UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Commission file number 1-10466

The St. Joe Company

(Exact name of registrant as specified in its charter)

(904) 301-4200

(Registrant’s telephone number, including area code)

None.

(Former name, former address and former fiscal year, if changed since last report)

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     YES þ          NO 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

APPLICABLE ONLY TO CORPORATE ISSUERS:

      As of November 4, 2005, there were 103,834,341 shares of common stock, no par value, issued and 75,306,994 outstanding, with 28,527,347 shares of treasury stock.

THE ST. JOE COMPANY

INDEX

PART I. FINANCIAL INFORMATION

THE ST. JOE COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)

See notes to consolidated financial statements.

THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except per share data)

See notes to consolidated financial statements.

THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands except per share amounts)

See notes to consolidated financial statements.

THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(Dollars in thousands)

See notes to consolidated financial statements.

THE ST. JOE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

      The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States for complete financial statements are not included herein. The interim statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2005 and the results of operations for the three-month and nine-month periods ended September 30, 2005 and 2004 and cash flows for the nine-month periods ended September 30, 2005 and 2004. The results of operations for the three-month and nine-month periods ended September 30, 2005 and cash flows for the nine-month period ended September 30, 2005 are not necessarily indicative of the results that may be expected for the full year.

      In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“FAS 150”). FAS 150 requires companies having consolidated entities with specified termination dates to treat minority owner’s interests in such entities as liabilities in an amount based on the fair value of the entities. Although FAS 150 was originally effective July 1, 2003, the FASB has indefinitely deferred certain provisions related to classification and measurement requirements for mandatorily redeemable financial instruments that become subject to FAS 150 solely as a result of consolidation. As a result, FAS 150 has no impact on the Company’s Consolidated Statements of Income for the three months or nine months ended September 30, 2005 and 2004. The Company has one consolidated entity with a specified termination date: Artisan Park, L.L.C. (“Artisan Park”). At September 30, 2005, the carrying amount of the minority interest in Artisan Park was $16.6 million and its fair value was $23.1 million. The Company has no other material financial instruments that are affected currently by FAS 150.

      In April 2005, the Securities and Exchange Commission (“SEC”) adopted a final rule regarding the compliance date for FASB Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“FAS 123(R)”), for public companies. The new rule changes the required date of implementation to the beginning of the first full fiscal year beginning after June 15, 2005. As a result, the Company plans to adopt FAS 123(R) as of January 1, 2006. FAS 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions), eliminating the alternative previously allowed to use the intrinsic value method of accounting. The grant date fair value will be estimated using option-pricing models adjusted for the unique characteristics of the instruments using methods similar to those required previously and currently used by the Company to calculate pro forma net income and earnings per share disclosures. The cost will be recognized ratably over the period during which the employee is required to provide services in exchange for the award. Upon implementation of FAS 123(R), the Company will recognize compensation cost over the vesting period in its financial statements for the unvested portion of existing options granted prior to the compliance date and the cost of stock options granted to employees after the compliance date based on the fair value of the stock options at grant date.

      For periods ending prior to January 1, 2006, as permitted by existing accounting standards, the Company has elected to not recognize compensation cost for stock options in its consolidated financial statements and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

instead to provide pro forma disclosure of stock-based compensation. Had the Company determined compensation costs based on the fair value at the grant date for its stock options, the Company’s net income would have been reduced to the pro forma amounts indicated below (in thousands except per share amounts):

      Earnings per share (“EPS”) is based on the weighted average number of common shares outstanding during the period. Diluted EPS assumes weighted average options have been exercised to purchase 728,441 and 916,918 shares of common stock in the three months ended September 30, 2005 and 2004, respectively, and that 610,350 and 320,605 shares of unvested restricted stock were issued in the three months ended September 30, 2005 and 2004, respectively, each net of assumed repurchases using the treasury stock method. Diluted EPS assumes weighted average options have been exercised to purchase 856,685 and 1,275,532 shares of common stock in the nine months ended September 30, 2005 and 2004, and that 568,199 and 182,013 shares of unvested restricted stock were issued in the nine months ended September 30, 2005 and 2004, respectively, each net of assumed repurchases using the treasury stock method.

      From August 1998 through September 30, 2005, the Board of Directors authorized a total of $800.0 million for the repurchase of the Company’s outstanding common stock from shareholders from time to time (the “Stock Repurchase Program”), of which approximately $740.2 million had been expended through September 30, 2005. From the inception of the Stock Repurchase Program to September 30, 2005, the Company repurchased from shareholders 26,134,811 shares. During the nine months ended September 30, 2005 and 2004, the Company repurchased from shareholders 842,400 and 1,221,865 shares, respectively.

      Executives have surrendered a total of 2,097,697 shares of Company stock since 1998 in payment of strike prices and taxes due on exercised stock options and taxes due on vested restricted stock, including 63,480 and 870,368 shares surrendered by executives in the nine month periods ended September 30, 2005 and 2004, respectively.

