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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996).
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NO. 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 32207
JACKSONVILLE, FLORIDA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (904) 396-6600
Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, No par value New York Stock Exchange
Indicate by check mark whether this 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 [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates based on the closing price on March 12, 1999, was $911,451,654.
As of March 12, 1999, there were 88,112,311 shares of Common Stock, no par
value issued and outstanding; an additional 3,585,500 shares were held in
treasury.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 11, 1999, (the "Proxy Statement") are
incorporated by reference in Part III of this Report. Other documents
incorporated by reference in this Report are listed in the Exhibit Index.
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This Form 10-K, including the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that are not historical facts. Such forward-looking information may
include, without limitation, statements that the Company does not expect that
lawsuits, environmental costs, commitments, contingent liabilities, labor
negotiations or other matters will have a material adverse effect on its
consolidated financial condition, results of operations or liquidity and other
similar expressions concerning matters that are not historical facts, and
projections as to the Company's operating and financial results. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those anticipated in the forward-looking statements.
Important factors that could cause such differences include but are not limited
to contractual relationships, industry competition, regulatory developments,
natural events such as weather conditions, floods and earthquakes, forest fires,
the effects of adverse general economic conditions, changes in the real estate
markets and interest rates, fuel prices and the ultimate outcome of
environmental investigations or proceedings and other types of claims and
litigation. See the information set forth herein in the Sections entitled "Risks
Relating to Real Estate Operations" and "Year 2000 Compliance", and the
information set forth in the sections entitled "Risks Related to Forestry
Operations", "Risks Relating to Transportation Operations", "Environmental
Matters" and "Control by Principal Shareholder" contained in the Company's
Prospectus dated February 11, 1998.
As a result of these and other factors, the Company may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition,
operating results, and stock price. An investment in the Company involves
various risks, including those mentioned above and elsewhere in this report and
those which are detailed from time-to-time in the Company's other filings with
the Securities and Exchange Commission.
Readers should not place undue reliance on forward-looking statements,
which reflect management's view only as of the date hereof. The Company
undertakes no obligation to publicly release revisions to these forward-looking
statements that reflect events or circumstances after the date hereof or reflect
the occurrence of unanticipated events.
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PART I
ITEM 1. BUSINESS
As used throughout this Form 10-K Annual Report, the terms "St. Joe,"
"Company" and "Registrant" mean The St. Joe Company and its consolidated
subsidiaries unless the context indicates otherwise.
St. Joe is a diversified company engaged in the real estate, forestry,
transportation and sugar industries in the State of Florida. The Company is the
single largest private landowner in Florida, owning more than 1.1 million acres,
or approximately 3% of the land area of the state (an area slightly smaller than
the land area of the State of Delaware). Although the vast majority of the
Company's properties consist of timberlands, St. Joe owns a large portfolio of
income producing properties and sizable tracts suitable for commercial and
residential development.
St. Joe is currently undergoing a number of important changes in its mix of
businesses and its overall business strategy. In early 1997, the Company hired a
new chairman and chief executive officer, Peter Rummell, the former President of
Disney Development Company and Chairman of Walt Disney Imagineering, as well as
several other senior members of management with strong backgrounds in
large-scale real estate development, the complex Florida entitlement process,
and financial and asset management. Under the direction of this new management
team, the Company has focused more closely on the development of its large land
portfolio. As part of this strategy, the Company currently operates or has plans
to operate in the following real estate industry segments:
- Community residential real estate
- Residential real estate services
- Commercial real estate and services
- Resort and leisure
St. Joe also operates in the transportation and forestry segments which are
considered "non-strategic" in light of its focus on real estate. The Company's
sugar operations are also considered a non-strategic business and are classified
as discontinued operations, due to the Company's plan to sell this operation.
St. Joe's strategy is seeking to extract the maximum value out of its
non-strategic assets. As a result:
- In March 1999, the Company announced it intends to sell up to
approximately 800,000 acres of its northwest Florida timberlands and
an auction process is expected to begin in 1999 to sell the first
100,000 acres. The sale of additional parcels, typically 100,000 acres
will be grouped, sized and timed in order to seek maximum value. All
sales are subject to receipt of an acceptable bid, including price,
terms and conditions.
- In December 1998, the Company closed in escrow on the sale of
approximately 48,000 acres of sugarcane lands to The Nature
Conservancy and the federal government for $133.5 million in cash. In
March 1999 the rights to farm the sugar lands were sold for $19.0
million and the $133.5 million escrow funds were released from escrow.
- In May 1996, the Company sold its linerboard mill and container
plants.
- In April 1996, the Company sold the stock of St. Joe Communications,
Inc. and its interests in three cellular limited partnerships.
- The Company continues to evaluate methods and means to extract the
embedded value from its other non-strategic assets, including its
timber and transportation holdings.
The Company was organized as a Florida corporation in 1936 by the executors
of the Estate of Alfred I. duPont to implement Mr. duPont's plans to establish a
paper company in northwestern Florida. The Company subsequently expanded into
other lines of business primarily by acquiring companies in financial difficulty
whose assets the Company perceived to be undervalued. Since 1940, the Company
has continued to purchase
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additional parcels of real property located throughout Florida and over time has
acquired a sizable portfolio of land. Included in these holdings are thousands
of acres in northwestern Florida that the Company has identified as potentially
suitable for development over the near to long term. For a presentation of
certain financial data on a segment by segment basis, see Item
7 -- "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMMUNITY RESIDENTIAL REAL ESTATE
The Company's community residential real estate operations include the
development of large-scale mixed-use communities, primarily on Company-owned
lands. The Company believes that its raw land inventory will provide a long-term
supply of well-situated land and waterfront properties that may be suitable for
development in the future. Development of master-planned communities is a
long-term endeavor, with build-out typically occurring over a five- to
fifteen-year period. The Company also is developing smaller scale residential
projects that offer productive use of existing Company and acquired land.
On November 12, 1997, the Company purchased a 74% general partnership
interest in a limited partnership, St. Joe/Arvida Company, L.P., through a joint
venture with JMB Southeast Development, L.L.C. and JMB Southeast Development,
L.P. ("St. Joe/Arvida"). The principal assets acquired were the "Arvida" name,
proprietary information systems and the Arvida management team. The Company
directs its residential development efforts through St. Joe/Arvida and conducts
the majority of its residential development activity under the Arvida trademark.
The Company initiated home building through St. Joe/ Arvida in 1998.
At the end of 1998, the Company's community development arm, Arvida,
managed a total of 23 communities in various stages of planning and development,
including five communities owned by Arvida/ JMB Partners, L.P.
Five of these large-scale communities require a state Development of
Regional Impact (DRI), which is part of Florida's master plan approval process.
If and when entitled, these five communities could support over 16,000 housing
units. These five communities are:
- Seagrove, Walton County, Northwest Florida:
Seagrove is a 498-acre parcel of land located adjacent to Seaside
and Grayton State Recreation Area. Plans include a southern coastal
resort community with a 160-room resort hotel and a planned community
with approximately 1,140 housing units. As part of the DRI process, a
Preliminary Development Agreement was received in January. Construction
under the Preliminary Development Agreement is scheduled to begin in
July 1999, pending local approvals.
- Southwood, Tallahassee, North Florida:
Southwood is currently undergoing DRI review and a final DRI
hearing is presently scheduled for April 1999.
- Victoria Park, Volusia County, Central Florida:
Located on 1,859 acres in central Florida just off Interstate 4
near DeLand, this master-planned, mixed-use community on Company
controlled property has plans that could support approximately 3,800
housing units with a neo-traditional town center. Planned prices will
range from the low $100,000's to more than $300,000. A new elementary
school is scheduled to open adjacent to Victoria Park for the 2000-2001
school year.
- Riverton, St. Johns County, Northeast Florida:
Riverton is being planned as a New Town that fully embraces the St.
Johns River, on which it is located. South of Jacksonville, Riverton
encompasses over 4,300 wooded acres long-held by the Company. In the
fourth quarter of 1998, the Company agreed to sell 120 acres in Riverton
for a new St. Johns County high school expected to open for the
2000-2001 school year.
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- Ball Tract, St. Johns County, Northeast Florida:
A preliminary market study is underway for this 2,150 acre tract
owned by Gran Central Corporation ("GCC"), a wholly owned subsidiary of
Florida East Coast Industries, Inc. ("FECI"), in which the Company has a
54% interest. The site is located in St. Johns County and includes
frontage on the Intracoastal Waterway.
Of the 13 community development projects that do not require a DRI,
11 are on long-held Company property, one is on optioned land and one is
under a staged take down. These 13 planned community developments could
support approximately 3,500 units upon complete build-out. Five of these
communities, the Retreat, James Island, Summerwood, Woodrun and Camp
Creek Point have infrastructure or housing construction underway and
could support, at full build-out, approximately 750 units.
- St. Johns Golf & Country Club, St. Johns County, Northeast Florida:
This community development project will include a total of 799
housing units and an 18-hole championship golf course. Construction is
expected to begin in 1999 and most homes will be located adjacent to
golf, conservation land, lakes or natural wooded areas. Prices are
expected to range from $130,000 to more than $400,000.
- Camp Creek North, Walton County, Northwest Florida:
A golf resort, Camp Creek North is located approximately four miles
east of Seagrove. Plans include 36 holes of golf, bordered by a
residential village. A development agreement application is scheduled
for submission to the County in May 1999.
- Camp Creek, Walton County, Northwest Florida:
Camp Creek is located approximately three miles east of Seagrove,
with over a mile of beachfront on the Gulf of Mexico. Plans for this
beach resort community include a resort hotel, beach club and
approximately 265 vacation homes.
- Camp Creek Point, Walton County, Northwest Florida:
Camp Creek Point is an exclusive residential community bordering on
Camp Creek Lake. Five lots have been sold at an average price of
$484,000. Five lots remain with prices starting in excess of $400,000.
- The Retreat, Walton County, Northwest Florida:
The Retreat is a planned beach club resort community which will
include 90 single-family housing units on 87 acres with beach access.
Lot prices are expected to average $400,000. Site construction is on
schedule for completion in March 1999 and sales are scheduled to begin
in April 1999.
- Bay New Town, Bay County, Northwest Florida:
A mixed-use development, Bay New Town is planned to be located on
long held Company land. Preliminary plans for initial development
activities are for approximately 800 new housing units.
- Woodrun, Bay County, Northwest Florida:
Woodrun, located in the town of Lynn Haven near Panama City, will
consist of 51 single-family housing units situated around an
environmental preserve. The community will offer single family homes
priced from $170,000 to $240,000. Grand opening is scheduled for March
1999.
- Timberwood, Bay County, Northwest Florida:
Timberwood, a 400 acre residential community located in east Bay
County, is expected to support approximately 325 housing units at full
build-out. Construction is scheduled to begin in late 1999.
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- Summerwood, Bay County, Northwest Florida:
Summerwood, located in Panama City Beach, is an existing community
consisting of 222 homesites in three phases with Phases II and III
encompassing 154 housing units, now under development. The Community
will offer a variety of single family homes priced from $121,000 to
$163,000. All 68 lots of Phase I have been sold. Phase II has presold 13
homes with a Grand Opening for the public set for March 1999.
Development of Phase III is scheduled to begin in June 1999.
- Heron Landing, Bay County, Northwest Florida:
A single-family home community, Heron Landing is planned for
approximately 330 new housing units at build-out located in the Cedar
Grove area of Panama City. Home prices are expected to start at
approximately $100,000, with construction scheduled to begin in late
1999.
- Oak Ridge, Bay County, Northwest Florida:
A residential community located in the Panama City area, Oak Ridge
is planned to include 53 multi-family garden homes. Construction is
expected to begin in early 2000.
- Osprey Landing, Bay County, Northwest Florida:
Osprey Landing, set on 221 acres, is a single-family development
with plans for approximately 240 new housing units at build-out with
prices expected to range from $115,000 to $160,000. Construction is
expected to begin in early 2000.
- James Island, Duval County, Northeast Florida:
James Island is a 194 acre community in Jacksonville located within
three miles of I-95 and close to new elementary and middle schools.
Prices will range from $180,000 to over $300,000. At full build-out the
community is expected to encompass approximately 365 housing units.
Model homes are currently under construction and a Grand Opening is
scheduled for April 1999.
In December 1998, the Company acquired a 26 percent interest in Arvida/JMB
Partners, L.P. The partnership's assets consist primarily of land that is being
developed into five master-planned communities: three in Florida, one near
Atlanta, and one in western North Carolina. The key master-planned community in
the portfolio is Weston, located in Broward County, Florida.
Several of the planned developments described above are in the midst of the
entitlement process or are in the master-planning stage. No assurances can be
given that the necessary entitlements for development will be secured, that any
of the Company's projects can be successfully developed, if at all, or that they
can be developed in a timely manner. It is not feasible to estimate project
development costs until entitlements have been obtained. As is typical of
large-scale development projects, development of these tracts could require
significant infrastructure development costs and may raise environmental issues
that require mitigation.
RESIDENTIAL REAL ESTATE SERVICES
On July 31, 1998, the Company completed the purchase of Arvida Realty
Services (Arvida Realty), formerly known as Prudential Florida Realty. Arvida
Realty is the largest residential real estate brokerage, sales and services
company in the state of Florida and the fifth largest in the United States
(based on rankings of the trade publication Real Trends).
Arvida Realty offers a complete array of real estate services, including
residential real estate sales, asset management, title and mortgage services,
annual and seasonal rentals and international real estate marketing through its
80 offices located throughout south and central Florida. Between its acquisition
by the Company on July 31, 1998 and December 31, 1998, Arvida Realty closed over
13,000 real estate transactions valued at $2.2 billion. On an annualized basis,
Arvida Realty generated 1998 revenues of more than $150 million.
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COMMERCIAL REAL ESTATE
The Company's commercial real estate operations include the development and
management of commercial and industrial properties through an asset management
agreement with GCC, and through direct subsidiaries and related joint ventures
of the Company. In September, 1998 the Company acquired Goodman Segar Hogan
Hoffler, L.P. ("Goodman Segar GVA"), one of the southeast's largest diversified
commercial real estate services firms.
As of December 31, 1998, GCC had almost 800,000 square feet under
construction, a 65% increase from December 31, 1997, located primarily in its
Jacksonville, Orlando and Miami parks (the "Gran Parks"). GCC also owns
approximately 16,000 acres of unentitled land that management believes may be
suitable for future development, primarily situated adjacent to the Florida East
Coast Railway Company ("FEC") rights-of-way in Florida markets that the Company
believes will have significant growth opportunities.
In late 1997, the Company accelerated its commercial development program by
entering into several partnerships. These partnerships allow the Company to
enter new markets and to pursue development opportunities that were previously
unavailable to the Company.
In December 1997, the Company and Orlando-based CNL Group, Inc. ("CNL")
formed a joint venture to invest in and develop office and industrial properties
in the central Florida area. In February 1998, the Company and Weeks Corporation
("Weeks") completed a transaction whereby the companies each purchased a
one-third interest in the Codina Group, Inc. ("Codina Group"). The Company is
developing commercial properties in south Florida though its investment in the
Codina Group. The Company has also formed partnerships with Hines Interest, L.P.
("Hines") to develop properties in Atlanta, Georgia, and Means Knaus, L.L.C.
("Means Knaus") to develop properties in Texas.
As of December 31, 1998, the Company through all its holdings had over 1.3
million square feet of commercial property under development and .9 million
square feet in pre-development in Florida, Georgia and Texas. Consistent with
the Company's operating strategy, the majority of these facilities are on St.
Joe or GCC property.
Major St. Joe Commercial projects include:
- HomeSide Lending, Inc. -- Jacksonville, Florida: St. Joe is developing
the expansion of HomeSide's corporate campus with a new three-story,
140,000-square-foot building immediately adjacent to HomeSide's existing
headquarters in South Jacksonville. Phase I is scheduled for completion
in August 1999, and Phase II is scheduled to be completed in October
1999.
- CNL Center -- Orlando, Florida: The St. Joe/CNL Realty Group partnership
is at the midpoint in construction of a new 14-story, 335,000-square-foot
building in downtown Orlando, located off Interstate 4 and adjacent to
City Hall. With approximately 70 percent of its space leased, it is
scheduled for completion in late 1999.
- Legacy Point -- Orlando, Florida: St. Joe with St. Joe/CNL Realty Group
purchased a 31-acre site early in the fourth quarter of 1998 with plans
for a four-building, 750,000 square foot Class-A office campus. The
project is located in an area of high traffic with approximately 4,000
feet of linear frontage along Interstate 4. Construction of Phase I, a
six-story, 155,000-square-foot office building is scheduled for
completion in early 2000.
- Westchase Corporate Center -- Houston, Texas: In partnership with
Means/Knaus, St. Joe is developing a six-story Class-A
181,000-square-foot office building located on a 5.4-acre tract with
frontage along Richmond Avenue, two blocks east of the Westbelt.
Completion is set for July 1999.
Projects managed by The St. Joe Commercial Group for Gran Central include:
- Gran Park at SouthPark -- Orlando, Florida: Development plans for this
Gran Central multi-use corporate campus include eight buildings totaling
approximately 850,000 square feet. Phase one, which includes a
four-story, Class-A office building and one office, showroom and
warehouse building, is currently open. Both buildings are experiencing
strong leasing activity, including a lease signed in the
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fourth quarter with Lockheed Martin for over 38,000 square feet of space.
Phase Two, also under construction, includes an additional 150,000
square-foot office building. Completion is scheduled for April 1999.
- Gran Park at Deerwood Park North -- Jacksonville, Florida: St. Joe is
managing and developing Gran Central's Deerwood Park North project,
with plans to develop four Class-A office buildings for a total of
513,000 square feet. Building one, currently under construction, is a
five-story, 139,000-square-foot office building, with completion
scheduled for July 1999.
- Bombardier Capital, Inc.; Gran Park at Jacksonville -- Jacksonville,
Florida: St. Joe is developing for Gran Central a new
one-million-square-foot business park for Bombardier Capital. This
project, which was launched in the third quarter of 1998, is a
component of Gran Central's Gran Park at Jacksonville. Bombardier is
taking all of the first 125,000-square-foot building along with
options for up to 500,000 additional square feet. Construction is
approximately 50 percent complete on the first building with
completion expected in June 1999.
- Gran Park at Jacksonville -- Jacksonville, Florida: Atlantic Mortgage
(AMIC) occupied a new 134,085 square foot Gran Central office,
showroom and warehouse building in the fourth quarter of 1998.
- Beacon Pointe at Weston -- Weston, Florida: Gran Central is in a
venture with Weeks Corporation (NYSE: WKS) in Weston, Florida.
Development plans over five years include four office buildings
totaling 375,000 square feet and a hotel site. Beacon Pointe is
located in the Weston Park of Commerce in west Broward County.
Currently under construction is the first 100,000-square-foot Class-A
office building. Completion is scheduled for summer 1999.
- Beacon Station at Gran Park -- Miami, Florida: Development is underway
at Beacon Station for three Gran Central industrial buildings totaling
540,000 square feet jointly ventured with Weeks Corporation (NYSE:
WKS). The first of the three buildings should be completed in the
spring of 1999, and site preparation is currently underway for the
second and third buildings. Beacon Station is located near Miami
International Airport and entitled for 6.5 million square feet of
office and industrial space.
The Company has acquired interests in commercial properties in Atlanta,
Houston and in south Florida (Boca Raton) for future development.
A summary of the Company's development activity as of December 31, 1998,
follows:
NET RENTABLE START
STATUS OWNER PROPERTY DESCRIPTION SQUARE FEET DATE
- ------ ----- -------------------- ------------ -----
Predevelopment......... St. Joe HomeSide Lending, Inc. 140,000 Jan. 1999
Under construction..... St. Joe/CNL CNL Center 335,000 May 1998
Predevelopment......... St. Joe/CNL Legacy Point I 155,000 Feb. 1999
Under construction..... St. Joe/Means Knaus Westchase Corporate Center 181,000 Aug. 1998
Predevelopment......... St. Joe/Hines Deerfield Commons 130,000 March 1999
Under construction..... GCC Gran Park at Jacksonville 222,000 July 1998
Under construction..... GCC Gran Park at Deerwood 139,000 Oct. 1998
Under construction..... GCC Gran Park at SouthPark 282,000 Aug. 1998
Predevelopment......... GCC Gran Park at SouthPark 132,000 TBD
Under construction..... GCC/Weeks Beacon Station 540,000 Sept. 1998
Predevelopment......... GCC/Weeks Beacon Station 360,000 TBD
Under construction..... GCC/Weeks Beacon Pointe at Weston 100,000 June 1998
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Total........................................................... 2,224,000
=========
In the commercial real estate services sector, the Company manages GCC's
office and industrial building portfolio which consists of 62 properties with
6.2 million rentable square feet. This represents a 10% increase since December
31, 1997. These buildings were 87% occupied at year-end 1998 compared to 82% at
the end of
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1997. Buildings placed in service for more than one year had occupancy of 91% in
1998 compared to 83% in 1997.
