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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2010
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from          to
 
Commission File No. 1-10466
 
The St. Joe Company
(Exact name of registrant as specified in its charter)
 
     
Florida
(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)
 
Registrant’s telephone number, including area code: (850) 588-2300
Securities Registered Pursuant to Section 12(b) of the Act:
 
     
Title of Each Class   Name of Each Exchange on Which Registered
 
Common Stock, no par value
  New York Stock Exchange
 
Securities Registered Pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES þ     NO o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES o     NO þ
 
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 if disclosure of delinquent filers pursuant to item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
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
 
The aggregate market value of the registrant’s Common Stock held by non-affiliates based on the closing price on June 30, 2010, was approximately $2.1 billion.
 
As of February 18, 2011, there were 122,934,261 shares of Common Stock, no par value, issued and 92,568,657 shares outstanding, with 30,365,604 shares of treasury stock.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of our Shareholders to be held on May 17, 2011 (the “proxy statement”) are incorporated by reference in Part III of this Report. Other documents incorporated by reference in this Report are listed in the Exhibit Index.
 


 

 
Table of Contents
 
 
             
        Page
Item       No.
 
 
PART I
1.
  Business     2  
      Market Conditions and the Economy     2  
      Deepwater Horizon Oil Spill     2  
      Northwest Florida Beaches International Airport     2  
      Other 2010 Highlights     3  
      Land-Use Entitlements     3  
      Residential Real Estate     6  
      Commercial Real Estate     7  
      Rural Land Sales     7  
      Forestry     8  
      Supplemental Information     8  
      Competition     8  
      Employees     8  
      Available Information     8  
1A.
  Risk Factors     9  
1B.
  Unresolved Staff Comments     21  
2.
  Properties     21  
3.
  Legal Proceedings     21  
4.
  Removed and Reserved     22  
 
PART II
5.
  Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities     22  
6.
  Selected Consolidated Financial Data     25  
7
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     26  
7A.
  Quantitative and Qualitative Disclosures about Market Risk     51  
8.
  Financial Statements and Supplementary Data     52  
9
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     52  
9A.
  Controls and Procedures     52  
9B.
  Other Information     54  
 
PART III*
10
  Directors, Executive Officers and Corporate Governance     54  
11.
  Executive Compensation     54  
12.
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     54  
13.
  Certain Relationships and Related Transactions and Director Independence     54  
14.
  Principal Accountant Fees and Services     55  
 
PART IV
15.
  Exhibits and Financial Statement Schedule     55  
    59  
 EX-10.5
 EX-10.13
 EX-10.30
 EX-14.1
 EX-21.1
 EX-23.1
 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
 
 
Portions of the Proxy Statement for the Annual Meeting of our Shareholders to be held on May 17, 2011 are incorporated by reference in Part III of this Form 10-K.


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PART I
 
Item 1.   Business
 
As used throughout this Annual Report on Form 10-K, the terms “St. Joe,” the “Company,” “we,” “our,” or “us” include The St. Joe Company and its consolidated subsidiaries unless the context indicates otherwise.
 
St. Joe was incorporated in 1936 and is one of the largest real estate development companies in Florida. We own approximately 574,000 acres of land concentrated primarily in Northwest Florida. Most of this land was acquired decades ago and, as a result, has a very low cost basis. Approximately 403,000 acres, or approximately 70 percent of our total land holdings, are within 15 miles of the coast of the Gulf of Mexico.
 
We are engaged in town and resort development, commercial development and rural land sales. We also have significant interests in timber. Our four operating segments are:
 
  •  Residential Real Estate,
 
  •  Commercial Real Estate,
 
  •  Rural Land Sales, and
 
  •  Forestry.
 
We believe we have one of the largest inventories of private land suitable for development in Florida. We seek to create value in our land by securing higher and better land-use entitlements, facilitating infrastructure improvements, developing community amenities, undertaking strategic and expert land planning and development, parceling our land holdings in creative ways and performing land restoration and enhancement. We believe we are one of the few real estate development companies to have assembled the range of real estate, financial, marketing and regulatory expertise necessary to achieve a large-scale approach to real estate development.
 
Market Conditions and the Economy
 
Our business, financial condition and results of operations continued to be adversely affected during 2010 by the ongoing real estate downturn and stagnant economy in the United States in general, and Florida in particular. These adverse conditions include among others, minimal gains in employment and consumer confidence from recessionary levels, a large number of homes for sale or in various stages of foreclosure, increased regulation and decreased availability of mortgage loans, historically low housing starts, stagnant household income levels, and a slow recovery in business investments. This challenging environment has exerted negative pressure on the demand for all of our real estate products.
 
Deepwater Horizon Oil Spill
 
In late April 2010, an oil drilling platform exploded and sank in the Gulf of Mexico off the coast of Louisiana releasing millions of barrels of oil into the Gulf. Northwest Florida beaches, including our beachfront properties in Walton County, experienced physical impacts from the oil spill. The ruptured oil well was permanently contained in September 2010.
 
The oil spill has had a negative impact on our properties, results of operations and stock price. Uncertainty remains regarding the extent of the environmental damage from the oil and other pollutants that have been discharged into the Gulf and the duration of the negative effects from the spill. We have engaged legal counsel to assist us with our effort to recover damages from the parties responsible for the oil spill. We cannot be certain, however, of the amount of any recovery or the ultimate success of our claims.
 
Northwest Florida Beaches International Airport
 
The new Northwest Florida Beaches International Airport commenced commercial flight operations on May 23, 2010. The new airport is located on approximately 4,000 acres of land we donated within the West Bay Area Sector Plan (the “West Bay Sector”), one of the largest planned mixed-use developments in the United States. We own substantially all of the 71,000 acres in the West Bay Sector surrounding the airport,


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including approximately 41,000 acres dedicated to preservation. Our West Bay Sector land has initial entitlements for over 4 million square feet of commercial space and approximately 6,000 residential units.
 
On April 12, 2010, we launched VentureCrossings Enterprise Centre, a 1,000 acre commercial development adjacent to the new airport. CB Richard Ellis Group, Inc. has been engaged to market the land in this project for lease, sale or joint venture.
 
On November 29, 2010, we executed a Master Airport Access Agreement with the Panama City-Bay County Airport and Industrial District regarding through-the-fence access at the new Northwest Florida Beaches International Airport. The Master Airport Access Agreement outlines the process for implementing the through-the-fence rights originally established when we donated the land for the airport. Through-the-fence access will allow companies in our VentureCrossings Enterprise Centre direct access to airport taxiways and runways. The Master Airport Access Agreement identifies three initial through-the-fence access points in VentureCrossings Enterprise Centre and provides for flexibility as to the number and location of additional access points. In addition, we entered into a ground lease for a strategic parcel with immediate runway access at the new airport.
 
Other 2010 Highlights
 
  •  We relocated our corporate headquarters to Northwest Florida.
 
  •  We generated $8.7 million from the sale of 41 resort homesites at an average price of $159,000 and 42 primary homesites at an average price of $52,000.
 
  •  We sold 18 acres of commercial land for $4.4 million, or over $237,000 per acre.
 
  •  We sold 606 acres of rural land for $3.0 million, or $4,900 per acre.
 
  •  We recognized $20.6 million in previously deferred revenue and conveyed 2,148 acres to the Florida Department of Transportation (“FDOT”) as part of FDOT’s purchase of land from us in 2006.
 
  •  We increased our cash position by $20.0 million to $183.8 million.
 
  •  We renegotiated and extended our pulpwood supply agreement with Smurfit-Stone Container Corporation.
 
Land-Use Entitlements
 
We have a broad range of land-use entitlements in hand or in various stages of the approval process for residential communities in Northwest Florida and other selected regions of the state, as well as commercial entitlements. As of December 31, 2010, we had approximately 31,602 residential units and 11.6 million commercial square feet in the entitlements pipeline, in addition to 642 acres zoned for commercial uses. The following tables describe our residential and mixed-use projects with land-use entitlements that are in development or pre-development and additional commercial entitlements. These entitlements are on approximately 38,218 acres.
 
Summary of Land-Use Entitlements (1)
Active St. Joe Residential and Mixed-Use Projects
December 31, 2010
 
                                                                 
                                  Residential
             
                            Residential
    Units
             
                            Units
    Under
    Total
    Remaining
 
                            Closed
    Contract
    Residential
    Commercial
 
                Project
    Project
    Since
    as of
    Units
    Entitlements
 
Project   Class(2)     County     Acres     Units(3)     Inception     12/31/10     Remaining     (Sq. Ft.)(4)  
 
In Development:(5)
                                                               
Hawks Landing
    PR       Bay       88       168       166             2        
Landings at Wetappo
    RR       Gulf       113       24       7             17        
RiverCamps on Crooked Creek
    RS       Bay       1,491       408       191             217        
RiverSide at Chipola
    RR       Calhoun       120       10       2             8        
RiverTown
    PR       St. Johns       4,170       4,500       32             4,468       500,000  


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                                  Residential
             
                            Residential
    Units
             
                            Units
    Under
    Total
    Remaining
 
                            Closed
    Contract
    Residential
    Commercial
 
                Project
    Project
    Since
    as of
    Units
    Entitlements
 
Project   Class(2)     County     Acres     Units(3)     Inception     12/31/10     Remaining     (Sq. Ft.)(4)  
 
SouthWood
    PR       Leon       3,370       4,770       2,552             2,218       4,535,588  
SummerCamp Beach
    RS       Franklin       762       499       88             411       25,000  
Topsail
    PR       Walton       115       610                   610       220,000  
WaterColor
    RS       Walton       499       1,140       932       1       207       47,600  
WaterSound
    RS       Walton       2,425       1,432       31             1,401       457,380  
WaterSound Beach
    RS       Walton       256       511       447             64       29,000  
WaterSound West Beach
    RS       Walton       62       199       52       2       145        
West Bay DSAP I
    PR/RS       Bay       15,089       5,628                   5,628       4,430,000  
Wild Heron(6)
    RS       Bay       17       28       2             26        
WindMark Beach
    RS       Gulf       2,020       1,516       150             1,366       76,157  
                                                                 
Subtotal
                    30,597       21,443       4,652       3       16,788       10,320,725  
                                                                 
In Pre-Development:(5)
                                                               
Avenue A
    PR       Gulf       6       96                   96        
Bayview Estates
    PR       Gulf       31       45                   45        
Bayview Multifamily
    PR       Gulf       20       300                   300        
Beacon Hill
    RR       Gulf       3       12                   12        
Beckrich NE
    PR       Bay       15       74                   74        
Boggy Creek
    PR       Bay       630       526                   526        
Bonfire Beach
    RS       Bay       550       750                   750       70,000  
Breakfast Point, Phase 1
    PR/RS       Bay       132       348                   348        
College Station
    PR       Bay       567       800                   800        
Cutter Ridge
    PR       Franklin       10       25                   25        
DeerPoint Cedar Grove
    PR       Bay       686       950                   950        
East Lake Creek
    PR       Bay       81       313                   313        
East Lake Powell
    RS       Bay       181       360                   360       30,000  
Howards Creek
    RR       Gulf       8       33                   33        
Laguna Beach West
    PR       Bay       36       260                   260        
Long Avenue
    PR       Gulf       10       30                   30        
Palmetto Bayou
    PR       Bay       58       217                   217       90,000  
ParkSide
    PR       Bay       48       480                   480        
Pier Park Timeshare
    RS       Bay       13       125                   125        
PineWood
    PR       Bay       104       264                   264        
Port St. Joe Draper, Phase 1
    PR       Gulf       610       1,200                   1,200        
Port St. Joe Draper, Phase 2
    PR       Gulf       981       2,125                   2,125       150,000  
Port St. Joe Town Center
    RS       Gulf       180       624                   624       500,000  
Powell Adams
    RS       Bay       56       2,520                   2,520        
Sabal Island
    RS       Gulf       45       18                   18        
South Walton Multifamily
    PR       Walton       40       212                   212        
Star Avenue North
    PR       Bay       295       600                   600       350,000  
The Cove
    RR       Gulf       64       107                   107        
Timber Island(7)
    RS       Franklin       49       407                   407       14,500  
Wavecrest
    RS       Bay       7       95                   95        
West Bay Corners SE
    PR       Bay       100       524                   524       50,000  
West Bay Corners SW
    PR       Bay       64       160                   160        
West Bay Landing(8)
    RS       Bay       950       214                   214        
                                                                 
Subtotal
                    6,630       14,814                       14,814       1,254,500  
                                                                 
Total
                    37,227       36,257       4,652       3       31,602       11,575,225  
                                                                 
 
 
(1) A project is deemed land-use entitled when all major discretionary governmental land-use approvals have been received. Some of these projects may require additional permits for development and/or build-out; they also may be subject to legal challenge.
 
(2) Current St. Joe land classifications for its residential developments or the residential portion of its mixed-use projects:

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  •  PR — Primary residential
 
  •  RS — Resort and seasonal residential
 
  •  RR — Rural residential
 
(3) Project units represent the maximum number of units entitled or currently expected at full build-out. The actual number of units or square feet to be constructed at full build-out may be lower than the number entitled or currently expected.
 
(4) Represents the remaining square feet with land-use entitlements as designated in a development order or expected given the existing property land use or zoning and present plans. The actual number of square feet to be constructed at full build-out may be lower than the number entitled. Commercial entitlements include retail, office and industrial uses. Industrial uses total 6,128,381 square feet including SouthWood, RiverTown and the West Bay DSAP I.
 
(5) A project is “in development” when St. Joe has commenced horizontal construction on the project and commenced sales and/or marketing or will commence sales and/or marketing in the foreseeable future. A project in “pre-development” has land-use entitlements but is still under internal evaluation or requires one or more additional permits prior to the commencement of construction. For certain projects in pre-development, some horizontal construction may have occurred, but no sales or marketing activities are expected in the foreseeable future.
 
(6) Homesites acquired by St. Joe within the Wild Heron community.
 
(7) Timber Island entitlements include seven residential units and 400 units for hotel or other transient uses (including units held with fractional ownership such as private residence clubs).
 
(8) West Bay Landing is a sub-project within West Bay DSAP I.
 
Summary of Additional Commercial Land-Use Entitlements (1)
(Commercial Projects Not Included in the Tables Above)
December 31, 2010
 
                                         
                Acres Sold
             
          Project
    Since
    Acres Under Contract
    Total Acres
 
Project   County     Acres     Inception     As of 12/31/10     Remaining  
 
Airport Commerce
    Leon       45       10             35  
Alf Coleman Retail
    Bay       25       23             2  
Beach Commerce
    Bay       157       151             6  
Beach Commerce II
    Bay       112       13             99  
Beckrich Office Park
    Bay       17       15             2  
Beckrich Retail
    Bay       44       41             3  
Cedar Grove Commerce
    Bay       51       5             46  
Franklin Industrial
    Franklin       7                   7  
Glades Retail
    Bay       14                   14  
Gulf Boulevard
    Bay       78       27             51  
Hammock Creek Commerce
    Gadsden       165       27             138  
Mill Creek Commerce
    Bay       37                   37  
Nautilus Court
    Bay       11       11              
Pier Park NE
    Bay       57                   57  
Port St. Joe Commerce II
    Gulf       39       9             30  
Port St. Joe Commerce III
    Gulf       50                   50  
Powell Hills Retail
    Bay       44                   44  
South Walton Commerce
    Walton       38       17             21  
                                         
Total
            991       349             642  
                                         
 
 
(1) A project is deemed land-use entitled when all major discretionary governmental land-use approvals have been received. Some of these projects may require additional permits for development and/or build-out; they also may be subject to legal challenge. Includes significant St. Joe projects that are either operating, under development or in the pre-development stage.


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Residential Real Estate
 
Our residential real estate segment typically plans and develops mixed-use resort, seasonal and primary residential communities of various sizes, primarily on our existing land. We own large tracts of land in Northwest Florida, including large tracts near Tallahassee and Panama City, and significant Gulf of Mexico beach frontage and other waterfront properties, which we believe are suited for resort, seasonal and primary communities. We believe this large land inventory, with a low cost basis, provides us an advantage over our competitors who must purchase and finance real estate at current market prices before beginning projects.
 
We are continuing to devote resources to the conceptual design, planning, permitting and construction of certain key projects currently under development, and we will maintain this process for certain select communities going forward. The success of this strategy is dependent on our intent and ability to hold and sell these key projects in most cases, over a long-term horizon. We also plan to either partner with third parties for the development of new communities or sell entitled land to third-party developers or investors.
 
Currently, customers for our developed homesites include both individual purchasers and national, regional and local homebuilders. Going forward, we may also sell undeveloped land with significant residential entitlements directly to third-party developers or investors.
 
The following are descriptions of some of our current residential development projects in Florida:
 
WaterColor is situated on approximately 499 acres on the beaches of the Gulf of Mexico in south Walton County. The community includes approximately 1,140 residential units, as well as the WaterColor Inn and Resort, the recipient of many notable awards. The WaterColor Inn and Resort is operated on our behalf by Noble House Hotels & Resorts, a boutique hotel ownership and management company with 13 properties throughout the United States. Other WaterColor amenities include a beach club, spa, tennis center, an award-winning upscale restaurant, retail and commercial space and neighborhood parks.
 
WaterSound West Beach is located approximately four miles east of WaterColor on the beach-side of County Road 30A. This community is situated on 62 acres and includes 199 units with amenities that include private beach access through the adjacent Deer Lake State Park and a community pool and clubhouse facility.
 
WaterSound Beach is located approximately five miles east of WaterColor and is planned to include approximately 511 units. Situated on approximately 256 acres, WaterSound Beach includes over one mile of beachfront on the Gulf of Mexico. The WaterSound Beach Club, a private, beachfront facility featuring a 7,000 square-foot, free-form pool and a restaurant, is located within the community.
 
WaterSound is situated on approximately 2,425 acres and is planned for 1,432 residential units and approximately 450,000 square feet of commercial space. It is located approximately three miles from WaterSound Beach north of U.S. 98 in Walton County. WaterSound includes Origins, a uniquely designed Davis Love III golf course, as well as a community pool and clubhouse facility.
 
RiverCamps on Crooked Creek is situated on approximately 1,491 acres in western Bay County bounded by West Bay, the Intracoastal Waterway and Crooked Creek. The community is planned for 408 homes in a low-density, rustic setting with access to various outdoor activities such as fishing, boating and hiking. The community includes the RiverHouse, a waterfront amenity featuring a pool, fitness center, meeting and dining areas and temporary docking facilities.
 
Breakfast Point is a new primary home community situated on approximately 132 acres located in Panama City Beach in Bay County. It is located approximately sixteen miles south of the new Northwest Florida Beaches International Airport. We plan to initially develop 348 homesites and sell them to local and national home builders.
 
WindMark Beach is a beachfront resort community situated on approximately 2,020 acres in Gulf County near the town of Port St. Joe. Plans for WindMark Beach include approximately 1,516 residential units and 76,000 square feet of commercial space. The community features a waterfront Village Center that includes a restaurant, a community pool and clubhouse facility, an amphitheater and approximately 42,000 square feet of


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commercial space. The community is planned to include approximately 14 miles of walkways and boardwalks, including a 3.5-mile beachwalk.
 
SummerCamp Beach is located on the Gulf of Mexico in Franklin County approximately 46 miles south of Tallahassee. The community is situated on approximately 762 acres and includes the SummerCamp Beach Club, a beachfront facility with a pool, restaurant, boardwalks and canoe and kayak rentals. Plans for SummerCamp Beach include approximately 499 units.
 
SouthWood is located on approximately 3,370 acres in southeast Tallahassee. Planned to include approximately 4,770 residential units, SouthWood includes an 18-hole golf course and club and a traditional town center with restaurants, recreational facilities, retail shops and offices. Over 35% of the land in this community is designated for open space, including a 123-acre central park.
 
RiverTown, situated on approximately 4,170 acres located in St. Johns County south of Jacksonville, is currently planned for 4,500 housing units and 500,000 square feet of commercial space. Phase I of RiverTown was re-launched in 2010, focusing on the first 800 units, and will feature an amenity center with pool, tennis courts and playing fields. The centerpiece of the community will be Riverfront Park, a 58-acre nature park along the St. Johns River.
 
Commercial Real Estate
 
Our commercial real estate segment plans, develops and sells or leases real estate for commercial purposes. We focus on commercial development in Northwest Florida because of our large land holdings surrounding the new Northwest Florida Beaches International Airport, along roadways and near or within business districts in the region. We provide development opportunities for national and regional retailers and our strategic partners in Northwest Florida. As part of our strategy to generate recurring revenues, we provide build-to-suit and ground leases to commercial users. We also offer land for commercial and light industrial uses within large and small-scale commerce parks as well as a wide range of multi-family rental projects. We also develop commercial parcels within or near existing residential development projects.
 
In 2010, we launched VentureCrossings Enterprise Centre, a 1,000 acre commercial development adjacent to the Northwest Florida Beaches International Airport. CB Richard Ellis Group, Inc., the world’s largest commercial real estate services firm is soliciting global office, retail and industrial users for this prime development location.
 
Similar to our residential projects, we seek to minimize our capital expenditures for commercial development by either partnering with third parties for the development of certain new commercial projects or selling entitled land to third-party developers or investors.
 
Rural Land Sales
 
Our rural land sales segment markets and sells rural land from our holdings primarily in Northwest Florida. Although the majority of the land sold in this segment is undeveloped timberland, some parcels include the benefits of limited development activity including improved roads, ponds and fencing. Our rural land sales segment also sells credits to developers from our wetlands mitigation banks.
 
We sell parcels of varying sizes ranging from less than one acre to thousands of acres. The pricing of these parcels varies significantly based on size, location, terrain, timber quality and other local factors. We made a strategic decision in 2009 to sell fewer large tracts of rural land in order to preserve our timberland resources. We used this strategy during 2010 and expect to continue this strategy in 2011.
 
The vast majority of the holdings marketed by our rural land sales segment will continue to be managed as timberland until sold. The revenues and income from our timberland operations are reflected in the results of our forestry segment.


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Forestry
 
Our forestry segment focuses on the harvesting of our timber and management of our extensive timber holdings. Revenues are generated primarily through the sale of sawtimber and pulpwood, and land management services for conservation properties. Our principal forestry products are pine pulpwood and sawtimber logs.
 
On December 31, 2010, the estimate of our standing inventory was approximately 16.8 million tons of pine and 5.4 million tons of hardwood. Our forestry staff plans and oversees our silvicultural activities, thinning and final harvest operations, and the reforestation of our timberlands. Silviculture, harvesting, road maintenance and reforestation activities are conducted by local independent contractors under agreements that are generally renewed annually.
 
In November 2010, we entered into a new supply agreement with Smurfit-Stone Container Corporation that requires us to deliver and sell a total of 3.9 million tons of pulpwood through 2017. In addition, we sell stumpage and delivered logs to other regional mills that produce products other than pulp, including lumber, wood pellet, and oriented strand board manufacturers. During the first four months of 2010, we also sold energy feedstock to customers under the Biomass Crop Assistance Program sponsored by the federal government.
 
Supplemental Information
 
Information regarding the revenues, earnings and total assets of each of our operating segments can be found in Note 17 to our Consolidated Financial Statements included in this Report. Substantially all of our revenues are generated from domestic customers. All of our assets are located in the United States.
 
Competition
 
The real estate development business is highly competitive and fragmented. With respect to our residential real estate business, our prospective customers generally have a variety of choices of new and existing homes and homesites near our developments when considering a purchase. As a result of the housing crisis over the past several years, the number of resale homes on the market have dramatically increased, which further increases competition for the sale of our residential products.
 
We compete with numerous developers of varying sizes, ranging from local to national in scope, some of which may have greater financial resources than we have. We attempt to differentiate our products primarily on the basis of community design, quality, uniqueness, amenities, location and developer reputation.
 
Employees
 
As of February 1, 2011, we had 118 employees.  Our employees work in the following segments:
 
         
Residential real estate
    35  
Commercial real estate
    7  
Rural land sales
    7  
Forestry
    19  
Corporate and other
    50  
         
Total
    118  
         
 
Available Information
 
Our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports may be viewed or downloaded electronically, free of charge, from our website: http://www.joe.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). In addition, you may read and copy any materials we file with SEC at the SEC’s Public Reference Room at 100F Street, NE, Washington, DC 20549. To obtain information on the operation of the Public Reference room, you may call the SEC at 1-800-SEC-0330. Our recent press releases are also available to be viewed or downloaded electronically at


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http://www.joe.com. We will also provide electronic copies of our SEC filings free of charge upon request. Any information posted on or linked from our website is not incorporated by reference into this Annual Report on Form 10-K. The SEC also maintains a website at http://sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
 
Item 1A.   Risk Factors
 
The following are what we believe to be the principal risks that could cause a material adverse effect on our business, financial condition, results of operations, cash flows, strategies and prospects.
 
A continued downturn in the demand for real estate, combined with the increase in the supply of real estate available for sale and declining prices, will continue to adversely impact our business.
 
The United States housing market continues to experience a significant downturn. Florida, one of the hardest hit states, has experienced a substantial, continuing decline in demand in most of its residential real estate markets. The collapse of the housing market contributed to the recent recession in the national economy, which exerted further downward pressure on real estate demand. Significantly tighter lending standards for borrowers are also having a significant negative effect on demand. A record number of homes in foreclosure and forced sales by homeowners under distressed economic conditions are significantly contributing to the high levels of inventories of homes and homesites available for sale. The collapse of real estate demand and high levels of inventories have caused land and other real estate prices to significantly decline.
 
These adverse market conditions have negatively affected our real estate products. Revenues from our residential and commercial real estate segments have drastically declined in the past several years, which has had an adverse affect on our financial condition and results of operations. Our lack of revenues reflects not only fewer sales, but also declining prices for our residential and commercial real estate products. We have also seen lower demand and pricing weakness in our rural land sales segment.
 
We do not know how long the downturn in the real estate market will last, whether it will worsen or when real estate markets will return to more normal conditions. Unemployment, lack of consumer confidence and other adverse consequences of the recent economic recession could significantly delay a recovery in real estate markets. Our business will continue to suffer until market conditions improve. If market conditions were to worsen, the demand for our real estate products could further decline, negatively impacting our earnings, cash flow, liquidity and financial condition.
 
A further downturn in national or regional economic conditions, especially in Florida, could adversely impact our business.
 
The recent collapse of the housing market and crisis in the credit markets resulted in a recession in the national economy, after which high unemployment, decreased levels of gross domestic product and significantly reduced consumer spending have persisted. During such times, potential customers often defer or avoid real estate purchases due to the substantial costs involved. Furthermore, a significant percentage of our planned residential units are resort and seasonal products, purchases of which are even more sensitive to adverse economic conditions. Businesses and developers are also less willing to invest in commercial projects during a recession. Our real estate sales, revenues, financial condition and results of operations have suffered as a result.
 
Florida, as one of the states hardest hit by the recent recession and lingering economic downturn, could take longer to recover than the rest of the nation. Our business is especially sensitive to economic conditions in Florida, where all of our developments are located, and the Southeast region of the United States, which in the past has produced a high percentage of customers for the resort and seasonal products in our Northwest Florida communities.
 
We expect the prolonged effects of the recent recession to continue to have a material adverse effect on our business, results of operations and financial condition.


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Our business is concentrated in Northwest Florida. As a result, our long-term financial results are largely dependent on the economic growth of Northwest Florida.
 
The economic growth of Northwest Florida, where most of our land is located, is an important factor in creating demand for our products and services. Two important factors in the economic growth of the region are the completion of significant infrastructure improvements and the creation of new jobs.
 
The economic growth of Northwest Florida depends upon state and local governments, in combination with the private sector, to plan and complete significant infrastructure improvements in the region, such as new roads, medical facilities and schools. The future economic growth of Northwest Florida and our financial results may be adversely affected if its infrastructure is not improved. There can be no assurance that new improvements will occur or that existing projects will be completed.
 
Attracting significant new employers that can create new, high-quality jobs is also a key factor in the economic growth of Northwest Florida. Northwest Florida has traditionally lagged behind the rest of Florida in economic growth, and as a result its residents have a lower per capita income than residents in other parts of the state. In order to improve the economy of the region, state and local governments, along with the private sector, must seek to attract large employers capable of paying high salaries to large numbers of new employees. State governments, particularly in the Southeast, and local governments within Florida compete intensely for new jobs. There can be no assurance that efforts to attract significant new employers to locate facilities in Northwest Florida will be successful or that new employers will want to locate their businesses in Northwest Florida. The future economic growth of Northwest Florida and our financial results may be adversely affected if substantial job growth is not achieved.
 
If we are not able to generate sufficient cash to maintain and enhance our operations and to develop our real estate holdings, our financial condition and results of operations could be negatively impacted.
 
We operate in a capital intensive industry and require significant cash to maintain our competitive position. Although we have significantly reduced capital expenditures and operating expenses during the current real estate downturn, we will need significant cash in the future to maintain and enhance our operations and to develop our real estate holdings. We obtain funds for our operating expenses and capital expenditures through cash flow from operations, property sales and financings. Due to the operating losses and low levels of cash currently generated by our operations, we are continuing to explore alternative methods and strategies for generating additional cash, such as ways to maximize the use of our timber and exploring other strategic alternatives. We cannot guarantee, however, that any of these alternative cash sources or strategies will be viable, significant or successful. Failure to obtain sufficient cash when needed may limit our development activities, cause us to further reduce our operations or cause us to sell desirable assets on unfavorable terms, any of which could have a material adverse affect on our financial condition and results of operations.
 
If our cash flow proves to be insufficient, due to the continuing real estate downturn, unanticipated expenses or otherwise, we may need to obtain additional financing from third-party lenders in order to support our plan of operations. Additional funding, whether obtained through public or private debt or equity financing, or from strategic alliances, may not be available when needed or may not be available on terms acceptable to us, if at all.
 
We have a $125 million revolving credit facility with adjustable interest rates that we can draw upon to provide cash for operations and/or capital expenditures. Increases in interest rates can make it more expensive for us to use this credit facility or obtain funds from other sources that we need to operate our business.
 
The Deepwater Horizon oil spill has had, and future oil spill incidents in the Gulf of Mexico could have, an adverse impact on our properties, results of operations and stock price. Furthermore, if drilling for oil or natural gas is permitted off the coast of Northwest Florida, our business may be adversely affected.
 
In April 2010, the Deepwater Horizon drilling platform exploded and sank in the Gulf of Mexico off the coast of Louisiana causing a massive oil spill. Millions of barrels of oil were released into the Gulf over a period of months causing widespread environmental damage. The ruptured oil well was permanently contained


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in September 2010. Much uncertainty remains, however, about the extent of the environmental damage from the oil and other pollutants that have been discharged into the Gulf and the duration of the negative effects from the spill, including negative consumer perception regarding the Gulf region including Northwest Florida. Although the full economic and environmental effects of the oil spill are uncertain at this time, we believe that it has had a negative impact on our properties, results of operations and stock price. Future oil spill incidents, or the prospect of future oil spill incidents, could also negatively affect our properties, results of operations and stock price.
 
To date, federal and state laws have prevented the construction of unsightly drilling platforms off the coast of Florida and have preserved the natural beauty of the state’s coastline and beaches. This natural coastal beauty is an important positive factor in Florida’s tourist-based economy and contributes significantly to the value of our properties in Northwest Florida.
 
If drilling platforms are permitted to be built off the coast of Northwest Florida, potential purchasers may find our coastal properties to be less attractive, or may perceive greater risks from possible future oil spills, which may have an adverse effect on our business.
 
We have significant operations and properties in Florida that could be materially and adversely affected in the event of a hurricane, natural disaster or other significant disruption. The prospect of hurricanes could also negatively impact demand for our real estate products.
 
Our corporate headquarters and our properties are located in Florida, where major hurricanes have occurred. Because of its location between the Gulf of Mexico and the Atlantic Ocean, Florida is particularly susceptible to the occurrence of hurricanes. Depending on where any particular hurricane makes landfall, our developments in Florida, especially our coastal properties and corporate headquarters facility in Northwest Florida, could experience significant, if not catastrophic, damage. Such damage could materially delay sales in affected communities or could lessen demand for products in those communities. If our corporate headquarters facility is damaged or destroyed, we may have difficulty performing certain corporate and operational functions.
 
Importantly, regardless of actual damage to a development, the occurrence and frequency of hurricanes in Florida and the southeastern United States could negatively impact demand for our real estate products because of consumer perceptions of hurricane risks. For example, the southeastern United States experienced a record-setting hurricane season in 2005, including Hurricane Katrina, which caused severe devastation to New Orleans and the Mississippi Gulf Coast and received prolonged national media attention. Although our properties were not significantly impacted, we believe that the 2005 hurricane season had an immediate negative impact on sales of our resort residential products. Another severe hurricane or hurricane season in the future could have a similar negative effect on our real estate sales.
 
In addition to hurricanes, the occurrence of other natural disasters and climate conditions in Florida, such as tornadoes, floods, fires, unusually heavy or prolonged rain, droughts and heat waves, could have a material adverse effect on our ability to develop and sell properties or realize income from a number of our projects. Furthermore, an increase in sea levels due to long-term global warming could have a material adverse affect on our coastal properties. The occurrence of natural disasters and the threat of adverse climate changes could also have a long-term negative effect on the attractiveness of Florida as a location for resort, seasonal and/or primary residences and as a location for new employers that can create high-quality jobs needed to spur growth in Northwest Florida.
 
Additionally, we are susceptible to manmade disasters or disruptions, such as oil spills, acts of terrorism, power outages and communications failures. If a hurricane, natural disaster or other significant disruption occurs, we may experience disruptions to our operations and properties, which could have a material adverse effect on our business and our results of operations.


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If the new Northwest Florida Beaches International Airport is not successful, we may not realize the economic benefits that we are anticipating from the new airport.
 
We believe that the recent relocation of the Panama City-Bay County International Airport is critically important to the overall economic development of Northwest Florida. We anticipate that the airport will provide a catalyst for value creation in the property we own surrounding the airport, as well as our other properties throughout Northwest Florida.
 
Southwest Airlines provides air service to the new airport. If Southwest Airlines’ service fails to grow, or if Southwest Airlines chooses to terminate its service at the new airport or chooses to commence service at another airport in the region, the new airport may not be successful, and we may not realize the economic benefits that we are anticipating from the new airport.
 
In addition, if Southwest Airlines’ service to the new airport is unsuccessful, we would be required pursuant to our agreement with Southwest Airlines to reimburse Southwest Airlines if it incurs losses during the first three years of service. Although we have the right to terminate our agreement with Southwest Airlines if payments exceed certain amounts, the required payments under the agreement could have an adverse affect on our financial results.
 
The airport must successfully compete with the other airports in the region. For example, airports in Pensacola, Destin and Tallahassee, Florida, and Dothan, Alabama aggressively compete for passengers in Northwest Florida. There can be no assurance that the region can support all of the existing airports. If the airport fails to successfully compete with the other airports in the region, we may not realize the economic benefits that we are anticipating from the new airport.
 
Limitations on the access to the airport runway at the new Northwest Florida Beaches International Airport may have an adverse effect on the demand for our West Bay Sector lands adjacent to the new airport and our results of operations.
 
Our land donation agreement with the airport authority and the deed for the airport land provide access rights to the airport runway from our adjacent lands. We subsequently entered into an access agreement with the airport authority that outlines the process for implementing access to the airport runway. Under the terms of the access agreement, we are subject to the requirements of the airport authority, including but not limited to the laws administered by the Federal Aviation Administration (the “FAA”), the Florida Department of Environmental Protection, the U.S. Army Corps of Engineers, Bay County and Panama City. Should security measures at airports become more restrictive in the future due to circumstances beyond our control, FAA regulations governing these access rights may impose additional limitations that could significantly impair or restrict access rights.
 
In addition, we are required to obtain environmental permits from the U.S. Army Corps of Engineers and Florida’s Department of Environmental Protection in order to develop the land necessary for access from our planned areas of commercial development to the airport runway. Such permits are often subject to a lengthy approval process, and there can be no assurance that such permits will be issued, or that they will be issued in a timely manner.
 
We believe that runway access is a valuable attribute of some of our West Bay Sector lands adjacent to the new airport, and the failure to maintain such access, or the imposition of significant restrictions on such access, could adversely affect the demand for such lands and our results of operations.
 
Changes in the demographics affecting projected population growth in Florida, particularly Northwest Florida, including a decrease in the migration of Baby Boomers, could adversely affect our business.
 
Florida has experienced strong population growth since World War II, including during the real estate boom in the first half of the last decade. In recent years, however, the rate of net migration into Florida has drastically declined. The significant decline in the rate of in-migration could reflect a number of factors affecting Florida, including difficult economic conditions, rising foreclosures, restrictive credit, the occurrence of hurricanes and increased costs of living. Also, because of the housing collapse across the nation, people


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interested in moving to Florida may have delayed or cancelled their plans due to difficulties selling their existing homes.
 
The success of our primary communities will be dependent on strong in-migration population expansion in our regions of development, primarily Northwest Florida. We also believe that Baby Boomers seeking retirement or vacation homes in Florida will remain important target customers for our real estate products in the future. Florida’s population growth could be negatively affected in the future by factors such as adverse economic conditions, the occurrence of hurricanes or oil spills and the high cost of real estate, insurance and property taxes. Furthermore, those persons considering moving to Florida may not view Northwest Florida as an attractive place to live or own a second home and may choose to live in another region of the state. In addition, as an alternative to Florida, other states such as Georgia, North and South Carolina and Tennessee are increasingly becoming retirement destinations and are attracting retiring Baby Boomers and the workforce population who may have otherwise considered moving to Florida. If Florida, especially Northwest Florida, experiences an extended period of slow growth, or even net out-migration, our business, results of operations and financial condition would suffer.
 
We are dependent upon national, regional and local homebuilders as customers, but our ability to attract homebuilder customers and their ability or willingness to satisfy their purchase commitments may be uncertain considering the current real estate downturn.
 
We no longer build homes in our developments, so we are highly dependent upon our relationships with national, regional and local homebuilders to be the primary customers for our homesites and to provide construction services at our residential developments. Because of the collapse of real estate markets across the nation, including our markets, homebuilders are struggling to survive and are significantly less willing to purchase homesites and invest capital in speculative construction. The homebuilder customers that have already committed to purchase homesites from us could decide to reduce, delay or cancel their existing commitments to purchase homesites in our developments. Homebuilders also may not view our developments as desirable locations for homebuilding operations, or they may choose, in light of current market conditions, to purchase land from distressed sellers. Any of these events could have an adverse effect on our results of operations.
 
Our business model is dependent on transactions with strategic partners. We may not be able to successfully (1) attract desirable strategic partners; (2) complete agreements with strategic partners, and/or (3) manage relationships with strategic partners going forward, any of which could adversely affect our business.
 
We have increased our focus on executing our development and value creation strategies through joint ventures and strategic relationships. We are actively seeking strategic partners for alliances or joint venture relationships as part of our overall strategy for particular developments. These joint venture partners may bring development experience, industry expertise, financial resources, financing capabilities, brand recognition and credibility or other competitive assets. We cannot assure, however, that we will have sufficient resources, experience and/or skills to locate desirable partners. We also may not be able to attract partners who want to conduct business in Northwest Florida, our primary area of focus, and who have the assets, reputation or other characteristics that would optimize our development opportunities.
 
Once a partner has been identified, actually reaching an agreement on a transaction may be difficult to complete and may take a considerable amount of time considering that negotiations require careful balancing of the parties’ various objectives, assets, skills and interests. A formal partnership with a joint venture partner may also involve special risks such as:
 
  •  we may not have voting control over the joint venture;
 
  •  the venture partner may take actions contrary to our instructions or requests, or contrary to our policies or objectives with respect to the real estate investments;
 
  •  the venture partner could experience financial difficulties, and


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  •  actions by a venture partner may subject property owned by the joint venture to liabilities greater than those contemplated by the joint venture agreement or have other adverse consequences.
 
Joint ventures have a high failure rate. A key complicating factor is that strategic partners may have economic or business interests or goals that are inconsistent with ours or that are influenced by factors unrelated to our business. These competing interests lead to the difficult challenges of successfully managing the relationship and communication between strategic partners and monitoring the execution of the partnership plan. We cannot assure that we will have sufficient resources, experience and/or skills to effectively manage our ongoing relationships with our strategic partners. We may also be subject to adverse business consequences if the market reputation of a strategic partner deteriorates. If we cannot successfully execute transactions with strategic partners, our business could be adversely affected.
 
If the fair values of our homes and homesites substantially completed and ready for sale which management intends to sell in the near term, or the undiscounted cash flows of certain other real estate assets were to drop below the book value of those properties, we would be required to write down the book value of those properties, which would have an adverse affect on our balance sheet and our earnings.
 
Unlike most other real estate developers, we have owned the majority of our land for many years, having acquired most of our land in the 1930’s and 1940’s. Consequently, we have a very low initial cost basis in the majority of our lands. In certain instances, however, we have acquired properties at market values for project development. Also, many of our projects have expensive amenities, such as pools, golf courses and clubs, or feature elaborate commercial areas requiring significant capital expenditures. Many of these costs are capitalized as part of the book value of the project land. Adverse market conditions, in certain circumstances, may require the book value of real estate assets to be decreased, often referred to as a “write-down” or “impairment.” A write-down of an asset would decrease the book value of the asset on our balance sheet and would reduce our earnings for the period in which the write-down is recorded.
 
If market conditions were to continue to deteriorate, and the fair values of our homes and homesites substantially completed and ready for sale that management intends to sell, or the undiscounted cash flows of other properties, were to fall below the book value of these assets, we could be required to take additional write downs of the book value of those assets.
 
A securities class action lawsuit is pending against us involving our past public disclosures, and the outcome of this lawsuit and any related derivative lawsuits that may be filed in the future could have an adverse effect on our business and stock price.
 
Two securities class action lawsuits have been filed against us and certain of our officers and directors, relating to our past disclosures and alleging, among other things, violations of the securities laws. These two lawsuits have been consolidated into one case. There may also be additional derivative lawsuits filed by shareholders relating to the same matters described in the securities class action suit. We cannot predict the outcome of the pending lawsuit or any future lawsuits. Substantial damages or other monetary remedies assessed against us could have an adverse effect on our business and stock price.
 
An adverse outcome of the informal inquiry being conducted by the SEC, or an initiation by the SEC of a formal inquiry or investigation, could have an adverse effect on our business and stock price.
 
In January 2011, the SEC commenced an informal inquiry into our accounting practices for impairment of investment in real estate assets. We intend to fully cooperate with the SEC in connection with the informal inquiry. We are unable to predict the outcome of the informal inquiry or whether a formal inquiry or investigation will be initiated. An adverse outcome of the informal inquiry or an initiation of a formal inquiry or investigation by the SEC could have an adverse effect on our business and stock price.


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We are exposed to risks associated with real estate development that could adversely impact our results of operations, cash flows and financial condition.
 
Our real estate development activities entail risks that could adversely impact our results of operations, cash flows and financial condition, including:
 
  •  construction delays or cost overruns, which may increase project development costs;
 
  •  claims for construction defects after property has been developed, including claims by purchasers and property owners’ associations;
 
  •  an inability to obtain required governmental permits and authorizations;
 
  •  an inability to secure tenants necessary to support commercial projects, and
 
  •  compliance with building codes and other local regulations.
 
Significant competition could have an adverse effect on our business.
 
A number of residential and commercial developers, some with greater financial and other resources, compete with us in seeking resources for development and prospective purchasers and tenants. Competition from other real estate developers may adversely affect our ability to:
 
  •  attract purchasers and sell residential and commercial real estate;
 
  •  sell undeveloped rural land;
 
  •  attract and retain experienced real estate development personnel; and
 
  •  obtain construction materials and labor.
 
We also face competition in our forestry business which could have a negative impact on the prices paid for our timber products.
 
The cyclical nature of our real estate operations could adversely affect our results of operations.
 
The real estate industry is cyclical and can experience downturns based on consumer perceptions of real estate markets and other cyclical factors, which factors may work in conjunction with or be wholly unrelated to general economic conditions. Furthermore, our business is affected by seasonal fluctuations in customers interested in purchasing real estate, with the spring and summer months traditionally being the most active time of year for customer traffic and sales. Also, our supply of homesites available for purchase fluctuates from time to time. As a result, our real estate operations are cyclical, which may cause our quarterly revenues and operating results to fluctuate significantly from quarter to quarter and to differ from the expectations of public market analysts and investors. If this occurs, the trading price of our stock could also fluctuate significantly.
 
Our business is subject to extensive regulation that may restrict, make more costly or otherwise adversely impact our ability to conduct our operations.
 
Approval to develop real property in Florida entails an extensive entitlements process involving multiple and overlapping regulatory jurisdictions and often requiring discretionary action by local government. This process is often political, uncertain and may require significant exactions in order to secure approvals. Real estate projects in Florida must generally comply with the provisions of the Local Government Comprehensive Planning and Land Development Regulation Act (the “Growth Management Act”) and local land development regulations. In addition, development projects that exceed certain specified regulatory thresholds require approval of a comprehensive Development of Regional Impact, or DRI, application. Compliance with the Growth Management Act, local land development regulations and the DRI process is usually lengthy and costly and can be expected to materially affect our real estate development activities.


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The Growth Management Act requires local governments to adopt comprehensive plans guiding and controlling future real property development in their respective jurisdictions and to evaluate, assess and keep those plans current. Included in all comprehensive plans is a future land use map which sets forth allowable land use development rights. Since most of our land has an “agricultural” or similar land use, we are required to seek an amendment to the future land use map to develop residential, commercial and mixed-use projects. Approval of these comprehensive plan map amendments is highly discretionary.
 
All development orders and development permits must be consistent with the comprehensive plan. Each plan must address such topics as future land use and capital improvements and make adequate provision for a multitude of public services including transportation, schools, solid waste disposal, sanitation, sewerage, potable water supply, drainage, affordable housing, open space and parks. The local governments’ comprehensive plans must also establish “levels of service” with respect to certain specified public facilities, including roads and schools, and services to residents. In many areas, infrastructure funding has not kept pace with growth, causing facilities to operate below established levels of service. Local governments are prohibited from issuing development orders or permits if the development will reduce the level of service for public facilities below the level of service established in the local government’s comprehensive plan, unless the developer either sufficiently improves the services up front to meet the required level or provides financial assurances that the additional services will be provided as the project progresses. In addition, local governments that fail to keep their plans current may be prohibited by law from amending their plans to allow for new development.
 
The DRI review process includes an evaluation of a project’s impact on the environment, infrastructure and government services, and requires the involvement of numerous state and local environmental, zoning and community development agencies. Local government approval of any DRI is subject to appeal to the Governor and Cabinet by the Florida Department of Community Affairs, and adverse decisions by the Governor or Cabinet are subject to judicial appeal. The DRI approval process is usually lengthy and costly, and conditions, standards or requirements may be imposed on a developer that may materially increase the cost of a project.
 
Changes in the Growth Management Act or the DRI review process or the interpretation thereof, new enforcement of these laws or the enactment of new laws regarding the development of real property could lead to new or greater liabilities that could materially adversely affect our business, profitability or financial condition.
 
Environmental and other regulations may have an adverse effect on our business.
 
Our properties are subject to federal, state and local environmental regulations and restrictions that may impose significant limitations on our development ability. In most cases, approval to develop requires multiple permits which involve a long, uncertain and costly regulatory process. Most of our land holdings contain jurisdictional wetlands, some of which may be unsuitable for development or prohibited from development by law. Development approval most often requires mitigation for impacts to wetlands that require land to be conserved at a disproportionate ratio versus the actual wetlands impacted and approved for development. Much of our property is undeveloped land located in areas where development may have to avoid, minimize or mitigate for impacts to the natural habitats of various protected wildlife or plant species. Much of our property is in coastal areas that usually have a more restrictive permitting burden and must address issues such as coastal high hazard, hurricane evacuation, floodplains and dune protection.
 
