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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

Commission file number 1-10466

The St. Joe Company
(Exact name of registrant as specified in its charter)

(904) 301-4200
(Registrant’s telephone number, including area code)

Suite 400, 1650 Prudential Drive, Jacksonville, FL 32207
(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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES x NO o

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of May 9, 2003, there were 99,241,854 shares of common stock, no par value, issued and 76,244,878 outstanding, with 22,996,976 shares of treasury stock.

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THE ST. JOE COMPANY
INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share data)

See notes to consolidated financial statements.

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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)

See notes to consolidated financial statements.

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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

See notes to consolidated financial statements.

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THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands except per share amounts)

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, 2003 and December 31, 2002 and the results of operations and cash flows for the three-month periods ended March 31, 2003 and 2002. The results of operations and cash flows for the three-month periods ended March 31, 2003 and 2002 are not necessarily indicative of the results that may be expected for the full year.

2. Summary of significant accounting policies

Stock-Based Compensation

     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.

     In December 2002, the Financial Accounting Standards Board  (the “FASB”) issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (“FAS 148”). FAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. FAS 148 also requires prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transitional guidance and annual disclosure requirements of FAS 148 are effective for fiscal years ending after December 15, 2002.

     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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     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:

Earnings Per Share

     Earnings per share (“EPS”) is 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 stock method.

     Through August 2002, the Company’s Board of Directors had authorized a total of $650,000 for the repurchase of the Company’s outstanding common stock from time to time on the open market (the “St. Joe Stock Repurchase Program”), of which $99,300 remained not yet expended at March 31, 2003. The Company has also entered into a series of agreements with the Alfred I. duPont Testamentary Trust (the “Trust”), the majority stockholder of the Company, and the Trust’s beneficiary, The Nemours Foundation (the “Foundation”), to participate in the St. Joe Stock Repurchase Program, the most recent of which began on February 10, 2003 and expired on May 11, 2003. On May 14, 2003, the Trust advised the Company that it will participate in the St. Joe Stock Repurchase Program for an additional 90 day period.

     As of March 31, 2003, the Company had repurchased 15,082,066 shares on the open market and 6,853,826 shares from the Trust. In addition, during the first three months of 2003, the Company issued 626,364 shares upon the exercise of stock options.

     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:

Comprehensive Income

     Comprehensive income is equal to net income plus other comprehensive income. For the three months ended March 31, 2003, comprehensive income is equal to net income because there was no other comprehensive income. For the three months ended March 31, 2002, the Company’s comprehensive income differs from net income due to changes in the net unrealized gains on investment securities available-for-sale

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and derivative instruments. As a result, for the three months ended March 31, 2003 and 2002, total comprehensive income was $14,391 and $11,105, respectively.

Supplemental Cash Flow Information

     The Company paid $7,910 and $3,230 for interest in the first three months of 2003 and 2002, respectively. The Company received income tax refunds of $794 and $1,187, net of payments made, in the first three months of 2003 and 2002, respectively. The Company capitalized interest expense of $1,911 and $1,122 during the first three months of 2003 and 2002, respectively.

     The Company’s non-cash activities included the surrender of shares of Company stock by executives of the Company. During the three months ended March 31, 2003, executives surrendered Company stock worth $801 as payment for taxes due on the vesting of restricted stock and $400 as payment for the exercise of stock options and taxes due on the exercise of stock options. During the three months ended March 31, 2002, executives surrendered Company stock worth $1,246 as payment for taxes due on the vesting of restricted stock.

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

New FASB Interpretations

     In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”). FIN 45 introduces new disclosures and liability recognition requirements for guarantees of debt that fall within its scope. As of January 1, 2003, the Company has adopted FIN 45 and will apply the liability recognition requirements to all guarantees entered into or modified after December 31, 2002. There were no additions to or modifications of guarantees during the first quarter of 2003.

     In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 addresses consolidation by business enterprises of variable interest entities which do not effectively disperse risk among the parties involved. FIN 46 requires an enterprise to consolidate the operations of a variable interest entity if the enterprise absorbs a majority of the variable interest entity’s expected losses, receives a majority of its expected residual returns, or both. Management has not yet completed its evaluation of the applicability of FIN 46 to its current structure, but does not believe that it is reasonably possible that any loss will result from the adoption of FIN 46.