      Shares of Company stock issued upon the exercise of stock options for the nine month periods ended September 30, 2005 and 2004 were 550,013 shares and 1,989,342 shares, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Weighted average basic and diluted shares (taking into consideration shares issued, weighted average unvested restricted shares, weighted average options used in calculating EPS and treasury shares repurchased) for each of the periods presented are as follows:

      Certain prior year amounts have been reclassified to conform with the current year’s presentation. Cash flows from distributions of unconsolidated affiliates for the nine months ended September 30, 2005 and 2004, previously classified as investing activities, have been reclassified from the prior 2005 presentations to reflect distributions of income as operating activities and distributions of capital as investing activities. There was no change in the total distributions from unconsolidated affiliates for any period presented.

      The Company paid $22.8 million and $18.4 million for interest in the first nine months of 2005 and 2004, respectively. The Company capitalized interest expense of $9.0 million and $6.8 million during the first nine months of 2005 and 2004, respectively. The Company paid state income taxes, net of refunds, of $6.1 million and $2.5 million in the first nine months of 2005 and 2004, respectively.

      The Company’s non-cash activities in the periods presented included the surrender of shares of Company stock by executives of the Company as payment for the exercise of stock options, the tax benefit on exercises of stock options, the receipt of three notes receivable in payment for the sale of a subsidiary and the sale of an interest in an unconsolidated affiliate, and the receipt of a debt agreement in payment for an interest in another unconsolidated affiliate. During the nine months ended September 30, 2005 and 2004, executives surrendered Company stock worth $4.3 million and $20.9 million, respectively, as payment for strike prices of stock options. During the nine months ended September 30, 2005 and 2004, the Company recorded tax benefits on the exercises of stock options of $10.2 million and $18.1 million, respectively. In addition, during the first nine months of 2005, the Company received notes receivable in the amounts of $7.5 million in payment for the sale of a subsidiary and $9.4 million in payment for the sale of its interest in an unconsolidated affiliate. During the first nine months of 2004, the Company executed a debt agreement in the amount of $11.4 million as payment for its interest in another unconsolidated affiliate.

      Cash flows related to assets ultimately planned to be sold, including Towns & Resorts development and related amenities, sales of undeveloped and developed land by the land sales segment, the Company’s timberlands, and land and buildings developed by the Company and used for commercial rental purposes, are included in operating activities on the statements of cash flows. The Company’s assets purchased with tax-deferred proceeds are intended to be held for investment purposes and related cash flows from acquisitions and dispositions of those assets are included in investing activities on the statements of cash flows. Cash flows from investing activities also include purchases and dispositions of Company owned amenities and assets not held for sale. Distributions of income from unconsolidated affiliates are included in cash flows from operating activities; distributions of capital from unconsolidated affiliates are included in cash flows from investing activities.

      In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (as amended) (“FIN 47”). FIN 47 is applicable for future asset retirement obligations for which the obligation to retire the asset is unconditional but the timing and/or method of settlement are conditional

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

on a future event that may or may not be within an entity’s control. If the fair value of such an obligation can be reasonably estimated, a liability should be recognized at fair value when incurred, with any uncertainty as to timing or method of settlement taken into consideration when determining the fair value. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation and acknowledges that such information may not be available. FIN 47 is applicable for fiscal years ending after December 15, 2005. The Company plans to adopt FIN 47 as of December 31, 2005 and does not expect FIN 47 to have a material effect on its results of operations or financial position.

      In October 2005, the FASB published FASB Staff Position (“FSP”) No. FAS 13-1, Accounting for Rental Costs Incurred during a Construction Period (“FSP 13-1”), which stipulates that a lessee’s rental costs associated with operating leases during a construction period must be recognized as rental expense, included in income from continuing operations, and allocated over the lease term according to current guidance on accounting for leases. The Company plans to adopt FSP 13-1 beginning January 1, 2006 as required by the FSP. Upon adoption, the Company does not expect FSP 13-1 to have a material effect on its results of operations or financial position.

      In June 2005, the FASB ratified the EITF’s consensus on Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”). In addition, the FASB has issued FSP SOP 78-9-1,“Interaction of AICPA Statement of Position (SOP) 78-9 and EITF Issue 04-5” to amend SOP 78-9, Accounting for Investments in Real Estate Ventures, so that its guidance is consistent with the consensus reached by the EITF in EITF No. 04-5. EITF 04-5 establishes that determining control of a limited partnership requires judgment, but that generally a sole general partner is deemed to control a limited partnership unless the limited partners have (a) the ability to substantially liquidate the partnership or otherwise remove the general partner without cause and/or (b) substantive participating rights. The consensus is currently applicable to the Company for new or modified partnerships, and will otherwise be applicable to existing partnerships in 2006. This consensus applies to limited partnerships or similar entities, such as limited liability companies that have governing provisions that are the functional equivalent of a limited partnership. The Company is currently evaluating the effect of this consensus on its consolidation policies.

      In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections (“FAS 154”). FAS 154 requires companies making voluntary changes to their accounting policies to apply the changes retrospectively, meaning that past earnings will be revised to reflect the impact in each period, rather than the current practice of taking a single charge against current earnings. The statement applies to all voluntary changes in accounting policies and to new rules issued by the FASB that require companies to change their accounting, unless otherwise stated in the new rules. FAS 154 is effective for the Company beginning January 1, 2006, with earlier application allowed. The Company plans to adopt FAS 154 as of January 1, 2006 and does not expect FAS 154 to have a material effect on its current financial position or results of operations.

