The St. Joe Company — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011; balance-sheet comparisons are against December 31, 2010. The St. Joe Company is a Florida real estate developer and manager with approximately 573,000 acres, primarily in Northwest Florida, alongside resort, club and forestry operations. Unless noted, financial amounts below are in millions of dollars.
Financial results and liquidity
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $26.7 | $27.1 | $125.5 | $62.4 |
| Operating loss | $(4.2) | $(18.0) | $(3.4) | $(50.3) |
| Net loss attributable to St. Joe | $(2.4) | $(13.1) | $(1.7) | $(33.2) |
| Loss per share, basic and diluted | $(0.03) | $(0.14) | $(0.02) | $(0.36) |
- Revenue mix: Nine-month timber sales were $79.0 million, versus $21.0 million a year earlier, primarily reflecting a $55.9 million timber-deed transaction. St. Joe recognized $54.5 million of timber-deed revenue and recorded $1.4 million as an imputed land lease for recognition over the deed’s term. The transaction generated a reported $50.3 million pretax gain, net of $4.2 million of cost and depletion.
- Cash flow: Nine-month operating cash flow was $15.1 million, down from $29.5 million. Investing activities used $5.9 million, including a $4.4 million contribution to the East San Marco joint venture; financing activities used $4.8 million. Cash increased by $4.4 million to $188.2 million.
- Balance sheet: Debt was $52.4 million, down from $54.7 million; cash was $188.2 million. Total assets were $1,048.7 million and total equity was $875.9 million at September 30. The company terminated its bank credit agreement effective July 1, without a prepayment penalty.
- Margins: The filing does not provide a consolidated operating-margin measure. Residential homesite and home sales gross margin was 19% in Q3 and 21% for nine months, compared with 23% and 26%, respectively, in 2010. Resort and club revenue exceeded related costs by $1.4 million in Q3, compared with a $0.03 million shortfall in Q3 2010.
Changes versus prior comparable periods
- Q3 revenue declined 1%, while nine-month revenue more than doubled, chiefly due to the timber deed. Excluding that unusual transaction, the reported revenue increase should not be read as equivalent recurring growth.
- Net losses narrowed substantially in both periods. Lower prior-year litigation-related charges and interest, reduced operating expenses, and the 2011 timber-deed gain materially affect comparisons.
- Q3 real estate sales fell to $5.7 million from $10.9 million, reflecting weaker commercial and rural land sales. Resort and club revenue rose to $12.0 million from $8.8 million. Nine-month resort and club revenue increased to $30.1 million from $24.1 million.
- Q3 forestry revenue increased to $8.2 million from $6.8 million. Nine-month forestry revenue rose to $79.0 million from $21.0 million, mostly due to the timber deed. The company also cited improved pricing under its wood-fiber supply agreement.
- Nine-month corporate expense increased to $29.4 million from $23.3 million, including legal costs and accelerated stock compensation. Nine-month restructuring charges were $10.8 million versus $4.4 million in 2010; impairment charges were $2.5 million versus $0.6 million.
Outlook, risks and unusual items
- Management reported some improvement in residential sales activity and renewed commercial interest, but did not expect significant near-term improvement in market conditions. It cited depressed property demand and high resale inventory.
- Management expects restructuring and cost-saving efforts to reduce annualized operating and corporate expenses by approximately $15–18 million. This is an expectation, not a guarantee.
- Planned capital expenditures were approximately $13 million for the remainder of 2011 and $30 million in 2012. Management said cash and anticipated cash flows should cover expected working capital needs and capital expenditures.
- Unusual 2011 items include accelerated stock-compensation expense following a board change and executive departures; senior-management severance; pension settlement and curtailment charges; $2.5 million of impairments; and a $5.5 million reduction in employee insurance expense following changes to retiree medical arrangements.
- The company is defending a securities class action and shareholder derivative suits concerning, among other matters, real estate asset accounting. The SEC has issued an order of private investigation covering accounting, internal controls, reporting and other matters; St. Joe said it is cooperating. The ultimate financial impact of these matters is not specified.
- Other risks include continued weakness in Florida real estate, possible further property impairments, the economic effects of the Deepwater Horizon spill, environmental and construction-related claims, and dependence on the RockTenn mill as a major local pulpwood customer. Environmental accruals were $1.5 million; management said adjacent-property rehabilitation costs could not be quantified.
- A $0.8 million liability remains for the Southwest Airlines airport-service guarantee; no reimbursement had been required through September 30, 2011. Potential surety-bond exposure was $28.8 million, with $0.8 million in standby letters of credit.
Important facts for investors to verify
- How much of the reported nine-month revenue and earnings improvement is attributable to the one-time timber deed, and what timber revenue is expected to recur?
- Whether the expected $15–18 million annualized cost savings are achieved, and what restructuring, legal, pension and stock-compensation costs remain.
- Whether real estate sales, pricing and property values stabilize, and whether impairment assumptions or charges change.
- Developments in the SEC investigation, shareholder litigation and oil-spill claims, including potential costs or recoveries.
- Cash-flow generation and funding capacity against planned capital expenditures, debt maturities and project commitments.