1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 September 30, 1999, there were 87,073,831 shares of common stock, no par
value, issued and outstanding, with an additional 4,723,980 shares issued and
held in treasury.
1
2
THE ST. JOE COMPANY
INDEX
Page No.
PART I Financial Information:
Consolidated Balance Sheets-
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income-
Three months and nine months ended
September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows-
Nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 11
PART II Other Information
Exhibits and Reports on Form 8-K 23
2
3
THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
September 30, December 31,
1999 1998
-------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash & cash equivalents $ 100,505 $ 39,108
Short-term investments 68,557 65,285
Accounts receivable 37,530 38,691
Inventory 7,953 11,006
Other assets 17,409 13,234
----------- -----------
Total current assets 231,954 167,324
Investments & other assets:
Marketable securities 152,527 201,002
Investment in unconsolidated affiliates 74,552 70,235
Prepaid pension asset 61,668 53,683
Goodwill 132,893 123,389
Other assets 7,538 9,301
Net assets of discontinued operations 4,482 72,318
----------- -----------
Total investment and other assets 433,660 529,928
Investment in real estate 678,246 548,101
Property, plant & equipment, net 374,036 358,916
----------- -----------
Total assets $ 1,717,896 $ 1,604,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,862 $ 26,497
Accrued liabilities 88,725 41,961
Current portion of long-term debt 30,011 24,953
----------- -----------
Total current liabilities 154,598 93,411
Reserves and other liabilities 16,311 11,946
Deferred income taxes 272,783 289,359
Long-term debt 4,809 9,947
----------- -----------
Total liabilities 448,501 404,663
Minority interest in consolidated subsidiaries 333,772 316,309
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 86,907 88,200
Retained earnings 945,206 839,227
Restricted stock deferred compensation (3,891) (2,604)
Treasury stock, 4,723,980 and 2,543,590 shares,
respectively, at cost (108,027) (54,580)
----------- -----------
Total stockholders' equity 935,623 883,297
----------- -----------
Total liabilities and stockholders' equity $ 1,717,896 $ 1,604,269
=========== ===========
3
4
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Nine Months
Ended September 30 Ended September 30
----------------------- -----------------------
1999 1998 1999 1998
----------------------- -----------------------
Total revenues $181,483 $108,329 $533,599 $ 253,691
----------------------- -----------------------
Expenses:
Operating expenses 140,871 76,286 426,395 174,413
Corporate expense, net 4,250 2,954 11,278 8,346
Depreciation and amortization 13,129 9,715 35,234 27,042
----------------------- -----------------------
Total expenses 158,250 88,955 472,907 209,801
----------------------- -----------------------
Operating profit 23,233 19,374 60,692 43,890
----------------------- -----------------------
Other income:
Investment income 3,059 5,066 9,462 17,109
Other, net 9,695 1,829 12,997 6,134
----------------------- -----------------------
Total other income 12,754 6,895 22,459 23,243
----------------------- -----------------------
Income from continuing operations before income taxes
and minority interest 35,987 26,269 83,151 67,133
Income tax expense 17,854 10,884 10,540 28,873
Ninority interest 3,731 5,653 12,798 14,419
----------------------- -----------------------
Income from continuing operations 14,402 9,732 59,813 23,841
Income from discontinued operations:
Earnings from discontinued operations, net of income
taxes of $331, $(310), $3,222 and $582, respectively 527 (495) 5,131 924
Gain on sale of discontinued operations, net of income
taxes of $29,031 -- -- 42,800 --
----------------------- -----------------------
Net income $ 14,929 $ 9,237 $107,744 $ 24,765
======================= =======================
EARNINGS PER SHARE
Basic:
Income from continuing operations $ 0.17 $ 0.11 $ 0.68 0.26
Earnings (loss) from discontinued operations 0.01 (0.01) 0.06 0.01
Gain on sale of discontinued operations -- -- 0.49 --
----------------------- -----------------------
Net income $ 0.18 $ 0.10 $ 1.23 $ 0.27
======================= =======================
Diluted:
Income from continuing operations $ 0.16 $ 0.11 $ 0.67 0.26
Earnings (loss) from discontinued operations 0.01 (0.01) 0.06 0.01
Gain on sale of discontinued operations -- -- 0.48 --
----------------------- -----------------------
Net income $ 0.17 $ 0.10 $ 1.21 $ 0.27
======================= =======================
4
5
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months
Ended September 30
--------------------------------
1999 1998
----------- -----------
Cash flows from operating activities:
Net income $ 107,744 $ 24,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 35,234 27,042
Minority interest 12,798 14,419
Deferred income tax (benefit) expense (15,331) 7,762
Equity in earnings of unconsolidated affiliates (9,308) (669)
Gain on sales of investment properties (31,436) (960)
Gain on sales of investments and other assets (1,271) (3,017)
Gain on sale of discontinued operations, net of taxes (42,800) --
Purchases and sales of trading investments, net (12,416) --
Changes in operating assets and liabilities:
Accounts receivable 2,279 10,474
Inventory 3,453 931
Prepaid pension and other assets (14,936) (12,289)
Accounts payable, accrued liabilities, reserves and
other liabilities 2,121 17,285
Discontinued operations operating activities 23,343 11,737
---------- ----------
Net cash provided by operating activities 59,474 97,480
Cash flows from investing activities:
Purchases of property, plant and equipment and real estate (220,729) (81,801)
Purchases of available-for-sale investments (45,926) (724,606)
Investments in unconsolidated affiliates and acquisitions (31,431) (97,959)
Proceeds from sale of discontinued operations, net 150,682 --
Maturities and redemptions of available-for-sale investments 101,740 758,616
Maturities and redemptions of held to maturity investments -- 11,000
Proceeds from sales of investment properties 85,116 6,262
Distributions from unconsolidated affiliates 23,134 --
---------- ----------
Net cash provided by (used in) investing activities 62,586 (128,488)
Cash flows from financing activities:
Proceeds from borrowings, net of repayments (4,197) 700
Dividends paid to stockholders (1,765) (5,486)
Dividends paid to minority interest (1,254) (1,253)
Purchase of treasury stock (53,447) (36,133)
---------- ----------
Net cash used in financing activities (60,663) (42,172)
Net increase (decrease) in cash and cash equivalents 61,397 (73,180)
Cash and cash equivalents at beginning of period 39,108 158,568
-------------------------------
Cash and cash equivalents at end of period $ 100,505 $ 85,388
===============================
Supplemental disclosure of cash flow information:
Interest paid $2,028 $ 301
========== ==========
Income taxes paid $ 27,822 $ 17,238
---------- ----------
5
6
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly,
certain information and footnotes required by generally accepted accounting
principles for complete financial statements are not included herein. The
interim statements should be read in conjunction with the financial statements
and notes thereto included in the Company's latest Annual Report on Form 10-K.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position as of September 30, 1999 and the results of operations and
cash flows for the three and nine-month periods ended September 30, 1999 and
1998. The results of operations for the three-month and nine-month periods
ended September 30, 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 shares of common stock have been exercised using the treasury method.