On September 24, 1998, the Company acquired Goodman Segar GVA, a commercial
real estate services company based in Norfolk, Virginia. Goodman Segar GVA
manages over 10 million square feet of commercial property in the southeast
United States and during 1998 brokered real estate transactions valued at nearly
$1 billion annually, a 25% increase from 1997. A construction subsidiary also
provides construction services for corporate clients and third-party owners. On
December 21, 1998, the Company purchased the assets of Florida Real Estate
Advisors, Inc. ("FREA"), a commercial real estate services company based in
Tampa, Florida. FREA manages approximately 4 million square feet of commercial
property in central and south Florida.
The acquisitions of Goodman Segar GVA and FREA supplement the Company's
management of the GCC portfolio and diversify real estate markets in which the
Company operates; as described in the table below:
# OF NET RENTABLE % OF
STATE PROPERTIES SQUARE FEET PORTFOLIO
- ----- ---------- ------------ ---------
Florida................................................ 86 9,345,000 46%
Virginia............................................... 119 8,464,000 42%
North Carolina......................................... 28 1,692,000 8%
Georgia................................................ 6 832,000 4%
--- ---------- ---
239 20,333,000 100%
=== ========== ===
These acquisitions also diversify the types of properties managed by the
Company; as set forth in the table below:
# OF NET RENTABLE % OF
TYPE OF PROPERTY PROPERTIES SQUARE FEET PORTFOLIO
- ---------------- ---------- ------------ ---------
Office................................................. 124 9,002,000 44%
Industrial............................................. 59 6,366,000 31%
Retail................................................. 50 4,792,000 24%
Other.................................................. 6 173,000 1%
--- ---------- ---
239 20,333,000 100%
=== ========== ===
RESORT AND LEISURE
The Company's resort and leisure operations consist of the development of
hotel and beach club facilities on St. Joe's beachfront property in west Florida
in conjunction with its residential development projects (see "Community
Residential Real Estate") and its ownership in ENTROS, Inc. ("ENTROS").
On February 25, 1998, the Company acquired a 44% interest in ENTROS, a
location-based entertainment company headquartered in Seattle, Washington.
ENTROS creates and produces interactive games in club settings and produces
game-based programming for corporate events. During the fourth quarter of 1998,
ENTROS opened its second location in San Francisco, California; the original
location is in Seattle.
FORESTRY
The Company's forestry operations, conducted through its wholly owned
subsidiary, St. Joe Timberland Company, are in the business of growing,
harvesting and selling timber and wood fiber. The Company is the largest private
holder of timberlands in Florida, with nearly 700,000 acres of planted pine
forests, primarily in northwestern Florida, and an additional 300,000 acres of
mixed timberland, wetlands, lake and canal properties. Consistent with the
Company's plans to extract value from its non-strategic assets, in March 1999,
the Company announced its intentions to sell approximately 800,000 acres of its
timberlands and an auction process is expected to begin in 1999 to sell the
first 100,000 acres. The sale of additional parcels, expected to be 100,000
acres each, will be grouped, sized and timed in order to seek maximum value. A
study
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commissioned by the Company has identified these timberlands as having little
real estate development potential in the next 15 to 20 years. No assurances can
be given that any of the property can be sold at an acceptable price within an
acceptable time period.
The Company estimates that its standing pine inventory on December 31, 1998
totaled 10.8 million tons and its hardwood inventory totaled 5.9 million tons.
The timberlands are harvested by local independent contractors pursuant to
agreements that are generally renewed annually. The principal product of the
Company's forestry operations is softwood pulpwood, but the Company also
produces and sells softwood and hardwood sawtimber.
The Company's timberlands are located in northwestern Florida and southern
Georgia, near key transportation links including roads, waterways and railroads,
allowing the Company to deliver fiber to its customers on a cost-efficient
basis. The Company's principal productive timberlands are near the facilities of
The Florida Coast Paper Company, L.L.C. ("FCP") in Port St. Joe, the Company's
major pulpwood customer. Numerous other major conversion facilities located near
the Company's timber assets could serve to further expand the markets for the
Company's timber products.
In 1997, the Company renegotiated its 15-year supply contract with FCP to
allow it to supply pulpwood to the mill at a level (700,000 tons per year
beginning June 1, 1998) significantly lower than historical levels. The Company
sought to reduce its obligation to supply pulpwood under the agreement in order
to extend growing periods for certain portions of its timber. FCP told the
Company that it shut down its operations on August 15, 1998 due to market
conditions resulting from the Asian economic crisis. In late November, the
Company resumed wood fiber deliveries to FCP, which are being shipped at FCP's
expense to another mill in Panama City, Florida.
The Company's strategy in its forestry segment is to increase the average
age of its timber by extending growing periods before final harvesting in order
to capitalize on the higher margins of older-growth timber. The Company intends
to extend growing periods for its softwood forests from a historical average of
approximately 18-22 years to approximately 28-30 years. This change is expected
to shift the Company's product mix from approximately 85% pulpwood and 15%
higher-margin products in 1997 to approximately 60% pulpwood and 40%
higher-margin products by 2005. This strategy should ultimately increase the
revenues and returns of the Company's timber operations when a sustainable
harvest of older-growth timber is achieved, although there can be no assurances
in this regard. The Company will also seek to maximize sustainable harvest
volumes through the continued use and development of genetically improved
seedlings, soil mapping, extensive fertilization, vegetation control, thinning
and selective harvesting practices.
As part of its strategy to maximize the cash flows from its timberlands,
the Company engages in several business activities complementary to its land
holdings. The Company leases approximately 900,000 acres of its timberlands to
private clubs and state agencies for hunting, 300 acres in north Gadsden County
for the mining of Fullers earth, and 600 acres to Martin Marietta for the mining
of limerock. The Company has not conducted an exhaustive survey of its
timberlands for potential mineral reserves.
TRANSPORTATION
FECI's subsidiary, Florida East Coast Railway Company ("FEC"), operates a
railroad along 350 miles of main line track between Jacksonville and Miami and
along 91 miles of branch track between Ft. Pierce and Lake Harbor, Florida. FEC
has the only coastal right-of-way between Jacksonville and West Palm Beach,
Florida and is the exclusive rail-service provider to the Port of Palm Beach,
Port Everglades and the Port of Miami. To complement and facilitate its railroad
operations, FEC also provides drayage and interstate trucking services through
its wholly owned subsidiary International Transit, Inc. ("ITI").
At Jacksonville, FEC connects with Norfolk Southern Corporation and with
CSX Transportation, Inc. ("CSXT"). FEC relies upon both of these carriers for
Florida-bound rail freight traffic that originates elsewhere in the United
States. In 1998, a significant portion of FEC's revenues were attributable to
traffic that originated on other railroads, whereas a small percentage was
attributable to traffic that originated on FEC but was bound for other
destinations and 48% were attributable to traffic that both originated and
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terminated on FEC's system. FEC is a terminating railroad and, consequently,
does not receive traffic from one railroad to be passed over its track to
another railroad. Because all of FEC's traffic either originates in or is bound
for Florida, FEC's revenues fluctuate with economic conditions in southern
Florida, rising as the economy of southern Florida expands and declining as it
contracts.
In 1998, FEC principally transported automotive vehicles, aggregates,
cement, trailers-on-flatcars, containers-on-flatcars and basic consumer goods
such as foodstuffs. Movement is relatively stable throughout the year with
heaviest traffic ordinarily occurring during the first and last quarters of the
year.
ITI operates a common motor carrier with service throughout the
southeastern United States. FECI acquired an 80% interest in ITI on April 1,
1995, and the remaining 20% on June 25, 1997, as a strategic purchase designed
to enable FEC to reach intermodal traffic not being solicited by FEC's
connections due to the short-haul nature of the traffic.
In addition to its rail and other related services, FEC leases the use of
its rights-of-way to various tenants, including several telecommunications
companies' fiber optics systems, pursuant to long-term leases.
The Company also owns the Apalachicola Northern Railroad Company ("ANRR"),
a short-line railroad operating between Port St. Joe and Chattahoochee, Florida,
where it connects with an unaffiliated carrier. Its transportation facilities
include 96 miles of main track, 13 miles of yard switching track and 3 miles of
other track. Although it is a common carrier, most of ANRR's business in recent
years consisted of carrying coal from Port St. Joe to Chattahoochee pursuant to
a contract with Seminole Electric Cooperative, Incorporated ("Seminole") and
carrying wood chips, pulpwood and linerboard used or produced at FCP's paper
mill in Port St. Joe, Florida. As noted above, the FCP mill shutdown on August
15, 1998. The other items carried by ANRR are tall oil, chemicals, stone and
clay products and recyclable items.
ANRR is a party to a coal delivery contract with Seminole that expires in
2004, but, in January 1999, Seminole halted shipments of coal and Seminole also
filed a lawsuit in circuit court in Gulf County, Florida, seeking to terminate
its contract with ANRR. Management believes ANRR has fully performed its
obligations under the contract and is prepared to complete the contract term.
Pending resolution of the litigation, ANRR's workforce has been reduced
significantly, commensurate with its loss in traffic, but the railroad still
intends to operate a minimal schedule sufficient to provide service to existing
customers.
The Company continues to evaluate methods to extract the embedded value
from its transportation holdings.
DISCONTINUED OPERATIONS
The Company owns Talisman Sugar Corporation ("Talisman"), a grower of
sugarcane located in south central Florida. Talisman owns approximately 48,000
acres of agricultural land and leases approximately 6,000 acres. The Company
also operates a sugar mill at which sugarcane is converted into raw sugar.
Talisman sells its entire production to Everglades Sugar Refinery, Inc., a
wholly owned subsidiary of Savannah Foods & Industries, Inc., pursuant to an
annually renewed contract. The amount Talisman is paid for its sugar under the
current contract is a function of market prices.
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 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 farm the land to the Sugar Companies. In return, the
lawsuit was dismissed and the other parties agreed to pay Talisman $19.0
million.
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Talisman retains ownership of the sugar mill and is presently evaluating
the best manner to dispose of the mill. Talisman is responsible for the cleanup
of the mill site. Talisman is obligated to complete certain defined
environmental remediation (the "Remediation"). Approximately $5.0 million of the
purchase price will be held in escrow pending the completion of the Remediation.
Talisman must use its funds to pay the costs of the Remediation. Based upon the
current environmental studies, Talisman does not believe the costs of the
Remediation will exceed the amount held in escrow. Talisman will receive the
fund when all the Remediation is complete. In the event other environmental
matters are discovered, the Sugar Companies will be responsible for the first
$.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 the 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.
On May 30, 1996, the Company sold its linerboard mill and container plants.
The Company remains contingently liable for up to $10 million relating to
On-Site Environmental Liabilities, as defined in the sales agreement. The
Company further agreed to reimburse up to $1 million for certain remediation
activities at the linerboard mill, if such activities were required under
environmental laws.
On April 11, 1996, St. Joe Industries, Inc., a wholly owned subsidiary of
the Company, sold the stock of St. Joe Communications, Inc. (SJCI) to TPG
Communications, Inc. SJCI also sold its interests in three remaining cellular
limited partnerships. The Company had previously sold one cellular limited
partnership in 1995. These sales represented the Company's entire Communications
segment.
Approximately $359.3 million of proceeds from these sales was distributed
to shareholders in 1997. See "Item 6 -- Selected Consolidated Financial Data,
note 3."
REGULATION
Real Estate. Development of real property in Florida entails an extensive
approval process involving overlapping regulatory jurisdictions. Real estate
projects must generally comply with the provisions of the Local Government
Comprehensive Planning and Land Development Regulation Act (the "Growth
Management Act"). In addition, development projects that exceed certain
specified regulatory thresholds require approval of a comprehensive Development
of Regional Impact ("DRI") application. Compliance with the Growth Management
Act and the DRI process is usually lengthy and costly and can be expected to
materially affect the Company's real estate development activities.
The Growth Management Act requires counties and cities to adopt
comprehensive plans guiding and controlling future real property development in
their respective jurisdictions. After a local government adopts its
comprehensive plan, all development orders and development permits that it
issues must be consistent with the plan. Each plan must address such topics as
future land use, capital improvements, traffic circulation, sanitation,
sewerage, potable water, drainage and solid wastes. The local governments'
comprehensive plans must also establish "levels of service" with respect to
certain specified public facilities and services to residents. Local governments
are prohibited from issuing development orders or permits if facilities and
services are not operating at established levels of service, or if the projects
for which permits are requested will reduce the level of service for public
facilities below the level of service established in the local government's
comprehensive plan. If the proposed development would reduce the established
level of services below the level set by the plan, the development order will
require that, at the outset of the project, the developer either sufficiently
improve the services to meet the required level or provide financial assurances
that the additional services will be provided as the project progresses.
The Growth Management Act, in some instances, can significantly affect the
ability of developers to obtain local government approval in Florida. In many
areas, infrastructure funding has not kept pace with growth. As a result,
substandard facilities and services can delay or prevent the issuance of
permits. Consequently, the Growth Management Act could adversely affect the
ability of Florida developers, including the Company and GCC, to develop real
estate projects.
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The DRI review process includes an evaluation of the project's impact on
the environment, infrastructure and government services, and requires the
involvement of numerous federal, state and local environmental, zoning and
community development agencies and authorities. Local government approval of any
DRI is subject to appeal to the Governor and Cabinet by the Florida Department
of Community Affairs, and adverse decisions by the Governor or Cabinet are
subject to judicial appeal. The DRI approval process is usually lengthy and
costly, and there are no assurances as conditions, standards or requirements
that may be imposed on a developer with respect to a particular project. The DRI
approval process is expected to have a material impact on the Company's real
estate development activities in the future.
In addition, a substantial portion of the developable property in Florida,
including much of the Company's property, is raw land located in areas where its
development may affect the natural habitats of various endangered or protected
wildlife species or in sensitive environmental areas such as wetlands and
coastal areas, which are subject to extensive and evolving federal, state and
local regulation. Accordingly, federal, state and local wildlife protection,
zoning and land use restrictions, as well as community development requirements,
may impose significant limitations on the Company's ability to develop its real
estate holdings.
The Company's ownership and development of real estate are subject to
extensive and changing federal, state and local environmental laws, the
provisions and enforcement of which may become more stringent in the future.
Pursuant to those laws, the owner or operator of real estate may be required to
perform remediation regardless of whether it caused the contamination. The sale
or development of properties may also be restricted due to environmental
concerns, the protection of endangered species, or the protection of wetlands.
In addition, violations of various statutory and regulatory programs can result
in civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. The Company is not
presently aware of any material contaminations at or any material adverse
environmental development issues relating to its real estate operations.
However, there can be no assurance that environmental issues will not arise in
the future relating to the real estate operations.
Forestry. Forestry operations generate air emissions through controlled
burning. The forestry operations are subject to regulation under the Endangered
Species Act ("ESA"), the federal Clean Water Act, the federal Clean Air Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Toxic Substances
Control Act as well as similar state laws and regulations. Violations of various
statutory and regulatory programs can result in civil penalties, remediation
expenses, natural resource damages, potential injunctions, cease and desist
orders and criminal penalties. Some environmental statues impose strict
liability, rendering a person liable for environmental damage without regard to
negligence or fault on the part of such person.
The ESA and counterpart state legislation protect species threatened with
possible extinction. A number of species indigenous to the Company's timberlands
have been, and in the future may be, protected under these laws, including the
red cockaded woodpecker, the bald eagle and various other species. Protection of
endangered and threatened species may include restrictions on timber harvesting,
road building and other silvicultural activities on the Company's land
containing the affected species. There can be no assurance that such laws or
future legislation or administrative or judicial action with respect to
protection of the environment will not adversely affect the Company's forestry
operations.
In conducting its harvesting activities, the Company voluntarily complies
with the "Best Management Practices" recommended by the Florida Division of
Forestry. From time to time, proposals have been made in state legislatures
regarding the regulation of timber harvesting methods. There can be no assurance
that such proposals, if adopted, will not adversely affect the Company or its
ability to harvest and sell logs or timber in the manner currently contemplated.
The Company is not presently aware of any facts that indicate that the
Company will be required to incur material costs relating to environmental
matters in relation to its forestry operations. However, there can be no
assurances that environmental regulation or regulation relating to endangered
species or wetlands will not have a material adverse effect on the forestry
operations in the future.
Transportation. Both FEC and ANRR are subject to regulation by the Surface
Transportation Board of the U.S. Department of Transportation and, in some
areas, the State of Florida. These governmental agencies
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must approve, prior to implementation, changes in areas served and certain other
changes in operations of FEC and ANRR.
The Company's transportation operations are subject to extensive local,
state and federal environmental laws and regulations, including the federal
Clean Air Act, CERCLA and various other state and local environmental laws and
regulations. Violations of various statutory and regulatory programs can result
in civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. Some environmental
statutes impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person. In
addition, the Company's present and historic ownership and operation of real
property, including yards, in connection with its transportation operations
involve the storage, use or disposal of hazardous substances that have
contaminated and may in the future contaminate the environment. The Company may
also be liable for the costs of cleaning up a site at which it has disposed
(intentionally or unintentionally by virtue of, for example, an accident,
derailment or leak) or to which it has transported hazardous substances. The
Company is currently involved in various remediations of properties relating to
its transportation operations. In addition, FEC, along with many other
companies, has been named a potentially responsible party in proceedings under
Federal statutes for the clean up of designated Superfund sites at Hialeah,
Florida; and Jacksonville, Florida. Based on presently available information,
the Company does not believe that the costs of addressing any known
environmental issues relating to its transportation operations will be material.
However, the future cost of complying with environmental laws and containing or
remediating contamination cannot be predicted with any certainty, and there can
be no assurances that such liabilities or costs would not have a material
adverse effect on the Company in the future.
Except as described above, the Company is not presently aware of any
material environmental issues relating to its sugar operations. However, there
can be no assurance that environmental issues that could have a material adverse
effect on the Company will not arise in the future relating to its sugar
operations.
RISK RELATING TO REAL ESTATE OPERATIONS
Market Risks. There can be no assurance that the US economy, in general,
or the economy of the Southeast in particular, will continue to experience
positive growth rates or that the United States, in general, or the Southeast in
particular, will not be affected by a recession in the future. Certain
significant expenditures associated with the development, management and
servicing of real estate (such as real estate taxes, maintenance costs, and debt
payments) would generally not be reduced if an economic downturn caused a
reduction in revenues from the Company's properties.
Development Risks. The Company's real estate development activities
require significant capital expenditures. The Company will be required to obtain
funds for its capital expenditures and operating activities through cash flow
from operations, property sales or financings. There can be no assurances that
funds available from cash flow, property sales and financings will be sufficient
to fund the Company's required or desired capital expenditures for development.
If the Company were unable to obtain sufficient funds, it might have to defer or
otherwise limit certain development activities. Further, any new development or
any rehabilitation of older projects can require compliance with new building
codes and other regulations. The Company cannot estimate the cost of complying
with such codes and regulations, and such costs can make a new project or some
otherwise desirable uses of an existing project uneconomic.
Joint Venture Risks. The Company has direct or indirect equity interests
in several joint ventures and may initiate future joint venture projects as part
of its overall development strategy. A joint venture may involve special risks
associated with the possibility that (i) the venture partner at any time may
have economic or business interests or goals that are inconsistent with those of
the Company, (ii) the venture partner may take actions contrary to the
instructions or requests of the Company or contrary to the Company's policies or
objectives with respect to its real estate investments or (iii) the venture
partner could experience financial difficulties. Actions by the Company's
venture partners may have the result of subjecting property owned by the joint
venture to liabilities in excess of those contemplated by the terms of the joint
venture agreement or have other adverse consequences. In its role as a general
partner of certain joint ventures, the Company may
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be jointly or severally liable for the debts and liabilities of the joint
ventures. In addition, the Company's joint venture partners may dedicate time
and resources to commitments and responsibilities outside the joint venture.
Risks Related to Acquisition Financing. A significant portion of the
Company's resources may be used for acquisitions of joint ventures or other
entities. The timing, size and success of the Company's acquisition efforts and
any associated capital commitments cannot be readily predicted. The Company may
finance future acquisitions by using shares of its Common Stock, cash or a
combination of Common Stock and cash. If the Common Stock does not maintain a
sufficient market value, or if potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
program. If the Company does not have sufficient cash resources, its growth
could be limited unless it is able to obtain additional capital through debt or
equity financings. There can be no assurance that the Company will be able to
obtain additional financing it may need for its acquisition program on terms
that the Company deems acceptable. To the extent the Company uses Common Stock
for all or a portion of the consideration to be paid for future acquisitions,
dilution may be experienced by existing stockholders.
COMPETITION
Real Estate. The real estate industry is generally characterized by
significant competition. The Company plans to continue to expand through a
combination of residential and commercial developments throughout the southeast
but concentrated in Florida where the acquisition and/or development of property
would, in the opinion of management, result in a favorable risk-adjusted return
on investment (e.g., when the development is on Company-owned land). There are a
number of residential and commercial developers and real estate services
companies that compete with the Company in seeking properties for acquisition,
resources for development and prospective tenants. Competition from other real
estate developments may adversely affect the Company's ability to sell homes,
and attract and retain tenants. The Company may compete with other entities that
have greater financial and other resources than the Company. There can be no
assurance that the existence of such competition will not have a material
adverse effect on the Company's business, operations and cash flow.
Forestry. The forest products industry is highly competitive in terms of
price and quality. Many of the Company's competitors are fully integrated
companies with substantially greater financial and operating resources than the
Company. The products of the Company are also subject to increasing competition
from a variety of non-wood and engineered wood products. In addition, the
Company is subject to a potential increase in competition from lumber products
and logs imported from foreign sources. Any significant increase in competitive
pressures from substitute products or other domestic or foreign suppliers could
have a material adverse effect on the Company.
