10-K 1 joe-20131231x10k.htm 10-K JOE-2013.12.31-10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission file number: 1-10466
 
The St. Joe Company
(Exact name of registrant as specified in its charter)
 
Florida
 
59-0432511
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
133 South WaterSound Parkway
WaterSound, Florida
 
32413
(Address of principal executive offices)
 
(Zip Code)
(850) 231-6400
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Exchange on Which Registered
Common Stock, no par value
 
New York Stock Exchange
 
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  þ    NO  ¨
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  ¨    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  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  þ    NO  ¨
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
¨
 
 
 
 
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  þ
The aggregate market value of the registrant’s Common Stock held by non-affiliates based on the closing price on June 30, 2013, was approximately $786.0 million.
As of February 24, 2014, there were 92,313,182 shares of common stock, no par value, issued of which 92,292,913 were outstanding, and 20,269 are shares of treasury stock.
Documents Incorporated by Reference
Portions of the Registrant's definitive proxy statement for its 2014 annual meeting of shareholders, which proxy statement will be filed no later than 120 days after the close of the Registrant's fiscal year ended December 31, 2013, are hereby incorporated by reference in Part III of this Annual Report on Form 10-K.



THE ST. JOE COMPANY
INDEX
 

 
Page No.
 
 
 
 



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PART I

Item 1.        Business

As used throughout this Annual Report on Form 10-K, the terms “St. Joe,” the “Company,” “we,” “our,” or “us” include The St. Joe Company and its consolidated subsidiaries unless the context indicates otherwise.
General
St. Joe was incorporated in 1936 and is a Florida real estate development and operating company. As of December 31, 2013, St Joe owned land, timber and resort, leisure and leasing assets concentrated primarily between Tallahassee and Destin, Florida. Of the 567,000 acres of land we owned as of December 31, 2013, most was acquired decades ago and, as a result, had a very low initial cost basis, before development costs.
The Company has 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 such assets opportunistically or when we believe they have reached their highest and best use.

AgReserves Sale

On November 6, 2013, we entered into a purchase and sale agreement (the “AgReserves Sale Agreement”) with AgReserves Inc. (“AgReserves”) for the sale of approximately 382,834 acres of land located in Northwest Florida owned by us, along with certain other assets and inventory and rights under certain continuing leases and contracts, to AgReserves for $565 million subject to adjustment as set forth in the sale agreement (the “AgReserves Sale”). The acreage to be included in the AgReserves Sale includes substantially all of our land designated for forestry operations as well as other land (i) that is not utilized in our residential or commercial real estate segments or our resorts, leisure and leasing segment or (ii) that is not part of our development plans. The acreage to be included in the AgReserves Sale is subject to limited adjustments based on title and environmental diligence and casualty events between signing and closing. As of December 31, 2013, the estimated carrying amount of the assets to be included in the AgReserves Sale were $56.4 million and the estimated carrying amount of the liabilities to be included in the AgReserves Sale were $12.6 million, which includes approximately $11 million of deferred revenue related to a 2006 rural land sale, where title has not yet transferred to the buyer. As part of the AgReserves Sale Agreement, this land is expected to be transferred to AgReserves to ultimately transfer title to the buyer.
AgReserves has delivered a deposit of $37.5 million for the AgReserves Sale and the remaining purchase price is payable at closing in cash or, at our option, a combination of cash and timber notes.

The closing of the AgReserves Sale is subject to a number of conditions, including among others: (i) approval by our shareholders (a shareholders’ meeting for this purpose is presently scheduled for March 4, 2014), (ii) the expiration or termination of all waiting periods under regulatory law applicable to the AgReserves Sale, and (iii) the purchase price not being reduced by more than $40 million as a result of any reduced acreage.


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The AgReserves Sale Agreement contains certain termination rights, including if it is not completed on or before May 1, 2014 or if the approval of our shareholders is not obtained. If the AgReserves Sale is terminated under certain circumstances, we may be required to pay AgReserves certain fees and expenses, including: (i) a termination fee of approximately $21 million if (a) in certain cases, our shareholders’ do not approve the AgReserves Sale, (b) we enter into a definitive transaction agreement providing for the consummation of the transaction contemplated by a Superior Proposal (as defined in the AgReserves Sale Agreement), or (c) our Board makes a Recommendation Change (as defined in the AgReserves Sale Agreement) or fails to recommend that our shareholders approve the AgReserves Sale; or (ii) AgReserves’ transaction costs and expenses which in some cases are limited to $1.5 million. Except in certain limited cases as set forth in the AgReserves Sale Agreement, we are required to return the deposit to AgReserves if the AgReserves Sale is terminated.

RiverTown Sale

On December 31, 2013, we entered into a purchase and sale agreement (the “RiverTown Sale Agreement”) with Mattamy (Jacksonville) Partnership d/b/a Mattamy Homes (“Mattamy”) to sell approximately 4,057 acres of real property, which primarily constitutes the RiverTown community in St. Johns County, Florida, along with all of our related development or developer rights, founder’s rights and certain tangible and intangible personal property (collectively the “RiverTown Community”), to Mattamy for $43.6 million subject to adjustments and prorations as set forth in the RiverTown Sale Agreement (the “RiverTown Sale”). The closing is subject to customary real estate closing conditions. As of December 31, 2013, the estimated net carrying amount of the assets and liabilities to be included in the RiverTown Sale were $16.7 million.

Additionally, pursuant to the RiverTown Sale Agreement, Mattamy will be required to:
(i) purchase certain RiverTown Community related impact fee credits from us following the closing as the RiverTown Community is developed, and
(ii) assume our Rivers Edge Community Development District (“CDD”) obligations. As of December 31, 2013, our total outstanding Rivers Edge CDD assessment was $11.1 million, of which $5.6 million is recorded as a liability for the Rivers Edge CDD assessments associated with platted property.

Based on Mattamy’s current development plans and St. Johns County’s current costs for impact fees, we may receive $20 million to $26 million for the impact fees over the five-year period following the closing (most of which, we could 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 cost for impact fees at the time of such development (as determined by St. Johns County’s then current impact fee cost schedule), which are all factors beyond our control. We cannot provide any assurance as to the amount or timing of any payments we may receive for the impact fees.

Mattamy has delivered an initial refundable deposit of $0.1 million, and the balance of the deposit, $1.9 million, which may at Mattamy’s election be paid in the form of a letter of credit, will be due within 3 business days of the conclusion of the inspection period. The remaining balance of the purchase price is payable at closing in cash.
    
The RiverTown Sale Agreement contains certain termination rights, including Mattamy’s right to terminate the RiverTown Sale, in its sole and absolute discretion, at any time before the expiration of the inspection period and receive a full refund of the deposit then paid. Additionally, the RiverTown Sale Agreement provides that the closing shall occur no later than March 30, 2014. Except in certain limited cases as set forth in the RiverTown Sale Agreement, we are required to return the deposit to Mattamy if the RiverTown Sale Agreement is terminated.

Except as otherwise noted, this Annual Report on Form 10-K has not been updated to reflect the AgReserves Sale or the RiverTown Sale (collectively the “Proposed Sale Transactions”).


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Business Strategy

Following the consummation of the Proposed Sale Transactions, we expect to continue to be the owner of approximately 180,000 acres of land concentrated primarily in Northwest Florida, which we predominantly use or intend to use for, or in connection with, our various residential or commercial real estate developments, resorts, leisure and leasing operations or our forestry operations on a limited basis.

The lands being sold as part of the AgReserves Sale include land designated as forestry or preserve land which we do not expect to be improved for higher or better uses, other than as farmland in the foreseeable future. Following the closing of the AgReserves Sale, we expect to continue our forestry operations on a limited basis. The RiverTown Community is located in Northeast Florida, and is non-strategic to our long-term strategy.
If the Proposed Sale Transactions close, we believe the net proceeds will provide us with significant liquidity and numerous opportunities to create long-term value for our shareholders. We also believe that the long-term interests of our shareholders are best served by our management focusing on our core business activities: real estate development in Northwest Florida, including opportunities in the active adult market; expanding our resort and leisure operations; and activating the Port of Port St. Joe (the Port of St. Joe). Specifically, in 2014, we intend to focus on the following initiatives:
Explore opportunities to capitalize on the growing retirement demographic. We believe that there is a growing retirement demographic that our development experience and the location, size and contiguous nature of our Florida land holdings provide us with strategic opportunities in this market place. Consequently, we plan to continue the planning necessary to develop mixed-use and active adult community or communities, which we are exploring launching in the next 18 to 24 months. In 2013, we commenced the process to update and expand the previously approved West Bay Sector Plan, to establish a long-term land use master plan, to accommodate among other things, the concept of mixed-use and active adult community or communities.
Expand our vacation rental programs. On January 1, 2014, we launched St. Joe Club & Resorts, a private membership club that provides members access to a diverse offering of benefits and privileges at Shark's Tooth Golf Club, WaterSound Beach Club and Camp Creek Golf Club in addition to other St. Joe owned and operated facilities. As part of St. Joe Club & Resorts, we are expanding our vacation rental management services. Traditionally, we have only managed luxury homes in the WaterColor and WaterSound Beach communities, but now we are also offering luxury vacation home management services to homeowners in surrounding communities.
Develop new commercial and industrial uses for our land portfolio. We intend to continue exploring new commercial and industrial uses for our land portfolio that we believe will be accretive in value to our shareholders. The substantial majority of our land is strategically located within 15 miles of the coast of the Gulf of Mexico and adjacent to major roads or the Northwest Florida Beaches International Airport. As such, we believe we are uniquely positioned to develop, alone and in conjunction with strategic partners, our land for commercial and industrial use. As part of this strategy, we will continue to seek opportunities to develop and exploit the following projects, as well as others that may evolve.

Port of St. Joe. We believe the Port of St. Joe can benefit from the expected long-term economic growth in the Southeastern United States and increased traffic from the widening of the Panama Canal. We believe the Port of St. Joe is well positioned for bulk cargo shipments, offering access to rail, the U.S. Gulf Intracoastal Waterway and state and U.S. highways. However, prior to being able to commence any shipping activities, the Port of St. Joe’s shipping channel must first be dredged up to the federally authorized depth of 35 to 37 feet, which is dependent on regulatory approval and funding and may span multiple years. Additional regulatory approvals may have to be obtained and other infrastructure improvements may have to be made to the Port of St. Joe, which may span multiple years.


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During 2013, we continued our efforts by signing letters of intent (“LOIs”) that contemplate economic development opportunities for Florida's Northwest region, including the potential to bolster usage of the AN Railway and make the Port of St. Joe operational. The LOIs state that the obligations of both us and the other party are contingent upon the Port of St. Joe receiving funding to complete the dredging of the shipping channel. In 2013, the Port of St. Joe Port Authority received a grant of $0.8 million from The Florida Department of Transportation and has begun the process to secure the necessary permits to dredge the shipping channel that services the Port of St. Joe.
AN Railway Rail and Right-of-Way. We own the rail and right-of-way for a short line freight railroad operated by AN Railway, LLC that begins at the Port of St. Joe and connects with CSX Transportation in Chattahoochee, Florida. AN Railway has received a commitment for the issuance of a grant of $3.75 million from the Florida Department of Transportation to rehabilitate the rail and certain structures over the Apalachicola River to accommodate freight trains to and from Port St. Joe. We believe that these improvements to the rail infrastructure will help the Port St. Joe and encourage new port-related industrial and commercial business.
VentureCrossings. We plan to continue to seek opportunities to increase interest for VentureCrossings, our West Bay industrial and commercial development, which can support up to 5.9 million of leasable square feet. In 2012, Exelis Inc. moved into our 105,000 square foot building in VentureCrossings, which includes 70,000 square feet of manufacturing space and 30,000 square feet of office space. We built and own the building, and lease the facility to Exelis Inc. under a long-term lease.
We are developing leasable properties in or near our assets. For example, we are currently developing a 330,000 square foot retail lifestyle center in Panama City Beach with Casto, our joint venture partner and one of the country’s leading developers of neighborhood and community retail centers. In addition, our resorts, leisure and leasing operations provide a profitable stream of recurring lease revenue to us and encourage development of our other residential and commercial ventures.
Explore partnerships with best of class operators. We believe that by entering into partnerships, joint ventures or other collaborations and alliances with best of class operators, we can efficiently utilize our land assets while reducing capital requirements.
Continue efficient operations. We expect to continue a cost and investment discipline to ensure bottom line performance in all environments.
Our Business
We currently operate our business in five reportable operating segments: (1) residential real estate, (2) commercial real estate, (3) rural land, (4) resorts, leisure and leasing operations and (5) forestry. For financial information about our operating segments, please see Note 19, Segment Information of our Consolidated Financial Statements included in this Form 10-K.
    
