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JOE > SEC Filings for JOE > Form 10-Q on 8-Aug-2013All Recent SEC Filings

Show all filings for ST JOE CO

Form 10-Q for ST JOE CO


8-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
You should read the following discussion and analysis in conjunction with our unaudited Condensed Consolidated Financial Statements and the related notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and our audited Consolidated Financial Statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.
As used throughout this Quarterly Report on Form 10-Q, the terms "St. Joe," the "Company," "we," "our," or "us" include The St. Joe Company and its consolidated subsidiaries unless the context indicates otherwise.

Business Overview
We own land, timber and resort assets located primarily in Northwest Florida and in and around the Jacksonville and Tallahassee regions of North Florida, including significant Gulf of Mexico beach frontage and waterfront properties. We seek higher and better uses for our assets through a range of activities from forestry to strategic land planning and development, infrastructure improvements and promoting economic development in the regions where we operate. We may explore the sale of such assets when they reach their highest and best use. We have five operating segments: residential real estate, commercial real estate, rural land, resorts, leisure and leasing operations and forestry. The table below sets forth the relative contribution of these operating segments to our consolidated operating revenues:

                                           Three Months Ended         Six Months Ended
                                                 June 30,                  June 30,
                                           2013           2012         2013        2012
Segment Operating Revenues
Residential real estate                     16.3 %         14.0 %      21.9 %      13.1 %
Commercial real estate                       0.3 %          2.1 %       0.6 %      10.9 %
Rural land                                   0.1 %          0.7 %       0.1 %       7.4 %
Resorts, leisure and leasing operations     53.6 %         51.1 %      44.8 %      37.0 %
Forestry                                    28.9 %         32.1 %      32.1 %      31.6 %
Other                                        0.8 %            - %       0.5 %         - %
Consolidated operating revenues            100.0 %        100.0 %     100.0 %     100.0 %

Residential Real Estate
Our residential real estate segment typically plans and develops mixed-use resort, primary and seasonal residential communities of various sizes, primarily on our existing land.
Our residential real estate segment generates revenues from:
the sale of developed homesites;

the sale of parcels of entitled, undeveloped lots;

         a lot residual on homebuilder sales that provides us a percentage of
          the sale price of the completed home if the home price exceeds a
          negotiated threshold; and

fees on certain transactions.

Our residential real estate segment incurs cost of revenues from:
costs directly associated with the land, development and construction of real estate sold, indirect costs such as development overhead, capitalized interest, marketing, project administration, and selling costs; and

brokerage fees.


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Commercial Real Estate
In our commercial real estate segment we plan, develop and entitle our land holdings, often in conjunction with strategic partners, for a broad range of retail, office, hotel and industrial uses. We sell land for commercial and light industrial uses within large and small-scale commerce parks, as well as for multi-family rental projects.
Our commercial real estate segment generates revenues from the sale of developed and undeveloped land for retail, office, hotel and industrial uses and from the sale of undeveloped land or land with limited development, and easements. Our commercial real estate segment incurs costs of revenues from costs directly associated with the land, development costs and selling costs.

Rural Land
Our rural land segment markets and sells tracts of land of varying sizes for rural recreational, conservation and timberland uses. Our rural land segment prepares land for sale for these uses through harvesting, thinning and other siviculture practices, and in some cases, limited infrastructure development. Our rural land segment generates revenues from the sale of undeveloped land, land with limited development and easements. Our rural land segment incurs costs of revenue from the cost of land, minimal development costs and selling costs.