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. As
of September 30, 1999, the Company had repurchased 4,723,980 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:
- -------------------------------------------------------------------------
Three Months Ended Nine months Ended
September 30, September 30,
- -------------------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------
Basic 87,233,774 90,950,488 87,896,021 91,448,703
- -------------------------------------------------------------------------
Diluted 88,206,360 91,699,715 88,814,327 92,950,327
- -------------------------------------------------------------------------
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 marketable securities available-for-sale. For the
nine months ended September 30, 1999 and 1998, total comprehensive income was
$106.5 million and $33.4 million, 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 the
Company, owns or leases for $133.5 million in cash. Talisman retained the right
to farm the land through the 2003 crop year. In December 1998, that sale was
closed in escrow pending the resolution of a lawsuit filed in Federal District
Court in Washington, D.C. seeking to invalidate the sale. On March 25, 1999,
Talisman entered into an Exchange Agreement ("The Exchange Agreement") with The
South Florida Water Management District; United States Sugar Corporation;
Okeelanta Corporation; South Florida Industries, Inc.; Florida Crystals
Corporation; Sugar Cane Growers Cooperative of Florida (collectively the "Sugar
Companies"); The United States Department of Interior; and The Nature
Conservancy. The Agreement allows Talisman to exit the sugar business. Talisman
assigned its right to
6
7
farm the land to the Sugar Companies. In return, the lawsuit was dismissed and
the other parties agreed to pay Talisman $19 million.
Talisman retained ownership of the sugar mill until March 1999 when it was
sold to a third party. Talisman is also responsible for the cleanup of the mill
site and is obligated to complete certain defined environmental remediation
(the "Remediation"). Approximately $5 million of the purchase price 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
$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. Included in current
and noncurrent liabilities are $8.7 million of liabilities related to severance
costs, environmental issues and closing costs and $30.5 million for income
taxes related to the transaction.
The Company has reported its sugar operations as discontinued operations
for all periods presented. Revenues from Talisman were $5.2 million and $0.3
million for the three months ended September 30, 1999 and 1998, respectively
and $43.6 million and $27.0 million for the nine months ended September 30,
1999 and 1998. Net income (loss) for Talisman, excluding the gain on sale of
the land and farming rights, was $0.5 million and $(0.5) million for the three
months ended September 30, 1999 and 1998, respectively and $ 5.1 million and
$0.9 million for the nine months ended September 30, 1999 and 1998,
respectively.
4. LONG-TERM DEBT
Borrowings consisted of the following: (In millions)
- ----------------------------------------------------------------------------------------------------------
September 30, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------
Notes payable to former owners of businesses acquired $10.1 $17.0
- ----------------------------------------------------------------------------------------------------------
Revolving credit agreement, secured by restricted
short-term investments 22.2 17.0
- ----------------------------------------------------------------------------------------------------------
Various secured and unsecured notes payable 2.6 2.1
- ----------------------------------------------------------------------------------------------------------
Less: discounts on non-interest bearing notes payable (0.1) (1.2)
----- -----
- ----------------------------------------------------------------------------------------------------------
Net borrowings 34.8 34.9
- ----------------------------------------------------------------------------------------------------------
Less: current portion 30.0 25.0
---- ----
- ----------------------------------------------------------------------------------------------------------
Total long-term debt $4.8 $9.9
- ----------------------------------------------------------------------------------------------------------
In March 1999, the Company entered into a revolving line-of-credit for up
to $65.0 million secured by certain marketable securities. The agreement was
amended in June, 1999 to increase the line to $122.0 million. The line matures
in January of 2000 and bears interest at LIBOR plus 50 basis points. As of
September 30, 1999, there was no balance outstanding.
In February 1999, the Company entered into an unsecured line-of-credit for
up to $35.0 million, which was amended and increased to $75.0 million in May,
1999. The line-of-credit 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. As of September 30, 1999, there was no balance
outstanding.
7
8
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.
The "other" primarily 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. 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. 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: (In millions)
- ------------------------------------------------------------------------------------------------------------------------
Three months Nine months
------------ -----------
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Total Revenues:
- ------------------------------------------------------------------------------------------------------------------------
Residential real estate services $ 57.2 $ 31.8 $154.3 $ 31.8
- ------------------------------------------------------------------------------------------------------------------------
Community residential real estate 34.8 2.7 69.2 3.9
- ------------------------------------------------------------------------------------------------------------------------
Commercial real estate 31.9 17.5 140.3 38.2
- ------------------------------------------------------------------------------------------------------------------------
Forestry 7.8 7.0 21.8 26.6
- ------------------------------------------------------------------------------------------------------------------------
Transportation 50.4 49.4 149.7 153.2
- ------------------------------------------------------------------------------------------------------------------------
Other (0.6) (0.1) (1.7) 0.0
------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------
Total revenues $181.5 $108.3 $533.6 $253.7
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
EBITDA:
- ------------------------------------------------------------------------------------------------------------------------
Residential real estate services $ 5.5 $ 2.8 $ 10.6 $ 2.8
- ------------------------------------------------------------------------------------------------------------------------
Community residential real estate 11.4 (0.5) 22.4 (2.3)
- ------------------------------------------------------------------------------------------------------------------------
Commercial real estate 7.4 6.4 25.6 12.4
- ------------------------------------------------------------------------------------------------------------------------
Forestry 3.7 4.4 10.4 13.3
- ------------------------------------------------------------------------------------------------------------------------
Transportation 9.3 8.6 18.6 25.9
- ------------------------------------------------------------------------------------------------------------------------
Other (1.9) 1.4 (3.7) 8.6
------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------
EBITDA $ 35.4 $ 23.1 $ 83.9 $ 60.7
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile to income from continuing operations:
- ------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $(13.1) $ (9.7) $(35.2) $(27.0)
- ------------------------------------------------------------------------------------------------------------------------
Other income 3.7 0.4 3.9 0.8
- ------------------------------------------------------------------------------------------------------------------------
Interest expense (0.5) (0.2) (1.8) (0.3)
- ------------------------------------------------------------------------------------------------------------------------
Income tax expense (17.9) (10.9) (10.5) (28.9)
- ------------------------------------------------------------------------------------------------------------------------
Minority interest 6.8 7.0 19.5 18.5
------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 14.4 $ 9.7 $ 59.8 $ 23.8
- ------------------------------------------------------------------------------------------------------------------------
There was no material change in any segment's total assets except as it
relates to the sale of discontinued operations, see note 3.
