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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 March 31, 1999
Commission file number 1-10466
The St. Joe Company
(Exact name of registrant as specified in its charter)
Florida 59-0432511
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 400, 1650 Prudential Drive, Jacksonville, Florida 32207
(Address of principal executive offices) (Zip Code)
(904) 396-6600
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(D) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 31, 1999, there were 88,025,421 shares of common stock, no par
value, issued and outstanding, with an additional 3,772,390 shares issued and
held in treasury.
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THE ST. JOE COMPANY
INDEX
Page No.
PART I Financial Information:
Consolidated Balance Sheets-
March 31, 1999 and December 31, 1998 3
Consolidated Statements of Income -
Three months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows-
Three months ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 10
PART II Other Information
Exhibits and Reports on Form 8-K 18
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THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
March 31, December 31,
1999 1998
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash & cash equivalents $ 233,458 $ 39,108
Short-term investments 60,146 65,285
Accounts receivable 35,412 38,691
Inventory 10,499 11,006
Other assets 12,913 13,234
----------- -----------
Total current assets 352,428 167,324
Investments & other assets:
Marketable securities 169,125 201,002
Investment in unconsolidated affiliates 63,604 70,235
Prepaid pension asset 56,344 53,683
Goodwill 122,848 123,389
Other assets 13,697 9,301
Net assets of discontinued operations 31,051 72,318
----------- -----------
Total investment and other assets 456,669 529,928
Investment in real estate 551,886 548,101
Property, plant & equipment, net 367,856 358,916
----------- -----------
Total assets $ 1,728,839 $ 1,604,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,477 $ 26,497
Accrued liabilities 73,243 41,961
Current portion of long-term debt 53,648 24,953
----------- -----------
Total current liabilities 151,368 93,411
Reserves and other liabilities 19,219 11,946
Deferred income taxes 318,037 289,359
Long-term debt 9,474 9,947
----------- -----------
Total liabilities 498,098 404,663
Minority interest in consolidated subsidiaries 322,855 316,309
Stockholders' equity:
Common stock, no par value; 180,000,000 shares
authorized; 91,797,811 and 91,697,811 shares
issued, respectively -- --
Additional paid-in capital 15,428 13,054
Accumulated other comprehensive income 88,382 88,200
Retained earnings 891,526 839,227
Restricted stock deferred compensation (4,484) (2,604)
Treasury stock, 3,772,390 and 2,543,590 shares,
respectively, at cost (82,966) (54,580)
----------- -----------
Total stockholders' equity 907,886 883,297
----------- -----------
Total liabilities and stockholders' equity $ 1,728,839 $ 1,604,269
=========== ===========
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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
Three Months
Ended March 31
------------------------
1999 1998
-------- -------
Total revenues $181,985 $69,956
-------- -------
Expenses:
Operating expenses 144,080 49,446
Corporate expense, net 2,612 2,735
Depreciation and amortization 11,113 8,517
-------- -------
Total expenses 157,805 60,698
-------- -------
Operating profit 24,180 9,258
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Other income (expense):
Investment income 3,056 5,818
Other, net 2,008 2,300
-------- -------
Total other income (expense) 5,064 8,118
-------- -------
Income from continuing operations before income taxes
and minority interest 29,244 17,376
Income tax expense 12,399 7,957
Minority interest 7,311 3,765
-------- -------
Income from continuing operations 9,534 5,654
Income from discontinued operations:
Earnings from discontinued operations, net of income
taxes of $1,088 and $1,147, respectively 1,730 1,827
Gain on sale of discontinued operations, net of income
taxes of $29,031 42,800 --
-------- -------
Net income $ 54,064 $ 7,481
======== =======
EARNINGS PER SHARE
Basic:
Income from continuing operations $ 0.11 $ 0.06
Earnings from discontinued operations 0.02 0.02
Gain on sale of discontinued operations 0.48 --
-------- -------
Net income $ 0.61 $ 0.08
======== =======
Diluted:
Income from continuing operations $ 0.11 $ 0.06
Earnings from discontinued operations 0.02 0.02
Gain on sale of discontinued operations 0.48 --
-------- -------
Net income $ 0.61 $ 0.08
======== =======
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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months
Ended March 31
--------------------------
1999 1998
--------- ---------
Cash flows from operating activities:
Net income $ 54,064 $ 7,481
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,113 8,517
Minority interest 7,311 3,765
Deferred income tax (benefit) expense (1,716) 2,822
Equity in earnings of unconsolidated affiliates (5,928) --
Gain on sales of investment properties (11,316) --
Gain on sales of investments and other assets (651) (315)
Gain on sale of discontinued operations, net of taxes (42,800) --
Purchases and sales of trading investments, net (8,345) --
Changes in operating assets and liabilities:
Accounts receivable 3,279 4,456
Inventory 507 336
Prepaid pension and other assets (6,736) (8,402)
Accounts payable, accrued liabilities, reserves and
other liabilities 10,717 7,366
Discontinued operations operating activities (3,226) (6,807)
--------- ---------
Net cash provided by operating activities 6,273 19,219
Cash flows from investing activities:
Purchases of property, plant and equipment and real estate (68,998) (18,146)
Purchases of available-for-sale investments (37,328) (38,595)
Investments in unconsolidated affiliates (4,218) (14,689)
Proceeds from sale of discontinued operations, net 150,682 --
Maturities and redemptions of available-for-sale investments 83,247 43,459
Proceeds from sales of investment properties 50,404 376
Distributions from unconsolidated affiliates 16,707 --
--------- ---------
Net cash provided by (used in) investing activities 190,496 (27,595)
Cash flows from financing activities:
Proceeds from borrowings, net of repayments 28,222 --
Dividends paid to stockholders (1,765) (1,834)
Dividends paid to minority interest (490) (417)
Purchase of treasury stock (28,386) --
--------- ---------
Net cash used in financing activities (2,419) (2,251)
Net increase (decrease) in cash and cash equivalents 194,350 (10,627)
Cash and cash equivalents at beginning of period 39,108 158,568
--------------------------
Cash and cash equivalents at end of period $ 233,458 $ 147,941
==========================
Supplemental disclosure of cash flow information:
Interest paid $ 89 $ 86
========= =========
Income taxes paid $ 43 $ 11
========= =========
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THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands except share data)
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included
herein. The interim statements should be read in conjunction with the financial
statements and notes thereto included in the Company's latest Annual Report on
Form 10-K. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position as of March 31, 1999 and the results of operations and cash flows for
the three-month periods ended March 31, 1999 and 1998. The results of
operations for the three-month periods ended March 31, 1999 and 1998 are not
necessarily indicative of the results that may be expected for the full year.