Environmental laws and regulations frequently change, and such changes could have an adverse effect on our business. For example, the Environmental Protection Agency (“EPA”) released in January 2010 proposed new freshwater quality criteria for Florida. There is a significant amount of uncertainty about how the proposed freshwater criteria would be implemented, including how they would relate to current state regulations. In addition, the EPA proposes to release new coastal water quality criteria for Florida in 2011. If adopted, and depending on the implementation details, the EPA’s proposed water quality criteria could lead to new restrictions and increased costs for our real estate development activities.
 
In addition, our current or past ownership, operation and leasing of real property, and our current or past transportation and other operations, are subject to extensive and evolving federal, state and local environmental


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laws and other regulations. The provisions and enforcement of these environmental laws and regulations may become more stringent in the future. Violations of these laws and regulations can result in:
 
  •  civil penalties;
 
  •  remediation expenses;
 
  •  natural resource damages;
 
  •  personal injury damages;
 
  •  potential injunctions;
 
  •  cease and desist orders; and
 
  •  criminal penalties.
 
In addition, some of these environmental laws impose strict liability, which means that we may be held liable for any environmental damages on our property regardless of fault.
 
Some of our past and present real property, particularly properties used in connection with our previous transportation and papermill operations, were involved in the storage, use or disposal of hazardous substances that have contaminated and may in the future contaminate the environment. We may bear liability for this contamination and for the costs of cleaning up a site at which we have disposed of or to which we have transported hazardous substances. The presence of hazardous substances on a property may also adversely affect our ability to sell or develop the property or to borrow funds using the property as collateral.
 
Changes in laws or the interpretation thereof, new enforcement of laws, the identification of new facts or the failure of other parties to perform remediation at our current or former facilities could lead to new or greater liabilities that could materially adversely affect our business, profitability or financial condition.
 
If our net worth declines, we could default on our revolving credit facility which could have a material adverse effect on our financial condition and results of operations.
 
We have a $125 million revolving credit facility available to provide a source of funds for operations, capital expenditures and other general corporate purposes. While we have not yet needed to borrow any funds under this facility, it is important to have in place as a ready source of financing, especially in the current difficult economic conditions. The credit facility contains financial covenants that we must meet on a quarterly basis. These restrictive covenants require, among other things, that our tangible net worth be not less than $800 million. Compliance with this covenant will be challenging if we continue to experience significant operating losses, asset impairments, pension plan losses and other reductions in our net worth.
 
If we do not comply with the minimum tangible net worth covenant, we could have an event of default under our credit facility. There can be no assurance that the bank will be willing to amend the facility to provide for more lenient terms prior to any such default, or that it will not charge significant fees in connection with any such amendment. If we had borrowings under the facility at the time of a default, the bank could immediately accelerate all outstanding amounts and file a mortgage on the majority of our properties to secure the repayment of the debt. Even if we had no outstanding borrowings under the facility at the time of a default, the bank may choose to terminate the facility or seek to negotiate additional or more severe restrictive covenants or increased pricing and fees. We could be required to seek an alternative funding source, which may not be available at all or available on acceptable terms. Any of these events could have a material adverse effect on our financial condition and results of operations.
 
Increases in property insurance premiums and the decreasing availability of homeowner property insurance in Florida could reduce customer demand for homes and homesites in our developments.
 
Homeowner property insurance companies doing business in Florida have reacted to recent hurricanes by significantly increasing premiums, requiring higher deductibles, reducing limits, restricting coverage imposing exclusions, refusing to insure certain property owners, and in some instances, ceasing insurance operations in


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the state. It is uncertain what effect these actions will have on property insurance availability and rates in the state. This trend of decreasing availability of insurance and rising insurance rates could continue if there are severe hurricanes in the future.
 
Furthermore, since the 2005 hurricane season, Florida’s state-owned property insurance company, Citizens Property Insurance Corp., has significantly increased the number of its outstanding policies, causing its potential claims exposure to exceed $2 trillion. If there were to be a catastrophic hurricane or series of hurricanes to hit Florida, the exposure of the state government to property insurance claims could place extreme stress on state finances and may ultimately cause taxes in Florida to be significantly increased. The state may decide to limit the availability of state-sponsored property insurance in the future.
 
The high and increasing costs of property insurance premiums in Florida, as well as the decrease in private property insurers, could deter potential customers from purchasing a home or homesite in one of our developments or make Northwest Florida less attractive to new employers that can create high quality jobs needed to spur growth in the region, either of which could have a material adverse effect on our financial condition and results of operations.
 
Mortgage financing issues, including lack of supply of mortgage loans, tightened lending requirements and possible future increases in interest rates, could reduce demand for our products.
 
Many purchasers of our real estate products obtain mortgage loans to finance a substantial portion of the purchase price, or they may need to obtain mortgage loans to finance the construction costs of homes to be built on homesites purchased from us. Also, our homebuilder customers depend on retail purchasers who rely on mortgage financing. Many mortgage lenders and investors in mortgage loans have recently experienced severe financial difficulties arising from losses incurred on sub-prime and other loans originated before the downturn in the real estate market. Despite unprecedented efforts by the federal government to stabilize the nation’s banks, banking operations remain unsettled and the future of certain financial institutions remains uncertain. Because of these problems, the supply of mortgage products has been constrained, and the eligibility requirements for borrowers have been significantly tightened. These problems in the mortgage lending industry could adversely affect potential purchasers of our products, including our homebuilder customers, thus having a negative effect on demand for our products.
 
Despite the current problems in the mortgage lending industry, interest rates for home mortgage loans have generally remained low. Mortgage interest rates could increase in the future, however, which could adversely affect the demand for residential real estate. In addition, any changes in the federal income tax laws which would remove or limit the deduction for interest on home mortgage loans could have an adverse impact on demand for our residential products. In addition to residential real estate, increased interest rates and restrictions in the availability of credit could also negatively impact sales of our commercial properties or other land we offer for sale. If interest rates increase and the ability or willingness of prospective buyers to finance real estate purchases is adversely affected, our sales, revenues, financial condition and results of operations may be negatively affected.
 
Our stock price may decline or fluctuate significantly due to market factors outside of our control.
 
The market price of our common stock has been volatile and may decline or fluctuate significantly in response to many factors, many of which are outside our control, including but not limited to:
 
  •  actions by institutional shareholders or hedge funds;
 
  •  speculation in the press or investment community;
 
  •  the extent of short selling, hedging and other derivative transactions involving shares of our common stock;
 
  •  publication of research reports and opinions about us or the real estate industry in general;
 
  •  rumors or dissemination of false or misleading information about us by other parties;
 
  •  adverse market reaction to our strategic initiatives and their implementation;


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  •  additions or departures of key management personnel;
 
  •  changes in our management structure and board composition;
 
  •  informal or formal inquiries or investigations by the SEC; and
 
  •  general economic and market conditions.
 
These factors may cause the market price of our common stock to decline regardless of our financial condition, results of operation, business or prospects and could result in substantial losses for our shareholders.
 
If Fairholme Funds, Inc. controls us within the meaning of the Investment Company Act of 1940, we may be unable to engage in transactions with potential strategic partners, which could adversely affect our business.
 
Fairholme Funds, Inc. (“Fairholme”) is an investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”) that currently beneficially owns approximately 24.98% of our outstanding common stock. Fairholme Capital Management, L.L.C., which controls Fairholme, is the investment advisor of accounts that in the aggregate own an additional 5% of our common stock. Bruce R. Berkowitz and Charles M. Fernandez, the Managing Member and President, respectively, of Fairholme Capital Management, L.L.C., and the President and Vice President, respectively, of Fairholme, will become members of our Board of Directors upon filing of this Form 10-K. Under the Investment Company Act, “control” means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Any person who owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of a company shall be presumed to control such company. The SEC, however, has considered factors other than ownership of voting securities in determining control, including an official position with the company when such was obtained as a result of the influence over the company. Accordingly, even if Fairholme’s beneficial ownership in us remains below 25%, Fairholme may nevertheless be deemed to control us. The Investment Company Act generally prohibits a company controlled by an investment company from engaging in certain transactions with any affiliate of the investment company or affiliates of the affiliate, subject to limited exceptions. An affiliate of an investment company is defined in the Investment Company Act as, among other things, any company 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the investment company, a company directly or indirectly controlling, controlled by, or under common control with, the investment company or a company directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of the investment company.
 
We believe that Fairholme is currently affiliated with a number of entities, including RSC Holdings, Inc., WellCare Health Plans, Inc., Winthrop Realty Trust, Regions Financial Corp., CIT Group, Sears Holdings Corp. and MBIA, Inc. Due to this affiliation, should Fairholme be deemed to control us, we may be prohibited from engaging in certain transactions with these entities and certain of their affiliates and any future affiliates of Fairholme, unless one of the limited exceptions applies. This could adversely affect our ability to enter into transactions freely and compete in the marketplace.
 
In addition, significant penalties apply for companies found to be in violation of the Investment Company Act.
 
If the Smurfit-Stone mill in Panama City were to permanently cease operations, the price we receive for our pine pulpwood may decline, and the cost of delivering logs to alternative customers could increase.
 
In November 2010, we entered into a new supply agreement with Smurfit-Stone Container Corporation that requires us to deliver and sell a total of 3.9 million tons of pulpwood through 2017. Smurfit-Stone’s Panama City mill is the largest consumer of pine pulpwood logs within the immediate area in which most of our timberlands are located. In July 2010, Smurfit-Stone emerged from approximately 18 months of bankruptcy protection, and during the first quarter of 2011, it announced its acquisition by another company. Under the terms of the supply agreement, Smurfit-Stone and its successor will be liable for monetary damages as a result of the closure of the mill due to economic reasons for a period of one year. Nevertheless, if the Smurfit-Stone mill in Panama City were to permanently cease operations, the price for our pulpwood may decline, and the cost of delivering logs to alternative customers could increase.


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Changes in our income tax estimates could affect our profitability.
 
In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws and rates. To the extent adjustments are required in any given period; we include the adjustments in the tax provision in our financial statements. These adjustments could materially impact our financial position, cash flow and results of operations.
 
Increases in real estate property taxes could reduce customer demand for homes and homesites in our developments.
 
Florida experienced significant increases in property values during the record-setting real estate activity in the first half of the previous decade. As a result, many local governments have been, and may continue aggressively re-assessing the value of homes and real estate for property tax purposes. These larger assessments increase the total real estate property taxes due from property owners annually. Because of decreased revenues from other sources because of the recession, many local governments have also increased their property tax rates.
 
The current high costs of real estate property taxes in Florida, and future increases in property taxes, could deter potential customers from purchasing a lot or home in one of our developments, or make Northwest Florida less attractive to new employers that can create high-quality jobs needed to spur growth in the region, either of which could have a material adverse effect on our financial condition and results of operations.
 
If Wells Fargo & Company’s Wachovia Bank subsidiary (or any successor bank) were to fail and be liquidated, we could be required to accelerate the payment of the deferred taxes on our installment sale transactions. Our business, cash flows and financial condition may be adversely affected if this significant tax event were to occur.
 
During 2007 and 2008, we sold approximately 132,055 acres of timberland in installment sale transactions for approximately $183.3 million, which was paid in the form of 15-year installment notes receivable. These installment notes are fully backed by letters of credit issued by Wachovia Bank, N.A. (subsequently acquired by Wells Fargo & Company) which are secured by bank deposits in the amount of the purchase price. The approximate aggregate taxable gain from these transactions was $160.5 million, but the installment sale structure allows us to defer paying taxes on these gains for 15 years. Meanwhile, we generated cash from these sales (sometimes referred to as “monetizing” the notes) by contributing the installment notes and bank letters of credit to special purpose entities organized by us, and these special purpose entities in turn issued to various institutional investors notes payable backed by the installment notes and bank letters of credit, and in some cases by a second letter of credit issued for the account of the special purpose entity. The special purpose entities have approximately $163.5 million of these notes payable outstanding. These notes are payable solely out of the assets of the special purpose entities (which consist of the installment notes and the letters of credit). The investors in the special purpose entities have no recourse against us for payment of the notes. The special purpose entities’ financial position and results of operations are not consolidated in our financial statements.
 
Banks and other financial institutions experienced a high level of instability in the recent economic crisis, resulting in numerous bank and financial institution failures, hastily structured mergers and acquisitions, and an unprecedented direct infusion of billions of dollars of capital by the federal government into banks and financial institutions. In late 2008, Wells Fargo acquired Wachovia Corporation and its subsidiary, Wachovia Bank, N.A., the holder of the deposits and the issuer of the letter of credit obligations in our installment sale transactions. Wells Fargo, as one of the largest banks in the United States, would presumably receive the support of the federal government if needed to prevent a failure of its banking subsidiaries. There can be no


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assurance, however, that Wells Fargo’s Wachovia Bank subsidiary (or any successor bank) will not fail or that it would receive government assistance sufficient to prevent a bank failure.
 
If Wells Fargo’s Wachovia Bank subsidiary (or any successor bank) were to fail and be liquidated, the installment notes receivable, the letters of credit and the notes issued by the special purpose entities to the institutional investors could be virtually worthless or satisfied at a significant discount. As a result, the taxes due on the $160.5 million gain would be accelerated. An adverse tax event could result in an immediate need for a significant amount of cash that may not be readily available from our cash reserves, our revolving line of credit or other third-party financing sources. Any such cash outlay, even if available, could divert needed resources away from our business or cause us to liquidate assets on unfavorable terms or prices. Our business and financial condition may be adversely affected if these significant tax events were to occur. In the event of a liquidation of Wells Fargo’s Wachovia Bank subsidiary (or any successor bank), we could also be required to write-off the remaining retained interest recorded on our balance sheet in connection with the installment sale transactions, which would have an adverse effect on our results of operations.
 
Item 1B.   Unresolved Staff Comments
 
None.
 
Item 2.   Properties
 
We own our principal executive offices located in WaterSound, Florida.
 
We own approximately 574,000 acres, the majority of which are located in Northwest Florida. Our land holdings include approximately 403,000 acres within 15 miles of the coast of the Gulf of Mexico. Most of our raw land assets are managed as timberlands until designated for development. Also, our lender has the right to record mortgages on approximately 530,000 acres of our land if there is an event of default under our revolving credit facility.
 
For more information on our real estate assets, see Item 1. Business above.
 
Item 3.   Legal Proceedings
 
Oil Spill Lawsuits
 
We have filed three lawsuits against the parties we believe are responsible for the Deepwater Horizon oil spill in the Gulf of Mexico. The oil spill has had a negative impact on our properties, results of operations and stock price. The three lawsuits are described as follows:
 
On August 4, 2010, we filed a lawsuit in the Superior Court of the State of Delaware in New Castle County against Halliburton Energy Services, Inc. (“Halliburton”). The lawsuit alleges that Halliburton, the cementing contractor for the oil well, was grossly negligent in its management of the well cementing process leading to the blowout of the well. We are seeking compensatory and punitive damages.
 
On August 26, 2010, we filed a lawsuit in the Superior Court of the State of Delaware in New Castle County against M-I, L.L.C. (a/k/a “M-I SWACO”). The lawsuit alleges that M-I SWACO, the drilling fluid contractor for the drilling rig, was grossly negligent in the way that it managed and conducted the use of drilling fluids to maintain well control leading to the blowout of the well. We are seeking compensatory and punitive damages.
 
On October 12, 2010, we filed a lawsuit in the Superior Court of the State of Delaware in New Castle County against Transocean Holdings, LLC, Transocean Offshore Deepwater Drilling, Inc., Transocean Deepwater, Inc. and Triton Asset Leasing GmbH (collectively, “Transocean”). The lawsuit alleges that Transocean, the owner of the drilling rig, was grossly negligent in the operation and maintenance of the drilling rig and its equipment and in overseeing drilling activities on the rig leading to the blowout of the well. We are seeking compensatory and punitive damages.


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All three of these cases were removed by the defendants to the U.S. District Court for the District of Delaware, and we filed motions to remand each case back to Delaware state court. The Halliburton and M-I SWACO cases have since been transferred to the Deepwater Horizon Multi-District Litigation in the U.S. District Court for the Eastern District of Louisiana. A hearing on the motion for removal in the Transocean case was held in the U.S. District Court for the District of Delaware on February 10, 2011, and a decision on the motion is pending.
 
Shareholder Lawsuits
 
On November 3, 2010 and December 7, 2010, two securities class action complaints were filed against us and certain of our officers and directors in the Northern District of Florida. These cases have been consolidated in the U.S. District Court for the Northern District of Florida and are captioned as Meyer v. The St. Joe Company et al. (No. 5:11-cv-00027). A consolidated class action complaint was filed in the case on February 24, 2011.
 
The complaint was filed on behalf of persons who purchased our securities between February 19, 2008 and October 12, 2010 and alleges that we and certain of our officers and directors, among others, violated the Securities Act of 1933 and Securities Exchange Act of 1934 by making false and/or misleading statements and/or by failing to disclose that, as the Florida real estate market was in decline, we were failing to take adequate and required impairments and accounting write-downs on many of our Florida-based properties and as a result, our financial statements materially overvalued our property developments. The plaintiffs also allege that our financial statements were not prepared in accordance with Generally Accepted Accounting Principles, and that we lacked adequate internal and financial controls, and as a result of the foregoing, our financial statements were materially false and misleading. The complaint seeks an unspecified amount in damages.
 
We believe that we have meritorious defenses to the plaintiffs’ claims and intend to defend the action vigorously.
 
Additionally, we have received four demand letters asking the Board of Directors to initiate derivative litigation. To our knowledge, no derivative lawsuits have yet been filed.
 
SEC Inquiry
 
The SEC has notified us that it is conducting an informal inquiry into our policies and practices concerning impairment of investment in real estate assets. We intend to cooperate fully with the SEC in connection with the informal inquiry. The notification from the SEC does not indicate any allegations of wrongdoing, and an inquiry is not an indication of any violations of federal securities laws.
 
Item 4.   [Removed and Reserved.]
 
PART II
 
Item 5.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
On February 25, 2011, we had approximately 1,412 registered holders of record of our common stock. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “JOE.”


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The range of high and low prices for our common stock as reported on the NYSE are set forth below:
 
                 
    Common
 
    Stock Price  
    High     Low  
 
2010
               
Fourth Quarter
  $ 25.39     $ 17.04  
Third Quarter
    27.71       22.80  
Second Quarter
    37.44       21.25  
First Quarter
    34.15       25.98  
2009
               
Fourth Quarter
  $ 30.98     $ 23.29  
Third Quarter
    34.28       22.14  
Second Quarter
    27.45       16.09  
First Quarter
    27.02       14.53  
 
On February 18, 2011, the closing price of our common stock on the NYSE was $28.10. We paid no dividends during 2010 or 2009, and we currently have no intention to pay any dividends in the foreseeable future. In addition, our $125 million revolving credit facility requires that we not pay dividends or repurchase stock in amounts in excess of any cumulative net income that we have earned since January 1, 2007.
 
The following table describes our purchases of our common stock during the fourth quarter of 2010.
 
                                 
                (c)
    (d)
 
                Total Number of
    Maximum Dollar
 
    (a)
    (b)
    Shares Purchased as
    Amount that May
 
    Total Number
    Average
    Part of Publicly
    Yet Be Purchased
 
    of Shares
    Price Paid
    Announced Plans or
    Under the Plans or
 
Period   Purchased(1)     per Share     Programs(2)     Programs  
                      (In thousands)  
 
Month Ended October 31, 2010
    10,631     $ 24.64           $ 103,793  
Month Ended November 30, 2010
                    $ 103,793  
Month Ended December 31, 2010
    133     $ 21.85           $ 103,793  
 
 
(1) Represents shares surrendered by executives as payment for the strike prices and taxes due on exercised stock options and/or taxes due on vested restricted stock.
 
(2) For additional information regarding our Stock Repurchase Program, see Note 2 to the consolidated financial statements under the heading, “Earnings (loss) Per Share.”
 
The following performance graph compares our cumulative shareholder returns for the period December 31, 2005, through December 31, 2010, assuming $100 was invested on December 31, 2005, in our common stock, in the S&P 500 Index and in a custom peer group of real estate related companies, including the following:
 
AMB Property Corporation (AMB),
Developers Diversified Realty Corporation (DDR),
Duke Realty Corporation (DRE),
Highwoods Properties, Inc. (HIW),
Jones Lang LaSalle Incorporated (JLL),
Kimco Realty Corporation (KIM),
The Macerich Company (MAC),
MDC Holdings Inc. (MDC),
NVR, Inc. (NVR),
Plum Creek Timber Company, Inc. (PCL),
Regency Centers Corporation (REG),
Rayonier Inc. (RYN),
Toll Brothers Inc. (TOL), and
WP Carey & Co. LLC (WPC).


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The total returns shown below assume that dividends are reinvested. The stock price performance shown below is not necessarily indicative of future price performance.
 
(PERFORMANCE GRAPH)
 
                                                             
      12/31/05     12/31/06     12/31/07     12/31/08     12/31/09     12/31/10
The St. Joe Company
    $ 100       $ 80.68       $ 54.08       $ 37.04       $ 44.00       $ 33.28  
S&P 500 Index
    $ 100       $ 115.79       $ 112.15       $ 76.95       $ 97.32       $ 119.98  
Custom Real Estate Peer Group*
    $ 100       $ 126.59       $ 109.31       $ 70.25       $ 96.46       $ 116.06  
                                                             
 
* The total return for the Custom Real Estate Peer Group was calculated using an equal weighting for each of the stocks within the peer group.


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Item 6.   Selected Consolidated Financial Data
 
The following table sets forth Selected Consolidated Financial Data for the Company on a historical basis for the five years ended December 31, 2010. This information should be read in conjunction with the consolidated financial statements of the Company (including the related notes thereto) and Management’s Discussion and Analysis of Financial Condition and Results of Operations, each included elsewhere in this Form 10-K. This historical Selected Consolidated Financial Data has been derived from the audited consolidated financial statements and revised for discontinued operations where applicable.
 
                                         
    Year Ended December 31,  
    2010     2009     2008     2007     2006  
    (In thousands, except per share amounts)  
 
Statement of Operations Data:
                                       
Total revenues(1)
  $ 99,540     $ 138,257     $ 258,158     $ 371,551     $ 519,184  
Total expenses
    151,094       347,612       283,711       348,975       455,143  
                                         
Operating (loss) profit
    (51,554 )     (209,355 )     (25,553 )     22,576       64,041  
Other (expense) income
    (3,892 )     4,215       (36,643 )     (4,709 )     (9,640 )
                                         
(Loss) income from continuing operations before equity in (loss) income of unconsolidated affiliates and income taxes
    (55,446 )     (205,140 )     (62,196 )     17,867       54,401  
Equity in (loss) income of unconsolidated affiliates
    (4,308 )     (122 )     (330 )     (5,331 )     8,905  
Income tax (benefit) expense
    (23,849 )     (81,227 )     (26,921 )     659       22,010  
                                         
(Loss) income from continuing operations
    (35,905 )     (124,035 )     (35,605 )     11,878       41,296  
(Loss) income from discontinued operations(2)
          (6,888 )     (1,568 )     (1,654 )     5,313  
Gain on sale of discontinued operations(2)
          75             29,128       10,368  
                                         
(Loss) income from discontinued operations(2)
          (6,813 )     (1,568 )     27,474       15,681  
Net (loss) income
    (35,905 )     (130,848 )     (37,173 )     39,352       56,977  
Less: Net (loss) income attributable to noncontrolling interest
    (41 )     (821 )     (807 )     1,092       6,137  
                                         
Net (loss) income attributable to the Company
  $ (35,864 )   $ (130,027 )   $ (36,366 )   $ 38,260     $ 50,840  
                                         
Per Share Data:
                                       
Basic
                                       
(Loss) income from continuing operations attributable to the Company
  $ (0.39 )   $ (1.35 )   $ (0.38 )   $ 0.15     $ 0.48  
(Loss) income from discontinued operations attributable to the Company(2)
          (0.07 )     (0.02 )     0.37       0.21  
                                         
Net (loss) income attributable to the Company
    (0.39 )     (1.42 )     (0.40 )   $ 0.52     $ 0.69  
                                         
Diluted
                                       
(Loss) income from continuing operations attributable to the Company
  $ (0.39 )   $ (1.35 )   $ (0.38 )   $ 0.15     $ 0.47  
(Loss) income from discontinued operations attributable to the Company(2)
          (0.07 )     (0.02 )     0.36       0.21  
                                         
Net (loss) income attributable to the Company
    (0.39 )     (1.42 )   $ (0.40 )   $ 0.51     $ 0.68  
                                         
Dividends declared and paid
  $     $     $       $ 0.48     $ 0.64  
 


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    December 31,  
    2010     2009     2008     2007     2006  
 
Balance Sheet Data:
                                       
Investment in real estate
  $ 755,392     $ 767,006     $ 909,658     $ 944,529     $ 1,213,562  
Cash and cash equivalents
    183,827       163,807       115,472       24,265       36,935  
Property, plant and equipment, net
    13,014       15,269       19,786       23,693       44,593  
Total assets
    1,051,695       1,116,944       1,237,353       1,263,965       1,560,396  
Debt
    54,651       57,014       68,635       541,181       627,056  
Total equity
    872,437       896,320       992,431       487,340       471,729  
 
 
(1) Total revenues include real estate revenues from property sales, timber sales, resort and club revenue and other revenues, primarily other rental revenues and brokerage fees.
 
(2) Discontinued operations include the Victoria Hills Golf Club and St. Johns Golf and Country Club golf course operations in 2009, Sunshine State Cypress, Inc. in 2008, fourteen commercial office buildings and Saussy Burbank in 2007, and four commercial office buildings in 2006. (See Note 4 of Notes to Consolidated Financial Statements).
 
Item 7.   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 the Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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 operating results and economic impact of the new Northwest Florida Beaches International Airport.
 
Forward-looking statements are not guarantees of future performance and 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 above under the heading “Risk Factors.” These statements are made as of the date hereof based on our current expectations, and we undertake no obligation to update the information contained in this Report. New information, future events or risks may

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cause the forward-looking events we discuss in this Report not to occur. You are cautioned not to place undue reliance on any of these forward-looking statements.
 
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 initial cost basis before considering development costs. In order to increase 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 and 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 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.
 
The large oil spill in the Gulf of Mexico from the Deepwater Horizon incident has had 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 filed three lawsuits in 2010 seeking the recovery of damages against parties we believe are responsible for the oil spill. The Company cannot be certain, however, of the amount of any recovery or the ultimate success of its claims.
 
In 2010, we successfully continued our efforts to reduce cash expenditures, eliminate expenses and increase our financial flexibility. Our liquidity position improved due to the utilization of our tax-loss carryback strategy, which resulted in the receipt of a federal tax refund of $67.7 million in 2010. At December 31, 2010, we had $183.3 million of cash and an undrawn $125 million revolving credit facility.
 
The grand opening of the new Northwest Florida Beaches International Airport was held on May 23, 2010. In six months of operation, passenger traffic at the new airport exceeded that experienced at the old airport in all of 2009. With the addition of Southwest Airlines and expanded service from Delta Air Lines, passenger traffic at the new airport has been consistently running at more than twice the level experienced at the old airport. This is particularly noteworthy considering the negative effects of the oil spill which occurred just before the airport opened.
 
Our business continues to generate operating losses and low levels of cash. On February 8, 2011, we announced that our Board of Directors will explore financial and strategic alternatives to enhance shareholder value. The Board intends to consider the full range of available options including a revised business plan,


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operating partnerships, joint ventures, strategic alliances, asset sales, strategic acquisitions and a merger or sale of the Company. The Board of Directors has retained Morgan Stanley & Company Inc. to assist it in the evaluation of these alternatives. There can be no assurance that the exploration of strategic alternatives will result in any transaction, or that any such transaction or alternative would significantly improve our operating results.
 
Critical Accounting Estimates
 
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on our historical and current experience and on various other assumptions that management believes are reasonable under the circumstances. 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. It is reasonably possible that these estimates may change in the near term. Actual results may differ from these estimates under different assumptions or conditions.
 
We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
 
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 in which the 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.
 
We devote resources to the conceptual design, planning, permitting and construction of certain key projects currently under development, and we will maintain this process for certain select communities going forward. This strategy is dependent on our Board of Directors maintaining this strategy and our intent and ability to hold and sell these key projects in most cases, over a long-term horizon.
 
The accounting estimate related to real estate impairment evaluation is susceptible to change due to the use of assumptions about future sales proceeds and future expenditures. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing project and using management’s best estimates about future sales prices and holding periods. The projection of undiscounted cash flows requires that management develop various assumptions including:
 
  •  the projected pace of sales of homesites based on estimated market conditions and the Company’s development plans;
 
  •  projected price appreciation over time, which can generally range from 0% to 7% annually;
 
  •  the amount and trajectory of price appreciation over the estimated selling period;


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  •  the length of the estimated development and selling periods, which can range from 5 years to 17 years depending on the size of the development and the number of phases to be developed;
 
  •  the amount of remaining development costs and holding costs to be incurred over the selling period;
 
  •  in situations where development plans are subject to change, the amount of entitled land subject to bulk land sales or alternative use and the estimated selling prices of such property;
 
  •  for commercial development property, future pricing which is based on sales of comparable property in similar markets; and
 
  •  assumptions regarding the intent and ability to hold individual investments in real estate over projected periods and related assumptions regarding available liquidity to fund continued development.
 
For operating properties, an estimate of undiscounted cash flows requires management to make similar assumptions about the use and eventual disposition of such properties. Some of the significant assumptions that are used to develop the undiscounted cash flows include:
 
  •  for investments in hotel and rental condominium units, average occupancy and room rates, revenues from food and beverage and other amenity operations, operating expenses and capital expenditures, and the amount of proceeds to be realized upon eventual disposition of such properties as condo-hotels or condominiums, based on current prices for similar units appreciated to the expected sale date;
 
  •  for investments in commercial or retail property, future occupancy and rental rates and the amount of proceeds to be realized upon eventual disposition of such property at a terminal capitalization rate; and
 
  •  for investments in golf courses, future rounds and greens fees, operating expenses and capital expenditures, and the amount of proceeds to be realized upon eventual disposition of such properties at a multiple of terminal year cash flows.
 
Other properties that management does not intend to sell in the near term or under current market conditions are evaluated for impairment based on management’s best estimate of the long-term use and eventual disposition of the property.
 
The results of impairment analyses for development and operating properties are particularly dependent on the estimated holding and selling period for each asset group, which can be up to 35 years for certain properties with long range development plans. The estimated holding period is based on management’s current intent for the use and disposition of each property, which could be subject to change in future periods if the strategic direction of the Company as set by management and approved by the Board of Directors were to change. If the excess of undiscounted cash flows over the carrying value of a property is small, there is a greater risk of future impairment in the event of such changes. Excluding any properties that have been written down to fair value, at December 31, 2010 the Company has one development property with a carrying value of approximately $23 million whose current undiscounted cash flows is approximately 110% of its carrying value.
 
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.


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Our assets and liabilities utilizing Level 2 and 3 inputs in fair value calculations and the associated underlying assumptions include the following:
 
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 discounted 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.
 
We review our 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, which management intends to sell in the near term under current market conditions, are measured at the lower of carrying value or fair value less costs to sell. The fair value of these properties is determined based upon final sales prices of inventory sold during the period or estimates of selling prices based on current market data. Other properties that management does not intend to sell in the near term or under current market conditions including development and operating properties, are evaluated for impairment based on management’s best estimate of the long-term use and eventual disposition of the property. 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 volumes, sales velocity and holding periods. 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. For operating properties, an estimate of undiscounted cash flows requires management to make similar assumptions about the use and eventual disposition of such properties.
 
In the event that projected future undiscounted cash flows are not adequate to recover the carrying value of a property, impairment is indicated and we would be required under generally accepted accounting principles to write down the asset to its fair value. Fair value of a property may be derived either from discounting projected cash flows at an appropriate discount rate, through appraisals of the underlying property, or a combination thereof.
 
Generally accepted accounting principles only allow an impairment to be recorded when the undiscounted cash flows for these properties are less than the carrying value. We do not calculate projected cash flows on a discounted basis, or obtain appraisals, to determine the fair values of such properties unless an impairment is indicated. The fair value of a property at a point in time may be less than its carrying value due to current market conditions.
 
In the event that our estimates of undiscounted cash flows are decreased in future periods due to changes in assumptions arising from economic or other factors, we could be required to recognize impairment losses. In addition, if our intentions to hold our real estate investments were to change, we could be required to recognize impairment losses.
 
Retained interest — We have recorded a retained interest with respect to the monetization of certain installment notes through the use of qualified special purpose entities, 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. We recognize 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.


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Pension asset — Our cash balance defined-benefit pension plan holds a royalty investment for which there is no quoted market price. Fair value of the royalty investment is estimated based on the present value of future cash flows, using management’s best estimate of key assumptions, including discount rates.
 
Standby guarantee liability — On October 21, 2009, we entered into a strategic alliance agreement with Southwest Airlines to facilitate the commencement of low-fare air service in May 2010 to the new Northwest Florida Beaches International Airport in Northwest Florida. We have agreed to reimburse Southwest Airlines if it incurs losses on its service at the new airport during the first three years of service. The agreement also provides that Southwest’s profits from the air service during the term of the agreement will be shared with us up to the maximum amount of our break-even payments. We measured the standby guarantee liability at fair value based upon a discounted cash flow analysis based on our best estimates of future cash flows to be paid by us pursuant to the strategic alliance agreement. These cash flows were estimated using numerous estimates including future fuel costs, passenger load factors, air fares, seasonality and the timing of the commencement of service. 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 our operating results.
 
Pension Plan.  We sponsor a cash balance defined-benefit pension plan covering a majority of our employees. The accounting for pension benefits is determined by specialized accounting and actuarial methods using numerous estimates, including discount rates, expected long-term investment returns on plan assets, employee turnover, mortality and retirement ages, and future salary increases. Changes in these key assumptions can have a significant effect on the pension plan’s impact on the financial statements of the Company. For example, in 2010, a 1% increase in the assumed long-term rate of return on pension assets would have resulted in a $0.8 million increase in pre-tax income ($0.5 million net of tax). However, a 1% decrease in the assumed long-term rate of return would have caused an equivalent decrease in pre-tax income. A 1% increase or decrease in the assumed discount rate would have resulted in a less than $0.1 million change in pre-tax income. Our pension plan was overfunded and we do not expect to make contributions to the pension plan in the future. The ratio of plan assets to projected benefit obligation was 240% at December 31, 2010.
 
Stock-Based Compensation.  We offer stock incentive plans whereby awards may be granted to certain of our employees and non-employee directors in the form of restricted shares of our common stock or options to purchase our common stock. 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.
 
In February 2010, 2009 and 2008, we granted certain of our executives and other key employees restricted stock awards with vesting based upon the achievement of certain market conditions that are defined as our total shareholder return as compared to the total shareholder return of certain peer groups during a three-year performance period.
 
We currently use a Monte Carlo simulation pricing model to determine the fair value of our 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 our stock price and shareholder returns compared to those companies in our 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.
 
Income Taxes.  In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We record a valuation allowance against our deferred tax assets based upon our analysis of the timing and reversal of future taxable amounts and our history and future expectations of taxable income. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws. To the extent adjustments are required in any given period we will include the


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adjustments in the tax provision in our financial statements. These adjustments could materially impact our financial position, cash flow and results of operation.
 
At December 31, 2010, we had a federal net operating loss carryforward of approximately $62.1 million and a state net operating loss carryforward of approximately $538.4 million. These net operating losses are available to offset future federal and state taxable income through 2030. At December 31, 2010, we recorded a valuation allowance against certain of our deferred tax assets of approximately $0.1 million. The valuation allowance at 2010 was related to state net operating and charitable loss carryforwards that in the judgment of management are not likely to be realized.
 
Realization of our net deferred tax assets is dependent upon us generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from loss carryforwards. Based on the timing of reversal of future taxable amounts and our history and future expectations of reporting taxable income, we believe that it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowance, at December 31, 2010.
 
Correction of Prior Period Errors
 
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 and 2008 in the consolidated statement of changes in equity. The correction of this error also affected the consolidated statements of operations for the years ended December 31, 2009 and 2008 and consolidated statement of cash flows for the years ended December 31, 2009 and 2008. These corrections were not considered material to prior period financial statements.
 
During 2010, the Company determined that an additional liability for certain of its Community Development District (“CDD”) debt that is probable and reasonably estimable of repayment by the Company in the future should have been recognized in periods prior to 2010. Accordingly, the consolidated balance sheet for December 31, 2009 has been adjusted to increase debt and investment in real estate by $17.5 million. There was no impact on the consolidated statement of operations, cash flows or equity. This correction was not considered material to prior period financial statements.


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Results of Operations
 
Consolidated Results
 
The following table sets forth a comparison of our revenues and expenses for the three years ended December 31, 2010, 2009 and 2008.
 
                                                         
    Years Ended December 31,     2010 vs. 2009     2009 vs. 2008  
    2010     2009     2008     Difference     % Change     Difference     % Change  
    (Dollars in millions)  
 
Revenues:
                                                       
Real estate sales
  $ 38.9     $ 78.8     $ 194.6     $ (39.9 )     (51 )%   $ (115.8 )     (60 )%
Resort and club revenues
    29.4       29.7       32.8       (0.3 )     (1 )     (3.1 )     (9 )
Timber sales
    28.8       26.6       26.6       2.2       8              
Other revenues
    2.4       3.2       4.2       (0.8 )     (25 )     (1.0 )     (24 )%
                                                         
Total
  $ 99.5     $ 138.3     $ 258.2     $ (38.8 )     (28 )%   $ (119.9 )     (46 )%
                                                         
Expenses:
                                                       
Cost of real estate sales
  $ 8.5     $ 60.4     $ 53.1     $ (51.9 )     (86 )%   $ 7.3       14 %
Cost of resort and club revenues
    31.5       32.3       38.6       (0.8 )     (2 )     (6.3 )     (16 )
Cost of timber sales
    20.2       19.1       19.8       1.1       6       (0.7 )     (4 )
Cost of other revenues
    2.1       2.2       3.0       (0.1 )     (5 )     (0.8 )     (27 )
Other operating expenses
    34.8       40.0       53.5       (5.2 )     (13 )     (13.5 )     (25 )
                                                         
Total
  $ 97.1     $ 154.0     $ 168.0     $ (56.9 )     (37 )%   $ (14.0 )     (8 )%
                                                         
 
The decrease in real estate sales revenues and cost of real estate sales for 2010 as compared with 2009 is primarily due to a decrease of $48.7 million in sales in our residential real estate segment, partially offset by an increase of $11.6 million in revenue in our rural land segment. Revenues in 2009 included $32.2 million from the sale of non-strategic assets. Gross margin on real estate sales increased to 78% from 23% during 2010 compared to 2009 due to the relative mix of rural land sales. Residential real estate sales continued to remain weak in 2010 as a result of many factors, including oversupply, depressed prices in the Florida real estate markets, poor economic conditions and the oil spill from the Deepwater Horizon incident in the Gulf of Mexico.
 
The decrease in real estate sales revenues during 2009 compared to 2008 was primarily due to our decision to decrease sales in our rural land sales segment. Approximately $14.3 million, or 10%, of our 2009 revenues were generated by rural land sales compared to $162.0 million, or 63%, in 2008. Cost of real estate sales increased during 2009 compared to 2008 as a result of the sale of non-strategic assets within our residential real estate segment. Our gross margin on real estate sales decreased to 23% from 73% during 2009 compared to 2008, primarily as a result of the decrease in high margin rural land sales relative to our sales mix.
 
Resort and club revenues decreased by $0.3 million, or 1%, in 2010 as compared with 2009 due to lower vacation rental occupancy due to the Deepwater Horizon incident. Cost of resort and club revenues decreased by $0.8 million, or 2%, due to more efficient operations of our resort and clubs and reduced staffing levels. Resort and club revenues decreased during 2009 compared to 2008 due to lower vacation rental occupancy and lower hotel and vacation rental rates. Cost of resort and club revenues decreased during 2009 compared to 2008 as a result of reduced staffing levels and more efficient operation of our resort and clubs. Our gross margin on resort and club operations improved to (9) % during 2009 compared to (18) % during 2008 as a result of increased operating efficiencies. For further detailed discussion of revenues and expenses, see Segment Results below.
 
Timber revenues increased $2.2 million, or 8%, in 2010 as compared to 2009 primarily due to improved prices for pine pulpwood and sawtimber and payments received from the federal government under the Biomass Crop Assistance Program. Timber sales in 2009 approximated revenues achieved in 2008. Cost of timber sales increased $1.1 million, or 6%, in 2010 as compared to 2009 due primarily to expenditures made to collect timber inventory data on the Company’s timberlands. Cost of timber sales declined $0.6 million, or 4%, in 2009 as compared to 2008 due to a decrease in certain maintenance expenses.


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Other operating expenses decreased by $5.2 million, or 13%, in 2010 compared to 2009 due to lower general and administrative expenses as a result of our restructuring efforts and the sale of certain properties in 2009, which reduced 2010 carrying costs, partially offset by a $4.9 million reserve for litigation. Other operating expenses decreased by $13.5 million, or 25%, in 2009 over 2008. The decrease was due to lower general and administrative expenses primarily as a result of our restructuring efforts and reduction of certain carrying costs of properties.
 
Corporate Expense.  Corporate expense, consisting of corporate general and administrative expenses, increased $2.7 million, or 11%, in 2010 over 2009. The increase in corporate expense is primarily due to legal fees and clean up costs totaling $4.2 million associated with costs resulting from the Deepwater Horizon incident. These costs were partially offset by a reduction in employee and administrative costs as a result of reduced headcount and cost savings initiatives. We may incur significant additional legal costs in the near term in connection with the Deepwater Horizon incident, the securities class action lawsuit, the SEC informal inquiry and other legal matters.
 
Corporate expense decreased $6.4 million, or 21%, to $24.3 million in 2009 over 2008. Our overall employee and administrative costs decreased as a result of a reduction in headcount. Lower payroll related costs in 2008 attributable to staffing reductions were offset by additional deferred compensation expense. During early 2008, we granted certain members of management shares of restricted stock with vesting conditions based on our performance over a three-year period. We recognized approximately $3.3 million of additional expense related to these grants during 2008.
 
Pension settlement charge.  On June 18, 2009, as plan sponsor, we 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 our pension plan. Current and former employees with cash balances in the pension plan were not affected by the transaction. The purchase price of the annuity 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 of the affected retirees and vested terminated employees. In addition, we recorded a non-cash pre-tax settlement charge to earnings during 2009 of $44.7 million and an offsetting $44.7 million pre-tax credit in Accumulated Other Comprehensive Income on our Consolidated Balance Sheet. As a result of this transaction, we were able to significantly increase the funded status ratio thereby reducing the potential for future funding requirements. We also recorded additional pension charges of $4.1 million, $1.3 million and $4.2 million during 2010, 2009 and 2008, respectively, as a result of reduced employment levels in connection with our restructuring programs.


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Impairment Losses.  During the past three years, we have recorded significant impairment charges as a result of the decline in demand and market prices in our real estate markets. The following table summarizes our impairment charges for the three years ended December 31, 2010, 2009 and 2008:
 
                         
    Years Ended December 31,  
    2010     2009     2008  
    (In millions)  
 
Investment in Real Estate:
                       
Homes and homesites — various residential communities
  $ 4.3     $ 7.3     $ 12.0  
Investment in unconsolidated affiliates
    3.8              
Abandoned development plans
          7.2        
Victoria Park community
          60.9        
SevenShores condominium and marina development project
          6.7       28.3  
                         
Total
    8.1       82.1       40.3  
                         
Notes Receivable:
                       
Saussy Burbank
          10.1        
Advantis
          7.4        
Various builder notes
    0.5       1.9       1.0  
                         
Total
    0.5       19.4       1.0  
                         
Goodwill and other:
                       
Goodwill — Arvida
                19.0  
Other long-term assets
          1.1        
                         
Total
          1.1       19.0  
                         
Total impairment charges-continuing operations
    8.6       102.6       60.3  
                         
Discontinued operations:
                       
Victoria Hills Golf Club
            6.9        
St. Johns Golf and Country Club
          3.5        
                         
Total impairment charges — discontinued operations
          10.4        
                         
Total impairment charges
  $ 8.6     $ 113.0     $ 60.3  
                         
 
Investment in Real Estate:
 
We review our 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 and which management intends to sell in the near-term under current market conditions, are measured at the lower of carrying value or fair value less costs to sell. Other properties that management does not intend to sell in the near term or under current market conditions are evaluated for impairment based upon management’s best estimate of the long-term use and the eventual disposition of the property. 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 and holding periods. The continued decline in demand and market prices for residential real estate during 2008 through 2010 caused us to reevaluate certain carrying amounts within our residential real estate segment. During 2010, we recorded a $3.8 million impairment on our investment in East San Marco L.L.C., a joint venture located in Jacksonville, Florida and approximately $4.3 million in impairment charges on homes and homesites.
 
Given the downturn in our real estate markets, we implemented a tax strategy in 2009 to benefit from the sale of certain non-strategic assets at a loss. Under federal tax rules, losses from asset sales realized in 2009


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can be carried back and applied to taxable income from 2007, resulting in a federal income tax refund for 2009.
 
As part of this strategy, during 2009, we conducted a nationally marketed sale process for the disposition of the remaining assets of our non-strategic Victoria Park community in Deland, Florida, including homes, homesites, undeveloped land, notes receivable and a golf course. Based on the likelihood of the closing of the sale, we determined on December 15, 2009 that an impairment charge for $67.8 million was necessary. We completed the sale on December 17, 2009 for $11.0 million.
 
In addition, we completed the sale of our SevenShores condominium and marina development project for $7.0 million earlier in 2009, which resulted in an impairment charge of $6.7 million due to lower market pricing. We also wrote-off $7.2 million of capitalized costs related to abandoned development plans in certain of our communities in 2009. We also sold our St. Johns Golf and Country Club for $3.0 million in December 2009 which resulted in an impairment charge of $3.5 million.
 
As a result of our property impairment analyses for 2008, we recorded impairment charges related to investment in real estate of $40.3 million consisting of $12.0 million related to completed homes in several communities and $28.3 million related to our SevenShores condominium and marina development project.
 
The SevenShores condominium project was written down in the fourth quarter of 2008 to approximate the fair market value of land entitled for 278 condominium units. This write-down was necessary because we elected not to exercise our option to acquire additional land under our option agreement. Certain costs had previously been incurred with the expectation that the project would include 686 units.
 
A continued decline in demand and market prices for our real estate products may require us to record additional impairment charges in the future.
 
Notes Receivable:
 
We evaluate the carrying value of 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 2009, we settled our notes receivable with Saussy Burbank for less than book value and recorded a charge of $9.0 million. As part of the settlement, we agreed to take back previously collateralized inventory consisting of lots and homes which were valued at current estimated sales prices, less costs to sell. Subsequently, all the lots and homes were sold which resulted in an additional impairment charge of $1.1 million. We also recorded a charge of $7.4 million related to the write-off of the outstanding Advantis note receivable balance during 2009 as the amount was determined to be uncollectible.
 
In addition, we received a deed in lieu of foreclosure related to a $4.0 million builder note receivable during 2009 and renegotiated terms related to certain other builder notes receivable during 2010, 2009 and 2008. These events resulted in additional impairment charges of $0.5 million, $1.9 million and $1.0 million in 2010, 2009 and 2008, respectively. Because of the ongoing challenges in our real estate markets and tightened credit conditions, we may be required to record additional write-downs of the carrying value of our notes receivable and ultimately such notes may not be collectible.
 
Goodwill:
 
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. An impairment is considered to exist if fair value is less than the carrying amount of the assets, including goodwill. The estimated fair value is generally determined on the basis of discounted future cash flows. As of December 31, 2010, no goodwill is recorded on our Consolidated Balance Sheet. During our 2008 year-end assessment, we determined that our remaining goodwill which originated from our 1997 acquisition of certain assets of Arvida Company and its affiliates was not recoverable based upon a discounted cash flow analysis. Accordingly, an impairment charge of $19.0 million was recorded in the residential real estate segment.
 