Transportation. Although each of the Company's railroads is typically the
only rail carrier directly serving its customers, the Company's railroads
compete directly with other railroads that could potentially deliver freight to
their markets and customers via different routes. The Company's railroads also
compete directly with other modes of transportation, including motor carriers
and, to a lesser extent, ships and barges. Competition is based primarily upon
the rate charged and the transit time required, as well as the quality and
reliability of the service provided. Any improvement in the cost or quality of
these alternate modes of transportation could increase competition from these
other modes of transportation and adversely affect the Company's business.
Sugar. The sugar industry is highly competitive. The Company competes with
foreign and domestic sugarcane and sugar beet processors, as well as
manufacturers of corn sweeteners and artificial sweeteners such as aspartame and
saccharin. Sugar is a volatile commodity subject to wide price fluctuations in
the marketplace.
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PATENTS, TRADEMARK AND LICENSES
St. Joe acquired the "Arvida" trademark in 1997 but did not obtain any new
patents or trademarks in 1998. The Company has four pending applications for
trademarks.
SEASONALITY
The Company's operations are generally not seasonal, however the operations
of Arvida Realty are seasonal with the volume of transactions increasing in the
spring and summer due to housing relocations. This seasonality is somewhat
offset by the vacation home (second home) market which is active in the winter
months.
The sugarcane production and processing operations are seasonal with one
sugarcane crop being harvested each year.
CUSTOMERS
The Company is not dependent on any significant customer in its real estate
operations.
ANRR's largest customers have been FCP and Seminole. ANRR's business has
been adversely affected by the significant reductions in businesses and reduced
shipments of commodities transported by it for FCP and Seminole.
The FCP linerboard mill, which was sold in 1996, remains the largest major
customer of the forestry segment pursuant to the wood fiber supply agreement. As
discussed previously, the Company renegotiated its contract with FCP in 1997 to
provide for lower supply obligations in the future. While FCP continues to
accept shipments of fiber pursuant to the agreement, there can be no assurances
FCP will continue to perform under the agreement.
In January 1999, Seminole halted shipments of coal and Seminole also filed
a lawsuit in circuit court in Gulf County, Florida, seeking to terminate its
contract with ANRR.
In the sugar segment, Talisman has a contract with Everglades Sugar
Refinery, Inc. to purchase the entire raw sugar production. This contract runs
through the 1998/1999 crop year and is automatically renewed for each crop
thereafter. Either party can decline to renew by giving notice to the other
party no later than October 1 of the fourth year prior to the termination date.
EMPLOYEES
St. Joe (excluding FECI) had approximately 2,100 employees at December 31,
1998 reflecting a substantial increase in employees from 1997 due to the
acquisitions of Arvida Realty, Goodman Segar GVA and FREA. These employees work
in the following segments:
- - Residential real estate..................................... 40
- - Residential real estate services............................ 800
- - Commercial real estate...................................... 360
- - Resorts and leisure......................................... 10
- - Forestry.................................................... 30
- - Transportation (ANRR only).................................. 80
- - Other -- Sugar.............................................. 700
- - Other -- including corporate................................ 80
170 Talisman employees are covered by collective bargaining agreements and
are represented by the International Association of Machinists and Aerospace
Workers. Talisman believes its relations with its employees to be good.
At December 31, 1998, FECI had approximately 1,036 employees, which
included 1,028 transportation employees. The majority of FEC and ANRR employees
are covered by collective bargaining agreements that set wage levels and
establish work rules and working conditions. Most of FEC's non-salaried
employees are
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represented by the United Transportation Union or the International Brotherhood
of Electrical Workers. The Company and FEC consider their working relationship
with the various unions that represent railroad employees to be good.
ITEM 2. PROPERTIES
The material physical properties of the Company at December 31, 1998 are
addressed below. All properties shown are owned in fee simple, except where
otherwise indicated.
CORPORATE FACILITIES
The Company occupies approximately two floors of a four-story building
owned by its subsidiary, GCC in Jacksonville, Florida.
COMMUNITY RESIDENTIAL REAL ESTATE
The Company owns a significant number of acres in northwestern Florida and
St. John's County on the northeastern coast of Florida near Jacksonville,
including substantial gulf, lake and riverfront acreage, that it believes to be
potentially suited to community residential and resort development. The Company
continually evaluates its holdings and local market conditions to determine the
market's readiness for additional development.
Arvida's administrative offices are located in Boca Raton, Florida and are
leased from a third party.
RESIDENTIAL REAL ESTATE SERVICES
The administrative offices of Arvida Realty are located in Clearwater,
Florida. These offices as well as brokerage offices based in 80 locations
throughout central and south Florida are leased from third parties.
COMMERCIAL REAL ESTATE
At December 31, 1998 St. Joe Commercial owned two buildings with 21,000
square feet, of which 85% was leased. On the same date, GCC owned 62 buildings
with 6,152,000 square feet of which 87% was leased.
GCC owns and manages 18,839 acres of land of which 16,414 acres have not
yet been developed. These properties are held for lease, development and/or sale
and are located in fourteen counties across the state of Florida as follows:
COUNTY ACREAGE
------ -------
Volusia..................................................... 3,584
Flagler..................................................... 3,464
St. Johns................................................... 3,386
Brevard..................................................... 2,546
Dade........................................................ 1,715
Duval....................................................... 1,546
Manatee..................................................... 897
Martin...................................................... 656
St. Lucie................................................... 610
Palm Beach.................................................. 197
Putnam...................................................... 87
Orange...................................................... 85
Broward..................................................... 61
Indian River................................................ 5
------
18,839
======
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Included above are approximately 1,600 acres that have been or are being
developed into commercial properties. Further, approximately 1,200 acres listed
above are owned by FEC but are not required for the operations of the railroad.
The administrative offices of Goodman Segar GVA and FREA are located in
Atlanta, Georgia and Tampa, Florida, respectively. These offices as well as all
brokerage offices are leased from third parties.
FORESTRY
The Company owns over 700,000 acres of planted pine forests, primarily in
northwestern Florida, and an additional 300,000 acres of mixed timberland,
wetlands, lake and canal properties. St. Joe Timberland Company's administrative
offices are based in Port St. Joe, Florida and it owns forestry management
facilities, chip plants and pulpwood procurement offices in the following
locations:
FORESTRY MANAGEMENT FACILITIES CHIP PLANTS
------------------------------ ---------------------------
Albany, Georgia......................................... Lowry, Florida
Hosford, Florida........................................
Newport, Florida........................................ Pulpwood Procurement Office
Port St. Joe, Florida................................... Port St. Joe, Florida
West Bay, Florida.......................................
Wewahitchka, Florida....................................
TRANSPORTATION
FEC owns three four-story buildings in downtown St. Augustine, Florida that
it uses for its corporate headquarters. Its transportation facilities include
350 miles of main line track between Jacksonville and Miami, Florida, 172 miles
of branch line and yard tracks, and 102 miles of secondary mainline tracks. The
mainline track is constructed of #132 rail and other track materials on concrete
crossties. FEC owns 82 diesel electric locomotives, approximately 2,633 freight
cars, 1,141 trailer units for highway service, and as well as work equipment and
automotive vehicles.
ANRR owns a three-story building in Port St. Joe that is partially used for
its administrative offices. Its transportation facilities include 96 miles of
main track, 13 miles of yard switching track and 3 miles of other track. ANRR
owns 14 diesel locomotives, 273 freight cars, and as well as work equipment and
automotive vehicles.
ITEM 3. LEGAL PROCEEDINGS
The Company is named as a Potentially Responsible Party ("PRP") for the
remediation of a designated Superfund site near Tampa, Florida. The United
States Environmental Protection Agency ("USEPA") has alleged that the Company
caused certain materials to be disposed at the site over a period of years in
the late 1970s or 1980s. The Company has provided USEPA with certain evidence
indicating the Company did not dispose of any materials at the site. The Company
has declined an invitation to join a PRP group as a de minimis party. The
Company believes that it does not have any liability and continues to vigorously
oppose any attempt to impose any liability upon the Company for the remediation
of the site.
The Company received notice of potential involvement in a Superfund Site in
Sharonville, Ohio, during the third quarter of 1996. The site was formerly owned
and operated by the Company as a container plant. It was sold in the late
1970's. At this time the extent of the contamination and magnitude of the
cleanup is unknown. The Company does not believe, based on its preliminary
investigation of the Company's use of the property, that it is responsible for
the contamination, and if found partially responsible, the Company does not
believe its liability would be material.
FEC has also been named as a PRP at several USEPA Superfund Sites.
Compliance with federal, state and local laws and regulations is a
principal goal of St. Joe. The Company, through its subsidiaries, has entered
into a number of consent orders with state regulatory agencies to
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remediate certain identified sites. The Company continues to cooperate with
federal, state and local agencies to ensure its facilities are operated in
compliance with applicable environmental laws and regulations. The Company is
not aware of any monetary sanctions to be imposed, which, in the aggregate, are
likely to exceed $100,000, nor does it believe that corrections, if any, will
necessitate significant capital outlays or cause material changes in the
business.
From time to time, the Company is involved in litigation incidental to its
business. In the Company's opinion, no litigation to which the Company is
currently a party, if decided adversely to the Company, is likely to have a
material adverse effect on the Company's results of operation or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company had 1,263 common stockholders of record as of March 12, 1999.
The Company's Common Stock is quoted on the New York Stock Exchange ("NYSE")
Composite Transactions Tape under the symbol "JOE."
The range of high and low sales prices for the Common Stock as reported on
the NYSE Composite Transactions Tape for the periods indicated is set forth
below:
COMMON STOCK PRICE(1) HIGH LOW
- --------------------- ---- ---
1998
First Quarter............................................... $36 5/8 $30 1/8
Second Quarter.............................................. 34 1/8 26 15/16
Third Quarter............................................... 28 1/16 18 7/8
Fourth Quarter.............................................. 26 3/4 20
1997
First Quarter............................................... 31 21 1/16
Second Quarter.............................................. 28 1/4 23 5/16
Third Quarter............................................... 33 5/8 27
Fourth Quarter.............................................. 38 5/16 29 5/16
1996
First Quarter............................................... 20 3/4 17 15/16
Second Quarter.............................................. 21 15/16 19 5/16
Third Quarter............................................... 21 15/16 19 15/16
Fourth Quarter.............................................. 23 3/16 21 3/16
- ---------------
(1) Prices are rounded to the nearest 1/16th and reflect the 3-for-1 split of
the Company's Common Stock on January 12, 1998.
On March 12, 1999, the sale price of the Company's common stock on the NYSE
was $25 3/8.
DIVIDENDS
The Company paid aggregate annual cash dividends of approximately $.08 per
share to holders of the Common Stock in 1998, and $.07 in 1997 and 1996. In
addition, the Company distributed net proceeds of $3.33 per share to
stockholders of record on March 21, 1997 and $.34 per share to stockholders of
record on December 19, 1997, in each case arising from the sale of the Company's
linerboard and container facilities and its communications business. The Company
determined in February 1999 that it would be appropriate to change its practice
and pay dividends, if any, annually rather than quarterly. Although the Company
has historically paid quarterly cash dividends of approximately $.02 per share,
there can be no assurance that such practice will continue in the future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below are qualified in
their entirety by and should be read in conjunction with the consolidated
financial statements and the notes related thereto included elsewhere herein.
The statement of income data with respect to the years ended December 31, 1998,
1997, and 1996 and the balance sheet data as of December 31, 1998 and 1997 have
been derived from the financial statements of the Company included herein, which
have been audited by KPMG LLP. The statement of income data with respect to the
years ended December 31, 1995 and 1994 and the balance sheet data as of December
31, 1996, 1995 and 1994 have been derived from the financial statements of the
Company previously filed with the SEC, and have also been audited by KPMG LLP.
Historical results are not necessarily indicative of the results to be expected
in the future.
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
-------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
Total revenues (1)................................... $392,181 $296,977 $376,693 $277,377 $276,005
Operating expenses................................... 286,973 215,941 210,385 213,847 193,897
Corporate expense.................................... 6,569 6,514 (4,363) 3,052 2,465
Depreciation and amortization........................ 38,893 28,732 27,831 26,870 26,007
Impairment losses.................................... 10,238 -- -- -- --
-------- -------- -------- -------- --------
Operating profit..................................... 49,508 45,790 142,840 33,608 53,636
Other income......................................... 31,921 41,982 41,773 20,681 27,156
-------- -------- -------- -------- --------
Income from continuing operations before income taxes
and minority interest.............................. 81,429 87,772 184,613 54,289 80,792
Income tax expense................................... 36,180 37,971 79,311 20,209 30,273
-------- -------- -------- -------- --------
Income from continuing operations before minority
interest........................................... 45,249 49,801 105,302 34,080 50,519
Minority interest.................................... 19,117 18,401 14,002 12,194 15,827
-------- -------- -------- -------- --------
Income from continuing operations.................... 26,132 31,400 91,300 21,885 34,692
Income (loss) from discontinued operations (2)....... 2,706 4,053 (3,919) 51,933 7,417
Gain on sale of discontinued operations (2).......... -- -- 88,641 -- --
Net income........................................... $ 28,838 $ 35,453 $176,022 $ 73,819 $ 42,109
======== ======== ======== ======== ========
PER SHARE DATA:
Basic
Income from continuing operations.................... $ 0.29 $ 0.34 $ 0.99 $ 0.24 $ 0.38
Earnings (loss) from discontinued operations (2)..... 0.03 0.05 (0.04) 0.57 0.08
Gain on the sale of discontinued operations (2)...... -- -- 0.97 -- --
Net income........................................... $ 0.32 $ 0.39 $ 1.92 $ 0.81 $ 0.46
======== ======== ======== ======== ========
Diluted
Income from continuing operations.................... $ 0.28 .$ 0.34 $ 0.99 $ 0.24 $ 0.38
Earnings (loss) from discontinued operations (2)..... 0.03 0.04 (0.04) 0.57 0.08
Gain on the sale of discontinued operations (2)...... -- -- 0.97 -- --
Net income........................................... $ 0.31 $ 0.38 $ 1.92 $ 0.81 $ 0.46
======== ======== ======== ======== ========
Dividends paid....................................... 0.08 0.07 0.07 0.07 0.07
Special distribution (3)............................. -- 3.67 -- -- --
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YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
Cash and investments (4).................. 305,395 516,422 819,761 303,500 276,131
Investment in real estate................. 548,101 465,436 425,718 340,316 316,206
Property, plant & equipment, net.......... 358,916 350,072 363,483 418,049 392,594
Total assets.............................. 1,604,269 1,536,768 1,794,811 1,442,952 1,411,923
Total stockholders' equity................ 883,297 906,804 1,196,941 1,016,067 936,982
EBITDA (Gross) (5)........................ 136,428 120,578 110,259 164,776 107,572
EBITDA (Net) (5).......................... 91,960 82,040 78,382 134,508 72,905
- ---------------
(1) Total revenues includes real estate revenues from brokerage commissions on
sales of real estate, property sales, rental revenue and management service
fees, timber sales and transportation revenues. Net sales for 1996 included
two related one-time condemnation sales of land to the State of Florida in
exchange for $97.8 million in cash plus certain limited development rights.
Net operating results of the sugar segment, communications segment,
linerboard mill and container plants are shown separately as income (loss)
from discontinued operations for all years presented.
(2) Net operating results of the sugar segment, communications segment,
linerboard mill and container plants are shown separately as income (loss)
from discontinued operations for all years presented. (See Note 5 to the
Consolidated Financial Statements.)
(3) Approximately $359.3 million of proceeds from the sales of the
communications segment, linerboard mill and container plants were held in
special accounts during 1996. A special distribution of a portion of the net
proceeds of the sales of $3.33 per share was paid on March 25, 1997, for
stockholders of record on March 21, 1997. The Company made a special
distribution of the remaining net proceeds of $.34 per share on December 30,
1997 to stockholders of record on December 19, 1997.
(4) Includes cash, cash equivalents, marketable securities and short-term
investments.
(5) The Company uses a supplemental performance measure along with net income to
report its operating results. This measure is Earnings Before Interest,
Taxes, Depreciation and Amortization (EBITDA). 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, the Company believes that EBITDA provides relevant information
about its operations and along with net income, is useful in understanding
its operating results. Depreciation, amortization, interest expense and
income taxes are excluded from EBITDA (Gross) as well as gains on sales of
discontinued operations and gains on the sale of non-strategic land and
other assets. Earnings from discontinued operations have been included in
EBITDA (Gross). Impairment losses have been excluded from EBITDA. EBITDA
(Net) excludes 46% of FECI's and 26% of St. Joe/Arvida's, pre-tax income,
depreciation, amortization and interest representing the equity therein not
owned by St. Joe.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
Consolidated Financial Statements, Item 1. "Business," and Item 2. "Properties,"
included elsewhere herein. The following discussion contains forward-looking
statements. The Company's actual results may differ significantly from those
projected in the forward-looking statements.
OVERVIEW
The St. Joe Company is a diversified company engaged in the real estate,
forestry, transportation, and leisure and resort industries. During the fourth
quarter of 1998, the Company began treating its sugar operations as a
discontinued operation for accounting purposes. Until the second quarter of
1996, the Company was also engaged in communications and the manufacture and
distribution of paper products.
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23
The Company's assets and operations are concentrated in the state of
Florida. Consequently, the Company's performance, and particularly that of its
real estate operations, is significantly affected by the general health of the
Florida economy. The Company's businesses, particularly the forestry and
transportation segments, are also influenced by the general health of the
national economy. The Company's real estate operations are cyclical and are
affected by local demographic and general economic trends and the supply and
rate of absorption of new construction. Although the Company has a large
portfolio of income producing properties that provide stable operating results,
the Company's earnings from period to period may be significantly affected by
the nature and timing of sales of development property and non-strategic assets.
The Company recently underwent a number of important changes in the mix of
its businesses and its overall business strategy. In the first quarter of 1997,
the Company hired a new chairman and chief executive officer as well as several
other senior members of management with strong backgrounds in large-scale real
estate planning and development. Under the direction of this new management
team, the Company is focusing more closely on the development of its large land
portfolio. Management believes that the Company's increased focus on real estate
operations will result in a larger portion of the Company's overall revenues
being attributable to real estate operations. However, many of the Company's
proposed projects will require a lengthy process to complete the development
cycle before they are sold or otherwise generate revenue. Nevertheless,
management believes the Company's existing raw land portfolio will allow the
Company to maintain relatively low development costs and that its existing large
portfolio of income-producing properties, together with its other businesses,
will continue to generate cash to fund a significant portion of its longer-term
projects.
RECENT EVENTS
Consistent with the Company's plans to extract value from its non-strategic
assets, in March 1999, the Company announced its intentions to sell
approximately 800,000 acres of its timberlands and an auction process is
expected to begin in 1999 to sell the first 100,000 acres. The sale of
additional parcels, expected to be 100,000 acres each, will be grouped, sized
and timed in order to seek maximum value. A study commissioned by the Company
has identified these timberlands as having little real estate development
potential in the next 15 to 20 years. No assurance can be given that any of the
property can be sold at an acceptable price within an acceptable time period.
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 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 farm the land to the Sugar Companies. In return, the
lawsuit was dismissed and the other parties agreed to pay Talisman $19.0
million.
Talisman retains ownership of the sugar mill and is presently evaluating
the best manner to dispose of the mill. Talisman is responsible for the cleanup
of the mill site. Talisman is obligated to complete certain defined
environmental remediation (the "Remediation"). Approximately $5.0 million of the
purchase price will be held in escrow pending the completion of the Remediation.
Talisman must use its funds to pay the costs of the Remediation. Based upon the
current environmental studies. Talisman does not believe the costs of the
Remediation will exceed the amount held in escrow. Talisman will receive the
fund when all the Remediation is complete. In the event other environmental
matters are discovered, the Sugar Companies will be responsible for the first
$.5 million of the cleanup. Talisman will be responsible for the next $4.5
million, thereafter the parties shall share the costs equally.
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24
In addition, approximately $1.7 million is being held in escrow,
representing the value of the 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 estimated gain on the combined sale of the land and harvesting rights
is expected to be between $40.0 million to $45.0 million, after tax (unaudited),
subject to finalization of reserves and other adjustments.
RESULTS OF OPERATIONS
Results for 1998 Compared to 1997
The Company reports revenues from real estate transactions, timber sales,
and transportation operations. Real estate revenues are generated from brokerage
commissions from sales of real estate, property sales, rental revenues and
service fees from management of commercial properties. The Company also reports
its equity in earnings of unconsolidated affiliates as revenues. Revenues
increased $95.2 million, or 32.1% from $297.0 million in 1997 to $392.2 million
in 1998. All segments reported increased revenues when comparing 1998 to 1997.
Residential real estate services revenue generated since the acquisition of
Arvida Realty Services as of July 31, 1998 accounted for $79.3 million of this
increase. Commercial real estate revenues increased $3.1 million, or 4.6% as a
result of increased rents, placing new buildings in service and higher lease
rates on buildings already in service. Community residential real estate
revenues from property sales in 1998 increased $.8 million, or 17.0%.