Certain reclassifications of 1998 amounts have been made to be consistent with
current year reporting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share
Earnings per share ("EPS") are based on the weighted average number of
common shares outstanding during the period. Diluted EPS assumes options to
purchase 734,634 shares and 2,048,800 shares of common stock for the three
months ended March 31, 1999 and 1998, respectively, have been exercised using
the treasury stock method. In August 1998, the Company's Board of Directors
authorized $150,000 for the repurchase of the Company's outstanding common
stock on the open market. As of March 31, 1999, the Company had repurchased
3,772,390 shares. Weighted average basic and diluted shares, taking into
consideration the options used in calculating EPS and shares repurchased for
each of the periods presented are as follows:
1999 1998
---- ----
Basic 88,546,029 91,697,811
Diluted 89,280,663 93,746,611
Comprehensive Income
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income", effective January 1, 1998. This Statement establishes
standards for reporting and display of comprehensive income and its components.
The Company's comprehensive income differs from net income due to changes in
the net unrealized gains on investment securities available-for-sale. For the
three months ended March 31, 1999 and 1998, total comprehensive income was
$54,246 and $18,148, respectively.
3. DISCONTINUED OPERATIONS
On December 6, 1997, the Company signed an agreement in principle with
the United States of America and the State of Florida (the "Governments"),
under which the Governments agreed to purchase substantially all of the sugar
lands that Talisman Sugar Corporation ("Talisman"), a wholly owned subsidiary
of St. Joe, owns or leases for $133,500 in cash. Talisman retained the right to
farm the land through the 2003 crop year. In December 1998, that sale was
closed in escrow pending the resolution of a lawsuit filed in Federal District
Court in Washington, D.C. seeking to invalidate the sale. On March 25, 1999,
Talisman entered into an Exchange Agreement ("The Exchange Agreement") with The
South Florida Water Management District; United States Sugar Corporation;
Okeelanta Corporation; South Florida Industries, Inc.; Florida Crystals
Corporation; Sugar Cane Growers Cooperative of Florida (collectively the "Sugar
Companies"); The United States Department of Interior; and The Nature
Conservancy. The Agreement allows Talisman to exit the sugar business. Talisman
assigned its right to farm the land to the
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Sugar Companies. In return, the lawsuit was dismissed and the other parties
agreed to pay Talisman $19,000.
Talisman retains ownership of the sugar mill and is presently
evaluating the best manner to dispose of the mill. Talisman is also responsible
for the cleanup of the mill site and is obligated to complete certain defined
environmental remediation (the "Remediation"). Approximately $5,000 of the
purchase price will be held in escrow pending the completion of the
Remediation. Talisman must use these funds to pay the costs of the Remediation.
Based upon the current environmental studies, Talisman does not believe the
costs of the Remediation will exceed the amount held in escrow. Talisman will
receive any remaining funds when the Remediation is complete. In the event
other environmental matters are discovered, the Sugar Companies will be
responsible for the first $500 of the cleanup. Talisman will be responsible for
the next $4,500, thereafter the parties shall share the costs equally. In
addition, approximately $1,700 is being held in escrow, representing the value
of land subject to the Remediation. As Talisman completes the cleanup of a
particular parcel, an amount equal to the land value on that parcel will be
released from escrow. The Company recognized $42,800 in gain, net of taxes, on
the combined sale of the land and farming rights. Included in current and
noncurrent liabilities were $26,049 of reserves for severance costs,
environmental issues and closing costs related to the transaction.
The Company has reported its sugar operations as discontinued
operations for all periods presented. Revenues from Talisman were $17,166 and
$25,300 for the three months ended March 31, 1999 and 1998, respectively. Net
income for Talisman, excluding the gain on sale of the land and farming rights,
was $1,730 and $1,827 for the three months ended March 31, 1999 and 1998,
respectively.