Restructuring Charges.  We announced on March 17, 2010 that we are relocating our corporate headquarters from Jacksonville, Florida to VentureCrossings Enterprise Centre our development adjacent to the


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new Northwest Florida Beaches International Airport in Bay County, Florida. We are also consolidating existing offices from Tallahassee, Port St. Joe and Walton County into the new location. The relocation to our temporary headquarters facility in Walton County is expected to be completed during 2011.
 
We have incurred and expect 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 are expected to be cash expenditures. Based on employee responses to the announced relocation, we estimate that total relocation costs should be approximately $4.8 million (pre-tax), of which $2.5 million was recorded during 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 current home values, however actual results could differ materially from these estimates.
 
Restructuring charges also include termination benefits in connection with our 2006-2009 restructuring plans. We recorded restructuring charges of $5.3 million, $5.4 million and $4.3 million in 2010, 2009 and 2008, respectively. The charges primarily relate to one-time termination benefits in connection with our employee headcount reductions. For further discussion, see Note 11, Restructuring, in the Notes to the Consolidated Financial Statements.
 
Other Income (Expense).  Other income (expense) consists primarily of investment income, interest expense, gains and losses on sales and dispositions of assets, fair value adjustment related to the retained interest of monetized installment note receivables, loss on early extinguishment of debt, expense related to our standby guarantee liability and other income. Total other (expense) income was $(3.9) million, $4.2 million and $(36.6) million during 2010, 2009 and 2008, respectively.
 
Investment income, net decreased approximately $1.2 million, or 45%, during 2010 as compared with 2009 and $3.4 million, or 56.1%, during 2009 as compared with 2008 both year-over-year decreases were attributable to lower investment returns on our cash balances.
 
Interest expense increased by $7.5 million during 2010 as compared with 2009 primarily due to interest recorded on a reserve for litigation of $4.2 million and, to a lesser extent, interest on our community development district debt obligations not being capitalized in 2010 due to reduced spending levels. Interest expense decreased by approximately $3.3 million during 2009 as compared with 2008, primarily as a result of our reduced debt levels. During 2008 we recorded a $30.6 million loss on the early extinguishment of debt which consisted of $0.7 million related to the write-off of unamortized loan costs on our prior credit facility and $29.9 million in connection with the prepayment of our senior notes.
 
Other, net increased $0.5 million during 2010 as compared with 2009 and $10.4 million during 2009 compared with 2008. Included in 2009 is a $0.8 million expense related to our Southwest Airlines standby guarantee liability. Included in 2008 was a loss of $8.2 million related to the fair value adjustment of our retained interest in monetized installment notes receivable and $1.9 million related to the write-off of the net book value on certain abandoned property.
 
Equity in Loss of Unconsolidated Affiliates.  We have investments in affiliates that are accounted for by the equity method of accounting. These investments consist primarily of three residential joint ventures, two of which are now substantially sold out. Equity in loss of unconsolidated affiliates totaled $(4.3) million in 2010, $(0.1) million in 2009, $(0.3) million in 2008. During 2010, we determined that our investment in East San Marco, L.L.C. had experienced an other than temporary decline in value and we recorded a $3.8 million impairment charge to write our investment down to its current fair value.
 
Income Tax Benefit.  Income tax benefit, including income tax on discontinued operations, totaled $(23.8) million, $(85.7) million and $(27.9) million for the years ended December 31, 2010, 2009 and 2008, respectively. Our effective tax rate was 39.9%, 39.7% and 43.5% for the years ended December 31, 2010, 2009 and 2008, respectively. Our effective tax rate decreased in 2009 compared to 2008 due to the impact of certain permanent items.


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Discontinued Operations.  Loss from discontinued operations consists of the results associated with our Victoria Hills Golf Club and St. Johns Golf and Country Club golf course operations, our sawmill and mulch plant (Sunshine State Cypress) the sales of our office building portfolio and Saussy Burbank. Loss, net of tax, totaled zero, $(6.8) million and $(1.6) million in 2010, 2009 and 2008, respectively. The operating results associated with these assets have been classified as discontinued operations for all periods presented through the period in which they were sold. See Segment Results below for further discussion regarding our discontinued operations.
 
Segment Results
 
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. We own large tracts of land in Northwest Florida, including significant Gulf of Mexico beach frontage and waterfront properties, and land near Jacksonville and Tallahassee.
 
Our residential sales remain weak. The real estate downturn, weak economic recovery and the oil spill from the Deepwater Horizon incident in the Gulf of Mexico have all exerted negative pressure on the demand for real estate products in our markets. Inventories of resale homes and homesites remain high in our markets and prices remain depressed. We also believe that the oil spill negatively impacted our resort and club operating results during the summer of 2010. With the U.S. and Florida economies battling the adverse effects of home foreclosures, severely restrictive credit, significant inventories of unsold homes and recessionary economic conditions, the timing of a sustainable recovery remains uncertain.
 
We implemented a tax strategy in 2009, due to the ongoing downturn in our real estate markets, to sell certain non-strategic assets and to carry-back any losses on the sales to our taxable income in 2007. We disposed of the remaining assets of Victoria Park, Artisan Park and the SevenShores condominium and marina development project, all located in Central Florida, and St. Johns Golf and Country Club in Northeast Florida. These four sales generated cash of $27.1 million and produced an aggregate tax benefit of approximately $35.1 million, which we received in 2010 as part of our federal tax refund. These sales also significantly reduced our holding costs going forward.
 
We devote resources to the conceptual design, planning and construction of certain key projects currently under development, and we will maintain this process for select communities going forward. The success of this strategy is dependent on our Board of Directors maintaining this strategy and our intent and ability to hold and sell these key projects, in most cases, over a long-term horizon.
 
We continue to plan our development efforts on reprogramming and repositioning certain of our existing residential projects in preparation for a future market recovery. For example, at our RiverTown community, we amended our Development Order to strategically reprioritize product delivery in response to market demand while at the same time deferring the need to incur certain costs. In another instance, we launched development efforts at our new Breakfast Point community responding to demand for primary housing in Bay County.
 
The table below sets forth the results of continuing operations of our residential real estate segment for the three years ended December 31, 2010, 2009 and 2008.
 
                         
    Years Ended December 31,  
    2010     2009     2008  
    (In millions)  
 
Revenues:
                       
Real estate sales
  $ 8.7     $ 57.4     $ 28.6  
Resort and club revenues
    29.4       29.7       32.7  
Other revenues
    2.2       2.7       4.2  
                         
Total revenues
    40.3       89.8       65.5  
                         


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    Years Ended December 31,  
    2010     2009     2008  
    (In millions)  
 
Expenses:
                       
Cost of real estate sales
    6.4       54.7       24.1  
Cost of resort and club revenues
    31.5       32.3       38.6  
Cost of other revenues
    2.1       2.1       3.0  
Other operating expenses
    23.9       30.8       43.0  
Depreciation and amortization
    10.0       10.9       10.4  
Impairment loss
    4.8       94.8       60.3  
Restructuring charge
    1.0       0.9       1.2  
                         
Total expenses
    79.7       226.5       180.6  
                         
Other (expense) income
    (7.8 )     (1.1 )     0.1  
                         
Pre-tax (loss) from continuing operations
  $ (47.2 )   $ (137.8 )   $ (115.0 )
                         
 
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
 
Real estate sales include sales of homes and homesites. Cost of real estate sales includes direct costs (e.g., development and construction costs), selling costs and other indirect costs (e.g., construction overhead, capitalized interest, warranty and project administration costs). Resort and club revenues and cost of resort and club revenues include results of operations from the WaterColor Inn, WaterColor, WaterSound and WindMark Beach vacation rental programs and other resort, golf, club and marina operations. Other revenues and cost of other revenues consist primarily of brokerage fees and rental operations.
 
The following table sets forth the components of our real estate sales and cost of real estate sales related to homes and homesites:
 
                                                 
    Year Ended December 31, 2010     Year Ended December 31, 2009  
    Homes     Homesites     Total     Homes     Homesites     Total  
    (Dollars in millions)  
 
Sales
  $ 1.0     $ 7.5     $ 8.5     $ 24.8     $ 6.5     $ 31.3  
Cost of sales:
                                               
Direct costs
    0.7       4.0       4.7       18.8       3.9       22.7  
Selling costs
    0.1       1.0       1.1       1.7       0.2       1.9  
Other indirect costs
    0.1       0.4       0.5       3.5       0.5       4.0  
                                                 
Total cost of sales
    0.9       5.4       6.3       24.0       4.6       28.6  
                                                 
Gross profit
  $ 0.1     $ 2.1     $ 2.2     $ 0.8     $ 1.9     $ 2.7  
                                                 
Gross profit margin
    10 %     28 %     26 %     3 %     29 %     9 %
Units sold
    2       83       85       84       80       164  
 
Home sales and home closings decreased during 2010 compared to 2009 primarily as a result of a decrease in the inventory of finished homes. The company has exited the homebuilding business to retail customers. As a result of this strategy, homesite closings and revenues increased for the year ended December 31, 2010 due to sales of homesites to national and local homebuilders. The sales to the homebuilders may generate additional revenues and gross profit in future periods upon the sale to the end-user. The gross profit margin on sales of homesites remained constant year-over-year.
 
Although not included in the homes and homesites table, real estate sales include land sales of $0.2 million with related cost of sales of $0.1 million for the year ended December 31, 2010. In 2009, land sales and land costs of sales of $26.1 million were included in real estate sales. The 2009 real estate revenues and cost of sales consisted primarily of $12.5 million at SevenShores, $10.4 million at Victoria Park

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(excluding $0.6 million of golf course revenues and cost of sales, which are included in discontinued operations) and $2.8 million of Saussy Burbank property.
 
The following table sets forth homes and homesite sales activity by geographic region and property type:
 
                                                                 
    Year Ended December 31, 2010     Year Ended December 31, 2009  
    Closed
          Cost of
    Gross
    Closed
          Cost of
    Gross
 
    Units     Revenues     Sales     Profit     Units     Revenues     Sales     Profit  
    (Dollars in millions)  
 
Northwest Florida:
                                                               
Resort
                                                               
Single-family homes
    2     $ 1.0     $ 0.9     $ 0.1       23     $ 10.8     $ 10.4     $ 0.4  
Homesites
    41       5.3       3.9       1.4       25       3.5       2.6       0.9  
Primary
                                                               
Single-family homes
                                               
Homesites
    40       2.1       1.4       0.7       12       1.0       0.3       0.7  
Northeast Florida:
                                                               
Single-family homes
                            2       0.6       0.5       0.1  
Homesites
    2       0.1       0.1                                
Central Florida:
                                                               
Single-family homes
                            15       3.5       3.4       0.1  
Multi-family homes
                            32       7.3       7.2       0.1  
Townhomes
                            12       2.6       2.5       0.1  
Homesites
                            43       2.0       1.7       0.3  
                                                                 
Total
    85     $ 8.5     $ 6.3     $ 2.2       164     $ 31.3     $ 28.6     $ 2.7  
                                                                 
 
For additional information about our residential projects, see the table entitled “Summary of Land-Use Entitlements — Active St. Joe Residential and Mixed-Use Projects” in Item 1. Business above.
 
Our Northwest Florida resort and seasonal communities included WaterColor, WaterSound Beach, WaterSound, WaterSound West Beach, WindMark Beach, RiverCamps on Crooked Creek, SummerCamp Beach and Wild Heron, while primary communities included Hawks Landing and Southwood. Our Northeast Florida communities included RiverTown and St. Johns Golf and Country Club, and our Central Florida communities included Artisan Park and Victoria Park, all of which were primary.
 
In addition to adverse market conditions, the following factors also contributed to the results of operations shown above:
 
  •  For our Northwest Florida resort and seasonal communities, home closings and revenues decreased in 2010 as compared with 2009 primarily due to the reduction in inventory of homes as a result of our exit from the homebuilding business. WaterSound West Beach and SummerCamp Beach communities each had one home sale during 2010.
 
  •  In our Northwest Florida primary communities, homesite closings and revenues increased in 2010 as compared to 2009 due to sales to homebuilders some of which may generate additional revenues and gross profits in future periods upon the sale to the end-users.
 
  •  In our Northeast Florida communities, no homes were available for sale as we sold our last remaining home in St. Johns Golf and Country Club in 2009.
 
  •  In our Central Florida communities, the remaining available product was sold at Artisan Park during 2009.
 
Resort and club revenues include revenue from the WaterColor Inn, WaterColor, WaterSound Beach and WindMark Beach vacation rental programs and other resort and golf, club and marina operations. Resort and


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club revenues were $29.4 million for the year ended December 31, 2010, with $31.5 million in related costs as compared to revenue totaling $29.7 million for the year ended December 31, 2009, with $32.3 million in related costs. Revenues decreased by $0.3 million as a result of the oil spill from the Deep Horizon incident in the Gulf of Mexico partially offset by increased golf club revenues generated by opening certain courses to public play. Cost of resort and club revenues decreased $0.8 million as a result of more efficient operation of our resorts and clubs.
 
Other operating expenses include salaries and benefits, marketing, project administration, support personnel, other administrative expenses and litigation reserves. Other operating expenses were $23.9 million for the year ended December 31, 2010 as compared with $30.8 million for the year ended December 31, 2009. The decrease of $6.9 million in operating expenses was primarily due to reductions in employee costs, marketing and homeowners association funding costs, certain warranty and other costs and real estate taxes. The decrease was partially offset by a $4.9 million reserve for litigation involving a contract dispute related to a 1997 purchase of land for our former Victoria Park Community.
 
We recorded restructuring charges in our residential real estate segment of $1.0 million and $0.9 million during 2010 and 2009, respectively, in connection with our corporate headquarters relocation.
 
Other expense increased $6.7 million during 2010 as compared to 2009 which was primarily due to interest expense of $4.1 million related to the litigation reserve as discussed above and to a lesser extent, interest expense related to Community Development District notes (“CDD”) in our Southwood and Rivertown communities which was capitalized in 2009, but not in 2010.
 
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 
Real estate sales include sales of homes and homesites. Cost of real estate sales includes direct costs (e.g., development and construction costs), selling costs and other indirect costs (e.g., construction overhead, capitalized interest, warranty and project administration costs). Resort and club revenues and cost of resort and club revenues include results of operations from the WaterColor Inn, WaterColor and WaterSound vacation rental programs and other resort, golf, club and marina operations. Other revenues and cost of other revenues consist primarily of brokerage fees and rental operations.
 
The following table sets forth the components of our real estate sales and cost of real estate sales related to homes and homesites:
 
                                                 
    Year Ended December 31, 2009     Year Ended December 31, 2008  
    Homes     Homesites     Total     Homes     Homesites     Total  
    (Dollars in millions)  
 
Sales
  $ 24.8     $ 6.5     $ 31.3     $ 17.9     $ 10.1     $ 28.0  
Cost of sales:
                                               
Direct costs
    18.8       3.9       22.7       12.9       5.6       18.5  
Selling costs
    1.7       0.2       1.9       1.0       0.6       1.6  
Other indirect costs
    3.5       0.5       4.0       3.5       0.4       3.9  
                                                 
Total cost of sales
    24.0       4.6       28.6       17.4       6.6       24.0  
                                                 
Gross profit
  $ 0.8     $ 1.9     $ 2.7     $ 0.5     $ 3.5     $ 4.0  
                                                 
Gross profit margin
    3 %     29 %     9 %     3 %     35 %     14 %
Units sold
    84       80       164       33       89       122  
 
Home sales and home closings increased during 2009 compared to 2008 primarily as a result of our exit of the Artisan Park community through the auction of our remaining condominium units. In addition, sales increases were achieved from reductions in pricing in an effort to accelerate sales of existing vertical inventory even though adverse market conditions continued. Homesite sales and closings decreased in 2009 compared to 2008 due to a decrease in bulk sales to national homebuilders and reduced demand. Gross profit margin decreased in 2009 compared to 2008, primarily due to a decrease in the average sales price and product location and mix.


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Although not included in the homes and homesites tables, real estate revenues and cost of sales also included land sales of $26.1 million and $0.6 million and land cost of sales of $26.1 million and $0.1 million for the years ended December 31, 2009 and 2008, respectively. The 2009 real estate revenues and cost of sales consisted primarily of $12.5 million at SevenShores, $10.4 million at Victoria Park (excluding $0.6 million of golf course revenues and cost of sales, which are included in discontinued operations) and $2.8 million of Saussy Burbank property.
 
The following table sets forth homes and homesite sales activity by geographic region and property type:
 
                                                                 
    Year Ended December 31, 2009     Year Ended December 31, 2008  
    Closed
          Cost of
    Gross
    Closed
          Cost of
    Gross
 
    Units     Revenues     Sales     Profit     Units     Revenues     Sales     Profit  
    (Dollars in millions)  
 
Northwest Florida:
                                                               
Resort
                                                               
Single-family homes
    23     $ 10.8     $ 10.4     $ 0.4       8     $ 8.6     $ 8.3     $ 0.3  
Homesites
    25       3.5       2.6       0.9       21       6.7       3.5       3.2  
Primary
                                                               
Single-family homes
                            1       0.3       0.3        
Homesites
    12       1.0       0.3       0.7       23       1.3       1.0       0.3  
Northeast Florida:
                                                               
Single-family homes
    2       0.6       0.5       0.1       2       0.9       1.0       (0.1 )
Homesites
                            3       0.2       0.1       0.1  
Central Florida:
                                                               
Single-family homes
    15       3.5       3.4       0.1       10       4.5       4.4       0.1  
Multi-family homes
    32       7.3       7.2       0.1       9       3.1       2.9       0.2  
Townhomes
    12       2.6       2.5       0.1       3       0.5       0.5        
Homesites
    43       2.0       1.7       0.3       42       1.9       2.0       (0.1 )
                                                                 
Total
    164     $ 31.3     $ 28.6     $ 2.7       122     $ 28.0     $ 24.0     $ 4.0  
                                                                 
 
For additional information about our residential projects, see the table entitled “Summary of Land-Use Entitlements — Active St. Joe Residential and Mixed-Use Projects” in Item 1. Business above.
 
Our Northwest Florida resort and seasonal communities included WaterColor, WaterSound Beach, WaterSound, WaterSound West Beach, WindMark Beach, RiverCamps on Crooked Creek, SummerCamp Beach and Wild Heron, while primary communities included Hawks Landing and Southwood. Our Northeast Florida communities included RiverTown and St. Johns Golf and Country Club, and our Central Florida communities included Artisan Park and Victoria Park, all of which are primary.
 
In addition to adverse market conditions, the following factors also contributed to the results of operations shown above:
 
  •  For our Northwest Florida resort and seasonal communities, home closings and revenues increased in 2009 as compared to 2008 primarily due to the sale of the 17 remaining homes in phase 4 of our WaterColor community. These sales were the result of price reductions on the remaining homes. Included in 2008 was the recognition of $0.9 million of deferred revenue on our SummerCamp Beach community since the required infrastructure was completed.
 
  •  In our Northwest Florida primary communities, we closed on our last remaining home in Palmetto Trace in 2008. Homesite closings and revenues decreased in 2009 as compared to 2008 due to a decrease in bulk sales to a national homebuilder in our SouthWood community.
 
  •  In our Northeast Florida communities, we sold our last remaining home in St. Johns Golf and Country Club in 2009.


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  •  In our Central Florida communities, a successful home auction was completed and the remaining available product was sold at Artisan Park during 2009.
 
Resort and club revenues included revenues from the WaterColor Inn, WaterColor, WaterSound Beach and WindMark Beach vacation rental programs and other resort, golf, club and marina operations. Resort and club revenues were $29.7 million in 2009 with $32.3 million in related costs, compared to $32.7 million in 2008 with $38.6 million in related costs. Resort and club revenues decreased $3.0 million due to lower vacation rental occupancy and lower hotel and vacation rental rates. Cost of resort and club revenues decreased $6.3 million as a result of reduced staffing levels and more efficient operation of our resort and clubs.
 
Other operating expenses included salaries and benefits, marketing, project administration, support personnel and other administrative expenses. Other operating expenses were $30.8 million in 2009 compared to $43.0 million in 2008. The decrease of $12.2 million in operating expenses was primarily due to reductions in employee costs, marketing and homeowners association funding costs, certain warranty and other project costs and real estate taxes. These decreases were partially offset by costs related to overhead costs of our real estate projects that were expensed in 2009 instead of capitalized due to lack of active development activity.
 
We recorded restructuring charges in our residential real estate segment of $0.9 million during 2009 and $1.2 million in 2008 in connection with our headcount reductions.
 
Discontinued Operations
 
In December 2009, we sold our remaining property at Victoria Park, including the Victoria Hills Golf Club, and St. Johns Golf and Country Club. We have classified the operating results associated with these golf courses as discontinued operations as the golf courses had identifiable cash flows and operating results. Included in 2009 discontinued operations are $6.9 million and $3.5 million (pre-tax) of impairment charges to approximate fair value, less costs to sell, related to the sales of the Victoria Hills Golf Club and St. Johns Golf and Country Club, respectively.
 
The table below sets forth the operating results of our discontinued operations for the periods shown.
 
                         
    Years Ended December 31,  
    2010     2009     2008  
    (In millions)  
 
Victoria Hills Golf Club — Residential Segment:
                       
Aggregate revenues
  $     $ 2.5     $ 2.7  
                         
Pre-tax (loss)
          (7.6 )     (0.9 )
Income tax (benefit)
          (3.0 )     (0.3 )
                         
(Loss) from discontinued operations
  $     $ (4.6 )   $ (0.6 )
                         
St. Johns Golf and Country Club — Residential Segment:
                       
Aggregate revenues
  $     $ 2.9     $ 3.2  
                         
Pre-tax (loss)
          (3.4 )     (0.1 )
Income tax (benefit)
          (1.3 )      
                         
(Loss) from discontinued operations
  $     $ (2.1 )   $ (0.1 )
                         
Total (loss) from discontinued operations
  $     $ (6.7 )   $ (0.7 )
                         
 
Commercial Real Estate
 
Our commercial real estate segment plans, develops and entitles our land holdings for a broad range of retail, office, hotel, industrial and multi-family uses. We sell or lease and develop commercial land and provide development opportunities for national and regional retailers and strategic partners in Northwest Florida. We also offer land for commercial and light industrial uses within large and small-scale commerce


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parks, as well as for multi-family rental projects. Consistent with residential real estate, the markets for commercial real estate, particularly retail, remain weak.
 
The table below sets forth the results of the continuing operations of our commercial real estate segment for the years ended December 31, 2010, 2009 and 2008.
 
                         
    Years Ended December 31,  
    2010     2009     2008  
    (In millions)  
 
Revenues:
                       
Real estate sales
  $ 4.4     $ 7.0     $ 3.9  
Other revenues
    0.2       0.5       0.1  
                         
Total revenues
    4.6       7.5       4.0  
                         
Expenses:
                       
Cost of real estate sales
    1.0       4.3       2.8  
Cost of other revenues
                0.1  
Other operating expenses
    6.0       3.9       4.2  
Depreciation and amortization
          0.1       0.1  
Restructuring charge
    0.1       0.6       0.1  
                         
Total expenses
    7.1       8.9       7.3  
                         
Other income
    1.2       0.9       1.0  
                         
Pre-tax loss from continuing operations
  $ (1.3 )   $ (0.5 )   $ (2.3 )
                         
 
Similar to the markets for residential real estate, the markets for commercial real estate have experienced a significant downturn. In addition to the negative effects of the prolonged downturn in demand for residential real estate, commercial real estate markets have also been negatively affected by the prolonged weakness of the general economy.
 
Much of our commercial real estate activity is focused on the opportunities presented by the new Northwest Florida Beaches International Airport, which opened in May 2010 and is surrounded by our properties in the West Bay Sector. We believe these commercial opportunities will be significantly enhanced by Southwest Airlines’ service to the new airport. We expect, over time, that the new international airport will expand our customer base as it connects Northwest Florida with the global economy and helps reposition the area from a regional to a national destination.
 
We initiated development activity in 2010 at our VentureCrossings Enterprise Centre, an approximately 1,000 acre project adjacent to the new airport. The project is being developed for office, retail, hotel and industrial users. Site development has begun in anticipation of a new office building and a 300-space long-term covered parking facility at the entrance to the airport.
 
In December of 2010, we entered into a ground lease with Express Lane, Inc. for approximately 2.1 acres of our land near the new airport. Express Lane will construct a gas station, convenience store and restaurant operation on the land and pay rent to us for the land pursuant to the lease.
 
Real Estate Sales.  Commercial land sales for the years ended December 31, 2010, 2009 and 2008 included the following:
 
                                                 
    Number of
    Acres
    Average Price
    Gross
          Gross Profit
 
Land   Sales     Sold     Per Acre     Proceeds     Revenue     on Sales  
                      (In millions)     (In millions)     (In millions)  
 
Year Ended December 31, 2010
    4       18     $ 237,000     $ 4.4     $ 4.4     $ 3.4  
                                                 
Year Ended December 31, 2009
    8       29     $ 227,000     $ 6.6     $ 7.0 (a)   $ 2.7 (a)
                                                 
Year Ended December 31, 2008
    8       39     $ 92,000     $ 3.6     $ 3.9 (b)   $ 1.1 (b)
                                                 


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(a) Includes previously deferred revenue and gain on sales, based on percentage-of-completion accounting, of $0.4 million and $0.1 million, respectively.
 
(b) Includes previously deferred revenue and gain on sales, based on percentage-of-completion accounting, of $0.3 million and $0.1 million, respectively.
 
The change in average per-acre prices reflected a change in the mix of commercial land sold in each period, with varying compositions of retail, office, light industrial, multi-family and other commercial uses.
 
Included in 2010 real estate sales is a 10 acre sale in Walton County to Wal-Mart for $2.5 million. There were three additional commercial sales in Northwest Florida for a total of eight acres at an average price of $158,000 per acre. We also entered into build-to-suit leases with CVS Pharmacy on a 1.7 acre site that we own in Port St. Joe and with a Hardee’s franchisee on a 0.8 acre site in Panama City Beach. Upon completion of construction, we will own both facilities and collect rents in accordance with long-term leases.
 
Other revenues primarily relate to lease income associated with a long-term lease with the Port Authority of Port St. Joe.
 
Other income during 2010, 2009 and 2008 includes approximately $0.7 million of recognized gain previously deferred associated with three buildings sold in 2007 which we have a sale and leaseback arrangement with the buyer.
 
Rural Land Sales
 
Our rural land sales segment markets and sells tracts of land of varying sizes for rural recreational, conservation and timberland uses. The land sales segment at times prepares land for sale for these uses through harvesting, thinning and other silviculture practices, and in some cases, limited infrastructure development. While we have reduced our offerings of rural land, like residential and commercial land, demand for rural land has also declined as a result of the current difficult market conditions.
 
The table below sets forth the results of operations of our rural land sales segment for the three years ended December 31, 2010.
 
                         
    Years Ended December 31,  
    2010     2009     2008  
    (In millions)  
 
Revenues:
                       
Real estate sales
  $ 25.9     $ 14.3     $ 162.0  
                         
Expenses:
                       
Cost of real estate sales
    1.0       1.5       26.2  
Other operating expenses
    2.7       3.3       4.4  
Depreciation and amortization
          0.1       0.1  
Restructuring charge
    0.8       0.1        
                         
Total expenses
    4.5       5.0       30.7  
                         
Other income
    0.8       0.7       1.2  
                         
Pre-tax income from continuing operations
  $ 22.2     $ 10.0     $ 132.5  
                         
 
Rural land sales for the years ended December 31, 2010, 2009 and 2008 are as follows:
 
                                         
    Number
    Number of
    Average Price
    Gross Sales
    Gross
 
Period   of Sales     Acres     per Acre     Price     Profit  
                      (In millions)     (In millions)  
 
2010
    13       606     $ 4,897     $ 3.0     $ 2.6  
2009
    13       6,967     $ 2,054     $ 14.3     $ 12.8  
2008
    26       107,677     $ 1,505     $ 162.0     $ 135.9  


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During 2010, we also conveyed 2,148 acres to the Florida Department of Transportation (“FDOT”) as part of our approximate 3,900 acre sale to FDOT in 2006. As a result, we recognized $20.6 million of previously deferred revenue and gain of $20.2 million on this transaction. There was an additional $0.4 million of sales and gain recognized during 2010 from other deferred sales, as well as $0.4 million from the granting of an easement. Also included in real estate sales for 2010 was $1.4 million related to the sale of 21 mitigation bank credits at an average sales price of $68,333 per credit. We own and manage two wetlands areas from which we sell mitigation credits to developers, utility companies, and other users when they need to impact other wetlands areas in the course of their businesses. We began selling credits from our wetlands mitigation banks in late 2009.
 
During 2009, we made a strategic decision to sell fewer acres of rural land as we generated cash from other sources. We continued this strategy during 2010 and expect to continue this strategy in 2011. During 2008 we relied on rural land sales as a significant source of revenues due to the continuing downturn in our residential and commercial real estate markets. We consider the land sold to be non-strategic as these parcels would require a significant amount of time before realizing a higher and better use than timberland. We may, however, rely on rural land sales as a significant source of revenues and cash in the future.
 
Average sales prices per acre vary according to the characteristics of each particular piece of land being sold and its highest and best use. As a result, average prices will vary from one period to another.
 
Forestry
 
Our forestry segment focuses on the management and harvesting of our extensive timber holdings. We grow, harvest and sell sawtimber, pulpwood and forest products and provide land management services for conservation properties. On February 27, 2009, we completed the sale of the inventory and equipment assets of Sunshine State Cypress. The results of operations for Sunshine State Cypress are set forth below as discontinued operations.
 
The table below sets forth the results of our continuing operations of our forestry segment for the years ended December 31, 2010, 2009 and 2008.
 
                         
    Years Ended December 31,  
    2010     2009     2008  
    (In millions)  
 
Revenues:
                       
Timber sales
  $ 28.8     $ 26.6     $ 26.6  
Expenses:
                       
Cost of timber sales
    20.2       19.1       19.8  
Other operating expenses
    2.0       2.0       1.9  
Depreciation and amortization
    2.1       2.3       2.5  
Restructuring charge
    0.2       0.1       0.2  
                         
Total expenses
    24.5       23.5       24.4  
                         
Other income
    2.0       1.7       1.7  
                         
Pre-tax income from continuing operations
  $ 6.3     $ 4.8     $ 3.9  
                         
 
Smurfit-Stone Container Corporation (“Smurfit-Stone”) has a Panama City mill which is the largest consumer of pine pulpwood logs within the immediate area in which most of our timberlands are located. On November 18, 2010, we entered into a new wood fiber supply agreement with Smurfit-Stone which expires on December 31, 2017. The new agreement replaces the existing wood fiber supply agreement that was scheduled to expire on June 30, 2012. Sales under the wood fiber supply agreements with Smurfit-Stone were $15.0 million (683,000 tons) in 2010 and $14.9 million (701,000 tons) in 2009. During 2010, we delivered fewer tons to Smurfit-Stone under the fiber agreements while the sales price per ton increased.


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Open market sales totaled $12.8 million (500,000 tons) in 2010 as compared to $11.1 million (544,000 tons) in 2009. The increase in revenue for open market sales of $1.7 million or 15% was a result of improved log pricing partially offset by a reduction in log sales volume. Net stumpage prices for sawtimber and pulpwood increased year-over-year due to improved end-user markets and reduced availability of raw materials.
 
Our 2010, 2009 and 2008 sales revenues included $0.5 million, $0.6 million and $0.3 million, respectively, related to land management services performed in connection with certain conservation properties. We plan to seek other customers for our conservation land management services. Also, included in revenue for 2010 is $0.6 million related to the Biomass Crop Assistance Program sponsored by the federal government during the first four months of 2010. We are continuing to explore alternative sources of revenue from our extensive timberland and rural land holdings.
 
Gross margins as a percentage of revenue were 30% in 2010, 28% in 2009 and 26% in 2008. The increase in margin from 2010 to 2009 was a result of an increase in sales price per ton partially offset by an increase in cost of sales of $1.1 million due primarily to expenditures made to collect timber inventory data on our timberlands. The increase in margin from 2008 to 2009 was primarily due to a decrease in certain maintenance expenses included in cost of sales.
 
Other income consists primarily of income from hunting leases.
 
On February 27, 2009, we sold our remaining inventory and equipment assets related to our Sunshine State Cypress mill and mulch plant for $1.6 million. We received $1.3 million in cash and a note receivable of $0.3 million, the balance of which is $0.2 million as of December 31, 2010. The sale agreement also included a long-term lease of a building facility.
 
Discontinued operations related to the sale of Sunshine State Cypress for the three years ended December 31, 2010 are as follows:
 
                         
    2010     2009     2008  
    (In millions)  
 
Sunshine State Cypress — Forestry Segment
                       
Aggregate revenues
  $     $ 1.7     $ 6.7  
                         
Pre-tax (loss)
          (0.4 )     (1.6 )
                         
Pre-tax gain on sale
          0.1        
Income tax (benefit)
          (0.1 )     (0.6 )
                         
(Loss) from discontinued operations
  $     $ (0.2 )   $ (1.0 )
                         
 
Liquidity and Capital Resources
 
We generated cash during 2010 from operations, tax refunds and proceeds from the exercise of stock options. We used cash during 2010 for operations, real estate development and construction, and payments of property taxes.
 
As of December 31, 2010, we had cash and cash equivalents of $183.8 million, compared to $163.8 million as of December 31, 2009. Our increase in cash and cash equivalents in 2010 primarily relates to our operating activities as described below.
 
We invest our excess cash primarily in government-only money market mutual funds, short-term U.S. treasury investments and overnight deposits, all of which are highly liquid, with the intent to make such funds readily available for operating expenses and strategic long-term investment purposes.
 
We have a $125 million revolving credit facility with Branch Banking and Trust Company (“BB&T”) and Deutsche Bank that expires on September 19, 2012. We have the option to request an increase in the principal amount available under the credit facility up to $200 million through syndication on a best efforts basis.


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The Credit Agreement provides for swing advances of up to $5.0 million and the issuance of letters of credit of up to $30.0 million. No funds have been drawn on the credit facility as of December 31, 2010. The proceeds of any future borrowings under the credit facility may be used for general corporate purposes. We have pledged 100% of the membership interests in our largest subsidiary, St. Joe Timberland Company of Delaware, LLC, as security for the credit facility. We have also agreed that upon the occurrence of an event of default, St. Joe Timberland Company of Delaware, LLC will grant to the lenders a first priority pledge of and/or a lien on substantially all of its assets.
 
As more fully described in Note 13, Debt in our Consolidated Financial Statements, the credit facility contains covenants relating to leverage, unencumbered asset value, net worth, liquidity and additional debt. The credit facility does not contain a fixed charge coverage covenant. The credit facility also contains various restrictive covenants pertaining to acquisitions, investments, capital expenditures, dividends, share repurchases, asset dispositions and liens. The amendment also limits the amount of our investments not otherwise permitted by the credit facility to $175.0 million and the amount of our additional debt not otherwise permitted by the credit facility to $175.0 million. We were in compliance with our debt covenants at December 31, 2010.
 
On October 21, 2009, we 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. Service at the new airport consists of two daily non-stop flights from Northwest Florida to each of four destinations for a total of eight daily non-stop flights.
 
We have agreed to reimburse Southwest Airlines if it incurs losses on its service at the new airport during the first three years of service. The agreement also provides that Southwest’s profits from the air service during the term of the agreement will be shared with us up to the maximum amount of our break-even payments. These cash payments and reimbursements could have a significant effect on our cash flows and results of operations depending on the results of Southwest’s operations of the air service. There were no reimbursements to Southwest Airlines during 2010; no losses were incurred per the agreed upon services.
 
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 us if the payments to Southwest exceed $14 million in the first year of air service and $12 million in the second year of air service. Southwest 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. In order to mitigate potential losses that may arise from changes in Southwest Airlines’ jet fuel costs, we have entered into a short-term premium neutral collar arrangement with respect to the underlying cost of jet fuel for a portion of Southwest Airlines’ estimated fuel volumes.
 
In November 2010, we entered into a new fiber supply agreement with Smurfit-Stone Container Corporation that requires us to deliver and sell a total of 3.9 million tons of pine pulpwood through December, 2017. Pricing under the agreement approximates market, using a formula based on published regional prices for pine pulpwood. The agreement is assignable by us, in whole or in part, to purchasers of our properties, or any interest therein, and does not contain a lien, encumbrance, or use restriction on any of our properties.
 
We believe that our current cash position, our undrawn $125.0 million revolving credit facility and the cash we anticipate generating from operating activities will provide us with sufficient liquidity to satisfy our near-term working capital needs and capital expenditures and provide us with the financial flexibility to withstand the current market downturn.
 
Cash Flows from Operating Activities
 
Cash flows related to assets ultimately planned to be sold, including residential real estate development and related amenities, sales of undeveloped and developed land by the rural land sales segment, our timberland operations and land developed by the commercial real estate segment, are included in operating activities on the statement of cash flows.
 
Net cash provided by operations was $16.3 million during 2010 as compared with $50.7 million during 2009, and $48.5 million during 2008. Total capital expenditures for our residential real estate segment in 2010,


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2009 and 2008 were $7.0 million, $13.4 million and $27.1 million, respectively. The 2008 expenditures were net of an $11.6 million reimbursement received from a community development district (“CDD”) bond issue at one of our residential communities. Additional capital expenditures in 2010, 2009 and 2008 totaled $7.8 million, $2.4 million and $5.3 million, respectively, and primarily related to commercial real estate development.
 
The expenditures relating to our residential real estate and commercial real estate segments were primarily for site infrastructure development, general amenity construction, construction of single-family homes, construction of multi-family buildings and commercial land development. Prior to 2009, we devoted significant resources to the development of several new large-scale residential communities, including WindMark Beach, RiverTown and WaterSound. Because of adverse market conditions and the substantial progress on these large-scale developments, we have significantly reduced our capital expenditures over the past three years. We expect our 2011 capital expenditures to increase compared with 2010 levels as the development of our land progresses, including construction of our corporate headquarters in VentureCrossings Enterprise Centre. We anticipate that future capital commitments will be funded through our cash balances, operations and credit facility.
 
During 2010, we received $67.7 million in tax refunds due to the tax planning strategy we implemented in 2009 in order to take advantage of certain tax loss carrybacks which expired in 2009. In 2009, we received $32.3 in tax refunds for loss carryforwards associated with our 2006 through 2008 tax years. We had no income tax receivable at December 31, 2010.
 
During 2009, we received $11.0 million from the sale of our Victoria Park community which consisted of homes, homesites, undeveloped land, notes receivable and a golf course and $3.0 million from the sale of our St. Johns Golf and Country Club golf course. In addition, we received approximately $7.0 million in cash proceeds in connection with the sale of our SevenShores condominium and marina development project during 2009. The cash flows associated with our discontinued golf course operations were not material to our operating cash flows.
 
On June 18, 2009, as plan sponsor, we 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 our pension plan. The purchase price of the group annuity contract was approximately $101 million, which was funded from the assets of the pension plan on June 25, 2009. As a result of this transaction, we significantly increased the funding status ratio of our pension plan and reduced the potential for future funding requirements.
 
During 2008, we increased our operating cash flows as a result of large tract rural land sales. During 2008, we sold a total of 79,031 acres of timberland in three separate transactions in exchange for 15-year installment notes receivable in the aggregate amount of $108.4 million, which installment notes are fully backed by irrevocable letters of credit issued by Wachovia Bank, N.A. (now a subsidiary of Wells Fargo & Company). We received $96.1 million in net cash proceeds from the monetization of these installment notes. We did not enter into any installment note sales during 2009 or 2010.
 
Cash Flows from Investing Activities
 
Net cash (used in) provided by investing activities was $(0.5) million in 2010, as compared with $0.2 million in 2009 and $(1.4) million in 2008. Cash flows from investing activities include the purchase of property, plant and equipment, sale of other assets not held for sale, distributions of capital and investment in unconsolidated affiliates.
 
Cash Flows from Financing Activities
 
Net cash provided by (used in) financing activities was $4.2 million in 2010, $(2.6) million in 2009 and $44.2 million in 2008. Cash provided by financing activities in 2010 resulted primarily from proceeds from the exercise of stock options.


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On March 3, 2008, we sold 17,145,000 shares of our common stock, at a price of $35.00 per share. We received net proceeds of $580.1 million in connection with the public offering which were used to prepay in full (i) a $100 million term loan, (ii) the entire outstanding balance (approximately $160 million) of our previous $500 million senior revolving credit facility and (iii) senior notes with an outstanding principal amount of $240.0 million together with a make-whole amount of approximately $29.7 million.
 
As previously discussed, we monetized notes receivable from rural land installment sales in 2008. Proceeds from these transactions were used to reduce debt.
 
CDD bonds financed the construction of infrastructure improvements at several of our projects. The principal and interest payments on the bonds are paid by assessments on, or from sales proceeds of, the properties benefited by the improvements financed by the bonds. We have recorded a liability for CDD debt that is associated with platted property, which is the point at which the assessments become fixed or determinable. Additionally, we have recorded a liability for the balance of the CDD debt that is associated with unplatted property if it is probable and reasonably estimable that we will ultimately be responsible for repaying either as the property is sold by us or when assessed to us by the CDD. Accordingly, we have recorded debt of $29.4 million and $29.9 million related to CDD debt as of December 31, 2010 and December 31, 2009, respectively. Total outstanding CDD debt was $57.7 million and $58.5 million at December 31, 2010 and 2009, respectively. We retired approximately $30.0 million of CDD debt with the proceeds of our common stock offering during 2008.
 
Executives have surrendered a total of 2,472,017 shares of our stock since 1998 in payment of strike prices and taxes due on exercised stock options and vested restricted stock. For 2010, 2009 and 2008, 42,762, shares worth $1.3 million, 40,281 shares worth $1.1 million and 70,077 shares worth $2.8 million, respectively, were surrendered by executives for the cash payment of taxes due on exercised stock options and vested restricted stock.
 
Cash flows from discontinued operations are reported in the consolidated statement of cash flows as operating, investing and financing along with our continuing operations for 2009 and 2008.
 
Off-Balance Sheet Arrangements
 
During 2008 and 2007, we 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 Wachovia Bank, N.A. (now a subsidiary of Wells Fargo & Company). We contributed the installment notes to bankruptcy remote qualified special purpose entities. The entities’ financial position and results are not consolidated in our financial statements.
 
During 2008 and 2007, the entities 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 us during 2008 and 2007, respectively. The debt securities are payable solely out of the assets of the entities and proceeds from the letters of credit. The investors in the entities have no recourse against us for payment of the debt securities or related interest expense. We have recorded a retained interest with respect to all entities of $10.3 million for all installment notes monetized through December 31, 2010, which value is an estimate based on the present value of future cash flows to be received over the life of the installment notes, using management’s best estimates of underlying assumptions, including credit risk and interest rates. In accordance with ASC 325, Investments — Other, Subtopic 40 — Beneficial Interests in Securitized Financial Assets, fair value is 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. We did not record any impairment adjustments as a result of changes in previously projected cash flows during 2010, 2009 and 2008. We deferred approximately $97.1 million and $63.4 million of gain for income tax purposes through this installment sale structure during 2008 and 2007, respectively.


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Contractual Obligations and Commercial Commitments at December 31, 2010
 
                                         
    Payments Due by Period  
          Less Than
                More Than
 
Contractual Cash Obligations(1)   Total     1 Year     1-3 Years     3-5 Years     5 Years  
    (In millions)  
 
Debt(2)(3)
  $ 54.7     $ 2.0     $ 3.6     $ 19.7     $ 29.4  
Interest related to community development district debt
    14.3       0.9       1.8       1.8       9.8  
Purchase obligations(4)
    9.2       8.2       1.0              
Operating leases
    2.3       2.1       0.2              
                                         
Total Contractual Cash Obligations
  $ 80.5     $ 13.2     $ 6.6     $ 21.5     $ 39.2  
                                         
 
 
(1) Excludes standby guarantee liability of $0.8 million and FIN 48 tax liability of $1.4 million due to uncertainty of payment periods.
 
(2) Includes debt defeased in connection with the sale of our office building portfolio in the amount of $25.3 million, which will be paid by pledged treasury securities.
 
(3) Community Development District (“CDD”) debt maturities are presented in the year of contractual maturity; however, earlier payments may be required when the properties benefited by the CDD are sold. This includes amounts that may be transferred to the buyer when projects are sold.
 
(4) These aggregate amounts include individual contracts in excess of $0.1 million.
 
                                         
    Amount of Commitment Expirations per Period  
    Total Amounts
    Less Than
                More Than
 
Other Commercial Commitments   Committed     1 Year     1-3 Years     3-5 Years     5 Years  
    (In millions)  
 
Surety bonds
  $ 27.9     $ 24.4     $ 3.5     $     $  
Standby letters of credit
    0.8       0.8                    
                                         
Total Commercial Commitments
  $ 28.7     $ 25.2     $ 3.5     $     $  
                                         
 
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk
 
Our primary market risk exposure is interest rate risk related to our $125 million credit facility. As of December 31, 2010, we had no amounts drawn under our credit facility. The interest on borrowings under the credit facility is based on either LIBOR rates or certain base rates established by the credit facility. The applicable interest rate for LIBOR rate loans is based on the higher of (a) an adjusted LIBOR rate plus the applicable interest margin (ranging from 2.00% to 2.75%), determined based on the ratio of our total indebtedness to total asset value, or (b) 4.00%. The applicable interest rate for base rate loans is based on the higher of (a) the prime rate or (b) the federal funds rate plus 0.5%, plus the applicable interest margin (ranging from 1.00% to 1.75%). The credit facility also has an unused commitment fee payable quarterly at an annual rate of 0.50%.
 
The table below presents principal amounts and related weighted average interest rates by year of maturity for our long-term debt. The weighted average interest rates for our fixed-rate long-term debt are based on the actual rates as of December 31, 2010.
 
Expected Contractual Maturities
 
                                                                 
                                              Fair
 
    2011     2012     2013     2014     2015     Thereafter     Total     Value  
    ($ in millions)  
 
Long-term Debt
                                                               
Fixed Rate(1)
  $     $     $     $     $     $ 29.4     $ 29.4     $ 29.4  
Wtd. Avg. Interest Rate
    6.9 %     6.9 %     6.9 %     6.9 %     6.9 %     6.9 %     6.9 %        
 
We estimate the fair value of long-term debt based on current rates available to us for loans of the same remaining maturities. As the table incorporates only those exposures that exist as of December 31, 2010, it does not consider exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss will depend on future changes in interest rates and market values.
 
 
(1) Excludes $25.3 million of defeased debt as the Company bears no market risk.


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Item 8.   Financial Statements and Supplementary Data
 
The Financial Statements and related notes on pages F-2 to F-45 and the Report of Independent Registered Public Accounting Firm on page F-1 are filed as part of this Report and incorporated by reference.
 
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 9A.   Controls and Procedures
 
(a) Evaluation of Disclosure Controls and Procedures.  Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.
 
(b) Changes in Internal Control Over Financial Reporting.  During the quarter ended December 31, 2010 there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
(c) Management’s Annual Report on Internal Control Over Financial Reporting.
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
 
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
Based on our assessment and those criteria, management concluded that our internal control over financial reporting was effective as of December 31, 2010. Management reviewed the results of their assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, 2010 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their attestation report which is included below.
 
(d) Attestation Report of Independent Registered Public Accounting Firm.


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The Board of Directors and Stockholders
The St. Joe Company:
 
We have audited The St. Joe Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The St. Joe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, The St. Joe Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in equity, and cash flow for each of the years in the three-year period ended December 31, 2010 and the related financial statement schedule, and our report dated March 2, 2011, expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.
 
/s/ KPMG LLP
 
Certified Public Accountants
Jacksonville, Florida
March 2, 2011


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Item 9B.   Other Information.
 
None.
 