8
9
6. INCOME TAXES
During the second quarter, in light of recent events, including several
acquisitions, which significantly increased the number of participants in the
Company's pension plan, along with plan modifications and the Company's growth
strategy, management reevaluated how the pension plan surplus could be
utilized. Management believes it is now probable that the Company will utilize
the pension surplus over time without incurring the 50% excise tax. Therefore,
the Company reversed the deferred tax liability related to the 50% excise tax
amounting to $26.8 million as a deferred income tax benefit in the second
quarter. Income taxes on the change in pension surplus will be recorded at the
statutory rate in future periods.
7. 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 joint and severally liable as guarantor on four credit
obligations entered into by partnerships in which the Company has equity
interests. The maximum amount of the guaranteed debt totals $104.4 million; the
amount outstanding at September 30, 1999 totaled $61.2 million.
The Company is subject to costs arising out of environmental laws and
regulations, which include obligations to remove or limit the effects on the
environment of the disposal or release of certain wastes or substances at
various sites including sites which have been previously sold. It is the
Company's policy to accrue and charge against earnings environmental cleanup
costs when it is probable that a liability has been incurred and an amount is
reasonably estimable. As assessments and cleanups proceed, these accruals are
reviewed and adjusted, if necessary, as additional information becomes
available.
The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of Superfund sites. The Company has accrued an
allocated share of the total estimated cleanup costs for these sites. Based
upon management's evaluation of the other potentially responsible parties, the
Company does not expect to incur additional amounts even though the Company has
joint and several liability. Other proceedings involving environmental matters
such as alleged discharge of oil or waste material into water or soil are
pending against the Company. It is not possible to quantify future
environmental costs because many issues relate to actions by third parties or
changes in environmental regulation. However, based on information presently
available, management believes that the ultimate disposition of currently known
matters will not have a material effect on the consolidated financial position,
results of operations or liquidity of the Company. Environmental liabilities
are paid over an extended period and the timing of such payments cannot be
predicted with any confidence. Aggregate environmental-related accruals were
$7.0 million and $7.3 million as of September 30, 1999 and December 31, 1998,
respectively.
On May 30, 1996, the Company sold its linerboard mill and container
plants. On April 2, 1999, the purchasers of the mill filed for protection under
Chapter 11 of the Bankruptcy Code. During October 1999, the purchasers filed a
Plan of Reorganization ("The Plan"). To date the Plan has not been approved.
9
10
8. SUBSEQUENT EVENT
On October 27, 1999, the Company and Florida East Coast Industries, Inc.
(FECI) announced that they have agreed to undertake a recapitalization of FECI
to facilitate a pro rata tax-free spin-off to the Company's shareholders of the
Company's 54% equity interest in FECI.
As part of the recapitalization, the Company will exchange all of its
shares of FECI common stock for an equal number of shares of a new class of
FECI common stock. The holders of the new class of FECI common stock will be
entitled to elect 80% of the members of the Board of Directors of FECI, but the
new FECI common stock will otherwise have substantially identical rights to the
existing common stock. The new class of FECI common stock will be distributed
pro rata to the Company's shareholders in a tax-free distribution. The Company
will not retain any equity interest in FECI after the spin-off is completed.
At the closing of the transaction, various service agreements between the
Company and FECI's wholly owned subsidiary Gran Central Corporation (GCC) will
become effective. Under the terms of these agreements, which extend for up to
three years after the closing of the transaction, GCC will retain the Company,
through its commercial real estate affiliates, to continue to develop and
manage certain commercial real estate holdings of GCC. The terms of these
agreements have been approved by both the Company's and FECI's Boards of
Directors, and in the judgement of the boards, reflect arms-length terms and
conditions typically found in today's marketplace.
This transaction, expected to be completed during the second quarter of
2000, is subject to a number of conditions including the receipt of an Internal
Revenue Service ruling concerning the tax-free status of the proposed spin-off
and the approval of the recapitalization by a majority of the minority
shareholders of FECI. The Boards of Directors of the Company and FECI have
unanimously approved the transaction.
The Company owns 19,609,216 shares of FECI's common stock, which
represents an approximate 54% equity interest.
10
11
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, including the Company's
Form 10-K for the year ended December 31, 1998.
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 discontinued its
sugar operations for accounting purposes. In March, 1999 this operation was
sold. (See Discontinued Operations). On October 27, 1999, the Company announced
plans to spin-off its investment in Florida East Coast Industries, Inc.("FECI")
to its shareholders in a recapitalization transaction (See Recent Events
below).
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.
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
11
12
Water Management District; United States Sugar Corporation; Okeelanta
Corporation; South Florida Industries, Inc.; Florida Crystals Corporation;
Sugar Cane Growers Cooperative of Florida (collectively the "Sugar Companies");
The United States Department of Interior; and The Nature Conservancy. The
Agreement allows Talisman to exit the sugar business. Talisman assigned its
right to farm the land to the Sugar Companies. In return, the lawsuit was
dismissed and the other parties agreed to pay Talisman $19.0 million.
Talisman retained ownership of the sugar mill until March, 1999 when it
was sold to a third party. Talisman is also responsible for the cleanup of the
mill site and is obligated to complete certain defined environmental
remediation (the "Remediation"). Approximately $5.0 million 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 $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 $71.8 million in gain ($42.8 million, net of taxes)
in the first quarter of 1999, on the combined sale of the land and farming
rights.
RECENT EVENTS
During the third quarter of 1999, the Company sold 13,275 acres of
timberland for approximately $9.9 million, which resulted in a gain of $8.7
million. However, pending improved timberland market conditions and an
evaluation of potential new markets, the Company has suspended the auction
process of an additional 86,000 acres previously announced. Market conditions
have weakened largely due to mill closures, low pulp prices and competitive
sales efforts by other parties on three million acres of timberland in the
region.