Transportation revenues in 1998 were up $9.7 million, or 5.0% as a result of
increased shipments. Forestry revenues in 1998 increased $2.1 million, or 6.6%,
primarily from bulk land and timber sales. Resort and leisure was up $.2
million.
Operating expenses in 1998 for all segments totaled $287.0 million, an
increase of $71.1 million, or 32.9%, from $215.9 million in 1997. Operating
expenses in the residential real estate services business of Arvida Realty
Services since July 31, 1998 accounted for $73.4 million of the increase.
Residential real estate operating expenses in 1998 increased $6.8 million, or
over 100%. Commercial real estate operating expenses in 1998 decreased $1.6
million, or 3.9% due to the cost of sales on property in 1997. Transportation
operating expenses increased $1.2 million, less than 1%. Forestry operating
expenses in 1998 decreased $9.2 million, or 32.9%. Leisure and resort operating
expenses in 1998 increased $.5 million.
Corporate expense, which represents general and administrative expenses,
remained relatively stable at $6.5 million in 1998. Included in 1998 corporate
expense is prepaid pension income of $12.8 million compared to $10.7 million in
1997. This $2.1 million positive effect on corporate expense was offset by
comparative increases in corporate overhead. Included in the 1997 corporate
expense was $1.3 million of severance costs associated with an early retirement
program implemented that year. Additionally, costs incurred by the Company,
excluding costs expensed directly by FECI, related to corporate transaction
proposals involving FECI and the Company totaling approximately $2.0 million
were expensed in 1997.
Depreciation and amortization increased $10.2 million, or 35.5%, of which
$3.3 million pertained to amortization of goodwill resulting from acquisitions
and the remainder resulted from increased depreciation primarily from buildings
placed into service in 1998.
The Company recorded impairment losses totaling $10.2 million on certain
assets when it was determined that recoverability of their net carrying amount
was impaired. See Transportation Segment and Resort and Leisure Segment.
Other income decreased $10.1 million from $42.0 million in 1997 as a result
of uses of cash for other investment purposes, principally acquisitions of
Arvida Realty Services and Goodman Segar GVA, and the purchase of common shares.
In August 1998, the St. Joe Board of Directors authorized $150 million for
the purchase of outstanding common stock through open-market purchases. At the
end of 1998, the Company had expended $55.1 million of that authorization,
purchasing 2.6 million shares at an average share price of $21.40.
Income tax expense on continuing operations for 1998 totaled $36.2 million,
for an effective rate of 44.5% compared to income tax expense in 1997 totaling
$38.0 million, representing an effective rate of 43.3%. These
22
25
rates exceed statutory rates primarily because of the 50% excise tax on prepaid
pension cost totaling $ 6.4 million in 1998 and $5.4 million in 1997. The excise
tax on prepaid pension costs totaled $13.2 million in 1996. It is anticipated
that as long as the Company continues to record prepaid pension cost, an excise
tax of 50% will be accrued.
Net income for 1998 was $28.8 million, or $.31 per diluted share, compared
to $35.5 million, or $.38 per diluted share in 1997. Net income in 1996 totaled
$176.0 million, or $1.92 per diluted share. Results for 1996 included income
from discontinued operations of the mill and container companies of $84.1
million, net of tax, net income from the discontinued sugar operation of $.6
million, and condemnation proceeds, of $60.0 million, net of tax.
Results for 1997 Compared to 1996
Revenues decreased $79.7 million in 1997, or 21.1% from $376.7 million in
1996. Net sales in 1996 were unusually high due to two related condemnation
sales of land to the State of Florida in exchange for $97.8 million in cash plus
certain limited development rights. Sales of other residential real estate
increased $3.1 million, from $1.6 million in 1996. Commercial real estate
revenues increased $30.5 million, or 86.9%, from $35.1 million in 1996. Of this
increase, $26.0 million was attributable to increased property sales and $4.5
million was attributable to increased rental revenues. Forestry sales decreased
$25.0 million from $56.7 million in 1996 to $31.7 million in 1997 due primarily
to the FCP linerboard mill shutdown and lower sales under the supply agreement
with FCP. Transportation revenues increased $9.4 million, or 5.1% from $185.5
million, due to increased shipments.
Operating expenses for all segments increased $5.5 million in 1997, or 2.6%
from $210.4 million in 1996. Community residential real estate costs increased
$1.4 million. Commercial real estate expenses increased $26.2 million. Cost of
real estate sales comprised $22.6 million of this increase. Increased operating
costs on rental revenues comprised the remaining $3.6 million increase. Forestry
operating expenses decreased $24.9 million, or 47% as a result of reduced timber
sales and lower cost of sales. Transportation costs increased $2.8 million, or
2.0%.
Corporate expense in 1997 was $6.5 million, an increase of $10.9 million,
compared to 1996. Changes in senior management and increases in staffing to
refocus the direction of the Company were the primary causes of such an
increase, as well as the severance costs and corporate transaction expenses
previously mentioned. Partially offsetting these corporate costs in 1997 is
prepaid pension income of approximately $10.7 million in 1997 versus prepaid
pension income in 1996 of $5.5 million.
Depreciation and amortization increased $.9 million, or 3.2%, from 1996 to
1997.
Other income increased $.2 million in 1997, less than 1% from $41.8 million
in 1996 due to gains on sales and dispositions of assets offset by a decrease in
interest income as a result of lower invested balances during 1997. Invested
balances decreased in 1997 because of distributions to stockholders of $3.67 per
share during the year.
Income tax expense in 1997 totaled $38.0 million in 1997, representing an
effective rate of 43.3% compared to $79.3 million for an effective statutory
rate of 43.0% in 1996.
Net income for 1997 was $35.5 million, or $.38 per diluted share compared
to net income in 1996 of $176.0 million, or $1.92 per diluted share. Results for
1996 included income from discontinued operations of the mill and container
companies of $84.1 million, net of tax, net income from the discontinued sugar
operation of $.6 million, and condemnation proceeds, of $60.0 million, net of
tax.
DISCONTINUED OPERATIONS
As a result of the sale of Talisman in March 1999, sugar operations are reported
as a discontinued operation for all periods presented. Revenues for sugar
decreased $8.3 million, or 16.8% from $49.3 million in 1997 primarily due to
timing of shipments. Operating expenses decreased $5.6 million, or 13.7% from
$40.8 million in 1997. Operating expenses as a percentage of revenues increased
from 82.8% to 85.9% as a result of higher
23
26
harvesting costs in 1998. Net income for 1998 was $2.7 million as compared to
$4.1 million in 1997. Revenues for sugar in 1997 decreased $5.2 million, or 9.5%
as compared to 1996 due to fewer tons shipped. Operating costs as a percentage
of revenues decreased from 87.3% in 1996 to 82.8% in 1997. The 1996 operating
expenses were unusually high due to the spending of $2.5 million on advertising
and public relations costs related to the opposition and defeat of the proposed
Florida sugar sales tax referendum in 1996.
Residential Real Estate Services
YEARS ENDED
DECEMBER 31,
---------------------
1998 1997 1996
----- ----- -----
($ IN MILLIONS)
Revenues.................................................... $79.3 -- --
Operating expenses.......................................... 73.4 -- --
Depreciation and amortization............................... 2.2 -- --
Other income (expense)...................................... .2 -- --
Pre-tax income from continuing operations................... 3.8 -- --
EBITDA, Gross............................................... 6.4 -- --
On July 31, 1998, the company completed the acquisition of Prudential
Florida Realty ("PFR"). PFR provides complete real estate brokerage services,
including, asset management, rental, property management, property inspection,
mortgage, relocation and title services. In early 1999, this operation's name
was changed to Arvida Realty Services.
Realty brokerage net sales and operating revenues of $79.3 million since
August 1, 1998 are attributable to 13,236 closed real estate transaction sales,
representing $2.2 billion of sales volume, 4,402 title policies issued and
$152.4 million of mortgage loans originated representing 1,349 units. Operating
expenses of $73.4 million are attributable to commissions paid on real estate
transactions and underwriting fees on title policies.
Community Residential Real Estate
YEARS ENDED
DECEMBER 31,
-------------------
1998 1997 1996
---- ---- -----
($ IN MILLIONS)
Revenues.................................................... $5.5 $4.7 $99.4
Operating expenses.......................................... 10.3 3.5 2.1
Depreciation and amortization............................... .2 .2 .1
Other income (expense)...................................... (.1) -- --
Pre-tax income from continuing operations................... (5.1) 1.0 97.2
EBITDA, Gross............................................... (4.9) 1.2 97.3
Results for 1998 compared to 1997
On November 12, 1997, the Company, through two subsidiaries, purchased
certain assets, including the personnel, trademark and proprietary information
systems, of Arvida Company through a newly formed limited partnership with JMB
Southeast Development, L.L.C. and JMB Southeast Development, L.P. for the
purpose of developing and/or managing residential communities on certain lands
owned by the Company, as well as the purchase of other lands for development and
management. The Company owns 74% of the new limited partnership, St. Joe/Arvida
Company, L.P. ("St. Joe/Arvida")
In December, 1998, the Company purchased a 26% interest in Arvida/JMB
Partners, L.P., ("Arvida/JMB") for $46 million. Arvida/JMB is currently
developing five residential communities located in Florida, Georgia and North
Carolina. The Company will record net earnings of this investment under the
equity method.
24
27
The Company's residential real estate operations currently consist of
community residential development through St. Joe/Arvida and equity in its
Arvida/JMB investment. Total revenues increased $.8 million, or 17.0%, from $4.7
million in 1997. Revenues from real estate sales for 1998 totaled $5.0 million,
an increase of $.6 million, or 13.6% as compared to $4.4 million in 1997. Cost
of real estate sales was $1.3 million for 1998 and 1997, respectively. During
1998, the Company sold 40 lots, located in the Summerwood, Camp Creek, Deerwood
and Woods Phase III developments, all of which are communities in west Florida.
Revenues of $.5 million were also generated from management fees and rental
income in 1998 as compared to $.2 million in 1997.
Other operating expenses were $9.0 million, an increase of $6.8 million
from 1997, greater than 100%, due to non-capitalized start-up costs and internal
overhead related to the development activity in west Florida previously
discussed.
Results for 1997 compared to 1996
Total revenues decreased $94.7 million from $99.4 million in 1997. Real
estate sales decreased $94.8 million, from $99.4 million in 1996. Cost of real
estate sales increased $.9 million, from $.4 million in 1996 to $1.3 million in
1997. The decrease in sales was largely due to two related condemnation sales of
land to the State of Florida in 1996 for $97.8 million in cash plus certain
limited development rights. Costs associated with these sales were $.1 million.
Other revenues, generated mostly from rental revenues were $.2 million in 1997
compared to $.1 million in 1996.
Commercial Real Estate
YEARS ENDED
DECEMBER 31,
--------------------
1998 1997 1996
----- ---- -----
($ IN MILLIONS)
Revenues.................................................... $68.7 65.7 $35.1
Operating expenses.......................................... 39.7 41.3 15.1
Depreciation and amortization............................... 13.1 8.2 7.7
Other income (expense)...................................... .3 (.4) --
Pre-tax income from continuing operations................... 16.2 15.8 12.3
EBITDA, Gross............................................... 29.5 21.4 17.5
Results for 1998 compared to 1997
Rental revenues comprised $45.0 million of total commercial revenues in
1998, an increase of $6.4 million, or 16.6% compared to 1997. The increase in
rental revenues for 1998 was caused by a $2.6 million increase in rental rates,
a $3.0 million increase in related occupancy and $2.0 million generated from new
buildings placed into service since 1997. Partially offsetting these increases
were reductions in revenues due to net reductions in rent recoverable from
tenants. Operating expenses on rental revenues, excluding depreciation, were
$17.8 million as compared to $15.1 million in 1997, an increase of $2.7 million,
or 17.9% mostly attributable to increased expenses including management expenses
and increased property taxes on existing buildings. New buildings placed into
service since last year contributed an additional $.8 million in operating
expenses.
Revenues from sales of land and buildings totaled $8.0 million, a decrease
of $18.9 million, as compared to $26.9 million in 1997. Total cost of sales in
1998 was $2.6 million as compared to $22.6 million in 1997.
Commercial real estate services revenues generated by Goodman Segar GVA
since its acquisition in September, 1998 totaled $14.5 million. Costs associated
with these fees totaled $9.5 million.
Equity in earnings of unconsolidated subsidiaries, consisting of the
Company's investments in Codina, Deerfield and CNL, totaled $1.2 million in 1998
as compared to $.1 million in 1997.
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28
General and administrative expenses for the commercial/industrial segment,
which are included in operating expenses, totaled $9.8 million, an increase of
$6.1 million, greater than 100%, from $3.7 million in 1997. Expenses associated
with Goodman Segar GVA accounted for $4.0 million of this increase. The
remaining $2.0 million represents increased asset management costs.
Depreciation and amortization increased $4.9 million, or 60.0% to $13.1
million from $8.2 million in 1997 due to new buildings placed in service.
During 1998, five office, and office/showroom/warehouse buildings were
placed in service, adding 610,000 leasable square feet. Three of these buildings
were located in Jacksonville, Florida and two were located in Orlando, Florida.
As of December 31, 1998 there are 66 operating buildings with total rentable
square footage of 6,223,000 square feet. Occupancy levels overall are at an
average of 87% compared to 82% at December 31, 1997. Under construction at
December 31, 1998 is 1.3 million square feet of office and industrial space
located in Florida and Texas. Additionally, approximately .4 million square feet
is in the predevelopment stage and are expected to commence construction in the
first quarter of 1999.
Results for 1997 Compared to 1996
Rental revenues comprised $38.6 million of total segment revenues, an
increase of $4.5 million, or 13.2%, from $34.1 million in 1996. Operating
expenses attributable to rental revenues were $18.8 million, an increase of
24.5% compared to $15.1 million in 1996. The increase in expenses in 1997 was
primarily due to additional property taxes on new buildings placed in service in
1997 and additional operating and management costs. Depreciation and
amortization was $8.2 million, or $.5 million higher than in 1997 due to new
buildings placed into service.
During 1997 eight buildings were placed in service adding approximately
973,000 leasable square feet. In 1997, land and building sales totaled $26.9
million and included three buildings, totaling $20.1 million, one of which was
developed and constructed specifically for the purpose of resale. The total cost
of land and building sales was $22.6 million in 1997. At December 31,1997, GCC
had 59 buildings in service with approximately 5.6 million square feet of
rentable space. At December 31, 1996 GCC had 55 commercial/industrial buildings
in service with approximately 4.7 million square feet of rentable space.
Forestry
YEARS ENDED
DECEMBER 31,
---------------------
1998 1997 1996
----- ----- -----
($ IN MILLIONS)
Revenues.................................................... $33.8 $31.7 $56.7
Operating expenses.......................................... 18.8 28.0 52.9
Depreciation and amortization............................... 2.4 1.4 1.5
Other income (expense)...................................... 2.2 4.4 2.1
Pre-tax income from continuing operations................... 14.8 6.7 4.4
EBITDA, Gross............................................... 17.1 6.3 5.6
Results for 1998 compared to 1997
Total timber revenues increased $2.1 million, or 6.6 %, from $31.7 million
in 1997 to $33.8 million in 1998. Bulk land and timber sales were $2.8 million
in 1998. Total sales to FCP were $19.1 million in 1998 compared to $20.6 million
in 1997. Since August 1998 the FCP mill has been shutdown, and there is no
indication when it will reopen. Under the terms and conditions of the amended
fiber supply agreement with FCP, the Company began redirecting the volumes of
pulpwood from the FCP mill in Port St. Joe to another mill, resuming sales of
pulpwood in November 1998. Sales to other customers totaled $12.0 million
(474,085 tons) in 1998 compared to $11.1 million (409,912 tons) in 1997. Sales
to other customers were higher this year as the Company experienced more lump
sum bid timber sales due to increased demand in the first quarter of 1998.
26
29
Cost of timber sales, excluding depletion, decreased $8.5 million, or 32.9%
from $25.8 million in 1997 to $17.3 million in 1998. Cost of sales as a
percentage of sales was 51.2% in 1998 compared to 81.4 % in 1997 due primarily
to bulk land sales with a low basis and less timber being purchased from outside
sources. The Company procured approximately 13,700 tons of wood in 1998 to
fulfill the requirements of its timber supply agreement with FCP compared to
180,477 tons in 1997. The cost of sales of procured wood was approximately
$30/ton in 1998 and in 1997. Cost of sales of timber grown on Company land and
sold to FCP decreased by $5/ton to approximately $21/ton as a result of a
different product mix of sales to FCP, shifting from chips to pulpwood. The cost
of sales for timber sold to other customers also decreased this year due to
sales of bid timber, which do not require cutting and hauling. Cost of sales on
sales to other customers was $10/ton, which was approximately $8/ton less than
last year.
Other general operating expenses were $2.3 million, relatively consistent
with 1997. General operating expenses in 1997 included $.5 million of
nonrecurring expenses related to severance payments made to terminated
employees. Included in 1998 is a nonrecurring payment of $.4 million for
settlement of property tax litigation.
Other income for 1998 and 1997 was derived primarily from various land
leases, such as hunting leases, not related to the sale of timber. Other income
in 1997 also included $1.8 million from gains on sales of machinery and
equipment.
Results for 1997 compared to 1996
Total timber revenues decreased $25.0 million, or 44.1%, from $56.7 million
in 1996 to $31.7 million in 1997. This decrease is attributable to a FCP
linerboard mill shutdown which lasted from April 1997 through September 1997 and
to decreased sales as a result of the renegotiated terms of the wood fiber
supply agreement with FCP. Cost of sales decreased 48.2% from $52.4 million in
1996 to $27.1 million in 1997 due to declining sales. Cost of sales as a
percentage of sales also improved because the Company sold more timber grown by
it with higher margins and less procured wood. General operating costs increased
$.4 million from $1.9 million in 1996 to $2.3 million in 1997 primarily due to
severance payments of approximately $1.2 million paid to 62 terminated
employees, offset by reductions in ongoing staffing levels.
On August 25, 1997, the Company renegotiated certain terms of its wood
fiber supply agreement with FCP. Under the new agreement, the Company will
supply 700,000 tons per year from May 30, 1998 through December, 2011 with two
five-year renewal periods at the option of FCP. Under the previous agreement, up
to 1.6 million tons per year were to be provided to FCP.
Transportation
YEARS ENDED
DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
($ IN MILLIONS)
Revenues.................................................... $204.7 $195.0 $185.5
Operating expenses.......................................... 144.2 143.0 140.2
Depreciation and amortization............................... 18.8 18.6 18.5
Impairment loss............................................. 8.0 -- --
Other income (expense)...................................... .8 2.8 2.0
Pre-tax income from continuing operations................... 34.5 36.2 28.8
EBITDA, Gross............................................... 61.0 55.9 47.6
The Company's transportation operations consist of Florida East Coast
Railway Company ("FEC"), Apalachicola Northern Railroad Company ("ANRR") and
International Transit, Inc. ("ITI").
Results for 1998 compared to 1997
Operating revenues in the transportation segment were $204.7 million in
1998, an increase of $9.7 million, or 5.0 % compared to 1997. Total FEC
transportation operating revenues were $194.8 million, an
27
30
increase of $9.8 million from $185.0 million in 1997. Approximately $3.8 million
of this increase was attributable to fiber optic income, which includes a $3.0
million gain recognized in the second quarter of 1998 related to a non-monetary
exchange negotiated with Williams Network in which FEC received the right to
control 36 fiber optic communications fibers along FEC's right-of-way, in
exchange for the surrender of certain future operating lease payments. The rail
segment of FEC contributed a $3.0 million increase in revenues compared to 1997
and the trucking segment contributed a $2.9 million increase. The increase in
rail revenues was primarily attributed to an 11.1% increase in shipments of
aggregate products and a 24.5% increase in automobile carload traffic caused by
a robust Florida economy. This was offset by a 4.8% decrease in shipments of
intermodal traffic and other types of carload traffic.
ANRR's transportation revenues remained relatively constant at $9.9 million
during 1998. As previously discussed, the FCP mill shut down again in August
1998. In addition, ANRR's largest customer, Seminole Electric Cooperative, Inc,
halted shipments of coal in January 1999, and filed a lawsuit in circuit court
in Gulf County, Florida, seeking to terminate its contract with ANRR to provide
transportation of coal from Port. St. Joe to Chattahoochee, Florida. Although
the contract between ANRR and Seminole extends until November 2004, Seminole has
asked the court to terminate the agreement with ANRR. ANRR has fully performed
its obligations under the contract and is prepared to complete the contract
term. ANRR's workforce has been reduced significantly, commensurate with its
loss of traffic, but the railroad intends to operate a minimal schedule
sufficient to provide service to existing customers.
Overall operating expenses increased to $144.2 million, a $1.2 million
increase, less than 1%, from $143.0 million in 1997. Transportation expenses
related to FEC increased $1.5 million, ANRR transportation expenses decreased
$.1 million and general and administrative expenses decreased $.2 million. The
increase in FEC's transportation expenses primarily relates to increases in
repair and maintenance cost, train operations cost and ancillary transportation
services offset by decreases in fuel expense of approximately $2.1 million.
As a result of the uncertainty surrounding future operations of ANRR,
management has determined that the existing carrying value of ANRR's net assets
should be reduced by approximately $8.0 million to management's estimate of fair
value, and accordingly, an impairment loss totaling that amount has been
recorded in the fourth quarter of 1998.