4. BORROWINGS
Borrowings consisted of the following:
March 31, 1999 December 31, 1998
-------------- -----------------
Revolving line-of-credit, secured by marketable securities $ 25,000 $ --
Notes payable to former owners of businesses acquired 17,010 17,010
Revolving credit agreement, secured by restricted
short-term investments 17,000 17,000
Revolving line-of-credit, unsecured 3,000 --
Various secured and unsecured notes payable 2,121 2,131
Less: discounts on non-interest bearing notes payable (1,009) (1,241)
-------- --------
Net borrowings 63,122 34,900
Less: current portion 53,648 24,953
-------- --------
Total long-term debt $9,474 $9,947
======== ========
In March 1999, the Company entered into a revolving line-of-credit for
up to $65,000 secured by certain marketable securities. The line matures in
January of 2000 and bears interest at LIBOR plus 50 basis points. The line's
outstanding balance cannot exceed 50% of the market value of the securities,
which was $144,794 as of March 31, 1999.
In February 1999, the Company entered into an unsecured line-of-credit
for up to $35,000. In May 1999, the Company replaced this line-of-credit with a
$75,000 unsecured line-of-credit which matures in February 2000 and bears
interest at LIBOR plus 75 basis points. Under the terms of the revolving note
agreement, the Company must maintain a ratio of total liabilities to
stockholders' equity of not more than 1.0 to 1.0.
5. SEGMENT INFORMATION
The Company conducts primarily all of its business in five reportable
operating segments, which are residential real estate services, community
residential real estate, commercial real estate, forestry and transportation.
Intercompany transactions have been eliminated. The Company evaluates a
segment's performance based on EBITDA. EBITDA is defined as earnings before
interest expense, income taxes, depreciation and amortization, and is net of
the effects of minority interests. EBITDA also excludes gains from discontinued
operations and gains (losses) on sales of nonoperating assets. EBITDA is
considered a key financial measurement in the industries that the Company
operates. Other primarily
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consists of investment income, net of corporate general and administrative
expenses. Also, included in other is an investment in an unconsolidated
affiliate that was previously classified in the leisure and resort segment. The
Company's leisure and resort operations are no longer considered a separate
business unit of the Company. The Company's reportable segments are strategic
business units that offer different products and services. They are each
managed separately and decisions about allocations of resources are determined
by management based on these strategic business units.
Information by business segment follows:
1999 1998
--------- ---------
Total Revenues:
Residential real estate services $ 41,404 $ --
Community residential real estate 5,875 383
Commercial real estate 80,960 9,692
Forestry 6,929 10,536
Transportation 47,933 49,307
Other (1,116) 38
--------- ---------
Total revenues $ 181,985 $ 69,956
--------- ---------
EBITDA:
Residential real estate services $ 180 $ --
Community residential real estate 1,541 (868)
Commercial real estate 14,064 2,203
Forestry 3,309 4,866
Transportation 6,536 7,708
Other (373) 2,414
--------- ---------
EBITDA $ 25,257 $ 16,323
Adjustments to reconcile to income from continuing operations:
Depreciation and amortization $ (11,113) $ (8,517)
Other income (expense) 33 315
Interest expense (248) (86)
Income taxes (12,399) (7,957)
Effects of minority interests on noncash charges 8,004 5,576
--------- ---------
Income from continuing operations $ 9,534 $ 5,654
========== =========
There was no material change in any segment's total assets except as
it relates to the sale of discontinued operations, see note 3.
6. CONTINGENCIES
The Company and its affiliates are involved in litigation on a number
of matters and are subject to certain claims which arise in the normal course
of business, none of which, in the opinion of management, is expected to have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
The Company has retained certain self-insurance risks with respect to
losses for third party liability, property damage and group health insurance
provided to employees.
The Company is guarantor on three credit obligations entered into by
partnerships in which the Company has equity interests. The maximum amount of
the guaranteed debt totals $94,650; the amount outstanding at March 31, 1999
totaled $35,102.
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
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incurred and an amount is reasonably estimable. As assessments and cleanups
proceed, these accruals are reviewed and adjusted, if necessary, as additional
information becomes available.
On May 30, 1996, the Company sold its linerboard mill and container
plants. As part of the sale, the Company remains contingently liable for up to
$10,000 relating to on-site environmental liabilities, as defined in the sales
agreement, as long as they are discovered within three years of the closing
date of the sale and the Company has, except in limited circumstances, received
invoices for them within five years of the closing date. The Company has no
obligation for costs incurred by the buyer to comply with Title V of the Clean
Air Act or the Cluster Rules. On-site environmental liabilities arising from
environmental conditions caused from activities both before and after the
closing date are to be allocated among the parties based on relative
contribution. The agreement provided the exclusive remedy for on-site
environmental liabilities which relate to matters within the property lines of
real property conveyed under the agreement. The Company's obligation to pay
$10,000 for on-site environmental liabilities existing on the closing date is
subject to cost-sharing with the buyer according to the following schedule: the
first $2,500 by buyer, the next $2,500 by the Company; the next $2,500 by the
buyer; the next $2,500 by the Company; the next $2,500 by the buyer and the
next $5,000 by the Company.