      Discontinued operations for 2005 include the sale and results of operations of Advantis Real Estate Services Company (“Advantis”), our commercial real estate services unit, the sales and results of operations of three commercial buildings sold in 2005, and the results of operations of one commercial building that was held for sale at September 30, 2005. Discontinued operations for 2004 include the results of operations of Advantis and the three commercial buildings sold in 2005 and one commercial building classified as held for sale, as well as the sales and results of operations of two commercial buildings sold in 2004.

      On September 7, 2005, the Company sold Advantis for a purchase price of $11.0 million, consisting of $3.5 million in cash and $7.5 million in notes receivable, for a net of tax loss of $6.2 million, or $0.08 per share. Advantis recorded revenues of $18.5 million and $70.0 million in the three-month and nine-month periods ended September 30, 2005, respectively, and $23.9 million and $66.7 million in the three-month and nine-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

month periods ended September 30, 2004, respectively. Advantis recorded pre-tax (losses) income of $(1.0) million and $(1.1) million in the three-month and nine-month periods ended September 30, 2005, respectively, and $0.1 million and $(0.1) million in the three-month and nine-month periods ended September 30, 2004, respectively. Under the terms of the sale, the Company will continue to use Advantis to manage certain of its commercial properties and Advantis may be involved in certain sales of Company land which occur in the future.

      Building sales included in discontinued operations in 2005 consisted of the sales of 1133 20^th Street in Washington, DC, sold on September 29, 2005, for proceeds of $46.9 million and a pre-tax gain of $19.7 million, Lakeview in Tampa, Florida, sold on September 7, 2005, for proceeds of $18.0 million and a pre-tax gain of $4.1 million, and Palm Court in Tampa, Florida, sold on September 7, 2005, for proceeds of $7.0 million and a pre-tax gain of $1.8 million. The aggregate revenues generated by these three buildings prior to their sales totaled $2.2 million and $6.8 million for the three-month and nine-month periods ended September 30, 2005, respectively, and $2.5 million and $7.3 million for the three-month and nine-month periods ended September 30, 2004, respectively. Aggregate pre-tax income (loss) was $0.1 million and $(0.1) million for the three-month and nine-month periods ended September 30, 2005, respectively, and $0.2 million and $0.7 million for the three-month and nine-month periods ended September 30, 2004, respectively.

      Building sales included in discontinued operations in 2004 consisted of the sales of 1750 K Street in Washington, DC, sold on July 30, 2004, for proceeds of $47.3 million ($21.9 million, net of the assumption of a mortgage by the purchaser) and a pre-tax gain of $7.5 million, and Westchase Corporate Center in Houston, Texas, sold on August 16, 2004, for proceeds of $20.3 million and a pre-tax gain of $0.2 million. The aggregate revenues generated by these two buildings prior to their sales totaled $1.0 million and $5.9 million for the three-month and nine-month periods ended September 30, 2004, respectively. Aggregate pre-tax income was less than $0.1 million for the third quarter of 2004 and $0.6 million for the nine-months ended September 30, 2004.

      Real estate investments by segment include the following (in thousands) (a):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Included in operating property are Company-owned amenities related to Towns & Resorts, the Company’s timberlands and land and buildings developed by the Company and used for commercial rental purposes. Development property consists of Towns & Resorts land and inventory currently under development to be sold. Investment property includes the Company’s commercial buildings and land purchased with tax-deferred proceeds and land held for future use.

      Included in assets held for sale is a $15.7 million building previously included in investment property.

      Depreciation expense reported on real estate was $7.3 million and $8.3 million in the nine months ended September 30, 2005 and 2004, respectively.

      Debt consists of the following (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The aggregate maturities of debt subsequent to September 30, 2005 are as follows (in millions):

      On July 22, 2005, the Company closed on a new four-year $250 million senior revolving credit facility (the “New Credit Facility”) that replaced the existing $250 million senior revolving credit facility, which was to expire on March 30, 2006. The New Credit Facility, which expires on July 21, 2009, bears interest based on leverage levels at one-month LIBOR plus a margin in the range of 0.4% to 1.0% (currently 0.5% ). The New Credit Facility contains financial covenants including maximum debt ratios and minimum fixed charge coverage and net worth requirements.

      On August 25, 2005, the Company issued senior notes in a private placement for an aggregate principal amount of $150 million, with $65 million maturing on August 25, 2015 and a fixed interest rate of 5.28%, $65 million maturing on August 25, 2017 and a fixed interest rate of 5.38%, and $20 million maturing on August 25, 2020 and a fixed interest rate of 5.49%. Interest will be payable semiannually. The notes contain financial covenants similar to those in the Company’s New Credit Facility.

      At September 30, 2005, management believes the Company was in compliance with financial covenants contained in the senior notes and the senior revolving credit agreement, including maximum debt ratios and minimum fixed charge coverage and net worth requirements.

