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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 1-10466
The St. Joe Company
(Exact name of registrant as specified in its charter)
Florida 59-0432511
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 400, 1650 Prudential Drive, Jacksonville, Florida 32207
(Address of principal executive offices) (Zip Code)
(904) 396-6600
(Registrant's telephone number, including area code)
St. Joe Corporation
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(D) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1998 there were 91,697,811 shares of common stock, no par
value, issued and 89,953,821 shares outstanding, with 1,743,990 shares of
treasury stock.
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THE ST. JOE COMPANY
INDEX
Page No.
PART I Financial Information:
Consolidated Balance Sheets-
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Income and
Retained Earnings - Three months and Nine
Months ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows-
Nine months ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 9
PART II Other Information
Exhibits and Reports on Form 8-K 18
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THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1998 1997
(Unaudited)
ASSETS
Current assets:
Cash & cash equivalents $ 85,388 $ 158,568
Short-term investments 53,649 51,034
Accounts receivable 39,874 58,623
Inventory 12,687 15,605
Other assets 37,233 18,562
----------- -----------
Total current assets 228,831 302,392
Investments & Other Assets:
Marketable securities 287,717 306,910
Prepaid pension asset 47,878 40,861
Other assets 151,770 37,341
----------- -----------
Total investment and other assets 487,365 385,112
Property, plant & equipment, net 918,100 859,137
----------- -----------
Total assets $ 1,634,296 $ 1,546,641
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 31,729 $ 29,735
Accrued liabilities 48,529 18,777
Current portion of long-term debt 18,917 --
Income tax payable 6,541 2,150
----------- -----------
Total current liabilities 105,716 50,662
Accrued casualty reserves and other liabilities 16,241 15,014
Deferred income taxes 288,025 275,695
Long-term debt 13,538 --
Minority interest in consolidated subsidiaries 311,567 298,466
Stockholders' Equity:
Common stock, no par value; 180,000,000 shares
authorized; 91,697,811 issued 13,054 13,054
Retained earnings 836,942 817,663
Accumulated comprehensive income 88,167 79,559
Treasury stock, 1,743,990 shares, at cost (36,133) --
Restricted stock deferred compensation (2,821) (3,472)
----------- -----------
Total stockholders' equity 899,209 906,804
----------- -----------
Total liabilities and stockholders' equity $ 1,634,296 $ 1,546,641
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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Three months Nine months
ended September 30, ended September 30,
1998 1997 1998 1997
Net sales $ 14,845 $ 11,047 $ 62,399 $ 79,566
Operating revenues 93,047 58,366 217,617 172,328
------------ ------------ ------------ ------------
Total revenues 107,892 69,413 280,016 251,894
Cost of sales 3,763 4,825 35,726 61,591
Operating expenses 53,913 33,226 125,345 99,320
Depreciation and amortization 10,083 7,911 27,560 22,600
Selling, general and
administrative expenses 22,298 7,564 46,663 26,367
------------ ------------ ------------ ------------
Operating profit 17,835 15,887 44,722 42,016
Other income (expense):
Dividends 1,429 926 3,561 2,583
Interest income 3,637 6,719 13,548 21,955
Interest expense (158) (89) (301) (331)
Gain on sales and other dispositions of property 428 206 960 3,305
Other, net 2,293 2,346 6,151 5,138
------------ ------------ ------------ ------------
Total other income (expense) 7,629 10,108 23,919 32,650
------------ ------------ ------------ ------------
Income before income taxes and minority interest 25,464 25,995 68,641 74,666
Income tax expense:
Current 8,530 7,734 21,695 22,188
Deferred 2,044 3,698 7,762 10,793
------------ ------------ ------------ ------------
Total income tax expense 10,574 11,432 29,457 32,981
Income before minority interest 14,890 14,563 39,184 41,685
Minority interest 5,653 5,507 14,419 13,404
------------ ------------ ------------ ------------
Net income $ 9,237 $ 9,056 $ 24,765 $ 28,281
------------ ------------ ------------ ------------
Retained earnings at beginning of period $ 829,525 $ 835,669 $ 817,663 $ 1,125,161
Dividends (1,820) (1,528) (5,486) (310,244)
------------ ------------ ------------ ------------
Retained earnings at end of period $ 836,942 $ 843,198 $ 836,942 $ 843,198
Per Share Data:
Basic $ 0.10 $ 0.10 $ 0.27 $ 0.31
============ ============ ============ ============
Diluted $ 0.10 $ 0.10 $ 0.27 $ 0.30
============ ============ ============ ============
Shares Outstanding:
Basic 90,950,488 91,697,811 91,448,703 91,694,113
Diluted 91,699,715 93,228,640 92,950,327 92,882,649
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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Nine Months
ended September 30,
1998 1997
(dollars in thousands)
Cash flows from operating activities:
Net income $ 24,765 $ 28,281
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 27,560 23,635
Minority interest in income 14,419 13,404
Equity in earnings of joint ventures (669) --
Gain on sale of property (960) (3,682)
Deferred income tax expense 7,762 12,327
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 24,007 18,174
Inventory 2,918 5,985
Other assets (16,368) (26,870)
Accounts payable, accrued liabilities and casualty reserves 12,672 6,971
Income taxes payable 4,391 (2,988)
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Net cash provided by operating activities 100,497 75,237
Cash flows from investing activities:
Purchases of property, plant and equipment (84,818) (53,256)
Purchases of investments:
Available for sale (724,606) (49,615)
Held to maturity -- (100,336)
Payment for acquisitions and joint ventures, net of cash acquired (97,959) --
Proceeds from disposition of assets 6,262 14,904
Maturities and redemptions of investments:
Available for sale 758,616 62,434
Held to maturity 11,000 114,096
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Net cash used in investing activities (131,505) (11,773)
Cash flows from financing activities:
Increase in notes payable and line of credit, net 700 --
Treasury stock purchased (36,133) --
Dividends and special distributions paid to stockholders (5,486) (310,244)
Dividends paid to minority interest (1,253) (1,247)
Net cash used in financing activities (42,172) (311,491)
Net decrease in cash and cash equivalents (73,180) (248,027)
Cash and cash equivalents at beginning of period 158,568 449,013
--------- ---------
Cash and cash equivalents at end of period $ 85,388 $ 200,986
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 301 $ 331
Income taxes $ 17,238 $ 25,776
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THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and footnotes required by
generally accepted accounting principles for complete financial
statements are not included herein. The interim statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's latest Annual Report on Form 10-K. In the
opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position
as of September 30, 1998 and December 31, 1997 and the results of
operations and cash flows for the nine month periods ended September
30, 1998 and 1997. The results of operations for the three-month and
nine-month periods ended September 30, 1998 and 1997 are not
necessarily indicative of the results that may be expected for the full
year. Certain reclassifications of 1997 amounts between net sales and
operating revenues and cost of sales and operating expenses have been
made to be consistent with current year reporting.