The Company also agreed to reimburse up to $1,000 for certain
remediation activities at the linerboard mill, if such activities were required
under environmental laws under the following schedule: the first $200 by the
Company, the next $300 by the buyer, the next $300 by the Company, the next
$300 by the buyer, the next $500 by the Company, the next $500 by the buyer
with any remaining amounts treated as on-site environmental liabilities.
The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of Superfund sites. The Company has accrued an
allocated share of the total estimated cleanup costs for these sites. Based
upon management's evaluation of the other potentially responsible parties, the
Company does not expect to incur additional amounts even though the Company has
joint and several liability. Other proceedings involving environmental matters
such as alleged discharge of oil or waste material into water or soil are
pending against the Company. It is not possible to quantify future
environmental costs because many issues relate to actions by third parties or
changes in environmental regulation. However, based on information presently
available, management believes that the ultimate disposition of currently known
matters will not have a material effect on the consolidated financial position,
results of operations or liquidity of the Company. Environmental liabilities
are paid over an extended period and the timing of such payments cannot be
predicted with any confidence. Aggregate environmental-related accruals were
$11,583 and $7,261 as of March 31, 1999 and December 31, 1998, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that are not historical facts. Such forward-looking information includes,
without limitation, statements that the Company does not expect that lawsuits,
environmental costs, commitments, contingent liabilities, labor negotiations or
other matters will have a material adverse effect on its consolidated financial
condition, results of operations or liquidity and other similar expressions
concerning matters that are not historical facts, and projections as to the
Company's financial results. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
anticipated in the forward-looking statements. Important factors that could
cause such differences include but are not limited to contractual
relationships, industry competition, regulatory developments, natural events
such as weather conditions, floods and earthquakes, forest fires, the effects
of adverse general economic conditions, changes in the real estate markets and
interest rates, fuel prices and the ultimate outcome of environmental
investigations or proceedings and other types of claims and litigation. See the
information set forth herein in the section entitled "Year 2000 Compliance".
As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results, and stock price. An investment in the Company
involves various risks, including those mentioned above and elsewhere in this
report and those which are detailed from time-to-time in the Company's other
filings with the Securities and Exchange Commission.
Readers should not place undue reliance on forward-looking statements,
which reflect management's view only as of the date hereof. The Company
undertakes no obligation to publicly release revisions to these forward-looking
statements that reflect events or circumstances after the date hereof or
reflect the occurrence of unanticipated events.
OVERVIEW
The St Joe Company (herein referred to as "St. Joe" or the "Company")
is a diversified company engaged in the real estate, forestry and
transportation industries. During the fourth quarter of 1998, the Company began
treating its sugar operations as a discontinued operation for accounting
purposes.
The Company is focusing more closely on the development of its large
land portfolio. Management believes that the Company's increased focus on real
estate operations will result in a larger portion of the Company's overall
revenues being attributable to real estate operations. However, many of the
Company's proposed projects will require a lengthy process to complete the
development cycle before they are sold or otherwise generate revenue.
Nevertheless, management believes the Company's existing raw land portfolio
will allow the Company to maintain relatively low development costs and that
its existing large portfolio of income-producing properties, together with its
other businesses, will continue to generate cash to fund a significant portion
of its longer-term projects.
Consistent with the Company's plans to extract value from its
non-strategic assets, in March 1999, the Company announced its intentions to
sell approximately 800,000 acres of its timberlands and an auction process is
underway to sell the first 100,000 acres. The sale of additional parcels,
expected to be approximately 100,000 acres each, will be grouped, sized and
timed in order to seek maximum value. A study commissioned by the Company has
identified these timberlands as having little real estate development potential
in the next 15 to 20 years. No assurance can be given that any of the property
can be sold at an acceptable price within an acceptable time period.
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DISCONTINUED OPERATIONS
On December 6, 1997, the Company signed an agreement in principle with
the United States of America and the State of Florida (the "Governments"),
under which the Governments agreed to purchase substantially all of the sugar
lands that Talisman Sugar Corporation ("Talisman"), a wholly owned subsidiary
of St. Joe, owns or leases for $133.5 million in cash. Talisman retained the
right to farm the land through the 2003 crop year. In December 1998, that sale
was closed in escrow pending the resolution of a lawsuit filed in Federal
District Court in Washington, D.C. seeking to invalidate the sale. On March 25,
1999, Talisman entered into an Exchange Agreement ("The Exchange Agreement")
with The South Florida Water Management District; United States Sugar
Corporation; Okeelanta Corporation; South Florida Industries, Inc.; Florida
Crystals Corporation; Sugar Cane Growers Cooperative of Florida (collectively
the "Sugar Companies"); The United States Department of Interior; and The
Nature Conservancy. The Agreement allows Talisman to exit the sugar business.
Talisman assigned its right to farm the land to the Sugar Companies. In return,
the lawsuit was dismissed and the other parties agreed to pay Talisman $19.0
million.
Talisman retains ownership of the sugar mill and is presently
evaluating the best manner to dispose of the mill. Talisman is also responsible
for the cleanup of the mill site and is obligated to complete certain defined
environmental remediation (the "Remediation"). Approximately $5.0 million of
the purchase price will be held in escrow pending the completion of the
Remediation. Talisman must use its funds to pay the costs of the Remediation.