PART III
 
Item 10.   Directors, Executive Officers and Corporate Governance
 
Information concerning our directors, nominees for director, executive officers and certain corporate governance matters is described in our proxy statement relating to our 2011 annual meeting of shareholders to be held on May 17, 2011 (the “proxy statement”). This information is set forth in the proxy statement under the captions “Proposal No. 1 — Election of Directors”, “Executive Officers”, and “Corporate Governance and Related Matters.” This information is incorporated by reference in this Part III.
 
Item 11.   Executive Compensation
 
Information concerning compensation of our executive officers and directors for the year ended December 31, 2010 is presented under the caption “Executive Compensation and Other Information” in our proxy statement. This information is incorporated by reference in this Part III.
 
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Information concerning the security ownership of certain beneficial owners and of management is set forth under the caption “Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” in our proxy statement and is incorporated by reference in this Part III.
 
Equity Compensation Plan Information
 
Our shareholders have approved all of our equity compensation plans. These plans are designed to further align our directors’ and management’s interests with our long-term performance and the long-term interests of our shareholders.
 
The following table summarizes the number of shares of our common stock that may be issued under our equity compensation plans as of December 31, 2010:
 
                         
                Number of Securities
 
    Number of Securities
          Remaining Available for
 
    to be Issued
    Weighted-Average
    Future Issuance Under
 
    Upon Exercise of
    Exercise Price of
    Equity Compensation Plans
 
    Outstanding Options,
    Outstanding Options,
    (Excluding Securities Reflected
 
Plan Category   Warrants and Rights     Warrants and Rights     in the First Column)  
 
Equity compensation plans approved by security holders
    364,281     $ 39.62       1,693,972  
Equity compensation plans not approved by security holders
                 
                         
Total
    364,281     $ 39.62       1,693,972  
                         
 
For additional information regarding our equity compensation plans, see Note 2, Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements under the heading, “Stock-Based Compensation.”
 
Item 13.   Certain Relationships and Related Transactions and Director Independence
 
Information concerning certain relationships and related transactions during 2010, if any, and director independence is set forth under the captions “Certain Relationships and Related Transactions” and “Director Independence” in our proxy statement. This information is incorporated by reference in this Part III.


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Item 14.   Principal Accountant Fees and Services
 
Information concerning our independent registered public accounting firm is presented under the caption “Audit and Finance Committee Information” in our proxy statement and is incorporated by reference in this Part III.
 
PART IV
 
Item 15.   Exhibits and Financial Statement Schedule
 
(a)(1) Financial Statements
 
The financial statements listed in the accompanying Index to Financial Statements and Financial Statement Schedule and Report of Independent Registered Public Accounting Firm are filed as part of this Report.
 
(2) Financial Statement Schedule
 
The financial statement schedule listed in the accompanying Index to Financial Statements and Financial Statement Schedule is filed as part of this Report.
 
(3) Exhibits
 
The exhibits listed on the accompanying Index to Exhibits are filed or incorporated by reference as part of this Report.


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INDEX TO EXHIBITS
 
     
Exhibit
   
Number   Description
 
3.1
  Restated and Amended Articles of Incorporation of the registrant, as amended (incorporated by reference to Exhibit 3.1 of the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).
3.2
  Amended and Restated Bylaws of the registrant effective February 8, 2011 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on February 9, 2011).
4.1
  Shareholder Protection Rights Agreement dated February 15, 2011 by and between the registrant and American Stock Transfer & Trust Company, LLC, including the Form of Right Certificate attached as Exhibit A thereto (incorporated by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K filed on February 17, 2011).
10.1
  Credit Agreement dated September 19, 2008 by and among the registrant, Branch Banking and Trust Company, as agent and lender, Deutsche Bank Trust Company Americas, as lender and BB&T Capital Markets, as lead arranger ($125 million credit facility), including all exhibits and schedules thereto, as amended by the First Amendment dated October 30, 2008, Second Amendment dated February 20, 2009, Third Amendment dated May 1, 2009, Fourth Amendment dated October 15, 2009 and Fifth Amendment dated December 23, 2009 (incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010).
10.2
  Sixth Amendment to Credit Agreement dated January 12, 2011 by and among the registrant, Branch Banking and Trust Company, as agent and lender, and Deutsche Bank Trust Company Americas, as lender (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on January 12, 2011).
10.3
  Strategic Alliance Agreement for Air Service dated October 21, 2009 by and between the registrant and Southwest Airlines Co. (incorporated by reference to Exhibit 10.7 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009).
10.4
  Master Airport Access Agreement dated November 22, 2010 by and between the registrant and the Panama City-Bay County Airport and Industrial District (the “Airport District”) (including as attachments the Land Donation Agreement dated August 22, 2006, by and between the registrant and the Airport District, and the Special Warranty Deed dated November 29, 2007, granted by St. Joe Timberland Company of Delaware, LLC to the Airport District) (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on November 30, 2010).
10.5*
  Pulpwood Supply Agreement dated November 1, 2010 by and between St. Joe Timberland Company of Delaware, L.L.C. and Smurfit-Stone Container Corporation.
10.6
  Letter Agreement dated April 6, 2009 by and among the registrant, Fairholme Funds, Inc. and Fairholme Capital Management, L.L.C. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on April 7, 2009).
10.7
  Termination Letter dated January 12, 2011 by and among the registrant, Fairholme Funds, Inc. and Fairholme Capital Management, L.L.C. (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on January 12, 2011).
10.8
  Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed on July 31, 2006).
10.9
  Form of First Amendment to Executive Employment Agreement (regarding Section 409A compliance incorporated by reference to Exhibit 10.17 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007).
10.10
  Second Amendment to Employment Agreement of Wm. Britton Greene dated February 15, 2008 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 19, 2008).
10.11
  Form of Amendment to Executive Employment Agreement (regarding additional Section 409A compliance matters) (incorporated by reference to Exhibit 10.12 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009).


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Exhibit
   
Number   Description
 
10.12
  Letter Agreement regarding relocation benefits dated March 16, 2010 by and between the registrant and Wm. Britton Greene (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on March 17, 2010).
10.13
  Letter Agreement regarding relocation benefits dated June 14, 2010 by and between the registrant and Rusty Bozman.
10.14
  Directors’ Deferred Compensation Plan, dated December 28, 2001 (incorporated by reference to Exhibit 10.10 to the registrant’s Registration Statement on Form S-1 (File 333-89146)).
10.15
  Deferred Capital Accumulation Plan, as amended and restated effective December 31, 2008 (incorporated by reference to Exhibit 10.15 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).
10.16
  Supplemental Executive Retirement Plan, as amended and restated effective December 31, 2008 (incorporated by reference to Exhibit 10.16 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).
10.17
  2009 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the registrant’s Registration Statement on Form S-8 (File 333-160916)).
10.18
  1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.21 to the registrant’s Registration Statement on Form S-1 (File 333-89146)).
10.19
  1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.22 to the registrant’s Registration Statement on Form S-1 (File 333-89146)).
10.20
  1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.23 to the registrant’s Registration Statement on Form S-1 (File 333-89146)).
10.21
  2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.24 to the registrant’s Registration Statement on Form S-1 (File 333-89146)).
10.22
  2009 Equity Incentive Plan (incorporated by reference to Appendix A to the registrant’s Proxy Statement on Schedule 14A filed on March 31, 2009).
10.23
  Form of Stock Option Agreement (for awards prior to July 27, 2006) (incorporated by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003).
10.24
  Form of Stock Option Agreement (for awards from July 27, 2006 through May 12, 2009 incorporated by reference to Exhibit 10.6 to the registrant’s Current Report on Form 8-K filed on July 31, 2006).
10.25
  Form of Restricted Stock Agreement (for awards with time-based vesting conditions from July 27, 2006 through May 12, 2009 incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed on July 31, 2006).
10.26
  Form of Restricted Stock Agreement under 2001 Stock Incentive Plan (for awards with performance-based vesting conditions incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on February 19, 2008).
10.27
  Form of First Amendment to Restricted Stock Agreement under 2001 Stock Incentive Plan (for awards with performance-based vesting conditions incorporated by reference to Exhibit 10.33 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).
10.28
  Form of Restricted Stock Agreement under 2009 Equity Incentive Plan (for awards with performance-based vesting conditions prior to February 7, 2011 incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on February 12, 2010).
10.29
  Form of Restricted Stock Agreement under 2009 Equity Incentive Plan (for awards with time-based vesting conditions incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on February 12, 2010).
10.30
  Form of Restricted Stock Agreement under 2009 Equity Incentive Plan (for awards with performance-based vesting conditions from February 7, 2011).
10.31
  Form of Director Election Form describing director compensation (updated May 2009 incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2009).
10.32
  2010 Short-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 12, 2010).


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Exhibit
   
Number   Description
 
10.33
  2011 Short-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 9, 2011).
10.34
  Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 13, 2009).
10.35
  Form of Amendment to Indemnification Agreement for Certain Directors and Officers. (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on March 1, 2011).
10.36
  Separation Agreement dated February 25, 2011 by and between the registrant and Wm. Britton Greene (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on March 1, 2011).
10.37
  The St. Joe Company Trust Under Separation Agreement F.B.O. Wm. Britton Greene, dated February 25, 2011, by and between the registrant and SunTrust Banks, Inc. (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on March 1, 2011).
10.38
  Letter Agreement dated February 25, 2011 (incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed on March 1, 2011).
14.1
  Code of Business Conduct and Ethics (revised February 7, 2011).
21.1
  Subsidiaries of The St. Joe Company.
23.1
  Consent of KPMG LLP, independent registered public accounting firm for the registrant.
31.1
  Certification by Chief Executive Officer.
31.2
  Certification by Chief Financial Officer.
32.1
  Certification by Chief Executive Officer.
32.2
  Certification by Chief Financial Officer.
99.1
  Supplemental information regarding sales activity and other quarterly and year end information.
100**
  The following information from the registrant’s Annual Report on Form 10-K for the year ended December 31,2010, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statement of Cash Flow and (v) Notes to the Consolidated Financial Statements, tagged as blocks of text.
 
 
* Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions of the agreement. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.
 
** In accordance with Regulation S-T, the XBRL-related information in Exhibit 100 to this Annual Report on Form 10-K shall be deemed to be “furnished” and not “filed”.


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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned representative thereunto duly authorized.
 
The St. Joe Company
 
  By: 
/s/  Wm. Britton Greene
Wm. Britton Greene
President and Chief Executive Officer
 
Dated: March 2, 2011
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of March 2, 2011.
 
         
Signature   Title
 
     
/s/  Wm. Britton Greene

Wm. Britton Greene
  President and Chief Executive Officer
(Principal Executive Officer)
     
/s/  William S. McCalmont

William S. McCalmont
  Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
     
/s/  Janna L. Connolly

Janna L. Connolly
  Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
     
/s/  Michael L. Ainslie

Michael L. Ainslie
  Director
     
/s/  Hugh M. Durden

Hugh M. Durden
  Director and Chairman of the Board
     
/s/  Thomas A. Fanning

Thomas A. Fanning
  Director
     
/s/  Delores M. Kesler

Delores M. Kesler
  Director
     
/s/  John S. Lord

John S. Lord
  Director
     
/s/  Walter L. Revell

Walter L. Revell
  Director


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INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 
         
    F-1  
    F-2  
    F-3  
    F-4  
    F-5  
    F-7  
    S-1  


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders
The St. Joe Company:
 
We have audited the accompanying consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in equity, and cash flow for each of the years in the three-year period ended December 31, 2010. In connection with our audits of the consolidated financial statements, we also have audited financial statement Schedule III — Consolidated Real Estate and Accumulated Depreciation. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The St. Joe Company and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The St. Joe Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 2, 2011, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
/s/ KPMG LLP
 
Certified Public Accountants
Jacksonville, Florida
March 2, 2011


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Table of Contents

THE ST. JOE COMPANY
 
CONSOLIDATED BALANCE SHEETS
 
                 
    December 31,
    December 31,
 
    2010     2009  
    (Dollars in thousands)  
 
ASSETS
Investment in real estate
  $ 755,392     $ 767,006  
Cash and cash equivalents
    183,827       163,807  
Notes receivable
    5,731       11,503  
Pledged treasury securities
    25,281       27,105  
Prepaid pension asset
    40,992       42,274  
Property, plant and equipment, net
    13,014       15,269  
Income taxes receivable
          63,690  
Other assets
    27,458       26,290  
                 
Total assets
  $ 1,051,695     $ 1,116,944  
                 
 
LIABILITIES AND EQUITY
LIABILITIES:
               
Debt
  $ 54,651     $ 57,014  
Accounts payable and other
    14,977       13,781  
Accrued liabilities and deferred credits
    73,233       92,548  
Income tax payable
    1,772        
Deferred income taxes
    34,625       57,281  
                 
Total liabilities
    179,258       220,624  
EQUITY:
               
Common stock, no par value; 180,000,000 shares authorized; 122,923,913 and 122,557,167 issued at December 31, 2010 and 2009, respectively
    935,603       924,267  
Retained earnings
    878,498       914,362  
Accumulated other comprehensive (loss)
    (10,546 )     (12,558 )
Treasury stock at cost, 30,318,478 and 30,275,716 shares held at December 31, 2010 and 2009, respectively
    (931,431 )     (930,124 )
                 
Total stockholders’ equity
    872,124       895,947  
                 
Noncontrolling interest
    313       373  
                 
Total equity
    872,437       896,320  
                 
Total liabilities and equity
  $ 1,051,695     $ 1,116,944  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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Table of Contents

THE ST. JOE COMPANY
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
                         
    Years Ended December 31,  
    2010     2009     2008  
    (Dollars in thousands except per share amounts)  
 
Revenues:
                       
Real estate sales
  $ 38,923     $ 78,758     $ 194,545  
Resort and club revenues
    29,429       29,402       32,745  
Timber sales
    28,841       26,584       26,638  
Other revenues
    2,347       3,513       4,230  
                         
Total revenues
    99,540       138,257       258,158  
                         
Expenses:
                       
Cost of real estate sales
    8,470       60,439       53,129  
Cost of resort and club revenues
    31,486       32,308       38,638  
Cost of timber sales
    20,199       19,113       19,842  
Cost of other revenues
    2,133       2,247       3,030  
Other operating expenses
    34,783       39,984       53,516  
Corporate expense, net
    26,178       24,313       30,732  
Depreciation and amortization
    13,657       15,115       16,040  
Pension charges
    4,138       46,042       4,177  
Impairment losses
    4,799       102,683       60,354  
Restructuring charges
    5,251       5,368       4,253  
                         
Total expenses
    151,094       347,612       283,711  
                         
Operating loss
    (51,554 )     (209,355 )     (25,553 )
                         
Other income (expense):
                       
Investment income, net
    1,470       2,660       6,061  
Interest expense
    (8,612 )     (1,157 )     (4,483 )
Other, net
    3,250       2,712       (7,667 )
Loss on early extinguishment of debt
                (30,554 )
                         
Total other (expense) income
    (3,892 )     4,215       (36,643 )
                         
Loss from continuing operations before equity in loss of unconsolidated affiliates and income taxes
    (55,446 )     (205,140 )     (62,196 )
Equity in loss of unconsolidated affiliates
    (4,308 )     (122 )     (330 )
Income tax benefit
    (23,849 )     (81,227 )     (26,921 )
                         
Loss from continuing operations
    (35,905 )     (124,035 )     (35,605 )
                         
Discontinued operations:
                       
Loss from discontinued operations, net of tax
          (6,888 )     (1,568 )
Gain on sales of discontinued operations, net of tax
          75        
                         
Loss from discontinued operations, net of tax
          (6,813 )     (1,568 )
                         
Net loss
  $ (35,905 )   $ (130,848 )   $ (37,173 )
Less: Net loss attributable to noncontrolling interest
    (41 )     (821 )     (807 )
                         
Net loss attributable to the Company
  $ (35,864 )   $ (130,027 )   $ (36,366 )
                         
(LOSS) PER SHARE
                       
Basic
                       
Loss from continuing operations attributable to the Company
  $ (0.39 )   $ (1.35 )   $ (0.38 )
Loss from discontinued operations attributable to the Company
  $     $ (0.07 )   $ (0.02 )
                         
Net loss attributable to the Company
  $ (0.39 )   $ (1.42 )   $ (0.40 )
                         
Diluted
                       
Loss from continuing operations attributable to the Company
  $ (0.39 )   $ (1.35 )   $ (0.38 )
Loss from discontinued operations attributable to the Company
  $     $ (0.07 )   $ (0.02 )
                         
Net loss attributable to the Company
  $ (0.39 )   $ (1.42 )   $ (0.40 )
                         
 
The accompanying notes are an integral part of these consolidated financial statements.


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THE ST. JOE COMPANY
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
                                                         
                      Accumulated
                   
    Common Stock           Other
                   
    Outstanding
          Retained
    Comprehensive
    Treasury
    Noncontrolling
       
    Shares     Amount     Earnings     Income (Loss)     Stock     Interest     Total  
    (Dollars in thousands, except per share amounts)  
 
Balance at December 31, 2007(1)
    74,597,456     $ 323,355 (1)   $ 1,080,755 (1)   $ 3,275     $ (926,322 )   $ 6,276     $ 487,339  
                                                         
Comprehensive (loss):
                                                       
Net (loss)
                (36,366 )                 (807 )     (37,173 )
Amortization of pension and postretirement benefit costs, net
                      757                   757  
Pension settlement and curtailment costs, net
                      2,568                   2,568  
Actuarial change in pension and postretirement benefits, net
                      (49,260 )                 (49,260 )
                                                         
Total comprehensive (loss)
                                        (83,108 )
                                                         
Distributions
                                  (2,697 )     (2,697 )
Issuances of restricted stock
    734,828                                      
Forfeitures of restricted stock
    (253,037 )                                    
Issuances of common stock, net of offering costs
    17,201,082       581,455                               581,455  
Excess (reduction in) tax benefit on options exercised and vested restricted stock
          (56 )                             (56 )
Amortization of stock-based compensation
          12,343                               12,343  
Purchases of treasury shares
    (77,065 )                       (2,845 )           (2,845 )
                                                         
Balance at December 31, 2008
    92,203,264     $ 917,097     $ 1,044,389     $ (42,660 )   $ (929,167 )   $ 2,772     $ 992,431  
                                                         
Comprehensive (loss):
                                                       
Net (loss)
                (130,027 )                 (821 )     (130,848 )
Amortization of pension and postretirement benefit costs, net
                      1,544                   1,544  
Pension settlement and curtailment costs, net
                      28,316                   28,316  
Actuarial change in pension and postretirement benefits, net
                      242                   242  
                                                         
Total comprehensive (loss)
                                        (100,746 )
                                                         
Distributions
                                  (1,578 )     (1,578 )
Issuances of restricted stock
    332,741                                      
Forfeitures of restricted stock
    (246,430 )                                    
Issuances of common stock
    32,157       718                               718  
Excess (reduction in) tax benefit on options exercised and vested restricted stock
          (801 )                             (801 )
Amortization of stock-based compensation
          7,253                               7,253  
Purchases of treasury shares
    (40,281 )                       (957 )           (957 )
                                                         
Balance at December 31, 2009
    92,281,451     $ 924,267     $ 914,362     $ (12,558 )   $ (930,124 )   $ 373     $ 896,320  
                                                         
Comprehensive (loss):
                                                       
Net (loss)
                (35,864 )                 (41 )     (35,905 )
Amortization of pension and postretirement benefit costs, net
                      2,012                   2,012  
                                                         
Total comprehensive (loss)
                                        (33,893 )
                                                         
Distributions
                                  (19 )     (19 )
Issuances of restricted stock
    340,053                                      
Forfeitures of restricted stock
    (152,193 )                                    
Issuances of common stock
    178,886       5,082                               5,082  
Excess (reduction in) tax benefit on options exercised and vested restricted stock
          (362 )                             (362 )
Amortization of stock-based compensation
          6,616                               6,616  
Purchases of treasury shares
    (42,762 )                       (1,307 )           (1,307 )
                                                         
Balance at December 31, 2010
    92,605,435     $ 935,603     $ 878,498     $ (10,546 )   $ (931,431 )   $ 313     $ 872,437  
                                                         
 
 
(1) The opening balance of common stock and retained earnings was adjusted by $1.9 million and $1.1 million, respectively, for an immaterial correction. Refer to Note 1, “Correction of Prior Period Error”.
 
The accompanying notes are an integral part of these consolidated financial statements.


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THE ST. JOE COMPANY
 
CONSOLIDATED STATEMENTS OF CASH FLOW
 
                         
    Years Ended December 31  
    2010     2009     2008  
    (Dollars in thousands)  
 
Cash flows from operating activities:
                       
Net loss
  $ (35,905 )   $ (130,848 )   $ (37,173 )
Adjustments to reconcile net loss to net cash provided by operating activities:
                       
Depreciation and amortization
    13,657       16,112       17,362  
Stock-based compensation
    5,159       8,712       12,343  
Equity in loss of unconsolidated joint ventures
    4,308       122       330  
Deferred income tax (benefit) expense
    (23,990 )     (20,672 )     3,665  
Loss on early extinguishment of debt
                30,554  
Impairment losses
    4,799       113,039       60,545  
Pension charges
    4,138       46,042       4,177  
Cost of operating properties sold
    6,321       58,695       47,025  
Expenditures for operating properties
    (14,782 )     (15,841 )     (32,379 )
Changes in operating assets and liabilities:
                       
Notes receivable
    7,513       6,625       5,280  
Other assets
    (3,575 )     8,399       6,392  
Accounts payable and accrued liabilities
    (15,968 )     (9,566 )     (29,296 )
Income taxes payable/ (receivable)
    64,637       (30,084 )     (40,366 )
                         
Net cash provided by operating activities
    16,312       50,735       48,459  
                         
Cash flows from investing activities:
                       
Purchases of property, plant and equipment
    (1,282 )     (2,538 )     (2,278 )
Maturities and redemptions of investments, held to maturity
                619  
Proceeds from the disposition of assets
    120       2,221        
Distributions from unconsolidated affiliates
    650       535        
Investments in unconsolidated affiliates
                240  
                         
Net cash (used in) provided by investing activities
    (512 )     218       (1,419 )
                         
Cash flows from financing activities:
                       
Net borrowings from revolving credit agreements
                35,000  
Repayment of borrowings under revolving credit agreements
                (167,000 )
Repayments of other long-term debt
                (370,000 )
Make whole payment in connection with prepayment of senior notes
                (29,690 )
Distributions to minority interest partner
    (19 )     (1,578 )     (2,697 )
Proceeds from exercises of stock options
    5,083       718       1,653  
Issuance of common stock
                579,802  
Excess (reduction in) tax benefits from stock-based compensation
    463       (801 )     (56 )
Taxes paid on behalf of employees related to stock-based compensation
    (1,307 )     (957 )     (2,845 )
                         
Net cash provided by (used in) financing activities
    4,220       (2,618 )     44,167  
                         
Net increase in cash and cash equivalents
    20,020       48,335       91,207  
Cash and cash equivalents at beginning of year
    163,807       115,472       24,265  
                         
Cash and cash equivalents at end of year
  $ 183,827     $ 163,807     $ 115,472  
                         
 
The accompanying notes are an integral part of these consolidated financial statements.


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Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOW

 
                         
    2010     2009     2008  
 
Supplemental disclosures of cash flow information:
                       
Cash paid during the year for:
                       
Interest
  $ 4,505     $ 284     $ 11,969  
Income taxes (received) paid, net
    (65,061 )     (34,160 )     8,833  
Capitalized interest
    245       44       1,582  
Non-cash financing and investment activities:
                       
Issuance of restricted stock, net of forfeitures
  $ 4,459     $ (713 )   $ 12,255  
Forgiveness of debt in connection with sale of marina/condominium project
          (5,478 )      
Decrease in notes receivable related to take back of real estate inventory
          (399 )      
Notes receivable written-off in connection with sales transactions
          (13,347 )      
Decrease in note payable satisfied by deed of land and land improvements
          (3,450 )      
Net (decrease) increase in Community Development District Debt
    (539 )     (1,023 )     6,251  
(Decrease) in pledged treasury securities related to defeased debt
    (1,824 )     (1,805 )     (1,761 )
 
The accompanying notes are an integral part of these consolidated financial statements.


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Table of Contents

THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise stated)
 
1.   Nature of Operations
 
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. Consequently, the Company’s performance, particularly that of its real estate operations, is significantly affected by the general health of the Florida economy.
 
During 2009, the Company sold non-strategic assets including its Victoria Park community, which consisted of homesites, homes, undeveloped land, notes receivable and a golf course, St. Johns Golf and Country Club golf course and its SevenShores condominium and marina development project. The Company also sold its remaining inventory and equipment assets related to its cypress sawmill and mulch plant, Sunshine State Cypress, Inc. during 2009, which assets and liabilities were classified as held for sale at December 31, 2008. Certain operating results associated with these entities have been classified as discontinued operations for all periods presented through the period in which they were sold. See Note 4, Discontinued Operations.
 
The Company currently conducts primarily all of its business in four reportable operating segments: residential real estate, commercial real estate, rural land sales and forestry.
 
Real Estate
 
The residential real estate segment typically plans and develops mixed-use resort, primary and seasonal residential communities of various sizes primarily on its existing land. The Company owns large tracts of land in Northwest Florida, including large tracts near Tallahassee and Panama City, and significant Gulf of Mexico beach frontage and waterfront properties. The Company devotes resources to the conceptual design, planning, permitting and construction of certain key projects currently under development, and the Company will maintain this process for certain select communities going forward. The success of this strategy is dependent on the Company’s intent and ability to hold and sell these key projects, in most cases, over a long-term horizon.
 
The commercial real estate segment plans, develops and entitles our land holdings for a broad portfolio of retail, multi-family, office, hotel, industrial uses and rental income. The Company sells or leases and develops commercial land and provides development opportunities for national and regional commercial retailers and strategic partners in Northwest Florida. The Company also offers for sale land for commercial and light industrial uses within large and small-scale commerce parks, as well as for multi-family residential rental projects.
 
The rural land sales segment markets and sells tracts of land of varying sizes for rural recreational, conservation, residential and timberland uses located primarily in Northwest Florida. The rural land sales segment at times prepares land for sale for these uses through harvesting, thinning and other silviculture practices, and in some cases, limited development activity including improved roads, ponds and fencing. We also sell credits to developers from our wetland mitigation banks, and sell easements for utility and road rights of way.
 
Forestry
 
The forestry segment focuses on the management and harvesting of the Company’s extensive timber holdings, as well as on the ongoing management of lands which may ultimately be used by other divisions of the Company. The Company believes it is one of the largest private owners of land in Florida, most of which is currently managed as timberland. The principal products of the Company’s forestry operations are pine pulpwood, sawtimber, forest products and conservation land management services.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Approximately one-half of the wood harvested by the Company is sold under a long-term pulpwood supply agreement with Smurfit-Stone Container Corporation (“Smurfit-Stone”). The agreement, which expires on December 31, 2017, provides for the sale of approximately 3.9 million tons of pulpwood over the term of the contract, with specified yearly obligated volumes. The supply agreement is assignable by St Joe in whole or in part, to purchasers of its properties or any interest therein. The supply agreement does not contain a lien, encumbrance or use restriction on any of the Company’s properties.
 
2.   Basis of Presentation and Significant Accounting Policies
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and all of its majority-owned and controlled subsidiaries. The operations of dispositions and assets classified as held for sale in which the Company has no significant continuing involvement are included in discontinued operations through the dates that they were sold. Investments in joint ventures and limited partnerships in which the Company does not have control are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation.
 
Correction of Prior Period Errors
 
In the first quarter of 2010, the Company determined that approximately $2.6 million ($1.6 million net of tax) of stock-based 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 opening balance of common stock, retained earnings and deferred income taxes at December 31, 2007 were adjusted by $1.9 million, $1.1 million and $0.8 million, respectively. The Consolidated Balance Sheet for December 31, 2008 has been adjusted to reflect a $0.8 million increase in common stock, a $0.5 million reduction in retained earnings and a corresponding $0.3 million increase in deferred taxes. 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 years ended December 31, 2009 and 2008 and the Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008. These corrections were not considered to be material to prior period financial statements.
 
During 2010, the Company determined that an additional liability for certain of its Community Development District (“CDD”) debt that is probable and reasonably estimable of repayment by the Company in the future should have been recognized in periods prior to 2010. Accordingly, the consolidated balance sheet for December 31, 2009 has been adjusted to increase debt and investment in real estate by $17.5 million. There was no impact on the consolidated statement of operations, cash flows or equity. This correction was not considered material to prior period financial statements.
 
Reclassifications
 
Certain prior period amounts have been reclassified to conform to the current period’s presentation.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions including investment in real estate, impairment assessments, prepaid pension asset, accruals, valuation of standby guarantee liability and deferred taxes. Actual results could differ from those estimates. Real estate impairment analyses are particularly dependent on the estimated holding and


F-8


Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
selling period, which are based on management’s current intent for the use and disposition of each property, which could be subject to change in future periods.
 
Because of the recession and the adverse market conditions that currently exist in Florida and national real estate markets and financial and credit markets, it is possible that the estimates and assumptions, most notably those involving the Company’s investment in real estate, could change materially during the time span associated with the continued weakened state of these real estate markets and financial markets, respectively.
 
Revenue Recognition
 
Revenues consist primarily of real estate sales, timber sales, resort and club operations and other revenues.
 
Revenues from real estate sales, including sales of rural land, residential homes (including detached single-family and attached townhomes) and homesites, and commercial buildings, are recognized upon closing of sales contracts and conveyance of title. A portion of real estate inventory and estimates for costs to complete are allocated to each housing unit based on the relative sales value of each unit as compared to the sales value of the total project.
 
Revenues for multi-family residences under construction are recognized using the percentage-of-completion method of accounting when (1) construction is beyond a preliminary stage, (2) the buyer has made sufficient deposit and is committed to the extent of being unable to require a refund except for nondelivery of the unit, (3) sufficient units have already been sold to assure that the entire property will not revert to rental property, (4) the sales price is collectible, and (5) aggregate sales proceeds and costs can be reasonably estimated. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. Any amounts due under sales contracts, to the extent recognized as revenue are recorded as contracts receivable. The Company reviews the collectability of contract receivables and, in the event of cancellation or default, adjusts the percentage-of-completion calculation accordingly. There were no contract receivables at December 31, 2010 and 2009, respectively. Revenue for multi-family residences is recognized at closing using the full accrual method of accounting if the criteria for using the percentage-of-completion method are not met before construction is substantially completed.
 
Percentage-of-completion accounting is also used for our homesite sales when required development is not complete at the time of sale and for commercial and other land sales if there are uncompleted development costs yet to be incurred for the property sold.
 
Resort and club revenues include service and rental fees associated with the WaterColor Inn, WaterColor, WaterSound Beach and WindMark Beach vacation rental programs and other resort, golf club and marina operations. These revenues are generally recognized as services are provided. Golf membership revenues are deferred and recognized ratably over the membership period.
 
Other revenues consist of rental revenues and brokerage fees. Rental revenues are recognized as earned, using the straight-line method over the life of the lease. Certain leases provide for tenant occupancy during periods for which no rent is due or where minimum rent payments change during the lease term. Accordingly, a receivable is recorded representing the difference between the straight-line rent and the rent that is contractually due from the tenant. Tenant reimbursements are included in rental revenues. Brokerage fees are recorded as the services are provided.
 
Revenues from sales of forestry products are recognized generally on delivery of the product to the customer.
 
Taxes collected from customers and remitted to governmental authorities (e.g., sales tax) are excluded from revenues and costs and expenses.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Comprehensive Income (Loss)
 
The Company’s comprehensive income (loss) differs from net income (loss) due to changes in the funded status of certain Company benefit plans. See Note 16, Employee Benefits Plans. The Company has elected to disclose comprehensive income (loss) in its Consolidated Statements of Changes in Equity.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include cash on hand, bank demand accounts and money market instruments having original maturities at acquisition date of 90 days or less.
 
Accounts and Notes Receivable
 
Substantially all of the Company’s trade accounts receivable and notes receivable are due from customers located within the United States. The Company evaluates the carrying value of trade accounts receivable and 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. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowance for doubtful accounts is based on a review of specifically identified accounts in addition to an overall aging analysis. Judgments are made with respect to the collectability of accounts based on historical experience and current economic trends. Actual losses could differ from those estimates.
 
Fair Value of Financial Instruments
 
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable and accrued expenses, approximate their fair values due to the short-term nature of these assets and liabilities. In addition, the Company utilized a discounted cash flow method to record its investment in retained beneficial interests at fair value. See Note 3, Fair Value Measurements.
 
Investment in Real Estate
 
Costs associated with a specific real estate project are capitalized during the development period. The Company capitalizes 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. Interest is capitalized (up to total interest expense) based on the amount of underlying expenditures and real estate taxes on real estate projects under development. If the Company determines 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.
 
Investment in real estate is carried at cost, net of depreciation and timber depletion. Depreciation is computed on straight-line method over the useful lives of the assets ranging from 15 to 40 years. Depletion of timber is determined by the units of production method, whereby capitalized timber costs are accumulated and expensed as units are sold.
 
Property, Plant and Equipment
 
Property, plant and equipment are stated at cost, net of accumulated depreciation or amortization. Major improvements are capitalized while maintenance and repairs are expensed in the period the cost is incurred. Depreciation is computed using the straight-line method over the useful lives of various assets, generally three to 10 years.


F-10


Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
Long-Lived Assets and Discontinued Operations
 
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. Long-lived assets include the Company’s investments in operating, development and investment property. Some of the events or changes in circumstances that are considered by the Company as indicators of potential impairment include:
 
  •  a prolonged decrease in the market price or demand for the Company’s properties;
 
  •  a change in the expected use or development plans for the Company’s properties;
 
  •  a current period operating or cash flow loss for an operating property; and
 
  •  an accumulation of costs in a development property that significantly exceeds its historically low basis in property held long-term.
 
Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. Homes and homesites ready for sale include properties that are actively marketed with an intent to sell such properties in the near term. Management identifies properties as being ready for sale when the intent is to sell such assets in the near term and under current market conditions. Other properties that management does not intend to sell in the near term under current market conditions are evaluated for impairment based on management’s best estimate of the long-term use and eventual disposition of such property.
 
For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to develop and maintain the existing project and using management’s best estimates about future sales prices and holding periods. The projection of undiscounted cash flows requires that management develop various assumptions including:
 
  •  the projected pace of sales of homesites based on estimated market conditions and the Company’s development plans;
 
  •  projected price appreciation over time, which can generally range from 0% to 7% annually;
 
  •  the amount and trajectory of price appreciation over the estimated selling period;
 
  •  the length of the estimated development and selling periods, which ranges from 5 years to 17 years depending on the size of the development and the number of phases to be developed;
 
  •  the amount of remaining development costs and holding costs to be incurred over the selling period;
 
  •  in situations where development plans are subject to change, the amount of entitled land subject to bulk land sales or alternative use and the estimated selling prices of such property;
 
  •  for commercial development property, future pricing which is based on sales of comparable property in similar markets; and
 
  •  assumptions regarding the intent and ability to hold individual investments in real estate over projected periods and related assumptions regarding available liquidity to fund continued development.
 
For operating properties, an estimate of undiscounted cash flows requires management to make similar assumptions about the use and eventual disposition of such properties. Some of the significant assumptions that are used to develop the undiscounted cash flows include:
 
  •  for investments in hotel and rental condominium units, average occupancy and room rates, revenues from food and beverage and other amenity operations, operating expenses and capital expenditures, and the amount of proceeds to be realized upon eventual disposition of such properties as condo-hotels or condominiums, based on current prices for similar units appreciated to the expected sale date;


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
  •  for investments in commercial or retail property, future occupancy and rental rates and the amount of proceeds to be realized upon eventual disposition of such property at a terminal capitalization rate; and
 
  •  for investments in golf courses, future rounds and greens fees, operating expenses and capital expenditures, and the amount of proceeds to be realized upon eventual disposition of such properties at a multiple of terminal year cash flows.
 
The results of impairment analyses for development and operating properties are particularly dependent on the estimated holding and selling period for each asset group, which can be up to 35 years for certain properties with long range development plans. The estimated holding period is based on management’s current intent for the use and disposition of each property, which could be subject to change in future periods if the strategic direction of the Company as set by management and approved by the Board of Directors were to change. If the excess of undiscounted cash flows over the carrying value of a property is small, there is a greater risk of future impairment in the event of such changes and any resulting impairment charges could be material.
 
Excluding any properties that have been written down to fair value, at December 31, 2010 the Company has one development property with a carrying value of approximately $23 million whose current undiscounted cash flows is approximately 110% of its carrying value.
 
In the event that projected future undiscounted cash flows are not adequate to recover the carrying value of a property, impairment is indicated and the Company would be required under generally accepted accounting principles to write down the asset to its fair value. Fair value of a property may be derived either from discounting projected cash flows at an appropriate discount rate, through appraisals of the underlying property, or a combination thereof.
 
The Company classifies assets as held-for-sale when management approves and commits to a formal plan of sale and it is probable that a sale will be completed. The carrying value of the assets held-for-sale are then recorded at the lower of their carrying value or fair market value less costs to sell. The operations and gains on sales reported in discontinued operations include operating properties sold during the year and assets classified as held-for-sale for which operations and cash flows can be clearly distinguished and for which the Company will not have continuing involvement or significant cash flows after disposition. The operations from these assets have been eliminated from ongoing operations. Prior periods have been reclassified to reflect the operations of these assets as discontinued operations. The operations and gains on sales of operating assets for which the Company has continuing involvement or significant cash flows are reported as income from continuing operations.
 
Income Taxes
 
The Company follows the asset and liability method of accounting for deferred income taxes. The provision for income taxes includes income taxes currently payable and those deferred as a result of temporary differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income or loss in the period that includes the enactment date. A valuation allowance is provided to reduce deferred tax assets to the amount of future tax benefit when it is more likely than not that some portion of the deferred tax assets will not be realized. Projected future taxable income and ongoing tax planning strategies are considered and evaluated when assessing the need for a valuation allowance. Any increase or decrease in a valuation allowance could have a material adverse impact or beneficial impact on the Company’s income tax provision and net income or loss in the period the determination is made. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.


F-12


Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Concentration of Risks and Uncertainties
 
The Company’s real estate investments are concentrated in the State of Florida in a number of specific development projects. Uncertainty of the duration of the prolonged real estate and economic slump could have an adverse impact on our real estate values.
 
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.
 
The majority of 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 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 collapse of real estate markets and tightened credit conditions, the collectability of these receivables represents a risk to the Company and changes in the likelihood of collectability could adversely impact the accompanying financial statements.
 
In the event of a failure and liquidation of the financial institution involved in our land 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, we 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. Service at the new airport consists of two daily non-stop flights from Northwest Florida to each of four destinations for a total of eight daily non-stop flights.
 
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 for the period ended December 31, 2010. These cash payments and reimbursements could have a significant effect on our cash flows and results of operations depending on the results of Southwest Airlines’ operation of the air service. 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 us if the payments to Southwest Airlines exceed $14 million in the first year of air service and $12 million in the second year of air service. 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. As of December 31, 2010 actual revenues have exceeded these minimum amounts. In order to mitigate potential losses that may arise from changes in Southwest Airlines’ jet fuel costs, we have entered into a short term premium neutral collar arrangement expiring in May 2011 with respect to the underlying cost of jet fuel for a portion of Southwest Airlines’ estimated fuel volumes. The notional quantity hedged is 200,000 gallons per month, with the call price at $2.55 per gallon and the put price at $1.93 per gallon.
 
Smurfit-Stone’s Panama City mill is the largest consumer of pine pulpwood logs within the immediate area in which most of the Company’s timberlands are located. In July of 2010, Smurfit-Stone emerged from


F-13


Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
approximately 18 months of bankruptcy protection, and during the first quarter of 2011, RockTenn announced its acquisition of Smurfit-Stone. Deliveries made by St. Joe during Smurfit-Stone’s bankruptcy proceedings were uninterrupted and payments were made on time. Under the terms of the supply agreement, Smurfit-Stone and its successor 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. Nevertheless, if the Smurfit-Stone mill in Panama City were to permanently cease operations, the price for the Company’s pulpwood may decline, and the cost of delivering logs to alternative customers could increase.
 
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 vesting period. 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.
 
Stock Options and Non-vested Restricted Stock
 
The Company offers a stock incentive plan whereby awards may be granted to certain employees and non-employee directors of the Company in various forms including restricted shares of Company common stock and options to purchase Company common stock. Awards are discretionary and are determined by the Compensation Committee of the Board of Directors. Awards vest based upon service conditions. Option and share awards provide for accelerated vesting if there is a change in control (as defined in the award agreements). Non-vested restricted shares generally vest over requisite service periods of three or four years and are considered to be outstanding shares, beginning on the date of each grant. Stock option awards are granted with an exercise price equal to market price of the Company’s stock on the date of grant. The options vest over requisite service periods and are exercisable in equal installments on the third, fourth or fifth anniversaries, as applicable, of the date of grant and generally expire 10 years after the date of grant. The Company has allocated 2 million shares for future issuance under its 2009 Equity Incentive Plan.
 
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model 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 term of the awards, actual and projected employee stock option exercise behaviors (term of option), risk-free interest rate and expected dividends.
 
The Company estimates the expected term of options granted by incorporating the contractual term of the options and analyzing employees’ actual and expected exercise behaviors. The Company estimates the volatility of its common stock by using historical volatility in market price over a period consistent with the expected term, and other factors. The Company bases the risk-free interest rate that it uses in the option valuation model on U.S. Treasuries with remaining terms similar to the expected term on the options. The Company uses an estimated dividend yield in the option valuation model when dividends are anticipated.
 
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


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
period. Total stock-based compensation recognized on the Consolidated Statements of Operations for the three years ended December 31, 2010 as corporate expense is as follows:
 
                         
    2010     2009     2008  
 
Stock option (income) expense(a)
  $ (468 )   $ 850     $ 1,220  
Restricted stock expense(b)
    5,627       7,862       11,123  
                         
Total charged against income before tax benefit
  $ 5,159     $ 8,712     $ 12,343  
                         
Amount of related income tax benefit recognized in income
  $ 2,060     $ 3,459     $ 5,369  
                         
 
(a) Includes an adjustment made in 2010 for actual forfeitures resulting in a credit of approximately $0.6 million.
 
(b) Includes a reduction of $1.5 million and an addition of $1.5 million related to accrued cash liability awards at December 31, 2010 and 2009, respectively.
 
No stock options were granted in 2010, 2009 or 2008. Presented below are the per share weighted-average fair value of stock options granted during 2007 using the Black Scholes option-pricing model, along with the assumptions used.
 
The following table sets forth the summary of option activity outstanding under the stock option program for 2010:
 
                                 
                Weighted Average
       
          Weighted
    Remaining
       
    Number of
    Average
    Contractual Life
    Aggregate Intrinsic
 
    Shares     Exercise Price     (Years)     Value ($000)  
 
Balance at December 31, 2009
    564,590     $ 36.55              
Granted
                       
Forfeited or expired
    (13,923 )     49.51              
Exercised
    (178,886 )     28.41              
                                 
Balance at December 31, 2010
    371,781     $ 39.98       2.8        
                                 
Vested or expected to vest at December 31, 2010
    364,281     $ 39.62       2.7        
                                 
Exercisable at December 31, 2010
    364,281     $ 39.62       2.7        
                                 
 
The total intrinsic value of options exercised during 2010, 2009 and 2008 was $1.0 million, $0.3 million and $0.6 million, respectively. The intrinsic value is calculated as the difference between the market value as of the exercise date and the exercise price of the shares. The closing price as of December 31, 2010 was $21.85 per share as reported by the New York Stock Exchange. Shares of Company stock issued upon the exercise of stock options in 2010, 2009 and 2008 were 178,886, 32,157 and 56,082 shares, respectively.
 
Cash received for strike prices from options exercised under stock-based payment arrangements for 2010, 2009 and 2008 was $5.1 million, $0.7 million and $1.6 million, respectively. The actual tax benefit realized for the tax deductions from options exercised under stock-based arrangements totaled $0.4 million, $0.8 million and $0.2 million, respectively, for 2010, 2009 and 2008.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table sets forth the summary of restricted stock activity outstanding under the restricted stock program for 2010:
 
                 
          Weighted Average
 
    Number of
    Grant Date
 
Non-Vested Restricted Shares   Shares     Fair Value  
 
Balance at December 31, 2009
    299,815     $ 36.66  
Granted
    163,009       27.86  
Vested
    (161,732 )     38.49  
Forfeited
    (34,433 )     30.99  
                 
Balance at December 31, 2010
    266,659     $ 30.91  
                 
 
The weighted average grant date fair value of restricted shares granted during 2010, 2009 and 2008 was $27.86, $22.41 and $38.43, respectively.
 
As of December 31, 2010, there was $1.7 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 three years. The total fair values of restricted stock and stock options which vested during the years ended December 31, 2010, 2009 and 2008 were $4.8 million, $5.6 million and $10.4 million, respectively.
 
Market Condition Grants
 
In February 2010, 2009 and 2008, the Company granted to its executives and other key employees non-vested restricted stock whose vesting is based upon the achievement of certain market conditions defined as the Company’s total shareholder return as compared to the total shareholder returns 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 compared 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 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  
Forfeited
    (117,760 )     23.56  
Vested
           
                 
Balance at December 31, 2010
    562,531     $ 23.17  
                 
 
As of December 31, 2010, there was $2.9 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 two years. At December 31, 2010, the balance of the cash liability awards payable to terminated employees who had been granted market condition restricted shares was zero. On February 7, 2011, the measurement date, the cash liability amount was $0.8 million.


F-16


Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 calculation 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:
 
                         
    2010     2009     2008  
 
Basic average shares outstanding
    91,674,346       91,412,398       89,550,637  
Incremental weighted average effect of stock options
                 
Incremental weighted average effect of non-vested restricted stock
                 
                         
Diluted average shares outstanding
    91,674,346       91,412,398       89,550,637  
                         
 
Approximately 0.1 million, 0.2 million and 0.4 million shares were excluded from the computation of diluted (loss) per share during the years ended December 31, 2010, 2009 and 2008, respectively, as the effect would have been anti-dilutive.
 
Through December 31, 2010, the Board of Directors had authorized a total of $950.0 million for the repurchase from time to time of outstanding common stock from shareholders (the “Stock Repurchase Program”). A total of approximately $846.2 million had been expended in the Stock Repurchase Program from its inception through December 31, 2010. There is no expiration date on the Stock Repurchase Program.
 
From the inception of the Stock Repurchase Program to December 31, 2010, the Company repurchased from shareholders 27,945,611 shares and executives surrendered a total of 2,472,017 shares as payment for strike prices and taxes due on exercised stock options and on vested restricted stock, for a total of 30,417,628 acquired shares. The Company did not repurchase shares from shareholders during 2010, 2009 and 2008. During 2010, 2009 and 2008, executives surrendered 42,762, 40,281 and 77,077 shares, respectively, as payment for strike prices and taxes due on exercised stock options and vested restricted stock.
 
In addition, the Company’s $125.0 million revolving credit facility requires that the Company not pay dividends or repurchase stock in amounts in excess of any cumulative net income that the Company has earned since January 1, 2007.
 
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;


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
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.
 
Assets measured at fair value on a recurring basis are as follows:
 
                                 
          Quoted Prices in
    Significant Other
    Significant
 
    Fair Value
    Active Markets for
    Observable
    Unobservable
 
    December 31,
    Identical Assets
    Inputs
    Inputs
 
    2010     (Level 1)     (Level 2)     (Level 3)  
 
Investments in money market and short term treasury instruments
  $ 177,816     $ 177,816     $     $  
Retained interest in entities
    10,283                   10,283  
                                 
Total
  $ 188,099     $ 177,816     $     $ 10,283  
                                 
 
                                 
          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)  
 
Investments in money market and short term treasury instruments
  $ 143,985     $ 143,985     $     $  
Retained interest in entities
    9,881                   9,881  
                                 
Total
  $ 153,866     $ 143,985     $     $ 9,881  
                                 
 
The Company has recorded a retained interest with respect to the monetization of certain installment notes, 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 entities is in the form of receipts of net interest payments, which are recorded as interest income and approximated $0.4 and $0.3 million in 2010 and 2009, respectively. In addition, the Company will receive the payment of the remaining principal on the installment notes at the end of their 15-year maturity period. The Company recorded losses, which were included in other income (expense), of $8.2 million during 2008, related to the monetization of $108.4 million in notes receivable through entities.
 
