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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2009
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from          to
 
Commission File No. 1-10466
 
The St. Joe Company
(Exact name of registrant as specified in its charter)
 
     
Florida
  59-0432511
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)
  Identification No.)
245 Riverside Avenue, Suite 500
  32202
Jacksonville, Florida
  (Zip Code)
(Address of principal executive offices)
   
 
Registrant’s telephone number, including area code: (904) 301-4200
 
Securities Registered Pursuant to Section 12(b) of the Act:
 
     
Title of Each Class
 
Name of Each Exchange on Which Registered
 
Common Stock, no par value
  New York Stock Exchange
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES þ     NO o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES o     NO þ
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  YES þ     NO o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o     NO þ
 
The aggregate market value of the registrant’s Common Stock held by non-affiliates based on the closing price on June 30, 2009, was approximately $2.4 billion.
 
As of February 19, 2010, there were 122,868,634 shares of Common Stock, no par value, issued and 92,573,471 shares outstanding, with 30,295,163 shares of treasury stock.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Registrant’s definitive Proxy Statement for the Annual Meeting of our Shareholders to be held on May 11, 2010 (the “proxy statement”) are incorporated by reference in Part III of this Report. Other documents incorporated by reference in this Report are listed in the Exhibit Index.
 


 

 
Table of Contents
 
             
        Page
Item
      No.
 
l.
  Business     2  
      Market Conditions and the Economy     2  
      Progress on Northwest Florida Beaches International Airport     2  
      Sale of Non-Strategic Assets     3  
      Other 2009 Highlights     3  
      Land-Use Entitlements     3  
      Residential Real Estate     6  
      Commercial Real Estate     7  
      Rural Land Sales     8  
      Forestry     8  
      Competition     8  
      Supplemental Information     9  
      Employees     9  
      Website Access to Reports     9  
1A.
  Risk Factors     9  
1B.
  Unresolved Staff Comments     20  
2.
  Properties     20  
3.
  Legal Proceedings     20  
 
PART II
4.
  Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities     20  
5.
  Selected Consolidated Financial Data     23  
6.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     24  
6A.
  Quantitative and Qualitative Disclosures about Market Risk     52  
7.
  Financial Statements and Supplementary Data     53  
8.
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     53  
8A.
  Controls and Procedures     53  
8B.
  Other Information     55  
 
PART III*
9.
  Directors, Executive Officers and Corporate Governance     55  
10.
  Executive Compensation     55  
11.
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     55  
12.
  Certain Relationships and Related Transactions and Director Independence     55  
13.
  Principal Accountant Fees and Services     56  
 
PART IV
14.
  Exhibits and Financial Statement Schedule     56  
    60  
 EX-10.7
 EX-10.12
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-99.1
 
 
* Portions of the Proxy Statement for the Annual Meeting of our Shareholders to be held on May 11, 2010, are incorporated by reference in Part III of this Form 10-K.


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PART I
 
Item 1.   Business
 
As used throughout this Annual Report on Form 10-K, the terms “we,” “St. Joe,” and the “Company” mean The St. Joe Company and its consolidated subsidiaries unless the context indicates otherwise.
 
St. Joe was incorporated in 1936 and is one of the largest real estate development companies in Florida. We own approximately 577,000 acres of land concentrated primarily in Northwest Florida. Most of this land was acquired decades ago and, as a result, has a very low cost basis. Approximately 405,000 acres, or approximately 70 percent of our total land holdings, are within 15 miles of the coast of the Gulf of Mexico.
 
We are engaged in town and resort development, commercial and industrial development and rural land sales. We also have significant interests in timber. Our four operating segments are:
 
  •  Residential Real Estate,
 
  •  Commercial Real Estate,
 
  •  Rural Land Sales, and
 
  •  Forestry.
 
We believe we have one of the largest inventories of private land suitable for development in Florida. We seek to create value in our land by securing higher and better land-use entitlements, facilitating infrastructure improvements, developing community amenities, undertaking strategic and expert land planning and development, parceling our land holdings in creative ways and performing land restoration and enhancement. We believe we are one of the few real estate development companies to have assembled the range of real estate, financial, marketing and regulatory expertise necessary to achieve a large-scale approach to real estate development.
 
Market Conditions and the Economy
 
Our business, financial condition and results of operations continued to be materially adversely affected during 2009 by the ongoing real estate downturn and economic recession in the United States. These adverse conditions include among others, high unemployment, lower family income, lower consumer confidence, a large number of foreclosures and homes for sale, increased volatility in the availability and cost of credit, shrinking mortgage markets, unstable financial institutions, lower valuation of retirement savings accounts, lower corporate earnings, lower business investment and lower consumer spending.
 
This challenging environment has exerted negative pressure on the demand for all of our real estate products. Although some analysts and commentators believe the real estate crisis may have reached a “bottom” in 2009, we cannot predict with any certainty when demand for our real estate products will improve.
 
Progress on the Northwest Florida Beaches International Airport
 
Significant progress has been made in the construction of the new Northwest Florida Beaches International Airport, and it is currently scheduled to commence commercial flight operations on May 23, 2010. The new airport is located in the West Bay Area Sector Plan (the “West Bay Sector”), one of the largest planned mixed-use developments in the United States. We own all 71,000 acres in the West Bay Sector surrounding the airport, including approximately 41,000 acres dedicated to preservation. Our West Bay Sector land has entitlements for over 4 million square feet of commercial and industrial space and over 16,000 residential units. In 2009 we signed agreements with The Haskell Company, TranSystems Corporation and CB Richard Ellis Group, Inc. to masterplan and market for joint venture, lease or sale certain land adjacent to the new airport.
 
On October 21, 2009, we entered into a strategic alliance with Southwest Airlines to facilitate the commencement of low-fare air service in May 2010 to the new Northwest Florida Beaches International Airport. Southwest Airlines’ initial service at the new airport will consist of two daily non-stop flights between the new airport and each of Houston, Nashville, Orlando and Baltimore - Washington D.C. In addition to the eight daily non-stop flights, Southwest Airlines will offer direct or connecting service to more than 60 destinations from the new airport, including Dallas, San Antonio, Chicago, St. Louis, Ft. Lauderdale, Tampa, New York LaGuardia and Providence. We have agreed to reimburse Southwest Airlines if it incurs losses on its service at the new airport during the first three years of service. The agreement also provides that


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Southwest’s profits from the air service during the term of the agreement will be shared with us up to the maximum amount of our break-even payments. We expect that the connectivity Southwest brings to the region will stimulate tourism, economic development, job growth and real estate absorption in our projects across Northwest Florida.
 
Sale of Non-Strategic Assets
 
Given the downturn in our real estate markets, we implemented a tax strategy in 2009 to benefit from the sale of certain non-strategic assets at a loss. Under federal tax rules, losses from asset sales realized in 2009 can be carried back and applied to taxable income from 2007, resulting in a federal income tax refund. These sales also significantly reduced our holding costs going forward. The following are some of the non-strategic assets that we sold:
 
  •  The remaining assets of our Victoria Park community in Deland, Florida, including 28 homes, 350 homesites, 468 acres of undeveloped land, notes receivable and a golf course;
 
  •  St. Johns Golf and Country Club outside of Jacksonville, Florida, including a golf course, clubhouse and maintenance facilities;
 
  •  The remaining condominium units at our Artisan Park community in Celebration, Florida;
 
  •  The SevenShores condominium and marina development project in Bradenton, Florida; and
 
  •  3 homes and 115 homesites that we acquired in North Carolina and South Carolina in connection with the satisfaction of our Saussy Burbank notes receivable.
 
We anticipate we will receive most of our $62.4 million tax receivable in the second half of 2010 in connection with the execution of our tax strategy.
 
Other 2009 Highlights
 
  •  We generated $57.5 million of revenue from residential real estate sales.
 
  •  We sold 29 acres of commercial land for $6.6 million, or over $227,000 per acre.
 
  •  We sold 6,967 acres of rural land for $14.3 million, or over $2,050 per acre.
 
  •  We increased our cash position by $48.3 million to $163.8 million and reduced debt by $10.1 million as compared to December 31, 2008.
 
  •  We annuitized approximately $93 million of pension plan liabilities by transferring approximately $101 million of the plan assets to an insurance company.
 
  •  We extended the maturity of our revolving credit facility to September 19, 2012 and increased the commitments to $125 million from $100 million.
 
Land-Use Entitlements
 
We have a broad range of land-use entitlements in hand or in various stages of the approval process for residential communities in Northwest Florida and other selected regions of the state, as well as commercial entitlements. As of December 31, 2009, we had approximately 31,600 residential units and 11.6 million commercial square feet in the entitlements pipeline, in addition to 646 acres zoned for commercial uses. The following tables describe our residential and commercial projects with land-use entitlements that are in development, pre-development planning or the entitlements process. These entitlements are on approximately 40,000 acres.


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Summary of Land-Use Entitlements(1)
Active St. Joe Residential and Mixed-Use Projects
December 31, 2009
 
                                                                 
                                  Residential
             
                            Residential
    Units
             
                            Units
    Under
    Total
    Remaining
 
                            Closed
    Contract
    Residential
    Commercial
 
                Project
    Project
    Since
    as of
    Units
    Entitlements
 
Project
  Class.(2)     County     Acres     Units(3)     Inception     12/31/09     Remaining     (Sq. Ft.)(4)  
 
In Development:(5)
                                                               
Artisan Park(6)
    PR       Osceola       175       616       616                    
Hawks Landing
    PR       Bay       88       168       143             25        
Landings at Wetappo
    RR       Gulf       113       24       7             17        
RiverCamps on Crooked Creek
    RS       Bay       1,491       408       191             217        
RiverSide at Chipola
    RR       Calhoun       120       10       2             8        
RiverTown
    PR       St. Johns       4,170       4,500       30             4,470       500,000  
SouthWood
    PR       Leon       3,370       4,770       2,535             2,235       4,535,588  
SummerCamp Beach
    RS       Franklin       762       499       82             417       25,000  
Victoria Park(7)
    PR       Volusia       1,859       4,200       1,891                    
WaterColor
    RS       Walton       499       1,140       913             227       47,600  
WaterSound
    RS       Walton       2,425       1,432       28       1       1,403       457,380  
WaterSound Beach
    RS       Walton       256       511       446             65       29,000  
WaterSound West Beach
    RS       Walton       62       199       40             159        
Wild Heron(8)
    RS       Bay       17       28       2             26        
WindMark Beach
    RS       Gulf       2,020       1,516       148             1,368       76,157  
                                                                 
Subtotal
                    17,427       20,021       7,074       1       10,637       5,670,725  
                                                                 
In Pre-Development:(5)
                                                               
Avenue A
    PR       Gulf       6       96                   96        
Bayview Estates
    PR       Gulf       31       45                   45        
Bayview Multifamily
    PR       Gulf       20       300                   300        
Beacon Hill
    RR       Gulf       3       12                   12        
Beckrich NE
    PR       Bay       15       74                   74        
Boggy Creek
    PR       Bay       630       526                   526        
Bonfire Beach
    RS       Bay       550       750                   750       70,000  
Breakfast Point, Phase 1
    PR/RS       Bay       115       320                   320        
College Station
    PR       Bay       567       800                   800        
Cutter Ridge
    PR       Franklin       10       25                   25        
DeerPoint Cedar Grove
    PR       Bay       686       950                   950        
East Lake Creek
    PR       Bay       81       313                   313        
East Lake Powell
    RS       Bay       181       360                   360       30,000  
Howards Creek
    RR       Gulf       8       33                   33        
Laguna Beach West
    PR       Bay       36       260                   260        
Long Avenue
    PR       Gulf       10       30                   30        
Palmetto Bayou
    PR       Bay       58       217                   217       90,000  
ParkSide
    PR       Bay       48       480                   480        
Pier Park Timeshare
    RS       Bay       13       125                   125        
PineWood
    PR       Bay       104       264                   264        
Port St. Joe Draper, Phase 1
    PR       Gulf       610       1,200                   1,200        
Port St. Joe Draper, Phase 2
    PR       Gulf       981       2,125                   2,125       150,000  
Port St. Joe Town Center
    RS       Gulf       180       624                   624       500,000  
Powell Adams
    RS       Bay       56       2,520                   2,520        
Sabal Island
    RS       Gulf       45       18                   18        
South Walton Multifamily
    PR       Walton       40       212                   212        
Star Avenue North
    PR       Bay       295       600                   600       350,000  


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                                  Residential
             
                            Residential
    Units
             
                            Units
    Under
    Total
    Remaining
 
                            Closed
    Contract
    Residential
    Commercial
 
                Project
    Project
    Since
    as of
    Units
    Entitlements
 
Project
  Class.(2)     County     Acres     Units(3)     Inception     12/31/09     Remaining     (Sq. Ft.)(4)  
 
The Cove
    RR       Gulf       64       107                   107        
Timber Island(9)
    RS       Franklin       49       407                   407       14,500  
Topsail
    PR       Walton       115       610                   610       300,000  
Wavecrest
    RS       Bay       7       95                   95        
West Bay Corners SE
    PR       Bay       100       524                   524       50,000  
West Bay Corners SW
    PR       Bay       64       160                   160        
West Bay DSAP I
    PR/RS       Bay       15,089       5,628                   5,628       4,430,000  
West Bay Landing(10)
    RS       Bay       950       214                   214        
                                                                 
Subtotal
                    21,817       21,024                       21,024       5,984,500  
                                                                 
Total
                    39,244       41,045       7,074       1       31,661       11,655,225  
                                                                 
 
 
(1) A project is deemed land-use entitled when all major discretionary governmental land-use approvals have been received. Some of these projects may require additional permits for development and/or build-out; they also may be subject to legal challenge.
 
(2) Current St. Joe land classifications for its residential developments or the residential portion of its mixed-use projects:
 
  •  PR — Primary residential
 
  •  RS — Resort and seasonal residential
 
  •  RR — Rural residential
 
(3) Project units represent the maximum number of units entitled or currently expected at full build-out. The actual number of units or square feet to be constructed at full build-out may be lower than the number entitled or currently expected.
 
(4) Represents the remaining square feet with land-use entitlements as designated in a development order or expected given the existing property land use or zoning and present plans. The actual number of square feet to be constructed at full build-out may be lower than the number entitled. Commercial entitlements include retail, office and industrial uses. Industrial uses total 6,128,381 square feet including SouthWood, RiverTown and the West Bay DSAP I.
 
(5) A project is “in development” when St. Joe has commenced horizontal construction on the project and commenced sales and/or marketing or will commence sales and/or marketing in the foreseeable future. A project in “pre-development” has land-use entitlements but is still under internal evaluation or requires one or more additional permits prior to the commencement of construction. For certain projects in pre-development, some horizontal construction may have occurred, but no sales or marketing activities are expected in the foreseeable future.
 
(6) Artisan Park is 74 percent owned by St. Joe.
 
(7) The remaining assets at Victoria Park were sold as a bulk sale on December 17, 2009.
 
(8) Homesites acquired by St. Joe within the Wild Heron community.
 
(9) Timber Island entitlements include seven residential units and 400 units for hotel or other transient uses (including units held with fractional ownership such as private residence clubs).
 
(10) West Bay Landing is a sub-project within West Bay DSAP I.

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Summary of Additional Commercial Land-Use Entitlements(1)
(Commercial Projects Not Included in the Tables Above)
December 31, 2009
 
                                     
              Acres Sold
             
        Project
    Since
    Acres Under Contract
    Total Acres
 
Project
  County   Acres     Inception     As of 12/31/09     Remaining  
 
Airport Commerce
  Leon     45       10             35  
Alf Coleman Retail
  Bay     25       23             2  
Beach Commerce
  Bay     157       151             6  
Beach Commerce II
  Bay     112       13             99  
Beckrich Office Park
  Bay     17       15             2  
Beckrich Retail
  Bay     44       41             3  
Cedar Grove Commerce
  Bay     51       5             46  
Franklin Industrial
  Franklin     7                   7  
                                     
Glades Retail
  Bay     14                   14  
Gulf Boulevard
  Bay     78       27             51  
Hammock Creek Commerce
  Gadsden     165       27             138  
Mill Creek Commerce
  Bay     37                   37  
Nautilus Court
  Bay     11       7             4  
Pier Park NE
  Bay     57                   57  
Port St. Joe Commerce II
  Gulf     39       9             30  
Port St. Joe Commerce III
  Gulf     50                   50  
Powell Hills Retail
  Bay     44                   44  
South Walton Commerce
  Walton     38       17             21  
                                     
Total
        991       345             646  
                                     
 
 
(1) A project is deemed land-use entitled when all major discretionary governmental land-use approvals have been received. Some of these projects may require additional permits for development and/or build-out; they also may be subject to legal challenge. Includes significant St. Joe projects that are either operating, under development or in the pre-development stage.
 
Residential Real Estate
 
Our residential real estate segment typically plans and develops mixed-use resort, seasonal and primary residential communities of various sizes, primarily on our existing land. We own large tracts of land in Northwest Florida, including large tracts near Tallahassee and Panama City, and significant Gulf of Mexico beach frontage and other waterfront properties, which we believe are suited for resort, seasonal and primary communities. We believe this large land inventory, with a low cost basis, provides us an advantage over our competitors who must purchase and finance real estate at current market prices before beginning projects.
 
We are continuing to devote significant resources to the conceptual design, planning, permitting and construction of certain key projects currently under development, and we will maintain this process for certain select communities going forward. We also plan to either partner with third parties for the development of new communities or sell entitled land to third-party developers or investors.
 
Currently, customers for our developed homesites include both individual purchasers and national, regional and local homebuilders. Going forward, we also expect to sell undeveloped land with significant residential entitlements directly to third-party developers or investors.
 
The following are descriptions of some of our current residential development projects in Florida:
 
WaterColor is situated on approximately 499 acres on the beaches of the Gulf of Mexico in south Walton County. The community includes approximately 1,140 residential units, as well as the WaterColor Inn and


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Resort, the recipient of many notable awards. The WaterColor Inn and Resort is operated by Noble House Hotels & Resorts, a boutique hotel ownership and management company with 14 properties throughout the United States. Other WaterColor amenities include a beach club, spa, tennis center, an award-winning upscale restaurant, retail and commercial space and neighborhood parks.
 
WaterSound Beach is located approximately five miles east of WaterColor and is planned to include approximately 511 units. Situated on approximately 256 acres, WaterSound Beach includes over one mile of beachfront on the Gulf of Mexico. The WaterSound Beach Club, a private, beachfront facility featuring a 7,000 square-foot, free-form pool and a restaurant, is located within the community.
 
WaterSound West Beach is located approximately one-half mile west of WaterSound Beach on the beach-side of County Road 30A. This community is situated on 62 acres and includes 199 units with amenities that include private beach access through the adjacent Deer Lake State Park and a community pool and clubhouse facility.
 
WaterSound is situated on approximately 2,425 acres and is planned for 1,432 residential units and approximately 450,000 square feet of commercial space. It is located approximately three miles from WaterSound Beach north of U.S. 98 in Walton County. WaterSound includes Origins, a uniquely designed Davis Love III golf course, as well as a community pool and clubhouse facility.
 
RiverCamps on Crooked Creek is situated on approximately 1,491 acres in western Bay County bounded by West Bay, the Intracoastal Waterway and Crooked Creek. The community is planned for 408 homes in a low-density, rustic setting with access to various outdoor activities such as fishing, boating and hiking. The community includes the RiverHouse, a waterfront amenity featuring a pool, fitness center, meeting and dining areas and temporary docking facilities.
 
WindMark Beach is a beachfront resort community situated on approximately 2,020 acres in Gulf County near the town of Port St. Joe. Plans for WindMark Beach include approximately 1,516 residential units and 76,000 square feet of commercial space. The community features a waterfront Village Center that includes a restaurant, a community pool and clubhouse facility, an amphitheater and approximately 42,000 square feet of commercial space. The community is planned to include approximately 14 miles of walkways and boardwalks, including a 3.5-mile beachwalk.
 
SummerCamp Beach is located on the Gulf of Mexico in Franklin County approximately 46 miles from Tallahassee. The community is situated on approximately 762 acres and includes the SummerCamp Beach Club, a private beachfront facility with a pool, restaurant, boardwalks and canoe and kayak rentals. Plans for SummerCamp Beach include approximately 499 units.
 