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 other waterfront properties concentrated primarily between Tallahassee and Destin, Florida.
Our real estate investment strategy focuses on projects that meet our risk-adjusted investment return criteria. We adopted a rate of return against which we evaluate our capital expenditures and investments. The time frame for these expenditures and investments will vary based on the type of project. However, we will only incur such expenditures if our analysis indicates that the project will generate a return equal to or greater than the threshold return over its life. While an analysis is conducted for capital expenditures and investments in each of our five segments, we currently anticipate that the majority of our future capital expenditures and investments will be in residential real estate and in our Pier Park North joint venture.

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Within our residential real estate business, we currently have two types of communities. The first, our residential resort communities, are positioned to attract primarily second home buyers. Our successful projects in this category include the WaterColor and WaterSound Beach communities, which were built in a region of Florida that has historically attracted second home buyers. During 2013, we saw increased demand for homes in these established resort communities as sales increased 28% and lot prices increased 8-16% as compared to the prior year. Less developed communities continue to have low sales volume and little price appreciation. We intend to maximize profits and long-term value in our successful residential resort communities by continually testing the upside on lot prices in these communities. With respect to less developed communities, we await demand or seek alternative uses.
Our second type of residential communities is our primary home communities, which are for buyers who tend to use the community for their primary residence. Our WaterSound, Breakfast Point, SouthWood and RiverTown communities are our largest projects in this category. During 2013, we have seen increased demand from builders for our developed lots in our WaterSound and Breakfast Point primary home communities as sales increased over 200% and lot prices increased up to 45% in 2013. As discussed above, we entered into a sale agreement to sell our RiverTown Community in December 2013. See RiverTown Sale for additional information.

Commercial Real Estate
In our commercial real estate segment we plan, develop, manage and sell real estate, including commercial operating property, for commercial purposes. We focus on commercial development and sales in Northwest Florida because of our large land holdings surrounding the Northwest Florida Beaches International Airport, along roadways and near or within business districts in the region. We provide development opportunities for national and super regional retailers and our strategic partners in Northwest Florida. We offer land for commercial and light industrial uses. We also develop commercial parcels within or near existing residential development projects.
Our commercial real estate includes industrial parks and several commerce parks. One of the industrial parks is our VentureCrossings Enterprise Centre, a commercial and industrial development adjacent to the Airport. We are soliciting global office, retail and industrial users for this prime development location and during 2012, we completed construction and commenced recognizing rent on a 105,000 square foot building leased by Exelis Inc.
The operations of commercial properties are managed and reported in our resorts, leisure and operation's segment and the sale of commercial operating property is managed and reported in our commercial real estate segment. In 2013, our commercial real estate segment capitalized on the sale of certain commercial operating properties, including two built-to-suit properties.
Rural Land
The majority of rural land sold is undeveloped timberland and is managed as timberland until sold, although some parcels include the benefits of limited development activity including improved roads, ponds and fencing. We have traditionally sold parcels of varying sizes ranging from less than one acre to thousands of acres. The pricing of these parcels varies significantly based on size, location, terrain, timber quality and other local factors.



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Resorts, Leisure and Leasing Operations
Our resorts, leisure and leasing operations segment includes recurring revenue streams from (i) our resort and leisure businesses and (ii) our leasing operations.
Resort and Leisure Business
WaterColor Inn and Vacation Rentals. Our WaterColor Inn and Resort is an award winning boutique hotel, which provides guests with a beach club, spa, tennis center, an award-winning restaurant and complementary retail and commercial space. In addition our vacation rental business rents private homes in the WaterColor, WaterSound Beach and surrounding communities, to individuals who are vacationing in the area. We do not generally own the homes, but for a fee, we advertise, take reservations, check-in and check-out, and clean and maintain the home for the homeowner. Our resorts and leisure businesses are managed for us by a third party management company.
Golf Courses and Marinas. We own four golf courses in Northwest Florida. Three of them are in the Panama City Beach area and the fourth is located in Tallahassee. The golf courses are situated in or near our residential communities. We also own and operate two marinas. Our golf courses and marinas are managed for us by a third party management company.
St. Joe Club & Resorts. On January 1, 2014, we launched St. Joe Club & 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. In addition, we are expanding our vacation rental management services by offering vacation home management services to homeowners in surrounding communities.
Leasing Operations
Our leasing operations business includes our retail and commercial leasing. Our retail leasing business principally arose in connection with the growth in our residential developments. We have several small retail shopping centers located in or very near to some of our residential projects, such as the WaterColor, WaterSound Beach, SouthWood and WindMark Beach communities that are managed by our leasing team. The success of these small retail centers is closely tied to the success of the residential developments from which they draw their customers.
From time to time, we may sell certain resort, leisure and operating properties. The sale of these assets are managed and reported in our commercial real estate segment.
Forestry
We own and operate forestry operations in Northwest Florida. As of December 31, 2013, we had 545,000 acres designated for forestry operations, including land in West Bay, and had the ability to consistently harvest approximately 315,000 acres. Subsequent to the AgReserves Sale, we expect to have approximately 120,000 acres designated for forestry operations, including land in West Bay, and expect to have the ability to consistently harvest approximately 60,000 acres.
Our ability to harvest the remaining acreage is limited by geographical restrictions, (e.g. lakes and wetlands that do not yield enough timber to make it cost effective to operate in those areas, land set aside for mitigation banks and certain regulatory restrictions).
We currently produce both sawtimber (lumber used in construction) and pulp (timber used to make pulp for products like linerboard). As sawtimber prices are significantly higher than pulp prices, we have sought to increase the percentage of our timber that is sold as sawtimber by implementing progressive silviculture practices and developing relationships with local sawtimber customers. Southern Pine, our main product, is a low-cost product that fits well into cost-conscience supply chains.

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A significant portion of the revenue from our forestry segment is generated pursuant to our supply agreement entered into in November 2010 with RockTenn (RockTenn Supply Agreement), under which we sell delivered wood (trees that we cut and delivered). Under the RockTenn Supply Agreement, the price for timber is based upon the average of the market price for stumpage and the market price for delivered wood, each as set forth in an established index. In addition, pursuant to the RockTenn Supply Agreement, Smurfit-Stone Container Corporation (Smurfit-Stone) and RockTenn would be liable for any monetary damages as a result of the closure of the RockTenn mill in Panama City, Florida due to economic reasons for a period of one year. Nevertheless, if the mill was to permanently cease operations, the price for pulpwood may decline, and the cost of delivering logs to alternative customers would increase. As part of the AgReserves Sale, the RockTenn Supply Agreement will be assumed by AgReserves.


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 than the first and fourth 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.
Competition
The real estate development business is highly competitive and fragmented. We compete with other local, regional and national real estate companies, some of which may have greater financial, marketing, sales and other resources than we do.
A number of highly competitive companies participate in the vacation rental industry. Our ability to remain competitive and to attract and retain vacation rental owners and memberships depends on our success in distinguishing the quality and value of our products and services from those offered by others. We compete based on location and price.

In our forestry business, we compete with numerous public and privately held timber companies in our region. The principal method of competition is price and delivery. Wood products are also subject to increasing competition from a variety of substitute products, including non-wood and engineered wood products. For example, plywood markets are subject to competition from oriented strand board, and U.S. lumber and log markets are subject to competition from other worldwide suppliers.
Governmental Regulation
Our operations are subject to federal, state and local environmental laws and regulations, including laws relating to water, air, solid waste and hazardous substances and the requirements of the Federal Occupational Safety and Health Act and comparable state statutes relating to the health and safety of our employees. Although we believe that we are in material compliance with these requirements, there can be no assurance that we will not incur significant costs, civil and criminal penalties, and liabilities, including those relating to claims for damages to property or natural resources, resulting from our operations. We maintain environmental and safety compliance programs and conduct regular internal and independent third-party audits of our facilities and timberlands to monitor compliance with these laws and regulations.

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We also expect legislative and regulatory developments in the area of climate change to address carbon dioxide emissions and renewable energy and fuel standards. It is unclear as of this date how any such developments will affect our business. Enactment of new environmental laws or regulations, or changes in existing laws or regulations or the interpretation of these laws or regulations, might require significant expenditures.

Employees
As of February 24, 2014, we had 67 employees.

Available Information
Our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports may be viewed or downloaded electronically, free of charge, from our website:
http://www.joe.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). In addition, you may read and copy any materials we file with SEC at the SEC’s Public Reference Room at 100F Street, NE, Washington, DC 20549. To obtain information on the operation of the Public Reference room, you may call the SEC at 1-800-SEC-0330. Our recent press releases are also available to be viewed or downloaded electronically at http://www.joe.com.
 
We will also provide electronic copies of our SEC filings free of charge upon request. Any information posted on or linked from our website is not incorporated by reference into this Annual Report on Form 10-K. The SEC also maintains a website at http://www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Item 1A.    Risk Factors

You should carefully consider the risks described below, together with all of the other information in this Annual Report on Form 10-K. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business. If any of these risks actually occur, our business, financial condition, results of operations, cash flows, strategies and prospects.
Risks Relating to our Business

Our business is concentrated in Northwest Florida. As a result, our long-term financial results are largely dependent on the economic growth of Northwest Florida.
The economic growth of Northwest Florida, where most of our land is located, is an important factor in creating demand for our products and services. If the AgReserves Sale is consummated, then our principal sources of future revenue will be (1) sales of land to homebuilders and others in connection with residential housing developments, (2) sales and leasing of commercial real estate, (3) revenues generated through our hotel and other leasing activities that are principally tourism related and (4) future revenue from the Port of St. Joe operations. Consequently demand for our products will largely depend on the growth of the local economy.
We believe that the future economic growth of Northwest Florida will largely depend on the ability and willingness of state and local governments, in combination with the private sector, (1) to plan and complete significant infrastructure improvements in the region, such as new transportation hubs, roads, rail, pipeline, medical facilities and schools and (2) to attract companies offering high-quality, high salary jobs to large numbers of new employees. If new businesses and new employees in Northwest Florida do not grow as anticipated then demand for residential and commercial real estate and demand to expand Port of St. Joe would not meet our expectations and our future growth would be adversely affected.


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We have significant operations and properties in Florida that could be materially and adversely affected by natural disasters, manmade disasters, severe weather conditions or other significant disruptions.
Our corporate headquarters and our properties are located in Florida, where major hurricanes have occurred. 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 lessen demand for products in those communities. Damage could (1) disrupt our resort and vacation rental business if there are extensive repairs to the facilities or (2) lessen demand as a vacation destination. If our corporate headquarters facility is damaged or destroyed, we may have difficulty performing certain corporate and operational functions.
    
In addition to hurricanes, the occurrence of other natural disasters and climate conditions in Florida, such as tornadoes, floods, fires, unusually heavy or prolonged rain, droughts and heat waves, could have a material adverse effect on our ability to develop and sell properties or realize income from our projects. The occurrence of these natural disasters could also have a material adverse effect on our forestry business, if timber inventory is destroyed or unable to be harvested. Furthermore, an increase in sea levels due to long-term global warming could have a material adverse effect on our coastal properties and forestry business. The occurrence of natural disasters and the threat of adverse climate changes could also have a long-term negative effect on the attractiveness of Florida as a location for resort, seasonal and/or primary residences and as a location for new employers that can create high-quality jobs needed to spur growth in Northwest Florida.

Additionally, we are susceptible to manmade disasters or disruptions, such as oil spills like the Deepwater Horizon oil spill, acts of terrorism, power outages and communications failures. If a hurricane, natural disaster, manmade disaster or other significant disruption occurs, we may experience disruptions to our operations and properties, which could have a material adverse effect on our business, results of operations, cash flows and financial position.

Our insurance coverage on our properties may be inadequate to cover any losses we may incur.

