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

APPLICABLE ONLY TO CORPORATE ISSUERS:

      As of August 2, 2005, there were 103,648,483 shares of common stock, no par value, issued and 75,697,113 outstanding, with 27,951,370 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 amounts)

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 June 30, 2005 and the results of operations for the three-month and six-month periods ended June 30, 2005 and 2004 and cash flows for the six-month periods ended June 30, 2005 and 2004. The results of operations for the three-month and six-month periods ended June 30, 2005 and cash flows for the six-month period ended June 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 six months ended June 30, 2005 and 2004. The Company has one consolidated entity with a specified termination date: Artisan Park, L.L.C. (“Artisan Park”). At June 30, 2005, the carrying amount of the minority interest in Artisan Park was $15.2 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 123R”), 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 as compensation cost in its 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.

      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 826,243 and 1,118,203 shares of common stock in the three months ended June 30, 2005 and 2004, respectively, and that 566,626 and 225,434 shares of unvested restricted stock were issued in the three months ended June 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 920,807 and 1,454,839 shares of common stock in the six months ended June 30, 2005 and 2004, and that 547,123 and 112,717 shares of unvested restricted stock were issued in the six months ended June 20, 2005 and 2004, respectively, each net of assumed repurchases using the treasury stock method.

      From August 1998 through June 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 $719.4 million had been expended through June 30, 2005. From the inception of the Stock Repurchase Program to June 30, 2005, the Company repurchased from shareholders 25,868,511 shares. During the six months ended June 30, 2005 and 2004, the Company repurchased from shareholders 576,100 and 784,775 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 61,203 and 777,228 shares surrendered by executives in the six month periods ended June 30, 2005 and 2004, respectively.

      Shares of Company stock issued upon the exercise of stock options for the six month periods ended June 30, 2005 and 2004 were 488,591 shares and 1,660,128 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.

      The Company paid $14.1 million and $10.5 million for interest in the first six months of 2005 and 2004, respectively. The Company paid state income taxes, net of refunds, of $5.1 million and $2.1 million, in the first six months of 2005 and 2004, respectively. The Company capitalized interest expense of $6.1 million and $4.1 million during the first six months of 2005 and 2004, respectively.

      The Company’s non-cash activities 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 execution of a note receivable in payment for the sale of an interest in an unconsolidated affiliate, and the execution of a debt agreement in payment for an interest in another unconsolidated affiliate. During the six months ended June 30, 2005 and 2004, executives surrendered Company stock worth $4.3 million and $17.4 million, respectively, as payment for strike prices of stock options. During the six months ended June 30, 2005 and 2004, the Company recorded tax benefits on the exercises of stock options of $9.0 million and $15.2 million, respectively. In addition, during the first six months of 2005, the Company received a note receivable in the amount of $9.4 million in payment for the sale of its interest in an unconsolidated affiliate. During the first six 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 include 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 and 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 are included in investing activities on the statements of cash flows. Distributions from unconsolidated affiliates are included in investing activities.

      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 final 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 Issue 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,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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”), 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 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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Included in operating property are Company-owned amenities related to Towns & Resorts development, the Company’s timberlands and land and buildings developed by the Company and used for commercial rental purposes. Development property consists of Towns & Resorts development 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 $8.1 million and $7.1 million in the six months ended June 30, 2005 and 2004, respectively.

      Debt consists of the following (in thousands):

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

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

      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 $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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

      The Company conducts primarily all of its business in four reportable operating segments: Towns & Resorts development, commercial real estate development and services, land sales, and forestry. The Towns & Resorts development segment develops and sells housing units and home sites and manages residential communities. The commercial real estate development and services segment owns, leases, and manages 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 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Information by business segment follows (in thousands):

      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 June 30, 2005, the Company was party to surety bonds and standby letters of credit in the amounts of $50.0 million and $12.3 million, respectively, which may potentially result in liability to the Company if certain obligations of the Company are not met.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      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 currently a party to, or involved in, legal proceedings directed at the cleanup of various sites. The Company is also 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. Other 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 June 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 also provide commercial real estate services, including brokerage, property management and construction management for Company-owned assets as well as for third parties.