The fair value adjustment is determined based on the original carrying value of the notes, allocated between the assets monetized and the retained interest based on their relative fair value at the date of monetization. The Company’s retained interests consist principally of net excess cash flows (the difference between the interest received on the notes receivable and the interest paid on the debt issued to third parties and the collection of notes receivable principal net of the repayment of debt) and a cash reserve account. Fair values of the retained interests are estimated based on the present value of future excess cash flows to be received over the life of the notes, using management’s best estimate of underlying assumptions, including credit risk and discount rates.
 
The debt securities are payable solely out of the assets of the entities (which consist of the installment notes and the irrevocable letters of credit). The debt investors in the entities have no recourse to the Company for payment of the debt securities. The entities financial position and results of operations are not consolidated in the Company’s financial statements. In addition, the Company has evaluated the recently issued accounting requirements of Topic 810 and has determined that it will not be required to consolidate the financial position and results of the entities as the Company is not the primary decision maker with respect to activities that could significantly impact the economic performance of the entities, nor does the Company perform any service activity related to the entities.
 
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


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 2010, 2009 or 2008.
 
The following is a reconciliation of the Company’s retained interest in various entities:
 
                 
    2010     2009  
 
Balance January 1
  $ 9,881     $ 9,518  
Additions
           
Accretion of interest income
    402       363  
                 
Balance December 31
  $ 10,283     $ 9,881  
                 
 
On October 21, 2009, the Company entered into a strategic alliance agreement with Southwest Airlines to facilitate the commencement of low-fare air service in May 2010 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 for the period ended December 31, 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 payments to Southwest Airlines exceed $14.0 million in the first year of air service and $12.0 million in the second year of air service. 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.
 
At inception, 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 were estimated using numerous assumptions including future fuel costs, passenger load factors, air fares, and seasonality. Subsequently, the guarantee is measured at the greater of the fair value of the guarantee liability at inception or the payment amount that is probable and reasonably estimable of occurring, if any.
 
The Company carries a standby guarantee liability of $0.8 million at December 31, 2010 and December 31, 2009 related to this strategic alliance agreement.
 
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, and which management intends to sell in the near term under current market conditions, are measured at lower of carrying value or fair value less costs to sell. The fair value of these properties is determined based upon final sales prices of inventory sold during the period (level 2 inputs) or estimates of selling prices based on current market data (level 3 inputs). Other properties for which management does not intend to sell in the near term under current market conditions, including development and operating properties, are evaluated for impairment based on management’s best estimate of the long-term use and eventual disposition of the property. If determined to be impaired, the fair value of these properties is determined based on the net present value of discounted cash flows using estimated future expenditures necessary to maintain and complete the existing project and management’s best estimates about future sales prices, sales volumes, sales velocity and holding periods (level 3 inputs). The estimated length of expected development periods, related economic cycles and inherent uncertainty with respect to these projects such as


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
the impact of changes 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. For operating properties, an estimate of undiscounted cash flows requires management to make similar assumptions about the use and eventual disposition of such properties.
 
The Company’s assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and impairments during the year. The assets measured at fair value on a nonrecurring basis were as follows:
 
                                         
    Quoted Prices in
    Significant Other
    Significant
             
    Active Markets for
    Observable
    Unobservable
    Fair Value
    Total
 
    Identical Assets
    Inputs
    Inputs
    December 31,
    Impairment
 
    (Level 1)     (Level 2)     (Level 3)     2010     Charge  
 
Non-financial assets:
                                       
Investment in real estate
  $     $ 1,729     $ 7,134     $ 8,863     $ 4,297  
Investment in unconsolidated affiliates
          (2,220 )           (2,220 )     3,823  
Notes receivable
          677             677       502  
                                         
Total assets
  $     $ 186     $ 7,134     $ 7,320     $ 8,622  
                                         
 
                                         
    Quoted Prices in
    Significant Other
    Significant
             
    Active Markets for
    Observable
    Unobservable
    Fair Value
       
    Identical Assets
    Inputs
    Inputs
    December 31,
    Total
 
    (Level 1)     (Level 2)     (Level 3)     2009     Charge  
 
Non-financial assets:
                                       
Investment in real estate
  $     $ 44,140     $ 13,577     $ 57,717     $ 93,565  
Other long term assets
                587       587       1,119  
                                         
Total assets
  $     $ 44,140     $ 14,164     $ 58,304     $ 94,684  
                                         
Standby guarantee liability
                (791 )     (791 )     791  
                                         
 
As a result of the Company’s impairment analyses in 2010, investment in real estate with a carrying amount of $13.2 million was written down to fair value of $8.9 million resulting in an impairment charge of $4.3 million and in 2009 investment in real estate with a carrying amount of $151.3 million was written down to fair value of $57.7 million, resulting in a charge of $93.6 million.
 
The continued decline in demand and market prices for real estate caused us to reevaluate our carrying amounts for investments in real estate. During 2010, we recorded approximately $4.3 million in impairment charges on homes and homesites and a $3.8 million impairment on our investment in East San Marco L.L.C., a joint venture located in Jacksonville, Florida.
 
Given the downturn in its real estate markets, the Company implemented a tax strategy for 2009 to benefit from the sale of certain non-strategic assets at a loss. Under federal tax rules, losses from asset sales realized in 2009 can be carried back and applied to taxable income from 2007, resulting in a federal income tax refund for 2009. As part of this strategy, the Company conducted a nationally marketed sale process for the disposition of the remaining assets of its non-strategic Victoria Park community in Deland, Florida, including homes, homesites, undeveloped land, notes receivable and a golf course. Based on the likelihood of the closing of the sale, management concluded on December 15, 2009 that an impairment charge for $67.8 million was necessary. The Company completed the sale on December 17, 2009 for $11.0 million.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company completed the sale of its SevenShores condominium and marina development project for $7.0 million and the forgiveness of notes payable in the amount of $5.5 million earlier in 2009. The Company recorded an impairment charge for SevenShores of $6.7 million as a result of lower market pricing. The Company also sold St. Johns Golf and Country Club for $3.0 million in December 2009 which resulted in an impairment charge of $3.5 million. In addition, the Company wrote-off $7.2 million of capitalized costs related to abandoned development plans in certain of its communities.
 
As a result of the Company’s property impairment analyses for 2008, it recorded impairment charges related to investment in real estate of $40.3 million consisting of $12.0 million related to completed homes in several communities and $28.3 million related to the Company’s SevenShores condominium and marina development project. In addition, the Company recorded an impairment charge of $19.0 million during 2008 related to the remaining goodwill associated with the 1997 acquisition of certain assets of the Arvida Company.
 
The SevenShores condominium project was written down in the fourth quarter of 2008 to approximate the fair market value of land entitled for 278 condominium units. This write-down was necessary because in the fourth quarter of 2008 the Company elected not to exercise its option to acquire additional land under its option agreement. Certain costs had previously been incurred with the expectation that the project would include 686 units.
 
4.   Discontinued Operations
 
In December 2009, the Company sold Victoria Hills Golf Club as part of the bulk sale of Victoria Park. In addition, the Company sold its 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. Included in the 2009 discontinued operations are $6.9 million and $3.5 million (pre-tax) impairment charges to approximate fair value, less costs to sell, related to the sales of the Victoria Hills Golf Club and St. Johns Golf and Country Club, respectively.
 
On February 27, 2009, the Company sold its remaining inventory and equipment assets related to its Sunshine State Cypress mill and mulch plant for a sale price of $1.6 million. The sale agreement also included a long-term lease of a building facility. The Company received proceeds of $1.3 million and a note receivable of $0.3 million in connection with the sale. Assets and liabilities previously classified as “held for sale” which were not subsequently sold were reclassified as held for use in the consolidated balance sheets at December 31, 2009 and 2010. In addition, the operating results associated with assets not sold have been recorded in continuing operations since the first quarter of 2009. These reclassifications did not have a material impact on the Company’s financial position or operating results.
 
On April 30, 2007, the Company entered into a Purchase and Sale Agreement for the sale of the Company’s office building portfolio, consisting of 17 buildings. During 2007, the Company recorded a deferred gain of $3.3 million on a sale-leaseback arrangement with three of the properties. The amortization of gain associated with these three properties has been included in continuing operations due to the Company’s continuing involvement as a lessee.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
There were no discontinued operations in 2010. Discontinued operations presented on the Consolidated Statements of Operations for the years ended December 31, 2009 and 2008 consisted of the following:
 
                 
    2009     2008  
 
Commercial Buildings — Commercial Segment:
               
Aggregate revenues
  $     $ 17  
                 
Pre-tax income
            21  
Income taxes
          8  
                 
Income from discontinued operations
  $     $ 13  
                 
Victoria Hills Golf Club — Residential Segment:
               
Aggregate revenues
  $ 2,462     $ 2,664  
                 
Pre-tax (loss)
    (7,607 )     (861 )
Income taxes (benefit)
    (3,022 )     (336 )
                 
(Loss) from discontinued operations
  $ (4,585 )   $ (525 )
                 
St. Johns Golf and Country Club — Residential Segment:
               
Aggregate revenues
  $ 2,937     $ 3,168  
                 
Pre-tax (loss)
    (3,405 )     (91 )
Income taxes (benefit)
    (1,353 )     (36 )
                 
(Loss) from discontinued operations
  $ (2,052 )   $ (55 )
                 
Sunshine State Cypress — Forestry Segment:
               
Aggregate revenues
  $ 1,707     $ 6,767  
                 
Pre-tax (loss)
    (416 )     (1,640 )
Pre-tax gain on sale
    124        
Income taxes (benefit)
    (116 )     (639 )
                 
(Loss) from discontinued operations
  $ (176 )   $ (1,001 )
                 
Total (loss) from discontinued operations
  $ (6,813 )   $ (1,568 )
                 


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
5.   Investment in Real Estate
 
Investment in real estate as of December 31, 2010 and 2009 consisted of the following:
 
                 
    2010     2009  
 
Operating property:
               
Residential real estate
  $ 178,417     $ 173,190  
Rural land sales
    139       139  
Forestry
    60,339       61,890  
Other
    510       510  
                 
Total operating property
    239,405       235,729  
                 
Development property:
               
Residential real estate
    478,278       487,870  
Commercial real estate
    65,465       59,385  
Rural land sales
    7,446       7,699  
Other
    306       305  
                 
Total development property
    551,495       555,259  
                 
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
    (2,122 )     2,836  
                 
Total real estate investments
    797,384       802,006  
                 
Less: Accumulated depreciation
    41,992       35,000  
                 
Investment in real estate
  $ 755,392     $ 767,006  
                 
 
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 includes the Company’s land held for future use. See Note 3, Fair Value Measurements for further discussion regarding impairment charges the Company recorded in its residential real estate segment during 2010 and 2009.
 
Depreciation expense from continuing operations reported on real estate was $9.5 million in 2010, $9.9 million in 2009 and $9.1 million in 2008.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
6.   Investment in Unconsolidated Affiliates
 
Investments in unconsolidated affiliates, included in real estate investments, are recorded using the equity method of accounting and, as of December 31, 2010 and 2009 consisted of the following:
 
                         
    Ownership     2010     2009  
 
East San Marco L.L.C.(1)
    50 %     (2,220 )     1,738  
Rivercrest, L.L.C. 
    50 %           334  
Paseos, L.L.C. 
    50 %     98       764  
ALP Liquidating Trust
    26 %            
                         
Total
          $ (2,122 )   $ 2,836  
                         
 
 
(1) During 2010, the Company determined that its investment in East San Marco L.L.C. had experienced an other than temporary decline in value and wrote its investment down to current fair value. Based on the Company’s guaranteed obligation on its share of the partnership’s debt, the Company carried a negative investment balance at December 31, 2010.
 
Summarized financial information for the unconsolidated investments on a combined basis is as follows:
 
                 
    2010     2009  
 
BALANCE SHEETS:
               
Investment in real estate, net
  $ 12,338     $ 12,378  
Other assets
    21,272       25,382  
                 
Total assets
    33,610       37,760  
                 
Notes payable and other debt
  $ 8,767     $ 8,519  
Other liabilities
    1,468       1,771  
Equity
    23,375       27,470  
                 
Total liabilities and equity
  $ 33,610     $ 37,760  
                 
 
                         
    2010     2009     2008  
 
STATEMENTS OF OPERATIONS:
                       
Total revenues
  $ 14     $ 514     $ 1,552  
Total expenses
    2,847       2,122       3,283  
                         
Net (loss)
  $ (2,833 )   $ (1,608 )   $ (1,731 )
                         


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
7.   Notes Receivable
 
Notes receivable at December 31, 2010 and 2009 consisted of the following:
 
                 
    2010     2009  
 
Various builder notes, non-interest bearing — 8.0% and 8.5% at December 31, 2010 and 2009, respectively, due June 2011 — December 2012
  $ 2,358     $ 1,795  
Pier Park Community Development District notes, non-interest bearing, due December 2024, net of unamortized discount of $0.1 million, effective rates 5.73% — 8.0%
    2,762       2,641  
Perry Pines mortgage note, secured by certain real estate bearing interest at 10% at December 31, 2009, paid in November 2010
          6,263  
Various mortgage notes, secured by certain real estate bearing interest at various rates
    611       804  
                 
Total notes receivable
  $ 5,731     $ 11,503  
                 
 
The Company evaluates the carrying value of the notes receivable and 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 2009, the Company settled its notes receivable with Saussy Burbank for less than book value and recorded a charge of $9.0 million. As part of the settlement, the Company agreed to take back previously collateralized inventory consisting of lots and homes which were valued at current estimated sales prices, less costs to sell. Subsequently, all the lots and homes were sold which resulted in an additional impairment charge of $1.1 million. The Company also recorded a charge of $7.4 million related to the write-off of the outstanding Advantis note receivable balance during 2009 as the amount was determined to be uncollectible. In addition, the Company received a deed in lieu of foreclosure related to a $4.0 million builder note receivable during 2009 and renegotiated terms related to certain other builder notes receivable during 2010, 2009 and 2008. These events resulted in additional impairment charges of $0.5 million, $1.9 million and $1.0 million in 2010, 2009 and 2008, respectively.
 
8.   Pledged Treasury Securities
 
On August 7, 2007, the Company sold an office building. Approximately $29.3 million of mortgage debt was defeased in connection with the sale. The defeasance transaction resulted in the establishment of a defeasance trust and the deposit of proceeds of $31.1 million which is being used to pay down the related mortgage debt (see Note 13, Debt). The proceeds were invested in government backed securities which were pledged to provide principal and interest payments for the mortgage debt previously collateralized by the commercial building. The investments and the related debt have been included in the Company’s Consolidated Balance Sheets at December 31, 2010 and 2009. The Company has classified the defeasance trust investment as held-to-maturity because the Company has both the intent and the ability to hold the securities to maturity. Accordingly, the Company has recorded the investment at approximate market value of $25.3 million at December 31, 2010.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
9.   Property, Plant and Equipment
 
Property, plant and equipment, at depreciated cost, as of December 31, 2010 and 2009 consisted of the following:
 
                         
                Estimated
 
    2010     2009     Useful Life  
 
Transportation property and equipment
  $ 10,140     $ 10,152       3  
Machinery and equipment
    21,541       23,222       3-10  
Office equipment
    15,391       15,989       5-10  
Autos, trucks, and airplanes
    1,895       1,990       5-10  
                         
      48,967       51,353          
Less: Accumulated depreciation
    36,846       36,452          
                         
      12,121       14,901          
                         
Construction in progress
    893       368          
                         
Total
  $ 13,014     $ 15,269          
                         
 
Depreciation expense from continuing operations on property, plant and equipment was $3.4 million in 2010, $4.5 million in 2009 and $5.6 million in 2008. During 2010 and 2009, the Company sold and/or disposed of certain assets in connection with its sales of non-strategic assets. The cost and accumulated depreciation associated with these assets for 2010 was $3.1 million and $3.0 million, respectively, and $10.5 million and $8.5 million for 2009, respectively.
 
10.   Intangible Assets
 
Intangible assets are included in Other assets at December 31, 2010 and 2009 and consisted of the following:
 
                                         
                            Remaining
 
                            Weighted
 
                            Average
 
    2010     2009     Amortization
 
    Gross Carrying
    Accumulated
    Gross Carrying
    Accumulated
    Period
 
    Amount     Amortization     Amount     Amortization     (In years)  
 
Management contract
  $ 6,983     $ (6,568 )   $ 6,983     $ (6,396 )     3  
Other
    575       (430 )     573       (392 )      
                                         
Total
  $ 7,558     $ (6,998 )   $ 7,556     $ (6,788 )     3  
                                         
 
The aggregate amortization of intangible assets included in continuing operations for 2010, 2009, and 2008 was $0.2 million, $0.3 million and $0.5 million, respectively. In addition, the Company recorded an impairment charge of $0.7 million in 2009 related to its management contract intangible as a result of the sale of its Victoria Park assets, which was part of the residential real estate segment.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The estimated aggregate amortization from intangible assets for each of the next five years is as follows:
 
         
    Amortization
 
    Expense  
 
Year Ending December 31,
       
2011
  $ 212  
2012
    184  
2013
    98  
2014
    7  
2015 and thereafter
    59  
 
11.   Restructuring
 
On March 17, 2010, the Company announced that it was relocating its corporate headquarters from Jacksonville, Florida to its VentureCrossings Enterprise Centre to be developed adjacent to the Northwest Florida Beaches International Airport in Bay County, Florida. The Company will also consolidate existing offices from Tallahassee, Port St. Joe and South Walton County in the new location. The relocation to our temporary headquarters facility in Walton County 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 $4.8 million (pre-tax) of which $2.5 million was recorded for the year ended December 31, 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) which was accrued in 2010. Also, during 2010, pursuant to a relocation agreement approved by the Company’s Board of Directors, the Company purchased the home of an executive for $1.9 million. Subsequently, an impairment charge of $0.2 million was taken on the home to record it at current fair value less costs to sell.
 
During 2009, the Company implemented additional restructuring plans designed to further align employee headcount with the Company’s projected workload. The 2009 restructuring expense included severance benefits related to the departure of three senior executives. The Company incurred an additional $0.6 million related to the 2009 restructuring during the year ended December 31, 2010.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The charges associated with the relocation and restructuring programs by segment are as follows:
 
                                                 
    Residential
    Commercial
    Rural Land
                   
    Real Estate     Real Estate     Sales     Forestry     Other     Total  
 
2010:
                                               
One-time termination and relocation benefits to employees
  $ 961     $ 46     $ 781     $ 193     $ 3,270     $ 5,251  
                                                 
2009:
                                               
One-time termination benefits to employees
  $ 871     $ 648     $ 124     $ 1     $ 3,724     $ 5,368  
                                                 
2008:
                                               
One-time termination benefits to employees
  $ 1,190     $ 142     $ 17     $ 150     $ 2,754     $ 4,253  
                                                 
Cumulative restructuring charges, September 30, 2006 through December 31, 2010
  $ 19,480     $ 1,347     $ 2,566     $ 494     $ 13,281     $ 37,168  
                                                 
Remaining one-time termination benefits to employees — to be incurred during 2011
  $ 253     $ 39     $ 31     $ 465     $ 1,510     $ 2,298  
                                                 
 
Termination benefits are comprised of severance-related payments for all employees terminated in connection with the restructuring.
 
At December 31, 2010, the accrued liability associated with the relocation and restructuring programs consisted of the following:
 
                                         
    Balance at
                Balance at
       
    December 31,
    Costs
          December 31,
    Due within
 
    2009     Accrued     Payments     2010     12 months  
 
One-time termination and relocation benefits to employees — 2010 relocation
  $     $ 4,683     $ (3,813 )   $ 870     $ 870  
                                         
One-time termination benefits to employees — 2009 and prior
  $ 4,460     $ 568     $ (4,938 )   $ 90     $ 90  
                                         
Total
  $ 4,460     $ 5,251     $ (8,751 )   $ 960     $ 960  
                                         
 
12.   Accrued Liabilities and Deferred Credits
 
Accrued liabilities and deferred credits as of December 31, 2010 and 2009 consist of the following:
 
                 
    2010     2009  
 
Accrued compensation
  $ 7,059     $ 12,011  
Restructuring liability
    960       4,460  
Environmental and insurance liabilities
    2,080       2,014  
Deferred revenue
    29,854       49,663  
Retiree medical and other benefit reserves
    11,282       12,099  
Legal
    10,021       11  
Other accrued liabilities
    11,977       12,290  
                 
Total accrued liabilities and deferred credits
  $ 73,233     $ 92,548  
                 


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Deferred revenue at December 31, 2010 and 2009 includes $23.5 million and $44.2 million, respectively, related to a 2006 sale of approximately 3,900 acres of rural land to the Florida Department of Transportation (“FDOT”). Revenue is recognized when title to a specific parcel is legally transferred. In 2010, 2148 acres were conveyed to the FDOT.
 
13.   Debt
 
Debt at December 31, 2010 and 2009 consisted of the following:
 
                 
    2010     2009  
 
Revolving credit facility, $125.0 million and $100.0 million at December 31, 2010 and 2009, respectively, due September 19, 2012
           
Non-recourse defeased debt, interest payable monthly at 5.62% at December 31, 2010 and 2009, secured and paid by pledged treasury securities, due October 1, 2015 (includes unamortized premium of $1.8 million at December 31, 2010)
    25,281       27,105  
Community Development District debt, secured by certain real estate and standby note purchase agreements, due May 1, 2016 — May 1, 2039, bearing interest at 6.70% to 7.15% at December 31, 2010 and 2009
    29,370       29,909  
                 
Total debt
  $ 54,651     $ 57,014  
                 
 
Deferred loan costs reported as Other assets in the Consolidated Balance Sheets at December 31, 2010 and 2009 were $0.6 million and $1.1 million, respectively.
 
The aggregate maturities of debt subsequent to December 31, 2010 are as follows (a)(b):
 
         
2011
  $ 1,982  
2012
    2,018  
2013
    1,586  
2014
    1,507  
2015
    18,188  
Thereafter
    29,370  
         
Total
  $ 54,651  
         
 
(a) Includes debt defeased in connection with the sale of the Company’s office building portfolio in the amount of $25.3 million.
 
(b) Community Development District debt maturities are presented in the year of contractual maturity; however, earlier payments may be required when the properties benefited by the CDD are sold.
 
On September 19, 2008, the Company entered into a $100.0 million revolving credit facility with Branch Banking and Trust Company. On October 15, 2009, the Company amended the credit facility to extend the term to September 19, 2012, and lower its required minimum tangible net worth amount to $800.0 million. In addition, the amendment modified pricing terms to reflect market pricing. The interest on borrowings under the credit facility will be based on either LIBOR rates or certain base rates established by the credit facility. The applicable interest rate for LIBOR rate loans will now be based on the higher of (a) an adjusted LIBOR rate plus the applicable interest margin (ranging from 2.00% to 2.75%), determined based on the ratio of the Company’s total indebtedness to total asset value, or (b) 4.00%. The applicable interest rate for base rate loans will now be based on the higher of (a) the prime rate or (b) the federal funds rate plus 0.5%, plus the applicable interest margin (ranging from 1.00% to 1.75%). The amendment also replaces the existing facility fee based on the amount of lender commitments with an unused commitment fee payable quarterly at an annual rate of 0.50%.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
On December 23, 2009, the Company entered into an amendment in order to increase the size of the credit facility by $25.0 million to $125.0 million. Deutsche Bank provided the additional $25.0 million commitment. The Company did not borrow against the credit facility in 2009 or 2010.
 
The credit facility contains covenants relating to leverage, unencumbered asset value, net worth, liquidity and additional debt. The credit facility does not contain a fixed charge coverage covenant. The credit facility 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:
 
                 
          December 31,
 
    Covenant     2010  
 
Minimum consolidated tangible net worth
  $ 800,000     $ 871,566  
Ratio of total indebtedness to total asset value
    50.0 %     4.1 %
Unencumbered leverage ratio
    2.0 x     61.1 x
Minimum liquidity
  $ 20,000     $ 308,052  
 
The Company was in compliance with its debt covenants at December 31, 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.
 
Community Development District (“CDD”) bonds financed the construction of infrastructure improvements at several of the Company’s projects. The principal and interest payments on the bonds are paid by assessments on, or from sales proceeds of, the properties benefited by the improvements financed by the bonds. The Company has recorded a liability for CDD debt that is associated with platted property, which is the point at which the assessments become fixed or determinable. Additionally, the Company has recorded a liability for the balance of the CDD debt that is associated with unplatted property if it is probable and reasonably estimable that the Company will ultimately be responsible for repaying either as the property is sold by the Company or when assessed to the Company by the CDD. Accordingly, we have recorded debt of $29.4 million and $29.9 million related to CDD debt as of December 31, 2010 and December 31, 2009, respectively. Total outstanding CDD debt was $57.7 million at December 31, 2010 and $58.5 at December 31, 2009.
 
In connection with the sale of the Company’s office building portfolio in 2007, the Company retained approximately $29.3 million of defeased debt. The Company purchased treasury securities sufficient to satisfy the scheduled interest and principal payments contractually due under the mortgage debt agreement. These securities were placed into a collateral account for the sole purpose of funding the principal and interest payments as they become due. The indebtedness remains on the Company’s Consolidated Balance Sheets at December 31, 2010 and 2009 since the transaction was not considered to be an extinguishment of debt.
 
14.   Common Stock Offering
 
On March 3, 2008, the Company sold 17,145,000 shares of its common stock at a price of $35.00 per share. The Company received net proceeds of $580 million in connection with the sale, which were primarily used to pay down the Company’s debt.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
15.   Income Taxes
 
The provision for income taxes (benefit) for the years ended December 31, 2010, 2009 and 2008 consists of the following:
 
                         
    2010     2009     2008  
 
Current:
                       
Federal
  $ (134 )   $ (64,697 )   $ (31,602 )
State
    275       (349 )     14  
                         
Total
    141       (65,046 )     (31,588 )
                         
Deferred:
                       
Federal
    (18,084 )     (4,160 )     8,352  
State
    (5,906 )     (16,512 )     (4,687 )
                         
Total
    (23,990 )     (20,672 )     3,665  
                         
Total provision for income taxes
  $ (23,849 )   $ (85,718 )   $ (27,923 )
                         
 
Total income tax (benefit) for the years ended December 31, 2010, 2009 and 2008 was allocated in the consolidated financial statements as follows:
 
Tax (benefit) recorded in the Consolidated Statements of Operations:
 
                         
    2010     2009     2008  
 
Loss from continuing operations
  $ (23,849 )   $ (81,227 )   $ (26,921 )
Gain on sales of discontinued operations
          49        
Loss from discontinued operations
          (4,540 )     (1,002 )
                         
Total
    (23,849 )     (85,718 )     (27,923 )
                         
Tax benefits recorded on Consolidated Statement of Changes in Equity:
                       
Excess tax expense on stock compensation
    362       801       56  
Deferred tax expense (benefit) on accumulated other comprehensive income
    1,335       17,482       (26,008 )
                         
Total
    1,697       18,283       (25,952 )
                         
Total income tax benefit
  $ (22,152 )   $ (67,435 )   $ (53,875 )
                         


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Income tax (benefit) attributable to income from continuing operations differed from the amount computed by applying the statutory federal income tax rate of 35% to pre-tax income as a result of the following:
 
                         
    2010     2009     2008  
 
Tax at the statutory federal rate
  $ (20,899 )   $ (71,555 )   $ (21,602 )
State income taxes (net of federal benefit)
    (2,090 )     (7,154 )     (2,159 )
Tax benefit from effective settlement
                (1,031 )
Increase (decrease) in valuation allowance
    28       (1,657 )     648  
FAS 106 Medicare Subsidy
    623              
Real estate investment trust income exclusion
    (1,357 )     (1,752 )     (1,430 )
Other permanent differences
    (154 )     891       (1,347 )
                         
Total income tax benefit from continuing operations
  $ (23,849 )   $ (81,227 )   $ (26,921 )
                         
 
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of December 31, 2010 and 2009 are presented below:
 
                 
    2010     2009  
 
Deferred tax assets:
               
Federal net operating loss carryforward
  $ 21,751        
State net operating loss carryforward
    18,837     $ 14,817  
Impairment losses
    7,949       5,224  
Deferred compensation
    7,235       9,011  
Accrued casualty and other reserves
    5,521       2,082  
Capitalized real estate taxes
    7,175       6,412  
Liability for retiree medical plan
    4,917       5,599  
Other
    4,646       6,398  
                 
Total gross deferred tax assets
    78,031       49,543  
Valuation allowance
    (964 )     (937 )
                 
Total net deferred tax assets
    77,067       48,606  
                 
Deferred tax liabilities:
               
Deferred gain on land sales and involuntary conversions
    25,231       18,945  
Prepaid pension asset
    15,782       16,274  
Installment sale
    57,899       57,744  
Depreciation
    6,830       7,867  
Other
    5,950       5,057  
                 
Total gross deferred tax liabilities
    111,692       105,887  
                 
Net deferred tax liability
  $ 34,625     $ 57,281  
                 
 
At December 31, 2010, the Company had federal net operating loss carryforwards of approximately $62.1 million which are available to offset future federal taxable income through 2030. In addition, the Company had state net operating loss carryforwards of approximately $538.4 million, as of December 31, 2010, which are available to offset future state taxable income through 2030. The valuation allowance at December 31, 2010 and 2009 was related to state net operating and charitable loss carryforwards that in the judgment of management are not likely to be realized.


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Realization of the Company’s remaining deferred tax assets is dependent upon the Company generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from loss carryforwards. Based on the timing of reversal of future taxable amounts and the Company’s history and future expectations of reporting taxable income, management believes that it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowance, at December 31, 2010. There can be no certainty however, that these tax benefits will ultimately be realized.
 
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
                 
    2010     2009  
 
Balance at beginning of year
  $ 1,449     $ 1,449  
Decreases related to prior year tax positions
    (48 )      
Decreases related to effective settlement
           
                 
Balance at December 31,
  $ 1,401     $ 1,449  
                 
 
The Company had approximately $1.4 million of total unrecognized tax benefits as of December 31, 2010 and 2009, respectively. Of this total, there are no amounts of unrecognized tax benefits that, if recognized, would affect the effective income tax rate. There were no penalties required to be accrued at December 31, 2010 or 2009. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company’s tax (benefit) expense included $(0.2) million and $0.4 million of interest (benefit) expense (net of tax benefit) in 2010 and 2009, respectively. In addition, the Company had accrued interest of $0.2 million and $0.3 million (net of tax benefit) at December 31, 2010 and 2009, respectively.
 
The IRS completed the examination of the Company’s tax returns for 2008 without adjustment. Tax year 2009 is currently under examination with the IRS and tax year 2007 remains subject to examination. The Company does not currently anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months for any additional items.
 
16.   Employee Benefits Plans
 
Pension Plan
 
The Company sponsors a cash balance defined benefit pension plan that covers substantially all of its salaried employees (the “Pension Plan”). Amounts credited to employee accounts in the Pension Plan are based on the employees’ years of service and compensation. The Company complies with the minimum funding requirements of ERISA.


F-33


Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Obligations and Funded Status
 
Change in projected benefit obligation:
 
                 
    2010     2009  
 
Projected benefit obligation, beginning of year
  $ 30,695     $ 128,505  
Service cost
    1,864       1,446  
Interest cost
    1,479       4,824  
Actuarial loss
    484       7,884  
Benefits paid
    (11 )     (4,513 )
Amendments
    1,480        
Curtailment loss
    279        
Settlements
    (7,073 )     (107,451 )
                 
Projected benefit obligation, end of year
  $ 29,197     $ 30,695  
                 
 
Change in plan assets:
 
                 
    2010     2009  
 
Fair value of assets, beginning of year
  $ 72,969     $ 170,468  
Actual return on assets
    4,518       15,300  
Settlements
    (7,073 )     (107,451 )
Benefits and expenses paid
    (225 )     (5,348 )
                 
Fair value of assets, end of year
  $ 70,189     $ 72,969  
                 
Funded status at end of year
  $ 40,992     $ 42,274  
                 
Ratio of plan assets to projected benefit obligation
    240 %     238 %
                 
 
The Company recognized a prepaid pension asset of $41.0 million and $42.3 million at December 31, 2010 and 2009, respectively. The accumulated benefit obligation of the Pension Plan was $28.8 million and $30.2 million at December 31, 2010 and 2009, respectively.
 
Amounts not yet reflected in net periodic pension cost and included in accumulated other comprehensive loss at December 31 are as follows:
 
                         
    2010     2009     2008  
 
Prior service cost
  $ 3,272     $ 3,553     $ 4,263  
Loss
    9,910       12,278       56,480  
                         
Accumulated other comprehensive loss
  $ 13,182     $ 15,831     $ 60,743  
                         


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
A summary of the net periodic pension cost (credit) and other amounts recognized in other comprehensive loss (income) are as follows:
 
                         
    2010     2009     2008  
 
Service cost
  $ 1,864     $ 1,445     $ 1,561  
Interest cost
    1,479       4,823       8,261  
Expected return on assets
    (4,243 )     (9,434 )     (17,241 )
Prior service costs
    695       709       724  
Amortization of loss
          1,015        
Settlement loss
    2,791       46,042       3,676  
Curtailment charge
    1,346             501  
                         
Net periodic pension cost (credit)
  $ 3,932     $ 44,600     $ (2,518 )
                         
Other changes in Plan Assets and Benefit Obligations recognized in Other Comprehensive Income:
                       
Prior service (cost) credit
    (282 )     (710 )     (1,057 )
Loss (gain)
    (2,368 )     (44,202 )     70,882  
                         
Total recognized in other comprehensive loss (income)
    (2,650 )     (44,912 )     69,825  
                         
Total recognized in net periodic pension cost and other comprehensive loss (income)
  $ 1,282     $ (312 )   $ 67,307  
                         
 
The estimated actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic pension cost (credit) over the next fiscal year is zero and $0.6 million, respectively.
 
The Company incurred settlement losses and curtailment charges totaling $4.1 million in 2010 related to its reduced employment levels in connection with its restructurings.
 
On June 18, 2009, the Company, as plan sponsor of 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. The transaction resulted in the transfer and settlement of pension benefit obligations of approximately $93.0 million. In addition, the Company recorded a non-cash pre-tax settlement charge to earnings during the second 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 Sheets offsetting the non-cash charge to earnings. As a result of this transaction, the Company was able to significantly increase the funded ratio thereby reducing the potential for future funding requirements.
 
The Company recorded a settlement and curtailment charge during 2008 in connection with its restructuring. The Company remeasured the Pension Plan’s projected benefit obligation and asset values at December 31, 2008, which resulted in a $67.3 million reduction in the funded status of the Pension Plan. The change in funded status was primarily a result of a decrease in the market value of plan assets.


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Table of Contents

THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Assumptions
 
Assumptions used to develop end of period benefit obligations:
 
                 
    2010     2009  
 
Discount rate
    5.04 %     5.63 %
Rate of compensation increase
    3.75 %     4.00 %
 
Assumptions used to develop net periodic pension cost (credit):
 
                         
    2010     2009     2008  
 
Average discount rate
    5.06 %     6.05 %     6.94 %
Expected long term rate of return on plan assets
    6.00 %     8.00 %     8.00 %
Rate of compensation increase
    3.75 %     4.00 %     4.00 %
 
To develop the expected long-term rate of return on assets assumption, the Company considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio. This resulted in the selection of the 6.0%, 8.0% and 8.0% assumption in 2010, 2009 and 2008, respectively.
 
Pension Plan Assets
 
The Company’s investment policy is to ensure, over the long-term life of the Pension Plan, an adequate pool of assets to support the benefit obligations to participants, retirees and beneficiaries. In meeting this objective, the Pension Plan seeks the opportunity to achieve an adequate return to fund the obligations in a manner consistent with the fiduciary standards of ERISA and with a prudent level of diversification. Specifically, these objectives include the desire to:
 
  •  invest assets in a manner such that contributions remain within a reasonable range and future assets are available to fund liabilities;
 
  •  maintain liquidity sufficient to pay current benefits when due; and
 
  •  diversify, over time, among asset classes so assets earn a reasonable return with acceptable risk of capital loss.
 
The Company’s overall investment strategy is to achieve a range of 65-95% fixed income investments and 5% -35% equity type investments.
 
Following is a description of the valuation methodologies used for assets measured at fair value at December 31, 2010.
 
Common/collective trusts:  Valued based on information reported by the investment advisor using the financial statements of the collective trusts at year end.
 
Mutual funds and money market funds:  Valued at the net asset value (NAV) of shares held by the Pension Plan at year end.
 
Other:  The other investment consists of a royalty investment for which there is no quoted market price. Fair value of the royalty investment is estimated based on the present value of future cash flows, using management’s best estimate of key assumptions, including discount rates.
 
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
 
The following table sets forth by level, within the fair value hierarchy, the Pension Plan’s assets at fair value:
 
Assets at Fair Value as of December 31, 2010
 
                                 
Asset Category:   Level 1     Level 2     Level 3     Total  
 
Common/collective Trusts(a)
  $     $ 41,626     $     $ 41,626  
Mutual Funds(b)
          27,546             27,546  
Money market Funds
    435                   435  
Other
                582       582  
                                 
Total
  $ 435     $ 69,172     $ 582     $ 70,189  
                                 
 
 
(a) Common/collective trusts invest in 66% U.S. core fixed income investments, 25% U. S. Large Cap equities and 9% international equities.
 
(b) One hundred percent of mutual funds invest in a short term fixed income fund.
 
Assets at Fair Value as of December 31, 2009
 
                                 
Asset Category:   Level 1     Level 2     Level 3     Total  
 
Common/collective Trusts(a)
  $     $ 48,805     $     $ 48,805  
Mutual Funds(b)
          22,953             22,953  
Money market Funds
    304                   304  
Other
                907       907  
                                 
Total
  $ 304     $ 71,758     $ 907     $ 72,969  
                                 
 
 
(a) Common/collective trusts invest in 70% U.S. short maturity fixed income investments, 22% U. S. Large Cap equities and 8% international equities.
 
(b) One hundred percent of mutual funds invest in a short term fixed income fund.
 
The following table sets forth a summary of changes in the fair value of the Pension Plan’s level 3 assets for the year ended December 31, 2010.
 
         
    2010  
 
Balance, beginning of year
  $ 907  
Realized gains (losses)
     
Unrealized gains (losses) relating to instruments
       
still held at the reporting date
    (325 )
Purchases, sales, issuances, and settlements (net)
     
         
Balance, end of year
  $ 582  
         


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company does not anticipate making any contributions to the Pension Plan during 2011. Expected benefit payments for the next ten years are as follows:
 
         
    Expected Benefit
 
Year Ended   Payments  
 
2011
  $ 15,349  
2012
    1,255  
2013
    1,143  
2014
    813  
2015
    934  
2016-2020
    9,484  
 
Postretirement Benefits
 
In 2010, 2009 and 2008, the Company’s Board of Directors approved a partial subsidy to fund certain postretirement medical benefits of currently retired participants and their beneficiaries, in connection with the previous disposition of several subsidiaries. No such benefits are to be provided to active employees. The Board reviews the subsidy annually and may further modify or eliminate such subsidy at their discretion. A liability of $11.3 million and $11.4 million has been included in accrued liabilities to reflect the Company’s obligation to fund postretirement benefits at December 31, 2010 and 2009, respectively. The liability at December 31, 2010 and 2009 represents an unfunded obligation.
 
At December 31, 2009, the accrued liability included an assumption that the retiree prescription drug plan component of the postretirement medical plan was actuarially equivalent to the Standard Medicare Part D benefit, and therefore was eligible for a federal retiree drug subsidy. This assumption had been removed from the calculation of the liability at December 31, 2008. The decrease in the liability resulting from the change in federal subsidy assumption was approximately $2.2 million. This change in assumption was reflected as a component of Other Comprehensive Income in the Consolidated Statement of Equity.
 
Expected benefit payments and subsidy receipts for the next ten years are as follows:
 
                 
    Expected Benefit
    Expected Subsidy
 
Year Ended   Payments     Receipts  
 
2011
  $ 1,259     $ 208  
2012
    1,275       209  
2013
    1,271       210  
2014
    1,257       208  
2015
    1,243       203  
2016-2020
    5,484       884  
 
Deferred Compensation Plans and ESPP
 
The Company maintains a 401(k) retirement plan covering substantially all officers and employees, which permits participants to defer up to the maximum allowable amount determined by the IRS of their eligible compensation. This deferred compensation, together with Company matching contributions, which generally equal 100% of the first 1% of eligible compensation and 50% on the next 5% of eligible compensation, up to 3.5% of eligible compensation, is fully vested and funded as of December 31, 2010. The Company contributions to the plan were approximately $0.4 million, $0.6 million and $0.8 million in 2010, 2009 and 2008, respectively.
 
The Company has a Supplemental Executive Retirement Plan (“SERP”) and a Deferred Capital Accumulation Plan (“DCAP”). The SERP is a non-qualified retirement plan to provide supplemental retirement


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
benefits to certain selected management and highly compensated employees. The DCAP is a non-qualified defined contribution plan to permit certain selected management and highly compensated employees to defer receipt of current compensation. The Company has recorded expense in 2010, 2009 and 2008 related to the SERP of $0.5 million, $0.4 million and $0.7 million, respectively, and related to the DCAP of $0.1 million, $0.2 million and $0.2 million, respectively.
 
Beginning in November 1999, the Company also implemented an employee stock purchase plan (“ESPP”), whereby all employees may purchase the Company’s common stock through payroll deductions at a 15% discount from the fair market value, with an annual limit of $25,000 in purchases per employee. The Company records the 15% discount amount as compensation expense. The Company recognized less than $0.1 million of expense in each 2010, 2009 and 2008, respectively. As of December 31, 2010, 283,656 shares of the Company’s common stock had been sold to employees under the ESPP. The Company can purchase shares on the open market to fund its employer obligation.
 
17.   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 generates revenues from club and resort operations and the development and sale of homesites, and to a lesser extent, home sales due to the Company’s exit from homebuilding. The commercial real estate segment sells or leases developed and undeveloped land. The rural land sales segment sells parcels of land included in the Company’s holdings of timberlands. The forestry segment produces and sells pine pulpwood, sawtimber and other forest products.
 
The Company uses income from continuing operations before equity in income 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 Note 2, Basis of Presentation and Significant Accounting Policies. 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 non-allocated corporate general and administrative expenses, net of investment income.
 
The Company’s reportable segments are strategic business units that offer different products and services. They are each managed separately and decisions about allocations of resources are determined by management based on these strategic business units.


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Information by business segment is as follows:
 
                         
    2010     2009     2008  
 
OPERATING REVENUES:
                       
Residential real estate
  $ 40,252     $ 89,850     $ 65,498  
Commercial real estate
    4,572       7,514       4,011  
Rural land sales
    25,875       14,309       162,043  
Forestry
    28,841       26,584       26,606  
                         
Consolidated operating revenues
  $ 99,540     $ 138,257     $ 258,158  
                         
(Loss) from continuing operations before equity in loss of unconsolidated affiliates and income taxes:
                       
Residential real estate(a)
  $ (47,370 )   $ (137,855 )   $ (115,062 )
Commercial real estate
    (1,394 )     (513 )     (2,312 )
Rural land sales
    22,192       10,111       132,536  
Forestry
    6,281       4,771       3,825  
Other(b)
    (35,155 )     (81,654 )     (81,184 )
                         
Consolidated (loss) from continuing operations before equity in loss of unconsolidated affiliates and income taxes
  $ (55,446 )   $ (205,140 )   $ (62,196 )
                         
 
 
(a) Includes impairment charges of $4.8 million, $94.8 million and $60.3 million in 2010, 2009 and 2008, respectively.
 
(b) Includes pension charges of $46.0 million in 2009 and loss on early extinguishment of debt of $30.6 million in 2008.
 
                         
    2010     2009     2008  
 
CAPITAL EXPENDITURES:
                       
Residential real estate
  $ 7,557     $ 13,687     $ 28,515  
Commercial real estate
    7,415       984       5,024  
Rural land sales
    195       328       66  
Forestry
    785       719       126  
Other
    112       679       871  
Discontinued operations
          1,982       55  
                         
Total capital expenditures
  $ 16,064     $ 18,379     $ 34,657  
                         
 
                 
    December 31, 2010     December 31, 2009  
 
TOTAL ASSETS:
               
Residential real estate(c)
  $ 639,460     $ 659,459  
Commercial real estate
    72,581       63,830  
Rural land sales
    7,964       14,617  
Forestry
    61,756       62,082  
Other
    269,934       316,956  
                 
Total assets
  $ 1,051,695     $ 1,116,944  
                 


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
(c) Includes ($2.2) million and $2.8 million of investment in equity method investees at December 31, 2010 and 2009, respectively.
 
18.   Commitments and Contingencies
 
The Company has obligations under various noncancelable long-term operating leases for office space and equipment. Some of these leases contain escalation clauses for operating costs, property taxes and insurance. In addition, the Company has various obligations under other office space and equipment leases of less than one year.
 
Total rent expense was $2.0 million, $2.3 million and $2.7 million for the years ended December 31, 2010, 2009, and 2008, respectively.
 
During 2007, the Company entered into a sale-leaseback transaction involving three office buildings included in the sale of the office building portfolio. The Company’s continuing involvement with these properties is in the form of annual rent payments of approximately $1.9 million per year through 2011.
 
The future minimum rental commitments under noncancelable long-term operating leases due over the next five years, including buildings leased through a sale-leaseback transaction are as follows:
 
         
2011
  $ 2,123  
2012
    126  
2013
    82  
2014
     
2015 and thereafter
     
 
The Company has retained certain self-insurance risks with respect to losses for third party liability, workers’ compensation and property damage.
 
At December 31, 2010 and 2009, the Company was party to surety bonds of $27.9 million and $28.1 million, respectively, and standby letters of credit in the amounts of $0.8 million and $2.5 million, respectively, 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 a $9.0 million accrued liability 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 subject to costs arising out of environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites, including sites which have been previously sold. It is the Company’s policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available.
 
The Company’s former paper mill site in Gulf County and certain adjacent property are subject to various Consent Agreements and Brownfield Site Rehabilitation Agreements with the Florida Department of Environmental Protection. The paper mill site has been rehabilitated by Smurfit-Stone in accordance with these


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
agreements. The Company is in the process of assessing and rehabilitating certain adjacent properties. Management is unable to quantify the rehabilitation costs at this time.
 
Other proceedings and litigation involving environmental matters are pending against the Company. Aggregate environmental-related accruals were $1.6 million and $1.7 million for the years ended December 31, 2010 and 2009, respectively. Although in the opinion of management none of our environmental 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 the actual amounts of liabilities resulting from such matters could be material.
 
On November 3, 2010 and December 7, 2010, two securities class action complaints were filed against the Company and certain of its officers and directors in the Northern District of Florida. These cases have been consolidated in the U.S. District Court for the Northern District of Florida and are captioned as Meyer v. The St. Joe. Company et al. (No. 5:11-cv-00027). A consolidated class action complaint was filed in the case on February 24, 2011.
 
The complaint was filed on behalf of persons who purchased the Company’s securities between February 19, 2008 and October 12, 2010 and allege that the Company and certain of its officers and directors, among others, violated the Securities Act of 1933 and Securities Exchange Act of 1934 by making false and/or misleading statements and/or by failing to disclose that, as the Florida real estate market was in decline, the Company was failing to take adequate and required impairments and accounting write-downs on many of the Company’s Florida-based properties and as a result, the Company’s financial statements materially overvalued the Company’s property developments. The plaintiffs also allege that the Company’s financial statements were not prepared in accordance with Generally Accepted Accounting Principles, and that the Company lacked adequate internal and financial controls, and as a result of the foregoing, the Company’s financial statements were materially false and misleading. The complaint seeks an unspecified amount in damages.
 