SouthWood is located on approximately 3,370 acres in southeast Tallahassee. Planned to include approximately 4,770 residential units, SouthWood includes an 18-hole golf course and club and a traditional town center with restaurants, recreational facilities, retail shops and offices. Over 35% of the land in this community is designated for open space, including a 123-acre central park.
 
RiverTown, situated on approximately 4,170 acres located in St. Johns County south of Jacksonville, is currently planned for 4,500 housing units and 500,000 square feet of commercial space. The centerpiece of the community will be a 58-acre park along the St. Johns River. RiverTown is planned to include several distinct neighborhoods and amenities.
 
Commercial Real Estate
 
Our commercial real estate segment plans, develops and sells real estate for commercial purposes. We focus on commercial development in Northwest Florida because of our large land holdings surrounding the new Northwest Florida Beaches International Airport, along roadways and near or within business districts in the region. We provide development opportunities for national and regional retailers, as well as multi-family rental projects. We also offer land for commercial and light industrial uses within large and small-scale commerce parks. We also develop commercial parcels within or near existing residential development projects.


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We have recently entered into an agreement with CB Richard Ellis Group, Inc., the world’s largest commercial real estate services firm, to market for sale, joint venture or lease more than 1,000 acres of our land adjacent to the Northwest Florida Beaches International Airport for commercial development. CB Richard Ellis will solicit global office, retail and industrial users for this prime development location.
 
Similar to our residential projects, we seek to minimize our capital expenditures for commercial development by either partnering with third parties for the development of certain new commercial projects or selling entitled land to third-party developers or investors.
 
Rural Land Sales
 
Our rural land sales segment markets and sells rural land from our holdings in Northwest Florida. Although the majority of the land sold in this segment is undeveloped timberland, some parcels include the benefits of limited development activity including improved roads, ponds and fencing. In 2009, our rural land sales segment also began selling credits to developers from our wetlands mitigation banks.
 
We sell parcels of varying sizes ranging from a single acre or less to thousands of acres. The pricing of these parcels varies significantly based on size, location, terrain, timber quality and other local factors. In 2009, we made a strategic decision to sell fewer large tracts of rural land in order to preserve our timberland resources.
 
The vast majority of the holdings marketed by our rural land sales segment will continue to be managed as timberland until sold. The revenues and income from our timberland operations are reflected in the results of our forestry segment.
 
Forestry
 
Our forestry segment focuses on the management and harvesting of our extensive timber holdings. We grow, harvest and sell timber and wood fiber. Our principal forestry product is softwood pulpwood. We also grow and sell softwood and hardwood sawtimber.
 
On December 31, 2009, our standing pine inventory totaled approximately 22.3 million tons and our hardwood inventory totaled approximately 7.3 million tons. Our timberlands are harvested by local independent contractors under agreements that are generally renewed annually. We have a pulpwood supply agreement with Smurfit-Stone Container Corporation that requires us to deliver 700,000 tons of pulpwood annually through June 30, 2012. Although currently subject to a bankruptcy proceeding, Smurfit-Stone has continued to honor our pulpwood supply agreement.
 
Our strategy is to actively manage portions of our timberlands to meet our pulpwood supply agreement obligation with Smurfit-Stone. We also harvest and sell additional timber to regional sawmills that produce products other than pulpwood. We are also exploring alternative methods for maximizing the revenues from our timberlands, such as providing feedstock to biomass utility facilities. In addition, our forestry operation performs selective harvesting, thinning and site preparation of timberlands that may later be sold or developed by us.
 
Competition
 
The real estate development business is highly competitive and fragmented. With respect to our residential real estate business, our prospective customers generally have a variety of choices of new and existing homes and homesites near our developments when considering a purchase. As a result of the housing crisis over the past several years, the number of resale homes on the market have dramatically increased, which further increases competition for the sale of our residential products.
 
We compete with numerous developers of varying sizes, ranging from local to national in scope, some of which may have greater financial resources than we have. We attempt to differentiate our products primarily on the basis of community design, quality, uniqueness, amenities, location and developer reputation.


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Supplemental Information
 
Information regarding the revenues, earnings and total assets of each of our operating segments can be found in Note 17 to our Consolidated Financial Statements included in this Report. Substantially all of our revenues are generated from domestic customers. All of our assets are located in the United States.
 
Employees
 
As of February 1, 2010, we had 143 employees. Our employees work in the following segments:
 
         
Residential real estate
    40  
Commercial real estate
    8  
Rural land sales
    9  
Forestry
    20  
Corporate and other
    66  
         
Total
    143  
         
 
Website Access to Reports
 
We will make available, free of charge, access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”), through our website at www.joe.com. Please note that the information on our website is not incorporated by reference in this Report.
 
Item 1A.   Risk Factors
 
Our business faces numerous risks, including those set forth below. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.
 
A continued downturn in the demand for real estate, combined with the increase in the supply of real estate available for sale and declining prices, will continue to adversely impact our business.
 
The United States housing market continues to experience a severe downturn. Florida, one of the hardest hit states, has experienced a substantial, continuing decline in demand in most of its residential real estate markets. The collapse of the housing market has contributed to the current recession in the national economy, which exerts further downward pressure on real estate demand. Significantly tighter lending standards for borrowers are also having a significant negative effect on demand. A record number of homes in foreclosure and forced sales by homeowners under distressed economic conditions are significantly contributing to the high levels of inventories of homes and homesites available for sale. The collapse of real estate demand and high levels of inventories are causing land and other real estate prices to significantly decline.
 
These adverse market conditions have negatively affected our real estate products. Revenues from our residential and commercial real estate segments have drastically declined in the past several years, which has had an adverse affect on our financial condition and results of operations. Our lack of revenues reflects not only fewer sales, but also declining prices for our residential and commercial real estate products. We have also seen lower demand and pricing weakness in our rural land sales segment.
 
We do not know how long the downturn in the real estate market will last or when real estate markets will return to more normal conditions. Rising unemployment, lack of consumer confidence and other adverse conditions in the current economic recession could significantly delay a recovery in real estate markets. Our business will continue to suffer until market conditions improve. If market conditions were to worsen, the demand for our real estate products could further decline, negatively impacting our earnings, cash flow and liquidity.


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A prolonged recession in the national economy, or a further downturn in national or regional economic conditions, especially in Florida, could continue to adversely impact our business.
 
The collapse of the housing market and the crisis in the credit markets have resulted in a recession in the national economy with rising unemployment, shrinking gross domestic product and significantly reduced consumer spending. At such times, potential customers often defer or avoid real estate purchases due to the substantial costs involved. Furthermore, a significant percentage of our planned residential units are resort and seasonal products, purchases of which are even more sensitive to adverse economic conditions. Businesses and developers are also less willing to invest in commercial projects during a recession. Our real estate sales, revenues, financial condition and results of operations have suffered as a result.
 
Our business is especially sensitive to economic conditions in Florida, where all of our developments are located, and the Southeast region of the United States, which in the past has produced a high percentage of customers for the resort and seasonal products in our Northwest Florida communities. Florida and the Southeast both are experiencing recessionary conditions.
 
There is no consensus as to when the recession will end, and Florida, as one of the hardest hit states, could take longer to recover than the rest of the nation. A prolonged recession will continue to have a material adverse effect on our business, results of operations and financial condition.
 
Our business is concentrated in Northwest Florida. As a result, our long-term financial results are largely dependent on the economic growth of Northwest Florida.
 
The economic growth of Northwest Florida, where most of our land is located, is an important factor in creating demand for our products and services. Two important factors in the economic growth of the region are (1) the completion of significant infrastructure improvements and (2) the creation of new jobs.
 
Infrastructure improvements, including the completion and opening of the Northwest Florida Beaches International Airport
 
One fundamental factor in the economic growth of Northwest Florida is the need for state and local governments, in combination with the private sector, to plan and complete significant infrastructure improvements in the region, such as new roads, a new airport, medical facilities and schools. The future economic growth of Northwest Florida and our financial results may be adversely affected if its infrastructure is not improved. There can be no assurance that new improvements will occur or that existing projects will be completed.
 
The most significant infrastructure improvement currently underway in Northwest Florida is the construction of the Northwest Florida Beaches International Airport in a green-field site in western Bay County. The airport is nearing completion and the local Airport Authority has scheduled a May 23, 2010 opening date. We cannot guarantee that the construction of the airport will not encounter difficulties, such as construction difficulties, environmental issues, stormwater problems or cost overruns, that may delay or prevent the completion of the new airport. We believe that the relocation of the airport is critically important to the overall economic development of Northwest Florida, and if the airport is not completed, our business prospects would be materially adversely affected.
 
Attracting significant new employers that can create new, high-quality jobs
 
Attracting significant new employers that can create new, high-quality jobs is a key factor in the economic growth of Northwest Florida. Northwest Florida has traditionally lagged behind the rest of Florida in economic growth, and as a result its residents have a lower per capita income than residents in other parts of the state. In order to improve the economy of the region, state and local governments, along with the private sector, must seek to attract large employers capable of paying high salaries to large numbers of new employees. State governments, particularly in the Southeast, and local governments within Florida compete intensely for new jobs. There can be no assurance that efforts to attract significant new employers to locate facilities in Northwest Florida will be successful. The future economic growth of Northwest Florida and our financial results may be adversely affected if substantial job growth is not achieved.


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If the new Northwest Florida Beaches International Airport is completed and opened for operations but is not successful, or if we cannot access the new airport as anticipated, we may not realize the economic benefits that we are anticipating from the new airport.
 
We believe that the relocation of the Panama City-Bay County International Airport is critically important to the overall economic development of Northwest Florida. We anticipate that the airport will provide a catalyst for value creation in the property we own surrounding the airport, as well as our other properties throughout Northwest Florida.
 
Significantly, Southwest Airlines has announced its intention to provide air service to the new airport when it opens. We believe that a low-cost airline is essential to the success of the new airport by providing reasonably priced access to the region for business and vacation travelers. If Southwest Airlines delays the commencement of service or decides not to commence service, the airport may not be successful. Further, once Southwest Airlines’ service has commenced, if the service fails to grow, or if Southwest chooses to terminate its service at the new airport or chooses to commence service at another airport in the region, the new airport may not be successful.
 
In addition, if Southwest Airlines’ service to the new airport is unsuccessful, we would be required to reimburse Southwest if it incurs losses during the first three years of service. Although we have the right to terminate our agreement with Southwest if payments exceed certain amounts, the required payments under the agreement could have an adverse affect on our financial results.
 
The airport must successfully compete with the other airports in the region. For example, airports in Pensacola, Destin and Tallahassee, Florida, and Dothan, Alabama aggressively compete for passengers in Northwest Florida. There can be no assurance that the region can support all of the existing airports.
 
Our land donation agreement with the airport authority and the deed for the airport land provide access rights to the airport runway from our adjacent lands. We have subsequently negotiated a detailed agreement with the airport authority regarding the process for implementing this access and this detailed agreement has been sent to the Federal Aviation Administration (the “FAA”) for review. The FAA has previously approved the land donation agreement granting us these access rights, but there is no assurance that the FAA will approve our proposed agreement with the airport authority dealing with access implementation without requiring additional modifications. Should security measures at airports become more restrictive in the future due to circumstances beyond our control, FAA regulations governing these access rights may impose additional limitations that could significantly impair or restrict access rights.
 
In addition to the FAA review of the access agreement, we will also be required to obtain environmental permits from the U.S. Army Corps of Engineers and Florida’s Department of Environmental Protection in order to develop the land necessary for access from our planned areas of commercial development to the airport runway. Such permits are often subject to a lengthy approval process, and there can be no assurance that such permits will be issued, or that they will be issued in a timely manner.
 
We believe that runway access is a valuable attribute of some of our West Bay Sector lands adjacent to the new airport, and the failure to obtain such access, or the imposition of significant restrictions on such access, could adversely affect the demand for such lands and our results of operations.
 
Changes in the demographics affecting projected population growth in Florida, particularly Northwest Florida, including a decrease in the migration of Baby Boomers, could adversely affect our business.
 
Florida has experienced strong population growth since World War II, including during the real estate boom in the first half of the last decade. In recent years, however, the rate of net migration into Florida has drastically declined. In fact, one source estimates that Florida’s population actually declined from 2008 to 2009. Florida had not experienced a population decline since World War II. The significant decline in the rate of in-migration could reflect a number of factors affecting Florida including difficult economic conditions, rising foreclosures, restrictive credit, the occurrence of hurricanes and increased costs of living. Also, because of the housing collapse across the nation, people interested in moving to Florida may have delayed or cancelled their plans due to difficulties selling their existing homes.


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The success of our primary communities will be dependent on strong in-migration population expansion in our regions of development, primarily Northwest Florida. We also believe that Baby Boomers seeking retirement or vacation homes in Florida will remain important target customers for our real estate products in the future. Florida’s population growth could be negatively affected in the future by factors such as adverse economic conditions, the occurrence of hurricanes and the high cost of real estate, insurance and property taxes. Furthermore, those persons considering moving to Florida may not view Northwest Florida as an attractive place to live or own a second home and may choose to live in another region of the state. In addition, as an alternative to Florida, other states such as Georgia, North and South Carolina and Tennessee are increasingly becoming retirement destinations and are attracting retiring Baby Boomers and the workforce population who may have otherwise considered moving to Florida. If Florida, especially Northwest Florida, experiences an extended period of slow growth, or even net out-migration, our business, results of operations and financial condition would suffer.
 
If the market values of our homesites, our remaining inventory of completed homes and other developed real estate assets were to drop below the book value of those properties, we would be required to write-down the book value of those properties, which would have an adverse affect on our balance sheet and our earnings.
 
Unlike most other real estate developers, we have owned the majority of our land for many years, having acquired most of our land in the 1930’s and 1940’s. Consequently, we have a very low cost basis in the majority of our lands. In certain instances, however, we have acquired properties at market values for project development. Also, many of our projects have expensive amenities, such as pools, golf courses and clubs, or feature elaborate commercial areas requiring significant capital expenditures. Many of these costs are capitalized as part of the book value of the project land. Adverse market conditions, in certain circumstances, may require the book value of real estate assets to be decreased, often referred to as a “write-down” or “impairment.” A write-down of an asset would decrease the value of the asset on our balance sheet and would reduce our earnings for the period in which the write-down is recorded.
 
If market conditions were to continue to deteriorate, and the market values for our homesites, remaining homes held in inventory and other project land were to fall below the book value of these assets, we could be required to take additional write-downs of the book value of those assets.
 
The occurrence of hurricanes, natural disasters and other climate conditions in Florida could adversely affect our business.
 
Because of its location between the Gulf of Mexico and the Atlantic Ocean, Florida is particularly susceptible to the occurrence of hurricanes. Depending on where any particular hurricane makes landfall, our developments in Florida, especially our coastal properties in Northwest Florida, could experience significant, if not catastrophic, damage. Such damage could materially delay sales in affected communities or could lessen demand for products in those communities. Importantly, regardless of actual damage to a development, the occurrence and frequency of hurricanes in Florida and the southeastern United States could negatively impact demand for our real estate products because of consumer perceptions of hurricane risks. For example, the southeastern United States experienced a record-setting hurricane season in 2005, including Hurricane Katrina, which caused severe devastation to New Orleans and the Mississippi Gulf Coast and received prolonged national media attention. Although our properties were not significantly impacted, we believe that the 2005 hurricane season had an immediate negative impact on sales of our resort residential products. Another severe hurricane or hurricane season in the future could have a similar negative effect on our real estate sales.
 
In addition to hurricanes, the occurrence of other natural disasters and climate conditions in Florida, such as tornadoes, floods, fires, unusually heavy or prolonged rain, droughts and heatwaves, could have a material adverse effect on our ability to develop and sell properties or realize income from our projects. Furthermore, an increase in sea levels due to long-term global warming could have a material adverse affect on our coastal properties. The occurrence of natural disasters and the threat of adverse climate changes could also have a long-term negative effect on the attractiveness of Florida as a location for resort, seasonal and/or primary


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residences and as a location for new employers that can create high-quality jobs needed to spur growth in Northwest Florida.
 
Increases in property insurance premiums and the decreasing availability of homeowner property insurance in Florida could reduce customer demand for homes and homesites in our developments.
 
Homeowner property insurance companies doing business in Florida have reacted to recent hurricanes by significantly increasing premiums, requiring higher deductibles, reducing limits, restricting coverages, imposing exclusions, refusing to insure certain property owners, and in some instances, ceasing insurance operations in the state. It is uncertain what effect these actions will have on property insurance availability and rates in the state. This trend of decreasing availability of insurance and rising insurance rates could continue if there are severe hurricanes in the future.
 
Furthermore, since the 2005 hurricane season, Florida’s state-owned property insurance company, Citizens Property Insurance Corp., has significantly increased the number of its outstanding policies, causing its potential claims exposure to exceed $400 billion. If there were to be a catastrophic hurricane or series of hurricanes to hit Florida, the exposure of the state government to property insurance claims could place extreme stress on state finances and may ultimately cause taxes in Florida to be significantly increased. The state may decide to limit the availability of state-sponsored property insurance in the future.
 
The high and increasing costs of property insurance premiums in Florida, as well as the decrease in private property insurers, could (1) deter potential customers from purchasing a home or homesite in one of our developments, or (2) make Northwest Florida less attractive to new employers that can create high quality jobs needed to spur growth in the region, either of which could have a material adverse effect on our financial condition and results of operations.
 
Increases in real estate property taxes could reduce customer demand for homes and homesites in our developments.
 
Florida experienced significant increases in property values during the record-setting real estate activity in the first half of this decade. As a result, many local governments have been, and may continue aggressively re-assessing the value of homes and real estate for property tax purposes. These larger assessments increase the total real estate property taxes due from property owners annually. Because of decreased revenues from other sources because of the recession, many local governments have also increased their property tax rates. The Florida legislature recently attempted to address rising property taxes, but the legislation enacted brought only minimal relief.
 
The current high costs of real estate property taxes in Florida, and future increases in property taxes, could (1) deter potential customers from purchasing a lot or home in one of our developments, or (2) make Northwest Florida less attractive to new employers that can create high-quality jobs needed to spur growth in the region, either of which could have a material adverse effect on our financial condition and results of operations.
 
Mortgage financing issues, including lack of supply of mortgage loans, tightened lending requirements and possible future increases in interest rates, could reduce demand for our products.
 
Many purchasers of our real estate products obtain mortgage loans to finance a substantial portion of the purchase price, or they may need to obtain mortgage loans to finance the construction costs of homes to be built on homesites purchased from us. Also, our homebuilder customers depend on retail purchasers who rely on mortgage financing. Many mortgage lenders and investors in mortgage loans have recently experienced severe financial difficulties arising from losses incurred on sub-prime and other loans originated before the downturn in the real estate market. Despite unprecedented efforts by the Federal government to stabilize the nation’s banks, banking operations remain unsettled and the future of certain financial institutions remains uncertain. Because of these problems, the supply of mortgage products has been constrained, and the eligibility requirements for borrowers have been significantly tightened. These problems in the mortgage lending industry


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could adversely affect potential purchasers of our products, including our homebuilder customers, thus having a negative effect on demand for our products.
 
Despite the current problems in the mortgage lending industry, interest rates for home mortgage loans have generally remained low. Mortgage interest rates could increase in the future, however, which could adversely affect the demand for residential real estate. In addition, any changes in the federal income tax laws which would remove or limit the deduction for interest on home mortgage loans could have an adverse impact on demand for our residential products. In addition to residential real estate, increased interest rates and restrictions in the availability of credit could also negatively impact sales of our commercial properties or other land we offer for sale. If interest rates increase and the ability or willingness of prospective buyers to finance real estate purchases is adversely affected, our sales, revenues, financial condition and results of operations may be negatively affected.
 
If we are not able to raise sufficient cash to maintain and enhance our operations and to develop our real estate holdings, our financial condition and results of operations could be negatively impacted.
 
We operate in a capital intensive industry and require significant cash to maintain our competitive position. Although we have significantly reduced capital expenditures and operating expenses during the current real estate downturn, we will need significant cash in the future to maintain and enhance our operations and to develop our real estate holdings. We obtain funds for our operating expenses and capital expenditures through cash flow from operations, property sales and financings. We continue to explore alternative methods for generating additional cash, such as ways to maximize the use of our timber, but we cannot guarantee that any of these alternative cash sources will be viable, significant or successful. Failure to obtain sufficient cash when needed may limit our development activities, cause us to further reduce our operations or cause us to sell desirable assets on unfavorable terms, any of which could have a material adverse affect on our financial condition, revenues and results of operations.
 