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

      Our Towns & Resorts development segment generates revenues from:

      Our commercial real estate development and services 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. Considerable economic and political uncertainties exist that could have adverse effects on consumer buying behavior, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general. 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. However, we believe our secondary resort housing markets are less sensitive to changes in interest rates. We have the ability to mitigate these risks by building to contract as well as building in phases.

      Management periodically conducts market research in the early stages of a project’s development to ensure our product meets expected customer demand. We also continuously and actively monitor competitors’ product offerings to evaluate the competitive position of our products. We are disciplined about the release of new product in Northwest Florida. Our goal is to ensure that as much of our land as possible benefits from the appreciation that we are building with the region’s increased visibility, infrastructure development and place-making.

      Real estate market conditions in our regions of development, particularly for residential and resort property in Northwest Florida, have been exceptionally strong. These current market conditions place us in an unusually favorable position which may not continue in the future. However, we believe that long-term prospects of job growth, coupled with strong in-migration population expansion in Florida, indicate that demand levels may remain favorable over at least the near term horizon.

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 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. Important factors that could cause actual results to differ materially from those in 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 six months of 2005.

Recently Issued Accounting Standards

      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 final 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 Issue 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 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 our consolidation policies.

      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 statements 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.

      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.

Results of Operations

      Net income for the second quarter of 2005 was $37.9 million, or $0.50 per diluted share, compared with $22.7 million, or $0.30 per diluted share, for the second quarter of 2004. Net income for the first six months of 2005 was $53.3 million, or $0.70 per diluted share, compared with $35.7 million, or $0.46 per diluted share, for the first six months of 2004.

      We report revenues from our four operating segments: Towns & Resorts development, commercial real estate development and services, land sales, and forestry. Real estate sales are generated from sales of housing units and developed home sites in our Towns & Resorts development segment, developed and undeveloped land and in-service buildings that are not reported as discontinued operations in our commercial real estate

development and services segment, and parcels of undeveloped land and developed home sites in rural settings in our land sales segment. Realty revenues, consisting of property and asset management fees, construction revenues, and lease and sales commissions, are generated from the commercial real estate development and services 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 development and services segment. Other revenues are primarily club operations and management and brokerage fees from the Towns & Resorts development segment.

Consolidated Results

      Revenues and expenses. The following table sets forth a comparison of the revenues and expenses for the three–month and six-month periods ended June 30, 2005 and 2004.

      The increases in revenues from real estate sales and cost of real estate sales for the three and six-month periods ended June 30, 2005 compared to 2004 were in each case primarily due to increased revenues in the Towns & Resorts development segment and land sales in the commercial real estate development services segment, partially offset by the sale of a commercial building in the first quarter of 2004. The increases in realty revenues and cost of realty revenues were in each case due to an increase in construction activity at Advantis, our commercial real estate services subsidiary, which was partially offset by a decrease in brokerage activity for the six-month periods. The increases in rental revenues and cost of rental revenues were in each case primarily due to the operations of commercial buildings purchased since June 30, 2004 in the commercial real estate development and services segment. Timber revenue 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. Other revenues and cost of other revenues increased primarily due to increases in leisure and resort activity. For further discussion of revenues and expenses, see Segment Results below.

      Corporate expense. Corporate expense, representing corporate general and administrative expenses, increased $2.5 million, or 26%, to $12.0 million in the second quarter of 2005, from $9.5 million in the second quarter of 2004. The increase was primarily due to an increase in compensation related costs. Corporate expense increased $5.3 million, or 28%, to $23.9 million in the first six months of 2005, from $18.6 million in the first six months of 2004. The increase was primarily due to increases in compensation related costs and other corporate expenses.