Resorts, Leisure and Leasing Operations
Our resorts, leisure and leasing operations segment generates revenues from our recurring revenue streams, which primarily include the WaterColor Inn and vacation rentals, golf courses, marinas and leasing operations. In addition, this segment occasionally generates revenues from the sale of operating assets. WaterColor Inn and Vacation Rentals - Our resorts and leisure operations generate revenues from the WaterColor Inn and Resort, the WaterSound Beach club and our vacation rental business. The WaterColor Inn incurs expenses from the cost of services and goods provided, personnel costs and third party management fees. Our vacation rental business generates revenues from the rental of private homes to families vacationing in the area. The vacation rental business incurs expenses from marketing, personnel and general maintenance for the homeowner. Also included in the vacations rental business' costs are amounts owed to the homeowner for their percentage of rental revenue.
Golf Courses - Our golf courses generate revenues from memberships, daily play, merchandise sales and food and beverage sales and incurs expenses from the services provided, maintenance of the golf course facilities, personnel costs and third party management fees.
Marinas - Our marinas generate revenues from boat slip rentals and fuel sales, and incurs expenses from cost of services provided, maintenance of the marina facilities and personnel costs.
Leasing Operations - Our leasing operations generate revenues from leasing retail and commercial property and incurs expenses primarily from maintenance of the properties and personnel costs.

Forestry
Our forestry segment focuses on the management and harvesting of our extensive timber holdings. We grow, harvest and sell sawtimber, wood fiber and forest products and provide land management services for conservation properties. Our forestry segment generates revenues from the sale of wood fiber, sawtimber, standing timber and forest products and conservation land management services. Our forestry segment incurs costs of revenues from internal costs of forestry management, external logging costs, and property taxes.


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A significant portion of the revenue from our forestry segment is generated pursuant to our supply agreement entered into in November 2010 with RockTenn ("RockTenn Supply Agreement"), under which we sell delivered wood (trees that we cut and deliver). Under the terms of the RockTenn Supply Agreement, the price for timber is based upon the average of the market price for stumpage and the market price for delivered wood, each as set forth in an established index. In addition, pursuant to the RockTenn Supply Agreement, Smurfit-Stone Container Corporation and RockTenn would be liable for any monetary damages as a result of the closure of the mill due to economic reasons for a period of one year from the date of closure. Nevertheless, if the RockTenn mill in Panama City, Florida, were to permanently cease operations, the price for pulpwood may decline, and the cost of delivering logs to alternative customers could increase.

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

Investments

During the first six months of 2013, we invested $115.4 million of our cash and cash equivalents in U.S. treasury securities and corporate debt securities. We have classified these investments as available-for-sale securities and record the investments at fair value, which is based on quoted market prices. Accordingly, unrealized gains and temporary losses on investments, net of tax, are recorded in other comprehensive income (loss). Realized gains and losses are determined using the specific identification method.
We evaluate investments with unrealized losses to determine if they experienced an other-than-temporary impairment. This evaluation is based on various factors, including length of time securities were in a loss position, ability and intent to hold investments until temporary losses are recovered or they mature, investee's industry and amount of the unrealized loss. Based on these factors, the unrealized losses of $0.9 million were not deemed as an other-than-temporary impairment at June 30, 2013.
Other critical accounting policies that we believe reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements are set forth in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no other significant changes in these policies during the first six months of 2013, however there is no assurance that these policies will not change in the future.

Recently Issued and Adopted Accounting Standards See Note 1 to our unaudited condensed consolidated financial statements included in this report for recently issued and adopted accounting standards, including the date of adoption and effect on our condensed consolidated financial statements.

Seasonality
Our residential real estate business and our resorts, leisure and leasing operation's businesses are affected by seasonal fluctuations. Revenues from our resorts, leisure and leasing operation's businesses are typically higher in the second and third quarters; however, they can vary depending on the timing of holidays and school breaks, including spring break. Our residential real estate business revenues are typically higher in the second and third quarters than the first and fourth quarters due to customer traffic and sales.


