The St. Joe Company Form 10-K
Table of Contents

 
 
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, 2004
 
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
(State or other jurisdiction of
incorporation or organization)
  59-0432511
(I.R.S. Employer
Identification No.)
 
245 Riverside Avenue, Suite 500
Jacksonville, Florida
(Address of principal executive offices)
  32202
(Zip Code)
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 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 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.     o
      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     YES þ          NO o
      The aggregate market value of the registrant’s Common Stock held by non-affiliates based on the closing price on June 30, 2004 was approximately $2.24 billion.
      As of February 28, 2005, there were 103,464,901 shares of Common Stock, no par value, issued and 76,076,931 shares outstanding with 27,387,970 shares of treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
      Portions of the Registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 17, 2005 (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.
         
PART I
 1.
   Business     2  
       Recent Developments     2  
       Land-Use Entitlements     3  
       Towns & Resorts Development     4  
       Commercial Real Estate Development and Services     6  
       Land Sales     9  
       Forestry     10  
       Risk Factors     11  
       Forward-looking Statements     16  
       Employees     18  
       Website Access to Reports     18  
 2.
   Properties     18  
 3.
   Legal Proceedings     18  
 4.
   Submission of Matters to a Vote of Security Holders     19  
 PART II
 5.
   Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities     20  
 6.
   Selected Consolidated Financial Data     21  
 7.
   Management’s Discussion and Analysis of Financial Condition and Results of Operations     22  
 7A.
   Quantitative and Qualitative Disclosures about Market Risk     47  
 8.
   Financial Statements and Supplementary Data     48  
 9.
   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     48  
 9A.
   Controls and Procedures     48  
 9B.
   Other Information     50  
 PART III*
 10.
   Directors and Executive Officers of the Registrant     50  
 11.
   Executive Compensation     50  
 12.
   Security Ownership of Certain Beneficial Owners and Management     50  
 13.
   Certain Relationships and Related Transactions     51  
 14.
   Principal Accountant Fees and Services     51  
 PART IV
 15.
   Exhibits and Financial Statement Schedule     51  
 SIGNATURES
    55  
 Ex-10.26 Severance Agreement - Wm. Britton Greene
 Ex-21.1 Subsidiaries of The St. Joe Company
 Ex-23.1 Consent of KPMG LLP
 Ex-31.1 Sect. 302 Certification of the C.E.O.
 Ex-31.2 Sect. 302 Certification of the C.F.O.
 Ex-32.1 Sect. 906 Certification of the C.E.O.
 Ex-32.2 Sect. 906 Certification of the C.F.O.
 
Portions of the Proxy Statement for the Annual Meeting of our stockholders to be held on May 17, 2005 are incorporated by reference in Part III of this Form 10-K.

1


Table of Contents

Item 1. Business
      As used throughout this Form 10-K Annual Report, the terms “we,” “JOE,” “Company” and “Registrant” mean The St. Joe Company and its consolidated subsidiaries unless the context indicates otherwise.
      JOE is one of Florida’s largest real estate operating companies. We believe that we are the largest private landowner in the State of Florida. The majority of our land is located in Northwest Florida. We own approximately 820,000 acres, approximately 352,000 acres of which are within ten miles of the coast.
      We are engaged in town and resort development, commercial and industrial development, land sales, and commercial real estate services. We also have significant interests in timber. We believe we are one of the few real estate operating companies to have assembled the range of real estate, financial, marketing and regulatory expertise necessary to take a large-scale approach to real estate development and services.
      Our four operating segments are:
  •  Towns & Resorts Development
 
  •  Commercial Real Estate Development and Services
 
  •  Land Sales
 
  •  Forestry
      We believe we have a number of key business strengths and competitive advantages, including one of the largest inventories of private land suitable for development in the state of Florida, a very low cost basis in our land and a strong financial condition, which allow us the financial flexibility to pursue development opportunities.
      In order to optimize the value of our core real estate assets in Northwest Florida, our strategic plan calls for us to continue to reposition our timberland holdings for higher and better uses. This value creation results from market analysis, land use/zoning changes, and parceling of our land holdings. We are currently seeking additional entitlements and zoning improvements throughout our land holdings. These entitlements are intended to facilitate alternative uses of our property and to increase its per acre value.
Recent Developments
      During 2004, our business experienced the following developments:
  •  We acquired 2,446,198 shares of our common stock for a total cost of $105.0 million.
 
  •  In August, we increased our quarterly dividend from $0.12 per share to $0.14 per share. We paid $0.52 per share in dividends for the year.
 
  •  Development of Regional Impact (“DRI”) land-use entitlements were approved for WindMark Beach in Gulf County for 1,662 units on 2,080 acres and for RiverTown in St. Johns County for 4,500 units on 4,170 acres.
 
  •  The legal challenges to the land-use changes in the West Bay Sector for 20,556 acres of our land and for the proposed relocation of the Panama City-Bay County International Airport were settled, and the Federal Aviation Administration released its draft Environmental Impact Statement, which took a favorable view of the relocation.
 
  •  In December, we sold approximately 93 acres at Pier Park in Panama City Beach to the Simon Property Group for $26.5 million, or approximately $286,000 per acre.
 
  •  Land-use entitlements were received for WaterSound West Beach in Walton County with 197 units on 62 acres and for Perico Island in Manatee County with 686 units on 352 acres.

2


Table of Contents

  •  The Alfred I. duPont Testamentary Trust (the “Trust”) sold an aggregate of 18 million shares of our common stock to the public, decreasing the Trust’s ownership of our common stock to 7.5% on December 31, 2004.
Land-Use Entitlements
      We have a broad range of land-use entitlements in hand or in various stages of the approval process for primary residential, resort, and RiverCamps communities in Northwest Florida and other high-growth regions of the state. The following table describes the primary residential, resort and RiverCamps communities with land-use entitlements that we are currently planning and developing in Florida. As shown in the table, the expected build out periods for these communities range from 2005 to 2017, the maximum project units for these communities exceed 26,000, and the total acreage encompassed by these communities is approximately 29,000 acres. Most of the communities are on lands we own. We expect some of the communities to be developed through ventures with unrelated third parties.
Summary of Land-Use Entitlements
Residential, Resort and RiverCamps Projects in Florida
December 31, 2004
                                                         
                Units Sold/ Under            
    Year   Planned       Contract as of       Company-    
    Sales   Sales End   Maximum Project   December 31,   Total Project   Built House    
Name of Community   Begin(1)   Date   Units(3)(4)   2004(4)   Acres(5)   Pricing   Lot Pricing(6)
                             
                        (In thousands)   (In thousands)
Walton County:
                                                       
WaterColor
    2000       2007       1,140       813       499     $ 750-1000 +   $ 450-1000 +
WaterSound Beach
    2001       2007       499       362       256     $ 750-3000 +   $ 700-1000 +
WaterSound Phase I
    2006       2013       487       0       506     $ 500-750 +   $ 200-400 +
WaterSound West Beach
    2005       2008       197       0       62     $ 750-1000 +   $ 600 +
Camp Creek Golf Cottages
    TBD (2)     TBD (2)     50       0       10       TBD(2 )     TBD(2 )
Bay County:
                                                       
Hammocks
    2000       2007       457       383       143     $ 100-180 +   $ 30-40 +
Palmetto Trace
    2001       2008       480       298       138     $ 120-200 +      
East Lake Powell
    2007       2010       360       0       181     $ 500 +   $ 200 +
Hawks Landing
    2005       2007       167       0       88           $ 40-50 +
Wavecrest
    2007       2009       95       0       7       TBD(2 )     TBD(2 )
Pier Park (Residential)
    TBD (2)     TBD (2)     125       0       10       TBD(2 )     TBD(2 )
RiverCamps on Crooked Creek
    2003       2007       450       65       1,500     $ 700-900     $ 150-1,000 +
RiverCamps on Sandy Creek
    2006       2012       600       0       6,000       TBD(2 )     TBD(2 )
West Bay DSAP Phase I
    TBD (2)     TBD (2)     685       0       4,234       TBD(2 )     TBD(2 )
Gulf County:
                                                       
WindMark Beach, phase 1
    2001       2006       110       104       80     $ 2,000 +   $ 800-1,000 +
WindMark Beach, phase 2
    2005       2015       1,552       0       2,000     $ 400-1,000 +   $ 200-1,000 +
WaterMill
    2006       2008       120       0       94       TBD(2 )     TBD(2 )
Franklin County:
                                                       
SummerCamp
    2005       2012       499       0       782     $ 700-1,000 +   $ 150-800 +
Cutter Ridge
    2005       2006       24       0       10           $ 22 +
Timber Island
    TBD (2)     TBD (2)     400       0       49       TBD(2 )     TBD(2 )
Calhoun County:
                                                       
Riverside at Chipola
    2005       2006       10       0       271           $ 150-300  
Leon County:
                                                       
SouthWood
    2000       2017       4,770       858       3,770     $ 150-400 +   $ 50-150 +
Walton Corners
    2005       2005       33       0       60           $ 40-75  

3


Table of Contents

                                                         
                Units Sold/ Under            
    Year   Planned       Contract as of       Company-    
    Sales   Sales End   Maximum Project   December 31,   Total Project   Built House    
Name of Community   Begin(1)   Date   Units(3)(4)   2004(4)   Acres(5)   Pricing   Lot Pricing(6)
                             
                        (In thousands)   (In thousands)
Northeast Florida:
                                                       
James Island
    1999       2005       365       363       194     $ 400 +      
St. Johns Golf and Country Club
    2001       2006       799       664       820     $ 300-400 +   $ 50-125 +
RiverTown
    2000       2015       4,500       23       4,170     $ 165-800 +   $ 150-500 +
Hampton Park
    2001       2005       158       156       150     $ 300-400 +      
Central Florida:
                                                       
Victoria Park
    2001       2012+       4,000 +     683       1,859     $ 175-300 +   $ 50-100 +
Artisan Park, Celebration(7)
    2003       2006       616       309       160     $ 300-600 +   $ 200 +
Perico Island(8)
    2006       2010+       686       0       352       TBD(2 )      
Hillsborough County:
                                                       
Rivercrest(7)
    2002       2006       1,300 +     1,085       413     $ 120-200 +      
Palm Beach County:
                                                       
Paseos(7)
    2002       2005       325       322       175     $ 400-600 +      
 
(1)  Includes estimated future dates.
 
(2)  To be determined.
 
(3)  Maximum project units represent the number of units land-use entitled. 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. The actual number of units to be constructed at full build-out may be lower than the number of units entitled.
 
(4)  Units are comprised of home sites, single-family and multi-family units, and Private Residence Clubs (“PRC”) shares, with each PRC share interest treated as one-eighth of a unit.
 
(5)  Represents actual acreage utilized or the acres required to gain land-use entitlements for the maximum project units. Total acres utilized for a project may vary considerably from the acres necessary to gain land-use entitlements.
 
(6)  Pricing based on remaining product.
 
(7)  Paseos and Rivercrest are each 50 percent owned by the Company. Artisan Park is 74 percent owned by the Company.
 
(8)  We have an option to purchase the land for this project.
Towns & Resorts Development
      Our Towns & Resorts Development segment develops large-scale, mixed-use communities primarily on land that we have owned for a long period of time. We own large tracts of land in Northwest Florida, including large tracts near Tallahassee, the state capital, and significant Gulf of Mexico beach frontage and waterfront properties, which we believe are suited for primary housing, resort and second-home communities. We believe this large, established land inventory, with a low cost basis, provides us an advantage over our competitors who must purchase real estate at current market prices before beginning projects. We manage the conceptual design, planning and permitting process for each of our new communities. We then construct or contract for the construction of the infrastructure for the community. Developed home sites and finished housing units are then marketed and sold.
      In addition, we own all of the outstanding stock of Saussy Burbank, a homebuilder located in Charlotte, North Carolina. In 2004, Saussy Burbank closed sales of 748 homes it constructed in North and South Carolina.
      The following is a description of some of the communities we are developing:
      WaterColor is situated on approximately 499 acres on the beaches of the Gulf of Mexico in south Walton County. We are building homes and condominiums and selling developed home sites in WaterColor. The community is planned to include approximately 1,140 units, including a private residence club with fractional ownership. Amenities include a beach club, tennis center, boat house, restaurant on an

4


Table of Contents

inland freshwater lake, a 60-room inn and restaurant and commercial space and parks. Sales began in phase four in the first quarter of 2005.
      WaterSound Beach is located approximately five miles east of WaterColor. Situated on approximately 256 acres, WaterSound Beach includes over one mile of beachfront on the Gulf of Mexico. This community is currently planned to include approximately 499 units. Eighty-one beachfront, multi-family units were closed in 2004. The remaining 43 multi-family units are scheduled to be released for sale in 2006. Construction of 22 of the 43 units is scheduled to begin in late 2005, and the remaining 21 units are scheduled to start in early 2006.
      WaterSound West Beach is located over one half mile west of WaterSound Beach on the beach side of County Road 30A. It is being designed as a gated, high-end community with 197 units which includes beach access through the adjacent Deer Lake State Park. Construction is scheduled to begin in the first half of 2005, with sales expected to begin in mid-2005.
      WaterSound is located northeast of WaterSound Beach with frontage on Lake Powell. This project is situated on approximately 1,443 acres. The Walton County Board of Commissioners has approved the Application for Planned Unit Development enabling development of 478 residential units and 35,000 square feet of commercial space. Including the amount above, the plan for WaterSound calls for approximately 1,060 residential units, 470,000 square feet of commercial space and a golf course. The DRI process for that project commenced in early 2003 and is expected to continue through 2005. General infrastructure construction began in late 2004 and sales are currently expected to start in early 2006.
      WindMark Beach is situated on approximately 2,080 acres in Gulf County and includes approximately 15,000 feet of beachfront that we own. Phase I of WindMark Beach, situated on approximately 80 acres, includes approximately 110 home sites, many of which are located on the beachfront. Future phases are planned to include approximately 1,552 units. The DRI process for WindMark Beach was completed in 2004. Plans also include the realignment of approximately four miles of US Highway 98. Field survey work and project engineering and design of the relocated road are ongoing.
      SouthWood is situated on approximately 3,770 acres in southeast Tallahassee. Plans for SouthWood include approximately 4,770 residential units and a traditional town center with restaurants, entertainment facilities, retail shops and offices. Over 35% of the land in this community is designated for future greenspaces, including a 123-acre central park. Certain regulatory approvals are required prior to commencing development on phases of construction that are scheduled to begin in the 2006-2007 timeframe.
      SummerCamp, in Franklin County, is situated on approximately 782 acres. Current plans include approximately 499 units, a beach club, a community dock and nature trails. Sales of 52 home sites are scheduled to close in 2005, pending the receipt of environmental permits, one of which is the subject of a legal challenge.
      St. Johns Golf and Country Club is a primary residential community situated on approximately 820 acres we acquired in St. Johns County in 2001. The community is planned to include a total of approximately 799 housing units and an 18-hole golf course. Most homes will be adjacent to a golf course, conservation land, lakes, or natural wooded areas.
      RiverTown is situated on approximately 4,200 acres located in St. Johns County south of Jacksonville along the St. Johns River. A Comprehensive Plan Amendment and DRI were approved for RiverTown by the St. Johns County Board of Commissioners in February 2004, and environmental permits are pending. Infrastructure development is expected to begin in late 2005 and sales in 2006.
      Timber Island, located near Carrabelle, is a 49-acre parcel entitled for 400 units for resort and transient uses, including private residence clubs with fractional ownership. Timber Island land-use approvals also allow 480 wet/dry marina slips.
      Victoria Park is situated on approximately 1,859 acres in Volusia County near Interstate 4 in the historic college town of Deland between Daytona Beach and Orlando. Plans for Victoria Park include

5


Table of Contents

approximately 4,000 single and multi-family units built among parks, lakes and conservation areas with a traditional town center and an award-winning 18-hole golf course which is currently open for play.
      Artisan Park, located in Celebration, Florida near Orlando, is being developed through a joint venture in which we own 74%. Artisan Park is situated on approximately 160 acres which we acquired in 2002. Current plans include approximately 267 single-family units, 47 townhomes, and 302 condominiums as well as parks, trails, and a community clubhouse with a pool and educational and recreational programming.
      Perico Island is situated in the City of Bradenton in Manatee County on Tampa Bay. Planned as an upscale 686-unit condominium community on 352 acres, it is being designed as an environmentally sensitive community. Sales activity at Perico Island is expected to begin in late 2006.
      Several of our planned developments are in the midst of the entitlement process or are in the planning stage. We cannot assure you that:
  •  the necessary entitlements for development will be secured;
 
  •  any of our projects can be successfully developed, if at all; or
 
  •  our projects can be developed in a timely manner.
      It is not feasible to estimate project development costs until entitlements have been obtained. Large-scale development projects can require significant infrastructure development costs and may raise environmental issues that require mitigation.
Commercial Real Estate Development and Services
      Our Commercial Real Estate Development and Services segment develops and sells real estate for commercial purposes. We also own and manage office, industrial and retail properties throughout the southeastern United States. Through the Advantis business unit, we provide commercial real estate services, including brokerage, property management and construction management.
      Development and Sales. We focus on commercial development in Northwest Florida because of our large land holdings along roadways and near or within business districts in the region. We also develop parcels within or near existing Towns & Resorts development projects. For each new development, we direct the conceptual design, planning and permitting process and then contract for the construction of the horizontal infrastructure and any vertical building.
      We develop and sell properties focused on the following products:
  •  Retail properties
 
  •  Multi-family parcels
 
  •  Office parks
 
  •  Commerce or small business parks

6


Table of Contents

      Many of our projects are mixed-use in nature due to the large size of the land parcels that we own. The following table shows our mixed-use projects in the Northwest Florida region.
Mixed-Use Projects
December 31, 2004
                                     
                Net   Acres
            Year Sales   Saleable   Sold/Under
Project   Product Type   Market   Commenced   Acres   Contract
                     
WaterColor Crossing
  Retail (grocery)     Walton County       2003       9       8  
Beckrich Office Park
  Office     Bay County       2002       24       8  
East Lake Creek
  Retail/Multi-family     Bay County       2003       140       48  
Highland Commons
  Retail/Multi-family     Bay County       2003       114       17  
Pier Park
  Retail (mixed-use)     Bay County       2003       130       93  
SouthWood Business Park
  Retail/Office     Leon County       2003       16       13  
SouthWood Village
  Retail (grocery)     Leon County       2002       22       14  
                             
Total
                        455       201  
                             
      The table below summarizes the status of JOE commerce parks throughout Northwest Florida at December 31, 2004.
Commerce Parks
December 31, 2004
                                   
            Acres    
        Net Saleable   Sold/Under   Current Asking Price
Commerce Parks   County   Acres   Contract   Per Acre
                 
Existing and Under Construction
                               
South Walton Commerce
    Walton       39       8     $ 200,000 - 435,000  
Beach Commerce
    Bay       161       108     $ 70,000 - 435,000  
Beach Commerce II
    Bay       115           $ 70,000 - 100,000  
Nautilus Court
    Bay       12       4     $ 300,000 - 400,000  
Port St. Joe Commerce
    Gulf       58       58     $ 50,000 -  60,000  
Port St. Joe Commerce II
    Gulf       40           $ 60,000 - 100,000  
Airport Commerce
    Leon       40           $ 75,000 - 260,000  
Hammock Creek Commerce
    Gadsden       114       27     $ 40,000 - 150,000  
Predevelopment
                               
Cedar Grove Commerce
    Bay       100                
Mill Creek Commerce
    Bay       40                
                         
 
Total
            719       205          
                         
      Investment Property Portfolio. Our commercial development operations, combined with our tax deferral strategy of reinvesting qualifying asset sale proceeds into like-kind properties, have enabled us to create a portfolio of rental properties totaling 2.8 million square feet. As the table below shows, our portfolio of investment properties was 85% leased, based on net rentable square feet, as of December 31, 2004.

7


Table of Contents

Investment Property Portfolio
December 31, 2004
                           
    Number of   Net Rentable   Leased
Location   Properties   Square Feet   Percentage
             
Florida
                       
 
Tampa
    5       489,000       80 %
 
Orlando
    2       317,000       69  
 
Jacksonville
    1       136,000       57  
 
Northwest Florida
    3       156,000       84  
Atlanta
    8       1,289,000       89  
Washington, D.C. 
    1       119,000       97  
Charlotte
    1       158,000       100  
Richmond
    2       129,000       99  
                   
 
Total/ Weighted Average
    23       2,793,000       85 %
                   
      Other Real Estate Assets. We have investments in certain other assets including land positions that are held for investment and investments in real estate ventures. It is generally our intent to sell these land positions, which include approximately 76 acres and are located in Florida, Georgia, Northern Virginia and Texas. Our investments in real estate ventures include investments in land and buildings located in Georgia and an investment in a full-service real estate company located in South Florida.
St. Joe Commercial
Land Positions Held for Investment
December 31, 2004
                                           
                Acres Under    
    Acres Held at   Acres Sold   Acres Held at   Contract   Sales Proceeds
Market   12/31/2003   During 2004   12/31/2004   12/31/2004   During 2004
                     
                    (In thousands)
Florida
    49.6       28.1       21.5           $ 16,650  
Georgia
    9.8             9.8       3.0        
Texas
    31.9       6.7       25.2       4.4       2,168  
Virginia
    19.1             19.1       19.1        
                               
 
Total
    110.4       34.8       75.6       26.5     $ 18,818  
                               
      Services. We provide commercial real estate services in the southeastern United States through Advantis Real Estate Services Company (“Advantis”). Advantis provides our clients with a complete array of services, including:
  •  brokerage;
 
  •  property management; and
 
  •  construction management.
      We provide property management services for projects owned by us and others. We generally receive a property management fee based on the gross rental revenues of a managed project or building or on a fixed-fee basis. The table below summarizes, by state and by type of property, the approximately 24.4 million rentable square feet of property we manage.

8


Table of Contents

Properties Managed
December 31, 2004
         
    Rentable
State   Square Feet
     
Georgia
    1,768,485  
Washington, D.C. 
    118,616  
Virginia
    8,904,300  
Maryland
    1,502,438  
North Carolina
    3,301,608  
Florida
    8,838,187  
         
    Rentable
Type of Property   Square Feet
     
Office property
    13,878,087  
Industrial property
    5,311,077  
Retail property
    3,880,149  
Facilities management
    1,200,225  
Residential property
    164,096  
Land Sales
      Our Land Sales segment markets parcels for a variety of rural residential and recreational uses on a portion of our long-held timberlands in Northwest Florida. We are developing a range of innovative products for rural settings including RiverCamps, St. Joe Ranches, St. Joe Farmsteads and St. Joe Woodlands.
      In 2004, our Land Sales segment closed 169 transactions totaling 18,376 acres, excluding RiverCamps.
      The vast majority of the holdings marketed by our 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.
Woodlands
      Our Woodlands product consists of land, marketed in tracts from one to 1,000 acres for primary or secondary home building, recreation, timber or private retreats throughout Northwest Florida. Improvements to these tracts vary, but are typically minimal, and are generally restricted to burning, the thinning of timber, and simple fencing. Prices for Woodlands parcels vary depending on the physical attributes of each site, including timber stands, topography and proximity to rivers, creeks, and bays.
Farmsteads and Ranches
      Work continued in 2004 on our Farmsteads and Ranches, new real estate products which are designed to transform what were once timberlands to higher and better uses. Farmsteads are being designed as rural residential products to allow owners to live close to the land with modern conveniences. Initial designs call for parcels of five to 20 acres, featuring cleared acreage, fencing, trails and entry features. Each Farmstead would include a home site for a main farmhouse along with sites for other optional outbuildings, such as barns, guest houses, stables and sheds.
      Ranches are for customers who want to own larger parcels from 50 to 150 acres in rural settings. Improvements may generally include clearing, fencing, road stabilization and entry features.
      Prices for Farmstead and Ranch parcels are expected to vary depending on the physical attributes of each site, including timber stands, topography and proximity to rivers, creeks and bays.

9


Table of Contents

RiverCamps
      RiverCamps are planned developments in rustic settings, supplemented with amenities that may include docks, pools, and community river houses. Most of the lots in these developments are expected to be located on or near waterfront property. The RiverCamps concept envisions home sites and high-quality finished cabins in low-density settings with access to various outdoor activities such as fishing, boating, and hiking.
      The first of potentially several RiverCamp developments is RiverCamps on Crooked Creek, situated on approximately 1,491 acres of our timberland in western Bay County, Florida and bounded by West Bay, the Intracoastal Waterway and Crooked Creek. In the fourth quarter of 2004, RiverCamps on Crooked Creek offered 42 home sites for sale, of which 41 closed during the quarter. Prices ranged from $129,000 to $595,000, plus one bay-front site priced at $750,000. In February 2005, we released 37 home sites for sale with prices ranging from $148,500 to $849,500 and averaging $276,000. Additional home site releases are planned for later in the year.
      A majority of the permits for construction of the project have been received, and the pace of infrastructure development is accelerating with 190 home sites currently under construction.
      Planning and evaluation of a 6,000-acre parcel located on Sandy Creek in Bay County, Florida is also currently underway. Additional RiverCamps locations are actively being reviewed in other parts of Northwest Florida.
Other Land Projects
      Planned as a primary home community with 24 units on 10 acres, construction started at Cutter Ridge in Franklin County in the fourth quarter of 2004. In addition, during the fourth quarter of 2004, marketing began for RiverSide at Chipola, a 10-unit gated community on the Chipola River in Calhoun County.
Conservation Lands
      Our Land Sales segment also periodically considers the sale of land to conservation groups and governmental agencies. In 2004, we closed three conservation land transactions, totaling 1,798 acres.
Forestry
      Our Forestry segment focuses on the management and harvesting of our extensive timberland holdings. We grow, harvest and sell timber and wood fiber. We believe we are the largest private landowner in Florida, owning:
  •  Approximately 509,504 acres of planted pine forests, primarily in Northwest Florida.
 
  •  Approximately 309,295 acres of mixed timberland, wetlands, lake and canal properties.
      Our principal forestry product is softwood pulpwood. We also grow and sell softwood and hardwood sawtimber. In addition, we own and operate a cypress sawmill and mulch plant (“Sunshine State Cypress”) which converts cypress logs into wood products and mulch.
      On December 31, 2004, our standing pine inventory totaled approximately 23.4 million tons and our hardwood inventory totaled approximately 6.7 million tons. Our timberlands are harvested by local independent contractors under agreements that are generally renewed annually. Our timberlands are located near key transportation links, including roads, waterways and railroads.
      Our strategy is to actively manage, with the best available silviculture practices, portions of our timberlands that produce adequate amounts of timber to meet our pulpwood supply agreement obligation with Smurfit-Stone Container Corporation, which expires June 30, 2012. We also harvest and sell additional timber to regional sawmills that produce products other than pulpwood. In addition, our forestry

10


Table of Contents

operation is focused on selective harvesting, thinning, and site preparation of timberlands that may later be sold or developed by other JOE divisions.
Supplemental Information
      Information regarding the revenues, income and total assets of each of our operating segments can be found in note 14 to our Consolidated Financial Statements included in this Report.
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 downturn in economic conditions could adversely affect our business.
      Our ability to generate revenues is directly related to the real estate market, primarily in Florida, and to the national and local economy in general. Considerable economic and political uncertainties currently exist that could have adverse effects on consumer buying habits, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general.
      Significant expenditures associated with investment in real estate, such as real estate taxes, maintenance costs and debt payments, cannot generally be reduced if changes in Florida’s or the nation’s economy cause a decrease in revenues from our properties. In particular, if the growth rate for the Florida economy declines or if a recession in the Florida economy occurs, our profitability could be materially adversely affected.
      While real estate market conditions have generally remained healthy in our regions of development, particularly in Northwest Florida, continued demand for our services and products is dependent on long term prospects for job growth and strong in-migration population expansion in our regions of development.
      Over the last several years, investors have increasingly utilized real estate as an investment. Florida resort real estate has particularly benefited from this trend, creating demand, in addition to that described above, for our products. If this trend were to lessen, the demand for our products could decline, potentially impacting selling prices and/or absorption rates.
Our businesses are primarily concentrated in the State of Florida. As a result, our financial results are dependent on the economic growth and health of Florida, particularly Northwest Florida.
      The economic growth and health of the State of Florida, particularly Northwest Florida where the majority of our land is located, are important factors in sustaining demand for our products and services. As a result, any adverse change to the economic growth and health of Florida, particularly Northwest Florida, could materially adversely affect our financial results. The future economic growth in certain portions of Northwest Florida may be adversely affected if its infrastructure, such as roads, airports, medical facilities and schools, are not improved to meet increased demand. There can be no assurance that these improvements will occur.
      Currently, the Federal Aviation Administration is considering five alternatives to expand the capacity of the Panama City — Bay County International Airport. Two of these alternatives involve expansion of the current facility, and two alternatives require relocation of the airport to a new site proposed by the airport authority in the West Bay Sector on land owned by us. The final alternative is to take no action at all.
      The relocation of the airport is a condition to certain of our land-use entitlements in Bay County. We also believe that the relocation of the airport is important to the overall economic development of Northwest Florida. The FAA has issued a draft Environmental Impact Study (“EIS”) with respect to the

11


Table of Contents

proposed alternatives, and it expects to issue its Record of Decision with respect to the EIS in late 2005. In addition to the EIS process, other regulatory steps remain before a final decision is reached on the relocation of the airport. The relocation is also dependent on adequate funding. If the relocation of the airport does not occur, our business could be materially affected.
Changes in the demographics affecting projected population growth in Florida, including a decrease in the migration of Baby Boomers, could adversely affect our business.
      Florida has experienced strong recent population growth, including the migration of Baby Boomers to the state. This population growth is expected to continue into the foreseeable future. Baby Boomers seeking retirement or vacation homes in Florida represent a significant portion of purchasers in many of our developments, and we intend to continue to plan and market future developments to Baby Boomers. Any decrease in the demographic trend of Baby Boomers moving to Florida could adversely affect our business.
The occurrence of natural disasters in Florida could adversely affect our business.
      The occurrence of natural disasters in Florida, such as hurricanes, floods, fires, unusually heavy or prolonged rain and droughts, could have a material adverse effect on our ability to develop and sell properties or realize income from our projects. The occurrence of natural disasters could also cause increases in property insurance rates and deductibles which could reduce demand for our properties.
Increases in interest rates could reduce demand for our products.
      An increase in interest rates could reduce the demand for homes we build, particularly primary housing and home sites we develop, commercial properties we develop or sell, and land we sell. A reduction in demand could materially adversely affect our profitability.
Our real estate operations are cyclical.
      Our business is affected by demographic and economic trends and the supply and rate of absorption of lot sales and new construction. 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, our stock’s trading price could also fluctuate significantly.
We are exposed to risks associated with real estate sales and development.
      Our real estate development activities entail risks that include:
  •  construction delays or cost overruns, which may increase project development costs;
 
  •  compliance with building codes and other local regulations;
 
  •  evolving liability theories affecting the construction industry;
 
  •  an inability to obtain required governmental permits and authorizations;
 
  •  an inability to secure tenants or anchors necessary to support commercial projects;
 
  •  failure to achieve anticipated occupancy levels or rents; and
 
  •  an inability to sell our constructed inventory.
      In addition, our real estate development activities require significant capital expenditures. We obtain funds for our capital expenditures through cash flow from operations, property sales or financings. We cannot be sure that the funds available from these sources will be sufficient to fund our required or desired capital expenditures for development. If we are unable to obtain sufficient funds, we may have to defer or otherwise limit our development activities. Our residential projects require significant capital expenditures

12


Table of Contents

for infrastructure development before we can begin our selling efforts. If we are unsuccessful in our selling efforts, we may not be able to recover these capital expenditures. Also, our ability to continue to make conservation land sales to government agencies depends on the agencies having sufficient funds available to purchase the lands.
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 approval process.
      Development of real property in Florida entails an extensive approval process involving overlapping regulatory jurisdictions. Real estate projects 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 counties and cities to adopt comprehensive plans guiding and controlling future real property development in their respective jurisdictions. After a local government adopts its comprehensive plan, all development orders and development permits must be consistent with the plan. Each plan must address such topics as future land use, capital improvements, traffic circulation, sanitation, sewerage, potable water, drainage and solid waste disposal. The local governments’ comprehensive plans must also establish “levels of service” with respect to certain specified public facilities and services to residents. Local governments are prohibited from issuing development orders or permits if facilities and services are not operating at established levels of service, or if the projects for which permits are requested will reduce the level of service for public facilities below the level of service established in the local government’s comprehensive plan. If the proposed development would reduce the established level of services below the level set by the plan, the development order will require that, at the outset of the project, the developer either sufficiently improve the services to meet the required level or provide financial assurances that the additional services will be provided as the project progresses.
      The Growth Management Act, in some instances, can significantly affect the ability of developers to obtain local government approval in Florida. In many areas, infrastructure funding has not kept pace with growth. As a result, substandard facilities and services can delay or prevent the issuance of permits. Consequently, the Growth Management Act could adversely affect our ability to develop our real estate projects.
      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 with respect to a particular project, which may materially increase the cost of the project. The DRI approval process is expected to have a material impact on our real estate development activities in the future.
      Changes in the Growth Management Act or the DRI review process or the interpretation thereof, new enforcement of these laws, the enactment of new laws regarding the development of real property, or the identification of new facts could all lead to new or greater liabilities that could materially adversely affect our business, profitability or financial condition.

13


Table of Contents

Environmental and other regulations may have an adverse effect on our business.
      A substantial portion of our development properties in Florida is subject to federal, state and local regulations and restrictions that may impose significant limitations on our ability to develop them. Much of our property is undeveloped land located in areas where development may have to address the natural habitats of various endangered or protected wildlife species or in sensitive environmental areas such as wetlands and coastal areas.
      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, involve 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 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 all lead to new or greater liabilities that could materially adversely affect our business, profitability, or financial condition.
Our joint venture partners may have interests that differ from ours and may take actions that adversely affect us.
      We are involved in joint venture relationships and may initiate future joint venture projects as part of our overall development strategy. A joint venture involves special risks such as:
  •  we may not have voting control over the joint venture;
 
  •  the venture partner at any time may have economic or business interests or goals that are inconsistent with ours;
 
  •  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; and
 
  •  the venture partner could experience financial difficulties.
      Actions by our venture partners may subject property owned by the joint venture to liabilities greater than those contemplated by the joint venture agreement or have other adverse consequences.

14


Table of Contents

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 sheet. 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 would include the adjustments in the tax provision in our statement of operations and/or balance sheet. These adjustments could materially impact our financial position and results of operation.
Significant competition could have an adverse effect on our business.
The real estate industry is generally characterized by significant competition.
      A number of residential and commercial developers and real estate services companies, some with greater financial and other resources, compete with us in seeking properties for acquisition, resources for development and prospective purchasers and tenants. Competition from other real estate developers and real estate services companies may adversely affect our ability to:
  •  sell homes and home sites;
 
  •  attract purchasers;
 
  •  attract and retain tenants;
 
  •  sell undeveloped rural land; and
 
  •  sell our commercial services.
The forest products industry is highly competitive.
      Many of our competitors in the forest products industry are fully integrated companies with substantially greater financial and operating resources. Our products are also subject to increasing competition from a variety of non-wood and engineered wood products. In addition, we are subject to competition from lumber products and logs imported from foreign sources. Any significant increase in competitive pressures from substitute products or other domestic or foreign suppliers could have a material adverse effect on our forestry operations.
We are highly dependent on our senior management.
      Our senior management has been responsible for our transformation from an industrial conglomerate to a successful real estate operating company. Our future success is highly dependent upon the continued employment of our senior management. The loss of one or more of our senior managers could have a material adverse effect on our business. In August 2003, we entered into five-year employment agreements with Peter Rummell, our Chairman and Chief Executive Officer, and Kevin Twomey, our President and Chief Operating Officer. We do not have key-person life insurance on any of our senior managers.
If we are unable to attract or retain experienced real estate development personnel, our business may be adversely affected.
      Our future success largely depends on our ability to attract and retain experienced real estate development personnel. The market for these employees is highly competitive, and if we cannot continue to attract and retain quality personnel, our ability to effectively operate our business may be significantly limited.

15


Table of Contents

Decline in rental income could adversely affect our financial results.
      We own a large portfolio of commercial real estate rental properties. Our profitability could be adversely affected if:
  •  a significant number of our tenants are unable to meet their obligations to us;
 
  •  we are unable to lease space at our properties when the space becomes available; and
 
  •  the rental rates upon a renewal or a new lease are significantly lower than expected.
The Trust owns approximately 7.5% of our stock, and two of our directors are trustees of the Trust. The Trust’s interests may not always be identical to those of our public shareholders.
      As of March 1, 2005, The Alfred I. duPont Testamentary Trust owned 5,689,355 shares, or approximately 7.5%, of our outstanding common stock. In addition, two of our current directors are trustees of the Trust. Under the terms of our registration rights agreement with the Trust, if the Trust beneficially owns less than 20% but at least 5% of our outstanding shares of common stock, the Trust will be entitled to nominate one member of our board. Accordingly, the Trust will continue to be able to have significant influence over our corporate and management policies, including decisions relating to mergers, acquisitions, the sale of all or substantially all of our assets and other significant transactions. The interests of the Trust may not be aligned with our interests or the interests of other shareholders.
Forward-looking Statements
      This Form 10-K includes forward-looking statements, particularly in the Management’s Discussion and Analysis Section. The Private Securities Litigation Reform Act of 1995 provides a safe-harbor for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ, possibly materially, from those in the information. Any statements in this Form 10-K 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:
  •  the size and number of residential units and commercial buildings;
 
  •  expected development timetables, development approvals and the ability to obtain such approvals, including possible legal challenges;
 
  •  the anticipated price ranges of developments;
 
  •  the number of units 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;
 
  •  absorption rates and expected gains on land and home site sales;
 
  •  the pace at which we release new product for sale;
 
  •  future operating performance, cash flows, and short and long-term revenue and earnings growth rates;
 
  •  comparisons to historical projects;
 
  •  the amount of dividends we pay; and
 
  •  the number of shares of company stock which may be purchased under the company’s existing or future share-repurchase program.

16


Table of Contents

      Forward-looking statements are not guarantees of future performance. You are cautioned not to place undue reliance on any of these forward-looking statements. These statements are made as of the date hereof based on current expectations, and we undertake no obligation to update the information contained in this release.
      Forward-looking statements 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 as well as, among others, the following:
  •  economic conditions, particularly in Northwest Florida, Florida as a whole and key areas of the southeast United States that serve as feeder markets to our Northwest Florida operations;
 
  •  changes in the demographics affecting projected population growth in Florida, including the demographic migration of Baby Boomers;
 
  •  whether our developments receive all land-use entitlements or other permits necessary for development and/or full build-out or are subject to legal challenge;
 
  •  local conditions such as the supply of homes and home sites and residential or resort properties or a change in the demand for real estate in an area;
 
  •  timing and costs associated with property developments and rentals;
 
  •  the pace of commercial development in Northwest Florida;
 
  •  competition from other real estate developers;
 
  •  whether potential residents or tenants consider our properties attractive;
 
  •  changes in operating costs, including real estate taxes and the cost of construction materials;
 
  •  changes in the amount or timing of federal and state income tax liabilities resulting from either a change in our application of tax laws, an adverse determination by a taxing authority or court, or legislative changes to existing laws;
 
  •  how well we manage our properties;
 
  •  changes in interest rates and the performance of the financial markets;
 
  •  changes in market rental rates for our commercial and resort properties;
 
  •  changes in the prices of wood products;
 
  •  the pace of development of public infrastructure, particularly in Northwest Florida, including a proposed new airport in Bay County, which is dependent on approvals of the local airport authority and the Federal Aviation Administration, various permits and the availability of adequate funding;
 
  •  potential liability under environmental laws or other laws or regulations;
 
  •  changes in laws, regulations or the regulatory environment affecting the development of real estate;
 
  •  fluctuations in the size and number of transactions from period to period;
 
  •  adverse weather conditions or natural disasters and the impact on future demand in Florida;
 
  •  changes in insurance rates and deductibles for property in Florida; and
 
  •  acts of war, terrorism or other geopolitical events.
      The foregoing list is not exhaustive and should be read in conjunction with other cautionary statements contained herein and in our periodic and other filings with the Securities and Exchange Commission. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or risks. New information, future events or risks may cause the forward-looking events we discuss in this Form 10-K not to occur.

17


Table of Contents

Employees
      We had approximately 1,603 full-time employees and 138 part-time employees at December 31, 2004. We consider our relations with our employees to be good. These employees work in the following segments:
         
Towns & Resorts development
    1,024  
Commercial real estate development and services
    540  
Land sales
    47  
Forestry
    28  
Other — including corporate
    102  
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 SEC, through our home page at www.JOE.com.
Item 2. Properties
      We own our principal executive office located in Jacksonville, Florida.
      We own approximately 820,000 acres, the majority of which are located in Northwest Florida, including substantial gulf, lake and riverfront acreage. Most of our raw land assets are managed as timberland until designated for development. For more information on our real estate assets, see Item 1. Business.
Item 3. Legal Proceedings
      We are involved in litigation on a number of matters and are subject to certain 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. However, the aggregate amount being sought by the claimants in these matters is presently estimated to be several million dollars.
      We have retained certain self-insurance risks with respect to losses for third-party liability, worker’s compensation, property damage, group health insurance provided to employees, and other types of insurance.
      We are subject to costs arising out of environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites, including sites which have been previously sold. It is our policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available.
      Pursuant to the terms of various agreements by which we disposed of our sugar assets in 1999, we are obligated to complete certain defined environmental remediation. Approximately $5.0 million of the sales proceeds are being held in escrow pending the completion of the remediation. We have separately funded the costs of remediation. Remediation was substantially completed in 2004 and is expected to be finalized in early 2005. We expect the amounts held in escrow to be released to us during the first half of 2005.
      During the fourth quarter of 2000, management became aware of an investigation being conducted by the Florida Department of Environmental Protection (“DEP”) of our former paper mill site and some adjacent real property north of the paper mill site in Gulf County, Florida (the “Mill Site”). The real property on which our former paper mill is located was sold to the Smurfit-Stone Container Corporation

18


Table of Contents

(“Smurfit”) and we retained ownership of the adjacent real property. In January 2004, we entered into a joint venture with Smurfit; this joint venture now owns the site of our former paper mill.
      The DEP submitted a Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) Site Discovery/ Prescreening Evaluation to Region IV of the United States Environmental Protection Agency (“USEPA”) in Atlanta in September 2000. Based on this submission, the USEPA included the Mill Site on the CERCLIS List. The CERCLIS List is a list of sites which are to be evaluated to determine whether there is a potential presence of actionable contaminants.
      Based on its assessment of data obtained from voluntary testing performed by us and Smurfit, the DEP submitted a proposed Consent Order that we and Smurfit have executed. It obligates us to conduct further assessment of that portion of the Mill Site owned by us at that time and, if necessary, to rehabilitate that portion of the Mill Site. Smurfit has a corresponding obligation with respect to its portion of the Mill Site.
      Through incorporation of the data and findings which resulted from our voluntary testing, the DEP has completed and submitted a preliminary assessment/site investigation report to the USEPA, including a recommendation that the Mill Site be considered “low priority” under CERCLA. Based on this recommendation, the USEPA has deferred further action on the Mill Site and has agreed to allow the Mill Site to be assessed and rehabilitated, if necessary, under the guidance of the DEP.
      On November 5, 2002, the Mill Site was designated as a Brownfields Redevelopment Area for site rehabilitation under the provisions of applicable Florida law. Florida’s Brownfields program provides economic and tax incentives which may be available to us. We entered into a Brownfield Site Rehabilitation Agreement for the Mill Site that obligates us to conduct further assessment of our portion of the Mill Site to delineate the extent of contamination, if any, and, if necessary, to rehabilitate that portion. The Consent Order will be held in abeyance pending the completion of the assessment and remediation, if any, of the Mill Site under the terms of the Brownfield Site Remediation Agreement.
      Based on this current information, including the environmental test results, the recommendation for “low priority” USEPA consideration, the USEPA agreement to defer further action, and the Brownfields Area local designation, management does not believe our liability, if any, for the possible cleanup of any potential contaminants detected on the Mill Site will be material.
      We are currently a party to, or involved in, legal proceedings directed at the cleanup of Superfund sites. We have accrued an allocated share of the total estimated cleanup costs for these sites. Based upon management’s evaluation of the other potentially responsible parties, we do not expect to incur material additional amounts even though we have joint and several liability. Other proceedings involving environmental matters such as alleged discharge of oil or waste material into water or soil are pending against us. It is not possible to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. However, based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on our consolidated financial position, results of operations or liquidity. Environmental liabilities are paid over an extended period and the timing of such payments cannot be predicted with any confidence.
Item 4. Submission of Matters to a Vote of Security Holders
      None.

19


Table of Contents

PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
      We had approximately 77,000 beneficial owners of our common stock as of March 9, 2005. Our common stock is quoted on the New York Stock Exchange (“NYSE”) Composite Transactions Tape under the symbol “JOE.”
      The range of high and low prices for our common stock as reported on the NYSE Composite Transactions Tape and the dividends declared for the periods indicated is set forth below:
                           
    Common    
    Stock Price    
        Dividends
    High   Low   Declared
             
2004
                       
 
First Quarter
    41.99       36.39       0.12  
 
Second Quarter
    42.27       35.06       0.12  
 
Third Quarter
    49.08       39.38       0.14  
 
Fourth Quarter
    64.75       46.97       0.14  
2003
                       
 
First Quarter
    30.74       26.19       0.08  
 
Second Quarter
    31.58       27.04        
 
Third Quarter
    35.01       31.01       0.12  
 
Fourth Quarter
    38.60       32.05       0.12  
      On March 9, 2005, the closing price of our common stock on the NYSE was $73.90.
      The following table describes the Company’s purchases of its common stock during the fourth quarter of 2004.
                                 
            (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, 2004
    104,265     $ 49.12       90,000     $ 137,772  
 
Month Ended
                               
November 30, 2004
    110,600     $ 53.08       110,600     $ 131,897  
 
Month Ended
                               
December 31, 2004
    139,100     $ 60.34       139,100     $ 123,499  
 
(1)  Includes shares surrendered to the Company by executives as payment for the strike prices and taxes due on exercised stock options and/or taxes due on vested restricted stock equal in the aggregate to 14,265 shares in October 2004. There were no shares surrendered by executives in November or December 2004.
 
(2)  For a description of our Stock Repurchase Program, see note 2, “Summary of Significant Accounting Policies — Earnings Per Share,” of the notes to our Consolidated Financial Statements.

20


Table of Contents

Item 6. Selected Consolidated Financial Data
      The selected consolidated financial data set forth below are qualified in their entirety by and should be read in conjunction with the consolidated financial statements and the related notes included elsewhere herein. The statement of income data with respect to the years ended December 31, 2004, 2003, and 2002 and the balance sheet data as of December 31, 2004 and 2003 have been derived from the financial statements of the Company included herein, which have been audited by KPMG LLP. The statement of income data with respect to the years ended December 31, 2001 and 2000 and the balance sheet data as of December 31, 2002, 2001, and 2000 have been derived from the financial statements of the Company previously filed with the SEC, and have also been audited by KPMG LLP. Historical results are not necessarily indicative of the results to be expected in the future.
                                           
    Year Ended December 31,
     
    2004   2003   2002   2001   2000
                     
    (In thousands, except per share amounts)
Statement of Income Data:
                                       
Total revenues(1)
  $ 951,503     $ 750,826     $ 626,440     $ 564,054     $ 604,558  
Total expenses
    806,950       623,845       518,891       487,152       474,778  
                               
Operating profit
    144,553       126,981       107,549       76,902       129,780  
Other income (expense)
    (9,218 )     (6,942 )     122,018       (5,846 )     6,184  
                               
Income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes, and minority interest
    135,335       120,039       229,567       71,056       135,964  
Equity in income (loss) of unconsolidated affiliates
    5,600       (2,168 )     10,940       24,126       18,375  
Income tax expense
    53,258       42,167       88,960       35,443       51,789  
                               
Income from continuing operations before minority interest
    87,677       75,704       151,547       59,739       102,550  
Minority interest
    2,594       553       1,366       524       9,954  
                               
Income from continuing operations
    85,083       75,151       150,181       59,215       92,596  
Income from discontinued operations(2)
    178       764       3,295       10,990       7,727  
Gain on sale of discontinued operations(2)
    4,839             20,887              
                               
Net income
  $ 90,100     $ 75,915     $ 174,363     $ 70,205     $ 100,323  
                               
Per Share Data:
                                       
 
Basic
                                       
Income from continuing operations
  $ 1.13     $ 0.99     $ 1.92     $ 0.73     $ 1.09  
Income from discontinued operations(2)
          0.01       0.04       0.14       0.09  
Gain on the sale of discontinued operations(2)
    0.06             0.26              
                               
Net income
  $ 1.19     $ 1.00     $ 2.22     $ 0.87     $ 1.18  
                               
 
Diluted
                                       
Income from continuing operations
  $ 1.11     $ 0.97     $ 1.84     $ 0.70     $ 1.06  
Income from discontinued operations
          0.01       0.04       0.13       0.09  
Gain on the sale of discontinued operations
    0.06             0.26              
                               
Net income
  $ 1.17     $ 0.98     $ 2.14     $ 0.83     $ 1.15  
                               
Dividends declared and paid
  $ 0.52     $ 0.32     $ 0.08     $ 0.08     $ 0.02  
FLA spin-off(3)
                            4.64  

21


Table of Contents

                                         
    Year Ended December 31,
     
    2004   2003   2002   2001   2000
                     
Balance Sheet Data:
                                       
Investment in real estate
  $ 942,630     $ 886,076     $ 806,701     $ 736,734     $ 562,181  
Cash and investments(4)
    94,816       57,403       73,273       200,225       201,905  
Property, plant & equipment, net
    33,562       36,272       42,907       49,826       59,665  
Total assets
    1,403,629       1,275,730       1,169,887       1,340,559       1,115,021  
Total stockholders’ equity
    495,411       487,315       480,093       518,073       569,084  
 
(1)  Total revenues includes real estate revenues from property sales; realty revenues consisting of property and asset management fees, construction revenues, and lease and sales commissions; timber sales; rental revenues; club operations revenues; management fees; and transportation revenues.
 
(2)  Discontinued operations include the operations and subsequent sale of two commercial office buildings sold in 2004, Arvida Realty Services (“ARS”), our residential real estate services subsidiary, and two commercial office buildings sold in 2002. (See note 4 of Notes to Consolidated Financial Statements.)
 
(3)  On October 9, 2000, the Company distributed to its shareholders all of its equity interest in Florida East Coast Industries, Inc. (“FLA”). To effect the distribution, the Company exchanged its 19,609,216 shares of FLA common stock for an equal number of shares of a new class of FLA common stock. On October 9, 2000, the new class of stock, FLA.B, was distributed prorata to the Company’s shareholders in a tax-free distribution. For each share of the Company common stock owned of record on September 18, 2000, the Company’s shareholders received 0.23103369 of a share of FLA.B common stock.
 
(4)  Includes cash, cash equivalents, and marketable securities.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
      The St. Joe Company is one of Florida’s largest real estate operating companies. We believe we have one of the largest inventories of private land suitable for development in the State of Florida, with a very low cost basis. The majority of our land is located in Northwest Florida. In order to optimize the value of our core real estate assets in Northwest Florida, our strategic plan calls for us to reposition our substantial timberland holdings for higher and better uses. We increase the value of our raw land assets, most of which are currently managed as timberland, through the development and subsequent sale of parcels, home sites, and homes, or through the direct sale of unimproved land. In addition, we reinvest qualifying asset sales proceeds into like-kind properties under our tax deferral strategy which has enabled us to create a significant portfolio of commercial rental properties. We also provide commercial real estate services, including brokerage, property management, and construction management for Company-owned assets as well as for third parties.
      We have four operating segments: Towns & Resorts development; commercial real estate development and services; land sales; and forestry.
      Our Towns & Resorts development segment generates revenues from:
  •  the sale of housing units built by us;
 
  •  the sale of developed home sites;
 
  •  rental income;
 
  •  club operations;
 
  •  investments in limited partnerships and joint ventures;
 
  •  brokerage, title issuance and mortgage origination fees on certain transactions within our Towns & Resorts developments; and
 
  •  management fees.

22


Table of Contents

      Our commercial real estate development and services segment generates revenues from:
  •  the rental and/or sale of commercial buildings owned and/or developed by us;
 
  •  the sale of developed and undeveloped land for commercial, retail, apartment, and industrial properties;
 
  •  realty revenues, consisting of property and asset management fees, construction revenues and lease and sales brokerage commissions; and
 
  •  investments in limited partnerships and joint ventures.
      Our land sales segment generates revenues from:
  •  the sale of parcels of undeveloped land; and
 
  •  the sale of developed home sites primarily within rural settings.
      Our forestry segment generates revenues from:
  •  the sale of pulpwood and timber;
 
  •  the sale of cypress lumber and mulch; and
 
  •  the sale of bulk land.
      Our ability to generate revenues, cash flows and profitability is directly related to the real estate market, primarily in Florida, and the economy in general. Considerable economic and political uncertainties exist that could have adverse effects on consumer buying behavior, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general. Additionally, increases in interest rates could reduce the demand for homes we build and home sites we develop, particularly primary housing and home sites, and commercial properties we develop or sell. However, we believe our secondary resort housing markets are less sensitive to changes in interest rates. We have the ability to mitigate these risks by building to contract as well as building in phases.
      Management periodically conducts market research in the early stages of a project’s development to ensure our product meets expected customer demand. We also continuously and actively monitor competitors’ product offerings to evaluate the competitive position of our products. We are disciplined about the release of new product in Northwest Florida. Our goal is to ensure that as much of our land as possible benefits from the appreciation that we are building with the region’s increased visibility, infrastructure development and place-making.
      Our commercial real estate development and services segment continues to build on strong market interest in Northwest Florida’s retail, office, multi-family and other mixed-use products caused by historical constraints on supply in the area as well as high interest by developers.
      Real estate market conditions in our regions of development, particularly for residential and resort property in Northwest Florida, have been exceptionally strong. These current market conditions place us in an unusually favorable position which may not continue in the future. However, we believe that long-term prospects of job growth, coupled with strong in-migration population expansion in Florida, indicate that demand levels may remain favorable over at least the near term horizon.
Forward-looking Statements
      Management’s discussion and analysis contains forward-looking statements, including statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions, as well as trends and uncertainties that could affect our results. These statements are subject to risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. For additional information concerning these factors and related matters, see “Risk Factors” and “Forward-looking Statements” in Item 1 of this Report.

23


Table of Contents

Critical Accounting Estimates
      The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical 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 once we determine that the project is economically viable. 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 based on the amount of underlying expenditures (up to total interest expense), and real estate taxes on real estate projects under development. If we determine not to complete a project, any previously capitalized costs are expensed.
      Real estate inventory costs include land and common development costs, such as roads, sewers, and amenities, home construction costs, property taxes, capitalized interest, and certain indirect costs. A portion of real estate inventory 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, 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 home site sales prices, sales volume and sales velocity require significant judgment because the real estate market is cyclical and is 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. Although we have not made significant adjustments affecting real estate gross profit margins in the past, there can be no assurances that estimates used to generate future real estate gross profit margins will not differ from our current estimates.
      Revenue Recognition — Percentage-of-Completion. In accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate, revenue for multi-family residences under construction is recognized using the percentage-of-completion method when 1) construction is beyond a preliminary stage, 2) the buyer is committed to the extent of being unable to require a refund except for nondelivery of the unit, 3) sufficient units have already been sold to assure that the entire property will not revert to rental property, 4) sales price is assured, and 5) aggregate sales proceeds and costs can be reasonably estimated. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs.
      Revenue for our multi-family residences which were under construction at WaterSound Beach in 2003 was recognized using the percentage-of-completion method of accounting. Since the project was substantially completed as of December 31, 2003, we recorded substantially all of the activity related to this property during the year ended December 31, 2003. During the period ended March 31, 2004, we incurred $2.0 million in construction cost adjustments for this project. Had these costs been quantified in 2003, they would have been included in our budgets and thus have had an impact on our results for the year ended December 31, 2003. If these costs had been included in the total project budget, 2003 gross profit would have been reduced by $3.6 million (pre-tax), $2.3 million (after tax), since a lower

24


Table of Contents

percentage of revenue would also have been recognized. The results for the year ended December 31, 2004 would have been increased by $3.6 million (pre-tax), $2.3 million (after tax).
      Management has evaluated the impact of this item, which represented 3% of net income ($0.03 per diluted share) for both years ended December 31, 2004 and 2003, and concluded that it is not significant to our 2004 or 2003 results of operations.
      Impairment of Long-lived Assets and Goodwill. Our long-lived assets, primarily real estate held for investment, are carried at cost unless circumstances indicate that the carrying value of the assets may not be recoverable. We review long-lived assets for impairment whenever events or changes in circumstances indicate such an evaluation is warranted. This review involves a number of assumptions and estimates used in determining whether impairment exists, including estimation of undiscounted cash flows. Depending on the asset, we use varying methods to determine fair value, such as (i) discounting of 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. These methods of determining fair value can fluctuate up or down significantly as a result of a number of factors, including changes in the general economy of our markets and demand for real estate. If we determine that 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.
      Goodwill is carried at the lower of cost or fair value and is tested for impairment at least annually, or whenever events or changes in circumstances indicate such an evaluation is warranted, by comparing the carrying amount of the net assets of each reporting unit with goodwill to the fair value of the reporting unit taken as a whole. The impairment review involves a number of assumptions and estimates including estimating discounted future cash flows, net operating income, future economic conditions, fair value of assets held, and discount rates. If this comparison indicates that the goodwill of a particular reporting unit is impaired, the aggregate of the fair value of each of the individual assets and liabilities of the reporting unit are compared to the fair value of the reporting unit to determine the amount of goodwill impairment, if any.
      Intangible Assets. We allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values, using customary estimates of fair value, including data from appraisals, comparable sales, discounted cash flow analysis, and other methods. These fair values can fluctuate up or down significantly as a result of a number of factors and estimates, including changes in the general economy of our markets, demand for real estate, amortization periods, and fair market values assigned to leases as well as fair value assigned to customer relationships.
      Pension Plan. The Company sponsors a defined benefit pension plan covering a majority of our employees. Currently, our pension plan is over-funded and contributes income to the Company. The accounting for pension benefits is determined by standardized 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 impact on the income contributed by the pension plan. We engage the services of an independent actuary and investment consultant to assist us in determining these assumptions and in the calculation of pension income. For example, in 2004, a 1% increase in the assumed long-term rate of return on pension assets would have resulted in a $2.4 million increase in pre-tax income ($1.5 million net of tax). A 1% decrease in the assumed long-term rate of return would have caused an equivalent decrease in pre-tax income. A 1% increase in the assumed discount rate on pension obligations would have resulted in a $0.4 million decrease in pre-tax income ($0.3 million net of tax). A 1% decrease in the assumed discount rate would have resulted in a $0.6 million increase in pre-tax income ($0.4 million net of tax).
      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

25


Table of Contents

and liabilities, which are included in our consolidated balance sheet. 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 would include the adjustments in the tax provision in the statement of operations and/or balance sheet. These adjustments could materially impact our financial position and results of operation.
Recently Issued Accounting Standards
      In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R) (“FAS 123(R)”), Share-Based Payment, a revision of FAS 123. FAS 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions), eliminating the alternative previously allowed by FAS 123 to use the intrinsic value method of accounting. The grant date fair value will be estimated using option-pricing models adjusted for the unique characteristics of the instruments using methods similar to those required by FAS 123 and currently used by the Company to calculate pro forma net income and earnings per share disclosures. The cost will be recognized ratably over the period during which the employee is required to provide services in exchange for the award. For public entities like the Company that do not file as small business issuers, FAS 123(R) is effective as of the beginning of the first interim or annual period that begins after June 15, 2005. The Company plans to adopt FAS 123(R) as of July 1, 2005. As a result of adopting FAS 123(R), the Company will recognize as compensation cost in its financial statements the unvested portion of existing options granted prior to the effective date and the cost of stock options granted to employees after the effective date based on the fair value of the stock options at grant date.
      Also in December 2004, the FASB issued Statement of Financial Accounting Standards No. 152, Accounting for Real Estate Time-Sharing Transactions (“FAS 152”). FAS 152 clarifies the accounting for sales and other transactions involving real estate time-sharing transactions and is effective for financial statements for fiscal years beginning after June 15, 2005. Upon adoption, the Company does not expect FAS 152 to have a material effect on its financial position or results of operations.
      Also in December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets (“FAS 153”). FAS 153 eliminates a previous exception from fair value reporting for nonmonetary exchanges of similar productive assets and introduces an exception from fair value reporting for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange is considered to have commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. FAS 153 is applicable to nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005, with earlier application permitted. Upon adoption, the Company does not expect FAS 153 to have a material effect on its financial position or results of operations.
Results of Operations
      Net income for 2004 was $90.1 million, or $1.17 per diluted share, compared with $75.9 million, or $0.98 per diluted share, in 2003 and $174.4 million, or $2.14 per diluted share, in 2002. The results for 2003 included a non-cash charge of $8.8 million, or $0.11 per diluted share, to reduce the carrying value of goodwill associated with Advantis Real Estate Services (“Advantis”), our commercial real estate services unit. The results for 2002 included a gain on the forward sale of securities of $86.4 million, or $1.06 per diluted share, and earnings and a net gain on the sale of Arvida Realty Services (“ARS”), our former residential real estate services segment. The gain on sale of ARS was $20.7 million, or $0.25 per diluted share, and earnings from the discontinued operations of ARS were $2.3 million, or $0.03 per diluted share.
      We report revenues from our four operating segments: Towns & Resorts development, commercial real estate development and services, land sales, and forestry. Real estate sales are generated from sales of housing units and developed home sites in our Towns & Resorts development segment, developed and undeveloped land and in-service buildings in our commercial real estate development and services segment

26


Table of Contents

which are not reported as discontinued operations, parcels of undeveloped land and developed home sites in rural settings in our land sales segment and occasionally sales of bulk land from our forestry segment. Realty revenues, consisting of property and asset management fees, construction revenues, and lease and sales commissions, are generated from the commercial real estate development and services segment. Timber sales are generated from the forestry segment. Rental revenue is generated primarily from lease income related to our portfolio of investment and development properties as a component of the commercial real estate development and services segment. Other revenues are primarily club operations and management fees from the Towns & Resorts development segment.
Consolidated Results
      Revenues and Expenses. The following table sets forth a comparison of the revenues and expenses for the three years ended December 31, 2004.
                                                             
    Years Ended December 31,   2004 vs. 2003   2003 vs. 2002
             
    2004   2003   2002   Difference   % Change   Difference   % Change
                             
    (Dollars in millions)
Revenues:
                                                       
 
Real estate sales
  $ 734.3     $ 592.2     $ 484.0     $ 142.1       24 %   $ 108.2       22 %
 
Realty
    98.1       62.5       58.5       35.6       57       4.0       7  
 
Timber sales
    35.2       36.6       40.7       (1.4 )     (4 )     (4.1 )     (10 )
 
Rental
    40.5       31.0       24.2       9.5       31       6.8       28  
 
Other
    43.4       28.5       19.0       14.9       52       9.5       50  
                                           
   
Total
    951.5       750.8       626.4       200.7       27       124.4       20  
                                           
Expenses:
                                                       
 
Cost of real estate sales
    484.7       353.2       290.8       131.5       37       62.4       21  
 
Cost of realty sales revenues
    63.9       36.2       33.2       27.7       77       3.0       9  
 
Cost of timber sales
    21.8       24.2       28.9       (2.4 )     (10 )     (4.7 )     (16 )
 
Cost of rental revenues
    15.9       14.1       11.2       1.8       13       2.9       26  
 
Cost of other revenues
    37.6       27.2       23.1       10.4       38       4.1       18  
 
Other operating expenses
    102.2       91.6       84.1       10.6       12       7.5       9  
                                           
   
Total
  $ 726.1     $ 546.5     $ 471.3     $ 179.6       33 %   $ 75.2       16 %
                                           
      The increases in revenues from real estate sales and costs of real estate sales were in each case primarily due to increased sales in the Towns & Resorts development segment and land and building sales in the commercial real estate development and services segment. These increases were partially offset by a decrease in sales of conservation land. Additionally, during 2004, two buildings were sold by the commercial real estate development and services segment and recorded as discontinued operations. Also, in 2004, costs of real estate sales increased due to actual construction costs in excess of estimates at WaterSound Beach, one of our residential communities. (For a more detailed discussion of this increase, see Revenue Recognition — Percentage-of-Completion under Critical Accounting Estimates above.) The increases in realty revenues and cost of realty revenues were in each case primarily due to increases in construction and brokerage activity. The increases in rental revenues and costs of rental revenues were in each case primarily due to the purchase of commercial buildings and, from 2002 to 2003, to improved leased percentages of rental property in the commercial real estate development and services segment. Timber revenue decreased due to a reduction in volume harvested from Company-owned lands and an intentional reduction in production at the cypress mill operation for the purpose of improving margins and profitability, partially offset by price increases. Cost of timber revenues decreased due to lower costs in the timber operation and increased efficiencies in the cypress mill operation. Other revenues and costs of other revenues increased, from 2003 to 2004, primarily due to increases in resale brokerage activity in the Towns & Resorts development segment and, from 2002 to 2003, primarily due to an increase in club

27


Table of Contents

operations in the Towns & Resorts development segment. Other operating expenses increased primarily due to increases in the Towns & Resorts development segment and the commercial real estate development and services segment. For further discussion of revenues and expenses, see Segment Results below.
      Corporate Expense. Corporate expense, representing corporate general and administrative expenses, increased $9.3 million, or 27%, to $43.8 million in 2004, from $34.5 million in 2003. The increase was due to increases of $3.8 million in compensation expense on restricted stock issuances, $3.2 million in salaries and other employee benefits, $1.7 million in audit and audit related fees, and $0.6 million in miscellaneous other corporate expenses. Corporate expense increased $7.0 million, or 25%, to $34.5 million in 2003, from $27.5 million in 2002. The increase was primarily due to a $4.3 million decrease in the income contribution from the St. Joe Company Pension Plan, an increase in employee benefit costs of $2.3 million and an increase of $0.4 million in miscellaneous other corporate expenses.
      Depreciation and Amortization. Depreciation and amortization increased $6.7 million, or 24%, to $35.1 million in 2004, compared to $28.4 million in 2003. The increase was due to a $3.3 million increase in depreciation resulting primarily from additional investments in commercial investment property and residential operating property and property, plant and equipment and a $3.4 million increase in amortization resulting from an increase in intangible assets associated with our commercial operating properties. Depreciation and amortization increased $8.3 million, or 41%, to $28.4 million in 2003, compared to $20.1 million in 2002. The increase was due to a $7.4 million increase in depreciation resulting primarily from additional investments in commercial investment property and residential operating property and property, plant and equipment and a $0.9 million increase in amortization resulting from an increase in intangible assets.
      Impairment Losses. During 2004, we recorded a $2.0 million impairment loss related to one of our Towns & Resorts projects in North Carolina pursuant to Statement of Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. During 2003, we recorded an impairment loss to reduce the carrying amount of Advantis’ goodwill from $28.9 million to $14.8 million, pursuant to Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. The impairment related to Advantis resulted in an impairment loss of $14.1 million pre-tax, or $8.8 million net of tax. See note 9 of Notes to Consolidated Financial Statements. Additionally, impairment losses of $0.3 million were recorded in 2003 related to commercial properties. No impairment losses were recorded in 2002.
      Other Income (Expense). Other income (expense) consists of investment income, interest expense, gains on sales and dispositions of assets and other income and, in 2002, gains and losses on the valuation and settlement of forward sale contracts. Other income (expense) was $(9.2) million in 2004, $(6.9) million in 2003, and $122.0 million in 2002.
      The gains and losses on the valuation and settlement of forward sale contracts in 2002 were related to a forward sale transaction that we entered into with a major financial institution in October 1999 that, in effect, provided for the monetization of our long-held portfolio of equity investments which, at December 31, 1998, had a cost of approximately $1.7 million and a fair value of approximately $144 million. Under the forward sale agreement, we received approximately $111.1 million in cash and were required to settle the forward transaction by October 15, 2002, by delivering either the securities or the equivalent value of the securities in cash to the financial institution. The agreement permitted us to retain that amount of the securities representing appreciation up to 20% of their value on October 15, 1999 should the value of the securities increase. The securities were recorded at fair value on the balance sheet and the related unrealized gain, net of tax, was recorded in accumulated other comprehensive income. At the time of entering into the forward sale contracts, we recorded a liability in long-term debt for approximately $111.1 million, subject to increase as interest expense was imputed at an annual rate of 7.9%. The liability was also subject to increase by the amount, if any, that the fair value of the securities increased beyond the retained 20%.

28


Table of Contents

      In 2002, in two separate transactions, we settled our forward sale contracts by delivering equity securities to the financial institution for an aggregate pre-tax gain of $132.9 million. The aggregate liability related to the contracts settled was $135.6 million at the times of settlement and the resulting gain recognized in 2002 was $132.9 million pre-tax.
      Investment income decreased to $0.9 million for both 2004 and 2003 from $2.9 million in 2002, primarily due to lower dividend income resulting from the disposition of securities. Interest expense increased $2.2 million to $12.9 million in 2004 from $10.7 million in 2003, primarily due to an increase in the average amount of debt in 2004. Interest expense decreased $4.9 million to $10.7 million in 2003 compared to $15.6 million in 2002 due to the settlement of the debt related to the forward sale contracts, which was partially offset by interest expense attributable to medium term notes we issued in 2002 and debt secured by commercial buildings. Other income was $2.8 million in 2004, $2.9 million in 2003, and $1.8 million in 2002. Other income included a loss on the valuation of forward sale contracts of $(0.9) million in 2002.
      Equity in Income (Loss) of Unconsolidated Affiliates. We have investments in affiliates that are accounted for by the equity method of accounting. Equity in income (loss) of unconsolidated affiliates totaled $5.6 million in 2004, $(2.2) million in 2003, and $10.9 million in 2002.
      The Towns & Resorts development segment recorded equity in the income (loss) of unconsolidated affiliates of $5.8 million in 2004, $(4.1) million in 2003, and $11.9 million in 2002. The 2004 results were primarily due to increases in closings at two unconsolidated affiliates that are developing residential property in Florida. For 2003 and 2002, equity in income (loss) of unconsolidated affiliates included our 26% limited partnership interest in Arvida/ JMB Partners, L.P. (“Arvida/ JMB”). Arvida/ JMB completed its operations in 2003 and is winding up its affairs. Arvida/ JMB had no contribution to equity in income (loss) of unconsolidated affiliates in 2004, reported a $(3.5) million loss in 2003 made up of a pre-tax charge based on estimates of future costs and future cash distributions associated with the completion of operations, and recorded $13.2 million in income in 2002.
      The commercial real estate development and services segment recorded equity in the income (loss) of unconsolidated affiliates of $(0.2) million in 2004, $1.9 million in 2003, and $(1.0) million in 2002. Included were losses of $(1.5) million in 2004, $(0.3) million in 2003, and $(0.3) million in 2002 related to our 50% interest in Codina Group, Inc. (“Codina”), a commercial services company headquartered in Coral Gables, Florida. We expect Codina to return to profitability in the near term. The remainder of the decrease from 2003 to 2004 is primarily due to the sale in 2003 of our 45% partnership interest in the 355 Alhambra building for a gain of $1.0 million which is included in income of unconsolidated affiliates. The increase from 2002 to 2003 is primarily due to the equity in income of Deerfield, LLC, which increased $2.6 million to $1.4 million in 2003 compared to 2002 due to an increase in income from land sales and decreased $0.3 million to $1.1 million in 2004 compared to 2003 due to decreases in income from land sales as that company’s operations wind down.
      Income Tax Expense. Income tax expense on continuing operations totaled $53.3 million in 2004, $42.2 million in 2003, and $89.0 million in 2002. Our effective tax rate was 38% in 2004, 36% in 2003, and 37% in 2002. Our effective tax rate increased in 2004 due to increases in restricted stock deferred compensation, a portion of which is not deductible for tax purposes. Our effective tax rate decreased in 2003 because the deferred tax liability for state taxes was reduced to reflect the effect of a previously implemented strategy.
      Discontinued Operations. Discontinued operations include the operations and subsequent sales of two commercial office buildings which were sold in 2004, the gain on sale and the operations of ARS and the gain on sale and operations of two commercial office buildings which were sold in 2002. These entities’ results are not included in income from continuing operations.
      On July 30, 2004, we sold 1750 K Street for proceeds of $47.3 million ($21.9 million, net of the assumption of a mortgage by the purchaser) and a pre-tax gain of $7.5 million ($4.6 million, net of taxes). Prior to its sale, during 2004, 2003, and 2002, 1750 K Street generated revenues of $3.4 million,

29


Table of Contents

$5.6 million, and $5.4 million, respectively, operating expenses of $2.0 million, $3.4 million, and $2.8 million, respectively, and net income of $0.2 million, $0.2 million, and $0.8 million, respectively. We sold Westchase Corporate Center on August 16, 2004, for proceeds of $20.3 million and a pre-tax gain of $0.2 million ($0.1 million net of taxes). Prior to its sale, during 2004, 2003, and 2002, Westchase Corporate Center generated revenues of $2.5 million, $4.2 million, and $3.5 million, respectively, operating expenses of $2.2 million, $3.4 million, and $3.2 million, respectively, and net income of $0.2 million, $0.5 million, and $0.2 million, respectively.
      We completed the sale of ARS, our wholly-owned subsidiary, on April 17, 2002, with a gain recorded on the sale of $33.7 million before taxes, or $20.7 million net of taxes. Prior to its sale, ARS generated revenues of $76.2 million, operating expenses of $71.7 million and net income of $2.3 million during 2002. Also in 2002, we sold two commercial buildings with aggregate proceeds of $0.3 million and an aggregate pre-tax gain of $0.2 million ($0.1 million, net of taxes). Prior to these sales, these two buildings in total generated less than $0.1 million in revenue and pre-tax income during 2002.
Segment Results
      Towns & Resorts Development. The table below sets forth the results of operations of our Towns & Resorts development segment for the three years ended December 31, 2004.
                             
    Years Ended December 31,
     
    2004   2003   2002
             
    (In millions)
Revenues:
                       
 
Real estate sales
  $ 575.0     $ 467.3     $ 371.2  
 
Rental revenues
    1.1       0.8       0.8  
 
Other revenues
    41.5       26.8       14.7  
                   
   
Total revenues
    617.6       494.9       386.7  
                   
Expenses:
                       
 
Cost of real estate sales
    419.1       332.9       260.8  
 
Cost of rental revenues
    1.2       1.6       1.6  
 
Cost of other revenues
    36.5       26.6       20.6  
 
Other operating expenses
    48.7       44.6       38.7  
 
Depreciation and amortization
    10.0       8.6       4.4  
 
Impairment loss
    2.0              
                   
   
Total expenses
    517.5       414.3       326.1  
                   
Other income (expense)
    (0.2 )           0.2  
                   
Pre-tax income from continuing operations
  $ 99.9     $ 80.6     $ 60.8  
                   
      Our Towns & Resorts development division develops large-scale, mixed-use communities primarily on land with very low cost basis. We own large tracts of land in Northwest Florida, including significant Gulf of Mexico beach frontage and waterfront properties, and land near Jacksonville, in Deland, and near Tallahassee, the state capital. Our residential homebuilding in North Carolina and South Carolina is conducted through Saussy Burbank, Inc. (“Saussy Burbank”), a wholly owned subsidiary. We made a strategic decision to carefully manage inventories at our beachfront communities and, consequently, we released no new inventory in these communities in the fourth quarter of 2004.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
      Real estate sales include sales of homes and home sites and sales of land. Cost of real estate sales for homes and home sites includes direct costs, selling costs and other indirect costs. In 2004, the components

30


Table of Contents

of cost of real estate sales for homes and home sites were $350.0 million in direct costs, $29.9 million in selling costs, and $38.5 million in other indirect costs. In 2003, the components of cost of real estate sales for homes and home sites were $276.4 million in direct costs, $23.6 million in selling costs, and $31.3 million in other indirect costs. The overall increases in real estate sales and cost of real estate sales were due to an increase in the number of units sold and higher overall selling prices.
      Sales of homes in 2004 totaled $462.0 million, with related costs of sales of $382.9 million, resulting in a gross profit percentage of 17%, compared to sales of homes in 2003 of $348.4 million, with costs of sales of $287.8 million, resulting in a gross profit percentage of 17%. As discussed above (see Revenue Recognition — Percentage-of-Completion under Critical Accounting Estimates), a small increase in the gross profit percentage was offset by $2.0 million in construction costs that we incurred in 2004 due to contract adjustments on a multi-family property for which substantially all of the activity had been recorded during 2003.
      Cost of real estate sales for homes in 2004 consisted of $323.4 million in direct costs, $24.7 million in selling costs, and $34.8 million in other indirect costs. Cost of real estate sales for homes in 2003 consisted of $242.1 million in direct costs, $17.8 million in selling costs, and $27.9 million in indirect costs.
      Sales of home sites in 2004 totaled $109.8 million, with related costs of sales of $35.5 million, resulting in a gross profit percentage of 68%, compared to sales of home sites in 2003 of $115.7 million, with costs of sales of $43.5 million, resulting in a gross profit percentage of 62%. The increase in gross profit percentage was due to increased pricing at WaterColor, WaterSound Beach, and WindMark Beach, partially offset by increases in the average per-unit costs of sales at WaterColor and Windmark Beach. Cost of real estate sales for home sites in 2004 consisted of $26.6 million in direct costs, $5.2 million in selling costs, and $3.7 million in other indirect costs. Cost of real estate sales for home sites in 2003 consisted of $34.3 million in direct costs, $5.8 million in selling costs, and $3.4 million in indirect costs. There were fewer home sites sold in our resort communities in 2004 compared to 2003 as we continued to manage inventory to maximize value to benefit from expected near-term price increases caused by strong demand in the market.
      The following table sets forth home and home site sales activity by individual developments:
                                                                       
    Year Ended December 31, 2004   Year Ended December 31, 2003
         
    Closed       Cost of   Gross   Closed       Cost of   Gross
    Units   Revenues   Sales   Profit   Units   Revenues   Sales   Profit
                                 
    (Dollars in millions)
Northwest Florida:
                                                               
 
Walton County:
                                                               
   
WaterColor:
                                                               
     
Single-family homes
    11     $ 9.9     $ 7.3     $ 2.6       12     $ 9.6     $ 6.4     $ 3.2  
     
Multi-family homes
                            18       2.6       2.7       (0.1 )
     
Private Residence Club
    87       17.0       9.3       7.7             1.2       0.7       0.5  
     
Home sites
    148       71.9       22.2       49.7       206       57.1       22.5       34.6  
   
WaterSound Beach:
                                                               
     
Single-family homes
    1       5.1       2.7       2.4                                  
     
Multi-family homes
    51       55.4       34.1       21.3       30       72.1       45.1       27.0  
     
Home sites
    29       15.1       3.7       11.4       93       38.1       12.6       25.5  
 
Bay County:
                                                               
   
The Hammocks:
                                                               
     
Homes
    77       11.5       11.0       0.5       48       6.8       6.1       0.7  
     
Home sites
    70       2.6       1.3       1.3       30       0.9       0.7       0.2  
   
Palmetto Trace: Homes
    92       13.8       12.4       1.4       88       13.6       12.1       1.5  
   
Summerwood: Homes
                1.7       (1.7 )                        
   
Woodrun: Homes
                                        0.4       (0.4 )

31


Table of Contents

                                                                       
    Year Ended December 31, 2004   Year Ended December 31, 2003
         
    Closed       Cost of   Gross   Closed       Cost of   Gross
    Units   Revenues   Sales   Profit   Units   Revenues   Sales   Profit
                                 
    (Dollars in millions)
 
Leon County:
                                                               
   
SouthWood:
                                                               
     
Homes
    174       41.0       35.7       5.3       133       27.0       23.2       3.8  
     
Home sites
    58       5.5       3.0       2.5       63       5.7       2.6       3.1  
 
Gulf County:
                                                               
   
Windmark Beach: Home sites
    4       4.0       0.6       3.4       13       7.3       1.2       6.1  
Northeast Florida:
                                                               
 
St. Johns County:
                                                               
   
St. Johns Golf & Country Club:
                                                               
     
Homes
    104       36.5       29.4       7.1       124       39.6       33.1       6.5  
     
Home sites
    35       2.9       1.1       1.8       40       2.2       1.0       1.2  
 
Duval County:
                                                               
   
James Island: Homes
    11       4.3       3.8       0.5       59       19.8       17.1       2.7  
   
Hampton Park: Homes
    61       21.7       19.0       2.7       50       16.1       14.0       2.1  
Central Florida:
                                                               
 
Volusia County:
                                                               
   
Victoria Park:
                                                               
     
Homes
    179       39.7       34.1       5.6       124       24.3       21.7       2.6  
     
Home sites
    53       4.2       2.4       1.8       32       2.3       1.4       0.9  
   
Artisan Park:
                                                               
     
Single-family homes
    64       25.9       19.2       6.7                                  
     
Multi-family homes
          14.8       11.9       2.9                                  
     
Home sites
    17       3.6       1.2       2.4       10       1.3       0.7       0.6  
North and South Carolina:
                                                               
   
Saussy Burbank:
                                                               
     
Homes
    748       165.4       151.3       14.1       555       115.7       105.2       10.5  
     
Home sites
                            32       0.8       0.8        
                                                 
Total
    2,074     $ 571.8     $ 418.4     $ 153.4       1,760     $ 464.1     $ 331.3     $ 132.8  
                                                 
      Revenue and costs of sales associated with multi-family units and Private Residence Club (“PRC”) units under construction are recognized using the percentage-of-completion method of accounting. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. If a deposit is received for less than 10% for a multi-family unit or a PRC unit, percentage-of-completion accounting is not utilized. Instead, full accrual accounting criteria is used, which generally recognizes revenue when sales contracts are closed and adequate investment from the buyer is received. In the WaterSound Beach community, deposits of 10% are required upon executing a contract and another 10% is required 180 days later. For PRC units, a 10% deposit is required. Additional deposits may be collected at other locations depending on the specifics of each contract. All deposits are non-refundable (subject to a 10-day waiting period as required by law), except for non-delivery of the unit. In the event a contract does not close for reasons other than non-delivery, we are entitled to retain the deposit. However, the revenue and margin related to the previously recorded contract would be reversed. Revenues and cost of sales associated with multi-family units where construction has been completed before contracts are signed and deposits made are recognized on the full accrual method of accounting, as contracts are closed.
      At WaterColor, the gross profit percentage from single-family residence sales decreased to 26% in 2004 from 33% in 2003, primarily due to the mix of relative location and size of the home sales closed in each period. The average price of a single-family residence sold in 2004 was $897,000, compared to $799,000 in 2003. In 2004, there was no revenue or gross profit recognized on the sale of multi-family residences due to the wind up of the first phase of multi-family residences in 2003. Revenues and cost of revenues recorded for the PRC were higher in 2004 than in 2003 because percentage-of-completion

32


Table of Contents

accounting on PRC units did not begin until late in 2003. The average price of a home site sold in 2004 was $486,000, compared to $277,000 in 2003. The gross profit percentage from home site sales was 69% in 2004 and 61% in 2003. Increases were due to an increase in prices of comparable units and to a change in the mix of relative locations of the home sites sold, partially offset by increases in development costs associated with amenities and roadway improvement.
      At WaterSound Beach, the gross profit percentage on sales of multi-family residences increased to 38% in 2004 from 37% in 2003. Increased margins in 2004 were partially offset by an increase in the cost of revenues associated with the 80 completed and sold multi-family residences caused by actual construction costs exceeding estimates in the first quarter of 2004, as discussed above (see Critical Accounting Estimates). Most of the contribution from income for the 51 multi-family units that closed in 2004 was recorded in 2003 due to percentage of completion accounting. The gross profit percentage on home sites increased to 75% in 2004 from 67% in 2003, primarily due to price increases.
      At The Hammocks, the gross profit percentage on home sales decreased to 4% in 2004 from 10% in 2003 due to an increase in construction costs on the townhouse product. The gross profit percentage on home site sales increased to 50% in 2004 from 22% in 2003, primarily due to price increases, the mix of relative location of the home sites closed, and a decrease in development costs. The average price of a home site sold in 2004 was $38,000 compared to $30,000 in 2003.
      At Summerwood, there was a $1.7 million expense recorded in 2004 for warranty costs in excess of warranty reserves.
      At St. Johns Golf and Country Club, the gross profit percentage on home sales increased to 19% in 2004 from 16% in 2003, primarily due to price increases on comparable units and a change in the mix of relative size and location of homes sold. The average price of a home sold in 2004 was $351,000 compared to $319,000 in 2003. The gross profit percentage on home site sales increased to 62% in 2004 from 55% in 2003, primarily due to price increases and the mix of the relative size of the home sites sold in each period. The average price of home sites sold in 2004 was $84,000 compared to $56,000 in 2003.
      At Artisan Park, the gross profit percentage on home site sales increased to 67% in 2004 from 46% in 2003, primarily due to increased prices. The average price of a home site sold in 2004 was $211,000, compared to $128,000 in 2003.
      At Victoria Park, the gross profit percentage on home sales increased to 14% in 2004 from 11% in 2003. The gross profit percentage on home site sales increased to 43% in 2004 from 39% in 2003. Increases in gross profit percentages were in each case due to price increases on comparable homes and home sites and changes in the mix of relative locations of home sites sold in each period. The average price of a home sold in 2004 was $222,000 compared to $196,000 in 2003. The average price of a home site sold in 2004 was $80,000 compared to $74,000 in 2003.
      At Saussy Burbank, the gross profit percentage on home sales decreased to 8.5% in 2004 from 9.1% in 2003 primarily due to selective discounting of house prices. Average prices of homes sold in 2004 and 2003 were approximately $221,000 and $209,000, respectively. During 2004, we recorded an impairment loss of $2.0 million related to one of Saussy Burbank’s community development projects.
      Other revenues included revenues from the WaterColor Inn, other resort operations, and management fees. Other revenues were $41.5 million in 2004 with $36.5 million in related costs, resulting in a gross profit percentage of 12%, compared to revenues totaling $26.8 million in 2003 with $26.6 million in related costs, resulting in a gross profit percentage of 1%. The increases in other revenues, cost of other revenues, and gross profit percentage were each primarily due to increases in resale brokerage and vacation rental activity.
      Other operating expenses, including salaries and benefits of personnel and other administrative expenses, increased $4.1 million during 2004 compared to 2003, primarily due to increases in marketing and project administration costs attributable to the increase in Towns & Resorts development activity.

33


Table of Contents

      Overall, we expect margins in the Towns & Resorts development segment to remain stable in the near future.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
      In 2003, the components of cost of real estate sales for homes and home sites were $276.4 million in direct costs, $23.6 million in selling costs, and $31.3 million in other indirect costs. In 2002, the components of cost of real estate sales for homes and home sites were $220.5 million in direct costs, $17.8 million in selling costs, and $22.5 million in other indirect costs.
      Sales of homes in 2003 totaled $348.4 million, with related costs of sales of $287.8 million, resulting in a gross profit percentage of 17%, compared to sales in 2002 of $271.3 million, with costs of sales of $226.6 million, resulting in a gross profit percentage of 17%. Cost of real estate sales for homes in 2003 consisted of $242.1 million in direct costs, $17.8 million in selling costs, and $27.9 million in indirect costs. Cost of real estate sales for homes in 2002 consisted of $193.8 million in direct costs, $12.8 million in selling costs, and $20.0 million in indirect costs.
      Sales of home sites in 2003 totaled $115.7 million, with related costs of sales of $43.5 million, resulting in a gross profit percentage of 62%, compared to sales in 2002 of $99.3 million, with related costs of sales of $34.2 million, resulting in a gross profit percentage of 66%. Cost of real estate sales for home sites in 2003 consisted of $34.3 million in direct costs, $5.8 million in selling costs, and $3.4 million in indirect costs. Cost of real estate sales for home sites in 2002 consisted of $26.7 million in direct costs, $5.0 million in selling costs, and $2.5 million in indirect costs. The increase in real estate sales was due to an increase in the number of units sold and higher selling prices. Cost of real estate sales increased primarily due to the increased volume of sales. The following table sets forth home and home site sales activity by individual developments:
                                                                       
    Year Ended December 31, 2003   Year Ended December 31, 2002
         
    Closed       Cost of   Gross   Closed       Cost of   Gross
    Units   Revenues   sales   Profit   Units   Revenues   sales   Profit
                                 
    (Dollars in millions)
Northwest Florida:
                                                               
 
Walton County:
                                                               
   
WaterColor:
                                                               
     
Single-family homes
    12     $ 9.6     $ 6.4     $ 3.2       13     $ 10.5     $ 6.5     $ 4.0  
     
Multi-family homes
    18       2.6       2.7       (0.1 )     45       23.3       17.8       5.5  
     
Private Residence Club
          1.2       0.7       0.5                          
     
Home sites
    206       57.1       22.5       34.6       172       42.7       15.0       27.7  
   
WaterSound Beach:
                                                               
     
Multi-family homes
    30       72.1       45.1       27.0             18.5       11.4       7.1  
     
Home sites
    93       38.1       12.6       25.5       64       25.6       10.0       15.6  
 
Bay County:
                                                               
   
The Hammocks:
                                                               
     
Homes
    48       6.8       6.1       0.7       32       4.6       4.1       0.5  
     
Home sites
    30       0.9       0.7       0.2       36       1.1       0.6       0.5  
   
Palmetto Trace: Homes
    88       13.6       12.1       1.5       43       6.4       5.6       0.8  
   
Summerwood: Homes
                            12       1.8       1.8        
   
Woodrun: Homes
                0.4       (0.4 )     1       0.3       0.4       (0.1 )
   
Other Bay County: Home sites
                            1       0.1       0.1        
 
Leon County:
                                                               
   
SouthWood:
                                                               
     
Homes
    133       27.0       23.2       3.8       115       21.3       18.5       2.8  
     
Home sites
    63       5.7       2.6       3.1       65       6.1       2.8       3.3  

34


Table of Contents

                                                                       
    Year Ended December 31, 2003   Year Ended December 31, 2002
         
    Closed       Cost of   Gross   Closed       Cost of   Gross
    Units   Revenues   sales   Profit   Units   Revenues   sales   Profit
                                 
    (Dollars in millions)
 
Gulf County:
                                                               
   
Windmark Beach: Home sites
    13       7.3       1.2       6.1       67       22.1       4.6       17.5  
Northeast Florida:
                                                               
 
St. Johns County:
                                                               
   
St. Johns Golf & Country Club:
                                                               
     
Homes
    124       39.6       33.1       6.5       111       34.1       27.6       6.5  
     
Home sites
    40       2.2       1.0       1.2       21       1.0       0.7       0.3  
 
Duval County:
                                                               
   
James Island: Homes
    59       19.8       17.1       2.7       72       22.5       19.3       3.2  
   
Hampton Park: Homes
    50       16.1       14.0       2.1       35       11.3       9.9       1.4  
Central Florida:
                                                               
 
Volusia County:
                                                               
   
Victoria Park:
                                                               
     
Homes
    124       24.3       21.7       2.6       77       14.1       12.0       2.1  
     
Home sites
    32       2.3       1.4       0.9       12       0.6       0.4       0.2  
   
Artisan Park: Home sites
    10       1.3       0.7       0.6                          
North and South Carolina:
                                                               
   
Saussy Burbank:
                                                               
     
Homes
    555       115.7       105.2       10.5       523       102.6       91.7       10.9  
     
Home sites
    32       0.8       0.8                                
                                                 
Total
    1,760     $ 464.1     $ 331.3     $ 132.8       1,517     $ 370.6     $ 260.8     $ 109.8  
                                                 
      At WaterColor, the average price of a single-family residence sold in 2003 was $799,000, compared to $800,000 in 2002, which was due solely to the product mix sold. In general, sales prices for homes with similar sizes and locations increased in 2003. The gross profit percentage from single-family residence sales decreased to 33% in 2003 from 38% in 2002 due to an increase in construction costs at one of the multi-family projects and a change in the mix of multi-family projects recorded in each year. The decrease in revenue and cost of revenue on multi-family residences was due to a decline in the number of units for sale. The gross profit percentage on multi-family home sales decreased to (4)% in 2003 from 24% in 2002 primarily due to increased development and construction costs in 2003 associated with the wind up of the first phase of multi-family residences. The gross profit percentage from home site sales decreased to 61% in 2003 from 65% in 2002 primarily due to increases in development costs associated with amenities and roadway improvement.
      At WaterSound Beach, multi-family unit percentage-of-completion contributions to income began in the fourth quarter of 2002 and continued for the full year in 2003. The gross profit percentage on home sites increased to 67% in 2003 from 61% in 2002 primarily due to increases in sales prices.
      At WindMark Beach, revenues have decreased as a result of a decrease in units offered for sale. The gross profit percentage on home site sales has increased to 84% in 2003 from 79% in 2002 due a change in the mix of relative locations of the home sites sold and to sales price increases on comparable home sites.
      At St. Johns Golf and Country Club, the gross profit percentage on home sales decreased to 16% in 2003 from 19% in 2002 primarily due to higher development and construction costs in 2003. The gross profit percentage on home site sales increased to 55% in 2003 from 30% in 2002 primarily due to higher parcel development costs in 2002.
      At Victoria Park, the gross profit percentage on home sales decreased to 11% in 2003 from 15% in 2002 because the mix of homes sold in 2003 included more homes located in the active adult community,

35


Table of Contents

which has higher parcel development costs. The gross profit percentage on home site sales increased to 39% in 2003 from 33% in 2002 primarily due to the deferral of revenue in 2002 on several of the home sites as a result of contingencies in the sales contracts.
      At Saussy Burbank, the gross profit percentage on home sales has decreased to 9% in 2003 from 11% in 2002 primarily due to an increase in lot costs and a change in the mix of locations of homes sold.
      Other revenues totaled $26.8 million in 2003 with $26.6 million in related costs, compared to revenues totaling $14.7 million in 2002 with $20.6 million in related costs. These included revenues from the WaterColor Inn, which began operations in 2002, other resort operations and management fees.
      Other operating expenses, including salaries and benefits of personnel and other administrative expenses, increased $5.9 million during 2003 compared to 2002. The increase was primarily due to increases in project administration costs and marketing costs attributable to the increase in Towns & Resorts development activity.
      Commercial Real Estate Development and Services. The table below sets forth the results of operations of our commercial real estate development and services segment for the three years ended December 31, 2004.
                             
    Years Ended December 31,
     
    2004   2003   2002
             
    (In millions)
Revenues:
                       
 
Real estate sales
  $ 87.2     $ 25.6     $ 28.2  
 
Realty revenues
    98.1       62.5       58.5  
 
Rental revenues
    39.5       30.2       23.5  
 
Other revenues
    1.9       1.8       1.1  
                   
   
Total revenues
    226.7       120.1       111.3  
                   
Expenses:
                       
 
Cost of real estate sales
    58.9       7.0       20.8  
 
Cost of realty revenues
    63.9       36.2       33.2  
 
Cost of rental revenues
    14.7       12.4       9.4  
 
Other operating expenses
    43.6       36.6       32.7  
 
Depreciation and amortization
    17.0       12.2       7.6  
 
Impairment loss
          14.4        
                   
   
Total expenses
    198.1       118.8       103.7  
                   
Other income (expense)
    (5.6 )     (6.0 )     (6.2 )
                   
Pre-tax income (loss) from continuing operations
  $ 23.0     $ (4.7 )   $ 1.4  
                   

36


Table of Contents

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
      Real estate sales. Total proceeds from land sales in 2004 were $62.4 million, with a pre-tax gain of $25.4 million. Land sales during 2004 included the following:
                                   
    Number of   Acres   Gross Sales   Average
Land   Sales   Sold   Price   Price/Acre
                 
            (In millions)   (In thousands)
Florida:
                               
 
Unimproved
    12       220     $ 8.4     $ 38  
 
Improved
    31       192       51.8       270  
Texas
    3       8       2.2       274  
                         
Total/ Average
    46       420     $ 62.4     $ 149  
                         
      Included in improved land sales in Florida was the sale of 93 acres in and near the Company’s Pier Park development in Panama City Beach, Florida, to the Simon Property Group (“Simon”) for $26.5 million, or $286,000 per acre, for a retail, restaurant and entertainment project. Simon also has the right to purchase an additional 125 acres in and near Pier Park. The Company will retain approximately 13 acres near the beach in Pier Park and approximately 60 adjacent acres near the beach with zoning allowing high-density residential uses.
      During 2003, total proceeds from land sales were $25.6 million, with a pre-tax gain of $18.6 million. Land sales included the following:
                                   
    Number of   Acres   Gross Sales   Average
Land   Sales   Sold   Price   Price/Acre
                 
            (In millions)   (In thousands)
Florida:
                               
 
Unimproved
    18       268     $ 13.1     $ 49  
 
Improved
    30       129       11.5       89  
Texas
    1       2       1.0       449  
                         
Total/ Average
    49       399     $ 25.6     $ 64  
                         
      Total proceeds for building sales recorded in continuing operations in 2004 were $24.8 million, with a pre-tax gain of $2.9 million. There were no building sales in 2003. Building sales in 2004 consisted of:
  •  the sale of the 99,000-square-foot TNT Logistics building located in Jacksonville, Florida, for $12.8 million, with a pre-tax gain of $3.0 million; and
 
  •  the sale of the 100,000-square-foot Westside Corporate Center building located in Plantation, Florida, for $12.0 million, with a pre-tax loss of $(0.1).
      The operations of TNT Logistics and Westside Corporate Center have not been recorded as discontinued operations because one of our affiliates continues to provide brokerage and leasing services for these buildings.
      Realty revenues. Advantis’ realty revenues in 2004 increased $35.6 million, or 57%, over 2003 due to increases in construction and brokerage revenues. Cost of Advantis’ realty revenue increased $27.7 million, or 77%, due to increased costs associated with the increase in construction and brokerage revenues. The gross profit percentage was 35% for 2004, compared to 42% for 2003. The decrease in gross profit percentage was due to increases in broker agent compensation rates related to the increase in brokerage activity and due to the expansion of the construction business to include base building projects which have a lower margin than tenant renovation projects. Advantis’ other operating expenses, consisting of office administration expenses, increased to $32.8 million in 2004 from $28.9 million in 2003, a 13% increase, primarily due to an increase in staffing costs. Advantis’ results were break-even after eliminating intercompany profit of $1.7 million, compared to $(17.8) million for 2003, including the 2003 impairment

37


Table of Contents

loss of $(14.1) million and after eliminating intercompany profit of $2.0 million. During 2003, although management had previously believed that Advantis’ performance would continue to improve despite a very difficult environment for commercial services companies, results of operations declined and expectations for future periods were reduced. As a result, the Company recorded an impairment loss to reduce the carrying amount of Advantis’ goodwill from $28.9 million to $14.8 million, pursuant to FAS 142. This resulted in an impairment loss of $14.1 million pre-tax ($8.8 million net of tax). We believe that Advantis’ performance will continue to improve based on our current expectations.
      Rental revenues. Rental revenues generated by our commercial real estate development and services segment on owned operating properties increased $9.3 million, or 31%, in 2004 compared to 2003, primarily due to the purchases of four buildings placed in service in the second half of 2003 with an aggregate of 623,000 square feet and six buildings placed in service in 2004 with an aggregate of 583,000 square feet, partially offset by the sale of a building with 100,000 square feet on February 12, 2004. Operating expenses relating to these revenues increased $2.3 million, or 19%, primarily due to the buildings placed in service. This segment’s results include rental revenue and cost of rental revenue from 24 rental properties with 2.8 million total rentable square feet in service at December 31, 2004 and 20 rental properties with 2.4 million total rentable square feet in service at December 31, 2003. Additionally, this segment had an interest in one building totaling approximately 0.1 million square feet and two buildings totaling approximately 0.2 million square feet at December 31, 2004 and 2003, respectively, that were owned by partnerships and accounted for using the equity method of accounting. Excluding buildings accounted for using the equity method of accounting, the overall leased percentage increased to 85% at December 31, 2004, compared to 82% at December 31, 2003. Further information about commercial income producing properties majority owned or managed, excluding those reported as discontinued operations, along with results of operations for 2004 and 2003, is presented in the tables below.
                                         
        Net Rentable   Percentage   Net Rentable   Percentage
        Square Feet at   Leased at   Square Feet at   Leased at
        December 31,   December 31,   December 31,   December 31,
    Location   2004   2004   2003   2003
                     
Buildings purchased with tax-deferred proceeds:
                                       
Harbourside
    Clearwater, FL       153,000       78 %     147,000       92 %
Prestige Place I and II
    Clearwater, FL       147,000       82       144,000       86  
Lakeview
    Tampa, FL       127,000       82       125,000       77  
Palm Court
    Tampa, FL       62,000       76       60,000       68  
Westside Corporate Center
    Plantation, FL       (a)       (a)       100,000       86  
280 Interstate North
    Atlanta, GA       127,000       64       126,000       71  
Southhall Center
    Orlando, FL       159,000       48       155,000       88  
1133 20th Street
    Washington, DC       119,000       97       119,000       99  
Millenia Park One
    Orlando, FL       158,000       90       158,000       68  
Beckrich Office I
    Panama City Beach, FL       34,000       100       34,000       96  
Beckrich Office II(c)
    Panama City Beach, FL       33,000       48       (c)       (c)  
5660 New Northside
    Atlanta, GA       273,000       96       272,000       91  
SouthWood Office One
    Tallahassee, FL       89,000       92       88,000       73  
Crescent Ridge
    Charlotte, NC       158,000       100       158,000       100  
Windward Plaza
    Atlanta, GA       465,000       89       465,000       89  
245 Riverside(c)
    Jacksonville, FL       136,000       57       (b)       (b)  
Overlook
    Richmond, VA       129,000       99       (b)       (b)  
Deerfield Point
    Atlanta, GA       204,000       89       (b)       (b)  
Parkwood Point
    Atlanta, GA       220,000       93       (b)       (b)  
                               
Subtotal
            2,793,000       85       2,151,000       86  
                               

38


Table of Contents

                                         
        Net Rentable   Percentage   Net Rentable   Percentage
        Square Feet at   Leased at   Square Feet at   Leased at
        December 31,   December 31,   December 31,   December 31,
    Location   2004   2004   2003   2003
                     
Development property:
                                       
TNT Logistics
    Jacksonville, FL       (a)       (a)       99,000       83  
245 Riverside
    Jacksonville, FL       (c)       (c)       134,000       39  
Nextel Two
    Tallahassee, FL       30,000       100       (b)       (b)  
Beckrich Office II
    Panama City Beach, FL       (c)       (c)       34,000       20  
                               
Subtotal
            30,000       100       267,000       53  
                               
Total
            2,823,000       85 %     2,418,000       82 %
                               
 
(a) Westside Corporate Center and TNT Logistics were sold during 2004.
 
(b) These properties were completed or acquired after the date reported.
 
(c) During 2004, 245 Riverside and Beckrich Office II were transferred from development property to buildings purchased with tax-deferred proceeds.
                                                                                 
    Year Ended December 31, 2004   Year Ended December 31, 2003
         
        Pre-tax       Pre-tax
    Rental   Operating   NOI   Adjustments   Income   Rental   Operating   NOI   Adjustments   Income
    Revenues   Expenses   (a)   (b)   (Loss)   Revenues   Expenses   (a)   (b)   (Loss)
                                         
    (In millions)
Buildings purchased with tax- deferred proceeds:
                                                                               
Harbourside
  $ 2.9     $ 1.0     $ 1.9     $ (1.7 )   $ 0.2     $ 3.0     $ 1.0     $ 2.0     $ (1.4 )   $ 0.6  
Prestige Place I and II
    2.3       1.0       1.3       (1.3 )           2.3       1.0       1.3       (1.4 )     (0.1 )
Lakeview
    2.1       0.9       1.2       (1.3 )     (0.1 )     1.9       0.7       1.2       (1.3 )     (0.1 )
Palm Court
    0.6       0.3       0.3       (0.2 )     0.1       0.5       0.2       0.3       (0.5 )     (0.2 )
Westside Corporate Center
    0.2       0.1       0.1       (0.2 )     (0.1 )     1.9       0.7       1.2       (1.1 )     0.1  
280 Interstate North
    1.6       0.7       0.9       (1.0 )     (0.1 )     1.7       0.8       0.9       (0.9 )      
Southhall Center
    1.5       0.8       0.7       (1.6 )     (0.9 )     2.8       1.0       1.8       (1.5 )     0.3  
1133 20th Street
    4.1       1.5       2.6       (2.0 )     0.6       4.0       1.3       2.7       (2.1 )     0.6  
Millenia Park One
    2.7       1.0       1.7       (1.4 )     0.3       1.7       0.8       0.9       (1.5 )     (0.6 )
Beckrich Office I
    0.4       0.2       0.2       (0.2 )           0.4       0.2       0.2       (0.3 )     (0.1 )
Beckrich Office II(c)
    0.2       0.1       0.1       (0.2 )     (0.1 )                              
5660 New Northside
    5.7       1.7       4.0       (2.4 )     1.6       5.8       1.8       4.0       (1.4 )     2.6  
SouthWood Office One
    0.9       0.5       0.4       (0.6 )     (0.2 )     0.4       0.3       0.1       (0.4 )     (0.3 )
Crescent Ridge
    3.2       0.8       2.4       (1.8 )     0.6       1.2       0.3       0.9       (0.4 )     0.5  
Windward Plaza
    7.6       1.9       5.7       (3.5 )     2.2       0.8       0.2       0.6       (0.6 )      
245 Riverside(c)
    0.4       0.7       (0.3 )     (1.0 )     (1.3 )                              
Overlook
    1.4       0.4       1.0       (0.7 )     0.3                                
Parkwood Point
    0.1             0.1       (0.1 )                                    
Deerfield Point
    0.1             0.1       (0.1 )                                    
                                                             
Subtotal
  $ 38.0     $ 13.6     $ 24.4     $ (21.3 )   $ 3.1     $ 28.4     $ 10.3     $ 18.1     $ (14.8 )   $ 3.3  
Development property:
                                                                               
TNT Logistics
    1.4       0.5       0.9       (0.7 )     0.2       1.4       0.6       0.8       (0.7 )     0.1  
245 Riverside(c)
                                  0.2       0.5       (0.3 )     (1.0 )     (1.3 )
Nextel Call Center
    0.1             0.1       (0.1 )                                    
Beckrich Office II(c)
                                                    (0.1 )     (0.1 )
Other
          0.6       (0.6 )           (0.6 )     0.2       1.0       (0.8 )     (1.3 )     (2.1 )
                                                             
Subtotal
  $ 1.5     $ 1.1     $ 0.4     $ (0.8 )   $ (0.4 )   $ 1.8     $ 2.1     $ (0.3 )   $ (3.1 )   $ (3.4 )
                                                             
Total
  $ 39.5     $ 14.7     $ 24.8     $ (22.1 )   $ 2.7     $ 30.2     $ 12.4     $ 17.8     $ (17.9 )   $ (0.1 )
                                                             
 
(a) NOI is Net Operating Income.
 
(b) Adjustments include interest expense, depreciation and amortization.
 
(c) 245 Riverside and Beckrich Office II were transferred from development property to buildings purchased with tax-deferred proceeds in 2004.

39


Table of Contents

     At Southhall Center, Harbourside and 280 Interstate North, the loss of tenants caused a decrease in the leased percentages and rental revenues. At Millenia Park One, SouthWood Office One, 245 Riverside, and Beckrich Office II, leased percentages and revenues increased due to the addition of new tenants for these recently developed properties.
      Depreciation and amortization, primarily consisting of depreciation on income producing properties and amortization of lease intangibles, was $17.0 million in 2004 compared to $12.2 million in 2003.
      Discontinued operations. Building sales in 2004 included the sales of 1750 K Street and Westchase Corporate Center, both of which are reported as discontinued operations. 1750 K Street was sold on July 30, 2004, for $47.3 million ($21.9 million, net of the assumption of a mortgage by the purchaser) and a pre-tax gain of $7.5 million. Westchase Corporate Center was sold on August 16, 2004, for $20.3 million and a pre-tax gain of $0.2 million.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
      Real estate sales. As discussed above, total proceeds from land sales in 2003 were $25.6 million, with a pre-tax gain of $18.7 million. There were no building sales in 2003. Land sales included the following:
                                   
    Number of   Acres   Gross Sales   Average
Land   Sales   Sold   Price   Price/Acre
                 
            (In millions)   (In thousands)
Florida:
                               
 
Unimproved
    18       268     $ 13.1     $ 49  
 
Improved
    30       129       11.5       89  
Texas
    1       2       1.0       449  
                         
Total/ Average
    49       399     $ 25.6     $ 64  
                         
      During 2002, total proceeds from land sales were $11.0 million, with a pre-tax gain of $4.3 million. Land sales included the following:
                                   
    Number of   Acres   Gross Sales   Average
Land   Sales   Sold   Price   Price/Acre
                 
            (In millions)   (In thousands)
Florida:
                               
 
Unimproved
    5       44     $ 2.8     $ 63  
 
Improved
    8       27       2.6       98  
Texas
    3       20       5.6       285  
                         
Total/ Average
    16       91     $ 11.0     $ 121  
                         
      Total proceeds for building sales in 2002 were $17.2 million, with a pre-tax gain of $3.1 million. Building sales consisted of:
  •  The sale of the 67,000-square-foot Nextel building located in the Beckrich Office Park in Panama City Beach for $8.1 million, with a pre-tax gain of $1.9 million; and
 
  •  the sale of the 69,000-square-foot Tree of Life building located in St. Augustine, Florida, for $9.1 million, with a pre-tax gain of $1.2 million.
      Realty revenues. Advantis’ realty revenues in 2003 increased $4.0 million, or 7%, over 2002 due to increases in brokerage and construction revenues, which were partially offset by a small decrease in property management revenues. Cost of Advantis’ realty revenue increased $3.0 million, or 9%, due to increased broker commissions. Advantis’ other operating expenses, consisting of office administration expenses, increased to $28.9 million in 2003 from $25.6 million in 2002, primarily due to an increase in staffing costs. Advantis recorded a pre-tax loss of $17.8 million for 2003, compared to a pre-tax loss of

40


Table of Contents

$1.5 million for 2002, after excluding profit of $2.0 million in 2003 and $1.3 million in 2002 related to intercompany transactions. As discussed above, the Company recorded an impairment loss in 2003 to reduce the carrying amount of Advantis’ goodwill from $28.9 million to $14.8 million, pursuant to FAS 142. This resulted in an impairment loss of $14.1 million pre-tax ($8.8 million net of tax).
      Rental revenues. Rental revenues generated by our commercial real estate development and services segment owned operating properties increased $6.7 million, or 29%, in 2003 compared to 2002, due to six buildings placed in service or acquired during 2003 and an increase in the overall leased percentage of rental properties. Operating expenses relating to these revenues increased $3.0 million, or 32%, primarily due to the six buildings placed in service and increased occupancy as well as increases in property taxes, utilities and upgraded security at most of the buildings. This segment’s income from continuing operations included rental revenue and cost of rental revenue from 20 operating properties with 2.4 million total rentable square feet in service during 2003 and 14 operating properties with 1.6 million total rentable square feet in service during 2002. Additionally, this segment had interests in two buildings totaling approximately 0.2 million square feet and three buildings totaling approximately 0.4 million square feet at December 31, 2003 and 2002, respectively, that were owned by partnerships and accounted for using the equity method of accounting. The overall leased percentage increased to 82% at December 31, 2003, compared to 78% at December 31, 2002. Further information about commercial income producing properties majority owned by the Company, excluding those reported as discontinued operations, along with results of operations for 2003 and 2002, is presented in the tables below.
                                         
        Net Rentable   Percentage   Net Rentable   Percentage
        Square Feet at   Leased at   Square Feet at   Leased at
        December 31,   December 31,   December 31,   December 31,
    Location   2003   2003   2002   2002
                     
Buildings purchased with tax-deferred proceeds:
                                       
Harbourside
    Clearwater, FL       147,000       92 %     146,000       86 %
Prestige Place I and II
    Clearwater, FL       144,000       86       143,000       84  
Lakeview
    Tampa, FL       125,000       77       125,000       76  
Palm Court
    Tampa, FL       60,000       68       62,000       61  
Westside Corporate Center
    Plantation, FL       100,000       86       100,000       86  
280 Interstate North
    Atlanta, GA       126,000       71       126,000       67  
Southhall Center
    Orlando, FL       155,000       88       155,000       94  
1133 20th Street
    Washington, DC       119,000       99       119,000       99  
Millenia Park One
    Orlando, FL       158,000       68       158,000       44  
Beckrich Office I
    Panama City Beach, FL       34,000       96       34,000       88  
5660 New Northside
    Atlanta, GA       272,000       91       275,000       96  
SouthWood Office One
    Tallahassee, FL       88,000       73       (a)       (a)  
Crescent Ridge
    Charlotte, NC       158,000       100       (b)       (b)  
Windward Plaza
    Atlanta, GA       465,000       89       (b)       (b)  
                               
Subtotal
            2,151,000       86       1,443,000       81  
                               

41


Table of Contents

                                         
        Net Rentable   Percentage   Net Rentable   Percentage
        Square Feet at   Leased at   Square Feet at   Leased at
        December 31,   December 31,   December 31,   December 31,
    Location   2003   2003   2002   2002
                     
Development property:
                                       
TNT Logistics
    Jacksonville, FL       99,000       83       99,000       73  
245 Riverside
    Jacksonville, FL       134,000       39       (b)       (b)  
SouthWood Office One
    Tallahassee, FL       (a)       (a)       88,000       35  
Beckrich Office II
    Panama City Beach, FL       34,000       20       (b)       (b)  
                               
Subtotal
            267,000       69       187,000       55  
                               
Total
            2,418,000       82 %     1,630,000       78 %
                               
 
(a)  During 2003, SouthWood Office One was transferred from development property to buildings purchased with tax-deferred proceeds.
(b) These properties were acquired or completed after the date reported.
                                                                                 
    Year Ended December 31, 2003   Year Ended December 31, 2002
         
        Pre-tax       Pre-tax
    Rental   Operating   NOI   Adjustments   Income   Rental   Operating   NOI   Adjustments   Income
    Revenues   Expenses   (a)   (b)   (Loss)   Revenues   Expenses   (a)   (b)   (Loss)
                                         
    (In millions)
Buildings purchased with tax- deferred proceeds:
                                                                               
Harbourside
  $ 3.0     $ 1.0     $ 2.0     $ (1.4 )   $ 0.6     $ 2.4     $ 1.0     $ 1.4     $ (1.4 )   $  
Prestige Place I and II
    2.3       1.0       1.3       (1.4 )     (0.1 )     2.0       1.0       1.0       (1.1 )     (0.1 )
Lakeview
    1.9       0.7       1.2       (1.3 )     (0.1 )     2.4       1.0       1.4       (1.2 )     0.2  
Palm Court
    0.5       0.2       0.3       (0.5 )     (0.2 )     0.8       0.3       0.5       (0.4 )     0.1  
Westside Corporate Center
    1.9       0.7       1.2       (1.1 )     0.1       1.9       0.8       1.1       (1.0 )     0.1  
280 Interstate North
    1.7       0.8       0.9       (0.9 )           2.2       0.8       1.4       (1.0 )     0.4  
Southhall Center
    2.8       1.0       1.8       (1.5 )     0.3       3.4       1.3       2.1       (1.6 )     0.5  
1133 20th Street
    4.0       1.3       2.7       (2.1 )     0.6       4.1       1.3       2.8       (2.1 )     0.7  
Millenia Park One
    1.7       0.8       0.9       (1.5 )     (0.6 )     1.0       0.5       0.5       (0.6 )     (0.1 )
Beckrich Office I
    0.4       0.2       0.2       (0.3 )     (0.1 )     0.3       0.2       0.1       (0.2 )     (0.1 )
5660 New Northside
    5.8       1.8       4.0       (1.4 )     2.6       0.3             0.3             0.3  
SouthWood Office One
    0.4       0.3       0.1       (0.4 )     (0.3 )                              
Crescent Ridge
    1.2       0.3       0.9       (0.4 )     0.5                                  
Windward Plaza
    0.8       0.2       0.6       (0.6 )                                      
                                                             
Subtotal
  $ 28.4     $ 10.3     $ 18.1     $ (14.8 )   $ 3.3     $ 20.8     $ 8.2     $ 12.6     $ (10.6 )   $ 2.0  
Development property:
                                                                               
Tree of Life
                                  1.0       0.4       0.6       (0.6 )      
TNT Logistics
    1.4       0.6       0.8       (0.7 )     0.1       1.1       0.3       0.8       (0.8 )      
245 Riverside
    0.2       0.5       (0.3 )     (1.0 )     (1.3 )                              
Nextel Call Center
                                  0.4       0.1       0.3       (0.4 )     (0.1 )
Beckrich Office II
                      (0.1 )     (0.1 )                                        
Other
    0.2       1.0       (0.8 )     (1.3 )     (2.1 )     0.2       0.4       (0.2 )     (0.4 )     (0.6 )
                                                             
Subtotal
  $ 1.8     $ 2.1     $ (0.3 )   $ (3.1 )   $ (3.4 )   $ 2.7     $ 1.2     $ 1.5     $ (2.2 )   $ (0.7 )
                                                             
Total
  $ 30.2     $ 12.4     $ 17.8     $ (17.9 )   $ (0.1 )   $ 23.5     $ 9.4     $ 14.1     $ (12.8 )   $ 1.3  
                                                             
 
(a)  NOI is Net Operating Income.
(b) Adjustments include interest expense, depreciation and amortization.
     Depreciation and amortization was $12.2 million in 2003 compared to $7.6 million in 2002. It was primarily made up of depreciation on the operating properties and amortization of lease intangibles.

42


Table of Contents

      Land Sales. The table below sets forth the results of operations of our land sales segment for the three years ended December 31, 2004.
                             
    Years Ended December 31,
     
    2004   2003   2002
             
    (In millions)
Real estate sales
  $ 72.1     $ 99.2     $ 84.1  
                   
Expenses:
                       
 
Cost of real estate sales
    6.7       13.3       9.0  
 
Cost of other revenues
    1.0       0.5       0.2  
 
Other operating expenses
    7.0       6.8       6.9  
 
Depreciation and amortization
    0.4       0.2       0.2  
                   
   
Total expenses
    15.1       20.8       16.3  
                   
Other income
    0.2       0.1       0.3  
                   
Pre-tax income from continuing operations
  $ 57.2     $ 78.5     $ 68.1  
                   
      Land sales activity for 2004, 2003, and 2002, excluding conservation lands and RiverCamps, was as follows:
                                         
    Number   Number of   Average Price   Gross   Gross
Period   of Sales   Acres   Per Acre   Sales Price   Profit
                     
                (In millions)   (In millions)
2004
    169       18,376     $ 3,543     $ 65.1     $ 59.3  
2003
    166       29,904     $ 1,874     $ 56.0     $ 47.6  
2002
    176       28,071     $ 1,820     $ 51.1     $ 44.1  
      Land sales for 2004 included two parcels with an aggregate of 20,000 feet of frontage on North Bay in Bay County, Florida, and a parcel with approximately 5,000 feet of frontage on East Bay in Bay County. The two North Bay parcels, of approximately 349 and 323 acres, sold for $8.7 million, or $25,000 per acre, and $8.7 million, or approximately $27,000 per acre, respectively. The East Bay parcel of 866 acres sold for $10.0 million, or approximately $11,550 per acre. Since average sales prices per acre vary according to the characteristics of each particular piece of land being sold, our average prices may vary from one period to another.
      Conservation land sales activity for 2004, 2003, and 2002 was as follows:
                                         
    Number   Number of   Average Price   Gross   Gross
Period   of Sales   Acres   Per Acre   Sales Price   Profit
                     
                (In millions)   (In millions)
2004
    3       1,799     $ 1,668     $ 3.0     $ 2.7  
2003
    7       34,999     $ 1,157     $ 40.5     $ 36.7  
2002
    7       16,512     $ 1,999     $ 33.0     $ 30.5  
      Although we have designated certain parcels of our land as available for conservation land sales, we continually evaluate the possibility of developing these parcels for other uses. We consider such transactions when we believe that we can obtain fair value for our property. We cannot assure that our historic levels of conservation land sales will continue in the future.
      During 2004, we released 42 home sites at RiverCamps on Crooked Creek, 41 of which were closed in 2004. The remaining home site, which was released for sale in the fourth quarter of 2004, was closed in January of 2005. Work also continues on other potential RiverCamps locations in Northwest Florida. During 2004, the land sales segment recognized $4.0 million in revenue related to RiverCamps with related costs of $1.2 million. In 2003, RiverCamps generated $2.7 million in revenues with $1.8 million in related costs, including revenues of $0.7 million and related costs of $0.7 million for the sale of the 2003 HGTV Dream Home, located on East Bay in Bay County, Florida.

43


Table of Contents

      Forestry. The table below sets forth the results of operations of our forestry segment for the three years ended December 31, 2004.
                             
    Years Ended December 31,
     
    2004   2003   2002
             
    (In millions)
Revenues:
                       
 
Timber sales
  $ 35.2     $ 36.6     $ 40.7  
 
Real estate sales
                0.6  
                   
   
Total revenues
    35.2       36.6       41.3  
                   
Expenses:
                       
 
Cost of timber sales
    21.8       24.2       28.9  
 
Cost of real estate sales
                0.2  
 
Other operating expenses
    2.6       2.6       2.6  
 
Depreciation and amortization
    4.1       4.1       4.1  
                   
   
Total expenses
    28.5       30.9       35.8  
                   
Other income (expense)
    2.4       2.4       2.5  
                   
Pre-tax income from continuing operations
  $ 9.1     $ 8.1     $ 8.0  
                   
      Revenues for the forestry segment in 2004 decreased 4% compared to 2003. Revenues in 2003 decreased 11% compared to 2002. Total sales under our fiber agreement with Smurfit-Stone Container Corporation were $13.0 million (681,000 tons) in 2004, $11.8 million (677,000 tons) in 2003, and $12.2 million (686,000 tons) in 2002. Sales to other customers totaled $14.5 million (653,000 tons) in 2004, $16.3 million (837,000 tons) in 2003, and $18.3 million (782,000 tons) in 2002. The 2004 increase in revenues under the fiber agreements was primarily due to increasing prices under the terms of the agreement. The 2003 decrease in revenues under the fiber agreement was primarily due to the sales of higher priced wood chips in 2002 with no such sales in 2003. In 2004, sales to other customers decreased as we reduced the volume harvested from Company-owned lands. The 2003 decrease in revenues from sales to other customers was due to a change in the product mix. Revenues from the cypress mill operation were $7.7 million in 2004, $8.5 million in 2003, and $10.2 million in 2002. Revenues from the cypress mill decreased as we intentionally reduced production to help improve margins and profitability in response to challenges in finding wood supplies at acceptable prices.
      Cost of timber sales decreased $2.4 million, or 10%, in 2004 and decreased $4.7 million, or 16%, in 2003. Cost of sales as a percentage of revenue was 62% in 2004, 66% in 2003, and 71% in 2002. The 2004 decrease in cost of sales as a percentage of revenue was due to increased efficiencies in our cypress mill operation and slightly lower cost of sales for timber in 2004 compared to 2003. The 2003 decrease in cost of sales was primarily due to changes in the product mix. Cost of sales for the cypress mill operation were $5.4 million, or 70% of revenue, in 2004, $7.4 million, or 87% of revenue, in 2003, and $8.8 million, or 86% of revenue, in 2002. Cost of sales for timber was $16.4 million, or 59% of revenues, in 2004, $16.8 million, or 60% of revenue, in 2003, and $20.1 million, or 66% of revenue, in 2002.
Liquidity and Capital Resources
      We generate cash from:
  •  Operations;
 
  •  Sales of land holdings, other assets and subsidiaries;
 
  •  Borrowings from financial institutions and other debt; and
 
  •  Issuances of equity, primarily from the exercise of employee stock options.

44


Table of Contents

      We use cash for:
  •  Operations;
 
  •  Payments of taxes;
 
  •  Real estate development;
 
  •  Construction and homebuilding;
 
  •  Repurchases of our common stock;
 
  •  Payments of dividends;
 
  •  Repayments of debt; and
 
  •  Investments in joint ventures and acquisitions.
      Management believes that our financial condition is strong and that our cash, real estate and other assets, operating cash flows, and borrowing capacity, taken together, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses, including the continued investment in real estate developments. If our liquidity were not adequate to fund operating requirements, capital development, stock repurchases and dividends, we have various alternatives to change our cash flow, including eliminating or reducing our stock repurchase program, eliminating or reducing dividends, altering the timing of our development projects and/or selling existing assets.
Cash Flows from Operating Activities
      Net cash provided by operations in 2004, 2003 and 2002 was $135.8 million, $117.8 million, and $106.2 million, respectively. During such periods, expenditures relating to our Towns & Resorts development segment were $488.8 million, $342.5 million, and $272.5 million, respectively. Expenditures for operating properties in 2004, 2003 and 2002 totaled $69.0 million, $43.1 million and $38.9 million, respectively, and were made up of commercial property development and residential club and resort property development.
      The expenditures for operating activities relating to our Towns & Resorts development and commercial real estate development and services segments are primarily for site infrastructure development, general amenity construction and construction of homes and commercial space. Approximately one-half of these expenditures are for home construction that generally takes place after the signing of a binding contract with a buyer to purchase the home following construction. As a consequence, if contract activity slows, home construction will also slow. We expect this general expenditure level and relationship between expenditures and housing contracts to continue in the future.
      We have generated a net operating loss for tax purposes in each of the three prior tax years, thereby negating the cash payment of federal income taxes during 2001-2003. While we do not believe that federal taxable income will exceed our net operating loss and other carryforwards for 2004, it is possible that we may be required to make a cash payment for federal income taxes for that year. In 2005, it is highly likely that we will be obligated to make cash payments of federal income taxes.
Cash Flows from Investing Activities
      Net cash used in investing activities in 2004 was $36.2 million and included $64.4 million for the purchase of five commercial office buildings and related intangible assets and $41.1 million in proceeds from the sale of discontinued operations. Net cash used in investing activities in 2003 was $116.5 million and included $93.4 million for the purchase of four commercial buildings and related intangible assets. In 2002, net cash provided by investing activities was $48.9 million and included proceeds from the sale of discontinued operations of $138.7 million and $65.4 million for the purchase of commercial buildings.

45


Table of Contents

      The purchase of commercial buildings, comprising the majority of the cash used in investing activities, generally follow the sale of real estate, principally land sales and commercial sales on a tax deferred basis which requires the reinvestment of proceeds over a required time frame. As a consequence, if sales activity slows, the purchase activity will also slow. We expect this relationship to continue going forward.
Cash Flows from Financing Activities
      Net cash used in financing activities was $62.2 million in 2004, $17.2 million in 2003, and $122.8 million in 2002.
      We have approximately $22.0 million of debt maturing in 2005. We expect to spend $125 million to $175 million for the repurchase of shares and dividend payments in 2005.
      The Company assumed an existing mortgage of $29.8 million on a commercial building purchased in 2004. Also in 2004, the purchaser of a building sold by the Company assumed the remaining mortgage balance of $25.4 million. In 2002, we secured borrowings, collateralized by our commercial property, of $26.0 million. No such borrowings originated in 2003.
      We have a $250 million senior revolving credit facility (the “credit facility”), which matures on March 30, 2006, and can be used for general corporate purposes. The credit facility includes financial performance covenants relating to our leverage position, interest coverage and a minimum net worth requirement. The credit facility also has negative pledge restrictions. Management believes that we are currently in compliance with the covenants of the credit facility. There was no outstanding balance at December 31, 2004. The balance was $40.0 million at December 31, 2003. During 2004, we repaid $40.0 million on the credit line, net of borrowings. During 2003, we borrowed $40.0 million on the credit line, net of repayments.
      On June 8, 2004, we issued senior notes in a private placement with an aggregate principal amount of $100 million, with $25 million maturing on June  8, 2009 with a fixed interest rate of 4.97% and $75 million maturing on June 8, 2011 with a fixed interest rate of 5.31%. Interest is payable semiannually. These senior notes include financial performance covenants relating to our leverage position, fixed charge coverage, and a minimum net worth requirement. Management believes that we are currently in compliance with the covenants.
      On February 7, 2002, we issued a series of senior notes with an aggregate principal amount of $175.0 million in a private placement. At issuance, the notes ranged in maturity from three to ten years and bear fixed rates of interest ranging from 5.64% to 7.37%, depending upon maturity. Interest on the notes is payable semiannually. The net proceeds of the notes were used to pay down our revolving credit facility. These senior notes include financial performance covenants relating to our leverage position, fixed charge coverage, and a minimum net worth requirement. Management believes that we are currently in compliance with the covenants.
      We have used community development district (“CDD”) bonds to finance the construction of on-site infrastructure improvements at four 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 record a liability for future assessments which are fixed or determinable and will be levied against our properties. At December 31, 2004, CDD bonds totaling $109.5 million had been issued, of which $88.9 million had been expended, including $11.1 million allocated to the purchaser of a parcel of commercial land. At December 31, 2003, CDD bonds totaling $99.5 million had been issued, of which $79.0 million had been expended. At December 31, 2002, CDD bonds totaling $83.5 million had been issued, of which $49.4 million had been expended. In accordance with Emerging Issues Task Force Issue 91-10, Accounting for Special Assessments and Tax Increment Financing, we have recorded as debt $26.4 million, $30.0 million and $11.3 million of this obligation as of December 31, 2004, 2003, and 2002, respectively.
      Through December 31, 2004, our Board of Directors had authorized, through a series of five specific authorizations ranging from $150 million to $200 million, a total of $800.0 million for the repurchase of

46


Table of Contents

our outstanding common stock from time to time on the open market (the “Stock Repurchase Program”), of which $123.5 million remained available at December 31, 2004. In addition to repurchases on the open market, the Company has also repurchased shares from The Alfred I. duPont Testamentary Trust and its beneficiary, The Nemours Foundation (collectively, the “Trust”), from time to time on a proportionate basis to shares repurchased on the open market. This program with the Trust was discontinued as of August 9, 2004.
      From the inception of the Stock Repurchase Program through December 31, 2004, we had repurchased from shareholders 25,292,411 shares (17,356,066 shares on the open market and 7,936,345 shares from the Trust), and executives surrendered 2,036,494 shares of our stock in payment of strike prices and taxes due on exercised stock options and taxes due on vested restricted stock, for a total of 27,328,905 acquired shares. During 2004, we repurchased from shareholders 1,561,565 shares (1,298,200 shares on the open market and 263,365 shares from the Trust), and executives surrendered 884,633 shares of our stock in payment of strike prices and taxes due on exercised stock options and taxes due on vested restricted stock. During 2003, we repurchased from shareholders 2,555,174 shares (1,469,800 shares on the open market and 1,085,374 shares from the Trust), and executives surrendered 812,802 shares of our stock in payment of strike prices and taxes due on exercised stock options and taxes due on vested restricted stock. During the year ended December 31, 2002, we repurchased from shareholders 5,169,906 shares (2,583,700 shares on the open market and 2,586,206 shares from the Trust), and executives surrendered 256,729 shares of our stock in payment of the strike price and taxes due on exercised stock options and taxes due on vested restricted stock. Through December 31, 2004, a total of $676.5 million had been expended as part of the Stock Repurchase Program, including $69.7 million in 2004, $77.3 million in 2003, and $150.3 million in 2002.
Off-Balance Sheet Arrangements
      We are not currently a party to any material off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
Contractual Obligations and Commercial Commitments at December 31, 2004
                                         
    Payments Due by Period
     
        Less Than       More Than
Contractual Cash Obligations   Total   1 Year   1-3 Years   3-5 Years   5 Years
                     
    (In millions)
Debt
  $ 421.1     $ 22.0     $ 74.9     $ 128.0     $ 196.2  
Interest related to debt
    26.3       1.2       4.9       7.9       12.3  
Operating leases
    9.2       3.8       4.5       0.9        
                               
Total Contractual Cash Obligations
  $ 456.6     $ 27.0     $ 84.3     $ 136.8     $ 208.5  
                               
                                         
    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
  $ 36.9     $ 35.6     $ 1.1     $ 0.2     $  
Standby letters of credit
    15.4       13.4       2.0              
                               
Total Commercial Commitments
  $ 52.3     $ 49.0     $ 3.1     $ 0.2     $  
                               
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
      Our primary market risk exposure is interest rate risk related to our long-term debt. As of December 31, 2004, there was no balance outstanding under our $250 million credit facility, which matures on March 30, 2006. This debt accrues interest at different rates based on timing of the loan and our preferences, but generally will be either the one, two, three or six month London Interbank Offered

47


Table of Contents

Rate (“LIBOR”) plus a LIBOR margin in effect at the time of the loan. This loan potentially subjects us to interest rate risk relating to the change in the LIBOR rates. We manage our interest rate exposure by monitoring the effects of market changes in interest rates. If LIBOR had been 100 basis points higher or lower, the effect on net income with respect to interest expense on the $250 million credit facility would have been a respective decrease or increase in the amount of $0.2 million pre-tax ($0.1 million net of tax.)
      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, 2004. Weighted average variable rates are based on implied forward rates in the yield curve at December 31, 2004.
Expected Contractual Maturities
                                                                     
                                Fair
    2005   2006   2007   2008   2009   Thereafter   Total   Value
                                 
    $ in millions
Long-term Debt
                                                               
 
Fixed Rate
    22.0       4.2       69.2       69.4       40.6       196.2       401.6       446.4  
   
Wtd. Avg. Interest Rate
    5.5 %     6.4 %     6.6 %     7.3 %     5.7 %     6.3 %     6.4 %        
 
Variable Rate
                1.5       16.8       1.2             19.5       17.2  
   
Wtd. Avg. Interest Rate
                2.4 %     3.0 %     2.5 %           2.9 %        
      Management estimates 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, 2004, 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 rate and market values.
Item 8. Financial Statements and Supplementary Data
      The Financial Statements in pages F-2 to F-31 and the Report of Independent Registered Accounting Firm on page F-1 are filed as part of this Report and incorporated by reference thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
      None.
Item 9A. 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) 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

48


Table of Contents

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, 2004. 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 believes that the Company’s internal control over financial reporting as of December 31, 2004 was effective.
      The Company’s independent auditors, KPMG LLP, a registered public accounting firm, has issued an audit report on management’s assessment of the Company’s internal control over financial reporting, which report appears below.
      (c) Attestation Report of the Registered Public Accounting Firm.
The Board of Directors and Shareholders
The St. Joe Company:
      We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that The St. Joe Company maintained effective internal control over financial reporting as of December 31, 2004, 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. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and 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

49


Table of Contents

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, management’s assessment that The St. Joe Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by COSO. Also, in our opinion, The St. Joe Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by 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, 2004 and 2003, and the related consolidated statements of income, changes in stockholders’ equity, and cash flow for each of the years in the three-year period ended December 31, 2004, and our report dated March 11, 2005 expressed an unqualified opinion on those consolidated financial statements.
KPMG LLP
Jacksonville, Florida
March 11, 2005
      (d) Changes in Internal Controls Over Financial Reporting. During the quarter ended December 31, 2004, there have not been any changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B.      Other Information
      None.
PART III
Item 10. Directors and Executive Officers of the Registrant
      Information concerning our directors, nominees for director and executive officers and our code of conduct is described in our proxy statement relating to our 2005 annual meeting of shareholders to be held on May 17, 2005. This information is incorporated by reference.
Item 11. Executive Compensation
      Information concerning compensation of our executive officers for the year ended December 31, 2004, is presented under the caption “Executive Compensation and Other Information” in our proxy statement. This information is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
  •  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.

50


Table of Contents

  •  Information concerning Section 16 of the Securities Exchange Act of 1934 is set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” 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 the Company’s 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, 2004:
                         
            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
    1,886,164     $ 27.09       1,451,327  
Equity compensation plans not approved by security holders
    0       0       0  
                   
Total
    1,886,164     $ 27.09       1,451,327  
                   
Item 13. Certain Relationships and Related Transactions
      Information concerning certain relationships and related transactions during 2004 is set forth under the caption “Certain Transactions” in our proxy statement. This information is incorporated by reference.
Item 14. Principal Accountant Fees and Services
      Information concerning our independent auditors is presented under the caption “Audit Committee Information” in our proxy statement and is incorporated by reference.
PART IV
Item 15. 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.
      All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission on the schedule or because the information required is included in the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements.

51


Table of Contents

INDEX TO EXHIBITS
         
Exhibit    
Number   Description
     
  3 .1   Restated and Amended 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 By-laws of the registrant (incorporated by reference to Exhibit 3 to the registrant’s Current Report on Form 8-K dated December 14, 2004).
 
  4 .1   Registration Rights Agreement between the registrant and The Alfred I. duPont Testamentary Trust, dated December 16, 1997 (incorporated by reference to Exhibit 4.01 to the registrant’s Amendment No. 1 to the registration statement on Form S-3 (File No. 333-42397)).
 
  4 .2   Amendment No. 1 to the Registration Rights Agreement between The Alfred I. duPont Testamentary Trust and the registrant, dated January 26, 1998 (incorporated by reference to Exhibit 4.2 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  4 .3   Amendment No. 2 to the Registration Rights Agreement between The Alfred I. duPont Testamentary Trust and the registrant, dated May 24, 2002 (incorporated by reference to Exhibit 4.3 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  4 .4   Amendment No. 3 to the Registration Rights Agreement between The Alfred I. duPont Testamentary Trust and the registrant dated September 5, 2003 (incorporated by reference to Exhibit 4.4 of the registrant’s registration statement on Form S-3 (File No. 333-108292)).
 
  4 .5   Amendment No. 4 to the Registration Rights Agreement between the Alfred I. duPont Testamentary Trust and the registrant dated December 30, 2003 (incorporated by reference to Exhibit 4.5 of the registrant’s registration statement on Form S-3 (File No. 333-111658)).
 
  10 .1   Second Amended and Restated Credit Agreement dated as of February 7, 2002, among the registrant, First Union National Bank, as agent, and the lenders party thereto. (incorporated by reference to Exhibit 10.1 of the registrant’s annual report on Form 10-K for the year ended December 31, 2003).
 
  10 .2   First Amendment to Second Amended and Restated Credit Agreement dated as of May 7, 2003, among the registrant, Wachovia Bank, National Association (formerly known as First Union National Bank), as agent, and the lenders party thereto (incorporated by reference to Exhibit 99.02 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
 
  10 .3   Second Amendment to Second Amended and Restated Credit Agreement dated as of July 10, 2004 among the registrant, Wachovia Bank, National Association (formerly known as First Union National Bank), as agent, and the lenders party thereto. (incorporated by reference to Exhibit 10.3 of the registrant’s annual report on Form 10-K for the year ended December 31, 2003).
 
  10 .4   Third Amendment to Second Amended and Restated Credit Agreement dated as of June 8, 2004 among the registrant, Wachovia Bank, National Association, as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 of the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
 
  10 .5   Note Purchase Agreement dated as of June 8, 2004, among the registrant and the purchasers party thereto ($100 million Senior Secured Notes)(incorporated by reference to Exhibit 10.3 of the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
 
  10 .6   Employment Agreement between the registrant and Peter S. Rummell dated August 19, 2003 (incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).
 
  10 .7   Employment Agreement between the registrant and Kevin M. Twomey dated August 19, 2003 (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).
 
  10 .8   Severance Agreement between Christine M. Marx and the registrant dated as of March 24, 2003 (incorporated by reference to Exhibit 99.04 to the registrant’s Form 10-Q for the quarter ended March 31, 2003).

52


Table of Contents

         
Exhibit    
Number   Description
     
 
  10 .9   Retirement Agreement of Robert M. Rhodes, dated August 24, 2004 (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)
 
  10 .10   Form of Severance Agreement for Mr. Regan (incorporated by reference to Exhibit 10.07 to the registrant’s registration statement on Form S-3 (File No. 333-42397)).
 
  10 .11   Long-term Incentive Compensation Agreement of Robert M. Rhodes, dated as of August 21, 2001 (incorporated by reference to Exhibit 10.10 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001).
 
  10 .12   Directors’ Deferred Compensation Plan, dated December 28, 2001 (incorporated by reference to Exhibit 10.10 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  10 .13   Deferred Capital Accumulation Plan, as amended and restated effective January 1, 2002 (incorporated by reference to Exhibit 10.11 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  10 .14   1999 Employee Stock Purchase Plan, dated November 30, 1999 (incorporated by reference to Exhibit 10.12 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  10 .15   Amendment to the 1999 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.13 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  10 .16   Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2002 (incorporated by reference to Exhibit 10.15 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  10 .17   Employment Agreement of Michael N. Regan, dated November 3, 1997 (incorporated by reference to Exhibit 10.17 of the registrant’s registration statement on Form S-1 (File 333- 89146)).
 
  10 .18   1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.21 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  10 .19   1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.22 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  10 .20   1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.23 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  10 .21   2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.24 of the registrant’s registration statement on Form S-1 (File 333-89146)).
 
  10 .22   Form of Stock Option Agreement (incorporated by reference to Exhibit 10.23 of the registrant’s annual report on Form 10-K for the year ended December 31, 2003).
 
  10 .23   Form of Restricted Stock Agreement-Bonus Award (incorporated by reference to Exhibit 10.24 of the registrant’s annual report on Form 10-K for the year ended December 31, 2003).
 
  10 .24   Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10 of the registrant’s Current Report on Form 8-K dated September 23, 2004).
 
  10 .25   Note Purchase Agreement dated as of February 7, 2002, among the registrant and the purchasers party thereto ($175 million Senior Secured Notes) (incorporated by reference to Exhibit 10.25 of the registrant’s annual report on Form 10-K for the year ended December 31, 2003)
 
  10 .26   Severance Agreement between Wm. Britton Greene and the registrant, dated January 5, 2005.
 
  10 .27   Summary of Non-Employee Director Compensation (incorporated by reference to the registrant’s Current Report on Form 8-K dated January 5, 2005).
 
  10 .28   Form of Non-Employee Director Stock Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated January 5, 2005).
 
  10 .29   Form of 2005 Director Investment Election Form (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K dated January 5, 2005).

53


Table of Contents

         
Exhibit    
Number   Description
     
 
  10 .30   Summary of 2005 Executive Officer Salaries (incorporated by reference to the information set forth under the caption “Approval of 2005 Base Salaries” contained in the registrant’s Current Report on Form 8-K dated March 1, 2005).
 
  10 .31   Summary of the 2005 Annual Incentive Plan (incorporated by reference to the information set forth under the caption “Approval of the 2005 Annual Incentive Plan” contained in the registrant’s Current Report on Form 8-K dated March 1, 2005).
 
  10 .32   Summary of Awards to Executive Officers Under the 2004 Annual Incentive Plan (incorporated by reference to the information set forth under the caption “Awards Under the 2004 Annual Incentive Plan” contained in the registrant’s Current Report on Form 8-K dated March 1, 2005).
 
  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.

54


Table of Contents

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/ Kevin M. Twomey
 
 
  Kevin M. Twomey
  President, Chief Operating Officer
  and Chief Financial Officer
Dated: March 14, 2005
      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 14, 2005 by the following persons on behalf of the registrant in the capacities and dates indicated.
             
Signature   Title   Date
         
 
/s/ Peter S. Rummell
 
Peter S. Rummell
  Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
  March 14, 2005
 
/s/ Kevin M. Twomey
 
Kevin M. Twomey
  President, Chief Operating Officer
Chief Financial Officer
(Principal Financial Officer)
  March 14, 2005
 
/s/ Michael N. Regan
 
Michael N. Regan
  Senior Vice President
Finance and Planning
(Principal Accounting Officer)
  March 14, 2005
 
/s/ Michael L. Ainslie
 
Michael L. Ainslie
  Director   March 14, 2005
 
/s/ Hugh M. Durden
 
Hugh M. Durden
  Director   March 14, 2005
 
/s/ Dr. Adam W. Herbert, Jr.
 
Dr. Adam W. Herbert, Jr. 
  Director   March 14, 2005
 
/s/ Delores Kesler
 
Delores Kesler
  Director   March 14, 2005
 
/s/ John S. Lord
 
John S. Lord
  Director   March 14, 2005
 
/s/ Walter L. Revell
 
Walter L. Revell
  Director   March 14, 2005
 
/s/ William H. Walton, III
 
William H. Walton, III
  Director   March 14, 2005

55


Table of Contents

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
         
    F-1  
    F-2  
    F-3  
    F-5  
    F-6  
    F-7  
Schedule III — Real Estate and Accumulated Depreciation
    S-1  

56


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
The St. Joe Company:
      We have audited the accompanying consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders’ equity, and cash flow for each of the years in the three-year period ended December 31, 2004. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule III. 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, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004 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 effectiveness of The St. Joe Company’s internal control over financial reporting as of December 31, 2004, 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 March 11, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
KPMG LLP
Jacksonville, Florida
March 11, 2005

F-1


Table of Contents

THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
                 
    December 31,
     
    2004   2003
         
    (Dollars in thousands)
ASSETS
Investment in real estate
  $ 942,630     $ 886,076  
Cash and cash equivalents
    94,816       57,403  
Accounts receivable, net
    89,813       75,692  
Prepaid pension asset
    94,079       91,768  
Property, plant and equipment, net
    33,562       36,272  
Goodwill, net
    51,679       48,721  
Intangible assets, net
    47,415       37,795  
Other assets
    49,635       42,003  
             
    $ 1,403,629     $ 1,275,730  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
               
Debt
  $ 421,110     $ 382,176  
Accounts payable
    76,916       60,343  
Accrued liabilities
    135,425       105,524  
Deferred income taxes
    264,374       232,184  
             
Total liabilities
    897,825       780,227  
Minority interest in consolidated subsidiaries
    10,393       8,188  
STOCKHOLDERS’ EQUITY:
               
Common stock, no par value; 180,000,000 shares authorized; 103,123,017 and 100,824,269 issued at December 31, 2004 and 2003, respectively
    263,044       199,787  
Retained earnings
    994,172       944,000  
Restricted stock deferred compensation
    (19,649 )     (18,807 )
Treasury stock at cost, 27,229,767 and 24,794,178 shares held at December 31, 2004 and 2003, respectively
    (742,156 )     (637,665 )
             
Total stockholders’ equity
    495,411       487,315  
             
    $ 1,403,629     $ 1,275,730  
             
See notes to consolidated financial statements.

F-2


Table of Contents

THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
                             
    Years Ended December 31,
     
    2004   2003   2002
             
    (Dollars in thousands except
    per share amounts)
Revenues:
                       
 
Real estate sales
  $ 734,251     $ 592,211     $ 484,026  
 
Realty revenues
    98,133       62,525       58,534  
 
Timber sales
    35,218       36,552       40,727  
 
Rental revenues
    40,520       31,008       24,191  
 
Other revenues
    43,381       28,530       18,962  
                   
   
Total revenues
    951,503       750,826       626,440  
                   
Expenses:
                       
 
Cost of real estate sales
    484,753       353,225       290,816  
 
Cost of realty revenues
    63,892       36,218       33,171  
 
Cost of timber sales
    21,782       24,212       28,853  
 
Cost of rental revenues
    15,931       14,076       11,247  
 
Cost of other revenues
    37,627       27,235       23,060  
 
Other operating expenses
    102,160       91,626       84,085  
 
Corporate expense, net
    43,759       34,467       27,528  
 
Depreciation and amortization
    35,052       28,427       20,131  
 
Impairment losses
    1,994       14,359        
                   
   
Total expenses
    806,950       623,845       518,891  
                   
   
Operating profit
    144,553       126,981       107,549  
                   
Other income (expense):
                       
 
Investment income, net
    873       884       2,932  
 
Interest expense
    (12,863 )     (10,704 )     (15,608 )
 
Gain on settlement of forward sale contracts
                132,915  
 
Other, net
    2,772       2,878       1,779  
                   
   
Total other income (expense)
    (9,218 )     (6,942 )     122,018  
                   
Income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes, and minority interest
    135,335       120,039       229,567  
Equity in income (loss) of unconsolidated affiliates
    5,600       (2,168 )     10,940  
Income tax expense (benefit):
                       
 
Current
    19,831       5,929       (781 )
 
Deferred
    33,427       36,238       89,741  
                   
   
Total income tax expense
    53,258       42,167       88,960  
                   
Income from continuing operations before minority interest
<