vested during the years ended December 31, 2006, 2005 and 2004 was $20.9 million, $3.2 million and $1.6 million, respectively.
Prior to the adoption of SFAS 123R, the Company recognized the estimated compensation cost of non-vested restricted stock over the vesting term. The estimated compensation cost is based on the fair value of the Company’s common stock on the date of grant. The Company will continue to recognize the compensation cost over the vesting term.
As of December 31, 2006, there was $18.5 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based compensation arrangements. This cost includes $2.9 million related to stock option grants and $15.6 million of non-vested restricted stock which will be recognized over a weighted average period of four years.
Upon the adoption of, and in accordance with SFAS 123R, deferred compensation of $19.7 million previously reflected as a component of Stockholders’ Equity has been netted against Common Stock as of January 1, 2006, in the accompanying Consolidated Statement of Changes in Stockholders’ Equity.
F-12
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Kevin M. Twomey, the Company’s former President and Chief Operating Officer, retired on December 28, 2006 pursuant to a Board approved succession plan. Mr. Twomey ceased to serve as an officer of the Company on May 16, 2006. Any of Mr. Twomey’s unvested shares of restricted stock were vested as of his retirement date. As a result, the increase in stock-based compensation expense for the year ended December 31, 2006 in connection with accelerating the vesting on 243,160 shares (fully amortized as of May 16, 2006) was $1.0 million.
Employee Stock Purchase Plan
In November 1999, the Company implemented an employee stock purchase plan (“ESPP”) whereby all employees may purchase the Company’s common stock through monthly payroll deductions at a 15% discount from the fair market value of its common stock at each month end, with an annual limit of $25,000 in purchases per employee.
Earnings Per Share
Earnings per share (“EPS”) is based on the weighted average number of common shares outstanding during the year. Diluted EPS assumes weighted average options have been exercised to purchase 296,769, 797,629 1,201,453, and 1,968,4401,201,453 shares of common stock in 2006, 2005, 2004, and 2003,2004, respectively, and that 402,975, 573,576 and 243,403 shares of unvested restricted stock were issued in 2006, 2005 and 2004, each net of assumed repurchases using the treasury stock method.
F-13
From the inception of the Stock Repurchase Program to December 31, 2005,2006, the Company repurchased from shareholders 26,997,41127,945,611 shares and executives surrendered 2,105,142a total of 2,253,559 shares as payment for strike prices and taxes due on exercised stock options and on vested restricted stock, for a total of 29,102,55330,199,170 acquired shares. During 2006, 2005 the Company repurchased from shareholders 1,705,000 shares and 68,648 shares were surrendered by executives as payment for strike prices and taxes due on exercised stock options and on vested restricted stock. During 2004, the Company repurchased from shareholders 948,200, 1,705,000 and 1,561,565 shares, respectively. During 2006, 2005 and 2004, executives surrendered 148,417, 68,648 and 884,633 shares, were surrendered by executives as payment for strike prices and taxes due on exercised stock options and on vested restricted stock. During 2003, the Company repurchased from shareholders 2,555,174 shares and executives surrendered 812,802 sharesrespectively, as payment for strike prices and taxes due on exercised stock options and on vested restricted stock.
Shares of Company stock issued upon the exercise of stock options in 2006, 2005 and 2004 were 300,781, 663,838, and 2003 were 663,838 shares, 2,140,406 shares, and 2,690,580 shares, respectively.
Weighted average basic and diluted shares, taking into consideration shares issued, weighted average unvested restricted shares, weighted average options used in calculating EPS and treasury shares repurchased, for each of the years presented are as follows:
| 2005 | 2004 | 2003 | ||||||||||
| Basic | 74,837,731 | 75,463,445 | 75,857,350 | |||||||||
| Diluted | 76,208,936 | 76,908,300 | 77,825,790 | |||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Basic | 73,719,415 | 74,837,731 | 75,463,445 | |||||||||
| Diluted | 74,419,159 | 76,208,936 | 76,908,300 | |||||||||
Comprehensive Income
For the year ended December 31, 2006, the Company’s comprehensive income differs from net income due to changes in the funded status of certain Company benefit plans (see Note 13). For the years ended December 31, 2005 2004, and 2003,2004, the Company’s comprehensive income is equal to net income because there were no elements of other comprehensive income. The Company has elected to disclose comprehensive income in its Consolidated Statements of Changes in Stockholders’ Equity.
F-13
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standard No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets(“FAS 144”), the operations and gains on sales reported in discontinued operations include operating properties sold during the year for which operations and cash flows can be clearly distinguished and for which the Company will not have continuing involvement or significant cash flows after
F-14
disposition. The operations from these properties have been eliminated from ongoing operations. Prior periods have been reclassified to reflect the operations of these properties as discontinued operations. The operations and gains on sales of operating properties for which the Company has some continuing involvement are reported as income from continuing operations.
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 undiscounted 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 2004, the Towns & Resortsresidential real estate segment recorded a $2.0 million impairment loss related to a residential project in North Carolina. During 2003, the commercial real estate segment recorded an impairment loss on a commercial property of $0.3 million.
Reclassifications
Certain prior years’ amounts have been reclassified to conform to the current year’s presentation.
Supplemental Cash Flow Information
Supplemental cash flows which it considers to have an immaterial effect on these presentations.
| 2006 | 2005 | 2004 | ||||||||||
| Interest paid | $ | 35.1 | $ | 27.0 | $ | 22.7 | ||||||
| Income taxes paid (net of refunds) | 125.1 | 6.5 | 3.1 | |||||||||
| Capitalized interest | 15.4 | 12.0 | 11.2 | |||||||||
F-14
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s non-cash activities for years ended December 31 are as follows (in millions):
| 2006 | 2005 | 2004 | ||||||||||
| Issuance of restricted stock | 6.9 | 10.1 | 7.4 | |||||||||
| Note receivable in connection with sale of subsidiary | — | 7.5 | — | |||||||||
| Note receivable in connection with sale of unconsolidated affiliate | — | 9.4 | — | |||||||||
| Assumption of mortgage related to commercial building purchase | — | 29.9 | 29.8 | |||||||||
| Assumption of mortgage by purchaser of commercial building | — | — | 25.4 | |||||||||
| Assumption of debt by purchaser of commercial land | — | — | 11.0 | |||||||||
| Execution of debt as payment for interest in unconsolidated affiliate | — | — | 11.4 | |||||||||
| Extinguishment of debt in connection with joint venture | (10.7 | ) | — | — | ||||||||
| Net increase in Community Development District Debt | 28.4 | — | — | |||||||||
Prior to the adoption of SFAS 123R, the Company presented all tax benefits for deductions resulting from the exercise of stock options as operating cash flows on its consolidated statement of cash flows. SFAS 123R requires the benefits of tax deductions in excess of tax benefits related to recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow. This requirement reduces net operating cash flows and 2003, respectively.increases net financing cash flows in periods after adoption. Total cash flow remains unchanged from what would have been reported under prior accounting rules.
Cash flows related to assets ultimately planned to be sold, including Towns & Resortsresidential real estate development and related amenities, sales of undeveloped and developed land by the rural land sales segment, the Company’s timberland operations and land developed by the commercial real estate segment are included in operating activities
F-15
on the statement of cash flows. The Company’s buildings developed for commercial rental purposes and assets purchased with tax-deferred proceeds are intended to be held for investment purposes and related cash flows from acquisitions and dispositions of those assets are included in investing activities on the statements of cash flows. Cash flows from investing activities also include related cash flows from assets not held for sale. Distributions of income from unconsolidated affiliates are included in cash flows from operating activities; distributions of capital from unconsolidated affiliates are included in cash flows from investing activities.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, notes receivable, accounts payable and accrued expenses, approximate their fair values due to the short-term nature of these assets and liabilities. The fair value of the Company’s long-term debt, including the current portion, was $572.3$619.7 million and $447.7$572.3 million at December 31, 20052006 and 2004,2005, respectively. Management estimates the fair value of long-term debt using the discounted amount of future cash flows based on the Company’s current incremental rate of borrowing for similar loans.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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-15
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Recent Accounting Pronouncements
In October 2005,June 2006, the FASB publishedissued FASB Staff PositionInterpretation No. FAS 13-1,48,Accounting for Rental Costs Incurred during a Construction PeriodUncertainty in Income Taxes, an Interpretation of SFAS Statement No. 109(“FSP13-1”FIN 48”), which stipulates that a lessee’s rental costs associated with operating leases during a construction period must be recognized as rental expense, included. FIN 48 clarifies the accounting and reporting for uncertainties in income from continuing operations,tax law. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and allocated overdisclosure of uncertain tax positions taken or expected to be taken in income tax returns. Under FIN 48, tax positions initially are recognized in the lease term according to current guidance on accounting for leases.financial statements when it is more likely than not the tax position will be sustained upon examination by the tax authorities. Such tax positions are measured initially and subsequently as the largest amount of tax benefit that is greater than a 50% likelihood of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the tax position and relevant facts. The Company plans towill adopt FSP13-1 beginning January 1, 2006 as required by FSP13-1. Upon adoption,this Interpretation in the Company does not expect FSP13-1 to have a material effect on its resultsfirst quarter of operations or financial position.
In May 2005,September 2006, the FASB issued Statement of Financial Accounting Standards No. 154,157,Accounting Changes and Error CorrectionsFair Value Measurements(“FAS 154”SFAS 157”). SFAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. SFAS 157 applies only to fair-value measurements that are already required or permitted by other accounting standards and is expected to increase the consistency of those measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We do not believe SFAS 157 will have a material adverse impact on our financial position or results of operations.
In September 2006, the SEC Staff issued Staff Accounting Bulletin No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(“SAB 108”). SAB 108 provides guidance for SEC registrants on how the effects of uncorrected errors originating in previous years should be considered when quantifying errors in the current year. SAB 108 was issued to eliminate diversity in practice for quantifying uncorrected prior year misstatements (including prior year unadjusted audit differences) and to address weaknesses in methods commonly used to quantify such misstatements. These methods are the income statement or rollover method and the balance sheet or iron curtain method. The Company has historically followed the income statement method. Under SAB 108, SEC registrants will now have to evaluate errors under both methods. SAB 108 provides transitional guidance that allows registrants to report the effect of adoption as a cumulative adjustment to beginning of year retained earnings. If a cumulative adjustment is reported, it must be reported as of the beginning of the first fiscal year ending after November 15, 2006. SAB 108 did not have an impact on our financial statements at December 31, 2006.
In September 2006, the SEC Emerging Issues Task Force (EITF) issuedEITF IssueNo. 06-8, Applicability of the Assessment of a Buyer’s Continuing Investment under FAS 154 requires companies making voluntary changesNo. 66 for the Sale of Condominiums (“EITF06-8”). EITF06-8 states that in assessing the collectibility of the sales price pursuant to paragraph 37(d) of FAS 66, an entity should evaluate the adequacy of the buyer’s initial and continuing investment to conclude that the sales price is collectible. If an entity is unable to meet the criteria of paragraph 37, including an assessment of collectibility using the initial and continuing investment tests described inparagraphs 8-12 of FAS 66, then the entity should apply the deposit method as described inparagraphs 65-67 of FAS 66. EITF06-8 is effective for the Company’s fiscal year beginning January 1, 2008. The Company has not yet assessed the impact of EITF06-8 on its consolidated financial statements, but believes that it will be required, in most cases, to collect additional deposits from buyers in order to recognize revenue under thepercentage-of-completion method of accounting. If the Company is unable to meet the requirements of EITF06-8, it would be required to recognize revenue using the deposit method, which would delay revenue recognition until consumation of the sale.
F-16
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock-Based Compensation
The Company plans to adopt FAS 154 asadopted the provisions of January 1, 2006 and does not expect FAS 154 to have a material effect on its current financial position or results of operations.
The Company currently uses the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of other variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors (term of option), risk-free interest rate and expected dividends.
If factors change and the Company doeswere to employ different assumptions for estimating stock-based compensation expense in future periods or if the Company decides to use a different valuation model, the future periods may differ significantly from what the Company has recorded in the current period and could materially affect our operating income, net income and net income per share.
The Black-Scholes option-pricing model was developed for use in estimating the fair value of stock options. Existing valuation models, including Black-Scholes, may not expect FAS 152provide reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to havethe actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments in the future. Certain stock-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our consolidated financial statements. There currently is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a material effect on its financial position or results of operations.means to compare and adjust the estimates to actual values.
