News Column

ST JOE CO - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 12, 2014

Business Overview We are a Florida real estate development and operating company with real estate assets concentrated primarily between Tallahassee and Destin, Florida, which we predominantly use or intend to use for, or in connection with, our various residential or commercial real estate developments or our resorts, leisure and leasing operations or our forestry operations on a limited basis. We have significant residential and commercial land-use entitlements in hand or in process. We seek higher and better uses for our assets through a range of activities from strategic land planning and development, infrastructure improvements and promoting economic development in the regions where we operate. We may explore the sale of assets opportunistically or when we believe they have reached their highest and best use.



AgReserves Sale

On March 5, 2014, we completed our previously announced sale to AgReserves, Inc. ("AgReserves") of approximately 380,000 acres of land located in Northwest Florida along with certain other assets, inventory and rights under certain continuing leases and contracts (the "AgReserves Sale") for $562 million and recorded pre-tax income of $511.1 million for the AgReserves Sale, which includes $1.2 million of severance costs recorded in Other operating expenses, during the three months ended March 31, 2014. As a result of certain adjustments to the purchase price, consideration received for the AgReserves Sale was $358.5 million in cash, (2) a $200 million fifteen year installment note (the "Timber Note") issued by Panama City Timber Finance Company, LLC, a buyer-sponsored special purpose entity (the "Buyer SPE"), and (3) an Irrevocable Standby Letter of Credit issued by JPMorgan Chase Bank, N.A. (the "Letter of Credit") at the request of the Buyer SPE, in favor of us. The Buyer SPE was funded by AgReserves with financial instruments with an aggregate principal balance of $203.5 million that secure the Letter of Credit. We determined that we are the primary beneficiary of the Buyer SPE, and therefore, the Buyer SPE's assets and liabilities are consolidated in our financial statements as of March 31, 2014. The consolidated financial investments of the Buyer SPE consist of a $200 million time deposit that subsequent to April 2, 2014 pays interest at 4.006% and matures in March 2029, $2.7 million of U.S. Treasury securities and $0.8 million of cash. The financial investments of the Buyer SPE will be used to pay the interest accrued on the Timber Note and the operating expenses of the Buyer SPE over the fifteen year period. In April 2014, we contributed the Timber Note and assigned our rights as a beneficiary under the Letter of Credit to Northwest Florida Timber Finance, LLC, a bankruptcy-remote, qualified special purpose entity wholly owned by us ("NFTF"). NFTF monetized the Timber Note by issuing $180 million aggregate principal amount of its 4.750% Senior Secured Notes due 2029 (the "Senior Notes") at an issue price of 98.483% of the face value to third party investors. The Senior Notes are payable only from the property of NFTF, which consists solely of (i) the Timber Note, (ii) the Letter of Credit, (iii) any cash, securities and other property in certain NFTF accounts, (iv) the rights of NFTF under the contribution agreement with us (which was solely to contribute the Timber Note and the Letter of Credit), and (v) any proceeds relating to the property listed in (i) through (iv) above. The investors holding the Senior Notes of NFTF have no recourse against us for payment of the Senior Notes or the related interest expense. 31



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We received $165.0 million in cash, net of $15 million in costs, from the monetization and expect to receive the remaining $20 million in fifteen years upon maturity of the Timber Note and after payment of the Senior Notes and any other liabilities of NFTF. We have determined that we are the primary beneficiary and will consolidate the assets and liabilities of NFTF in the second quarter of 2014. Therefore, the Senior Notes issued by NFTF will be recorded as a liability on our consolidated financial statements in the second quarter of 2014. The $15 million of costs from the monetization include (1) costs for the issuance of the Senior Notes, which will be amortized over the term of the Senior Notes, (2) U.S. Treasury securities held by NFTF to be used for interest and operating expenses over the fifteen year period and (3) costs directly related to the monetization, which will be expensed in the second quarter of 2014. We have an equity interest in the NFTF, but no equity interest in the Buyer SPE. Both the Buyer SPE and NFTF are distinct legal entities and the assets of the Buyer SPE and NFTF are not available to satisfy our liabilities or obligations and the liabilities of the Buyer SPE and NFTF are not our liabilities or obligations. In the event that proceeds from the financial instruments are insufficient to settle all of the liabilities of the Buyer SPE or NFTF, we are not obligated to contribute any funds to either the Buyer SPE or NFTF. RiverTown Sale On April 2, 2014, we completed the previously announced sale to an affiliate of Mattamy (Jacksonville) Partnership d/b/a Mattamy Homes ("Mattamy") a sale of approximately 4,057 acres of real property, which constitutes the RiverTown community in St. Johns County, Florida, along with all of the Company's related development or developer rights, founder's rights and certain tangible and intangible personal property in exchange for (1) $24.0 million in cash, (2) $19.6 million in the form of a purchase money note (the "RiverTown Note"), (3) the assumption, at closing, of our Rivers Edge Community Development District ("Rivers Edge CDD") obligations ($11.0 million as of the date of closing) and (4) the post-closing obligation to purchase certain RiverTown community related impact fee credits from us as the RiverTown community is developed (the "RiverTown Sale"). The RiverTown Note bears interest at 5.25% per annum, matures on June 30, 2015 and is payable as follows: (i) accrued interest on September 30, 2014, (ii) accrued interest plus $1.0 million of principal on March 30, 2015 and (iii) all accrued interest and remaining principal on June 30, 2015. The RiverTown Note is secured by a mortgage imposing a first priority security lien on the real property included the RiverTown Sale. Based on Mattamy's current development plans and St. Johns County's current costs for impact fees, we may receive approximately $20 million to $26 million for the impact fees over the five-year period following the closing (most of which, we expect to receive at the end of that five-year period). However, the actual additional consideration received for the impact fees, will be based on Mattamy's actual development of the RiverTown Community, the timing of Mattamy's development of the RiverTown Community and the impact fee rates at the time of such development (as determined by St. Johns County's then current impact fee rate schedule), which are all factors beyond our control. We cannot provide any assurance as to the amount or timing of any payments it may receive for the impact fees.