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Results of Operations
Consolidated Results
Revenues and expenses. The following table sets forth a comparison of the
results of our operations for the three and six months ended June 30, 2013 and
2012:
                                               Three Months Ended            Six Months Ended
                                                     June 30,                     June 30,
                                               2013           2012           2013          2012
                                                            (Dollars in millions)
Revenues:
Real estate sales                          $     7.0       $     5.1     $    15.0      $   19.1
Resorts, leisure and leasing revenues           17.0            15.6          26.1          22.5
Timber sales                                     9.8             9.7          19.5          19.2
Total                                           33.8            30.4          60.6          60.8
Expenses:
Cost of real estate sales                        3.7             2.9           8.7          10.6
Cost of resorts, leisure and leasing
revenues                                        12.7            12.0          20.9          19.5
Cost of timber sales                             5.8             6.2          11.8          12.5
Other operating expenses                         3.2             4.2           6.1           8.0
Corporate expenses                               4.5             4.9           9.0           9.4
Depreciation, depletion and amortization         2.3             2.5           4.7           4.8
Total                                           32.2            32.7          61.2          64.8
Operating income (loss)                          1.6            (2.3 )        (0.6 )        (4.0 )
Other income:
Investment income, net                           0.3             0.3           0.4           0.8
Interest expense                                (0.3 )          (0.7 )        (0.9 )        (1.5 )
Other, net                                       1.1             2.9           1.3           4.6
Total other income                               1.1             2.5           0.8           3.9
Income (loss) before equity in loss from
unconsolidated affiliates and income taxes       2.7             0.2           0.2          (0.1 )
Equity in loss from unconsolidated
affiliates                                         -               -             -             -
Income tax expense                                 -               -             -           0.6
Net income (loss)                          $     2.7       $     0.2     $     0.2      $   (0.7 )

Real Estate Sales. Real estate sales increased $1.9 million, or 37%, in the three months ended June 30, 2013 as compared to the same period in 2012 primarily due to the following:

An increase of $1.2 million from residential real estate sales due to higher volumes of homesites sold in our primary communities and increased prices in our resort communities;

A sale of real estate in our consolidated Pier Park North joint venture of $1.1 million during the three months ended June 30, 2013; partially offset by

A decrease of $0.7 million from commercial real estate sales and rural land sales.


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Real estate sales decreased $4.1 million or, 21%, in the six months ended June 30, 2013 as compared to the same period in 2012 primarily due to the following:
There were no significant rural land sales during the six months ended June 30, 2013 as compared to four rural land sales for a total of $4.5 million, including one sale for $4.3 million, during the six months ended June 30, 2012;

There were three sales of commercial real estate for $0.3 million during the six months ended June 30, 2013 as compared to three commercial real estate sales for a total of $6.7 million, including one sale for $5.4 million, during the six months ended June 30, 2012; partially offset by

An increase of $5.2 million from residential real estate sales primarily due to higher volumes of homesites sold in both our resort and primary communities and increased prices in our resort communities; and

A sale of real estate in our consolidated Pier Park North joint venture of $1.1 million during the six months ended June 30, 2013.