      A summary of the net periodic pension expense (credit) follows (in thousands):

      The Company conducts primarily all of its business in four reportable operating segments: Towns & Resorts, commercial real estate, land sales, and forestry. The Towns & Resorts segment develops and sells housing units and home sites and manages residential communities. The commercial real estate segment owns and leases commercial, retail, office and industrial properties throughout the Southeast and sells developed and undeveloped land and buildings. The land sales segment sells parcels of land and develops home sites

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

primarily within rural settings from the Company’s holdings of timberlands. The forestry segment produces and sells pine pulpwood and timber and cypress products.

      The Company uses income from continuing operations before equity in income of unconsolidated affiliates, income taxes and minority interest for purposes of making decisions about allocating resources to each segment and assessing each segment’s performance, which we believe accurately represents current performance measures. We have presented prior period segments consistent with the current performance measure.

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

      The Company’s reportable segments are strategic business units that offer different products and services. They are each managed separately and decisions about allocations of resources are determined by management based on these strategic business units.

      Information by business segment follows (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company and its affiliates are involved in litigation on a number of matters and are subject to various claims arising in the normal course of business, none of which, in the opinion of management, is expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

      The Company has retained certain self-insurance risks with respect to losses for third party liability, worker’s compensation, property damage, group health insurance provided to employees and other types of insurance.

      At September 30, 2005, the Company was party to surety bonds and standby letters of credit in the amounts of $46.8 million and $37.1 million, respectively, which may potentially result in liability to the Company if certain obligations of the Company are not met.

      The Company is subject to costs arising out of environmental laws and regulations that include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites, including sites which have been previously sold. It is the Company’s policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals will be reviewed and adjusted, if necessary, as additional information becomes available.

      Pursuant to the terms of various agreements by which the Company disposed of its sugar assets in 1999, the Company is obligated to complete certain defined environmental remediation. Approximately $5.0 million of the sales proceeds, plus accrued interest of $0.8 million, remain in escrow pending the completion of the remediation. The Company has separately funded the costs of remediation. In addition, approximately $1.7 million is being held in escrow representing the value of the land subject to remediation. Remediation was substantially completed in 2003. The Company expects remaining remediation to be completed and the amounts held in escrow to be released to the Company in late 2005 or early 2006.

      The Company is involved in regulatory proceedings related to its former mill site in Gulf County, Florida. The Company has accrued an allocated share of the total estimated cleanup costs for these sites. Based upon management’s evaluation of the other potentially responsible parties, the Company does not expect to incur additional amounts even though the Company has joint and several liability.

      The Company is currently a party to, or involved in, other legal proceedings directed at the cleanup of various sites, and proceedings involving environmental matters, such as alleged discharge of oil or waste material into water or soil, are pending or threatened against the Company. It is not possible to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. However, based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on the Company’s consolidated financial position, results of operations or liquidity. Environmental liabilities are paid over an extended period and the timing of such payments cannot be predicted with any confidence. Aggregate environmental-related accruals were $4.1 million as of September 30, 2005 and December 31, 2004.

Overview

      The St. Joe Company is one of Florida’s largest real estate operating companies. We believe we have one of the largest inventories of private land suitable for development in the State of Florida, with a very low cost basis. The majority of our land is located in Northwest Florida. In order to optimize the value of our core real estate assets in Northwest Florida, our strategic plan calls for us to reposition our substantial timberland holdings for higher and better uses. We increase the value of our raw land assets, most of which are currently managed as timberland, through the entitlement, development, and subsequent sale of residential and commercial parcels, home sites, and homes, or through the direct sale of unimproved land. In addition, we reinvest the proceeds of qualifying asset sales into like-kind properties under our tax deferral strategy which has enabled us to create a significant portfolio of commercial rental properties.

      We have four operating segments: Towns & Resorts, commercial real estate, land sales, and forestry.

      Our Towns & Resorts segment generates revenues from:

      Our commercial real estate segment generates revenues from:

      Our land sales segment generates revenues from:

      Our forestry segment generates revenues from:

      Our ability to generate revenues, cash flows and profitability is directly related to the real estate market, primarily in Florida, and the economy in general. Economic, political, and weather-related conditions could have adverse effects on consumer buying behavior, construction costs, availability of labor and materials, the cost of insurance, the availability of and changes in prices of fuel and energy, and other factors affecting us and the real estate industry in general and coastal real estate in particular. Additionally, increases in interest rates could reduce the demand for homes we build and home sites we develop, particularly primary housing and home sites and commercial properties we develop or sell.

      Recently, activity in our resort residential projects in Northwest Florida has slowed. The 2005 hurricane season started early with four named storms impacting the coast of the Gulf of Mexico during the third

quarter. We were fortunate since there was only minimal damage to our property, allowing us to quickly resume normal operations after each storm. However, the hurricanes in the third quarter disrupted and depressed normal visitor traffic flows — and consequently demand for resort residential properties. Other macroeconomic and regional factors may also be contributing to the slowing of sales. It will remain unclear for some time what direct and indirect impacts the 2005 hurricane season and the potential impact of these other factors will have on the Company.