The Company believes that it has meritorious defenses to the plaintiffs’ claims and intends to defend the action vigorously.
 
Additionally, the Company has received four demand letters asking the Board of Directors to initiate derivative litigation. To our knowledge, no derivative lawsuits have yet been filed.
 
The SEC has notified the Company that it is conducting an informal inquiry into the Company’s policies and practices concerning impairment of investment in real estate assets. The Company intends to cooperate fully with the SEC in connection with the informal inquiry. The notification from the SEC does not indicate any allegations of wrongdoing, and an inquiry is not an indication of any violations of federal securities laws.
 
On October 21, 2009, the Company entered into a strategic alliance agreement with Southwest Airlines to facilitate the commencement of low-fare air service in May 2010 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. 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 its break-even payments. The term of the agreement extends for a period of three years after the commencement of Southwest Airlines’ air service at the new airport. Although the agreement does not provide for maximum payments, the agreement may be terminated by the Company if the payments to Southwest Airlines exceed $14.0 million in the first year of air service and $12.0 million in the second year of air service. 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 carried a standby guarantee liability of $0.8 million at December 31, 2010 and December 31, 2009 related to this strategic alliance agreement.


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In November, 2010, the Company entered into a new supply agreement with Smurfit-Stone that requires the Company to deliver and sell a total of 3.9 million tons of pine pulpwood through December 2017. Pricing under the agreement approximates market, using a formula based on published regional prices for pine pulpwood. The agreement is assignable by the Company, in whole or in part, to purchasers of its properties, or any interest therein, and does not contain a lien, encumbrance, or use restriction on any of St. Joe’s properties.
 
19.   Quarterly Financial Data (Unaudited)
 
                                 
    Quarters Ended  
    December 31     September 30     June 30     March 31  
 
2010
                               
Operating revenues
  $ 37,100     $ 27,105     $ 22,035     $ 13,300  
Operating (loss)
    (1,274 )     (17,951 )     (15,239 )     (17,090 )
Net income (loss) attributable to the Company
    (2,713 )     (13,116 )     (8,622 )     (11,413 )
Basic income (loss) per share attributable to the Company
    (0.03 )     (0.14 )     (0.09 )     (0.13 )
Diluted (loss) per share attributable to the Company
    (0.03 )     (0.14 )     (0.09 )     (0.13 )
2009
                               
Operating revenues
  $ 37,108     $ 41,922     $ 39,105     $ 20,122  
Operating (loss)
    (86,847 )     (27,361 )     (74,822 )     (20,325 )
Net income (loss) attributable to the Company
    (58,656 )     (14,495 )     (44,843 )     (12,033 )
Basic (loss) per share attributable to the Company
    (0.64 )     (0.16 )     (0.49 )     (0.13 )
Diluted (loss) per share attributable to the Company
    (0.64 )     (0.16 )     (0.49 )     (0.13 )
         
Quarterly results included the following significant pre-tax charges:
       
 
2010
                       
 
Impairment charges
  $ 8,067     $     $ 502     $ 53  
Restructuring charge
    899       1,654       1,158       1,540  
2009
                               
Impairment charges
    73,325       11,063       19,962       1,536  
Write-off of abandoned development costs
    7,153                    
Pension charge
                44,678        
Restructuring charge
    3,523       1,834              
 
Operating revenues and income/(loss) reported in the table above for 2009 differ from the quarterly results previously reported on Form 10-Q as a result of our discontinued operations and prior period correction. See Note 1, Nature of Operations. Refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion of these charges and results.
 
20.   Subsequent Events
 
On February 15, 2011, the Board of Directors of the Company adopted a Common Stock Purchase Rights Plan (the “Rights Plan”). The Rights Plan was designed to include certain provisions that are important to shareholders. For example, the Rights Plan will not apply to any fully-financed tender offer that is made to all


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
shareholders and that meets certain other criteria. The Rights granted to shareholders under the Rights Plan will expire unless the Rights Plan is approved by the Company’s shareholders on or before December 31, 2011.
 
The Rights are designed to assure that all of the Company’s shareholders receive fair and equal treatment in the event of any proposed takeover of the Company and to guard against partial tender offers, open market accumulations and other abusive or coercive tactics to gain control of the Company without paying all shareholders a control premium. The Rights will cause substantial dilution to a person or group that becomes an Acquiring Person (as defined in the Rights Plan) on terms not approved by the Company’s Board of Directors. The Rights should not interfere with any merger or other business combination approved by the Board of Directors at any time prior to the first date that a person or group has become an Acquiring Person.
 
In connection with the Rights Plan, the Board of Directors of the Company declared a dividend of one common stock purchase right (individually, a “Right” and collectively, the “Rights”) for each share of the Company’s common stock outstanding at the close of business on February 28, 2011. Each Right will entitle the registered holder thereof, after the Rights become exercisable and until February 15, 2014 (or the earlier redemption, exchange or termination of the Rights), to purchase from the Company one-half of one share of common stock, at a price of $50.00, subject to certain anti-dilution adjustments.
 
On February 25, 2011, the Company entered into a Separation Agreement (the “Separation Agreement”) with Wm. Britton Greene in connection with his resignation as President and Chief Executive Officer of the Company and as a director of the Company. Subject to Mr. Greene’s execution and non-revocation of the two general releases of claims as described below, the Company agreed to provide the following payments and benefits to Mr. Greene:
 
(i) a cash lump sum of $2,920,000 six months after the effective date of his resignation as President and Chief Executive Officer of the Company (the “Termination Date”);
 
(ii) a pro rata annual bonus of $118,000, as a cash lump sum at the same time the Company pays other executive bonuses for calendar year 2011, but no later than March 15, 2012;
 
(iii) $1,053,225, which the parties agree represents additional benefits payable under the Company’s Supplemental Executive Retirement Plan had he continued to be employed with the Company during the 36 months following the Termination Date, payable six months after the Termination Date;
 
(iv) (A) the COBRA premium for medical and dental insurance for him and his family under COBRA for the lesser of 18 months after the Termination Date or the date on which he becomes ineligible for COBRA continuation coverage (the “COBRA Coverage Period”), provided that he will reimburse the Company each month in the amount that an employee participating in the medical and dental insurance plan would be required to contribute (the “Employee Contribution”), and (B) if Mr. Greene has not become eligible for coverage under the healthcare insurance plan of another employer, a lump sum payment at the end of the COBRA Coverage Period equal to six times the monthly premium to provide substantially the same benefits minus six months of the Employee Contribution;
 
(v) the premiums for basic life and disability insurance policies for a period of 24 months after the Termination Date;
 
(vi) up to $20,000 as reimbursement for outplacement services during the 18-month period following the Termination Date;
 
(vii) up to $75,000 as reimbursement to defray the cost of relocation expenses actually incurred if Mr. Greene relocates from his present residence in WaterColor, Florida to a location more than 50 miles from WaterColor, Florida within 24 months following the Termination Date;
 
(viii) as of February 25, 2011, all of Mr. Greene’s outstanding restricted stock awards under the 2009 Equity Incentive Plan (excluding his February 7, 2011 performance-vesting restricted stock award),


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THE ST. JOE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
constituting 106,068 of Mr. Greene’s unvested shares, became fully vested and non-forfeitable, provided that, with his February 7, 2011 performance-vesting restricted stock award, 50% of the initial grant of 45,226 restricted shares (or 22,613 restricted shares) became fully vested and non-forfeitable;
 
(ix) with respect to any restricted stock that does not become fully vested and exercisable on or before the Termination Date, Mr. Greene is entitled to vesting, payment and exercisability in accordance with the terms of the governing equity plan and award agreement;
 
(x) establish a “rabbi trust” with an independent financial institution as trustee and fully fund the payments described in clauses (i), (ii), (iii) and (vii);
 
(xi) up to $150,000 for any and all legal fees and disbursements incurred by Mr. Greene in connection with negotiating, entering into, or implementing, the arrangements set forth in the Separation Agreement; and
 
(xii) a gross-up payment for any excise taxes imposed by Section 4999 of the Code.
 
Under the Separation Agreement, Mr. Greene is entitled to continue to receive his annual salary until the Termination Date. Mr. Greene agreed to execute a general release of claims against the Company as of February 25, 2011 and a second release on the Termination Date, and to refrain from competing with the business of St. Joe for a period of one year following his resignation. The Separation Agreement also provides for indemnification and D&O insurance coverage for a period of six years after the Termination Date.


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Schedule

REAL ESTATE AND ACCUMULATED DEPRECIATION

 
THE ST. JOE COMPANY

SCHEDULE III (CONSOLIDATED) — REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2010
(in thousands)
 
                                                                 
    Initial Cost to Company                          
                      Costs Capitalized
    Carried at Close of Period        
                Buildings &
    Subsequent to
    Land & Land
    Buildings and
          Accumulated
 
Description   Encumbrances     Land     Improvements     Acquisition     Improvements     Improvements     Total     Depreciation  
 
Bay County, Florida
                                                               
Land with infrastructure
  $ 3,618     $ 635     $     $ 38,122     $ 38,757     $     $ 38,757     $ 71  
Buildings
          13,639       11,911       569       14,069       12,051       26,119       2,641  
Residential
          22,731       1,300       37,607       61,639             61,639        
Timberlands
          3,896             11,215       15,111             15,111       119  
Unimproved land
          1,475                   1,475             1,475        
Broward County, Florida
                                               
Building
                                               
Calhoun County, Florida
                                               
Buildings
                      180             180       180       148  
Timberlands
          1,774             4,608       6,382             6,382       50  
Unimproved land
          979             698       1,677             1,677        
Duval County, Florida
                                               
Land with infrastructure
          250             5       255             255        
Buildings
                      3,155       626       2,529       3,155       2,307  
Residential
                                               
Timberlands
                                               
Franklin County, Florida
                                               
Land with infrastructure
          44                   44             44       6  
Residential
          8,778             30,589       39,367             39,367       516  
Timberlands
          1,241             1,195       2,436             2,436       19  
Unimproved Land
          210             10       220             220        
Buildings
                731       2,638       77       3,292       3,369       668  
Gadsden County, Florida
                                               
Land with infrastructure
                      3,294       3,294             3,294        
Timberlands
          1,302             415       1,717             1,717       13  
Unimproved land
          1,722                   1,722             1,722        
Gulf County, Florida
                                               
Land with infrastructure
          1,585             3,935       5,520             5,520        
Buildings
          2,548       7,115       36,161       2,826       42,998       45,824       4,309  
Residential
          26,678       526       133,738       160,942             160,942       731  
Timberlands
          5,238             14,835       20,073             20,073       158  
 
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Table of Contents

 
THE ST. JOE COMPANY

SCHEDULE III (CONSOLIDATED) — REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2010
(in thousands)
 
                                                                 
    Initial Cost to Company                          
                      Costs Capitalized
    Carried at Close of Period        
                Buildings &
    Subsequent to
    Land & Land
    Buildings and
          Accumulated
 
Description   Encumbrances     Land     Improvements     Acquisition     Improvements     Improvements     Total     Depreciation  
 
Unimproved land
          506             969       1,475             1,475        
Jefferson County, Florida
                                               
Buildings
                                               
Timberlands
          709                   709             709       6  
Unimproved land
          193             30       223             223        
Leon County, Florida
                                               
Land with infrastructure
          573             3,418       3,991             3,991       87  
Buildings
                      25,363       8,651       16,713       25,363       5,967  
Residential
    3,031                   29,279       29,279             29,279       1,355  
Timberlands
          923             980       1,903             1,903       15  
Unimproved land
          11             462       473             473        
Liberty County, Florida
                                               
Buildings
                585       215             800       800       288  
Timberlands
          2,536       205       233       2,974             2,974       175  
Unimproved land
                                               
St. Johns County, Florida
                                               
Land with infrastructure
          1,016                   1,016             1,016        
Buildings
                255       644       300       600       899       386  
Residential
    22,721       10,855             82,885       93,740             93,740        
 
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Table of Contents

 
THE ST. JOE COMPANY

SCHEDULE III (CONSOLIDATED) — REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2010
(in thousands)
 
                                                                 
    Initial Cost to Company                          
                      Costs Capitalized
    Carried at Close of Period        
                Buildings &
    Subsequent to
    Land & Land
    Buildings and
          Accumulated
 
Description   Encumbrances     Land     Improvements     Acquisition     Improvements     Improvements     Total     Depreciation  
 
Wakulla County, Florida
                                               
Land with infrastructure
                      339       339             339        
Buildings
                5       41       41       5       46       46  
Timberlands
          422                   422             422       3  
Unimproved Land
          16             47       63             63        
Walton County, Florida
                                               
Land with infrastructure
          56             3,326       3,382             3,382        
Buildings
                5,372       72,420       22,506       55,284       77,793       13,937  
Residential
          6,298             85,559       91,858             91,858       7,876  
Timberlands
          354             980       1,334             1,334       10  
Unimproved land
                                               
Other Florida Counties
                                               
Land with infrastructure
                                               
Timberlands
          201                   201             201       2  
Unimproved land
          79             75       154             154        
Georgia
                                               
Land with infrastructure
          12,093             1,229       13,322             13,322       49  
Buildings
                36       1,827       1,753       110       1,863       32  
Timberlands
          6,482                   6,482             6,482       2  
Unimproved land
          76             48       124             124        
                                                                 
TOTALS
  $ 29,370     $ 138,124     $ 28,041     $ 633,338     $ 664,944     $ 134,562     $ 799,506     $ 41,992  
                                                                 
 
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Table of Contents

 
THE ST. JOE COMPANY

SCHEDULE III (CONSOLIDATED) — REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2010
(in thousands)
 
Notes:
 
(A) The aggregate cost of real estate owned at December 31, 2010 for federal income tax purposes is approximately $709.0 million.
 
(B) Reconciliation of real estate owned (in thousands of dollars):
 
                         
    2010     2009     2008  
 
Balance at Beginning of Year
  $ 781,664     $ 921,433     $ 968,469  
Amounts Capitalized
    32,215       15,841       1,668  
Amounts Retired or Adjusted
    (14,373 )     (155,610 )     (48,704 )
                         
Balance at Close of Period
  $ 799,506     $ 781,664     $ 921,433  
                         
(C) Reconciliation of accumulated depreciation (in thousands of dollars):
                       
Balance at Beginning of Year
  $ 35,000     $ 33,235     $ 27,691  
Depreciation Expense
    9,453       10,474       9,838  
Amounts Retired or Adjusted
    (2,461 )     (8,709 )     (4,294 )
                         
Balance at Close of Period
  $ 41,992     $ 35,000     $ 33,235  
                         
 
S-4

exv10w5
Exhibit 10.5
CERTAIN INFORMATION IN THIS EXHIBIT MARKED BY ** HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE OMITTED PORTIONS.
Execution Version
PULPWOOD SUPPLY AGREEMENT
BY AND BETWEEN
SMURFIT-STONE CONTAINER CORPORATION, as Purchaser
AND
ST. JOE TIMBERLAND COMPANY OF DELAWARE, L.L.C., as Seller

 


 

Table of Contents
         
ARTICLE I DEFINITIONS
    1  
Section 1.1 Definitions
    1  
ARTICLE II HARVEST VOLUMES
    5  
Section 2.1 Termination of Original Agreement
    5  
Section 2.2 Obligation to Purchase and Sell
    5  
Section 2.3 Carbon Rights
    5  
ARTICLE III PRODUCT SPECIFICATIONS
    6  
Section 3.1 Product Specifications
    6  
Section 3.2 Rejected Product
    6  
Section 3.3 No Substitution or Resale
    7  
ARTICLE IV PRICE SCHEDULE
    7  
Section 4.1 Purchase Price
    7  
Section 4.2 Revisions to Determination of Quarterly Price
    7  
ARTICLE V DELIVERY AND PAYMENT
    8  
Section 5.1 Delivery; Variances
    8  
Section 5.2 Title
    10  
Section 5.3 Weighing and Record Keeping
    10  
Section 5.4 Payment
    11  
Section 5.5 Taxes
    11  
ARTICLE VI FORCE MAJEURE AND CHANGE EVENTS
    11  
Section 6.1 Force Majeure
    11  
Section 6.2 Change Event
    12  
ARTICLE VII TERM
    13  
Section 7.1 Term
    13  
Section 7.2 Extension of Term
    13  
Section 7.3 Effect of Termination
    13  
ARTICLE VIII REPRESENTATIONS AND WARRANTIES
    13  
Section 8.1 Representations and Warranties of Purchaser
    13  
Section 8.2 Representations and Warranties of Seller
    14  
Section 8.3 Disclaimer
    15  
ARTICLE IX SELLER’S MANAGEMENT
    15  
Section 9.1 Seller’s Management
    15  
ARTICLE X DEFAULT AND DISPUTE RESOLUTION
    15  
Section 10.1 Default by Purchaser
    15  
Section 10.2 Default by Seller
    16  
Section 10.3 Intentionally deleted
    17  
Section 10.4 Dispute Resolution
    17  
ARTICLE XI INDEMNITY AND INSURANCE
    18  
Section 11.1 Purchaser’s Indemnity
    18  
Section 11.2 Seller’s Indemnity
    19  
Section 11.3 Insurance
    19  
Section 11.4 Notice of Claim
    20  
ARTICLE XII ASSIGNMENT AND TRANSFERS
    20  
Section 12.1 Seller’s Assignment and Transfer Rights
    20  
 -ii- 

 


 

         
Section 12.2 Purchaser’s Assignment Rights
    21  
ARTICLE XIII AUDIT RIGHTS
    21  
Section 13.1 Audit Rights
    21  
ARTICLE XIV NOTICES
    21  
Section 14.1 Notices
    21  
ARTICLE XV MISCELLANEOUS
    23  
Section 15.1 Amendments
    23  
Section 15.2 No Recording
    23  
Section 15.3 Compliance with Laws
    23  
Section 15.4 Confidentiality
    23  
Section 15.5 Estoppel Certificates
    23  
Section 15.6 No Waiver; Remedies
    23  
Section 15.7 Accounting Terms
    23  
Section 15.8 Binding Effect; Governing Law
    23  
Section 15.9 Counterparts
    24  
Section 15.10 Time of the Essence
    24  
Section 15.11 Incorporation of Exhibits and Schedules
    24  
Section 15.12 Interest
    24  
Section 15.13 Further Assurances
    24  
Section 15.14 Intentionally deleted
    24  
Section 15.15 Attorney’s Fees
    24  
Section 15.16 Severability
    24  
Section 15.17 Captions and Headings
    24  
Section 15.18 Construction
    25  
Section 15.19 Relationship
    25  
Section 15.20 Integration
    25  
Section 15.21 Consequential Damages
    25  
Section 15.22 Business Days
    25  
Index
     
Schedule 1
  Specifications
Schedule 2
  Obligated Volumes
Schedule 3
  Quarterly Price Adjustment Mechanism
Schedule 4.1
  Pricing Until August 1, 2012
 -iii- 

 


 

PULPWOOD SUPPLY AGREEMENT
          THIS PULPWOOD SUPPLY AGREEMENT (this “Agreement”) is effective as of the 1st day of November, 2010 (the “Effective Date”) and made and entered into by and between SMURFIT-STONE CONTAINER CORPORATION, a Delaware corporation (“Purchaser”), and ST. JOE TIMBERLAND COMPANY OF DELAWARE, L.L.C., a Delaware limited liability company (“Seller”).
RECITALS
  A.   Purchaser and Seller are parties to that certain Wood Fiber Supply Agreement dated July 1, 2000 (the “Original Agreement”) regarding the purchase and sale of certain wood products;
 
  B.   Purchaser and Seller desire to terminate the Original Agreement and enter into a new agreement regarding the purchase and sale of certain wood products; and
 
  C.   Purchaser desires to buy and receive, and Seller desires to sell, deliver and provide, Product from the Property (each as defined herein) pursuant to the terms of this Agreement.
          IN CONSIDERATION of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser hereby agree as follows:
ARTICLE I
DEFINITIONS
          Section 1.1 Definitions. As used herein, the following terms will have the meanings ascribed thereto:
          “AAA” means the American Arbitration Association.
          “Acts of God” means events which are caused solely by the effects of nature or natural causes, without interference by any person, consisting of insect infestations, floods, earthquakes, tornados, hurricanes, fires, lightning and rain in excess of ten (10) inches during a period of twenty-four (24) consecutive hours or fifteen (15) inches during a period of seven (7) consecutive days, that, in the opinion of Seller, materially and adversely impact the ability to harvest timber.
          “Adjustment Date” means, with respect to any Calendar Quarter, the first day of the second month of such Calendar Quarter. For the avoidance of doubt, the Adjustment Date for the first, second, third and fourth Calendar Quarters, respectively, of each Calendar Year shall be February 1, May 1, August 1 and November 1.

 


 

          “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. For purposes of this definition, “control” when used with respect to any Person means the ownership of not less than 50% of the ownership interests in such Person and the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
          “Agreement” has the meaning provided in the first paragraph of this Agreement.
          “Annual Carryover Volume” has the meaning set forth in Section 5.1(d).
          “Business Day” means any day other than a Saturday, Sunday or legal holiday. For the purposes of this definition, “legal holiday” means any state or federal holiday for which financial institutions or post offices are generally closed in the State of Florida for observance thereof.
          “Calendar Quarter” means each period of three (3) consecutive months from January 1 to March 31; April 1 to June 30; July 1 to September 30; and October 1 to December 31.
          “Carbon Rights” means any carbon sequestration credits or offsets, renewable energy credits or similar method of attribution of a value, right or privilege for carbon sequestration that may be used to satisfy limits on carbon dioxide emissions or to reduce taxes, assessments or penalties on carbon dioxide emissions.
          “Change Event” has the meaning set forth in Section 6.2.
          “Cumulative Floor” has the meaning set forth in Section 5.1(d)(vii).
          “Cumulative Variance” has the meaning set forth in Section 5.1(d)(vii).
          “Delivery Point” means the Mill.
          “Delivery Schedule” has the meaning set forth in Section 5.1(b).
          “Dispute Notice” has the meaning set forth in Section 10.4(a).
          “Effective Date” has the meaning provided in the first paragraph of this Agreement.
          “Environmental Laws” means any United States federal, state or local laws and the regulations promulgated thereunder, relating to pollution or protection of the environment or to threatened or endangered species, including laws relating to wetlands protection, laws relating to reclamation of land and waterways and laws relating to emissions, discharges, disseminations, releases or threatened releases of hazardous or toxic substances or petroleum (and its fractions) into the environment (including, without limitation, ambient air, surface water, ground water, soil, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of hazardous or toxic

-2-


 

substances or petroleum (and its fractions), including, without limitation, the following laws and regulations promulgated thereunder as amended from time to time: (i) the Comprehensive Environmental Response, Compensation and Liability Act (as amended by the Superfund Amendments and Reauthorization Act), 42 U.S.C. § 9601 et seq.; (ii) the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq.; (iii) the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq.; (iv) the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; (v) the Clean Water Act, 33 U.S.C. § 1251 et seq.; (vi) the Clean Air Act, 42 U.S.C. § 1857 et seq.; and (vii) the Endangered Species Act, 16 U.S.C. §1531 et seq.; and (viii) all laws of the states in which the Property is located that are based on, or substantially similar to, the federal statutes listed in parts (i) through (vii) of this paragraph.
          “Estimated Duration” has the meaning set forth in Section 6.1.
          “Excess Negative Annual Variance” has the meaning set forth in Section 5.1(d).
          “Excess Negative Quarterly Variance” has the meaning set forth in Section 5.1(c).
          “Excused Party” has the meaning set forth in Section 6.1.
          “Force Majeure” means any cause, condition or event beyond the reasonable control of a party, which the party in question, despite the use of good faith and commercially reasonable efforts, is unable to overcome, that delays or prevents such party’s performance of its obligations hereunder, consisting solely of war, war-like operations, invasions, rebellion, acts of terrorism, military or usurped power, sabotage, acts of government, acts of public enemy, riots, fires, explosions, Acts of God, labor strikes, disputes or lockouts by employees, and general suspension of payments by banks in the United States. Force Majeure shall not include (i) a party’s financial inability to perform, (ii) inflation or other economic conditions of general applicability, (iii) adverse market conditions, (iv) an act or omission arising from the gross negligence or willful misconduct of the party claiming that a Force Majeure event has occurred, or (v) any rainfall which does not constitute an Act of God.
          “Harvest Quarter” shall mean a Calendar Quarter, provided that the period from the Effective date through and including December 31, 2010, shall be a partial Harvest Quarter.
          “Harvest Year” means a Calendar Year, provided that the period from the Effective Date through and including December 31, 2010, shall be a partial Harvest Year.
          “Immaterial Liens” has the meaning set forth in Section 8.2(e).
          “Initial Term” has the meaning set forth in Section 7.1.
          “Liens” means any and all liens, charges, mortgages, deeds to secure debt, pledges, security interests, options of record, adverse claims or other encumbrances of a liquidated amount or which are otherwise statutorily enforceable, other than liens for ad valorem taxes not yet due and payable.

-3-


 

          “Mill” means Seller’s Panama City Mill located at One Everitt Avenue, Panama City, Florida 32401.
          “Negative Annual Variance” has the meaning set forth in Section 5.1(d).
          “Negative Quarterly Variance” has the meaning set forth in Section 5.1(c).
          “Obligated Volume” has the meaning set forth in Section 2.2.
          “Original Agreement” has the meaning set forth in the Recitals.
          “Panel” has the meaning set forth in Section 10.4(a).
          “Panel Chairman” has the meaning set forth in Section 10.4(a).
          “Performing Party” has the meaning set forth in Section 6.1.
          “Person” means any individual, sole proprietorship, trust, estate, executor, legal representative, unincorporated association, institution, corporation, company, partnership, limited liability company, limited liability partnership, joint venture, government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof) or other entity.
          “Positive Annual Variance” has the meaning set forth in Section 5.1(d).
          “Positive Quarterly Variance” has the meaning set forth in Section 5.1(c).
          “Product” means the Pulpwood harvested from the Property meeting the applicable Specifications.
          “Property” means all real property owned or leased by Seller as of the Effective Date, or hereafter acquired by Seller, that is dedicated to the cultivation and production of timber.
          “Pulpwood” means pine roundwood, including topwood, customarily intended according to industry standards to be chipped, shredded, flaked, ground or otherwise converted to make pulp, paper, pellets, biomass or composite panel products, now or hereafter standing and growing on the Property.
          “Purchaser” has the meaning provided in the first paragraph of this Agreement.
          “Purchaser Event of Default” has the meaning set forth in Section 10.1(a).
          “Purchaser Indemnitee” has the meaning set forth in Section 11.2.
          “Quarterly Price” has the meaning set forth in Section 4.1(a).

-4-


 

          “Removal Period” has the meaning set forth in Section 3.2.
          “Seller” has the meaning provided in the first paragraph of this Agreement.
          “Seller Event of Default” has the meaning set forth in Section 10.2(a).
          “Seller Indemnitee” has the meaning set forth in Section 11.1.
          “SFI Standards” means standards for harvesting activities meeting the minimum requirements for compliance with the current standards of the Sustainable Forestry Initiative, 2010-2014, of the American Forest and Paper Association.
          “Specifications” means the technical specifications for Product delivered to Purchaser in accordance with this Agreement, as they exist from time to time pursuant to the terms of Section 3.1. The Specifications as of the Effective Date are more particularly set out in Schedule 1 attached hereto.
          “Term” has the meaning set forth in Section 7.1.
          “Transfer” means (i) when used as a noun, any direct or indirect transfer, sale, assignment, pledge, hypothecation or other disposition of ownership or control of the Property or the Mill, as applicable; and (ii) when used as a verb, to sell, assign, pledge, hypothecate or otherwise dispose of, directly or indirectly, ownership or control of the Property or the Mill, as applicable.
ARTICLE II
HARVEST VOLUMES
          Section 2.1 Termination of Original Agreement. Purchaser and Seller hereby terminate the Original Agreement in its entirety, including any encumbrances associated therewith, without further obligations or liabilities associated therewith. In the event of any conflict between the terms of the Original Agreement and this Agreement, this Agreement shall control. Purchaser shall execute and deliver to Seller documentation in recordable form as reasonably requested by Seller to evidence the termination of the Original Agreement.
          Section 2.2 Obligation to Purchase and Sell. In accordance with the terms hereof, during the Term Purchaser covenants and agrees to purchase and receive from Seller and Seller covenants and agrees to sell, deliver and provide to Purchaser, in each Harvest Year, the volume of Product described on Schedule 2 attached hereto (the “Obligated Volume”), at the Delivery Point.
          Section 2.3 Carbon Rights. Prior to the purchase and sale of Product hereunder, Seller shall have exclusive Carbon Rights in the Property and in all standing, harvested or fallen trees or other vegetation on the Property. To the extent Carbon Rights associated with purchased and sold Product can be transferred under any existing or future, mandatory or voluntary, carbon

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dioxide allocation, trading, taxation or other emissions limitation regime, the sale of such Product under this Agreement shall include as part of such sale any and all Carbon Rights associated with such Product and not previously transferred by Seller; provided, however, Seller shall have the right to sell, assign, hypothecate or otherwise transfer the Carbon Rights in its sole discretion separately from the purchased and sold Product at all times before the purchase and sale of such Product hereunder. Purchaser shall have no claim or right to any Carbon Rights associated with the Property, or, prior to the purchase and sale of Product hereunder, with standing, harvested or fallen trees or other vegetation on the Property. Purchaser and Seller shall cooperate with the reasonable requests of the other party related to any recordkeeping or reporting requirements related to any Carbon Rights, provided that the requesting party shall bear all reasonable costs of the responding party with respect to such request. To the extent Seller has sold, assigned, hypothecated or otherwise transferred the Carbon Rights before the purchase and sale of Product hereunder, Seller shall indemnify Purchaser from and against any claims of third parties arising from any rights such third parties may have in such purchased and sold Product as a result of such transfer of Carbon Rights.
ARTICLE III
PRODUCT SPECIFICATIONS
          Section 3.1 Product Specifications. Any and all Product delivered shall meet the Specifications. Purchaser may modify, amend, add to, alter, revise or change the Specifications at any time during the Term by giving Seller not less than thirty (30) days advance written notice of any modification, amendment, addition, alteration, revision or change to the Specifications, provided that (a) any such modification, amendment, addition, alteration, revision or change to the Specifications does not materially and adversely impact Seller’s ability to comply with its obligations hereunder, and (b) any such modification, amendment, addition, alteration, revision or change to the Specifications shall be applicable to all suppliers of comparable Pulpwood at the Delivery Point.
          Section 3.2 Rejected Product. Purchaser has the right to reject any or all Product not meeting the Specifications applicable at the time of delivery; provided, however, at Seller’s request, Purchaser shall (a) provide Seller with a written or photographic explanation for the basis of any such rejection, and (b) afford Seller the opportunity to inspect any such rejected Product no later than five (5) days after rejection. Product rejected for failure to meet the Specifications shall not be included in calculating whether Seller met its required Obligated Volume. In the event Purchaser rejects any or all Product not meeting the Specifications, Purchaser, at Seller’s sole cost, risk and expense, may reload, or cause to be reloaded, the rejected Product onto Seller’s vehicles or any other vehicles delivering Product to Purchaser. Seller shall remove and dispose of any rejected Product at Seller’s sole cost, risk and expense within ten (10) days after Buyer’s rejection of the Product (the “Removal Period”). If Seller fails to remove the rejected Product within the Removal Period, Purchaser may take such action as it deems necessary to handle any rejected Product, including arranging for its removal and/or disposal, and any such costs shall be borne by Seller or at Purchaser’s sole option offset against any amounts due and owing to Seller by Purchaser.

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          Section 3.3 No Substitution or Resale.
          (a) Subject to Section 12.1, all Product delivered by Seller to Purchaser hereunder shall originate from the Property.
          (b) Purchaser shall use all Product acquired from Purchaser hereunder for manufacturing purposes at the Mill, and shall not sell or otherwise transfer any such Product to any other party without first subjecting such Product to the manufacturing processes of the Mill.
ARTICLE IV
PRICE SCHEDULE
          Section 4.1 Purchase Price.
          (a) The price to be paid by Purchaser to Seller for Obligated Volume purchased and sold pursuant to this Agreement shall be the delivered price per ton determined in accordance with this Section 4.1 for the Calendar Quarter during which Seller delivers the Product (the “Quarterly Price”).
          (b) Until the Adjustment Date of the third Calendar Quarter of 2012 (for the avoidance of doubt, such period shall be through and including July 31, 2012), the Quarterly Price shall be determined in accordance with Schedule 4.1, subject to the following:
     (i) From the Effective Date until the Adjustment Date in the third Calendar Quarter of Harvest Year 2011 (for the avoidance of doubt, such period shall be through and including July 31, 2011), the Quarterly Price shall equal the applicable price for Product calculated pursuant to Schedule 4.1 plus $2.00 per ton.
     (ii) From the Adjustment Date in the third Calendar Quarter of Harvest Year 2011 until the Adjustment Date in the third Calendar Quarter of Harvest Year 2012 (for the avoidance of doubt, such period shall begin on August 1, 2011 and be through and including July 31, 2012), the Quarterly Price shall equal the applicable price for Product calculated pursuant to Schedule 4.1 plus $3.00 per ton.
          (c) Beginning on the Adjustment Date of the third Calendar Quarter of Harvest Year 2012 (for the avoidance of doubt, such period shall begin on August 1, 2012), and on the Adjustment Date of each Calendar Quarter thereafter, the Quarterly Price shall be adjusted to equal the price determined in accordance with Schedule 3 attached hereto. Such adjusted Quarterly Price shall remain in effect until the Adjustment Date of the following Calendar Quarter.
          Section 4.2 Revisions to Determination of Quarterly Price. If either (but not both) of Forest2Market or Timber Mart-South ceases to be published, or no longer reports the information necessary to perform the calculation shown in Section 1 of Schedule 3, the Quarterly Price shall be determined and adjusted as described in Section 3 of Schedule 3. If both Forest2Market and Timber Mart-South cease to be published, or no longer report the information

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necessary to perform the calculation shown in Section 1 of Schedule 3, the adjustments to the Quarterly Price shall be determined from such other source as the parties mutually determine, and any dispute with respect to such determination shall be resolved in accordance with Section 10.4.
ARTICLE V
DELIVERY AND PAYMENT
          Section 5.1 Delivery; Variances.
          (a) Delivery Point. All Product subject to this Agreement shall be delivered to Purchaser F.O.B. to the Delivery Point during the regular business hours of such Delivery Point.
          (b) Delivery Schedule. Subject to the provisions of this Section 5.1, Seller shall deliver and sell, and Purchaser shall accept and purchase, twenty-five percent (25%) of the Obligated Volume for a Harvest Year at the Delivery Point during each Harvest Quarter of such Harvest Year (the “Delivery Schedule”). Notwithstanding the foregoing, with respect to the Obligated Volume for partial Harvest Year 2010, Seller shall deliver and sell, and Purchaser shall accept and purchase, at least one hundred percent (100%) of the Obligated Volume for partial Harvest Year 2010 at the Delivery Point during the remainder of 2010, provided that each of Seller and Purchaser shall receive a credit against their respective obligations to sell and purchase Obligated Volume during partial Harvest Year 2010 in an amount equal to the volume of pine pulpwood, pine bunkwood and pine wood chips (as each such term is used in the Original Agreement) delivered by Seller and purchased by Purchaser under the Original Agreement from and including October 1, 2010 until the Effective Date of this Agreement. The parties recognize a mutual benefit to produce and accept Product as consistently as possible with such Delivery Schedule. Seller shall use commercially reasonable efforts to deliver the Obligated Volume on a relatively even flow basis within each Harvest Quarter.
          (c) Seller’s Quarterly Delivery Variances.
     (i) Seller’s deliveries may immaterially deviate from the Delivery Schedule due to weather conditions or other unforeseen events, and as a result certain variances from the Delivery Schedule shall be permitted, as described in this Section 5.1. Subject to Section 5.1(d), Seller shall have the right to deliver quarterly volumes that are greater than the quarterly Obligated Volume by up to ten percent (10%) (the total percentage of such variance being a “Positive Quarterly Variance”), or less than the quarterly Obligated Volume by up to ten percent (10%) (the total percentage of such variance being a “Negative Quarterly Variance”).
     (ii) Subject to Section 5.1(d), Purchaser shall be required to purchase, in accordance with the terms of this Agreement, all of a Positive Quarterly Variance that does not exceed ten percent (10%).
     (iii) Subject to Section 5.1(d), Seller shall have the right, but not the obligation, to deliver a Negative Quarterly Variance of up to ten (10%) during any

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remaining Harvest Quarter during the Harvest Year, which volume shall be in addition to the Obligated Volume to be delivered during such Harvest Quarter pursuant to the Delivery Schedule.
     (iv) To the extent a Negative Quarterly Variance during any Harvest Quarter exceeds ten percent (10%) (such excess an “Excess Negative Quarterly Variance”), Purchaser shall have the right, in its discretion and as its sole remedies for such failure, either (A) to require Seller to deliver such Excess Negative Quarterly Variance during the succeeding Harvest Quarter, in addition to the Obligated Volume to be delivered during such Harvest Quarter pursuant to the Delivery Schedule, or (B) to enforce the remedies set forth in Section 10.2(c). All such Excess Negative Quarterly Variance (1) that is delivered during the succeeding Harvest Quarter, or (2) with respect to which Purchaser enforces the remedies set forth in Section 10.2, shall count towards Seller’s deliveries of the Obligated Volume for such Harvest Year and the Cumulative Floor.
          (d) Seller’s Annual Delivery Variances.
     (i) Subject to Section 5.1(d)(vii), Seller shall have the right to deliver volumes during a Harvest Year that are greater than the Obligated Volume for such Harvest Year by up to five percent (5%) (the total percentage of such variance being a “Positive Annual Variance”), or less than the Obligated Volume for such Harvest Year by up to five percent (5%) (the total percentage of such variance being a “Negative Annual Variance”).
     (ii) Purchaser shall be required to purchase, in accordance with the terms of this Agreement, all of a Positive Annual Variance that does not exceed five percent (5%); provided, however, any Positive Annual Variance may at Purchaser’s sole discretion count towards the next Harvest Year’s Obligated Volume.
     (iii) Subject to Section 5.1(d)(vii), provided that a Negative Annual Variance does not exceed five percent (5%), Seller’s performance hereunder shall be excused to the extent of such Negative Annual Variance.
     (iv) To the extent annual deliveries of Product by Seller result in a Negative Annual Variance in excess of five percent (5%) (such excess an “Excess Negative Annual Variance”), but less than or equal to ten percent (10%), Seller shall elect, in Seller’s sole discretion and as the sole remedy of Purchaser for such failure, either (A) to deliver such Excess Negative Annual Variance during the succeeding Harvest Year at the final Quarterly Price for the prior Harvest Year, in addition to the Obligated Volume to be delivered during such Harvest Year (the “Annual Carryover Volume”), or (B) to pay to Purchaser, as liquidated damages and not as a penalty, an amount equal to $10 per ton of Product constituting such Excess Negative Annual Variance (Purchaser and Seller acknowledging that actual damages would be difficult to ascertain and that such amount represents a reasonable estimate of such damages).

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     (v) If a Negative Annual Variance exceeds ten percent (10%), then with respect to all of the Excess Negative Annual Variance, Purchaser shall have the right, in its discretion and as its sole remedies for such failure, either (A) to require Seller to deliver the Excess Negative Annual Variance during the succeeding Harvest Year at the final Quarterly Price for the prior Harvest Year as Annual Carryover Volume, in addition to the Obligated Volume to be delivered during such Harvest Year, or (B) to enforce the remedies set forth in Section 10.2(c).
     (vi) Any delivery of Product in the following Harvest Year will first be counted towards meeting any Annual Carryover Volume requirement.
     (vii) Notwithstanding anything to the contrary in this Section 5.1, at the end of each Harvest Year, the cumulative volume of Product delivered by Seller pursuant to this Agreement, including any deliveries of Annual Carryover Volume and any volume with respect to which Seller has paid to Purchaser liquidated damages pursuant to Section 5.1(d)(iv) or Section 5.1(d)(v), shall not be less than the Cumulative Floor (any such deficiency being a “Cumulative Variance”). As used herein, the “Cumulative Floor” at the end of a Harvest Year shall equal the difference of (i) the sum of the Obligated Volumes for such Harvest Year and each preceding Harvest Year during the Term, minus (ii) five percent (5%) of the Obligated Volume for such Harvest Year.
          (e) No Variances for Purchaser. Purchaser shall be required to purchase, in accordance with the terms of this Agreement, all deliveries of Product to the Delivery Point made in accordance with this Agreement, including, without limitation, (i) all Obligated Volume delivered in accordance with the Delivery Schedule; (ii) any Positive Quarterly Variance that does not exceed ten percent (10%) (provided that (A) such volume shall count towards the Obligated Volume for such Harvest Year, and (B) in no case shall Purchaser be required to purchase a Positive Annual Variance in excess of five percent (5%)); and (iii) any Positive Annual Variance that does not exceed five percent (5%). If Purchaser fails to accept and purchase any such Product, Seller shall have the right, in its sole discretion, to enforce the remedies set forth in Section 10.1(c)
          Section 5.2 Title. Risk of loss and title to the Product shall pass from Seller when the Product is unloaded and accepted by Purchaser pursuant to the terms hereof.
          Section 5.3 Weighing and Record Keeping. All Product delivered hereunder by Seller shall be weighed by Purchaser, or its designee, upon delivery at the Delivery Point using privately verified scales, which data shall be recorded by the weigher on weight tickets and a copy of each ticket shall be given to Seller or its designated representative. All such tickets shall include, at a minimum, the identity of the party and the driver delivering such Product, the name of the producer of such product, the time, the date, the identity and location of the tract from which the Product originated, the timber security tag number, the contract number and such other additional information reasonably required by the parties from time to time or by state law (provided, however, Purchaser shall have no obligation to include any such information on a tag to the extent such information is (a) unknown to Purchaser, and (b) was not provided to Purchaser by Seller or its agent). Seller shall adhere to Purchaser’s requirements for delivery as are established from time to time to conform with changes in law, forestry practices and

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Purchaser’s operational requirements, provided such adjustments are comparable to industry standards and are similar to those required by Purchaser of its other suppliers. Purchaser shall keep accurate books and records of all scaling and weighing activities.
          Section 5.4 Payment. Purchaser shall pay Seller for Product purchased under this Agreement not later than the second Monday after the week (Monday through Sunday) in which the Product was delivered to Purchaser. By way of example only, for Product delivered between Monday, November 15, 2010 and Sunday, November 21, 2010, Purchaser shall pay Seller not later than Monday, November 29, 2010.
          Section 5.5 Taxes. Seller shall pay all severance taxes and other taxes and fees required by law to be paid by Seller by reason of the cutting, harvesting or removal of the Product.
ARTICLE VI
FORCE MAJEURE AND CHANGE EVENTS
          Section 6.1 Force Majeure. Subject to the provisions of this Section 6.1, neither party shall be liable hereunder, and performance shall be excused, for a failure of performance of its obligations hereunder caused by a Force Majeure event, provided, however, no excuse for performance due to a Force Majeure event under this Section 6.1 shall be effective unless the party claiming such failure (the “Excused Party”) shall have delivered written notice to the other party (the “Performing Party”) of the failure within two (2) days of the event giving rise to such failure, together with the estimated duration of such failure determined by the Excused Party in good faith using commercially reasonable efforts (the “Estimated Duration”). To the extent performance has been excused, neither party shall be required to make up such performance upon termination or expiration of the Force Majeure event. The parties shall use commercially reasonable efforts to mitigate the effects of the Force Majeure event, and if the cause of Force Majeure can be minimized or remedied, the parties shall use reasonable best efforts to do so promptly. The Excused Party shall deliver to the Performing Party notice of the end of such failure caused by such Force Majeure event as a condition to the resumption of the rights and obligations of the parties hereunder.
          (a) Notwithstanding anything herein to the contrary, if a Force Majeure event causes an excused reduction in Seller’s performance hereunder in excess of thirty (30) consecutive days, Purchaser shall, upon notice to Seller, have the right to obtain substitute Pulpwood from sources other than Seller until such time as Seller is again able to commence the delivery of Product to Purchaser. After Seller gives notice to Purchaser that it is again able to commence delivery of Product pursuant to the terms of this Agreement, Purchaser shall notify Seller of any commitments to third parties to acquire substitute Pulpwood that obligate Purchaser. Purchaser shall not be required to accept from Seller the amount by which the volume of Product was reduced until such time as Purchaser has accepted delivery of all substitute Pulpwood contracted by Purchaser, provided that no such contract for substitute Pulpwood shall be for a term longer than the Estimated Duration without the consent of Seller, which consent shall not be unreasonably withheld, conditioned or delayed.

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          (b) Notwithstanding anything herein to the contrary, if a Force Majeure event causes Purchaser not to accept the Product as required herein for a period in excess of thirty (30) consecutive days, Seller shall thereafter have the right to contract with third parties for the sale of any such Product that Purchaser is unable to accept. Upon notice from Purchaser to Seller that Purchaser is again able to accept such Product, Seller will notify Purchaser of any commitments to sell Product to third parties that obligate Seller. Seller shall not be required to deliver such Product to Purchaser until Seller has provided all Product contracted by Seller, provided that no such agreement shall be entered into for a term longer than the Estimated Duration without the written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed.
          (c) If a Force Majeure event prevents the performance of the obligations hereunder of either Purchaser or Seller for a period in excess of one hundred eighty (180) consecutive days, then the Performing Party may terminate this Agreement upon thirty (30) days written notice.
          (d) If Seller is unable to deliver the full volume of Product that it is obligated to deliver to Purchaser hereunder due to a Force Majeure Event, but is able to deliver a portion of such volume of Product, Seller shall use its reasonable best efforts to provide to Purchaser as high a percentage as possible of its available volume of Product.
          Section 6.2 Change Event. It is understood and agreed that Purchaser’s usage requirements would be greatly diminished in the event of (i) a closing of the Mill or (ii) a material decrease in Purchaser’s requirements for Product as a result of a material change of manufacturing processes, but only if such event causes Purchaser’s overall consumption of Pulpwood at the Mill to drop below the Obligated Volume (each of the foregoing, a “Change Event”). Purchaser shall deliver to Seller notice of any Change Event not less than ninety (90) days before the occurrence of such Change Event (or, if Seller is unaware of the Change Event ninety (90) days before the Change Event, promptly after Seller becomes aware of the prospective occurrence of such Change Event). Notwithstanding anything herein to the contrary, after the occurrence of a Change Event, (a) Purchaser or Seller may, in either party’s sole discretion, terminate this Agreement by delivering to the other party not less than ninety (90) days prior written notice of its election to terminate this Agreement; and (b) if Purchaser terminates this Agreement pursuant to clause (a), Purchaser shall pay to Seller on a quarterly basis for a period commencing on the effective date of such termination and ending one (1) year following the effective date of such termination, the difference between (x) the gross proceeds that Seller would have received hereunder (calculated as the Obligated Volume that would have been purchased and sold hereunder during such period, multiplied by the applicable Quarterly Prices during such period), minus (y) the actual proceeds that Seller receives from the sale of such Obligated Volume (or such portion of the Obligated Volume that Seller is able to sell) during such period, provided that Seller has used commercially reasonable efforts to sell such Obligated Volume to third parties. Seller’s right of recovery described in clause (b) above shall survive the termination of this Agreement. For the avoidance of doubt, the occurrence of a Change Event shall not relieve Purchaser of any of its obligations hereunder unless and until Purchaser or Seller has terminated this Agreement in accordance with this Section 6.2 (provided that Purchaser shall remain subject to Seller’s right of recovery after such termination as described in clause (b) above).