As of March 31, 2014, the estimated net carrying amount of the assets and liabilities to be included in the RiverTown Sale were $16.9 million. We will record earnings of approximately $26.0 million before income taxes for the RiverTown Sale during the second quarter of 2014.

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Segments

As of March 31, 2014, we conduct primarily all of our business in the following four reportable operating segments: 1) residential real estate, 2) commercial real estate, 3) resorts, leisure and leasing operations and 4) forestry. In prior periods, our reportable operating segments also included rural land. As of March 31, 2014, our rural land segment no longer meets the qualitative or quantitative factors as a reportable operating segment. We have revised our segment presentation to include the remaining rural land segment primarily within our forestry segment. All prior period segment information has been updated to conform with the 2014 presentation. The change in reportable segments had no effect on our consolidated financial position, results of operations or cash flows for the periods presented. The table below sets forth the relative contribution of these operating segments to our consolidated operating revenues, excluding revenues of $570.9 million related to the AgReserves Sale, during the three months ended March 31, 2014. Three Months Ended March 31, 2014 2013 Segment Operating Revenues Residential real estate 24.6 % 29.1 % Commercial real estate 9.8 % 0.8 % Resorts, leisure and leasing operations 35.4 % 33.7 % Forestry 30.2 % 36.2 % Other - % 0.2 % Consolidated operating revenues 100.0 % 100.0 % Residential Real Estate Our residential real estate segment typically plans and develops mixed-use resort, primary and seasonal residential communities of various sizes, primarily on our existing land. Our residential real estate segment generates revenues primarily from: the sale of developed homesites and homes;



the sale of parcels of entitled, undeveloped lots;

a lot residual on homebuilder sales that provides us a percentage of

the sale price of the completed home if the home price exceeds a

negotiated threshold; and

fees on certain transactions.

Our residential real estate segment incurs cost of revenues primarily from costs directly associated with the land, development and construction of real estate sold and indirect costs such as development overhead, capitalized interest, marketing, project administration, and selling costs. Commercial Real Estate In our commercial real estate segment we plan, develop and entitle our land holdings for a variety of uses including a broad range of retail, office, hotel and industrial uses. We sell land for commercial and light industrial uses. From time to time, our commercial real estate segment also sells certain resorts, leisure and operating properties. 33