3. Discontinued operations

     On April 17, 2002, the Company completed the sale of Arvida Realty Services (“ARS”), its residential real estate services segment, for a gain of $33,658, or $20,700 net of tax. In connection with the sale, a liability has been recorded related to an issue with an outside party over the use of the Arvida name. The outside party has not yet asserted a specific claim and the Company is not, at this time, able to quantify the liability, if any, which will result if the claim is asserted. The Company, based on current information, does not believe any claim, if asserted, will have a material adverse effect on the results of operations of the Company. The Company has reported its residential real estate services operations as discontinued operations for the three-month period ended March 31, 2002. Revenues from ARS were $63,730 for the three months ended March 31, 2002. Net income for ARS was $1,986 for the three months ended March 31, 2002.

     Also included in discontinued operations is the sale in 2002 of two commercial office buildings, which generated a gain of $304, or $187 net of tax. Revenues and net operating loss from the buildings for the three months ended March 31, 2002 were $1,303 and $(6), respectively.

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4. Investment in real estate

Real estate investments by segment include the following:

     Included in operating property are the Company’s timberlands, and land and buildings used for commercial rental purposes. Development property consists of community residential land currently under development. Investment property is the Company’s land held for future use.

5. Debt

     Long-term debt consists of the following:

     The aggregate maturities of long-term debt subsequent to March 31, 2003 are as follows: 2003, $1,574; 2004, $35,363; 2005, $20,119; 2006, $3,201; 2007, $2,070; thereafter, $271,758.

6. Marketable securities settlement

     On October 15, 1999, the Company entered into three-year forward sale contracts (the “Forward Sale Contracts”) with a major financial institution that led to the ultimate disposition of its investments in equity securities. On February 26, 2002, the Company settled a portion of the Forward Sale Contracts by delivering equity securities to the financial institution. The liability related to the contracts that were settled was $97.0 million at the time of settlement and the resulting gain that was recognized in the first quarter of 2002 was $94.7 million pre-tax, or $61.6 million, net of tax. The net cash received at settlement was $1.5 million.

     On October 15, 2002, the remaining Forward Sale Contracts matured and the Company delivered the remaining equity securities to fully settle the Forward Sale Contracts, including the related debt balance.

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7. Segment information

     The Company conducts primarily all of its business in four reportable operating segments: community residential development, land sales, commercial real estate development and services, and forestry. The Company’s former residential real estate services segment has been reported as a discontinued operation following the Company’s decision to sell ARS. Intercompany transactions have been eliminated. One of the measures that the Company uses to evaluate segment performance is EBITDA. EBITDA is defined as earnings before interest cost, income taxes, depreciation and amortization, and is net of the effects of minority interests. EBITDA excludes gains (losses) from discontinued operations, except for gains (losses) from sales of assets which are classified as discontinued operations under the provisions of FAS 144 and are sold in the normal course of business. EBITDA also excludes gains (losses) on sales of nonoperating assets. EBITDA is not a measure of operating results or cash flows from operating activities as defined by generally accepted accounting principles. Additionally, 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 our operations and, along with net income, is useful in understanding our operating results. The caption entitled “Other” primarily consists of general and administrative expenses, net of investment income, and is presented to reconcile consolidated results. “Other” also includes operations of the Company’s former transportation segment which, due to the sale of the rolling stock of Apalachicola Northern Railroad in 2002, is no longer material enough to be reported as a separate segment. 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:

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8. 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. 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.

     The Company is jointly 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 approximately $54,500; the amount outstanding at March 31, 2003 totaled approximately $52,900. In addition, the Company has indemnification agreements from some of its partners requiring that they will cover a portion of the debt that the Company is guaranteeing. Management believes these guarantees have no significant fair value due to the availability of underlying collateral and the solvency of the partners.

     At March 31, 2003 and December 31, 2002, the Company was party to surety bonds and standby letters of credit in the amounts of $30,161 and $33,033, respectively, which may potentially result in liability to the Company if certain obligations of the Company are not met.

     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 $5,000 of the sales proceeds are being held in escrow pending the completion of the remediation. The Company has separately funded the costs of remediation. Upon completion of remediation the escrowed funds will be released to the Company. Based upon the Company’s current environmental studies, management does not believe the costs of the remediation will materially exceed the amount held in escrow. In the event other environmental matters are discovered beyond those contemplated by the $5,000 held in escrow, the purchasers of the Company’s sugar assets will be responsible for the first $500 of the additional costs, the Company will be responsible for the next $4,500, and thereafter the parties shall share costs equally. In addition, approximately $1,700 is being held in escrow, representing the value of land subject to remediation. The Company expects remediation to be complete in 2003, at which time the amounts held in escrow will be released.