2. On January 22, 1998, the Company entered into a memorandum of
understanding with the National Football League ("NFL") to build and
operate NFL entertainment centers in locations nationwide. On September
18, 1998 the NFL and the Company announced that they mutually agreed
not to proceed with this project further.
3. On February 24, 1998, the Company completed a transaction with the
Codina Group, Inc. ("Codina") and Weeks Corporation by which the
Company and Weeks, among other things, each purchased a one-third
interest in Codina, a commercial/industrial developer, active
principally in southern Florida. The Company intends to develop
commercial, industrial and office property, as well as manage Gran
Central's existing properties in southern Florida, through its interest
in Codina.
4. On February 24, 1998, the Company acquired a 33% interest in ENTROS, a
location-based entertainment company headquartered in Seattle,
Washington that creates and produces interactive games in club settings
and produces game-based programming for corporate events.
5. On July 31, 1998, the Company completed the acquisition of 100% of the
assets of Prudential Florida Realty (PFR) from CMT Holdings, Ltd. PFR
is the largest real estate brokerage, sales and services company in
Florida and the sixth largest in the United States. Under the terms of
the acquisition, the Company bought certain business assets of CMT
Holdings, Ltd., for a total purchase price of approximately $98
million, of which $80 million was paid at closing and $10 million will
be deferred over a two year period. Upon completion of an audit of a
closing balance sheet of the net assets purchased, the remaining
purchase price will be paid within 130 days of closing. There is also
the potential for an additional $10 million in purchase price to be
paid over three to five years if certain performance targets are met.
The acquisition has been accounted for under the purchase method of
accounting and the resulting excess of purchase price over net assets
acquired is approximately $90 million.
6. On September 28, 1998, the Company completed the acquisition of Goodman
Segar Hogan Hoffler LP, (Goodman Segar GVA) a commercial , retail,
office and industrial real estate services company based in Norfolk,
Va. Goodman Segar GVA leases and manages approximately 25 million
square feet of commercial property in the southeast United States with
real estate transactions valued at nearly $1 billion annually. The
purchase has been accounted for using purchase accounting and the
resulting excess of purchase purchase price over net assets acquired is
approximately $16.7 million.
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7. On July 6, 1998, the Company, the U.S. Department of the Interior, and
The Nature Conservancy jointly announced the completion of a final
agreement under which the Company will sell approximately 50,000 acres
of sugarcane lands to The Nature Conservancy, and ultimately to the
governmental partners involved in Everglades restoration. This sale
represents substantially all of the Company's land used for sugar
operations. The sales price for the land is approximately $133.5
million in cash. Under the agreement, the Company retains the right to
farm the land through March 31, 2003. The transaction is subject to the
approval of The Nature Conservancy Board of Governors and certain due
diligence by the purchasers.
On November 5, 1998, a lawsuit was initialized in the United States
District Court for the District of Columbia by various sugar growers of
Florida against Hon. Bruce Babbitt, Secretary of the United States
Department of the Interior. The plaintiffs seek to have the contract
between the U.S. Department of Interior and the Company set aside and
otherwise block the sale of the Company's 50,000 acres. The Company is
not a party to the lawsuit; however the Company has retained counsel to
review and evaluate the merits of the case.
8. Long-term debt and credit agreements at September 30, consisted of
the following:
1998 1997
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Revolving credit agreement, interest payable monthly
at 1.5% per annum; secured by restricted short-term
investments; matures November 15, 1998 $17.0 million -
Non-interest bearing note payable to CMT Holdings, Ltd.
due in equal annual installments beginning July 28, 1999,
net of discount of $.8 million computed at 6% 9.2 million -
Non-interest bearing notes payable to former owners of
Goodman Segar GVA. Due in three annual installments beginning
September 24, 1999, net of discount of $.4 million 4.5 million -
computed at 6%
Various secured and unsecured notes, bearing interest
at rates from Prime to 11.25% 1.8 million -
------------- -
Total $32.5 million -
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9. The Company adopted the provisions of statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", effective January
1, 1998. This Statement establishes standards for reporting and display
of comprehensive income and its components. Comprehensive income for
the nine months ended September 30, 1998 and 1997 was $33.3 million
and $47.3 million, respectively. This amount differs from net income
due to changes in the net unrealized gains on marketable securities
available for sale.