      Depreciation and amortization. Depreciation and amortization increased $2.0 million, or 24%, to $10.4 million in the second quarter of 2005, compared to $8.4 million in the second quarter of 2004, and

$4.0 million, or 24%, to $20.8 million in the first six months of 2005, compared to $16.8 million in the first six months of 2004. The increases were in each case primarily due to increases in the commercial real estate development and services segment. This segment reported increases in depreciation expense of $0.7 million and $1.7 million for the three-month and six-month periods ended June 30, 2005 compared to the same periods of the prior year, primarily due to additional investments in commercial investment property and property, plant and equipment. This segment reported increases in amortization expense of $1.3 million and $2.2 million for the three-month and six-month periods ended June 30, 2005 compared to the same periods of the prior year, 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 $(2.9) million and $(2.3) million in the three-month periods ended June 30, 2005 and 2004, respectively. Other income (expense) was $(4.7) million and $(4.4) million in the six-month periods ended June 30, 2005 and 2004, respectively. Interest expense increased to $4.1 million in the first quarter of 2005 from $2.9 million in the first quarter of 2004 and to $7.3 million in the first six months of 2005 from $5.9 million in the first six months of 2004, primarily due to increases in average borrowings in the 2005 periods compared to the 2004 periods.

      Equity in income (loss) of unconsolidated affiliates. We have investments in affiliates that are accounted for by the equity method of accounting. Equity in income (loss) of unconsolidated affiliates totaled $5.5 million and $0.9 million in the three-month periods ended June 30, 2005 and 2004, respectively. Equity in income (loss) of unconsolidated affiliates totaled $7.4 million and $1.6 million in the six-month periods ended June 30, 2005 and 2004, respectively.

      The Towns & Resorts development segment recorded equity in the income of unconsolidated affiliates of $3.1 million for the second quarter of 2005, compared to $1.0 million for the second quarter of 2004 and $5.0 million for the first six months of 2005, compared to $2.0 million for the first six 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 development and services segment recorded equity in the income (loss) of unconsolidated affiliates of $2.4 million in the second quarter of 2005, compared to $(0.1) million in the second quarter of 2004, and $2.4 million in the first six months of 2005, compared to $(0.4) million in the first six 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 sale of the building and the sale of the final parcel of land, respectively, of these two affiliates. On June 24, 2005, the Company sold its 50% interest in Codina Group, Inc. at book value.

      Income tax expense. Income tax expense totaled $22.4 million and $14.2 million for the three-month periods ended June 30, 2005 and 2004, respectively, and $31.9 million and $22.3 million for the six-month periods ended June 30, 2005 and 2004, respectively. Our effective tax rates were 37.1% and 38.6% for the three-month periods ended June 30, 2005 and 2004, respectively, and 37.4% and 38.7% for the six-month periods ended June 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 deduction for domestic manufacturing costs, including construction, beginning in 2005.

Segment Results

      Our Towns & Resorts development segment develops large-scale, mixed-use communities primarily on land we have owned for a long period of time. 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. The table below sets forth the results of operations of our Towns & Resorts development segment for the three-month and six-month periods ended June 30, 2005 and 2004.

      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 private residence club (“PRC”) with fractional ownership. Amenities include a beach club, a tennis center, a boat house, a restaurant on an inland freshwater lake, a 60-room inn and restaurant and commercial space and parks. From WaterColor’s inception through June 30, 2005, total contracts accepted or closed totaled 846 homes and home sites and 88 PRC interests. Each PRC interest is treated as one-eighth of a unit.

      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 June 30, 2005, contracts for 397 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 gated, high-end community with 199 single-family home sites on approximately 62 acres. Reservations were accepted on July 19 for each of the first 12 home sites released; contracts on these sites are expected to close in the third quarter of 2005.

      Infrastructure development continued during the second quarter at WaterSound, a resort community located approximately three miles from WaterSound Beach. WaterSound is set between U.S. Highway 98 and the Intracoastal Waterway in Walton County. On June 7, the Walton County Board of County Commissioners approved a Development of Regional Impact (“DRI”) for WaterSound, with a proposed 1,330 units of mixed-use development on approximately 1,402 acres owned by the Company. Walton County had previously approved a preliminary development agreement of 478 of the planned units. The DRI includes an additional 596 single-family units, 256 multi-family units, retail and office space. Final approval of the DRI is subject to a 45-day review by the Florida Department of Community Affairs. Certain other regulatory and environmental permits are required.

      Palmetto Trace is a primary home community in Panama City Beach planned for 481 units on 141 acres. As of June 30, 2005, there were 375 units sold or under contract.