Cost of Real Estate Sales. Cost of real estate sales increased $0.8 million, or 28%, in the three month period ended June 30, 2013 as compared to the same period in 2012 primarily due to the overall increase in real estate sales. Cost of real estate sales decreased $1.9 million, or 18%, in the six month period ended June 30, 2013 as compared to the same period in 2012. The decrease was due to the decrease in cost of sales of $5.4 million for commercial and rural land sales, offset by an increase in cost of sales of $3.0 million for residential real estate sales.
Resorts, Leisure and Leasing Revenues. Resorts, leisure and leasing revenues increased $1.4 million, or 9%, during the three months ended June 30, 2013 as compared to the same period in 2012 and increased $3.6 million or 16% during the six months ended June 30, 2013 as compared to the same period in 2012 due to higher average room rates and increased food and beverage sales at the WaterColor Inn and an increase in the number of homes in our vacation rental program.
Timber Revenues and Costs of Sales. Timber sales increased slightly and cost of timber sales decreased during the three and six months ended June 30, 2013 as compared to the same period in 2012. Timber sales increased due to increased prices of pine pulpwood, offset by a decrease in the volume of tons sold. The decrease in tons sold translated into lower costs during the three and six months ended June 30, 2013 as compared to the prior periods in 2012. Other Operating and Corporate Expenses. Other operating and corporate expenses decreased by $1.4 million, or 15%, during the three months ended June 30, 2013 as compared to the same period in 2012. The $1.4 million decrease was driven primarily by decreases in pension expense of $0.7 million, director fees of $0.3 million, and a net decrease of $0.4 million in property taxes, owner association fees and professional fees.
Other operating and corporate expenses decreased by $2.3 million, or 13%, during the six months ended June 30, 2013 as compared to the same period in 2012. The $2.3 million decrease was driven primarily by decreases in employee costs, pension and stock compensation totaling $1.1 million, director fees of $0.3 million, and a net decrease of $0.9 million in property taxes, owner association fees and professional fees.
Other income. Other income consists primarily of investment income, interest expense, gains and losses on dispositions of assets and expense related to our standby guarantee liability and other income.
The prepayment of CDD bonds in the third quarter of 2012 decreased interest expense by $0.4 million and $0.6 million during the three and six month periods ended June 30, 2013 as compared to same periods in 2012, respectively.

Other, net decreased by $1.8 million during the three month period ended June 30, 2013 as compared to the same period in 2012 primarily due to the cash receipt of $0.6 million for the DeepWater Horizon claim during the three months ended June 30, 2012, and the reversal of the $0.8 million Southwest Airlines liability guarantee that terminated in the second quarter of 2012.


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Other, net has decreased by $3.3 million during the six month period ended June 30, 2013 as compared to the same period in 2012 primarily due to the cash receipt of $1.7 million for the DeepWater Horizon claim during the six months ended June 30, 2012, the reversal of the $0.8 million Southwest Airlines liability guarantee that terminated in the second quarter of 2012; and net gains from the sale of fixed assets during the six months ended June 30, 2012. Income Tax Expense. We had no income tax expense during the three and six months ended June 30, 2013 as compared to a minimal income tax benefit and income tax expense of $0.6 million during the three and six months ended June 30, 2012, respectively. Our income tax expense can vary due to timing of temporary differences and may not correlate with our book income or loss.

Segment Results
Residential Real Estate
We believe our residential sales are showing signs of recovery in many of our
Northwest Florida projects; however, a sustainable recovery at all our
residential projects remains uncertain.
The table below sets forth the results of operations of our residential real
estate segment for the three and six months ended June 30, 2013 and 2012:
                                 Three Months Ended          Six Months Ended
                                       June 30,                   June 30,
                                  2013          2012          2013         2012
                                             (Dollars in millions)
Revenues:
Real estate sales             $     5.4       $   4.2     $    13.0      $  7.8
Other                               0.1           0.1           0.3         0.2
Total revenues                      5.5           4.3          13.3         8.0
Expenses:
Cost of real estate sales           3.1           2.5           7.9         4.9
Other operating expenses            2.1           2.7           4.1         5.1
Depreciation and amortization       0.2           0.5           0.4         0.9
Total expenses                      5.4           5.7          12.4        10.9
Operating income (loss)             0.1          (1.4 )         0.9        (2.9 )
Other expense                      (0.2 )        (0.6 )        (0.7 )      (1.4 )
Income (loss)                 $    (0.1 )     $  (2.0 )   $     0.2      $ (4.3 )


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Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012 The following table sets forth our sales and cost of sales activity by geographic region and property type:

                                 Three Months Ended June 30, 2013                               Three Months Ended June 30, 2012
                                                                        Gross                                                          Gross
                    Units                    Cost of       Gross       Profit      Units                    Cost of       Gross       Profit
                    Sold      Revenues        Sales        Profit      Margin      Sold      Revenues        Sales        Profit      Margin
                                                                      (Dollars in millions)
Northwest Florida:
Resort homesites      16     $     3.5     $     1.9     $    1.6      45.7 %        18     $     3.1     $     1.6     $    1.5      48.4 %
Primary homesites     22           1.3           0.8          0.5      38.5 %        15           0.8           0.5          0.3      37.5 %
Northeast Florida:
Primary homesites     14           0.6           0.4          0.2      33.3 %         9           0.3           0.2          0.1      33.3 %
Total                 52     $     5.4     $     3.1     $    2.3      42.6 %        42     $     4.2     $     2.3     $    1.9      45.2 %