10. The Company and its subsidiaries are involved in litigation on a number
of matters and are subject to certain claims which arise in the normal
course of business, none of which, in the opinion of management, is
expected to have a material adverse effect on the Company's
consolidated financial position or results of operations.
11. The Company has retained certain self-insurance risks with respect to
losses for third party liability, property damage and group health
insurance provided to employees.
12. 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 previously been
sold. It is the Company's policy to accrue and charge against earnings
environmental cleanup costs when it is probable that a liability has
been incurred and an amount is reasonably estimable. As assessments and
cleanups proceed, these accruals are reviewed and adjusted, if
necessary, as additional information becomes available.
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The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of Superfund sites which relate to FEC and to
businesses sold in 1996. The Company has accrued an allocated share of
the total estimated cleanup costs for these sites. Based upon
management's evaluation of other potentially responsible parties, the
Company does not expect to incur additional amounts even though the
Company has joint and several liability. Other proceedings involving
environmental matters such as alleged discharge of oil or waste
material into water or soil are pending against the Company.
It is not possible to quantify future environmental costs because many
issues relate to actions by third parties or changes in environmental
regulation. However, based on information presently available,
management believes that the ultimate disposition of currently known
matters will not have a material effect on the financial position,
liquidity, or results of operations of the Company. As of September 30,
1998 and December 31, 1997, the aggregate environmental related
accruals were $7.3 million, respectively. Environmental liabilities are
paid over an extended period and the timing of such payments cannot be
predicted with any confidence.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The St. Joe Company is a diversified company engaged in the real estate,
forestry, resort development, transportation and sugar industries. During the
first quarter of 1998, the Company also entered into the location-based
entertainment business.
This Form 10-Q, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are not
historical facts. Such forward-looking information may include, without
limitation, statements that the Company does not expect that lawsuits,
environmental costs, commitments, contingent liabilities, labor negotiations or
other matters will have a material adverse effect on its consolidated financial
condition, results of operations or liquidity and other similar expressions
concerning matters that are not historical facts, and projections as to the
Company's financial results. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
anticipated in the forward-looking statements. Important factors that could
cause such differences include but are not limited to contractual relationships,
industry competition, regulatory developments, natural events such as weather
conditions, floods and earthquakes, forest fires, the effects of adverse general
economic conditions, changes in the real estate markets and interest rates, fuel
prices and the ultimate outcome of environmental investigations or proceedings
and other types of claims and litigation.
As a result of these and other factors, the Company may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition,
operating results, and stock price. An investment in the Company involves
various risks, including those mentioned above and elsewhere in this report and
those which are detailed from time-to-time in the Company's other filings with
the Securities and Exchange Commission.
Readers should not place undue reliance on forward-looking statements, which
reflect management's view only as of the date hereof. The Company undertakes no
obligation to publicly release revisions to these forward-looking statements
that reflect events or circumstances after the date hereof or reflect the
occurrence of unanticipated events.
RECENT EVENTS
The National Football League and the Company announced on September 18, 1998
that they mutually agreed not to proceed with plans for the joint development,
construction and operation of NFL entertainment centers. After extensive
discussions and analysis, the Company and the NFL jointly decided not to pursue
the project further.
On October 13, 1998 the Company reached an agreement in principle to acquire the
assets of Prudential Network Realty, a premier real estate services company in
northeast Florida. The Company plans to integrate the Jacksonville-based company
into its realty services unit, Prudential Florida Realty. The proposed
transaction is subject to the execution of a definitive agreement and
appropriate corporate, franchisor and governmental approvals.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30
Net sales include real estate property sales, timber sales and sugar sales. Net
sales were $14.8 million for the three months ended September 30, 1998 an
increase of $ 3.8 million, or 34.5%, from $11.0 million in 1997. Sales of real
estate totaled $7.5 million in 1998 as compared to $5.4 million in 1997.
Forestry sales were $7.0 million, as compared to $5.4 million in 1997 due
primarily to bulk land and timber sales this
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quarter. Sugar sales were $.3 million as compared to $.2 million in 1997. The
Company typically harvests substantially all its sugar during the first and
fourth quarters of each year.
Operating revenues totaled $93.0 million in the third quarter of 1998, an
increase of $34.7 million, or 59.5% compared to the third quarter of 1997.
Included in operating revenues are commercial/industrial rental and services
revenue, residential real estate services revenue, resort revenue, and
transportation revenue. Residential real estate services revenues derived since
July 31, 1998, the date of acquisition of Prudential Florida Realty, made up
$31.8 million of the increase in operating revenues. Real estate revenues were
$11.8 million in the third quarter of 1998, as compared to $9.6 million in 1997
resulting primarily from increased rental rates and new buildings placed in
service this year. Transportation revenues were $49.4 million in 1998, as
compared to $48.6 million. Increased trucking related shipments was the primary
contributor to the increase.
Cost of sales was $3.8 million for the three months ended September 30, 1998, a
decrease of $1.0 million, or 20.8% compared to $4.8 million in 1998. This
decrease was due to a decrease in real estate cost of land sales of $.2 million,
and a decrease in forestry cost of sales of $.8 million.
Operating expenses totaled $53.9 million, an increase of $20.7 million, or 62.3
% as a result of residential real estate services costs of $20.5 million from
Prudential Florida Realty, a decrease in transportation operating expenses of
$.3 million and an increase in real estate rental expenses of $.5 million.
Depreciation and amortization totaled $10.1 million, an increase of $2.2
million, or 27.8% due to new buildings placed into service this year and
additional goodwill amortization.