Benefit Plans
We adopted the FASB issuedrecognition and disclosure provisions of Statement of Financial Accounting Standards No. 153,158,ExchangesEmployers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of Nonmonetary AssetsSFAS Statements No. 87, 88, 106, and 132R(“FAS 153”SFAS 158”). FAS 153 eliminates in December 2006. SFAS 158 requires an employer to: (a) recognize in its statement of financial position an asset for a previous exception from fair value reportingplan’s overfunded status or a liability for nonmonetary exchanges of similar productivea plan’s underfunded status; (b) measure a plan’s assets and introduces an exception from fair value reporting for exchanges of nonmonetary assetsits obligations that do not have commercial substance. A nonmonetary exchange is considered to have commercial substance if the future cash flowsdetermine its funded status as of the entity are expected to change significantly as a resultend of the exchange. FAS 153 is applicable to nonmonetary exchanges occurringemployer’s fiscal year (with limited exceptions); and (c) recognize changes in fiscal periods beginning after June 15, 2005, with earlier application permitted. The impact of adopting FAS 153 did not have a material adverse impact on the Company’s financial position or results of operations.
F-17
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 3. | Business Combinations |
During 2005, the Company purchased one commercial building in Norfolk, Virginia called 150 West Main for $50.8 million. Of the total purchase price, $42.0 million was allocated to investment in real estate and $8.8 million was allocated to lease-related intangible assets. During 2004, the Company purchased two commercial buildings in Richmond, Virginia called Overlook for $19.1 million, two commercial buildings in Atlanta, Georgia called Deerfield Point for $30.1 million, and a commercial building in Atlanta, Georgia called Parkwood Point for $45.0 million. Of the total purchase prices, $15.5 million, $23.7 million, and $36.1, respectively, were allocated to investment in real estate and $3.6 million, $6.4 million, and $8.9 million, respectively, were allocated to lease-related intangible assets.
Also during 2004, the Company made a final payment of additional contingent consideration to the former owners of Sunshine State Cypress in the amount of $2.9 million.
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 acquisitions were significant to the financial condition and operations of the Company in the year in which they were acquired or the year preceding the acquisition.
| 4. |
During the third quarter of 2006, the Company announced that it was exiting the Florida homebuilding business to focus on maximizing the value of its landholdings through place making. In addition, the Company announced a corporate reorganization designed to position the Company for the years ahead. The charges associated with the restructuring and reorganization program (“program”) by segment that are included in the restructuring charge reflected in the 2006 Consolidated Statement of Income were as follows (in millions):
| Rural | ||||||||||||||||||||
| Residential Real | Commercial Real | Land | ||||||||||||||||||
| Estate | Estate | Sales | Other | Total | ||||||||||||||||
| Write-off of previously capitalized homebuilding costs | $ | 9.3 | $ | — | $ | — | $ | — | $ | 9.3 | ||||||||||
| One-time termination benefits to employees | 3.0 | 0.1 | 0.2 | 0.8 | 4.1 | |||||||||||||||
| Total restructuring charges, pretax | $ | 12.3 | $ | 0.1 | $ | 0.2 | $ | 0.8 | $ | 13.4 | ||||||||||
Capitalized homebuilding costs are comprised of architectural fees and overhead costs. Termination benefits are comprised of severance-related payments for employees terminated in connection with the program.
At December 31, 2006, the accrued liability associated with the program consisted of the following (in millions):
| Balance at | Costs | Non-Cash | Balance at | |||||||||||||||||
| July 1, 2006 | Accrued | Adjustments | Payments | December 31, 2006 | ||||||||||||||||
| Write-off of previously capitalized homebuilding costs | $ | — | $ | 9.3 | $ | (9.3 | ) | $ | — | $ | — | |||||||||
| One-time termination benefits to employees | — | 4.1 | (0.1 | ) | (2.7 | ) | 1.3 | |||||||||||||
| Total | $ | — | $ | 13.4 | $ | (9.4 | ) | $ | (2.7 | ) | $ | 1.3 | ||||||||
F-18
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company expects to incur total costs associated with the program of $14.0 million, of which approximately $0.6 million is expected to be incurred over the next five quarters. The Company also expects to incur an additional $2.4 million related to the 2007 restructuring plan.
| 5. | Discontinued Operations |
Discontinued operations for 2006 include the sale and results of operations of four commercial buildings sold in 2006. Discontinued operations for 2005 include the sale and results of operations of Advantis, and the sales and results of operations of four commercial buildings sold in 2006 and four commercial buildings sold in 2005. Discontinued operations for 2004
F-17
include the results of operations of Advantis, and the foureight commercial buildings sold in 2006 and 2005, as well asand the salessale and results of operations of two commercial buildings sold in 2004. Discontinued operations for 2003 include2004, all of which were previously part of the results of operations of Advantis and the six commercial buildings sold in 2005 and 2004.real estate segment.
On September 7, 2005, the Company sold Advantis for a sales price of $11.4 million, consisting of $3.9 million in cash and $7.5 million in notes receivable, for a net of tax loss of $5.9 million, or $0.08 per share. For the years ended December 31, 2005 2004, and 2003,2004, Advantis recorded revenues of $70.0 million $98.1 million and $62.5$98.1 million, respectively. Pre-tax (losses) income from operations were $(1.6) million $0.7 million, and $(16.9)$0.7 million, respectively, for the years ended December 31, 2005 2004, and 2003.2004. Under the terms of the sale, the Company will continue to use Advantis to manage certain of its commercial properties and Advantis may be involved in certain sales of Company land which occur in the future. The Company believes the management contracts are at market rates and that ourthe Company’s on-going involvement with Advantis is not material to either them or us.the Company.
Building sales included in discontinued operations for 2006 consisted of the sales of Nextel II in Panama City, Florida sold on December 20, 2006 for proceeds of $4.9 million and a pre-tax gain of $1.7 million; One Crescent Ridge in Charlotte, North Carolina sold on September 29, 2006 for proceeds of $31.3 million and a pre-tax gain of $10.6 million; and Prestige Place One & Two in Tampa, Florida sold on June 28, 2006 for proceeds of $18.1 million and a pre-tax gain of $4.4 million. For the years ended December 31, 2006, 2005 and 2004, respectively, the aggregate revenues generated by these four buildings were $4.1 million, $6.0 million and $5.6 million. Aggregate pre-tax operating income was $0.6 million, $0.5 million and $0.5 million for the years ended December 31, 2006, 2005, and 2004, respectively.
Building sales included in discontinued operations in 2005 consisted of the sales of 1133 20th Street in Washington, DC, sold on September 29, 2005 for proceeds of $46.9 million and a pre-tax gain of $19.7 million; Lakeview in Tampa, Florida, sold on September 7, 2005 for proceeds of $18.0 million and a pre-tax gain of $4.1 million; Palm Court in Tampa, Florida, sold on September 7, 2005 for proceeds of $7.0 million and a pre-tax gain of $1.8 million; and Harbourside in Clearwater, Florida, sold on December 14, 2005 for proceeds of $21.9 million and a pre-tax gain of $5.2 million. For the years ended December 31, 2005 2004, and 2003,2004, respectively, the aggregate revenues generated by these four buildings prior to their sales totaled $7.5 million $9.7 million and $9.4$9.7 million. Aggregate pre-tax operating income was $0.1 million $0.7 million and $0.2$0.7 million for the years ended December 31, 2005 2004, and 2003,2004, respectively.
Building sales included in discontinued operations in 2004 consisted of the sales of 1750 K Street in Washington, DC, sold on July 30, 2004 for proceeds of $47.3 million ($21.9 million, net of the assumption of a mortgage by the purchaser) and a pre-tax gain of $7.5 million; and Westchase Corporate Center in Houston, Texas, sold on August 16, 2004 for proceeds of $20.3 million and a pre-tax gain of $0.2 million. For the yearsyear ended December 31, 2004, and 2003, respectively, aggregate revenues generated by these two buildings prior to their sales totaled $5.9 million and $9.8 million. Aggregate pre-tax operating income was $0.7 million and $1.2 million for the yearsyear ended December 31, 2004, and 2003, respectively.2004.
F-18
F-19
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Investment in Real Estate |
Real estate by segment as of December 31 consists of (in thousands):
| 2005 | 2004 | ||||||||
| Operating property: | |||||||||
| Towns & Resorts | $ | 81,855 | $ | 76,644 | |||||
| Commercial real estate | 12,778 | 3,296 | |||||||
| Land sales | 1,029 | 1,095 | |||||||
| Forestry | 134,239 | 77,431 | |||||||
| Other | 374 | 164 | |||||||
| Total operating property | 230,275 | 158,630 | |||||||
| Development property: | |||||||||
| Towns & Resorts | 419,495 | 331,319 | |||||||
| Commercial real estate | 46,052 | 72,722 | |||||||
| Land sales | 13,528 | 9,247 | |||||||
| Other | 295 | — | |||||||
| Total development property | 479,370 | 413,288 | |||||||
| Investment property: | |||||||||
| Commercial real estate | 338,382 | 356,522 | |||||||
| Land sales | 260 | 182 | |||||||
| Forestry | 1,372 | 973 | |||||||
| Other | 6,816 | 6,883 | |||||||
| Total investment property | 346,830 | 364,560 | |||||||
| Investment in unconsolidated affiliates: | |||||||||
| Towns & Resorts | 22,027 | 29,461 | |||||||
| Commercial real estate | — | 11,579 | |||||||
| Total investment in unconsolidated affiliates | 22,027 | 41,040 | |||||||
| 1,078,502 | 977,518 | ||||||||
| Less: Accumulated depreciation | 42,328 | 34,888 | |||||||
| $ | 1,036,174 | $ | 942,630 | ||||||
| 2006 | 2005 | |||||||
| Operating property: | ||||||||
| Residential real estate | $ | 104,341 | $ | 82,791 | ||||
| Commercial real estate | 9,366 | 12,778 | ||||||
| Rural land sales | 197 | 93 | ||||||
| Forestry | 135,932 | 134,239 | ||||||
| Other | 61 | 374 | ||||||
| Total operating property | 249,897 | 230,275 | ||||||
| Development property: | ||||||||
| Residential real estate | 623,483 | 427,459 | ||||||
| Commercial real estate | 56,669 | 46,052 | ||||||
| Rural land sales | 7,996 | 5,565 | ||||||
| Other | 294 | 294 | ||||||
| Total development property | 688,442 | 479,370 | ||||||
| Investment property: | ||||||||
| Commercial real estate | 311,362 | 338,382 | ||||||
| Rural land sales | 412 | 260 | ||||||
| Forestry | 1,372 | 1,372 | ||||||
| Other | 7,645 | 6,816 | ||||||
| Total investment property | 320,791 | 346,830 | ||||||
| Investment in unconsolidated affiliates: | ||||||||
| Residential real estate | 9,406 | 22,027 | ||||||
| Total real estate investments | 1,268,536 | 1,078,502 | ||||||
| Less: Accumulated depreciation | 54,974 | 42,328 | ||||||
| Investment in real estate investments | $ | 1,213,562 | $ | 1,036,174 | ||||
Included in operating property are Company-owned amenities related to Towns & Resorts,residential real estate, the Company’s timberlands and land and buildings developed by the Company and used for commercial rental purposes. Development property consists of Towns & Resortsresidential real estate land and inventory currently under development to be sold. Investment property includes the Company’s commercial buildings purchased with tax-deferred proceeds and land held for future use.
Real estate properties having a net book value of approximately $323.1$285.6 million (net of accumulated depreciation of $27.2$34.9 million) at December 31, 20052006 are leased by the commercial real estate development segment under non-cancelable operating leases expiring in various years through 2011. Expected future aggregate rentalsrental income related to these leases are approximately $181.8$180.9 million, of which $37.3$39.2 million, $34.5$32.8 million, $30.7$27.9 million, $24.7$23.3 million, and $18.2$17.2 million is due in the years 20062007 through 2010,2011, respectively, and $36.4$40.5 million thereafter.
Depreciation expense was $18.9 million in 2006, $16.4 million in 2005, and $14.9 million in 2004.