Results for 1997 compared to 1996
Revenues in the transportation segment were $195.0 million in 1997, an
increase of 5.1% over 1996 operating revenue of $185.6 million. Total FEC
transportation operating revenues increased $12.0 million, or 6.9%, from $173.0
million in 1996 to $185.0 million in 1997. This increase was attributable to
significant increases in shipments of rock, intermodal and carload traffic
handled in 1997 versus 1996. Traffic increased by approximately 35,600
shipments, or 7.8%, in 1997, reflecting the strong Florida economy. ANRR's
operating revenues were $10.0 million in 1997, $2.5 million lower than in 1996
due to the five-month shutdown of the FCP linerboard mill, its largest customer.
Operating expenses for this segment were $143.0 million, $2.8 million, or 2%
higher than in 1996 as a result of a $2.5 million decrease in casualty insurance
costs and overall reductions in operating expenses. Casualty and insurance costs
in 1996 included an accrual for an adverse legal judgment against the Company of
approximately $2.2 million, which was subsequently reversed on appeal in 1997.
General operating expenses in 1997 included special charges of $3.5 million for
expenses concerning the various proposals from the Company regarding FECI.
28
31
Resort and Leisure
YEARS ENDED
DECEMBER 31,
-------------------
1998 1997 1996
----- ---- ----
Total revenues.............................................. $ .2 $ -- --
Operating expenses.......................................... .7 .1 --
Depreciation and amortization............................... -- -- --
Impairment loss............................................. 2.2 -- --
Other income(expense)....................................... -- -- --
Pre-tax income from operations.............................. (2.7) (.1) --
EBITDA, Gross............................................... (.3) -- --
The resorts and leisure segment continues to work on land planning and
concept designs for hotel and beach club facilities on the Company's beachfront
property in west Florida. In January 1999, the Company sold its golf management
operation for a loss of $2.2 million, which was recorded as an impairment loss
in 1998.
FINANCIAL POSITION AND CAPITAL RESOURCES
Total cash and cash equivalents decreased 75.3% from $158.5 million at
December 31, 1997 to $39.1 million at December 31, 1998 primarily as a result of
investments in business acquisitions and joint ventures totaling $148.9 million
and repurchase of common stock, net of reissuances, totaling $54.5 million. The
Company also made capital expenditures for real estate and property, plant and
equipment totaling $135.1 million. These expenditures were primarily funded from
operations and existing investments. Total unrestricted cash, cash equivalents,
short-term investments and marketable securities were $305.4 million at December
31, 1998.
Stockholders' equity at December 31, 1998 was $9.90 per share, an increase
of $.01 per share from December 31, 1997. The increase in stockholders' equity
attributable to net income of $28.8 million and other accumulated comprehensive
income of $8.6 million, was offset by the repurchase of common stock and payment
of dividends.
The Company has historically not incurred debt in the development of its
various real estate projects or for other expenditures, funding instead from
internally generated cash flows. However, as the Company moves forward, debt may
be incurred in those situations where the use of financing leverage is deemed
appropriate. On March 10, 1999, the Company established a revolving line of
credit with Bankers Trust for $65 million to be used for working capital
purposes. The revolving line of credit bears interest at LIBOR plus 50 basis
points and matures on January 14, 2000. As of March 15, 1999 there was
approximately $50 million available under this revolving line of credit.
YEAR 2000 COMPLIANCE
The Company has created a Year 2000 Project Team to address potential
problems within the Company's operations which could result from the century
change in the Year 2000. The project team is led by the Senior Vice President of
Finance and consists of representatives of the Company's Information Systems
Departments or financial departments for each subsidiary, and has access to key
associates in all areas of the Company's operations. The project team has used
and continues to use outside consultants on an as-needed basis.
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;
29
32
(2) a Remediation Phase to repair or replace components to enable them
to successfully transition to the Year 2000;
(3) a Test Phase to test components after remediation to verify that
the Remediation Phase was successful;
(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 95%,
65%, 45%, 40% and 30% complete, and that all critical systems will be Year 2000
Ready by the end of 1999.
The Company expects to spend up to $1.0 million to address and modify Year
2000 problems, excluding FECI. Approximately $.21 million has been spent by the
Company through December 31, 1998.
As a part of the Year 2000 review, the Company is examining its
relationships with certain key outside vendors and others with whom it has
significant business relationships to determine to the extent practical the
degree of such parties' Year 2000 compliance. The Company has received or is
seeking assurance from several third party vendors that they are or will be Year
2000 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.
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.
The Company has been advised by FECI that its Year 2000 Project efforts are
proceeding on schedule and it anticipates that all "mission critical" systems
should be Year 2000 capable by the third quarter of 1999.
FECI expects to spend approximately $7.2 million for its Year 2000 effort
of which approximately one half has been committed or already expended through
December 31, 1998. FECI has informed St. Joe that the Year 2000 problem is not
expected to materially affect its day-to-day operations, nor will it adversely
affect its financial position or results of operations. FECI has informed St.
Joe that it believes its Year 2000 planning effort is adequate to address all
major risks. FECI has implemented reasonable measures, engaged experienced Year
2000 consultants and personnel, and established a high level of awareness
concerning Year 2000 issues. FECI believes that it has provided an environment,
which will enable it to adequately review and update its systems to become Year
2000 ready by the end of 1999.
ITEM 7A. MARKET RISK
The Company is exposed to the impact of interest rate changes and changes
in the market value of its investments.
POLICIES AND PROCEDURES
In the normal course of business, the Company follows established policies
and procedures to manage its exposure to changes in interest rates and
fluctuations in the value of its marketable securities.
30
33
The Company's objective in managing its exposure to interest rate changes
is to limit the impact of interest rate changes on earnings and cash flow. To
achieve this objective, the Company invests primarily in low risk short-term
fixed income securities.
The Company's objective in managing its exposure to market value changes is
to limit the impact of market value changes on its marketable securities. To
achieve this objective, the Company has entered into a series of put and call
options on its equity securities. The cost of the purchased put is offset by the
premium earned on the sold calls. This hedging strategy creates an equity collar
that locks in the market value of the equity securities within a specified
range.
It is the Company's policy to enter into hedging transactions only to the
extent considered necessary to meet its objectives stated above. The Company
does not enter into any such transactions for speculative purposes.
QUANTITATIVE DISCLOSURES
The table below presents principal amounts and related weighted average
interest rates by year of maturity for the Company's investment portfolio. The
weighted average interest rates for the various fixed rate investments are based
on the actual rates as of December 31, 1998.
EXPECTED CONTRACTUAL MATURITIES
--------------------------------------------- FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
------- ------ ------- ------- ------ ---------- ------- -------
(IN THOUSANDS)
Short-term Investments
Trading:
Tax Exempt Municipal Bonds......... $19,253 $2,724 $12,850 $ -- $ -- $ -- $34,827 $34,765
Wtd. Avg. Interest Rate.......... 4.18% 5.69% 6.22% 5.05%
Available-For-Sale:
Commercial Paper................... 17,613 17,613 17,613
Wtd. Avg. Interest Rate.......... 4.85% 4.85%
Tax Exempt Municipal Bonds......... 12,811 12,811 12,817
Wtd. Avg. Interest Rate.......... 3.65% 3.65%
Other Investments
Available-For-Sale:
U.S. Government Securities......... 1,000 2,000 600 3,600 3,707
Wtd. Avg. Interest Rate.......... 6.63% 7.04% 7.25% 6.96%
Tax Exempt Municipal Bonds......... 4,557 10,582 13,721 3,569 16,776 49,205 50,791
Wtd. Avg. Interest Rate.......... 5.00% 5.47% 5.78% 5.81% 7.25% 5.62%
Equity Securities and Options...... 1,681 143,976
Other Debt Securities.............. 2,062 2,062 2,528
Wtd. Avg. Interest Rate.......... 5.00% 5.00%
As the table incorporates only those exposures that exist as of December
31, 1998, it does not consider exposures or positions that could arise after
that date. As a result, the Company's ultimate realized gain or loss will depend
on future changes in interest rate and market values.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements on page F-2 to F-24, inclusive and the Independent
Auditors' Report on page F-1 are filed as part of this Report and incorporated
herein by reference thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
31
34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the definitive proxy statement involving the
election of directors in connection with the Annual Meeting of Stockholders of
St. Joe to be held on May 11,1999 (the "Proxy Statement"), which section is
incorporated herein by reference. The Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1998, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be set forth in the sections
entitled "Executive Compensation" in the Proxy Statement, which sections are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information to be set forth in the sections
entitled "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock
Ownership of Management" in the Proxy Statement, which sections are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth in the section entitled
"Certain Transactions" in the Proxy Statement, which section is incorporated
herein by reference.
32
35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to Financial
Statements and Financial Statement Schedules and Independent Auditors'
Report are filed as part of this Report.
2. Financial Statement Schedules
The financial statement schedules and Independent Auditors' Report
listed in the accompanying Index to Financial Statements and Financial
Statement schedules are filed as part of this report.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as
part of this Report.
(B) Reports on Form 8-K
None
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Item 14(A) 1. And 2.
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Income........................... F-3
Consolidated Statements of Changes in Stockholders'
Equity.................................................... F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6
Independent Auditors' Report - Financial Statement
Schedules................................................. S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
Schedule III -- Real Estate and Accumulated Depreciation.... S-3
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission on the
schedule or because the information required is included in the Consolidated
Financial Statements, and the Notes to the Consolidated Financial Statements.
33
36
INDEX TO EXHIBITS
EXHIBIT
NUMBER
- -------
2.01 -- Limited Partnership Agreement of St. Joe/Arvida Company,
L.P. (incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424 (b))
2.02 -- Agreement of Limited Partnership of St. Joe/CNL Development,
Ltd. (incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424 (b))
2.03 -- Stock Purchase Agreement dated as of September 1, 1995
between St. Joe Industries Inc. and TPG Communications, Inc.
(incorporated herein by reference to Exhibits filed with The
Registrant's Quarterly Report on Form 10-Q for the third
quarter ended September 30, 1995)
2.04 -- Asset Purchase Agreement dated as of November 1, 1995 by and
among St. Joe Forest Products Company, St. Joe Container
Company and St. Joe Paper Company, on the one Hand and Four
M Corporation and St. Joe Paper company in the other hand
(the "Asset Purchase Agreement") (incorporated herein by
reference and Exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the third quarter ended September
30, 1995)
2.05 -- Amendments dated December 14, 1995; December 20, 1995;
January 10, 1996 and January 12, 1996 to the Asset Purchase
Agreement (incorporated herein by reference to the
Registrant's Proxy Statement for the Special Meeting of
Stockholders on April 24, 1996)
2.06 -- Agreement for Purchase and Sale of Assets and Stock between
St. Joe Real Estate Services, Inc. et.al. and CMT Holding,
Ltd. (incorporated herein by reference to Exhibits filed in
the Registrant's Quarterly Report on Form 10-Q for the
second quarter ended June 30, 1998)
2.07 -- Purchase Agreement by and among Dominion Capital, Inc.,
Goodman-Segar-Hogan-Hoffler, Inc et.al. and St. Joe
Commercial Property Services, Inc dated September 24, 1998
(incorporated herein by reference to Exhibits filed in the
Registrant's Quarterly Report on Form 10-Q for the third
quarter ended September 30, 1998)
2.08 -- Purchase and Sale Agreement by and between Talisman Sugar
Corporation and The Nature Conservancy*
2.09 -- Credit Agreement among St. Joe Capital I, Inc. and Bankers
Trust Company dated March 9, 1999*
3.01 -- Articles of Incorporation, as amended (incorporated herein
by reference to Exhibits filed with the Company's Prospectus
filed February 11, 1998 under Rule 424 (b))
3.02 -- Articles of Amendment dated January 8, 1998 (incorporated
herein by reference to Exhibits filed with the Company's
Prospectus filed February 11, 1998 under Rule 424 (b)
3.03 -- Amended and Restated Bylaws dated February 23, 1999*
3.04 -- Restated and Amended Articles of Incorporation of the St.
Joe Company dated May 12, 1998 (incorporated herein by
reference to Exhibits filed in the Registrant's Quarterly
Report on Form 10-Q for the first quarter ended March 31,
1998
4.01 -- Registration Rights Agreement between the Registrant and the
Alfred I. DuPont Testamentary Trust, dated December 16, 1997
(incorporated herein by reference to Exhibits filed with the
Company's Prospectus filed February 11, 1998 under Rule 424
(b))
10.01 -- Employment Agreement of Peter Rummell, dated January 7,
1997(incorporated herein by reference to Exhibits filed with
the Company's Prospectus filed February 11, 1998 under Rule
424 (b))
10.02 -- Employment Agreement of Robert M. Rhodes, dated November 5,
1997 (incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424 (b))
34
37
EXHIBIT
NUMBER
- -------
10.03 -- Employment Agreement of J. Malcolm Jones, dated February 26,
1997 (incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424 (b))
10.04 -- Employment Agreement of Michael F. Bayer, dated February 1,
1997 (incorporated herein by reference to Exhibits filed
with the Company's Prospectus filed February 11, 1998 under
Rule 424 (b))
10.05 -- Form of Severance Agreement (incorporated herein by
reference to Exhibits filed with the Company's Prospectus
filed February 11, 1998 under Rule 424 (b))
10.06 -- Employment Agreement of Kevin M. Twomey, dated January 27,
1999*
21.01 -- Subsidiaries of The St. Joe Company*
23.01 -- Consent of Independent Accountants*
27.01 -- Financial Data Schedule (for SEC use only)*
99.01 -- Supplemental Calculation of Selected Consolidated Financial
Data*
- ---------------
* Filed herewith
35
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: KEVIN M. TWOMEY
------------------------------------
Kevin M. Twomey
President, Chief Financial Officer
(Principal Financial Officer)
Date: March 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 1999.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ PETER S. RUMMELL Chairman of the Board, Chief March 25, 1999
- ------------------------------------- Executive Officer
Peter S. Rummell
/S/ KEVIN M. TWOMEY President, Chief Financial Officer March 25, 1999
- ------------------------------------- (Principal Financial Officer)
Kevin M. Twomey
/S/ JANNA L. CONNOLLY Controller March 25, 1999
- -------------------------------------
Janna L. Connolly
/S/ MICHAEL L. AINSLIE Director March 25, 1999
- -------------------------------------
Michael L Ainslie
/S/ JACOB C. BELIN Director March 25, 1999
- -------------------------------------
Jacob C. Belin
/S/ RUSSELL B. NEWTON, JR. Director March 25, 1999
- -------------------------------------
Russell B. Newton, Jr.
/S/ JOHN J. QUINDLEN Director March 25, 1999
- -------------------------------------
John J. Quindlen
/S/ WALTER L. REVELL Director March 25, 1999
- -------------------------------------
Walter L. Revell
/S/ FRANK S. SHAW, JR. Director March 25, 1999
- -------------------------------------
Frank S. Shaw, Jr.
/S/ WINFRED L. THORNTON Director March 25, 1999
- -------------------------------------
Winfred L. Thornton
/S/ JOHN D. UIBLE Director March 25, 1999
- -------------------------------------
John D. Uible
36
39
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The St. Joe Company:
We have audited the accompanying consolidated balance sheets of The St. Joe
Company and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The St. Joe
Company and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Jacksonville, Florida
February 23, 1999
F-1
40
THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 39,108 $ 158,478
Short-term investments.................................... 65,285 51,034
Accounts receivable....................................... 38,691 40,108
Inventory................................................. 11,006 12,382
Other assets.............................................. 13,234 8,563
---------- ----------
Total current assets.............................. 167,324 270,565
INVESTMENTS AND OTHER ASSETS:
Marketable securities..................................... 201,002 306,910
Prepaid pension asset..................................... 53,683 40,861
Other assets.............................................. 9,301 7,995
Investment in unconsolidated affiliates................... 70,235 7,200
Goodwill.................................................. 123,389 12,954
Net assets of discontinued operations..................... 72,318 74,775
---------- ----------
Total investments and other assets................ 529,928 450,695
Investment in real estate................................... 548,101 465,436
Property, plant & equipment, net............................ 358,916 350,072
---------- ----------
Total assets...................................... $1,604,269 $1,536,768
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 26,497 $ 13,676
Accrued liabilities....................................... 43,173 29,730
Income tax (receivable) payable........................... (1,212) 2,150
Current portion of long-term debt......................... 24,953 --
---------- ----------
Total current liabilities......................... 93,411 45,556
Reserves and other liabilities.............................. 11,946 13,643
Deferred income taxes....................................... 289,359 272,299
Long-term debt.............................................. 9,947 --
Minority interest in consolidated subsidiaries.............. 316,309 298,466
Commitments and contingencies (Notes 10, 15)
---------- ----------
Total liabilities................................. 720,972 629,964
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 180,000,000 shares authorized;
91,697,811 issued at December 31, 1998 and 1997........ 13,054 13,054
Retained earnings......................................... 839,227 817,663
Accumulated other comprehensive income.................... 88,200 79,559
Restricted stock deferred compensation.................... (2,604) (3,472)
Treasury stock at cost, 2,543,590 shares held at December
31, 1998............................................... (54,580) --
---------- ----------
Total stockholders' equity........................ 883,297 906,804
---------- ----------
Total liabilities and stockholders' equity........ $1,604,269 $1,536,768
========== ==========
See notes to consolidated financial statements.
F-2
41
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
Total revenues.............................................. $392,181 $296,977 $376,693
-------- -------- --------
Expenses
Operating expenses........................................ 286,973 215,941 210,384
Corporate expense, net.................................... 6,569 6,514 (4,363)
Depreciation and amortization............................. 38,893 28,732 27,831
Impairment losses......................................... 10,238 -- --
-------- -------- --------
Total expenses.................................... 342,673 251,187 233,853
-------- -------- --------
Operating profit.................................. 49,508 45,790 142,840
-------- -------- --------
Other income (expense)
Investment income......................................... 20,118 30,695 33,317
Gains on sales and other dispositions of assets........... 2,441 4,438 3,423
Other, net................................................ 9,362 6,849 5,033
-------- -------- --------
Total other income................................ 31,921 41,982 41,773
-------- -------- --------
Income from continuing operations before income taxes and
minority interest......................................... 81,429 87,772 184,613
-------- -------- --------
Income tax expense
Current................................................... 23,569 24,731 30,288
Deferred.................................................. 12,611 13,240 49,023
-------- -------- --------
Total income tax expense.......................... 36,180 37,971 79,311
-------- -------- --------
Income from continuing operations before minority
interest.................................................. 45,249 49,801 105,302
Minority interest........................................... 19,117 18,401 14,002
-------- -------- --------
Income from continuing operations........................... 26,132 31,400 91,300
-------- -------- --------
Income from discontinued operations
Earnings (loss) from discontinued operations (net of
income taxes of $1,699, $2,550, and $1,021
respectively).......................................... 2,706 4,053 (3,919)
Gain on sale of discontinued operations, net of income
taxes of $48,705....................................... -- -- 88,641
-------- -------- --------
Net income........................................ $ 28,838 $ 35,453 $176,022
======== ======== ========
EARNINGS PER SHARE
Basic
Income from continuing operations........................... $ 0.29 $ 0.34 $ 0.99
Earnings (loss) from discontinued operations................ 0.03 0.05 (0.04)
Gain on sale of discontinued operations..................... -- -- 0.97
-------- -------- --------
Net income........................................ $ 0.32 $ 0.39 $ 1.92
======== ======== ========
Diluted
Income from continuing operations........................... $ 0.28 $ 0.34 $ 0.99
Earnings (loss) from discontinued operations................ 0.03 0.04 (0.04)
Gain on sale of discontinued operations..................... -- -- 0.97
-------- -------- --------
Net income........................................ $ 0.31 $ 0.38 $ 1.92
======== ======== ========
See notes to consolidated financial statements.