Selling, general and administrative expenses were $22.3 million in the three
months ended September 30, 1998, an increase of $14.7 million, or 193% over
1997, attributable to the realty services general and administrative expenses
from the acquisition of Prudential Florida Realty totaling $8.7 million, a $3.0
million increase in corporate overhead, a $3.4 million increase in residential
community development overhead, offset by a $.1 million decrease in forestry
overhead, a $.2 million decrease in transportation administrative costs and a
$.1 million decrease in sugar administrative costs.
Other income (expense) decreased $2.5 million, or 24.7% in 1998 compared to 1997
substantially due to lower interest income. As a result of recent acquisitions,
and other uses of cash, average balances of invested cash were substantially
lower this year.
Income tax expense for the third quarter of 1998 totaled $10.6 million,
representing an effective rate of 41.5%, which is higher than the statutory rate
because of the 50% excise tax recorded on prepaid pension cost totaling $1.2
million. Income tax expense in 1997 was $11.4 million, for an effective rate of
43.8%.
Net income for the third quarter of 1998 was $9.2 million, or $0.10 basic and
diluted earnings per share, compared to $9.1 million, or $0.10 basic and diluted
per share in 1997.
NINE MONTHS ENDED SEPTEMBER 30
Net sales were $62.4 million for the nine months ended September 30, 1998 a
decrease of $ 17.2 million, or 21.6%, from $79.6 million in 1997. Sales of real
estate totaled $8.8 million in 1998 as compared to $30.8 million in 1997 due
primarily to several property sales by Gran Central Corporation ("GCC") in 1997.
Forestry sales were $26.6 million as compared to $23.1 million in 1997 due to
the FCP mill shutdown from April, 1997 until September, 1997. Sugar sales were
$27.0 million as compared to $25.5 million in 1997.
Operating revenues totaled $217.6 million in 1998, an increase of $45.3 million,
or 26.3% compared to 1997. Residential real estate services revenues derived
from Prudential Florida Realty, made up $31.8 million of the increase in
operating revenues. Transportation operating revenues increased $9.2 million, or
6.4% in 1998 from $144.0 million in 1997 due to a $5.5 million increase in
shipments of freight and a $3.7 million increase in fiber optic revenue. Real
estate operating revenues were $32.4 million, an
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increase of $4.1 million, or 14.5% in 1998 resulting primarily from increased
rental rates and new buildings placed in service this year. Resort revenue was
$.2 million in 1998 as compared to zero in 1997.
Cost of sales was $35.7 million for the nine months ended September 30, 1998, a
decrease of $25.9 million, or 42.0% in 1998 from $61.6 million in 1997. This
decrease was due to a decrease in real estate cost of land sales of $22.1
million, a decrease in forestry cost of sales of $6.3 million offset partially
by an increase in sugar cost of sales of $2.5 million. Operating expenses in
1998 were $125.3 million, an increase of $26.0 million, or 26.2% as a result
of residential real estate services costs of $20.5 million from Prudential
Florida Realty, an increase in transportation operating expenses of $3.6
million, an increase in real estate operating expenses of $1.6 million and
resort operating costs of $.3 million.
Depreciation and amortization was $27.6 million, an increase of $5.0 million, or
22.1% compared to 1997.
Selling, general and administrative expenses were $46.7 million in the nine
months ended September 30, 1998, an increase of $ 20.3 million, or 76.9% over
1997, attributable to the realty services general and administrative expenses
from the acquisition of Prudential Florida Realty totaling $8.7 million, a $6.9
million increase in corporate overhead, a $5.1 million increase in real estate
overhead, a $.2 million increase in sugar, offset by a decrease of $.1 million
in forestry overhead and $.5 million decrease in transportation administrative
costs.
Other income (expense) decreased $8.7 million, or 26.6% in 1998 compared to 1997
substantially due to lower interest income. As a result of the two special
distributions of net proceeds of $336.9 million in 1997 and uses of cash for
other investment purposes, average balances of invested cash were substantially
lower this year.
Income tax expense for 1998 totaled $29.5 million, representing an effective
rate of 43.0%, which is higher than the statutory rate because of the 50% excise
tax recorded on prepaid pension cost totaling $3.5 million. Income tax expense
in 1997 was $33.0 million, for an effective rate of 44%.
Net income for the nine months of 1998 was $24.8 million, or $0.27 basic and
diluted earnings per share, compared to $28.2 million, or $0.31 basic and $0.30
diluted per share in 1997.
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REAL ESTATE
- --------------------------------------------------------------------------------------------------------
Three months ended Sept. 30, Nine months ended Sept. 30,
($ in millions) ($ in millions)
- --------------------------------------------------------------------------------------------------------
% %
1998 1997 Change 1998 1997 Change
- --------------------------------------------------------------------------------------------------------
Net sales and operating revenues $19.3 $15.2 27.0 $41.3 $59.2 (30.2)
- --------------------------------------------------------------------------------------------------------
Cost of sales and operating expense 5.5 5.3 3.7 14.6 35.1 (58.4)
- --------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 4.1 .6 583.3 8.3 3.2 159.4
- --------------------------------------------------------------------------------------------------------
Depreciation and amortization 3.1 2.4 29.2 8.7 6.7 30.0
- --------------------------------------------------------------------------------------------------------
Operating profit 6.6 6.9 (4.3) 9.7 14.2 (31.7)
- --------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30
Real estate net sales and operating revenues increased $4.1 million, or 27.0% in
the third quarter of 1998 compared to the third quarter of 1997. Cost of sales
and operating expenses increased $.2 million, or 3.7% for the same comparable
periods.