Based upon the current environmental studies, Talisman does not believe the
costs of the Remediation will exceed the amount held in escrow. Talisman will
receive any remaining funds when the Remediation is complete. In the event
other environmental matters are discovered, the Sugar Companies will be
responsible for the first $0.5 million of the cleanup. Talisman will be
responsible for the next $4.5 million, thereafter the parties shall share the
costs equally.
In addition, approximately $1.7 million is being held in escrow,
representing the value of land subject to the Remediation. As Talisman
completes the cleanup of a particular parcel, an amount equal to the land value
on that parcel will be released from escrow.
The Company recognized $42.8 million in gain, net of taxes, on the
combined sale of the land and farming rights.
RECENT EVENTS
In April 1999, the Company acquired all outstanding stock of Saussy
Burbank, Inc. ("Saussy Burbank"), a homebuilder located in Charlotte, North
Carolina, for $14.6 million in cash. Saussy Burbank builds approximately 300
homes a year and has operations in the greater Charlotte, Raleigh and Asheville
market areas. Saussy Burbank will be integrated with the Company's community
residential real estate operations.
RESULTS OF OPERATIONS-THREE MONTHS ENDED MARCH 31
CONSOLIDATED RESULTS
Total revenues increased 160% to $182.0 million for the first quarter
of 1999 as compared to $70.0 million in the first quarter of 1998. The
residential real estate services contributed $41.4 million in revenues as a
result of the July 1998 acquisition of Arvida Realty Services ("ARS"). The
community residential real estate segment recorded $5.9 million in revenues; an
increase of $5.5 million during the first quarter of 1999 as a result of
increases in equity in earnings of unconsolidated affiliates. The commercial
real estate segment also reported an increase in revenue of $71.3 million to
$81.0 million, primarily related to the sale of two industrial parks located in
south Florida and income from the Advantis service businesses. The forestry
segment reported revenues of $6.9 million, a decrease of $3.6 million during
the first quarter of 1999 as compared to the first quarter of 1998. The
transportation segment contributed $47.9 million in revenues, a decrease of
$1.4 million. Losses of $1.1 million were recorded on an investment in an
unconsolidated affiliate which are not attributable to a particular segment.
Operating expenses totaled approximately $144.1 million, an increase
of $94.7 million, or 192%, for the first quarter of 1999 as compared to $49.4
million for the first quarter of 1998. The residential real
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estate services contributed $41.5 million in costs as a result of the ARS
acquisition. The community residential real estate segment recorded $4.8
million in operating expenses, an increase of $3.5 million during the first
quarter of 1999. The commercial real estate segment also reported an increase
in operating expenses of $53.1 million to $58.2 million, primarily related to
the costs of sales of the two industrial parks located in south Florida and
expenses associated with the Advantis service businesses. The forestry segment
reported operating expenses of $4.2 million, a decrease of $1.9 million during
the first quarter of 1999 as compared to the first quarter of 1998. The
transportation segment contributed $35.4 million in costs, a decrease of $1.6
million.
Corporate expense decreased 4% from $2.7 million to $2.6 million.
Corporate expense included prepaid pension income of $2.7, an increase of $0.4
for the first quarter of 1999 as compared to the first quarter of 1998. This
increase in income was offset by higher corporate general and administrative
expenses of $0.3 million.
Depreciation and amortization totaled $11.1 million, an increase of
$2.6 million, or 31% primarily due to additional goodwill amortization related
to the acquisitions of ARS and the Advantis businesses.
Other income (expense) decreased $3.1 million, or 38% in the first
quarter due to substantially lower interest income. As a result of recent
acquisitions and the utilization of cash to continue the repurchase of the
Company's outstanding common stock, average balances of invested cash were
substantially lower in the first quarter of 1999.
Income tax expense on continuing operations totaled $12.4 million for
the first quarter of 1999 as compared to $8.0 million for the first quarter of
1998. The effective tax rate was 42.4% for 1999 as compared to 45.8% for 1998.
These rates exceed statutory rates primarily because of the 50% excise tax on
prepaid pension costs.
Income from discontinued operations includes the $42.8 million gain,
net of tax, on the sale of Talisman's land and farming rights. Net earnings
from discontinued operations totaled $1.7 million for the first quarter of 1999
as compared to $1.8 million in the first quarter of 1998.
Net income for the first quarter of 1999 was $54.1 million or $0.61
per diluted share as compared to $7.5 million or $0.08 per diluted share for
the first quarter of 1998.
RESIDENTIAL REAL ESTATE SERVICES
Three months ended
March 31
------------------
1999 1998
-------- ----
Revenues $ 41.4 --
Operating expenses 41.5 --
Depreciation and amortization 1.3 --
Other income (expense) 0.1 --
Pretax income from continuing operations (1.3) --
EBITDA 0.2 --
On July 31, 1998, the Company completed the acquisition of its
residential real estate services company, ARS. ARS provides a complete array of
real estate brokerage services, including residential real estate sales,
relocation and referral, asset management, mortgage and title services, annual
and seasonal rentals and international real estate marketing. The operations of
ARS are seasonal with the volume of transactions increasing in the spring and
summer due to housing relocations.
Realty brokerage revenues in the first quarter of 1999 were
attributable to 6,319 closed units representing $1.2 billion of sales volume.
The average home sales price for the first quarter of 1999 increased to
$185,000 as compared to $177,000 for the same period in 1998.
