The St. Joe Company — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; unaudited. St. Joe is a Florida real estate developer and manager, with approximately 574,000 acres concentrated mainly in Northwest Florida. Its businesses include residential and commercial real estate, rural land sales, forestry, and resort and club operations.
Financial performance
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenue | $73.4 million | $13.3 million |
| Operating income (loss) | $21.3 million | $(17.1) million |
| Net income (loss) attributable to St. Joe | $14.1 million | $(11.4) million |
| Diluted EPS | $0.15 | $(0.13) |
| Cash from (used in) operations | $37.4 million | $(14.5) million |
Results include a $50.3 million pretax gain from a timber deed sale. The filing says the company would have reported a loss without that gain; simple subtraction from reported pretax continuing income implies a loss of approximately $28.6 million, though the filing does not present this as an adjusted measure.
Cash and cash equivalents were $216.2 million at quarter-end, up from $183.8 million at December 31, 2010. Debt was $53.9 million, mainly Community Development District debt and defeased debt. The company had an undrawn $125 million revolving facility expiring September 2012 and reported compliance with its covenants. Total assets were $1.08 billion and total equity was $889.1 million. The filing does not provide a clear current ratio.
Changes versus the prior period
- Revenue rose by $60.1 million, overwhelmingly because the timber deed generated $54.5 million of recognized revenue and a $50.3 million pretax gain. The deed covers timber on 40,975 acres for up to 20 years; $1.4 million of proceeds was recorded as an imputed land lease for recognition over the deed term.
- Excluding the deed transaction, underlying results remained pressured by weak real estate demand and significant expenses. Residential homesite sales improved to 22 from 6, but management said market conditions remained difficult.
- Operating cash flow improved to $37.4 million, while cash increased by $32.4 million during the quarter.
Management commentary, outlook and significant items
- Management did not expect significant improvement in residential real estate market conditions during 2011. It cited oversupply, depressed prices, slow economic recovery, and continuing effects of the Deepwater Horizon oil spill.
- The company indefinitely delayed its planned corporate headquarters building and said it was redirecting capital toward infrastructure supporting industrial, warehouse and office development.
- The board and senior management underwent substantial changes. Management and the board were reviewing strategic alternatives, including business-plan changes, asset sales, alliances, joint ventures, capital raising and possible business combinations; no specific outcome or financial guidance was provided.
- Q1 included approximately $16.8 million of identified pretax charges, including accelerated stock compensation, legal fees, restructuring and an impairment charge. The company also expected approximately $4.3 million of separation-related charges in Q2 following agreements with four additional senior managers.
Risks and contingencies
- Pending matters include securities class-action and shareholder derivative litigation, an SEC informal inquiry into real estate impairment policies, and lawsuits seeking damages related to the Gulf oil spill. The company said it was cooperating with the SEC and intended to defend the shareholder litigation.
- Environmental rehabilitation costs for certain former paper-mill-related properties could not be quantified. Environmental-related accruals were $1.6 million; management said actual liabilities could nevertheless be material.
- A Southwest Airlines agreement exposes the company to potential break-even payments if airport service incurs losses; the recorded guarantee liability was $0.8 million, with no payments made through March 31, 2011.
- The company highlighted risks from a prolonged Florida real estate downturn, asset impairments, financing availability, natural disasters, and possible closure of a major regional pulpwood customer’s mill.
Important facts for investors to verify
- How much of reported earnings and operating cash flow reflects the one-time timber deed transaction, and how the deed affects future timber supply and revenue.
- Whether the reported residential and commercial market conditions, asset values and impairment assumptions change in subsequent filings.
- The status and potential financial impact of the SEC inquiry, shareholder lawsuits, oil-spill claims and unquantified environmental obligations.
- The original covenant table: the supplied filing text reports an unencumbered leverage ratio of 65.03x against a 2.0x covenant while also stating the company was compliant. This apparent inconsistency should be checked against the filed table.
- Progress on strategic alternatives, leadership transitions, Q2 separation costs and the company’s use of its cash and undrawn credit facility.