We maintain insurance on our property, including property, liability, fire, flood and extended coverage. However, we do not insure our timber assets and self-insure home warranty claims. Additionally, our insurance for hurricanes is capped at $50 million per named storm and is subject to deductibles. We use our discretion when determining amounts, coverage limits and deductibles for insurance. These terms are determined based on retaining an acceptable level of risk at a reasonable cost. This may result in insurance coverage that in the event of a substantial loss would not be sufficient to pay the full current market value or current replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations and other factors also may make it unfeasible to use insurance proceeds to replace a facility after it has been damaged or destroyed. Under such circumstances, we may not receive insurance proceeds or the insurance proceeds we receive may not fully cover business interruptions or losses and our earnings, liquidity, or capital resources could be adversely affected.


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Delays in recovery or any further downturn of the real estate market in Florida could adversely affect our operations.
Demand for real estate is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels, over which we have no control. Currently, unemployment is above historically normal levels and many lenders have limited their willingness to make, and tightened their credit requirements with regard to, residential mortgage loans. From 2008 through 2012, revenues from our residential and commercial real estate segment declined, which has had an adverse effect on our financial condition and results of operations. Although the demand for residential and commercial real estate began to increase in 2013, it is still well below historical rates. Florida, as one of the states most affected by the lingering economic downturn, has taken longer to recover than the rest of the nation. Furthermore, our business is especially sensitive to economic conditions in Northwest Florida, where many 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. Unemployment, lack of consumer confidence and other adverse consequences of the recent economic recession continue to affect the economies of these two regions. If market conditions do not improve as anticipated or were to worsen, the demand for our real estate products could further decline, negatively impacting our business, results of operations, cash flows and financial condition.

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 in the past few decades, particularly during the real estate boom in the first half of the last decade. In recent years, however, Florida’s population growth has been below average compared to recent decades. The decline in the rate of migration into Florida could reflect a number of factors affecting Florida, including weak economic conditions, restrictive credit, the occurrence of hurricanes and increased costs of living. Also, because of the housing collapse across the nation, people interested in moving to Florida may have delayed or canceled their plans due to difficulties selling their existing homes.

The success of our primary communities and planned mixed-use and active adult communities will be dependent on strong 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 natural or manmade disasters 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, cash flows and financial condition would suffer.

Increased supply of homes could adversely impact our ability to sell.
The number of homes foreclosed in recent years and forced sales by homeowners under distressed economic conditions contributed to reduced appraisal valuations, potentially resulting in lower sales prices. As a result, the demand for our real estate products could further decline, negatively impacting our business, results of operations, cash flows and financial condition.

An adverse outcome of the investigation being conducted by the SEC could have an adverse effect on our business and stock price.
In January 2011, the SEC commenced an informal inquiry into our accounting practices for impairment of investment in real estate assets and then notified us in June of 2011 that it had issued a related order of private investigation. We most recently communicated with the SEC regarding this matter in February 2014. We are unable to predict the outcome of the SEC investigation. An adverse outcome of the investigation by the SEC could have an adverse effect on our business and stock price.

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Our future growth 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 are seeking strategic partnerships to develop adult active community or communities, capitalize on the potential of our commercial and industrial opportunities and to maximize the value of our assets. These strategic partnerships may bring development experience, industry expertise, financial resources, financing capabilities, brand recognition and credibility or other competitive assets. We cannot assure, however, that we will have sufficient resources, experience and/or skills to locate desirable partners. We also may not be able to attract partners who want to conduct business in Northwest Florida, our primary area of focus, and who have the assets, reputation or other characteristics that would optimize our development opportunities.
Once a strategic 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 may also involve special risks such as:

our partner may take actions contrary to our instructions or requests, or contrary to our policies or objectives with respect to the real estate investments;

our partner could experience financial difficulties, and

actions by our partner may subject property owned by the partnership to liabilities or have other adverse consequences.

A key complicating factor is that strategic partners may have economic or business interests or goals that are inconsistent with ours or that are influenced by factors unrelated to our business. These competing interests lead to the difficult challenges of successfully managing the relationship and communication between strategic partners and monitoring the execution of the partnership plan. We cannot assure that we will have sufficient resources, experience and/or skills to effectively manage our ongoing relationships with our strategic partners. We may also be subject to adverse business consequences if the market reputation of a strategic partner deteriorates. If we cannot successfully execute transactions with strategic partners, our business, results of operations, cash flows and financial position could be adversely affected.

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 involves a long, uncertain and costly regulatory process. 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:

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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 damage 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, results of operations, cash flows or financial position.

We have had to take significant impairments of the carrying value of our investments in real estate and a decline in real estate values could result in additional impairments, which would have an adverse effect on our results of operations and financial position.
Over the past five years, we have recorded impairment charges of $475.2 million related to real estate investments. If market conditions were to deteriorate, our estimate of undiscounted future cash flows could fall below their carrying value and we could be required to take further impairments, which would have an adverse effect on our results of operations and financial position.

We may not be able to successfully implement our business strategy, which could adversely affect our financial condition, results of operations, cash flows and financial performance.
Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Our business strategy envisions several initiatives, including investing in new opportunities, such as the development of active adult communities, expanding our vacation rental programs, developing new commercial and industrial uses for our land portfolio, entering into strategic alliances and continuing to efficiently contribute to our bottom line performance. We may not be able to successfully implement our business strategy or achieve the benefits of our business plan. If we are not successful in achieving our objectives, our business, results of operations, cash flows and financial position could be negatively affected.


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Our investment in new business opportunities is inherently risky, and could disrupt our ongoing businesses and adversely affect our operations.
We have invested and expect to continue to invest in new business opportunities, such as the development of our active adult community and the expansion of port related opportunities at the Port of St. Joe. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenues to offset liabilities assumed and expenses associated with these new investments including development costs, inadequate return of capital on our investments, and unidentified issues not discovered in our due diligence of such opportunities. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and will not adversely affect our reputation, financial condition, and operating results.

If we are not able to generate sufficient cash to maintain and enhance our operations and to develop our real estate holdings, our results of operations, cash flows and financial position 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, we will need significant cash in the future to maintain and enhance our operations and to develop our real estate holdings. We obtain funds for our operating expenses and capital expenditures through cash flow from operations, property sales and financings. Due to the historically low levels of cash generated by our operations, we are continuing to explore alternative methods or strategies for generating additional cash, such as the AgReserves Sale and RiverTown Community Sale. We cannot guarantee, however, that any of these alternative cash sources will be viable, significant or successful. Failure to obtain sufficient cash when needed may limit our development activities, cause us to further reduce our operations or cause us to sell desirable assets on unfavorable terms, any of which could have a material adverse effect on our results of operations, cash flows and financial condition. If our cash flow proves to be insufficient, 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.

Our business is subject to extensive regulation and growth management initiatives that may restrict, make more costly or otherwise adversely impact our ability to conduct our operations.
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 a lot of our land has an “agricultural” or “silviculture” future land use designation, 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.


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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.

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 to new or greater liabilities that could materially adversely affect our business, results of operations, cash flows or financial position.

We are dependent upon homebuilders as customers, but our ability to attract homebuilder customers and their ability or willingness to satisfy their purchase commitments may be uncertain.
We are highly dependent upon our relationships with homebuilders to be the primary customers for our homesites and to provide construction services at our residential developments. 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. During 2013, we financed two sales to a homebuilder totaling eighty-one units in two of our Northwest Florida communities. If this homebuilder fails to pay its debt to us or delays paying us, it would reduce our anticipated cash flows. Homebuilders also may not view our developments as desirable locations for homebuilding operations, or they may choose to purchase land from distressed sellers. Any of these events could have an adverse effect on our business, results of operations, cash flows and financial position.

We are exposed to risks associated with real estate development that could adversely impact our results of operations, cash flows and financial condition.
Our real estate development activities entail risks that could adversely impact our results of operations, cash flows and financial condition, including:
construction delays or cost overruns, which may increase project development costs;

claims for construction defects after property has been developed, including claims by purchasers and property owners’ associations;
an inability to obtain required governmental permits and authorizations;

an inability to secure tenants necessary to support commercial projects; and

compliance with building codes and other local regulations.

Significant competition could have an adverse effect on our business.

A number of residential and commercial developers, some with greater financial and other resources, compete with us in seeking resources for development and prospective purchasers and tenants. Competition from other real estate developers may adversely affect our ability to attract purchasers and sell residential and commercial real estate, sell undeveloped rural land and attract and retain experienced real estate development personnel.


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A number of highly competitive companies participate in the vacation rental industry. On January 1, 2014, we launched St. Joe Club & Resorts, a private membership club that will provide access to a diverse offering of benefits and privileges at certain of our owned and operated resort facilities. In addition, certain facilities will be private clubs and only members of St. Joe Club & Resorts and St. Joe Club & Resorts' registered guests will be eligible to play. Our ability to remain competitive and to attract and retain vacation rental owners and memberships depends on our success in distinguishing the quality and value of our products and services from those offered by others.

In addition, the forestry business is highly competitive in terms of price and quality. Wood products are subject to increasing competition from a variety of substitute products, including non-wood and engineered wood products. There can be no assurance we will be able to compete successfully against current or future competitors or that competitive pressures we face in the markets in which we operate will not materially adversely affect our business, financial condition and results of operations.

The loss of the services of our key management and personnel could adversely affect our business.

Our ability to successfully implement our business strategy will depend on our ability to attract and retain experienced and knowledgeable management and other professional staff. There is no assurance that we will be successful in attracting and retaining key management personnel.

Limitations on the access to the airport runway at the new Northwest Florida Beaches International Airport may have an adverse effect on the demand for our West Bay Sector lands adjacent to the new airport.
Our land donation agreement with the airport authority and the deed for the airport land provide access rights to the airport runway from our adjacent lands. We subsequently entered into an access agreement with the airport authority that provides access to the airport runway. Under the terms of the access agreement, we are subject to certain requirements of the airport authority, including but not limited to the laws administered by the Federal Aviation Administration (the “FAA”), the Florida Department of Environmental Protection, the U.S. Army Corps of Engineers, and Bay County. Should security measures at airports become more restrictive in the future due to circumstances beyond our control, FAA regulations governing these access rights may impose additional limitations that could significantly impair or restrict access rights.

In addition, we are required to obtain environmental permits from the U.S. Army Corps of Engineers and Florida’s Department of Environmental Protection in order to develop the land necessary for access from our planned areas of commercial development to the airport runway. Such permits are often subject to a lengthy approval process, and there can be no assurance that such permits will be issued, or that they will be issued in a timely manner.

We believe that runway access is a valuable attribute of some of our West Bay Sector lands adjacent to the new airport, and the failure to maintain such access, or the imposition of significant restrictions on such access, could adversely affect the demand for such lands and our business, results of operations, cash flows and financial position.

Increases in property insurance premiums and decreases in availability of homeowner property insurance in Florida could reduce customer demand for homes and homesites in our developments.
Homeowner property insurance companies doing business in Florida have reacted to previous hurricanes by increasing premiums, requiring higher deductibles, reducing limits, restricting coverage, imposing exclusions, refusing to insure certain property owners, and in some instances, ceasing insurance operations in the state. It is uncertain what effect these actions may have on property insurance availability and rates in the state.

Furthermore, Florida’s state-owned property insurance company, Citizens Property Insurance Corp., underwrites homeowner property insurance. 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.


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The high costs of property insurance premiums in Florida could deter potential customers from purchasing a home or homesite in one of our developments or make Northwest Florida less attractive to new employers that can create high quality jobs needed to spur growth in the region, either of which could have a material adverse effect on our business, results of operations, cash flows and financial position.

Failure to maintain the integrity of internal or customer data could result in faulty business decisions, damage of reputation and/or subject us to costs, fines or lawsuits.

For a number of years, we have been increasing our reliance on computers and digital technology. Our business requires the collection and retention of large volumes of internal and customer data, including credit card numbers and other personally identifiable information of our employees and customers as such information is entered into, processed, summarized, and reported by the various information systems we use. All of these activities give rise to material cyber risks and potential costs and consequences that cannot be estimated or predicted with any certainty. The integrity and protection of that customer, employee, and company data is critical to us. Our customers have a high expectation that we will adequately protect their personal information, and this information is entitled to protection under a number of regulatory regimes. Our failure to maintain the security of the data which we are required to protect, including via the penetration of our network security and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, fines, penalties, regulatory proceedings, and other severe financial and business implications.

A decline in consumers’ discretionary spending or a change in consumer preferences could reduce our sales and harm our business.