In the third quarter of 1998, the commercial/industrial division had real
estate land sales of $5.1 million with cost of sales of $.5 million compared to
sales of buildings and property totaling $4.9 million with cost of sales
totaling $1.3 million in the third quarter of 1997.
In the commercial/industrial division, rental revenues increased to $11.6
million, from $9.7 million in the third quarter of 1997, a 19.6% improvement.
The increase in rental revenue for the quarter compared to 1997's third quarter
was comprised of $.7 million, or 7.2% increase, caused by increased rental
rates, and a $1.2 million, or 13.0%, increase in rental revenue due to new
buildings placed in service since the second quarter of 1997. Operating expenses
in the commercial/industrial division increased to $4.2 million in the third
quarter of 1998 from $3.6 million in 1997, a 16.7% increase, resulting from a
$.6 million increase in property operating costs. Depreciation expense increased
$.7 million, or 29.2% as a result of new buildings placed in service since last
year. Gross margin was $4.3 million or 37.1% in 1998 as compared to $3.7
million, or 38.1% in 1997 as a result.
Real estate sales and management fees in the community/residential division
totaled $2.6 million with costs of sales and operating costs of $.8 million in
1998. Sales this quarter consisted of lot sales in the Camp Creek, Summerwood
and Woods III developments. Real estate sales in 1997 totaled $.6 million with
costs of sales and operating expenses of $.4 million.
Selling, general and administrative expenses for the segment increased to $4.1
million in 1998 compared to $.6 million in 1997 due to pre-development and
start-up costs incurred during the quarter in the residential division and
increased costs of asset management in the commercial/industrial division.
NINE MONTHS ENDED SEPTEMBER 30
Real estate net sales and operating revenue decreased $17.9 million, or 30.2% in
the first nine months of 1998 compared to 1997. Cost of sales and operating
expenses decreased $20.5 million, or 58.4% in 1998 compared to 1997.
In 1998, the commercial/industrial division had land and building sales and
miscellaneous real estate income of $5.4 million with $.6 million of related
costs compared to land and building sales and miscellaneous real estate revenue
in 1997 of $26.7 million with cost of sales of $22.4 million.
In the commercial/industrial division, rental revenues increased to $32.0
million, from $28.2 million in 1997, or 13.5%. The increase in rental revenue
this year can be attributed to a $3.6 million, or 12.7% increase from increases
in rental rates and a $1.8 million, or 6.4% increase in rental revenue due to
new buildings placed in service since the third quarter of 1997. Partially
offsetting these increases was $.6 million, or 2.1% decrease in revenues
attributable to reductions in rent recoverables from tenants and a
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decrease of $1.0 million, or 3.5% reduction in miscellaneous land leases such
as parking lots and signboard leases. Operating expenses in the
commercial/industrial division increased to $12.2 million in 1998, from $10.7
million in 1997, or 14.0% due to a $1.5 million increase in property operating
costs. Depreciation expense increased to $8.7 million up $2.0 million compared
to 1997 due to new buildings placed into service. Gross margin was $11.1
million, or 34.7% in 1998 compared to $10.8 million or 38.3% in 1997 as a
result.
During the nine months ended September 30, 1998 two office/showroom/warehouse
buildings totaling 195,075 square feet were placed into service and two office
buildings totaling 280,903 square feet were also placed into service. These
additions bring total square feet available for lease to 6,040,094 square feet.
There are also eleven buildings under construction or in pre-development stages,
which will add an additional 1.7 million square feet of office space. One of
these, totaling 134,000 square feet is expected to be completed in 1998, and the
remaining ten, of which three are in north Florida, three are in central
Florida, two are in south Florida, one is in Georgia and one is in Texas, are to
be completed in 1999.
In the community/residential division, the Company recorded real estate sales
and management fees of $3.9 million and operating costs of $1.8 million. In 1997
the community/residential division recorded real estate sales of $4.3 million
and costs of $2.0 million. Depreciation expense was $.1 million for both 1998
and 1997. During the first nine months of 1998, the Company had 26 lot sales in
its Summerwood development, three lot sales in Woods III, four lots in Camp
Creek and two lots in Deerwood, all developments in West Florida.
Selling, general and administrative costs are up $5.1 million, or 159% for the
first nine months of 1998 compared to the first six months of 1997 due to
start-up costs and additional salaries and benefits in 1998, primarily related
to the activity beginning in the Company's West Florida residential real estate
and increased assets management costs in the commercial/industrial division.
RESIDENTIAL REAL ESTATE SERVICES
- ---------------------------------------------------------------------------------------------------------
Three months ended Sept. 30, Nine months ended Sept. 30,
($ in millions) ($ in millions)
- ---------------------------------------------------------------------------------------------------------
% %
1998 1997 Change 1998 1997 Change
- ---------------------------------------------------------------------------------------------------------
Net sales and operating revenues $31.8 - - $31.8 - -
- ---------------------------------------------------------------------------------------------------------
Cost of sales and operating expense 20.5 - - 20.5 - -
- ---------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 8.7 - - 8.7 - -
- ---------------------------------------------------------------------------------------------------------
Depreciation and amortization 1.0 - - 1.0 - -
- ---------------------------------------------------------------------------------------------------------
Operating profit 1.6 - - 1.6 - -
- ---------------------------------------------------------------------------------------------------------
On July 31, 1998, the Company completed the acquisition of 100% of the assets of
Prudential Florida Realty (PFR), the largest real estate brokerage, sales and
services company in Florida and the fifth largest in the United States from CMT
Holdings, Ltd. PFR provides complete real estate brokerage services, including,
asset management, rentals, property management, property inspection, mortgage,
relocation and title services. In an effort to capitalize on the high quality
associated with the Arvida name in master-planned community developments, in
early 1999, this operation's name will be changed to Arvida Realty Services.