If our cash flow proves to be insufficient, due to the continuing real estate downturn, unanticipated expenses or otherwise, we may need to obtain additional financing from third-party lenders in order to support our plan of operations. Additional funding, whether obtained through public or private debt or equity financing, or from strategic alliances, may not be available when needed or may not be available on terms acceptable to us, if at all.
 
We have a $125 million revolving credit facility with adjustable interest rates that we can draw upon to provide cash for operations and/or capital expenditures. Increases in interest rates can make it more expensive for us to use this credit facility or obtain funds from other sources that we need to operate our business.
 
If our net worth declines, we could default on our revolving credit facility which could have a material adverse effect on our financial condition and results of operations.
 
We have a $125 million revolving credit facility available to provide a source of funds for operations, capital expenditures and other general corporate purposes. While we have not yet needed to borrow any funds under this facility, it is important to have in place as a ready source of financing, especially in the current difficult economic conditions. The credit facility contains financial covenants that we must meet on a quarterly basis. These restrictive covenants require, among other things, that our tangible net worth be not less than $800 million. Compliance with this covenant will be challenging if we continue to experience significant operating losses, asset impairments, pension plan losses and other reductions in our net worth.
 
If we do not comply with the minimum tangible net worth covenant, we could have an event of default under our credit facility. There can be no assurance that the bank will be willing to amend the facility to provide for more lenient terms prior to any such default, or that it will not charge significant fees in connection with any such amendment. If we had borrowings under the facility at the time of a default, the bank could immediately accelerate all outstanding amounts and file a mortgage on the majority of our properties to secure the repayment of the debt. Even if we had no outstanding borrowings under the facility at the time of a default, the bank may choose to terminate the facility or seek to negotiate additional or more severe restrictive covenants or increased pricing and fees. We could be required to seek an alternative funding


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source, which may not be available at all or available on acceptable terms. Any of these events could have a material adverse effect on our financial condition and results of operations.
 
We are dependent upon national, regional and local homebuilders as customers, but our ability to attract homebuilder customers and their ability or willingness to satisfy their purchase commitments may be uncertain considering the current real estate downturn.
 
We no longer build homes in our developments, so we are highly dependent upon our relationships with national, regional and local homebuilders to be the primary customers for our homesites and to provide construction services at our residential developments. Because of the collapse of real estate markets across the nation, including our markets, homebuilders are struggling to survive and are significantly less willing to purchase homesites and invest capital in speculative construction. The homebuilder customers that have already committed to purchase homesites from us could decide to reduce, delay or cancel their existing commitments to purchase homesites in our developments. Homebuilders also may not view our developments as desirable locations for homebuilding operations, or they may choose, in light of current market conditions, to purchase land from distressed sellers. Any of these events could have an adverse effect on our results of operations.
 
Our business model is dependent on transactions with strategic partners. We may not be able to successfully (1) attract desirable strategic partners; (2) complete agreements with strategic partners, and/or (3) manage relationships with strategic partners going forward, any of which could adversely affect our business.
 
We have increased our focus on executing our development and value creation strategies through joint ventures and strategic relationships. We are actively seeking strategic partners for alliances or joint venture relationships as part of our overall strategy for particular developments or regions. These joint venture partners may bring development experience, industry expertise, financial resources, financing capabilities, brand recognition and credibility or other competitive assets. We cannot assure, however, that we will have sufficient resources, experience and/or skills to locate desirable partners. We also may not be able to attract partners who want to conduct business in Northwest Florida, our primary area of focus, and who have the assets, reputation or other characteristics that would optimize our development opportunities.
 
Once a partner has been identified, actually reaching an agreement on a transaction may be difficult to complete and may take a considerable amount of time considering that negotiations require careful balancing of the parties’ various objectives, assets, skills and interests. A formal partnership with a joint venture partner may also involve special risks such as:
 
  •  we may not have voting control over the joint venture;
 
  •  the venture partner may take actions contrary to our instructions or requests, or contrary to our policies or objectives with respect to the real estate investments;
 
  •  the venture partner could experience financial difficulties, and
 
  •  actions by a venture partner may subject property owned by the joint venture to liabilities greater than those contemplated by the joint venture agreement or have other adverse consequences.
 
Joint ventures have a high failure rate. A key complicating factor is that strategic partners may have economic or business interests or goals that are inconsistent with ours or that are influenced by factors unrelated to our business. These competing interests lead to the difficult challenges of successfully managing the relationship and communication between strategic partners and monitoring the execution of the partnership plan. We cannot assure that we will have sufficient resources, experience and/or skills to effectively manage our ongoing relationships with our strategic partners. We may also be subject to adverse business consequences if the market reputation of a strategic partner deteriorates. If we cannot successfully execute transactions with strategic partners, our business could be adversely affected.


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Our business is subject to extensive regulation which makes it difficult and expensive for us to conduct our operations.
 
Development of real estate entails a lengthy, uncertain and costly entitlements process.
 
Approval to develop real property in Florida entails an extensive entitlements process involving multiple and overlapping regulatory jurisdictions and often requiring discretionary action by local government. This process is often political, uncertain and may require significant exactions in order to secure approvals. Real estate projects in Florida must generally comply with the provisions of the Local Government Comprehensive Planning and Land Development Regulation Act (the “Growth Management Act”) and local land development regulations. In addition, development projects that exceed certain specified regulatory thresholds require approval of a comprehensive Development of Regional Impact, or DRI, application. Compliance with the Growth Management Act, local land development regulations and the DRI process is usually lengthy and costly and can be expected to materially affect our real estate development activities.
 
The Growth Management Act requires local governments to adopt comprehensive plans guiding and controlling future real property development in their respective jurisdictions and to evaluate, assess and keep those plans current. Included in all comprehensive plans is a future land use map which sets forth allowable land use development rights. Since most of our land has an “agricultural” land use, we are required to seek an amendment to the future land use map to develop residential, commercial and mixed-use projects. Approval of these comprehensive plan map amendments is highly discretionary.
 
All development orders and development permits must be consistent with the comprehensive plan. Each plan must address such topics as future land use and capital improvements and make adequate provision for a multitude of public services including transportation, schools, solid waste disposal, sanitation, sewerage, potable water supply, drainage, affordable housing, open space and parks. The local governments’ comprehensive plans must also establish “levels of service” with respect to certain specified public facilities, including roads and schools, and services to residents. In many areas, infrastructure funding has not kept pace with growth, causing facilities to operate below established levels of service. Local governments are prohibited from issuing development orders or permits if the development will reduce the level of service for public facilities below the level of service established in the local government’s comprehensive plan, unless the developer either sufficiently improves the services up front to meet the required level or provides financial assurances that the additional services will be provided as the project progresses. In addition, local governments that fail to keep their plans current may be prohibited by law from amending their plans to allow for new development.
 
The DRI review process includes an evaluation of a project’s impact on the environment, infrastructure and government services, and requires the involvement of numerous state and local environmental, zoning and community development agencies. Local government approval of any DRI is subject to appeal to the Governor and Cabinet by the Florida Department of Community Affairs, and adverse decisions by the Governor or Cabinet are subject to judicial appeal. The DRI approval process is usually lengthy and costly, and conditions, standards or requirements may be imposed on a developer that may materially increase the cost of a project.
 
In addition to the existing complex regulatory environment in Florida, anti-growth advocates continue to seek greater constraints on development activity as Florida’s population continues to increase. One example is an effort underway known as “Hometown Democracy,” a petition for approval of a constitutional amendment that would require all land use amendments to be subject to a vote of local citizens after adoption by the local government.
 
As currently proposed, this law would mean that a land use plan amendment, which a local government would otherwise approve, could be struck down by a vote of local citizens. The proponents of this petition were able to get sufficient signatures for the Hometown Democracy initiative to appear on the ballot for the November 2010 general election. If passed, this law could significantly limit or impede our ability to develop new projects.
 
Changes in the Growth Management Act or the DRI review process or the interpretation thereof, new enforcement of these laws or the enactment of new laws regarding the development of real property could lead


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to new or greater liabilities that could materially adversely affect our business, profitability or financial condition.
 
Environmental and other regulations may have an adverse effect on our business.
 
Our properties are subject to federal, state and local environmental regulations and restrictions that may impose significant limitations on our development ability. In most cases, approval to develop requires multiple permits which involve a long, uncertain and costly regulatory process. Most of our land holdings contain jurisdictional wetlands, some of which may be unsuitable for development or prohibited from development by law. Development approval most often requires mitigation for impacts to wetlands that require land to be conserved at a disproportionate ratio versus the actual wetlands impacted and approved for development. Much of our property is undeveloped land located in areas where development may have to avoid, minimize or mitigate for impacts to the natural habitats of various protected wildlife or plant species. Much of our property is in coastal areas that usually have a more restrictive permitting burden and must address issues such as coastal high hazard, hurricane evacuation, floodplains and dune protection.
 
Environmental laws and regulations frequently change, and such changes could have an adverse affect on our business. For example, the Environmental Protection Agency (“EPA”) released in January 2010 proposed new freshwater quality criteria for Florida. There is a significant amount of uncertainty about how the proposed freshwater criteria would be implemented, including how they would relate to current state regulations. In addition, the EPA proposes to release new coastal water quality criteria for Florida in January 2011. If adopted, and depending on the implementation details, the EPA’s proposed water quality criteria could lead to new restrictions and increased costs for our real estate development activities.
 
In addition, our current or past ownership, operation and leasing of real property, and our current or past transportation and other operations, are subject to extensive and evolving federal, state and local environmental laws and other regulations. The provisions and enforcement of these environmental laws and regulations may become more stringent in the future. Violations of these laws and regulations can result in:
 
  •  civil penalties,
 
  •  remediation expenses,
 
  •  natural resource damages,
 
  •  personal injury damages,
 
  •  potential injunctions,
 
  •  cease and desist orders, and
 
  •  criminal penalties.
 
In addition, some of these environmental laws impose strict liability, which means that we may be held liable for any environmental damages on our property regardless of fault.
 
Some of our past and present real property, particularly properties used in connection with our previous transportation and papermill operations, were involved in the storage, use or disposal of hazardous substances that have contaminated and may in the future contaminate the environment. We may bear liability for this contamination and for the costs of cleaning up a site at which we have disposed of or to which we have transported hazardous substances. The presence of hazardous substances on a property may also adversely affect our ability to sell or develop the property or to borrow funds using the property as collateral.
 
Changes in laws or the interpretation thereof, new enforcement of laws, the identification of new facts or the failure of other parties to perform remediation at our current or former facilities could lead to new or greater liabilities that could materially adversely affect our business, profitability or financial condition.


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If Wells Fargo & Company’s Wachovia Bank subsidiary (or any successor bank) were to fail and be liquidated, we could be required to accelerate the payment of the deferred taxes on our installment sale transactions. Our business, cash flows and financial condition may be adversely affected if this significant tax event were to occur.
 
During 2007 and 2008, we sold approximately 132,055 acres of timberland in installment sale transactions for approximately $183.3 million, which was paid in the form of 15-year installment notes receivable. These installment notes are fully backed by letters of credit issued by Wachovia Bank, N.A. (subsequently acquired by Wells Fargo & Company) which are secured by bank deposits in the amount of the purchase price. The approximate aggregate taxable gain from these transactions was $160.5 million, but the installment sale structure allows us to defer paying taxes on these gains for 15 years. Meanwhile, we generated cash from these sales (sometimes referred to as “monetizing” the sales) by contributing the installment notes and bank letters of credit to special purpose entities organized by us, and these special purpose entities in turn issued to various institutional investors notes payable backed by the installment notes and bank letters of credit, and in some cases by a second letter of credit issued for the account of the special purpose entity. The special purpose entities have approximately $163.5 million of these notes payable outstanding. These notes are payable solely out of the assets of the special purpose entities (which consist of the installment notes and the letters of credit). The investors in the special purpose entities have no recourse against us for payment of the notes. The special purpose entities’ financial position and results of operations are not consolidated in our financial statements.
 
Banks and other financial institutions have experienced a high level of instability in the current economic crisis, resulting in numerous bank and financial institution failures, hastily structured mergers and acquisitions, and an unprecedented direct infusion of billions of dollars of capital by the federal government into banks and financial institutions. In late 2008, Wells Fargo acquired Wachovia Corporation and its subsidiary, Wachovia Bank, N.A., the holder of the deposits and the issuer of the letter of credit obligations in our installment sale transactions. Wells Fargo, as one of the largest banks in the United States, would presumably receive the support of the federal government if needed to prevent a failure of its banking subsidiaries. There can be no assurance, however, that Wells Fargo’s Wachovia Bank subsidiary (or any successor bank) will not fail during this difficult time or that it would receive government assistance sufficient to prevent a bank failure.
 
If Wells Fargo’s Wachovia Bank subsidiary (or any successor bank) were to fail and be liquidated, the installment notes receivable, the letters of credit and the notes issued by the special purpose entities to the institutional investors could be virtually worthless or satisfied at a significant discount. As a result, the taxes due on the $160.5 million gain would be accelerated. An adverse tax event could result in an immediate need for a significant amount of cash that may not be readily available from our cash reserves, our revolving line of credit or other third-party financing sources. Any such cash outlay, even if available, could divert needed resources away from our business or cause us to liquidate assets on unfavorable terms or prices. Our business and financial condition may be adversely affected if these significant tax events were to occur. In the event of a liquidation of Wells Fargo’s Wachovia Bank subsidiary (or any successor bank), we could also be required to write-off the remaining retained interest recorded on our balance sheet in connection with the installment sale transactions, which would have an adverse effect on our results of operations.
 
If drilling for oil or natural gas is permitted off the coast of Northwest Florida, our business may be adversely affected.
 
Since 1982, drilling for oil and natural gas has been banned in federal territorial waters. This federal moratorium, along with action by the state of Florida, has prevented the construction of unsightly drilling platforms off the coast of Florida and has preserved the natural beauty of the state’s coastline and beaches. This natural coastal beauty is an important positive factor in Florida’s tourist-based economy and contributes significantly to the value of our properties in Northwest Florida.
 
Because of an unprecedented spike in oil prices in 2008, there was political pressure on federal and state leaders to overturn the offshore drilling ban. As a result, the presidential and congressional bans on offshore drilling in most U.S. waters ended in 2008. Because of continued interest in increasing domestic energy


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production and the desire to create jobs in the current recession, the federal government could decide to allow offshore drilling in federal territorial waters. Meanwhile, Florida’s governor has expressed support for allowing oil and natural gas drilling off the Florida coastline under certain circumstances. If drilling platforms are permitted to be built off the coast of Northwest Florida close enough to be seen from land, potential purchasers may find our coastal properties to be less attractive, which may have an adverse effect on our business.
 
We are exposed to risks associated with real estate development.
 
Our real estate development activities entail risks that include:
 
  •  construction delays or cost overruns, which may increase project development costs;
 
  •  claims for construction defects after property has been developed, including claims by purchasers and property owners’ associations;
 
  •  an inability to obtain required governmental permits and authorizations;
 
  •  an inability to secure tenants necessary to support commercial projects, and
 
  •  compliance with building codes and other local regulations.
 
Significant competition could have an adverse effect on our business.
 
A number of residential and commercial developers, some with greater financial and other resources, compete with us in seeking resources for development and prospective purchasers and tenants. Competition from other real estate developers may adversely affect our ability to:
 
  •  attract purchasers and sell residential and commercial real estate,
 
  •  sell undeveloped rural land,
 
  •  attract and retain experienced real estate development personnel, and
 
  •  obtain construction materials and labor.
 
Our real estate operations are cyclical.
 
The real estate industry is cyclical and can experience downturns based on consumer perceptions of real estate markets and other cyclical factors, which factors may work in conjunction with or be wholly unrelated to general economic conditions. Furthermore, our business is affected by seasonal fluctuations in customers interested in purchasing real estate, with the spring and summer months traditionally being the most active time of year for customer traffic and sales. Also, our supply of homesites available for purchase fluctuates from time to time. As a result, our real estate operations are cyclical, which may cause our quarterly revenues and operating results to fluctuate significantly from quarter to quarter and to differ from the expectations of public market analysts and investors. If this occurs, the trading price of our stock could also fluctuate significantly.
 
Changes in our income tax estimates could affect our profitability.
 
In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws and rates. To the extent adjustments are required in any given period, we include the adjustments in the tax provision in our financial statements. These adjustments could materially impact our financial position, cash flow and results of operations.


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Item 1B.   Unresolved Staff Comments
 
We have no unresolved comments from the staff of the Securities and Exchange Commission regarding our periodic or current reports.
 
Item 2.   Properties
 
We lease our principal executive offices located in Jacksonville, Florida.
 
We own approximately 577,000 acres, the majority of which are located in Northwest Florida. Our land holdings include approximately 405,000 acres within 15 miles of the coast of the Gulf of Mexico. Most of our raw land assets are managed as timberlands until designated for development. At December 31, 2009, approximately 289,000 acres were encumbered under a wood fiber supply agreement with Smurfit-Stone Container Corporation which expires on June 30, 2012, subject to the outcome of Smurfit-Stone’s bankruptcy proceedings. Also, our lender has the right to record mortgages on approximately 530,000 acres of our land if there is an event of default under our revolving credit facility.
 
For more information on our real estate assets, see Item 1. Business.
 
Item 3.   Legal Proceedings
 
We are involved in routine litigation on a number of matters and are subject to claims which arise in the normal course of business, none of which, in the opinion of management, is expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity.
 
PART II
 
Item 4.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
On February 19, 2010, we had approximately 1,471 registered holders of record of our common stock. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “JOE.”
 
The range of high and low prices for our common stock as reported on the NYSE are set forth below:
 
                 
    Common
 
    Stock Price  
    High     Low  
 
2009
               
Fourth Quarter
  $ 30.98     $ 23.29  
Third Quarter
    34.28       22.14  
Second Quarter
    27.45       16.09  
First Quarter
    27.02       14.53  
2008
               
Fourth Quarter
  $ 39.76     $ 18.80  
Third Quarter
    42.49       30.63  
Second Quarter
    44.79       33.79  
First Quarter
    46.82       29.50  
 
On February 19, 2010, the closing price of our common stock on the NYSE was $29.43. We paid no dividends during 2009 or 2008, and we currently have no intention to pay any dividends in the foreseeable future. In addition, our $125 million revolving credit facility requires that we not pay dividends or repurchase stock in amounts in excess of any cumulative net income that we have earned since January 1, 2007.


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The following table describes our purchases of our common stock during the fourth quarter of 2009.
 
                                 
                (c)
    (d)
 
                Total Number of
    Maximum Dollar
 
    (a)
    (b)
    Shares Purchased as
    Amount that May
 
    Total Number
    Average
    Part of Publicly
    Yet Be Purchased
 
    of Shares
    Price Paid
    Announced Plans or
    Under the Plans or
 
Period
  Purchased(1)     per Share     Programs(2)     Programs  
                      (In thousands)  
 
Month Ended October 31, 2009
    15,280     $ 27.20           $ 103,793  
Month Ended November 30, 2009
        $           $ 103,793  
Month Ended December 31, 2009
        $           $ 103,793  
 
 
(1) Represents shares surrendered by executives as payment for the strike prices and taxes due on exercised stock options and/or taxes due on vested restricted stock.
 
(2) For additional information regarding our Stock Repurchase Program, see Note 2 to the consolidated financial statements under the heading, “Earnings (loss) Per Share.”
 
The following performance graph compares our cumulative shareholder returns for the period December 31, 2004, through December 31, 2009, assuming $100 was invested on December 31, 2004, in our common stock, in the S&P 500 Index, in the S&P SuperComposite Homebuilder Index and in a custom peer group of real estate related companies, including the following:
 
AMB Property Corporation (AMB),
Developers Diversified Realty Corporation (DDR),
Duke Realty Corporation (DRE),
Highwoods Properties, Inc. (HIW),
Jones Lang LaSalle Incorporated (JLL),
Kimco Realty Corporation (KIM),
The Macerich Company (MAC),
MDC Holdings Inc. (MDC),
NVR, Inc. (NVR),
Plum Creek Timber Company, Inc. (PCL),
Regency Centers Corporation (REG),
Rayonier Inc. (RYN),
Toll Brothers Inc. (TOL), and
WP Carey & Co. LLC (WPC).
 