Real estate sales in our residential segment increased $1.2 million, or 28%, to $5.4 million during the three months ended June 30, 2013 as compared to the same period in 2012. The primary drivers of the increase in real estate sales are as follows:
Increase in prices for in our WaterColor, WaterSound Beach and WaterSound West Beach Northwest Florida resort communities;

Increase in volume of homesites sold in our Breakfast Point community and increased homesite prices in our SouthWood community, both primary communities are located in Northwest Florida; and

Increase in volume of homesites sold in our RiverTown community in Northeast Florida.

Other operating expenses include salaries and benefits, marketing, project administration, support personnel and other administrative expenses. Other operating expenses were $2.1 million for the three months ended June 30, 2013 as compared to $2.7 million for three months ended June 30, 2012. The decrease of $0.6 million in operating expenses was primarily due to reductions in employee costs, property taxes and owner association fees.
During the three months ended June 30, 2013 and 2012, the Company has capitalized less than $0.1 million of indirect development costs. Other expense includes interest expense on our CDD assessments, which has decreased $0.4 million during the three months ended June 30, 2013 as compared to the same period in 2012 as a result of the prepayment of CDD debt in the third quarter of 2012.


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Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012 The following table sets forth sales and cost of sales activity by geographic region and property type:

                                    Six Months Ended June 30, 2013                                    Six Months Ended June 30, 2012
                                                                             Gross                                                          Gross
                                                  Cost of       Gross       Profit      Units                    Cost of       Gross       Profit
                   Units Sold      Revenues        Sales        Profit      Margin      Sold      Revenues        Sales        Profit      Margin
                                                                        (Dollars in millions)
Northwest Florida:
Resort homesites      57         $      9.2     $     5.3     $    3.9      42.4 %        31     $     5.8     $     3.3     $    2.5      43.1 %
Primary homesites     47                2.7           1.8          0.9      33.3 %        30           1.6           1.1          0.5      31.3 %
Northeast Florida:
Primary homesites     28                1.1           0.8          0.3      27.3 %        12           0.4           0.3          0.1      25.0 %
Total                132         $     13.0     $     7.9     $    5.1      39.2 %        73     $     7.8     $     4.7     $    3.1      39.7 %

Real estate sales in our residential segment increased $5.2 million, or 67%, to $13.0 million during the six months ended June 30, 2013 as compared to the same period in 2012. The primary drivers of the increase in real estate sales are as follows:
Increase in volume and prices in our WaterColor, WaterSound Beach and WaterSound West Beach Northwest Florida resort communities. The increase in volume includes a sale of 19 lots in our WaterSound West Beach resort community for approximately $3.0 million, of which we recorded deferred profit of $1.2 million;

Increase in volume of homesites sold in our Breakfast Point community and increased homesite prices in our SouthWood community, both of which are located in Northwest Florida; and

Increase in volume of homesites sold in our RiverTown community in Northeast Florida.

Other operating expenses were $4.1 million for the six months ended June 30, 2013 as compared to $5.1 million for six months ended June 30, 2012. The decrease of $1.0 million in operating expenses was primarily due to reductions in employee costs, property taxes and owner association fees.
During the six months ended June 30, 2013 and 2012, the Company has capitalized less than $0.1 million of indirect development costs.
Other expense includes interest expense on our CDD assessments, which decreased $0.7 million during the during the six months ended June 30, 2013 as compared to the same period in 2012 as a result of the prepayment of CDD debt in the third quarter of 2012.


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