Costs to be incurred in connection with the integration and conversion process
are expected to approximate $3.0 million.
Realty brokerage net sales and operating revenues of $31.8 million since August
1, 1998 are attributable to 5,345 closed real estate transaction sales,
representing $900 million of sales volume, 1,702 title policies issued and $53.0
million of mortgage loans originated. Operating expenses of $20.5 million are
attributable to commissions paid on real estate transactions and underwriting
fees on title policies.
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FORESTRY
- ----------------------------------------------------------------------------------------------------------
Three months ended Sept. 30, Nine months ended Sept. 30,
($ in millions) ($ in millions)
- ----------------------------------------------------------------------------------------------------------
% %
1998 1997 Change 1998 1997 Change
- ----------------------------------------------------------------------------------------------------------
Net sales $7.0 5.4 29.6 $26.6 $23.1 15.1
- ----------------------------------------------------------------------------------------------------------
Cost of sales 2.9 3.7 (21.6) 13.5 19.8 (31.8)
- ----------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses .4 .5 (20.0) 1.6 1.7 (5.9)
- ----------------------------------------------------------------------------------------------------------
Depreciation and amortization .3 .2 50.0 1.3 .5 160.0
- ----------------------------------------------------------------------------------------------------------
Operating profit 3.4 1.0 240.0 10.2 1.1 827.3
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30
Total net sales increased $1.6 million, or 29.6% in the third quarter of 1998
compared to the third quarter of 1997. Bulk land and timber sales were $2.1
million during the 1998 quarter. Total sales to FCP for the quarter were $2.7
million (90,237 tons). Since August of 1998 the FCP mill has been shutdown, and
there is no indication when it will reopen. Under the terms and conditions of
the amended fiber supply agreement with FCP, FCP will begin redirecting the
volumes of pulpwood from its mill in Port St. Joe to another mill, thus sales
of pulpwood to FCP will resume in the latter part of this year.
Last years sales to FCP were $1.4 million (53,429 tons) since the mill was
shutdown from April, 1997 until September, 1997. Sales to other customers
totaled $2.2 million (105,624 tons) in the third quarter of 1998 as compared to
$3.9 million (161,865 tons) due to a slowdown in paper markets.
Cost of sales for the quarter decreased $.8 million, or 21.6% compared to 1997
due to less wood sold with cut and haul expenses. Cost of sales as a percentage
of sales was 41.4% in 1998 as compared to 68.5% in 1997. Excluding the bulk land
and timber sales, which had substantially no associated costs, cost of sales as
a percentage of sales was 59.2% , lower than 1997 comparable third quarter due
to more sales of Company wood with no cut and haul charges. There was no
procured wood sold in the third quarter of 1998.
Selling, general and administrative expenses were $.1 million lower than in 1997
due to a nonrecurring insurance expense in 1997 related to terminated employees
benefits.
NINE MONTHS ENDED SEPTEMBER 30
Total net sales increased $3.5 million, or 15.1% in 1998 compared to 1997. The
majority of this increase is due to the third quarter bulk land and timber
sales totaling $2.1 million previously discussed. Sales to FCP made up $15.4
million (533,819 tons) of total sales in 1998, and sales to other customers
totaled $9.1 million (365,225 tons). This compares to sales in 1997 to FCP of
$14.2 million (479,133 tons) and sales to other customers totaling $8.9 million
(335,126 tons). Sales to other customers were higher this year than 1997 as the
Company experienced more lump sum bid timber sales due to increased demand in
the first quarter of this year. Sales prices of timber sold to FCP were lower
this year at an average price of $29/ton compared to $30/ton in 1997. Sales
prices of timber sold to other customers were also lower this year at an
average of $25/ton compared to $27/ton last year.
Cost of sales decreased $6.3 million, or 31.8% in 1998 compared to 1997. Cost
of sales as a percentage of sales was 50.8% in 1998 as compared to 85.7% in
1997 due primarily to less timber purchased from outside sources. The Company
procured approximately 13,700 tons of wood this year to fulfill the
requirements of its timber supply agreement with FCP compared to 180,477 tons
last year. The cost of sales of procured wood were approximately $30/ton in
1998 and in 1997. Cost of sales of timber grown on Company land and sold to FCP
decreased by $2/ton to approximately $21/ton due to a change in product mix of
less chips and more pulpwood. The cost of sales for timber sold to other
customers also decreased this year due to
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sales of bid timber, which do not require cutting and hauling. Cost of sales on
sales to other customers was $10/ton, which was approximately $8/ton less than
last year.
General and administrative expenses were $.1 million lower in 1998 as compared
to 1997. General and administrative costs in 1997 included $0.5 million of
severance payments made to terminated employees. Included in 1998 is a
nonrecurring payment of $0.4 million for settlement of property tax litigation
which occurred in the first quarter. Depreciation expense was $.8 million higher
this year due to a higher percentage of depletion taken this year.