     During the fourth quarter of 2000, management became aware of an investigation being conducted by the Florida Department of Environmental Protection of the Company’s former paper mill site and some adjacent real property in Gulf County, Florida (the “Mill Site”). The real property on which the Company’s former paper mill is located is now owned by the Smurfit-Stone Container Corporation and the Company owns the adjacent real property.

     The Florida Department of Environmental Protection submitted a Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Site Discovery/Prescreening Evaluation to Region IV of the United States Environmental Protection Agency (“USEPA”) in Atlanta in September 2000. Based on this submission, the USEPA included the Mill Site on the CERCLIS List. The CERCLIS List is a list of sites

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which are to be evaluated to determine whether there is a potential presence of actionable contaminants. The Florida Department of Environmental Protection, under an arrangement with the USEPA began to prepare a preliminary assessment of the Mill Site. In cooperation with the Smurfit-Stone Container Corporation, the Company requested the Florida Department of Environmental Protection to allow the Company and the Smurfit-Stone Container Corporation to conduct testing on the Mill Site prior to the submission of a preliminary assessment. At the request of the Florida Department of Environmental Protection, the USEPA agreed to allow the Company and the Smurfit-Stone Container Corporation to conduct a voluntary investigation prior to submitting a preliminary assessment.

     On September 27, 2001, the Company, the Smurfit-Stone Container Corporation and the Florida Department of Environmental Protection executed an Agreement which set forth the parameters under which the Company and the Smurfit-Stone Container Corporation were to conduct testing. Upon completion of the testing, the Company submitted its sampling and analysis report to the Florida Department of Environmental Protection on January 16, 2002. The Florida Department of Environmental Protection, which conducted independent testing of the same sample, has completed its assessment of the data obtained during the Company’s voluntary investigation. Based on its assessment, the Florida Department of Environmental Protection submitted a proposed Consent Order that the Company and Smurfit-Stone Container Corporation have executed. It obligates the Company to conduct further assessment of that portion of the Mill Site owned by the Company and if, necessary, rehabilitate that portion of the Mill Site. Smurfit-Stone Container Company has a corresponding obligation with respect to that portion of the Mill Site it owns.

     Through incorporation of the data and findings which resulted from the Company’s voluntary testing, the Florida Department of Environmental Protection has completed and submitted a preliminary assessment/site investigation report to the USEPA, including a recommendation that the Mill Site be considered “low priority” under CERCLA. Based on this recommendation, the USEPA has deferred further action on the Mill Site and has agreed to allow the Mill Site to be assessed and rehabilitated, if necessary, under the guidance of the Florida Department of Environmental Protection.

     Additionally, on November 5, 2002, the City of Port St. Joe, Florida, enacted a Resolution designating the Mill Site as a Brownfields Redevelopment Area for site rehabilitation under the provisions of applicable Florida law. Florida’s Brownfields program provides economic and tax incentives which may be available to the Company. The Company has entered into a Brownfield Site Rehabilitation Agreement for the Mill Site that obligates the Company to conduct further assessment of that portion of the Mill Site it owns to delineate the extent of contamination, if any, and, if necessary, to rehabilitate that portion. The Consent Order will be held in abeyance pending the completion of the assessment and remediation, if any, of the Mill Site under the terms of the Brownfield Site Remediation Agreement.

     Based on this current information, including the environmental test results, the recommendation for “low priority” USEPA consideration, USEPA agreement to defer further action, and the Brownfields Area local designation, management does not believe the Company’s liability, if any, for the possible cleanup of any potential contaminants detected on the Mill Site will be material.

     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 $4,024 and $4,152 as of March 31, 2003 and December 31, 2002, respectively.