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Our commercial real estate segment generates revenues from the sale of developed and undeveloped land for retail, office, hotel and industrial uses, from the sale of undeveloped land or land with limited development and easements and the sale of commercial operating properties. Our commercial real estate segment incurs costs of revenues from costs directly associated with the land, development, construction and selling costs. Resorts, Leisure and Leasing Operations Our resorts, leisure and leasing operations segment generates revenues from our recurring revenue streams, which primarily include the WaterColor Inn and vacation rentals, golf courses, marinas and leasing operations. WaterColor Inn and Vacation Rentals - Our resorts and leisure operations generate revenues from the WaterColor Inn and Resort, the WaterSound Beach club, our restaurants and our vacation rental businesses in WaterColor, WaterSound Beach and surrounding communities. The WaterColor Inn incurs expenses from the cost of services and goods provided, personnel costs and third party management fees. Our vacation rental business generates revenues from the rental of private homes. The vacation rental business incurs expenses from marketing, personnel and general maintenance for the homeowner. Also included in the vacations rental business' costs are amounts owed to the homeowner for their percentage of rental revenue. Golf Courses - Our golf courses generate revenues from memberships, daily play at those courses that are not part of our St. Joe Club & Resorts, merchandise sales and food and beverage sales and incur expenses from the services provided, maintenance of the golf course facilities, personnel costs and third party management fees. Marinas - Our marinas generate revenues from boat slip rentals and fuel sales, and incur expenses from cost of services provided, maintenance of the marina facilities, personnel costs and third party management fees. Leasing Operations - Our leasing operations generate revenues from leasing retail and commercial property and incur expenses primarily from maintenance of the properties and personnel costs. On January 1, 2014, as part of our initiative to expand our vacation rental management program, we launched the St. Joe Club & Resorts, a private membership club that provides participating homeowners and their rental guests access to our golf courses and resort facilities. As a result of this initiative, certain golf courses and resort facilities are no longer be available to the public. While we expect revenues generated from these facilities to decline, we expect that revenues from our higher margin vacation rental business will increase in the future as we believe the St. Joe Club & Resorts will provide us a competitive advantage in this attractive business.



Forestry

Our forestry segment focuses on the management and harvesting of our timber holdings. We grow, harvest and sell sawtimber, wood fiber and forest products and provide land management services for conservation properties. Our forestry segment generates revenues from the sale of wood fiber, sawtimber, standing timber and forest products and conservation land management services. Our forestry segment incurs costs of revenues from internal costs of forestry management, external logging costs, and property taxes. Our forestry segment may also generate revenues from the sale of our timber holdings, undeveloped land or land with limited development and easements. Costs incurred as part of a sale of these lands may include the cost of timber, land, minimal development costs and selling costs. Prior to the AgReserves Sale, a significant portion of the revenue from our forestry segment was generated pursuant to our RockTenn Supply Agreement, under which we sell delivered wood (trees that we cut and deliver). As part of the AgReserves Sale, the RockTenn Supply Agreement was assumed by AgReserves. Subsequent to the AgReserves Sale, revenue from our forestry segment will decrease substantially and be primarily from open market sales of timber. 34



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Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with 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, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical experience, available current market information 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, and our accounting estimates are subject to change. The critical accounting policies that we believe reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements are set forth in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no significant changes in these policies during the first three months of 2014, however we cannot assure you that these policies will not change in the future. Recently Issued and Adopted Accounting Pronouncement See Note 1 to our unaudited condensed consolidated financial statements included in this report for recently issued and adopted accounting standards, including the date of adoption and effect on our condensed consolidated financial statements.



Seasonality

Our residential real estate business and our resorts, leisure and leasing operation's businesses are affected by seasonal fluctuations. Revenues from our resorts, leisure and leasing operation's businesses are typically higher in the second and third quarters; however, they can vary depending on the timing of holidays and school breaks, including spring break. Historically, our residential real estate business revenues have been typically higher in the second and third quarters due to increased customer traffic and sales; however, we have begun to see a shift away from seasonality as we sell more lots directly to homebuilders. Following the AgReserves Sale, our business will become more dependent upon the real estate industry as income from our forestry operations will be reduced. Therefore, the cyclical nature of our real estate operations could become more apparent in our quarterly or annual results of operations and cash flows. 35



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Table of Contents Results of Operations Consolidated Results The following table sets forth a comparison of the results of our operations for the three months ended March 31, 2014 and 2013: Three Months Ended March 31, 2014 2013 In millions Revenues: Real estate sales $ 577.8$ 8.1 Resorts, leisure and leasing revenues 8.2 9.0 Timber sales 8.1 9.7 Total 594.1 26.8 Expenses: Cost of real estate sales 62.0 5.1 Cost of resorts, leisure and leasing revenues 8.1 8.3 Cost of timber sales 3.9 6.0 Other operating expenses 4.4 2.9 Corporate expenses 4.1 4.4 Depreciation, depletion and amortization 2.1 2.3 Total 84.6 29.0 Operating income (loss) 509.5 (2.2 ) Other income: Investment income, net 0.3 0.1 Interest expense (0.6 ) (0.6 ) Other, net 0.7 0.2 Total other income 0.4 (0.3 )



Income (loss) before equity in loss from unconsolidated affiliates and income taxes

509.9 (2.5 ) Equity in loss from unconsolidated affiliates - - Income tax expense (106.9 ) - Net income (loss) $ 403.0$ (2.5 ) 36



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Real Estate Sales and Gross Margin.