Our resorts and leisure business' sales ultimately depend on consumer discretionary spending, which is influenced by factors beyond our control, including general economic conditions, the availability of discretionary income and credit, weather, consumer confidence and unemployment levels. Any material decline in the amount of consumer discretionary spending could reduce our sales and harm our business. These economic and market conditions, combined with continuing difficulties in the credit markets and the resulting pressures on liquidity, may also place a number of our key customers under financial stress, which would could adversely affect our occupancy rates and our profitability.

Our commercial leasing projects may not yield anticipated returns, which could harm our operating results, reduce cash flow, or the ability to sell commercial assets.
A component of our business strategy is the development of commercial properties and assets for sale. These developments may not be as successful as expected due to the commercial leasing related risks, as well as the risks associated with real estate development, generally. Additionally, development of commercial projects involves the risk associated with the significant time lag between commencement and completion of the project. This time lag subjects us to greater risks relating to fluctuations in the general economy, our ability to obtain construction or permanent financing on favorable terms, if at all, our ability to achieve projected rental rates, the pace that we will be able to lease new tenants, higher than estimated construction costs (including labor and material costs), and delays in the completion of projects because of, among other factors, inclement weather, labor disruptions, construction delays or delays in receiving zoning or other regulatory approvals, or man-made or natural disasters.


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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. Additionally, the mortgage industry remains under intense scrutiny and continues to face increasing regulation at federal, state, and local levels, such as recent and proposed changes to the Federal Housing Administration’s rules to require increased Borrower FICO scores, increased down payment amounts, and limiting the amount of permitted seller concessions. Because of these problems, the supply of mortgage products has been constrained, and the eligibility requirements for borrowers have been significantly tightened. These problems in the mortgage lending industry could adversely affect potential purchasers of our products, including our homebuilder customers, thus having a negative effect on demand for our products.

Despite the current problems in the mortgage lending industry, interest rates for home mortgage loans have generally remained low. Mortgage interest rates could increase in the future, however, which could adversely affect the demand for residential real estate. In addition 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, results of operations, cash flows and financial position may be negatively affected.

Tax law changes could make home ownership more expensive or less attractive.

Historically, significant expenses of owning a home, including mortgage interest expense and real estate taxes, generally have been deductible expenses for the purpose of calculating an individual’s federal, and in some cases state, taxable income as itemized deductions. The Federal government has been considering eliminating some deductions, or limiting the tax benefit of deductions, with regard to people with incomes above specified levels. As part of the American Taxpayer Relief Act of 2012, enacted on January 1, 2013, beginning in 2013 certain taxpayers will have their itemized deductions limited. Such limits will increase the after-tax cost of owning a home, which is likely to impact adversely the demand for homes and could reduce the prices for which we can sell homes, particularly in higher priced communities.


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If The Fairholme Funds or Fairholme Capital Management, L.L.C. controls us within the meaning of the Investment Company Act of 1940, we may be unable to engage in transactions with potential strategic partners, which could adversely affect our business.
The Fairholme Fund (“Fairholme”) (a series of Fairholme Funds, Inc. an investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”)) has the right to vote as of December 31, 2013 approximately 25.8% of our outstanding common stock. Fairholme Capital Management, L.L.C. (“Fairholme Capital”), which controls Fairholme, is the investment adviser of accounts that in the aggregate own, as of December 31, 2013, an additional 1.3% of our common stock. Bruce R. Berkowitz, the Managing Member of Fairholme Capital Management, L.L.C., and the President of Fairholme Funds, Inc., is the Chairman of our Board of Directors. Under the Investment Company Act, “control” means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Any person who owns beneficially, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of a company is presumed to control such company. The SEC has considered factors other than ownership of voting securities in determining control, including an official position with the company when such was obtained as a result of the influence over the company. Accordingly, even if Fairholme’s beneficial ownership in us is below 25% of our outstanding voting securities, Fairholme may nevertheless be deemed to control us. The Investment Company Act generally prohibits a company controlled by an investment company from engaging in certain transactions with any affiliate of the investment company or affiliates of the affiliate, subject to limited exceptions. An affiliate of an investment company is defined in the Investment Company Act as, among other things, any company 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the investment company, a company directly or indirectly controlling, controlled by, or under common control with, the investment company or a company directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of the investment company.

We believe that Fairholme is currently affiliated with a number of entities, including Bank of America Corp., Federal National Mortgage Association, Federal Home Loan Corp., Imperial Metals Corporation, Leucadia National Corporation, Sears Holdings Corporation, and American International Group Inc. Due to these affiliations, should Fairholme be deemed to control us, we may be prohibited from engaging in certain transactions with these entities and certain of their affiliates and any future affiliates of Fairholme, unless one of the limited exceptions applies. This could adversely affect our ability to enter into transactions freely and compete in the marketplace. In addition, significant penalties and other consequences may arise as a result of a violation for companies found to be in violation of the Investment Company Act.

We may not be able to benefit from our net operating loss carryforwards and changes in our income tax estimates could affect our profitability.
In preparing our Consolidated Financial Statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws and rates. To the extent adjustments are required in any given period, we include the adjustments in the deferred tax assets and liabilities in our Consolidated Financial Statements. These adjustments could materially impact our results of operations, cash flows and financial position.

    

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In prior years, we have suffered losses, for tax and financial statement purposes, which generated significant federal and state net operating loss carryforwards. These may be used against future taxable income in future periods; however, we will not receive any tax benefits with regard to tax losses incurred except to the extent we have taxable income in the twenty year net operating loss carryforward period. Based on the timing of reversals of our existing taxable temporary differences and our history of losses, management does not believe that the requirements to realize the benefits of certain of our deferred tax assets have been met; therefore, we have maintained a valuation allowance against a portion of our deferred tax assets in our Consolidated Financial Statements as of December 31, 2013. However, a portion of those reserves will likely be reversed if the AgReserves Sale is consummated. If the AgReserves Sale closes, we may utilize our federal net operating loss carryforwards and a significant portion our state net operating loss carryforwards. As a result, we may be required to pay federal income taxes in cash in the near future, which could have a material adverse effect on our results of operations, cash flows and financial position.

Decreases in the market value of our investments in marketable securities could have an adverse impact on our results of operations, cash flows and financial condition.

As of December 31, 2013, we have $147.0 million of investments in U.S. treasury securities and corporate debt securities, and the market value of these investments is subject to change from period to period. The issuers of our corporate debt securities are two national retail chains and are non-investment grade. Furthermore, during periods of financial stress, the value of these investments could come under pressure. Decreases in the value of these investments could have an adverse impact on our results of operations, cash flows and financial condition.

We guarantee debt for our Pier Park North joint venture, and may in the future enter into similar agreements, which may have a material adverse effect on our results of operations, cash flows and financial condition.

We have agreed to provide certain guarantees in connection with our Pier Park North joint venture, and may in the future agree to similar agreements. Our Pier Park North joint venture has entered into a $41 million construction loan for that matures in February 2016. Pursuant to the construction loan, we have provided the following guarantees: (i) a completion guarantee until substantial completion; (ii) a principal repayment guarantee limited to 33% of the outstanding balance of the loan; (iii) a guarantee covering, among other things, operating deficits and accrued and unpaid interest; and (iv) customary non-recourse covenants covering items like misrepresentation, misappropriation of funds and fraud. If we were to become obligated to perform on any guarantees, it could have a material adverse effect on our results of operations, cash flows and financial condition.

Our ability to harvest and deliver timber may be subject to limitations which could adversely affect our operations.

Weather conditions, timber growth cycles, access limitations and regulatory requirements associated with the protection of wildlife and water resources may restrict harvesting of timberlands. In addition, our timber is subject to damage by fire, insect infestation, disease, prolonged drought, flooding and other natural disasters. Changes in global climate conditions could intensify one or more of these factors. Although damage from such natural causes usually is localized and affects only a limited percentage of the timber, there can be no assurance that any damage affecting our timberlands will in fact be so limited. As is common in the forest products industry, we do not maintain insurance coverage with respect to damage to our timberlands. Our revenues, net income and cash flow from operations are dependent to a significant extent on the pricing of our products and our continued ability to harvest timber at adequate levels.

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If the RockTenn mill in Panama City were to permanently cease operations, the price we receive for our pine pulpwood may decline, and the cost of delivering logs to alternative customers could increase.
In July of 2010, Smurfit-Stone, who was the owner of the Panama City mill, emerged from approximately eighteen months of bankruptcy protection, and during the first quarter of 2011, RockTenn announced its acquisition of Smurfit-Stone. Deliveries made by us during Smurfit-Stone’s bankruptcy proceedings were uninterrupted and payments were made on time. A significant portion of the revenue from our forestry segment is generated pursuant to our RockTenn Supply Agreement, under which we sell delivered wood (trees that we cut and deliver). Under the terms of the RockTenn Supply Agreement, Smurfit-Stone and its successor RockTenn would be liable for any monetary damages as a result of the closure of the mill due to economic reasons for a period of one year. Nevertheless, if the RockTenn mill in Panama City were to permanently cease operations, the price for stumpage and delivered wood may decline, and the cost of delivering logs to alternative customers would increase. As part of the AgReserves Sale, the RockTenn Supply Agreement will be assumed by AgReserves.

Risks Relating to the Proposed Sale Transactions

Failure to complete the Proposed Sale Transactions could negatively impact our share price, our future business and financial results.
We cannot assure you that the AgReserves Sale will be approved by our shareholders or that the other conditions to the completion of the AgReserves Sale or the conditions to the RiverTown Sale will be satisfied. If the AgReserves Sale or RiverTown Sale (collectively the “Proposed Sale Transactions”) is not completed, we will not receive any of the expected benefits of such Proposed Sale Transactions and we will be subject to risks and/or liabilities, including the following: (i) failure to complete the AgReserves Sale or the RiverTown Sale might be followed by a decline in the market price of our common stock; (ii) pursuant to the AgReserves Sale we may be required, under certain circumstances, to reimburse AgReserves costs and expenses or pay AgReserves a termination fee of approximately $21 million; (iii) certain costs relating to the Proposed Sale Transactions (such as legal, accounting, financial advisory and broker fees) are payable by us whether or not the related Proposed Sale Transactions are completed; (iv) the AgReserves Sale or the RiverTown Sale may make it more difficult for us to maintain our relationships with contractors, customers or employees (including key personnel), whether or not the AgReserves Sale or the RiverTown Sale are consummated; and (v) unexpected costs or unexpected liabilities (including litigation) may arise from either of the Proposed Sale Transactions, whether or not consummated.

Upon the consummation of the AgReserves Sale, our business will become more dependent upon the real estate industry and the cyclical nature of our real estate operations could adversely affect our results of operations, cash flows, financial condition and stock price.

Upon consummation of the AgReserves Sale, our future performance will be dependent upon our ability to grow our other operating segments, including our (1) residential real estate, (2) commercial real estate and (3) resorts, leisure and leasing segments. In the past, timber sales have not been as susceptible to cyclical changes as compared to the real estate industry. Upon the consummation of the AgReserves Sale, our dependence on the real estate industry will increase significantly.

The real estate industry is cyclical and can experience downturns based on consumer perceptions of real estate markets and other cyclical factors, which factors may work in conjunction with or be wholly unrelated to general economic conditions. Furthermore, our business is affected by seasonal fluctuations in customers interested in purchasing real estate, with the spring and summer months traditionally being the most active time of year for customer traffic and sales in Northwest Florida. 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 results of operations to fluctuate significantly from quarter to quarter and to differ from the expectations of public market analysts and investors. If this occurs, the trading price of our stock could also fluctuate significantly.


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Management will have discretion as to the use of the proceeds from the Proposed Sale Transactions and may not use the proceeds effectively.

We have not designated the amount of net proceeds we will receive from the Proposed Sale Transactions for any particular purpose. Our management will have discretion in the application of the net proceeds from the Proposed Sale Transactions and could spend the proceeds in ways that do not improve our results of operations, cash flows and financial condition or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, results of operations, cash flows and financial condition, and cause the price of our common stock to decline. Pending their use, we may invest the net proceeds in a manner that does not produce income or that loses value.

We intend to invest the Proposed Sale Transaction's proceeds such that we will not have to register as an investment company under the Investment Company Act of 1940. As a result, we may be unable to make some potentially profitable investments.