Forward-Looking Statements

      This report includes forward-looking statements, particularly in the Management’s Discussion and Analysis Section, 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:

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

      Forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by a forward-looking statement include the risk factors described in our annual report on Form 10-K for the year ended December 31, 2004, as well as, among others, the following:

Critical Accounting Estimates

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

      The critical accounting policies that we believe reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements are set forth in Item 7 of our annual report on Form 10-K for the year ended December 31, 2004. There have been no significant changes in these policies during the first nine months of 2005.

Recently Issued Accounting Standards

      In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (as amended) (“FIN 47”). FIN 47 is applicable for future asset retirement obligations for which the obligation to retire the asset is unconditional, but the timing and/or method of settlement are conditional on a future event that may or may not be within an entity’s control. If the fair value of such an obligation can be reasonably estimated, a liability should be recognized at fair value when incurred, with any uncertainty as to timing or method of settlement taken into consideration when determining the fair value. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation and acknowledges that such information may not be available. FIN 47 is applicable for fiscal years ending after December 15, 2005. We plan to adopt FIN 47 as of December 31, 2005; management does not expect FIN 47 to have a material effect on our results of operations or financial position.

      In October 2005, the FASB published FASB Staff Position (“FSP”) No. FAS 13-1, Accounting for Rental Costs Incurred during a Construction Period (“FSP 13-1”), which stipulates that a lessee’s rental costs associated with operating leases during a construction period must be recognized as rental expense, included in income from continuing operations, and allocated over the lease term according to current guidance on accounting for leases. We plan to adopt FSP 13-1 beginning January 1, 2006 as required by the FSP. Upon adoption, we do not expect FSP 13-1 to have a material effect on our results of operations or financial position.

      In June 2005, the FASB ratified the EITF’s consensus on Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”). In addition, the FASB has issued FASB Staff Position (FSP) SOP 78-9-1,“Interaction of AICPA Statement of Position (SOP) 78-9 and EITF Issue 04-5” to amend SOP 78-9, Accounting for Investments in Real Estate Ventures, so that its guidance is consistent with the consensus reached by the EITF in EITF 04-5. EITF 04-5 establishes that determining control of a limited partnership requires judgment, but that generally a sole general partner is deemed to control a limited partnership unless the limited partners have (a) the ability to substantially liquidate the partnership or otherwise remove the general partner without cause and/or (b) substantive participating rights. The consensus is currently applicable to us for new or modified partnerships, and will otherwise be applicable to existing partnerships in 2006. This consensus applies to limited partnerships or similar entities, such as limited liability companies that have governing provisions that are the functional equivalent of a limited partnership. We are currently evaluating the effect of this consensus on its consolidation policies.

      In April 2005, the Securities and Exchange Commission (“SEC”) adopted a final rule regarding the compliance date for Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“FAS 123(R)”), for public companies. The new rule changes the required date of compliance to the beginning of the first full fiscal year beginning after June 15, 2005. As a result, we plan to adopt FAS 123(R) as of January 1, 2006. FAS 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions), eliminating the alternative previously allowed to use the intrinsic value method of accounting. The grant date fair value will be estimated using option-pricing models adjusted for the unique characteristics of the instruments using methods similar to those required previously and currently used by us to calculate pro forma net income and earnings per share disclosures. The cost will be recognized ratably over the period during which the employee is required to provide services in exchange for the award. Upon implementation of FAS 123(R), we will recognize as compensation cost in our financial statements the unvested portion of existing options granted prior to the compliance date and the cost of stock options granted to employees after the compliance date based on the fair value of the stock options at grant date.

      In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections (“FAS 154”), which requires companies making voluntary changes to their accounting policies to apply the changes retrospectively, meaning that past earnings will be revised to reflect the impact in each period, rather than the current practice of taking a single charge against current earnings. The statement applies to all voluntary changes in accounting policies and to new rules issued by the FASB

that require companies to change their accounting, unless otherwise stated in the new rules. FAS 154 is effective for us beginning January 1, 2006, with earlier application allowed. We plan to adopt FAS 154 as of January 1, 2006 and do not expect FAS 154 to have a material effect on our current financial position or results of operations.

Results of Operations

      Net income for the third quarter of 2005 was $36.1 million, or $0.47 per diluted share, compared with $26.3 million, or $0.34 per diluted share, for the third quarter of 2004. Net income for the first nine months of 2005 was $89.4 million, or $1.17 per diluted share, compared with $62.0 million, or $0.80 per diluted share, for the first nine months of 2004.

      We report revenues from our four operating segments: Towns & Resorts, commercial real estate, land sales, and forestry. Real estate sales are generated from sales of housing units and developed home sites in our Towns & Resorts segment, developed and undeveloped land and in-service buildings that are not reported as discontinued operations in our commercial real estate segment, and parcels of undeveloped land and developed home sites in rural settings in our land sales segment. Timber sales are generated from the forestry segment. Rental revenue is generated primarily from lease income related to our portfolio of investment and development properties as a component of the commercial real estate segment. Other revenues are primarily club operations and management and brokerage fees from the Towns & Resorts segment.

Consolidated Results

      Revenues and expenses. The following table sets forth a comparison of the revenues and expenses for the three–month and nine-month periods ended September 30, 2005 and 2004, excluding discontinued operations.

      The increases in revenues from real estate sales in the three-month and nine-month periods ended September 30, 2005, compared to 2004 were due to increases in the land sales, commercial real estate, and Towns & Resorts segments. The increases in cost of real estate sales for the same periods were due to increases in the Towns & Resorts and land sales segments, partially offset by a decrease in the commercial real estate segment. The increases in rental revenues and cost of rental revenues were in each case primarily due to the operations of commercial buildings purchased since September 30, 2004 in the commercial real estate segment. Timber revenues decreased primarily due to a reduction in pricing and volume harvested from

Company-owned lands. Cost of timber revenues decreased primarily due to a decrease in cut and haul expenses related to lower levels of harvesting. The decrease in other revenues and cost of other revenues for the three-month period is primarily due to a decrease in resale brokerage revenues and related costs in the Towns & Resorts segment, while the increase in the nine-month period is primarily due to an increase in volume for WaterColor vacation rentals, partially offset by the decrease in resale brokerage revenues and related costs. For further discussion of revenues and expenses, see Segment Results below.

      Corporate expense. Corporate expense, representing corporate general and administrative expenses, increased $1.8 million, or 17%, to $12.4 million in the third quarter of 2005, from $10.6 million in the third quarter of 2004. The increase was primarily due to the recording of pension expense of $(0.5) million in 2005 compared to a pension credit of $0.6 million in 2004 as a result of a decrease in the amount of our year-to-date pension credit. Corporate expense increased $7.1 million, or 24%, to $36.3 million in the first nine months of 2005, from $29.2 million in the first nine months of 2004. The increase was primarily due to the decrease in pension credit and other compensation related costs. We believe that the pension plan credit over the next few quarters will return to levels experienced in the first two quarters of 2005.

      Depreciation and amortization. Depreciation and amortization increased $1.8 million, or 23%, to $9.5 million in the third quarter of 2005, compared to $7.7 million in the third quarter of 2004, and increased $5.5 million, or 24%, to $28.3 million in the first nine months of 2005, compared to $22.8 million in the first nine months of 2004. The increases were in each case primarily due to increases in assets in the commercial real estate segment. This segment reported increases in depreciation expense of $0.7 million and $2.1 million for the three-month and nine-month periods ended September 30, 2005, primarily due to additional investments in commercial investment property and property, plant and equipment. This segment reported increases in amortization expense of $0.9 million and $2.9 million for the three-month and nine-month periods ended September 30, 2005, primarily due to an increase in intangible assets associated with our commercial operating properties.

      Other income (expense). Other income (expense) consists of investment income, interest expense, gains on sales and dispositions of assets and other income. Other income (expense) was $(2.5) million and $(2.0) million in the three-month periods ended September 30, 2005 and 2004, respectively. Other income (expense) was $(6.0) million and $(5.0) million in the nine-month periods ended September 30, 2005 and 2004, respectively. Interest expense increased to $4.3 million in the third quarter of 2005 from $2.8 million in the third quarter of 2004 and to $10.3 million in the first nine months of 2005 from $7.3 million in the first nine months of 2004, primarily due to increases in average borrowings in the 2005 periods compared to the 2004 periods.

      Equity in income of unconsolidated affiliates. We have investments in affiliates that are accounted for by the equity method of accounting. Equity in income of unconsolidated affiliates totaled $3.1 million and $1.4 million in the three-month periods ended September 30, 2005 and 2004, respectively. Equity in income of unconsolidated affiliates totaled $10.6 million and $3.0 million in the nine-month periods ended September 30, 2005 and 2004, respectively.

      The Towns & Resorts segment recorded equity in income of unconsolidated affiliates of $3.1 million for the third quarter of 2005 compared to $1.0 million for the third quarter of 2004, and $8.2 million for the first nine months of 2005 compared to $3.1 million for the first nine months of 2004. The increases were primarily due to an increase in closings and increased pricing at Rivercrest and Paseos, two 50% owned unconsolidated affiliates.

      The commercial real estate segment recorded no equity in the income (loss) of unconsolidated affiliates in the third quarter of 2005 compared to $0.4 million in the third quarter of 2004, and $2.4 million in the first nine months of 2005 compared to $(0.1) million in the first nine months of 2004. In the second quarter of 2005, this segment reported equity in income of $2.2 million from Deerfield Commons I, LLC and $0.2 million from Deerfield Park, LLC, resulting from the gains on the sales of the building and the final parcel of land, respectively, of these two affiliates. On June 24, 2005, we sold our 50% interest in Codina Group, Inc. at book value.

      Income tax expense. Income tax expense totaled $15.8 million and $13.8 million for the three-month periods ended September 30, 2005 and 2004, respectively, and $47.8 million and $35.9 million for the nine-month periods ended September 30, 2005 and 2004, respectively. Our effective tax rates were 37.1% and 38.9% for the three-month periods ended September 30, 2005 and 2004, respectively, and 37.3% and 38.9% for the nine-month periods ended September 30, 2004. The decreases in the effective tax rates were in each case primarily due to a change in the tax law which allows a special deduction for domestic manufacturing costs, including construction, beginning in 2005, resulting in the creation of a permanent difference.

Segment Results

      Our Towns & Resorts segment develops large-scale, mixed-use communities. We own large tracts of land in Northwest Florida, including large tracts near Tallahassee, the state capital, and significant Gulf of Mexico beach frontage and waterfront properties, which we believe are suited for primary housing, resort and second-home communities. Our residential homebuilding in North Carolina and South Carolina is conducted through Saussy Burbank, Inc. (“Saussy Burbank”), a wholly owned subsidiary.

      Recently, activity in our resort residential projects in Northwest Florida has slowed. Hurricanes impacting the coast of the Gulf of Mexico in the third quarter disrupted and depressed normal visitor traffic flows — and consequently demand for resort residential properties. Other macroeconomic and regional factors may also be contributing to the slowing of sales. It will remain unclear for some time what direct and indirect impacts the 2005 hurricane season and the potential impact of these other factors will have on the Company.

      The table below sets forth the results of operations of our Towns & Resorts segment for the three-month and nine-month periods ended September 30, 2005 and 2004.

      Revenue and cost of sales associated with multi-family units and Private Residence Club (“PRC”) units under construction are recognized using the percentage of completion method of accounting if specific criteria are met. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. In the WaterSound Beach community, deposits of 10% are required upon executing the contract and another 10% is required 180 days later. For the WaterColor PRC units, a 10% deposit was required.

Additional deposits may be collected at other locations depending on the specifics of the contract. All deposits are non-refundable (subject to a 10-day waiting period as required by law) except for non-delivery of the unit. In the event a contract does not close for reasons other than non-delivery, we are entitled to retain the deposit. However, the revenue and margin related to the previously recorded contract would be reversed. Revenues and cost of sales associated with multi-family units where construction has been completed before contracts are signed and deposits made are recognized on the full accrual method of accounting as contracts are closed. If a deposit is received for less than 10% for a multi-family unit or a PRC unit, percentage of completion accounting is not utilized. Instead, full accrual accounting criteria is used, which generally recognizes revenue when sales contracts are closed and adequate investment from the buyer is received.

      Our townhomes are attached building units sold individually along with a parcel of land. Revenues and cost of sales for our townhomes are accounted for using the full accrual method. These units differ from multi-family and PRC units, in which buyers hold title to a unit or fractional share of a unit, respectively, within a building and an interest in the underlying land held in common with other building association members.

      Percentage of completion accounting is also used for our home site sales when required development is not complete at the time of sale. Currently, we are using percentage of completion accounting for home sites sales at WaterSound West Beach and SummerCamp. Cash is collected at the time of sale, while gross profit on home site sales at those communities is recognized based on construction completed in relation to total construction costs.

      WaterColor is situated on approximately 499 acres on the beaches of the Gulf of Mexico in south Walton County. We are building single-family and multi-family residences and selling developed home sites in WaterColor. The community is planned to include approximately 1,140 units, including a PRC with fractional ownership. From WaterColor’s inception through September 30, 2005, total contracts accepted or closed totaled 852 homes and home sites, including 11 PRC units. Each PRC unit represents 8 PRC interests.

      WaterSound Beach, located approximately five miles east of WaterColor and situated on approximately 256 acres, includes over one mile of beachfront on the Gulf of Mexico. This community is currently entitled to include 511 units. From WaterSound Beach’s inception through September 30, 2005, contracts for 401 units were accepted or closed.

      WaterSound West Beach, located over one half mile west of WaterSound Beach on the beach side of County Road 30A, is being designed as a high-end resort community with 199 single-family home sites on approximately 62 acres. During the third quarter, contracts were accepted for the first eight home sites, of which six were closed in the quarter.

      Construction is proceeding at WaterSound, a resort community located approximately three miles from WaterSound Beach, less than two miles from the Gulf of Mexico and north of U.S. Highway 98 in Walton County. With a proposed 1,330 units of mixed-use development on approximately 1,402 acres owned by the Company, WaterSound is being planned for the pre-retirement and second-home markets with six and nine-hole golf courses along with pools, beach access, and other amenities. Sales are expected to begin in mid-2006.

      Palmetto Trace is a primary home community in Panama City Beach planned for 481 units on 141 acres. As of September 30, 2005, there were 393 units sold or under contract. On October 20, 2005, we announced an agreement to sell 55 developed home sites at Palmetto Trace to David Weekley Homes, LLP, a national homebuilder.

      Hawks Landing is a primary home community in Lynn Haven, in Bay County, Florida on approximately 88 acres. We plan to develop and sell 167 home sites at Hawks Landing to local and national home builders. As of September 30, 2005, there were 83 units under contract to D.R. Horton, a national homebuilder.

      At WindMark Beach, construction continued on the next phase, presently planned for 1,552 units along more than 15,000 feet of beachfront near the town of Port St. Joe. Sales on this next phase are expected to begin in 2006. Construction also continued on the realignment of a 3.5-mile segment of U.S. 98 within

WindMark Beach. Plans provide for a public beachfront trail system to be constructed on the existing roadbed once the road has been relocated away from the beach. Five retail home sites and one beachfront home remain to be sold of the 110 units in the first 80-acre phase, none of which have been offered for sale. From WindMark Beach’s inception through September 30, 2005, contracts for 104 home sites were accepted or closed.

      SouthWood, which is situated on approximately 3,370 acres in southeast Tallahassee, has land use entitlements for up to 4,770 residential units and a town center with restaurants, retail shops, and offices. From SouthWood’s inception through September 30, 2005, contracts for 1,530 units were accepted or closed.

      Present plans for SummerCamp call for a 499-unit development on 762 acres located approximately 45 miles south of Tallahassee in Franklin County on the Gulf of Mexico. During the third quarter of 2005, we closed on the sales of 48 of the first 52 home sites offered for sale.

      Environmental permitting and predevelopment planning continue at RiverTown, which is planned for 4,500 units on 4,170 acres located in St. Johns County, south of Jacksonville, Florida, with more than 3.5 miles of frontage on the St. Johns River. Sales are currently scheduled to start in late 2006, with the first closings expected in 2007.

      St. Johns Golf & Country Club is a primary residential community located on approximately 820 acres we acquired in St. Johns Country, Florida. The community is planned to include a total of approximately 799 housing units and an 18-hole golf course. From its inception through September 30, 2005, contracts for 740 units were accepted or closed.

      Victoria Park is situated on 1,859 acres in Deland between Daytona Beach and Orlando. Plans include approximately 4,200 residences built among parks, lakes and conservation areas. From Victoria Park’s inception through September 30, 2005, contracts for 942 units were accepted or closed.

      Artisan Park, located in Celebration, near Orlando, is being developed through a joint venture in which we own 74%. Artisan Park is situated on approximately 175 acres which we acquired. Current plans include approximately 616 units. From Artisan Park’s inception through September 30, 2005, contracts for 455 units were accepted or closed.

      The Company manages and owns 50% of the joint ventures developing Rivercrest and Paseos, two primary residential communities. Sales are substantially complete at Rivercrest, a 1,382-unit primary residential community located near Tampa, and Paseos, a 325-unit primary residential community situated on 175 acres in Jupiter.

      Predevelopment work continued during the third quarter on Perico Island, located in the City of Bradenton in Manatee County. Entitled for 686 condominium units on 352 acres, it is being designed as a community with a clubhouse, related amenities, and access to a marina being developed by us. Construction and sales are expected to begin in 2006.

      Real estate sales include sales of homes and home sites and sales of land. Cost of real estate sales for homes and home sites includes direct costs, selling costs and other indirect costs. In the third quarter of 2005, the components of cost of real estate sales for homes and home sites were $99.1 million in direct costs, $7.7 million in selling costs, and $10.5 million in other indirect costs. In the third quarter of 2004, the components of cost of real estate sales were $91.9 million in direct costs, $8.3 million in selling costs, and $10.0 million in other indirect costs. The overall increase in real estate sales and cost of sales was primarily due

to increased sales at our primary home communities and an overall increase in average selling prices, which were partially offset by the previously mentioned slower activity in the third quarter of 2005 at our resort residential projects.

      Sales of homes in the third quarter of 2005 totaled $134.9 million, with related costs of sales of $111.8 million, resulting in a gross profit percentage of 17%, compared to sales of homes in the third quarter of 2004 of $127.9 million, with cost of sales of $103.2 million, resulting in a gross profit percentage of 19%. The decrease in gross profit percentage was primarily due to a change in the product mix as sales in our higher margin resort communities decreased while sales in our lower margin primary home communities increased.

      Cost of real estate sales for homes in the third quarter of 2005 consisted of $94.8 million in direct costs, $7.0 million in selling costs, and $10.0 million in indirect costs. Cost of real estate sales for homes in the third quarter of 2004 consisted of $86.8 million in direct costs, $7.1 million in selling costs, and $9.3 million in indirect costs.

      Sales of home sites in the third quarter of 2005 totaled $21.2 million, with related cost of sales of $5.5 million, resulting in a gross profit percentage of 74%, compared to sales of home sites in the third quarter of 2004 of $25.6 million, with related cost of sales of $7.0 million, resulting in a gross profit percentage of 73%. The increase in gross profit percentage was primarily due an overall increase in average selling prices. The decrease in revenues was primarily due to the previously mentioned slower activity in the third quarter of 2005 at our resort residential projects.

      Cost of real estate sales for home sites in the third quarter of 2005 consisted of $4.3 million in direct costs, $0.7 million in selling costs, and $0.5 million in indirect costs. Cost of real estate sales for home sites in the third quarter of 2004 consisted of $5.1 million in direct costs, $1.2 million in selling costs, and $0.7 million in indirect costs.

      The following table sets forth home and home site sales activity by individual developments, excluding Rivercrest and Paseos, two 50% owned affiliates accounted for using the equity method of accounting.