Three Months Ended March 31, 2014 % (1) 2013 % (1) Dollars in millions



Revenues:

Residential real estate sales $ 5.7 1.0 % $ 7.8 96.3 % Commercial real estate sales 2.4 0.4 % 0.2 2.5 % AgReserves Sale and other 569.7 98.6 % 0.1 1.2 % Real estate sales

$ 577.8 100.0 % $ 8.1 100.0 %



Gross profit: Residential real estate sales $ 3.0 52.6 % $ 3.0 38.5 % Commercial real estate sales 1.6 66.7 % - - % AgReserves Sale and other 511.2 89.7 % - - % Gross profit

$ 515.8 89.3 % $ 3.0 37.0 %



Calculated percentage of total real estate sales and the respective gross

(1 ) profit percentage. Real Estate Sales. The increase in real estate sales was primarily due to the AgReserves Sale, which closed during the three months ended March 31, 2014. As part of the AgReserves Sale, we recorded $569.7 million in revenues from real estate sales, which included the recognition of $11.0 million of revenue, which had been previously recorded as deferred revenue in connection with a 2006 agreement with the Florida Department of Transportation (the "FDOT") pursuant to which we agreed to sell approximately 3,900 acres of rural land to the FDOT. As part of the AgReserves Sale, we transferred approximately 800 acres that are subject to the 2006 agreement to AgReserves who has agreed to transfer title to the FDOT. As a result, we recognized $11.0 million of revenue during the three months ended March 31, 2014. Combined residential and commercial real estate sales were relatively flat during the three months ended March 31, 2014, as compared to the same period in 2013. Residential real estate sales decreased $2.1 million, or 27%, during the three months ended March 31, 2014, as compared to the same period in 2013, primarily due to a decrease in sales of homesites in our WaterColor community and a sale of 19 lots to one homebuilder in our WaterSound West Beach resort community during the three months ended March 31, 2013. The decrease in residential sales was offset by an increase in commercial real estate sales of $2.2 million during the three months ended March 31, 2014, as compared to the same period in 2013. Real Estate Sales Gross Profit. Real estate sales gross profit increased due to the AgReserves Sale, which closed during the three months ended March 31, 2014. We recorded $511.2 million in gross profit for the AgReserves Sale. Combined residential and commercial real estate sales gross profit increased $1.6 million, or 53%, during the three months ended March 31, 2014, to 56.3%, as compared to 37.0% during the same period in 2013, primarily due to the increase in commercial sales, which typically have higher gross profit margins as compared to residential real estate sales, and increases in prices in our residential resort communities and the lot residual received which has no related cost. Subsequent to the AgReserves Sale, we do not expect to have substantial revenues from sales of our timber or rural lands in the future, which typically yield higher gross profit margins than residential and commercial real estate sales, thus also potentially decreasing future gross profit margins. 37



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Resorts, Leisure and Leasing Revenues and Gross Profit.

Three Months Ended March 31, 2014 2013 Dollars in millions Resorts, leisure and leasing revenues $ 8.2$ 9.0 Gross profit $ 0.1$ 0.7 Gross profit margin 1.2 % 7.8 % Resorts, leisure and leasing revenues decreased $0.8 million, or 9%, and gross profit margin decreased to 1.2%, during the three months ended March 31, 2014, as compared to the same period in 2013, primarily due to the harsh weather in the three months ended March 31, 2014 as well as timing of spring break and the Easter holiday as compared to the same period in 2013. In addition, on January 1, 2014, in connection with launching St. Joe Club and Resorts, a private membership club that provides members access to a diverse offering of benefits and privileges to certain of our golf courses and other resort facilities, we limited the use of our golf courses and resort facilities to the public. As a result of the privatization, the loss of revenues from the public access to the golf courses and resort facilities have contributed to the decrease in revenues during the three months ended March 31, 2014, as compared to the same period in 2013. Timber Sales and Gross Profit. Three Months Ended March 31, 2014 2013 Dollars in millions Timber sales $ 8.1$ 9.7 Gross profit $ 4.2$ 3.7 Gross profit margin 51.9 % 38.2 % Timber sales decreased $1.6 million, or 16%, during the three months ended March 31, 2014, as compared to the same period in 2013, primarily due to the AgReserves Sale, which closed on March 5, 2014. In addition, timber sales for the three months ended March 31, 2014, also include $1.1 million of deferred revenue related to an imputed land lease that was to be recognized over the life of the timber deeds sold in March 2011. We sold substantially all the land included in the imputed lease as part of the AgReserves Sale and recognized the remaining deferred revenue during the three months ended March 31, 2014. We expect our timber sales and related costs will substantially decrease in the future as a result of the AgReserves Sale. Other operating and corporate expenses. Other operating and corporate expenses increased by $1.2 million, or 16%, during the three months ended March 31, 2014, as compared to the same period in 2013, primarily due to $1.2 million of severance costs associated with the AgReserves Sale. Other income. Other income consists primarily of interest income, including realized gains and losses and amortization of premiums and accretion of discounts from our available-for-sale investments, accretion from our retained interest investment from the monetization of certain installment notes, interest expense, gains and losses on sales and dispositions of assets and other income. Other income, net increased $0.7 million during the three months ended March 31, 2014, as compared to the same period in 2013, primarily due an increase in investment income related to our available-for-sale investments. 38