Operating expenses of $41.5 million represent commissions paid on real
estate transactions, underwriting fees on title policies and administrative
expenses of the ARS operations. Included in
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operating expenses for the first quarter were $2.2 million of conversion
expenses related to the operation's name change from Prudential Florida Realty
to ARS.
COMMUNITY RESIDENTIAL REAL ESTATE
Three months ended
March 31
------------------
1999 1998
----- -----
Revenues $ 5.9 $ 0.4
Operating expenses 4.8 1.3
Depreciation and amortization -- --
Other income (expense) 0.1 --
Pretax income from continuing operations 1.2 (0.9)
EBITDA 1.5 (0.9)
The Company's community residential real estate operations currently
consist of community development through its 74% ownership of St. Joe/Arvida
Company, L.P. and its 26% equity interest in Arvida/JMB Partners, L.P.
("Arvida/JMB"). The investment in Arvida/JMB occurred in late December 1998.
Arvida/JMB is recorded on the equity method of accounting for investments.
Between these two partnerships, Arvida manages a total of 23
communities in various stages of planning and development. During this quarter,
home sales began at James Island, a new 194-acre community in Jacksonville.
Forty homes are now under contract. During the second quarter, the first 35
lots are expected to go on sale at The Retreat in Walton County, Florida. Plans
for this beach club resort community include 90 single-family housing units on
76 acres. Lot prices are expected to range from the $100,000's to near $1
million.
Real estate sales totaled $1.6 million with related costs of sales of
$0.7 million. Sales this quarter included housing and lot sales in the
Summerwood and Deerwood developments in west Florida. However, the majority of
the revenue increase related to the Company's equity in earnings of Arvida/JMB
that totaled $4.2 million. Revenues of $0.1 million were also generated from
management fees and rental income during the first quarter of 1999.
Total revenues from real estate sales and management fees totaled only
$0.4 million in 1998 but activity has increased significantly from a year ago.
There were a minimal number of projects under development at March 31, 1998 as
compared to the 23 communities in various stages of development at March 31,
1999.
This level of activity has also impacted operating expenses for the
segment which increased to $4.8 million, including the $0.7 million of costs of
sales, for the first quarter compared to $1.3 million in the first quarter of
1998 due to predevelopment costs related to the Company's community
development.
COMMERCIAL REAL ESTATE
Three months ended
March 31
------------------
1999 1998
------ ----
Revenues $81.0 $9.7
Operating expenses 58.2 5.1
Depreciation and amortization 3.7 2.7
Other income (expense) (0.1) 1.2
Pretax income from continuing operations 19.0 3.1
EBITDA 14.1 2.2
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Operations of the commercial real estate segment include the
development of St. Joe properties, development and management of the Gran
Central Corporation ("Gran Central") real estate portfolio, the Advantis
service businesses and investments in affiliates to develop properties
throughout the southeast. The Company owns 54% of Florida East Coast
Industries, Inc. ("FECI") and Gran Central is the wholly owned real estate
subsidiary of FECI.
In September 1998, the Company acquired Goodman, Segar, Hogan,
Hoffler, L.P. and in December 1998, the Company acquired the assets of Florida
Real Estate Advisors, Inc. These commercial real estate services businesses
have been combined and are doing business under the name Advantis.
In the first quarter of 1999, Gran Central sold real estate properties
for $50.4 million. The majority of the revenues were from the sale of two
industrial parks, Gran Park at McCahill and Gran Park at Lewis Terminals, which
resulted in a pre-tax gain of $10.4 million ($5.6 million, net of the effect of
FECI's minority interest). These south Florida parks consisted of 10 buildings
with 1.2 million square feet. As of March 31, 1999, there were 56 operating
buildings with 5.0 million total rentable square feet. Approximately 1.8
million square feet of office and industrial space is under construction as of
March 31, 1999. Additionally, approximately 0.7 million square feet is in the
predevelopment stage and the Company is expected to commence construction on
these properties in the second quarter of 1999.
Advantis contributed $14.2 million of brokerage, property management
and construction revenues for the first quarter of 1999. Advantis brokered over
400 leasing and investment sales transactions valued at $404 million during the
quarter and managed a portfolio of properties with approximately 20 million
square feet of space.
Rental revenues increased to $13.5 million, from $9.7 million in the
first quarter of 1998, a 39% improvement. The increase in rental revenue was
primarily comprised of increases on same store properties, $0.8 million caused
by increased rental rates and $0.8 million caused by increases in occupancy.
Occupancy on same-store properties rose from 87% on March 31, 1998 to 91% at
the end of the quarter. Rental revenues increased $1.6 million due to new
buildings placed in service since the first quarter of 1998. Also, an annual
adjustment to rent recoverable from tenants resulted in an increase in revenues
of approximately $0.6 million for the first quarter of 1999.
The Company has investments in various real estate developments and
affiliates that are accounted for by the equity method of accounting. Earnings
from these investments contributed $2.9 million to the commercial real estate
segment's revenues during the first quarter. Land sales from the Company's
investment in the Deerfield Park, L.L.C. venture resulted in earnings to the
Company of $2.8 million, which comprise 97% of such revenues during the
quarter.