F-3
42
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
COMMON STOCK ACCUMULATED OTHER RESTRICTED STOCK
-------------------- RETAINED COMPREHENSIVE DEFERRED TREASURY
SHARES AMOUNT EARNINGS INCOME COMPENSATION SHARES TOTAL
---------- ------- ---------- ----------------- ---------------- -------- ----------
Balance at December 31, 1995... 91,495,950 $ 8,714 $ 955,239 $52,114 $ -- $ -- $1,016,067
Comprehensive income:
Net income................... -- -- 176,022 -- -- -- 176,022
Increase in net unrealized
gain on available-for-sale
securities, net of tax of
$9,428..................... -- -- -- 10,952 -- -- 10,952
----------
Total comprehensive
income............... 186,974
----------
Dividends ($.07 per share)..... -- -- (6,100) -- -- -- (6,100)
---------- ------- ---------- ------- ------- -------- ----------
Balance at December 31, 1996... 91,495,950 8,714 1,125,161 63,066 -- -- 1,196,941
---------- ------- ---------- ------- ------- -------- ----------
Comprehensive income:
Net income................... -- -- 35,453 -- -- -- 35,453
Increase in net unrealized
gain on available-for-sale
securities, net of tax of
$10,590.................... -- -- -- 16,493 -- -- 16,493
----------
Total comprehensive
income............... 51,946
----------
Dividends ($.07 per share)..... -- -- (6,113) -- -- -- (6,113)
Special distributions ($3.67
per share)................... -- -- (336,838) -- -- -- (336,838)
Increase in restricted stock
deferred compensation........ 201,861 4,340 -- -- (4,340) -- --
Amortization of restricted
stock deferred
compensation................. -- -- -- -- 868 -- 868
---------- ------- ---------- ------- ------- -------- ----------
Balance at December 31, 1997... 91,697,811 13,054 817,663 79,559 (3,472) -- 906,804
---------- ------- ---------- ------- ------- -------- ----------
Comprehensive income:
Net income................... -- -- 28,838 -- -- -- 28,838
Increase in net unrealized
gain on available-for-sale
securities, net of tax
$4,781..................... -- -- -- 8,641 -- -- 8,641
----------
Total comprehensive
income............... 37,479
----------
Dividends ($.08 per share)..... -- -- (7,274) -- -- -- (7,274)
Amortization of restricted
stock deferred
compensation................. -- -- -- -- 868 -- 868
Purchase of treasury shares,
net.......................... (2,543,590) (54,580) (54,580)
---------- ------- ---------- ------- ------- -------- ----------
Balance at December 31, 1998... 89,154,221 $13,054 $ 839,227 $88,200 $(2,604) $(54,580) $ 883,297
========== ======= ========== ======= ======= ======== ==========
See notes to consolidated financial statements
F-4
43
THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- --------- ---------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 28,838 $ 35,453 $ 176,022
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 38,893 28,732 27,831
Minority interest in income............................ 19,117 18,401 14,002
Gain on sale of property and investments............... (8,363) (4,817) (3,423)
Equity in unconsolidated affiliates.................... (1,925) -- --
Gain on sale of discontinued operations................ -- -- (88,641)
Deferred income tax expense............................ 12,611 13,240 49,023
Impairment losses...................................... 10,238 -- --
Purchases and sales of trading investments, net........ (34,755) -- --
Changes in operating assets and liabilities:
Accounts receivable.................................. 6,676 2,178 (11,287)
Inventory............................................ 1,376 (483) (704)
Other assets......................................... (17,221) (8,158) (10,964)
Accounts payable, accrued liabilities, casualty
reserves and other................................ 3,490 8,424 6,774
Income taxes payable................................. (3,513) (16,060) 11,979
Discontinued operations-noncash charges and working
capital changes................................... 2,457 (3,238) (52,827)
---------- --------- ---------
Net cash provided by operating activities................... 57,919 73,673 117,785
Cash flows from investing activities:
Purchases of property, plant and equipment................ (135,079) (64,137) (65,198)
Investing activities of discontinued operations........... -- (305) (3,840)
Purchases of investments:
Available for sale..................................... (972,047) (87,796) (21,928)
Held to maturity....................................... -- (100,350) (180,797)
Investments in joint ventures and purchase business
acquisitions, net of cash received..................... (148,859) (20,154) --
Proceeds from dispositions of assets...................... 6,897 14,384 9,743
Proceeds from sale of discontinued operations............. -- -- 445,055
Maturities and redemptions of investments:
Available for sale..................................... 1,134,449 108,810 18,291
Held to maturity....................................... -- 119,644 121,111
Proceeds from sale of note receivable..................... -- 10,400 --
---------- --------- ---------
Net cash provided by/(used in) investing activities......... (114,639) (19,505) 322,437
Cash flows from financing activities:
Proceeds from long-term debt, net......................... 872 -- --
Dividends and special distributions paid to
stockholders........................................... (7,274) (342,950) (6,100)
Dividends paid to minority interest....................... (1,668) (1,664) (1,666)
Treasury stock purchased.................................. (54,580) -- --
Financing activities of discontinued operations........... -- -- (245)
---------- --------- ---------
Net cash used in financing activities....................... (62,650) (344,614) (8,011)
Net increase (decrease) in cash and cash equivalents........ (119,370) (290,445) 432,211
Cash and cash equivalents at beginning of year.............. 158,478 448,923 16,712
---------- --------- ---------
Cash and cash equivalents at end of year.................... $ 39,108 $ 158,478 $ 448,923
========== ========= =========
See notes to consolidated financial statements.
F-5
44
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS
The St. Joe Company, formerly known as St. Joe Corporation (the "Company")
is a diversified corporation engaged in residential and commercial real estate,
forestry, resort and leisure development, and transportation operations. Until
recently the Company also had ongoing sugar operations. While the Company's real
estate operations are in various states throughout the Southeast, the majority
of the real estate operations, as well as the transportation operation, are
principally within the state of Florida. Forestry has operations in both Florida
and Georgia. Consequently, the Company's performance, and particularly that of
its real estate operations, is significantly affected by the general health of
the Florida economy.
Real Estate
The Company currently conducts its real estate operations in three
principal segments: commercial development and management, community residential
development, and residential real estate services. The Company owns, leases, and
manages office, industrial and retail properties in the southeastern United
States through its wholly-owned subsidiary, St. Joe Commercial Property
Services, Inc. ("SJCPS"), through Gran Central Corporation ("GCC"), a
wholly-owned subsidiary of Florida East Coast Industries, Inc. ("FECI"), a 54%
owned subsidiary of the Company, and through several partnership ventures. SJCPS
manages approximately 14 million square feet of commercial property in the
Southeast. GCC owns approximately 6 million square feet of commercial/industrial
facilities located in Jacksonville, Miami, and Orlando which is managed by the
Company pursuant to a management agreement. The Company is also a partner in
several joint ventures that develop and manage commercial property in Florida,
Georgia and Texas. The Company's community residential division owns large
tracts of land in west Florida near Tallahassee, Florida and northwest Florida,
including significant Gulf of Mexico frontage. The Company is developing and
managing residential communities on certain lands owned by the Company, through
its 74% owned limited partnership, St. Joe/Arvida Company, L.P. ("Arvida"). The
Company also recently purchased a 26% interest in Arvida/JMB Partners, L.P., a
limited partnership that is developing residential communities, three in
Florida, one near Atlanta, Georgia and one in North Carolina. The Company owns a
residential real estate brokerage, sales and services business in Florida
through its recent acquisition of Prudential Florida Realty, which has since
changed its name to Arvida Realty Services ("ARS"). ARS was broker to 13,000
real estate transactions since its acquisition in July 1998 through its 80
locations in south and central Florida.
Forestry
The Company is the largest private owner of timberlands in Florida. The
principal product of the Company's forestry operations is softwood pulpwood. In
addition, the Company produces and sells sawtimber. Prior to 1998, the majority
of the wood harvested by the Company was sold under a long term wood fiber
supply agreement to the Company's former linerboard mill, which it sold to
Florida Coast Paper Company, L.L.C. ("FCP") in May, 1996.
After the closure of the mill for several months in 1997, the Company
renegotiated its 15 year supply contract with FCP to allow it to supply pulpwood
to the mill at a level (700,000 tons per year beginning June 1, 1998)
significantly lower than historical levels.
The Company sought to reduce its obligation to supply pulpwood under the
agreement and intends to extend growing periods for certain portions of its
timber and to sell such timber in the form of higher-margin products, which the
Company anticipates will increase the long-term profitability of its forestry
operations.
F-6
45
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 1, 1999 the Company announced that it intends to sell
approximately 800,000 acres of its northwest Florida timberlands with the first
100,000 acres going on the market immediately. Under the Company's development
plans, none of the timberland to be offered for sale has significant real estate
development potential in the next 15 to 20 years. No assurances can be given
that any of the property can be sold at an acceptable price within an acceptable
time period.
Transportation
FECI's subsidiary, Florida East Coast Railway ("FEC"), provides rail and
freight service between Jacksonville and Miami, Florida and branch line track
between Fort Pierce and Lake Harbor, Florida. FEC has the only coastal
right-of-way between Jacksonville and West Palm Beach, Florida. The principal
commodities carried by rail include trailers-on-flatcar, containers-on-flatcar,
crushed stone, cement, automobile vehicles and parts. FEC also has a trucking
operation which is an interstate, irregular route, common carrier with terminals
located throughout the eastern half of the United States. The Company continues
to evaluate methods and means to extract the embedded value from its
transportation holdings. The Company also owns the Apalachicola Northern
Railroad Company ("ANRR"), a short-line railroad that operates between Port St.
Joe and Chattahoochee, Florida. Its principal commodities include coal,
pulpwood, pulpboard woodchips, and tall oil chemicals. ANRR's workforce has been
reduced significantly as a result of loss of rail traffic recently, but the
railroad continues to operate at a minimal schedule to service its existing
customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. Investments in joint ventures in
which the Company does not have financial control are accounted for by the
equity method. All significant intercompany transactions and balances have been
eliminated except for sales of continuing operations of $18,988 derived from
discontinued operations in the year ended December 31, 1996 and intercompany
interest with its discontinued sugar operation of $483 and $1,035 in 1997 and
1996, respectively. The unrealized profit in ending inventories relating to
these sales has been eliminated.
Revenue Recognition
Revenues from real estate property sales and brokerage commissions earned
therefrom are recognized upon closing of sales contracts or upon settlement of
condemnation proceedings. Rental revenues are recognized upon commencement of
rental and lease contracts, using the straight-line basis over the life of the
contract. Transportation revenues are substantially recognized upon completion
of transportation services at destination. Revenues from sales of forestry
products are recognized generally on delivery of the product to the customer.
F-7
46
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents include cash on hand, bank demand accounts, money market accounts,
and repurchase agreements having original maturities at acquisition date of
three months or less.
Inventories
Inventories consist of transportation materials and supplies and are stated
at the lower of cost or market. Costs for substantially all inventories are
determined under the first in, first out (FIFO) or the average cost method.
Investment in Real Estate
Investment in real estate is carried at lower of cost or net realizable
value. Depreciation is computed on straight-line and accelerated methods over
the useful lives of the assets ranging from 15 to 40 years. Depletion of timber
is determined by the units of production method. An adjustment to depletion is
recorded, if necessary, based on the continuous forest inventory ("CFI")
analysis prepared every five years.
Property, Plant and Equipment
Depreciation is computed using both straight-line and accelerated methods
over the useful lives of various assets. Railroad properties are depreciated and
amortized using the straight-line method. Gains and losses on normal retirements
of these items are credited or charged to accumulated depreciation.
Goodwill and Deferred Compensation
Goodwill associated with the Company's business combinations is being
amortized on a straight-line basis over periods ranging from 15 years to 30
years. Deferred compensation is being amortized on a straight-line basis over a
five-year vesting period, which is deemed to be the period for which services
are performed. Periodically the Company evaluates the realizability of its
intangibles to determine if an impairment in value has occurred. During 1998,
the Company wrote off $2,238 of intangible assets determined to be unrealizable.
Earnings Per Common Share
Earnings per common share ("EPS") are based on the weighted average number
of common shares outstanding during the year as adjusted for the three-for-one
stock split effective January 12, 1998. The Company applies the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". Diluted EPS assumes weighted average options to purchase 1,323,498
shares of common stock in 1998 and 1,379,495 shares of common stock in 1997 have
been exercised using the treasury stock method. In August, 1998, the Company's
Board of Directors authorized $150,000 for the repurchase of the Company's
outstanding common stock from time to time on the open market. As of December
31, 1998, the Company had repurchased 2,543,590 shares. Weighted average basic
and diluted shares, taking into consideration shares repurchased and the
weighted average options used in calculating EPS for each of the years presented
is as follows:
1998 1997 1996
---------- ---------- ----------
Basic.............................................. 90,961,941 91,695,046 91,495,950
Diluted............................................ 92,285,439 93,074,541 91,495,950
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to apply the provisions of Accounting Principles Board ("APB") Opinion
No. 25,
F-8
47
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Accounting for Stock Issued to Employees", 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 SFAS No. 123 has been applied. Under APB
No. 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. The
Company has elected to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure required by SFAS No. 123.
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. The Company
has elected to disclose comprehensive income in its Consolidated Statement of
Changes in Stockholders' Equity and has restated all prior periods accordingly.
Segment Reporting
The Company adopted the provisions SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", effective January 1, 1998.
This Statement requires that the Company report a measure of segment profit,
segment assets, and certain related items according to how management makes
decisions about asset performance and allocation of resources to those segments.
Segment information for all periods presented has been restated to conform to
SFAS No. 131 disclosure requirements.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes in accordance with SFAS No. 109 "Accounting for Income Taxes." Under SFAS
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. SFAS No.
109 also requires the recognition of a deferred tax liability on the
undistributed earnings of subsidiaries applied on a prospective basis.
Investments
Investments consist principally of corporate debt securities, government
sponsored agency securities, mortgage-backed securities, municipal bonds, common
stocks, preferred stocks, and U.S. Government obligations. Investments maturing
in three months to one year are classified as short term. Those having
maturities in excess of one year are classified as marketable securities.
The Company follows the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS No. 115, the Company
classifies its debt and marketable equity securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities for which the Company has the
ability and intent to hold the security until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related income tax effect and minority interest in
consolidated subsidiaries, on available-for-sale
F-9
48
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
securities are excluded from earnings and are reported as a separate component
of stockholders' equity and comprehensive income until realized.
The Company accounts for hedges against its equity securities at fair
value. Unrealized gains or losses are reported as a separate component of
stockholders' equity along with the underlying equity securities' net unrealized
gain or loss.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Realized gains and losses for securities classified as available-for-sale
and held-to-maturity, including hedges against equity securities, are included
in earnings and are derived using the specific identification method for
determining the cost of securities sold.
Long-Lived Assets
The Company complies with the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This Statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount exceeds the fair value of the asset. The Company has recorded an
$8,000 write-down of transportation property, plant and equipment owned by its
wholly-owned subsidiary, Apalachicola Northern Railroad ("ANRR") in 1998.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
Supplemental Cash Flow Information
The Company paid $543, $389 and $1,009 for interest and $29,690, $33,686
and $120,789 for income taxes in 1998, 1997, and 1996, respectively.
The Company's non-cash activities included assets acquired and liabilities
assumed of approximately $30,000 each.
3. BUSINESS COMBINATIONS
On July 31, 1998, the Company completed the purchase of Prudential Florida
Realty ("PFR") from CMT Holding, Ltd. PFR is a residential real estate
brokerage, sales and services company in Florida. Under the terms of the
purchase and sale agreement, the Company acquired certain assets of CMT Holding,
Ltd. for a total purchase price of $98,815, of which $88,815 was paid in cash
and $10,000 was paid in the form of a two-year note. Additionally, a contingent
payment of $10,000 will be paid over a three-year period (2001 through 2003) if
certain performance targets are met. The PFR acquisition has been accounted for
under the purchase method of accounting and the resulting goodwill of $89,167 is
being amortized on a straight-line basis over 20 years.
On September 24, 1998, the Company acquired Goodman Segar Hogan Hoffler,
L.P. ("GSHH"), a commercial, retail, office and industrial real estate services
company based in Norfolk, Virginia. GSHH manages approximately 10 million square
feet of commercial property in the southeastern United States and brokers real
estate transactions valued at nearly $1,000,000 annually. Under the terms of the
purchase agreement, the Company acquired all outstanding partnership interests
of GSHH for a total purchase price of
F-10
49
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$15,650, of which $11,190 was paid in cash at closing and $4,480 was paid in the
form of a three-year note. The GSHH acquisition has been accounted for under the
purchase method of accounting and the resulting goodwill of $16,904 is being
amortized on a straight-line basis over 15 years. Subsequent to the acquisition,
GSHH has become a subsidiary of SJCPS.
On December 21, 1998, the Company purchased the assets of Florida Real
Estate Advisors, Inc. ("FREA"), a commercial, retail, office and industrial real
estate services company based in Tampa, Florida. FREA manages approximately 4
million square feet of commercial property in central and south Florida. Under
the terms of the purchase and sale agreement, the Company acquired certain
assets of FREA for a total purchase price of $8,550, of which approximately
$6,000 was paid in cash at closing and the remainder was paid in the form of a
three-year note. The FREA acquisition has been accounted for under the purchase
method of accounting and the resulting goodwill of $8,257 is being amortized on
a straight-line basis over 15 years. Subsequent to the acquisition, FREA has
been merged into SJCPS.
On November 12, 1997, the Company purchased certain assets, including
management and proprietary information systems, of Arvida Company through a
joint venture formed for the purpose of developing and managing residential
communities. The Company owns 74% of the new limited partnership, St. Joe/Arvida
Company, L.P. , which is based in Boca Raton, Florida. Under the terms of the
limited partnership agreement, the Company paid $12,240 in cash for its interest
in the partnership. This acquisition has been accounted for under the purchase
method of accounting and the resulting goodwill of $11,500 is being amortized on
a straight-line basis over 30 years.
The results of operations of the acquired companies are included in the
consolidated statements of income from the dates of their respective
acquisitions. Following is a summary of the unaudited pro forma results of
operations of the Company for the years ended December 31, 1998 and 1997
assuming the PFR, GSHH and FREA acquisitions had occurred on January 1, 1997:
1998 1997
-------- --------
Total revenues.............................................. $534,840 $487,340
Net income.................................................. 28,942 34,156
Earnings per share:
Basic..................................................... .32 .37
Diluted................................................... .31 .37
Adjustments to the Company's results of operations to reflect proforma results
include goodwill amortization, and reductions in interest income for the use of
invested cash. The pro forma results do not necessarily represent results of
operations that would have occurred if the acquisitions had taken place on the
basis assumed above, nor are they necessarily indicative of the results of
future combined operations. The amounts are based upon certain assumptions and
estimates, and do not reflect any benefit from economies that might be achieved
from combined operations.
4. INVESTMENT IN UNCONSOLIDATED AFFILIATES
Investments in unconsolidated affiliates as of December 31, consist of:
OWNERSHIP 1998 1997
--------- ------- ------
Arvida/JMB Partners, L.P.................................. 26% $45,938 --
Codina Group, Inc......................................... 33 9,758 --
Deerfield Park, L.L.C..................................... 61 6,002 $5,618
ENTROS, Inc............................................... 44 5,091 --
WBP One, L.P.............................................. 50 1,705 --
St. Joe/CNL Realty Group, LTD............................. 50 1,597 1,438
Al-Zar, LTD............................................... 1 144 144
------- ------
$70,235 $7,200
======= ======
F-11
50
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Any differences between the cost of the investments and the underlying equity in
an unconsolidated investee's net assets are being amortized over the remaining
lives of the investee's assets, ranging from five to fifteen years.
Summarized financial information for the unconsolidated affiliates on a
combined basis, is as follows:
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
BALANCE SHEET:
Investment property, net.................................... $208,659 $ 8,681
Other assets................................................ 204,100 14,689
-------- -------
Total assets...................................... 412,759 23,370
-------- -------
Notes payable and other debt................................ 81,948 5,510
Other liabilities........................................... 89,378 1,050
Equity...................................................... 241,433 16,810
-------- -------
Total liabilities and equity...................... $412,759 $23,370
======== =======
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
STATEMENT OF INCOME:
Total revenues.............................................. $36,730 $5,254
------- ------
Total expenses.............................................. 32,368 5,123
------- ------
Net income........................................ $ 4,362 $ 131
======= ======
5. DISCONTINUED OPERATIONS
Sugar
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 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 farm the land to the Sugar Companies. In return, the
lawsuit was dismissed and the other parties agreed to pay Talisman $19.0
million.
Talisman retains ownership of the sugar mill and is presently evaluating
the best manner to dispose of the mill. Talisman is responsible for the cleanup
of the mill site. Talisman is obligated to complete certain defined
environmental remediation (the "Remediation"). Approximately $5.0 million of the
purchase price will be held in escrow pending the completion of the Remediation.
Talisman must use its funds to pay the costs of the Remediation. Based upon the
current environmental studies, Talisman does not believe the costs of the
Remediation will exceed the amount held in escrow. Talisman will receive the
fund when all the Remediation is complete. In the event other environmental
matters are discovered, the Sugar Companies will be responsible for the first
$.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 the land subject to the Remediation. As Talisman
completes the cleanup of a particular parcel, an amount equal to the land
F-12
51
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value on that parcel will be released from escrow. The Company has reported its
sugar operations as discontinued operations for all periods presented. Revenues
from Talisman were $40,955, $49,320, and $54,496 in 1998, 1997 and 1996
respectively. Net income for Talisman was $2,706, $4,053, and $609 in 1998, 1997
and 1996, respectively. The estimated gain on the combined sale of the land and
harvesting rights is expected to be between $40.0 million and $45.0 million,
after tax, (unaudited), subject to finalization of reserves and other
adjustments.
Communications
On April 11, 1996, St. Joe Industries, Inc., a wholly owned subsidiary of
the Company, sold the stock of St. Joe Communications, Inc. (SJCI) to TPG
Communications, Inc. for $96,098. TPG Communications, Inc. assumed $17,963 of
SJCI interest bearing debt. SJCI also sold its interest in three remaining
cellular partnerships for an aggregate of $25,113. The Company recorded a
$39,154 gain on the sales net of tax. SJCI's revenues through the April 11, 1996
sale date were $9,335. Earnings for SJCI were $1,120 for 1996.
Forest Products
On May 30, 1996, the Company sold its linerboard mill and container plants.
Proceeds from the sale included $323,844 cash and a $10,000 senior subordinated
note, (the Promissory Note). The gain on the sale was $49,487, net of tax.
