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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number 1-10466

The St. Joe Company

(904) 301-4200

None.

      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 þ          NO o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     YES þ          NO o

APPLICABLE ONLY TO CORPORATE ISSUERS:

      As of May 5, 2004, there were 101,342,929 shares of common stock, no par value, issued and 75,752,432 outstanding, with 25,590,497 shares of treasury stock.

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PART I. FINANCIAL INFORMATION

THE ST. JOE COMPANY

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

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THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF INCOME

See notes to consolidated financial statements.

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THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

See notes to consolidated financial statements.

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THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOW

See notes to consolidated financial statements.

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THE ST. JOE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 accounting principles generally accepted in the United States 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, 2004 and December 31, 2003 and the results of operations and cash flows for the three-month periods ended March 31, 2004 and 2003. The results of operations and cash flows for the three-month periods ended March 31, 2004 and 2003 are not necessarily indicative of the results that may be expected for the full year.

      Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“FAS 123”), permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, FAS 123 also allows entities to apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value based method defined in FAS 123 has been applied. Under APB 25, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price.

      Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“FAS 148”), requires prominent disclosure in both annual and interim financial statements of the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As permitted under FAS 148 and FAS 123, the Company has elected to continue to apply the provisions of APB 25 and provide the pro forma disclosure provisions of FAS 148 and FAS 123. Accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Had the Company determined compensation costs based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net income would have been reduced to the pro forma amounts indicated below (in thousands except per share amounts):

      Earnings per share (“EPS”) is based on the weighted average number of common shares outstanding during the period. Diluted EPS assumes weighted average options have been exercised to purchase 1,791,475 and 2,327,236 shares of common stock in the three months ended March 31, 2004 and 2003, respectively, net of assumed repurchases using the treasury stock method.

      On February 10, 2004, the Company’s Board of Directors authorized an additional $150.0 million for the repurchase of the Company’s outstanding common stock from time to time on the open market (the “Stock Repurchase Program”), none of which had been expended at March 31, 2004. From August 1998 through March 31, 2004, the Board authorized a total of $800.0 million for the Stock Repurchase Program, of which a total of approximately $630.1 million had been expended through March 31, 2004. Beginning in December 2000 for an initial 90-day term and for additional 90-day terms from time to time (currently through August 6, 2004), the Alfred I. duPont Testamentary Trust (the “Trust”), the principal shareholder of the Company, and the Trust’s beneficiary, The Nemours Foundation (the “Foundation”), have agreed to participate in the Stock Repurchase Program. Pursuant to this agreement, the Trust and/or the Foundation sell to the Company each Monday a number of shares equal to a share multiplier times the number of shares the Company purchased from the public during the previous week, if any, at a price equal to the volume weighted average price, excluding commissions, paid by the Company for shares purchased from the public during that week. However, through August 6, 2004, the Trust and the Foundation are not required to sell shares to the Company if the volume weighted average price of shares repurchased from the public during that prior week is below $37.00 per share. Effective May 8, 2004, the share multiplier will decrease to 0.31 from 0.46 which had been in effect since February 10, 2004.

      From the inception of the Stock Repurchase Program to March 31, 2004, the Company repurchased 16,460,866 shares on the open market and 7,855,935 shares from the Trust and the Foundation, and executives surrendered 1,243,066 shares as payment for strike prices and taxes due on exercised stock options and taxes due on vested restricted stock. During the three months ended March 31, 2004, the Company repurchased

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

403,000 shares on the open market and 182,955 shares from the Trust and the Foundation and 91,205 shares were surrendered to the Company by executives as payment for the strike price and taxes due on exercised stock options and taxes due on vested restricted stock. During the three months ended March 31, 2003, the Company repurchased 494,000 shares on the open market and 266,220 shares from the Trust and the Foundation and executives surrendered 43,184 shares of Company stock as payment for the strike price and taxes due on exercised stock options and taxes due on vested restricted stock.

      Shares of Company stock issued upon the exercise of stock options for the three months ended March 31, 2004 and 2003 were 330,863 shares and 626,364 shares, respectively.

      Weighted average basic and diluted shares, taking into consideration shares issued, weighted average options used in calculating EPS and treasury shares repurchased for each of the periods presented are as follows:

      The Company paid $8.3 million and $7.9 million for interest in the first three months of 2004 and 2003, respectively. The Company paid income taxes of $1.3 million, net of refunds, in the first quarter of 2004 and received income tax refunds, net of payments made, of $0.8 million in the first quarter of 2003. The Company capitalized interest expense of $1.9 million during each of the three month periods ended March 31, 2004 and 2003.