In light of our diverse real estate holdings, we believe it appropriate this year to create a peer group that includes companies with more varied real estate interests other than just homebuilding. We continue to include homebuilders in the peer group, however, as homebuilders are among our key customers and our businesses tend to follow similar market trends.


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The total returns shown below assume that dividends are reinvested. The stock price performance shown below is not necessarily indicative of future price performance.
 
(PERFORMANCE GRAPH)
 
                                                             
      12/31/04     12/31/05     12/31/06     12/31/07     12/31/08     12/31/09
The St. Joe Company
    $ 100       $ 106       $ 85       $ 57       $ 39       $ 46  
S&P 500 Index
    $ 100       $ 105       $ 121       $ 128       $ 81       $ 102  
S&P Super Composite Homebuilder Index
    $ 100       $ 116       $ 93       $ 42       $ 29       $ 35  
Custom Real Estate Peer Group*
    $ 100       $ 108       $ 137       $ 118       $ 76       $ 104  
                                                             
 
* The total return for the Custom Real Estate Peer Group was calculated using an equal weighting for each of the stocks within the peer group.


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Item 5.   Selected Consolidated Financial Data
 
The following table sets forth Selected Consolidated Financial Data for the Company on a historical basis for the five years ended December 31, 2009. This information should be read in conjunction with the consolidated financial statements of the Company (including the related notes thereto) and Management’s Discussion and Analysis of Financial Condition and Results of Operations, each included elsewhere in this Form 10-K. This historical Selected Consolidated Financial Data has been derived from the audited consolidated financial statements and revised for discontinued operations.
 
                                         
    Year Ended December 31,  
    2009     2008     2007     2006     2005  
    (In thousands, except per share amounts)  
 
Statement of Operations Data:
                                       
Total revenues(1)
  $ 138,257     $ 258,158     $ 371,551     $ 519,184     $ 712,791  
Total expenses
    347,599       282,920       347,422       454,844       544,864  
                                         
Operating (loss) profit
    (209,342 )     (24,762 )     24,129       64,340       167,927  
Other income (expense)
    4,215       (36,643 )     (4,709 )     (9,640 )     (3,076 )
                                         
(Loss) income from continuing operations before equity in (loss) income of unconsolidated affiliates and income taxes
    (205,127 )     (61,405 )     19,420       54,700       164,851  
Equity in (loss) income of unconsolidated affiliates
    (122 )     (330 )     (5,331 )     8,905       12,541  
Income tax (benefit) expense
    (81,222 )     (26,613 )     1,264       22,126       61,060  
                                         
(Loss) income from continuing operations
    (124,027 )     (35,122 )     12,825       41,479       116,332  
(Loss) income from discontinued operations(2)
    (6,888 )     (1,568 )     (1,654 )     5,310       4,824  
Gain on sale of discontinued operations(2)
    75             29,128       10,368       13,322  
                                         
(Loss) income from discontinued operations(2)
    (6,813 )     (1,568 )     27,474       15,680       18,146  
Net (loss) income
    (130,840 )     (36,690 )     40,299       57,157       134,478  
Less: Net (loss) income attributable to noncontrolling interest
    (821 )     (807 )     1,092       6,137       7,820  
                                         
Net (loss) income attributable to the Company
  $ (130,019 )   $ (35,883 )   $ 39,207     $ 51,020     $ 126,658  
                                         
Per Share Data:
                                       
Basic
                                       
(Loss) income from continuing operations attributable to the Company
  $ (1.35 )   $ (0.38 )   $ 0.16     $ 0.48     $ 1.45  
(Loss) income from discontinued operations attributable to the Company(2)
    (0.07 )     (0.02 )     0.37       0.21       0.24  
                                         
Net (loss) income attributable to the Company
    (1.42 )     (0.40 )     0.53     $ 0.69     $ 1.69  
                                         
Diluted
                                       
(Loss) income from continuing operations attributable to the Company
  $ (1.35 )   $ (0.38 )   $ 0.16     $ 0.47     $ 1.42  
(Loss) income from discontinued operations attributable to the Company(2)
    (0.07 )     (0.02 )     0.37       0.22       0.24  
                                         
Net (loss) income attributable to the Company
    (1.42 )     (0.40 )   $ 0.53     $ 0.69     $ 1.66  
                                         
Dividends declared and paid
  $     $     $ 0.48     $ 0.64     $ 0.60  
 


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    December 31,  
    2009     2008     2007     2006     2005  
 
Balance Sheet Data:
                                       
Investment in real estate
  $ 749,500     $ 890,583     $ 944,529     $ 1,214,550     $ 1,038,810  
Cash and cash equivalents
    163,807       115,472       24,265       36,725       202,432  
Property, plant and equipment, net
    15,269       19,786       23,693       44,593       40,176  
Total assets
    1,098,140       1,218,278       1,263,966       1,560,395       1,591,946  
Debt
    39,508       49,560       541,181       627,056       554,446  
Total equity
    895,285       991,401       486,617       471,613       507,192  
 
 
(1) Total revenues include real estate revenues from property sales, timber sales, resort and club revenue and other revenues, primarily other rental revenues and brokerage fees.
 
(2) Discontinued operations include the Victoria Hills Golf Club and St. Johns Golf and Country Club golf course operations in 2009, Sunshine State Cypress, Inc. in 2008, fourteen commercial office buildings and Saussy Burbank in 2007, four commercial office buildings in 2006 and four commercial office buildings and Advantis Real Estate Services Company in 2005 (See Note 4 of Notes to Consolidated Financial Statements).
 
Item 6.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Forward-looking Statements
 
We make forward-looking statements in this Report, particularly in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Report that are not historical facts are forward-looking statements. You can find many of these forward-looking statements by looking for words such as “intend”, “anticipate”, “believe”, “estimate”, “expect”, “plan”, “should”, “forecast” or similar expressions. In particular, forward-looking statements include, among others, statements about the following:
 
  •  future operating performance, revenues, earnings and cash flows;
 
  •  future residential and commercial demand, opportunities and entitlements;
 
  •  development approvals and the ability to obtain such approvals, including possible legal challenges;
 
  •  the number of units or commercial square footage that can be supported upon full build out of a development;
 
  •  the number, price and timing of anticipated land sales or acquisitions;
 
  •  estimated land holdings for a particular use within a specific time frame;
 
  •  the levels of resale inventory in our developments and the regions in which they are located;
 
  •  the development of relationships with strategic partners, including commercial developers and homebuilders;
 
  •  future amounts of capital expenditures;
 
  •  the amount and timing of future tax refunds;
 
  •  timeframes for future construction and development activity;
 
  •  the projected completion, opening, operating results and economic impact of the new Northwest Florida Beaches International Airport, as well as the timing and availability of air service at the new airport;
 
  •  the amount of dividends, if any, we pay; and
 
  •  the number or dollar amount of shares of our stock which may be purchased under our existing or future share-repurchase program.

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Forward-looking statements are not guarantees of future performance and are subject to numerous assumptions, risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by a forward-looking statement include the risk factors described above under the heading “Risk Factors.” These statements are made as of the date hereof based on our current expectations, and we undertake no obligation to update the information contained in this Report. New information, future events or risks may cause the forward-looking events we discuss in this Report not to occur. You are cautioned not to place undue reliance on any of these forward-looking statements.
 
Overview
 
We own a large inventory of land suitable for development in Florida. The majority of our land is located in Northwest Florida and has a very low cost basis. In order to optimize the value of these core real estate assets, we seek to reposition portions of our substantial timberland holdings for higher and better uses. We seek to create value in our land by securing entitlements for higher and better land-uses, facilitating infrastructure improvements, developing community amenities, undertaking strategic and expert land planning and development, parceling our land holdings in creative ways, performing land restoration and enhancement and promoting economic development.
 
We have four operating segments: residential real estate, commercial real estate, rural land sales and forestry.
 
Our residential real estate segment generates revenues from:
 
  •  the sale of developed homesites to retail customers and builders;
 
  •  the sale of parcels of entitled, undeveloped land;
 
  •  the sale of housing units built by us;
 
  •  resort and club operations;
 
  •  rental income; and
 
  •  brokerage fees on certain transactions.
 
Our commercial real estate segment generates revenues from the sale of developed and undeveloped land for retail, multi-family, office and industrial uses. Our rural land sales segment generates revenues from the sale of parcels of undeveloped land and rural land with limited development. Our forestry segment generates revenues from the sale of pulpwood, timber and forest products and conservation land management services.
 
Our business, financial condition and results of operations continued to be materially adversely affected during 2009 by the ongoing real estate downturn and economic recession in the United States. These adverse conditions included, among others, high unemployment, lower family income, lower consumer confidence, a large number of foreclosures and homes for sale, increased volatility in the availability and cost of credit, shrinking mortgage markets, unstable financial institutions, lower valuation of retirement savings accounts, lower corporate earnings, lower business investment and lower consumer spending.
 
This challenging environment has exerted negative pressure on the demand for all of our real estate products and contributed to a net loss of $130.0 million for 2009. Although some analysts and commentators have expressed that the real estate crisis may have reached a “bottom” in 2009, we cannot predict with any certainty when demand for our real estate products will improve.
 
In 2009, we successfully continued our efforts to reduce cash expenditures, eliminate expenses and increase our financial flexibility. Our liquidity position was enhanced due to the utilization of our tax-loss carryback strategy, the sales of non-strategic assets, the disposition of aging home inventories and the successful renegotiation and extension of our corporate credit facility. Looking forward to 2010 and beyond, we are now well positioned to capitalize on the opportunities that the opening of the new Northwest Florida Beaches International Airport will provide.


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We also continue to develop strategic relationships which we believe will benefit our business when the economy and our markets recover. On October 21, 2009, we entered into a strategic alliance agreement with Southwest Airlines to facilitate the commencement of low-fare air service in May 2010 to the new Northwest Florida Beaches International Airport under construction in Northwest Florida. We expect that the connectivity Southwest brings to the region will stimulate tourism, economic development, job growth and real estate absorption in our projects across Northwest Florida.
 
Southwest has agreed that service at the new airport will consist of at least two daily non-stop flights from Northwest Florida to each of four destinations for a total of eight daily non-stop flights. We have agreed to reimburse Southwest Airlines if it incurs losses on its service at the new airport during the first three years of service. The agreement also provides that Southwest’s profits from the air service during the term of the agreement will be shared with us up to the maximum amount of our break-even payments.
 
We have also recently entered into an agreement with CB Richard Ellis Group, Inc., the world’s largest commercial real estate services firm, to market for joint venture, lease or sale more than 1,000 acres of our land adjacent to the Northwest Florida Beaches International Airport for commercial development. CB Richard Ellis will solicit global office, retail and industrial users for this prime development location.
 
Critical Accounting Estimates
 
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on our historical and current experience and on various other assumptions that management believes are reasonable under the circumstances. Additionally, we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
 
Investment in Real Estate and Cost of Real Estate Sales.  Costs associated with a specific real estate project are capitalized during the development period. We capitalize costs directly associated with development and construction of identified real estate projects. Indirect costs that clearly relate to a specific project under development, such as internal costs of a regional project field office, are also capitalized. We capitalize interest (up to total interest expense) based on the amount of underlying expenditures and real estate taxes on real estate projects under development. If we determine not to complete a project, any previously capitalized costs are expensed in the period such determination is made.
 
Real estate inventory costs include land and common development costs (such as roads, sewers and amenities), multi-family construction costs, capitalized property taxes, capitalized interest and certain indirect costs. Construction costs for single-family homes are determined based upon actual costs incurred. A portion of real estate inventory costs and estimates for costs to complete are allocated to each unit based on the relative sales value of each unit as compared to the estimated sales value of the total project. These estimates are reevaluated at least annually, and more frequently if warranted by market conditions or other factors, with any adjustments being allocated prospectively to the remaining units available for sale. The accounting estimate related to inventory valuation is susceptible to change due to the use of assumptions about future sales proceeds and related real estate expenditures. Management’s assumptions about future housing and homesite sales prices, sales volume and sales velocity require significant judgment because the real estate market is cyclical and highly sensitive to changes in economic conditions. In addition, actual results could differ from management’s estimates due to changes in anticipated development, construction and overhead costs.


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Fair Value Measurements — We follow the fair value provisions of ASC 820 — Fair Value Measurements and Disclosures (“ASC 820”) for our financial and non-financial assets and liabilities. ASC 820, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
Level 1.  Observable inputs such as quoted prices in active markets;
 
  Level 2.   Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
 
  Level 3.   Unobservable inputs in which there is little or no market data, such as internally-developed valuation models which require the reporting entity to develop its own assumptions.
 
The Company’s assets and liabilities utilizing Level 3 inputs in fair value calculations and the associated underlying assumptions include the following:
 
Investment in real estate — Our investments in real estate are carried at cost unless circumstances indicate that the carrying value of the assets may not be recoverable. If we determine that an impairment exists due to the inability to recover an asset’s carrying value, a provision for loss is recorded to the extent that the carrying value exceeds estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell.
 
Depending on the asset, we use varying methods to determine fair value, such as (i) analyzing expected future cash flows, (ii) determining resale values by market, or (iii) applying a capitalization rate to net operating income using prevailing rates in a given market.
 
Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. The fair value of homes and homesites is determined based upon final sales prices of inventory sold during the period (level 2 inputs). For inventory held for sale, estimates of selling prices based on current market data are utilized (level 3 inputs). For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management’s best estimates about future sales prices and holding periods (level 3 inputs). The fair value determined under these methods can fluctuate up or down significantly as a result of a number of factors, including changes in the general economy of our markets, demand for real estate and the projected net operating income for a specific property.
 
Retained interest — We have recorded a retained interest with respect to the monetization of certain installment notes through the use of qualified special purpose entities, which is recorded in other assets. The retained interest is an estimate based on the present value of cash flows to be received over the life of the installment notes. We recognize interest income over the life of the retained interest using the effective yield method with discount rates ranging from 2%-7%. This income adjustment is being recorded as an offset to loss on monetization of notes over the life of the installment notes. In addition, fair value may be adjusted at each reporting date when, based on management’s assessment of current information and events, there is a favorable or adverse change in estimated cash flows from cash flows previously projected.
 
Pension asset — Our cash balance defined-benefit pension plan holds a royalty investment for which there is no quoted market price. Fair value of the royalty investment is estimated based on the present value of future cash flows, using management’s best estimate of key assumptions, including discount rates.
 
Standby guarantee liability — On October 21, 2009, we entered into a strategic alliance agreement with Southwest Airlines to facilitate the commencement of low-fare air service in May 2010 to the new Northwest Florida Beaches International Airport under construction in Northwest Florida. We have agreed to reimburse Southwest Airlines if it incurs losses on its service at the new airport during the first three years of service.


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The agreement also provides that Southwest’s profits from the air service during the term of the agreement will be shared with us up to the maximum amount of our break-even payments. We measured the standby guarantee liability at fair value based upon a discounted cash flow analysis based on our best estimates of future cash flows to be paid by us pursuant to the strategic alliance agreement. These cash flows were estimated using numerous estimates including future fuel costs, passenger load factors, air fares, seasonality and the timing of the commencement of service. The fair value of the liability could fluctuate up or down significantly as a result of changes in assumptions related to these estimates and could have a material impact on our operating results. For example, a 10% increase in the assumed revenue per available seat (the combination of load factor and air fare) would decrease our standby guarantee liability by $0.4 million and a 10% decrease would increase the liability by $1.3 million. We will reevaluate this estimate quarterly.
 
Pension Plan.  We sponsor a cash balance defined-benefit pension plan covering a majority of our employees. The accounting for pension benefits is determined by specialized accounting and actuarial methods using numerous estimates, including discount rates, expected long-term investment returns on plan assets, employee turnover, mortality and retirement ages, and future salary increases. Changes in these key assumptions can have a significant effect on the pension plan’s impact on the financial statements of the Company. For example, in 2009, a 1% increase in the assumed long-term rate of return on pension assets would have resulted in a $1.3 million increase in pre-tax income ($0.6 million net of tax). However, a 1% decrease in the assumed long-term rate of return would have caused an equivalent decrease in pre-tax income. A 1% increase or decrease in the assumed discount rate would have resulted in a $0.1 million change in pre-tax income. Our pension plan is currently overfunded and accordingly, generated income of $1.4 million, $2.5 million and $2.0 million in 2009, 2008 and 2007, respectively. We do not expect to make contributions to the pension plan in the future. The ratio of plan assets to projected benefit obligation was 238% at December 31, 2009.
 
Stock-Based Compensation.  We offer stock incentive plans whereby awards may be granted to certain employees and non-employee directors of the Company in the form of restricted shares of Company common stock or options to purchase Company common stock. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is typically recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.
 
In February 2009 and 2008, we granted select executives and other key employees restricted stock awards with vesting based upon the achievement of certain market conditions that are defined as our total shareholder return as compared to the total shareholder return of certain peer groups during a three-year performance period.
 
We currently use a Monte Carlo simulation pricing model to determine the fair value of our market condition awards. The determination of the fair value of market condition-based awards is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the requisite performance term of the awards, the relative performance of our stock price and shareholder returns compared to those companies in our peer groups and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market condition, provided the requisite service period is met.
 
We currently use the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors (term of option), risk-free interest rate and expected dividends.
 
We estimate the expected term of options granted by incorporating the contractual term of the options and analyzing employees’ actual and expected exercise behaviors. We estimate the volatility of our common stock by using historical volatility in market price over a period consistent with the expected term, and other factors. We base the risk-free interest rate that we use in the option valuation model on U.S. Treasury issues with remaining terms similar to the expected term on the options. We use an estimated dividend yield in the option valuation model when dividends are anticipated.


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Income Taxes.  In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We record a valuation allowance against our deferred tax assets based upon our analysis of the timing and reversal of future taxable amounts and our history and future expectations of taxable income. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws. To the extent adjustments are required in any given period we will include the adjustments in the tax provision in our financial statements. These adjustments could materially impact our financial position, cash flow and results of operation.
 
At December 31, 2009, we had net operating loss carryforwards for state tax purposes of approximately $423 million which are available to offset future state taxable income through 2029. At December 31, 2009, we recorded a valuation allowance against certain of our deferred tax assets of approximately $0.9 million. The valuation allowance at 2009 was related to state net operating and charitable loss carryforwards that in the judgment of management are not likely to be realized.
 
Realization of our net deferred tax assets is dependent upon us generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from loss carryforwards. Based on the timing of reversal of future taxable amounts and our history and future expectations of reporting taxable income, we believe that it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowance, at December 31, 2009.
 
Adoption of New Accounting Standards
 
In September 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standards Update 2009-01, Topic 105-Generally Accepted Accounting Principles Amendments based on Statement of Financial Accounting Standards (“SFAS”) No. 168-The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“Topic 105”). Topic 105 establishes the FASB Accounting Standards Codification (“Codification”) as the source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. Topic 105 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification superseded all existing non-SEC accounting and reporting standards. All other nongrandfathered, non-SEC accounting literature not included in the Codification became nonauthoritative. Following Topic 105, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will issue FASB Accounting Standards Updates (“ASU”), which will serve only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the bases for conclusions on the change(s) in the Codification. The U.S. GAAP hierarchy has been modified to include only two levels; authoritative and nonauthoritative. In the FASB’s view, the Codification will not change U.S. GAAP. The adoption of Topic 105 did not have a material impact on our financial position or results of operations. It does, however, change the references to specific U.S. GAAP contained within the consolidated financial statements, notes thereto and information contained in our filings with the SEC.
 