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Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations

Forward Looking Statements

     We make forward-looking statements in this Report, particularly in this Item. The Private Securities Litigation Reform Act of 1995 provides a safe-harbor for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ, possibly materially, from those in the information. You can find many of these forward-looking statements by looking for words such as “intend”, “anticipate”, “believe”, “estimate”, “expect”, “plan” or similar expressions in this Report. In particular, forward-looking statements include, among others, statements about the following:

	•		the size and number of commercial buildings and residential units;
	•		the expected development timetables, development approvals and the ability to obtain approvals;
	•		the anticipated price range of developments;
	•		the number of units that can be supported upon full build-out of a development;
	•		the number, price and timing of anticipated land sales;
	•		estimated land holdings for a particular use within a specific timeframe;
	•		absorption rates and expected gains on land sales;
	•		future operating performance, cash flows, and short and long term revenue and earnings growth rates;
	•		comparisons to historical projects; and
	•		the number of shares of Company stock which may be purchased under the terms of the Company’s existing or future share repurchase program.

     Forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following:

	•		economic conditions, particularly in Florida and key southeastern United States areas that serve as feeder markets to the Company’s Northwest Florida operations;
	•		acts of war or terrorism and other geopolitical events;
	•		local conditions such as an oversupply of homes and home sites, 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;
	•		decreases in prices of wood products;
	•		the pace of development of infrastructure in northern Florida;
	•		potential liability under environmental laws or other laws or regulations;
	•		adverse changes in laws or regulations affecting the development of real estate;
	•		the availability of funding from governmental agencies and others to purchase conservation lands; and
	•		adverse weather conditions.

     The foregoing list is not exhaustive and should be read in conjunction with other cautionary statements in this Report.

     Forward-looking statements are not guarantees of performance. You are cautioned not to place undue reliance on any of these forward-looking statements, which speak only as of the date made. We undertake no

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obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events, or otherwise. Additional risk factors are described in our other periodic reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2002. Other factors besides those listed in this Report and in our other periodic reports filed with the SEC could also adversely affect the Company’s results and the reader should not consider any list of factors to be a complete set of all potential risks or uncertainties.

Results of Operations

     Results of Operations, principally in the community residential development, commercial real estate development and services, and land sales segments, are primarily based on the collective impact of a number of individual transactions. The size and number of these transactions may vary considerably from period to period. As a consequence, that variation may produce uneven financial results from period to period. Results of Operations discussed below should be reviewed in that context.

Consolidated Results

Three Months Ended March 31

     Operating revenues increased $24.8 million, or 20%, to $146.5 million for the three months ended March 31, 2003, compared to $121.7 million for the three months ended March 31, 2002. The increase was primarily due to increased sales in the community residential development segment and the commercial real estate development and services segment. Operating expenses for all segments increased $19.8 million, or 22%, to $108.2 million for the three months ended March 31, 2003, compared to $88.4 million for the three months ended March 31, 2002. The increase was primarily due to an increase in cost of sales resulting from the increased sales in the community residential development segment.

     Corporate expense, which represents corporate general and administrative expenses, increased $0.7 million, or 13%, to $6.0 million for the three months ended March 31, 2003, compared to $5.3 million for the three months ended March 31, 2002. The increase was primarily due to a decrease of $1.3 million in prepaid pension income and an increase of $0.1 million in miscellaneous corporate expenses, partially offset by a decrease of $0.3 million in other employee benefit expenses and a decrease of $0.4 in professional fees. Corporate expense included prepaid pension income of $1.1 million for the three months ended March 31, 2003, compared to $2.4 million for the three months ended March 31, 2002. During the third quarter of 2002, the Company lowered the long-term expected return for the assets of the St. Joe Company Pension Plan (the “Plan”) from 9.2% to 8.5% based on the performance of the Company’s pension assets over the previous three years. The Company does not expect to have to fund the pension plan in the foreseeable future, unless market conditions deteriorate significantly.

     Depreciation and amortization increased $1.7 million, or 35%, to $6.6 million for the three months ended March 31, 2003, compared to $4.9 million in the three months ended March 31, 2002. The increase is primarily due to increases in commercial operating properties and property associated with club and resort operations for the community residential development segment.