On October 27, 1999, the Company and FECI announced that they have agreed
to undertake a recapitalization of FECI to facilitate a pro rata tax-free
spin-off to the Company's shareholders of the Company's 54% equity interest in
FECI.
As part of the recapitalization, the Company will exchange all of its
shares of FECI common stock for an equal number of shares of a new class of
FECI common stock. The holders of the new class of FECI common stock will be
entitled to elect 80% of the members of the Board of Directors of FECI, but the
new FECI common stock will otherwise have substantially identical rights to the
existing common stock. The new class of FECI common stock will be distributed
pro rata to the Company's shareholders in a tax-free distribution. The Company
will not retain any equity interest in FECI after the spin-off is completed.
At the closing of the transaction, various service agreements between the
Company and FECI's wholly owned subsidiary Gran Central Corporation (GCC) will
become effective. Under the terms of these agreements, which extend for up to
three years after the closing of the transaction, GCC will retain the Company,
through its commercial real estate affiliates, to continue to develop and
manage certain commercial real estate holdings of GCC. The terms of these
agreements have been approved by both the Company's and FECI's Boards of
Directors, and in the judgement of the boards, reflect arms-length terms and
conditions typically found in today's marketplace.
This transaction, expected to be completed during the second quarter of
2000 is subject to a number of conditions including the receipt of an Internal
Revenue Service ruling concerning the tax-free status of the proposed spin-off
and the approval of the recapitalization by a majority of the minority
shareholders of FECI. The Boards of Directors of the Company and FECI have
unanimously approved the transaction.
12
13
The Company owns 19,609,216 shares of FECI's common stock, which
represents an approximate 54% equity interest.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
THREE MONTHS ENDED SEPTEMBER 30
Total revenues increased $ 73.2 million, or 68%, to $181.5 million for the
third quarter of 1999 as compared to $108.3 million in the third quarter of
1998. The residential real estate services segment's revenues increased $25.4
million to $57.2 million due to the fact that the prior year quarter only
included the results for the two-month period from the July 1998 acquisition of
Arvida Realty Services ("ARS") to September 30, 1998. The community residential
real estate segment recorded $34.8 million in revenues; an increase of $32.1
million during the third quarter of 1999 as a result of sales of lots at the
Retreat in west Florida and sales from its April, 1999 acquisition of Saussy
Burbank, a Charlotte, North Carolina based home builder. The commercial real
estate segment also reported an increase in revenue of $14.4 million to $31.9
million, primarily from the Advantis service businesses. The forestry segment
reported revenues of $7.8 million, an increase of $0.8 million during the third
quarter of 1999 as compared to the third quarter of 1998. The transportation
segment contributed $50.4 million in revenues, an increase of $1.0 million as
compared to the third quarter of 1998. Losses of $0.6 million were recorded on
an investment in an unconsolidated affiliate which are not attributable to a
particular segment.
Operating expenses totaled approximately $140.9 million, an increase of
$64.6 million, or 85%, for the third quarter of 1999 as compared to $76.3
million for the third quarter of 1998. The residential real estate services
segment's operating expenses increased $22.8 million to $52.0 million due to
the fact that the prior year quarter only included the results for the
two-month period from the July 1998 acquisition of Arvida Realty Services
("ARS") to September 30, 1998. The community residential real estate segment
recorded $23.6 million in operating expenses, an increase of $20.0 million
during the third quarter of 1999 primarily due to the acquisition of Saussy
Burbank. The commercial real estate segment also reported an increase in
operating expenses of $15.1 million to $21.1 million, as a result of expenses
associated with the Advantis service businesses. The forestry segment reported
operating expenses of $4.7 million, an increase of $1.6 million during the
third quarter of 1999 as compared to the third quarter of 1998. The
transportation segment costs were $34.4 million, which was comparable to the
$34.2 million recorded in 1998. Operating expenses in 1999 also include a 5.1
million non-cash charge to reserve 100% of the Company's investment in ENTROS,
Inc., a Seattle-based company deemed to be impaired.
Corporate expense increased 43% from $3.0 million to $4.3 million,
primarily due to a one-time increase in employee benefits expense. Corporate
expense included prepaid pension income of $2.7 million, an increase of $0.4
million for the third quarter of 1999 as compared to the third quarter of 1998.
Depreciation and amortization totaled $13.1 million, an increase of $3.4
million, or 35% , primarily due to additional depreciation and amortization
expense related to the GCC's opening of two new buildings and the acquisitions
of ARS and the Advantis businesses.
Other income increased $5.9 million, or 86% in the third quarter even
considering substantially lower interest income due to a pre-tax gain of $8.7
million from a timberland sale to the State of Florida. Similar to the quarter
ended June 30, 1999, average balances of invested cash were substantially lower
in the third quarter of 1999 compared to 1998 because of recent acquisitions
and the utilization of cash to continue the repurchase of the Company's
outstanding common stock.
Income tax expense on continuing operations totaled $17.9 million for the
third quarter of 1999 as compared to $10.9 million for the third quarter of
1998. The effective tax rate for the third quarter of 1999 was 49%, as compared
to 42% for 1998.
Earnings from discontinued operations, net of tax, related to the run-off
of the sugar business totaled $0.5 million for the third quarter of 1999 as
compared to a $(0.5) million loss in the third quarter of 1998. As of September
30, 1999, sales of the 1999 harvest have been substantially completed.
13
14
Net income for the third quarter of 1999 was $14.9 million or $0.17 per
diluted share as compared to $9.2 million or $0.10 per diluted share for the
third quarter of 1998. Excluding the effects of the gain on the timberland sale
to the State of Florida and the offsetting write-off of the investment in
ENTROS, net income in the third quarter would have been $12.7 million or $0.15
per diluted share.
NINE MONTHS ENDED SEPTEMBER 30
Total revenues increased $279.9 million, or 110%, to $533.6 million for
the nine months of 1999 as compared to $253.7 million in the first nine months
of 1998. The residential real estate services segment contributed $154.3
million in revenues in 1999 and $31.8 million in 1998 for the two-month period
after the July 1998 acquisition of ARS. The community residential real estate
segment recorded $69.2 million in revenues; an increase of $65.3 million during
the first nine months of 1999 as a result of sales of lots at the Retreat in
west Florida, its acquisition of Saussy Burbank and equity in earnings in
unconsolidated affiliates. The commercial real estate segment also reported an
increase in revenue of $102.1 million to $140.3 million, primarily related to
the sale of two industrial parks located in south Florida in the first quarter
of 1999, and from the Advantis service businesses. The forestry segment
reported revenues of $21.8 million, a decrease of $4.8 million during 1999 as
compared to 1998. The transportation segment contributed $149.7 million in
revenues, a decrease of $3.5 million, as compared to $153.2 million in 1998.
