The St. Joe Company — 2012 Second-Quarter Form 10-Q
Reporting period: Three and six months ended June 30, 2012; balance-sheet comparisons are to December 31, 2011. St. Joe is a Florida real estate developer and manager with approximately 571,000 acres, primarily in Northwest Florida, and operates residential and commercial real estate, rural land sales, and forestry businesses. Unless noted, financial amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | 2012: $30.4; 2011: $25.3 | 2012: $60.9; 2011: $98.7 |
| Operating income (loss) | 2012: $(2.4); 2011: $(20.6) | 2012: $(4.0); 2011: $0.8 |
| Net income (loss) attributable to the Company | 2012: $0.2; 2011: $(13.3) | 2012: $(0.7); 2011: $0.8 |
| Basic earnings (loss) per share | 2012: $0.00; 2011: $(0.14) | 2012: $(0.01); 2011: $0.01 |
| Operating cash flow | Not reported separately | 2012: $7.8; 2011: $26.7 |
- Second-quarter revenue rose 20.2% year over year, led by higher real estate, resort and club, and timber revenue. Six-month revenue fell 38.3%, principally because 2011 included a $54.5 million timber deed sale recognized in the first quarter. Excluding that deed, the company reported timber revenue about $2.9 million higher for the 2012 half-year.
- Second-quarter results improved substantially from the prior-year loss as total expenses declined to $32.7 million from $45.9 million. The company cited lower professional fees, pension costs, employee compensation, restructuring charges, and the absence of prior-year impairment charges.
- At June 30, cash and cash equivalents were $169.9 million, up from $162.4 million at year-end. Total assets were $666.4 million and total equity was $544.8 million.
- Reported debt was $51.7 million, down from $53.5 million at year-end. This includes $22.3 million of defeased debt matched by pledged Treasury securities; the remaining reported debt was primarily Community Development District debt. Total outstanding CDD debt was $56.0 million, of which $29.4 million was recorded as a liability.
- Six-month operating cash flow declined from 2011; the company explains that 2011 cash flow included $55.9 million of timber deed proceeds. Cash increased $7.5 million during the 2012 half-year.
Changes, outlook, and risks
- On January 25, 2012, the company adopted a strategy focused on reducing capital outlays and applying new risk-adjusted investment criteria. It expects to reduce planned future capital expenditures for existing projects by approximately $190 million, most of which had been expected over the next ten years, and may reposition or sell properties, including in bulk or at lower prices.
- Management expected approximately $17.3 million of capital expenditures in the remainder of 2012, mainly for residential and commercial development and a build-to-suit facility. It stated that available cash and anticipated cash flows should meet expected working-capital and capital-expenditure needs.
- Management saw signs of recovery in some Northwest Florida residential markets, but said the timing of a sustainable broader recovery remained uncertain. It cited the real estate downturn, slow economic recovery, restrictive credit, unsold-home inventories, and weakness in commercial markets.
- The company received $1.7 million in Deepwater Horizon claims payments during the first six months and recorded them as gains. Further recovery and the outcome of remaining claims are uncertain. A proposed oil-spill class settlement was awaiting a final approval hearing scheduled for November 8, 2012.
- The Southwest Airlines support agreement was terminated effective July 1, 2012. The company recognized $0.8 million of other income at June 30 by releasing the related reserve; no payment was due at termination.
- Material uncertainties include an SEC private investigation into historical impairment practices and related matters, a pending appeal in a securities class action dismissed with prejudice, and stayed shareholder derivative actions. The company said potential loss estimates were not determinable for the SEC matter and shareholder litigation. It also disclosed environmental matters, with $1.6 million in environmental-related accruals, and stated that adverse outcomes in certain matters could affect results or cash flows in a particular period.
- Other risks include further declines in Florida real estate values, possible asset impairments, execution and sale timing under the new strategy, the Deepwater Horizon spill’s regional impact, and possible closure of RockTenn’s Panama City mill, a major local timber customer.
- The filing reported no material changes in off-balance-sheet arrangements or contractual obligations from the 2011 Form 10-K. Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the 2012 revenue and earnings trend reflects recurring operations versus land sales, oil-spill recoveries, and the $0.8 million Southwest Airlines reserve release.
- Whether the planned $190 million reduction in future capital expenditures and the repositioning strategy translate into improved cash flow without materially reducing asset values or future sales opportunities.
- The timing, proceeds, and carrying values for planned rural-land and other property sales, including the expected 2012 sale of a 250-acre tract and the Georgia land option.
- Developments in the SEC investigation, shareholder litigation, environmental matters, and Deepwater Horizon claims, including potential financial effects that the filing says cannot currently be estimated.
- The distinction between reported debt and total CDD debt, the restrictions on pledged Treasury securities, and the sustainability of liquidity if real estate markets remain weak.