F-19
F-20
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company reports lease-related intangible assets separately for commercial buildings purchased subsequent to the effective date of FAS 141. See note 8.Note 9.
| Investment in Unconsolidated Affiliates |
Investments in unconsolidated affiliates, included in real estate investments, are recorded using the equity method of accounting and, as of December 31 consist of (in thousands):
| Ownership | 2005 | 2004 | ||||||||||
| ALP Liquidating Trust* | 24 | % | $ | 5,335 | $ | 11,791 | ||||||
| Port St. Joe Development | 50 | % | 11,543 | 11,435 | ||||||||
| Codina Group, Inc. | 50 | % | — | 9,410 | ||||||||
| Rivercrest, L.L.C | 50 | % | 3,301 | 3,276 | ||||||||
| Paseos, L.L.C | 50 | % | 1,694 | 2,811 | ||||||||
| Deerfield Commons I, L.L.C | 50 | % | — | 1,757 | ||||||||
| Deerfield Park, L.L.C | 38 | % | — | 412 | ||||||||
| Residential Community Mortgage Company, L.L.C | 49.9 | % | 154 | 148 | ||||||||
| $ | 22,027 | $ | 41,040 | |||||||||
| Ownership | 2006 | 2005 | ||||||||||
| ALP Liquidating Trust* | 26 | % | $ | 4,263 | $ | 5,335 | ||||||
| Port St. Joe Development | 50 | % | — | 11,543 | ||||||||
| East San Marco L.L.C. | 50 | % | 1,930 | — | ||||||||
| Rivercrest, L.L.C. | 50 | % | 1,420 | 3,301 | ||||||||
| Paseos, L.L.C. | 50 | % | 1,628 | 1,694 | ||||||||
| Residential Community Mortgage Company, L.L.C. | 49.9 | % | 165 | 154 | ||||||||
| $ | 9,406 | $ | 22,027 | |||||||||
| * | Formerly known as Arvida/JMB Partners, LP. |
During 2004, the Company purchased a 50% interest in Port St. Joe Development, entering into a debt agreement in the amount of $11.4 million as payment (see note 10).payment. The other party to the joint venture contributed land with a fair value of equal amount. On February 3, 2006, the Company purchased the remaining 50% interest in this venture from Smurfit — Stone Container Corporation for $21.75 million, which consisted of a cash payment of $11.05 million and the extinguishment of the Company’s debt to the joint venture of $10.7 million was extinguished. On June 24, 2005, the Company sold its 50% interest in Codina Group, Inc. at book value for cash and interest bearing notes receivable of $9.4 million. During 2005, the remaining assets of Deerfield Commons I LLC and Deerfield Park LLC were sold.
Summarized financial information for the unconsolidated investments on a combined basis is as follows (in thousands):
| 2005 | 2004 | ||||||||
| BALANCE SHEETS: | |||||||||
| Investment in real estate, net | $ | 58,078 | $ | 89,643 | |||||
| Other assets | 52,156 | 105,580 | |||||||
| Total assets | 110,234 | 195,223 | |||||||
| Notes payable and other debt | 31,966 | 49,951 | |||||||
| Other liabilities | 22,386 | 42,293 | |||||||
| Minority interest | — | 8,416 | |||||||
| Equity | 55,882 | 94,563 | |||||||
| Total liabilities and equity | $ | 110,234 | $ | 195,223 | |||||
| 2006 | 2005 | |||||||
| BALANCE SHEETS: | ||||||||
| Investment in real estate, net | $ | 8,771 | $ | 58,078 | ||||
| Other assets | 46,515 | 52,156 | ||||||
| Total assets | 55,286 | 110,234 | ||||||
| Notes payable and other debt | 6,208 | 31,966 | ||||||
| Other liabilities | 9,560 | 22,386 | ||||||
| Equity | 39,518 | 55,882 | ||||||
| Total liabilities and equity | $ | 55,286 | $ | 110,234 | ||||
| 2006 | 2005 | 2004 | ||||||||||
| STATEMENTS OF INCOME: | ||||||||||||
| Total revenues | $ | 115,433 | $ | 148,456 | $ | 184,264 | ||||||
| Total expenses | 93,216 | 119,685 | 169,267 | |||||||||
| Net income | $ | 22,217 | $ | 28,771 | $ | 14,997 | ||||||
F-20
F-21
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 2005 | 2004 | 2003 | |||||||||||
| STATEMENTS OF INCOME: | |||||||||||||
| Total revenues | $ | 148,456 | $ | 184,264 | $ | 116,978 | |||||||
| Total expenses | 119,685 | 169,267 | 114,821 | ||||||||||
| Net income | $ | 28,771 | $ | 14,997 | $ | 2,157 | |||||||
| Property, Plant and Equipment |
Property, plant and equipment, at cost, as of December 31 consisted of (in thousands):
| Estimated | ||||||||||||
| 2005 | 2004 | Useful Life | ||||||||||
| Transportation property and equipment | $ | 34,057 | $ | 34,058 | 3 | |||||||
| Machinery and equipment | 46,645 | 36,628 | 3-10 | |||||||||
| Office equipment | 15,192 | 16,067 | 5-10 | |||||||||
| Leasehold improvements | — | 1,000 | Lease term | |||||||||
| Autos, trucks, and airplane | 6,328 | 6,108 | 5-10 | |||||||||
| 102,222 | 93,861 | |||||||||||
| Less: Accumulated depreciation | 62,046 | 60,299 | ||||||||||
| $ | 40,176 | $ | 33,562 | |||||||||
| Estimated | ||||||||||||
| 2006 | 2005 | Useful Life | ||||||||||
| Transportation property and equipment | $ | 34,057 | $ | 34,057 | 3 | |||||||
| Machinery and equipment | 36,677 | 33,475 | 3-10 | |||||||||
| Office equipment | 16,651 | 15,192 | 5-10 | |||||||||
| Autos, trucks, and airplanes | 5,085 | 6,328 | 5-10 | |||||||||
| 92,470 | 89,052 | |||||||||||
| Less: Accumulated depreciation | 66,030 | 62,046 | ||||||||||
| 26,440 | 27,006 | |||||||||||
| Construction in progress | 18,153 | 13,170 | ||||||||||
| Total | $ | 44,593 | $ | 40,176 | ||||||||
Depreciation expense on property, plant and equipment was $9.6 million in 2006, $10.5 million in 2005 and $9.5 million in 2004, and $11.5 million in 2003.2004.
| Goodwill and Intangible Assets |
During 2003, as a result of declining operations due to the very difficult economic environment for commercial real estate services companies,2006, the Company utilized a discounted cash flow method to determine the fair value of AdvantisSunshine State Cypress and recorded an impairment loss to reduce the carrying amount of Advantis’ goodwill from $28.9$8.8 million to $14.8$7.3 million. This resulted in an impairment loss of $14.1$1.5 million pre-tax, or $8.8$0.9 million net of tax. The Company recorded no goodwill impairment during 2005 or 2004.
Changes in the carrying amount of goodwill for the years ended December 31, 20052006 and 20042005 are as follows (in thousands):
| Towns & | Commercial | |||||||||||||||
| Resorts | Real Estate | Forestry | ||||||||||||||
| Segment | Segment | Segment | Consolidated | |||||||||||||
| Balance at December 31, 2003 | $ | 27,937 | $ | 14,863 | $ | 5,921 | $ | 48,721 | ||||||||
| Contingent consideration payments | — | 83 | 2,875 | 2,958 | ||||||||||||
| Balance at December 31, 2004 | 27,937 | 14,946 | 8,796 | 51,679 | ||||||||||||
| Sale of Advantis | — | (14,946 | ) | — | (14,946 | ) | ||||||||||
| Balance at December 31, 2005 | $ | 27,937 | $ | — | $ | 8,796 | $ | 36,733 | ||||||||
| Residential | Commercial | |||||||||||||||
| Real Estate | Real Estate | Forestry | ||||||||||||||
| Segment | Segment | Segment | Consolidated | |||||||||||||
| Balance at December 31, 2004 | $ | 27,937 | $ | 14,946 | $ | 8,796 | $ | 51,679 | ||||||||
| Sale of Advantis | — | (14,946 | ) | — | (14,946 | ) | ||||||||||
| Balance at December 31, 2005 | 27,937 | — | 8,796 | 36,733 | ||||||||||||
| Impairment loss | — | (1,500 | ) | (1,500 | ) | |||||||||||
| Balance at December 31, 2006 | $ | 27,937 | $ | — | $ | 7,296 | $ | 35,233 | ||||||||
F-21
F-22
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intangible assets at December 31, 20052006 and 20042005 consisted of the following (dollars in thousands):
| 2005 | 2004 | Weighted | ||||||||||||||||||
| Average | ||||||||||||||||||||
| Gross Carrying | Accumulated | Gross Carrying | Accumulated | Amortization | ||||||||||||||||
| Amount | Amortization | Amount | Amortization | Period | ||||||||||||||||
| (In years) | ||||||||||||||||||||
| In-place lease values | $ | 45,862 | $ | (10,868 | ) | $ | 40,354 | $ | (5,804 | ) | 8 | |||||||||
| Customer relationships | 4,013 | (436 | ) | 3,718 | (115 | ) | 11 | |||||||||||||
| Above-market rate leases | 6,041 | (2,168 | ) | 5,323 | (885 | ) | 5 | |||||||||||||
| Management contracts | 6,983 | (3,483 | ) | 6,983 | (2,534 | ) | 12 | |||||||||||||
| Other | 579 | (138 | ) | 467 | (92 | ) | 10 | |||||||||||||
| Total | $ | 63,478 | $ | (17,093 | ) | $ | 56,845 | $ | (9,430 | ) | 8 | |||||||||
| Weighted | ||||||||||||||||||||
| 2006 | 2005 | Average | ||||||||||||||||||
| Gross Carrying | Accumulated | Gross Carrying | Accumulated | Amortization | ||||||||||||||||
| Amount | Amortization | Amount | Amortization | Period | ||||||||||||||||
| (In years) | ||||||||||||||||||||
| In-place lease values | $ | 40,556 | $ | (16,569 | ) | $ | 45,862 | $ | (10,868 | ) | 8 | |||||||||
| Customer relationships | 3,824 | (684 | ) | 4,013 | (436 | ) | 11 | |||||||||||||
| Above-market rate leases | 6,026 | (3,457 | ) | 6,041 | (2,168 | ) | 5 | |||||||||||||
| Management contracts | 6,983 | (4,379 | ) | 6,983 | (3,483 | ) | 12 | |||||||||||||
| Other | 560 | (191 | ) | 579 | (138 | ) | 10 | |||||||||||||
| Total | $ | 57,949 | $ | (25,280 | ) | $ | 63,478 | $ | (17,093 | ) | 8 | |||||||||
Amortization of intangible assets is recorded in the account in the consolidated statements of income which most properly reflects the nature of the underlying intangible asset as follows: (i) above-market rate lease intangibles are amortized to rental revenue, (ii) in-place lease values are amortized to amortization expense, and (iii) customer relationship and management contracts are amortized to amortization expense. The aggregate amortization of intangible assets for 2006, 2005, and 2004 and 2003 was $8.7 million, $8.5 million $5.8 million, and $1.1$5.8 million, respectively.