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Income tax expense/benefit. We recorded income tax expense of $106.9 million during the three months ended March 31, 2014, as compared to no tax expense during the same period in 2013. Our effective tax rate for the three months ended March 31, 2014 was approximately 21.0% as compared to 0% during the same period in 2013. During the three months ended March 31, 2014, we utilized our federal net operating loss carryforwards of $76.8 million and $314.1 million of our state net operating loss carryforwards to offset part of the taxable income on the AgReserves Sale. In addition, we recorded a deferred tax liability of $69.2 million for the partial deferral for tax purposes of the taxable income related to the AgReserves Sale associated with the Timber Note. The reversals of the deferred tax assets for the federal and state net operating loss carryforwards combined with the deferred tax liability for the partial deferral of the taxable income resulted in a net deferred tax liability of $11.1 million as of March 31, 2014, as compared to a net deferred tax asset of $12.9 million as of December 31, 2013. We reversed $89.3 million of the valuation allowances established on our deferred tax assets, including the deferred assets recorded for the federal and state net operating loss carryforwards, during the three months ended March 31, 2014. Going forward, we expect to pay federal income taxes on future taxable income. Segment Results Residential Real Estate Our residential real estate segment typically plans and develops mixed-use resort, primary and seasonal residential communities of various sizes, primarily on our existing land. We own land in Northwest Florida, including Gulf of Mexico beach frontage and waterfront properties, concentrated primarily between Tallahassee and Destin, Florida. The table below sets forth the results of operations of our residential real estate segment for the three months ended March 31, 2014 and 2013: Three Months Ended March 31, 2014 2013 In millions Revenues: Real estate sales $ 5.5$ 7.6 Brokerage fees 0.2 0.2 Total revenues 5.7 7.8 Expenses: Cost of real estate sales 2.7 4.8 Other operating expenses 2.1 2.0 Depreciation and amortization 0.1 0.2 Total expenses 4.9 7.0 Operating income 0.8 0.8 Other expense (0.4 ) (0.5 )



Net income before income taxes $ 0.4$ 0.3

Real estate sales include sales of homes and homesites, other residential land and certain lot residuals from homebuilder sales that provide us a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold. Cost of real estate sales includes direct costs (e.g., development and construction costs), selling costs and other indirect costs (e.g., development overhead, capitalized interest and project administration costs). 39



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Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013 The following table sets forth our residential real estate sales and cost of sales activity by geographic region and property type: Three Months Ended March 31, 2014 Three Months Ended March 31, 2013 Gross Gross Units Cost of Gross Profit Units Cost of Gross Profit Sold Revenues Sales Profit Margin Sold Revenues Sales Profit Margin (Dollars in millions) Northwest Florida: Resort homesites 13 $ 3.7$ 1.5$ 2.2 59.5 % 41 $ 5.7$ 3.4$ 2.3 40.4 % Primary homesites 19 1.5 1.1 0.4 26.7 % 25 1.4 1.0 0.4 28.6 % RiverTown Community: Primary homesites 7 0.3 0.1 0.2 66.7 % 14 0.5 0.4 0.1 20.0 % Total 39 $ 5.5$ 2.7$ 2.8 50.9 % 80 $ 7.6$ 4.8$ 2.8 36.8 % Northwest Florida resort homesites. Real estate sales decreased $2.0 million, or 35%, during the three months ended March 31, 2014, as compared the same period in 2013, due to a decrease in sales of homesites in our WaterColor community and a sale of 19 lots to one homebuilder in our WaterSound West Beach resort community during the three months ended March 31, 2013. Gross profit margins increased to 59.5% during the three months ended March 31, 2014, as compared to 40.4% during the same period in 2013, primarily due to an increase in pricing in our WaterColor, WaterSound Beach and WaterSound West Beach communities and an increase in the lot residual received, which has no related costs. Northwest Florida primary homesites. Real estate sales increased $0.1 million, or 7%, and gross profit margin increased to 26.7% during the three months ended March 31, 2014, as compared to 28.6% during the same period in 2013. During the three months ended March 31, 2014, sales of homesites were in our SouthWood community as compared to in our Breakfast Point Community during the same period in 2013, which typically has higher margins than our SouthWood Community.