TRANSPORTATION
- --------------------------------------------------------------------------------------------------------------------
Three months ended Sept. 30, Nine months ended Sept. 30,
($ in millions) ($ in millions)
- --------------------------------------------------------------------------------------------------------------------
% %
1998 1997 Change 1998 1997 Change
- --------------------------------------------------------------------------------------------------------------------
Operating revenues $49.4 $48.6 1.6 $153.2 $144.0 6.4
- --------------------------------------------------------------------------------------------------------------------
Operating expense 29.0 29.3 (1.0) 91.5 87.9 4.1
- --------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 5.2 5.4 (3.7) 16.2 16.7 (3.0)
- --------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 4.7 4.8 (2.0) 13.9 14.0 (0.7)
- --------------------------------------------------------------------------------------------------------------------
Operating profit 10.5 9.1 15.4 31.6 25.4 24.4
- --------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30
Total Florida East Coast Railway ("FEC") transportation operating revenues were
$47.1 million for the third quarter of 1998, an increase of $.8 million, or 1.7%
compared to the third quarter of 1997. The increase in revenues was derived from
increases in trucking shipments totaling $1.2 million offset by a decrease in
rail revenues of $.4 million caused by a decrease in rail shipments. Decreases
were evident in the intermodal and other carload traffic, with increases in
automotive shipments and aggregates shipments. Apalachicola Northern Railroad
Company ("ANRR") operating revenues for the third quarter of 1998 were $2.3
million, which was flat compared to last year's third quarter.
FEC's operating expenses were $27.5 million, a decrease of $.2 million. ANRR's
operating costs were $1.5 million in the third quarter of 1998, substantially
the same as 1997.
NINE MONTHS ENDED SEPTEMBER 30
Total FEC transportation operating revenues were $145.2 million, an increase of
$8.7 million for the nine months ended September 30, 1998, or 6.4% compared to
1997. The increase in rail related revenue accounted for $1.9 million of the
increase and trucking related revenues generated a $3.1 million increase.
Attributing to the increased rail related revenues was a 22.5% increase in
automotive shipments and an 8.0% increase in aggregates shipments. Overall, the
number of rail shipments showed a less than 1% decrease compared to prior years.
Also included in 1998 operating revenue is an increase in fiber optic income of
$3.7 million. During the second quarter of 1998, FEC recognized $3.0 million of
income in connection with a nonmonetary exchange transaction negotiated with
Williams Network whereby FEC received the right to control 36 fiber optic
communications fibers along FEC's right-of-way, in exchange for the surrender of
certain future operating lease payments. ANRR operating revenues for 1998 were
$8.0 million, an increase of $.5 million, or 6.7% compared to 1997 due to an
increase in shipments from FCP compared to 1997 when the mill was shutdown. As
previously discussed, the FCP mill recently shutdown again in August of this
year. If the FCP mill continues to remain closed ANRR's revenues, operating
profit and net income will be negatively impacted.
Operating expenses for FEC in 1998 were $86.2 million, $3.3 million, or 4.0%
higher than 1997. Rail related costs increased $.7 million whereas trucking
related costs increased $2.6 million. Operating costs as a percentage of
revenues decreased from 60.7% to 59.4% primarily due to lower fuel costs this
year. ANRR's operating costs were $5.3 million in 1998, $.3 million higher than
1997 consistent with the increased revenue.
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Selling, general and administrative expenses were $16.2 million, or 3.0% lower
than last year. The prior year amounts included a $2.9 million non-recurring
charge for costs incurred in connection with a potential disposition of certain
subsidiaries of FEC. The current year expenses include severance and bonuses
paid totaling $1.1 million and other increased overhead costs.
SUGAR
- ----------------------------------------------------------------------------------------------------------------
Three months ended Sept. 30, Nine months ended Sept. 30,
($ in millions) ($ in millions)
- ----------------------------------------------------------------------------------------------------------------
% %
1998 1997 Change 1998 1997 Change
- ----------------------------------------------------------------------------------------------------------------
Net sales $.3 $.2 50.0 $27.0 $25.5 5.9
- ----------------------------------------------------------------------------------------------------------------
Cost of sales (.3) (.3) - 20.7 18.2 13.7
- ----------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 1.0 1.1 (9.1) 3.7 3.5 5.7
- ----------------------------------------------------------------------------------------------------------------
Depreciation and amortization .4 .4 - 1.1 1.1 -
- ----------------------------------------------------------------------------------------------------------------
Operating profit (.8) (.9) 11.1 1.5 2.7 (44.4)
- ----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
There were no sugar shipments in the third quarter of 1998 or 1997 as the
harvesting period ended last quarter. Harvesting and sales will resume in the
fourth quarter. Sales recognized this quarter were the result of pricing
adjustments on previously sold sugar.
NINE MONTHS ENDED SEPTEMBER 30, Net sales increased $1.5 million, or 5.9% for
the nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997 due to 4.6% volume increase (2,755 tons) in sugar harvested
and sold and a slight increase (1%) in sales price. Sales price per ton was
slightly higher than last years at $437 per ton compared to $434 per ton in
1997.
Cost of sugar sales as a percentage of sales increased in 1998 to 76.7 %
compared to 71.4% in 1997. Frequent interruptions of harvesting and milling
operations caused by unseasonably rainy weather prevented the realization of any
efficiency from the increased volumes experienced, and resulted in a $27/ton
higher cost.
Selling, general and administrative expenses increased $.2 million or 5.7% as a
result of an increase in the everglades environmental tax rate this year.
As previously discussed, the Company has contracted to sell substantially all of
its lands used for harvesting sugar. The Company does retain the right to
harvest sugar once the land is sold until the year 2003.
CORPORATE AND OTHER
Corporate selling, general and administrative expenses not allocated to segments
totaled $2.9 million for the third quarter of 1998, an increase of $3.0 million,
compared to the third quarter of 1997 due to increases in salaries and benefits
and professional fees. Corporate selling, general and administrative expenses
totaled $8.2 million for the first nine months of 1998, an increase of $6.9
million over 1997 substantially due to the increases in salaries and benefits
and professional fees and $1.0 million additional goodwill amortization.
Selling, general, and administrative expenses were also up this year because of
a $1.4 million reduction in pension income.