Operating expenses in the commercial real estate segment increased
$53.1 million resulting from $39.1 million in costs of real estate sales, $13.6
million in Advantis expenses and $0.4 million in increased costs related to
operating properties. Advantis expenses include commissions paid to brokers,
property management expenses and construction costs.
Depreciation and amortization rose by $1.0 million and is attributable
to goodwill amortization as a result of the acquisitions of the Advantis
businesses.
Other income (expense) decreased by $1.3 in 1999, as compared to 1998,
due to the realized gains on the sale of certain marketable securities in 1998.
EBITDA totaled $14.1 million for the first quarter of 1999 and was
comprised of $6.1 million from sales of real estate, $4.3 million from rental
operations, $3.1 million from earnings on investments in real estate
developments and affiliates, $1.2 million from Advantis and $(0.6) million in
administrative expenses.
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FORESTRY
Three months ended
March 31
------------------
1999 1998
------ -----
Revenues $6.9 $10.5
Operating expenses 4.2 6.1
Depreciation and amortization 0.6 0.6
Other income (expense) 0.7 0.5
Pretax income from continuing operations 2.8 4.3
EBITDA 3.3 4.9
Total revenues for the forestry segment decreased $3.6 million, or 34%
in the first quarter of 1999 due to a reduction in timber sales. Total sales to
Florida Coast Paper Company, L.L.C. ("FCP"), the Company's major pulpwood
customer, were $4.3 million (140,000 tons) in 1999 as compared to $6.2 million
(225,000 tons) in 1998. Since August of 1998 the FCP mill has been shutdown and
recently filed for Chapter 11 bankruptcy protection. Under the terms and
conditions of the amended fiber supply agreement with FCP, the Company has been
redirecting the volumes of pulpwood from the FCP mill in Port St. Joe, Florida,
to another mill. Sales to other customers decreased to $2.5 million (107,000
tons) from $4.3 million (150,000 tons) a year ago. The decrease in sales to
other customers is the result of the Company conducting several lump sum bid
timber sales during the first quarter of 1998 to take advantage of favorable
market conditions. Revenues also include bulk land sales of $0.1 million during
the first quarter of 1999; there were no bulk land sales in 1998. The average
sales price of timber sold held constant at approximately $28 per ton in
comparing the first quarter of 1999 to the first quarter of 1998.
Operating expenses for the quarter decreased $1.9 million, or 31%
compared to 1997 due to reduced harvest volumes. Cost of sales as a percentage
of sales were lower in 1998 as compared to 1999 because the lump sum bid timber
sales in 1998 caused increased sales of wood without cut and haul expenses.
Also contributing to the decrease in expenses when comparing the first quarter
of 1999 with the first quarter of 1998 was a nonrecurring payment of $0.4 made
in 1998 for the settlement of property tax litigation.
TRANSPORTATION
Three months ended
March 31
------------------
1999 1998
------ -----
Revenues $47.9 $49.3
Operating expenses 35.4 37.0
Depreciation and amortization 4.8 4.5
Other income (expense) -- 0.3
Pretax income from continuing operations 7.7 8.1
EBITDA 6.5 7.7
Total Florida East Coast Railway ("FEC") transportation operating
revenues held relatively constant at $46.7 million for the first quarter of
1999 as compared to $46.8 million in the first quarter of 1998. The Florida
economy has continued to be robust with increases in carload traffic offsetting
decreases in intermodal traffic. Aggregate traffic increased 14%, automotive
traffic increased by 6%, and all other carload traffic increased 15% in the
first quarter of 1999, as compared to the same period for 1998. Intermodal
traffic declined 14% which is attributable to a decision by one of FEC's
connecting carriers to stop marketing intermodal service to certain terminals.
Apalachicola Northern Railroad Company ("ANRR") operating revenues
were $1.2 million reflecting a decrease in revenues of $1.3 million, or 52%,
due to the lawsuit with ANRR's largest customer, Seminole Electric Cooperative,
Inc. ("Seminole"). Seminole halted shipments of coal in January 1999, and filed
a lawsuit seeking to terminate its contract with ANRR to provide transportation
of coal from Port St. Joe,
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Florida to Chattahoochee, Florida. ANRR has fully performed its obligations
under the contract and is prepared to complete the contract term, which
continues until November 2004. ANRR's workforce has been reduced significantly,
commensurate with its loss in traffic, but the railroad intends to operate a
minimal schedule sufficient to provide service to existing customers.
FEC's operating expenses decreased $1.4 million due to a reduction in
the costs of employee medical plans, injury claims and fuel costs. ANRR's
operating expenses decreased $0.2 million commensurate with the reduction in
their workforce and traffic.
FINANCIAL POSITION
In August 1998, the Company's Board of Directors authorized $150
million for the repurchase of the Company's outstanding common stock on the
open market. The Board believes that the current price of the Company's common
shares does not reflect the value of the Company's assets or its future
prospects. As of March 31, 1999 the Company had repurchased 3,772,390 shares of
its common stock at a cumulative cost of $83.0 million, with $28.4 million
expended during the first quarter of 1999.
For the quarter ended March 31, 1999, cash provided by operations
decreased by $12.9 million, as compared to the first quarter of 1998, to $6.3
million, partially caused by FECI's net purchases of trading investments.