RiverTown Community primary homesites. As discussed above, in April 2014, we completed the sale of our RiverTown Community. See "RiverTown Sale" in the Business Overview section for additional information.

Other operating expenses include salaries and benefits, marketing, project administration, support personnel and other administrative expenses. Other operating expenses increased $0.1 million during the three months ended March 31, 2014, as compared to the same period in 2013, primarily due to repairs and maintenance expense. During the three months ended March 31, 2014 and 2013, we capitalized less than $0.1 million of indirect development costs related to our residential development projects. Other expense includes interest expense on our CDD assessments. Interest expense related to the Rivers Edge CDD assessments related to the RiverTown Community were $0.2 million during the three months ended March 31, 2014 and 2013. 40



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Commercial Real Estate Our commercial real estate segment plans, develops, entitles and sells our land holdings, often in conjunction with strategic partners, for a broad range of retail, office, hotel and industrial uses. From time to time, our commercial real estate segment may sell our resort, leisure and operating properties. The timing of commercial real estate revenues can vary depending on the demand, size and location of the property.



The table below sets forth the results of operations of our residential real estate segment for the three months ended March 31, 2014 and 2013:

Three Months Ended March 31, 2014 2013 In millions Revenues: Real estate sales $ 2.4 $ 0.2 Expenses: Cost of real estate sales 0.8 0.2 Other operating expenses 0.7 0.6 Total expenses 1.5 0.8 Operating income (loss) 0.9 (0.6 ) Other (expense) income (0.1 ) 0.1



Net Income (loss) before income taxes $ 0.8 $ (0.5 )

Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013

Commercial real estate sales were $2.4 million during the three months ended March 31, 2014, as compared to $0.2 million for the same period in 2013 of which $1.8 million was for sales of commercial property in or near Pier Park. Commercial land sales can vary depending on the mix of commercial land sold in each period, with varying compositions of retail, office, light industrial and other commercial uses. Other operating expenses include salaries and benefits, professional fees and other administrative expenses. Other operating expenses increased $0.1 million during the three months ended March 31, 2014, as compared to the same period in 2013, primarily due to professional fees. 41



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Resorts, Leisure and Leasing Operations Our resorts, leisure and leasing operations segment includes recurring revenues from our resort and leisure activities. Resort, leisure and leasing revenues and cost of resort, leisure and leasing revenues include results of operations from the WaterColor Inn and vacation rental programs, four golf courses, marina operations and other related resort activities. In addition, this segment also includes our retail and commercial leasing operations. The table below sets forth the results of operations of our resorts, leisure and leasing operations segment for the three months ended March 31, 2014 and 2013: Three Months Ended March 31, 2014 2013 In millions Revenues:



Resorts and leisure operations $ 7.0 $ 8.0 Leasing operations

1.2 1.0 Total revenues 8.2 9.0



Expenses:

Cost of resorts and leisure operations 7.6 7.8 Cost of leasing operations 0.5 0.5 Operating expenses 0.2 0.1 Depreciation 1.6 1.6 Total expenses 9.9 10.0 Net loss before income taxes $ (1.7 )$ (1.0 )



The following table sets forth the detail of our resorts and leisure operations revenues and cost of revenues:

Three Months Ended March 31, 2014 Three Months Ended March 31, 2013 Gross Gross Gross Gross Revenues Profit (loss) Profit Margin Revenues Profit (loss) Profit Margin Dollars in millions Inn and vacation rentals $ 4.9$ (0.5 ) (10.2 )% $ 5.6 $ - - % Golf courses 1.6 (0.2 ) (12.5 )% 2.0 0.1 5.0 % Marinas 0.5 0.1 20.0 % 0.4 0.1 25.0 % Leasing 1.2 0.7 58.3 % 1.0 0.5 50.0 % Total $ 8.2 $ 0.1 1.2 % $ 9.0 $ 0.7 7.8 % Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013 Revenues from resort and vacation rentals decreased $0.7 million, or 12.5%, and gross profit margin decreased during the three months ended March 31, 2014, as compared to the same period in 2013, is primarily to the harsh weather in the three months ended March 31, 2014 as well as timing of spring break and the Easter holiday as compared to the same period in 2013. 42



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On January 1, 2014, in connection with launching St. Joe Club and Resorts, a private membership club that provides members access to a diverse offering of benefits and privileges to certain of our golf courses and other resort facilities, we limited the use of our golf courses and resort facilities to the public. As a result of the privatization, the loss of revenues from the public access to the golf courses and resort facilities have contributed to the decrease in revenues during the three months ended March 31, 2014 as compared to the same period in 2013. Revenues and gross profit from our leasing operations increased due to the percentage of rent from retail operating properties in or near our WaterColor and WaterSound Beach resort operations. During the three months ended March 31, 2014 and 2013, we capitalized $0.3 million and less than $0.1 million, respectively, of indirect development costs related to Pier Park North, which construction began in early 2013.