The estimated aggregate amortization from intangible assets for each of the next five years is as follows (in thousands):
| Rental | Amortization | |||||||
| Revenue | Expense | |||||||
| Year Ending December 31, | ||||||||
| 2006 | 1,178 | 9,633 | ||||||
| 2007 | 1,040 | 8,390 | ||||||
| 2008 | 715 | 6,987 | ||||||
| 2009 | 314 | 5,383 | ||||||
| 2010 | 155 | 4,168 | ||||||
| Rental | Amortization | |||||||
| Revenue | Expense | |||||||
| Year Ending December 31, | ||||||||
| 2007 | $ | 1,031 | $ | 6,725 | ||||
| 2008 | 711 | 5,741 | ||||||
| 2009 | 310 | 4,545 | ||||||
| 2010 | 158 | 3,545 | ||||||
| 2011 | 50 | 2,706 | ||||||
| Accrued Liabilities |
Accrued liabilities as of December 31 consist of (thousands):
| 2005 | 2004 | |||||||
| Property, intangible, income and other taxes | $ | 43,256 | $ | 41,473 | ||||
| Payroll and benefits | 36,334 | 47,797 | ||||||
| Accrued interest | 8,827 | 6,301 | ||||||
| Environmental liabilities | 4,010 | 4,094 | ||||||
| Other accrued liabilities | 46,660 | 35,760 | ||||||
| Total accrued liabilities | $ | 139,087 | $ | 135,425 | ||||
| 2006 | 2005 | |||||||
| Property, intangible, and other taxes | $ | 39,237 | $ | 39,325 | ||||
| Payroll and benefits | 27,651 | 36,334 | ||||||
| Accrued interest | 8,411 | 8,827 | ||||||
| Environmental liabilities | 3,449 | 4,010 | ||||||
| Other accrued liabilities | 44,748 | 46,660 | ||||||
| Total accrued liabilities | $ | 123,496 | $ | 135,156 | ||||
F-22
F-23
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Debt |
Debt and credit agreements at December 31, 20052006 and 20042005 consisted of the following (in thousands):
| 2005 | 2004 | |||||||
| Senior notes, interest payable semiannually at 4.97% to 7.37%, due February 7, 2005 - February 7, 2012 | $ | 257,000 | $ | 275,000 | ||||
| Senior notes, interest payable semiannually at 5.28% to 5.49%, due August 25, 2015 - August 25, 2020 | 150,000 | — | ||||||
| Non-recourse debt, interest payable monthly at 5.52% - 7.67%, secured by mortgages on certain commercial property, due January 1, 2008-January 1, 2013 | 113,810 | 85,428 | ||||||
| Community Development District debt, secured by certain real estate, due May 1, 2005 - May 1, 2034, bearing interest at 5.95% to 7.15% | 14,726 | 26,409 | ||||||
| Recourse debt, interest payable monthly at 6.95%, secured by a commercial building, due September 1, 2008 | — | 17,998 | ||||||
| Promissory note to an unconsolidated affiliate, interest payable annually at LIBOR + 100 basis points (5.39% at December 31, 2005), due at the earlier of the date of the first partnership distribution or December 31, 2008 | 10,689 | 10,934 | ||||||
| Industrial Development Revenue Bonds, variable-rate interest payable quarterly based on the Bond Market Association index (3.1% at December 31, 2005), secured by a letter of credit, due January 1, 2008 | 4,000 | 4,000 | ||||||
| Various secured and unsecured notes and capital leases, bearing interest at various rates | 4,221 | 1,341 | ||||||
| Total debt | $ | 554,446 | $ | 421,110 | ||||
| 2006 | 2005 | |||||||
| Revolving credit facility, interest payable monthly at LIBOR + 0.55% (5.90% at December 31, 2006), due July 21, 2009 | $ | 60,000 | $ | — | ||||
| Senior notes 2004, interest payable semiannually at 6.66% to 7.37%, due February 7, 2007 - February 7, 2012 | 157,000 | 257,000 | ||||||
| Senior notes 2002, interest payable semiannually at 5.28% to 5.49%, due August 25, 2015 - August 25, 2020 | 150,000 | 150,000 | ||||||
| Bridge loan, interest payable monthly at LIBOR + 0.55% (5.90% at December 31, 2006), due July 31, 2007 | 100,000 | — | ||||||
| Non-recourse debt, interest payable monthly at 5.52% - 7.67%, secured by mortgages on certain commercial property, due January 1, 2008 - January 1, 2013 | 101,416 | 113,810 | ||||||
| Promissory note, interest payable monthly at 7.17%, due June 1, 2008 | 10,351 | — | ||||||
| Community Development District debt, secured by certain real estate, due May 1, 2007 - May 1, 2034, bearing interest at 3.50% to 7.15% | 43,098 | 14,726 | ||||||
| Promissory note to an unconsolidated affiliate, interest payable annually at LIBOR + 100 basis points (5.39% at December 31, 2005), due at the earlier of the date of the first partnership distribution or December 31, 2008 | — | 10,689 | ||||||
| Industrial Development Revenue Bonds, variable-rate interest payable quarterly based on the Bond Market Association index (4.02% at December 31, 2006), secured by a letter of credit, due January 1, 2008 | 4,000 | 4,000 | ||||||
| Various secured and unsecured notes and capital leases, bearing interest at various rates | 1,191 | 4,221 | ||||||
| Total debt | $ | 627,056 | $ | 554,446 | ||||
The aggregate maturities of long-term debt subsequent to December 31, 20052006 are as follows;follows (in millions):
| 2007 | $ | 229.3 | ||
| 2008 | 57.1 | |||
| 2009 | 27.1 | |||
| 2010 | 18.7 | |||
| 2011 | 11.1 | |||
| Thereafter | 283.8 | |||
| Total | $ | 627.1 | ||
During 2006, $6.9 million; 2007, $69.4 million; 2008, $68.2 million; 2009, $49.2 million; 2010, $1.3 million; thereafter, $359.4 million.the Company entered into an amendment agreement with its 2002 senior noteholders that modified certain financial covenants. The amendment provided increased leverage capacity along with increased flexibility in maintaining minimum net worth levels, one effect of which is to provide additional flexibility regarding distributions to shareholders. The Company also entered into a bridge loan agreement to provide a separate source of financing to repay its $100.0 million 2004 senior notes.
During 2005, the Company closed on a new four-year $250 million senior revolving credit facility (the “New Credit“Credit Facility”) that replaced the existing $250 million senior revolving credit facility which was to expire on March 30, 2006. The New Credit Facility expires on July 21, 2009, and bears interest based on leverage levels
F-24
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
at LIBOR plus a margin in the range of 0.4% to 1.0% (currently 0.5%0.55%). The New Credit Facility contains financial covenants including maximum debt ratios and minimum fixed charge coverage and net worth requirements. At December 31, 2005, thereThe average balance outstanding during 2006 on the Credit Facility was no outstanding balance.$59.2 million, at an average interest rate of 6.03%.
In February 2007, the Company increased the size of the Credit Facility to $500 million. None of the material terms of the Credit Facility were changed in connection with the expansion. Proceeds from the increased Credit Facility will be used for the repayment of debt maturing in 2007, development and construction projects and general corporate purposes.
During 2005, the Company issued senior notes in a private placement for an aggregate principal amount of $150 million, with $65$65.0 million maturing on August 25, 2015 and bearing a fixed interest rate of 5.28%, $65$65.0 million maturing on August 25, 2017 and bearing a fixed interest rate of 5.38%, and $20$20.0 million maturing on August 25, 2020 and bearing a fixed interest rate of 5.49%. Interest will beis payable semiannually. The notes contain financial covenants similar to those in the Company’s New Credit Facility.
During 2005, the Company purchased a commercial building and assumed an existing mortgage on the property in the amount of $29.9 million, maturing on April 1, 2012. Interest is payable monthly at an
F-23
annual fixed rate of 5.62%. Also during 2005, the Company sold a commercial building and used a portion of the proceeds to repay the balance of the related recourse debt in the amount of $17.8 million. During 2005, the Company repaid $10.5 million on one of its Community Development District debt.
The $407.0 million senior notes and the $250.0 million senior revolving credit agreementCredit Facility contain financial covenants, including minimum net worth requirements, maximum debt ratios, and fixed charge coverage requirements, plus some restrictions on pre-payment.prepayment. At December 31, 2005,2006, management believes the Company was in compliance with financial covenants contained in the senior notes and the senior revolving credit agreement, including maximum debt ratios and minimum fixed charge coverage and net worth requirements.covenants.
| Income Taxes |
Total income tax expense (benefit) for the years ended December 31 was allocated as follows (in thousands):
| 2005 | 2004 | 2003 | ||||||||||
| Income from continuing operations | $ | 64,332 | $ | 52,525 | $ | 48,429 | ||||||
| Gain on the sales of discontinued operations | 7,994 | 3,135 | — | |||||||||
| Earnings from discontinued operations | (378 | ) | 610 | (5,803 | ) | |||||||
| Tax benefit on exercise of stock options credited to stockholders’ equity | (12,009 | ) | (19,310 | ) | (15,685 | ) | ||||||
| $ | 59,939 | $ | 36,960 | $ | 26,941 | |||||||
| 2006 | 2005 | 2004 | ||||||||||
| Income from continuing operations | $ | 25,157 | $ | 64,153 | $ | 52,334 | ||||||
| Gain on the sales of discontinued operations | 6,354 | 7,994 | 3,135 | |||||||||
| Earnings (loss) from discontinued operations | 225 | (199 | ) | 800 | ||||||||
| Excess tax benefit on stock compensation credited to stockholders’ equity | (4,761 | ) | (12,009 | ) | (19,310 | ) | ||||||
| Deferred tax expense credited to accumulated other comprehensive income | (633 | ) | — | — | ||||||||
| $ | 26,342 | $ | 59,939 | $ | 36,959 | |||||||
Income tax expense (benefit) 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 (in thousands):
| 2005 | 2004 | 2003 | ||||||||||
| Tax at the statutory federal rate | $ | 62,404 | $ | 47,735 | $ | 46,646 | ||||||
| State income taxes (net of federal benefit) | 6,062 | 3,112 | 1,538 | |||||||||
| Other, net | (4,134 | ) | 1,678 | 245 | ||||||||
| $ | 64,332 | $ | 52,525 | $ | 48,429 | |||||||
| 2006 | 2005 | 2004 | ||||||||||
| Tax at the statutory federal rate | $ | 22,905 | $ | 62,237 | $ | 47,557 | ||||||
| State income taxes (net of federal benefit) | 1,963 | 6,046 | 3,100 | |||||||||
| Other, net | 289 | (4,130 | ) | 1,677 | ||||||||
| $ | 25,157 | $ | 64,153 | $ | 52,334 | |||||||
F-24
F-25
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of December 31 are presented below (in thousands):
| 2005 | 2004 | |||||||||
| Deferred tax assets: | ||||||||||
| Net operating loss carryforward | $ | 3,185 | $ | 18,573 | ||||||
| Impairment losses | 4,411 | 10,469 | ||||||||
| Deferred compensation | 9,896 | 10,323 | ||||||||
| Accrued casualty and other reserves | 3,909 | �� | 4,889 | |||||||
| Charitable contributions carryforward | 2,842 | 3,018 | ||||||||
| Intangible asset amortization | 5,644 | 3,487 | ||||||||
| Other | 14,553 | 11,090 | ||||||||
| Total deferred tax assets | $ | 44,440 | $ | 61,849 | ||||||
| Deferred tax liabilities: | ||||||||||
| Deferred gain on land sales and involuntary conversions | $ | 295,549 | $ | 254,375 | ||||||
| Prepaid pension asset | 35,979 | 35,279 | ||||||||
| Income of unconsolidated affiliates | 2,480 | 5,888 | ||||||||
| Depreciation | — | 5,087 | ||||||||
| Goodwill amortization | 4,273 | 2,736 | ||||||||
| Other | 22,071 | 22,858 | ||||||||
| Total gross deferred tax liabilities | 360,352 | 326,223 | ||||||||
| Net deferred tax liability | $ | 315,912 | $ | 264,374 | ||||||
| 2006 | 2005 | |||||||
| Deferred tax assets: | ||||||||
| State net operating loss carryforward | $ | 4,096 | $ | 3,185 | ||||
| Impairment losses | 4,354 | 4,411 | ||||||
| Deferred compensation | $ | 8,599 | $ | 9,896 | ||||
| Accrued casualty and other reserves | 6,335 | 3,909 | ||||||
| Charitable contributions carryforward | 239 | 2,842 | ||||||
| Intangible asset amortization | 9,365 | 5,644 | ||||||
| Depreciation | 5,820 | 1,110 | ||||||
| Other | 13,010 | 13,443 | ||||||
| Total gross deferred tax assets | 51,818 | 44,440 | ||||||
| Valuation allowance | (1,103 | ) | — | |||||
| Total net deferred tax assets | 50,715 | 44,440 | ||||||
| Deferred tax liabilities: | ||||||||
| Deferred gain on land sales and involuntary conversions | 201,398 | 295,549 | ||||||
| Prepaid pension asset | 38,329 | 35,979 | ||||||
| Income of unconsolidated affiliates | 944 | 2,480 | ||||||
| Goodwill amortization | 5,630 | 4,273 | ||||||
| Other | 15,529 | 22,071 | ||||||
| Total gross deferred tax liabilities | 261,830 | 360,352 | ||||||
| Net deferred tax liability | $ | 211,115 | $ | 315,912 | ||||
At December 31, 2006, the Company has net operating loss carryforwards, for State tax purposes of approximately $136.5 million which expire in years 2023 to 2025. Realization of the Company’s net deferred tax assets is dependent upon the Company generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from loss carry-forwards. Based on the timing of reversal of future taxable amounts and the Company’s history and future expectations of reporting taxable income, management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize thecertain deferred tax assets andmay not be used in the foreseeable future before their expected expiration, principally State net operating loss carryforwards. Accordingly, a valuation allowance is not considered necessary. has been established against these tax benefits.
There were no significant current deferred tax assets at December 31, 20052006 or 2004.2005.
| Employee Benefits Plans |
Pension Plan
The Company sponsors a cash balance defined benefit pension plan that covers substantially all of its salaried employees (the “Pension Plan”). The benefitsAmounts credited to employee accounts in the Pension Plan are based on the employees’ years of service and compensation. The Company complies with the minimum funding requirements of ERISA. The measurement date of the Pension Plan is January 1, 2005.2006.