In December 2008, the FASB issued FSP SFAS No. 132(R)-1, Employer’s Disclosures about Postretirement Benefit Plan Assets. The disclosure requirements of this FSP are included in Accounting Standard Codification (“ASC”) 715 — Compensation-Retirement Benefits (“ASC 715”) and require the disclosure of more information about investment allocation decisions, major categories of plan assets, including concentrations of risk and fair value measurements, and the fair value techniques and inputs used to measure plan assets. The disclosures about plan assets required by ASC 715 must be provided for fiscal years ending after


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December 15, 2009. The adoption of ASC 715 did not have a material impact on our financial position or results of operations.
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”), an amendment of Accounting Research Bulletin No. 51, Consolidated Financial Statements (“ARB 51”). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest (previously referred to as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. It clarified that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity, not as a liability, in the consolidated financial statements. It also requires disclosure on the face of the consolidated statement of operations of the amounts of consolidated net income attributable to both the parent and the noncontrolling interest. SFAS 160 also establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. We adopted SFAS 160 as required on January 1, 2009. The adoption of SFAS 160 did not have a material impact on our net (loss) income per share, financial position or changes in equity.
 
Recently Issued Accounting Standards
 
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. ASU 2010-06 amends Codification Subtopic 820-10 to now require that (1) a reporting entity must disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; (2) in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements and (3) a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We do not believe the adoption of ASU No. 2010-06 will have a material impact on our financial position or results of operations.
 
In December 2009, the FASB issued ASU 2009-16, Transfers and Servicing (Topic 860) - Accounting for Transfers of Financial Assets (“ASU 2009-16”) and ASU 2009-17, Consolidations (Topic 810) — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”). ASU 2009-16 formally codifies SFAS 166, Accounting for Transfers of Financial Assets, while ASU 2009-17 codifies SFAS 167, Amendments to FASB Interpretation No. 46(R). ASU 2009-16 represents a revision to the provisions of former SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity” (“QSPE”), changes the requirements for derecognizing financial assets and requires additional disclosures.
 
ASU 2009-17 represents a revision to former FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities, and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. The updates require a number of new disclosures. ASU 2009-16 enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and an entity’s continuing involvement in transferred financial assets. ASU 2009-17 requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. The updates to the Codification are effective at the start of a


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reporting entity’s first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity. Early application is not permitted. We do not believe Topic 860 will have a material impact on our financial position or results of operations.
 
We hold a retained interest in bankruptcy remote QSPEs established in accordance with ASC 860. The financial position and results of such QSPEs currently are not consolidated in our financial statements. We have evaluated the accounting requirements of Topic 810 and have determined that we will not be required to consolidate the financial position and results of the QSPEs as we are not the primary decision maker with respect to activities that could significantly impact the economic performance of the QSPEs, nor do we perform any service activity related to the QSPEs.
 
In August 2009, the FASB issued ASU No. 2009-05 which provides amendments to ASC 820 for the fair value measurement of liabilities. ASC 820 reiterates that the definition of fair value for a liability is the price that would be paid to transfer it in an orderly transaction between market participants at the measurement date. It also reiterates that a company must reflect its own nonperformance risk, including its own credit risk, in fair-value measurements of liabilities. In the absence of a quoted price in an active market for an identical liability at the measurement date, which generally would not be available because liabilities are not exchange-traded, companies may apply approaches that use the quoted price of an investment in the identical liability or similar liabilities traded as assets or other valuation techniques consistent with the fair-value measurement principles in ASC 820. ASC 820 permits fair value measurements of liabilities that are based on the price that a company would pay to transfer the liability to a new obligor at the measurement date, which is consistent with existing guidance. In addition, a company is permitted to measure the fair value of liabilities using an estimate of the price it would receive to enter into the liability at that date. Such measurements could be achieved using a valuation technique that is consistent with an income-approach valuation technique (e.g., a discounted-cash-flow technique) or a market approach (e.g., a recent transaction involving the issuance of a similar liability, adjusted for differences between that transaction and the liability being measured). ASC 820 is effective for interim and annual periods beginning after August 27, 2009, and applies to all fair-value measurements of liabilities required by generally accepted accounting principles. We do not believe the adoption of ASU No. 2009-05 will have a material impact on our financial position or results of operations.


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Results of Operations
 
Consolidated Results
 
The following table sets forth a comparison of our revenues and expenses for the three years ended December 31, 2009.
 
                                                         
    Years Ended December 31,     2009 vs. 2008     2008 vs. 2007  
    2009     2008     2007     Difference     % Change     Difference     % Change  
    (Dollars in millions)  
 
Revenues:
                                                       
Real estate sales
  $ 78.8     $ 194.6     $ 307.9     $ (115.8 )     (60 )%   $ (113.3 )     (37 )%
Resort and club revenues
    29.7       32.8       30.3       (3.1 )     (9 )     2.5       8  
Timber sales
    26.6       26.6       25.8                   0.8       3  
Other revenues
    3.2       4.2       7.6       (1.0 )     (24 )     (3.4 )     (45 )
                                                         
Total
  $ 138.3     $ 258.2     $ 371.6     $ (119.9 )     (46 )%   $ (113.4 )     (31 )%
                                                         
Expenses:
                                                       
Cost of real estate sales
  $ 60.4     $ 53.1     $ 145.8     $ 7.3       14 %   $ (92.7 )     (64 )%
Cost of resort and club revenues
    32.3       38.6       33.4       (6.3 )     (16 )     5.2       16  
Cost of timber sales
    19.1       19.8       20.8       (0.7 )     (4 )     (1.0 )     (5 )
Cost of other revenues
    2.2       3.0       5.9       (0.8 )     (27 )     (2.9 )     (49 )
Other operating expenses
    40.0       53.5       68.4       (13.5 )     (25 )     (14.9 )     (22 )
                                                         
Total
  $ 154.0     $ 168.0     $ 274.3     $ (14.0 )     (8 )%   $ (106.3 )     (39 )%
                                                         
 
The decrease in real estate sales during 2009 compared to 2008 was primarily due to our decision to decrease sales in our rural land sales segment. Approximately $14.3 million, or 10%, of our 2009 revenues were generated by rural land sales compared to $162.0 million, or 63%, in 2008. Cost of real estate sales increased during 2009 compared to 2008 as a result of the sale of non-strategic assets within our residential real estate segment. Our gross margin on real estate sales decreased to 23% from 73% during 2009 compared to 2008, primarily as a result of the decrease in high margin rural land sales relative to our sales mix.
 
Resort and club revenues decreased during 2009 compared to 2008 due to lower vacation rental occupancy and lower Inn and vacation rental rates. Cost of resort and club revenues decreased during 2009 compared to 2008 as a result of reduced staffing levels and more efficient operation of our resort and clubs. Our gross margin on resort and club operations improved to (9%) during 2009 compared to (18%) during 2008 as a result of increased operating efficiencies. Other operating expenses decreased due to lower general and administrative expenses as a result of our restructuring efforts.
 
The overall decrease in real estate sales revenues in 2008 compared to 2007 was primarily due to the continued decrease in sales demand and pricing in our residential and commercial real estate segments. Our gross margin percentage on real estate sales increased to 73% during 2008 compared to 53% in 2007 primarily as a result of a change in mix to higher-margin rural land sales.
 
Resort and club revenues and costs increased during 2008 compared to 2007 primarily due to the addition of the operating results for our Bay Point Marina, Shark’s Tooth Golf Club and a restaurant at WindMark Beach which were not fully operational in 2007. Our gross margin on resort and club operations decreased to (18%) during 2008 compared to (10%) during 2007 as a result of transitioning these additional operations. Other operating expenses decreased in 2008 compared to 2007 due to lower general and administrative expenses as a result of our restructuring efforts. Included in 2007 other operating expenses is a $5.0 million termination fee paid to a third-party management company in our residential real estate segment. For further detailed discussion of revenues and expenses, see Segment Results below.


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Corporate Expense.  Corporate expense, representing corporate general and administrative expenses, decreased $5.6 million, or 19%, to $24.3 million in 2009 over 2008. Our overall employee and administrative costs have decreased as a result of reduced headcount. Corporate expense increased $0.9 million, or 3%, to $29.9 million in 2008 over 2007. Lower payroll related costs in 2008 attributable to staffing reductions were offset by additional deferred compensation expense. During early 2008, we granted certain members of management shares of restricted stock with vesting conditions based on our performance over a three-year period. We recognized approximately $3.3 million of additional expense related to these grants during 2008.
 
Pension settlement charge.  On June 18, 2009, as plan sponsor, we signed a commitment for the pension plan to purchase a group annuity contract from Massachusetts Mutual Life Insurance Company for the benefit of the retired participants and certain other former employee participants in our pension plan. Current and former employees with cash balances in the pension plan are not affected by the transaction. The purchase price of the annuity was approximately $101 million, which was funded from the assets of the pension plan on June 25, 2009. The transaction resulted in the transfer and settlement of pension benefit obligations of approximately $93 million. In addition, we recorded a non-cash pre-tax settlement charge to earnings during the second quarter of 2009 of $44.7 million and an offsetting $44.7 million pre-tax credit in Accumulated Other Comprehensive Income on our Consolidated Balance Sheets. As a result of this transaction, we were able to significantly increase the funded ratio of plan assets to projected benefit obligation from 133% to 238%, thereby reducing the potential for future funding requirements. We also recorded additional pension charges of $1.3 million, $4.2 million and $3.8 million during 2009, 2008 and 2007, respectively, as a result of reduced employment levels in connection with our restructuring programs.


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Impairment Losses.  During the past three years, we have recorded significant impairment charges as a result of the continued decline in demand and market prices within our real estate markets. The following table summarizes our impairment charges for the three years ended December 31:
 
                         
    Years Ended December 31,  
    2009     2008     2007  
    (In millions)  
 
Investment in Real Estate:
                       
Homes and homesites — various residential communities
  $ 7.3     $ 12.0     $ 7.8  
Abandoned development plans
    7.2             5.2  
Victoria Park community
    60.9              
SevenShores condominium and marina development project
    6.7       28.3        
                         
Total
    82.1       40.3       13.0  
                         
Notes Receivable:
                       
Saussy Burbank
    10.1              
Advantis
    7.4              
Various builder notes
    1.9       1.0       0.6  
                         
Total
    19.4       1.0       0.6  
                         
Goodwill and other:
                       
Goodwill — Arvida
          19.0        
Other long-term assets
    1.1              
                         
Total
    1.1       19.0        
                         
Total impairment charges-continuing operations
    102.6       60.3       13.6  
                         
Discontinued operations:
                       
Victoria Hills Golf Club
    6.9              
St. Johns Golf and Country Club
    3.5              
Goodwill — Sunshine State Cypress
                7.4  
Saussy Burbank — sale of assets
                2.2  
                         
Total impairment charges — discontinued operations
    10.4             9.6  
                         
Total impairment charges
  $ 113.0     $ 60.3     $ 23.2  
                         
 
Investment in Real Estate:
 
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management’s best estimates about future sales prices and holding periods. The continued decline in demand and market prices for residential real estate during 2007 through 2009 caused us to reevaluate certain carrying amounts within our residential real estate segment, which resulted in the recording of significant impairment charges.
 
Given the downturn in our real estate markets, we implemented a tax strategy for 2009 to benefit from the sale of certain non-strategic assets at a loss. Under federal tax rules, losses from asset sales realized in 2009 can be carried back and applied to taxable income from 2007, resulting in a federal income tax refund for 2009.
 
As part of this strategy, we conducted a nationally marketed sale process for the disposition of the remaining assets of our non-strategic Victoria Park community in Deland, Florida, including homes, homesites,


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undeveloped land, notes receivable and a golf course. Based on the likelihood of the closing of the sale, we concluded on December 15, 2009 that an impairment charge for $67.8 million was necessary. We completed the sale on December 17, 2009 for $11.0 million.
 
In addition, we completed the sale of our SevenShores condominium and marina development project for $7.0 million earlier in 2009, which resulted in an impairment charge of $6.7 million due to lower market pricing. We also wrote-off $7.2 million of capitalized costs related to abandoned development plans in certain of our communities. We also sold our St. Johns Golf and Country Club for $3.0 million in December 2009 which resulted in an impairment charge of $3.5 million.
 
As a result of our property impairment analyses for 2008, we recorded impairment charges related to investment in real estate of $40.3 million consisting of $12.0 million related to completed homes in several communities and $28.3 million related to our SevenShores condominium and marina development project.
 
The SevenShores condominium project was written down in the fourth quarter of 2008 to approximate the fair market value of land entitled for 278 condominium units. This write-down was necessary because we elected not to exercise our option to acquire additional land under our option agreement. Certain costs had previously been incurred with the expectation that the project would include 686 units.
 
In 2007 we recorded impairments related to investment in real estate totaling $13.0 million due to the adverse market conditions for residential real estate. Approximately $5.2 million of the impairments related to capitalized costs at certain projects due to changes in development plans and approximately $7.8 million related primarily to the reduction in market value of completed homes in several communities.
 
We also recorded an impairment charge of $2.2 million to approximate fair value, less costs to sell, related to our investment in Saussy Burbank which was sold in 2007, which is also reported as part of our 2007 discontinued operations.
 
A continued decline in demand and market prices for our real estate products may require us to record additional impairment charges in the future.
 
Notes Receivable:
 
We evaluate the carrying value of notes receivable at each reporting date. Notes receivable balances are adjusted to net realizable value based upon a review of entity specific facts or when terms are modified. During 2009, we settled our notes receivable with Saussy Burbank for less than book value and recorded a charge of $9.0 million. As part of the settlement, we agreed to take back previously collateralized inventory consisting of lots and homes which were valued at current estimated sales prices, less costs to sell. Subsequently, all the lots and homes were sold which resulted in an additional impairment charge of $1.1 million. We also recorded a charge of $7.4 million related to the write-off of the outstanding Advantis note receivable balance during 2009 as the amount was determined to be uncollectible.
 
In addition, we received a deed in lieu of foreclosure related to a $4.0 million builder note receivable during 2009 and renegotiated terms related to certain other builder notes receivable during 2009, 2008 and 2007. These events resulted in additional impairment charges of $1.9 million, $1.0 million and $0.6 million in 2009, 2008 and 2007, respectively. Because of the ongoing difficulties in our real estate markets and tightened credit conditions, we may be required to record additional write-downs of the carrying value of our notes receivable and such notes may not ultimately be collectible.
 
Goodwill:
 
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. An impairment is considered to exist if fair value is less than the carrying amount of the assets, including goodwill. The estimated fair value is generally determined on the basis of discounted future cash flows. During our 2008 year-end assessment, we determined that our remaining goodwill which originated from our 1997 acquisition of certain assets of Arvida Company and its affiliates was not recoverable based upon a discounted cash flow analysis. Accordingly, an impairment charge of $19.0 million was recorded in the residential real estate segment.


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We announced on October 8, 2007 our plan to dispose of Sunshine State Cypress as part of a restructuring plan. Our estimate of its fair value based upon market analysis indicated that goodwill related to this 2001 acquisition would not be recoverable. Accordingly, we recorded an impairment charge of $7.4 million in the fourth quarter of 2007 in our forestry segment to reduce the goodwill carrying value of Sunshine State Cypress to zero. The impairment charges related to Sunshine State Cypress are reported as part of our discontinued operations.
 
At December 31, 2009, we have no goodwill recorded on our consolidated balance sheet.
 
Restructuring Charges.  Restructuring charges include termination benefits in connection with our 2006-2009 restructuring plans. We recorded restructuring charges of $5.4 million, $4.3 million and $8.9 million in 2009, 2008 and 2007, respectively. The charges primarily relate to one-time termination benefits in connection with our employee headcount reductions. See Note 11 in our consolidated financial statements for further detail of our restructuring accrual.
 
Other Income (Expense).  Other income (expense) consists primarily of investment income, interest expense, gains and losses on sales and dispositions of assets, fair value adjustment related to the retained interest of monetized installment note receivables, loss on early extinguishment of debt, expense related to our standby guarantee liability and other income. Total other income (expense) was $4.2 million, $(36.6) million and $(4.7) million during 2009, 2008 and 2007, respectively.
 
Investment income, net decreased approximately $2.7 million during 2009 compared to 2008 and 2007 primarily as a result of lower investment returns on our cash balances.
 
Interest expense decreased $3.3 million during 2009 compared to 2008 and $15.5 million during 2008 compared to 2007, primarily as a result of our reduced debt levels. During 2008 we recorded a $30.6 million loss on early extinguishment of debt which consisted of $0.7 million related to the write-off of unamortized loan costs on our prior credit facility and $29.9 million in connection with the prepayment of our senior notes.
 
Other, net increased $9.7 million during 2009 compared to 2008. Included in 2009 is a $0.8 million expense related to our Southwest Airlines standby guarantee liability. Included in 2008 is a loss of $8.2 million related to the fair value adjustment of our retained interest in monetized installment notes receivable and $1.9 million related to the write-off of the net book value on certain abandoned property. Included in 2007 other, net was a charge of $2.6 million related to the fair value adjustment of the retained interest in monetized installment note receivables and a $2.6 million contractor settlement within our residential segment. These charges were offset by a $3.5 million insurance settlement receipt related to the defense of an outstanding litigation matter, a $1.6 million reversal of environmental-related accruals and $2.1 million of other income.
 
Equity in Loss of Unconsolidated Affiliates.  We have investments in affiliates that are accounted for by the equity method of accounting. These investments consist primarily of three residential joint ventures, two of which are now substantially sold out. Equity in loss of unconsolidated affiliates totaled $(0.1) million in 2009, $(0.3) million in 2008 and $(5.3) million in 2007. During 2007, we recorded a $4.3 million equity in loss of unconsolidated affiliates related to our investment in ALP Liquidating Trust (f/k/a Arvida/JMB Partners, L.P.). This adjustment was recorded as a result of the trust reserving $25.3 million of its remaining net assets to satisfy all potential claims and obligations.
 
Income Tax (Benefit) Expense.  Income tax (benefit) expense, including income tax on discontinued operations, totaled $(85.7) million, $(27.6) million and $18.8 million for the years ended December 31, 2009, 2008 and 2007, respectively. Our effective tax rate was 39.7%, 43.5% and 32% for the years ended December 31, 2009, 2008 and 2007, respectively. Our effective tax rate decreased in 2009 compared to 2008 due to the impact of certain permanent items. Our effective tax rate was lower in 2007 compared to 2008 as a result of our 2007 settlement of contested tax positions related to the years 2000 through 2004.
 
Discontinued Operations.  Income (loss) from discontinued operations consists of the results associated with our Victoria Hills Golf Club and St. Johns Golf and Country Club golf course operations, our sawmill and mulch plant (Sunshine State Cypress) the sales of our office building portfolio and Saussy Burbank. Income (loss), net of tax, totaled $(6.8) million, $(1.6) million and $27.5 million in 2009, 2008 and 2007,


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respectively. The operating results associated with these assets have been classified as discontinued operations for all periods presented through the period in which they were sold. See segment results for further discussion regarding our discontinued operations.
 
Segment Results
 
Residential Real Estate
 
Our residential real estate segment typically plans and develops mixed-use resort, primary and seasonal residential communities of various sizes, primarily on our existing land. We own large tracts of land in Northwest Florida, including significant Gulf of Mexico beach frontage and waterfront properties, and land near Jacksonville and Tallahassee.
 
Our residential sales remain weak due to the collapse of the housing markets in Florida. Inventories of resale homes and homesites remain high in our markets and prices continue to decline. With the U.S. and Florida economies battling the adverse effects of home foreclosures, severely restrictive credit, significant inventories of unsold homes and recessionary economic conditions, predicting when real estate markets will return to health remains difficult. Currently, we do not expect any significant favorable changes in these market conditions during 2010.
 
In 2009, we made the decision to dispose of our non-strategic Central Florida operations by selling the remaining assets of our Victoria Park and Artisan Park communities and by selling the assets of our SevenShores condominium and marina development project. These sales allowed us to take advantage of the tax strategy described below and to focus on the development of our strategic holdings in Northwest Florida. In 2010, we plan to concentrate our development efforts on reprogramming and repositioning certain of our existing Northwest Florida residential projects in preparation for a future market recovery.
 
Given the downturn in our real estate markets, we implemented a tax strategy in 2009 to sell certain non-strategic assets and to carry back any losses on the sales to our taxable income in 2007, resulting in significant tax refunds for 2009. These sales also significantly reduced our holding costs going forward.
 
