The St. Joe Company — Q2 2010 Form 10-Q
Reporting period: Three and six months ended June 30, 2010. Dollar amounts are in millions unless otherwise stated. St. Joe is a Florida-focused real estate development and timber company.
Financial performance and position
- Q2 revenue: $22.0, down 44% from $39.1 a year earlier. Real estate sales fell 86% to $2.8; resort and club revenue increased 3% to $10.8, and timber revenue rose 9% to $7.8.
- Q2 results: Operating loss was $15.2 versus $74.8; net loss attributable to the Company was $8.6, or $0.09 per share, versus $44.8, or $0.49 per share.
- First-half results: Revenue was $35.3, down 40%; net loss attributable to the Company was $20.0, or $0.22 per share, versus $56.9, or $0.62 per share.
- Cash flow: First-half operating cash outflow was $29.4, compared with $3.3 of operating cash inflow in 2009. Cash and equivalents declined to $138.9 from $163.8 at year-end 2009. The company reported $67.8 of income taxes receivable at June 30 and received $67.7 in July.
- Debt and liquidity: Debt totaled $38.9, including $26.2 of non-recourse defeased debt and $12.7 of Community Development District debt. The company had a $125 revolving credit facility with no borrowings reported; it was in compliance with its debt covenants. Management said cash, the undrawn facility, and expected operating cash would meet working capital and capital needs.
- Assets and equity: Total assets were $1,073.7 and total equity $883.8. Investment in real estate was $748.2.
Changes versus the prior-year period
- Revenue contraction reflected weak residential sales and reduced rural land sales. Management cited oversupply, depressed Florida property prices, poor economic conditions, and the Gulf oil spill. Rural land sales revenue fell to $1.2 in Q2 from $8.4.
- The smaller losses chiefly reflect the absence of the 2009 non-cash pension settlement charge of $44.7 and lower impairment charges: $0.5 in Q2 2010 versus $20.0 in Q2 2009. First-half impairment charges were $0.6 versus $21.5.
- Cost reductions lowered other operating expenses, but Q2 corporate expense rose 40% to $8.1, partly due to $2.5 of pension expense from settlements and curtailments. Interest expense also increased, as Community Development District interest was no longer capitalized at reduced development spending levels.
- Residential homesite sales had a 36% gross margin in Q2 versus 9% in 2009, but sales volume declined to 16 units from 41; no homes were sold in Q2 2010.
- The company recorded an immaterial correction of prior-period stock compensation accounting: $2.6 of common stock and $1.6 net of tax, with a corresponding retained-earnings adjustment.
Outlook, risks, and unusual items
- Management did not expect significant favorable residential market changes during 2010. No formal numerical earnings or revenue guidance is provided in the filing.
- The Deepwater Horizon spill physically affected beachfront properties in Walton County. Management expected continuing negative effects on properties, results, and share price; the company is pursuing damages but cannot estimate recovery or its likelihood.
- The Northwest Florida Beaches International Airport opened May 23, 2010. Management sees Southwest Airlines service and the airport as potential regional growth catalysts, though commercial and economic benefits are uncertain.
- Under its three-year Southwest Airlines agreement, St. Joe may make break-even payments if the airline incurs service losses. No reimbursement was due in Q2; the recorded guarantee liability was $0.8. The company entered a fuel-cost collar during Q2. Payments could materially affect cash flow and results.
- Headquarters relocation and office consolidation are expected to finish in 2011. Estimated pre-tax relocation costs are approximately $5.0 and termination benefits approximately $2.2; $2.7 of restructuring charges were recorded in the first half, and most related costs are expected through Q2 2011.
- Other exposures include real estate and builder-note collectability, potential future asset impairments, environmental matters, and litigation. Environmental accruals were $1.6; rehabilitation costs for certain adjacent property near the former paper mill could not be quantified. Surety bonds totaled $20.3 and standby letters of credit $2.5.
- A $0.7 litigation settlement contributed to other income. The $44.7 pension settlement charge and major impairment charges in the 2009 comparison period are significant non-recurring items.
Important facts for investors to verify
- Whether the July receipt of $67.7 in tax refunds offsets the first-half operating cash outflow and sustains liquidity.
- Further effects of the Gulf oil spill on beachfront assets, resort activity, real estate demand, and the company’s recovery claims.
- Southwest Airlines’ service performance and the potential size and timing of guarantee payments.
- Real estate sales pace, pricing, inventory valuation, builder-note collections, and the possibility of additional impairments.
- Actual relocation and termination costs, and whether the airport produces the development activity management anticipates.