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FINANCIAL POSITION
In August of this year, the Company's Board of Directors authorized $150 million
for the repurchase of the Company's outstanding common stock from time to time
on the open market. The Board believes that the current price of the Company's
common shares does not reflect the value of the Company's assets or its future
prospects. As of September 30, 1998 the Company had repurchased 1,743,990 shares
of its common stock for $36.1 million.
Total cash and cash equivalents decreased $73.2 million during 1998 from $158.6
million at December 31, 1997 to $85.4 million at September 30, 1998 as a result
of acquisitions and increases in investments in joint ventures totaling $98.0
million as well as capital expenditures totaling $84.9 million. The Company's
investments in marketable securities were also utilized for the funding of
acquisitions.
Capital expenditures for the nine months of 1998 totaled $84.9 million, of which
$44.2 million related to real estate construction and land purchases.
Stockholder's equity at September 30, 1998 was $10.00 per share, compared to
$9.89 per share at December 31, 1997 due to additional earnings this year,
additional unrealized investment gains and lower stock outstanding due to the
repurchase of treasury shares.
YEAR 2000 COMPLIANCE
The Company has created a Year 2000 Project Team to address potential problems
within the Company's operations which could result from the century change in
the Year 2000. The project team is led by the Vice President of Finance and
consists of representatives of the Company's Information Systems Departments or
financial departments for each subsidiary, and has access to key associates in
all areas of the Company's operations. The project team has used and continues
to use outside consultants on an as-needed basis.
A four-phase approach has been utilized to address the Year 2000 issues: an
inventory phase to identify all computer-based systems and applications
(including embedded systems) which might not be Year 2000 compliant; an
assessment phase to determine what revisions or replacements would be necessary
to achieve compliance and what priorities would best serve the Company; a
conversion phase to implement the actions necessary to achieve compliance and to
conduct the tests necessary to verify that the systems are operational; and an
implementation phase to transition the compliant systems into the everyday
operations of the Company. Excluding the Company's FEC subsidiary, management
believes that the four phases are approximately 70%, 40%, 20% and 5% complete,
respectively and that all critical systems will be compliant by the end of 1999.
The Company is in the process of assessing total costs to address and modify
Year 2000 problems, however, it is management's belief that the costs will not
be material to the Company's financial position. Approximately $83,000 has been
spent by the Company through September 30, 1998.
As a part of the Year 2000 review, the Company is examining its relationships
with certain key outside vendors and others with whom it has significant
business relationships to determine to the extent practical the degree of such
parties' Year 2000 compliance. The Company has received or is seeking assurance
from several third party vendors that they are or will be Year 2000 compliant.
Management believes that the failure of any other third party vendors will not
have a material adverse effect on the Company.
Should the Company or a third party with whom the Company deals have a systems
failure due to the century change, the Company believes that the most
significant impact would likely be the inability to timely process its payments
for services and receipts of revenues. The Company does not expect any such
impact to be material.
The management of FEC has advised the Company regarding FEC's Year 2000
compliance as follows:
`[FEC] has created a program management office to direct the project's
effort in achieving year 2000 compliance. A Year 2000 Compliance
Steering Committee has been established that is sponsored by the CEO
and comprised of senior management as active participants in the
project.
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The project contains four phases to address the Year 2000 issues: (1)
an inventory phase to identify all computer-based systems and
applications which might not be year 2000 compliant; (2) an assessment
phase to determine what revisions or replacements would be needed to
achieve compliance, and the priority of each correction in assuring
that business strategies and goals are met; (3) a conversion phase to
implement the actions necessary to achieve compliance, and to conduct
tests necessary to verify that the systems are operational; and (4) an
implementation phase to transition the compliant systems into the
everyday operations of [FEC]. Management believes that the four phases
are approximately 70%, 50%, 20% and 10%, respectively complete, and
that all critical systems will be compliant with the century change by
third quarter 1999. [FEC] has budgeted approximately $250,000 to
address the Year 2000 remediation issues, which includes the estimated
costs of modifications and consultant fees addressing these issues.
Approximately $63,000 of this amount has been expended through
September 1998. By the third quarter 1999, the major business
applications will have been replaced with new compliant versions at a
cost of approximately $4.4 million, which is not part of the
remediation budget. As part of the Year 2000 review, [FEC] is examining
vendor and customer relationships to determine, to the extent
practical, the degree of such parties' year 2000 compliance, and to
develop strategies for working with such parties through the system
changes. Should the Company [FEC] have problems with outside parties,
the area most likely to be affected centers around shipments received
from and /or forwarded to connecting rail carriers. Contingency plans
are being developed to address this possibility.'
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.01 Purchase Agreement by and among Dominion Capital, Inc.,
Goodman-Segar-Hogan, Inc., HK Associates, L.P.
Goodman-Segar-Hogan-Hoffler, Inc, Goodman-Segar-Hogan Hoffler,
L.P. and St. Joe Commercial Property Services, Inc dated
September 24, 1998
27.01 Financial Data Schedule (for SEC use only)
27.02 Restated Financial Data Schedule (for SEC use only)
99.01 Supplemental Calculation of Selected Consolidated Financial
Data
(b) Reports on Form 8-K
A Form 8-K Item 5. "Other Events" was filed on September 22, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The St. Joe Company
Date: November 12, 1998 \Peter S. Rummell\
--------------------- ---------------------------------
Peter S. Rummell
Chief Executive Officer
Date: November 12, 1998 \Michael N. Regan\
--------------------- ---------------------------------
Michael N. Regan
Vice President Budget and Finance
(Principal Financial Officer)
(Principal Accounting Officer)
19