During the quarter, the Company received $152.5 million, net of
closing costs of $1.8 million, from the proceeds of the sale of the Talisman
land and farming rights. Significant proceeds from investing activities were
also received from the sales of Gran Central's industrial parks and investment
securities. These proceeds will be reinvested into the Company's real estate
operations. Capital expenditures totaled $69.0 million for the first quarter of
1999.
The Company utilized borrowings from its secured and unsecured
lines-of-credit to continue its repurchase of the Company's outstanding common
stock and for other working capital purposes. These credit facilities give the
Company the ability to borrow up to $100 million ($140 million as of May 1999),
see note 4 in the notes to consolidated financial statements.
Management believes that its financial condition is strong and that
its cash, investments, other liquid assets, operating cash flows, and borrowing
capacity, taken together, provide adequate resources to fund ongoing operating
requirements and future capital expenditures related to the expansion of
existing businesses including the continued investment in real estate
developments.
YEAR 2000 COMPLIANCE
The Company has created a Year 2000 Project Team to address potential
problems within the Company's operations that could result from the century
change in the Year 2000. The project team is led by the Senior Vice President
of Finance and Planning and consists of representatives of the Company's
Information Systems Departments or financial departments for each subsidiary,
and has access to key associates in all areas of the Company's operations. The
project team has used and continues to use outside consultants on an as-needed
basis.
As part of the project the Company has been examining all software
information technology ("IT") and non-IT systems which may have embedded
technology. The project team's methodology for addressing both the IT and
non-IT areas consists of five phases:
(1) an Assessment Phase to inventory computer based systems
and applications (including embedded systems) and to determine what
revisions or replacements would be necessary for Year 2000 readiness;
(2) a Remediation Phase to repair or replace components to
enable them to successfully transition to the Year 2000;
(3) a Test Phase to test components after remediation to
verify that the Remediation Phase was successful;
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17
(4) an Implementation Phase to transition the Year 2000 ready
systems back into production environment;
(5) and a Check-off Phase to formally signoff that a
component, system, process or procedure is Year 2000 ready.
Excluding the Company's FECI subsidiary, which is discussed separately
below, management believes that the five phases are currently approximately
100%, 90%, 75%, 70% and 60% complete, and that all critical systems will be
Year 2000 ready by the end of 1999.
The Company expects to spend up to $1.0 million to address and modify
Year 2000 problems, excluding FECI. Approximately $0.3 million has been spent
by the Company through March 31, 1999.
As a part of the Year 2000 review, the Company is examining its
relationships with certain key outside vendors and others with whom it has
significant business relationships to determine to the extent practical the
degree of such parties' Year 2000 compliance. The Company has received or is
seeking assurance from several third party vendors that they are or will be
Year 2000 ready. Management believes that the failure of any other third party
vendors to be Year 2000 ready will not have a material adverse effect on the
Company.
Should the Company or a third party with whom the Company deals have a
systems failure due to the century change, the Company believes that the most
significant impact would likely be the inability to timely process its payments
for services and receipts of revenues. The Company does not expect any such
impact to be material to its operations.
The Company is in the process of developing contingency plans for Year
2000 matters. These plans include identification of and communications with,
mission critical vendors, suppliers, service providers and customers. These
plans also include preparations for the Year 2000 event as well as for the
potential problems that could occur with major suppliers or customers of the
Company that could impact Company operations. These plans are expected to be
complete by September 1999.
The Company has been advised by FECI that its Year 2000 Project
efforts are proceeding on schedule and it anticipates that all "mission
critical" systems should be Year 2000 capable by the third quarter of 1999.
FECI expects to spend approximately $9.3 million for its Year 2000
effort of which $5.0 million has been expended through March 31, 1999. FECI has
informed St. Joe that the Year 2000 problem is not expected to materially
affect its day-to-day operations, nor will it adversely affect its financial
position, results of operations or liquidity. FECI has informed St. Joe that it
believes its Year 2000 planning effort is adequate to address all major risks.
FECI has implemented reasonable measures, engaged experienced Year 2000
consultants and personnel, and established a high level of awareness concerning
Year 2000 issues. FECI believes that it has provided an environment, which will
enable it to adequately review and update its systems to become Year 2000 ready
by the end of 1999.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.01 Exchange and Purchase and Sale Agreement by and among The South Florida Water Management
District; United States Sugar Corporation; Okeelanta Corporation, South Florida Industries,
Inc. and Florida Crystals Corporation; Sugar Cane Growers Cooperative of Florida; Talisman
Sugar Corporation and The St. Joe Company; The United States Department of the Interior; and
The Nature Conservancy dated March 25, 1999
27.01 Financial Data Schedule (for SEC use only)
99.01 Supplemental Calculation of Selected Consolidated Financial Data
(b) Reports on Form 8-K
None.
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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: May 13, 1999 \Peter S. Rummell\
-------------------------------------
Peter S. Rummell
Chairman of the Board and
Chief Executive Officer
Date: May 13, 1999 \Kevin M. Twomey\
-------------------------------------
Kevin M. Twomey
President and Chief Financial Officer
Date: May 13, 1999 \Michael N. Regan\
-------------------------------------
Michael N. Regan
Senior Vice President, Finance and
Planning
Date: May 13, 1999 \Janna L. Connolly\
-------------------------------------
Janna L. Connolly
Controller