We have not registered, and we intend to invest the Proposed Sale Transaction's proceeds such that we will not have to register, as an “investment company” under the Investment Company Act. This will require monitoring our portfolio so that (a) we will not have more than 40% percent of total assets (excluding U.S. government securities and cash items) in investment securities or (b) we will meet and maintain another exemption from registration. As a result, we may be (1) unable to make some potentially profitable investments, (2) unable to sell assets we would otherwise want to sell or (3) forced to sell investments in investment securities before we would otherwise want to do so.

The Proposed Sale Transactions, whether or not consummated, may adversely affect our business.

The Proposed Sale Transactions, whether or not consummated, may adversely affect the trading price of our common stock, our business or our relationships with customers, partners, suppliers and employees. Our management’s focus and attention and employee resources may be diverted from operational matters during the pendency of the Proposed Sale Transactions. Additionally, pursuant to the AgReserves Sale, we may be required, in certain circumstances, to reimburse AgReserves’ costs and expenses or pay AgReserves a break-up fee of $21.2 million, and certain costs relating to the Proposed Sale Transactions (such as our legal, accounting, financial advisory and broker fees) are payable by us whether or not either of the Proposed Sale Transactions is completed. Unexpected costs or unexpected liabilities (including litigation) may also arise from the Proposed Sale Transactions, whether or not the Proposed Sale Transactions are consummated. The Proposed Sale Transactions, whether or not consummated, could therefore negatively impact our share price and our future business, results of operations, cash flows and financial condition.

We cannot be sure if or when the Proposed Sale Transactions will be completed.

The consummation of each of the Proposed Sale Transactions is subject to the satisfaction or waiver of various conditions, including, with respect to the AgReserves Sale, the approval of our shareholders. Furthermore, Mattamy has the right to terminate the RiverTown Sale, in its sole and absolute discretion, prior to the expiration of the inspection period on February 28, 2014. We cannot guarantee that these closing conditions will be satisfied. If the closing conditions are not satisfied, the Proposed Sale Transactions may not be completed.

The anticipated benefits from the Proposed Sale Transactions may not be realized, may take longer to realize than expected, or may cost more to achieve than expected.

We believe that the Proposed Sale Transactions will, among other things, help us concentrate on our core business activity of real estate development in Northwest Florida and provide us with significant liquidity and opportunities to create long-term value for our shareholders. We may, however, encounter substantial difficulties in achieving these anticipated benefits, which may not materialize.


23


The Proposed Sale Transactions limit our ability to sell the land expected to be sold to other parties.

The Proposed Sale Transactions contain provisions that make it more difficult for us to sell the land expected to be sold to other parties, including no solicitation provisions and provisions requiring us to notify the purchaser(s) of any solicitation or offer made by any third party in connection with the sale of the land expected to be sold or any similar transaction. Additionally, pursuant to the AgReserves Sale, we may be required, in certain circumstances, to reimburse AgReserves’s costs and expenses or pay AgReserves a break-up fee of $21.2 million. These provisions could discourage a third party that might have an interest in acquiring all of or a significant part of the land expected to be sold from considering or proposing such an acquisition.

The Proposed Sale Transactions may expose us to contingent liabilities.

We have agreed to indemnify AgReserves and certain indemnities against any loss (subject to certain exceptions) incurred by them as a result of the following: (1) a breach by us of certain representations or warranties contained in the AgReserves Sale or any ancillary agreement; (2) any breach of any agreement, term, provision, condition, obligation, or covenant to be performed or satisfied by us pursuant to the AgReserves Sale; (3) any third-party personal injury or tort claims regarding our use, ownership or operation of the land included in the AgReserves Sale (or any party thereof) prior to the closing but excluding assumed liabilities and any released environmental claims; (4) any claim arising from assumed contracts relating to any act or omission prior to the date of closing; and (5) any claim arising from an inaccuracy or material default alleged in any seller estoppel certificate.

Subject to the terms and conditions set forth in the RiverTown Sale, we have agreed to indemnify Mattamy from certain losses, including for any pre-closing defaults under certain contracts. Additionally, subject to the terms and conditions set forth in the RiverTown Sale, Mattamy is entitled to seek all available remedies against us for any material misrepresentation made by us in our representations and warranties and any default by us as to any of its agreements or matters that are to be performed under the RiverTown Sale, as well as, specific performance in certain circumstances.

Significant indemnification claims by AgReserves or Mattamy could materially and adversely affect our business, results of operations, cash flows and financial condition.

Item 1B.    Unresolved Staff Comments

None.


Item 2.        Properties
We own our principal executive offices located in WaterSound, Florida. As of December 31, 2013, we owned approximately 567,000 acres, the majority of which were located in Northwest Florida. As of December 31, 2013, most of our raw land assets were managed as timberlands until designated for development. For more information on our real estate assets, see “Item 1. Business”.



24


Item 3.        Legal Proceedings

Securities and Exchange Commission Investigation
On January 4, 2011 the SEC notified the Company it was conducting an inquiry into the Company’s policies and practices concerning impairment of investment in real estate assets. On June 24, 2011, the Company received notice from the SEC that it has issued a related order of private investigation. The order of private investigation covers a variety of matters for the period beginning January 1, 2007 including (a) the antifraud provisions of the Federal securities laws as applicable to the Company and its past and present officers, directors, employees, partners, subsidiaries, and/or affiliates, and/or other persons or entities, (b) compliance by past and present reporting persons or entities who were or are directly or indirectly the beneficial owner of more than 5% of the Company’s common stock (which includes Fairholme Funds, Inc., Fairholme Capital Management L.L.C. and the Company’s current Chairman Bruce R. Berkowitz) with their reporting obligations under Section 13(d) of the Exchange Act, (c) internal controls, (d) books and records, (e) communications with auditors and (f) financial reports. The order designates officers of the SEC to take the testimony of the Company and third parties with respect to any or all of these matters. The Company is cooperating with the SEC. The Company believes that the probability of loss related to this matter and an estimate of the amount of loss, if any, are not determinable at this time. The Company cannot evaluate the likelihood of an unfavorable outcome related to this matter to be either “probable” or “remote”, nor can it predict the amount or range of possible loss from an unfavorable outcome to give an estimated range.

Item 4.        Mine Safety Disclosures

Not applicable.

25




PART II
 
Item 5.
Market for the Registrant’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
On February 24, 2014 we had approximately 1,247 registered holders of record of our common stock. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “JOE.”
The range of high and low prices for our common stock as reported on the NYSE are set forth below: 
 
Common Stock Price
 
High
 
Low
2013
 
 
 
Fourth Quarter
$
20.99

 
$
17.46

Third Quarter
$
23.24

 
$
19.31

Second Quarter
$
21.41

 
$
18.98

First Quarter
$
24.38

 
$
20.17

2012
 
 
 
Fourth Quarter
$
23.08

 
$
19.09

Third Quarter
$
22.35

 
$
15.55

Second Quarter
$
18.53

 
$
14.40

First Quarter
$
20.03

 
$
14.50

On February 24, 2014, the closing price of our common stock on the NYSE was $18.09. We did not pay cash dividends in 2013 or 2012 and retained future earnings to fund the development and growth of our business.
The following performance graph compares our cumulative shareholder returns for the period December 31, 2008, through December 31, 2013, assuming $100 was invested on December 31, 2008, in our common stock, in the Russell 3000 Index, and the below custom peer group of real estate related companies, which is composed of the following companies:
Alexander & Baldwin Inc (ALEX)
Consolidated Tomoka-Land Co. (CTO)
First Hartford Corp (FHRT)
Tejon Ranch Co. (TRC)
AV Homes Inc (AVHI)
Homefed Corp (HOFD)
The Howard Hughes Corp (HHC)
Maui Land & Pineapple Co Inc. (MLP)
Stratus Properties Inc (STRS).

26


The total returns shown assume that dividends are reinvested. The stock price performance shown below is not necessarily indicative of future price performance.
 
   
12/31/2008
 
12/31/2009
 
12/31/2010
 
12/31/2011
 
12/31/2012
 
12/31/2013
The St. Joe Company
$
100

 
$
118.79

 
$
89.84

 
$
60.28

 
$
94.90

 
$
78.91

Russell 3000 Index
$
100

 
$
128.34

 
$
150.07

 
$
151.61

 
$
176.49

 
$
235.71

Custom Real Estate Peer Group*
$
100

 
$
97.03

 
$
91.94

 
$
73.77

 
$
110.38

 
$
167.66

     
*
The total return for the Custom Real Estate Peer Group was calculated using an equal weighting for each of the stocks within the peer group.



27


Equity Compensation Plan Information
The following table includes information as of December 31, 2013 about shares of our common stock that may be issued pursuant to awards under our 2009 Equity Incentive Plan.
 
Plan Category
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
 
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
 
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in column (a))
Equity compensation plans approved by security holders
99,775

  
$
54.15

  
1,448,869

Equity compensation plans not approved by security holders

 

 

Total
99,775

  
$
54.15

  
1,448,869

 
 
 
 
 
 
For additional information regarding our equity compensation plans, see Note 16, Stock-Based Compensation.
 

28




Item 6.         Selected Financial Data
The following table sets forth our Selected Consolidated Financial Data on a historical basis for the five years ended December 31, 2013. This information should be read in conjunction with our consolidated financial statements (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 our audited consolidated financial statements and revised for discontinued operations where applicable.
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
2010
 
2009
 
In thousands, except per share amounts
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Total revenues (1)
$
131,256

 
$
139,396

 
$
145,285

 
$
99,540

 
$
138,257

Total expenses
130,479

 
137,262

 
532,092

 
151,094

 
347,612

Operating income (loss)
777

 
2,134

 
(386,807
)
 
(51,554
)
 
(209,355
)
Other (expense) income
3,668

 
4,289

 
934

 
(3,892
)
 
4,215

Income (loss) from continuing operations before equity in income (loss) from unconsolidated affiliates and income taxes
4,445

 
6,423

 
(385,873
)
 
(55,446
)
 
(205,140
)
Equity in income (loss) from unconsolidated affiliates
112

 
(46
)
 
(93
)
 
(4,308
)
 
(122
)
Income tax benefit (expense)
409

 
(387
)
 
55,658

 
23,849

 
81,227

Income (loss) from continuing operations
4,966

 
5,990

 
(330,308
)
 
(35,905
)
 
(124,035
)
Loss from discontinued operations (2)

 

 

 

 
(6,888
)
Gain on sale of discontinued operations (2)

 

 

 

 
75

Loss from discontinued operations (2)

 

 

 

 
(6,813
)
Net income (loss)
4,966

 
5,990

 
(330,308
)
 
(35,905
)
 
(130,848
)
Net loss income attributable to non-controlling interest
24

 
22

 
29

 
41

 
821

Net income (loss) attributable to the Company
$
4,990

 
$
6,012

 
$
(330,279
)
 
$
(35,864
)
 
$
(130,027
)
 
 
 
 
 
 
 
 
 
 
Per Share Data:
 
 
 
 
 
 
 
 
 
Basic and Diluted
 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations attributable to the Company
$
0.05

 
$
0.07

 
$
(3.58
)
 
$
(0.39
)
 
$
(1.35
)
Loss from discontinued operations attributable to the Company (2)

 

 

 

 
(0.07
)
Net income (loss) attributable to the Company
$
0.05

 
$
0.07

 
$
(3.58
)
 
$
(0.39
)
 
$
(1.42
)
 
 
 
 
 
 
 
 
 
 
 

29


 
As of December 31,
 
2013
 
2012
 
2011
 
2010
 
2009
 
In thousands
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Investment in real estate
$
385,009

 
$
370,647

 
$
387,202

 
$
755,392

 
$
767,006

Cash and cash equivalents
$
21,894

 
$
165,980

 
$
162,391

 
$
183,827

 
$
163,807

Investments
$
146,972

 
$

 
$

 
$

 
$

Property and equipment, net
$
11,410

 
$
12,149

 
$
14,946

 
$
13,014

 
$
15,269

Total assets
$
669,472

 
$
645,521

 
$
661,291

 
$
1,051,695

 
$
1,116,944

Long-term debt
$
6,445

 
$

 
$

 
$

 
$

Total debt
$
44,217

 
$
36,062

 
$
53,458

 
$
54,651

 
$
57,014

Total equity
$
563,525

 
$
552,334

 
$
543,892

 
$
872,437

 
$
896,320

 
(1)
Total revenues include real estate revenues from real estate sales, timber sales and resort, leisure and leasing revenues.
(2)
Discontinued operations include the Victoria Hills Golf Club and St. Johns Golf and Country Club golf course operations in 2009.

