The St. Joe Company — FY2010 Form 10-K
Reporting period: Year ended December 31, 2010. Although the request identifies 2010 Q4, this filing reports full-year results; selected fourth-quarter figures are included below. St. Joe is a Florida-focused landowner and real estate developer with residential, commercial, rural land sales and forestry segments. It owned approximately 574,000 acres, primarily in Northwest Florida.
Financial performance and liquidity
| Metric | FY2010 | FY2009 |
|---|---|---|
| Revenue | $99.5 million | $138.3 million |
| Operating loss | $51.6 million | $209.4 million |
| Net loss attributable to St. Joe | $35.9 million | $130.0 million |
| Loss per diluted share | $0.39 | $1.42 |
| Cash from operating activities | $16.3 million | $50.7 million |
| Cash and cash equivalents at year-end | $183.8 million | $163.8 million |
| Total debt | $54.7 million | $57.0 million |
| Total equity | $872.4 million | $896.3 million |
- Revenue fell 28%, principally as real estate sales declined. Residential real estate sales were $8.7 million versus $57.4 million; rural land sales revenue increased to $25.9 million from $14.3 million. Timber revenue rose 8% to $28.8 million.
- Operating loss improved substantially, mainly alongside lower impairment and pension charges: total impairment losses were $8.6 million in 2010 versus $113.0 million in 2009; pension charges were $4.1 million versus $46.0 million. The company remained loss-making.
- Real estate sales gross margin was 78% versus 23%, reflecting sales mix, including rural land, and not a broad recovery in residential demand. Resort and club operations generated $29.4 million revenue and $31.5 million related costs.
- Cash increased by $20.0 million. Operating cash flow declined from 2009; the 2010 cash position benefited from a $67.7 million federal tax refund. Capital expenditures were $16.1 million, down from $18.4 million.
- The $125 million revolving credit facility was undrawn at year-end and expires September 2012. The company reported covenant compliance; minimum tangible net worth was $800 million and reported covenant net worth was $871.6 million. Total outstanding CDD debt was $57.7 million, of which $29.4 million was recorded as debt. Reported total debt also includes $25.3 million of defeased debt backed by pledged Treasury securities.
- Fourth-quarter 2010 revenue was $37.1 million, operating loss $1.3 million, and net loss attributable to the company $2.7 million. The filing reports $20.6 million of previously deferred revenue recognized in 2010 upon conveying 2,148 acres to FDOT.
Changes, outlook and material items
- Management described continued weakness in Florida real estate markets, oversupply, depressed prices, restricted mortgage credit and limited economic recovery. The Deepwater Horizon spill also affected coastal properties, resort occupancy, results and the stock price; the full and lasting effects remained uncertain.
- The Northwest Florida Beaches International Airport began commercial operations in May 2010. Management reported passenger traffic in its first six months exceeded the old airport’s full-year 2009 traffic. St. Joe launched the 1,000-acre VentureCrossings commercial project and executed an airport access agreement, but development and economic benefits remain uncertain.
- Management expected 2011 capital expenditures to increase from 2010, including for the planned corporate headquarters at VentureCrossings. It provided no specific earnings or revenue guidance and said the timing of a sustainable real estate recovery was uncertain.
- In February 2011, the Board announced it would explore strategic and financial alternatives, including partnerships, asset sales, acquisitions, a merger or sale of the company. Morgan Stanley was retained; the filing cautions that no transaction or improved results are assured.
- St. Joe filed three lawsuits seeking damages related to the oil spill; recovery and outcome were uncertain. A securities class action alleging inadequate real estate impairments and misleading disclosures was pending, and four derivative-litigation demand letters had been received. The SEC had begun an informal inquiry into real estate impairment policies and practices; the filing states the inquiry itself is not an allegation of wrongdoing.
- Other notable matters include a $9.0 million accrued liability for a contract dispute involving the 1997 Victoria Park land purchase, which the company appealed; $8.6 million of 2010 impairment charges; and $5.3 million of restructuring charges. The company corrected prior-period errors it deemed immaterial, including a $17.5 million increase to 2009 debt and real estate for CDD obligations, with no impact on prior-period earnings, cash flows or equity.
- Key risks include prolonged real estate weakness, concentration in Northwest Florida, impairment assumptions and potential further write-downs, oil-spill and hurricane impacts, airport performance and access, financing and covenant compliance, environmental and entitlement regulation, and dependence on homebuilders and timber customers. The Southwest Airlines agreement could require loss reimbursements during its initial three years; none were required in 2010.
Important facts for investors to verify
- Reconcile the $67.7 million tax refund and other sources of 2010 cash growth against recurring operating cash generation, which fell to $16.3 million.
- Review the assumptions and sensitivity behind real estate impairment testing, particularly long holding periods and projected sales prices; one development property had undiscounted cash flows estimated at approximately 110% of its $23 million carrying value.
- Track the SEC inquiry, securities litigation, Victoria Park contract dispute and oil-spill claims, including possible financial exposure and recoveries.
- Confirm covenant headroom and the distinction between recorded debt, total CDD debt and defeased debt; assess liquidity if losses continue or asset values decline.
- Assess whether airport growth, direct runway access, VentureCrossings leasing and the Southwest agreement translate into durable commercial demand and cash flows.
- Note the filing reports cash of $183.8 million in the audited balance sheet and selected data, while the MD&A overview states $183.3 million; verify the discrepancy in the filed financial statements.