Losses of $1.7 million were recorded on an investment in an unconsolidated
affiliate which are not attributable to a particular segment.
Operating expenses totaled approximately $426.4 million, an increase of
$252.0 million, or 145%, for the first nine months of 1999 as compared to
$174.4 million for the fist nine months of 1998. Residential real estate
services costs were $144.7 million in 1999 and $29.2 million in 1998 for the
two-month period after the acquisition of ARS. The community residential real
estate segment recorded $47.4 million in operating expenses, an increase of
$40.5 million during 1999. The commercial real estate segment also reported an
increase in operating expenses of $83.5 million to $99.5 million, primarily as
a result of cost 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 $13.4 million, a decrease of $1.3
million during 1999 as compared to 1998. The transportation segment costs were
$116.1 million, an increase of $8.4 million primarily relating to one-time
charges totaling $8.2 million incurred during the second quarter of 1999.
Operating expenses in 1999 also include $5.3 million of charges relating to
unconsolidated affiliates including a $5.1 million non-cash charge to reserve
100% of the Company's investment in ENTROS, Inc., a Seattle-based company
deemed to be impaired.
Corporate expense increased 36% from $8.3 million to $11.3 million,
primarily associated with increased overhead relating to a one-time increase in
employee benefits, and legal and consulting fees related to potential
acquisitions and other deal pursuit costs. Corporate expense included prepaid
pension income of $8.0 million, an increase of $1.0 million for 1999 as
compared to 1998.
Depreciation and amortization totaled $35.2 million, an increase of $8.2
million, or 30%, primarily due to additional goodwill amortization related to
the acquisitions of ARS and the Advantis businesses and increased depreciation
on buildings placed into service since last year.
Other income decreased only $0.7 million in 1999 as substantially lower
interest income in 1999 was offset by the gain on the timberland sale to the
State of Florida in the third quarter. 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
1999.
Income tax expense on continuing operations totaled $10.5 million for the
1999 as compared to $28.9 million for 1998. During the second quarter of this
year, the Company recorded a $26.8 million deferred income tax benefit related
to the excise tax on its pension surplus. In 1996, the Company sold the
majority of its paper operations, which resulted in a substantial reduction in
employees. Management, at the time, determined that the over-funded status of
the pension plans would probably not be realized other than by a plan
termination and reversion of assets. Since 1996, the Company has recorded
deferred income tax expense on its pension surplus at the statutory rate plus a
50% excise tax that would be imposed if the company were to liquidate its
pension plans and revert the assets back to the Company. In light of recent
14
15
events, including several acquisitions, which have significantly increased the
number of participants in the pension plan, along with plan modifications and
the Company's growth strategy, management has reevaluated how the pension plan
surplus can be utilized. Management believes it is now probable that the
Company will utilize the pension surplus over time without incurring the 50%
excise tax. Therefore, the Company has reversed the deferred tax liability
related to the 50% excise tax amounting to $26.8 million as a deferred income
tax benefit in its current year operations. Income taxes on the change in
pension surplus will be recorded at the statutory rate in future periods.
Excluding the $26.8 million deferred income tax benefit relating to income tax
expense for the nine months of 1999 would have been $37.3 million for an
effective rate of 45% as compared to an effective tax rate of 38% in 1998,
excluding the excise tax effect.
Income from discontinued operations includes the $42.8 million gain, net
of tax, on the sale of Talisman's land and farming rights that occurred in the
first quarter of 1999. Net earnings from discontinued operations totaled $5.1
million for 1999 as compared to $0.9 million in 1998.
Net income for the nine months of 1999 was $107.7 million or $1.21 per
diluted share as compared to $24.8 million or $0.27 per diluted share for 1998.
Excluding the FECI special charges of $8.2 million ($2.8 million, net of tax
and minority interest), the $26.8 million deferred income tax benefit related
to the pension surplus excise tax, the $71.8 million ($42.8 million net of tax)
gain on sale of discontinued operations, the $8.7 million ($5.4 million net of
tax) gain on timber land sale, and the $5.1 million ($3.2 million net of tax)
loss on investment in ENTROS, net income for 1999 would have been $38.7
million, or $0.44 per diluted share.
RESIDENTIAL REAL ESTATE SERVICES
(In millions)
- ------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
- ------------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
- ------------------------------------------------------------------------------------------------
Revenues $ 57.2 $ 31.8 $154.3 $ 31.8
- ------------------------------------------------------------------------------------------------
Operating expenses 52.0 29.2 144.7 29.2
- ------------------------------------------------------------------------------------------------
Depreciation and amortization 1.4 1.0 4.0 1.0
- ------------------------------------------------------------------------------------------------
Other income (expense) 0.1 0.2 0.4 0.2
- ------------------------------------------------------------------------------------------------
Pretax income from continuing operations 3.9 1.7 6.0 1.7
- ------------------------------------------------------------------------------------------------
EBITDA 5.5 2.8 10.6 2.8
- ------------------------------------------------------------------------------------------------
On July 31, 1998, the Company completed the acquisition of its residential
real estate services company, ARS and thus the 1998 results in the table above
for both the three months and nine months ended September 30, 1998 include only
two months activity. 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.
THREE MONTHS ENDED SEPTEMBER 30
Realty brokerage revenues of $57.2 million in the third quarter of 1999
were attributable to 8,808 closed units representing $1.7 billion of sales
volume. Realty brokerage revenues of $31.8 million in the third quarter of 1998
only include realty brokerage revenues from the date of the acquisition, July
31, 1998, through September 30, 1998 which were attributable to 5,217 closed
units representing $0.9 billion of sales volume. The average home sales price
for the third quarter of 1999 increased to $190,000 as compared to $169,000 for
the same period in 1998.
Operating expenses of $52.0 million were 91% of revenues in 1999 as
compared to $29.2 million , which were 92% of revenues for the period from July
31, 1998 through September 30, 1998. Operating expenses represent commissions
paid on real estate transactions, underwriting fees on title policies and
administrative expenses of the ARS operations.
15
16
NINE MONTHS ENDED SEPTEMBER 30
In the first nine months of 1999, ARS had realty brokerage revenues of
$154.3 million attributable to 23,857 closed units representing $4.4 billion of
sales volume. The average home sales price for the nine months was $186,000.