Revenues for the linerboard mill and container plants through May 30, 1996 were
$156,305. Earnings (loss) for the linerboard mill and container plants were
$(5,648) for 1996. On November 25, 1997, the Company sold the Promissory Note to
an unrelated third party for approximately $10,400 which resulted in a pre-tax
gain of approximately $400.
On March 31, 1997, a special distribution of a portion of the net proceeds
of the sales of $3.33 per share was paid to shareholders of record on March 21,
1997, and on December 30, 1997, the remaining net proceeds of $.34 per share
were distributed to shareholders of record on December 19, 1997.
F-13
52
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS
Investments as of December 31, 1998, consist of:
UNREALIZED UNREALIZED
AMORTIZED FAIR HOLDING HOLDING
COST VALUE GAIN LOSS
--------- ------- ---------- ----------
Short term investments (maturing within one
year)
Trading
Cash...................................... $ 90 90 -- --
Tax exempt municipal bonds................ 34,827 34,765 -- (62)
------- ------- ------- ---
34,917 34,855 -- (62)
------- ------- ------- ---
Available for sale
Commercial paper.......................... 17,613 17,613 -- --
Tax exempt municipal bonds................ 12,811 12,817 6 --
------- ------- ------- ---
65,341 65,285 6 (62)
======= ======= ======= ===
Marketable securities
Available for sale
U.S. Government securities
Maturing in one to five years........... 3,600 3,707 107
Tax exempt municipals
Maturing in one to five years........... 32,429 33,155 726
Maturing in five to ten years........... 12,010 12,896 886 --
Maturing in more than ten years......... 4,766 4,740 -- (26)
Equity securities and options............. 1,681 143,976 142,295 --
Other corporate debt
Maturing in one to five years........... 2,062 2,528 466 --
------- ------- ------- ---
$56,548 201,002 144,480 (26)
======= ======= ======= ===
F-14
53
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in short term investments is $17,000 of restricted commercial
paper collateralizing the PFR line of credit. (See Note 10. Long-Term Debt)
Investments as of December 31, 1997, consist of:
UNREALIZED UNREALIZED
AMORTIZED FAIR HOLDING HOLDING
COST VALUE GAIN LOSS
--------- -------- ---------- ----------
Short term investments (maturing within one
year)
Available for sale
U. S. Government securities.............. $ 48,902 $ 48,940 $ 38 $ --
Other corporate debt securities.......... 2,094 2,094 -- --
-------- -------- -------- ----
$ 50,996 51,034 $ 38 --
======== ======== ======== ====
Marketable securities
Available for sale
U. S. Government securities
Maturing in one to five years.......... $107,659 $108,242 $ 583 $ --
Maturing in five to ten years.......... 767 788 21 --
Tax exempt municipal bonds
Maturing in one to five years.......... 19,750 20,158 408 --
Maturing in five to ten years.......... 18,326 19,304 978 --
Maturing in more than ten years........ 3,408 3,388 -- (20)
Equity securities........................ 17,351 146,349 128,998 --
Mortgage-backed securities
Maturing in one to five years.......... 110 110 -- --
Maturing in five to ten years.......... 833 845 12 --
Maturing in more than ten years........ 3,443 3,512 69 --
Other corporate debt securities
Maturing in one to five years.......... 2,358 2,345 -- (13)
Maturing in five to ten years.......... 857 1,761 904 --
Maturing in more than ten years........ 95 108 13 --
-------- -------- -------- ----
$174,957 $306,910 $131,986 $(33)
======== ======== ======== ====
In 1998, gross realized gains were $8,079 and realized losses were $1,185
on available for sale investments. Prior years' gross realized gains and losses
were not significant.
During 1997, consistent with the Company's expected capital expenditure
needs, approximately $137,000 of securities classified as held to maturity were
transferred to available for sale. Net unrealized gains were not material.
On June 24, 1998, the Company entered into put and call options to hedge
the market value of certain equity securities. The cost of the purchased put was
exactly offset by the premium earned on the sold calls, thus no consideration
was exchanged. The value of these securities and the related collars is subject
to inherent market risk caused by the volatility of the equity markets.
The put options have strike prices set at 90% of the average price of the
stocks as of the contract date. The call options have strike prices ranging from
114% to 121% of the average price of the stocks as of the contract date. This
hedging strategy locked in the market value of the equity securities within this
range as of the contract date. The Company may settle obligations arising from
the collars with cash or shares of the underlying equity securities. The net
fair value of the puts and the calls at December 31, 1998, which is included in
the fair value of equity securities, was $23,764 and $2,137, respectively. The
Company can settle the options at any time prior to the expiration date which is
June 24, 1999.
F-15
54
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unrealized gains and losses for the designated equity securities and the
associated hedge are presented as a separate component of stockholders' equity.
Any realized gains and losses on the combined position will be reflected in
income in the period in which the stock is sold or the hedge is executed.
7. INVESTMENT IN REAL ESTATE
Real estate as of December 31 consists of:
1998 1997
-------- --------
Operating property.......................................... $569,258 $502,127
Development property........................................ 13,560 1,182
Investment property......................................... 20,176 4,470
-------- --------
602,994 507,779
-------- --------
Accumulated depreciation.................................... 54,893 42,343
-------- --------
$548,101 $465,436
======== ========
Included in operating property is 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. Real estate properties having net book
value of $258,600 at December 31, 1998 are leased under non-cancelable operating
leases with expected aggregate rentals of $164,103 of which $41,200, $36,300,
$31,000, $21,900, and $13,000 is due in the years 1999 through 2003,
respectively and $20,703 is due thereafter through 2012.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, as of December 31 consists of:
ESTIMATED
USEFUL LIFE 1998 1997
----------- -------- --------
Transportation property and equipment.................. 12-30 $593,410 $571,470
Machinery and equipment................................ 12-30 26,879 21,292
Office equipment....................................... 10 3,368 1,877
Autos, trucks, and airplane............................ 3-10 3,001 3,098
-------- --------
626,658 597,737
-------- --------
Accumulated depreciation............................... 267,742 247,665
-------- --------
$358,916 $350,072
======== ========
9. ACCRUED LIABILITIES
Accrued liabilities as of December 31 consist of:
1998 1997
------- -------
Payroll and benefits........................................ $11,483 $ 5,164
Payroll taxes............................................... 149 42
Property and other taxes.................................... 9,029 8,800
Accrued casualty reserves................................... 18,869 21,924
Other accrued liabilities................................... 15,589 7,443
------- -------
55,119 43,373
Less: noncurrent accrued casualty reserves and other
liabilities............................................... 11,946 13,643
------- -------
$43,173 $29,730
======= =======
F-15
55
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM DEBT
Long-term debt and credit agreements at December 31, 1998 consisted of the
following:
1998
-------
Revolving credit agreement, interest payable monthly at 1.5%
per annum; secured by restricted short-term investments;
matures July 31, 1999..................................... $17,000
Non-interest bearing note payable to CMT Holding, Ltd. due
in equal annual installments beginning July 28, 1999, net
of discount of $.6 million imputed at 6%.................. 9,396
Non-interest bearing notes payable to former owners of
Goodman Segar GVA due in three annual installments
beginning September 24, 1999, net of discount of $.3
million imputed at 6%..................................... 4,101
Non-interest bearing note payable to former owners of
Florida Real Estate Advisors due in three annual
installments beginning December 21, 1999, net of discount
of $.3 million imputed at 6%.............................. 2,272
Various secured and unsecured notes and capital leases,
bearing interest at rates from Prime to 11.25%............ 2,131
-------
Total long-term debt.............................. 34,900
-------
Less: current portion....................................... 24,953
-------
Net long-term debt................................ $ 9,947
=======
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1998 are as follows; 1999, $24,953; 2000, $8,261;
2001, $1,584; 2002, $39; 2003, $63. Based on the current terms and rates of the
Company's long-term debt, carrying value approximates fair value, except for the
revolving credit agreement. The terms and conditions of the revolving credit
agreement are commensurate with the nature of the underlying security.
11. INCOME TAXES
Total income tax expense for the years ended December 31 was allocated as
follows:
1998 1997 1996
------- ------- --------
Income from continuing operations........................ $36,180 $37,971 $ 79,311
Earnings (loss) from discontinued operations............. 1,699 2,550 1,021
Gain on the sale of discontinued operations.............. -- -- 48,705
Stockholders' equity, for recognition of unrealized gain
on debt and marketable equity securities............... 4,781 10,590 9,428
------- ------- --------
$42,660 $51,111 $138,465
======= ======= ========
Income tax expense attributable to income from continuing operations
differed from the amount computed by applying the statutory federal income tax
rate of 35% to income from continuing operations before taxes and minority
interest as a result of the following:
1998 1997 1996
------- ------- -------
Tax at the statutory federal rate......................... $28,500 $30,720 $64,615
Dividends received deduction and tax free interest........ (2,890) (1,752) (4,311)
Excise tax on reversion of prepaid pension asset.......... 6,411 5,352 13,228
State income taxes (net of federal benefit)............... 3,178 3,144 4,610
Undistributed earnings of FECI............................ 1,513 1,382 1,262
Other, net................................................ (532) (875) (93)
------- ------- -------
$36,180 $37,971 $79,311
======= ======= =======
F-16
56
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of December 31
are presented below:
1998 1997
-------- --------
Deferred tax assets:
Accrued casualty and other reserves....................... $ 9,056 $ 8,715
Impairment loss........................................... 3,086 --
Other..................................................... 1,950 1,531
-------- --------
Total deferred tax assets......................... 14,092 10,246
-------- --------
Deferred tax liabilities:
Tax in excess of book depreciation........................ 110,062 107,887
Deferred gain on land sales and involuntary conversions... 73,306 72,939
Deferred gain on subsidiary's defeased bonds.............. 1,444 1,700
Unrealized gain on debt and marketable equity
securities............................................. 55,701 50,920
Prepaid pension asset recognized for financial
reporting.............................................. 47,549 36,192
Other..................................................... 12,254 9,440
-------- --------
Total gross deferred tax liabilities.............. 300,316 279,078
-------- --------
Net deferred tax liability........................ $286,224 $268,832
======== ========
Based on the timing of reversal of future taxable amounts and the Company's
history of reporting taxable income, the Company believes that the deferred tax
assets will be realized and a valuation allowance is not considered necessary.
The current deferred tax assets of $3,135 and $3,467 are recorded in other
current assets as of December 31, 1998 and 1997, respectively.
The Company has not recognized a deferred tax liability of approximately
$17,842 for the undistributed earnings of FECI that arose in 1992 and prior
years because the Company does not currently expect those unremitted earnings to
reverse and become taxable to the Company in the foreseeable future. A deferred
tax liability will be recognized when the Company expects that it will recover
those undistributed earnings in a taxable manner, such as through receipt of
dividends or sale of the investment. As of December 31, 1998, the undistributed
earnings of the subsidiary for which no deferred tax liability was provided were
approximately $48,454.
12. EMPLOYEE BENEFITS PLANS
The Company sponsors defined benefit pension plans which cover
substantially all of its salaried employees excluding FECI. The benefits are
based on the employees' years of service or years of service and compensation
during the last five or ten years of employment. The Company complies with the
minimum funding requirements of ERISA.
F-17
57
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the net periodic pension credit follows:
1998 1997
-------- --------
Service cost................................................ $ 312 $ 184
Interest cost............................................... 7,558 7,322
Expected return on assets................................... (16,499) (14,052)
Transition (asset) obligation............................... (2,566) (2,500)
Actuarial (gain) loss....................................... (2,220) (360)
Prior service costs......................................... 593 50
Curtailment loss............................................ -- 604
Settlement (gain)........................................... -- (1,951)
-------- --------
Total pension income.............................. $(12,822) $(10,703)
======== ========
A reconciliation of projected benefit obligation as of December 31 follows:
1998 1997
-------- --------
Projected benefit obligation, beginning of year............. $112,487 $108,726
Service cost................................................ 312 184
Interest cost............................................... 7,558 7,322
Actuarial (gain) loss....................................... (3,587) 8,614
Benefits paid............................................... (8,857) (11,280)
Plan amendment.............................................. 6,999 --
Curtailments................................................ -- 604
Settlements................................................. -- (1,951)
Special termination benefits................................ -- 268
-------- --------
Projected benefit obligation, end of year................... $114,912 $112,487
======== ========
A reconciliation of plan assets as of December 31 follows:
1998 1997
-------- --------
Fair value of assets, beginning of year..................... $231,790 $194,156
Actual return on assets..................................... 19,185 48,914
Benefits paid............................................... (8,857) (11,280)
-------- --------
Fair value of assets, end of year........................... $242,118 $231,790
======== ========
A reconciliation of funded status as of December 31 follows:
1998 1997
--------- ---------
Pension benefit obligation
Accumulated benefit obligation............................ $ 113,452 $ 111,567
Projected benefit obligation.............................. 114,912 112,487
Market value of assets...................................... 242,118 231,790
Funded status............................................... (127,206) (119,303)
Unrecognized net transition (asset) obligation.............. 6,159 8,725
Unrecognized prior service costs............................ (6,519) (114)
Unrecognized net gain (loss)................................ 73,883 69,830
--------- ---------
(Prepaid) pension cost...................................... $ (53,683) $ (40,861)
========= =========
The weighted-average discount rates for the plans were 7% in 1998 and 1997.
The rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation for salaried
employees was 6% in 1998 and 1997. The expected long-term rates of return on
assets was 8% in 1998 and 1997.
F-18
58
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in note 3, several of the Company's operations were sold
during 1996, which significantly reduced the number of employees covered under
the defined benefit plans. The defined benefit plans' assets were not a part of
the sales. In accordance with SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", the Company recognized a curtailment gain of
approximately $3,700 ($500 net of tax). The Company also recognized in 1997 a
settlement gain of $2,000 ($200 net of tax) resulting from certain lump-sum
distributions paid during the year.
On February 25, 1997, the Board of Directors approved an interim severance
program. The program was available to all employees (including early and regular
retirees) who elected to leave employment with the Company prior to May 2, 1997.
The Company recognized a curtailment loss of approximately $600 ($100 net of
tax)as a result of those who elected early retirement.
The Company's pension plans are in an overfunded position and with the
reduction in employees resulting from the sales of several of the Company's
operations, it is unlikely that the overfunding will be realized other than by a
plan termination and reversion of excess assets. Accordingly, a 50% excise tax
has been included in the tax effects of the prepaid asset as well as the
curtailment gain and settlement loss. The Company has no immediate plans to
terminate the pension plans and is in the process of evaluating other
alternatives.
Deferred Compensation Plans and ESOP
The Company also has other defined contribution plans that cover
substantially all its salaried employees. Contributions are at the employees'
discretion and are matched by the Company up to certain limits. Expense for
these defined contribution plans was $951, $963, and $1,081, in 1998, 1997, and
1996, respectively.
The Company had an Employee Stock Ownership Plan (the ESOP) for the purpose
of purchasing stock of the Company for the benefit of qualified employees. On
November 21, 1996 the Pension committee of the Board of Directors of the Company
voted to terminate the ESOP effective December 31, 1996. Contributions to the
ESOP were limited to .5% of compensation of employees covered under the ESOP.
Stock Based Compensation Plans
Effective January 6, 1997, the Company granted Mr. Rummell, Chairman and
CEO of the Company, 201,861 restricted shares of the Company's common stock. The
restricted shares vest in equal installments on the first five anniversaries of
the date of grant. The Company recorded deferred compensation of approximately
$3,500 for the unamortized portion of this grant as of December 31, 1997.
Compensation expense related to this grant totaled approximately $900 each in
1998 and 1997.
On January 7, 1997, the Company adopted the 1997 Stock Incentive Plan (the
"Incentive Plan"), whereby awards may be granted to certain employees and
non-employee directors of the Company in the form of restricted shares of
Company stock or options to purchase Company stock. Awards are discretionary and
are determined by the Compensation Committee of the Board of Directors. The
total amount of restricted shares and options available for grant under the
Incentive Plan is 6,030,000 shares. The options are exercisable in equal
installments on the first anniversaries of the date of grant and expire
generally 10 years after date of grant.
Stock option activity during the period indicated is as follows:
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
Balance at December 31, 1996............................... -- --
Granted.................................................... 5,643,480 $21.69
--------- ------
Balance at December 31, 1997............................... 5,643,480 21.69
Forfeited.................................................. (252,000) 24.10
--------- ------
Balance at December 31, 1998............................... 5,391,480 $21.57
========= ======
F-19
59
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The options were granted with exercise prices equal to the current market price
of the Company's common stock on the date of grant and ranged from $19.14 to
$31.83.
No options were granted during 1998. The per share weighted-average fair
value of stock options granted during 1997 was $10.39 on the date of grant using
the Black Scholes option-pricing model with the following weighted average
assumptions: .8% expected dividend yield, risk-free interest rate of 5.89%,
weighted average expected volatility of 23.06% and an expected life of 7.5
years.
The Company applies APB Opinion No. 25 in accounting for its Incentive Plan
and, accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. 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 and net income per share
would have been reduced to the pro forma amounts indicated below:
Net income -- pro forma -- $ 22,540 in 1998 and $29,600 in 1997
Per share -- pro forma -- $.25 and $.24 per basic and diluted share in
1998 and $.32 per basic and diluted share in 1997
The following table presents information regarding all options outstanding
at December 31, 1998.
WEIGHTED AVERAGE
NUMBER OF REMAINING RANGE OF WEIGHTED AVERAGE
OPTIONS OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES EXERCISE PRICE
- ------------------- ---------------- --------------- ----------------
4,422,480 8.1 years $19.14 - $24.92 $19.46
969,000 8.8 years $28.23 - $31.83 $31.25
---------
5,391,480 8.3 years $19.14 - $31.83 $21.57
The following table presents information regarding options exerciseable at
December 31, 1998:
NUMBER OF
OPTIONS RANGE OF WEIGHTED AVERAGE
EXERCISEABLE EXERCISE PRICES EXERCISE PRICE
- ------------ --------------- ----------------
884,496 $19.14 - $24.92 $19.46
193,800 $28.23 - $31.83 $31.25
---------
1,078,296 $19.14 - $31.83 $21.57
On February 24, 1998, the Company adopted the 1998 Stock Incentive Plan
(the "1998 Incentive Plan") whereby awards may be granted to employees and
non-employee directors of the Company in the form of restricted shares of
Company stock, options to purchase Company stock or stock appreciation rights
(SAR's). Awards are discretionary and are determined by the Compensation
Committee of the Board of Directors. The total amount of restricted shares,
options, and stock appreciation rights available for grant under the 1998
Incentive Plan is one million. As of December 31, 1998 SAR's were granted to
certain employees and non-employee directors. The Company records compensation
expense in the amount by which the quoted market value of the shares covered by
the SARs exceeds the SAR grant price over the related service period. SARs
outstanding at December 31, 1998 totaled 698.
F-20
60
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERS ENDED
------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------ ------------ ------- --------
1998
Total revenues...................................... $138,490 $108,329 $75,406 $69,956
Operating profit.................................... 5,615 19,374 15,261 9,258
Net income from continuing operations............... 2,293 9,730 8,455 5,654
Income (loss) from discontinued operations.......... 1,779 (493) (407) 1,827
Net income.......................................... 4,072 9,237 8,048 7,481
Earnings per share -- Basic......................... .05 .10 .09 .08
Earnings per share -- Diluted....................... .05 .10 .09 .08
1997
Total revenues...................................... $ 70,633 $ 69,231 $80,408 $76,705
Operating profit.................................... 6,486 16,788 13,687 8,829
Net income from continuing operations............... 4,704 9,584 9,812 7,300
Income (loss) from discontinued operations.......... 2,469 (528) 1,402 710
Net Income.......................................... 7,173 9,056 11,214 8,010
Earnings per share -- Basic......................... .09 .10 .12 .09
Earnings per share -- Diluted....................... .09 .10 .12 .08
14. SEGMENT INFORMATION
The Company conducts primarily all of its business in six reportable
operating segments, which are residential real estate services, community
residential real estate, commercial real estate, transportation, forestry, and
leisure and resort. Residential real estate services provides complete real
estate brokerage services, including asset management, rental, property
management, property inspection, mortgage brokerage, relocation and title
services. The community residential real estate segment develops and manages
residential communities on certain lands owned by the Company. The commercial
real estate segment owns, leases, and manages commercial, retail, office and
industrial properties throughout the Southeast. Transportation consists of the
railroad and trucking operations of FEC and ANRR. The forestry segment's
operations produce and sell softwood pulpwood and sawtimber. Leisure and Resort
is in the infancy stages of resort development.
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 and intercompany sales that occurred principally between the Forestry
and Transportation segments and discontinued operations in 1996. All other
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 considered
a key financial measurement in the industries that the Company operates. EBITDA
excludes gains from discontinued operations and gains on sales of non-strategic
lands and other assets. The "Other" EBITDA primarily consists of investment
income, net of general and administrative expenses.
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.