The following are some of the non-strategic assets that we sold:
 
  •  our remaining assets at Victoria Park for approximately $11.0 million. The assets consisted of homes, homesites, undeveloped land, notes receivable and a golf course;
 
  •  St. Johns Golf and Country Club for $3.0 million;
 
  •  the remaining condominium units in our Artisan Park development in Celebration, Florida and generated aggregate revenues of $6.1 million from the auction sales; and
 
  •  the SevenShores condominium and marina development project in Bradenton, Florida in exchange for $7.0 million cash and the forgiveness of notes payable in the amount of $5.5 million.
 
These four transactions are expected to produce an aggregate tax refund in the second half of 2010 of approximately $35.1 million.


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The table below sets forth the results of operations of our residential real estate segment for the three years ended December 31, 2009.
 
                         
    Years Ended December 31,  
    2009     2008     2007  
    (In millions)  
 
Revenues:
                       
Real estate sales
  $ 57.4     $ 28.6     $ 119.0  
Resort and club revenues
    29.7       32.7       30.0  
Other revenues
    2.7       4.2       6.5  
                         
Total revenues
    89.8       65.5       155.5  
                         
Expenses:
                       
Cost of real estate sales
    54.7       24.1       77.2  
Cost of resort and club revenues
    32.3       38.6       33.3  
Cost of other revenues
    2.1       3.0       5.1  
Other operating expenses
    30.8       43.0       55.5  
Depreciation and amortization
    10.9       10.4       10.5  
Impairment loss
    94.8       60.3       13.6  
Restructuring charge
    0.9       1.2       4.1  
                         
Total expenses
    226.5       180.6       199.3  
                         
Other income (expense)
    (1.1 )     0.1       0.8  
                         
Pre-tax (loss) from continuing operations
  $ (137.8 )   $ (115.0 )   $ (43.0 )
                         
 
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 
Real estate sales include sales of homes and homesites. Cost of real estate sales includes direct costs (e.g., development and construction costs), selling costs and other indirect costs (e.g., construction overhead, capitalized interest, warranty and project administration costs). Resort and club revenues and cost of resort and club revenues include results of operations from the WaterColor Inn, WaterColor and WaterSound vacation rental programs and other resort, golf, club and marina operations. Other revenues and cost of other revenues consist primarily of brokerage fees and rental operations.
 
The following table sets forth the components of our real estate sales and cost of real estate sales related to homes and homesites:
 
                                                 
    Year Ended December 31, 2009     Year Ended December 31, 2008  
    Homes     Homesites     Total     Homes     Homesites     Total  
    (Dollars in millions)  
 
Sales
  $ 24.8     $ 6.5     $ 31.3     $ 17.9     $ 10.1     $ 28.0  
Cost of sales:
                                               
Direct costs
    18.8       3.9       22.7       12.9       5.6       18.5  
Selling costs
    1.7       0.2       1.9       1.0       0.6       1.6  
Other indirect costs
    3.5       0.5       4.0       3.5       0.4       3.9  
                                                 
Total cost of sales
    24.0       4.6       28.6       17.4       6.6       24.0  
                                                 
Gross profit
  $ 0.8     $ 1.9     $ 2.7     $ 0.5     $ 3.5     $ 4.0  
                                                 
Gross profit margin
    3 %     29 %     9 %     3 %     35 %     14 %
Units sold
    84       80       164       33       89       122  
 
Home sales and home closings increased during 2009 compared to 2008 primarily as a result of our exit of the Artisan Park community through the auction of our remaining condominium units. In addition, sales


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increases were achieved from reductions in pricing in an effort to accelerate sales of existing vertical inventory even though adverse market conditions continued. Homesite sales and closings decreased in 2009 compared to 2008 due to a decrease in bulk sales to national homebuilders and reduced demand. Gross profit margin decreased in 2009 compared to 2008, primarily due to a decrease in the average sales price and product location and mix.
 
Although not included in the homes and homesites tables, real estate revenues and cost of sales also included land sales of $26.1 million and $0.6 million and land cost of sales of $26.1 million and $0.1 million for the years ended December 31, 2009 and 2008, respectively. The 2009 real estate revenues and cost of sales consisted primarily of $12.5 million at SevenShores, $10.4 million at Victoria Park (excluding $0.6 million of golf course revenues and cost of sales, which are included in discontinued operations) and $2.8 million of Saussy Burbank property.
 
The following table sets forth homes and homesite sales activity by geographic region and property type.
 
                                                                 
    Year Ended December 31, 2009     Year Ended December 31, 2008  
    Closed
          Cost of
    Gross
    Closed
          Cost of
    Gross
 
    Units     Revenues     Sales     Profit     Units     Revenues     Sales     Profit  
    (Dollars in millions)  
 
Northwest Florida:
                                                               
Resort
                                                               
Single-family homes
    23     $ 10.8     $ 10.4     $ 0.4       8     $ 8.6     $ 8.3     $ 0.3  
Homesites
    25       3.5       2.6       0.9       21       6.7       3.5       3.2  
Primary
                                                               
Single-family homes
                            1       0.3       0.3       0.0  
Homesites
    12       1.0       0.3       0.7       23       1.3       1.0       0.3  
Northeast Florida:
                                                               
Single-family homes
    2       0.6       0.5       0.1       2       0.9       1.0       (0.1 )
Homesites
                            3       0.2       0.1       0.1  
Central Florida:
                                                               
Single-family homes
    15       3.5       3.4       0.1       10       4.5       4.4       0.1  
Multi-family homes
    32       7.3       7.2       0.1       9       3.1       2.9       0.2  
Townhomes
    12       2.6       2.5       0.1       3       0.5       0.5       0.0  
Homesites
    43       2.0       1.7       0.3       42       1.9       2.0       (0.1 )
                                                                 
Total
    164     $ 31.3     $ 28.6     $ 2.7       122     $ 28.0     $ 24.0     $ 4.0  
                                                                 
 
For additional information about our residential projects, see the table “Summary of Land-Use Entitlements — Active St. Joe Residential and Mixed-Use Projects” in the Business section above.
 
Our Northwest Florida resort and seasonal communities included WaterColor, WaterSound Beach, WaterSound, WaterSound West Beach, WindMark Beach, RiverCamps on Crooked Creek, SummerCamp Beach and Wild Heron, while primary communities included Hawks Landing and Southwood. Our Northeast Florida communities included RiverTown and St. Johns Golf and Country Club, and our Central Florida communities included Artisan Park and Victoria Park, all of which are primary.
 
In addition to adverse market conditions, the following factors also contributed to the results of operations shown above:
 
  •  For our Northwest Florida resort and seasonal communities, home closings and revenues increased in 2009 as compared to 2008 primarily due to the sale of the 17 remaining homes in phase 4 of our WaterColor community. These sales were the result of price reductions on the remaining homes. Included in 2008 was the recognition of $0.9 million of deferred revenue on our SummerCamp Beach community since the required infrastructure was completed.


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  •  In our Northwest Florida primary communities we closed on our last remaining home in the Palmetto Trace community in 2008. Homesite closings and revenue decreased in 2009 as compared to 2008 due to a decrease in bulk sales to a national homebuilder in our SouthWood community.
 
  •  In our Northeast Florida communities we have no homes available as we sold our last remaining home in the St. Johns Golf and Country Club community in 2009.
 
  •  In our Central Florida communities a successful home auction was completed and the remaining available product was sold at the Artisan Park community.
 
Resort and club revenues included revenues from the WaterColor Inn, WaterColor and WaterSound vacation rental programs and other resort, golf, club and marina operations. Resort and club revenues were $29.7 million in 2009 with $32.3 million in related costs, compared to $32.7 million in 2008 with $38.6 million in related costs. Resort and club revenues decreased $3.0 million due to lower vacation rental occupancy and lower Inn and vacation rental rates. Cost of resort and club revenues decreased $6.3 million as a result of reduced staffing levels and more efficient operation of our resort and clubs.
 
Other operating expenses included salaries and benefits, marketing, project administration, support personnel and other administrative expenses. Other operating expenses were $30.8 million in 2009 compared to $43.0 million in 2008. The decrease of $12.2 million in operating expenses was primarily due to reductions in employee costs, marketing and homeowners association funding costs, certain warranty and other project costs and real estate taxes. These decreases were partially offset by costs related to overhead costs of our real estate projects that were expensed in 2009 instead of capitalized due to lack of active development activity.
 
We recorded restructuring charges in our residential real estate segment of $0.9 million during 2009 and $1.2 million in 2008 in connection with our headcount reductions.
 
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 
The following table sets forth the components of our real estate sales and cost of real estate sales:
 
                                                 
    Year Ended December 31, 2008     Year Ended December 31, 2007  
    Homes     Homesites     Total     Homes     Homesites     Total  
    (Dollars in millions)  
 
Sales
  $ 17.9     $ 10.1     $ 28.0     $ 58.4     $ 57.6     $ 116.0  
Cost of sales:
                                               
Direct costs
    12.9       5.6       18.5       36.3       24.5       60.8  
Selling costs
    1.0       0.6       1.6       2.9       2.0       4.9  
Other indirect costs
    3.5       0.4       3.9       8.2       3.0       11.2  
                                                 
Total cost of sales
    17.4       6.6       24.0       47.4       29.5       76.9  
                                                 
Gross profit
  $ 0.5     $ 3.5     $ 4.0     $ 11.0     $ 28.1     $ 39.1  
                                                 
Gross profit margin
    3 %     35 %     14 %     19 %     49 %     34 %
Units sold
    33       89       122       124       354       478  
 
The decreases in the amounts of real estate sales, gross profit and gross profit margin were due to adverse market conditions causing decreases in home and homesite closings and selling prices in most of our communities. Also included in real estate revenues and cost of sales are land sales of $0.6 million and $3.0 million and land cost of sales of $0.1 million and $0.3 million for the years ended December 31, 2008 and 2007, respectively.


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The following table sets forth home and homesite sales activity by geographic region and property type.
 
                                                                 
    Year Ended December 31, 2008     Year Ended December 31, 2007  
    Closed
          Cost of
    Gross
    Closed
          Cost of
    Gross
 
    Units     Revenues     Sales     Profit     Units     Revenues     Sales     Profit  
    (Dollars in millions)  
 
Northwest Florida:
                                                               
Resort
                                                               
Single-family homes
    8     $ 8.6     $ 8.3     $ 0.3       20     $ 23.1     $ 19.3     $ 3.8  
Multi-family homes
                            1       0.9       0.6       0.3  
Homesites
    21       6.7       3.5       3.2       47       36.6       12.9       23.7  
Primary
                                                               
Single-family homes
    1       0.3       0.3       0.0       15       4.4       3.5       0.9  
Townhomes
                            5       1.1       0.9       0.2  
Homesites
    23       1.3       1.0       0.3       178       14.2       9.4       4.8  
Northeast Florida:
                                                               
Single-family homes
    2       0.9       1.0       (0.1 )     9       4.3       4.0       0.3  
Homesites
    3       0.2       0.1       0.1       29       2.0       1.1       0.9  
Central Florida:
                                                               
Single-family homes
    10       4.5       4.4       0.1       20       11.8       9.2       2.6  
Multi-family homes
    9       3.1       2.9       0.2       39       5.7       4.0       1.7  
Townhomes
    3       0.5       0.5       0.0       15       7.1       5.9       1.2  
Homesites
    42       1.9       2.0       (0.1 )     100       4.8       6.1       (1.3 )
                                                                 
Total
    122     $ 28.0     $ 24.0     $ 4.0       478     $ 116.0     $ 76.9     $ 39.1  
                                                                 
 
For additional information about our residential projects, see the table “Summary of Land-Use Entitlements — Active JOE Residential and Mixed-Use Projects” in the Business section above.
 
Our Northwest Florida resort and seasonal communities included WaterColor, WaterSound Beach, WaterSound, WaterSound West Beach, WindMark Beach, RiverCamps on Crooked Creek and SummerCamp Beach, while primary communities included Hawks Landing, Palmetto Trace, The Hammocks and SouthWood. Our Northeast Florida communities included RiverTown and St. Johns Golf and Country Club, and our Central Florida communities included Artisan Park and Victoria Park, all of which are primary.
 
In addition to adverse market conditions, the following factors also contributed to the results of operations shown above:
 
  •  For our Northwest Florida resort and seasonal communities, included in 2007 was the recognition of $7.0 million of deferred revenue on our SummerCamp Beach community since the required infrastructure was completed.
 
  •  In our Northwest Florida primary communities we sold our last remaining home in the Palmetto Trace community in 2008. The gross profit percentage for homesites decreased to 23% in 2008 as compared to 34% in 2007, due to the sales of lower margin builder lots in our SouthWood community.
 
  •  In our Northeast Florida communities, we had only a limited number of homes available as St. Johns Golf and Country Club was fully built out.
 
  •  In our Central Florida communities, the negative gross profit in homesite sales is due to bulk sales to a national homebuilder.
 
Resort and club revenues included revenues from the WaterColor Inn and WaterColor and WaterSound vacation rental programs and other resort, golf, club and marina operations. Resort and club revenues were $32.7 million in 2008 with $38.6 million in related costs, compared to $30.0 million in 2007 with $33.3 million in related costs. Resort and club revenues and costs increased $2.7 million and $5.3 million, respectively,


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primarily due to the addition of the operating results for the Bay Point Marina, Shark’s Tooth Golf Course and a restaurant at Windmark Beach which were not fully operational during 2007. Partially offsetting these increases was a decrease in occupancy and increased costs associated with the transition to third party management at our WaterColor Inn, lower vacation rental occupancy and lower Inn and vacation rental rates.
 
Other operating expenses included salaries and benefits, marketing, project administration, support personnel and other administrative expenses. Other operating expenses were $43.0 million in 2008 compared to $55.5 million in 2007. Decreases in payroll related costs in 2008 were partially offset by costs related to our real estate projects that were expensed in 2008 instead of capitalized. Other operating expenses for 2007 included a $5.0 million termination fee paid to a third party management company.
 
We recorded restructuring charges in our residential real estate segment of $1.2 million during 2008 and $4.1 million in 2007 in connection with our headcount reductions and restructuring efforts.
 
Discontinued Operations
 
In December 2009, we sold our remaining property at Victoria Park, including the Victoria Hills Golf Club. In addition, we sold St. Johns Golf and Country Club during December 2009. We have classified the operating results associated with these golf courses as discontinued operations as the golf courses had identifiable cash flows and operating results. Included in 2009 discontinued operations are $6.9 million and $3.5 million (pre-tax) of impairment charges to approximate fair value, less costs to sell, related to the sales of the Victoria Hills Golf Club and St. Johns Golf and Country Club, respectively.
 
On May 3, 2007, we sold our mid-Atlantic homebuilding operations, known as Saussy Burbank. The results of Saussy Burbank have been reported as discontinued operations for the year ended December 31, 2007. Included in 2007 pre-tax income is a $2.2 million impairment charge to approximate fair value, less costs to sell, of the sale of Saussy Burbank.
 
The table below sets forth the operating results of our discontinued operations for the periods shown.
 
                         
    Years Ended December 31,  
    2009     2008     2007  
    (In millions)  
 
Victoria Hills Golf Club — Residential Segment:
                       
Aggregate revenues
  $ 2.5     $ 2.7     $ 2.7  
                         
Pre-tax (loss)
    (7.6 )     (0.9 )     (0.9 )
Income taxes (benefit)
    (3.0 )     (0.3 )     (0.3 )
                         
(Loss) from discontinued operations
  $ (4.6 )   $ (0.6 )   $ (0.6 )
                         
St. Johns Golf and Country Club — Residential Segment:
                       
Aggregate revenues
  $ 2.9     $ 3.2     $ 3.0  
                         
Pre-tax income (loss)
    (3.4 )     (0.1 )     (0.1 )
Income taxes (benefit)
    (1.3 )            
                         
Income (loss) from discontinued operations
  $ (2.1 )   $ (0.1 )   $ (0.1 )
                         
Saussy Burbank — Residential Segment:
                       
Aggregate revenues
  $     $     $ 132.8  
                         
Pre-tax income
                1.6  
Income taxes
                0.6  
                         
Income from discontinued operations
  $     $     $ 1.0  
                         
Total (loss) income from discontinued operations
  $ (6.7 )   $ (0.7 )   $ 0.3  
                         


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Commercial Real Estate
 
Our commercial real estate segment plans, develops and entitles our land holdings for a broad portfolio of retail, office, industrial and multi-family uses. We sell and develop commercial land and provide development opportunities for national and regional commercial retailers and strategic partners in Northwest Florida. We also offer land for commercial and light industrial uses within large and small-scale commerce parks, as well as for a wide range of multi-family rental projects. Consistent with residential real estate, the markets for commercial real estate remain weak.
 
The table below sets forth the results of the continuing operations of our commercial real estate segment for the three years ended December 31, 2009.
 
                         
    Years Ended December 31,  
    2009     2008     2007  
    (In millions)  
 
Revenues:
                       
Real estate sales
  $ 7.0     $ 3.9     $ 27.6  
Other revenues
    0.5       0.1       1.4  
                         
Total revenues
    7.5       4.0       29.0  
                         
Expenses:
                       
Cost of real estate sales
    4.3       2.8       13.8  
Cost of other revenues
          0.1       0.9  
Other operating expenses
    3.9       4.2       5.9  
Depreciation and amortization
    0.1       0.1       0.6  
Restructuring charge
    0.6       0.1       0.4  
                         
Total expenses
    8.9       7.3       21.6  
                         
Other income
    0.9       1.0       8.3  
                         
Pre-tax (loss) income from continuing operations
  $ (0.5 )   $ (2.3 )   $ 15.7  
                         
 
Similar to the markets for residential real estate, the markets for commercial real estate have experienced a significant downturn, and revenues in the commercial real estate segment have steadily declined as a result. In addition to the negative effects of the prolonged downturn in demand for residential real estate, commercial real estate markets are also being negatively affected by the current economic recession.
 
Much of our commercial real estate activity is focused on the opportunities presented by the new Northwest Florida Beaches International Airport, scheduled to open in May 2010. We believe these commercial opportunities will be significantly enhanced by Southwest Airlines’ planned service to the new airport, as described above. We continue pre-development activity on approximately 1,000 acres adjacent to the airport site. The land is being planned for office, retail, hotel and industrial users. To support our commercial efforts, we have recently entered into an agreement with CB Richard Ellis Group, Inc., the world’s largest commercial real estate services firm, to master plan and market for joint venture, sale or lease these 1,000 acres. CB Richard Ellis will solicit global office, retail and industrial users for this prime development location. We expect, over time, that the new international airport will expand our customer base as it connects Northwest Florida with the global economy and as the area is repositioned from a regional to a national destination.


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Real Estate Sales.  Commercial land sales for the three years ended December 31, 2009 included the following:
 
                                                 
    Number of
    Acres
    Average Price
    Gross
          Gross Profit
 
Land
  Sales     Sold     Per Acre     Proceeds     Revenue     on Sales  
                      (In millions)     (In millions)     (In millions)  
 
Year Ended December 31, 2009
    8       29     $ 227,000     $ 6.6     $ 7.0 (a)   $ 2.7 (a)
                                                 
Year Ended December 31, 2008
    8       39     $ 92,000     $ 3.6     $ 3.9 (b)   $ 1.1 (b)
                                                 
Year Ended December 31, 2007
    33       110     $ 250,000     $ 27.6     $ 27.6 (c)   $ 13.8 (c)
                                                 
 
 
(a) Includes previously deferred revenue and gain on sales, based on percentage-of-completion accounting, of $0.4 million and $0.1 million, respectively.
 
(b) Includes previously deferred revenue and gain on sales, based on percentage-of-completion accounting, of $0.3 million and $0.1 million, respectively.
 
(c) Includes previously deferred gain on sales, based on percentage-of-completion accounting, of $0.4 million.
 
The change in average per-acre prices reflected a change in the mix of commercial land sold in each period, with varying compositions of retail, office, light industrial, multi-family and other commercial uses. Included in the 2007 results were sales of four parcels primarily in Texas considered non-core holdings totaling $4.4 million for a gross profit of $1.0 million.
 
Other income during 2009 and 2008 primarily includes $0.7 million of recognized gain previously deferred associated with three buildings sold in 2007 with which we have continuing involvement due to a sale and leaseback arrangement. Other income during 2007 includes $8.0 million of recognized gain related to these three buildings.
 