      The Company’s non-cash activities included the execution of a debt agreement in payment for an interest in a new unconsolidated affiliate, the surrender of shares of Company stock by executives of the Company as payment for the exercise of stock options and the tax benefit on exercises of stock options. During the three months ended March 31, 2004, the Company executed a debt agreement in the amount of $11.4 million as payment for its interest in a new unconsolidated affiliate. During the three month periods ended March 31, 2004 and 2003, executives surrendered Company stock worth $1.9 million and $0.6 million, respectively, as payment for the strike price of stock options.

      Cash flows related to residential and commercial real estate development activities are included in operating activities on the statements of cash flows.

      Revenue for the Company’s multi-family residences under construction at WaterSound Beach is recognized, in accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate (FAS 66), using the percentage-of-completion method of accounting. Under this method, revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. As a result of the project being substantially complete as of December 31, 2003, the Company had recorded substantially all of the activity related to this property during the year ended December 31, 2003. During the period ended March 31, 2004, the Company incurred $2.0 million in construction costs for contract adjustments related to the project. These costs represent changes to the original construction cost estimates for this project. Had these costs been quantified in 2003, they would have been included within the Company’s budgets and thus have had an impact on its results for the year ended December 31, 2003. If these costs had been included within the total project budget, 2003 gross profit would have been reduced by $3.6 million (pre-tax), $2.3 million (after tax), since a lower percentage of revenue would also have been recognized. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

results for the period ended March 31, 2004 would have been increased by $3.6 million (pre-tax), $2.3 million (after tax).

      Management has evaluated the impact of this item, which represents 3% of net income ($0.03 per diluted share) for the year ended December 31, 2003, and concluded that it is not significant to its 2003 results of operations. In addition, while the impact of this item would increase net income for the first quarter of 2004 by 18% ($0.03 per diluted share), management has concluded that it is not expected to be significant to its results of operations for the year ending December 31, 2004, based upon its current forecast for the full year period.

      In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“FAS 150”). FAS 150 affects the accounting for certain financial instruments, including requiring companies having consolidated entities with specified termination dates to treat minority owner’s interests in such entities as liabilities in an amount based on the fair value of the entities. Although FAS 150 was originally effective July 1, 2003, the FASB has indefinitely deferred certain provisions related to classification and measurement requirements for mandatorily redeemable financial instruments that become subject to FAS 150 solely as a result of consolidation. As a result, FAS 150 has no impact on the Company’s Consolidated Statements of Income for the quarter ended March 31, 2004. The Company’s two consolidated entities with specified termination dates are Artisan Park, L.L.C. (“Artisan Park”) and Westchase Development Venture, L.C. (“Westchase”). At March 31, 2004, the carrying amounts of the minority interests in Artisan Park and Westchase were $4.5 million and $0.5 million, respectively. The carrying amounts of minority interests in Artisan Park and Westchase approximate their fair value. The Company has no other material financial instruments that are affected currently by FAS 150.

      In December 2003, the FASB issued Interpretation No. 46R (“FIN 46R”), Consolidation of Variable Interest Entities, to replace Interpretation No. 46 (“FIN 46”) which was issued in January 2003. FIN 46R addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and whether it should consolidate the entity. FIN 46R is applicable immediately to variable interest entities created after January 31, 2003 and as of the first interim period ending after March 15, 2004 to those created before February 1, 2003 and not already consolidated under FIN 46 in previously issued financial statements. The Company did not create any variable interest entities after January 31, 2003. The Company has adopted FIN 46R, analyzed the applicability of this interpretation to its structures, and determined that the Company is not a party to any variable interest entities that should be consolidated.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.     Investment in Real Estate

      Real estate investments by segment include the following (in thousands):

      Included in operating property are Company-owned amenities related to community developments, the Company’s timberlands and land and buildings developed by the Company and used for commercial rental purposes. Development property consists of community development land and inventory currently under development to be sold. Investment property includes the Company’s commercial buildings purchased with tax-deferred proceeds and land held for future use.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.     Debt

      Long-term debt consists of the following (in thousands):

      During the first quarter, the Company entered into a debt agreement with a new joint venture in the amount of $11.4 million. This debt bears interest at one-month LIBOR plus 100 basis points. The Company has agreed to pay all of the expenses of the joint venture up to the principal and interest owed. The principal is due at the earlier of December 31, 2008 or the date of the first partnership distribution. Interest is payable annually on the anniversary of the date of the agreement.

      The aggregate maturities of long-term debt subsequent to March 31, 2004 are as follows: 2004, $56.2 million; 2005, $20.7 million; 2006, $4.4 million; 2007, $70.7 million; 2008, $86.7 million; thereafter, $140.4 million.