F-26
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Because the Pension Plan has an overfunded balance, no contributions to the Pension Plan are expected in the near future.
F-25
The weighted average percentages of the fair value of total plan assets by each major type of plan asset are as follows:
| Asset class | 2005 | 2004 | ||||||
| Equities | 65 | % | 64 | % | ||||
| Fixed income including cash equivalents | 34 | % | 35 | % | ||||
| Timber | 1 | % | 1 | % | ||||
Asset class | 2006 | 2005 | ||||||
| Equities | 64 | % | 65 | % | ||||
| Fixed income including cash equivalents | 35 | % | 34 | % | ||||
| Timber | 1 | % | 1 | % | ||||
The Company’s investment policy is to ensure, over the long-term life of the Pension Plan, an adequate pool of assets to support the benefit obligations to participants, retirees and beneficiaries. In meeting this objective, the Pension Plan seeks the opportunity to achieve an adequate return to fund the obligations in a manner consistent with the fiduciary standards of ERISA and with a prudent level of diversification. Specifically, these objectives include the desire to:
| • | invest assets in a manner such that contributions remain within a reasonable range and future assets are available to fund liabilities | |
| • | maintain liquidity sufficient to pay current benefits when due | |
| • | diversify, over time, among asset classes so assets earn a reasonable return with acceptable risk of capital loss |
The asset strategy established to reflect the growth expectations and risk tolerance is as follows:
Asset Class | Tactical range | ||||
| Large Cap Equity | |||||
| 30%-36% | |||||
| Mid Cap Equity | 4%-8% | ||||
| Small Cap Equity | 7%-11% | ||||
| International Equity | 9%-15% | ||||
| Total equities | 55%-65% | ||||
| Fixed Income including cash equivalents | 35%-45% | ||||
| Timber and other | 0%-1% | ||||
To develop the expected long-term rate of return on assets assumption, the Company considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio. This resulted in the selection of the 8.0% assumption in 2006, 8.0% in 2005 and 8.5% assumption for 2004 and 2003.in 2004.
| 2005 | 2004 | 2003 | |||||||||||
| Service cost | $ | 6,497 | $ | 5,588 | $ | 4,777 | |||||||
| Interest cost | 8,493 | 8,508 | 8,529 | ||||||||||
| Expected return on assets | (18,102 | ) | (19,487 | ) | (17,765 | ) | |||||||
| Prior service costs | 790 | 777 | 747 | ||||||||||
| Total pension income | $ | (2,322 | ) | $ | (4,614 | ) | $ | (3,712 | ) | ||||
F-26
F-27
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the net periodic pension cost (credit) follows (in thousands):
| 2006 | 2005 | 2004 | ||||||||||
| Service cost | $ | 4,908 | $ | 6,497 | $ | 5,588 | ||||||
| Interest cost | 8,358 | 8,493 | 8,508 | |||||||||
| Expected return on assets | (17,266 | ) | (18,102 | ) | (19,487 | ) | ||||||
| Settlement loss | 19 | — | — | |||||||||
| Curtailment charge | 148 | — | — | |||||||||
| Prior service costs | 717 | 790 | 777 | |||||||||
| Total pension credit | $ | (3,116 | ) | $ | (2,322 | ) | $ | (4,614 | ) | |||
| Total recognized in other comprehensive income | (2,702 | ) | — | — | ||||||||
| Total pension income recognized | $ | (5,818 | ) | $ | (2,322 | ) | $ | (4,614 | ) | |||
Amounts not yet reflected in net periodic pension cost (credit) and included in accumulated other comprehensive income at December 31, 2006 are:
| Prior service cost | 4,588 | |||
| Accumulated gain | (7,290 | ) | ||
| Accumulated other comprehensive income | $ | (2,702 | ) | |
The estimated prior service cost that will be amortized from accumulated other comprehensive income into net periodic pension cost (credit) over the next fiscal year is $0.7 million.
Assumptions used to develop net benefit cost:periodic pension cost (credit):
| 2005 | 2004 | 2003 | ||||||||||
| Discount rate | 5.65 | % | 6.00 | % | 6.50 | % | ||||||
| Expected long term rate of return on Plan assets | 8.00 | % | 8.50 | % | 8.50 | % | ||||||
| Rate of compensation increase | 4.00 | % | 4.00 | % | 4.00 | % | ||||||
| 2006 | 2005 | 2004 | ||||||||||
| Discount rate | 5.56 | % | 5.65 | % | 6.00 | % | ||||||
| Expected long term rate of return on Plan assets | 8.00 | % | 8.00 | % | 8.50 | % | ||||||
| Rate of compensation increase | 4.00 | % | 4.00 | % | 4.00 | % | ||||||
A reconciliation of projected benefit obligation as of December 31 follows (in thousands):
| 2005 | 2004 | |||||||
| Projected benefit obligation, beginning of year | $ | 155,750 | $ | 146,475 | ||||
| Service cost | 6,497 | 5,588 | ||||||
| Interest cost | 8,493 | 8,508 | ||||||
| Actuarial loss | 6,038 | 7,983 | ||||||
| Benefits paid | (15,699 | ) | (14,550 | ) | ||||
| Plan amendments | 902 | 1,746 | ||||||
| Curtailments | (746 | ) | — | |||||
| Projected benefit obligation, end of year | $ | 161,235 | $ | 155,750 | ||||
| 2006 | 2005 | |||||||
| Projected benefit obligation, beginning of year | $ | 161,235 | $ | 155,750 | ||||
| Service cost | 4,908 | 6,497 | ||||||
| Interest cost | 8,358 | 8,493 | ||||||
| Actuarial loss | 1,987 | 6,038 | ||||||
| Benefits paid | (9,234 | ) | (15,699 | ) | ||||
| Plan amendments | — | 902 | ||||||
| Curtailments | (39 | ) | (746 | ) | ||||
| Settlement gain | (15,244 | ) | — | |||||
| Projected benefit obligation, end of year | $ | 151,971 | $ | 161,235 | ||||
Assumptions used to develop end-of period obligations:
| 2005 | 2004 | |||||||
| Discount rate | 5.56 | % | 5.65 | % | ||||
| Rate of compensation increase | 4.00 | % | 4.00 | % | ||||
| 2006 | 2005 | |||||||
| Discount rate | 5.76 | % | 5.56 | % | ||||
| Rate of compensation increase | 4.00 | % | 4.00 | % | ||||
F-28
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The objective of our discount rate assumption was to reflect the rate at which the pension benefits could be effectively settled. In making this determination, we took into account the timing and amount of benefits that would be available under the plan. To that effect, our methodology for selecting the discount rates as of December 31, 20052006 was to match the plan’s cash flows to that of a yield curve that provides the equivalent yields on zero-coupon corporate bonds for each maturity. Benefit cash flows due in a particular year can be “settled” theoretically by “investing” them in the zero-coupon bond that matures in the same year. The discount rate is the single rate that produces the same present value of cash flows. The selection of the 5.56%5.76% discount rate as of December 31, 20052006 represents the equivalent single rate under a broad-market AA yield curve constructed by Mercer Human Resource Consulting.
A reconciliation of plan assets as of December 31 follows (in thousands):
| 2005 | 2004 | |||||||
| Fair value of assets, beginning of year | $ | 249,000 | $ | 237,045 | ||||
| Actual return on assets | 16,464 | 28,507 | ||||||
| Transfer to retiree medical plan | — | (950 | ) | |||||
| Benefits and expenses paid | (16,583 | ) | (15,602 | ) | ||||
| Fair value of assets, end of year | $ | 248,881 | $ | 249,000 | ||||
F-27
| 2006 | 2005 | |||||||
| Fair value of assets, beginning of year | $ | 248,881 | $ | 249,000 | ||||
| Actual return on assets | 29,558 | 16,464 | ||||||
| Settlements | (15,244 | ) | — | |||||
| Benefits and expenses paid | (10,357 | ) | (16,583 | ) | ||||
| Fair value of assets, end of year | $ | 252,838 | $ | 248,881 | ||||
A reconciliation of funded status as of December 31 follows (in thousands):
| 2005 | 2004 | |||||||
| Accumulated benefit obligation | $ | 159,645 | $ | 153,423 | ||||
| Projected benefit obligation | 161,235 | 155,750 | ||||||
| Market value of assets | 248,881 | 249,000 | ||||||
| Funded status | 87,646 | 93,250 | ||||||
| Unrecognized prior service costs | 5,450 | 6,694 | ||||||
| Unrecognized actuarial net loss (gain) | 1,948 | (5,865 | ) | |||||
| Prepaid pension asset | $ | 95,044 | $ | 94,079 | ||||
| 2006 | 2005 | |||||||
| Projected benefit obligation | $ | 151,971 | $ | 161,235 | ||||
| Market value of assets | 252,838 | 248,881 | ||||||
| Funded status | $ | 100,867 | $ | 87,646 | ||||
The Company recognized a pension asset of $100.8 million and $95.0 million at December 31, 2006 and 2005, respectively. The accumulated benefit obligation of the Pension Plan was $150.4 million and $159.6 million at December 31, 2006 and 2005, respectively.
Expected benefit payments for the next ten years are as follows:
| Expected Benefit | ||||
| Year Ended | Payments | |||
| (In thousands) | ||||
| 2006 | $ | 25,423 | ||
| 2007 | 11,963 | |||
| 2008 | 12,330 | |||
| 2009 | 12,048 | |||
| 2010 | 12,880 | |||
| 2011-2015 | 66,761 | |||
| Expected Benefit | ||||
Year Ended | Payments | |||
| (In thousands) | ||||
| 2007 | $ | 14,783 | ||
| 2008 | 11,210 | |||
| 2009 | 11,754 | |||
| 2010 | 12,761 | |||
| 2011 | 13,127 | |||
| 2012-2016 | 64,866 | |||
Postretirement Benefits
In 2006, 2005 and 2004, 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. A liability of $4.2$8.5 million and $3.1$4.2 million has been included in accrued liabilities to reflect the Company’s obligation to fund postretirement benefits at December 31, 2006 and 2005, respectively. The liability at December 31, 2006 represents the funded status of the obligation.
F-29
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred Compensation Plans and ESPP
The Company maintains a 401(k) retirement plan covering substantially all officers and employees, which permits participants to defer up to the maximum allowable amount determined by the Internal Revenue Service of their eligible compensation. This deferred compensation, together with Company matching contributions, which generally equal 50% of employee deferrals up to a maximum of 6% of their eligible compensation, is fully vested and funded as of December 31, 2006. The Company contributions to the plan were approximately $1.6 million, $2.2 million and $2.0 million in 2006, 2005 and 2004, respectively.
The Company has a Supplemental Executive Retirement Plan (“SERP”) and a Deferred Capital Accumulation Plan (“DCAP”). The SERP is a non-qualified retirement plan to provide supplemental retirement benefits to certain selected management and highly compensated employees. The DCAP is a non-qualified defined contribution plan to permit certain selected management and highly compensated employees to defer receipt of current compensation. The Company has recorded expense in 2006, 2005 2004, and 20032004 related to the SERP of $1.2 million, $2.4 million, $1.3 million, and $1.7 million, respectively, and related to the DCAP of $0.8 million, $1.0 million $1.1 million, and $1.0$1.1 million, respectively.
Beginning in November 1999, the Company also implemented an employee stock purchase plan (“ESPP”), whereby all employees may purchase the Company’s common stock through payroll deductions at a 15% discount from the fair market value, with an annual limit of $25,000 in purchases per employee.
F-28
As of December 31, 2006 and 2005, 243,028 and 2004, 215,528 and 172,250 shares, respectively of the Company’s stock had been sold to employees under the ESPP Plan.
| Segment Information |
The Company conducts primarily all of its business in four reportable operating segments: residential real estate (formerly Towns & Resorts,Resorts), commercial real estate, rural land sales, and forestry. The Towns & Resortsresidential real estate segment develops and sells home sites and housing units and home sites and manages residential communities. The commercial real estate segment owns and leases commercial, retail, office and industrial properties throughout the Southeastin Florida, owns and leases office buildings in Georgia and Virginia, and sells developed and undeveloped land and buildings. The rural land sales segment sells parcels of land included in the Company’s holdings of timberlands. The forestry segment produces and sells pine pulpwood and timber and cypress products.