Dispositions of Assets.  During 2007, we closed on the sale of our office building portfolio, containing 17 buildings with approximately 2.25 million net rentable square feet, for an aggregate sales price of $377.5 million. As discussed earlier, three of the 17 buildings have been reported in continuing operations and the remaining 14 have been reported in discontinued operations. Considering the significant increase in office building valuations in the years prior to the sale, we believe that we achieved favorable pricing for our office building portfolio, especially in light of the subsequent decline in the market for commercial office buildings.
 
The results of the three buildings reported in continuing operations are shown in the following table:
 
         
    Year Ended
 
    December 31,  
    2007  
    (In millions)  
 
Commercial Buildings — Commercial Segment:
       
Aggregate revenues
  $ 1.5  
         
Pre-tax income (loss)
     
Pre-tax gain on sale
    8.0  
Income taxes
    0.6  
         
Income from discontinued operations
  $ 7.4  
         


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Discontinued operations include the sale and results of operations of our 14 buildings sold in 2007. The operations of these buildings are included in discontinued operations through the dates that they were sold:
 
         
    Year Ended
 
    December 31,  
    2007  
    (In millions)  
 
Commercial Buildings — Commercial Segment:
       
Aggregate revenues
  $ 18.1  
         
Pre-tax income
    2.5  
Pre-tax gain on sale
    47.8  
Income taxes
    19.6  
         
Income from discontinued operations
  $ 30.7  
         
 
Rural Land Sales
 
Our rural land sales segment markets and sells tracts of land of varying sizes for rural recreational, conservation and timberland uses. The land sales segment at times prepares land for sale for these uses through harvesting, thinning and other silviculture practices, and in some cases, limited infrastructure development. Like residential and commercial land, prices for rural land have also declined as a result of the current difficult market conditions.
 
The table below sets forth the results of operations of our rural land sales segment for the three years ended December 31, 2009.
 
                         
    Years Ended December 31,  
    2009     2008     2007  
    (In millions)  
 
Revenues:
                       
Real estate sales
  $ 14.3     $ 162.0     $ 161.2  
                         
Expenses:
                       
Cost of real estate sales
    1.5       26.2       54.8  
Other operating expenses
    3.3       4.4       5.3  
Depreciation and amortization
    0.1       0.1       0.2  
Restructuring charge
    0.1             1.4  
                         
Total expenses
    5.0       30.7       61.7  
                         
Other income
    0.7       1.2       0.3  
                         
Pre-tax income from continuing operations
  $ 10.0     $ 132.5     $ 99.8  
                         
 
Rural land sales for the three years ended December 31, 2009 are as follows:
 
                                         
    Number
    Number of
    Average Price
    Gross Sales
    Gross
 
Period
  of Sales     Acres     per Acre     Price     Profit  
                      (In millions)     (In millions)  
 
2009
    13       6,967     $ 2,054     $ 14.3     $ 12.8  
2008
    26       107,677     $ 1,505     $ 162.0     $ 135.9  
2007
    44       105,963     $ 1,522     $ 161.3     $ 106.5  
 
During 2008 and 2007, we relied on rural land sales as a significant source of revenues due to the continuing downturn in our residential and commercial real estate markets. We consider the land sold to be non-strategic as these parcels would require a significant amount of time before realizing a higher and better use than timberland. During 2009, we made a strategic decision to sell fewer acres of rural land as we


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generated cash from other sources. We intend to employ the same strategy in 2010. We may, however, rely on rural land sales as a significant source of revenues and cash in the future.
 
During 2009, we closed the following significant sales:
 
  •  930 acres in Wakulla County for $3.9 million, or an average of $4,234 per acre.
 
  •  4,492 acres in Liberty County for $5.9 million, or an average of $1,305 per acre.
 
During 2008, we closed the following significant sales:
 
  •  18,552 acres in Liberty and Gulf Counties for $24.7 million, or an average price of $1,330 per acre.
 
  •  23,743 acres in Liberty County for $36.3 million, or an average price of $1,530 per acre.
 
  •  2,784 acres in Taylor County for $12.5 million, or an average price of $4,500 per acre.
 
  •  29,742 acres primarily within Liberty and Wakulla Counties for $39.5 million, or an average price of $1,330 per acre.
 
  •  29,343 acres primarily within Leon County, Florida and Stewart County, Georgia, for $38.4 million, or an average price of $1,308 per acre.
 
During 2007, we closed the following significant sales:
 
  •  19,989 acres in Wakulla and Jefferson Counties for $28.5 million, or an average price of $1,425 per acre.
 
  •  33,035 acres in Southwest Georgia for $46.4 million, or an average price of $1,405 per acre.
 
  •  26,943 acres in Liberty and Gadsden Counties for $34.5 million, or an average price of $1,281 per acre.
 
  •  3,024 acres in Wakulla County for $9.1 million, or an average price of $3,000 per acre.
 
  •  15,250 acres in Liberty County for $19.1 million, or an average price of $1,251 per acre.
 
Average sales prices per acre vary according to the characteristics of each particular piece of land being sold and its highest and best use. As a result, average prices will vary from one period to another. Cost of sales decreased during 2008 compared to 2007 primarily due to a higher cost basis associated with the sale of our southwest Georgia property in 2007, which we purchased in 2005.
 
In 2009, we also began selling credits to developers from our wetlands mitigation banks.
 
Forestry
 
Our forestry segment focuses on the management and harvesting of our extensive timber holdings. We grow, harvest and sell timber and wood fiber and provide land management services for conservation properties. On February 27, 2009, we completed the sale of the inventory and equipment assets of Sunshine State Cypress. The results of operations for Sunshine State Cypress are set forth below as discontinued operations.


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The table below sets forth the results of our continuing operations of our forestry segment for the three years ended December 31, 2009.
 
                         
    Years Ended December 31,  
    2009     2008     2007  
    (In millions)  
 
Revenues:
                       
Timber sales
  $ 26.6     $ 26.6     $ 25.8  
Expenses:
                       
Cost of timber sales
    19.1       19.8       20.8  
Other operating expenses
    2.0       1.9       1.7  
Depreciation and amortization
    2.3       2.5       2.6  
Restructuring charge
    0.1       0.2       0.1  
                         
Total expenses
    23.5       24.4       25.2  
                         
Other income
    1.7       1.7       2.3  
                         
Pre-tax income from continuing operations
  $ 4.8     $ 3.9     $ 2.9  
                         
 
We have a wood fiber supply agreement with Smurfit-Stone Container Corporation (“Smurfit-Stone”) which expires on June 30, 2012. Although Smurfit-Stone filed for bankruptcy protection in 2008, the supply agreement remains in effect at this time, and Smurfit-Stone is current in its payments. Sales under this agreement were $14.9 million (701,000 tons) in 2009, $12.9 million (691,000 tons) in 2008 and $13.3 million (746,000 tons) in 2007.
 
Sales to customers other than Smurfit-Stone totaled $11.1 million (544,000 tons) in 2009, $13.4 million (687,000 tons) in 2008 and $12.5 million (713,000 tons) in 2007. The decrease in revenues from 2008 to 2009 was primarily due to the decrease in tons sold. The increase in revenues from 2007 to 2008 was primarily due to higher selling prices in 2008.
 
Our 2009 and 2008 sales revenues also included $0.6 million and $0.3 million, respectively, related to land management services performed in connection with certain conservation properties. We plan to seek other customers for our conservation land management services.
 
Gross margins as a percentage of revenue were 28% in 2009, 26% in 2008 and 19% in 2007. The increase in margin from 2008 to 2009 was primarily due to a decrease in operating expenses included in cost of sales. The increase in margin from 2007 to 2008 was primarily due to a decrease in cut and haul costs and the mix of products sold.
 
Other income consists primarily of income from hunting leases. Other income decreased $0.6 million in 2008 compared to 2007 primarily due to a decrease in hunting lease income as a result of our reduced land holdings.
 
We are continuing to explore alternative sources of revenue from our extensive timberland and rural land holdings. For example, in 2010, we will begin participating in a government sponsored biomass crop assistance program that will provide us additional revenues related to wood products subsequently used in energy production.
 
On February 27, 2009, we sold our remaining inventory and equipment assets related to our Sunshine State Cypress mill and mulch plant for $1.6 million. We received $1.3 million in cash and a note receivable of $0.3 million. The sale agreement also included a long-term lease of a building facility. Included in 2007 discontinued operations is an impairment charge of $7.4 million pre-tax which includes $7.3 million to reduce the goodwill carrying value of Sunshine State Cypress to zero and $0.1 million of estimated selling costs.


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Discontinued operations related to the sale of Sunshine State Cypress for the three years ended December 31 are as follows:
 
                         
    2009     2008     2007  
    (In millions)  
 
Sunshine State Cypress — Forestry Segment
                       
Aggregate revenues
  $ 1.7     $ 6.7     $ 7.7  
                         
Pre-tax (loss)
    (0.4 )     (1.6 )     (5.7 )
                         
Pre-tax gain on sale
    0.1              
Income taxes (benefit)
    (0.1 )     (0.6 )     (2.2 )
                         
(Loss) from discontinued operations
  $ (0.2 )   $ (1.0 )   $ (3.5 )
                         
 
Liquidity and Capital Resources
 
We generated cash during 2009 from:
 
  •  Sales of land holdings and other non-strategic assets,
 
  •  Operations, and
 
  •  Tax refunds.
 
We used cash during 2009 for:
 
  •  Operations,
 
  •  Real estate development and construction, and
 
  •  Payments of property taxes.
 
As of December 31, 2009, we had cash and cash equivalents of $163.8 million, compared to $115.5 million as of December 31, 2008. Our increase in cash and cash equivalents in 2009 primarily relates to our operating activities as described below.
 
We invest our excess cash primarily in government-only money market mutual funds, short term U.S. treasury investments and overnight deposits, all of which are highly liquid, with the intent to make such funds readily available for operating expenses and strategic long-term investment purposes.
 
We believe that our current cash position, our undrawn $125 million revolving credit facility and the cash we anticipate to generate from operating activities and tax refunds will provide us with sufficient liquidity to satisfy our working capital needs and capital expenditures and provides us with the financial flexibility to withstand the current market downturn.
 
In September 2008, we entered into a $100 million revolving credit facility with Branch Banking and Trust Company (“BB&T”). On October 15, 2009, we amended the credit facility to extend the term to September 19, 2012, and lower our required minimum tangible net worth amount to $800 million. In addition, the amendment also modified our pricing terms to reflect current market pricing. In addition, on December 23, 2009, we further amended the credit facility to increase its size to $125 million. Deutsche Bank provided the additional $25 million commitment.
 
We have the option to request an increase in the principal amount available under the credit facility up to $200 million through syndication on a best efforts basis. The Credit Agreement provides for swing advances of up to $5 million and the issuance of letters of credit of up to $30 million. No funds have been drawn on the credit facility as of December 31, 2009. The proceeds of any future borrowings under the credit facility may be used for general corporate purposes. We have pledged 100% of the membership interests in our largest subsidiary, St. Joe Timberland Company of Delaware, LLC, as security for the credit facility. We have also agreed that upon the occurrence of an event of default, St. Joe Timberland Company of Delaware, LLC will grant to the lenders a first priority pledge of and/or a lien on substantially all of its assets.


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As more fully described in Note 13 of our consolidated financial statements, the credit facility contains covenants relating to leverage, unencumbered asset value, net worth, liquidity and additional debt. The credit facility does not contain a fixed charge coverage covenant. The credit facility also contains various restrictive covenants pertaining to acquisitions, investments, capital expenditures, dividends, share repurchases, asset dispositions and liens. The recent amendment also limits the amount of our investments not otherwise permitted by the credit facility to $175 million and the amount of our additional debt not otherwise permitted by the credit facility to $175 million. We were in compliance with our debt covenants at December 31, 2009.
 
On October 21, 2009, we entered into a strategic alliance agreement with Southwest Airlines to facilitate the commencement of low-fare air service in May 2010 to the new Northwest Florida Beaches International Airport under construction in Northwest Florida. Southwest has agreed that service at the new airport will consist of at least two daily non-stop flights from Northwest Florida to each of four destinations for a total of eight daily non-stop flights.
 
We have agreed to reimburse Southwest Airlines if it incurs losses on its service at the new airport during the first three years of service. The agreement also provides that Southwest’s profits from the air service during the term of the agreement will be shared with us up to the maximum amount of our break-even payments. These cash payments and reimbursements could have a significant effect on our cash flows and results of operations starting in the second half of 2010, depending on the results of Southwest’s operations of the air service.
 
The term of the agreement extends for a period of three years after the commencement of Southwest’s air service at the new airport. Although the agreement does not provide for maximum payments, the agreement may be terminated by us if the payments to Southwest exceed $14 million in the first year of air service or $12 million in the second year. We may also terminate the agreement if Southwest has not commenced air service to the new airport within 90 days of its opening. Southwest may terminate the agreement if its actual annual revenues attributable to the air service at the new airport are less than certain minimum annual amounts established in the agreement.
 
Cash Flows from Operating Activities
 
Cash flows related to assets ultimately planned to be sold, including residential real estate development and related amenities, sales of undeveloped and developed land by the rural land sales segment, our timberland operations and land developed by the commercial real estate segment, are included in operating activities on the statement of cash flows.
 
Net cash provided by (used in) operations was $50.7 million during 2009 compared to $48.5 million during 2008 and $(209.3) million in 2007. Total capital expenditures for our residential real estate segment in 2009, 2008 and 2007 were $13.4 million, $27.1 million and $214.3 million, respectively. The 2008 expenditures were net of an $11.6 million reimbursement received from a community development district (“CDD”) bond issue at one of our residential communities. Additional capital expenditures in 2009, 2008 and 2007 totaled $2.4 million, $5.3 million and $13.2 million, respectively, and primarily related to commercial real estate development.
 
The expenditures relating to our residential real estate and commercial real estate segments were primarily for site infrastructure development, general amenity construction, construction of single-family homes, construction of multi-family buildings and commercial land development. Prior to 2009, we devoted significant resources to the development of several new large-scale residential communities, including WindMark Beach, RiverTown and WaterSound. Because of adverse market conditions and the substantial progress on these large-scale developments, we have significantly reduced our capital expenditures over the past three years. We expect our 2010 capital expenditures to be close to 2008 levels as the development of our lands in the West Bay sector commences. We anticipate that future capital commitments will be funded through our cash balances and credit facility.
 
The 2007 expenditures also included the purchase of the Greg Norman-designed Shark’s Tooth Golf Club, together with 28 fully-developed homesites in the Wild Heron community, additional land parcels and a beach club, all near Panama City Beach, Florida, for approximately $30.0 million.


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In 2009 we implemented a tax planning strategy in order to take advantage of certain tax loss carrybacks which expire in 2009. Our current income tax receivable was $62.4 million at December 31, 2009 and $32.3 million at December 31, 2008. We received this $32.3 million in income tax refunds during 2009. We anticipate we will receive most of the $62.4 million tax receivable during the second half of 2010 which will provide us with additional liquidity. In 2007 we made $188.5 million in tax payments, which included $86.0 million related to an IRS settlement for the years 2000 through 2004 in the first quarter of 2007. The disposition of our office building portfolio also required us to make significant estimated tax payments during 2007.
 
During the fourth quarter of 2009, we received $11.0 million from the sale of our Victoria Park community which consisted of homes, homesites, undeveloped land, notes receivable and a golf course and $3.0 million from the sale of our St. Johns Golf and Country Club golf course. In addition, we received approximately $7.0 million in cash proceeds in connection with the sale of our SevenShores condominium and marina development project during the third quarter of 2009. The discontinued cash flows associated with our golf course operations were not material to our operating cash flows.
 
On June 18, 2009, as plan sponsor, we signed a commitment for the pension plan to purchase a group annuity contract from Massachusetts Mutual Life Insurance Company for the benefit of the retired participants and certain other former employee participants in our pension plan. The purchase price of the group annuity contract was approximately $101 million, which was funded from the assets of the pension plan on June 25, 2009. As a result of this transaction, we significantly increased the funding status ratio of our pension plan and reduced the potential for future funding requirements.
 
During 2008 and 2007, we increased our operating cash flows as a result of large tract rural land sales. During 2008, we sold a total of 79,031 acres of timberland in three separate transactions in exchange for 15-year installment notes receivable in the aggregate amount of $108.4 million, which installment notes are fully backed by irrevocable letters of credit issued by Wachovia Bank, N.A. (now a subsidiary of Wells Fargo & Company). We received $96.1 million in net cash proceeds from the monetization of these installment notes. During 2007, we sold 53,024 acres of timberland in two separate transactions in exchange for 15-year installment notes receivable in the aggregate amount of $74.9 million. These notes were subsequently monetized for $66.9 million in net cash proceeds. We did not enter into any installment note sales during 2009.
 
Cash Flows from Investing Activities
 
Cash flows from investing activities include cash flows from the sale of office buildings, the sale of other assets not held for sale, distributions of capital from unconsolidated affiliates, acquisitions of property using tax deferred proceeds and the purchase of fixed assets. Net cash (used in) provided by investing activities was $0.2 million in 2009 compared to $(1.4) million in 2008 and $326.7 million in 2007.
 
During the second and third quarters of 2007, we closed on the sale of our office building portfolio, containing 17 buildings with approximately 2.3 million net rentable square feet, for an aggregate sales price of $377.5 million. We also defeased approximately $29.3 million of mortgage debt in connection with the sale. Net proceeds from the sale were used to pay taxes and pay down debt.
 
On May 3, 2007, we sold Saussy Burbank, our mid-Atlantic homebuilding operations, for $76.3 million, consisting of $36.0 million in cash and approximately $40.3 million in seller financing. Net proceeds from this transaction were used to pay taxes and pay down debt.
 
On April 25, 2007, we purchased the Bay Point Marina in Bay County near Panama City Beach, Florida for approximately $9.8 million.
 
Cash Flows from Financing Activities
 
Net cash provided by (used in) financing activities was $(2.6) million in 2009, $44.2 million in 2008 and $(130.0) million in 2007.


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In an effort to enhance our financial flexibility, on March 3, 2008, we sold 17,145,000 shares of our common stock, at a price of $35.00 per share. We received net proceeds of $580.1 million in connection with the public offering which were used to prepay in full (i) a $100 million term loan, (ii) the entire outstanding balance (approximately $160 million) of our previous $500 million senior revolving credit facility and (iii) senior notes with an outstanding principal amount of $240.0 million together with a make-whole amount of approximately $29.7 million.
 
As previously discussed, we monetized notes receivable from rural land installment sales in 2008 and 2007. Proceeds from these transactions were used to reduce debt.
 
CDD bonds financed the construction of infrastructure improvements at several of our projects. The principal and interest payments on the bonds are paid by assessments on, or from sales proceeds of, the properties benefited by the improvements financed by the bonds. We have recorded a liability for future assessments which are fixed or determinable and will be levied against our properties. Accordingly, we have recorded debt of $12.4 million and $11.9 million related to CDD bonds as of December 31, 2009 and December 31, 2008, respectively. We retired approximately $30.0 million of CDD debt with the proceeds of our common stock offering during 2008.
 
Executives have surrendered a total of 2,429,255 shares of our stock since 1998 in payment of strike prices and taxes due on exercised stock options and vested restricted stock. For 2009, 2008 and 2007, 40,281 shares worth $1.1 million, 77,077 shares worth $2.8 million and 58,338 shares worth $2.1 million, respectively, were surrendered by executives for the cash payment of taxes due on exercised stock options and vested restricted stock.
 
We eliminated our quarterly dividend during the fourth quarter of 2007. We paid dividends of $35.6 million in 2007.
 
Cash flows from discontinued operations are reported in the consolidated statement of cash flows as operating, investing and financing along with our continuing operations.
 
Off-Balance Sheet Arrangements
 
During 2008 and 2007, we sold 79,031 acres and 53,024 acres, respectively, of timberland in exchange for 15-year installment notes receivable in the aggregate amount of $108.4 million and $74.9 million, respectively. The installment notes are fully backed by irrevocable letters of credit issued by Wachovia Bank, N.A. (now a subsidiary of Wells Fargo & Company). We contributed the installment notes to bankruptcy remote qualified special purpose entities (“QSPEs”). The QSPEs’ financial position and results are not consolidated in our financial statements.
 