     Other (expense) income was $(2.3) million for the three months ended March 31, 2003, compared to $93.5 million for the three months ended March 31, 2002. Other income is made up of investment income, interest expense, gains on valuation of derivatives, gains on sales and dispositions of assets and other income. In the first quarter of 2002, the Company recorded a pre-tax gain on the settlement of its forward sales contracts of $94.7 million. Investment income decreased $0.8 million to $0.2 million for the first quarter of 2003, compared to $1.0 million for the first quarter of 2002, primarily due to lower dividend income resulting from the disposition of securities. Interest expense decreased $0.7 million to $3.2 million for the first quarter of 2003, compared to $3.9 million for the first quarter of 2002, due to the settlement of the debt related to the Company’s forward sale contracts, which was partially offset by interest expense attributable to medium-term notes, which the Company issued in February of 2002, and interest attributable to debt secured by commercial buildings. For the first quarter of 2002, other income, net, included a gain on valuation of derivatives of $0.9 million, compared to no gain or loss on valuation of derivatives for the first quarter of 2003. In addition, other components of other (expense) income decreased by $0.1 million from the first quarter of 2002 to the first quarter of 2003.

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     Income tax expense on continuing operations totaled $8.7 million, an effective rate of 37%, for the three months ended March 31, 2003, compared to $44.2 million, an effective rate of 38%, for the three months ended March 31, 2002.

     Discontinued operations for the three months ended March 31, 2002 includes the operations of ARS and the gain on sale and operations of two commercial office buildings. Revenues generated by ARS during the three months ended March 31, 2002 were $63.7 million, with related operating expenses of $59.9 million. Net income for the discontinued operations was $2.0 million for the three months ended March 31, 2002. Revenues, operating expenses, and net operating income generated from the operations of the two commercial office buildings sold were each less than $0.1 million for the three months ended March 31, 2002.

     Net income for the three months ended March 31, 2003 was $14.4 million or $0.18 per diluted share, compared to $74.4 million or $0.90 per diluted share for the three months ended March 31, 2002.

Results of Operations by Business Segment

Community residential development

     The Company’s community residential development operations currently consist of its residential development and management activities on Company owned land. These activities are performed by St. Joe/Arvida Company, L.P., which is developing a total of 20 communities in various stages of planning and execution primarily focused in northwest, northeast and central Florida. The Company owns 74% of St. Joe/Arvida Company, L.P. The Company also has a 26% limited partnership interest in Arvida/JMB Partners, L.P. (“Arvida/JMB”). Arvida/JMB is recorded using the equity method of accounting for investments. The contribution to pre-tax income from Arvida/JMB substantially ended at the end of 2002. Arvida/JMB has finalized its current estimates of future costs and future cash distributions associated with the completion of operations and, as a result, the Company has adjusted its investment in the partnership by a $3.5 million pre-tax charge for the three months ended March 31, 2003. Arvida/JMB’s contribution to pre-tax income was $5.4 million for the three months ended March 31, 2002. Based on current expectations, the Company anticipates no material future income or losses from its investment in Arvida/JMB. The Company has also formed two 50/50 joint ventures with an unrelated third party which are developing residential communities in Palm Beach County, Florida and near Tampa, Florida.

Northwest Florida

     WaterColor, a coastal resort community in Walton County, Florida began sales in March of 2000. St. Joe/Arvida is building homes and condominiums and selling developed home sites in WaterColor. Infrastructure for the second phase, with 266 home sites planned, is expected to be completed in the second quarter of 2003 and infrastructure construction of phase three, with 248 home sites planned, has begun. Amenities now offered include a beach club, two community pools, a boat house, the Fresh Daily Market, a tennis facility, the WaterColor Inn and Fish Out of Water restaurant. At full build-out, the community is planned to include approximately 1,140 units, a third community pool and a community center. From WaterColor’s inception through March 31, 2003, contracts pending or closed totaled 436 units. Subject to changes in demand and product pricing, as well as the timing of product releases, the Company expects sales at WaterColor to be completed in 2007 to 2008.

     WaterSound Beach is located in Walton County, Florida, approximately three miles east of WaterColor. Situated on approximately 256 acres, WaterSound Beach includes over one mile of beachfront on the Gulf of Mexico. Sales of home sites in this exclusive and secluded beachfront community began in the third quarter of 2001. The community is planned to include 499 units at full build-out. Sales continue on the beachfront

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multifamily units designed by Graham Gund, with contracts accepted on 59 of the 81 units as of the end of the first quarter of 2003. Since WaterSound’s inception to March 31, 2003, contracts pending or closed totaled 175 units. Subject to changes in demand and product pricing, as well as the timing of product releases, the Company currently expects sales at WaterSound Beach to continue for another three to four years.

