The St. Joe Company — FY 2011 Form 10-K
Reporting period: Year ended December 31, 2011; the filing also reports fourth-quarter results. St. Joe is a Florida landowner and developer with residential real estate, commercial real estate, rural land sales and forestry segments. It owned approximately 573,000 acres, primarily in Northwest Florida.
Financial performance and position
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Total revenue | $145.3 million | $99.5 million |
| Operating loss | $386.8 million | $51.6 million |
| Net loss attributable to St. Joe | $330.3 million; $3.58 per share | $35.9 million; $0.39 per share |
| Cash and cash equivalents at year-end | $162.4 million | $183.8 million |
| Net cash from (used in) operating activities | $(9.8) million | $16.3 million |
| Debt at year-end | $53.5 million | $54.7 million |
| Total assets at year-end | $661.3 million | $1,051.7 million |
| Capital expenditures | $30.7 million | $16.1 million |
- Revenue rose 46%, mainly because of the timber deed transaction. Timber revenue increased to $86.7 million from $28.8 million; real estate sales fell to $19.9 million from $38.9 million.
- The $55.9 million timber deed covered harvest rights on 40,975 acres for up to 20 years. St. Joe recognized approximately $54.5 million of revenue in 2011 and reported a $50.3 million pretax gain after cost of sales and depletion.
- Total impairment expense was $377.3 million, including a $374.8 million fourth-quarter noncash charge tied principally to the revised real estate strategy. This drove the sharp increase in the operating and net losses.
- Residential segment revenue was $50.4 million; its pretax loss was $385.4 million, including $361.0 million of impairment charges. Forestry revenue was $86.7 million and pretax income was $59.1 million, largely reflecting the timber deed gain.
- Residential homesite sales improved: 133 homes and homesites closed for $11.9 million, versus 85 for $8.5 million in 2010. Homesite gross margin was 25%, compared with 28% in 2010. Resort and club revenue increased to $36.0 million, with a $1.0 million gross profit, from $29.4 million of revenue and a $2.1 million gross loss.
- Cash declined $21.4 million during the year. Operating cash use was partly offset by the cash proceeds from the timber deed, which was recognized as revenue; the cash-flow statement reports net operating cash use of $9.8 million.
- Reported debt includes $23.3 million of defeased debt backed by pledged Treasury securities. Recognized Community Development District debt was $30.2 million, while total outstanding CDD debt was $56.8 million; some obligations on unplatted property were not recorded as liabilities.
Changes, strategy and outlook
- On January 25, 2012, the company adopted a strategy to reduce future capital spending, apply risk-adjusted return criteria and reposition assets to improve absorption. It expects to consider bulk sales, lower price points and shorter selling periods.
- St. Joe estimated that the strategy would reduce planned capital expenditures on existing projects by approximately $190 million, mostly spending previously expected over the next 10 years. Separately, it reported approximately $33.6 million of 2012 capital expenditure commitments at year-end 2011.
- Management said it expected no significant near-term improvement in real estate conditions. It planned to continue limiting rural land sales at depressed prices in 2012. The filing says 2012 capital spending could be slightly higher than 2011, but some spending is discretionary and depends on expected returns.
- Cost reductions included a workforce decrease from 118 employees in February 2011 to 75 in February 2012. Management expected annual operating and corporate expense savings of approximately $15 million to $18 million. 2011 restructuring charges were $11.5 million, in addition to executive separation and accelerated stock compensation costs described in the filing.
- The company terminated its unused $125 million revolving credit facility effective July 1, 2011, citing annualized cost savings of $625,000. It stated that cash and anticipated cash flows were expected to meet currently anticipated working capital needs and capital expenditures.
- Fourth-quarter 2011 revenue was $19.8 million and the company recorded a net loss attributable to St. Joe of $328.6 million, or $3.56 per share. The quarter included $374.8 million of impairment charges.
Risks, contingencies and notable items
- Real estate demand, prices and financing remained weak, particularly in Florida; management cited oversupply, foreclosures, tight mortgage lending, slow economic recovery and continuing effects of the Deepwater Horizon spill.
- The SEC had an ongoing private investigation into matters including real estate impairment accounting, internal controls, books and records, financial reporting and certain shareholder reporting obligations. The company said it was cooperating; it could not estimate the likelihood or amount of any loss.
- Oil-spill claims and lawsuits sought recovery from responsible parties, but the company said the amount and success of any recovery were uncertain. Environmental rehabilitation costs related to former paper-mill and adjacent properties were also not quantifiable; environmental accruals were $1.5 million at year-end.
- The Southwest Airlines agreement exposed the company to possible reimbursement of airline operating losses during the first three years of service. No reimbursement had been required through year-end 2011; the recorded standby guarantee liability was $0.8 million.
- The company’s largest nearby pulpwood customer was RockTenn. A mill closure could weaken timber pricing or increase delivery costs, notwithstanding the supply agreement through 2017.
- The company recorded a $94.5 million valuation allowance against deferred tax assets, citing recent losses and expectations of future taxable losses. It reported federal and state net operating loss carryforwards of approximately $92.0 million and $612.6 million, respectively.
- The securities class action was dismissed with prejudice in January 2012, and the plaintiff’s motion to amend the judgment was denied in February; the appeal period had not expired. Shareholder derivative suits remained pending. The company said adverse litigation or regulatory outcomes could materially affect results or cash flows.
- Management and KPMG reported effective internal control over financial reporting as of December 31, 2011. KPMG issued an unqualified opinion on the consolidated financial statements.
Investor verification priorities
- Review the impairment assumptions, appraisals and project-level carrying values behind the $377.3 million charge, and assess the possibility of further write-downs.
- Separate recurring forestry and resort earnings from the one-time timber deed revenue and gain; verify the deed’s remaining revenue recognition and thinning purchase obligations.
- Reconcile cash generation, committed and discretionary capital spending, and the distinction between recorded CDD debt and total outstanding CDD obligations.
- Track progress and costs related to the SEC investigation, derivative litigation, environmental remediation and Deepwater Horizon claims or recoveries.
- Monitor real estate sales volume, pricing, homebuilder demand, resort occupancy and the realization of planned cost savings and capital reductions.