During 2008 and 2007, the QSPEs monetized $108.4 million and $74.9 million, respectively, of installment notes by issuing debt securities to third party investors equal to approximately 90% of the value of the installment notes. Approximately $96.1 million and $66.9 million in net proceeds were distributed to us during 2008 and 2007, respectively. The debt securities are payable solely out of the assets of the QSPEs and proceeds from the letters of credit. The investors in the QSPEs have no recourse against us for payment of the debt securities or related interest expense. We have recorded a retained interest with respect to all QSPEs of $9.9 million for all installment notes monetized through December 31, 2009, which value is an estimate based on the present value of future cash flows to be received over the life of the installment notes, using management’s best estimates of underlying assumptions, including credit risk and interest rates. In accordance with ASC 325, Investments — Other, Subtopic 40 — Beneficial Interests in Securitized Financial Assets, fair value is adjusted at each reporting date when, based on management’s assessment of current information and events, there is a favorable or adverse change in estimated cash flows from cash flows previously projected. We did not record any impairment adjustments as a result of changes in previously projected cash flows during 2009, 2008 and 2007. We deferred approximately $97.1 million and $63.4 million of gain for income tax purposes through this QSPE/installment sale structure during 2008 and 2007, respectively.


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Contractual Obligations and Commercial Commitments at December 31, 2009
 
                                         
    Payments Due by Period  
          Less Than
                More Than
 
Contractual Cash Obligations(1)
  Total     1 Year     1-3 Years     3-5 Years     5 Years  
    (In millions)  
 
Debt(2)
  $ 39.5     $ 1.8     $ 4.0     $ 3.1     $ 30.6  
Interest related to community development district debt
    14.3       0.9       1.7       1.7       10.0  
Purchase obligations(3)
    4.5       4.5                    
Operating leases
    4.6       2.3       2.3              
                                         
Total Contractual Cash Obligations
  $ 62.9     $ 9.5     $ 8.0     $ 4.8     $ 40.6  
                                         
 
 
(1) Excludes standby guarantee liability of $0.8 million and FIN 48 tax liability of $1.4 million due to uncertainty of payment periods.
 
(2) Includes debt defeased in connection with the sale of our office building portfolio in the amount of $27.1 million, which will be paid by pledged treasury securities.
 
(3) These aggregate amounts include individual contracts in excess of $0.1 million.
 
                                         
    Amount of Commitment Expirations per Period  
    Total Amounts
    Less Than
                More Than
 
Other Commercial Commitments
  Committed     1 Year     1-3 Years     3-5 Years     5 Years  
    (In millions)  
 
Surety bonds
  $ 28.1     $ 25.7     $ 2.4     $     $  
Standby letters of credit
    2.5       2.5                    
                                         
Total Commercial Commitments
  $ 30.6     $ 28.2     $ 2.4     $     $  
                                         
 
Item 6A.   Quantitative and Qualitative Disclosures about Market Risk
 
Our primary market risk exposure is interest rate risk related to our $125 million credit facility. As of December 31, 2009, we had no amounts drawn under our credit facility. The interest on borrowings under the credit facility is based on either LIBOR rates or certain base rates established by the credit facility. The applicable interest rate for LIBOR rate loans is based on the higher of (a) an adjusted LIBOR rate plus the applicable interest margin (ranging from 2.00% to 2.75%), determined based on the ratio of our total indebtedness to total asset value, or (b) 4.00%. The applicable interest rate for base rate loans is based on the higher of (a) the prime rate or (b) the federal funds rate plus 0.5%, plus the applicable interest margin (ranging from 1.00% to 1.75%). The credit facility also has an unused commitment fee payable quarterly at an annual rate of 0.50%.
 
The table below presents principal amounts and related weighted average interest rates by year of maturity for our long-term debt. The weighted average interest rates for our fixed-rate long-term debt are based on the actual rates as of December 31, 2009.
 
Expected Contractual Maturities
 
                                                                 
                                              Fair
 
    2010     2011     2012     2013     2014     Thereafter     Total     Value  
    ($ in millions)  
 
Long-term Debt
                                                               
Fixed Rate
  $ 1.8     $ 2.0     $ 2.0     $ 1.6     $ 1.5     $ 30.6     $ 39.5     $ 39.5  
Wtd. Avg. Interest Rate
    6.9 %     6.9 %     6.9 %     6.9 %     6.9 %     6.9 %     6.9 %        
 
We estimate the fair value of long-term debt based on current rates available to us for loans of the same remaining maturities. As the table incorporates only those exposures that exist as of December 31, 2009, it does not consider exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss will depend on future changes in interest rates and market values.


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Item 7.   Financial Statements and Supplementary Data
 
The Financial Statements and related notes on pages F-2 to F-42 and the Report of Independent Registered Public Accounting Firm on page F-1 are filed as part of this Report and incorporated by reference.
 
Item 8.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 8A.   Controls and Procedures
 
(a) Evaluation of Disclosure Controls and Procedures.  Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.
 
(b) Changes in Internal Control Over Financial Reporting.  During the quarter ended December 31, 2009 there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
(c) Management’s Annual Report on Internal Control Over Financial Reporting.
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
 
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
Based on our assessment and those criteria, management concluded that our internal control over financial reporting was effective as of December 31, 2009. Management reviewed the results of their assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included below.
 
(d) Report of Independent Registered Public Accounting Firm.


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The Board of Directors and Stockholders
The St. Joe Company:
 
We have audited The St. Joe Company’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The St. Joe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, The St. Joe Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in equity, and cash flow for each of the years in the three-year period ended December 31, 2009 and the related financial statement schedule, and our report dated February 23, 2010, expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.
 
/s/ KPMG LLP
 
Certified Public Accountants
Jacksonville, Florida
February 23, 2010


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Item 8B.   Other Information.
 
None.
 
PART III
 
Item 9.   Directors, Executive Officers and Corporate Governance
 
Information concerning our directors, nominees for director, executive officers and certain corporate governance matters is described in our proxy statement relating to our 2010 annual meeting of shareholders to be held on May 11, 2010 (the “proxy statement”). This information is set forth in the proxy statement under the captions “Proposal No. 2 — Election of Directors”, “Executive Officers”, and “Corporate Governance and Related Matters.” This information is incorporated by reference.
 
Item 10.   Executive Compensation
 
Information concerning compensation of our executive officers for the year ended December 31, 2009, is presented under the caption “Executive Compensation and Other Information” in our proxy statement. This information is incorporated by reference.
 
Item 11.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Information concerning the security ownership of certain beneficial owners and of management is set forth under the caption “Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” in our proxy statement and is incorporated by reference.
 
Equity Compensation Plan Information
 
Our shareholders have approved all of our equity compensation plans. These plans are designed to further align our directors’ and management’s interests with our long-term performance and the long-term interests of our shareholders.
 
The following table summarizes the number of shares of our common stock that may be issued under our equity compensation plans as of December 31, 2009:
 
                         
                Number of Securities
 
    Number of Securities
          Remaining Available for
 
    to be Issued
    Weighted-Average
    Future Issuance Under
 
    Upon Exercise of
    Exercise Price of
    Equity Compensation Plans
 
    Outstanding Options,
    Outstanding Options,
    (Excluding Securities Reflected
 
Plan Category
  Warrants and Rights     Warrants and Rights     in the First Column)  
 
Equity compensation plans approved by security holders
    531,856     $ 35.37       1,994,249  
Equity compensation plans not approved by security holders
                 
                         
Total
    531,856     $ 35.37       1,994,249  
                         
 
For additional information regarding our equity compensation plans, see Note 2 to the consolidated financial statements under the heading, “Stock-Based Compensation”.
 
Item 12.   Certain Relationships and Related Transactions and Director Independence
 
Information concerning certain relationships and related transactions during 2009 and director independence is set forth under the captions “Certain Relationships and Related Transactions” and “Director Independence” in our proxy statement. This information is incorporated by reference.


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Item 13.   Principal Accountant Fees and Services
 
Information concerning our independent registered public accounting firm is presented under the caption “Audit Committee Information” in our proxy statement and is incorporated by reference.
 
PART IV
 
Item 14.   Exhibits and Financial Statement Schedule
 
(a)(1) Financial Statements
 
The financial statements listed in the accompanying Index to Financial Statements and Financial Statement Schedule and Report of Independent Registered Public Accounting Firm are filed as part of this Report.
 
(2) Financial Statement Schedule
 
The financial statement schedule listed in the accompanying Index to Financial Statements and Financial Statement Schedule is filed as part of this Report.
 
(3) Exhibits
 
The exhibits listed on the accompanying Index to Exhibits are filed or incorporated by reference as part of this Report.


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INDEX TO EXHIBITS
 
         
Exhibit
   
Number  
Description
 
  3 .1   Amended and Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of the registrant’s Registration Statement on Form S-3 (File 333-116017)).
  3 .2   Amended and Restated Bylaws of the registrant (incorporated by reference to Exhibit 3 to the registrant’s Current Report on Form 8-K filed on December 17, 2004).
  10 .1   Credit Agreement dated September 19, 2008 by and among the registrant and Branch Banking and Trust Company, as agent and lender, and BB&T Capital Markets, as lead arranger ($100 million credit facility) (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on September 24, 2008).
  10 .2   First Amendment to Credit Agreement dated October 30, 2008 by and between the registrant and Branch Banking and Trust Company (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).
  10 .3   Second Amendment to Credit Agreement dated February 20, 2009 by and between the registrant and Branch Banking and Trust Company (incorporated by reference to Exhibit 10.3 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).
  10 .4   Third Amendment to Credit Agreement dated May 1, 2009 by and between the registrant and Branch Banking and Trust Company (incorporated by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009).
  10 .5   Fourth Amendment to Credit Agreement dated October 15, 2009 by and between the registrant and Branch Banking and Trust Company (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on October 20, 2009).
  10 .6   Fifth Amendment to Credit Agreement dated December 23, 2009 by and among the registrant, Branch Banking and Trust Company and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on December 23, 2009).
  10 .7*   Strategic Alliance Agreement for Air Service dated October 21, 2009 by and between the registrant and Southwest Airlines Co.
  10 .8   Letter Agreement dated April 6, 2009 by and among the registrant, Fairholme Funds, Inc. and Fairholme Capital Management, L.L.C. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on April 7, 2009).
  10 .9   Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed on July 31, 2006).
  10 .10   Form of First Amendment to Executive Employment Agreement (regarding Section 409A compliance)(incorporated by reference to Exhibit 10.17 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007).
  10 .11   Second Amendment to Employment Agreement of Wm. Britton Greene dated February 15, 2008 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 19, 2008).
  10 .12   Form of Amendment to Executive Employment Agreement (regarding additional Section 409A compliance matters).
  10 .13   Employment Agreement of Stephen W. Solomon dated April 1, 1999 (incorporated by reference to Exhibit 10.10 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).
  10 .14   First Amendment to Employment Agreement of Stephen W. Solomon (incorporated by reference to Exhibit 10.11 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).
  10 .15   Severance Agreement of Stephen W. Solomon dated April 1, 1999 (incorporated by reference to Exhibit 10.12 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).
  10 .16   First Amendment to Severance Agreement of Stephen W. Solomon (incorporated by reference to Exhibit 10.13 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).


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Exhibit
   
Number  
Description
 
  10 .17   Directors’ Deferred Compensation Plan, dated December 28, 2001 (incorporated by reference to Exhibit 10.10 to the registrant’s Registration Statement on Form S-1 (File 333-89146)).
  10 .18   Deferred Capital Accumulation Plan, as amended and restated effective December 31, 2008 (incorporated by reference to Exhibit 10.15 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).
  10 .19   Supplemental Executive Retirement Plan, as amended and restated effective December 31, 2008 (incorporated by reference to Exhibit 10.16 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).
  10 .20   2009 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the registrant’s Registration Statement on Form S-8 (File 333-160916)).
  10 .21   1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.21 to the registrant’s Registration Statement on Form S-1 (File 333-89146)).
  10 .22   1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.22 to the registrant’s Registration Statement on Form S-1 (File 333-89146)).
  10 .23   1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.23 to the registrant’s Registration Statement on Form S-1 (File 333-89146)).
  10 .24   2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.24 to the registrant’s Registration Statement on Form S-1 (File 333-89146)).
  10 .25   2009 Equity Incentive Plan (incorporated by reference to Appendix A to the registrant’s Proxy Statement on Schedule 14A filed on March 31, 2009).
  10 .26   Form of Stock Option Agreement (for awards prior to July 27, 2006) (incorporated by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003).
  10 .27   Form of Restricted Stock Agreement (for awards prior to July 27, 2006) (incorporated by reference to Exhibit 10 to the registrant’s Current Report on Form 8-K filed on September 23, 2004).
  10 .28   Form of Amendment to Restricted Stock Agreements and Stock Option Agreements (for awards outstanding on July 27, 2006)(incorporated by reference to Exhibit 10.6 to the registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2006).
  10 .29   Form of Stock Option Agreement (for awards from July 27, 2006 through May 12, 2009)(incorporated by reference to Exhibit 10.6 to the registrant’s Current Report on Form 8-K filed on July 31, 2006).
  10 .30   Form of Restricted Stock Agreement (for awards with time-based vesting conditions from July 27, 2006 through May 12, 2009)(incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed on July 31, 2006).
  10 .31   Form of Restricted Stock Agreement under 2001 Stock Incentive Plan (with performance-based vesting conditions)(incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on February 19, 2008).
  10 .32   Form of First Amendment to Restricted Stock Agreement under 2001 Stock Incentive Plan (with performance-based vesting conditions)(incorporated by reference to Exhibit 10.33 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).
  10 .33   Form of Restricted Stock Agreement under 2009 Equity Incentive Plan (for awards with performance-based vesting conditions)(incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on February 12, 2010).
  10 .34   Form of Restricted Stock Agreement under 2009 Equity Incentive Plan (for awards with time-based vesting conditions)(incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on February 12, 2010).
  10 .35   Form of Director Election Form describing director compensation (updated May 2009)(incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2009).
  10 .36   2009 Short-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on March 31, 2009).


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Exhibit
   
Number  
Description
 
  10 .37   2010 Short-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 12, 2010).
  10 .38   Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 13, 2009).
  14 .1   Code of Conduct (revised December 4, 2006)(incorporated by reference to the registrant’s Current Report on Form 8-K filed on December 7, 2006).
  21 .1   Subsidiaries of The St. Joe Company.
  23 .1   Consent of KPMG LLP, independent registered public accounting firm for the registrant.
  31 .1   Certification by Chief Executive Officer.
  31 .2   Certification by Chief Financial Officer.
  32 .1   Certification by Chief Executive Officer.
  32 .2   Certification by Chief Financial Officer
  99 .1   Supplemental information regarding sales activity and other quarterly and year end information.
 
 
* Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions of the agreement. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.


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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned authorized representative.
 
The St. Joe Company
 
  By: 
/s/  Wm. Britton Greene
Wm. Britton Greene
President and Chief Executive Officer
 
Dated: February 23, 2010
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant in the capacities indicated as of February 23, 2010.
 
         
Signature
 
Title
 
     
/s/  Wm. Britton Greene

Wm. Britton Greene
  President, Chief Executive Officer and Director
(Principal Executive Officer)
     
/s/  William S. McCalmont

William S. McCalmont
  Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
     
/s/  Janna L. Connolly

Janna L. Connolly
  Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
     
/s/  Michael L. Ainslie

Michael L. Ainslie
  Director
     
/s/  Hugh M. Durden

Hugh M. Durden
  Director and Chairman of the Board
     
/s/  Thomas A. Fanning

Thomas A. Fanning
  Director
     
/s/  Dr. Adam W. Herbert, Jr.

Dr. Adam W. Herbert, Jr.
  Director
     
/s/  Delores M. Kesler

Delores M. Kesler
  Director
     
/s/  John S. Lord

John S. Lord
  Director
     
/s/  Walter L. Revell

Walter L. Revell
  Director


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INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 
         
    F-1  
    F-2  
    F-3  
    F-4  
    F-5  
    F-7  
    S-1  


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders
The St. Joe Company:
 
We have audited the accompanying consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in equity, and cash flow for each of the years in the three-year period ended December 31, 2009. In connection with our audits of the consolidated financial statements, we also have audited financial statement Schedule III — Consolidated Real Estate and Accumulated Depreciation. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The St. Joe Company and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The St. Joe Company’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 23, 2010, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
/s/ KPMG LLP
 
Certified Public Accountants
Jacksonville, Florida
February 23, 2010


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Table of Contents

THE ST. JOE COMPANY
 
CONSOLIDATED BALANCE SHEETS
 
                 
    December 31,
    December 31,
 
    2009     2008  
    (Dollars in thousands)  
 
ASSETS
Investment in real estate
  $ 749,500     $ 890,583  
Cash and cash equivalents
    163,807       115,472  
Notes receivable
    11,503       50,068  
Pledged treasury securities
    27,105       28,910  
Prepaid pension asset
    42,274       41,963  
Property, plant and equipment, net
    15,269       19,786  
Income taxes receivable
    62,392       32,308  
Other assets
    26,290       35,199  
Assets held for sale
          3,989  
                 
    $ 1,098,140     $ 1,218,278  
                 
 
LIABILITIES AND EQUITY
LIABILITIES:
               
Debt
  $ 39,508     $ 49,560  
Accounts payable and other
    13,781       22,594  
Accrued liabilities and deferred credits
    91,250       92,636  
Deferred income taxes
    58,316       61,501  
Liabilities associated with assets held for sale
          586  
                 
Total liabilities
    202,855       226,877  
EQUITY:
               
Common stock, no par value; 180,000,000 shares authorized; 122,557,167 and 122,438,699 issued at December 31, 2009 and 2008, respectively
    921,613       914,456  
Retained earnings
    915,981       1,046,000  
Accumulated other comprehensive (loss)
    (12,558 )     (42,660 )
Treasury stock at cost, 30,275,716 and 30,235,435 shares held at December 31, 2009 and 2008, respectively
    (930,124 )     (929,167 )
                 
Total stockholders’ equity
    894,912       988,629  
                 
Noncontrolling interest
    373       2,772  
                 
Total equity
    895,285       991,401  
                 
Total liabilities and equity
  $ 1,098,140     $ 1,218,278  
                 
 
See notes to consolidated financial statements.


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Table of Contents

THE ST. JOE COMPANY
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
                         
    Years Ended December 31,  
    2009     2008     2007  
    (Dollars in thousands except per share amounts)  
 
Revenues:
                       
Real estate sales
  $ 78,758     $ 194,545     $ 307,896  
Resort and club revenues
    29,730       32,745       30,250  
Timber sales
    26,584       26,638       25,821  
Other revenues
    3,185       4,230       7,584  
                         
Total revenues
    138,257       258,158       371,551  
                         
Expenses:
                       
Cost of real estate sales
    60,439       53,129       145,801  
Cost of resort and club revenues
    32,308       38,638       33,380  
Cost of timber sales
    19,113       19,842       20,780  
Cost of other revenues
    2,247       3,030       5,917  
Other operating expenses
    39,984       53,516       68,413  
Corporate expense, net
    24,300       29,941       29,003  
Depreciation and amortization
    15,115       16,040       17,855  
Pension charges
    46,042       4,177       3,783  
Impairment losses
    102,683       60,354       13,609  
Restructuring charges
    5,368       4,253       8,881  
                         
Total expenses
    347,599       282,920       347,422  
                         
Operating (loss) profit
    (209,342 )     (24,762 )     24,129  
                         
Other income (expense):
                       
Investment income, net
    3,388       6,061       5,307  
Interest expense
    (1,157 )     (4,483 )     (20,043 )
Other, net
    1,984       (7,667 )     2,030  
Loss on early extinguishment of debt
          (30,554 )      
Gain on disposition of assets
                7,997  
                         
Total other income (expense)
    4,215       (36,643 )     (4,709 )
                         
(Loss) income from continuing operations before equity in loss of unconsolidated affiliates and income taxes
    (205,127 )     (61,405 )     19,420  
Equity in loss of unconsolidated affiliates
    (122 )     (330 )     (5,331 )
Income tax (benefit) expense
    (81,222 )     (26,613 )     1,264  
                         
(Loss) income from continuing operations
    (124,027 )     (35,122 )     12,825  
                         
Discontinued operations:
                       
(Loss) from discontinued operations, net of tax
    (6,888 )     (1,568 )