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, our forestry segment may sell our timber or rural land holdings. The table below sets forth the results of operations of our forestry segment, including revenues and expenses associated with the AgReserves Sale, for the three months ended March 31, 2014 and 2013: Three Months Ended March 31, 2014 2013 In millions Revenues: AgReserves - Real estate sales $ 569.7 $ - Timber sales 8.1 9.7 Total revenues 577.8 9.7 Expenses: AgReserves - Cost of real estate sales 58.5 - Cost of timber sales 3.9 6.0 Other operating expenses 1.5 0.2 Depreciation and depletion 0.4 0.5 Total expenses 64.3 6.7 Operating income 513.5 3.0 Other income 0.5 0.5 Net income before income taxes $ 514.0 $ 3.5 43



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The relative contribution to our timber sales by major item for the three months ended March 31, 2014 and 2013 are as follows:

Three Months Ended March 31, 2014 2013 Percent of total tons sold: Pine pulpwood 65 % 69 % Pine sawtimber 25 % 26 % Pine grade logs 8 % 5 % Other 2 % - % Total 100 % 100 %



Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013

On March 5, 2014, we completed the AgReserves Sale and recorded $569.7 million in revenues from real estate sales, which included the recognition of $11.0 million of revenue, which had been previously recorded as deferred revenue in connection with a 2006 agreement with the FDOT pursuant to which we agreed to sell approximately 3,900 acres of rural land to the FDOT. As part of the AgReserves Sale, we transferred approximately 800 acres that are subject to the 2006 agreement to AgReserves who has agreed to transfer title to the FDOT. As a result, we recognized $11.0 million of revenue during the three months ended March 31, 2014. In addition, we recorded cost of sales of $58.5 million related to the AgReserves Sale, which included our carrying value for land, timber and property of $48.7 million and closing costs of $9.8 million.



The following table set forth our timber sales activity by volume sold and average price:

Three Months Ended March 31, 2014



Three Months Ended March 31, 2013

Average Revenues Tons price Revenues Tons Average price (In (In millions) millions) RockTenn supply agreement $ 3.2 112,000 $ 28.57$ 3.7 137,000 $ 27.01 Open market sales 3.8 122,000 31.15 6.0 189,000 31.75 Total $ 7.0 234,000 $ 29.91$ 9.7 326,000 $ 29.75



Timber sales decreased by approximately $1.6 million during the three months ended March 31, 2014, as compared to the same period in 2013, due to a 28% decrease in volume due to the AgReserves Sale which closed on March 5, 2014.

For the three months ended March 31, 2014, timber sales also include $1.1 million of deferred revenue related to an imputed land lease that was to be recognized over the life of the timber deeds sold in March 2011. We sold substantially all the land included in the imputed lease as part of the AgReserves Sale and recognized the remaining deferred revenue during the three months ended March 31, 2014. The gross margin, excluding the recognition of the deferred revenue from the imputed lease, increased during 2014, to 44.3%, as compared to 38.1% during the same period in 2013, primarily due to increased prices during 2014, as compared to the same period in 2013, combined with lower costs. 44