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ARTICLE VII
TERM
          Section 7.1 Term. This Agreement shall commence on the Effective Date and, unless earlier terminated pursuant to the terms hereof, shall expire at 11:59 p.m. on December 31, 2017 (the “Initial Term” and, as the same may be extended pursuant to Section 7.2 below, the “Term”).
          Section 7.2 Extension of Term. The Term may be extended for a period of three (3) years upon the mutual agreement of Purchaser and Seller, each in its sole discretion, not later than two (2) years prior to the expiration of the Initial Term.
          Section 7.3 Effect of Termination. Upon the earlier of the expiration of the Term or the termination of this Agreement pursuant to the provisions hereof, this Agreement will become null and void and have no further force and effect; provided, however, that the provisions of Section 6.2, Section 10.4, Section 11.1, Section 11.2 and Section 11.4 shall survive the expiration or termination of this Agreement and remain in full force and effect; and provided further that no termination or expiration of this Agreement shall relieve either party of any obligation accrued prior to the effective date of expiration or termination, or of any liability for any breach of this Agreement by such party prior to the date of such termination.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
          Section 8.1 Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller that the statements contained in this Section 8.1 are correct and complete as of the Effective Date.
          (a) Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Purchaser has all necessary corporate power and authority to (i) conduct its business as it is presently being conducted, (ii) execute this Agreement and (iii) perform its obligations and consummate the transactions contemplated hereby. Purchaser is duly qualified to do business in the State of Florida.
          (b) All corporate and other actions or proceedings to be taken by or on the part of Purchaser to authorize and permit the execution and delivery by Purchaser of this Agreement, the performance by Purchaser of its obligations hereunder and the consummation of the transactions contemplated hereby have been duly and properly taken. This Agreement has been duly executed and delivered by Purchaser. Upon execution by Purchaser of this Agreement, assuming the valid authorization, execution and delivery by Seller of this Agreement, this Agreement shall constitute a legal, valid and binding obligation of Purchaser that is enforceable against Purchaser in accordance with its terms.
          (c) The execution and delivery by Purchaser of this Agreement and the consummation by Purchaser of the transactions contemplated hereby will not result in a breach or violation of, or default under: (i) any judgment, order, injunction, decree or ruling of any

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governmental authority applicable to Purchaser or any of its assets; (ii) any applicable statute, law, ordinance, rule or regulation; (iii) the terms, conditions or provisions of Purchaser’s certificate of incorporation, bylaws or any standing resolution of its Board of Directors; or (iv) any note or other evidence of indebtedness, mortgage, deed of trust, indenture, or other agreement or instrument to which Purchaser is a party or by which Purchaser may be bound, except for any such breach, violation or default that would not materially adversely affect the ability of Purchaser to perform its obligations hereunder.
          (d) There are no approvals, consents, permits or registration requirements with respect to any applicable governmental authority or any other Person that are or will be necessary for the valid execution and delivery by Purchaser of this Agreement or the performance of its obligations hereunder.
          Section 8.2 Representations and Warranties of Seller. Seller represents and warrants to Purchaser that the statements contained in this Section 8.2 are correct and complete as of the Effective Date.
          (a) Seller is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware. Seller has all necessary power and authority to (i) conduct its business as it is presently being conducted, (ii) execute this Agreement and (iii) perform its obligations and consummate the transactions contemplated hereby. Seller is duly qualified to do business in the State of Florida.
          (b) All actions or proceedings to be taken by or on the part of Seller to authorize and permit the execution and delivery by Seller of this Agreement, the performance by Seller of its obligations hereunder and the consummation of the transactions contemplated hereby have been duly and properly taken. This Agreement has been duly executed and delivered by Seller. Upon execution by Seller of this Agreement, assuming the valid authorization, execution and delivery by Purchaser of this Agreement, this Agreement shall constitute a legal, valid and binding obligation of Seller that is enforceable against Seller in accordance with its terms.
          (c) The execution and delivery by Seller of this Agreement and the consummation by Seller of the transactions contemplated hereby will not result in a breach or violation of, or default under: (i) any judgment, order, injunction, decree, or ruling of any court or governmental authority applicable to Seller or any of its assets; (ii) any statute, law, ordinance, rule or regulation; (iii) the terms, conditions, or provisions of Seller’s articles of organization, operating agreement, or other documents of governance; or (iv) any note or other evidence of indebtedness, any mortgage, deed of trust or indenture, or any lease or other agreement or instrument to which Seller is a party or by which Seller may be bound, except for any such breach, violation or default that would not materially adversely affect the validity or enforceability of this Agreement or the ability of Seller to perform its obligation hereunder.
          (d) There are no approvals, consents, permits or registration requirements with respect to any applicable governmental authority or any other Person that are or will be necessary for the valid execution and delivery by Seller of this Agreement or the performance of its obligations hereunder.

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          (e) Seller has good and marketable title to the Product free and clear of all Liens, except for such Liens that would not otherwise materially adversely affect Purchaser’s rights in and to the Product delivered, or made available, to Purchaser pursuant to this Agreement (“Immaterial Liens”).
          Section 8.3 Disclaimer. EXCEPT FOR THE SPECIFICATIONS SET FORTH IN THIS AGREEMENT, SELLER DISCLAIMS ALL WARRANTIES OF ANY KIND WITH RESPECT TO THE PRODUCT, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE IX
SELLER’S MANAGEMENT
          Section 9.1 Seller’s Management. Seller will be solely responsible for the designation, layout and timing of harvest areas, logging and transportation to the designated Delivery Point, and all other activities associated with ownership of the Property. Following written request by Purchaser, Seller shall collect and provide Purchaser with tract identification information for all Product delivered in accordance herewith. Seller agrees to manage the Property in accordance in all material respects with applicable state best management practices for forestry and in a manner that meets the minimum requirements for compliance with SFI Standards or such other management guidelines as Seller and Purchaser may approve in writing from time to time. Seller’s contracts with logging professionals that produce and deliver Product under this Agreement shall require that they (i) maintain logger training and continuing education requirements in accordance with SFI Standards or such other management guidelines approved in writing by Purchaser and Seller, and (ii) comply with applicable state best management practices for forestry and all applicable laws, including, without limitation, any weight restriction laws, ordinances or regulations, and Seller shall use diligent, good faith efforts to ensure compliance with such requirements.
ARTICLE X
DEFAULT AND DISPUTE RESOLUTION
          Section 10.1 Default by Purchaser.
          (a) The following events shall constitute events of default by Purchaser (each a “Purchaser Event of Default”):
     (i) Purchaser fails to pay as and when due any material amount payable by it under this Agreement and such payment shall be more than five (5) Business Days late (provided that if Purchaser fails to pay two (2) such payments as and when due during any Calendar Quarter, each subsequent failure during such Calendar Quarter to pay any such amount as and when due shall be a Purchaser Event of Default immediately upon such failure);

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     (ii) Purchaser fails to perform or observe in any material respect any other term, covenant or agreement contained in this Agreement on its part to be performed or observed; or
     (iii) Any representation or warranty of Purchaser under this Agreement is incorrect in any material respect as of the Effective Date.
          (b) Subject to Section 10.1(c), if any Purchaser Event of Default occurs and continues thirty (30) days after written notice thereof has been given to Purchaser (or, if such Event of Default is not able to be cured within thirty (30) days, such reasonable amount of time necessary to cure such Event of Default, not to exceed ninety (90) days, provided that Purchaser has commenced such cure within such thirty (30) days and is diligently pursuing such cure to completion), then Seller may, by delivering written notice to Purchaser, in addition to Seller’s other remedies available herein, at law or in equity, (i) suspend delivery of Product otherwise deliverable to Purchaser pursuant to the terms of this Agreement, or (ii) terminate this Agreement.
          (c) Except as otherwise provided herein, in the event of a failure by Purchaser to accept delivery of and purchase any Product that Purchaser is obligated to accept and purchase by the terms of this Agreement, Seller shall have the right, in its sole discretion and as its sole remedy for such failure of Purchaser, to require Purchaser to pay to Seller, as liquidated damages and not as a penalty, an amount equal to $10 per ton of Product that Purchaser has failed to accept and acquire (Purchaser and Seller acknowledging that actual damages would be difficult to ascertain and that such amount represents a reasonable estimate of such damages). Such payment shall be due within ten (10) Business Days following Seller’s delivery to Purchaser of notice of its election hereunder.
          (d) In any event, Seller shall have the right to sell to a third party any Product that Purchaser fails to purchase under a Purchaser Event of Default, and Seller shall be relieved of its obligation hereunder to deliver such Product to Purchaser.
          Section 10.2 Default by Seller.
          (a) The following events shall constitute events of default by Seller (each a “Seller Event of Default”):
     (i) Seller fails to pay as and when due any material amount payable by it under this Agreement and such payment shall be more than five (5) Business Days late (provided that if Seller fails to pay two (2) such payments as and when due during any Calendar Quarter, each subsequent failure during such Calendar Quarter to pay any such amount as and when due shall be a Seller Event of Default immediately upon such failure);
     (ii) Seller fails to perform or observe in any material respect any other term, covenant or agreement contained in this Agreement on its part to be performed or observed; or

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     (iii) Any representation or warranty of Seller under this Agreement is incorrect in any material respect as of the Effective Date.
          (b) Subject to Section 10.2(c) and (d), if any Seller Event of Default occurs and continues thirty (30) days after written notice thereof has been given to Seller (or, if such Event of Default is not able to be cured within thirty (30) days, such reasonable amount of time necessary to cure such Event of Default, not to exceed ninety (90) days, provided that Seller is diligently pursuing such cure to completion), then Purchaser may, by delivering written notice to Seller, in addition to Purchaser’s other remedies available herein, at law or in equity, (i) suspend acceptance of Product otherwise deliverable to Purchaser pursuant to the terms of this Agreement, or (ii) terminate this Agreement.
          (c) Except as otherwise provided in Section 5.1(c) or Section 5.1(d), in the event of (i) a Negative Quarterly Variance in excess of ten percent (10%), (ii) a Negative Annual Variance in excess of ten percent (10%) (provided that no Cumulative Variance exists for such Harvest Year), or (iii) a Cumulative Variance for such Harvest Year, Purchaser shall have the right, in its sole discretion and as its sole remedy for such failure of Seller, to require Seller to pay to Purchaser, as liquidated damages and not as a penalty, an amount equal to $10 per ton of Product constituting such Excess Negative Quarterly Variance, Excess Negative Annual Variance or Cumulative Variance (Purchaser and Seller acknowledging that actual damages would be difficult to ascertain and that such amount represents a reasonable estimate of such damages). Such payment shall be due within ten (10) Business Days following the effective date of Purchaser’s delivery to Seller of notice of its election hereunder, or, at Purchaser’s election, Purchaser may immediately off-set such amount against any monies due from Purchaser to Seller under this Agreement. If Seller’s failure to deliver Product results in a Negative Quarterly Variance, a Negative Annual Variance and/or a Cumulative Variance in excess of their respective thresholds, Purchaser shall be limited to one recovery for such failure.
          (d) In any event, Purchaser shall have the right to purchase from any third party any Product that Seller fails to deliver under a Seller Event of Default, and Purchaser shall be relieved of its obligation hereunder to purchase such Product from Seller.
          Section 10.3Intentionally deleted.
          Section 10.4 Dispute Resolution.
          (a) In the event of any dispute, claim, question or disagreement arising from or relating to this Agreement or the breach thereof, each party shall use its commercially reasonable efforts to settle the dispute, claim, question or disagreement. To this effect, upon written notice from either party to the other party requesting that discussions be initiated (a “Dispute Notice”), Purchaser and Seller shall consult and negotiate with each other in good faith and, recognizing their mutual interests, attempt to reach a just and equitable solution satisfactory to the parties. If Purchaser and Seller do not reach such a solution within a period of fifteen (15) days after delivery of such Dispute Notice, the parties shall submit such dispute to binding arbitration to be resolved in the following manner:

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     (i) Arbitration shall be according to the rules of the AAA (but not administered by AAA), except as herein modified by the parties or otherwise as agreed to by the parties.
     (ii) Within ten (10) days after the agreement of the parties to arbitrate, each party will select an arbitrator, notify the other party of its selection and submit to the other party and its selected arbitrator its position regarding such claim, dispute or controversy. Within ten (10) days after such notice, the respective arbitrators will select a third arbitrator as the chairman of the panel (the “Panel Chairman”). The arbitrators selected by Purchaser and Seller, together with the Panel Chairman, shall be, collectively, referred to herein as the “Panel.
     (iii) All arbitrators on the Panel shall have experience in the business of producing, procuring and/or selling forest products in the Southern region of the United States. Furthermore, the Panel Chairman shall be a forestry professional with at least ten (10) years of experience in Southern timber harvesting practices who has not performed any work as an employee or consultant for either party during the previous five (5) years, unless otherwise agreed upon by Purchaser and Seller.
     (iv) A majority decision of the Panel and resolution must be reached within fifteen (15) days after the selection of the Panel Chairman, provided that if the Panel requests additional information from either party, the Panel must reach a resolution within forty-five (45) days after the selection of the Panel Chairman. Decisions of the panel must be in writing and will be final and binding upon the parties, and judgment may be entered thereon by any court having jurisdiction.
          (b) Upon the resolution of any dispute as to Quarterly Price, any adjustment thereof, or any other dispute with respect to price, Purchaser and Seller agree to adjust the Price for any Product purchased and sold from the date of the Dispute Notice through the date of the decision of the Panel, to reflect the price as determined by the Panel and to promptly reimburse each other accordingly to effect such adjustment.
          (c) The non-prevailing party shall bear all costs of the arbitration and both parties’ reasonable attorneys’ fees.
          (d) The parties and the Panel shall treat the proceedings, any resolution thereof and any related discovery as confidential, except in connection with a judicial challenge to, or enforcement of, an award and unless otherwise required by law.
ARTICLE XI
INDEMNITY AND INSURANCE
          Section 11.1 Purchaser’s Indemnity. Purchaser shall defend, indemnify and hold harmless Seller, its Affiliates and their assignees, subcontractors, members, shareholders, directors, officers, managers, partners, employees, agents and consultants (each, a “Seller Indemnitee”), from and against all claims and causes of action, pending or threatened, of any

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kind or nature, by third parties, related to or arising out of any bodily injury to, or death of, any Person, or any physical damage to tangible property, resulting from, or attributable to, Purchaser’s breach of this Agreement or the negligent or intentional wrongful acts or omissions of Purchaser, its Affiliates or any of their employees, agents or contractors; except to the extent such injury or damage also results in part from the negligent or intentionally wrongful act or omission of any Seller Indemnitee.
          Section 11.2 Seller’s Indemnity. Seller shall defend, indemnify and hold harmless Purchaser, its Affiliates and their assignees, subcontractors, members, shareholders, directors, officers, managers, partners, employees, agents and consultants (each, a “Purchaser Indemnitee”), from and against all claims and causes of action, pending or threatened, of any kind or nature, by third parties, related to or arising out of any Immaterial Liens, any bodily injury to, or death of, any Person, or any physical damage to tangible property, resulting from, or attributable to, Seller’s breach of this Agreement or the negligent or intentional wrongful acts or omissions of Seller, its Affiliates or any of their employees, agents or contractors; except to the extent such injury or damage also results in part from the negligent or intentionally wrongful act or omission of any Purchaser Indemnitee.
          Section 11.3 Insurance. Each party, and any contractors engaged by or on behalf of such party, will keep in effect during the Term, at its sole expense, the following insurance coverages:
          (a) Comprehensive general liability insurance with limits of $2,000,000 for bodily injury to one person, $2,000,000 for bodily injury to any group of persons as a result of one occurrence, and $2,000,000 for property damage; provided, however each party’s contractors’ policies shall provide coverage for general liability with limits of $1,000,000 per occurrence bodily injury liability and property damage liability combined and $1,000,000 in the aggregate;
          (b) Worker’s compensation insurance, covering all employees, including owners, partners and executive officers, with the statutory limits of the state where the work is being performed. Each party’s worker’s compensation policy shall be endorsed to waive all rights of subrogation against the other party and all subsidiaries thereof where permitted by law, and policies shall include excess and stop-gap worker’s compensation coverage for all contractors and subcontractors of the insured party.
          (c) Commercial auto liability insurance with limits of $1,000,000 combined single limits insuring “Any Auto” or “All Owned Autos,” “Hired Autos” and “Non-owned Autos;”
          (d) Commercial umbrella liability insurance to provide excess coverage above the limits of the other insurance policies described in this Section 11.3, with limits of $5,000,000 per occurrence and $5,000,000 in the aggregate (provided that this Section 11.3(d) shall apply only to each party hereto, and not to such parties’ respective contractors and agents).
          Such policies will name the other party as an additional insured by endorsements to the policies without restrictions. Each party shall provide the other party with certificates of

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insurance throughout the term of this Agreement, as requested, providing that such insurance shall not be cancelled without thirty (30) days’ prior written notice.
          Section 11.4 Notice of Claim. Purchaser and Seller shall immediately give the other party written notice of any alleged claim by a third party arising out of this Agreement or the actions or activities contemplated by this Agreement.
ARTICLE XII
ASSIGNMENT AND TRANSFERS
          Section 12.1 Seller’s Assignment and Transfer Rights.
          (a) Seller shall have the right to Transfer the Property, any portion thereof, or any interest therein (including, without limitation, the standing timber located thereon) free and clear of this Agreement, provided that Seller shall have the ability to fulfill its obligations hereunder from its remaining interest in the Property (including any contractual rights of Seller to acquire Product from such Transferred portion of the Property) after giving effect to such Transfer. In no case shall this Agreement constitute a lien or encumbrance on the Property, any portion thereof or any interest therein.
          (b) Seller shall have the right to Transfer the Property, any portion thereof, or any interest therein (including, without limitation, the standing timber located thereon) subject to this Agreement, provided that (x) the portion of, or interest in, the Property so Transferred contains sufficient Product to allow the transferee thereof to deliver to Purchaser not less than 30,000 tons of Product annually, and (y) the transferee shall have the financial and operational resources and capacity to meet the assigned obligations of Seller hereunder. With respect to any such Transfer, Purchaser, Seller and such transferee shall enter into an agreement pursuant to which (i) Seller partially assigns this Agreement to such transferee, (ii) the Obligated Volume is allocated between Seller and such transferee, and (iii) Purchaser relieves Seller of all liability with respect to the portion of the Obligated Volume allocated to such transferee (provided that such transferee shall also have the right to enter into a master stumpage agreement with a stumpage buyer, which stumpage buyer shall enter into an agreement with Purchaser and Seller satisfying clauses (i), (ii) and (iii) above). Following any such partial assignment, any extension or renewal of this Agreement pursuant to Section 7.2 or otherwise shall apply only to the Obligated Volume allocated to Seller and to the rights and obligations under this Agreement retained by Seller.
          (c) In addition to the foregoing rights of Seller to Transfer the Property and assign its interest in this Agreement,
     (i) Seller may grant mortgages or other similar liens on the Property to banks, insurance companies, pension or benefit plans, investment funds that are in the business of making mortgage loans or similar institutional lenders, and collaterally assign its interest in this Agreement in connection therewith.
     (ii) Seller may wholly assign its rights and obligations under this Agreement to a single transferee (or to a stumpage buyer that has entered into a master

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stumpage agreement with the transferee of the Property) in connection with a Transfer of a portion of, or interest in, the Property to such transferee, in a single transaction, which portion of, or interest in, the Property contains sufficient volumes of Product to fully satisfy Seller’s obligations hereunder, provided that, as part of such transaction, such transferee (or stumpage buyer under a master stumpage agreement, as applicable) shall (A) assume all of Seller’s obligations under this Agreement; and (B) have the financial and operational resources and capacity to meet the obligations of Seller hereunder. Seller shall deliver to Purchaser advance written notice of such proposed assignment.
          Section 12.2 Purchaser’s Assignment Rights. Purchaser shall not assign its rights and obligations under this Agreement, in whole or in part, except in connection with the Transfer of the Mill to a transferee having the financial and operational resources and capacity to meet the obligations of Purchaser hereunder; provided, however, a sale of substantially all of Purchaser’s assets or a merger or amalgamation of Purchaser with another entity shall not be deemed a prohibited assignment hereunder. Purchaser shall deliver to Seller advance written notice of any such proposed assignment.
ARTICLE XIII
AUDIT RIGHTS
          Section 13.1 Audit Rights. Either party shall have the right to audit the other party’s compliance with the terms of this Agreement by notifying the party to be audited of the requesting party’s exercise of such right within six (6) months after the end of the Harvest Year for which the requesting party intends to exercise such right. The audited party shall provide the requesting party or its representative with access during normal business hours to all records and other information necessary to complete such audit as are commercially reasonable. Furthermore, the requesting party shall have the right to access the Property or the Mill, as the case may be, and to inspect any and all deliveries of Product for purposes of monitoring the performance of the audited party’s obligations pursuant to the terms herein, including the right to audit; provided, however, in no case shall the requesting party unreasonably interfere with the business of the audited party. The requesting party shall provide, upon request, all findings and supporting documentation of the auditing party following such audit. The requesting party shall be responsible for all costs of such audit, including, without limitation, costs incurred by the audited party (including document preparation costs and copying costs) in responding to and complying with such audit. All nonpublic information acquired in the course of either party’s exercise of the audit rights provided for by this Section 13.1 shall be subject to the provisions of Section 15.4.
ARTICLE XIV
NOTICES
          Section 14.1 Notices. All notices required or permitted to be given hereunder shall be in writing, signed by the party giving such notice or its legal counsel, and shall be deemed to be

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delivered, whether or not actually received, (i) when personally delivered by commercial courier service or other messenger; (ii) three (3) days after being deposited with the United States Postal Service with postage paid for certified delivery with return receipt requested; (iii) when sent by next day business commercial service delivery, or (iv) when transmitted by e-mail evidenced by a confirmatory response e-mail or by facsimile evidenced by a confirmed receipt, with a copy sent by any of the means permitted by clauses (i), (ii) or (iii) above on the same day the e-mail or facsimile transmission is sent by the party giving such notice. For purposes of notice, the addresses of the parties are as follows:
     
Purchaser:
  Smurfit-Stone Container Corporation
One Everitt Drive
Panama City, Florida 32401
Attention: James Cottingham
Facsimile: (850) 769-6818
E-mail:jcotting@smurfit.com
 
   
Copy to:
  Smurfit-Stone Container Corporation
6 CityPlace Drive
Creve Coeur, Missouri 63141
Attention: General Counsel
Facsimile: (314) 787 6239
E-mail:chunt@smurfit.com
 
   
Seller:
  St. Joe Timberland Company of Delaware, L.L.C.
133 South WaterSound Parkway
WaterSound, FL 32413
Attention: William Sonnenfeld
Facsimile: (850) 588-2307
E-mail: william.sonnenfeld@joe.com
 
   
Copy to:
  St. Joe Timberland Company of Delaware, L.L.C.
133 South WaterSound Parkway
WaterSound, FL 32413
Attention: Reece B. Alford
Facsimile: (850) 588-2310
E-mail: reece.alford@joe.com
or to such other address or addresses as any party may from time to time, upon five (5) Business Days’ advance written notice to the other party, designate as to itself.

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ARTICLE XV
MISCELLANEOUS
          Section 15.1 Amendments. No amendment or waiver of any provision of this Agreement will in any event be effective unless the same shall be in writing and signed by both parties. This Agreement constitutes the full and complete understanding of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, both oral and written, between the parties with respect thereto.
          Section 15.2 No Recording. Neither Seller nor Purchaser shall record this Agreement, or any memorandum thereof, in the public records of any county in which the Property is located.
          Section 15.3 Compliance with Laws. Each party agrees that its performance of this Agreement shall comply with all applicable federal, state and local laws, rules and regulations, including, without limitation, all Environmental Laws, and that each party shall obtain and maintain in effect all necessary licenses and permits incident to its operations in the performance of this Agreement.
          Section 15.4 Confidentiality. To the fullest extent permitted under applicable law, the parties hereto shall keep the nonpublic terms, conditions and provisions of this Agreement confidential; provided, however, the parties may release information as required by applicable law, and to their respective lenders, partners, employees, consultants and contractors so long as any such party is made aware of the provisions of this Section 15.4.
          Section 15.5 Estoppel Certificates. Both parties agree to use commercially reasonable efforts to provide an estoppel certificate within twenty (20) days of the other party’s request for the same, in form reasonably satisfactory to the parties hereto, setting forth (to the extent the providing party may truthfully certify to the same), among other things, that this Agreement is in full force and effect; that, to its knowledge, no breach exists on behalf of the requesting party hereunder; the portion of the Obligated Volume delivered by Seller as of such date; and, if so requested, whether a proposed Transfer or assignment complies with Article XII.
          Section 15.6 No Waiver; Remedies. Except where specifically provided to the contrary herein, no failure on the part of either party to exercise, and no delay in exercising, any right under this Agreement will operate as a waiver thereof; nor will any single or partial exercise of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right.
          Section 15.7 Accounting Terms. All accounting terms not specifically defined herein will be construed in accordance with United States generally accepted accounting principles consistently applied, except as otherwise stated herein.
          Section 15.8 Binding Effect; Governing Law. This Agreement will be binding upon and inure to the benefit of Purchaser and Seller and their respective successors and permitted

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assigns. This Agreement will be governed by, and construed in accordance with, the laws of the State of Florida, without giving effect to the conflicts of law principles thereof.
          Section 15.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties may execute this Agreement by signing any such counterpart.
          Section 15.10 Time of the Essence. Time is of the essence of this Agreement.
          Section 15.11 Incorporation of Exhibits and Schedules. All exhibits and schedules referred to in this Agreement are hereby incorporated herein by this reference.
          Section 15.12 Interest. At the election of the payee, any amount not paid when due hereunder, and which remains unpaid for a period of fifteen (15) days or more after written notice of such non-payment to the Person obligated to make such payment, will bear interest at the rate of five percent (5%) above the prime rate, as published in the “Money Rates” table of the Wall Street Journal from time to time, whichever is greater, from the date due until paid; provided, that in no event shall the interest rate exceed the maximum lawful rate allowed under applicable law.
          Section 15.13 Further Assurances. Seller and Purchaser further covenant to cooperate with one another in all reasonable respects necessary to consummate and give effect to the transactions contemplated by this Agreement (including executing and delivering such instruments or other writings as the other party may reasonably request), and each will take all reasonable actions within its authority to secure cooperation of any necessary third parties.
          Section 15.14 Intentionally deleted.
          Section 15.15 Attorney’s Fees. If arbitration, mediation, litigation or any other proceeding of any nature whatsoever (including any proceeding under the U.S. Bankruptcy Code) is instituted or appealed in connection with any controversy arising out of this Agreement or to interpret or enforce any rights, the prevailing party shall be entitled to recover its attorneys’, paralegals’, accountants’, and other experts’ fees and all other fees, costs, and expenses actually incurred, as determined to be reasonable by the arbitrator(s) or court(s), in addition to all other amounts provided by law. The prevailing party will be deemed to be the party to have won on the issues with the greatest value as determined by the court(s) or arbitrator(s).
          Section 15.16 Severability. Whenever possible, each provision in this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.
          Section 15.17 Captions and Headings. The captions and headings used in this Agreement are for convenience and reference only and do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no caption or heading had been used in this Agreement.

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          Section 15.18 Construction. The parties agree that “including” and other words or phrases of inclusion, if any, shall not be construed as terms of limitation, so that references to “included” matters shall be regarded as nonexclusive, non-characterizing illustrations and equivalent to the terms “including, but not limited to,” and “including, without limitation.” Each party acknowledges that it has had the opportunity to be advised and represented by counsel in the negotiation, execution and delivery of this Agreement and accordingly agrees that if any ambiguity exists with respect to any provision of this Agreement, such provision shall not be construed against any party solely because such party or its representatives were the drafters of any such provision.
          Section 15.19 Relationship. The only relationship between Seller and Purchaser shall be that of vendor and purchaser of the Product to be cut and removed from the Property, and neither party shall in any respect be deemed to be or represent itself to be an agent of the other party. Furthermore, no relationship of employer-employee or master and servant is intended, nor shall it be construed, to exist between the parties, or between any party and any servant, agent, employee and/or supplier of any other party, by reason of this Agreement. Each party shall select and pay its own servants, agents, employees and/or suppliers and neither party nor its servants, agents, employees, or suppliers shall be subject to any orders, supervision or control of the other party.
          Section 15.20 Integration. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter contained herein.
          Section 15.21 Consequential Damages. In no event shall either party be liable for any indirect, incidental, special, exemplary, consequential or lost profit damages, however caused and under any theory of liability, whether in contract, strict liability or tort (including negligence or otherwise) arising in any way out of this Agreement, even if advised of the possibility of such damages.
          Section 15.22 Business Days. If any date set forth in this Agreement for the performance of any obligation by any party hereto, or for the delivery of any instrument or notice as herein provided, should be a day other than a Business Day, the compliance with such obligation or delivery shall be deemed acceptable on the next Business Day.
[Signature Pages Follow]

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          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, sealed and delivered by their respective officers thereunto duly authorized, to be effective as of the date first above written.
         
  PURCHASER:

SMURFIT-STONE CONTAINER
CORPORATION
, a Delaware corporation.
 
 
  By:   /s/ Paul McCann    
    Name:   Paul McCann   
    Title:   VP / General Manager - Fiber   
 
  Date:   November 10, 2010    
[Seller Signature Page Follows]
[Purchaser Signature Page to Pulpwood Supply Agreement]

 


 

         
  SELLER:

ST. JOE TIMBERLAND COMPANY OF
DELAWARE, L.L.C.
, a Delaware limited
liability company
 
 
  By:   /s/ William Sonnenfeld    
    Name:   William Sonnenfeld   
    Title:   SVP - Forestry and Land Sales   
 
  Date:   November 18, 2010    
[Seller Signature Page to Pulpwood Supply Agreement]

 


 

Schedule 1
Specifications
Stone Container Corporation
Panama City Region
Longwood Specifications
1.   Logs are required to be sound, green, fairly straight, with knots, forks and branches trimmed flush with the stem and ends cut square.
 
2.   Mixed pine and hardwood loads are unacceptable.
 
3.   Loads containing charred wood, metal or other foreign materials are unacceptable.
 
4.   Unacceptable species are blackjack oak, bluejack oak, scrub oak, iron wood, cypress and cedar.
 
5.   The minimum stick length is fifteen (15) feet.
 
6.   Loads with excessive poor trim, as determined by the scaler, will be culled one thousand (1,000) pounds.
 
7.   Logs are required to be ninety (90) days or less in age from time of harvest to time of receipt at mill.
 
8.   The maximum acceptable diameter, measured inside the bark including sweeps, knots, forks, etc., is twenty-eight (28) inches for pine and twenty six (26) inches for hardwood.
 
9.   The minimum acceptable diameter, measured inside the bark, is two and one-half (2 1/2) inches for pine and three (3) inches for hardwood. The minimum diameter cull specifications are as follows:
     
Less than minimum   Cull
0 to 10 sticks per load
  None
11 to 20 sticks per load
  1000 pounds
21 to 30 sticks per load
  2000 pounds
31 or more sticks per load
  Reject load   
Schedule 1

 


 

CERTAIN INFORMATION IN THIS EXHIBIT MARKED BY ** HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE OMITTED PORTIONS.
Schedule 2
Obligated Volumes
     
Harvest Year   Obligated Volume (tons)
  2010*
  [**1]
2011
  [**2]
2012
  [**3]
2013
  [**4]
2014
  [**5]
2015
  [**6]
2016
  [**7]
2017
  [**8]
 
*   For partial Harvest Year 2010, the Obligated Volume shall include, for all purposes of this Agreement, all volumes of pine pulpwood, pine bunkwood and pine chips (as each such term is used in the Original Agreement) delivered by Seller and purchased by Purchaser under the Original Agreement from and including October 1, 2010 until the Effective Date of this Agreement.
Schedule 2

 


 

CERTAIN INFORMATION IN THIS EXHIBIT MARKED BY ** HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE OMITTED PORTIONS.
Schedule 3
Quarterly Price Adjustment Mechanism
          1. Formula. Subject to Section 3 of this Schedule 3, on the Adjustment Date of each Calendar Quarter, the Quarterly Purchase Price shall be adjusted to equal the result obtained by the following formula:
[**9]
Where:
          F2M equals the average of the four most recently reported Forest2Market Quarterly Reported Prices (as defined below) as of such Adjustment Date;
          TMSStumpage equals the average reported price for the most recent four quarters for “Average Pine Pulpwood Stumpage” expressed on a $/ton basis in Florida Region 2, as published in Timber Mart-South as of such Adjustment Date;
          TMSCut & Load equals the average of the reported “US$  per Ton Rate” for “Mean Coastal Plain Plantation Thin Cut & Load Contracts” and “Mean Coastal Plain Final Harvest Cut & Load Contracts,” as most recently published in Timber Mart-South as of such Adjustment Date; and
          TMSHaul Rate equals the reported “Incremental Haul Rate (US$  per Ton per loaded mile),” as most recently published in Timber Mart-South as of such Adjustment Date.
          All averages used herein shall be rounded to the second decimal place (hundredths).
          As used in this Schedule 3, “Forest2Market Quarterly Reported Price” with respect to any Calendar Quarter means the average price calculated from the average prices reported by the mills for Region 4 for delivered pulpwood as most recently published in Forest2Market as of the Adjustment Date during such Calendar Quarter; provided, however, that when calculating such average price, the mills reporting the highest and lowest average prices shall be excluded from the calculation.
          2. Example. By way of example only, and without limitation, the following is an example of the calculation in accordance with the above formula that would occur on an Adjustment Date in the third Calendar Quarter of a hypothetical Calendar Year during the Term, under the following described conditions:
Schedule 3

 


 

CERTAIN INFORMATION IN THIS EXHIBIT MARKED BY ** HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE OMITTED PORTIONS.
[**10]
          3. Failure of Publication. If either (but not both) of Forest2Market or Timber Mart-South ceases to be published, or no longer reports the information necessary to perform the calculation shown in Section 1 of this Schedule 3, the Quarterly Price shall be determined on each Adjustment Date as follows:
               (a) If Forest2Market ceases to be published, or no longer reports the information necessary to perform the calculation shown in Section 1 of this Schedule 3, the formula shown in such Section 1 shall be revised to read as follows, with each variable retaining the meaning ascribed to it in such Section 1:
[**11]
               (b) If Timber Mart-South ceases to be published, or no longer reports the information necessary to perform the calculation shown in Section 1 of this Schedule 3, the formula shown in such Section 1 shall be revised to read as follows, with each variable retaining the meaning ascribed to it in such Section 1:
[**12]
Schedule 3

 


 

CERTAIN INFORMATION IN THIS EXHIBIT MARKED BY ** HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE OMITTED PORTIONS.
Schedule 4.1
Pricing Until August 1, 2012
          The initial price for Product hereunder (including pine Pulpwood and pine bunkwood) as of November 1, 2010, will be the prices set forth in Table 1 below. Each such price shall be applicable to the portion of the Product originating from the portion of the Property located in the corresponding “Zone” designated on the map attached to this Schedule 4.1. During the time periods governed by Section 4.1(b), such prices will be adjusted on the first day of each month following the most recent quarterly publication of Timber Mart-South (or a successor publication). The prices, including the prices currently set forth herein and subsequent quarterly adjusted prices as defined below, will be adjusted by the percentage change rounded to the fourth decimal place between (a) the average of the prices reflected in the four (4) most recent quarterly publications of Timber Mart-South (or a successor publication), for Florida Stumpage Prices, Pine Pulpwood, Zone 2, Dollars per Ton, Average Price, and (b) the average of the prices reflected in the four (4) quarterly publications prior to the most recent quarterly publication of Timber Mart-South (or a successor publication), for Florida Stumpage Prices, Pine Pulpwood, Zone 2, Dollars per Ton, Average Price; provided, however, that each such quarterly adjustment will not increase or decrease by more than five percent (5%) from the prior quarter.
Table 1
     
Classification of Product   Price
Pine Pulpwood Zone 1
  [**13]
Pine Pulpwood Zone 2
  [**14]
Pine Pulpwood Zone 3
  [**15]
Pine Pulpwood Zone 4
  [**16]
Pine Bunkwood Zone 1
  [**17]
Pine Bunkwood Zone 2
  [**18]
Pine Bunkwood Zone 3
  [**19]
Pine Bunkwood Zone 4
  [**20]
[Zone Map attached on following page]
Schedule 4.1

 


 

(MAP)
Schedule 4.1

 

exv10w13
Exhibit 10.13
June 14, 2010
     PERSONAL AND CONFIDENTIAL
Mr. Rusty Bozman
1997 Glenfield Crossing Court
St. Augustine, Florida 32092
Dear Rusty,
We are delighted to offer you the following position as part of the Company’s decision to relocate its corporate office to Northwest Florida. The terms of your new position and proposed relocation with The St. Joe Company are set forth herein.
Specifically, we are offering you the position of Sr. Vice President, Corporate Development, reporting to me. This will be effective July 1, 2010.
Your bi-weekly compensation will be $10,769 which if annualized, will be equivalent to $280,000 per year. In addition to your salary, your annual bonus target will be 50%, and your LTI target will be/remain at 75%. Your current phone allowance of $67 bi-weekly will remain the same.
You will remain eligible to continue uninterrupted participation in our employee benefits program, including paid time off; medical and dental benefits, life Insurance, short-term disability, and long-term disability; and investment/retirement benefits including pension, 401(k), and employee stock purchase plans.
You will become eligible now to participate in the Supplemental Executive Retirement Plan (SERP) at Tier 1.
In order to facilitate your move to Northwest Florida, St. Joe will provide you with the following relocation benefits:
  1.   A relocation bonus of $102,500.
 
  2.   You will be eligible to receive a payment of $2,750 per month for 18 months toward your temporary housing, or a different monthly amount up to a total reimbursement of $49,500.
 
  3.   Reimbursement of reasonable and customary closing costs on the sale of your primary residence up to 9%, and the purchase of your new primary residence up to 2%.
 
  4.   Shipment, packing, unpacking and storage of household goods for up to 180 days. Reimbursement for the cost of transporting up to three vehicles based on the IRS standard mileage rate of $.55/mile (as adjusted).
 
  5.   The ability to purchase non-marketed lots within WaterColor Phase IV, or a discount of 25% for any other Company-owned lots or homes outside of WaterColor, provided this does not result in any unintended accounting consequences.
 
  6.   Tax gross-up on all non-deductible relocation expenses associated with move.

 


 

  7.   Option to receive a retractable membership to the WaterSound beach club. You will be responsible for paying associated monthly dues.
 
  8.   St. Joe will provide a cash resettlement allowance of $15,000 to assist in defraying the incidental cost of relocation. The allowance will be paid via payroll, not subject to gross-up and appropriate taxes will be withheld. The following are examples of incidental expenses:
    Community dues and HOA fees
 
    Utility hook-ups for telephone, electric, water and gas
 
    Installation of outside antennas or cable TV hookup
 
    Fees incurred for automobile registration, driver’s license and vehicle tags
 
    Tips, food and beverages provided to van line driver/crew
 
    Transportation of pets.
  9.   If terminated not for cause within 24 months of relocating to Northwest Florida, Company will provide relocation back to Jacksonville, FL which includes item 5 above.
As the relocation package represents a substantial benefit, by accepting this offer, you agree to the following terms:
  1.   This agreement does not alter your status as an at-will employee of the Company.
 
  2.   This agreement does not modify or amend your existing employment agreement.
 
  3.   This agreement shall be interpreted in accordance with the laws of the State of Florida.
If, in the course of your relocation, you choose to purchase JOE property and you are approved to receive the JOE employee discount, you acknowledge and agree that JOE will not be obligated to pay a fee or commission to any real estate broker or agent in connection with such purchase.
Please indicate your acknowledgement and acceptance of this Agreement with your signature below.
         
Sincerely,
  Acknowledged and Accepted:    
 
       
/s/ Britt Greene
       
 
Britt Greene
  /s/ Rusty Bozman     
President and CEO
 
 
Rusty Bozman
   
The St. Joe Company
       

 

exv10w30
Exhibit 10.30
RESTRICTED STOCK AGREEMENT
Award Details:
         
Participant:
       
 
   
Number of Shares of Restricted Stock:
       
 
   
Performance Period:
  February 7, 2011 through January 31, 2014
Date of Grant:
  February 7, 2011
Fair Market Value (at close of business on Date of Grant):
  $
 
 
 
Agreement:
     This Restricted Stock Agreement (the “Agreement”) is entered into effective as of the Date of Grant between the Participant and The St. Joe Company, a Florida corporation (the “Company”), pursuant to the Company’s 2009 Equity Incentive Plan (the “Plan”).
     WHEREAS, the Company desires to grant, and the Participant desires to receive, an Award of Restricted Stock pursuant and subject to the terms and conditions of the Plan and this Agreement (the “Award”).
     NOW, THEREFORE, the Participant and the Company hereby agree as follows:
     1. The Plan, Award Details and Defined Terms. The provisions of the Plan and the Award Details listed above are incorporated into this Agreement by reference. Capitalized terms used but not defined in this Agreement or the Award Details set forth above shall have the meanings ascribed to them in the Plan.
     2. Grant of Restricted Stock. As of the Date of Grant, the Company hereby grants to the Participant the number of shares of Restricted Stock set forth in the Award Details above (the “Restricted Stock”), subject to the terms and conditions of the Plan and this Agreement.
     3. Vesting and Forfeiture of Restricted Stock. The Restricted Stock shall vest, or shall be forfeited, in whole or in part, as provided on Exhibit A attached hereto.
     4. Restrictions on Transfer of Restricted Stock. None of the Restricted Stock shall be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by the Participant, other than upon the Participant’s death to a beneficiary in accordance with the Plan or by will or the laws of descent and distribution. Participant agrees not to sell, transfer, pledge, assign or otherwise alienate or hypothecate any shares of Common Stock acquired upon the vesting of the Restricted Stock if applicable laws or Company policies prohibit any such action.
     5. Delivery of Title to Shares. Subject to any governing rules or regulations, the Company shall deliver any shares of Common Stock acquired in connection with the vesting of the Restricted Stock to or for the benefit of the Participant either (a) by delivering to the

 


 

Participant evidence of book entry shares of Common Stock credited to the account of the Participant, or (b) by depositing such shares of Common Stock for the benefit of the Participant with a broker designated by the Company. The Company shall not be required to issue stock certificates for any shares of Common Stock acquired in connection with the vesting of the Restricted Stock.
     6. Rights of a Shareholder. The Participant shall have all of the rights of a shareholder of the Company with respect to the shares of Restricted Stock, including the right to vote the shares and receive dividends and other distributions with respect thereto.
     7. Administration by the Committee. The Plan, this Agreement and the Restricted Stock shall be subject to such administrative procedures and rules as the Committee shall adopt. Decisions of the Committee on all matters relating to the Plan, this Agreement and the Restricted Stock shall be in the Committee’s sole discretion and shall be conclusive and binding on all parties.
      8. Compliance with Law and Regulations. The Plan, this Agreement and the Restricted Stock shall be subject to all applicable federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall have no liability to deliver any shares in connection with the Award or make any other distribution of the benefits under the Award unless such delivery or distribution would comply with all applicable state, federal and foreign laws (including, without limitation and if applicable, the requirements of the Securities Act of 1933), and any applicable requirements of any securities exchange or similar entity and under any blue sky or other securities laws. As a condition precedent to the issuance of shares of Common Stock in connection with an Award, the Company may require the Participant to take any reasonable action to meet such requirements.
     9. Company Policies. Participant agrees that he or she has read and will comply with the Company’s Insider Trading Policy as described in its Code of Conduct. A copy of the Code of Conduct is available by contacting the Company’s Human Resources Department or by accessing the Human Resources section of the Company’s intranet.
      10. Adjustments. If any change in corporate capitalization (such as a stock split, reverse stock split, stock dividend, combination or reclassification of shares, or any other similar transaction; or a recapitalization, repurchase, rights offering, reorganization, merger, consolidation, combination, exchange of shares, spin-off, spin-out or other distribution of assets to shareholders or other similar corporate transaction or event) results in the outstanding shares of Common Stock, or any securities exchanged therefore or received in their place, being exchanged for a different number or class of shares or other securities of the Company, or for shares of stock or other securities of any other corporation (or new, different or additional shares or other securities of the Company or of any other corporation being received by the holders of outstanding shares of Common Stock), or a material change in the value of the outstanding shares of Common Stock as a result of the change, transaction or distribution, then the Committee shall make equitable adjustments, as it determines are necessary and appropriate to prevent the enlargement or dilution of benefits intended to be made available under the Award.

2


 

     11. Tax Matters.
          (a) Participant shall be liable for any and all taxes, including withholding taxes, arising out of this Award or the vesting of Restricted Stock hereunder. The Company shall have the right to deduct from any and all payments made in connection with the Award, or to require the Participant, through payroll withholding, cash payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes, if any, required by law to be withheld by the Company with respect to the Award or the shares acquired pursuant thereto. The Company shall have no obligation to deliver shares of Common Stock issuable to the Participant upon the vesting of the Restricted Stock until the Company’s tax withholding obligations have been satisfied by the Participant.
          (b) The Company shall have the right, but not the obligation, to deduct from the shares of Common Stock issuable to the Participant upon the vesting of the Restricted Stock, or to accept from the Participant the tender of, a number of whole shares of Common Stock having a Fair Market Value equal to all or any part of the tax withholding obligations of the Company. The Fair Market Value of any shares of Common Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the minimum amount of tax required to be withheld with respect to the transaction.
          (c) Participant acknowledges that, at his or her option, Participant (i) shall be entitled to make an election permitted under section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), to include in gross income in the taxable year in which the Restricted Stock is granted, the Fair Market Value of such shares on the Date of Grant, notwithstanding that such shares may be subject to a substantial risk of forfeiture within the meaning of the Code, or (ii) may elect to include in gross income the Fair Market Value of the Restricted Stock as of the date on which such restriction lapses. The Participant agrees to give the Company’s Human Resources Department prompt written notice of any election made by such Participant under Code Section 83(b).
     12. No Implied Rights. Nothing in the Plan or this Agreement shall confer upon the Participant any right to continue in the employ of the Company or any Subsidiary, or interfere in any way with the right of the Company or any Subsidiary to terminate the Participant’s employment relationship at any time.
      13. Governing Law. To the extent not preempted by federal law, this Agreement shall be construed in accordance with and governed by the laws of the State of Florida, without giving effect to any choice of law provisions.
      14. Participant’s Access to the Plan. Participant may obtain a copy of the Plan by contacting the Company’s Human Resources Department or by accessing the Human Resources section of the Company’s intranet.
      15. Entire Agreement. This Agreement and the Plan constitute the entire understanding and agreement between Participant and the Company regarding this Award.

3


 

Participant acknowledges that any other agreement, statement, understanding or promise with respect to the Award, whether oral or in writing, not contained in this Agreement or the Plan shall not be valid or binding. Any modification of or amendment to this Agreement shall be effective only if it is in writing and signed by both parties, except as otherwise provided in Article 13 of the Plan.
     IN WITNESS WHEREOF, the Company and Participant have caused this Agreement to be duly executed on the dates set forth below.
             
