UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10466

The St. Joe Company

(Exact name of registrant as specified in its charter)

Florida (State or other jurisdiction of incorporation or organization)		59-0432511 (I.R.S. Employer Identification No.)
133 South WaterSound Parkway WaterSound, Florida (Address of principal executive offices)		32413 (Zip Code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ      NO o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ      NO o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

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

     As of October 28, 2010, there were 122,943,048 shares of common stock, no par value, issued and 92,624,703 outstanding, with 30,318,345 shares of treasury stock.

 

 

THE ST. JOE COMPANY
INDEX

		Page No.
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets — September 30, 2010 and December 31, 2009		3
Consolidated Statements of Operations — Three months and nine months ended September 30, 2010 and 2009		4
Consolidated Statement of Changes in Equity — Nine months ended September 30, 2010		5
Consolidated Statements of Cash Flows — Nine months ended September 30, 2010 and 2009		6
Notes to Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosures About Market Risk		34
Item 4. Controls and Procedures		34
PART II Other Information
Item 1. Legal Proceedings		35
Item 1A. Risk Factors		35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3. Defaults Upon Senior Securities		36
Item 4. Removed and Reserved		36
Item 5. Other Information		36
Item 6. Exhibits		37
Signatures		38
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

     Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

		September 30,				December 31,
		2010				2009
		(Unaudited)
ASSETS
Investment in real estate		$	746,791			$	749,500
Cash and cash equivalents			196,402				163,807
Notes receivable			11,365				11,503
Pledged treasury securities			25,757				27,105
Prepaid pension asset			39,756				42,274
Property, plant and equipment, net			13,695				15,269
Income taxes receivable			—				63,690
Other assets			25,138				26,290
		$	1,058,904			$	1,099,438
LIABILITIES AND EQUITY
LIABILITIES:
Debt		$	38,323			$	39,508
Accounts payable			12,377				13,781
Accrued liabilities and deferred credits			96,719				92,548
Deferred income taxes, net			38,232				57,281
Total liabilities			185,651				203,118
EQUITY:
Common stock, no par value; 180,000,000 shares authorized; 122,947,940 and 122,557,167 issued at September 30, 2010 and December 31, 2009, respectively			934,553				924,267
Retained earnings			881,211				914,362
Accumulated other comprehensive (loss)			(11,678	)			(12,558	)
Treasury stock at cost, 30,307,714 and 30,275,716 shares held at September 30, 2010 and December 31, 2009, respectively			(931,166	)			(930,124	)
Total stockholders’ equity			872,920				895,947
Noncontrolling interest			333				373
Total equity			873,253				896,320
Total liabilities and equity		$	1,058,904			$	1,099,438

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands except per share amounts)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Revenues:
Real estate sales		$	10,866			$	24,271			$	15,536			$	53,008
Resort and club revenues			8,755				9,685				24,144				24,796
Timber sales			6,817				7,053				21,036				20,392
Other revenues			667				913				1,724				2,952
Total revenues			27,105				41,922				62,440				101,148
Expenses:
Cost of real estate sales			3,335				22,452				5,066				38,168
Cost of resort and club revenues			8,786				9,605				24,920				26,009
Cost of timber sales			5,289				5,139				14,810				14,765
Cost of other revenues			515				701				1,597				1,849
Other operating expenses			12,300				8,751				27,838				32,091
Corporate expense, net			9,821				6,008				23,287				20,144
Depreciation and amortization			3,356				3,730				10,295				11,546
Pension settlement charge			—				—				—				44,678
Impairment losses			—				11,063				555				32,561
Restructuring charges			1,654				1,834				4,352				1,845
Total expenses			45,056				69,283				112,720				223,656
Operating loss			(17,951	)			(27,361	)			(50,280	)			(122,508	)
Other (expense) income:
Investment income, net			392				764				1,227				2,160
Interest expense			(5,171	)			(65	)			(7,401	)			(332	)
Other, net			1,081				533				2,450				1,457
Total other (expense) income			(3,698	)			1,232				(3,724	)			3,285
Loss from continuing operations before equity in (loss) of unconsolidated affiliates and income taxes			(21,649	)			(26,129	)			(54,004	)			(119,223	)
Equity in (loss) of unconsolidated affiliates			(50	)			(66	)			(479	)			(81	)
Income tax (benefit)			(8,573	)			(11,827	)			(21,302	)			(47,525	)
Loss from continuing operations			(13,126	)			(14,368	)			(33,181	)			(71,779	)
Loss from discontinued operations, net of tax			—				(187	)			—				(409	)
Net loss			(13,126	)			(14,555	)			(33,181	)			(72,188	)
Less: Net loss attributable to noncontrolling interest			(10	)			(60	)			(30	)			(817	)
Net loss attributable to the Company		$	(13,116	)		$	(14,495	)		$	(33,151	)		$	(71,371	)
LOSS PER SHARE
Basic
Loss from continuing operations attributable to the Company		$	(0.14	)		$	(0.16	)		$	(0.36	)		$	(0.78	)
Loss from discontinued operations attributable to the Company		$	—			$	—			$	—			$	—
Net loss attributable to the Company		$	(0.14	)		$	(0.16	)		$	(0.36	)		$	(0.78	)
Diluted
Loss from continuing operations attributable to the Company		$	(0.14	)		$	(0.16	)		$	(0.36	)		$	(0.78	)
Loss from discontinued operations attributable to the Company		$	—			$	—			$	—			$	—
Net loss attributable to the Company		$	(0.14	)		$	(0.16	)		$	(0.36	)		$	(0.78	)

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
(Dollars in thousands)

														Accumulated
		Common Stock												Other
		Outstanding								Retained				Comprehensive				Treasury				Noncontrolling
		Shares				Amount				Earnings				Income (Loss)				Stock				Interest				Total
Balance at December 31, 2009			92,281,451			$	924,267	(1)		$	914,362	(1)		$	(12,558	)		$	(930,124	)		$	373			$	896,320
Comprehensive (loss):
Net (loss)			—				—				(33,151	)			—				—				(30	)			(33,181	)
Amortization of pension and postretirement benefit costs, net			—				—				—				880				—				—				880
Total comprehensive (loss)			—				—				—				—				—				—				(32,301	)
Distributions			—				—				—				—				—				(10	)			(10	)
Issuances of restricted stock			337,967								—				—				—				—				—
Forfeitures of restricted stock			(126,080	)			—				—				—				—				—				—
Issuance of common stock			178,886				5,083				—				—				—				—				5,083
Excess (reduction in) tax benefit on options exercised and vested restricted stock			—				(227	)			—				—				—				—				(227	)
Amortization of stock-based compensation			—				5,430				—				—				—				—				5,430
Purchases of treasury shares			(31,998	)			—				—				—				(1,042	)							(1,042	)
Balance at September 30, 2010			92,640,226			$	934,553			$	881,211			$	(11,678	)		$	(931,166	)		$	333			$	873,253

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Dollars in thousands)

		Nine Months Ended
		September 30,
		2010				2009
Cash flows from operating activities:
Net loss		$	(33,181	)		$	(72,188	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			10,295				12,365
Stock-based compensation			4,730				7,455
Equity in loss of unconsolidated joint ventures			479				81
Deferred income tax (benefit)			(19,692	)			(17,670	)
Pension settlement			—				44,678
Impairment losses			555				32,561
Cost of operating properties sold			3,260				32,090
Expenditures for operating properties			(9,487	)			(7,511	)
Changes in operating assets and liabilities:
Notes receivable			739				3,168
Other assets			4,206				7,037
Accounts payable and accrued liabilities			3,683				(1,829	)
Income taxes receivable			63,870				4,427
Net cash provided by operating activities			29,457				44,664
Cash flows from investing activities:
Purchases of property, plant and equipment			(1,117	)			(3,429	)
Proceeds from the disposition of assets			50				1,694
Distributions from unconsolidated affiliates			401				535
Net cash (used in) investing activities			(666	)			(1,200	)
Cash flows from financing activities:
Distribution to noncontrolling interest			(10	)			(1,569	)
Proceeds from exercises of stock options			5,083				467
Excess tax (benefits) from stock-based compensation			(227	)			(739	)
Taxes paid on behalf of employees related to stock-based compensation			(1,042	)			(541	)
Net cash provided by (used in) financing activities			3,804				(2,382	)
Net increase in cash and cash equivalents			32,595				41,082
Cash and cash equivalents at beginning of period			163,807				115,472
Cash and cash equivalents at end of period		$	196,402			$	156,554

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise stated)
(Unaudited)

1. Description of Business and Basis of Presentation

  Description of Business

     The St. Joe Company (the “Company”) is a real estate development company primarily engaged in residential, commercial and industrial development and rural land sales. The Company also has significant interests in timber. Most of its real estate operations, as well as its timber operations, are within the State of Florida.

  Basis of Presentation

     The accompanying unaudited interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnotes required by generally accepted accounting principles in the United States for complete financial statements are not included herein. The consolidated interim financial statements include the accounts of the Company and all of its majority-owned and controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The December 31, 2009 balance sheet amounts have been derived from the Company’s December 31, 2009 audited financial statements.

     The statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. The consolidated interim statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The Company adheres to the same accounting policies in preparation of its interim financial statements. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes, are based on full year assumptions. For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates.

     Certain prior period amounts have been reclassified to conform to the current period’s presentation.

  Correction of Prior Period Error

     In the first quarter of 2010, the Company determined that approximately $2.6 million ($1.6 million net of tax) of stock compensation expense related to the acceleration of the service period for retirement eligible employees should have been recognized in periods prior to 2010. Accordingly, the consolidated balance sheet for December 31, 2009 has been adjusted to reduce deferred income taxes, net, by $1.0 million and increase common stock by $2.6 million to reflect the correction of this error, with a corresponding $1.6 million reduction recorded to retained earnings. This correction is similarly reflected as an adjustment to common stock and retained earnings as of December 31, 2009 in the consolidated statement of changes in equity. The correction of this error also affected the consolidated statements of operations for the three months and nine months ended September 30, 2009 and consolidated statement of cash flows for the nine months ended September 30, 2009. These corrections were not considered material to prior period financial statements.

  New Accounting Standards

     In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. ASU 2010-06 amends Codification Subtopic 820-10 to now require (1) a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; (2) in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements, and (3) a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years

beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASU No. 2010-06 did not have a material impact on the Company’s financial position or results of operations.

     In December 2009, the FASB issued ASU 2009-16, Transfers and Servicing (Topic 860) — Accounting for Transfers of Financial Assets (“ASU 2009-16”) and ASU 2009-17, Consolidations (Topic 810) — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”). ASU 2009-16 formally codifies Statement of Financial Accounting Standards (“SFAS”) No. 166, Accounting for Transfers of Financial Assets, while ASU 2009-17 codifies SFAS 167, Amendments to FASB Interpretation No. 46(R). ASU 2009-16 represents a revision to the provisions of former SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity” (“QSPE”), changes the requirements for derecognizing financial assets and requires additional disclosures. ASU 2009-17 represents a revision to former Financial Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities, and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance.

     The updates require a number of new disclosures. ASU 2009-16 enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and an entity’s continuing involvement in transferred financial assets. ASU 2009-17 requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. The updates to the Codification are effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity. ASU 2009-16 and ASU 2009-17 were adopted by the Company as required on January 1, 2010. The adoption of ASU 2009-16 and ASU 2009-17 did not have a material impact on the Company’s financial position or results of operations. Although the Company holds a retained interest in bankruptcy remote entities that were previously considered QSPEs, the financial position and results of such QSPEs are not consolidated in the Company’s financial statements. The Company evaluated the accounting requirements of ASU 2009-17 and determined that it would not be required to consolidate the financial position and results of the QSPEs as the Company is not the primary decision maker with respect to activities that could significantly impact the economic performance of the QSPEs, nor does the Company perform any service activity related to the QSPEs.

2. Stock-Based Compensation and Earnings Per Share

  Stock-Based Compensation

     Stock-based compensation cost is measured at the grant date based on the fair value of the award and is typically recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. Stock-based compensation cost may be recognized over a shorter requisite service period if an employee meets retirement eligibility requirements. Additionally, the 15% discount at which employees may purchase the Company’s common stock through payroll deductions is being recognized as compensation expense. Upon exercise of stock options or vesting of restricted stock, the Company will issue new common stock.

  Service-Based Grants

     A summary of service-based non-vested restricted share activity as of September 30, 2010 and changes during the nine month period are presented below:

						Weighted Average
		Number of				Grant Date Fair
Service-Based Non-Vested Restricted Shares		Shares				Value
Balance at December 31, 2009			299,815			$	36.66
Granted			160,923				27.58
Vested			(121,616	)			40.12
Forfeited			(28,070	)			30.76
Balance at September 30, 2010			311,052			$	31.15

     As of September 30, 2010, there was $2.2 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested restricted stock and stock option compensation arrangements which will be recognized over a weighted average period of four years.

  Market Condition Grants

     The Company grants to select executives and other key employees non-vested restricted stock whose vesting is based upon the achievement of certain market conditions which are defined as the Company’s total shareholder return as compared to the total shareholder return of certain peer groups during a three year performance period.

     The Company currently uses a Monte Carlo simulation pricing model to determine the fair value of its market condition awards. The determination of the fair value of market condition-based awards is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the requisite performance term of the awards, the relative performance of the Company’s stock price and shareholder returns to those companies in its peer groups and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market condition, provided the requisite service period is met.

     A summary of the activity during the nine months ended September 30, 2010 is presented below:

						Weighted Average
		Number of				Grant Date Fair
Market Condition Non-Vested Restricted Shares		Shares				Value
Balance at December 31, 2009			503,247			$	23.95
Granted			177,044				21.23
Vested			—				—
Forfeited			(98,010	)			23.56
Balance at September 30, 2010			582,281			$	23.19

     As of September 30, 2010, there was $4.0 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to market condition non-vested restricted shares which will be recognized over a weighted average period of three years. At September 30, 2010, the Company has accrued $0.8 million related to cash liability awards that may be payable to terminated employees who had been granted market condition restricted shares.

     Total stock-based compensation recognized in the consolidated statements of operations is as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Stock-based compensation expense		$	1,911			$	872			$	4,730			$	7,455

  Earnings (Loss) Per Share

     Basic earnings (loss) per share is calculated by dividing net income (loss) by the average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period, including all potentially dilutive shares issuable under outstanding stock options and service-based non-vested restricted stock. Stock options and non-vested restricted stock are not considered in any diluted earnings per share calculations when the Company has a loss from continuing operations. Non-vested restricted shares subject to vesting based on the achievement of market conditions are treated as contingently issuable shares and are considered outstanding only upon the satisfaction of the market conditions.

     The following table presents a reconciliation of average shares outstanding:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Basic average shares outstanding			91,773,482				91,496,677				91,635,193				91,357,912
Net effect of stock options assumed to be exercised			—				—				—				—
Net effect of non-vested restricted stock assumed to be vested			—				—				—				—
Diluted average shares outstanding			91,773,482				91,496,677				91,635,193				91,357,912

     Approximately 0.1 million and 0.2 million shares were excluded from the computation of diluted earnings (loss) per share during the three months ended September 30, 2010 and 2009, respectively, and 0.1 million and 0.2 million during the nine months ended September 30, 2010 and 2009, respectively, as the effect would have been anti- dilutive.

3. Fair value measurements

     The Company follows the provisions of ASC 820 for its financial and non-financial assets and liabilities. ASC 820 among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

     Assets and liabilities measured at fair value on a recurring basis are as follows:

  Fair value as of September 30, 2010

						Quoted Prices in				Significant Other				Significant
		Fair Value				Active Markets for				Observable				Unobservable
		September 30,				Identical Assets				Inputs				Inputs
		2010				(Level 1)				(Level 2)				(Level 3)
Recurring:
Investments in money market		$	188,308			$	188,308			$	—			$	—
Retained interest in QSPEs			10,179				—				—				10,179
Standby guarantee liability			(791	)			—				—				(791	)
Total, net		$	197,696			$	188,308			$	—			$	9,388

  Fair value as of December 31, 2009

						Quoted Prices in				Significant Other				Significant
		Fair Value				Active Markets for				Observable				Unobservable
		December 31,				Identical Assets				Inputs				Inputs
		2009				(Level 1)				(Level 2)				(Level 3)
Recurring:
Investments in money market		$	143,985			$	143,985			$	—			$	—
Retained interest in QSPEs			9,881				—				—				9,881
Standby guarantee liability			(791	)			—				—				(791	)
Total, net		$	153,075			$	143,985			$	—			$	9,090

     During 2008 and 2007, the Company sold 79,031 acres and 53,024 acres, respectively, of timberland in exchange for 15-year installment notes receivable in the aggregate amount of $108.4 million and $74.9 million, respectively. The installment notes are fully backed by irrevocable letters of credit issued by Wells Fargo Bank, N.A. The Company contributed the installment notes to bankruptcy remote QSPEs.

     During 2008 and 2007, the QSPEs monetized $108.4 million and $74.9 million, respectively, of installment notes by issuing debt securities to third party investors equal to approximately 90% of the value of the installment notes. Approximately $96.1 million and $66.9 million in net proceeds were distributed to the Company during 2008 and 2007, respectively. The debt securities are payable solely out of the assets of the QSPEs and proceeds from the letters of credit. The investors in the QSPEs have no recourse against the Company for payment of the debt securities or related interest expense.

     The QSPE’s financial position and results are not consolidated in the Company’s financial statements as the Company is not the primary decision maker with respect to the activities that could significantly impact the economic performance of the QSPEs, nor does the Company perform any service activity related to the QSPEs.

     The Company has recorded a retained interest with respect to the monetization of certain installment notes through the use of QSPEs, which is recorded in other assets. The retained interest is an estimate based on the present value of cash flows to be received over the life of the installment notes. The Company’s continuing involvement with the QSPEs is in the form of receipts of net interest payments, which are recorded as interest income and approximated $0.3 million for each of the nine months ended September 30, 2010 and 2009, respectively. In addition, the Company will receive the payment of the remaining principal on the installment notes during 2022 and 2023.

     In accordance with ASC 325, Investments — Other, Subtopic 40 — Beneficial Interests in Securitized Financial Assets, the Company recognizes interest income over the life of the retained interest using the effective yield method with discount rates ranging from 2%-7%. This income adjustment is being recorded as an offset to loss on monetization of notes over the life of the installment notes. In addition, fair value may be adjusted at each reporting date when, based on management’s assessment of current information and events, there is a favorable or adverse change in estimated cash flows from cash flows previously projected. The Company did not record any impairment adjustments as a result of changes in previously projected cash flows during the first nine months of 2010 or 2009.

     The following is a reconciliation of the Company’s retained interest in QSPEs:

		2010
Balance January 1		$	9,881
Additions			—
Accretion of interest income			298
Balance September 30		$	10,179

     In the event of a failure and liquidation of the financial institution involved in our installment sales, the Company could be required to write-off the remaining retained interest recorded on its balance sheet in connection with the installment sale monetization transactions, which would have an adverse effect on the Company’s results of operations and balance sheet.

     On October 21, 2009, the Company entered into a strategic alliance agreement with Southwest Airlines to facilitate the commencement of low-fare air service to the new Northwest Florida Beaches International Airport. The Company has agreed to reimburse Southwest Airlines if it incurs losses on its service at the new airport during the first three years of service by making specified break-even payments. There was no reimbursement required during the third quarter of 2010 and a carryover profit will be applied to the reimbursement calculation for the fourth quarter of 2010. The agreement also provides that Southwest Airlines’ profits from the air service during the term of the agreement will be shared with the Company up to the maximum amount of our break-even payments.

     The term of the agreement extends for a period of three years ending May 23, 2013. Although the agreement does not provide for maximum payments, the agreement may be terminated by the Company if the break-even payments to Southwest Airlines exceed $14.0 million in the first year of air service or $12.0 million in the second year. Southwest Airlines may terminate the agreement if its actual annual revenues attributable to the air service at the new airport are less than certain minimum annual amounts established in the agreement.

     The Company measured the associated standby guarantee liability at fair value based upon a discounted cash flow analysis based on management’s best estimates of future cash flows to be paid by the Company pursuant to the strategic alliance agreement. These cash flows are based on numerous estimates including future fuel costs, passenger load factors, air fares, and seasonality. The fair value of the liability could fluctuate up or down significantly as a result of changes in assumptions related to these estimates and could have a material impact on the Company’s operating results.

     The Company carried a standby guarantee liability of $0.8 million at September 30, 2010 and December 31, 2009 related to this strategic alliance agreement. The Company reevaluates this estimate quarterly.

     The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. The fair value of homes and homesites is determined based upon final sales prices of inventory sold during the period (level 2 inputs). For inventory held for sale, estimates of selling prices based on current market data are utilized (level 3 inputs). For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the

existing project and using management’s best estimates about future sales prices, sales volume, sales velocity and holding periods (level 3 inputs). In addition, the estimated length of expected development periods, related economic cycles and inherent uncertainty with respect to these projects, such as the impact of change in development plans and the Company’s intent and ability to hold the projects through the development period, could result in changes to these estimates. The Company’s assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs during the current period. The assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2009 were as follows:

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Fair Value

Identical Assets

Inputs

Inputs

September 30,

Total

(Level 1)

(Level 2)

(Level 3)

2009

Losses

Non-financial assets:

Investment in real estate

—

$

25,613

$

6,952

$

32,565

$

13,250

     Long-lived assets sold or held for sale with a carrying amount of $45.8 million were written down to their fair value of $32.6 million, resulting in a loss of $13.3 million, which was included in impairment losses for the nine months ending September 30, 2009.

     For the nine months ended September 30, 2010, impairment charges related to the investment in real estate were $0.1 million.

4. Derivative Financial Instruments

     The Company accounts for derivative financial instruments in accordance with ASC 815 - -Derivatives and Hedging (“ASC 815”). ASC 815 requires that an entity recognize all derivatives, as defined, as either assets or liabilities at fair value. The Company uses derivative instruments to manage its exposure to cash flow risks inherent in its standby guarantee agreement with Southwest Airlines and does not hold or issue derivative instruments for speculative or trading purposes.

     As discussed in Note 3, the Company’s agreement with Southwest Airlines includes variable cost components which could have a significant impact on the Company’s cash flows. Airline operators are inherently dependent upon fuel to operate, and therefore, are effected by changes in jet fuel prices. During the second quarter of 2010, the Company entered into a short-term financial derivative instrument to mitigate any potential adverse impact which may result from an increase in jet fuel costs. Specifically, the Company entered into a collar transaction in which the Company purchased a call option and sold a put option against the underlying cost of jet fuel for a portion of Southwest Airlines’ estimated fuel volumes. This derivative instrument is not designated as a hedge and changes in the fair value of this derivative instrument are recognized in other, net on a monthly basis. There was no initial net cost of the derivative contracts, and there was no gain or (loss) recognized during the three months ended September 30, 2010.

5. Discontinued Operations

     In December 2009, the Company sold Victoria Hills Golf Club as part of the bulk sale of Victoria Park and sold the St. Johns Golf and Country Club. The Company has classified the operating results associated with these golf courses as discontinued operations as these operations had identifiable cash flows and operating results, and the Company has no continuing involvement in their operations.

     On February 27, 2009, the Company sold its remaining inventory and equipment assets related to its Sunshine State Cypress mill and mulch plant.

     Discontinued operations presented on the consolidated statements of operations for the three and nine months ended September 30, 2009 included the following:

		Three Months Ended				Nine Months Ended
		September 30, 2009				September 30, 2009
Victoria Hills Golf Club — Residential Segment
Aggregate revenues		$	557			$	1,982
Pre-tax loss			(274	)			(510	)
Income taxes (benefit)			(107	)			(199	)
Loss from discontinued operations, net		$	(167	)		$	(311	)
St. Johns Golf and Club — Residential Segment
Aggregate revenues		$	715			$	2,321
Pre-tax (loss) income			(32	)			93
Income taxes			(12	)			36
(Loss) income from discontinued operations, net		$	(20	)		$	57
Sunshine State Cypress — Forestry Segment
Aggregate revenues			—			$	1,707
Pre-tax loss			—				(377	)
Pre-tax gain on sale			—				124
Income taxes (benefit)			—				(99	)
Loss from discontinued operations			—			$	(154	)
Total loss from discontinued operations, net		$	(187	)		$	(408	)

6. Investment in Real Estate

     Real estate by segment includes the following:

		September 30, 2010				December 31, 2009
Operating property:
Residential real estate		$	178,338			$	173,190
Rural land sales			139				139
Forestry			60,569				61,890
Other			510				510
Total operating property			239,556				235,729
Development property:
Residential real estate			466,712				470,364
Commercial real estate			62,173				59,385
Rural land sales			7,522				7,699
Other			305				305
Total development property			536,712				537,753
Investment property:
Commercial real estate			1,753				1,753
Rural land sales			—				5
Forestry			952				522
Other			5,901				5,902
Total investment property			8,606				8,182
Investment in unconsolidated affiliates:
Residential real estate			1,958				2,836
Total real estate investments			786,832				784,500
Less: Accumulated depreciation			(40,041	)			(35,000	)
Investment in real estate		$	746,791			$	749,500

     Included in operating property are Company-owned amenities related to residential real estate, the Company’s timberlands, and land and buildings developed by the Company and used for commercial rental purposes. Development property consists of residential real estate land and inventory currently under development to be sold. Investment property primarily includes the Company’s land held for future use.

7. Notes Receivable

     Notes receivable consisted of the following:

		September 30, 2010				December 31, 2009
Various builders		$	1,727			$	1,795
Pier Park Community Development District			2,761				2,641
Perry Pines mortgage note			6,263				6,263
Various mortgages and other			614				804
Total notes receivable		$	11,365			$	11,503

     The Company evaluates the need for an allowance for doubtful notes receivable at each reporting date. Notes receivable balances are adjusted to net realizable value based upon a review of entity specific facts or when terms are modified. During the second quarter of 2010, the Company recorded a $0.5 million write-down resulting from a renegotiated builder note receivable. During the second quarter of 2009, the Company determined the Advantis note receivable was uncollectible and

accordingly recorded a charge of $7.4 million related to the write-off of the outstanding balance. In addition, the Company received a deed in lieu of foreclosure related to a $4.0 million builder note receivable during the second quarter of 2009 and renegotiated terms related to certain other builder notes receivable during the third quarter of 2009. These events resulted in impairment charges of $0.1 million and $1.7 million during the three and nine month periods ended September 30, 2009, respectively.

8. Restructuring

     The Company announced on March 17, 2010 that it is relocating its corporate headquarters from Jacksonville, Florida to its VentureCrossings Enterprise Centre to be developed adjacent to the new Northwest Florida Beaches International Airport in Bay County, Florida. The Company will also be consolidating existing offices from Tallahassee, Port St. Joe and South Walton County into the new location. The relocation is expected to be completed during 2011.

     The Company has incurred and expects to incur additional charges to earnings in connection with the relocation related primarily to termination and relocation benefits for employees, as well as certain ancillary facility-related costs. Such charges have been and are expected to be cash expenditures. Based on employee responses to the announced relocation, the Company estimates that total relocation costs should be approximately $5.5 million (pre-tax) of which $2.0 million was recorded in first nine months of 2010. The relocation costs include relocation bonuses, temporary lodging expenses, resettlement expenses, tax payments, shipping and storage of household goods, and closing costs for housing transactions. These estimates are based on significant assumptions, such as home values and actual results could differ materially from these estimates. In addition the Company estimates total cash termination benefits of approximately $2.2 million (pre-tax) of which $1.8 million was recorded in the first nine months of 2010. Also, during the third quarter of 2010, the Company purchased the home of an executive for $1.9 million.

     The charges associated with the Company’s 2010 restructuring and reorganization program by segment are as follows:

		Residential Real				Commercial Real				Rural Land
		Estate				Estate				Sales				Forestry				Other				Total
Three months ended September 30, 2010:
One-time termination and relocation benefits to employees		$	211			$	29			$	70			$	187			$	1,137			$	1,634
Cumulative restructuring charges, January 1, 2010 through September 30, 2010		$	905			$	38			$	763			$	187			$	1,898			$	3,791
Remaining estimated one-time termination and relocation benefits to employees		$	290			$	8			$	221			$	395			$	2,927			$	3,841

The company also incurred an additional $0.5 million related to prior restructurings during the first nine months of 2010. At September 30, 2010, the remaining accrued liability associated with restructurings and reorganization programs consisted of the following:

		Balance at												Balance at
		December 31,				Costs								September 30,				Due within
		2009				Accrued				Payments				2010				12 months
One-time termination and relocation benefits to employees — 2010 relocation		$	—			$	3,791			$	(2,734	)		$	1,057			$	1,057
One-time termination benefits to employees — 2009 and prior		$	4,460			$	538			$	(4,890	)		$	108			$	108
Total		$	4,460			$	4,329			$	(7,624	)		$	1,165			$	1,165

9. Debt

     Debt consists of the following:

		September 30, 2010				December 31, 2009
Non-recourse defeased debt			25,757				27,105
Community Development District debt			12,566				12,403
Total debt		$	38,323			$	39,508

     The aggregate scheduled maturities of debt subsequent to September 30, 2010 are as follows (a):

2010		$	476
2011			1,982
2012			2,018
2013			1,586
2014			1,507
Thereafter			30,754
Total		$	38,323

     The Company has a $125 million revolving Credit Agreement (the “Credit Agreement”) with Branch Banking and Trust Company and Deutsche Bank. The Credit Agreement expires on September 19, 2012. The Credit Agreement contains covenants relating to leverage, unencumbered asset value, net worth, liquidity and additional debt. The Credit Agreement does not contain a fixed charge coverage covenant. The Credit Agreement also contains various restrictive covenants pertaining to acquisitions, investments, capital expenditures, dividends, share repurchases, asset dispositions and liens. The following includes a summary of the Company’s more significant financial covenants:

						September 30,
		Covenant				2010
Minimum consolidated tangible net worth		$	800,000			$	872,009
Ratio of total indebtedness to total asset value			50.0	%			2.8	%
Unencumbered leverage ratio			2.0	x			98.5	x
Minimum liquidity		$	20,000			$	320,002

     The Company was in compliance with its debt covenants at September 30, 2010.

     The Credit Agreement contains customary events of default. If any event of default occurs, lenders holding two-thirds of the commitments may terminate the Company’s right to borrow and accelerate amounts due under the Credit Agreement. In the event of bankruptcy, all amounts outstanding would automatically become due and payable and the commitments would automatically terminate.

10. Employee Benefit Plans

     The Company sponsors a cash balance defined benefit pension plan that covers substantially all of its salaried employees. A summary of the net periodic benefit expense follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Service cost		$	511			$	362			$	1,322			$	1,079
Interest cost			337				447				1,148				4,393
Expected return on assets			(248	)			(1,263	)			(3,191	)			(8,078	)
Prior service costs			160				177				535				532
Settlement loss			894				617				2,486				45,294
Curtailment charges			—				—				1,347				—
Actuarial loss			—				57				—				1,015
Net periodic benefit expense		$	1,654			$	397			$	3,647			$	44,235

     On June 18, 2009, the Company, as plan sponsor of The St. Joe Company Pension Plan (the “Pension Plan”), signed a commitment for the Pension Plan to purchase a group annuity contract from Massachusetts Mutual Life Insurance Company for the benefit of the retired participants and certain other former employee participants in the Pension Plan. Current employees and former employees with cash balances in the Pension Plan are not affected by the transaction. The purchase price of the group annuity contract was approximately $101.0 million, which was funded from the assets of the Pension Plan on June 25, 2009 and included a premium to assume these obligations. The transaction resulted in the transfer and settlement of pension benefit obligations of approximately $93.0 million, which represented the obligation prior to the annuity purchase

for the affected retirees and vested terminated employees. In addition, the Company recorded a non-cash settlement pre-tax charge to earnings during the third quarter of 2009 of $44.7 million. The Company also recorded a pre-tax credit in the amount of $44.7 million in Accumulated Other Comprehensive Income on its Consolidated Balance Sheet offsetting the non-cash charge to earnings.

     The Company remeasures its plan assets and benefit obligation at each December 31. As a result of settlements and curtailments which occurred during the nine months ended September 30, 2010, the Company was required to remeasure its plan assets and benefit obligation as of September 30, 2010.

11. Income Taxes

     The Company had approximately $1.4 million of total unrecognized tax benefits as of September 30, 2010 and December 31, 2009, none of which, if recognized, would materially affect its effective income tax rate. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company had accrued interest of $0.2 million and $0.3 million (net of tax benefit) at September 30, 2010 and December 31, 2009, respectively, related to uncertain tax positions. There were no significant changes to unrecognized tax benefits including interest and penalties during the third quarter of 2010, and the Company does not expect any significant changes to its unrecognized tax benefits during the next twelve months.

     On March 23, 2010, the Patient Protection and Affordable Care Act (the “PPACA”) was signed into law, and, on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (the “HCERA” and, together with PPACA, the “Acts”), which makes various amendments to certain aspects of the PPACA, was signed into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans that provide prescription drug benefits that are at least actuarially equivalent to the corresponding benefits provided under Medicare Part D.

     The Company recognized a noncash charge of approximately $0.6 million during the quarter ended March 31, 2010 to reduce deferred tax assets to reflect the change in the tax treatment of the federal subsidy.

     The change in the tax treatment of the federal subsidy only affects the application of tax law to the Company’s prescription drug plans that are actuarially equivalent to Medicare Part D and is not expected to result in an increase in the pre-tax cost of providing such plans to its retirees and employees.

12. Segment Information

     The Company conducts primarily all of its business in four reportable operating segments: residential real estate, commercial real estate, rural land sales and forestry. The residential real estate segment develops and sells homesites and now, to a lesser extent, homes, following the Company’s exit from homebuilding. The commercial real estate segment sells developed and undeveloped land as well as leases land. The rural land sales segment primarily sells parcels of land included in the Company’s timberland holdings. The forestry segment produces and sells pine pulpwood, sawtimber and other forest products.

     The Company uses loss from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes and noncontrolling interest for purposes of making decisions about allocating resources to each segment and assessing each segment’s performance, which the Company believes represents current performance measures.

     The accounting policies of the segments are the same as those described above in the summary of significant accounting policies and in our Form 10-K. Total revenues represent sales to unaffiliated customers, as reported in the Company’s consolidated statements of operations. All intercompany transactions have been eliminated. The caption entitled “Other” consists of corporate general and administrative expenses, net of investment income.

     Information by business segment is as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Operating Revenues:
Residential real estate		$	12,316			$	32,391			$	30,813			$	64,972
Commercial real estate			3,690				2,188				4,137				2,877
Rural land sales			4,282				290				6,454				12,907
Forestry			6,817				7,053				21,036				20,392
Consolidated operating revenues		$	27,105			$	41,922			$	62,440			$	101,148
Loss from continuing operations before equity in (loss) of unconsolidated affiliates and income taxes :
Residential real estate		$	(16,575	)		$	(19,694	)		$	(34,975	)		$	(57,181	)
Commercial real estate			1,539				(550	)			(215	)			(1,826	)
Rural land sales			3,548				(467	)			3,949				9,197
Forestry			767				1,234				4,399				3,451
Other			(10,928	)			(6,652	)			(27,162	)			(72,864	)
Consolidated loss from continuing operations before equity in (loss) of unconsolidated affiliates and income taxes		$	(21,649	)		$	(26,129	)		$	(54,004	)		$	(119,223	)

		September 30, 2010				December 31, 2009
Total Assets:
Residential real estate		$	634,273			$	641,953
Commercial real estate			67,141				63,830
Rural land sales			14,393				14,617
Forestry			61,694				62,082
Other			281,403				316,956
Total Assets		$	1,058,904			$	1,099,438

13. Contingencies

     The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage.

     At September 30, 2010 and December 31, 2009, the Company was party to surety bonds of $15.7 million and $28.1 million, respectively, and standby letters of credit in the amount of $1.4 million which may potentially result in liability to the Company if certain obligations of the Company are not met.

     The Company and its affiliates are involved in litigation on a number of matters and are subject to various claims which arise in the normal course of business, including claims resulting from construction defects and contract disputes. When appropriate, the Company establishes estimated accruals for litigation matters which meet the requirements of ASC 450 — Contingencies. The Company has recorded an $8.8 million reserve in connection with a contract dispute involving the 1997 purchase of land for its former Victoria Park community. The Company has appealed an adverse trial court decision in this matter to a Florida court of appeals.

     The Company is also subject to claims arising out of environmental laws and regulations. These claims may include the obligation 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. Pending claims include the Company’s former paper mill site in Gulf County, certain adjacent properties and other properties. These claims may be subject to various Consent Agreements and Brownfield Site Rehabilitation Agreements with the Florida Department of Environmental Protection. The Company is in the process of assessing and rehabilitating certain of its properties.

     It is the Company’s policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available. Aggregate environmental-related accruals were $1.6 million at September 30, 2010 and $1.7 million at December 31, 2009 respectively.

     Although in the opinion of management none of our litigation matters or governmental proceedings is expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity, it is possible that actual amounts of liabilities resulting from such matters could be material.

     On October 21, 2009, the Company entered into a strategic alliance agreement with Southwest Airlines to facilitate the commencement of low-fare air service to the new Northwest Florida Beaches International Airport. The Company has agreed to reimburse Southwest Airlines if it incurs losses on its service at the new airport during the first three years of service. See Note 3 for further discussion of this standby guarantee.

14. Concentration of Risks and Uncertainties

     Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, notes receivable and retained interests. The Company deposits and invests excess cash with major financial institutions in the United States. Balances may exceed the amount of insurance provided on such deposits.

     Some of the Company’s notes receivable are from homebuilders and other entities associated with the real estate industry. As with many entities in the real estate industry, revenues have contracted for a number of these companies, and they may be increasingly dependent on their lenders’ continued willingness to provide funding to maintain ongoing liquidity. The Company evaluates the need for an allowance for doubtful notes receivable at each reporting date.

     There are not any other entity specific facts which currently cause the Company to believe that the remaining notes receivable will be realized at amounts below their carrying values; however, due to the slump in real estate markets and tightened credit conditions, the collectability of these receivables represents a significant risk to the Company and changes in the likelihood of collectability could adversely impact the accompanying financial statements.

     The Company’s real estate investments are concentrated in the State of Florida. A prolonged slump in the Florida real estate market and the economy could have an adverse impact on the Company’s real estate values.

     The Company believes the large oil spill in the Gulf of Mexico from the Deepwater Horizon incident had and will continue to have a negative impact on our properties, results of operations and stock price and has created uncertainty about the future of the Gulf Coast region. The Company has filed several lawsuits against the parties responsible for the oil spill seeking the recovery of damages. The Company cannot be certain, however, of the amount of any recovery or the ultimate success of its claims.

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

Forward-Looking Statements

     We make forward-looking statements in this Report, particularly in this Management’s Discussion and Analysis, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Report that are not historical facts are forward-looking statements. You can find many of these forward-looking statements by looking for words such as “intend”, “anticipate”, “believe”, “estimate”, “expect”, “plan”, “should”, “forecast”, or similar expressions. In particular, forward-looking statements include, among others, statements about the following:

•

future operating performance, revenues, earnings and cash flows;

•

future residential and commercial demand, opportunities and entitlements;

•

development approvals and the ability to obtain such approvals, including possible legal challenges;

•

the number of units or commercial square footage that can be supported upon full build out of a development;

•

the number, price and timing of anticipated land sales or acquisitions;

•

estimated land holdings for a particular use within a specific time frame;

•

the levels of resale inventory in our developments and the regions in which they are located;

•

the development of relationships with strategic partners, including commercial developers and homebuilders;

•

future amounts of capital expenditures;

•

the amount and timing of future tax refunds;

•

timeframes for future construction and development activity; and

•

the projected economic impact of the new Northwest Florida Beaches International Airport.

     Forward-looking statements are not guarantees of future performance. You are cautioned not to place undue reliance on any of these forward-looking statements. These statements are made as of the date hereof based on current expectations, and we undertake no obligation to update the information contained in this Report. New information, future events or risks may cause the forward-looking events we discuss in this Report not to occur.

     Forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by a forward-looking statement include the risk factors described in our annual report on Form 10-K for the year ended December 31, 2009 and our quarterly reports on Form 10-Q, as well as, among others, the following:

•

a delay in the recovery of real estate markets in Florida and across the nation, or any further downturn in such markets;

•

any renewed crisis in the national financial markets and the financial services and banking industries;

•

a delay in the recovery of national economic conditions, or any further economic downturn;

•

economic conditions in Northwest Florida, Florida as a whole and key areas of the southeastern United States that serve as feeder markets to our Northwest Florida operations;

•

the adverse impact to Northwest Florida, the Gulf of Mexico and other coastal states resulting from the Deepwater Horizon oil spill in the Gulf of Mexico;

•

the possible negative effects from any future oil spill incidents in the Gulf of Mexico or perceived risk regarding the possibility of future oil spill incidents;

•

possible negative effects from oil or natural gas drilling if permitted off the coast of Northwest Florida;

•

availability of mortgage financing, increases in foreclosures and increases in interest rates;

•

changes in the demographics affecting projected population growth in Florida, including the migration of Baby Boomers;

•

the inability to raise sufficient cash to enhance and maintain our operations and to develop our real estate holdings;

•

an event of default under our credit facility, or the restructuring of such debt on terms less favorable to us;

•

possible future write-downs of the book value of our real estate assets and notes receivable;

•

the termination of sales contracts or letters of intent due to, among other factors, the failure of one or more closing conditions or market changes;

•

the failure to attract homebuilding customers for our developments, or their failure to satisfy their purchase commitments;

•

the failure to attract desirable strategic partners, complete agreements with strategic partners and/or manage relationships with strategic partners going forward;

•

natural disasters, including hurricanes and other severe weather conditions, and their impact on current and future demand for our products in Florida;

•

the expense and management distraction associated with possible securities class action litigation;

•

whether our developments receive all land-use entitlements or other permits necessary for development and/or full build-out or are subject to legal challenge;

•

local conditions such as the supply of homes and homesites and residential or resort properties or a decrease in the demand for real estate in our area;

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timing and costs associated with property developments;

•

the pace of commercial and economic development in Northwest Florida;

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competition from other real estate developers;

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decreases in pricing of our products and the related profit margins;

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increases in operating costs, including real estate taxes and the cost of construction materials;

•

changes in the amount or timing of federal and state income tax liabilities resulting from either a change in our application of tax laws, an adverse determination by a taxing authority or court, or legislative changes to existing laws;

•

the failure to realize significant improvements in job creation and public infrastructure in Northwest Florida, including the expected economic impact of the new Northwest Florida Beaches International Airport;

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a reduction or termination of air service at Northwest Florida Beaches International Airport, especially any reduction or termination of Southwest Airlines’ service;

•

potential liability under environmental laws or other laws or regulations;

•

changes in laws, regulations or the regulatory environment affecting the development of real estate or forestry activities;

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potential liability relating to construction defects;

•

fluctuations in the size and number of transactions from period to period;

•

the prices and availability of labor and building materials;

•

increases in homeowner insurance rates and deductibles for property in Florida, particularly in coastal areas, and decreases in the availability of property insurance in Florida;

•

high property tax rates in Florida, future increases in such rates and changes in property tax classifications;

•

significant tax payments arising from any acceleration of deferred taxes;

•

increases in gasoline prices; and

•

acts of war, terrorism or other geopolitical events.

Overview

     We own a large inventory of land suitable for development in Florida. The majority of our land is located in Northwest Florida and has a very low cost basis. In order to optimize the value of these core real estate assets, we seek to reposition portions of our substantial timberland holdings for higher and better uses. We seek to create value in our land by securing entitlements for higher and better land-uses, facilitating infrastructure improvements, developing community amenities, undertaking strategic and expert land planning and development, parceling our land holdings in creative ways, performing land restoration and enhancement and promoting economic development.

     We have four operating segments: residential real estate, commercial real estate, rural land sales and forestry.

     Our residential real estate segment generates revenues from:

•

the sale of developed homesites to retail customers and builders;

•

the sale of parcels of entitled, undeveloped land;

•

the sale of housing units built by us;

•

resort and club operations;

•

rental income; and

•

brokerage fees on certain transactions.

     Our commercial real estate segment generates revenues from the sale or lease of developed and undeveloped land for retail, multi-family, office, hotel, industrial uses and rental income. Our rural land sales segment generates revenues from the sale of parcels of undeveloped land and rural land with limited development, easements, and mitigation bank credits. Our forestry segment generates revenues from the sale of pulpwood, sawtimber and forest products and conservation land management services.

     Our business, financial condition and results of operations continued to be adversely effected during the third quarter of 2010 by the real estate downturn and economic recession in the United States. This challenging environment has exerted negative pressure on the demand for all of our real estate products and contributed to our net loss for the first nine months of 2010.

     We believe the large oil spill in the Gulf of Mexico from the Deepwater Horizon incident had and will continue to have a negative impact on our properties, results of operations and stock price and has created uncertainty about the future of the Gulf Coast region. The Company has filed several lawsuits against parties responsible for the oil spill seeking the recovery of damages. The Company cannot be certain, however, of the amount of any recovery or the ultimate success of its claims.

Critical Accounting Estimates

     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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.

     The critical accounting policies that we believe reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements are set forth in Item 7 of our annual report on Form 10-K for the year ended December 31, 2009. There have been no significant changes in these policies during the first nine months of 2010.

     Investment in Real Estate and Cost of Real Estate Sales. Costs associated with a specific real estate project are capitalized during the development period. We capitalize costs directly associated with development and construction of identified real estate projects. Indirect costs that clearly relate to a specific project under development, such as internal costs of a regional project field office, are also capitalized. We capitalize interest (up to total interest expense) based on the amount of underlying expenditures and real estate taxes on real estate projects under development. If we determine not to complete a project, any previously capitalized costs are expensed in the period such determination is made.

     Real estate inventory costs include land and common development costs (such as roads, sewers and amenities), multi-family construction costs, capitalized property taxes, capitalized interest and certain indirect costs. Construction costs for single-family homes are determined based upon actual costs incurred. A portion of real estate inventory costs and estimates for costs to complete are allocated to each unit based on the relative sales value of each unit as compared to the estimated sales value of the total project. These estimates are reevaluated at least annually, and more frequently if warranted by market conditions or other factors, with any adjustments being allocated prospectively to the remaining units available for sale. The accounting estimate related to inventory valuation is susceptible to change due to the use of assumptions about future sales proceeds and related real estate expenditures. Management’s assumptions about future housing and homesite sales prices, sales volume and sales velocity require significant judgment because the real estate market is cyclical and highly sensitive to changes in economic conditions. In addition, actual results could differ from management’s estimates due to changes in anticipated development, construction and overhead costs.

     Fair Value Measurements — We follow the fair value provisions of ASC 820 — Fair Value Measurements and Disclosures (“ASC 820”) for our financial and non-financial assets and liabilities. ASC 820, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1.		Observable inputs such as quoted prices in active markets;

Level 2.		Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3.		Unobservable inputs in which there is little or no market data, such as internally-developed valuation models which require the reporting entity to develop its own assumptions.

     Our investment in real estate utilizes Level 2 and Level 3 inputs in fair value calculations and the associated underlying assumptions as follows:

     Investment in real estate — Our investments in real estate are carried at cost unless circumstances indicate that the carrying value of the assets may not be recoverable. If we determine that an impairment exists due to the inability to recover an asset’s carrying value, a provision for loss is recorded to the extent that the carrying value exceeds estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell.

     Depending on the asset, we use varying methods to determine fair value, such as (i) analyzing expected future cash flows, (ii) determining resale values by market, or (iii) applying a capitalization rate to net operating income using prevailing rates in a given market.

     Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. The fair value of homes and homesites is determined based upon final sales prices of inventory sold during the period (level 2 inputs). For inventory held for sale, estimates of selling prices based on current market data are utilized (level 3 inputs). For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management’s best estimates about future sales prices, sales volume, sales velocity and holding periods (level 3 inputs). In addition, the estimated length of expected development periods, related economic cycles and inherent uncertainty with respect to these projects, such as the impact of changes in development plans and our intent and ability to hold the projects through the development period, could result in changes to these estimates.

Correction of Prior Period Error

     In the first quarter of 2010, we determined that approximately $2.6 million ($1.6 million net of tax) of stock compensation expense related to the acceleration of the service period for retirement eligible employees should have been recognized in periods prior to 2010. Accordingly, the consolidated balance sheet for December 31, 2009 has been adjusted to reduce deferred income taxes, net, by $1.0 million and increase common stock by $2.6 million to reflect the correction of this error, with a corresponding $1.6 million reduction recorded to retained earnings. The correction is similarly reflected as an adjustment to common stock and retained earnings as of December 31, 2009 in the consolidated statement of changes in equity. The correction of this error also impacted the consolidated statements of operations for the three and nine months ended September 30, 2009 and cash flows for the nine months ended September 30, 2009. These corrections were not considered material to prior period financial statements.

Recently Issued Accounting Standards

     See Note 1 to our unaudited consolidated financial statements included in this report for recently issued accounting standards.

Results of Operations

     Net loss decreased by $1.4 million to a loss of $(13.1), or $(0.14) per share, in the third quarter of 2010, compared to a net loss of $(14.5) million, or $(0.16) per share, for the third quarter of 2009. Included in our results for the three months ended September 30 are the following notable charges:

     2010:

	•		a non-cash charge of $8.8 million for a reserve for an adverse trial court verdict in a lawsuit involving a contract dispute; the matter is being appealed to the Florida Court of Civil Appeals.
	•		legal and clean-up costs resulting from the Deepwater Horizon incident of $2.6 million.
	•		a restructuring charge of $1.7 million related to the consolidation of our offices.

     2009:

•

$11.1 million of non-cash impairment charges consisting of $0.9 million of impairments associated with homes and homesites in our residential segment, a $9.0 million write-down related to the settlement of our Saussy Burbank notes receivable, a $0.1 million write-down of builder notes receivable and $1.1 million of write-downs related to other long-term assets; and

•

$1.8 million restructuring charge related to one-time termination benefits.

     Net loss decreased by $38.2 million to a loss of $(33.2) million, or $(0.36) per share, in the first nine months of 2010, compared to $(71.4) million, or $(0.78) per share, for the first nine months of 2009. Included in our results for the nine months ended September 30 are the following notable charges:

     2010:

	•		a non-cash charge of $8.8 million for a reserve for an adverse trial court verdict in a lawsuit involving a contract dispute; the matter is being appealed to the Florida Court of Civil Appeals.
	•		a restructuring charge of $4.4 million related to the consolidation of our offices.
	•		legal and clean-up costs resulting from the Deepwater Horizon incident of $2.6 million.

     2009:

•

$32.6 million of impairment charges consisting of a $6.7 million write-down related to our SevenShores condominium and marina development project, $6.5 million of impairments associated with homes and homsites in our residential segment, a $9.0 million write-down related to the settlement of our Saussy Burbank notes receivable, a $7.4 million write-off of the Advantis note receivable, a $1.9 million write-down of builder notes receivable and $1.1 million of write-downs related to other long-term assets;

•

$44.7 million non-cash pension settlement charge related to the purchase of annuities with plan assets for certain participants in our pension plan; and

•

$1.8 million restructuring charge related to one-time termination benefits.

     Results for the three and nine months ended September 30, 2009 reported in discontinued operations primarily include the operations of Victoria Hills Golf Club, St. Johns Golf and Country Club and Sunshine State Cypress.

Consolidated Results

     Revenues and expenses. The following table sets forth a comparison of revenues and certain expenses of continuing operations for the three and nine months ended September 30, 2010 and 2009.

		Three Months Ended September 30,																Nine Months Ended September 30,
		2010				2009				Difference				% Change				2010				2009				Difference				% Change
		(Dollars in millions)
Revenues:
Real estate sales		$	10.9			$	24.3			$	(13.4	)			(55.1	)%		$	15.5			$	53.0			$	(37.5	)			(70.8	)%
Resort and club revenues			8.8				9.7				(0.9	)			(9.3	)%			24.2				24.8				(0.6	)			(2.4	)%
Timber sales			6.8				7.0				(0.2	)			(2.9	)%			21.0				20.4				0.6				2.9	%
Other revenues			0.6				0.9				(0.3	)			(33.3	)%			1.7				2.9				(1.2	)			(41.4	)%
Total			27.1				41.9				(14.8	)			(35.3	)%			62.4				101.1				(38.7	)			(38.3	)%
Expenses:
Cost of real estate sales			3.3				22.5				(19.2	)			(85.3	)%			5.1				38.2				(33.1	)			(86.6	)%
Cost of resort and club revenues			8.8				9.6				(0.8	)			(8.3	)%			24.9				26.0				(1.1	)			(4.2	)%
Cost of timber sales			5.3				5.1				0.2				3.9	%			14.8				14.8				—				—
Cost of other revenues			0.5				0.7				(0.2	)			(28.6	)%			1.6				1.8				(0.2	)			(11.1	)%
Other operating expenses			12.3				8.8				(3.5	)			(39.8	)%			27.8				32.1				(4.3	)			(13.4	)%
Total		$	30.2			$	46.7			$	(16.5	)			(35.3	)%		$	74.2			$	112.9			$	(38.7	)			(34.3	)%