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Other operating expenses increased $1.3 million during the three months ended March 31, 2014, due to $1.2 million in severance costs that were paid during the three months ended March 31, 2014, related to the reduction in our forestry operations due to the AgReserves Sale. Other income consists primarily of income from hunting leases. Liquidity and Capital Resources As of March 31, 2014, we had cash and cash equivalents of $237.4 million, compared to $21.9 million as of December 31, 2013. In addition, we had available-for-sale investments of $281.8 million as of March 31, 2014, as compared to $147.0 million as of December 31, 2013. Subsequent to the monetization of the Timber Note and the closing of the RiverTown Sale, we had cash and cash equivalents of $160.0 million and available-for-sale investments of $550.7 million as of April 30, 2014. In April 2013, we engaged Fairholme Capital Management, L.L.C. ("Fairholme Capital") to serve as our investment advisor. Fairholme Capital receives no compensation for their services to us. As of March 31, 2014, the funds managed by Fairholme Capital beneficially owned approximately 27.1% of our common stock. Mr. Bruce Berkowitz is the Managing Member of Fairholme Capital and the Chairman of our Board of Directors. Pursuant to the terms of the Investment Management Agreement (the "Agreement"), as amended through March 31, 2014, with Fairholme Capital, Fairholme Capital agreed to supervise and direct the investments of an investment account established by us in accordance with the investment guidelines and restrictions approved by the Investment Committee of our Board of Directors, which were set forth in the Agreement. The investment guidelines required that, as of the date of any investment: (i) at least 50% of the investment account be held in cash or cash equivalents, as defined in the Agreement and (ii) no more than 10% of the investment account be invested in securities of any one issuer (excluding the U.S. Government). The investment account may not be invested in common stock securities. As of March 31, 2014, the investment account included $7.1 million of money market funds (all of which are classified within cash and cash equivalents), $434.8 million of U.S. Treasury securities ($210.0 million of which are classified within cash and cash equivalents), $53.6 million of corporate debt securities and $3.4 million of preferred stock equities. The issuers of the corporate debt securities are two national retail chains and are non-investment grade. Effective April 21, 2014, we entered into an Amendment (the "Amendment") to the Investment Management Agreement (the "Agreement") with Fairholme Capital Management, L.L.C. ("Fairholme Capital"). Pursuant to the Amendment, we modified the investment guidelines and restrictions described in the Amendment to permit the investment in any one issuer to exceed 10%, but not 15%, with the consent of the Investment Committee. All other investment guidelines remain the same. In November 2012, the Board of Directors approved the termination of our pension plan. We anticipate receiving between $17 million to $21 million in cash in late 2014 or 2015 upon the termination of our pension plan, which is overfunded. However, we cannot provide any assurance as to this timing as regulatory approval for the termination of the pension plan is required before the cash will be released to us. In addition, we currently expect to recognize future estimated losses before income taxes of approximately $19 million to $23 million as a result of terminating our pension plan. The construction loan entered into by the Pier Park North joint venture requires us to provide certain guarantees and covenants as described in Note 7, Real Estate Joint Ventures. These covenants include that we maintain minimum liquidity, which is defined as unencumbered and unrestricted cash, cash equivalents or U.S. Treasury securities of $25 million. We believe that our current cash position and our anticipated cash flows will provide us with sufficient liquidity to satisfy our anticipated working capital needs, expected capital expenditures and principal and interest payments on our long term debt for the next twelve months. 45



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Our real estate investment strategy focuses on projects that meet our risk adjusted investment return criteria. During the three months ended March 31, 2014, we incurred a total of $13.1 million for capital expenditures, which includes $10.1 million related to the Pier Park North joint venture and $3.0 million, which was primarily for our resorts and leisure operations, the development of our residential real estate projects and includes $0.5 million in planning costs for our mixed-use and active adult community. We expect to incur an additional estimated total of $58.0 million in future capital expenditures during the remaining nine months of 2014, which includes $36.0 million primarily for the development of our residential real estate projects and $22.0 million related to the Pier Park North joint venture, which we expect will be funded by the joint venture's construction loan proceeds. A portion of this spending is discretionary and will only be spent if the risk adjusted return warrants. We anticipate that future capital commitments will be funded through our cash balances and operations. In February 2013, the Pier Park North joint venture entered into a $41.0 million construction loan agreement that matures in February 2016 at which time there is an option for a two year extension. As of March 31, 2014, $16.8 million was outstanding on the construction loan. Interest on the construction loan was based on LIBOR plus 210 basis points, or 2.56% at March 31, 2014. CDD bonds financed the construction of infrastructure improvements at several of our projects. The principal and interest payments on the bonds are paid by assessments on, or from sales proceeds of, the properties benefited by the improvements financed by the bonds. We have recorded a liability for CDD assessments that are associated with platted property, which is the point at which the assessments become fixed or determinable. Additionally, we have recorded a liability for the balance of the CDD assessment that is associated with unplatted property if it is probable and reasonably estimable that we will ultimately be responsible for repaying. We have recorded debt of $11.9 million related to CDD debt as of March 31, 2014. Our total outstanding CDD assessments were $33.7 million at March 31, 2014, which was comprised of $18.7 million at SouthWood, $11.0 million at RiverTown, $3.4 million at the existing Pier Park mall and $0.6 million at the Sharks Tooth golf course. The total outstanding CDD assessments related to the RiverTown CDD of $11.0 million were assumed by Mattamy on April 2, 2014, as part of the RiverTown Sale. We currently expect to pay approximately $70 million in federal income taxes for 2014 after consideration of the RiverTown Sale and expect to pay federal income taxes on future taxable income. Summary of Cash Flows A summary of our cash flows from operating, investing and financing for the three months ended March 31, 2014 and 2013 are as follows:


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Source: Edgar Glimpses


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