      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 June 30, 2005, there were 83 units under contract.

      At WindMark Beach, construction began 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. Construction also started on the realignment of a 3.5-mile segment of U.S. 98 within WindMark Beach. Plans provide for a 3.5 mile public beachfront trail 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 June 30, 2005, contracts for 104 home sites were accepted or closed.

      Bridgeport is a primary neighborhood in Port St. Joe designed to provide this market with additional housing choices at moderate prices for local working families. A local builder will deliver finished homes to customers. Bridgeport plans consist of 37 units on 15 acres. Contracts for 15 home sites have been accepted or closed as of June 30, 2005.

      Present plans for SouthWood, which is situated on approximately 3,370 acres in southeast Tallahassee, include approximately 4,770 residential units and a traditional town center with restaurants, entertainment facilities, retail shops, and offices. From SouthWood’s inception through June 30, 2005, contracts for 1,492 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. Construction is expected to start in the third quarter on 52 previously released and reserved home sites with closings expected later in the year.

      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. Sales are currently scheduled to start in 2006.

      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 June 30, 2005, contracts for 730 units were accepted or closed.

      Victoria Park is situated on 1,859 acres we acquired in Deland between Daytona Beach and Orlando. Plans include approximately 4,200 single and multi-family residences built among parks, lakes and conservation areas. During the second quarter, Victoria Park opened a Southern Living Idea House that is featured in the magazine’s August issue. From Victoria Park’s inception through June 30, 2005, contracts for 874 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 June 30, 2005, contracts for 419 units were accepted or closed.

      The Company manages and owns 50% of the joint ventures developing Rivercrest and Paseos, two primary residential communities. During the second quarter, sales were substantially completed at Rivercrest, with 1,378 units sold or under contract of the 1,382-unit primary residential community located near Tampa. Paseos is a 325-unit primary residential community situated on 175 acres in Jupiter. At June 30, 2005, two units remained for sale at Paseos.

      Predevelopment work continued during the second quarter on Perico Island, located in the City of Bradenton in Manatee County. Entitled for 686 residential units on 352 acres, it is being designed as a high-end community. 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 second quarter of 2005, the components of cost of real estate sales for homes and home sites were $108.1 million in direct costs, $9.1 million in selling costs, and $10.8 million in other indirect costs. In the second quarter of 2004, the components of cost of real estate sales were $90.9 million in direct costs, $7.9 million in selling costs, and $11.4 million in other indirect costs. The overall increase in real estate sales and cost of sales was primarily due to increases in average selling prices and volume for home sites at WaterSound Beach and several other communities and results from multi-family home sales at Artisan Park, partially offset by a decrease in the number of home sites sold at WaterColor.

      Sales of homes in the second quarter of 2005 totaled $138.2 million, with related costs of sales of $115.8 million, resulting in a gross profit percentage of 16%, compared to sales of homes in the second quarter of 2004 of $113.7 million, with cost of sales of $97.0 million, resulting in a gross profit percentage of 15%. The increase in gross profit percentage was primarily due to higher average prices on single-family homes at several communities and results from multi-family home sales at Artisan Park.

      Cost of real estate sales for homes in the second quarter of 2005 consisted of $98.7 million in direct costs, $7.4 million in selling costs, and $9.7 million in indirect costs. Cost of real estate sales for homes in the second quarter of 2004 consisted of $81.1 million in direct costs, $5.8 million in selling costs, and $10.1 million in indirect costs.

      Sales of home sites in the second quarter of 2005 totaled $52.7 million, with related cost of sales of $12.2 million, resulting in a gross profit percentage of 77%, compared to sales of home sites in the second quarter of 2004 of $44.8 million, with related cost of sales of $13.2 million, resulting in a gross profit percentage of 71%. The increase in gross profit percentage was primarily due to increased prices at WaterSound Beach and several other communities.

      Cost of real estate sales for home sites in the second quarter of 2005 consisted of $9.4 million in direct costs, $1.7 million in selling costs, and $1.1 million in indirect costs. Cost of real estate sales for home sites in the second quarter of 2004 consisted of $9.8 million in direct costs, $2.1 million in selling costs, and $1.3 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.