The St. Joe Company (NYSE: JOE) — FY 2012 Form 10-K
Business context and reporting period. This is the annual report for the fiscal year ended December 31, 2012, not a standalone quarterly filing. The filing also provides unaudited fourth-quarter results. St. Joe is a Florida landowner and developer with approximately 567,000 acres, primarily in Northwest Florida, and reports five segments: residential real estate, commercial real estate, resorts, leisure and leasing, forestry, and rural land. Segment presentation changed in 2012; prior-period segment data was restated, with no effect on consolidated results.
Financial performance and position
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $139.4 million | $145.3 million |
| Operating income (loss) | $2.1 million | ($386.8 million) |
| Net income (loss) attributable to St. Joe | $6.0 million; $0.07 per diluted share | ($330.3 million); ($3.58) per share |
| Operating cash flow | $23.0 million | ($9.8 million) |
| Capital expenditures | $23.4 million | $30.7 million |
| Cash and cash equivalents at year-end | $166.0 million | $162.4 million |
| Total debt at year-end | $36.1 million | $53.5 million |
| Total assets / total equity at year-end | $645.5 million / $552.3 million | $661.3 million / $543.9 million |
- Revenue decreased 4.1%. Real estate sales rose to $56.0 million from $20.3 million, while timber sales fell to $39.0 million from $86.7 million. The timber comparison is distorted by a $54.5 million timber-deed revenue recognition in 2011.
- Resort, leisure and leasing revenue increased 16% to $44.4 million, aided by stronger WaterColor Inn and vacation-rental activity and new lease revenue. Excluding the prior-year timber-deed transaction, timber revenue increased about $6.8 million, or 21%, on higher harvest volume and open-market sales.
- Homesite sales activity improved: residential real estate revenue reached $22.1 million versus $12.6 million, and homesite gross margin rose to 31.0% from 21.8%. Rural land revenue increased to $23.4 million from $3.5 million, reflecting sales of 6,221 acres versus 259 acres.
- Reported profitability improved substantially, principally because 2011 included $377.3 million of impairment charges. FY 2012 included $2.6 million of impairment losses. Operating margin was approximately 1.5% and net margin approximately 4.3% in 2012.
- 2012 segment pretax operating contribution before equity-method losses and income taxes included $16.8 million from rural land and $13.5 million from forestry; residential real estate lost $6.8 million, commercial real estate lost $0.3 million, and resorts, leisure and leasing lost $1.4 million. Corporate and other costs were $15.4 million.
- Cash increased by $3.6 million during 2012. Debt fell largely after a $19.9 million prepayment of Community Development District (CDD) assessment obligations. Reported debt includes $26.8 million of in-substance defeased debt backed by pledged Treasury securities; CDD debt was $9.2 million, while total outstanding CDD assessments were $34.8 million.
Material changes, outlook and commentary
- Management’s strategy emphasizes risk-adjusted investment returns, lower future capital outlays, land sales where appropriate, recurring leasing and resort revenue, active-adult communities, commercial and industrial uses, and partnerships. The company said residential sales showed signs of recovery in some Northwest Florida projects, but a sustained recovery remained uncertain.
- Management expected approximately $48.6 million of 2013 capital expenditures, primarily for residential and commercial development and amenities; some spending was discretionary and contingent on returns. It also expected to contribute about $6.0 million of land and $9.9 million of cash to the Pier Park North joint venture, subject to conditions. By February 25, 2013, $0.9 million of cash had been contributed. The project includes company guarantees and minimum liquidity and net-worth covenants.
- Timber harvest volume rose 19% in 2012, partly due to catch-up harvesting after opening West Bay acreage. Management expected 2013 harvest to be flat or slightly lower. RockTenn accounted for $15.1 million of 2012 timber sales; a permanent closure of its nearby mill could pressure pulpwood prices and increase delivery costs.
- The planned pension termination is expected to generate additional pretax losses of approximately $22–$26 million and potentially return $15–$19 million of cash to the company after approvals, participant distributions and excise taxes. Management expected the process to occur near the end of 2013 or during 2014. The plan was overfunded by $33.4 million at year-end 2012.
- Material risks include dependence on Northwest Florida’s economy and real estate demand, development entitlements and environmental restrictions, natural disasters and potentially inadequate insurance, impairment estimates, financing and homebuilder demand, and reliance on strategic partners. The company had recorded $507.1 million of real estate impairments over the preceding five years.
- The securities class action was dismissed with prejudice, and the Eleventh Circuit affirmed the dismissal on February 25, 2013. Related shareholder derivative actions remained stayed. An SEC private investigation concerning, among other matters, real estate impairment accounting, reporting, internal controls and financial reports remained open; the company said any loss could not be estimated.
- The Deepwater Horizon resort-operations settlement had a $7.26 million claim in the settlement process; additional claims continued in the multidistrict litigation. Separately, the company recognized $1.7 million in 2012 related to oil-spill claims. Environmental remediation at former mill-related properties remained uncertain; the filing did not provide a clear estimate of potential costs.
- Other unusual items included $0.8 million of 2012 income from terminating a Southwest Airlines guarantee and a $2.6 million impairment on the airport parking facility. The parking arrangement also released St. Joe from a separate 28-year land lease with approximately $4.2 million of future payments.
- No cash dividends were paid in 2011 or 2012, and the company did not anticipate dividends in the foreseeable future. KPMG issued an unqualified opinion on the financial statements and internal controls; management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Whether improved homebuilder interest, homesite pricing and resort demand persist, and how management’s land-sale and development assumptions affect future impairments.
- Whether the $48.6 million 2013 capital plan and Pier Park North investment and guarantees remain consistent with liquidity and return targets.
- The final pension termination accounting, including the estimated $22–$26 million loss and possible $15–$19 million cash return.
- Progress and potential exposure from the SEC investigation, derivative litigation, oil-spill claims and environmental remediation matters.
- Timber volumes, realized prices and customer concentration, particularly the impact of RockTenn’s mill operations and the normalization of harvest after 2012.
- Debt and CDD assessment obligations, including the distinction between reported debt, defeased debt and total outstanding assessments.