5.     Employee Benefit Plans

      A summary of the net periodic pension credit follows (in thousands):

6.     Segment Information

      The Company conducts primarily all of its business in four reportable operating segments: community development, commercial real estate development and services, land sales, and forestry. The community development segment develops and sells housing units and homesites and manages residential communities. The commercial real estate development and services segment owns, leases, and manages commercial, retail, office and industrial properties throughout the Southeast and sells developed and undeveloped land and buildings. The land sales segment sells parcels of land included in the Company’s vast holdings of timberlands. The forestry segment produces and sells pine pulpwood and timber and cypress products.

      The Company uses earnings before interest, taxes, depreciation and amortization (“EBITDA”) as a supplemental performance measure, along with net income, to report operating results. The Company’s management believes EBITDA is an important metric commonly used by companies in the real estate industry for comparative performance purposes. EBITDA is not a measure of operating results or cash flows from operating activities as defined by generally accepted accounting principles (“GAAP”). Additionally,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

EBITDA is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to cash flows as a measure of liquidity. However, management believes that EBITDA provides relevant information about the Company’s operations and, along with net income, is useful in understanding the Company’s operating results.

      Certain amounts in prior year EBITDA have been changed to conform to the Securities and Exchange Commission’s current guidance on non-GAAP financial measures.

      The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Total revenues represent sales to unaffiliated customers, as reported in the Company’s consolidated income statements. All intercompany transactions have been eliminated. The caption entitled “Other” primarily consists of general and administrative expenses, net of investment income.

      The Company’s reportable segments are strategic business units that offer different products and services. They are each managed separately and decisions about allocations of resources are determined by management based on these strategic business units.

      Information by business segment follows (in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7.     Contingencies

      The Company and its affiliates are involved in litigation on a number of matters and are subject to various claims which arise in the normal course of business, none of which, in the opinion of management, is expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. However, the aggregate amount being sought by the claimants in these matters is presently estimated to be several million dollars.

      The Company has retained certain self-insurance risks with respect to losses for third party liability, worker’s compensation, property damage, group health insurance provided to employees and other types of insurance.

      At March 31, 2004, the Company was party to surety bonds and standby letters of credit in the amounts of $26.8 million and $13.5 million, respectively, which may potentially result in liability to the Company if certain obligations of the Company are not met.

      The Company is wholly or jointly and severally liable as guarantor on three credit obligations entered into by partnerships in which the Company has equity interests. At March 31, 2004, the maximum amount of the debt available to these partnerships that is guaranteed by the Company totaled $17.1 million; the amount outstanding at March 31, 2004 totaled $16.2 million. Certain partners in these partnerships have indemnified the Company for a portion of the guaranteed debt. Management believes these guarantees have no significant fair value due to the availability of underlying collateral and the solvency of the partners.

      The Company is subject to costs arising out of environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites, including sites which have been previously sold. It is the Company’s policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals will be reviewed and adjusted, if necessary, as additional information becomes available.

      Pursuant to the terms of various agreements by which the Company disposed of its sugar assets in 1999, the Company is obligated to complete certain defined environmental remediation. Approximately $5.0 million of the sales proceeds are being held in escrow pending the completion of the remediation. The Company has separately funded the costs of remediation. In addition, approximately $1.7 million is being held in escrow representing the value of the land subject to remediation. Remediation was substantially completed in 2003. The Company expects remaining remediation to be complete by the end of the third quarter and the amounts held in escrow to be released to the Company after the third quarter of 2004.

      The Company is currently a party to, or involved in, legal proceedings directed at the cleanup of Superfund sites. The Company is also involved in regulatory proceedings related to the Company’s former mill site in Gulf County, Florida. 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 or threatened against the Company. It is not possible to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. However, based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on the Company’s consolidated financial position, results of operations or liquidity. 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 $3.9 million and $4.0 million as of March 31, 2004 and December 31, 2003, respectively.

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Overview

      The St. Joe Company is one of Florida’s largest real estate operating companies. We have one of the largest inventories of private land suitable for development in the State of Florida, with very low cost basis. The majority of our land is located in Northwest Florida. In order to optimize the value of our core real estate assets in Northwest Florida, our strategic plan calls for us to reposition our substantial timberland holdings for higher and better uses. We increase the value of our raw land assets, most of which are currently managed as timberland, through the development and subsequent sale of parcels, homesites, and homes, or through the direct sale of unimproved land. In addition, we reinvest qualifying asset sales proceeds into like-kind properties under our tax deferral strategy which has enabled us to create a significant portfolio of commercial rental properties. We also provide commercial real estate services, including brokerage, property management and construction management for Company owned assets as well as for third parties.

      We have four operating segments: community development; commercial real estate development and services; land sales; and forestry.

      Our community development segment generates revenues from:

	•	the sale of housing units built by us;
	•	the sale of developed homesites;
	•	rental income;
	•	club operations;
	•	investments in limited partnerships and joint ventures;
	•	brokerage fees; and
	•	management fees.

      Our commercial real estate development and services segment generates revenues from:

	•	the rental of commercial properties owned by us;
	•	the sale of developed and undeveloped land and in-service buildings;
	•	realty revenues, consisting of property and asset management fees, construction management fees and lease and sales brokerage commissions;
	•	development fees; and
	•	investments in limited partnerships and joint ventures.

      Our land sales segment generates revenues from:

	•	the sale of parcels of undeveloped land; and
	•	the sale of a limited amount of developed rural homesites.

      Our forestry segment generates revenues from:

	•	the sale of pulpwood and timber; and
	•	the sale of bulk land.

      Our ability to generate revenues, cash flows and profitability is directly related to the real estate market, primarily in Florida, and the economy in general. Considerable economic and political uncertainties exist that could have adverse effects on consumer buying behavior, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general. Additionally, increases in interest rates could reduce the demand for homes we build, particularly primary housing, commercial properties we develop or sell, and lots we develop. However, we currently believe our secondary resort housing markets are less

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      Our commercial real estate development and services segment continues to build on strong market interest in Northwest Florida’s retail, office, multi-family and other mixed-use products caused by historical constraints on supply in the area as well as high interest by developers.

Forward Looking Statements

      This report contains forward-looking statements, including statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions, as well as trends and uncertainties that could affect our results. These statements are subject to risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about our business, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2003, those described from time to time in other filings with the Securities and Exchange Commission, and the following:

	•	Economic conditions, particularly in Florida and key southeastern United States areas that serve as feeder markets to our Northwest Florida operations;
	•	Acts of war or terrorism or other geopolitical events;
	•	Local conditions such as an oversupply of homes and homesites, residential or resort properties, or a reduction in demand for real estate in the area;
	•	Timing and costs associated with property developments and rentals;
	•	Competition from other real estate developers;
	•	Whether potential residents or tenants consider our properties attractive;
	•	Increases in operating costs, including increases in real estate taxes;
	•	Changes in the amount or timing of federal and state income tax liabilities resulting from either a change in our application of tax laws, an adverse determination by a taxing authority or court, or legislative changes to existing laws;
	•	How well we manage our properties;
	•	Changes in interest rates and the performance of the financial markets;
	•	Decreases in market rental rates for our commercial and resort properties;
	•	Changes in the prices of wood products;
	•	Uncertainties facing development of public infrastructure, particularly in Northwest Florida, including political process, approvals and funding;
	•	Potential liability under environmental laws or other laws or regulations;
	•	Adverse changes in laws, regulations or the regulatory environment affecting the development of real estate;

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	•	The availability of adequate funding from governmental agencies and others to purchase conservation lands;
	•	Fluctuations in the size and number of transactions from period to period; and
	•	Adverse weather conditions or natural disasters.

      We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or risks. New information, future events or risks may cause the forward-looking events we discuss in this Form 10-Q not to occur.

Critical Accounting Estimates

      The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Additionally, we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

      The critical accounting policies that we believe reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements are set forth in Item 7 of our annual report on Form 10-K for the year ended December 31, 2003.

      Investment in Real Estate and Cost of Real Estate Sales. Revenue for the Company’s multi-family residences under construction at WaterSound Beach is recognized, in accordance with FAS 66, using the percentage-of-completion method of accounting. Under this method, revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. As a result of the project being substantially complete as of December 31, 2003, the Company had recorded substantially all of the activity related to this property during the year ended December 31, 2003. During the period ended March 31, 2004, the Company incurred $2.0 million in construction costs for contract adjustments related to the project. These costs represent changes to the original construction cost estimates for this project. Had these costs been quantified in 2003, they would have been included within its budgets and thus have had an impact on its results for the year ended December 31, 2003. If these costs had been included within the total project budget, 2003 gross profit would have been reduced by $3.6 million (pre-tax), $2.3 million (after tax), since a lower percentage of revenue would also have been recognized. The results for the period ended March 31, 2004 would have been increased by $3.6 million (pre-tax), $2.3 million (after tax).

      Management has evaluated the impact of this item, which represents 3% of net income ($0.03 per diluted share) for the year ended December 31, 2003, and concluded that it is not significant to its 2003 results of operations. In addition, while the impact of this item would increase net income for the first quarter of 2004 by 18% ($0.03 per diluted share), management has concluded that it is not expected to be significant to its results of operations for the year ending December 31, 2004, based upon its current forecast for the full year period.

Results of Operations

      Net income for the first quarter of 2004 was $13.0 million, or $0.17 per diluted share, compared with $14.4 million, or $0.18 per diluted share, for the first quarter of 2003. Net income for the first quarter of 2003 included $8.3 million from sales of conservation land. There were no conservation land sales in the first quarter of 2004.

      We report revenues from our four operating segments: community development, commercial real estate development and services, land sales, and forestry. Real estate sales are generated from sales of housing units and developed homesites in our community development segment, developed and undeveloped land and in-

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Consolidated Results

      Revenues and expenses. The following table sets forth a comparison of the revenues and expenses for the three month periods ended March 31, 2004 and 2003.

      The increases in revenues from real estate sales and cost of real estate sales were in each case primarily due to increased sales in the community development segment and the sale of a building in the commercial real estate development and services segment. Costs of real estate sales also increased due to the additional costs incurred at WaterSound Beach, one of our residential communities. The increase in realty revenues was due to increases in brokerage and construction revenues, which were partially offset by a small decrease in property management revenues. The increase in cost of realty revenues was primarily due to an increase in the cost of brokerage revenues. The increases in rental revenues and cost of rental revenues were in each case primarily due to an increase in our investment in operating properties and improved leased percentages of rental property in the commercial real estate development and services segment. Cost of timber revenues decreased primarily due to increased efficiencies in the cypress mill operation. Other revenues and cost of other revenues increased primarily due to increases in the community development segment’s club operations. Other operating expenses increased primarily due to increases in the community development segment and the commercial real estate development and services segment. For further discussion of revenues and expenses, see Segment Results below.

      Corporate expense. Corporate expense, which represents corporate general and administrative expenses, increased $3.2 million, or 53%, to $9.2 million in the first three months of 2004, from $6.0 million in the first

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      Depreciation and amortization. Depreciation and amortization increased $2.6 million, or 39%, to $9.2 million in the first three months of 2004, compared to $6.6 million in the first three months of 2003. The increase was due to a $0.9 million increase in depreciation resulting primarily from additional investments in commercial and residential operating property and property, plant and equipment and a $1.7 million increase in amortization resulting from an increase in intangible assets.

      Other (expense) income. Other (expense) income was $(2.6) million in the first three months of 2004 and $(2.3) million in the first three months of 2003. Other (expense) income was made up of investment income, interest expense, gains on sales and dispositions of assets and other income.

      Equity in income (loss) of unconsolidated affiliates. We have investments in affiliates that are accounted for by the equity method of accounting. Equity in income (loss) of unconsolidated affiliates totaled $0.7 million in the first three months of 2004 and $(3.7) million in the first three months of 2003.

      The community development segment recorded equity in the income (loss) of unconsolidated affiliates of $1.1 million for the first three months of 2004, compared to $(3.9) million for the first three months of 2003. Equity in the income (loss) of unconsolidated affiliates for the three months ended March 31, 2003, included a $(3.5) million pre-tax charge representing estimates of future costs and future cash distributions associated with the completion of operations of Arvida / JMB Partners, L.P. (“Arvida/ JMB”), which completed its operations in 2003 and is winding up its affairs. Arvida/ JMB had no contribution to equity in (loss) income of unconsolidated affiliates in the first three months of 2004. Equity in the income (loss) of other joint ventures increased $1.5 million from $(0.4) million for the three months ended March 31, 2003 to $1.1 million for the three months ended March 31, 2004, primarily as a result of an increase in closings of residential sales at these unconsolidated affiliates.

      The commercial real estate development and services segment recorded equity in the income (loss) of unconsolidated affiliates of $(0.4) million in the first three months of 2004, compared to $0.2 million in the first three months of 2003. Included was $(0.3) million in the first three months of 2004 and $0.3 million in the first three months of 2003 related to our 50% interest in Codina Group, Inc. (“Codina”), a commercial services company headquartered in Coral Gables, Florida. Although the first quarter 2004 results were negative, we expect Codina to return to profitability in the near term.

      Income tax expense. Income tax expense totaled $8.2 million in the first three months of 2004 and $8.7 million for the first three months of 2003. Our effective tax rate was 39% and 37% in the three month periods ended March 31, 2004 and 2003, respectively.

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Segment Results

      The table below sets forth the results of operations of our community development segment for the three month periods ended March 31, 2004 and 2003.