F-21
61
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information by business segment follows:
1998 1997 1996
---------- ---------- ----------
TOTAL REVENUES:
Residential real estate services................. $ 79,255 $ -- $ --
Residential real estate.......................... 5,516 4,685 99,434
Commercial real estate........................... 68,688 65,614 35,096
Transportation................................... 204,662 194,961 185,484
Forestry......................................... 33,844 31,700 56,679
Leisure and resort............................... 216 17 --
---------- ---------- ----------
Total revenues........................... $ 392,181 $ 296,977 $ 376,693
========== ========== ==========
EBITDA:
Residential real estate services................. $ 6,369 $ -- $ --
Residential real estate.......................... (4,909) 1,161 97,321
Commercial real estate........................... 29,505 21,403 17,535
Transportation................................... 60,961 55,856 47,583
Forestry......................................... 17,088 6,291 5,619
Leisure and resort............................... (305) (18) --
Other............................................ 21,907 27,754 41,562
---------- ---------- ----------
EBITDA................................... 130,616 112,447 209,620
ADJUSTMENTS TO RECONCILE TO INCOME FROM CONTINUING
OPERATIONS:
Depreciation and amortization.................... (38,893) (28,732) (27,831)
Other income (expense)........................... 748 4,446 2,389
Interest expense................................. (804) (389) 435
Impairment loss.................................. (10,238) -- --
Income taxes..................................... (36,180) (37,971) (79,311)
Minority interest................................ (19,117) (18,401) (14,002)
---------- ---------- ----------
Income from continuing operations........ $ 26,132 $ 31,400 $ 91,300
========== ========== ==========
TOTAL ASSETS:
Residential real estate services................. $ 128,870 $ -- $ --
Residential real estate.......................... 33,830 10,166 61,541
Commercial real estate........................... 476,716 434,870 312,258
Transportation................................... 471,723 433,336 413,100
Forestry......................................... 137,406 121,758 114,710
Leisure and resort............................... (144) 1,711 --
Unallocated corporate assets (primarily
investments).................................. 283,554 460,152 820,803
Discontinued operations.......................... 72,318 74,775 72,399
---------- ---------- ----------
Total assets............................. $1,604,269 $1,536,768 $1,794,811
========== ========== ==========
CAPITAL EXPENDITURES:
Residential real estate services................. $ 639 $ -- $ --
Residential real estate.......................... 29,964 1,036 2,672
Commercial real estate........................... 66,820 45,806 41,036
Transportation................................... 31,332 13,549 15,800
Forestry......................................... 3,305 3,156 4,672
Leisure and resort............................... 342 109 --
Other............................................ 2,677 481 1,018
---------- ---------- ----------
Total capital expenditures............... $ 135,079 $ 64,137 $ 65,198
========== ========== ==========
F-22
62
THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. CONTINGENCIES
The Company and its subsidiaries are involved in litigation on a number of
matters and are subject to certain claims which arise in the normal course of
business, none of which, in the opinion of management, is expected to have a
material adverse effect on the Company's consolidated financial position or
results of operations.
The Company has retained certain self-insurance risks with respect to
losses for third party liability, property damage and group health insurance
provided to employees.
The Company is guarantor on two credit obligations entered into by
partnerships in which the Company owns equity interests. The maximum amount of
the guaranteed debt totals $74,900; the amount outstanding at December 31, 1998
totaled $25,263.
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.
On May 30, 1996 the company sold its linerboard mill and container plants.
As part of the sale, the Company remains contingently liable for up to $10,000
relating to On-Site Environmental Liabilities, as defined in the sales
agreement, as long as they are discovered within three years of the closing date
of the sale and the Company has, except in limited circumstances, received
invoices for them within five years of the closing date. The Company has no
obligation for costs incurred by the buyer to comply with Title V of the Clean
Air Act or the Cluster Rules. On-Site Environmental Liabilities arising from
environmental conditions caused from activities both before and after the
closing date are to be allocated among the parties based on relative
contribution. The agreement provided the exclusive remedy for On-Site
Environmental Liabilities which relate to matters within the property lines of
real property conveyed under the agreement. The Company's obligation to pay
$10,000 for On-Site Environmental Liabilities existing on the closing date is
subject to cost-sharing with the buyer according to the following schedule: the
first $2,500 by buyer, the next $2,500 by the Company; the next $2,500 by the
buyer; the next $2,500 by the company; the next $2,500 by the buyer and the next
$5,000 by the Company. The Company also agreed to reimburse up to $1,000 for
certain remediation activities at the linerboard mill, if such activities were
required under environmental laws under the following schedule: the first $200
by the Company, the next $300 by the buyer, the next $300 by the Company, the
next $300 by the buyer, the next $500 by the Company, the next $500 by the buyer
with any remaining amounts treated as On-Site Environmental Liabilities.
The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of Superfund sites. The Company has accrued an allocated
share of the total estimated cleanup costs for these sites. Based upon
management's evaluation of the other potentially responsible parties, the
Company does not expect to incur additional amounts even though the Company has
joint and several liability. Other proceedings involving environmental matters
such as alleged discharge of oil or waste material into water or soil are
pending against the Company.
It is not possible to quantify future environmental costs because many
issues relate to actions by third parties or changes in environmental
regulation. However, based on information presently available, management
believes that the ultimate disposition of currently known matters will not have
a material effect on the 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 $7,261 and $7,270 as of December 31, 1998
and 1997, respectively.
F-23
63
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Stockholders
The St. Joe Company:
Under date of February 23, 1999, we reported on the consolidated balance
sheets of The St. Joe Company and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998, as contained in this annual report on Form 10-K for the year
1998. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statement schedules based on our
audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG LLP
Jacksonville, Florida
February 23, 1999
S-1
64
THE ST. JOE COMPANY
SCHEDULE II (CONSOLIDATED)
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
------------------------------------------------
BALANCE AT ADDITIONS
BEGINNING CHARGED BALANCE AT
OF YEAR TO EXPENSE PAYMENTS END OF YEAR
---------- ---------- -------- -----------
(DOLLARS IN THOUSANDS)
RESERVES INCLUDED IN LIABILITIES
1998
Casualty and other reserves...................... 21,924 6,223 9,278 18,869
1997
Casualty and other reserves...................... 25,096 5,316 8,488 21,924
1996
Casualty and other reserves...................... 13,548 19,698 8,150 25,096
- ---------------
All periods presented have been restated to exclude discontinued operations.
(a) 1996 additions include $5,272 related to discontinued operations and charged
to expense in prior years.
S-2
65
THE ST. JOE COMPANY
SCHEDULE III (CONSOLIDATED) -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
INITIAL COST TO COMPANY CARRIED AT CLOSE OF PERIOD
------------------------------------- -----------------------------------------------------
COSTS
CAPITALIZED BUILDINGS
BUILDINGS & SUBSEQUENT TO LAND & LAND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION IMPROVEMENTS IMPROVEMENTS TOTAL
- ----------- ------------ ------- ------------ ------------- ------------ ------------ -------
Bay County, Florida
Land w/Infrastructure.......... 0 517 -- 10,753 11,270 -- 11,270
Office and Misc. Buildings..... 0 2 -- 2,102 -- 2,102 2,102
Timberlands.................... 0 4,125 -- 14,585 18,710 -- 18,710
Brevard County, Florida
Unimproved Land................ 0 9,387 -- -- 9,387 -- 9,387
Broward County, Florida
Rail Warehouse................. 0 85 -- 1,708 405 1,388 1,793
Land w/Infrastructure.......... 0 5,431 -- 370 5,801 -- 5,801
Unimproved Land................ 0 2,418 -- 1 2,419 -- 2,419
Leasehold improvements......... 0 -- 292 -- -- 292 292
Calhoun County, Florida
Timberlands.................... 0 1,199 -- 4,239 5,438 -- 5,438
Dade County, Florida
Double Front Load Warehouse.... 0 972 -- 6,176 1,986 5,162 7,148
Rail Warehouses................ 0 4,283 -- 25,158 8,119 21,322 29,441
Office/Showroom/Warehouses..... 0 2,442 -- 17,584 5,766 14,260 20,026
Office/Warehouses.............. 0 4,444 -- 31,923 9,345 27,022 36,367
Front Load Warehouses.......... 0 4,819 -- 26,067 9,782 21,104 30,886
Office/Service Center.......... 0 344 -- 3,495 873 2,966 3,839
Cross Dock..................... 0 137 -- 1,018 137 1,018 1,155
Transit Warehouse.............. 0 3 -- 217 3 217 220
Land w/Infrastructure.......... 0 25,223 -- 10,327 35,550 -- 35,550
Unimproved Land & Misc.
Assets....................... 0 13,816 -- 394 14,210 -- 14,210
Leasehold improvements......... 0 -- 228 -- -- 228 228
Construction in Progress....... 0 -- -- 6,137 -- 6,137 6,137
Duval County, Florida
Office Buildings............... 0 6,550 -- 71,144 12,930 64,764 77,694
Office/Showroom/Warehouses..... 0 2,931 -- 43,329 6,758 39,502 46,260
Office/Warehouses.............. 0 1,806 -- 9,935 3,833 7,908 11,741
Front Load Warehouse........... 0 30 -- 2,546 409 2,167 2,576
Rail Warehouses................ 0 36 -- 2,865 694 2,207 2,901
Land w/Infrastructure.......... 0 4,504 -- 6,163 10,667 -- 10,667
Unimproved Land & Misc.
Assets....................... 0 6,969 416 991 6,969 1,407 8,376
City & Residential Lots........ 0 351 82 -- 351 82 433
Timberlands.................... 0 96 -- 340 436 -- 436
Construction in Progress....... 0 -- -- 15,927 -- 15,927 15,927
Flagler County, Florida
Unimproved Land................ 0 4,403 -- -- 4,403 -- 4,403
Franklin County, Florida
Timberlands.................... 0 1,306 -- 4,618 5,924 -- 5,924
Gadsden County, Florida
Timberlands.................... 0 1,504 -- 5,317 6,821 -- 6,821
Gulf County, Florida
Misc. Buildings................ 0 -- 978 157 -- 1,135 1,135
Timberlands.................... 0 5,342 -- 18,890 24,232 -- 24,232
Jefferson County, Florida
Misc. Buildings................ 0 -- -- 181 -- 181 181
Timberlands.................... 0 2,002 -- 7,080 9,082 -- 9,082
Leon County, Florida
Land w/Infrastructure.......... 0 603 -- 1,878 2,481 -- 2,481
Misc. Buildings................ 0 -- -- 69 -- 69 69
Timberlands.................... 0 1,218 -- 4,307 5,525 -- 5,525
DEPRECIABLE LIFE
USED
IN CALCULATION
IN
ACCUMULATED DATE CAPITALIZED LATEST INCOME
DESCRIPTION DEPRECIATION OR ACQUIRED STATEMENT
- ----------- ------------ ---------------- ----------------
Bay County, Florida
Land w/Infrastructure.......... 13 1998 20 years
Office and Misc. Buildings..... 463 Various 10 to 30 years
Timberlands.................... 240 Various 20 years
Brevard County, Florida
Unimproved Land................ -- Various --
Broward County, Florida
Rail Warehouse................. 751 1986 3 to 40 years
Land w/Infrastructure.......... 4 1992 3 to 40 years
Unimproved Land................ -- Various --
Leasehold improvements......... 23 Various Lesser of lease
term to 5 years
Calhoun County, Florida
Timberlands.................... 70 Various 20 years
Dade County, Florida
Double Front Load Warehouse.... 1,442 1993 3 to 40 years
Rail Warehouses................ 5,425 1988 3 to 40 years
Office/Showroom/Warehouses..... 4,850 1988 3 to 40 years
Office/Warehouses.............. 4,791 1990 3 to 40 years
Front Load Warehouses.......... 5,255 1991 3 to 40 years
Office/Service Center.......... 427 1994 3 to 40 years
Cross Dock..................... 327 1987 3 to 40 years
Transit Warehouse.............. 3 Various 3 to 40 years
Land w/Infrastructure.......... 1,754 Various 3 to 40 years
Unimproved Land & Misc.
Assets....................... -- Various 3 to 40 years
Leasehold improvements......... 19 Various Lesser of lease
term to 5 years
Construction in Progress....... -- 1998 --
Duval County, Florida
Office Buildings............... 11,413 1985 3 to 40 years
Office/Showroom/Warehouses..... 8,006 1987 3 to 40 years
Office/Warehouses.............. 1,382 1994 3 to 40 years
Front Load Warehouse........... 101 1998 3 to 40 years
Rail Warehouses................ 118 1998 3 to 40 years
Land w/Infrastructure.......... 1,014 1998 3 to 40 years
Unimproved Land & Misc.
Assets....................... 222 1998 5 years
City & Residential Lots........ 132 Various 10 to 20 years
Timberlands.................... 6 Various 20 years
Construction in Progress....... -- 1998 --
Flagler County, Florida
Unimproved Land................ -- Various --
Franklin County, Florida
Timberlands.................... 76 Various 20 years
Gadsden County, Florida
Timberlands.................... 88 Various 20 years
Gulf County, Florida
Misc. Buildings................ 253 Various 10 to 30 years
Timberlands.................... 364 Various 20 years
Jefferson County, Florida
Misc. Buildings................ -- Various 10 to 30 years
Timberlands.................... 308 Various 20 years
Leon County, Florida
Land w/Infrastructure.......... 17 Various 20 years
Misc. Buildings................ 34 Various 10 to 30 years
Timberlands.................... 71 Various 20 years
S-3
66
THE ST. JOE COMPANY
SCHEDULE III (CONSOLIDATED) -- REAL ESTATE AND
ACCUMULATED DEPRECIATION -- (CONTINUED)
INITIAL COST TO COMPANY CARRIED AT CLOSE OF PERIOD
------------------------------------- -----------------------------------------------------
COSTS
CAPITALIZED BUILDINGS
BUILDINGS & SUBSEQUENT TO LAND & LAND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION IMPROVEMENTS IMPROVEMENTS TOTAL
- ----------- ------------ ------- ------------ ------------- ------------ ------------ -------
Liberty County, Florida
Misc. Buildings................ 0 -- -- 73 -- 73 73
Timberlands.................... 0 2,385 -- 8,436 10,821 -- 10,821
Martin County, Florida
Land w/Infrastructure.......... 0 3,638 -- 1,514 5,152 -- 5,152
Unimproved Land................ 0 1,414 -- -- 1,414 -- 1,414
Orange County, Florida
Office Building................ 0 1,276 -- 12,123 2,274 11,125 13,399
Office/Showroom/Warehouse...... 0 1,543 -- 6,006 2,411 5,138 7,549
Land w/Infrastructure.......... 0 17,510 -- 844 18,167 187 18,354
Leasehold improvements......... 0 -- 24 -- -- 24 24
Construction in Progress....... 0 -- -- 6,521 -- 6,521 6,521
Palm Beach County, Florida
Office/Showroom/Warehouse...... 0 217 -- 2,880 599 2,498 3,097
Rail Warehouses................ 0 461 -- 4,241 557 4,145 4,702
Cross Docks.................... 0 274 -- 3,629 1,262 2,641 3,903
Unimproved Land................ 0 2,433 -- -- 2,433 -- 2,433
Leasehold improvements......... 0 -- 269 -- -- 269 269
Seminole County, Florida
Unimproved Land................ 0 2 -- -- 2 -- 2
Leasehold improvements......... 0 -- 32 -- -- 32 32
St. Johns County, Florida
Land w/Infrastructure.......... 0 6,862 -- 1,016 7,878 -- 7,878
Volusia County, Florida
Unimproved Land................ 0 3,627 -- -- 3,627 -- 3,627
Wakulla County, Florida
Misc. Buildings................ 0 -- -- 71 -- 71 71
Timberlands.................... 0 1,238 -- 4,380 5,618 -- 5,618
Walton County, Florida
Land w/Infrastructure.......... 0 71 -- 1,119 1,190 -- 1,190
Timberlands.................... 0 466 -- 1,647 2,113 -- 2,113
Other Florida Counties
Unimproved Land................ 0 747 -- -- 747 -- 747
Misc. Land..................... 0 5,552 -- 2,217 7,769 41 7,809
Leasehold improvements......... 0 -- 334 -- -- 334 334
Timberlands.................... 0 864 -- 3,058 3,922 -- 3,922
Fulton County, Georgia
Leasehold improvements......... 0 -- 16 -- -- 16 16
Other Georgia Counties
Misc. Buildings................ 0 -- -- 141 -- 141 141
Timberlands.................... 0 897 -- 3,176 4,073 -- 4,073
Durham County, North Carolina
Leasehold improvements......... 0 -- 23 -- -- 23 23
Virginia Cities and Counties
Leasehold improvements......... 0 -- 86 -- -- 86 86
White County, Tennessee
Unimproved Land................ 0 36 -- -- 36 -- 36
DEPRECIABLE LIFE
USED
IN CALCULATION
IN
ACCUMULATED DATE CAPITALIZED LATEST INCOME
DESCRIPTION DEPRECIATION OR ACQUIRED STATEMENT
- ----------- ------------ ---------------- ----------------
Liberty County, Florida
Misc. Buildings................ 46 Various 10 to 30 years
Timberlands.................... 139 Various 20 years
Martin County, Florida
Land w/Infrastructure.......... 278 Various 3 to 40 years
Unimproved Land................ -- Various --
Orange County, Florida
Office Building................ 394 Various 3 to 40 years
Office/Showroom/Warehouse...... 128 Various 3 to 40 years
Land w/Infrastructure.......... 11 1995, 1998 3 to 40 years
Leasehold improvements......... 2 Various Lesser of lease
term to 5 years
Construction in Progress....... -- 1998 --
Palm Beach County, Florida
Office/Showroom/Warehouse...... 1,089 Various 3 to 40 years
Rail Warehouses................ 1,486 Various 3 to 40 years
Cross Docks.................... 1,323 Various 3 to 40 years
Unimproved Land................ -- Various --
Leasehold improvements......... 22 Various Lesser of lease
term to 5 years
Seminole County, Florida
Unimproved Land................ -- Various --
Leasehold improvements......... 3 Various Lesser of lease
term to 5 years
St. Johns County, Florida
Land w/Infrastructure.......... -- Various --
Volusia County, Florida
Unimproved Land................ -- Various --
Wakulla County, Florida
Misc. Buildings................ -- Various --
Timberlands.................... 136 Various 20 years
Walton County, Florida
Land w/Infrastructure.......... -- Various --
Timberlands.................... 27 Various 20 years
Other Florida Counties
Unimproved Land................ -- Various --
Misc. Land..................... 147 Various 20 years
Leasehold improvements......... 26 Various Lesser of lease
term to 5 years
Timberlands.................... 50 Various 20 years
Fulton County, Georgia
Leasehold improvements......... 1 Various Lesser of lease
term to 5 years
Other Georgia Counties
Misc. Buildings................ -- Various --
Timberlands.................... 114 Various 20 years
Durham County, North Carolina
Leasehold improvements......... 2 Various Lesser of lease
term to 5 years
Virginia Cities and Counties
Leasehold improvements......... 6 Various Lesser of lease
term to 5 years
White County, Tennessee
Unimproved Land................ -- Various --
S-4
67
THE ST. JOE COMPANY
SCHEDULE III (CONSOLIDATED) -- REAL ESTATE AND
ACCUMULATED DEPRECIATION -- (CONTINUED)
INITIAL COST TO COMPANY CARRIED AT CLOSE OF PERIOD
------------------------------------- -----------------------------------------------------
COSTS
CAPITALIZED BUILDINGS
BUILDINGS & SUBSEQUENT TO LAND & LAND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION IMPROVEMENTS IMPROVEMENTS TOTAL
- ----------- ------------ ------- ------------ ------------- ------------ ------------ -------
Harris County, Texas
Land w/Infrastructure.......... 0 1,817 -- 352 2,169 -- 2,169
Construction in Progress....... 0 -- -- 6,109 -- 6,109 6,109
District of Columbia
Leasehold improvements......... 0 -- 4 -- -- 4 4
-- ------- ----- ------- ------- ------- -------
TOTALS.................... 0 172,629 2,784 427,543 324,950 278,044 602,994
== ======= ===== ======= ======= ======= =======
DEPRECIABLE LIFE
USED
IN CALCULATION
IN
ACCUMULATED DATE CAPITALIZED LATEST INCOME
DESCRIPTION DEPRECIATION OR ACQUIRED STATEMENT
- ----------- ------------ ---------------- ----------------
Harris County, Texas
Land w/Infrastructure.......... -- 1998 --
Construction in Progress....... -- 1998 --
District of Columbia
Leasehold improvements......... 1 Various Lesser of lease
term to 5 years
------
TOTALS.................... 54,893
======
- ---------------
Notes:
(A) The aggregate cost of real estate owned at December 31, 1998 for federal
income tax purposes is approximately $442,852,000.
(B) Reconciliation of real estate owned (in thousands of dollars):
1998 1997 1996
-------- -------- --------
Balance at Beginning of
Year......................... $507,779 $474,438 $403,974
Amounts Capitalized........... 109,915 50,410 75,832
Amounts Retired or Adjusted... (14,700) (17,069) (5,368)
Balance at Close of Period.... $602,994 $507,779 $474,438
(C) Reconciliation of accumulated depreciation (in thousands of dollars):
1998 1997 1996
-------- -------- --------
Balance at Beginning of
Year......................... $ 42,343 $ 36,025 $ 28,383
Depreciation Expense.......... 12,784 8,878 7,710
Amounts Retired or Adjusted... (234) (2,560) (68)
Balance at Close of Period.... $ 54,893 $ 42,343 $ 36,025
(D) The timberland properties have been included as investment properties and
prior year amounts have been reclassified to conform to this presentation.
S-5