30



Item 7.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview
We are a Florida real estate development and operating company that as of December 31, 2013, owned approximately 567,000 acres of land concentrated primarily between Tallahassee and Destin, Florida. 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 such assets opportunistically or when we believe they have reached their highest and best use.

AgReserves Sale

On November 6, 2013, we entered into a purchase and sale agreement with AgReserves for the sale of approximately 382,834 acres of land located in Northwest Florida owned by us along with certain other assets and inventory and rights under certain continuing leases and contracts, for $565 million subject to adjustment as set forth in the AgReserves Sale Agreement. The acreage to be included in the AgReserves Sale includes substantially all of our land designated for forestry operations as well as other land (i) that is not utilized in our residential or commercial real estate segments or its resorts, leisure and leasing segment or (ii) that is not part of our development plans. The acreage to be included in the AgReserves Sale is subject to limited adjustments based on title and environmental diligence and casualty events between signing and closing. As of December 31, 2013, the estimated carrying amount of the assets to be included in the AgReserves Sale were $56.4 million and the carrying amount of the liabilities to be included in the AgReserves Sale were $12.6 million, which includes approximately $11 million of deferred revenue related to a 2006 rural land sale, where title has not yet transferred to the buyer. As part of the AgReserves Sale Agreement, this land is expected to be transferred to AgReserves to ultimately transfer title to the buyer.
AgReserves has delivered a deposit of $37.5 million for the AgReserves Sale and the remaining purchase price is payable at closing in cash or, at our option, a combination of cash and timber installment notes.

The closing of the AgReserves Sale is subject to a number of conditions, including among others: (i) approval by our shareholders (a shareholders’ meeting for this purpose is presently scheduled for March 4, 2014), (ii) the expiration or termination of all waiting periods under regulatory law applicable to the AgReserves Sale, and (iii) the purchase price not being reduced by more than $40 million as a result of any reduced acreage.

The AgReserves Sale Agreement contains certain termination rights, including if it is not completed on or before May 1, 2014 or if the approval of our shareholders is not obtained. If the AgReserves Sale is terminated under certain circumstances, we may be required to pay AgReserves certain fees and expenses, including: (i) a termination fee of approximately $21 million if (a) in certain cases, our shareholders’ do not approve the AgReserves Sale, (b) we enter into a definitive transaction agreement providing for the consummation of the transaction contemplated by a Superior Proposal (as defined in the AgReserves Sale Agreement), or (c) our Board makes a Recommendation Change (as defined in the AgReserves Sale Agreement) or fails to recommend that our shareholders approve the AgReserves Sale; or (ii) AgReserves’s transaction costs and expenses which in some cases are limited to $1.5 million. Except in certain limited cases as set forth in the AgReserves Sale agreement, we are required to return the deposit to AgReserves if the AgReserves Sale Agreement is terminated.


31


RiverTown Sale

On December 31, 2013, we entered into a purchase and sale agreement with Mattamy to sell our RiverTown Community for $43.6 million subject to adjustments and prorations as set forth in the RiverTown Sale Agreement. The closing is subject to customary real estate closing conditions. As of December 31, 2013, the estimated net carrying amount of the assets and liabilities to be included in the RiverTown Sale were $16.7 million.
Additionally, pursuant to the RiverTown Sale Agreement, Mattamy will be required to:
(i) purchase certain RiverTown Community related impact fee credits from us following the closing as the RiverTown Community is developed, and
(ii) assume our Rivers Edge CDD obligations. As of December 31, 2013, our total outstanding Rivers Edge CDD assessment was $11.1 million, of which $5.6 million is recorded as a liability for the Rivers Edge CDD assessments associated with platted property.
Based on Mattamy’s current development plans and St. Johns County’s current costs for impact fees, we estimate that we may receive $20 million to $26 million for the impact fees over the five-year period following the closing (most of which, we could 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 cost for impact fees at the time of such development (as determined by St. Johns County’s then current impact fee cost schedule), which are all factors beyond our control. We cannot provide any assurance as to the amount or timing of any payments we may receive for the impact fees.

Mattamy has delivered an initial refundable deposit of $0.1 million, and the balance of the deposit, $1.9 million, which may at Mattamy’s election be paid in the form of a letter of credit, will be due within three business days of the conclusion of the inspection period. The remaining balance of the purchase price is payable at closing in cash.
    
The RiverTown Sale Agreement contains certain termination rights, including Mattamy’s right to terminate the RiverTown Sale Agreement, in its sole and absolute discretion, at any time before the expiration of the inspection period and receive a full refund of the deposit then paid. Additionally, the RiverTown Sale Agreement provides that the closing shall occur no later than March 30, 2014. Except in certain limited cases as set forth in the RiverTown Sale Agreement, we are required to return the deposit to Mattamy if the RiverTown Sale Agreement is terminated.

Subject to the terms and conditions set forth in the RiverTown Sale Agreement, we have agreed to indemnify Mattamy from certain losses, including for any pre-closing defaults under certain contracts. Additionally, subject to the terms and conditions set forth in the RiverTown Sale Agreement, Mattamy is entitled to seek all available remedies against us for any material misrepresentation made by us in our representations and warranties and any default by us as to any of its agreements or matters that are to be performed under the RiverTown Sale Agreement, as well as, specific performance in certain circumstances.
           
Following the consummation of the AgReserves Sale and the RiverTown Sale, we expect to continue to be the owner of approximately 180,000 acres of land concentrated primarily in Northwest 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.

32


Segments
As of December 31, 2013, we have five operating segments: residential real estate, commercial real estate, rural land, resorts, leisure and leasing operations and forestry. The table below sets forth the relative contribution of these operating segments to our consolidated operating revenues: 
 
2013
 
2012
 
2011
Segment Operating Revenues
 
 
 
 
 
Residential real estate
25.7
%
 
15.9
%
 
8.7
%
Commercial real estate
8.3
%
 
7.5
%
 
2.6
%
Rural land
0.1
%
 
16.8
%
 
2.4
%
Resorts, leisure and leasing operations
38.7
%
 
31.8
%
 
26.3
%
Forestry
27.0
%
 
28.0
%
 
59.7
%
Other
0.2
%
 
%
 
0.3
%
Consolidated operating revenues
100.0
%
 
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.

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.

Rural Land
Our rural land segment markets and sells tracts of land of varying sizes for rural recreational, conservation and timberland uses. Our rural land segment generates revenues from the sale of undeveloped land, land with limited development and easements. Our rural land segment incurs costs of revenue from the cost of land, minimal development costs and selling costs. Revenues can vary drastically in our rural land segment.



33


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 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, 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 and personnel costs.
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.


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.
A significant portion of the revenue from our forestry segment is generated pursuant to our RockTenn Supply Agreement, under which we sell delivered wood (trees that we cut and deliver). Under the terms of the RockTenn Supply Agreement, the price for timber is based upon the average of the market price for stumpage and the market price for delivered wood, each as set forth in an established index. In addition, pursuant to the RockTenn Supply Agreement, Smurfit-Stone Container Corporation and RockTenn would be liable for any monetary damages as a result of the closure of the mill due to economic reasons for a period of one year from the date of closure. Nevertheless, if the RockTenn mill in Panama City, Florida, were to permanently cease operations, the price for pulpwood may decline, and the cost of delivering logs to alternative customers could increase. As part of the AgReserves Sale, the RockTenn Supply Agreement will be assumed by AgReserves.

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.

34


Investment in Real Estate and Cost of Real Estate Sales. Costs associated with a specific real estate project are capitalized during the development period. We capitalize costs directly associated with development and construction of identified real estate projects. Indirect costs that clearly relate to a specific project under development, such as project administration, may also be 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.
Real estate inventory costs also include land and common development costs (such as roads, sewers and amenities), capitalized property taxes, capitalized interest and certain indirect costs. 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 capitalization period relating to direct and indirect project costs is the period in which activities necessary to ready a property for its intended use are in progress. The period begins when such activities commence, typically when we begin the entitlement processes for land already owned, and ends when the asset is substantially complete and ready for its intended use. Determination of when construction of a project is substantially complete and ready for its intended use requires judgment. We determine when the capitalization period begins and ends through communication with project and other managers responsible for the tracking and oversight of individual projects. In the event that the activities to ready the asset for its intended use are suspended, the capitalization period will cease until such activities are resumed. If we determine not to complete a project, any previously capitalized costs are expensed in the period in which the determination is made and recovery is not deemed reasonable.
Our investments in real estate are carried at cost, net of depreciation and timber depletion, 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, an impairment charge 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.
Long-Lived Assets. 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. Long-lived assets include our investments in operating, development, investment property and property and equipment, net. Some of the events or changes in circumstances that we consider as indicators of potential impairment include:

a prolonged decrease in the fair value or demand for the properties;
a change in the expected use or development plans for the properties;
continuing operating or cash flow losses for an operating property; and
an accumulation of costs in a development property that significantly exceeds its historical basis in property held long-term.

We use varying methods to determine if impairment exists, such as (i) considering indicators of potential impairment, (ii) analyzing expected future cash flows and comparing the expected future undiscounted cash flows of the property to the carrying value, or (iii) determining market resale values.
The accounting estimate related to real estate impairment evaluation is susceptible to change due to the use of assumptions about future sales proceeds and future expenditures. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing project and using management’s best estimates about future sales prices and planned holding periods. Based on our risk-adjusted investment return criteria for evaluating our projects under development or undeveloped, management’s assumptions used in the projection of undiscounted cash flows include:


35


the projected pace of sales of homesites based on estimated market conditions and our development plans;
estimated pricing and projected price appreciation over time, which can range from 0 to 5% annually;
the amount and trajectory of price appreciation over the estimate selling period;
the length of the estimated development and selling periods, which can differ depending on the size of the development and the number of phases to be developed;
the amount of remaining development costs, including the extent of infrastructure or amenities included in such development costs;
holding costs to be incurred over the selling period;
for bulk land sales of undeveloped and developed parcels future pricing is based upon estimated developed lot pricing less estimated development costs and estimated developer profit at 20%;
for commercial development property, future pricing is based on sales of comparable property in similar markets; and
whether liquidity is available to fund continued development.
For operating properties, an estimate of undiscounted cash flows requires management to make similar assumptions about the use and eventual disposition of such properties. Some of the significant assumptions that are used to develop the undiscounted cash flows include:
for investments in inns and rental condominium units, average occupancy and room rates, revenues from food and beverage and other amenity operations, operating expenses and capital expenditures, and eventual disposition of such properties as private residence vacation units or condominiums, based on current prices for similar units appreciated to the expected sale date;
for investments in commercial or retail property, future occupancy and rental rates and the amount of proceeds to be realized upon eventual disposition of such property at a terminal capitalization rate; and
for investments in golf courses, future memberships, rounds and greens fees, operating expenses and capital expenditures, and the amount of proceeds to be realized upon eventual disposition of such properties at a multiple of terminal year cash flows.
 
Other properties that management does not intend to sell in the near term under current market conditions and has the ability to hold are evaluated for impairment based on management’s best estimate of the long-term use and eventual disposition of the property.

The results of impairment analysis for development and operating properties are particularly dependent on the estimated holding and selling period for each asset group. As a result of our adoption of our risk-adjusted investment return criteria, these future holding periods were reduced. As we have new projects or developments, we will use specific holding periods for these new projects or developments, which may include longer holding periods.
If a property is considered impaired, the impairment charge is determined by the amount the property's carrying value exceeds its fair value. We use varying methods to determine fair value, such as (i) analyzing expected future cash flows, (ii) determining resale values by market, (iii) applying a capitalization rate to net operating income using prevailing rates in a given market or (iv) applying a multiple to revenues using prevailing rates in a given market. The fair value of a property may be derived either from discounting projected cash flows at an appropriate discount rate (10% to 20%), through appraisals of the underlying property, or a combination thereof.
We classify the assets and liabilities of a long-lived asset as held-for-sale when management approves and commits to a formal plan of sale and it is probable that a sale will be completed. The carrying value of the assets held-for-sale are then recorded at the lower of their carrying value or fair value less costs to sell.

36


Investments. During 2013, we invested $149.1 million of our cash and cash equivalents in U.S. treasury securities and corporate debt securities. We have classified these investments as available-for-sale securities and record the investments at fair value, which is based on quoted market prices. Accordingly, unrealized gains and temporary losses on investments, net of tax, are recorded in Other comprehensive income. Realized gains and losses are determined using the specific identification method.
We evaluate investments with unrealized losses to determine if they experienced an other-than-temporary impairment. This evaluation is based on various factors, including length of time securities were in a loss position, ability and intent to hold investments until unrealized losses are recovered or they mature, investee's industry and amount of the unrealized loss. Based on these factors, the unrealized losses related to our corporate debt securities of $2.2 million were determined to be temporary at December 31, 2013.
Retained interest investments. We have recorded retained interest with respect to the monetization of certain installment notes through the use of qualified special purpose entities, which is recorded in Other assets in our Consolidated Balance Sheets. At the time of monetization the initial retained interest recorded was an estimate based on the present value of future excess cash flows expected to be received over the life of the notes, using management’s best estimate of underlying assumptions, including credit risk and discount rates. We recognize investment income over the life of the retained interest using the effective yield method with rates ranging from 3.7%-12.5% based on expected future cash flows. We continue to update the expectation of cash flows to be collected over the life of the retained interest. Changes to the previously projected cash flows are accounted for prospectively, unless based on management’s assessment of current information and events, it is determined that there is an other-than-temporary impairment. We have not recorded an other-than-temporary impairment related to our retained interest investments in 2013, 2012 and 2011.
 
Pension plan. In November 2012, our Board of Directors approved the termination of our cash balance defined-benefit pension plan covering a majority of our employees (Pension Plan). The accounting for pension benefits is determined by accounting and actuarial methods using numerous estimates, including discount rates, expected long-term investment returns on plan assets, and mortality and retirement ages. Changes in these key assumptions can have a significant effect on the Pension Plan’s impact on our financial statements; however, due to the termination of the Pension Plan a 1% change in the assumed long-term rate of return on pension assets or discount rate would have resulted in an insignificant change in pre-tax income. Changes in the funded status of the Pension Plan are initially recognized in Other comprehensive income (loss) and are typically amortized into net income (loss) over a period of time or recognized at the time of a specific event, such as a curtailment of benefit plan obligations. Actuarial loss amounts not yet reflected in net periodic pension cost and included in accumulated other comprehensive loss are $5.4 million at December 31, 2013. As of December 31, 2013, our Pension Plan was in a net overfunded position of $35.1 million and the ratio of plan assets to projected benefit obligation was 249%.

We anticipate receiving between $18 million to $21 million in cash in 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 $20 million to $23 million as a result of terminating our pension plan.
Income Taxes. In preparing our Consolidated Financial Statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. We recorded 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 deferred tax assets and liabilities in our Consolidated Financial Statements.

37


At December 31, 2013 and 2012, we had a federal net operating loss of approximately $76.8 million and $83.5 million, respectively, and a state net operating loss carry forward of $593.1 million and $596.8 million, respectively. These net operating losses are available to offset future taxable income through 2031.
In general, a valuation allowance is recorded if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax asset will not be realized. Realization of our deferred tax assets is dependent upon us generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from loss carryforwards. Based on the timing of reversal of future taxable amounts and our history of losses, we do not believe that we have met the requirements to realize the benefits of certain of our deferred tax assets; therefore, we have maintained a valuation allowance of $93.1 million and $95.3 million at December 31, 2013 and 2012, respectively.
If the AgReserves Sale closes in 2014, we expect to utilize our federal net operating loss carryforwards and a significant portion of our state net operating loss carryforwards and pay federal income taxes on a portion of the gain expected from the AgReserves Sale. Following the AgReserves Sale, we expect to pay federal income taxes on future taxable income. In addition, if the AgReserves Sale closes, we expect to reverse the valuation allowance recorded for our federal net operating loss and a portion of the valuation allowance recorded for the state net operating loss carryforwards.


Recently Issued Accounting Pronouncement
Income Taxes
In July 2013, FASB determined that an unrecognized tax benefit should be presented as a reduction of a deferred tax asset for a net operating loss carryforwards or other tax credit carryforwards when settlement in this manner is available under applicable tax law. This guidance is effective for our interim and annual periods beginning January 1, 2014. We are currently evaluating the impact of this ASU on our Consolidated Financial Statements.



38


Results of Operations
Consolidated Results
Revenues and expenses. The following table sets forth a comparison of the results of our operations for the three years ended December 31, 2013
 
2013
 
2012
 
2011
 
In millions
Revenues:
 
 
 
 
 
Real estate sales
$
45.0

 
$
56.0

 
$
20.4

Resorts, leisure and leasing revenues
50.8

 
44.4

 
38.2

Timber sales
35.4

 
39.0

 
86.7

Total
131.2

 
139.4

 
145.3

Expenses:
 
 
 
 
 
Cost of real estate sales
24.3

 
28.2

 
11.5

Cost of resorts, leisure and leasing revenues
41.1

 
39.1

 
37.1

Cost of timber sales
21.5

 
24.0

 
22.9

Other operating expenses
12.3

 
15.3

 
22.3

Corporate expenses, net
17.0

 
15.9

 
27.8

Depreciation, depletion and amortization
9.1

 
10.1

 
15.8

Impairment losses
5.1

 
2.6

 
377.3

Pension charges

 
2.1

 
5.9

Restructuring charges

 

 
11.5

Total
130.4

 
137.3

 
532.1

Operating income (loss)
0.8

 
2.1

 
(386.8
)
Other income:
 
 
 
 
 
Investment income, net
1.5

 
1.2

 
1.1

Interest expense
(2.0
)
 
(2.8
)
 
(3.9
)
Other, net
4.2

 
5.9

 
3.7

Total other income
3.7

 
4.3

 
0.9

Income (loss) before equity in loss (income) from unconsolidated affiliates and income taxes
4.5

 
6.4

 
(385.9
)
Equity in income (loss) from unconsolidated affiliates
0.1

 

 
(0.1
)
Income tax benefit (expense)
0.4

 
(0.4
)
 
55.7

Net income (loss)
$
5.0

 
$
6.0

 
$
(330.3
)


39


Real Estate Sales and Gross Margin.
 
2013
 
% (1)
 
2012
 
% (1)
 
2011
 
% (1)
 
Dollars in millions
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Residential real estate sales
$
33.7

 
74.9
%
 
$
22.1

 
39.4
%
 
$
12.6

 
61.8
%
Commercial real estate sales
10.9

 
24.2
%
 
10.4

 
18.6
%
 
3.8

 
18.6
%
Rural land sales and other
0.4

 
0.9
%
 
23.5

 
42.0
%
 
4.0

 
19.6
%
Real estate sales
$
45.0

 
100.0
%
 
$
56.0

 
100.0
%
 
$
20.4

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
 
 
 
 
Residential real estate sales
$
14.7

 
43.6
%
 
$
7.1

 
32.1
%
 
$
3.0

 
23.8
%
Commercial real estate sales
5.6

 
51.4
%
 
3.5

 
33.7
%
 
1.9

 
50.0
%
Rural land sales and other
0.4

 
100.0
%
 
17.2

 
73.2
%
 
4.0

 
100.0
%
Gross profit
$
20.7

 
46.0
%
 
$
27.8

 
49.6
%
 
$
8.9

 
43.6
%
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Calculated percentage of total real estate sales and the respective gross profit percentage.

Real Estate Sales. The decrease in real estate sales of $11.0 million, or 20%, during 2013, as compared to 2012, was primarily due to a decrease of $23.1 million in rural land sales and other, partially offset by an increase of $11.6 million in residential real estate sales and an increase of $0.5 million in commercial real estate sales. In accordance with our previously disclosed strategy, there were no significant rural land sales during 2013, as compared to nine rural land sales in 2012, for a total of $23.4 million (including two rural land sales for $18.3 million).

Residential real estate sales increased $11.6 million, or 52%, in 2013, as compared to 2012, primarily due to increased demand and pricing from homebuilders for homesites in both our resort and primary communities. Commercial real estate sales were $10.9 million in 2013, as compared to $10.4 million in 2012. In 2013, there were eight commercial real estate sales, including $6.0 million for two built-to-suit operating properties that we constructed. In 2012, there were a total of six commercial real estate sales for a total of $10.4 million, which included one commercial real estate sale for $5.4 million. Revenues from rural land and commercial real estate can vary drastically. If the AgReserves Sale closes in early 2014, we may not have substantial revenues from rural land sales in the future.
Real estate sales increased by $35.6 million, or 175%, in 2012, as compared to 2011, primarily due to increases of $19.5 million in rural land sales and other, $9.5 million in residential real estate sales and $6.6 million in commercial real estate sales. During 2012 there were nine rural land sales for a total of $23.4 million as compared to four rural land sales for a total of $3.5 million in 2011. In addition, residential real estate sales increased by $9.5 million primarily due to an increase in volume and pricing of homesites in some of our projects. During 2012 there were six commercial real estate sales for a total of $10.4 million as compared to seven commercial real estate sales for a total of $3.8 million in 2011.

Real Estate Sales Gross Profit. Real estate sales gross profit decreased $7.1 million, or 26%, in 2013 to 46.0%, as compared to 49.6% in 2012, primarily due to the mix of real estate products sold. In 2012, 42.0% of our real estate revenues were rural land sales, as compared to only 0.9% in 2013. Rural land sales typically have a lower cost basis as compared to residential and commercial real estate sales due to minimal development costs related to the property sold. Our gross margin related to residential real estate sales increased from 32.1% in 2012, to 43.6% in 2013, due to increased prices in substantially all our communities. In addition, the gross margin related to commercial real estate sales increased in 2013, as compared to 2012, due to a sale of commercial property in 2012 that had minimal gross profit. If the AgReserves Sale closes in early 2014, we may not have substantial revenues from rural land sales 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.

40



Real estate sales gross profit increased $18.9 million, or 212%, in 2012 as compared to $8.9 million in 2011, primarily due to the mix of real estate sales. Rural land sales were 42.0% of real estate sales in 2012, as compared to only 19.6% in 2011. Rural land sales typically have lower cost basis as compared to residential and commercial real estate sales due to minimal development costs related to the property sold. In addition, residential real estate gross margin increased due to slight price increases, partially offset by a decrease in the gross margin related to commercial real estate sales due to a sale of commercial property in 2012 that had minimal gross profit.
Resorts, Leisure and Leasing Revenues and Gross Profit.
 
2013
 
2012
 
2011
 
Dollars in millions
Resorts, leisure and leasing revenues
$
50.8

 
$
44.4

 
$
38.2

Gross profit
$
9.7

 
$
5.3

 
$
1.1

Gross profit margin
19.1
%
 
11.9
%
 
2.9
%
 
 
 
 
 
 
Resorts, leisure and leasing revenues increased $6.4 million, or 14%, during 2013, as compared to 2012, primarily due to a 15% increase in the number and an increase in the size of homes in our vacation rental program, higher average room and occupancy rates and a full year of rent from a built-to-suit property.
The increase in the gross profit margin in 2013 to 19.1%, from 11.9% in 2012, is primarily due to i) a full year of rent from a built-to-suit property, ii) higher average rate increases and iii) increases in memberships, rounds played in our golf courses and boat slip rentals, which add minimal costs to the operations.
The increase of $6.2 million, or 16%, in revenues in 2012, as compared to 2011, was primarily driven by an increase of $4.4 million from the WaterColor Inn and vacation rentals due to increased occupancy and room rate increases implemented earlier in 2012, more vacation homes in our vacation rental programs. In addition, revenues from our leasing operations increased $1.4 million, or 64%, due to commencement of rent for our built-to-suit leases that began at the end of 2011 through mid-2012.
Timber Sales and Gross Profit.
 