     Planning has begun for the next phase of WaterSound on approximately 1,440 acres of timberland between U.S. 98 and the Intracoastal Waterway. On March 31, 2003, Walton County approved a comprehensive plan amendment for the next phase of the community, which is planned for approximately 1,000 units and amenities including golf, tennis and beach access. The project will require Development of Regional Impact (“DRI”) review and approval that is expected to get underway in the second quarter of 2003 and continue for 12 to 18 months. The Company has submitted a request to the State of Florida for a Preliminary Development Agreement (“PDA”) that will allow a portion of the development to take place prior to the completion of the DRI process. Management expects the State of Florida to accept the request and enter into a PDA with the Company. Sales are expected to begin in the third quarter of 2004.

     On March 13, 2003, a development agreement was approved for East Lake Powell, a 350-unit community on 181 acres in Bay County, Florida. With 4,300 feet of frontage on Lake Powell, a rare coastal dune lake, this community is planned for the pre-retirement market. A number of predevelopment regulatory steps remain. Work will begin when it is strategically advantageous.

     WindMark Beach is a beachfront community located in Gulf County, Florida. The first phase of WindMark Beach is situated on approximately 80 acres and offers 110 home sites, many of which are beachfront. Plans for this phase of WindMark Beach also include a pool club, community docks and a conservation area accessed by boardwalks and trails. From WindMark Beach’s inception through March 31, 2003, contracts for 93 home sites have been accepted or closed in the first phase. Sales at the first phase are expected to be completed this year or next year, depending on when remaining units for sale are released. Predevelopment planning has begun for a future phase of WindMark Beach with approximately 1,550 units on 1,900 acres along 15,000 feet of beachfront owned by the Company. A DRI for future phases was filed in March of 2003 and is expected to take 12 to 18 months.

     SouthWood is situated on 3,770 acres in southeast Tallahassee, Florida. Plans for SouthWood include approximately 4,250 residential units and a variety of retail shops, restaurants, community facilities, and offices. During the first quarter of 2003, Southern Living magazine selected SouthWood as the location for a 2003 Idea House, designed to incorporate the latest ideas in home design and décor. Sales of homes and home sites commenced in the fourth quarter of 2000. From SouthWood’s inception through March 31, 2003, contracts pending or closed totaled 440 units. Sales at SouthWood are expected to continue for more than 15 years.

     On April 3, 2003, the comprehensive plan amendment became final for SummerCamp, a new beachfront vacation and second-home community located in southeastern Franklin County, Florida. Situated on 784 acres, the community is being planned for 499 units with amenities including a beach club, observation piers, a community dock and nature trails. Although several environmental regulatory steps remain, management anticipates that sales will begin in 2004.

Northeast Florida

     St. Johns Golf and Country Club is located in St. Johns County, Florida. This community, which includes an 18-hole golf course, a community swimming pool and a fitness center, is planned to include 799 units. The community swimming pool and fitness center opened in May of 2002. From inception through March 31, 2003, pending or closed contracts total 366 units. Infrastructure construction is now underway on future phases. Sales are expected to continue for four to five years.

     James Island is located in Jacksonville, Florida on 194 acres of land acquired by the Company. At full build-out, the community is expected to include 365 housing units. There are 26 remaining units not under contract that are expected to be sold in 2003.

     Predevelopment planning is underway at RiverTown, situated on approximately 4,200 acres along the St. Johns River in St. Johns County south of Jacksonville, Florida. The community includes 3.5 miles of frontage on the St. Johns River and is planned for 4,500 units. On April 3, 2003, a DRI was filed for RiverTown. The DRI process is expected to take 12 to 18 months.

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Central Florida

     Victoria Park is situated on approximately 1,859 acres in Volusia County in central Florida. This mixed-use community is planned for approximately 4,000 residences built among parks, lakes and conservation areas, as well as an 18-hole golf course. During the first quarter of 2003, Victoria Park experienced its best quarter since its inception in terms of sales under contract. Since Victoria Park’s inception through March 31, 2003, contracts pending or closed totaled 205 units. Sales at Victoria Park are expected to continue for more than 10 years.

     Infrastructure construction is underway for the first phase of a 160-acre village in Celebration, Florida near Orlando. Plans include over 600 units and a variety of amenities. Sales are expected to begin in the third quarter of 2003.

North Carolina and South Carolina

     Saussy Burbank (“Saussy”), located in Charlotte, North Carolina, is currently building homes in 21 communities located in North Carolina and South Carolina.

     Following is a summary of activity by community (dollars in millions) in the periods indicated: