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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2008
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES þ     NO o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES o     NO þ
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  YES þ     NO o
 
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o     NO þ
 
The aggregate market value of the registrant’s Common Stock held by non-affiliates based on the closing price on June 30, 2008, was approximately $3.1 billion.
 
As of February 19, 2009, there were 122,737,098 shares of Common Stock, no par value, issued and 92,496,283 shares outstanding, with 30,240,815 shares of treasury stock.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Registrant’s definitive Proxy Statement for the Annual Meeting of our Shareholders to be held on May 12, 2009 (the “proxy statement”) are incorporated by reference in Part III of this Report. Other documents incorporated by reference in this Report are listed in the Exhibit Index.
 


 

 
Table of Contents
 
             
        Page
Item
      No.
 
l.
  Business     2  
      Market Conditions and the Economy     2  
      Relocation of the Panama City-Bay International Airport     3  
      Land-Use Entitlements     3  
      Residential Real Estate     6  
      Commercial Real Estate     7  
      Rural Land Sales     8  
      Forestry     8  
      Competition     8  
      Supplemental Information     9  
      Employees     9  
      Website Access to Reports     9  
      Certifications     9  
1A.
  Risk Factors     9  
1B.
  Unresolved Staff Comments     19  
2.
  Properties     19  
3.
  Legal Proceedings     20  
4.
  Submission of Matters to a Vote of Security Holders     20  
 
PART II
5.
  Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities     20  
6.
  Selected Consolidated Financial Data     22  
7.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     23  
7A.
  Quantitative and Qualitative Disclosures about Market Risk     48  
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     51  
 
10.
  Directors, Executive Officers and Corporate Governance     51  
11.
  Executive Compensation     51  
12.
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     51  
13.
  Certain Relationships and Related Transactions and Director Independence     52  
14.
  Principal Accountant Fees and Services     52  
 
PART IV
15.
  Exhibits and Financial Statement Schedule     52  
    55  
 EX-10.3 Second Amendment to Credit Agreement dated February 20, 2009
 EX-10.10 Employment Agreement of Stephen W. Solomon
 EX-10.11 First Amendment to Employment Agreement of Stephen W. Solomon
 EX-10.12 Severance Agreement of Stephen W. Solomon
 EX-10.13 First Amendment to Severance Agreement of Stephen W. Solomon
 EX-10.15 Deferred Capital Accumulation Plan
 EX-10.16 Supplemental Executive Retirement Plan
 EX-10.33 Form of First Amendment to Restricted Stock Agreement
 EX-10.34 Form of Restricted Stock Agreement
 EX-10.36 Form of Director Election Form describing Board compensation
 EX-21.1 Subsidiaries of The St. Joe Company
 EX-23.1 Consent of KPMG LLP
 EX-31.1 Certification by Chief Executive Officer Section 302
 EX-31.2 Certification by Chief Financial Officer Section 302
 EX-32.1 Certification by Chief Executive Officer Section 906
 EX-32.2 Certification by Chief Financial Officer Section 906
 
 
* Portions of the Proxy Statement for the Annual Meeting of our Shareholders to be held on May 12, 2009, are incorporated by reference in Part III of this Form 10-K.


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PART I
 
Item 1.   Business
 
As used throughout this Annual Report on Form 10-K, the terms “we,” “JOE,” “Company” and “Registrant” mean The St. Joe Company and its consolidated subsidiaries unless the context indicates otherwise.
 
JOE was incorporated in 1936 and is now one of the largest real estate development companies in Florida. We own approximately 586,000 acres concentrated primarily in Northwest Florida. Most of this land was acquired decades ago and, as a result, has a very low cost basis. Approximately 406,000 acres, or 70 percent of our total land holdings, are within 15 miles of the coast of the Gulf of Mexico.
 
We are engaged in town and resort development, commercial and industrial development and rural land sales. We also have significant interests in timber. Our four operating segments are:
 
  •  Residential Real Estate
 
  •  Commercial Real Estate
 
  •  Rural Land Sales
 
  •  Forestry
 
We believe we have one of the largest inventories of private land suitable for development in Florida. We seek to create value in our land by securing higher and better land-use entitlements, facilitating infrastructure improvements, developing community amenities, undertaking strategic and expert land planning and development, parceling our land holdings in creative ways and performing land restoration and enhancement. We believe we are one of the few real estate development companies to have assembled the range of real estate, financial, marketing and regulatory expertise necessary to take a large-scale approach to real estate development.
 
Market Conditions and the Economy
 
For over three years, the United States has experienced a dramatic slowdown in most of its residential real estate markets. Florida, as one of the fastest growing states during the preceding real estate boom, has been particularly hard-hit, with high levels of inventories of resale homes, a large number of foreclosures and steep declines in home values. In 2008, the problems in the real estate industry contributed to a liquidity crisis among financial institutions resulting in unprecedented government intervention, a dramatic drop in the stock market and the onset of a severe economic recession. The financial markets remain unsettled and economic conditions continue to deteriorate, exerting additional negative pressure on real estate demand and consumer confidence, thereby prolonging the possibility of any real estate recovery.
 
These market conditions continued to negatively impact sales of our residential and commercial products during 2008. We took the following steps to help manage these conditions:
 
  •  We raised approximately $580 million of net proceeds in an equity offering in February 2008 and paid off substantially all of our outstanding debt.
 
  •  During 2008, we sold 107,677 acres of non-strategic rural land, which generated approximately 61% of our total revenues.
 
  •  We significantly reduced capital expenditures for our real estate developments to approximately $35 million in 2008, down from approximately $247 million in 2007.
 
  •  We implemented a leaner operating structure, with 194 employees at February 1, 2009, compared to 337 employees at February 1, 2008.


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  •  We continued to focus on business-to-business relationships with strategic partners and customers who are interested in purchasing entitled land, can provide development capital for projects and may help accelerate development activity in our markets.
 
  •  We increased our efforts to stimulate regional economic development and to identify and manage key regional inducers, primarily in Northwest Florida.
 
Relocation of the Panama City-Bay County International Airport
 
We also continued to monitor the significant progress achieved in 2008 on the relocation of the Panama City-Bay County International Airport. The new airport is being built on a 4,000-acre site in western Bay County that we donated to the Panama City/Bay County Airport and Industrial District (the “Airport Authority”). Construction of the airport began in late 2007 and almost half of the site infrastructure work, including 75 percent of the primary runway, is now complete. Funding for the budgeted construction costs of the airport has been obtained. The Airport Authority continues to project a May 2010 opening date for the new airport.
 
The new airport is located in the West Bay Area Sector Plan (“West Bay”), one of the largest planned mixed-use developments in the United States. We own all of the land in West Bay surrounding the airport (approximately 71,000 acres, including approximately 41,000 acres dedicated to preservation). Our West Bay land has entitlements for over four million square feet of commercial and industrial space and over 5,800 residential units.
 
Land-Use Entitlements
 
We have a broad range of land-use entitlements in hand or in various stages of the approval process for residential communities in Northwest Florida and other selected regions of the state, as well as commercial entitlements. As of December 31, 2008, we had approximately 45,000 residential units and 13.8 million commercial square feet in the entitlements pipeline, in addition to 592 acres zoned for commercial uses. The following tables describe our residential and commercial projects with land-use entitlements that are in development, pre-development planning or the entitlements process. These entitlements are on approximately 50,000 acres.
 
Table 1
Summary of Land-Use Entitlements(1)
Active JOE Residential and Mixed-Use Projects
December 31, 2008
 
                                                                 
                                  Residential
             
                            Residential
    Units
             
                            Units
    Under
    Total
    Remaining
 
                            Closed
    Contract
    Residential
    Commercial
 
                Project
    Project
    Since
    as of
    Units
    Entitlements
 
Project
  Class.(2)     County     Acres     Units(3)     Inception     12/31/08     Remaining     (Sq. Ft.)(4)  
 
In Development:(5)
                                                               
Artisan Park(6)
    PR       Osceola       175       616       577             39        
Hawks Landing
    PR       Bay       88       168       131             37        
Landings at Wetappo
    RR       Gulf       113       24       7             17        
RiverCamps on Crooked Creek
    RS       Bay       1,491       408       188             220        
RiverSide at Chipola
    RR       Calhoun       120       10       2             8        
RiverTown
    PR       St. Johns       4,170       4,500       30             4,470       500,000  
SouthWood
    PR       Leon       3,370       4,770       2,535             2,235       4,577,360  
St. Johns Golf & Country Club
    PR       St. Johns       880       799       798             1        
SummerCamp Beach
    RS       Franklin       762       499       81             418       25,000  
Victoria Park
    PR       Volusia       1,859       4,200       1,451       40       2,709       43,643  
WaterColor
    RS       Walton       499       1,140       886             254       47,600  
WaterSound
    RS       Walton       2,425       1,432       24             1,408       457,380  
WaterSound Beach
    RS       Walton       256       511       445             66       29,000  
WaterSound West Beach
    RS       Walton       62       199       37             162        


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                                  Residential
             
                            Residential
    Units
             
                            Units
    Under
    Total
    Remaining
 
                            Closed
    Contract
    Residential
    Commercial
 
                Project
    Project
    Since
    as of
    Units
    Entitlements
 
Project
  Class.(2)     County     Acres     Units(3)     Inception     12/31/08     Remaining     (Sq. Ft.)(4)  
 
Wild Heron(7)
    RS       Bay       17       28       2             26        
WindMark Beach
    RS       Gulf       2,020       1,662       139             1,523       75,000  
                                                                 
Subtotal
                    18,307       20,966       7,333       40       13,593       5,754,983  
                                                                 
In Pre-Development:(5)
                                                               
Avenue A
    PR       Gulf       6       96                   96        
Bayview Estates
    PR       Gulf       31       45                   45        
Bayview Multifamily
    PR       Gulf       20       300                   300        
Beacon Hill
    RR       Gulf       3       12                   12        
Beckrich NE
    PR       Bay       15       70                   70        
Boggy Creek
    PR       Bay       630       526                   526        
Bonfire Beach
    RS       Bay       550       750                   750       70,000  
Breakfast Point, Phase 1
    PR/RS       Bay       115       320                   320        
Carrabelle East
    PR       Franklin       200       600                   600        
College Station
    PR       Bay       567       800                   800        
Cutter Ridge
    PR       Franklin       10       25                   25        
DeerPoint Cedar Grove
    PR       Bay       668       950                   950        
East Lake Creek
    PR       Bay       81       313                   313        
East Lake Powell
    RS       Bay       181       360                   360       30,000  
Howards Creek
    RR       Gulf       8       33                   33        
Laguna Beach West
    PR       Bay       59       382                   382        
Long Avenue
    PR       Gulf       10       30                   30        
Palmetto Bayou
    PR       Bay       58       217                   217       90,000  
ParkSide
    PR       Bay       48       480                   480        
Pier Park NE
    PR       Bay       57       460                   460       190,000  
Pier Park Timeshare
    RS       Bay       13       125                   125        
PineWood
    PR       Bay       104       264                   264        
Port St. Joe Draper, Phase 1
    PR       Gulf       639       1,200                   1,200        
Port St. Joe Draper, Phase 2
    PR       Gulf       981       2,125                   2,125       150,000  
Port St. Joe Town Center
    RS       Gulf       180       624                   624       500,000  
Powell Adams
    RS       Bay       56       2,520                   2,520        
Sabal Island
    RS       Gulf       45       18                   18        
SevenShores
    RS       Manatee       192       278                   278       20,400  
South Walton Multifamily
    PR       Walton       40       212                   212        
St. James Island Granite Point
    RS       Franklin       1,000       2,000                   2,000        
Star Avenue North
    PR       Bay       271       1,248                   1,248       380,000  
The Cove
    RR       Gulf       64       107                   107        
Timber Island(8)
    RS       Franklin       49       407                   407       14,500  
Topsail
    PR       Walton       115       627                   627       300,000  
Wavecrest
    RS       Bay       7       95                   95        
WestBay Corners SE
    PR       Bay       100       524                   524       50,000  
WestBay Corners SW
    PR       Bay       64       160                   160        
WestBay DSAP
    PR/RS       Bay       15,089       5,628                   5,628       4,430,000  
WestBay Landing(9)
    RS       Bay       950       214                   214        
                                                                 
Subtotal
                    23,276       25,145                   25,145       6,224,900  
                                                                 
Total
                    41,583       46,111       7,333       40       38,738       11,979,883  
                                                                 

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(1) A project is deemed land-use entitled when all major discretionary governmental land-use approvals have been received. Some of these projects may require additional permits for development and/or build-out; they also may be subject to legal challenge.
 
(2) Current JOE land classifications for its residential developments or the residential portion of its mixed-use projects:
 
  •  PR — Primary residential
 
  •  RS — Resort and seasonal residential
 
  •  RR — Rural residential
 
(3) Project units represent the maximum number of units entitled or currently expected at full build-out. The actual number of units or square feet to be constructed at full build-out may be lower than the number entitled or currently expected.
 
(4) Represents the remaining square feet with land-use entitlements as designated in a development order or expected given the existing property land use or zoning and present plans. The actual number of square feet to be constructed at full build-out may be lower than the number entitled. Commercial entitlements include retail, office and industrial uses. Industrial uses total 6,128,381 square feet including SouthWood, RiverTown and the West Bay DSAP.
 
(5) A project is “in development” when construction on the project has commenced and sales and/or marketing have commenced or will commence in the foreseeable future. A project in “pre-development” has land-use entitlements but is still under internal evaluation or requires one or more additional permits prior to the commencement of construction. For certain projects in pre-development, some horizontal construction may have occurred, but no sales and/or marketing activities are expected in the foreseeable future.
 
(6) Artisan Park is 74 percent owned by JOE.
 
(7) Homesites acquired by JOE within the Wild Heron community.
 
(8) Timber Island entitlements include seven residential units and 400 units for hotel or other transient uses (including units held with fractional ownership such as private residence clubs).
 
(9) West Bay Landing is a sub-project within WestBay DSAP.
 
Proposed JOE Residential and Mixed-Use Projects
In the Land-Use Entitlement Process in Florida(1)
December 31, 2008
 
                                 
                        Estimated
 
                        Commercial
 
                  Estimated
    Entitlements
 
Project
  Class.(2)   County   Project Acres     Project Units(3)     (Sq. Ft.)(4)  
 
Breakfast Point, Phase 2
  PR/RS   Bay     1,299       2,780       635,000  
SouthSide
  PR   Leon     1,625       2,800       1,150,000  
St. James Island McIntyre
  RR   Franklin     1,704       340        
St. James Island RiverCamps
  RS   Franklin     2,500       500        
                                 
Total
            7,128       6,420       1,785,000  
                                 
 
 
(1) A project is deemed to be in the land-use entitlement process when customary steps necessary for the preparation and submittal of an application, such as conducting pre-application meetings or similar discussions with governmental officials, have commenced and/or an application has been filed. All projects listed have significant entitlement steps remaining that could affect their timing, scale and viability. There can be no assurance that these entitlements will ultimately be received.
 
(2) Current JOE land classifications for its residential developments or the residential portion of its mixed-use projects:
 
  •  PR — Primary residential
 
  •  RS — Resort and seasonal residential
 
  •  RR — Rural residential
 
(3) The actual number of units to be constructed at full build-out may be lower than the number ultimately entitled.
 
(4) Represents the estimated number of entitlements that are being sought. The actual number of entitlements approved may be less. Once entitled, the actual number of square feet to be constructed at full build-out may be lower than the actual number eventually entitled. Commercial entitlements include retail, office and industrial uses.


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Summary of Additional Commercial Land-Use Entitlements(1)
(Commercial Projects Not Included in the Tables Above)
December 31, 2008
 
                                     
              Acres Sold
             
        Project
    Since
    Acres Under Contract
    Total Acres
 
Project
  County   Acres     Inception     As of 12/31/08     Remaining  
 
Airport Commerce
  Leon     45       10             35  
Alf Coleman Retail
  Bay     25       23             2  
Beach Commerce
  Bay     157       151             6  
Beach Commerce II
  Bay     112       13             99  
Beckrich Office Park
  Bay     17       12             5  
Beckrich Retail
  Bay     44       41             3  
Cedar Grove Commerce
  Bay     51       5             46  
Franklin Industrial
  Franklin     7                   7  
Glades Retail
  Bay     14                   14  
Gulf Boulevard
  Bay     78       27             51  
Hammock Creek Commerce
  Gadsden     165       27             138  
Mill Creek Commerce
  Bay     37                   37  
Nautilus Court
  Bay     11       7             4  
Port St. Joe Commerce II
  Gulf     39       9             30  
Port St. Joe Commerce III
  Gulf     50                   50  
Powell Hills Retail
  Bay     44                   44  
South Walton Commerce
  Walton     38       17             21  
                                     
Total
        934       342             592  
                                     
 
 
(1) A project is deemed land-use entitled when all major discretionary governmental land-use approvals have been received. Some of these projects may require additional permits for development and/or build-out; they also may be subject to legal challenge. Includes significant JOE projects that are either operating, under development or in the pre-development stage.
 
Residential Real Estate
 
Our residential real estate segment develops large-scale, mixed-use resort, seasonal and primary residential communities primarily on our existing land. We own large tracts of land in Northwest Florida, including large tracts near Tallahassee and Panama City, and significant Gulf of Mexico beach frontage and other waterfront properties, which we believe are suited for resort, seasonal and primary communities.
 
In the past, we devoted significant resources to the conceptual design, planning, permitting and construction process for each of our new communities. We are continuing this process for certain key projects currently under development, and we intend to maintain this process for certain select communities going forward. We now, however, primarily seek to either partner with third parties for the development of new communities or sell entitled land to third-party developers or investors. Customers for our developed home-sites have included both individual purchasers and national, regional and local homebuilders. Going forward, we may also sell undeveloped land with significant residential entitlements directly to third-party developers or investors.
 
The following is a description of some of our major communities in Florida:
 
WaterColor is situated on approximately 499 acres on the beaches of the Gulf of Mexico in south Walton County. The community includes approximately 1,140 residential units, as well as the WaterColor Inn and Resort, the recipient of many notable awards. The WaterColor Inn and Resort is operated by Noble House Hotels & Resorts, a boutique hotel ownership and management company with 14 properties throughout the


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United States. Other WaterColor amenities include a beach club, spa, tennis center, an award-winning upscale restaurant, retail and commercial space and neighborhood parks.
 
WaterSound Beach is located approximately five miles east of WaterColor. Situated on approximately 256 acres, WaterSound Beach includes over one mile of beachfront on the Gulf of Mexico. Amenities include the WaterSound Beach Club, a private, beachfront facility featuring a 7,000-square-foot free-form pool and a restaurant. This community is currently planned to include approximately 511 units.
 
WaterSound West Beach is located approximately one-half mile west of WaterSound Beach on the beach-side of County Road 30A. This community has been designed for 199 units with amenities that include private beach access through the adjacent Deer Lake State Park and a community pool and clubhouse facility.
 
WaterSound is situated on approximately 2,425 acres and is planned for a mixed-use resort community. Located approximately three miles from WaterSound Beach in Walton County, WaterSound includes a Davis Love III-designed, six-hole golf course, as well as a community pool and clubhouse facility. WaterSound plans include 1,432 residential units and approximately 450,000 square feet of commercial space.
 
RiverCamps on Crooked Creek is situated on approximately 1,491 acres in western Bay County bounded by West Bay, the Intracoastal Waterway and Crooked Creek. The community is planned for 408 high-quality homes in a low-density, rustic setting with access to various outdoor activities such as fishing, boating and hiking. The community, which is located less than two miles from the new airport, includes the RiverHouse, a waterfront amenity featuring a pool, fitness center, meeting and dining areas and temporary docking facilities.
 
WindMark Beach is a beachfront resort community situated on approximately 2,020 acres in Gulf County near the town of Port St. Joe. Plans for WindMark Beach include approximately 1,662 residential units and 75,000 square feet of commercial space. In 2008, we substantially completed construction of the waterfront Village Center that includes a restaurant, a community pool and clubhouse facility, an amphitheater and approximately 42,000 square feet of commercial space. The community is planned to include approximately 14 miles of walkways and boardwalks, including a 3.5-mile boardwalk along the beach.
 
SummerCamp Beach is situated on the Gulf of Mexico on approximately 762 acres in Franklin County. The community includes the SummerCamp Beach Club, a private beachfront facility with a pool, restaurant, boardwalks and canoe and kayak rentals. Plans for SummerCamp Beach include approximately 499 units.
 
SouthWood is situated on approximately 3,370 acres in southeast Tallahassee. Planned for approximately 4,770 residential units, SouthWood includes an 18-hole golf course and club, and a traditional town center with restaurants, recreational facilities, retail shops and offices. Over 35% of the land in this community is designated for open space, including a 123-acre central park.
 
RiverTown, situated on approximately 4,170 acres in St. Johns County south of Jacksonville, is currently planned for 4,500 housing units and 500,000 square feet of commercial space. RiverTown is designed to have unique neighborhoods offering homebuyers a wide variety of price points and lifestyles. The centerpiece of the community will be a 58-acre park along the St. Johns River.
 
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 approximately 4,200 single and multi-family units built among parks, lakes and conservation areas. Victoria Park includes an award-winning 18-hole golf course.
 
Artisan Park, located in Celebration, near Orlando, was developed through a joint venture in which we own 74%. Artisan Park is situated on approximately 175 acres which we acquired in 2002. Artisan Park includes approximately 267 single-family units, 47 townhomes, and 302 condominium units as well as parks, trails and a community clubhouse with a pool.
 
Commercial Real Estate
 
Our commercial real estate segment develops and sells real estate for commercial purposes. We focus on commercial development in Northwest Florida because of our large land holdings along roadways and near or


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within business districts in the region. We provide development opportunities for national and regional retailers, as well as multi-family rental projects. We offer land for commercial and light industrial uses within large and small-scale commerce parks. We also develop commercial parcels within or near existing residential development projects.
 
Like our residential projects, we seek to minimize our capital expenditures for commercial development by either partnering with third parties for the development of certain new commercial projects or selling entitled land to third-party developers or investors.
 
Rural Land Sales
 
Our rural land sales segment markets and sells rural land from our holdings in Northwest Florida. Although the majority of the land sold in this segment is undeveloped timberland, some parcels include the benefits of limited development activity including improved roads, ponds and fencing.
 
We sell parcels of varying sizes ranging from a single acre or less to tens of thousands of acres. The pricing of these parcels varies significantly based on size, location, terrain, timber quality and other local factors.
 
The vast majority of the holdings marketed by our rural land sales segment will continue to be managed as timberland until sold. The revenues and income from our timberland operations are reflected in the results of our forestry segment.
 
Forestry
 
Our forestry segment focuses on the management and harvesting of our extensive timber holdings. We grow, harvest and sell timber and wood fiber. Our principal forestry product is softwood pulpwood. We also grow and sell softwood and hardwood sawtimber. On December 31, 2008, our standing pine inventory totaled approximately 21.9 million tons and our hardwood inventory totaled approximately 7.5 million tons.
 
We have a pulpwood supply agreement with Smurfit-Stone Container Corporation that requires us to deliver approximately 700,000 tons of pulpwood annually through June 30, 2012. Although Smurfit-Stone recently filed for bankruptcy protection, the supply agreement remains in effect at this time.
 
We actively manage portions of our timberlands to produce adequate amounts of timber to meet our pulpwood supply agreement obligation. We also harvest and sell additional timber to regional sawmills that produce products other than pulpwood. Our timberlands are harvested by local independent contractors under agreements that are generally renewed annually. In addition, our forestry operation is focused on selective harvesting, thinning and site preparation of timberlands that may later be sold or developed by us. We were also recently engaged by a property owner to manage its conservation lands. We intend to market conservation land management services to other interested parties in the future.
 
Competition
 
The real estate development business is highly competitive and fragmented. With respect to our residential real estate business, our prospective customers generally have a variety of choices of new and existing homes and homesites near our developments when considering a purchase. As a result of the housing crisis over the past several years, the number of resale homes on the market have dramatically increased, further increasing competition for the sale of our residential products.
 
We compete with numerous developers of varying sizes, ranging from local to national in scope, some of which may have greater financial resources than we have. We attempt to differentiate our products primarily on the basis of community design, quality, uniqueness, amenities, location and developer reputation.


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Supplemental Information
 
Information regarding the revenues, earnings and total assets of each of our operating segments can be found in Note 20 to our Consolidated Financial Statements included in this Report. Substantially all of our revenues are generated from domestic customers. All of our assets are located in the United States.
 
Employees
 
As of February 1, 2009, we had 194 employees, down from 337 employees on February 1, 2008. This decrease represents an approximately 42% reduction in total headcount as a result of the restructuring plan we announced in the fourth quarter of 2007. Our employees work in the following segments:
 
         
Residential real estate
    76  
Commercial real estate
    5  
Rural land sales
    13  
Forestry
    23  
Corporate and other
    77  
         
Total
    194  
         
 
Website Access to Reports
 
We make available, free of charge, access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”), through our website at www.JOE.com. Please note that the information on our website is not incorporated by reference in this Report.
 
Certifications
 
In 2008, we submitted to the New York Stock Exchange (NYSE) the Certification of our Chief Executive Officer required by Section 303A.12(a) of the NYSE Listed Company Manual, relating to our compliance with the NYSE’s corporate governance listing standards. There were no qualifications to the certification. We have also filed as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K the Chief Executive Officer and Chief Financial Officer certifications required to be filed with the SEC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Item 1A.   Risk Factors
 
Our business faces numerous risks, including those set forth below. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.
 
A continued downturn in the demand for residential real estate, combined with the increase in the supply of real estate available for sale and declining prices, will continue to adversely impact our business.
 
The United States housing market is suffering the worst downturn since the Great Depression. Florida, one of the hardest hit states, has experienced a substantial, continuing decline in demand in most of its residential real estate markets. The collapse of the housing market has contributed to the current recession in the national economy, which exerts further downward pressure on housing demand. Significantly tighter lending standards for borrowers are also having a significant negative effect on demand. As a result, the supply of existing homes for sale has risen nationwide, with dramatic increases in Florida. A record number of homes in foreclosure and forced sales by homeowners under distressed economic conditions are significantly contributing to the high levels of inventories of homes and homesites available for sale. The collapse of real estate market demand and high levels of inventories are causing prices for residential real estate to significantly decline.


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These adverse market conditions have negatively affected our residential and commercial real estate products. Revenues from our residential and commercial real estate segments have drastically declined in the past several years, which has had an adverse affect on our financial condition and results of operations. Our lack of revenues reflects not only fewer sales, but also declining prices for our real estate products.
 
We do not know how long the downturn in the real estate market will last or when real estate markets will return to more normal conditions. Rising unemployment, lack of consumer confidence and other adverse conditions in the current economic recession could significantly delay a recovery in real estate markets. Our business will continue to suffer until market conditions improve. If market conditions were to continue to worsen, the demand for our residential real estate products could further decline, negatively impacting our earnings, cash flow and liquidity.
 
A prolonged recession in the national economy, or a further downturn in national or regional economic conditions, especially in Florida, could continue to adversely impact our business.
 
The collapse of the housing market, together with the crisis in the credit markets, have resulted in a recession in the national economy with rising unemployment, shrinking gross domestic product and drastically reduced consumer spending. At such times, potential customers often defer or avoid real estate purchases due to the substantial costs involved. Furthermore, a significant percentage of our planned residential units are resort and seasonal products, purchases of which are even more sensitive to adverse economic conditions. Our real estate sales, revenues, financial condition and results of operations have suffered as a result.
 
Our business is especially sensitive to economic conditions in Florida, where all of our developments are located, and the Southeast region of the United States, which in the past has produced a high percentage of customers for the resort and seasonal products in our Northwest Florida communities. Florida and the Southeast both are experiencing recessionary conditions.
 
There is no consensus as to when the recession will end, and Florida, as one of the hardest hit states, could take longer to recover than the rest of the nation. A prolonged recession will continue to have a material adverse effect on our business, results of operations and financial condition. Our business could decline even more if economic conditions deteriorate further.
 
Our business is concentrated in Northwest Florida. As a result, our long-term financial results are largely dependent on the economic growth of Northwest Florida.
 
The economic growth of Northwest Florida, where the majority of our land is located, is an important factor in creating demand for our products and services. Two important factors in the economic growth of the region are (1) the completion of significant infrastructure improvements and (2) the creation of new jobs.
 
Infrastructure improvements, including the relocation of the Panama City-Bay County International Airport
 
One fundamental factor in the economic growth of Northwest Florida is the need for state and local governments, in combination with the private sector, to plan and complete significant infrastructure improvements in the region, such as new roads, a new airport, medical facilities and schools. The future economic growth of Northwest Florida and our financial results may be adversely affected if its infrastructure is not improved. There can be no assurance that new improvements will occur or that existing projects will be completed. Although the Federal government is currently planning to spend billions of dollars of federal funds on infrastructure projects as part of a recently enacted economic stimulus package, we are not certain how much, if any, of these funds will be dedicated to projects in Northwest Florida.


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The most significant infrastructure improvement currently underway in Northwest Florida is the relocation of the Panama City-Bay County International Airport to a green-field site in western Bay County. Almost half of the site infrastructure work, including 75 percent of the primary runway, is now complete, and the Airport Authority continues to project a May 2010 opening date. One legal challenge to the airport remains outstanding, and we cannot guarantee that this lawsuit or any future legal challenges to the new airport will be successfully resolved. We also cannot guarantee that the construction of the airport will not encounter other difficulties, such as financing issues, construction difficulties or cost overruns, that may delay or prevent the completion of the new airport. We believe that the relocation of the airport is critically important to the overall economic development of Northwest Florida, and if the airport is not completed, our business prospects would be materially adversely affected.
 
Attracting significant new employers that can create new, high-quality jobs
 
Attracting significant new employers that can create new, high-quality jobs is a key factor in the economic growth of Northwest Florida. Northwest Florida has traditionally lagged behind the rest of Florida in economic growth, and as a result its residents have a lower per capita income than residents in other parts of the state. In order to improve the economy of the region, state and local governments, along with the private sector, must seek to attract large employers capable of paying high salaries to large numbers of new employees. State governments, particularly in the Southeast, and local governments within Florida compete intensely for such new jobs. There can be no assurance that efforts to attract significant new employers to locate facilities in Northwest Florida will be successful. The future economic growth of Northwest Florida and our financial results may be adversely affected if such job growth is not achieved.
 
If the new Panama City-Bay County International Airport is completed and opened for operations but is not successful, we may not realize the economic benefits that we are anticipating from the new airport.
 
We believe that the relocation of the Panama City-Bay County International Airport is critically important to the overall economic development of Northwest Florida. We anticipate that the airport will provide a catalyst for value creation in the property we own surrounding the airport, as well as our other properties throughout Northwest Florida. In order for the new airport to reach its full potential, we believe the following issues need to be resolved:
 
  •  A low-cost airline could increase the number of vacation and business travelers to the region. However, the airline industry is in turmoil, battling rising costs (including fuel and labor costs) and economic conditions. In this environment, it may be difficult to convince a low-cost airline to start service to a new airport.
 
  •  Additional federal, state and local approvals are needed to extend the airport’s main runway. The current main runway is permitted for 8,400 feet. A 10,000 feet runway is needed to accommodate certain large passenger jets and large aviation-dependent economic development projects. The State of Florida appropriated the funds necessary for the runway extension in 2008, but the required approvals have not yet been obtained for the extension. There can be no assurance that the required approvals will be granted, or that they will be obtained in a timely manner or without legal challenge.
 
  •  The airport must successfully compete with the other airports in the region. There can be no assurance that the region can support all of the existing airports.
 
Changes in the demographics affecting projected population growth in Florida, particularly Northwest Florida, including a decrease in the migration of Baby Boomers, could adversely affect our business.
 
Florida has experienced strong population growth since World War II, including during the real estate boom in the first half of this decade. In recent years, however, the rate of net migration into Florida has drastically declined. For example, Florida’s net in-migration for the 2005-06 fiscal year was 362,200, but net in-migration is projected to be only 4,234 for the 2008-09 fiscal year. Florida has not experienced a comparable drop in net in-migration since the recession of the mid-1970’s. This sharp decrease could reflect a number of factors affecting Florida including difficult economic conditions, rising foreclosures, restrictive


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credit, the occurrence of hurricanes and increased costs of living. Also, because of the housing collapse across the nation, people interested in moving to Florida may have delayed or cancelled their plans due to difficulties selling their existing homes.
 
The success of our primary communities will be dependent on strong in-migration population expansion in our regions of development, primarily Northwest Florida. We also believe that Baby Boomers seeking retirement or vacation homes in Florida will remain important target customers for our real estate products in the future. Florida’s population growth could be negatively affected in the future by factors such as adverse economic conditions, the occurrence of hurricanes and the high cost of real estate, insurance and property taxes. Furthermore, those persons considering moving to Florida may not view Northwest Florida as an attractive place to live or own a second home and may choose to live in another region of the state. In addition, as an alternative to Florida, other states such as Georgia, North and South Carolina and Tennessee are increasingly becoming retirement destinations and are attracting retiring Baby Boomers and the workforce population who may have otherwise considered moving to Florida. If Florida, especially Northwest Florida, experiences an extended period of slow growth, or even net out-migration, our business, results of operations and financial condition would suffer.
 
If the market values of our homesites, our remaining inventory of completed homes and other developed real estate assets were to drop below the book value of those properties, we would be required to write-down the book value of those properties, which would have an adverse affect on our balance sheet and our earnings.
 
Unlike most other real estate developers, we have owned the majority of our land for many years, having acquired most of our land in the 1930’s and 1940’s. Consequently, we have a very low cost basis in the majority of our lands. In certain instances, however, we have acquired properties at market values for project development. Also, many of our projects have expensive amenities, such as pools, golf courses and clubs, or feature elaborate commercial areas requiring significant capital expenditures. Many of these costs are capitalized as part of the book value of the project land. Adverse market conditions, in certain circumstances, may require the book value of real estate assets to be decreased, often referred to as a “write-down” or “impairment.” A write-down of an asset would decrease the value of the asset on our balance sheet and would reduce our earnings for the period in which the write-down is recorded.
 
During 2008, we recorded total asset impairment costs of $60.5 million, $41.3 million of which primarily related to the write-down of capitalized costs at certain projects and the impairment of completed homes in several of our communities due to current market conditions. If market conditions were to continue to deteriorate, and the market values for our homesites, remaining homes held in inventory and other project land were to fall below the book value of these assets, we could be required to take additional write-downs of the book value of those assets.
 
The occurrence of hurricanes and other natural disasters in Florida could adversely affect our business.
 
Because of its location between the Gulf of Mexico and the Atlantic Ocean, Florida is particularly susceptible to the occurrence of hurricanes. Depending on where any particular hurricane makes landfall, our developments in Florida, especially our coastal properties in Northwest Florida, could experience significant, if not catastrophic, damage. Such damage could materially delay sales in affected communities or could lessen demand for products in those communities. Importantly, regardless of actual damage to a development, the occurrence of hurricanes in Florida and the southeastern United States could negatively impact demand for our real estate products because of consumer perceptions of hurricane risks. For example, the southeastern United States experienced a record-setting hurricane season in 2005. In particular, Hurricane Katrina, which struck New Orleans and the Mississippi Gulf Coast, caused severe devastation to those areas and received prolonged national media attention. Although our properties were not significantly impacted, we believe that the 2005 hurricane season had an immediate negative impact on sales of our resort residential products. Another severe hurricane or hurricane season in the future could have a similar negative effect on our real estate sales.


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In addition to hurricanes, the occurrence of other natural disasters in Florida, such as tornadoes, 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 have a long-term negative effect on the attractiveness of Florida as a location for resort, seasonal and/or primary residences.
 
Increases in property insurance premiums and the decreasing availability of property insurance in Florida could reduce customer demand for homes and homesites in our developments.
 
Property insurance companies doing business in Florida have reacted to recent hurricanes by significantly increasing premiums, requiring higher deductibles, reducing limits, restricting coverages, imposing exclusions, refusing to insure certain property owners, and in some instances, ceasing insurance operations in the state. For example, in 2008 State Farm Florida Insurance Company, the largest private insurer in Florida, decided to stop issuing new homeowner insurance policies in Florida and in February 2009 announced that it is terminating its homeowner insurance business in Florida altogether. It is uncertain what effect this action will have on property insurance availability and rates in the state. This trend of decreasing availability of insurance and rising insurance rates could continue if there are severe hurricanes in the future.
 
Furthermore, since the 2005 hurricane season, Florida’s state-owned property insurance company, Citizens Property Insurance Corp., has significantly increased the number of its outstanding policies, causing its potential claims exposure to exceed $400 billion. If there were to be a catastrophic hurricane or series of hurricanes to hit Florida, the exposure of the state government to property insurance claims could place extreme stress on state finances and may ultimately cause taxes in Florida to significantly increase. The state may decide to limit the availability of state-sponsored property insurance in the future.
 
The high and increasing costs of property insurance premiums in Florida, as well as the decrease in private property insurers, could deter potential customers from purchasing a home or homesite in one of our developments, which could have a material adverse effect on our financial condition and results of operations.
 
Increases in real estate property taxes could reduce customer demand for homes and homesites in our developments.
 
Florida experienced dramatic increases in property values during the record-setting real estate activity in the first half of this decade. As a result, local governments have been, and may continue aggressively re-assessing the value of homes and real estate for property tax purposes. These larger assessments increase the total real estate property taxes due from property owners annually. The Florida legislature recently attempted to address rising property taxes, but the legislation enacted brought only minimal relief.
 
The current high costs of real estate property taxes in Florida, and future increases in property taxes, could deter potential customers from purchasing a lot or home in one of our developments, which could have a material adverse effect on our financial condition and results of operations.
 
Mortgage financing issues, including lack of supply of mortgage loans, tightened lending requirements and possible future increases in interest rates, could reduce demand for our products.
 
Many purchasers of our real estate products obtain mortgage loans to finance a substantial portion of the purchase price, or they may need to obtain mortgage loans to finance the construction costs of homes to be built on homesites purchased from us. Also, our homebuilder customers depend on retail purchasers who rely on mortgage financing. Many mortgage lenders and investors in mortgage loans have recently experienced severe financial difficulties arising from losses incurred on sub-prime and other loans originated before the downturn in the real estate market. Despite unprecedented efforts by the Federal government to stabilize the nation’s banks, banking operations remain unsettled and the future of certain financial institutions remains uncertain. Due to these problems, the supply of mortgage products has been constrained, and the eligibility requirements for borrowers have been significantly tightened. These problems in the mortgage lending industry could adversely affect potential purchasers of our products, including our homebuilder customers, thus having a negative effect on demand for our products.


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Despite the current problems in the mortgage lending industry, interest rates for home mortgage loans have generally remained low. Mortgage interest rates could increase in the future, however, which could adversely affect the demand for residential real estate. In addition, any changes in the federal income tax laws which would remove or limit the deduction for interest on home mortgage loans could have an adverse impact on demand for our residential products. In addition to residential real estate, increased interest rates and restrictions in the availability of credit could also negatively impact sales of our commercial properties or other land we offer for sale. If interest rates increase and the ability or willingness of prospective buyers to finance real estate purchases is adversely affected, our sales, revenues, financial condition and results of operations may be negatively affected.
 
If we are not able to raise sufficient cash to enhance and maintain our operations and to develop our real estate holdings, our financial condition and results of operations could be negatively impacted.
 
We operate in a capital intensive industry and require significant cash to maintain our competitive position. Although we have significantly reduced capital expenditures and operating expenses during the current real estate downturn, we will need significant cash in the future to enhance and maintain our operations and to develop our real estate holdings. We obtain funds for our capital expenditures and operating expenses through cash flow from operations, property sales and financings. Failure to obtain sufficient cash, if and when needed, may limit our development activities which could reduce our revenues and results of operations. During 2008 and 2007, we relied on rural land sales as a significant source of revenues due to the continuing downturn in our residential and commercial real estate markets. We expect to continue to rely on rural land sales as a significant source of revenue in the future. However, there can be no assurance that such sales could be completed at prices acceptable to us.
 
If our cash flow proves to be insufficient, due to the continuing real estate downturn, unanticipated expenses or otherwise, we may need to obtain additional financing from third-party lenders in order to support our plan of operations. Additional funding, whether obtained through public or private debt or equity financing, or from strategic alliances, may not be available when needed or may not be available on terms acceptable to us, if at all.
 
We have a $100 million senior revolving credit facility with adjustable interest rates that we can draw upon to provide cash for operations and/or capital expenditures. Increases in interest rates can make it more expensive for us to use this credit facility or obtain funds from other sources that we need to operate our business.
 
If our net worth declines, we could default on our revolving credit facility which could have a material adverse effect on our financial condition and results of operations.
 
We have a $100 million revolving credit facility available to provide a source of funds for operations, capital expenditures and other general corporate purposes. While we have not yet needed to borrow any funds under this facility, it is important to have in place as a ready source of financing, especially in the current difficult economic conditions. The credit facility contains financial covenants that we must meet on a quarterly basis. These restrictive covenants require, among other things, that our tangible net worth not be less than $900 million. Compliance with this covenant will be challenging if we continue to experience significant operating losses, asset impairments, pension plan losses and other reductions in our net worth.
 
If we do not comply with the minimum tangible net worth covenant, we could have an event of default under our credit facility. There can be no assurance that the bank will be willing to amend the facility to provide for more lenient terms prior to any such default, or that it will not charge significant fees in connection with any such amendment. If we had borrowings under the facility at the time of a default, the bank could immediately accelerate all outstanding amounts and file a mortgage on the majority of our properties to secure the repayment of the debt. Even if we had no outstanding borrowings under the facility at the time of a default, the bank may choose to terminate the facility or seek to negotiate additional or more severe restrictive covenants or increased pricing and fees. We could be required to seek an alternative funding


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source, which may not be available at all or available on acceptable terms. Any of these events could have a material adverse effect on our financial condition and results of operations.
 
We are dependent upon national, regional and local homebuilders as customers, but our ability to attract homebuilder customers and their ability or willingness to satisfy their purchase commitments may be uncertain considering the current real estate downturn.
 
We no longer build homes in our developments, so we are highly dependent upon our relationships with national, regional and local homebuilders to be the primary customers for our homesites and to provide construction services at our residential developments. Due to the collapse of real estate markets across the nation, including our markets, homebuilders are struggling to survive and are significantly less willing to purchase homesites and invest capital in speculative construction. The homebuilder customers that have already committed to purchase homesites from us could decide to reduce, delay or cancel their existing commitments to purchase homesites in our developments. One survey in January 2009 indicated a record low level of confidence among homebuilders, considering that prices and sales are likely to slide further as banks remain reluctant to lend, a high number of foreclosed homes are returning to the market and job losses discourage buyers. Homebuilders also may not view our developments as desirable locations for homebuilding operations. Any of these events could have an adverse effect on our results of operations.
 
Our business model is dependent on transactions with strategic partners. We may not be able to successfully (1) attract desirable strategic partners; (2) complete agreements with strategic partners; and/or (3) manage relationships with strategic partners going forward, any of which could adversely affect our business.
 
We have increased our focus on executing our development and value creation strategies through joint ventures and strategic relationships. We are actively seeking strategic partners for alliances or joint venture relationships as part of our overall strategy for particular developments or regions. These joint venture partners may bring development experience, industry expertise, financial resources, financing capabilities, brand recognition and credibility or other competitive assets. We cannot assure you, however, that we will have sufficient resources, experience and/or skills to locate desirable partners. We also may not be able to attract partners that want to conduct business in Northwest Florida, our primary area of focus, and that have the assets, reputation or other characteristics that would optimize our development opportunities.
 
Once a partner has been identified, actually reaching an agreement on a transaction may be difficult to complete and may take a considerable amount of time considering that negotiations require careful balancing of the parties’ various objectives, assets, skills and interests. A formal partnership with a joint venture partner may also involve special risks such as:
 
  •  we may not have voting control over the joint venture;
 
  •  the venture partner may take actions contrary to our instructions or requests, or contrary to our policies or objectives with respect to the real estate investments;
 
  •  the venture partner could experience financial difficulties; and
 
  •  actions by a venture partner may subject property owned by the joint venture to liabilities greater than those contemplated by the joint venture agreement or have other adverse consequences.
 
Joint ventures have a high failure rate. A key complicating factor is that strategic partners may have economic or business interests or goals that are inconsistent with ours or that are influenced by factors unrelated to our business. These competing interests lead to the difficult challenges of successfully managing the relationship and communication between strategic partners and monitoring the execution of the partnership plan. We cannot assure you that we will have sufficient resources, experience and/or skills to effectively manage our ongoing relationships with our strategic partners. We may also be subject to adverse business consequences if the market reputation of a strategic partner deteriorates. If we cannot successfully execute transactions with strategic partners, our business could be adversely affected.


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Our business is subject to extensive regulation which makes it difficult and expensive for us to conduct our operations.
 
Development of real estate entails a lengthy, uncertain and costly entitlements process.
 
Approval to develop real property in Florida entails an extensive entitlements process involving multiple and overlapping regulatory jurisdictions and often requiring discretionary action by local government. This process is often political, uncertain and may require significant exactions in order to secure approvals. Real estate projects in Florida must generally comply with the provisions of the Local Government Comprehensive Planning and Land Development Regulation Act (the “Growth Management Act”) and local land development regulations. In addition, development projects that exceed certain specified regulatory thresholds require approval of a comprehensive Development of Regional Impact, or DRI, application. Compliance with the Growth Management Act, local land development regulations and the DRI process is usually lengthy and costly and can be expected to materially affect our real estate development activities.
 
The Growth Management Act requires local governments to adopt comprehensive plans guiding and controlling future real property development in their respective jurisdictions and to evaluate, assess and keep those plans current. Included in all comprehensive plans is a future land use map which sets forth allowable land use development rights. Since most of our land has an “agricultural” land use, we are required to seek an amendment to the future land use map to develop residential, commercial and mixed use projects. Approval of these comprehensive plan map amendments is highly discretionary.
 
All development orders and development permits must be consistent with the comprehensive plan. Each plan must address such topics as future land use and capital improvements and make adequate provision for a multitude of public services including transportation, schools, solid waste disposal, sanitation, sewerage, potable water supply, drainage, affordable housing, open space and parks. The local governments’ comprehensive plans must also establish “levels of service” with respect to certain specified public facilities, including roads and schools, and services to residents. In many areas, infrastructure funding has not kept pace with growth, causing facilities to operate below established levels of service. Local governments are prohibited from issuing development orders or permits if the development will reduce the level of service for public facilities below the level of service established in the local government’s comprehensive plan, unless the developer either sufficiently improves the services up front to meet the required level or provides financial assurances that the additional services will be provided as the project progresses. In addition, local governments that fail to keep their plans current may be prohibited by law from amending their plans to allow for new development.
 
The DRI review process includes an evaluation of a project’s impact on the environment, infrastructure and government services, and requires the involvement of numerous state and local environmental, zoning and community development agencies. Local government approval of any DRI is subject to appeal to the Governor and Cabinet by the Florida Department of Community Affairs, and adverse decisions by the Governor or Cabinet are subject to judicial appeal. The DRI approval process is usually lengthy and costly, and conditions, standards or requirements may be imposed on a developer that may materially increase the cost of a project.
 
In addition to the existing complex regulatory environment in Florida, anti-growth advocates continue to seek greater constraints on development activity as Florida’s population continues to increase. One example is an effort underway known as “Hometown Democracy,” a petition for approval of a constitutional amendment that would require all land use amendments to be subject to a vote of local citizens before adoption by the local government.
 
As currently proposed, this law would mean that a land use plan amendment, which a local government would otherwise approve, could be struck down by a vote of local citizens. The proponents of this petition were not able to obtain the number of signatures required to get the petition on the ballot for the November 2008 general election, but it is possible that they will be able to do so in a future election.
 
Changes in the Growth Management Act or the DRI review process or the interpretation thereof, new enforcement of these laws or the enactment of new laws regarding the development of real property could lead


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to new or greater liabilities that could materially adversely affect our business, profitability or financial condition.
 
Environmental and other regulations may have an adverse effect on our business.
 
Our properties are subject to federal, state and local environmental regulations and restrictions that may impose significant limitations on our development ability. In most cases, approval to develop requires multiple permits which involve a long, uncertain and costly regulatory process. Most of our land holdings contain jurisdictional wetlands, some of which may be unsuitable for development or prohibited from development by law. Development approval most often requires mitigation for impacts to wetlands that require land to be conserved at a disproportionate ratio versus the actual wetlands impacted and approved for development. Much of our property is undeveloped land located in areas where development may have to avoid, minimize or mitigate for impacts to the natural habitats of various protected wildlife or plant species. Much of our property is in coastal areas that usually have a more restrictive permitting burden and must address issues such as coastal high hazard, hurricane evacuation, floodplains and dune protection.
 
In addition, our current or past ownership, operation and leasing of real property, and our current or past transportation and other operations are subject to extensive and evolving federal, state and local environmental laws and other regulations. The provisions and enforcement of these environmental laws and regulations may become more stringent in the future. Violations of these laws and regulations can result in:
 
  •  civil penalties;
 
  •  remediation expenses;
 
  •  natural resource damages;
 
  •  personal injury damages;
 
  •  potential injunctions;
 
  •  cease and desist orders; and
 
  •  criminal penalties.
 
In addition, some of these environmental laws impose strict liability, which means that we may be held liable for any environmental damages on our property regardless of fault.
 
Some of our past and present real property, particularly properties used in connection with our previous transportation and papermill operations, were involved in the storage, use or disposal of hazardous substances that have contaminated and may in the future contaminate the environment. We may bear liability for this contamination and for the costs of cleaning up a site at which we have disposed of or to which we have transported hazardous substances. The presence of hazardous substances on a property may also adversely affect our ability to sell or develop the property or to borrow funds using the property as collateral.
 
Changes in laws or the interpretation thereof, new enforcement of laws, the identification of new facts or the failure of other parties to perform remediation at our current or former facilities could lead to new or greater liabilities that could materially adversely affect our business, profitability or financial condition.
 
If Wells Fargo & Company’s Wachovia Bank subsidiary (or any successor bank) were to fail and be liquidated, we could be required to accelerate the payment of the deferred taxes on our installment sale transactions. Our business, cash flows and financial condition may be adversely affected if this significant tax event were to occur.
 
During 2007 and 2008, we sold approximately 132,055 acres of timberland in installment sale transactions for approximately $183.3 million which was paid in the form of 15-year installment notes receivable. These installment notes are fully backed by letters of credit issued by Wachovia Bank, N.A. (subsequently acquired by Wells Fargo & Company) which are secured by bank deposits in the amount of the purchase price. The approximate aggregate taxable gain from these transactions was $160.5 million, but the installment sale structure allows us to defer paying taxes on these gains for 15 years. Meanwhile, we generated


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cash from these sales (sometimes referred to as “monetizing” the sales) by contributing the installment notes and bank letters of credit to special purpose entities organized by us, and these special purpose entities in turn issued to various institutional investors notes payable backed by the installment notes and bank letters of credit, and in some cases by a second letter of credit issued for the account of the special purpose entity. The special purpose entities have approximately $163.5 million of these notes payable outstanding. These notes are payable solely out of the assets of the special purpose entities (which consist of the installment notes and the letters of credit). The investors in the special purpose entities have no recourse against us for payment of the notes. The special purpose entities’ financial position and results of operations are not consolidated in our financial statements.
 
Banks and other financial institutions experienced a high level of instability in 2008, resulting in numerous bank and financial institution failures, hastily structured mergers and acquisitions, and an unprecedented direct infusion of billions of dollars of capital by the federal government into banks and financial institutions. During this crisis, Wells Fargo acquired Wachovia Corporation and its subsidiary, Wachovia Bank, N.A., the holder of the deposits and the issuer of the letter of credit obligations in our installment sale transactions. The banking industry remains troubled, and the federal government has announced a second round of bailout measures for the nation’s banks. Wells Fargo, as one of the largest banks in the United States, would presumably receive the support of the federal government if needed to prevent a failure of its banking subsidiaries. There can be no assurance, however, that Wells Fargo’s Wachovia Bank subsidiary (or any successor bank) will not fail during this difficult time or that it would receive government assistance sufficient to prevent a bank failure.
 
If Wells Fargo’s Wachovia Bank subsidiary (or any successor bank) were to fail and be liquidated, the installment notes receivable, the letters of credit and the notes issued by the special purpose entities to the institutional investors could be virtually worthless or satisfied at a significant discount. As a result, the taxes deferred under the installment sale structure would be accelerated. This adverse tax event could result in an immediate need for a significant amount of cash that may not be readily available from our cash reserves, our revolving line of credit or other third-party financing sources. Any such cash outlay, even if available, could divert needed resources away from our business or cause us to liquidate assets on unfavorable terms or prices. Our business and financial condition may be adversely affected if these significant tax events were to occur. In the event of a liquidation of Wells Fargo’s Wachovia Bank subsidiary (or any successor bank), we could also be required to write-off the remaining retained interest recorded on our balance sheet in connection with the installment sale transactions, which would have an adverse effect on our results of operations.
 
If drilling for oil or natural gas is permitted off the coast of Northwest Florida, our business may be adversely affected.
 
Since 1982 drilling for oil and natural gas has been banned in federal territorial waters. This federal moratorium, along with action by the state of Florida, has prevented the construction of unsightly drilling platforms off the coast of Florida and has preserved the natural beauty of the state’s coastline and beaches. This natural coastal beauty is an important positive factor in Florida’s tourist-based economy and contributes significantly to the value of our properties in Northwest Florida.
 
Due to an unprecedented spike in oil prices in 2008, there was political pressure on federal and state leaders to overturn the offshore drilling ban. As a result, the presidential and congressional bans on offshore drilling in most U.S. waters ended last year. President Obama’s new administration is currently reviewing all pending regulations and its position on this issue has not been finalized. Meanwhile, Florida’s governor has expressed support for allowing oil and natural gas drilling off the Florida coastline under certain circumstances. If drilling platforms are permitted to be built off the coast of Northwest Florida close enough to be seen from land, potential purchasers may find our coastal properties to be less attractive, which may have an adverse effect on our business.


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We are exposed to risks associated with real estate development.
 
Our real estate development activities entail risks that include:
 
  •  construction delays or cost overruns, which may increase project development costs;
 
  •  an inability to obtain required governmental permits and authorizations;
 
  •  an inability to secure tenants necessary to support commercial projects; and
 
  •  compliance with building codes and other local regulations.
 
Significant competition could have an adverse effect on our business.
 
A number of residential and commercial developers, some with greater financial and other resources, compete with us in seeking resources for development and prospective purchasers and tenants. Competition from other real estate developers may adversely affect our ability to:
 
  •  attract purchasers and sell residential and commercial real estate;
 
  •  sell undeveloped rural land;
 
  •  attract and retain experienced real estate development personnel; and
 
  •  obtain construction materials and labor.
 
Our real estate operations are cyclical.
 
The real estate industry is cyclical and can experience downturns based on consumer perceptions of real estate markets and other cyclical factors, which factors may work in conjunction with or either wholly unrelated to general economic conditions. Furthermore, our business is affected by seasonal fluctuations in customers interested in purchasing real estate, with the spring and summer months traditionally being the most active time of year for customer traffic and sales. Also, our supply of homesites available for purchase fluctuates from time to time. As a result, our real estate operations are cyclical, which may cause our quarterly revenues and operating results to fluctuate significantly from quarter to quarter and to differ from the expectations of public market analysts and investors. If this occurs, our stock’s trading price could also fluctuate significantly.
 
Changes in our income tax estimates could affect our profitability.
 
In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance 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 will include the adjustments in the tax provision in our financial statements. These adjustments could materially impact our financial position, cash flow and results of operations.
 
Item 1B.   Unresolved Staff Comments
 
We have no unresolved comments from the SEC regarding our periodic or current reports.
 
Item 2.   Properties
 
We lease our principal executive offices located in Jacksonville, Florida.
 
We own approximately 586,000 acres, the majority of which are located in Northwest Florida. Most of our raw land assets are managed as timberlands until designated for development. At December 31, 2008, approximately 296,000 acres were encumbered under a wood fiber supply agreement with Smurfit-Stone


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Container Corporation which expires on June 30, 2012, subject to the outcome of Smurfit-Stone’s bankruptcy proceedings. Also, our lender has the right to record mortgages on approximately 553,000 acres of our land if there is an event of default under our revolving credit facility.
 
For more information on our real estate assets, see Item 1. Business.
 
Item 3.   Legal Proceedings
 
We are involved in routine litigation on a number of matters and are subject to claims which arise in the normal course of business, none of which, in the opinion of management, is expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
None.
 
PART II
 
Item 5.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
On February 19, 2009, we had approximately 1,266 registered holders of record of our common stock. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “JOE.”
 
The range of high and low prices for our common stock as reported on the NYSE Composite Transactions Tape and the dividends declared for the periods indicated are set forth below:
 
                         
    Common
       
    Stock Price     Dividends
 
    High     Low     Declared  
 
2008
                       
Fourth Quarter
  $ 39.76     $ 18.80     $ 0.00  
Third Quarter
    42.49       30.63       0.00  
Second Quarter
    44.79       33.79       0.00  
First Quarter
    46.82       29.50       0.00  
2007
                       
Fourth Quarter
  $ 37.90     $ 26.70     $ 0.00  
Third Quarter
    47.34       30.43       0.16  
Second Quarter
    60.85       45.15       0.16  
First Quarter
    64.10       52.16       0.16  
 
On February 19, 2009, the closing price of our common stock on the NYSE was $21.10. We eliminated our quarterly dividends in connection with our restructuring plan.
 
The following table describes our purchases of our common stock during the fourth quarter of 2008.
 
                                 
                (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, 2008
    19,634     $ 37.59           $ 103,793  
Month Ended November 30, 2008
                    $ 103,793  
Month Ended December 31, 2008
    2,340     $ 28.74           $ 103,793  
 
 
(1) Represents shares surrendered by executives as payment for the strike prices and taxes due on exercised stock options and/or taxes due on vested restricted stock.


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(2) For additional information regarding our Stock Repurchase Program, see Note 2 to the consolidated financial statements under the heading, ‘‘Earnings (loss) Per Share.”
 
The following performance graph compares our cumulative shareholder returns for the period December 31, 2003 through December 31, 2008, assuming $100 was invested on December 31, 2003 in our common stock, in the S&P 500 Index and in the S&P SuperComposite Homebuilder Index.
 
The total returns shown below assume that dividends are reinvested. The stock price performance shown below is not necessarily indicative of future price performance.
 
(PERFORMANCE GRAPH)
 
                                                             
      12/31/03     12/31/04     12/31/05     12/31/06     12/31/07     12/31/08
The St. Joe Company
    $ 100       $ 174       $ 184       $ 148       $ 99       $ 68  
S&P 500 Index
    $ 100       $ 111       $ 116       $ 135       $ 142       $ 90  
S&P Homebuilders
    $ 100       $ 137       $ 159       $ 128       $ 58       $ 40  
                                                             


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Item 6.   Selected Consolidated Financial Data
 
The following table sets forth Selected Consolidated Financial Data for the Company on a historical basis for the five years ended December 31, 2008. This information should be read in conjunction with the consolidated financial statements of the Company (including the related notes thereto) and Management’s Discussion and Analysis of Financial Condition and Results of Operations, each included elsewhere in this Form 10-K. This historical Selected Consolidated Financial Data has been derived from the audited consolidated financial statements and revised for discontinued operations.
 
                                         
    Year Ended December 31,  
    2008     2007     2006     2005     2004  
    (In thousands, except per share amounts)  
 
Statement of Operations Data:
                                       
Total revenues(1)
  $ 263,990     $ 377,245     $ 525,024     $ 718,107     $ 644,123  
Total expenses
    289,703       354,131       462,336       551,130       513,365  
                                         
Operating (loss) profit
    (25,713 )     23,114       62,688       166,977       130,758  
Other expense
    (36,643 )     (4,708 )     (9,642 )     (3,174 )     (3,721 )
                                         
(Loss) income from continuing operations before equity in (loss) income of unconsolidated affiliates, income taxes, and minority interest
    (62,356 )     18,406       53,046       163,803       127,037  
Equity in (loss) income of unconsolidated affiliates
    (330 )     (5,331 )     8,905       12,541       5,342  
Income tax (benefit) expense
    (26,984 )     869       21,498       60,667       50,049  
                                         
(Loss) income from continuing operations before minority interest
    (35,702 )     12,206       40,453       115,677       82,330  
Minority interest in (loss) income
    (807 )     1,092       6,137       7,820       2,594  
                                         
(Loss) income from continuing operations
    (34,895 )     11,114       34,316       107,857       79,736  
(Loss) income from discontinued operations(2)
    (988 )     (1,035 )     6,336       5,479       5,140  
Gain on sale of discontinued operations(2)
          29,128       10,368       13,322       5,224  
                                         
Net (loss) income
  $ (35,883 )   $ 39,207     $ 51,020     $ 126,658     $ 90,100  
                                         
Per Share Data:
                                       
Basic
                                       
(Loss) income from continuing operations
  $ (0.39 )   $ 0.15     $ 0.47     $ 1.44     $ 1.06  
(Loss) income from discontinued operations(2)
    (0.01 )     0.38       0.22       0.25       0.13  
                                         
Net (loss) income
    (0.40 )     0.53     $ 0.69     $ 1.69     $ 1.19  
                                         
Diluted
                                       
(Loss) income from continuing operations
  $ (0.39 )   $ 0.15     $ 0.47     $ 1.42     $ 1.04  
(Loss) income from discontinued operations(2)
    (0.01 )     0.38       0.22       0.24       0.13  
                                         
Net (loss) income
    (0.40 )   $ 0.53     $ 0.69     $ 1.66     $ 1.17  
                                         
Dividends declared and paid
  $     $ 0.48     $ 0.64     $ 0.60     $ 0.52  
 


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    December 31,  
    2008     2007     2006     2005     2004  
 
Balance Sheet Data:
                                       
Investment in real estate
  $ 890,583     $ 944,529     $ 1,214,550     $ 1,038,810     $ 943,340  
Cash and cash equivalents
    115,472       24,265       36,725       202,432       94,661  
Property, plant and equipment, net
    19,786       23,693       44,593       40,176       34,020  
Total assets
    1,218,278       1,263,966       1,560,395       1,591,946       1,403,629  
Debt
    49,560       541,181       627,056       554,446       421,110  
Total stockholders’ equity
    988,629       480,341       461,080       488,998       495,411  
 
 
(1) Total revenues include real estate revenues from property sales, timber sales, rental revenues and other revenues, primarily club operations and brokerage fees.
 
(2) Discontinued operations include the operations of Sunshine State Cypress, Inc. in 2008, fourteen commercial office buildings and Saussy Burbank in 2007, four commercial office buildings in 2006, four commercial office buildings and Advantis Real Estate Services Company in 2005 and two commercial office buildings sold in 2004 (See Note 7 of Notes to Consolidated Financial Statements).
 
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Forward-looking Statements
 
We make forward-looking statements in this Report, particularly in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Report that are not historical facts are forward-looking statements. You can find many of these forward-looking statements by looking for words such as “intend”, “anticipate”, “believe”, “estimate”, “expect”, “plan”, “should”, “forecast” or similar expressions. In particular, forward-looking statements include, among others, statements about the following:
 
  •  future operating performance, revenues, earnings and cash flows;
 
  •  future residential and commercial entitlements;
 
  •  development approvals and the ability to obtain such approvals, including possible legal challenges;
 
  •  the number of units or commercial square footage that can be supported upon full build out of a development;
 
  •  the number, price and timing of anticipated land sales or acquisitions;
 
  •  estimated land holdings for a particular use within a specific time frame;
 
  •  the levels of resale inventory in our developments and the regions in which they are located;
 
  •  the development of relationships with strategic partners, including homebuilders;
 
  •  future amounts of capital expenditures;
 
  •  the projected completion, opening, operating results and economic impact of the new Panama City — Bay County International Airport;
 
  •  the amount of dividends, if any, we pay; and
 
  •  the number or dollar amount of shares of our stock which may be purchased under our existing or future share-repurchase program.
 
Forward-looking statements are not guarantees of future performance and are subject to numerous assumptions, risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by a forward-looking statement include the risk factors described above under the heading “Risk Factors.” These statements are made as of the date hereof based on our current expectations, and we undertake no obligation to update the information contained in this Report. New information, future events or risks may

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cause the forward-looking events we discuss in this Report not to occur. You are cautioned not to place undue reliance on any of these forward-looking statements.
 
Overview
 
We believe we have one of the largest inventories of private land suitable for development in Florida. The majority of our land is located in Northwest Florida and has a very low cost basis. In order to optimize the value of these core real estate assets, we seek to reposition our substantial timberland holdings for higher and better uses. We seek to create value in our land by securing entitlements for higher and better land-uses, facilitating infrastructure improvements, developing community amenities, undertaking strategic and expert land planning and development, parceling our land holdings in creative ways and performing land restoration and enhancement.
 
We have four operating segments: residential real estate, commercial real estate, rural land sales and forestry.
 
Our residential real estate segment generates revenues from:
 
  •  the sale of developed homesites to retail customers and builders;
 
  •  the sale of parcels of entitled, undeveloped land;
 
  •  the sale of housing units built by us;
 
  •  resort and club operations;
 
  •  rental income; and
 
  •  brokerage fees on certain transactions within our residential real estate developments.
 
Our commercial real estate segment generates revenues from the sale of developed and undeveloped land for retail, multi-family, office and industrial uses. Our rural land sales segment generates revenues from the sale of parcels of undeveloped land and rural land with limited development. Our forestry segment generates revenues from the sale of pulpwood, timber and forest products and conservation land management services.
 
For over three years, the United States has experienced a dramatic slowdown in most of its residential real estate markets. Florida, as one of the fastest growing states during the preceding real estate boom, has been particularly hard-hit, with high levels of inventories of resale homes, a large number of foreclosures and steep declines in home values. In 2008, the problems in the real estate industry contributed to a liquidity crisis among financial institutions resulting in unprecedented government intervention, a dramatic drop in the stock market and the onset of a severe economic recession. The financial markets remain unsettled and economic conditions continue to deteriorate, exerting additional negative pressure on real estate demand and consumer confidence, thereby prolonging the possibility of any real estate recovery.
 
As a result of these adverse conditions, our residential and commercial sales have declined precipitously since 2005. During 2008 and 2007, we relied on rural land sales as a significant source of revenues due to the continuing downturn in our residential and commercial real estate markets. Demand for our rural land remains steady, and we expect to continue to rely on rural land sales as a significant source of revenues in the future, although to a lesser extent than 2008 and 2007. We are carefully monitoring, however, any impact that the current economic environment may have on pricing or overall demand for rural land.
 
In addition to our large inventory of rural land, we have virtually no debt and significant cash reserves. We have also greatly reduced our capital expenditures and general and administrative expenses. As a result, we believe that we are well positioned to withstand the current challenging environment. Meanwhile, we are continuing to develop the strategic relationships that will benefit our business when the economy and our markets recover.


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Critical Accounting Estimates
 
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on our historical and current experience and on various other assumptions that management believes are reasonable under the circumstances. Additionally, we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
 
Investment in Real Estate and Cost of Real Estate Sales.  Costs associated with a specific real estate project are capitalized once we determine that the project is economically probable. We capitalize costs directly associated with development and construction of identified real estate projects. Indirect costs that clearly relate to a specific project under development, such as internal costs of a regional project field office, are also capitalized. We capitalize interest (up to total interest expense) based on the amount of underlying expenditures and real estate taxes on real estate projects under development. If we determine not to complete a project, any previously capitalized costs are expensed in the period such determination is made.
 
Real estate inventory costs include land and common development costs (such as roads, sewers and amenities), multi-family construction costs, capitalized property taxes, capitalized interest and certain indirect costs. Construction costs for single-family homes are determined based upon actual costs incurred. A portion of real estate inventory costs and estimates for costs to complete are allocated to each unit based on the relative sales value of each unit as compared to the estimated sales value of the total project. These estimates are reevaluated at least annually, and more frequently if warranted by market conditions or other factors, with any adjustments being allocated prospectively to the remaining units available for sale. The accounting estimate related to inventory valuation is susceptible to change due to the use of assumptions about future sales proceeds and related real estate expenditures. Management’s assumptions about future housing and homesite sales prices, sales volume and sales velocity require significant judgment because the real estate market is cyclical and highly sensitive to changes in economic conditions. In addition, actual results could differ from management’s estimates due to changes in anticipated development, construction and overhead costs. Until 2008 we had not made significant adjustments affecting real estate gross profit margins; there can be no assurances, however, 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 (“SFAS”)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 then recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. Percentage-of-completion accounting is also used for our homesite sales when required development is not complete at the time of sale and for commercial and other land sales if there are uncompleted development costs yet to be incurred for the property sold.
 
Our townhomes are attached residences sold individually along with the underlying parcel of land. Revenues and cost of sales for our townhomes are accounted for using the full accrual method. These units differ from multi-family units, in which buyers hold title to a unit or fractional share of a unit within a building and an interest in the underlying land held in common with other building association members.


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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. If we determine that an impairment exists due to the inability to recover an asset’s carrying value, a provision for loss is recorded to the extent that the carrying value exceeds estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell.
 
Depending on the asset, we use varying methods to determine fair value, such as (i) analyzing expected future cash flows, (ii) determining resale values by market, or (iii) applying a capitalization rate to net operating income using prevailing rates in a given market. The fair value determined under these methods can fluctuate up or down significantly as a result of a number of factors, including changes in the general economy of our markets, demand for real estate and the projected net operating income for a specific property.
 
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 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 and liabilities 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, lease terms, amortization periods and fair market values assigned to leases as well as fair value assigned to customer relationships.
 
Fair Value Measurement, We partially adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”), on January 1, 2008. SFAS 157, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
Level 1.  Observable inputs such as quoted prices in active markets;
 
  Level 2.   Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
 
  Level 3.   Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
 
We currently record assets within Level 1 and Level 3 of the fair value hierarchy. Assets utilizing Level 1 inputs include investments in money market and short term treasury instruments. Assets utilizing Level 3 inputs include our retained interest in qualified special purpose entities (“QSPEs”). We have recorded a retained interest with respect to the monetization of certain installment notes through the use of QSPEs. Our continuing involvement with the QSPEs is in the form of receipts of net interest payments, which are recorded as interest income. In addition, we will receive the payment of the remaining principal on the installment notes associated with our QSPEs at the end of their 15 year maturity period. In accordance with Emerging Issues Task Force (“EITF”) Issue 99-20,Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securities and Financial Assets”, we recognize interest income over the life of the retained interest using the effective yield method. This income is being recorded as an offset to unrealized loss


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on monetization of notes over the life of the installment notes. In addition, fair value is adjusted at each reporting date when, based on management’s assessment of current information and events, there is a favorable or adverse change in estimated cash flows from cash flows previously projected.
 
Pension Plan.  We sponsor a cash balance 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 specialized accounting and actuarial methods using numerous estimates, including discount rates, expected long-term investment returns on plan assets, employee turnover, mortality and retirement ages, and future salary increases. Changes in these key assumptions can have a significant effect on the pension plan’s impact on the financial statements of the Company. For example, in 2008, a 1% increase in the assumed long-term rate of return on pension assets would have resulted in a $2.3 million increase in pre-tax income ($1.3 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 or decrease in the assumed discount rate would have resulted in a $0.5 million change in pre-tax income. Our pension plan is currently overfunded, and accordingly, generated income of $2.5 million, $2.0 million and $3.1 million in 2008, 2007 and 2006, respectively. During 2008, the funded status of our pension plan decreased to $42.0 million from $109.3 million in 2007 primarily as a result of recent stock market volatility. Although we do not expect to make contributions to the pension plan in the near future, further significant volatility in the markets could potentially reduce our funded status and possibly require us to make a contribution to the plan.
 
Stock-Based Compensation.  During the first quarter of 2006, we adopted the provisions of SFAS No. 123 — revised 2004, Share-Based Payment (“SFAS 123R”), which replaced SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). Under the fair value recognition provisions of SFAS 123R, stock-based compensation cost is measured at the grant date based on the fair value of the award and is typically recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. We elected the modified-prospective method of adoption, under which prior periods are not revised for comparative purposes. The valuation provisions of SFAS 123R apply to new grants and grants that were outstanding as of the effective date and are subsequently modified. Estimated compensation for the unvested portion of grants that were outstanding as of the effective date is being recognized over the remaining service period.
 
We currently use the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors (term of option), risk-free interest rate and expected dividends.
 
We estimate the expected term of options granted by incorporating the contractual term of the options and analyzing employees’ actual and expected exercise behaviors. We estimate the volatility of our common stock by using historical volatility in market price over a period consistent with the expected term, and other factors. We base the risk-free interest rate that we use in the option valuation model on U.S. Treasury issues with remaining terms similar to the expected term on the options. We use an estimated dividend yield in the option valuation model when dividends are anticipated.
 
In February 2008, under our 2001 Stock Incentive Plan, we granted select executives and other key employees restricted stock awards with vesting based upon the achievement of certain market conditions that are defined as our total shareholder return as compared to the total shareholder return of certain peer groups during the performance period.
 
We currently use a Monte Carlo simulation pricing model to determine the fair value of our market condition awards. The determination of the fair value of market condition-based awards is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the term of the awards, the relative performance of our stock price and shareholder returns compared to those companies in our peer groups and a risk-free interest rate assumption. Compensation


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cost is recognized regardless of the achievement of the market condition, provided the requisite service period is met.
 
Income Taxes.  In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We record a valuation allowance against our deferred tax assets based upon our analysis of the timing and reversal of future taxable amounts and our history and future expectations of taxable income. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws. To the extent adjustments are required in any given period we will include the adjustments in the tax provision in our financial statements. These adjustments could materially impact our financial position, cash flow and results of operation.
 
At December 31, 2008, we had net operating loss carryforwards for state tax purposes of approximately $196.1 million which are available to offset future state taxable income, if any, through 2027. At December 31, 2008, we recorded a valuation allowance against certain of our deferred tax assets of approximately $2.6 million, as we believe it is more likely than not that it will not be fully realized due to the shorter term nature of certain carryforward items.
 
Recently Issued Accounting Standards
 
In December 2008, the FASB issued FASB Staff Position (“FSP”) SFAS 132(R)-1, Employer’s Disclosures about Postretirement Benefit Plan Assets. This FSP amends FASB Statement No. 132, Employer’s Disclosures about Pensions and Other Postretirement Benefits, to disclose more information about investment allocation decisions, major categories of plan assets, including concentrations of risk and fair value measurements, and the fair value techniques and inputs used to measure plan assets. The disclosures required by this FSP are required to be provided for fiscal years ending after December 15, 2009. We are in the process of evaluating the effect, if any, the adoption of this FSP will have on our financial statements. In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities. This FSP holds that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered “participating securities” as defined in EITF 03-6 and therefore should be included in computing earnings per share using the two-class method. This FSP is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. When this FSP is adopted, its requirements will be applied by recasting previously reported earnings per share data. We are in the process of evaluating the effect, if any, the adoption of this FSP will have on our financial statements.
 
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”). This Statement requires enhanced disclosures about an entity’s derivative and hedging activities, including (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We do not believe SFAS 161 will have a material impact on our financial position or results of operations.
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”), an amendment of Accounting Research Bulletin No. 51, Consolidated Financial Statements (“ARB 51”). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest (previously referred to as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity, not as a liability, in the consolidated financial statements.


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It also requires disclosure, on the face of the consolidated statement of operations, of the amounts of consolidated net income attributable to both the parent and the noncontrolling interest. The Statement also establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We are in the process of evaluating the effect the adoption of this FSP will have on our financial statements.
 
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS 141R”). SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their full fair values as of that date. SFAS 141R is effective for business combinations occurring after December 31, 2008.
 
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. It applies to other accounting pronouncements where the FASB requires or permits fair value measurements but does not require any new fair value measurements. In February 2008, the FASB issued FSP No. 157-2, Effective Date of FASB Statement No. 157 (“FSP No. 157-2”), which delayed the effective date of SFAS 157 for certain non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Non-financial assets and liabilities include pension plan assets related to the funded status of our pension plan, goodwill, investment in real estate, intangible assets with indefinite lives, guarantees and certain other items. We adopted SFAS 157 for financial assets and liabilities on January 1, 2008. The partial adoption of SFAS 157, as it relates to financial assets and liabilities, did not have any impact on our results of operations or financial position, other than additional disclosures. We have deferred the adoption of SFAS 157 with regards to non-financial assets and liabilities in accordance with FSP No. 157-2. We are in the process of evaluating the effect of the full adoption of the remaining portions of SFAS No. 157 on our financial statements.
 
Results of Operations
 
Consolidated Results
 
The following table sets forth a comparison of our revenues and expenses for the three years ended December 31, 2008.
 
                                                         
    Years Ended December 31,     2008 vs. 2007     2007 vs. 2006  
    2008     2007     2006     Difference     % Change     Difference     % Change  
    (Dollars in millions)  
 
Revenues:
                                                       
Real estate sales
  $ 194.6     $ 307.9     $ 456.1     $ (113.3 )     (37 )%   $ (148.2 )     (32 )%
Rental revenues
    1.5       2.7       3.6       (1.2 )     (44 )     (0.9 )     (25 )
Timber sales
    26.6       25.8       24.4       0.8       3       1.4       6  
Other revenues
    41.3       40.8       41.0       0.5       1       (0.2 )     (1 )
                                                         
Total
  $ 264.0     $ 377.2     $ 525.1     $ (113.2 )     (30 )%   $ (147.9 )     (28 )%
                                                         
Expenses:
                                                       
Cost of real estate sales
  $ 53.1     $ 145.8     $ 247.5     $ (92.7 )     (64 )%   $ (101.7 )     (41 )%
Cost of rental revenues
    0.6       1.5       2.0       (0.9 )     (60 )     (0.5 )     (25 )
Cost of timber sales
    19.8       20.8       18.1       (1.0 )     (5 )     2.7       15  
Cost of other revenues
    46.6       43.1       43.5       3.5       8       (0.4 )     (1 )
Other operating expenses
    53.5       68.4       66.7       (14.9 )     (22 )     1.7       3  
                                                         
Total
  $ 173.6     $ 279.6     $ 377.8     $ (106.0 )     (38 )%   $ (98.2 )     (26 )%
                                                         
 
The overall decrease in real estate sales revenues in 2008 compared to 2007 was primarily due to the continued decrease in sales demand and pricing in our residential and commercial real estate segments. Our gross margin percentage on real estate sales increased during 2008 compared to 2007 primarily as a result of a


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change in mix to higher-margin rural land sales. Other operating expenses decreased in 2008 compared to 2007 due to lower general and administrative expenses as a result of our restructuring efforts.
 
The decreases in real estate sales revenue and cost of real estate sales for 2007 compared to 2006 were primarily due to lower sales volume and prices in our residential real estate segment as a result of the slowdown in the real estate market, partially offset by increases in rural land sales. Despite these decreases, our gross margin percentage on real estate sales increased during 2007 compared to 2006 primarily as a result of a change in mix to higher-margin rural land sales. Other operating expenses increased in 2007 due to a $5.0 million termination fee paid to a third-party management company in our residential real estate segment, partially offset by lower administrative costs in our rural land sales segment. For further detailed discussion of revenues and expenses, see Segment Results below.
 
Corporate Expense.  Corporate expense, representing corporate general and administrative expenses, increased $1.3 million, or 4%, to $34.1 million in 2008 over 2007. Lower payroll related costs in 2008 attributable to staffing reductions were offset by additional deferred compensation expense. During early 2008, we granted certain members of management shares of restricted stock with vesting conditions based on our performance over a three-year period. We recognized approximately $3.3 million of additional expense related to these grants during 2008. We expect to incur future expense associated with additional equity grants going forward. In addition, 2008 corporate expense included a pension expense of $4.2 million related to settlement and curtailment charges in connection with the termination of employees.
 
Corporate expense decreased $18.5 million, or 36%, to $32.8 million in 2007 over 2006. The decrease was partially due to a decrease in total stock compensation costs of $6.8 million. Total stock compensation decreased because the 2006 period included the accelerated amortization of restricted stock related to the retirement of a former officer, and there were fewer overall equity plan participants and unvested outstanding stock options in 2007. Other general and administrative expenses decreased approximately $11.8 million during 2007 compared to 2006 primarily as a result of the completion of our 2006 marketing program, reduced litigation costs and overall cost savings initiatives.
 
Impairment Losses.  Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Our goodwill originated from the 1997 acquisition of certain assets of Arvida Company and its affiliates. We perform an annual year-end assessment, or more frequently if indicators of potential impairment exist, to determine if the carrying value of the recorded goodwill is impaired. An impairment is considered to exist if fair value is less than the carrying amount of the assets, including goodwill. The estimated fair value is generally determined on the basis of discounted future cash flows. The assumptions used in the estimate of fair value are generally consistent with the past performance of the reporting segment and are also consistent with the projections and assumptions that are used in current operating plans. The determination of whether or not goodwill has become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of our reporting units. Changes in our strategy and/or market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets.
 
During our year-end assessment, we determined that our remaining goodwill was not recoverable based upon a discounted cash flow analysis. Accordingly, an impairment charge of $19.0 million was recorded in the residential real estate segment. In addition, we performed an impairment analysis related to our intangible assets and determined no adjustment was required at December 31, 2008.
 
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management’s best estimates about future sales prices and holding periods. The continued decline in demand and market prices for residential real estate during 2008 caused us to evaluate certain carrying amounts within our residential real estate segment.


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As a result of our property impairment analyses, we recorded aggregate impairment charges in our residential real estate segment of $40.3 million during 2008. In addition, we recorded a charge of $1.0 million related to the write down of a renegotiated builder note receivable during 2008.
 
As a result of our third quarter 2007 impairment analysis, we recorded an impairment charge of $13.6 million in the residential real estate segment. We announced on October 8, 2007 our plan to dispose of Sunshine State Cypress as part of a restructuring plan. Our estimate of its fair value based upon market analysis indicated that goodwill would not be recoverable. Accordingly, we recorded an impairment charge of $7.4 million in the fourth quarter of 2007 in our forestry segment to reduce the goodwill carrying value of Sunshine State Cypress to zero. In 2006, we also recorded a goodwill impairment charge of $1.5 million. The impairment charges related to Sunshine State Cypress are reported as part of our discontinued operations. We also recorded an impairment charge of $2.2 million to approximate fair value, less costs to sell, related to our investment in Saussy Burbank which was sold in 2007, which is also reported as part of our 2007 and 2006 discontinued operations.
 
Restructuring Charges.  Restructuring charges include termination benefits and the write-off of capitalized homebuilding costs in connection with our exit from the Florida homebuilding business and our corporate reorganization. We recorded restructuring charges of $4.3 million and $8.9 million in 2008 and 2007, respectively. The charges primarily relate to one-time termination benefits in connection with our employee headcount reductions. We recorded restructuring charges of $13.4 million during 2006 in connection with our exit from the Florida homebuilding business and a corporate reorganization. The charge included $9.3 million related to the write-off of previously capitalized homebuilding costs and $4.1 million related to one-time termination benefits. We estimate that $0.1 million of remaining costs related to our restructuring plans will be recognized in 2009. See Note 13 in our consolidated financial statements for further detail of our restructuring accrual.
 
Other (Expense) Income.  Other (expense) income consists primarily of investment income, interest expense, gains and losses on sales and dispositions of assets, fair value adjustment related to the retained interest of monetized installment note receivables, loss on early extinguishment of debt and other income. Total other (expense) income was $(36.6) million, $(4.7) million and $(9.6) million during 2008, 2007 and 2006, respectively.
 
Interest expense decreased $15.6 million during 2008 compared to 2007, primarily as a result of our reduced debt levels. Interest expense increased $6.1 million during 2007 compared to 2006 primarily as a result of an increase in average borrowings in 2007, as well as less capitalized interest. During 2008 we recorded a $30.6 million loss on early extinguishment of debt which consisted of $0.7 million related to the write-off of unamortized loan costs on our prior credit facility and $29.9 million in connection with the prepayment of our senior notes. The senior note costs included a $29.7 million make-whole payment and $0.2 million of unamortized loan costs, net of accrued interest.
 
Other, net decreased $10.4 million in 2008 compared to 2007 primarily due to recording a loss of $8.2 million related to the fair value adjustment of our retained interest in monetized installment note receivables and $1.9 million related to the write-off of net book value on abandoned property. These decreases were offset by the receipt in 2007 of a $3.5 million insurance settlement related to the defense of an outstanding litigation matter. Included in 2007 is a charge of $2.6 million related to the fair value adjustment of the retained interest in monetized installment note receivables and a $2.6 million contractor settlement within our residential segment. Gain on disposition of assets was $0.7 million and $8.0 million in 2008 and 2007, respectively, and represents the recognition of gain associated with three of the 17 buildings sold as part of our office building portfolio in which we have continuing involvement.
 
Other, net increased $2.8 million in 2007 compared to 2006. The net increase includes a receipt of a $3.5 million insurance settlement relating to the defense of an outstanding litigation matter in 2007 partially offset by a fair value adjustment of $2.6 million related to our retained interest in monetized installment notes receivable and $2.6 million related to a contractor settlement within our residential real estate segment. In addition, in 2006 other, net included a litigation provision of $4.9 million related to a 1996 sales commission dispute. Gain on disposition of assets was $8.0 million during 2007 and represents the gain associated with


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three of the 17 buildings sold as part of our office building portfolio and in which we have a continuing involvement as lessee.
 
Equity in (Loss) Income of Unconsolidated Affiliates.  We have investments in affiliates that are accounted for by the equity method of accounting. Equity in (loss) income of unconsolidated affiliates totaled $(0.3) million in 2008, $(5.3) million in 2007 and $8.9 million in 2006. Equity in (loss) income decreased from 2006 to 2008 due to lower earnings in our three remaining investments in residential joint ventures, which are now substantially sold out. During 2007, we recorded a $4.3 million equity in loss of unconsolidated affiliates related to our investment in ALP Liquidating Trust (f/k/a Arvida/JMB Partners, L.P.). This adjustment was recorded as a result of the trust reserving $25.3 million of its remaining net assets to satisfy all potential claims and obligations.
 
Income Tax (Benefit) Expense.  Income tax (benefit) expense, including income tax on discontinued operations, totaled $(27.6) million, $18.8 million and $31.7 million for the years ended December 31, 2008, 2007 and 2006, respectively. Our effective tax rate was 43.5%, 32% and 38% for the years ended December 31, 2008, 2007 and 2006, respectively. Our effective tax rate increased in 2008 compared to 2007 due to the impact of certain permanent items. Our effective tax rate was lower in 2007 compared to 2008 and 2006 as a result of our 2007 settlement of contested tax positions related to years 2000 through 2004. This settlement resulted in an income tax benefit during the quarter ended March 31, 2007 of approximately $3.1 million for amounts previously reserved, which lowered our 2007 effective tax rate.
 
Discontinued Operations.  Income from discontinued operations primarily consists of the results associated with our sawmill and mulch plant (Sunshine State Cypress) currently classified as assets held for sale and the sales of our office building portfolio and Saussy Burbank. Income (loss), net of tax, totaled $(0.8) million, $28.1 million and $16.7 million in 2008, 2007 and 2006, respectively. Results for 2008 include the operating results of Sunshine State Cypress. Results for 2007 include the operating results of 14 of the 17 buildings in our commercial building portfolio (after tax income of $1.5 million), the gain associated with the sale of 14 buildings (after tax income of $29.1 million), the operations of Saussy Burbank (after tax income of $1.0 million), which included a pre-tax impairment charge of $2.2 million, and the operations of Sunshine State Cypress (after tax (loss) of $(3.5) million), which included a pre-tax goodwill impairment charge of $7.4 million.
 
Results for 2006 include the operating results of 14 of the 17 buildings in our commercial building portfolio (after tax (loss) of $(1.0) million), the gain associated with the sale of four buildings (after tax income of $10.4 million), the operations of Saussy Burbank (after tax income of $8.0 million), and the operations of Sunshine State Cypress (after tax (loss) of $(0.6) million).
 
Segment Results
 
Residential Real Estate
 
Our residential real estate segment develops large-scale, mixed-use resort, primary and seasonal residential communities, primarily on our existing land. We own large tracts of land in Northwest Florida, including significant Gulf of Mexico beach frontage and waterfront properties, and land near Jacksonville, in Deland and near Tallahassee.
 
Our residential sales have declined precipitously from 2006 to 2008 (91%) due to the collapse of the housing markets in Florida. Inventories of resale homes and homesites remain high in our markets and prices have declined. With the U.S. and Florida economies battling rising foreclosures, severely restrictive credit, significant inventories of unsold homes and worsening economic conditions, predicting when real estate markets will return to health remains difficult. Currently, we do not expect any significant favorable change in these trends during 2009.
 
In 1997, we recorded goodwill in our residential real estate segment in connection with our acquisition of certain assets of Arvida Company and its affiliates. Based on the continued worsening of the residential real estate markets in 2008 we have now determined that the remaining goodwill related to this acquisition is not recoverable based upon a discounted cash flow analysis. Accordingly, an impairment of $19.0 million was


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recorded in the residential real estate segment in the fourth quarter of 2008 to reduce the carrying amount of the goodwill to zero.
 
Homes and homesites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed. The overall decrease in demand and market prices for residential real estate indicated that certain carrying amounts within our residential real estate segment may not be recoverable. As a result of our impairment analyses for 2008, we recorded aggregate impairment charges of $41.3 million, consisting of $12.0 million related to completed homes in several communities, $28.3 million related to our SevenShores condominium project, and $1.0 million related to the write down of a renegotiated builder note receivable.
 
The Seven Shores condominium project was written down in the fourth quarter of 2008 to approximate the fair market value of land entitled for 278 condominium units. This write-down was necessary because we elected not to exercise our option to acquire additional land under our option agreement. Certain costs had previously been incurred with the expectation that the project would include 686 units. Given the reduced potential scope of the project, we do not believe that those costs are recoverable.
 
In 2007 we recorded impairments totaling $13.6 million due to the adverse market conditions for residential real estate. Approximately $5.2 million of the impairments related to capitalized costs at certain projects due to changes in development plans, approximately $7.8 million related primarily to the reduction in market value of completed spec homes in several communities and approximately $0.6 million related to the modified terms of certain promissory notes.
 
Currently, customers for our developed homesites include both individual purchasers and national, regional and local homebuilders. Many of these homebuilders are also experiencing financial difficulties during this current weak real estate market. As a result, some of these homebuilders are choosing to delay or forego purchasing additional homesites, and some have cancelled existing purchase commitments with us, or have sought to renegotiate such commitments on more favorable terms.
 
On May 3, 2007, we sold our mid-Atlantic homebuilding operations, known as Saussy Burbank (see Discontinued Operations below). Our exit from the Florida homebuilding business announced in 2006 was substantially completed in 2007.


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The table below sets forth the results of operations of our residential real estate segment for the three years ended December 31, 2008.
 
                         
    Years Ended December 31,  
    2008     2007     2006  
    (In millions)  
 
Revenues:
                       
Real estate sales
  $ 28.6     $ 119.0     $ 317.6  
Rental revenues
    1.4       1.3       0.7  
Other revenues
    41.3       40.9       40.1  
                         
Total revenues
    71.3       161.2       358.4  
                         
Expenses:
                       
Cost of real estate sales
    24.1       77.2       221.5  
Cost of rental revenues
    0.5       0.6        
Cost of other revenues
    46.6       43.1       43.5  
Other operating expenses
    42.9       55.5       47.5  
Depreciation and amortization
    11.8       11.9       11.2  
Impairment loss
    60.3       13.6        
Restructuring charge
    1.2       4.1       12.3  
                         
Total expenses
    187.4       206.0       336.0  
                         
Other income
    0.1       0.8       1.4  
                         
Pre-tax (loss) income from continuing operations
  $ (116.0 )   $ (44.0 )   $ 23.8  
                         
 
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 
Real estate sales include sales of homes and homesites. Cost of real estate sales for homes and homesites includes direct costs (e.g., development and construction costs), selling costs and other indirect costs (e.g., construction overhead, capitalized interest, warranty and project administration costs).
 
The following table sets forth the components of our real estate sales and cost of real estate sales related to homes and homesites:
 
                                                 
    Year Ended December 31, 2008     Year Ended December 31, 2007  
    Homes     Homesites     Total     Homes     Homesites     Total  
    (Dollars in millions)  
 
Sales
  $ 17.9     $ 10.1     $ 28.0     $ 58.4     $ 57.6     $ 116.0  
Cost of sales:
                                               
Direct costs
    12.9       5.6       20.2       36.3       24.5       60.8  
Selling costs
    1.0       0.6       1.6       2.9       2.0       4.9  
Other indirect costs
    3.5       0.4       2.2       8.2       3.0       11.2  
                                                 
Total cost of sales
    17.4       6.6       24.0       47.4       29.5       76.9  
                                                 
Gross profit
  $ 0.5     $ 3.5     $ 4.0     $ 11.0     $ 28.1     $ 39.1  
                                                 
Gross profit margin
    3 %     35 %     14 %     19 %     49 %     34 %
 
The decreases in the amounts of real estate sales, gross profit and gross profit margin were due to adverse market conditions causing decreases in home and homesite closings and selling prices in most of our communities. Also included in real estate revenues and cost of sales are land sales of $0.6 and $3.0 million and land cost of sales of $0.1 and $0.3 million for the years ended December 31, 2008 and 2007, respectively.


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The following table sets forth home and homesite sales activity by geographic region and property type, excluding Rivercrest and Paseos, two 50% owned affiliates that are not consolidated and are accounted for using the equity method of accounting.
 
                                                                 
    Year Ended December 31, 2008     Year Ended December 31, 2007  
    Closed
          Cost of
    Gross
    Closed
          Cost of
    Gross
 
    Units     Revenues     Sales     Profit     Units     Revenues     Sales     Profit  
    (Dollars in millions)  
 
Northwest Florida:
                                                               
Resort
                                                               
Single-family homes
    8     $ 8.6     $ 8.3     $ 0.3       20     $ 23.1     $ 19.3     $ 3.8  
Multi-family homes
                            1       0.9       0.6       0.3  
Homesites
    21       6.7       3.5       3.2       47       36.6       12.9       23.7  
Primary
                                                               
Single-family homes
    1       0.3       0.3       0.0       15       4.4       3.5       0.9  
Townhomes
                            5       1.1       0.9       0.2  
Homesites
    23       1.3       1.0       0.3       178       14.2       9.4       4.8  
Northeast Florida:
                                                               
Primary
                                                               
Single-family homes
    2       0.9       1.0       (0.1 )     9       4.3       4.0       0.3  
Homesites
    3       0.2       0.1       0.1       29       2.0       1.1       0.9  
Central Florida:
                                                               
Primary
                                                               
Single-family homes
    10       4.5       4.4       0.1       20       11.8       9.2       2.6  
Multi-family homes
    9       3.1       2.9       0.2       39       5.7       4.0       1.7  
Townhomes
    3       0.5       0.5       0.0       15       7.1       5.9       1.2  
Homesites
    42       1.9       2.0       (0.1 )     100       4.8       6.1       (1.3 )
                                                                 
Total
    122     $ 28.0     $ 24.0     $ 4.0       478     $ 116.0     $ 76.9     $ 39.1  
                                                                 
 
For additional information about our residential projects, see the table “Summary of Land-Use Entitlements — Active JOE Residential and Mixed-Use Projects” in the Business section above.
 
Our Northwest Florida resort and seasonal communities included WaterColor, WaterSound Beach, WaterSound, WaterSound West Beach, WindMark Beach, RiverCamps on Crooked Creek and SummerCamp Beach, while primary communities included Hawks Landing, Palmetto Trace, The Hammocks and SouthWood. In Northeast Florida the primary communities are RiverTown and St. Johns Golf and Country Club. The Central Florida communities included Artisan Park and Victoria Park, both of which are primary.
 
In addition to adverse market conditions, the following factors also contributed to the results of operations shown above:
 
  •  For our Northwest Florida resort and seasonal communities, included in 2007 was the recognition of $7.0 million of deferred revenue on our SummerCamp Beach community as the required infrastructure was completed.
 
  •  In our Northwest Florida primary communities we closed on our last remaining home in the Palmetto Trace community in 2008. Gross profit percentage for homesites decreased to 23% in 2008 as compared to 33% in 2007, due to the sales of lower margin builder lots in our SouthWood community.
 
  •  In our Northeast Florida communities, we had only a limited number of homes available as St. Johns Golf and Country Club is now fully built out.


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  •  In our Central Florida communities, the negative gross profit in homesite sales is due to bulk sales to a national homebuilder. These sales have potential profit participation expected to be recognized in future periods.
 
Other revenues included revenues from the WaterColor Inn and WaterColor vacation rental program, other resort, golf, club and marina operations and brokerage activities. Other revenues were $41.3 million in 2008 with $46.6 million in related costs, compared to revenues totaling $40.9 million in 2007 with $43.1 million in related costs. The increases in other revenues and related costs were primarily due to the addition of the operating results for the Bay Point Marina, Shark’s Tooth Golf Course and a restaurant at Windmark Beach which were not fully operational during 2007. Partially offsetting these increases was a decrease in occupancy and increased costs associated with the transition to third party management at our WaterColor Inn property.
 
Other operating expenses included salaries and benefits, marketing, project administration, support personnel and other administrative expenses. Other operating expenses were $42.9 million in 2008 compared to $55.5 million in 2007. Decreases in payroll related costs were partially offset by costs related to our real estate projects that were expensed in 2008 instead of capitalized. Other operating expenses for 2007 included a $5.0 million termination fee paid to a third party management company.
 
We recorded a restructuring charge in our residential real estate segment of $1.2 million during 2008 compared to $4.1 million in 2007 in connection with our headcount reductions and business changes.
 
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 
The following table sets forth the components of our real estate sales and cost of real estate sales:
 
                                                 
    Year Ended December 31, 2007     Year Ended December 31, 2006  
    Homes     Homesites     Total     Homes     Homesites     Total  
    (Dollars in millions)  
 
Sales
  $ 58.4     $ 57.6     $ 116.0     $ 247.3     $ 69.3     $ 316.6  
Cost of sales:
                                               
Direct costs
    36.3       24.5       60.8       153.9       31.4       185.3  
Selling costs
    2.9       2.0       4.9       11.8       1.7       13.5  
Other indirect costs
    8.2       3.0       11.2       18.9       3.0       21.9  
                                                 
Total cost of sales
    47.4       29.5       76.9       184.6       36.1       220.7  
                                                 
Gross profit
  $ 11.0     $ 28.1     $ 39.1     $ 62.7     $ 33.2     $ 95.9  
                                                 
Gross profit margin
    19 %     49 %     34 %     25 %     48 %     30 %
 
Also included in real estate revenues and cost of sales are land sales of $3.0 million and $1.0 million and land cost of sales of $0.3 million and $0.8 million for the years ended December 31, 2007 and 2006, respectively.


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The following table sets forth home and homesite sales activity by geographic region and property type, excluding Rivercrest and Paseos, two 50% owned affiliates that are not consolidated and are accounted for using the equity method of accounting.
 
                                                                 
    Year Ended December 31, 2007     Year Ended December 31, 2006  
    Closed
          Cost of
    Gross
    Closed
          Cost of
    Gross
 
    Units     Revenues     Sales     Profit     Units     Revenues     Sales     Profit  
    (Dollars in millions)  
 
Northwest Florida:
                                                               
Resort
                                                               
Single-family homes
    20     $ 23.1     $ 19.3     $ 3.8       20     $ 21.8     $ 16.8     $ 5.0  
Multi-family homes
    1       0.9       0.6       0.3                          
Homesites
    47       36.6       12.9       23.7       67       32.5       12.0       20.5  
Primary
                                                               
Single-family homes
    15       4.4       3.5       0.9       201       62.8       49.9       12.9  
Townhomes
    5       1.1       0.9       0.2       43       6.7       5.4       1.3  
Homesites
    178       14.2       9.4       4.8       231       14.6       8.4       6.2  
Northeast Florida:
                                                               
Primary
                                                               
Single-family homes
    9       4.3       4.0       0.3       54       28.1       21.8       6.3  
Homesites
    29       2.0       1.1       0.9       7       1.1       0.5       0.6  
Central Florida:
                                                               
Primary
                                                               
Single-family homes
    20       11.8       9.2       2.6       183       81.5       56.7       24.8  
Multi-family homes
    39       5.7       4.0       1.7       136       27.6       17.9       9.7  
Townhomes
    15       7.1       5.9       1.2       60       18.8       16.1       2.7  
Homesites
    100       4.8       6.1       (1.3 )     258       21.1       15.2       5.9  
                                                                 
Total
    478     $ 116.0     $ 76.9     $ 39.1       1,260     $ 316.6     $ 220.7     $ 95.9  
                                                                 
 
For additional information about our residential projects, see the table “Summary of Land-Use Entitlements — Active JOE Residential and Mixed-Use Projects” in the Business section above.
 
Our Northwest Florida resort and seasonal communities included WaterColor, WaterSound Beach, WaterSound, WaterSound West Beach, WindMark Beach, RiverCamps on Crooked Creek and SummerCamp Beach, while primary communities included Hawks Landing, Palmetto Trace, The Hammocks and SouthWood. In Northeast Florida the primary communities are RiverTown and St. Johns Golf and Country Club. The Central Florida communities included Artisan Park and Victoria Park, both of which are primary.
 
In our Northwest Florida resort and seasonal communities, units closed and revenues on home sales in 2007 were slightly higher than 2006. Contributing to the higher revenues in 2007 was the sale of a single family home at WaterSound Beach for $3.4 million. Gross profit and gross margin decreased due to higher warranty and construction costs in our WaterSound Beach community, and the average sales price decreased slightly to $1.14 million in 2007 compared to $1.16 million in 2006. Homesite closings were lower in 2007, but revenues, gross profit and profit margin were higher as compared to 2006 due to the sale of 3 beachfront lots with an average sales price of $2.0 million and a profit margin of 75%, and the recognition of $7.0 million of deferred revenue on our SummerCamp Beach community as the required infrastructure was completed.
 
In our Northeast Florida communities, home closings, revenues and gross profit decreased in 2007 due primarily to limited availability of product. Homesite closings, revenues and gross profit increased in 2007 as sales commenced in the fourth quarter of 2007 at our RiverTown community. Gross margin decreased due to the sale of lower margin builder lots.


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In our Central Florida communities, home and homesite closings, revenues and gross profit decreased in 2007 compared to 2006 due to adverse market conditions. Homesites had a negative gross profit of ($1.3) million in 2007 due to bulk sales to a national homebuilder. These sales have potential profit participation expected to be recognized in future periods.
 
Other revenues included revenues from the WaterColor Inn and WaterColor vacation rental program, other resort and club operations and brokerage activities. Other revenues were $40.9 million in 2007 with $43.1 million in related costs, compared to revenues totaling $40.1 million in 2006 with $43.5 million in related costs.
 
Other operating expenses included salaries and benefits, marketing, project administration, support personnel and other administrative expenses. Other operating expenses were $55.5 million in 2007 as compared to $47.5 million in 2006. The increase was primarily due to the recording of a $5.0 million termination fee paid to a third-party management company during the third quarter of 2007 and less capitalized costs due to our exit from homebuilding.
 
We recorded a restructuring charge in our residential real estate segment of $4.1 million in 2007 in connection with our exit from the Florida homebuilding business and corporate reorganization, as compared to $12.3 million in 2006.
 
Other income in 2007 included interest and miscellaneous income totaling $3.4 million offset by a $2.6 million charge for a claim settled in September 2007 with a contractor at WaterSound Beach.
 
Discontinued Operations
 
On May 3, 2007, we sold our mid-Atlantic homebuilding operations, Saussy Burbank, to an investor group based in Charlotte, North Carolina. The sales price was $76.3 million, consisting of $36.0 million in cash and approximately $40.3 million in seller financing, the majority of which is secured by home inventory. The results of Saussy Burbank have been reported as discontinued operations in the years ended December 31, 2007 and 2006. Included in 2007 pre-tax income is a $2.2 million impairment charge to approximate fair value, less costs to sell, of the sale of Saussy Burbank.
 
The table below sets forth the operating results of our discontinued operations of Saussy Burbank for the periods shown.
 
                 
    Years Ended December 31,  
    2007     2006  
    (In millions)  
 
Saussy Burbank — Residential Segment
               
Aggregate revenues
  $ 132.9     $ 182.3  
                 
Pre-tax income
    1.5       12.9  
Income taxes
    0.6       4.9  
                 
Income from discontinued operations
  $ 0.9     $ 8.0  
                 
 
Commercial Real Estate
 
Our commercial real estate segment plans, develops and entitles our land holdings for a broad portfolio of retail, office and commercial uses. We sell and develop commercial land and provide development opportunities for national and regional retailers as well as strategic partners in Northwest Florida. We also offer land for commercial and light industrial uses within large and small-scale commerce parks, as well as for a wide range of multi-family rental projects. Like residential real estate, the markets for commercial real estate, particularly retail, are weak.


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The table below sets forth the results of our continuing operations of our commercial real estate segment for the three years ended December 31, 2008.
 
                         
    Years Ended December 31,  
    2008     2007     2006  
    (In millions)  
 
Revenues:
                       
Real estate sales
  $ 3.9     $ 27.6     $ 48.5  
Rental revenues
    0.1       1.3       2.9  
Other revenues
          0.1       0.9  
                         
Total revenues
    4.0       29.0       52.3  
                         
Expenses:
                       
Cost of real estate sales
    2.8       13.8       18.6  
Cost of rental revenues
    0.1       0.9       1.9  
Other operating expenses
    4.2       5.9       7.0  
Depreciation and amortization
    0.1       0.6       2.1  
Restructuring charge
    0.1       0.4       0.1  
                         
Total expenses
    7.3       21.6       29.7  
                         
Other income (expense)
    1.0       8.3       1.7  
                         
Pre-tax (loss) income from continuing operations
  $ (2.3 )   $ 15.7     $ 24.3  
                         
 
The markets for commercial real estate have experienced a significant downturn since 2005, and revenues in the commercial real estate segment have steadily declined as a result. In addition to the negative effects of the prolonged downturn in demand for residential real estate, commercial real estate markets are also being negatively affected by the current economic recession. Currently, we do not expect any favorable change in these trends during 2009.
 
We continue to focus our efforts on attracting national and regional retail users and other commercial developers to our properties in Northwest Florida. Going forward, we intend to seek to partner with third parties for the development of new commercial projects, as well as sell entitled land to developers and investors. In August 2008, we signed a joint venture agreement with Glimcher Realty Trust to jointly develop an anchored retail shopping center on 58 acres across from Pier Park along Highway 98 in Panama City Beach. The development is subject to obtaining third-party financing and certain minimum leasing commitments.
 
Real Estate Sales.  Commercial land sales for the three years ended December 31, 2008 included the following:
 
                                                 
    Number of
    Acres
    Average Price
    Gross
          Gross Profit
 
Land
  Sales     Sold     Per Acre(1)     Proceeds     Revenue     on Sales  
    (In millions)  
 
Year Ended December 31, 2008
    8       39     $ 92.0     $ 3.6     $ 3.9 (2)   $ 1.1 (2)
                                                 
Year Ended December 31, 2007
    33       110     $ 250.1     $ 27.6     $ 27.6 (3)   $ 13.8 (3)
                                                 
Year Ended December 31, 2006
    28       244     $ 200.4     $ 48.9     $ 48.5 (4)   $ 29.9 (4)
                                                 
 
 
(1) Average price per acre in thousands.
 
(2) Includes previously deferred revenue and gain on sales, based on percentage-of-completion accounting, of $0.3 million and $0.1 million, respectively.
 
(3) Includes previously deferred revenue and gain on sales, based on percentage-of-completion accounting, of $0.0 and $0.4 million, respectively.
 
(4) Net of deferred revenue and gain on sales, based on percentage-of-completion accounting, of $0.4 million and $0.1 million, respectively.


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The change in average per-acre prices reflected a change in the mix of commercial land sold in each period, with varying compositions of retail, office, light industrial, multi-family and other commercial uses. Included in the 2007 results were sales of four parcels primarily in Texas considered non-core holdings totaling $4.4 million for a gross profit of $1.0 million.
 
In 2008, the commercial segment had a $451,000 per acre average sales price on the retail land portfolio as compared to $382,000 in 2007 and $248,000 in 2006. In the commerce/industrial park portfolio the average sales price per acre in 2008 was $102,000 as compared to $210,000 in 2007 and $215,000 in 2006. In 2008, there was also one multi-family sale at an average sales price per acre of $74,000.
 
For additional information about our Commerce Parks, see the table “Summary of Additional Commercial Land-Use Entitlements” in the Business section above.
 
Dispositions of Assets.  During 2007, we closed on the sale of our office building portfolio, containing 17 buildings with approximately 2.25 million net rentable square feet, for an aggregate sales price of $377.5 million. As discussed earlier, three of the 17 buildings have been reported in continuing operations and the remaining 14 have been reported in discontinued operations. Considering the significant increase in office building valuations in the years prior to the sale, we believe that we achieved optimum pricing for our office building portfolio, especially in light of the subsequent decline in the market for commercial office buildings. We have no current plans to acquire additional office buildings.
 
The results of the three buildings reported in continuing operations are shown in the following table:
 
                 
    Years Ended December 31,  
    2007     2006  
    (In millions)  
 
Commercial Buildings:
               
Aggregate revenues
  $ 1.5     $ 2.9  
                 
Pre-tax income (loss)
          (1.2 )
Pre-tax gain on sale
    8.0        
Income tax expense (benefit)
    0.6       (0.5 )
                 
Income (loss) from continuing operations, net of tax
  $ 7.4     $ (0.7 )
                 
 
Discontinued operations include the sale and results of operations of our 14 buildings sold in 2007, and four buildings sold in 2006 as shown in the following table. The operations of these buildings are included in discontinued operations through the dates that they were sold:
 
                 
    Years Ended December 31,  
    2007     2006  
    (In millions)  
 
Commercial Buildings — Commercial Segment:
               
Aggregate revenues
  $ 18.1     $ 40.1  
                 
Pre-tax income (loss)
    2.5       (1.7 )
Pre-tax gain on sale
    47.8       16.7  
Income taxes
    19.6       5.7  
                 
Income from discontinued operations
  $ 30.7     $ 9.3  
                 
 
Rural Land Sales
 
Our rural land sales segment markets and sells tracts of land of varying sizes for rural recreational, conservation and timberland uses. The land sales segment at times prepares land for sale for these uses through harvesting, thinning and other silviculture practices, and in some cases, limited infrastructure development.


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The table below sets forth the results of operations of our rural land sales segment for the three years ended December 31, 2008.
 
                         
    Years Ended December 31,  
    2008     2007     2006  
    (In millions)  
 
Revenues:
                       
Real estate sales
  $ 162.0     $ 161.2     $ 89.9  
                         
Expenses:
                       
Cost of real estate sales
    26.2       54.8       7.4  
Other operating expenses
    4.4       5.3       10.6  
Depreciation and amortization
    0.1       0.2       0.3  
Restructuring charge
          1.4       0.2  
                         
Total expenses
    30.7       61.7       18.5  
                         
Other income
    1.2       0.3       1.1  
                         
Pre-tax income from continuing operations
  $ 132.5     $ 99.8     $ 72.5  
                         
 
Rural land sales for the three years ended December 31, 2008 are as follows:
 
                                         
    Number
    Number of
    Average Price
    Gross Sales
    Gross
 
Period
  of Sales     Acres     per Acre     Price     Profit  
                      (In millions)     (In millions)  
 
2008
    26       107,677     $ 1,505     $ 162.0     $ 135.9  
2007
    44       105,963     $ 1,522     $ 161.3     $ 106.5  
2006
    84       34,336     $ 2,621     $ 89.9     $ 82.5  
 
During 2008 and 2007, we relied on rural land sales as a significant source of revenues due to the continuing downturn in our residential and commercial real estate markets. We consider the land sold to be non-strategic as these parcels would require a significant amount of time before realizing a higher and better use than timberland. Demand for our rural land remains steady, and we expect to continue to rely on rural land sales as a significant source of revenues in the future, although to a lesser extent than in 2008 and 2007. We are carefully monitoring, however, any impact that the current economic environment may have on pricing or overall demand for rural land.
 
During 2008, we closed the following significant sales:
 
  •  18,552 acres in Liberty and Gulf Counties for $24.7 million, or an average price of $1,330 per acre.
 
  •  23,743 acres in Liberty County for $36.3 million, or an average price of $1,530 per acre.
 
  •  2,784 acres in Taylor County for $12.5 million, or an average price of $4,500 per acre.
 
  •  29,742 acres primarily within Liberty and Wakulla Counties for $39.5 million, or an average price of $1,330 per acre.
 
  •  29,343 acres primarily within Leon County, Florida and Stewart County, Georgia, for $38.4 million, or an average price of $1,308 per acre.
 
During 2007, we closed the following significant sales:
 
  •  19,989 acres in Wakulla and Jefferson Counties for $28.5 million, or an average price of $1,425 per acre.
 
  •  33,035 acres in Southwest Georgia for $46.4 million, or an average price of $1,405 per acre.
 
  •  26,943 acres in Liberty and Gadsden Counties for $34.5 million, or an average price of $1,281 per acre.
 
  •  3,024 acres in Wakulla County for $9.1 million, or an average price of $3,000 per acre.
 
  •  15,250 acres in Liberty County for $19.1 million, or an average price of $1,251 per acre.
 
During 2006, we sold two large tracts of land totaling 15,469 acres for an average price of $1,700 per acre.


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Average sales prices per acre vary according to the characteristics of each particular piece of land being sold and its highest and best use. As a result, average prices will vary from one period to another. Cost of sales increased during 2007 compared to 2006 primarily due to a higher cost basis associated with the sale of our southwest Georgia property, which we purchased in 2005.
 
Forestry
 
Our forestry segment focuses on the management and harvesting of our extensive timber holdings. We grow, harvest and sell timber and wood fiber and provide land management services for conservation properties. In addition, we own the assets of a sawmill and mulch plant, Sunshine State Cypress, which no longer conducts operations. On October 8, 2007 we announced our intent to sell Sunshine State Cypress. We expect to complete the sale of its inventory and equipment assets during 2009. The results of operations for Sunshine State Cypress are set forth below as discontinued operations.
 
The table below sets forth the results of our continuing operations of our forestry segment for the three years ended December 31, 2008.
 
                         
    Years Ended December 31,  
    2008     2007     2006  
    (In millions)  
 
Revenues:
                       
Timber sales
  $ 26.6     $ 25.8     $ 24.3  
Expenses:
                       
Cost of timber sales
    19.8       20.8       18.1  
Other operating expenses
    1.9       1.7       1.6  
Depreciation and amortization
    2.5       2.6       2.4  
Restructuring charge
    0.2       0.1        
                         
Total expenses
    24.4       25.2       22.1  
                         
Other income (expense)
    1.7       2.3       3.2  
                         
Pre-tax income from continuing operations
  $ 3.9     $ 2.9     $ 5.4  
                         
 
Total 2008 revenues for the forestry segment increased $0.8 million, or 3%, compared to 2007. We have a wood fiber supply agreement with Smurfit-Stone Container Corporation (“Smurfit-Stone”) which expires on June 30, 2012. Although Smurfit-Stone recently filed for bankruptcy protection, the supply agreement remains in effect at this time. Sales under this agreement were $12.9 million (691,000 tons) in 2008 and $13.3 million (745,800 tons) in 2007.
 
Sales to customers other than Smurfit-Stone totaled $13.4 million (687,000 tons) in 2008 as compared to $12.5 million (713,000 tons) in 2007. The increase is primarily due to a change in product mix comprised of higher average per ton selling prices in 2008.
 
Our 2008 sales revenue also included $0.3 million related to land management services performed in connection with certain conservation properties. We plan to seek other customers for our conservation land management services.
 
Cost of sales for the forestry segment decreased $1.0 million in 2008 compared to 2007. Gross margins as a percentage of revenue were 26% and 19% in 2008 and 2007, respectively. The increase in margin was primarily due to decreased cut and haul costs and the mix of products sold.
 
Other income decreased $0.6 million in 2008 compared to 2007 primarily due to a decrease in hunting lease income as a result of our reduced land holdings.
 
Total 2007 revenues for the forestry segment increased $1.5 million, or 6%, compared to 2006. Sales under our wood fiber supply agreement with Smurfit-Stone were $13.3 million (745,800 tons) in 2007 and $13.0 million (692,600 tons) in 2006. Sales to other customers totaled $12.5 million (713,000 tons) in 2007 as compared to $11.3 million (623,300 tons) in 2006. The increase in revenue and tons sold under the supply


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agreement and to other customers resulted from our ability to harvest more solid wood products due to better operating conditions and planning.
 
Cost of sales for the forestry segment increased $2.7 million in 2007 compared to 2006. Gross margins as a percentage of revenue were 19% and 26% in 2007 and 2006, respectively. The decrease in margin was primarily due to lower pulpwood sales prices under the terms of the supply agreement and an increase in cut and haul costs as a result of higher volume levels and increased fuel costs.
 
Other income decreased $0.9 million in 2007 compared to 2006 primarily due to a decrease in hunting lease income as a result of our reduced land holdings.
 
Discontinued operations for the years ended December 31 include the operations of Sunshine State Cypress, Inc. which as of December 31, 2008 and 2007 we classified as held for sale as shown in the following table:
 
                         
    2008     2007     2006  
    (In millions)  
 
Sunshine State Cypress — Forestry Segment
                       
Aggregate revenues
  $ 6.7     $ 7.7     $ 5.6  
                         
Pre-tax income (loss)
    (1.6 )     (5.7 )     (1.0 )
                         
Income taxes (benefit)
    (0.6 )     (2.2 )     (0.4 )
                         
Income (loss) from discontinued operations
  $ (1.0 )   $ (3.5 )   $ (0.6 )
                         
 
During 2007 we announced our plan to dispose of Sunshine State Cypress as part of our restructuring plan. Our estimate of fair value based upon market analysis indicated that its goodwill would not be recoverable. Accordingly, in 2007 we recorded an impairment charge of $7.4 million pre-tax which includes $7.3 million to reduce the goodwill carrying value of Sunshine State Cypress to zero and $0.1 million of estimated selling costs. The effect of suspending depreciation was approximately $0.2 million in 2008.
 
During 2006, we determined the fair value of Sunshine State Cypress was less than the carrying value and recorded an impairment loss to reduce the carrying amount of goodwill from $8.8 million to $7.3 million. This resulted in a pre-tax impairment loss of $1.5 million.
 
Liquidity and Capital Resources
 
We generated cash during 2008 from:
 
  •  Sales of land holdings and other assets;
 
  •  Operations;
 
  •  Borrowings from financial institutions;
 
  •  Issuances of equity from the sale of stock and exercise of employee stock options; and
 
  •  Tax refunds.
 
We used cash during 2008 for:
 
  •  Operations;
 
  •  Real estate development and construction;
 
  •  Repayments of debt; and
 
  •  Payments of taxes.
 
As of December 31, 2008, we had cash and cash equivalents of $115.5 million, compared to $24.3 million as of December 31, 2007. Our increase in cash and cash equivalents in 2008 primarily relates to our operating and financing activities as described below.


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We invest our excess cash primarily in government-only money market mutual funds, short term U.S. treasury investments and overnight deposits, all of which are highly liquid, with the intent to make such funds readily available for operating expenses and strategic long-term investment purposes.
 
We believe that our current cash and cash equivalents, credit facility and cash we anticipate to generate from operating activities will provide us with sufficient liquidity to satisfy our working capital needs and capital expenditures through the next twenty-four months.
 
Cash Flows from Operating Activities
 
Cash flows related to assets ultimately planned to be sold, including residential real estate development and related amenities, sales of undeveloped and developed land by the rural land sales segment, our timberland operations and land developed by the commercial real estate segment, are included in operating activities on the statement of cash flows. Distributions of income from unconsolidated affiliates are also included in cash flows from operating activities.
 
Net cash provided by (used in) operations was $48.5 million during 2008 compared to $(209.3) million during 2007 and $(143.9) million in 2006. Expenditures relating to our residential real estate segment in 2008, 2007 and 2006 were $28.5 million, $214.3 million and $531.4 million, respectively. The 2008 expenditures were net of an $11.6 million reimbursement received from a community development district (“CDD”) bond issue at one of our residential communities. Expenditures for operating properties in 2008, 2007 and 2006 totaled $6.1 million, $13.2 million and $55.6 million, respectively, and were made up of commercial land development and residential club and resort property development.
 
The expenditures relating to our residential real estate and commercial real estate segments were primarily for site infrastructure development, general amenity construction, construction of single-family homes, construction of multi-family buildings and commercial land development. For the past four years, we have devoted significant resources to the development of several new large-scale residential communities, including WindMark Beach, RiverTown and WaterSound. Because of adverse market conditions and the substantial progress on these large-scale developments, we reduced our capital expenditures in 2008 compared to 2007 and 2006. We expect our 2009 capital expenditures to remain consistent with 2008. We anticipate that future capital commitments will be funded through our operating funds and credit facility.
 
We intend to limit our capital investments going forward by shifting more development costs to a range of best-of-class strategic business partners that include branded builders, project developers and venture partners. Capital investment for horizontal development is being limited to our most strategic and valuable places.
 
The 2007 expenditures also included the purchase of the Greg Norman-designed Shark’s Tooth Golf Club, together with 28 fully-developed homesites in the Wild Heron community, additional land parcels and a beach club, all near Panama City Beach, Florida, for approximately $30.0 million.
 
Our current income tax receivable (payable) was $32.3 million at December 31, 2008 and $(8.1) million at December 31, 2007, respectively. We anticipate we will receive the majority of our tax receivable within the next twelve months which will provide us with additional liquidity. Our net deferred income tax liability was $61.5 million and $83.5 million at December 31, 2008 and December 31, 2007, respectively. The overall decrease in our net deferred tax liability was primarily a result of an increase in our deferred tax assets, which resulted from increased state operating loss carryforwards and impairment / goodwill adjustments. In 2007 we made $188.5 million in tax payments, which included $86.0 million related to an IRS settlement for the years 2000 through 2004 in the first quarter of 2007. The disposition of our office building portfolio also required us to make significant estimated tax payments during 2007.
 
Our accrued liabilities were $92.6 million and $112.2 million at December 31, 2008 and December 31, 2007, respectively. The decrease was primarily attributed to reduced accruals related to interest, compensation and restructuring reserves.


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During 2008 and 2007, we increased our operating cash flows as a result of large tract rural land sales. During 2008, we sold a total of 79,031 acres of timberland in three separate transactions in exchange for 15-year installment notes receivable in the aggregate amount of $108.4 million, which installment notes are fully backed by irrevocable letters of credit issued by Wachovia Bank, N.A. (now a subsidiary of Wells Fargo & Company). We received $96.1 million in net cash proceeds from the monetization of these installment notes. During 2007, we sold 53,024 acres of timberland in two separate transactions in exchange for 15-year installment notes receivable in the aggregate amount of $74.9 million. These notes were subsequently monetized for $66.9 million in net cash proceeds.
 
We will continue to consider large tract rural land sales as a source of operating cash flows in the future.
 
Cash Flows from Investing Activities
 
Cash flows from investing activities include cash flows from the sale of office buildings, the sale of other assets not held for sale, distributions of capital from unconsolidated affiliates, acquisitions of property using tax deferred proceeds and the purchase of fixed assets. Net cash (used in) provided by investing activities was $(1.4) million in 2008 compared to $326.7 million in 2007 and $29.9 million in 2006.
 
During 2008, we purchased property, plant and equipment of $2.3 million, $0.7 million of which related to capital costs associated with the upgrade of our financial systems.
 
During the second and third quarters of 2007, we closed on the sale of our office building portfolio, containing 17 buildings with approximately 2.3 million net rentable square feet, for an aggregate sales price of $377.5 million. We also defeased approximately $29.3 million of mortgage debt in connection with the sale. Net proceeds from the sale were used to pay taxes and pay down debt.
 
On May 3, 2007, we sold Saussy Burbank, our mid-Atlantic homebuilding operations. The sales price was $76.3 million, consisting of $36.0 million in cash and approximately $40.3 million in seller financing. The remaining balance outstanding on the seller financing at December 31, 2008 was $16.7 million. Net proceeds from this transaction were used to pay taxes and pay down debt.
 
On April 25, 2007, we purchased the Bay Point Marina in Bay County near Panama City Beach, Florida for approximately $9.8 million.
 
Net cash provided in 2006 primarily was a result of $52.8 million in proceeds related to the sales of office buildings.
 
Cash Flows from Financing Activities
 
Net cash provided by (used in) financing activities was $44.2 million in 2008, $(130.0) million in 2007 and $(51.7) million in 2006. The cash provided by financing activities in 2008 was primarily attributable to the sale of 17,145,000 shares of our common stock at a price of $35.00 per share which was completed during the first quarter. We received net proceeds of $580 million in connection with the public offering which were primarily used to pay down our debt as described below.
 
As previously discussed, we monetized notes receivable from rural land installment sales in 2008 and 2007. Proceeds from these transactions were used to pay down debt.
 
Proceeds from our common stock offering were used to prepay in full on April 4, 2008 senior notes with an outstanding principal amount of $240.0 million together with a make-whole amount of approximately $29.7 million. In addition, we recorded a non-cash expense of approximately $0.9 million attributable to the write-off of unamortized loan costs, net of accrued interest, associated with the senior notes and prior credit facility. As a result, we recognized a charge of $30.6 million during 2008 related to the early extinguishment of debt.
 
CDD bonds financed the construction of infrastructure improvements at six of our projects. The principal and interest payments on the bonds are paid by assessments on, or from sales proceeds of, the properties benefited by the improvements financed by the bonds. We have recorded a liability for future assessments


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which are fixed or determinable and will be levied against our properties. In accordance with EITF Issue 91-10, Accounting for Special Assessments and Tax Increment Financing, we have recorded debt of $11.9 million and $35.7 million related to CDD bonds as of December 31, 2008 and December 31, 2007, respectively. We retired approximately $30.0 million of CDD debt with the proceeds of our common stock offering during 2008.
 
We also used proceeds from the common stock offering to prepay in full a $100 million term loan and the entire outstanding balance (approximately $160 million) of our previous $500 million senior revolving credit facility. That facility was terminated in September 2008.
 
In September 2008, we entered into a new $100 million Credit Agreement (the “Credit Agreement”) with Branch Banking and Trust Company (“BB&T”). The Credit Agreement provides for a $100 million revolving credit facility that matures on September 19, 2011. We have the option to request an increase in the principal amount available under the Credit Agreement up to $200 million through syndication on a best efforts basis. The Credit Agreement provides for swing advances of up to $5 million and the issuance of letters of credit of up to $30 million. No funds have been drawn on the Credit Agreement as of December 31, 2008. The proceeds of any future borrowings under the Credit Agreement may be used for general corporate purposes. We have pledged 100% of the membership interests in our largest subsidiary, St. Joe Timberland Company of Delaware, LLC, as security for the credit facility. We have also agreed that upon the occurrence of an event of default, St. Joe Timberland Company of Delaware, LLC will grant to the lenders a first priority pledge of and/or a lien on substantially all of its assets.
 
The interest rate for each borrowing under the Credit Agreement is based on either (1) an adjusted LIBOR rate plus the applicable interest margin (ranging from 0.75% to 1.75%), or (2) the higher of (a) the prime rate or (b) the federal funds rate plus 0.5%. The Credit Agreement also requires the payment of quarterly fees ranging from 0.125% to 0.35% based on the Debt to Total Asset Value ratio during the applicable period. The interest margin and quarterly fee as of December 31, 2008 were 1.0% and 0.15%, respectively. We paid approximately $0.9 million in fees to BB&T in connection with the closing of the new facility and wrote off approximately $0.7 million of fees related to the prior revolving credit facility. The Credit Agreement contains covenants relating to leverage, unencumbered asset value, net worth, liquidity and additional debt. The Credit Agreement does not contain a fixed charge coverage covenant. The Credit Agreement also contains various restrictive covenants pertaining to acquisitions, investments, capital expenditures, dividends, share repurchases, asset dispositions and liens. We were in compliance with our debt covenants at December 31, 2008.
 
Although we remained in compliance with our net worth covenant at December 31, 2008, charges related to our pension plan and asset impairments for the third and fourth quarters of 2008 had a negative impact on our tangible net worth. As a result, we have twice amended our Credit Agreement to provide for a lower minimum tangible net worth requirement. The current required level of $900 million will provide us with greater flexibility to withstand the current economic recession and the difficult conditions in our real estate markets.
 
Our Board of Directors has authorized a total of $950.0 million for the repurchase of our outstanding common stock from shareholders from time to time (the “Stock Repurchase Program”), of which $103.8 million remained available at December 31, 2008. There is no expiration date for the Stock Repurchase Program, and the specific timing and amount of repurchases will vary based on available cash, market conditions, securities law limitations and other factors. From the inception of the Stock Repurchase Program in 1998 to December 31, 2008 we have repurchased from shareholders 27,945,611 shares. During 2006, we repurchased from shareholders 948,200 shares. During 2008 and 2007, as real estate market conditions continued to decline, we chose not to use cash for the repurchase of shares. Given the challenges presented by the current operating environment, we will continue to be prudent in our approach to share repurchase activity until market conditions improve. As a result, we do not expect to repurchase any shares during 2009.
 
Executives have surrendered a total of 2,388,974 shares of our stock since 1998 in payment of strike prices and taxes due on exercised stock options and vested restricted stock. For 2008, 2007 and 2006, 77,077 shares worth $2.8 million, 58,338 shares worth $2.1 million and 148,417 shares worth $7.6 million,


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respectively, were surrendered by executives for the cash payment of taxes due on exercised stock options and vested restricted stock.
 
We eliminated our quarterly dividend during the fourth quarter 2007. We paid dividends of $35.6 million and $47.7 million in 2007 and 2006, respectively.
 
Cash flows from discontinued operations are reported in the consolidated statement of cash flows as operating, investing and financing along with our continuing operations.
 
Off-Balance Sheet Arrangements
 
During 2008 and 2007, we sold 79,031 acres and 53,024 acres, respectively, of timberland in exchange for 15-year installment notes receivable in the aggregate amount of $108.4 million and $74.9 million, respectively. The installment notes are fully backed by irrevocable letters of credit issued by Wachovia Bank, N.A. (now a subsidiary of Wells Fargo & Company). We contributed the installment notes to bankruptcy remote qualified special purpose entities (“QSPEs”) established in accordance with SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The QSPE’s financial position and results are not consolidated in our financial statements.
 
During 2008 and 2007, the QSPEs monetized $108.4 million and $74.9 million, respectively, of installment notes by issuing debt securities to third party investors equal to approximately 90% of the value of the installment notes. Approximately $96.1 million and $66.9 million in net proceeds were distributed to us during 2008 and 2007, respectively. The debt securities are payable solely out of the assets of the QSPEs and proceeds from the letters of credit. The investors in the QSPEs have no recourse against us for payment of the debt securities or related interest expense. We have recorded a retained interest with respect to all QSPEs of $9.5 million for all installment notes monetized through December 31, 2008, which value is an estimate based on the present value of future cash flows to be received over the life of the installment notes, using management’s best estimates of underlying assumptions, including credit risk and interest rates. In accordance with EITF Issue 99-20,Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securities and Financial Assets”, fair value is adjusted at each reporting date when, based on management’s assessment of current information and events, there is a favorable or adverse change in estimated cash flows from cash flows previously projected. We did not record any impairment adjustments as a result of changes in previously projected cash flows during 2008 or 2007. We deferred approximately $97.1 million and $63.4 million of gain for income tax purposes through this QSPE/installment sale structure during 2008 and 2007, respectively.
 
Contractual Obligations and Commercial Commitments at December 31, 2008
 
                                         
    Payments Due by Period  
          Less Than
                More Than
 
Contractual Cash Obligations(1)
  Total     1 Year     1-3 Years     3-5 Years     5 Years  
    (In millions)  
 
Debt(2)
  $ 49.6     $ 5.0     $ 3.2     $ 1.2     $ 40.2  
Interest related to community development district debt
    14.4       0.8       1.6       1.6       10.4  
Purchase obligations(3)
    8.6       8.6                    
Operating leases
    7.7       2.7       5.0              
                                         
Total Contractual Cash Obligations
  $ 80.3     $ 17.1     $ 9.8     $ 2.8     $ 50.6  
                                         
 
 
(1) Excludes FIN 48 tax liability of $1.8 million due to uncertainty of payment period.
 
(2) Includes debt defeased in connection with the sale of our office building portfolio in the amount of $28.9 million, which will be paid by pledged treasury securities.
 
(3) These aggregate amounts include individual contracts in excess of $0.25 million.
 


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    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
  $ 51.3     $ 49.6     $ 1.7     $     $  
Standby letters of credit
    2.8       2.5       0.3              
                                         
Total Commercial Commitments
  $ 54.1     $ 52.1     $ 2.0     $     $  
                                         
 
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk
 
Our primary market risk exposure is interest rate risk related to our Credit Agreement. As of December 31, 2008, we had no amounts drawn under our Credit Agreement. The interest rate for each borrowing under the Credit Agreement is based on either (1) an adjusted LIBOR rate plus the applicable interest margin (ranging from 0.75% to 1.75%), or (2) the higher of (a) the prime rate or (b) the federal funds rate plus 0.5%. The Credit Agreement also requires the payment of quarterly fees ranging from 0.125% to 0.35% based on the Debt to Total Asset Value ratio during the applicable period. The interest margin and quarterly fee as of December 31, 2008 were 1.0% and 0.15%, respectively.
 
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, 2008.
 
Expected Contractual Maturities
 
                                                                 
                                              Fair
 
    2009     2010     2011     2012     2013     Thereafter     Total     Value  
    ($ in millions)  
 
Long-term Debt
                                                               
Fixed Rate
  $ 5.0     $ 2.2     $ 0.5     $ 0.5     $ 0.6     $ 40.8     $ 49.6     $ 49.6  
Wtd. Avg. Interest Rate
    6.9 %     6.9 %     6.9 %     6.9 %     6.9 %     6.9 %     6.9 %        
 
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, 2008, it does not consider exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss will depend on future changes in interest rates and market values.
 
Item 8.   Financial Statements and Supplementary Data
 
The Financial Statements and related notes on pages F-2 to F-42 and the Report of Independent Registered Public Accounting Firm on page F-1 are filed as part of this Report and incorporated by reference.
 
Item 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.

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(b) Changes in Internal Control Over Financial Reporting.  During the quarter ended December 31, 2008 there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
(c) Management’s Annual Report on Internal Control Over Financial Reporting.
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
 
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
Based on our assessment and those criteria, management concluded that our internal control over financial reporting was effective as of December 31, 2008. Management reviewed the results of their assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, 2008 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included below.
 
(d) Report of Independent Registered Public Accounting Firm.


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The Board of Directors and Stockholders
The St. Joe Company:
 
 
We have audited The St. Joe Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The St. Joe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, The St. Joe Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
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, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flow for each of the years in the three-year period ended December 31, 2008 and the related financial statement schedule, and our report dated February 24, 2009, expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.
 
/s/ KPMG LLP
 
Certified Public Accountants
Jacksonville, Florida
February 24, 2009


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Item 9B.   Other Information.
 
Amendment of a Material Definitive Agreement
 
We have a credit agreement with Branch Banking & Trust Company for a $100 million revolving credit facility (the “Credit Agreement”). On February 20, 2009, we amended the Credit Agreement to lower our required minimum tangible net worth amount to $900 million. This change will provide us with greater flexibility to withstand the current economic recession and the difficult conditions in our real estate markets. A copy of the Second Amendment to Credit Agreement is filed as Exhibit 10.3 hereto and is incorporated by reference.
 
PART III
 
Item 10.   Directors, Executive Officers and Corporate Governance
 
Information concerning our directors, nominees for director, executive officers and certain corporate governance matters is described in our proxy statement relating to our 2009 annual meeting of shareholders to be held on May 12, 2009 (the “proxy statement”). This information is set forth in the proxy statement under the captions “Proposal No. 1 — Election of Directors”, “Executive Officers”, and “Corporate Governance and Related Matters.” This information is incorporated by reference.
 
Item 11.   Executive Compensation
 
Information concerning compensation of our executive officers for the year ended December 31, 2008, 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 and Related Stockholder Matters
 
Information concerning the security ownership of certain beneficial owners and of management is set forth under the caption “Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” in our proxy statement and is incorporated by reference.
 
Equity Compensation Plan Information
 
Our shareholders have approved all of our equity compensation plans. These plans are designed to further align our directors’ and management’s interests with 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, 2008:
 
                         
                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
    524,580     $ 32.73       552,995  
Equity compensation plans not approved by security holders
                 
                         
Total
    524,580     $ 32.73       552,995  
                         
 
For additional information regarding our equity compensation plans, see Note 2 to the consolidated financial statements under the heading, “Stock-Based Compensation”.


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Item 13.   Certain Relationships and Related Transactions and Director Independence
 
Information concerning certain relationships and related transactions during 2008 and director independence is set forth under the captions “Certain Relationships and Related Transactions” and “Director Independence” in our proxy statement. This information is incorporated by reference.
 
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.


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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 filed on December 17, 2004).
  10 .1   Credit Agreement dated September 19, 2008 by and among the registrant and Branch Banking and Trust Company, as agent and lender, and BB&T Capital Markets, as lead arranger ($100 million credit facility) (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on September 24, 2008).
  10 .2   First Amendment to Credit Agreement dated October 30, 2008 by and among the registrant and Branch Banking and Trust Company, as agent and lender (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).
  10 .3   Second Amendment to Credit Agreement dated February 20, 2009 by and among the registrant and Branch Banking & Trust Company, as agent and lender.
  10 .4   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 .5   First Amendment to Employment Agreement between the registrant and Peter S. Rummell dated January 1, 2008 (regarding Section 409A compliance) (incorporated by reference to Exhibit 10.14 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007).
  10 .6   Summary of compensation terms for Peter S. Rummell as Chairman of the Board (incorporated by reference to the information set forth under the caption “Retirement of Peter S. Rummell” in the registrant’s Current Report on Form 8-K filed on February 19, 2008).
  10 .7   Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed on July 31, 2006).
  10 .8   Form of First Amendment to Executive Employment Agreement (regarding Section 409A compliance) (incorporated by reference to Exhibit 10.17 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007).
  10 .9   Second Amendment to Employment Agreement of Wm. Britton Greene dated February 15, 2008 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 19, 2008).
  10 .10   Employment Agreement of Stephen W. Solomon dated April 1, 1999.
  10 .11   First Amendment to Employment Agreement of Stephen W. Solomon.
  10 .12   Severance Agreement of Stephen W. Solomon dated April 1, 1999.
  10 .13   First Amendment to Severance Agreement of Stephen W. Solomon.
  10 .14   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 .15   Deferred Capital Accumulation Plan, as amended and restated effective December 31, 2008.
  10 .16   Supplemental Executive Retirement Plan, as amended and restated effective December 31, 2008.
  10 .17   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 .18   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 .19   Second Amendment to the 1999 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.23 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006).
  10 .20   Third Amendment to the 1999 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.24 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006).


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Exhibit
   
Number  
Description
 
  10 .21   Fourth Amendment to the 1999 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.25 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006).
  10 .22   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 .23   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 .24   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 .25   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 .26   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 .27   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 .28   Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10 of the registrant’s Current Report on Form 8-K filed on September 23, 2004).
  10 .29   Form of Amendment to Restricted Stock Agreements and Stock Option Agreements (incorporated by reference to Exhibit 10.6 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006).
  10 .30   Form of Stock Option Agreement for use with grants on or after July 27, 2006 (incorporated by reference to Exhibit 10.6 to the registrant’s Current Report on Form 8-K filed on July 31, 2006).
  10 .31   Form of Restricted Stock Agreement for use with grants on or after July 27, 2006 (incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed on July 31, 2006).
  10 .32   Form of Restricted Stock Agreement (February 2008 grants with performance-based vesting conditions) (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on February 19, 2008).
  10 .33   Form of First Amendment to Restricted Stock Agreement (February 2008 grants with performance-based vesting conditions).
  10 .34   Form of Restricted Stock Agreement (February 2009 grants with performance-based vesting conditions).
  10 .35   Form of Non-Employee Director Stock Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on January 5, 2005).
  10 .36   Form of Director Election Form describing Board compensation.
  10 .37   Annual Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 17, 2006).
  10 .38   Description of 2008 Short-Term Incentive Plan (incorporated by reference to the information set forth under the caption “2008 Short-Term Incentive Plan” in the registrant’s Current Report on Form 8-K filed on February 19, 2008).
  10 .39   Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 13, 2009).
  14 .1   Code of Conduct (revised December 4, 2006) (incorporated by reference to the registrant’s Current Report on Form 8-K filed on December 7, 2006).
  21 .1   Subsidiaries of The St. Joe Company.
  23 .1   Consent of KPMG LLP, independent registered public accounting firm for the registrant.
  31 .1   Certification by Chief Executive Officer.
  31 .2   Certification by Chief Financial Officer.
  32 .1   Certification by Chief Executive Officer.
  32 .2   Certification by Chief Financial Officer.


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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned authorized representative.
 
The St. Joe Company
 
  By: 
/s/  Wm. Britton Greene
Wm. Britton Greene
President and Chief Executive Officer
 
Dated: February 24, 2009
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant in the capacities indicated as of February 24, 2009.
 
         
Signature
 
Title
 
     
/s/  Wm. Britton Greene

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

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

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

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

Hugh M. Durden
  Director
     
/s/  Thomas A. Fanning

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

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

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

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

Walter L. Revell
  Director


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


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders
The St. Joe Company:
 
We have audited the accompanying consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flow for each of the years in the three-year period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we also have audited financial statement Schedule III — Consolidated Real Estate and Accumulated Depreciation. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The St. Joe Company and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The St. Joe Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2009, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
/s/ KPMG LLP
 
Certified Public Accountants
Jacksonville, Florida
February 24, 2009


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THE ST. JOE COMPANY
 
CONSOLIDATED BALANCE SHEETS
 
                 
    December 31,
    December 31,
 
    2008     2007  
    (Dollars in thousands)  
 
ASSETS
Investment in real estate
  $ 890,583     $ 944,529  
Cash and cash equivalents
    115,472       24,265  
Notes receivable
    50,068       56,346  
Pledged treasury securities
    28,910       30,671  
Prepaid pension asset
    41,963       109,270  
Property, plant and equipment, net
    19,786       23,693  
Goodwill, net
          18,991  
Other intangible assets, net
    1,777       2,317  
Income taxes receivable
    32,308        
Other assets
    33,422       45,793  
Assets held for sale
    3,989       8,091  
                 
    $ 1,218,278     $ 1,263,966  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                 
LIABILITIES:                
Debt
  $ 49,560     $ 541,181  
Accounts payable and other
    22,594       32,082  
Accrued liabilities and deferred credits
    92,636       112,165  
Income tax payable
          8,058  
Deferred income taxes
    61,501       83,535  
Liabilities associated with assets held for sale
    586       328  
                 
Total liabilities
    226,877       777,349  
Minority interest in consolidated subsidiaries
    2,772       6,276  
STOCKHOLDERS’ EQUITY:
               
Common stock, no par value; 180,000,000 shares authorized; 122,438,699 and 104,755,826 issued at December 31, 2008 and 2007, respectively
    914,456       321,505  
Retained earnings
    1,046,000       1,081,883  
Accumulated other comprehensive (loss) income
    (42,660 )     3,275  
Treasury stock at cost, 30,235,435 and 30,158,370 shares held at December 31, 2008 and 2007, respectively
    (929,167 )     (926,322 )
                 
Total stockholders’ equity
    988,629       480,341  
                 
    $ 1,218,278     $ 1,263,966  
                 


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Table of Contents

THE ST. JOE COMPANY
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
                         
    Years Ended December 31,  
    2008     2007     2006  
    (Dollars in thousands except per share amounts)  
 
Revenues:
                       
Real estate sales
  $ 194,545     $ 307,896     $ 456,083  
Rental revenues
    1,490       2,679       3,558  
Timber sales
    26,638       25,821       24,351  
Other revenues
    41,317       40,849       41,032  
                         
Total revenues
    263,990       377,245       525,024  
                         
Expenses:
                       
Cost of real estate sales
    53,129       145,801       247,493  
Cost of rental revenues
    577       1,543       1,997  
Cost of timber sales
    19,842       20,780       18,080  
Cost of other revenues
    46,571       43,111       43,478  
Other operating expenses
    53,516       68,413       66,716  
Corporate expense, net
    34,117       32,786       51,262  
Depreciation and amortization
    17,344       19,207       19,894  
Impairment losses
    60,354       13,609        
Restructuring charges
    4,253       8,881       13,416  
                         
Total expenses
    289,703       354,131       462,336  
                         
Operating (loss) profit
    (25,713 )     23,114       62,688  
                         
Other (expense) income:
                       
Investment income, net
    6,061       5,307       5,062  
Interest expense
    (4,483 )     (20,043 )     (13,941 )
Other, net
    (8,395 )     2,031       (763 )
Loss on early extinguishment of debt
    (30,554 )            
Gain on disposition of assets
    728       7,997        
                         
Total other (expense)
    (36,643 )     (4,708 )     (9,642 )
                         
(Loss) income from continuing operations before equity in (loss) income of unconsolidated affiliates, income taxes, and minority interest
    (62,356 )     18,406       53,046  
Equity in (loss) income of unconsolidated affiliates
    (330 )     (5,331 )     8,905  
Income tax (benefit) expense
    (26,984 )     869       21,498  
                         
(Loss) income from continuing operations before minority interest
    (35,702 )     12,206       40,453  
Minority interest in (loss) income
    (807 )     1,092       6,137  
                         
(Loss) income from continuing operations
    (34,895 )     11,114       34,316  
                         
Discontinued operations:
                       
(Loss) income from discontinued operations, net of tax
    (988 )     (1,035 )     6,336  
Gain on sales of discontinued operations, net of tax
          29,128       10,368  
                         
(Loss) income from discontinued operations, net of tax
    (988 )     28,093       16,704  
                         
Net (loss) income
  $ (35,883 )   $ 39,207     $ 51,020  
                         
EARNINGS PER SHARE
                       
Basic
                       
(Loss) income from continuing operations
  $ (0.39 )   $ 0.15     $ 0.47  
(Loss) income from discontinued operations
  $ (0.01 )   $ 0.38     $ 0.22  
                         
Net (loss) income
  $ (0.40 )   $ 0.53     $ 0.69  
                         
Diluted
                       
(Loss) income from continuing operations
  $ (0.39 )   $ 0.15     $ 0.47  
(Loss) income from discontinued operations
  $ (0.01 )   $ 0.38     $ 0.22  
                         
Net (loss) income
  $ (0.40 )   $ 0.53     $ 0.69  
                         
 
See notes to consolidated financial statements.


F-3


Table of Contents

THE ST. JOE COMPANY
 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
 
                                                 
                      Accumulated
             
    Common Stock           Other
             
    Outstanding
          Retained
    Comprehensive
    Treasury
       
    Shares     Amount     Earnings     Income (Loss)     Stock     Total  
          (Dollars in thousands, except per share amounts)        
 
Balance at January 1, 2006
    74,928,290       280,970       1,074,990             (866,962 )     488,998  
                                                 
Comprehensive income:
                                               
Net income
                51,020                   51,020  
                                                 
Total comprehensive income
                                  51,020  
                                                 
Transition adjustment for pension and postretirement benefits, net
                      (1,033 )           (1,033 )
Issuances of restricted stock
    244,465                                
Forfeitures of restricted stock
    (104,254 )                              
Dividends ($0.64 per share)
                (47,698 )                 (47,698 )
Issuances of common stock
    300,781       8,562                         8,562  
Excess tax benefit on options exercised and vested restricted stock
          4,761                         4,761  
Amortization of stock- based compensation
          13,767                         13,767  
Purchases of treasury shares
    (1,096,617 )                       (57,297 )     (57,297 )
                                                 
Balance at December 31, 2006
    74,272,665     $ 308,060     $ 1,078,312     $ (1,033 )   $ (924,259 )   $ 461,080  
                                &nbs