    PARTICIPANT    
 
           
Date                     
           
    Participant Signature    
 
           
    THE ST. JOE COMPANY    
 
           
Date                     
  By:    
 
Rusty Bozman
   
 
      Vice President — Corporate Development    

4


 

EXHIBIT A
VESTING OF RESTRICTED STOCK
1. Vesting of Restricted Stock.
     The number of shares of Restricted Stock that shall vest under this Agreement shall be based upon the following Performance Measure: the Company’s Total Shareholder Return as compared to the Total Shareholder Returns of the Company’s Peer Groups during the Performance Period, as further described below. Upon (i) the expiration of the Performance Period, and (ii) the Committee’s determination and certification of the extent to which the Performance Goal has been achieved, the Participant shall become vested in the number of shares of Restricted Stock that corresponds to the level of achievement of the Performance Goal set forth below that is certified by the Committee. Such determination and certification shall occur no later than sixty (60) days after the conclusion of the Performance Period. If the Participant’s employment terminates prior to the end of the Performance Period, all shares of Restricted Stock shall automatically be forfeited as of the date of the Participant’s termination of employment; provided, however, that the Participant may be eligible to receive a cash payment as described in Section 2 below.
Determination of Peer Groups:
     The “Peer Groups” used for purposes of this Exhibit A shall be those companies included in each of (1) a custom peer group consisting of the companies set forth on Exhibit B (the “Custom Real Estate Group”) and (2) the S&P 500 Index (the “S&P 500 Group”), on the first day of the Performance Period, subject to change as described below. The Custom Real Estate Group shall be weighted as 60% of the final vesting calculation described below, and the S&P 500 Group shall be weighted as 40% of the final vesting calculation described below.
     If a company in a Peer Group experiences a bankruptcy event during the Performance Period, the company will remain in the Peer Group and its stock price will continue to be tracked for purposes of the Total Shareholder Return calculation. If the company is subsequently acquired or goes private, the provisions below will apply. If the company liquidates, the company will remain in the Peer Group and its Ending Stock Price will be reduced to zero.
     If a company in a Peer Group is acquired by another company in the same Peer Group, the acquired company will be removed from the Peer Group and the surviving company will remain in the Peer Group.
     If a company in a Peer Group is acquired by a company not in the same Peer Group, the acquired company will remain in the Peer Group, and its Ending Stock Price will be equal to the value per share of the consideration paid to the shareholders of the acquired company in the transaction. The surviving company in such transaction will not be added to the Peer Group.
     If a company in a Peer Group ceases to be a public company due to a going private transaction, the company will remain in the Peer Group, and its Ending Stock Price shall be

5


 

equal to the value per share of the consideration paid to the shareholders of the target company in the transaction.
     Changes in the S&P 500 Index and the Custom Real Estate Group during the Performance Period will not affect the Peer Groups, except as described above.
Calculation of Total Shareholder Return:
     “Total Shareholder Return” for the Company and each company in the Peer Groups shall include dividends paid and shall be determined as follows:
         
Total Shareholder Return
  =   Change in Stock Price + Dividends Paid
 
      Beginning Stock Price
     “Beginning Stock Price” shall mean the average closing sale price of one (1) share of common stock for the ten (10) trading days immediately prior to the first day of the Performance Period. The Beginning Stock Price shall be appropriately adjusted to reflect any stock splits, reverse stock splits or stock dividends during the Performance Period. Such closing sale prices shall be as reported on the New York Stock Exchange, such other national securities exchange, or as reported by an applicable automated quotation system, the OTC Bulletin Board, or otherwise, as applicable.
     “Change in Stock Price” shall mean the difference between the Ending Stock Price and the Beginning Stock Price.
     “Dividends Paid” shall mean the total of all cash and in-kind dividends paid on one (1) share of stock during the Performance Period.
     “Ending Stock Price” shall mean the average of the thirty-six month-end closing sale prices of one (1) share of common stock for each month during the Performance Period completed immediately prior to the last day of the Performance Period, except as otherwise provided under “Determination of Peer Groups” above. Such closing sale prices shall be as reported on the New York Stock Exchange, such other national securities exchange, or as reported by an applicable automated quotation system, the OTC Bulletin Board, or otherwise, as applicable.
     “Performance Period” shall mean the period commencing on February 7, 2011, and ending on January 31, 2014.
Calculation of Weighted Average Percentile Rank:
     Following the Total Shareholder Return determination for the Company and the companies in each Peer Group, the “Company Rank” for each Peer Group shall be determined by listing each company in each Peer Group (including the Company) from highest Total Shareholder Return to lowest Total Shareholder Return and counting up to the Company from the company with the lowest Total Shareholder Return.

6


 

     The Company’s separate “Percentile Rank” for each Peer Group shall then be determined as follows:
         
Percentile
      Company Rank in each Peer Group
Rank for
  =   Total Number of companies in each Peer
each Peer
      Group including the Company
Group
       
      The Company’s “Weighted Average Percentile Rank” shall then be calculated as the sum of (i) the Company’s Percentile Rank in the Custom Real Estate Group multiplied by 60%, and (ii) the Company’s Percentile Rank in the S&P 500 Group multiplied by 40%. For example, at the conclusion of the Performance Period, if the Company’s Percentile Rank in the Custom Real Estate Group were 65%, and the Company’s Percentile Rank in the S&P 500 Group were 50%, the Company’s Weighted Average Percentile Rank would be calculated as follows: [(.65 x .60) + (.50 x .40)] x 100 = 59%.
Calculation of Number of Vested Shares of Restricted Stock:
     The percent of shares of Restricted Stock that vest shall then be determined based on the following chart:
         
Company's Weighted Average   Percent of Shares of
Percentile Rank   Restricted Stock to Vest
 
75th and above
    100 %
70th
    90 %
65th
    80 %
60th
    70 %
55th
    60 %
50th
    50 %
45th
    42.5 %
40th
    35 %
35th
    27.5 %
30th
    20 %
25th
    12.5 %
Below 25th
    0 %
Interpolation shall be used to determine the percent of shares of Restricted Stock that vest in the event the Company’s Weighted Average Percentile Rank does not fall directly on one of the ranks listed in the above chart. Once the percent of shares of Restricted Stock to vest has been determined, the percent shall be multiplied by the number of shares of Restricted Stock awarded

7


 

to determine the actual number of shares of Restricted Stock that vest, rounded to the next highest whole share. All shares of Restricted Stock that do not vest in accordance with this Exhibit A shall be automatically forfeited.
2. Termination Provisions.
     (a) Generally. The Restricted Stock awarded under this Agreement shall vest only if the Participant’s employment with the Company is continuous (as defined below) through the end of the Performance Period.
     (b) Death, Disability or Retirement. If prior to the end of the Performance Period, a Participant ceases to be an Employee due to death, Disability or Retirement, all Restricted Stock awarded under this Agreement shall be forfeited immediately. Notwithstanding the foregoing, however, a Participant subject to any of the foregoing events shall be eligible to receive a cash payment based on the Fair Market Value of a pro rata portion of their shares of Restricted Stock that would have vested at the end of the Performance Period, which payment, if any, shall be made after the conclusion of the Performance Period. The determination of a cash payment, if any, made by the Committee pursuant to this Section 2(b) shall be made at the same time as the vesting determination shall be made for Participants who remained employed by the Company through the last day of the Performance Period. The cash payment, if any, shall be determined by multiplying the number of shares of Restricted Stock that would have vested had the Participant remained employed through the last day of the Performance Period by a fraction, the numerator of which is equal to the number of days of the Performance Period that the Participant was employed by the Company, and the denominator of which is the number of days in the Performance Period, multiplied by the closing price of a share of Company Common Stock on the date that the vesting determination is made by the Committee. Any cash payment shall be paid by the Company within thirty (30) days following the Committee’s vesting determination.
     (1) For purposes of this Exhibit A, “Retirement” shall mean (i) a voluntary termination of employment with the Company and all Subsidiaries by the Participant after the Participant has completed five (5) years of continuous service and attainment of age 55, or (ii) as otherwise determined by the Committee. A Participant shall not be “retired” for purposes of this definition if the Participant performs, or plans to perform, services (as an employee, independent contractor or in another capacity) on a substantially full-time basis (as determined by the Committee) for any third party.
     (2) A Participant’s service remains “continuous” for purposes of vesting under this Exhibit A even if the Participant goes on military leave, sick leave, or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of service is required by the terms of the leave or by applicable law. However, the Participant must return to active work promptly, for a substantial period of time, upon the termination of such approved leave, or an interruption of service will be deemed to have occurred as of the date such leave began.
     (c) Other Termination of Employment. If prior to the end of the Performance Period, the Participant ceases to be an Employee for any reason other than death, Disability or

8


 

Retirement, the shares of Restricted Stock that are not vested on the date of such termination shall be forfeited immediately upon such termination without any payment to the Participant.
     (d) Change in Control. In the event of a Change in Control of the Company, the shares of Restricted Stock that are not vested will vest according to the greater of (i) 50% of the shares granted or (ii) the Company’s Total Shareholder Return as compared to the Total Shareholder Returns of the Peer Groups and determined in accordance with Section 1, with the Performance Period ending on the date of the Change in Control. If prior to a Change in Control occurring during the Performance Period, a Participant ceases to be an Employee due to death, Disability or Retirement, the Participant shall be eligible to receive a cash payment under this Section 2(d) in an amount determined by multiplying the total number of shares of Restricted Stock (prior to forfeiture pursuant to Section 2(b) above) by a fraction, the numerator of which is equal to the number of days of the Performance Period that the Participant was an Employee, and the denominator of which is the number of days in the Performance Period, multiplied by the closing price of a share of Company Common Stock on the date of the Change in Control, or if the Company ceases to be a publicly traded company as a result of the Change in Control, the amount of the consideration paid for each share of outstanding Common Stock of the Company in connection with the Change in Control. Any cash payment shall be paid by the Company or its successor within thirty (30) days following the date of the Change in Control. If a cash payment is made to the Participant pursuant to this Section 2(d), the Participant shall not receive a cash payment pursuant to Section 2(b).
     (e) Section 409A Compliance. Notwithstanding any provision to the contrary in this Agreement, with respect to a Participant who ceases to be an Employee prior to the end of the Performance Period on account of either Disability or Retirement, and thereafter becomes entitled to a payment under Sections 2(b) or 2(d) of this Exhibit A, if such Participant was a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code as of the date of the termination of such Participant’s employment, then any cash amounts payable under Section 2(b) or 2(d) shall be paid instead to the Participant on the later of (x) the date on which a cash payment, if any, would otherwise be paid to the Participant pursuant to the terms of Section 2(b) or 2(d), and (y) the date which is six months following the Participant’s date of termination, and not before. Furthermore, notwithstanding any provision to the contrary in this Agreement, with respect to a Participant who, prior to the end of the Performance Period, ceases to be an Employee due to death, Disability or Retirement, and thereafter a Change in Control occurs, the Participant shall not be eligible to receive any cash payment pursuant to Section 2(d) if the Change in Control does not also qualify as a change in the ownership or effective control of a corporation or a change in the ownership of a substantial portion of the assets of a corporation for purposes of Section 409A(a)(2)(A)(v) of the Code and the applicable Treasury regulations under that section. If, pursuant to the preceding sentence, a Change in Control occurs but fails to qualify as a Qualifying Change of Control, the terms of this Agreement shall remain in effect after the date of such Change in Control, and the Participant shall remain eligible for a cash payment at the end of the Performance Period pursuant to Section 2(b) or upon a subsequent Change in Control that also qualifies as a Qualifying Change of Control pursuant to Section 2(d), in each case subject to and in accordance with the terms and conditions of this Agreement.

9


 

EXHIBIT B
CUSTOM REAL ESTATE GROUP
     
Name   Ticker Symbol
AMB Property Corporation
  AMB
Developers Diversified Realty Corporation
  DDR
Duke Realty Corporation
  DRE
Highwoods Properties, Inc.
  HIW
Jones Lang LaSalle Incorporated
  JLL
Kimco Realty Corporation
  KIM
The Macerich Company
  MAC
MDC Holdings Inc.
  MDC
NVR, Inc.
  NVR
Plum Creek Timber Company, Inc.
  PCL
Regency Centers Corporation
  REG
Rayonier Inc.
  RYN
Toll Brothers Inc.
  TOL
WP Carey & Co. LLC
  WPC

10

exv14w1
Exhibit 14.1
THE ST. JOE COMPANY
CODE OF BUSINESS CONDUCT AND ETHICS
INTRODUCTION
     It is the policy of The St. Joe Company and its subsidiaries (the “Company,” “we” or “our”) that our business shall be conducted in accordance with the highest legal and ethical standards. Our reputation for integrity is our most important asset and each employee, officer and member of the Board of Directors (a “director”) must contribute to the care and preservation of that asset.
     No code of business conduct or ethics can replace the thoughtful behavior of an ethical employee, officer or director. This Code of Business Conduct and Ethics (this “Code”) applies to all employees, officers and directors of the Company and is presented to assist you in guiding your conduct to enhance the reputation of the Company. This Code supersedes all previous codes and policy statements on this topic.
     This Code is drafted broadly. In that respect, it is our intent to exceed the minimum requirements of the law and industry practice. Mere compliance with the letter of the law is not sufficient to attain the highest ethical standards. Good judgment and great care must also be exercised to comply with the spirit of the law and of this Code.
     The provisions of this Code apply to you, your spouse and members of your immediate family. In addition, it covers any partnership, trust or other entity controlled by you, your spouse or members of your immediate family.
     The Company intends to enforce the provisions of this Code vigorously. Violations could lead to sanctions, including dismissal or removal from your position with the Company, as well as civil and criminal liability in some cases.
     Inevitably, this Code addresses questions and situations that escape easy definition. No corporate code can cover every possible question of business conduct. There may be times when you are unsure about how this Code applies. When in doubt, ask yourself the following questions and seek guidance from the Company before you act:
    Do I have all of the facts and information I need?
 
    Will my action violate any law, regulation or Company policy or does it seem improper or unethical?
 
    Will my action be fair to everyone involved or will it be questioned by my supervisors, associates, family or the general public?
 
    How will this action affect the Company’s reputation and my reputation?

- 1 -


 

Questions About The Code
     You should raise any questions about how to interpret this Code with the Company’s Senior Vice President and Corporate Counsel, who will serve as the Compliance Officer for this Code (the “Compliance Officer”). The Compliance Officer may be contacted by telephone at 850-588-2202 or by e-mail at reece.alford@joe.com.
Reporting Suspected Violations
     Compliance with this Code is a shared responsibility for all employees, officers and directors. If you know of or suspect any illegal or unethical conduct, or any other violation of this Code, you should promptly report this to your supervisor and the Compliance Officer. Whenever you are in doubt, it is best to raise your concern. If you are not comfortable contacting your supervisor or the Compliance Officer for any reason, or if you feel appropriate action is not being taken, you should contact the Chief Executive Officer or the Chairman of the Audit and Finance Committee of the Board of Directors by calling the Company’s toll-free reporting hotline at 1-866-234-8643 (the “Hotline”).
     It is the Company’s policy that there will be no retaliation against any person who reports in good faith actual or suspected violations of this Code. Anyone who attempts to retaliate will be subject to disciplinary action, up to and including dismissal or removal from his or her position with the Company.
Confidentiality
     To the extent possible, we will keep confidential the identity of anyone reporting a violation of this Code. We will also keep confidential the identities of employees, officers or directors about whom allegations of violations are brought, unless or until it is established that a violation has occurred.
     If you are concerned about confidentiality, you may place an anonymous call to the Company’s reporting Hotline. The Hotline is available 24 hours a day, 7 days a week, 365 days a year. To reach the Hotline, call toll-free 1-866-234-8643. The Chairman of the Audit and Finance Committee, other members of the Audit and Finance Committee and the Compliance Officer are the only persons able to retrieve reports made through the Hotline.
Enforcement
     The conduct of each employee matters vitally to the Company. A misstep by a single employee can cost the Company dearly and can undermine all of our reputations. For these reasons, violations of this Code may lead to significant penalties, including dismissal or removal from your position with the Company, as well as civil and criminal liability in some cases.

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Waivers
     Under the rules of the New York Stock Exchange, any waiver of this Code for executive officers or directors:
    may be made only by the Board of Directors or by the Governance and Nominating Committee of the Board of Directors; and
 
    must be promptly disclosed to the Company’s shareholders by press release, website disclosure or filing a Form 8-K with the Securities and Exchange Commission.
     In order to request a waiver of a provision of this Code, employees, officers and directors should contact the Compliance Officer at 850-588-2202 or by e-mail at reece.alford@joe.com and, in the case of a request by an executive officer or director, the Compliance Officer shall promptly notify the Board of Directors or the Governance and Nominating Committee of the Board of Directors of such request.
CONFLICTS OF INTEREST
     We rely on the integrity and undivided loyalty of our employees, officers and directors to maintain the highest level of objectivity in performing their duties. You are expected to avoid any situation in which your personal interests conflict, or have the appearance of conflicting, with those of the Company. You must not allow personal considerations or relationships to influence you in any way when representing the Company in business dealings.
     A “conflict of interest” occurs when an individual’s private interest interferes in any way - or even appears to interfere — with the interests of the Company as a whole. A conflict situation can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform work on behalf of the Company objectively and effectively. Conflicts also arise when an employee, officer or director, or a member of his or her immediate family, receives an improper personal benefit as a result of such position with the Company.
     You must exercise great care any time your personal interests might conflict with those of the Company. The appearance of a conflict often can be just as damaging as an actual conflict. Prompt and full disclosure is always the correct first step toward identifying and resolving any potential conflict of interest.
     Officers and employees must disclose to the Compliance Officer any personal activities and financial interests that could interfere with, or give the appearance of interfering with, such officer’s or employee’s judgment or decisions as a Company employee, including, but not limited to, all proposed related person transactions. Except as indicated below, the Compliance Officer will then determine if there is a conflict of interest and, if so, how to resolve it without compromising the Company’s interests. The

- 3 -


 

Compliance Officer will report any conflict of interest involving any executive officer to the Board of Directors and any conflict of interest involving any other officer to the Chief Executive Officer. The Board of Directors will address any conflict of interest issue involving any executive officer and the Chief Executive Officer will address any conflict of interest issue involving any other officer.
     If an actual or potential conflict of interest arises for a director, the director must promptly disclose such conflict of interest by notifying the Chairman of the Governance and Nominating Committee of the Board and the Compliance Officer. The Board of Directors will address any conflict of interest issue involving a director. A director must recuse himself or herself from any decision or vote by the Board of Directors regarding an actual or potential conflict of interest involving such director.
     Set forth below are several common problems involving conflicts of interest. The list is not exhaustive. Each employee, officer and director has a special responsibility to use his or her best judgment to assess objectively whether there might be even the appearance of acting for reasons other than to benefit the Company, and to discuss any possible conflict of interest openly and candidly with the Compliance Officer.
     Use of Company Business Relationships: Employees and officers who deal with the Company’s tenants, subcontractors, suppliers or other third parties are placed in a special position of trust and must exercise great care to preserve their independence. You should not take advantage of these business relationships to obtain a personal benefit, including special consideration, discounts, extraordinary services or similar personal benefits. This prohibition does not prevent you from taking advantage of discounts or other market concessions otherwise available to persons not affiliated with the Company. However, you must not use your Company affiliation to obtain concessions not otherwise available in exchange for any actual or implied business commitment from the Company. If you have questions with regard to the applicability of these rules to a personal situation, you should consult the Compliance Officer. In addition, if you use Company subcontractors or suppliers on a direct basis, you should make full disclosure to the Compliance Officer.
     Receiving Payments and Gifts: You should always exercise caution when offering or accepting any gifts or benefits to or from anyone seeking to do business with the Company or any competitor of the Company.
     No employee, officer or director, regardless of position, will offer or give (directly or indirectly) any gift, “kickback” or other improper payment or consideration for assistance or influence concerning any transaction affecting the Company. No employee, officer or director, regardless of position, may ask for or accept (directly or indirectly) any gift or favor or other improper payment or consideration from a customer, supplier, government official or employee or from any other person in consideration for assistance or influence concerning any transaction affecting the Company. Anyone receiving an offer of a gift, gratuity or other personal benefit designed to influence a business transaction must report the incident to the Compliance Officer.

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Guidelines for offering or accepting gifts are as follows:
    Giving and accepting modest gifts or entertainment as a part of normal business courtesy and hospitality are permitted provided that the gift is also permitted by applicable law.
 
    In all instances employees, officers and directors should use good business judgment and err on the side of not giving or accepting, either directly or indirectly, any questionable gift or benefit.
 
    This Code does not preclude you from having a social relationship with a person doing business with the Company, which may include giving and receiving items of financial value, provided the relationship is purely social and involves no expressed or implied business commitment.
     If you are in doubt as to your ability to accept or to give certain gifts or benefits, please consult the Compliance Officer.
          Personal Financial Interests / Related Person Transactions: You should avoid any outside personal financial interests that might be in conflict with the interests of the Company. A financial interest includes any interest as an employee, officer, owner, stockholder, creditor, debtor, vendor or customer.
          Further, you may not have any direct or indirect material interest in any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which the Company, or a competitor of the Company, was, is or will be a participant (each a “related person transaction”). Indirect interests include those through (1) an immediate family member (i.e., spouse, child, stepchild, parent, stepparent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, or person sharing your household); (2) any person acting on your behalf; or (3) any firm, corporation, partnership, limited liability company or other entity in which you or any of your immediate family members are an employee, officer, partner or principal (or similar position) or with which you or your immediate family members have a significant business relationship.
          This policy against related person transactions does not apply to interests in transactions arising from:
    arms-length purchases or sales of goods, real property or services;
 
    your position as a director of another corporation or organization that is a party to the transaction;
 
    the direct or indirect ownership of less than a 5% equity interest in a public company which is a party to the transaction; and

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    St. Joe employee benefit policies and programs.
     The Compliance Officer may adopt procedures to monitor compliance with this policy.
     Outside Employment by Employees and Officers: A conflict of interest exists if your outside business activities can affect your performance as a St. Joe employee or officer. Employees and officers should not engage in outside jobs or other business activities that compete with the Company in any way. Further, any outside employment (“moonlighting”) may interfere with the job being performed for the Company and is discouraged. Employees and officers must disclose any outside employment to the Vice President of Human Resources and the Compliance Officer. In no case should any outside work be performed during Company hours or with the use of Company equipment, materials, vehicles or other property. In addition, any outside work must not involve any actual or potential conflict of interest with your duties at the Company. This restriction is not intended to preclude you from doing part-time work on your own time, but it is intended to ensure that your job at the Company has top priority in all respects.
     Corporate Boards: The director of an organization has access to sensitive information and charts the course of the entity. If you are invited to serve as a director of an outside organization, the Company must take safeguards to shield both the Company and you from even the appearance of impropriety. For that reason, any employee or officer invited to join the board of directors of another organization (including a nonprofit or other charitable organization) must obtain the approval of the [Compliance Officer]. Prior to accepting an invitation to serve on another public company board, a director of the Company must provide notice to the Chairman of the Governance and Nominating Committee of the Board. The Governance and Nominating Committee will evaluate the proposed service in relation to the Company’s policies and principles and will advise the affected director of its conclusion. The affected director will be expected to act in accordance with the recommendation of the Governance and Nominating Committee.
CORPORATE OPPORTUNITIES
     Employees, officers and directors are prohibited from (a) taking for themselves personally opportunities that are discovered through the use of corporate property, information or position; (b) using corporate property, information, or position for personal gain; and (c) competing with the company. Employees, officers and directors owe a duty to the Company to advance the Company’s legitimate interests when the opportunity to do so arises.
     In general, you should not divert for personal gain any business opportunity available to the Company. This problem may arise, for example, if you become aware through the use of corporate property, information or position of a real estate investment or development opportunity in which the Company is or is reasonably likely to be interested, and then participate in the transaction personally or inform others of the opportunity before the Company has the chance to participate in the transaction. The use

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by you or any member of your immediate family of any business opportunity reasonably related to the Company’s business of which you become aware through your position or relationship with the Company, without first obtaining the written consent of the Company, is strictly prohibited.
USE AND PROTECTION OF COMPANY ASSETS
     Proper and efficient use and protection of the Company’s assets is the responsibility of all employees, officers and directors. Company facilities, materials, equipment, information and other assets should be used only for conducting the Company’s business and are not to be used for any unauthorized purpose. The Company does not make loans to directors or executive officers.
FAIR DEALING
     It is the Company’s policy to deal fairly with its customers, suppliers, competitors and employees. In the course of business dealings on behalf of the Company, no employee, officer or director should take advantage of another party through manipulation, concealment, abuse of privileged information, misrepresentation of materials facts or any other unfair business practice.
CONFIDENTIAL INFORMATION
     One of our most important assets is our confidential corporate information. Our legal obligations and competitive position often mandate that this information remain confidential. Examples of confidential information include marketing plans, sales and marketing data, customer and employee records, research data, pricing information, strategies, information pertaining to new products, services or development opportunities and any non-public information that might be of use to competitors, or harmful to the company or its customers, if disclosed.
     You must protect our confidential information to prevent inappropriate or unauthorized disclosures. Be careful when using the telephone, fax, telex, e-mail, and other electronic means of storing and sending information. Do not discuss confidential information in public places where others may overhear. Never provide confidential information to outsiders without first getting the approval of and a written form of confidentiality agreement from the Compliance Officer.
INSIDER TRADING AND STOCK TRANSACTIONS
     “Insider trading,” or using “inside information” to purchase or sell securities (for example, stocks, bonds, options, etc.), is illegal. You cannot use information gained through the Company, before this information is known publicly, to buy or sell the securities of any company, including the Company. Nor can you give inside information to anyone else. In summary, our policy prohibits you from using or disclosing material,

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non-public information that you may acquire during the course of your employment with the Company or your service as a director of the Company .
     Examples of material information are:
    earnings and financial results;
 
    financial forecasts;
 
    changes in dividends;
 
    possible mergers, acquisitions, divestitures or joint ventures;
 
    information about important products, services or development opportunities or related governmental rulings;
 
    major litigation developments;
 
    major changes in business direction; and
 
    executive appointment and organizational changes.
     Information is considered non-public unless it has been disclosed to the public, through press releases or filings with the Securities and Exchange Commission, for example, for an adequate period of time. Unless otherwise notified by the Compliance Officer, you may not trade until 48 hours after the Company issues a press release or files a report with the Securities and Exchange Commission that discloses material information, such as a quarterly earnings release, that was previously non-public.
     In addition, directors, executive officers, members of the finance and legal departments, and certain other employees who have been notified in writing by the Compliance Officer that this provision applies to them must pre-clear all transactions in Company stock with the Compliance Officer. The Compliance Officer must pre-clear transactions in Company stock with the Chief Executive Officer of the Company. Given their inherent speculative nature, derivative transactions in the Company’s common stock (i.e., trading in puts or calls) and short selling of the Company’s common stock are prohibited. Furthermore, the Company does not backdate or reprice stock options.
     Securities law violations are taken very seriously. Government agencies are able to monitor trading activities through computerized records searches, with violations resulting in large civil and criminal penalties against companies and individuals.
     If you have any questions regarding trading in the Company’s securities or whether information is material or non-public, you should contact the Compliance Officer.
MEDIA AND PUBLIC INQUIRIES
     We are committed to delivering accurate and reliable information to the media, financial analysts, investors, brokers, and other members of the public. All public disclosures, including forecasts, press releases, speeches, and other communications, will be honest, accurate, timely, and representative of the facts. To ensure consistent, accurate delivery of Company information, employees, officers and directors are not authorized to

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answer questions from the news media, securities analysts, investors, or other members of the public. When approached for information, you must record the name of the person making the inquiry and immediately notify the Vice President — Communications.
ACCOUNTING MATTERS
     Internal Accounting Controls
     The Company places the highest priority on “best practices” disclosure. Our annual reports, quarterly reports, press releases and other public disclosures of the Company’s financial results reflect how seriously we take this responsibility.
     To this end, we have established an internal Disclosure Committee that includes key members of senior management responsible for our internal financial and risk management controls. This Disclosure Committee helps senior management oversee and evaluate the Company’s internal controls, reporting systems and the integrity of our financial information. Senior management shall provide full, fair, accurate, timely, and understandable disclosure in all reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in other public communications made by the Company.
     Each employee shares this responsibility with senior management and the Board of Directors and must help maintain the integrity of the Company’s financial records. We trust that every employee understands that protecting the integrity of our public disclosures is one of the highest priorities we have as a company.
     If you ever observe conduct that causes you to question the integrity of our internal accounting controls and/or disclosure, or you otherwise have reason to doubt the accuracy of our financial reporting, you should review the Company’s policy for reporting such matters. You can find this policy entitled “Employee Complaint Procedure for Accounting and Auditing Matters” on the Company’s website (www.joe.com) under “Corporate Governance.”
     Improper Influence on the Conduct of Audits
     It is unlawful for any employee, officer or director of the Company, or any other person acting under the direction of such person, to take any action to fraudulently influence, coerce, manipulate, or mislead the independent accountants engaged in the performance of an audit of the Company’s financial statements for the purpose of rendering such financial statements materially misleading. Any such action is a violation of law and of this Code. Types of conduct that might constitute improper influence include the following:
    Offering to pay bribes or other financial incentives, including offering future employment or contracts for non-audit services;

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    providing an auditor with inaccurate or misleading legal analysis;
 
    threatening to cancel or canceling existing non-audit or audit engagements if the auditor objects to the Company’s accounting practices or procedures;
 
    seeking to have a partner removed from the audit engagement because the partner objects to the Company’s accounting practices or procedures;
 
    blackmailing; and
 
    making physical threats.
Any employee, officer or director who engages in such conduct will be subject to sanctions, including dismissal or removal from his or her position with the Company, in addition to potential civil and criminal liability.
BOOKS AND RECORD KEEPING
     Accurate business records are relied upon by our employees, customers, tenants, suppliers, subcontractors, shareholders and by various government agencies. Therefore, our books, records and accounts (whether computerized, paper or other) must fully and accurately reflect our business transactions. These include financial statements, accounting records, time sheets, vouchers, bills, invoices, expense reports, payroll and benefits records, performance evaluations, and other essential Company data. Financial, accounting and related records must be entered in reasonable detail, in accordance with approved accounting practices. No false or misleading entries or failure to make required entries will be permitted for any reason.
WORKING WITH GOVERNMENTS
     Our business requires us to interact with governmental authorities, including states, counties and municipalities, and government agencies and officials. We are committed to conducting our business with all government representatives with the highest ethical standards and in compliance with applicable laws and regulations. You should not offer, directly or indirectly, anything of value to obtain an improper advantage in representing our interests to government authorities.
     Prior to contributing Company funds for political purposes at the state or federal level, you must obtain the approval of the Company’s Vice President-Public Affairs. Prior to contributing Company funds at the county, municipality or other local level, you must obtain the approval of the public affairs coordinator designated by the Vice President-Public Affairs for that locality.
COMPLIANCE WITH APPLICABLE LAWS

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     Applicable laws of every jurisdiction in which the Company operates must be followed, including environmental, health and safety laws. Each employee, officer and director is charged with the responsibility of acquiring sufficient knowledge of the laws relating to his or her position with the Company and particular duties in order to recognize potential dangers and to know when to seek legal advice. In any instance where the law is ambiguous or difficult to interpret, the matter should be reported to the Company’s management who, in turn, will seek legal advice from the Company’s legal counsel as appropriate.
ANTITRUST AND COMPETITION LAWS
     Antitrust and competition laws protect free enterprise. While these laws are complex, at a minimum they prohibit agreements between the Company and our competitors that affect prices, terms or conditions of sale, or fair competition.
     In order to avoid creating even the appearance of improper agreements, this Code prohibits:
    discussions or other contacts with competitors regarding price fixing, stabilization, competitive bids, or discrimination;
 
    discussions or other contacts with suppliers and customers that unfairly restrict trade or exclude competitors from the marketplace;
 
    oral or written agreements with competitors regarding territories or markets in which competitive products are sold, allocating markets or customers; and
 
    oral or written agreements with others to boycott customers or suppliers.
If you are responsible for areas of the Company’s business where these laws apply, you must be aware of them and their implications. However, these laws are complex and you are expected to ask for advice from the Compliance Officer before you act.
Note: This Code does not create any contractual right to employment or employee benefits. In addition, nothing contained in this Code is intended to create, either directly or indirectly, any duty or obligation on the part of the Company which does not otherwise exist or arise under applicable law or otherwise alter existing rights, duties and obligations of the Company.

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exv21w1
Exhibit 21.1
THE ST. JOE COMPANY
LIST OF SUBSIDIARIES

(includes 100% directly owned entities, indirectly owned entities and joint venture entities of
which we may be a majority, equal or minority partner)
     
    STATE OF
COMPANY NAME   ORGANIZATION
Artisan Park, L.L.C.
  DE
Crooked Creek Utility Company
  FL
East San Marco, LLC
  FL
Florida Timber Finance I, LLC
  DE
Florida Timber Finance II, LLC
  DE
Florida Timber Finance III, LLC
  DE
Georgia Timber Finance I, LLC
  DE
MAH Holdings, LLC
  NC
Panama City Beach Venture, LLC
  DE
Paradise Pointe, L.L.C.
  FL
Park Point Land, LLC
  FL
Paseos, LLC
  DE
Plume Street, LLC
  DE
Plume Street Manager, LLC
  DE
Residential Community Title Company
  DE
Rivercrest, LLC
  DE
St. James Island Utility Company
  FL
St. Joe Capital I, Inc.
  DE
St. Joe Central Florida Contracting, Inc.
  FL
St. Joe Community Sales, Inc.
  FL
St. Joe Finance Company
  FL
St. Joe-Southwood Properties, Inc.
  FL
St. Joe Timberland Company of Delaware, L.L.C.
  DE
St. Joe Utilities Company
  FL
SweetTea Publishing, L.L.C.
  FL
Talisman Sugar Corporation
  FL

 

exv23w1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
The St. Joe Company:
We consent to the incorporation by reference in the registration statements (No. 333-23571, No. 333-43007, No. 333-51726, No. 333-51728, No. 333-106046, No. 333-127344, and No. 333-127345) on Form S-8 of The St. Joe Company of our reports dated March 2, 2011, with respect to the consolidated balance sheets of The St. Joe Company as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in equity, and cash flow for each of the years in the three-year period ended December 31, 2010, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2010, which reports appear in the December 31, 2010 annual report on Form 10-K of The St. Joe Company.
/s/ KPMG LLP
March 2, 2011
Jacksonville, Florida
Certified Public Accountants

exv31w1
Exhibit 31.1
CERTIFICATION
I, Wm. Britton Greene, certify that:
1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2010 of The St. Joe Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 2, 2011
         
     
  /s/ Wm. Britton Greene    
  Wm. Britton Greene   
  Chief Executive Officer   
 

 

exv31w2
Exhibit 31.2
CERTIFICATION
I, William S. McCalmont, certify that:
1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2010 of The St. Joe Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 2, 2011
         
     
  /s/ William S. McCalmont    
  William S. McCalmont   
  Chief Financial Officer   
 

 

exv32w1
Exhibit 32.1
CERTIFICATION
     Pursuant to 18 USC §1350, the undersigned officer of The St. Joe Company (the “Company”) hereby certifies that the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
         
     
  /s/ Wm. Britton Greene    
  Wm. Britton Greene   
  Chief Executive Officer   
 
Dated: March 2, 2011

 

exv32w2
Exhibit 32.2
CERTIFICATION
     Pursuant to 18 USC §1350, the undersigned officer of The St. Joe Company (the “Company”) hereby certifies that the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
         
     
  /s/ William S. McCalmont    
  William S. McCalmont   
  Chief Financial Officer   
 
Dated: March 2, 2011

 

exv99w1
Exhibit 99.1
Table 1
Residential Real Estate
Sales Activity
Three Months Ended December 31,
($ in millions)
                                                                 
    2010     2009  
    Number                             Number                      
    of Units             Cost of     Gross     of Units             Cost of     Gross  
    Closed     Revenue     Sales(1)     Profit     Closed     Revenue     Sales(1)     Profit  
 
                                                               
Homesites
    40     $ 2.9     $ 2.0     $ 0.9       52     $ 2.7     $ 2.4     $ 0.3  
Homes (2)
    1       0.6       0.6             12       3.7       3.7        
 
                                               
Total (3)
    41     $ 3.5     $ 2.6     $ 0.9       64     $ 6.4     $ 6.1     $ 0.3  
 
                                               
 
(1)   Cost of sales for homesites in the fourth quarter of 2010 consisted of $1.8 million in direct costs, $0.2 million in selling costs and less than 0.1 million in indirect costs. Cost of sales for homesites in the fourth quarter of 2009 consisted of $2.1 million in direct costs, $0.1 million in selling costs and $0.2 million in indirect costs. Cost of sales for homes in the fourth quarter of 2010 consisted of $0.5 million in direct costs, $0.1 million in selling costs and less than $0.1 million in indirect costs. Cost of sales for homes in the fourth quarter of 2009 consisted of $3.2 million in direct costs, $0.2 million in selling costs and $0.3 million in indirect costs.
 
(2)   Homes include single-family and multifamily units. Multifamily revenue is recognized, if preconditions are met, on a percentage-of-completion basis. As a consequence, revenue recognition and closings may occur in different periods.
 
(3)   Excludes homes and homesites sold as part of the Victoria Park bulk sale in December 2009.
Year Ended December 31,
($ in millions)
                                                                 
    2010     2009  
    Number                             Number                      
    of Units             Cost of     Gross     of Units             Cost of     Gross  
    Closed     Revenue     Sales(1)     Profit     Closed     Revenue     Sales(1)     Profit  
 
                                                               
Homesites
    83     $ 7.5     $ 5.4     $ 2.1       80     $ 6.5     $ 4.6     $ 1.9  
Homes (2)
    2       1.0       0.9       0.1       84       24.8       24.0       0.8  
 
                                               
Total (3)
    85     $ 8.5     $ 6.3     $ 2.2       164     $ 31.3     $ 28.6     $ 2.7  
 
                                               
 
(1)   Cost of sales for homesites for the year ended 2010 consisted of $4.0 million in direct costs, $1.0 million in selling costs and $0.4 million in indirect costs. Cost of sales for homesites for the year ended 2009 consisted of $3.9 million in direct costs, $0.2 million in selling costs and $0.5 million in indirect costs. Cost of sales for homes for the year ended 2010 consisted of $0.7 million in direct costs, $0.1 million in selling costs and $0.1 million in indirect costs. Cost of sales for homes for the year ended 2009 consisted of $18.8 million in direct costs, $1.7 million in selling costs and $3.5 million in indirect costs.
 
(2)   Homes include single-family and multifamily units. Multifamily revenue is recognized, if preconditions are met, on a percentage-of-completion basis. As a consequence, revenue recognition and closings may occur in different periods.
 
(3)   Excludes homes and homesites sold as part of the Victoria Park bulk sale in December 2009.

 


 

Table 2
Residential Real Estate Sales Activity
Three Months Ended December 31,
($ in thousands)
                                                                 
    2010     2009  
    Units     Avg.             Avg.     Units     Avg.             Avg.  
    Closed     Price     Accepted (1)     Price     Closed     Price     Accepted(1)     Price  
Artisan Park (2)
                                                               
Multifamily Homes
                            6     $ 217.8       6     $ 217.8  
Hawks Landing
                                                               
Homesites
    15     $ 47.7       15     $ 47.7       5     $ 62.8       5     $ 62.8  
RiverCamps on Crooked Creek
                                                               
Single-Family Homes
                            1     $ 490.0       1     $ 490.0  
SouthWood
                                                               
Homesites
    12     $ 52.1       12     $ 52.1                          
SummerCamp
                                                               
Homesites
    1     $ 59.0       1     $ 59.0                          
Single-Family Homes
                                        (1 )     499.9  
Victoria Park (3)
                                                               
Homesites
                            41     $ 39.0       1     $ 75.0  
Single-Family Homes
                            2     $ 167.0       2     $ 167.0  
WaterColor
                                                               
Homesites
    5     $ 113.3       5     $ 113.3       2     $ 94.7       2     $ 94.7  
WaterSound
                                                               
Homesites
    2     $ 110.0       2     $ 110.0       1     $ 67.5       2     $ 85.0  
WaterSound West Beach
                                                               
Homesites
    5     $ 143.9       8     $ 139.9                          
Single-Family Homes
    1     $ 555.0       1     $ 555.0                          
WindMark Beach
                                                               
Homesites
                            3     $ 162.3       2     $ 197.2  
Single-Family Homes
                            3     $ 530.1       3     $ 530.1  
 
                                               
Total Homesites
    40     $ 72.6 (4)     43     $ 76.9 (4)     52     $ 51.1 (4)     12     $ 95.2 (4)
 
                                               
Total Single/Multifamily Homes
    1     $ 555.0 (4)     1     $ 555.0 (4)     12     $ 310.1 (4)     11     $ 292.8 (4)
 
                                               
Total
    41     $ 84.4       44     $ 87.0       64     $ 99.7       23     $ 189.7  
 
                                               
 
(1)   Contracts accepted during the quarter. Contracts accepted and closed in the same quarter are also included as units closed.
 
(2)   St. Joe owns 74 percent of Artisan Park.
 
(3)   Excludes homes and homesites sold as part of the Victoria Park bulk sale in December 2009.
 
(4)   Average prices differ from quarter to quarter primarily because of the relative mix and location of sales.

 


 

Year Ended December 31,
($ in thousands)
                                                                 
    2010     2009  
    Units     Avg.             Avg.     Units     Avg.             Avg.  
    Closed     Price     Accepted (1)     Price     Closed     Price     Accepted(1)     Price  
Artisan Park (2)
                                                               
Single-Family Homes
                            8     $ 352.8       8     $ 352.8  
Multifamily Homes
                            32       227.4       32       227.4  
Hawks Landing
                                                               
Homesites
    23     $ 51.0       23     $ 51.0       12     $ 63.5       12     $ 63.5  
RiverCamps on Crooked Creek
                                                               
Homesites
                            1     $ 72.9       1     $ 72.9  
Single-Family Homes
                            2     $ 470.0       2     $ 470.0  
RiverTown
                                                               
Homesites
    2     $ 31.3       2     $ 31.3                          
SouthWood
                                                               
Homesites
    17     $ 56.9       17     $ 56.9                          
St. Johns G & CC
                                                               
Single-Family Homes
                            2     $ 319.4       2     $ 319.4  
SummerCamp
                                                               
Homesites
    5     $ 251.8       5     $ 251.8       1     $ 220.0       1     $ 220.0  
Single-Family Homes
    1     $ 450.0       1     $ 450.0                          
Victoria Park (3)
                                                               
Homesites
                            43     $ 39.7       3     $ 61.1  
Single-Family Homes
                            19     $ 176.1       19     $ 176.1  
WaterColor
                                                               
Homesites
    19     $ 106.7       20     $ 106.3       10     $ 135.9       10     $ 135.9  
Single-Family Homes
                            17     $ 451.1       17     $ 451.1  
WaterSound
                                                               
Homesites
    3     $ 107.5       2     $ 110.0       3     $ 84.0       4     $ 88.6  
Single-Family Homes
                            1     $ 580.0       1     $ 580.0  
WaterSound Beach
                                                               
Homesites
    1     $ 1,253.7       1     $ 1,253.7       1     $ 199.3       1     $ 199.3  
PRC Shares
                                               
WaterSound West Beach
                                                               
Homesites
    11     $ 122.3       14     $ 124.6       3     $ 190.9       3     $ 190.9  
Single-Family Homes
    1     $ 555.0       1     $ 555.0                          
WindMark Beach
                                                               
Homesites
    2     $ 152.7       2     $ 152.7       6     $ 139.5       6     $ 139.5  
Single-Family Homes
                            3     $ 530.1       3     $ 530.1  
 
                                               
Total Homesites
    83     $ 105.0 (4)     86     $ 105.9 (4)     80     $ 74.8 (4)     41     $ 111.2 (4)
 
                                               
Total Single/Multifamily Homes
    2     $ 502.5 (4)     2     $ 502.5 (4)     84     $ 296.0 (4)     84     $ 296.0 (4)
 
                                               
Total
    85     $ 114.4       88     $ 115.0       164     $ 188.1       125     $ 235.4  
 
                                               
 
(1)   Contracts accepted during the quarter. Contracts accepted and closed in the same quarter are also included as units closed.
 
(2)   St. Joe owns 74 percent of Artisan Park.
 
(3)   Excludes homes and homesites sold as part of the Victoria Park bulk sale in December 2009.
 
(4)   Average prices differ from quarter to quarter primarily because of the relative mix and location of sales.

 


 

Table 3
Commercial Land Sales
Three Months Ended December 31,
                                 
    Number of Sales   Acres Sold   Gross Sales Price   Average Price/Acre
                    (in thousands)   (in thousands)
 
                               
2010
    1       1.7     $ 425     $ 250  
2009
    5       23.4       4,519       193  
Year Ended December 31,
                                 
    Number of Sales   Acres Sold   Gross Sales Price   Average Price/Acre
                    (in thousands)   (in thousands)
 
                               
2010
    4       18     $ 4,358     $ 237  
2009
    8       29       6,589       227  
Table 4
Rural Land Sales
Three Months Ended December 31,
                                 
    Number of Sales   Acres Sold   Gross Sales Price   Average Price/Acre
                    (in thousands)        
 
                               
2010
    6       266     $ 1,471     $ 5,520  
2009
    3       482       1,402       2,908  
     Also included in rural land sales in the fourth quarter of 2010 was $17.1 million of previously deferred revenue from a 2006 transaction with the Florida Department of Transportation.
Year Ended December 31,
                                 
    Number of Sales   Acres Sold   Gross Sales Price   Average Price/Acre
                    (in thousands)        
 
                               
2010
    13       606     $ 2,969     $ 4,897  
2009
    13       6,967       14,309       2,054  
Also included in rural land sales for 2010 was $20.6 million of previously deferred revenue from a 2006 transaction with the Florida Department of Transportation, $1.4 million related to the sale of 21 mitigation bank credits, $0.4 million from an easement and $0.5 million of other previously deferred revenue.

 


 

Table 5
Quarterly Segment Pretax Income (Loss)
From Continuing Operations
($ in millions)
                                                                         
    Dec. 31,     Sept. 30,     June. 30,     Mar. 31,     Dec. 31,     Sept. 30,     June. 30,     Mar. 31,     Dec. 31,  
    2010     2010     2010     2010     2009     2009     2009     2009     2008  
Residential
  $ (12.3 )   $ (16.5 )   $ (7.2 )   $ (11.3 )   $ (80.6 )   $ (19.7 )   $ (23.3 )   $ (14.2 )   $ (70.7 )
Commercial
    (1.2 )     1.5       (1.3 )     (0.4 )     1.3       (0.5 )     (0.7 )     (0.6 )     (0.3 )
Rural Land sales
    18.2       3.5       0.7       (0.3 )     0.9       (0.5 )     6.8       2.8       26.3  
Forestry
    1.9       0.8       2.2       1.4       1.3       1.2       1.1       1.1       0.8  
Corporate and other
    (8.0 )     (10.9 )     (9.2 )     (7.0 )     (8.8 )     (6.6 )     (57.8 )     (8.3 )     (4.6 )
 
                                                     
Pretax income (loss) from continuing operations (1)
  $ (1.4 )   $ (21.6 )   $ (14.8 )   $ (17.6 )   $ (85.9 )   $ (26.1 )   $ (73.9 )   $ (19.2 )   $ (48.5 )
 
                                                     
 
(1)   Includes one time charges as described in our SEC filings.
Table 6
Other Income (Expense)
($ in millions)
                                 
    Quarter Ended Dec. 31,     Year Ended Dec. 31,  
    2010     2009     2010     2009  
 
                               
Dividend and interest income
  $ 0.2     $ 0.5     $ 1.5     $ 2.7  
Interest expense
    (1.3 )     (0.8 )     (8.7 )     (1.2 )
Gain on sale of office buildings
    0.1       0.2       0.5       0.7  
Other
    0.8       1.7       2.5       2.4  
Retained interest in monetized installment notes
    0.1       0.1       0.4       0.4  
Fair value of standby guarantee
          (0.8 )           (0.8 )
 
                       
Total
  $ (0.1 )   $ 0.9     $ (3.8 )   $ 4.2  
 
                       
Table 7
Discontinued Operations, Net of Tax
($ in millions)
                                 
    Quarter Ended Dec. 31,     Year Ended Dec. 31,  
    2010     2009     2010     2009  
 
                               
Loss from operations of Victoria Hills Golf Club
        $ (4.3 )         $ (4.6 )
Loss from operations of St. Johns Golf & Country Club
          (2.1 )           (2.1 )
Loss from Sunshine State Cypress operations
                      (0.2 )
 
                       
Total
        $ (6.4 )         $ (6.9 )