The Company currently uses income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes and minority interest for purposes of making decisions about allocating resources to each segment and assessing each segment’s performance, which we believethe Company believes represents current performance measures.
The accounting policies of the segments are the same as those described above in the summary of significant accounting policies. Total revenues represent sales to unaffiliated customers, as reported in the Company’s consolidated income statements.statements of income. All intercompany transactions have been eliminated. The caption entitled “Other” consists of general and administrative expenses, net of investment income.
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.units, though effective August 18, 2006, implementation of strategy and decisions is deployed through geographic-based managers.
The historical results of operations of RiverCamps on Crooked Creek have been reclassified from the rural land sales segment to the residential real estate segment to conform to the current period’s presentation.
F-29
F-30
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Information by business segment follows (in thousands):
| 2005 | 2004 | 2003 | |||||||||||
| OPERATING REVENUES: | |||||||||||||
| Towns & Resorts | $ | 707,934 | $ | 617,588 | $ | 494,919 | |||||||
| Commercial real estate | 103,043 | 118,835 | 48,087 | ||||||||||
| Land sales | 99,290 | 72,046 | 99,206 | ||||||||||
| Forestry | 27,925 | 35,183 | 36,562 | ||||||||||
| Other | — | (21 | ) | 79 | |||||||||
| Consolidated operating revenues | $ | 938,192 | $ | 843,631 | $ | 678,853 | |||||||
| Income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes and minority interest: | |||||||||||||
| Towns & Resorts | $ | 137,063 | $ | 99,930 | $ | 80,633 | |||||||
| Commercial real estate | 22,704 | 21,659 | 11,960 | ||||||||||
| Land sales | 68,915 | 56,671 | 77,709 | ||||||||||
| Forestry | 4,664 | 9,091 | 8,059 | ||||||||||
| Other | (60,244 | ) | (53,970 | ) | (42,364 | ) | |||||||
| Consolidated income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes and minority interest | $ | 173,102 | $ | 133,381 | $ | 135,997 | |||||||
| TOTAL ASSETS: | |||||||||||||
| Towns & Resorts | $ | 657,431 | $ | 588,705 | $ | 501,924 | |||||||
| Commercial real estate | 510,522 | 534,113 | 527,157 | ||||||||||
| Land sales | 48,204 | 32,150 | 15,093 | ||||||||||
| Forestry | 147,874 | 90,169 | 90,837 | ||||||||||
| Corporate | 227,915 | 158,492 | 140,719 | ||||||||||
| Total assets | $ | 1,591,946 | $ | 1,403,629 | $ | 1,275,730 | |||||||
| CAPITAL EXPENDITURES: | |||||||||||||
| Towns & Resorts | $ | 553,911 | $ | 495,298 | $ | 347,207 | |||||||
| Commercial real estate | 34,534 | 134,378 | 123,718 | ||||||||||
| Land sales | 19,305 | 7,253 | 3,306 | ||||||||||
| Forestry | 62,350 | 3,463 | 3,437 | ||||||||||
| Other | 4,040 | 2,770 | 8,259 | ||||||||||
| Discontinued operations | 2,174 | 305 | — | ||||||||||
| Total capital expenditures | $ | 676,314 | $ | 643,467 | $ | 485,927 | |||||||
| 2006 | 2005 | 2004 | ||||||||||
| OPERATING REVENUES: | ||||||||||||
| Residential real estate | $ | 539,564 | $ | 738,364 | $ | 621,599 | ||||||
| Commercial real estate | 88,732 | 96,975 | 113,206 | |||||||||
| Rural land sales | 89,990 | 68,860 | 68,035 | |||||||||
| Forestry | 29,906 | 27,925 | 35,183 | |||||||||
| Other | — | — | (21 | ) | ||||||||
| Consolidated operating revenues | $ | 748,192 | $ | 932,124 | $ | 838,002 | ||||||
| Income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes and minority interest: | ||||||||||||
| Residential real estate | $ | 36,595 | $ | 155,367 | $ | 101,292 | ||||||
| Commercial real estate | 21,761 | 22,227 | 21,148 | |||||||||
| Rural land sales | 72,525 | 50,611 | 55,309 | |||||||||
| Forestry | 4,412 | 4,664 | 9,091 | |||||||||
| Other | (73,020 | ) | (60,244 | ) | (53,969 | ) | ||||||
| Consolidated income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes and minority interest | $ | 62,273 | $ | 172,625 | $ | 132,871 | ||||||
| TOTAL ASSETS: | ||||||||||||
| Residential real estate | $ | 838,773 | $ | 666,788 | $ | 599,206 | ||||||
| Commercial real estate | 389,840 | 510,522 | 534,138 | |||||||||
| Rural land sales | 30,907 | 38,847 | 25,466 | |||||||||
| Forestry | 149,323 | 147,874 | 90,169 | |||||||||
| Corporate | 151,552 | 227,915 | 154,650 | |||||||||
| Total assets | $ | 1,560,395 | $ | 1,591,946 | $ | 1,403,629 | ||||||
| CAPITAL EXPENDITURES: | ||||||||||||
| Residential real estate | $ | 570,925 | $ | 568,477 | $ | 500,342 | ||||||
| Commercial real estate | 24,309 | 34,534 | 134,378 | |||||||||
| Rural land sales | 7,357 | 4,739 | 2,209 | |||||||||
| Forestry | 3,378 | 62,350 | 3,463 | |||||||||
| Other | 1,632 | 4,040 | 2,770 | |||||||||
| Discontinued operations | 322 | 2,174 | 305 | |||||||||
| Total capital expenditures | $ | 607,923 | $ | 676,314 | $ | 643,467 | ||||||
| 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
F-30
F-31
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The future minimum rental commitments under noncancelable long-term operating leases due over the next five years and thereafter are as follows (in thousands):
| 2006 | $ | 1,392 | ||
| 2007 | 1,059 | |||
| 2008 | 141 | |||
| 2009 | 55 | |||
| 2010 | 7 | |||
| Thereafter | — | |||
| $ | 2,654 | |||
| 2007 | $ | 1,200 | ||
| 2008 | 424 | |||
| 2009 | 337 | |||
| 2010 | 82 | |||
| 2011 | 3 | |||
| Thereafter | — | |||
| $ | 2,046 | |||
The Company and its affiliates are involved in litigation on a number of matters and are subject to various 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. We have established estimated accruals for our various litigation matters which meet the requirements ofSFAS No. 5,Accounting for Contingencies. However, it is possible that the actual amounts of liabilities resulting from such matters could exceed such accruals by several million dollars.
The Company has retained certain self-insurance risks with respect to losses for third party liability, worker’sworkers’ compensation, property damage, group health insurance provided to employees and other types of insurance.
At December 31, 2006 and December 31, 2005, the Company was party to surety bonds of $64.3 million and $46.4 million, respectively, and standby letters of credit in the amounts of $46.4$25.0 million and $30.3 million, respectively, which may potentially result in liability to the Company if certain obligations of the Company are not met.
At December 31, 20052006 and 2004,December 31, 2005, the Company was not liable as guarantor on any credit obligations that relate to unconsolidated affiliates or others in accordance withFASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.
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 can be reasonably estimated. As assessments and cleanups proceed, these accruals will beare reviewed and adjusted, if necessary, as additional information becomes available.
Pursuant to the terms of various agreements by which the Company disposed of its sugar assets in 1999, the Company is obligated to complete certain defined environmental remediation. Approximately $5.0$6.7 million of the sales proceeds remainwas placed in escrow pending the completion of the remediation. The Company has separately funded the costs of remediation. In addition, approximately $1.7 million is being held in escrow representing the value of the land subject to remediation. Remediation was substantially completed in 2003. TheCompletion of remediation on one of the subject parcels occurred during the third quarter of 2006, resulting in the release of approximately $2.9 million of the escrowed funds to the Company expectson August 1, 2006. We expect the remaining remediation to be complete and the amounts$3.8 million held in escrow to be released to the Company in 2006.early 2007. The release of escrow funds will not have any effect on our earnings.
F-32
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s former paper mill site in Gulf County and certain adjacent real property north of the paper mill site are subject to various Consent Agreements and Brownfield Site Rehabilitation Agreements with the Florida Department of Environmental Protection. The paper mill site has been assessed and rehabilitated by Smurfit-Stone Container Corporation in accordance with these agreements. The Company is in the process of rehabilitating the adjacent real property
F-31
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 Company’s consolidated financial position, results of operations or liquidity. Aggregate environmental-related accruals were $3.4 million and $4.0 million and $4.1 million as ofat December 31, 20052006 and 2004,2005, respectively.
| Quarterly Financial Data (Unaudited) |
| Quarters Ended | ||||||||||||||||
| December 31 | September 30 | June 30 | March 31 | |||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||
2005 | ||||||||||||||||
| Operating revenues | $ | 257,674 | $ | 235,514 | $ | 260,298 | $ | 184,706 | ||||||||
| Operating profit | 53,808 | 43,348 | 57,916 | 25,717 | ||||||||||||
| Net income | 37,224 | 36,108 | 37,914 | 15,412 | ||||||||||||
| Earnings per share — Basic | 0.50 | 0.48 | 0.50 | 0.20 | ||||||||||||
| Earnings per share — Diluted | 0.49 | 0.47 | 0.50 | 0.21 | ||||||||||||
2004 | ||||||||||||||||
| Operating revenues | $ | 257,465 | $ | 219,759 | $ | 206,387 | $ | 160,020 | ||||||||
| Operating profit | 44,583 | 36,416 | 37,809 | 21,057 | ||||||||||||
| Net income | 28,087 | 26,303 | 22,749 | 12,961 | ||||||||||||
| Earnings per share — Basic | 0.37 | 0.35 | 0.30 | 0.17 | ||||||||||||
| Earnings per share — Diluted | 0.37 | 0.34 | 0.30 | 0.17 | ||||||||||||
| Quarters Ended | ||||||||||||||||
| December 31 | September 30 | June 30 | March 31 | |||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||
2006 | ||||||||||||||||
| Operating revenues | $ | 210,667 | $ | 177,950 | $ | 193,757 | $ | 165,818 | ||||||||
| Operating profit | 36,793 | 4,332 | 28,533 | 8,569 | ||||||||||||
| Net income | 22,346 | 5,984 | 18,984 | 3,706 | ||||||||||||
| Earnings per share — Basic | 0.30 | 0.08 | 0.25 | 0.05 | ||||||||||||
| Earnings per share — Diluted | 0.30 | 0.08 | 0.25 | 0.05 | ||||||||||||
2005 | ||||||||||||||||
| Operating revenues | $ | 256,118 | $ | 234,005 | $ | 258,755 | $ | 183,246 | ||||||||
| Operating profit | 53,355 | 42,939 | 57,434 | 25,288 | ||||||||||||
| Net income | 37,223 | 36,107 | 37,916 | 15,412 | ||||||||||||
| Earnings per share — Basic | 0.50 | 0.48 | 0.50 | 0.21 | ||||||||||||
| Earnings per share — Diluted | 0.49 | 0.47 | 0.50 | 0.20 | ||||||||||||
Amounts previously reported inForm 10-Q for the 2006 and 2005 quarters differ from the amounts reported herein as a result of the Company’s reporting of discontinued operations.
F-32
F-33
THE ST. JOE COMPANY
DECEMBER 31, 2006
| Initial Cost to Company | Carried at Close of Periods | |||||||||||||||||||||||||||||||
| Costs Capitalized | ||||||||||||||||||||||||||||||||
| Buildings & | Subsequent to | Land & Land | Buildings and | Accumulated | ||||||||||||||||||||||||||||
Description | Encumbrances | Land | Improvements | Acquisition | Improvements | Improvements | Total | Depreciation | ||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Bay County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | $ | 3,342 | $ | 674 | $ | — | $ | 28,849 | $ | 29,523 | $ | — | $ | 29,523 | $ | 249 | ||||||||||||||||
| Buildings | — | — | 1,296 | 13,020 | — | 14,316 | 14,316 | 3,005 | ||||||||||||||||||||||||
| Residential | — | 3,079 | — | 50,226 | 53,305 | — | 53,305 | — | ||||||||||||||||||||||||
| Timberlands | — | 3,896 | — | 12,682 | 16,578 | — | 16,578 | 300 | ||||||||||||||||||||||||
| Unimproved land | — | 5,727 | — | (4,184 | ) | 1,543 | — | 1,543 | — | |||||||||||||||||||||||
Broward County, Florida | ||||||||||||||||||||||||||||||||
| Building | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Calhoun County, Florida | ||||||||||||||||||||||||||||||||
| Buildings | — | — | 96 | 85 | — | 181 | 181 | 20 | ||||||||||||||||||||||||
| Timberlands | — | 1,774 | — | 5,399 | 7,173 | — | 7,173 | 130 | ||||||||||||||||||||||||
| Unimproved land | — | 979 | — | 870 | 1,849 | — | 1,849 | — | ||||||||||||||||||||||||
Duval County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 255 | — | 5 | 260 | — | 260 | — | ||||||||||||||||||||||||
| Buildings | — | 3,450 | 5 | 22,826 | — | 26,281 | 26,281 | 5,168 | ||||||||||||||||||||||||
| Residential | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Timberlands | — | — | — | 1 | 1 | — | 1 | — | ||||||||||||||||||||||||
Franklin County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 111 | — | 300 | 411 | — | 411 | — | ||||||||||||||||||||||||
| Residential | — | 9,120 | — | 21,745 | 30,865 | — | 30,865 | — | ||||||||||||||||||||||||
| Timberlands | — | 1,241 | — | 1,561 | 2,802 | — | 2,802 | 51 | ||||||||||||||||||||||||
| Unimproved Land | — | 211 | — | 3 | 214 | — | 214 | 5 | ||||||||||||||||||||||||
| Buildings | — | — | 1,537 | 586 | — | 2,123 | 2,123 | 351 | ||||||||||||||||||||||||
Gadsden County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | — | — | 3,249 | 3,249 | — | 3,249 | — | ||||||||||||||||||||||||
| Timberlands | — | 1,302 | — | 2,060 | 3,362 | — | 3,362 | 61 | ||||||||||||||||||||||||
| Unimproved land | — | 1,836 | — | 574 | 2,410 | — | 2,410 | — | ||||||||||||||||||||||||
S-1
THE ST. JOE COMPANY
SCHEDULE III (CONSOLIDATED) — REAL ESTATE AND ACCUMULATED DEPRECIATION
| Initial Cost to Company | |||||||||||||||||||||||||||||||||
| Costs | Carried at Close of Periods | ||||||||||||||||||||||||||||||||
| Capitalized | |||||||||||||||||||||||||||||||||
| Buildings & | Subsequent to | Land & Land | Buildings and | Accumulated | |||||||||||||||||||||||||||||
| Description | Encumbrances | Land | Improvements | Acquisition | Improvements | Improvements | Total | Depreciation | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||
Bay County, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | $ | — | $ | 674 | $ | — | $ | 22,216 | $ | 22,890 | $ | — | $ | 22,890 | $ | 167 | |||||||||||||||||
| Buildings | — | — | 1,287 | 13,930 | — | 15,217 | 15,217 | 2,419 | |||||||||||||||||||||||||
| Residential | — | 1,011 | — | 18,438 | 19,449 | — | 19,449 | — | |||||||||||||||||||||||||
| Timberlands | — | 3,896 | — | 11,729 | 15,625 | — | 15,625 | 307 | |||||||||||||||||||||||||
| Unimproved land | — | 5,727 | — | — | 5,727 | — | 5,727 | — | |||||||||||||||||||||||||
Broward County, Florida | |||||||||||||||||||||||||||||||||
| Building | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Calhoun County, Florida | |||||||||||||||||||||||||||||||||
| Buildings | — | — | 38 | — | — | 38 | 38 | — | |||||||||||||||||||||||||
| Timberlands | — | 1,774 | — | 4,955 | 6,729 | — | 6,729 | 132 | |||||||||||||||||||||||||
| Unimproved land | — | 979 | — | — | 979 | — | 979 | — | |||||||||||||||||||||||||
Duval Country, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 255 | — | 57 | 312 | — | 312 | — | |||||||||||||||||||||||||
| Buildings | — | 3,450 | 5 | 22,105 | — | 25,560 | 25,560 | 3,752 | |||||||||||||||||||||||||
| Residential | — | — | — | (11 | ) | (11 | ) | — | (11 | ) | — | ||||||||||||||||||||||
| Timberlands | — | — | — | 1 | 1 | — | 1 | — | |||||||||||||||||||||||||
Franklin Country, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 44 | — | 136 | 180 | — | 180 | — | |||||||||||||||||||||||||
| Residential | — | 8,888 | — | 14,074 | 22,962 | — | 22,962 | — | |||||||||||||||||||||||||
| Timberlands | — | 1,241 | — | 1,413 | 2,654 | — | 2,654 | 52 | |||||||||||||||||||||||||
| Unimproved Land | — | 212 | — | — | 212 | — | 212 | — | |||||||||||||||||||||||||
| Buildings | — | — | 488 | 407 | — | 895 | 895 | 121 | |||||||||||||||||||||||||
Gadsden Country, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | — | — | — | 3,134 | 3,134 | — | 3,134 | — | |||||||||||||||||||||||||
| Timberlands | — | 1,302 | — | 2,527 | 3,829 | — | 3,829 | 75 | |||||||||||||||||||||||||
| Unimproved land | — | 1,836 | — | — | 1,836 | — | 1,836 | — | |||||||||||||||||||||||||
| Initial Cost to Company | Carried at Close of Period | |||||||||||||||||||||||||||||||
| Costs Capitalized | ||||||||||||||||||||||||||||||||
| Buildings & | Subsequent to | Land & Land | Buildings and | Accumulated | ||||||||||||||||||||||||||||
Description | Encumbrances | Land | Improvements | Acquisition | Improvements | Improvements | Total | Depreciation | ||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Gulf County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 4,423 | — | 1,403 | 5,826 | — | 5,826 | 176 | ||||||||||||||||||||||||
| Buildings | — | — | 930 | 3,097 | — | 4,027 | 4,027 | 549 | ||||||||||||||||||||||||
| Residential | — | 28,915 | — | 97,848 | 126,763 | — | 126,763 | — | ||||||||||||||||||||||||
| Timberlands | — | 5,238 | — | 18,371 | 23,609 | — | 23,609 | 427 | ||||||||||||||||||||||||
| Unimproved land | — | 521 | — | 527 | 1,048 | — | 1,048 | — | ||||||||||||||||||||||||
Hillsborough County, Florida | ||||||||||||||||||||||||||||||||
| Buildings | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Jefferson County, Florida | ||||||||||||||||||||||||||||||||
| Buildings | — | — | — | 198 | — | 198 | 198 | 175 | ||||||||||||||||||||||||
| Timberlands | — | 1,547 | — | 830 | 2,377 | — | 2,377 | 43 | ||||||||||||||||||||||||
| Unimproved land | — | 269 | — | (83 | ) | 186 | — | 186 | — | |||||||||||||||||||||||
Leon County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 1,418 | — | 16,220 | 17,638 | — | 17,638 | 1,042 | ||||||||||||||||||||||||
| Buildings | — | — | 5,580 | 21,325 | — | 26,905 | 26,905 | 3,987 | ||||||||||||||||||||||||
| Residential | 28,571 | 35 | — | 31,612 | 31,647 | — | 31,647 | — | ||||||||||||||||||||||||
| Timberlands | — | 923 | — | 2,921 | 3,844 | — | 3,844 | 70 | ||||||||||||||||||||||||
| Unimproved land | — | 1,656 | — | (705 | ) | 951 | — | 951 | — | |||||||||||||||||||||||
Liberty County, Florida | ||||||||||||||||||||||||||||||||
| Buildings | — | — | 821 | 28 | — | 849 | 849 | 192 | ||||||||||||||||||||||||
| Timberlands | — | 3,244 | 205 | 7,857 | 11,306 | — | 11,306 | 253 | ||||||||||||||||||||||||
| Unimproved land | — | 174 | — | 18 | 192 | — | 192 | — | ||||||||||||||||||||||||
Manatee County | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 54 | — | — | 54 | — | 54 | 3 | ||||||||||||||||||||||||
| Buildings | — | — | 2,379 | — | — | 2,379 | 2,379 | 134 | ||||||||||||||||||||||||
| Residential | 1,123 | 24,051 | — | 11,357 | 35,408 | — | 35,408 | — | ||||||||||||||||||||||||
S-2
THE ST. JOE COMPANY
SCHEDULE III (CONSOLIDATED) — CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
| Initial Cost to Company | |||||||||||||||||||||||||||||||||
| Costs | Carried at Close of Period | ||||||||||||||||||||||||||||||||
| Capitalized | |||||||||||||||||||||||||||||||||
| Buildings & | Subsequent to | Land & Land | Buildings and | Accumulated | |||||||||||||||||||||||||||||
| Description | Encumbrances | Land | Improvements | Acquisition | Improvements | Improvements | Total | Depreciation | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||
Gulf County, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | $ | — | $ | 322 | $ | — | $ | 778 | $ | 1,100 | $ | — | $ | 1,100 | $ | 146 | |||||||||||||||||
| Buildings | — | — | 541 | 409 | — | 950 | 950 | 339 | |||||||||||||||||||||||||
| Residential | — | 1,674 | — | 35,167 | 36,841 | — | 36,841 | — | |||||||||||||||||||||||||
| Timberlands | — | 5,238 | — | 16,443 | 21,681 | — | 21,681 | 426 | |||||||||||||||||||||||||
| Unimproved land | — | 521 | — | — | 521 | — | 521 | — | |||||||||||||||||||||||||
Hillsborough Country, Florida | |||||||||||||||||||||||||||||||||
| Buildings | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Jefferson County, Florida | |||||||||||||||||||||||||||||||||
| Buildings | — | — | — | 198 | — | 198 | 198 | 173 | |||||||||||||||||||||||||
| Timberlands | — | 1,547 | — | 977 | 2,524 | — | 2,524 | 50 | |||||||||||||||||||||||||
| Unimproved land | — | 269 | — | — | 269 | — | 269 | — | |||||||||||||||||||||||||
Leon County, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 1,418 | — | 11,068 | 12,486 | — | 12,486 | 818 | |||||||||||||||||||||||||
| Buildings | — | — | 5,580 | 19,354 | — | 24,934 | 24,934 | 2,417 | |||||||||||||||||||||||||
| Residential | — | 265 | — | 39,340 | 39,605 | — | 39,605 | — | |||||||||||||||||||||||||
| Timberlands | — | 923 | — | 2,803 | 3,726 | — | 3,726 | 73 | |||||||||||||||||||||||||
| Unimproved land | — | 1,656 | — | — | 1,656 | — | 1,656 | — | |||||||||||||||||||||||||
Liberty County, Florida | |||||||||||||||||||||||||||||||||
| Buildings | — | — | 777 | 67 | — | 844 | 844 | 160 | |||||||||||||||||||||||||
| Timberlands | — | 3,244 | 205 | 7,769 | 11,218 | — | 11,218 | 254 | |||||||||||||||||||||||||
| Unimproved land | — | 174 | — | — | 174 | — | 174 | — | |||||||||||||||||||||||||
Manatee County | |||||||||||||||||||||||||||||||||
| Buildings | — | 2,059 | — | — | 2,059 | 2,059 | 43 | ||||||||||||||||||||||||||
| Residential | 16,015 | — | 3,719 | 19,734 | — | 19,734 | — | ||||||||||||||||||||||||||
Orange County, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | — | (106 | ) | — | — | (106 | ) | — | (106 | ) | — | ||||||||||||||||||||||
| Buildings | — | — | 40,733 | 8,009 | — | 48,742 | 48,742 | 6,701 | |||||||||||||||||||||||||
| Initial Cost to Company | Carried at Close of Period | |||||||||||||||||||||||||||||||
| Costs Capitalized | ||||||||||||||||||||||||||||||||
| Buildings & | Subsequent to | Land & Land | Buildings and | Accumulated | ||||||||||||||||||||||||||||
Description | Encumbrances | Land | Improvements | Acquisition | Improvements | Improvements | Total | Depreciation | ||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Orange County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | (106 | ) | — | — | (106 | ) | — | (106 | ) | — | |||||||||||||||||||||
| Buildings | 11,207 | — | 40,733 | 9,730 | — | 50,463 | 50,463 | 8,901 | ||||||||||||||||||||||||
Osceola County | — | |||||||||||||||||||||||||||||||
| Land with infrastructure | — | 80 | — | (80 | ) | — | — | — | — | |||||||||||||||||||||||
| Residential | 710 | 5,773 | — | 22,998 | 28,771 | — | 28,771 | — | ||||||||||||||||||||||||
| Buildings | — | — | 180 | (180 | ) | — | — | — | — | |||||||||||||||||||||||
Palm Beach County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | (29 | ) | — | — | (29 | ) | — | (29 | ) | — | |||||||||||||||||||||
| Buildings | — | — | 5 | 138 | — | 143 | 143 | 114 | ||||||||||||||||||||||||
Pinellas County, Florida | ||||||||||||||||||||||||||||||||
| Buildings | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
St. Johns County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 5,197 | — | 7,270 | 7,277 | — | 7,277 | 530 | ||||||||||||||||||||||||
| Buildings | — | — | 1,854 | 963 | — | 2,817 | 2,817 | 498 | ||||||||||||||||||||||||
| Residential | 4,199 | 8,896 | — | 26,058 | 34,954 | — | 34,954 | — | ||||||||||||||||||||||||
Volusia County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 6,048 | — | 711 | 6,759 | — | 6,759 | 1,517 | ||||||||||||||||||||||||
| Buildings | — | — | 1,644 | 2,265 | — | 3,909 | 3,909 | 598 | ||||||||||||||||||||||||
| Residential | — | 14,929 | — | 58,228 | 73,157 | — | 73,157 | — | ||||||||||||||||||||||||
Wakulla County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | — | — | 391 | 391 | — | 391 | — | ||||||||||||||||||||||||
| Buildings | — | — | 81 | 1 | — | 82 | 82 | 50 | ||||||||||||||||||||||||
| Timberlands | — | 1,175 | — | 1,478 | 2,653 | — | 2,653 | 48 | ||||||||||||||||||||||||
| Unimproved Land | — | 30 | — | — | 30 | — | 30 | — | ||||||||||||||||||||||||
S-3
THE ST. JOE COMPANY
SCHEDULE III (CONSOLIDATED) — CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
| Initial Cost to Company | |||||||||||||||||||||||||||||||||
| Costs | Carried at Close of Period | ||||||||||||||||||||||||||||||||
| Capitalized | |||||||||||||||||||||||||||||||||
| Buildings & | Subsequent to | Land & Land | Buildings and | Accumulated | |||||||||||||||||||||||||||||
| Description | Encumbrances | Land | Improvements | Acquisition | Improvements | Improvements | Total | Depreciation | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||
Osceola County | |||||||||||||||||||||||||||||||||
| Land with infrastructure | $ | 80 | $ | — | $ | — | $ | 80 | $ | — | $ | 80 | $ | — | |||||||||||||||||||
| Residential | — | 6,941 | — | 19,397 | 26,338 | — | 26,338 | — | |||||||||||||||||||||||||
| Buildings | — | — | 180 | — | — | 180 | 180 | 25 | |||||||||||||||||||||||||
Palm Beach County, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | — | (29 | ) | — | — | (29 | ) | — | (29 | ) | — | ||||||||||||||||||||||
| Buildings | — | — | 5 | 138 | — | 143 | 143 | 80 | |||||||||||||||||||||||||
Pinellas County, Florida | |||||||||||||||||||||||||||||||||
| Buildings | — | — | 12,647 | 2,283 | — | 14,930 | 14,930 | 2,680 | |||||||||||||||||||||||||
St. Johns County, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 5,197 | — | 2,081 | 7,277 | — | 7,277 | 435 | |||||||||||||||||||||||||
| Buildings | — | — | 1,793 | 836 | — | 2,629 | 2,629 | 399 | |||||||||||||||||||||||||
| Residential | — | 4,628 | — | 22,679 | 27,307 | — | 27,307 | — | |||||||||||||||||||||||||
Volusia County, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 6,045 | — | 553 | 6,598 | — | 6,598 | 1,174 | |||||||||||||||||||||||||
| Buildings | — | — | 1,644 | 2,139 | — | 3,783 | 3,783 | 396 | |||||||||||||||||||||||||
| Residential | — | 9,521 | — | 59,065 | 68,586 | — | 68,586 | — | |||||||||||||||||||||||||
Wakulia County, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | — | — | — | 106 | 106 | — | 106 | — | |||||||||||||||||||||||||
| Buildings | — | — | — | 122 | — | 122 | 122 | 86 | |||||||||||||||||||||||||
| Timberlands | — | 1,175 | — | 1,584 | 2,759 | — | 2,759 | 54 | |||||||||||||||||||||||||
| Unimproved Land | — | 30 | — | 9 | 39 | — | 39 | — | |||||||||||||||||||||||||
Walton County, Florida | |||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 14,472 | — | 4,313 | 18,785 | — | 18,785 | 2,743 | |||||||||||||||||||||||||
| Buildings | — | — | 26,210 | 2,391 | — | 28,601 | 28,601 | 3,753 | |||||||||||||||||||||||||
| Residential | — | 9,323 | — | 79,220 | 88,543 | — | 88,543 | — | |||||||||||||||||||||||||
| Timberlands | — | 354 | — | 934 | 1,288 | — | 1,288 | 26 | |||||||||||||||||||||||||
| Unimproved Land | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Initial Cost to Company | Carried at Close of Period | |||||||||||||||||||||||||||||||
| Costs Capitalized | ||||||||||||||||||||||||||||||||
| Buildings & | Subsequent to | Land & Land | Buildings and | Accumulated | ||||||||||||||||||||||||||||
Description | Encumbrances | Land | Improvements | Acquisition | Improvements | Improvements | Total | Depreciation | ||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Walton County, Florida | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 16,067 | — | 4,470 | 20,537 | — | 20,537 | 3,479 | ||||||||||||||||||||||||
| Buildings | — | — | 33,487 | 2,792 | — | 36,279 | 36,279 | 5,123 | ||||||||||||||||||||||||
| Residential | 6,277 | 10,696 | — | 117,775 | 128,471 | — | 128,471 | — | ||||||||||||||||||||||||
| Timberlands | — | 354 | — | 1,059 | 1,413 | — | 1,413 | 26 | ||||||||||||||||||||||||
| Unimproved land | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other Florida Counties | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Timberlands | — | 689 | — | 177 | 866 | — | 866 | 16 | ||||||||||||||||||||||||
| Unimproved land | — | 79 | — | 126 | 205 | — | 205 | — | ||||||||||||||||||||||||
District of Columbia | ||||||||||||||||||||||||||||||||
| Buildings | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Georgia | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 12,093 | — | 992 | 13,085 | — | 13,085 | 50 | ||||||||||||||||||||||||
| Buildings | 60,644 | — | 151,528 | 8,546 | — | 160,074 | 160,074 | 14,965 | ||||||||||||||||||||||||
| Timberlands | — | 61,353 | — | (1,958 | ) | 59,395 | — | 59,395 | 92 | |||||||||||||||||||||||
| Unimproved land | — | 103 | — | 104 | 207 | — | 207 | — | ||||||||||||||||||||||||
North Carolina | ||||||||||||||||||||||||||||||||
| Residential | 68 | 7,547 | — | 67,479 | 75,026 | — | 75,026 | — | ||||||||||||||||||||||||
| Buildings | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Tennessee | ||||||||||||||||||||||||||||||||
| Unimproved Land | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Texas | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 1,710 | — | 1,150 | 2,860 | — | 2,860 | 44 | ||||||||||||||||||||||||
| Building | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
S-4
THE ST. JOE COMPANY
SCHEDULE III (CONSOLIDATED) — CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
| Initial Cost to Company | ||||||||||||||||||||||||||||||||||
| Costs | Carried at Close of Period | |||||||||||||||||||||||||||||||||
| Capitalized | ||||||||||||||||||||||||||||||||||
| Buildings & | Subsequent to | Land & Land | Buildings and | Accumulated | ||||||||||||||||||||||||||||||
| Description | Encumbrances | Land | Improvements | Acquisition | Improvements | Improvements | Total | Depreciation | ||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||
Other Florida Counties | ||||||||||||||||||||||||||||||||||
| Land with infrastructure | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Timberlands | — | 689 | — | — | 689 | — | 689 | 12 | ||||||||||||||||||||||||||
| Unimproved Land | — | 79 | — | — | 79 | — | 79 | — | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
District of Columbia | ||||||||||||||||||||||||||||||||||
| Buildings | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Georgia | ||||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 12,093 | — | 992 | 13,085 | — | 13,085 | 50 | ||||||||||||||||||||||||||
| Buildings | — | — | 151,492 | 6,361 | — | 157,853 | 157,853 | 9,933 | ||||||||||||||||||||||||||
| Timberlands | — | 61,353 | — | — | 61,353 | — | 61,353 | — | ||||||||||||||||||||||||||
| Unimproved Land | — | 103 | — | — | 103 | — | 103 | — | ||||||||||||||||||||||||||
North Carolina | ||||||||||||||||||||||||||||||||||
| Residential | — | 14,181 | — | 56,258 | 70,439 | — | 70,439 | — | ||||||||||||||||||||||||||
| Buildings | — | — | 17,163 | — | — | 17,163 | 17,163 | 1,127 | ||||||||||||||||||||||||||
Tennessee | ||||||||||||||||||||||||||||||||||
| Unimproved Land | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Texas | ||||||||||||||||||||||||||||||||||
| Land with infrastructure | — | 1,710 | — | 1,101 | 2,811 | — | 2,811 | 44 | ||||||||||||||||||||||||||
| Building | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Virginia | ||||||||||||||||||||||||||||||||||
| Land with infrastructure | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Building | — | — | 57,430 | 31 | — | 57,461 | 57,461 | 686 | ||||||||||||||||||||||||||
| TOTALS | $ | — | $ | 212,394 | $ | 320,277 | $ | 523,805 | $ | 654,173 | $ | 402,302 | $ | 1,056,475 | $ | 42,328 | ||||||||||||||||||
| Initial Cost to Company | Carried at Close of Period | |||||||||||||||||||||||||||||||
| Costs Capitalized | ||||||||||||||||||||||||||||||||
| Buildings & | Subsequent to | Land & Land | Buildings and | Accumulated | ||||||||||||||||||||||||||||
Description | Encumbrances | Land | Improvements | Acquisition | Improvements | Improvements | Total | Depreciation | ||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Virginia | ||||||||||||||||||||||||||||||||
| Land with infrastructure | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Building | 29,565 | — | 57,430 | 358 | — | 57,788 | 57,788 | 2,533 | ||||||||||||||||||||||||
| TOTALS | $ | 145,706 | $ | 258,807 | $ | 299,791 | $ | 705,722 | $ | 870,316 | $ | 388,814 | $ | 1,259,130 | $ | 54,974 | ||||||||||||||||
| (A) | The aggregate cost of real estate owned at December 31, | |
| 2005 | 2004 | 2003 | |||||||||||
| Balance at Beginning of Year | $ | 936,478 | $ | 878,141 | $ | 764,579 | |||||||
| Amounts Capitalized | 705,883 | 615,733 | 446,830 | ||||||||||
| Amounts Retired or Adjusted | (585,886 | ) | (557,396 | ) | (333,268 | ) | |||||||
| Balance at Close of Period | $ | 1,056,475 | $ | 936,478 | $ | 878,141 | |||||||
| (C) Reconciliation of accumulated depreciation (in thousands of dollars): | |||||||||||||
| Balance at Beginning of Year | $ | 34,888 | $ | 30,436 | $ | 17,223 | |||||||
| Depreciation Expense | 18,840 | 14,962 | 24,841 | ||||||||||
| Amounts Retired or Adjusted | (11,400 | ) | (10,510 | ) | (11,628 | ) | |||||||
| Balance at Close of Period | $ | 42,328 | $ | 34,888 | $ | 30,436 | |||||||
(B) Reconciliation of real estate owned (in thousands of dollars):
| 2006 | 2005 | 2004 | ||||||||||||||
| Balance at Beginning of Year | $ | 1,056,475 | $ | 936,478 | $ | 878,141 | ||||||||||
| Amounts Capitalized | 626,621 | 706,254 | 615,733 | |||||||||||||
| Amounts Retired or Adjusted | (423,966 | ) | (586,257 | ) | (557,396 | ) | ||||||||||
| Balance at Close of Period | $ | 1,259,130 | $ | 1,056,475 | $ | 936,478 | ||||||||||
| (C | ) | Reconciliation of accumulated depreciation (in thousands of dollars): | ||||||||||||||
| Balance at Beginning of Year | $ | 42,328 | $ | 34,888 | $ | 30,436 | ||||||||||
| Depreciation Expense | 19,831 | 18,840 | 14,962 | |||||||||||||
| Amounts Retired or Adjusted | (7,185 | ) | (11,400 | ) | (10,510 | ) | ||||||||||
| Balance at Close of Period | $ | 54,974 | $ | 42,328 | $ | 34,888 | ||||||||||
S-5