Operating expenses of $144.7 million was 94% of revenues and included $2.2
million of conversion expenses related to the operation's name change from
Prudential Florida Realty to ARS.
COMMUNITY RESIDENTIAL REAL ESTATE
(In millions)
- --------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
- --------------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
- --------------------------------------------------------------------------------------------------
Revenues $ 34.8 $ 2.7 $ 69.2 $ 3.9
- --------------------------------------------------------------------------------------------------
Operating expenses 23.6 3.6 47.4 6.9
- --------------------------------------------------------------------------------------------------
Depreciation and amortization (0.2) -- (1.0) 0.1
- --------------------------------------------------------------------------------------------------
Other income (expense) (0.1) -- (0.2) --
- --------------------------------------------------------------------------------------------------
Pretax income from continuing operations 11.3 (0.9) 22.6 (3.1)
- --------------------------------------------------------------------------------------------------
EBITDA 11.4 (0.5) 22.4 (2.3)
- --------------------------------------------------------------------------------------------------
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.
St. Joe/Arvida Company, L.P. and Arvida/JMB are currently managing a
total of 23 communities in various stages of planning and development.
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's operations are included in community residential
real estate operations since acquisition.
THREE MONTHS ENDED SEPTEMBER 30
During this quarter 28 lots at The Retreat in Walton County, Florida
closed representing pre-tax gain of $8.4 million. Revenues from these sales
totaled $11.6 million with an average lot price of $414,000. This beach club
resort community includes 90 single-family housing units on 76 acres. As of
October 21, 1999, 85 lots have been sold or are under contract at an average
price of approximately $429,000. Other sales this quarter included housing and
lots in the Summerwood, Woodrun, and Camp Creek Point developments in west
Florida totaling in the aggregate $1.7 million and James Island, in northeast
Florida totaling $4.1 million. Related cost of sales totaled $6.2 million.
Saussy Burbank contributed revenues from homebuilding totaling $12.9 million
with related cost of sales of $12.6 million. Other revenues from management
fees and rental income totaled $.5 million.
Equity in earnings of Arvida/JMB and other unconsolidated affiliates
totaled $4.0 million this quarter. There was no equity in earnings of
unconsolidated affiliates in 1998.
Other operating expenses related to the increased level of activity for
project and general administration as well as marketing totaled $4.8 million in
the third quarter of 1999 compared to $2.9 million in 1998.
Last year's revenues for the quarter of $2.7 million were primarily from
Camp Creek, Summerwood and Woods III lot sales with cost of sales of $.7
million.
16
17
NINE MONTHS ENDED SEPTEMBER 30
In addition to the Retreat sales which totaled $23.1 million, and Saussy
Burbank's revenues of $24.5 million, sales year to date included housing and
lot sales in the Summerwood, Deerwood, Woodrun and Camp Creek Point
developments in west Florida totaling $5.9 million and sales from James Island
of $4.3 million. Other revenues for the nine months of 1999 were generated by
the Company's equity in earnings of Arvida/JMB and other affiliates totaling
$10.9 million. The Company also had revenues of $0.5 million from management
fees and rental income during 1999. Revenues in 1998 were from 35 real estate
lot sales primarily in Summerwood and management fees totaling $3.9 million
with cost of sales of $0.9 million.
Total cost of sales related to west Florida activity, including the
Retreat and cost of sales related to James Island totaled $11.8 million
resulting in EBITDA of $18.0 million. Cost of sales related to Saussy Burbank
totaled $22.5 million with a EBITDA of $ 0.5 million. Other operating expenses
include noncapitalizeable administrative costs, deal pursuit costs, and
predevelopment costs related to the Company's increased activity, which totaled
$13.1 million in 1999 as compared to $6.0 million in 1998.
COMMERCIAL REAL ESTATE
(In millions)
- --------------------------------------------------------------------------------------------
Three Months Ended Nine months ended
September 30, September 30,
- --------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
- ------------------------------------------------ ---------- ----------- ---------- ---------
Revenues $31.9 $17.5 $140.3 $38.2
- ------------------------------------------------ ---------- ----------- ---------- ---------
Operating expenses 21.1 6.0 99.5 16.0
- ------------------------------------------------ ---------- ----------- ---------- ---------
Depreciation and amortization 5.4 3.1 13.3 8.5
- ------------------------------------------------ ---------- ----------- ---------- ---------
Other income (expense) - 0.2 - 0.3
- ------------------------------------------------ ---------- ----------- ---------- ---------
Pretax income from continuing operations 5.4 8.6 27.5 14.0
- ------------------------------------------------ ---------- ----------- ---------- ---------
EBITDA 7.4 6.4 25.6 12.4
- ------------------------------------------------ ---------- ----------- ---------- ---------
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.
THREE MONTHS ENDED SEPTEMBER 30
In the third quarter of 1999, rental revenues increased to $13.7 million,
from $11.6 million in the third quarter of 1998, an 18% improvement. The
increase in rental revenue was primarily comprised of increases on same store
properties totaling $1.4 million, of which $0.9 million was caused by increased
rental rates and $0.5 million was caused by increases in occupancy. Occupancy
on same-store properties rose from 85% on September 30, 1998 to 88% at the end
of the quarter. Rental revenues increased $1.9 million due to new buildings
placed in service since the third quarter of 1998. Rental revenues and rents
recoverable from tenants were consistent with prior year. Offsetting these
increases were net revenues lost from buildings sold in the first quarter of
1999 of $1.2 million.
Sales of real estate generated revenues of $5.1 million in 1998 from the
sale of undeveloped parcels of land compared with $0.1 million in the current
quarter.
17
18
Advantis contributed $14.9 million of brokerage, property management and
construction revenues for the third quarter of 1999. Advantis brokered over 400
leasing and investment sales transactions valued at $250 million during the
quarter and managed a portfolio of properties with approximately 20 million
square feet of space.
Other revenues of $3.2 million relate to equity in several joint ventures
and additional management fees earned by the Company as compared to $0.9
million in 1998. Approximately $2.0 million relates to the Company's investment
in Deerfield Park, LLC for the quarter ended September 30, 1999.
Operating expenses in the commercial real estate segment were $21.1
million, an increase of $15.1 million from the prior year quarter. The increase
resulted primarily from a $1.2 million increase in costs related to operating
properties and the addition of Advantis expenses of $13.9 million. Advantis'
expenses include commissions paid to brokers, property management expenses and
construction costs. Other operating expenses related to asset management and
administrative expenses totaled $7.2 million primarily due to systems
conversion and increased overhead due to the growth of this segment.
