JOE

Business Context and Reporting Period

Company: The St. Joe Company (ST JOE Co)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: A major Florida-based real estate development company owning approximately 577,000 acres, primarily in Northwest Florida. Operations are divided into four segments: Residential Real Estate, Commercial Real Estate, Rural Land Sales, and Forestry. The company focuses on land-use entitlements, infrastructure development, and asset monetization.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 46% to $138.3 million, driven primarily by a strategic decision to reduce rural land sales (down from $162.0 million in 2008 to $14.3 million in 2009) and continued weakness in residential and commercial markets.
• Net Loss Expansion: Net loss widened significantly to $130.0 million from $35.9 million. This was largely due to $113.0 million in impairment charges (including $67.8 million for the Victoria Park community) and a $44.7 million non-cash pension settlement charge.
• Liquidity Improvement: Despite the net loss, cash and cash equivalents increased by $48.3 million to $163.8 million. This was achieved through the sale of non-strategic assets, reduced capital expenditures, and the receipt of $32.3 million in income tax refunds.
• Debt Reduction: Total debt decreased by $10.1 million to $39.5 million. The company extended its revolving credit facility maturity to 2012 and increased the commitment to $125 million, though no funds were drawn.

Guidance, Outlook, and Risks

• Market Outlook: Management states that the real estate crisis may have reached a "bottom" in 2009 but cannot predict with certainty when demand will improve. They do not expect significant favorable changes in market conditions during 2010.
• Strategic Initiatives:
  • Airport Catalyst: Significant progress on the Northwest Florida Beaches International Airport (opening May 2010). A strategic alliance with Southwest Airlines was signed to ensure low-fare service, with St. Joe agreeing to reimburse losses for the first three years (liability estimated at $0.8 million).
  • Tax Strategy: The company implemented a tax-loss carryback strategy, selling non-strategic assets at a loss to generate a federal income tax refund. An additional $62.4 million in tax receivables is expected in 2010.
  • Asset Dispositions: Continued divestiture of non-core assets (e.g., Victoria Park, SevenShores, St. Johns Golf Club) to reduce holding costs and generate liquidity.
• Key Risks:
  • Prolonged recession and high unemployment in Florida.
  • Failure of the new airport to attract sufficient traffic or Southwest Airlines terminating service.
  • Potential acceleration of deferred taxes if the bank backing installment sale notes (Wells Fargo/Wachovia) fails.
  • Compliance with credit facility covenants, specifically the $800 million tangible net worth requirement.

Investor Verification Checklist

• Tax Refund Timing: Verify the receipt of the anticipated $62.4 million tax receivable in the second half of 2010.
• Airport Performance: Monitor the commencement of Southwest Airlines service in May 2010 and the associated reimbursement liability.
• Covenant Compliance: Confirm continued compliance with the $800 million tangible net worth covenant under the $125 million credit facility.
• Impairment Trends: Assess whether further asset write-downs are necessary given the continued decline in real estate market values.
• Banking Counterparty Risk: Evaluate the stability of Wells Fargo/Wachovia regarding the $183.3 million in installment notes receivable.