Depreciation and amortization rose by $2.3 million and is attributable
primarily to goodwill amortization as a result of the acquisitions including
the Advantis businesses of $0.7 million and increased depreciation due to
buildings placed in service of $1.6 million.
EBITDA totaled $7.4 million for the third quarter of 1999 and was
comprised of $3.9 million from rental operations, $2.9 million from Advantis
and $0.6 million from equity in joint ventures. EBITDA in the third quarter of
1998 of $6.4 million was derived primarily from rental operations and real
estate sales.
NINE MONTHS ENDED SEPTEMBER 30
For the nine months ended September 30, 1999 Gran Central sold real estate
properties for gross proceeds of $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 September
30, 1999, the Company had 61 operating buildings with 6.0 million total
rentable square feet in service. Approximately 2.0 million square feet of
office and industrial space is under construction as of September 30, 1999.
Additionally, approximately 1.6 million square feet is in the predevelopment
stage and the Company is expected to commence construction on these properties
during the remainder of 1999 through 2000.
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 $5.3 million to the commercial real estate
segment's revenues during the first nine months of 1999. Land sales from the
Company's investment in the Deerfield Park, LLC venture resulted in earnings to
the Company of $4.7 million. There were earnings of approximately $0.9 million
from investments in joint ventures in 1998.
Revenues generated from rental operations increased to $39.7 million, a
24% increase from $32.1 million in 1998, primarily from increases in same store
revenues totaling $5.5 million and new store revenues of $1.6 million. Revenues
declined $2.1 million due to buildings sold this year. Other increases in
miscellaneous rental revenues and recoverables accounted for $1.8 million.
Operating revenues generated from Advantis totaled $43.0 million in 1999.
Revenues from management fees totaled $1.9 million in 1999.
Operating expenses in the commercial real estate segment increased
$83.5 million to $99.5 million from $39.1 million in costs of real estate
sales, an increase of $38.5 million from $0.6 million in 1998, $40.4 million in
Advantis expenses, $13.8 million in costs related to operating properties, an
increase of $1.6 million from $12.2 million in 1998 and $6.2 million general
and administrative expenses, an increase of $3.0 million from $3.2 million in
1998. Advantis' expenses include commissions paid to brokers, property
management expenses and construction costs.
Depreciation and amortization rose by $4.8 million and is attributable to
goodwill amortization as a result of the acquisitions including the Advantis
businesses of $2.1 million and additional depreciation on operating properties
of $2.7 million.
18
19
EBITDA totaled $25.6 million for the nine months ended September 30, 1999 and
was comprised of $6.1 million from sales of real estate, $12.1 million from
rental operations, $0.2 million from earnings on investments in real estate
developments and, $7.2 million from Advantis. EBITDA in 1998 totaled $12.4
million and was comprised primarily of EBITDA from rental operations.
FORESTRY
(In millions)
- ------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
- ------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
- ------------------------------------------------------------------------------------------
Revenues $7.8 $7.0 $21.8 $26.6
- ------------------------------------------------------------------------------------------
Operating expenses 4.7 3.1 13.4 14.7
- ------------------------------------------------------------------------------------------
Depreciation and amortization 0.6 0.5 1.8 1.8
- ------------------------------------------------------------------------------------------
Other income (expense) 9.4 1.0 10.9 1.8
- ------------------------------------------------------------------------------------------
Pretax income from continuing operations 11.8 4.4 17.5 12.0
- ------------------------------------------------------------------------------------------
EBITDA 3.7 4.4 10.4 13.3
- ------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30
Total revenues for the forestry segment increased $0.8 million, or 12% in
the third quarter of 1999 compared to 1998 due to an increase in timber sales
which were $2.8 million higher in 1999. The increase in timber sales was offset
by bulk land and timber sales which decreased $2.0 million from 1998. Total
sales to Florida Coast Paper Company, LLC ("FCP"), the Company's major pulpwood
customer, were $4.6 million (168,209 tons) in 1999 as compared to $2.7 million
(90,237 tons) in 1998. Since August of 1998 the FCP mill has been shutdown and
has filed for Chapter 11 bankruptcy protection. Without waiving the terms and
conditions of the amended fiber supply agreement with FCP, the Company has been
redirecting pulpwood from the FCP mill in Port St. Joe, Florida, to another
mill at FCP's request. Sales to other customers increased to $3.0 million
(113,600 tons) from $2.1 million (105,624 tons) a year ago. Market conditions
improved in the third quarter of 1999, leading to more opportunities to sell
timber to outside parties. The average sales price of timber sold increased to
approximately $27 per ton in the third quarter of 1999 as compared to
approximately $25 per ton in the third quarter of 1998.
Operating expenses for the quarter increased $1.6 million, or 52% compared
to 1998 due to increased 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.
Other income for the third quarter of 1999 was $9.4 million, which
included an $8.7 million gain from a land sale to the State of Florida with the
assistance of The Nature Conservancy.
NINE MONTHS ENDED SEPTEMBER 30
Total revenues for the nine months ended September 30, 1999 decreased $4.8
million to $21.8 million, or 18%, compared to the first nine months of 1998.
Timber sales decreased $3.1 million and bulk land and timber sales decreased
$1.7 million from the prior year nine-month period. Sales to FCP were $13.9
million (479,228 tons) in 1999 as compared to $15.4 million (533,819 tons) in
1998. Sales to other customers decreased $1.6 million in 1999 to $7.5 million
(307,302 tons) as compared to $9.1 million (365,225) in 1998. In the first nine
months of 1998, the Company conducted several lump sum bid timber sales to take
advantage of favorable market conditions, which is not the case this year.
Revenues in 1999 include bulk land and timber sales of $0.5 million, as
compared to $2.2 million in bulk land and timber sales in 1998.
19
20
Operating expenses for the first nine months of 1999 decreased $1.3
million, or 9%, as compared to the first nine months of 1998 due to the lower
harvest volumes year to date. Cost of sales as a percentage of sales was lower
in 1998 due to the lump sum timber sales in 1998, which do not incur cut and
haul charges.
Other income was $10.9 million for the nine months ended September 30,
1999 compared to $1.8 million for the nine months ended September 30, 1998. The
1999 amount included an $8.7 million gain from a timberland sale to the State of
Florida with the assistance of The Nature Conservancy.
TRANSPORTATION
(In millions)
- --------------------------------------------------------------------------------------------
Three Months Ended Nine months Ended
September 30, September 30,
- --------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
- --------------------------------------------------------------------------------------------
Revenues $50.4 $49.4 $149.7 $153.2
- --------------------------------------------------------------------------------------------
Operating expenses 34.4 34.2 116.1 107.7
- --------------------------------------------------------------------------------------------
Depreciation and amortization 4.9 4.7 14.6 13.9
- --------------------------------------------------------------------------------------------
Other income (expense) 0.3 (0.3) 0.4 0.2
- --------------------------------------------------------------------------------------------
Pretax income from continuing operations 11.4 10.2 19.4 31.8
- --------------------------------------------------------------------------------------------
EBITDA 9.3 8.6 18.6 25.9
- --------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
Transportation operating revenues include the railway, trucking and telecom
operations of FECI. These revenues increased $1.5 million, or 3%, to $48.6
million for the third quarter of 1999 as compared to $47.1 million in the third
quarter of 1998. Railway revenues remained strong and more than offset the
weakness in intermodal traffic with increases in all other categories of
traffic. Aggregate traffic increased 4%, automotive traffic increased by 5%, and
all other carload traffic increased 30% in the third quarter of 1999, as
compared to the same period for 1998. Intermodal traffic declined 10% which is
attributable to both the continued impact of the service redesign first
implemented in 1998 of one of FECI's connecting carriers to stop marketing
intermodal service to certain terminals and offshore transshipments of loads
previously handled in Florida. Telecom's operating revenues were $1.6 million,
up from $1.1 million in 1998 because of annual increases specified in lease
renewals.
Apalachicola Northern Railroad Company ("ANRR") operating revenues were
$1.8 million reflecting a decrease in revenues of $0.5 million, or 22%, due to
lost traffic due to the FCP mill shutdown and from lost traffic from 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, Florida to Chattahoochee, Florida. ANRR has fully performed its
obligations under the contract and is prepared to complete the contract term,
which continues until November 2004 and has filed suit to enforce the contract.
ANRR's 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.
FECI's transportation segment's operating expenses increased $1.0 million,
or 3% to $33.6 million, compared to $32.6 million in 1998, partially due to
increased salaries and other overhead relating to new management and costs
associated with the new telecom division. ANRR's operating expenses decreased
$0.9 million commensurate with the reduction in their workforce and traffic.
NINE MONTHS ENDED SEPTEMBER 30
FECI's transportation operating revenues decreased $0.2 million to $145.0
million for the nine months of 1999 as compared to $145.2 million for the nine
months of 1998. The growth of all railway revenues groups offset the weakness
in intermodal traffic noted already mentioned above. Also, during 1998, FECI
recognized income of approximately $3.0 million in connection with a
non-monetary exchange transaction whereby FECI received fiber cable optic
rights.
20
21
ANRR's operating revenues decreased $3.3 million, or 41% to $4.7 million
in 1999 from $8.0 million.
FECI's transportation segment's operating expenses increased $9.6 million,
or 9% to $111.7 million, compared to $102.1 million in 1998. Exclusive of the
special charges totaling $8.2 million, the increase of $1.4 million relates to
increases in transportation's general and administrative expenses due to a new
management team being put in place was offset partially by decreases in fuel and
personal injury expenses. ANRR's operating expenses decreased $1.2 million
commensurate with the reduction in their workforce and traffic.
Excluding the effects of the special charges, pre-tax income from
operations for the transportation segment would have been $27.6 million, of
which $28.0 million was contributed by FECI's transportation segment and ($0.4)
million was contributed by ANRR. Net EBITDA would have been $26.8 million for
the nine months ended September 30, 1999, all contributed by FECI's
transportation segment.
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 September 30, 1999, the Company had repurchased 4,723,980
shares of its common stock at a cumulative cost of $108.3 million, with $53.7
million expended during 1999.
For the nine months ended September 30, 1999, cash provided by operations
was $59.5 million. During 1999, 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. As of September 30, 1999, $37.1 million of the
proceeds have been reinvested in real estate operations. Significant proceeds
from investing activities were also received from the sales of Gran Central's
industrial parks in the first quarter of 1999 and from sales of investment
securities and from the timberland sale to the State of Florida. These proceeds
will be reinvested into the Company's real estate operations. Capital
expenditures totaled $220.7 million for the first nine months 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. 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;
21
22
(3) a Test Phase to test components after remediation to verify that
the Remediation Phase was successful;
(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%, 100%, 100%, 96% and 96% complete, and that all critical systems will be
Year 2000 ready by the end of 1999.
The Company expects to spend less than $1.0 million to address and modify
Year 2000 problems, excluding FECI. Approximately $0.3 million has been spent
by the Company through September 30, 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 substantially
complete as of September 1999.
The Company has been advised by FECI that its Year 2000 Project efforts
have proceeded on schedule and that all systems are Year 2000 capable as of
early November 1999.
FECI expects to spend approximately $9.3 million for its Year 2000 effort
of which approximately 90% has been committed or expended through early
November, 1999. FECI has informed St. Joe that the Year 2000 problem is not
expected to materially adversely affect its financial position, results of
operations or liquidity. However, there can be no assurance that the systems or
equipment of other parties which interact with FECI's systems will be compliant
on a timely basis. FECI believes that the failure of systems or equipment of one
or more of its key third parties or customers is the most reasonably likely
worst case Year 2000 scenario, and that an extended failure could have a
material adverse effect on the results of operations, liquidity or financial
position of FECI. Where appropriate, FECI continues to develop contingency plans
in the event that FECI's key third parties do not become Year 2000 compliant
on a timely basis, which effort includes the modification of existing
disaster recovery plans. FECI's management continues to make every effort to
ensure that the Year 2000 problems will not have any adverse affect on FECI's
daily operations.
22
23
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.01 Distribution and Recapitalization Agreement
10.02 Indemnification Agreement
10.03 Master Agreement
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.
23
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The St. Joe Company
Date: November 11, 1999 /S/ Peter S. Rummell
------------------------------
Peter S. Rummell
Chairman of the Board and
Chief Executive Officer
Date: November 11, 1999 /S/ Kevin M. Twomey
------------------------------
Kevin M. Twomey
President and Chief Financial Officer
Date: November 11, 1999 /S/ Michael N. Regan
------------------------------
Michael N. Regan
Senior Vice President, Finance and Planning
Date: November 11, 1999 /S/ Janna L. Connolly
-----------------------------
Janna L. Connolly
Controller
24