2013
 
2012
 
2011
 
Dollars in millions
Timber sales
$
35.4

 
$
39.0

 
$
86.7

Gross profit
$
13.9

 
$
15.0

 
$
63.8

Gross profit margin
39.3
%
 
38.5
%
 
73.6
%
 
 
 
 
 
 
Timber sales decreased $3.6 million, or 9%, during 2013, as compared to 2012, primarily due to a 17% decrease in tons sold, partially offset by increased prices of 9% in pine pulpwood and 14% in pine sawtimber. The decrease in the volume of tons sold was primarily due to harvest limits included in the AgReserves Sale Agreement combined with temporary plant shutdowns or slowdowns at some of our customers' facilities. The slight increase in the gross margin in 2013 is primarily due to the increase in prices. If the AgReserves Sale closes in early 2014, our timber sales and related costs may substantially decrease in the future.
Timber sales decreased by approximately $47.7 million in 2012, as compared to 2011, primarily due to $54.5 million of revenue from a timber deed transaction in 2011. Excluding the impact of the $54.5 million timber deed transaction in 2011, revenues increased approximately $6.8 million, or 21%, in 2012 as compared to 2011 primarily due to volume increases, partially offset by declines in price per ton. Gross margins as a percentage of revenue, excluding the timber deed transaction, increased to 38.5% in 2012, as compared to 32% in 2011, which was a result of an increase in revenues related to our fiber agreement, a decrease in timber inventory costs partially offset by an increase in costs to purchase First Thinnings from the Thinnings Supply Agreement contracted in 2011.

41


Other operating and corporate expenses. Other operating and corporate expenses decreased by $1.9 million, or 6%, during 2013, as compared to 2012, primarily due to decreases in employee costs, including stock-based compensation totaling $0.5 million and $1.4 million in lower real estate carrying costs, repairs and maintenance and professional fees.
Other operating costs and corporate expenses decreased by $18.9 million, or 38%, in 2012 as compared to 2011, which was primarily due to a decrease in legal expenses of $11.6 million combined with decreases in personnel costs, including stock-based compensation, other professional fees, real estate taxes and rent expense. In addition, 2011 includes a $5.5 million expense reduction due to the discontinuation of our retiree medical benefits in 2011.
Depreciation, depletion and amortization. The decrease of $1.0 million in depreciation, depletion and amortization expenses in 2013 as compared to 2012 was primarily due to a decrease in depletion expense related to the decrease in volume of timber tons delivered combined with operating assets being fully depreciated. The decrease of $5.7 million in depreciation, depletion and amortization expenses in 2012 as compared to 2011 was driven by the impairment of our long-lived assets occurring in the fourth quarter of 2011. The reduction in the carrying cost to many of these assets reduced the amount subject to depreciation in 2012.
Impairment losses. In 2013, we recorded impairment charges of $5.1 million primarily for a golf course that we operate, which incurred negative operating cash flows and the future estimated undiscounted cash flows were less than its carrying value. In 2012, we incurred impairment charges of $2.6 million related to a parking facility, which we agreed to cease operating as a parking facility for a period of time. In return we were released from a twenty-eight year land lease that will save us a total of approximately $4.2 million in lease payments and agreed to assume certain costs associated with the land.
During 2011, we recorded impairment charges totaling $377.3 million primarily due to our change in real estate investment strategy. In connection with implementing our real estate investment strategy, we reassessed the carrying value of our real estate and determined that an impairment to record certain of our assets to fair value was necessary. Accordingly, we recorded a non-cash charge for impairment of $374.8 million in 2011. Earlier in 2011, we also recorded an impairment charge of $0.8 million on development costs incurred on the indefinitely delayed construction of the corporate headquarters building located at VentureCrossings and approximately $1.7 million in impairment charges on homes and homesites. For further discussion of these impairments, see Note 4, Impairments of Long-lived Assets, in the Notes to the Consolidated Financial Statements.
Pension settlement charge. In 2012 the Compensation Committee approved a plan to terminate our pension plan, which resulted in the recognition of a curtailment loss of $2.1 million in 2012. In 2011, we recorded additional pension charges of $5.9 million as a result of reduced employment levels in connection with our restructuring programs. Pension costs not associated with the curtailment or the restructuring programs are included in corporate expenses. As a result of the planned termination, we currently expect to recognize further estimated losses before income taxes of approximately $20 million to $23 million and receive excess cash of approximately $18 million to $21 million once we receive all the regulatory approvals and distributions are made to plan participants and excise taxes are paid, which we expect to occur in 2014 or 2015.
 
Restructuring charges. Restructuring programs commencing in prior periods were substantially complete at the beginning of 2012, and we did not introduce any new programs during 2013 or 2012. A substantial portion of the $11.5 million of restructuring charges incurred during 2011 were related to our 2011 restructuring program related to employee termination charges. For a further discussion of these restructuring charges, see Note 14, Restructuring, in the Notes to the Consolidated Financial Statements.
Other income. Other income consists primarily of investment income, interest expense, gains and losses on sales and dispositions of assets, investment income related to our retained interest investment from the monetization of certain installment notes, expense related to our standby guarantee liability and other income.

42


Interest expense decreased by $0.8 million during, 2013 as compared to 2012, primarily due to the prepayment of CDD bonds in the third quarter of 2012. Interest expense decreased by $1.1 million during 2012, as compared to 2011, primarily due to the prepayment of CDD bonds in the third quarter of 2012 combined with interest expense incurred in 2011 related to a litigation settlement.

Other, net decreased by $1.7 million during 2013, as compared to 2012, primarily due to the cash receipt of $1.7 million for the DeepWater Horizon claim in 2012. Other, net increased $2.2 million during 2012, as compared to 2011, primarily due to $1.7 million of cash received and recognized related to our claims stemming from the Deepwater Horizon Oil Spill, the reversal of the $0.8 million Southwest Airlines liability guarantee that terminated in the second quarter of 2012.
Equity in income (loss) from unconsolidated affiliates. As of December 31, 2013, we are partners in two joint ventures that are accounted for by the equity method of accounting. Equity in income (loss) from unconsolidated affiliates totaled $0.1 million or less for the years ended December 31, 2013, 2012 and 2011.
Income tax expense/benefit. In 2013 and 2011, our income tax benefit was $0.4 million and $55.7 million, respectively. In 2012, our income tax expense was $0.4 million. Our effective tax rate was 9.0%, 6.0% and 14.4% in 2013, 2012, and 2011, respectively. The effective tax rate decreased to 14.4% in 2011 primarily due to a valuation allowance established on our deferred tax assets, which resulted from the impairment charges taken in 2011. If the AgReserves Sale closes, we expect to pay federal income taxes on future taxable income as we expect to utilize substantially all of our federal net operating loss carryforwards to pay for part of the gain on the AgReserves Sale.

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 years ended December 31, 2013
 
2013
 
2012
 
2011
 
In millions
Revenues:
 
 
 
 
 
Real estate sales
$
33.0

 
$
21.6

 
$
12.2

Brokerage fees
0.7

 
0.5

 
0.4

Total revenues
33.7

 
22.1

 
12.6

Expenses:
 
 
 
 
 
Cost of real estate sales
19.0

 
15.0

 
9.6

Other operating expenses
7.6

 
9.5

 
14.0

Depreciation and amortization
0.8

 
1.8

 
2.4

Impairment losses
0.2

 

 
337.6

Restructuring charges

 

 
0.7

Total expenses
27.6

 
26.3

 
364.3

Operating income (loss)
6.1

 
(4.2
)
 
(351.7
)
Other expense
(1.6
)
 
(2.6
)
 
(3.4
)
Income (loss)
$
4.5

 
$
(6.8
)
 
$
(355.1
)


43


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).
 
Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012
The following table sets forth our residential real estate sales and cost of sales activity by geographic region and property type: 
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
 
Units Sold
 
Revenues
 
Cost of
Sales
 
Gross
Profit
 
Gross
Profit Margin
 
Units Sold
 
Revenues
 
Cost of
Sales
 
Gross
Profit
 
Gross
Profit Margin
 
(Dollars in millions)
Northwest Florida:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Resort homesites
92

 
$
17.5

 
$
9.4

 
$
8.1

 
46.3
%
 
73

 
$
15.8

 
$
10.3

 
$
5.5

 
34.8
%
Primary homesites
166

 
11.0

 
7.0

 
4.0

 
36.4
%
 
47

 
2.5

 
1.9

 
0.6

 
24.0
%
Single family homes
3

 
0.8

 
0.7

 
0.1

 
12.5
%
 
1

 
0.5

 
0.5

 

 
%
Land sale
N/A

 
1.8

 
0.6

 
1.2

 
66.7
%
 

 

 

 

 
%
RiverTown Community:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary homesites
54

 
1.9

 
1.3

 
0.6

 
31.6
%
 
36

 
1.6

 
1.0

 
0.6

 
37.5
%
Single family homes

 

 

 

 
%
 
1

 
1.2

 
1.2

 

 
%
Total
315

 
$
33.0

 
$
19.0

 
$
14.0

 
42.4
%
 
158

 
$
21.6

 
$
14.9

 
$
6.7

 
31.0
%

Northwest Florida resort homesites. Real estate sales increased $1.7 million, or 11%, and gross profit margins increased to 46.3% during 2013, as compared to 34.8% in 2012, primarily due to an increase in volume and pricing in our WaterColor, WaterSound Beach and WaterSound West Beach communities. This increase in volume includes a sale of 19 lots to a homebuilder in our WaterSound West Beach resort community, of which we have recognized profit of $0.8 million during 2013.

Northwest Florida primary homesites. Real estate sales increased $8.5 million, or 340%, and gross profit margin increased to 36.4% during 2013, as compared to 24.0% in 2012, primarily due to: (i) a sale of 62 homesites to a homebuilder in our WaterSound community that was financed by us with a note receivable, (ii) increases in volume and prices of homesites sold in our Breakfast Point community, including one sale to a homebuilder for 39 units and (iii) an increase in the lot residual received, which has no related costs, in our SouthWood community.

Northwest Florida land sales. In 2013, we had a sale of residential land that included 28 units of developed and 37 acres of undeveloped residential land.

RiverTown Community primary homesites. Real estate sales increased $0.3 million, or 19%, due to an increase in volume of homesites sold during 2013, as compared to 2012. The decrease in the gross profit margin is primarily driven by the product mix of homesites sold, combined with an increase in the lot residual received, which has no related costs during 2013, as compared to 2012.

As discussed above, in December 2013, we entered into a sale agreement to sell our RiverTown Community. See RiverTown Sale in the Business Overview section for additional information.


44


Other operating expenses include salaries and benefits, marketing, project administration, support personnel, other administrative expenses and litigation reserves. Other operating expenses decreased $1.9 million to $7.6 million during 2013, as compared to $9.5 million during 2012, primarily due to reductions in employee costs, property taxes and owner association fees.
During 2013 and 2012, 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, which decreased $1.0 million during 2013, as compared to the same period in 2012, as a result of the prepayment of CDD debt in the third quarter of 2012. Interest expense related to the Rivers Edge CDD assessments related to the RiverTown Community were $0.8 million in 2013.

Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011
The following table sets forth our residential real estate sales and cost of sales activity by geographic region and property type: 
 
Year Ended December 31, 2012
 
Year Ended December 31, 2011
 
Units Sold
 
Revenues
 
Cost of
Sales
 
Gross
Profit
 
Gross
Profit Margin
 
Units Sold
 
Revenues
 
Cost of
Sales
 
Gross
Profit
 
Gross
Profit Margin
 
(Dollars in millions)
Northwest Florida:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Resort homesites
73

 
$
15.8

 
$
10.3

 
$
5.5

 
34.8
%
 
58

 
$
6.9

 
$
5.2

 
$
1.7

 
24.6
%
Primary homesites
47

 
2.5

 
1.9

 
0.6

 
24.0
%
 
60

 
3.3

 
2.4

 
0.9

 
27.3
%
Single-family homes
1

 
0.5

 
0.5

 

 
%
 
2

 
1.3

 
1.3

 

 
%
RiverTown Community:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary homesites
36

 
1.6

 
1.0

 
0.6

 
37.5
%
 
13

 
0.4

 
0.4

 

 
%
Single-family homes
1

 
1.2

 
1.2

 

 
%
 

 

 

 

 
%
Total
158

 
$
21.6

 
$
14.9

 
$
6.7

 
31.0
%
 
133

 
$
11.9

 
$
9.3

 
$
2.6

 
21.8
%

Northwest Florida resort homesites. Real estate sales increased $8.9 million, or 129%, and gross profit margins increased to 34.8% during 2012, as compared to 24.6% in 2011, primarily due to increased demand and prices in our WaterSound West Beach community.

Northwest Florida primary homesites. Real estate sales decreased $0.8 million, or 24%, and gross profit margins decreased to 24.0% during 2012, as compared to 27.3% in 2011, due to the next phase of development in our Breakfast Point community being under construction.

RiverTown Community primary homesites. Real estate sales increased $1.2 million, or 300%, and gross profit margins increased to 37.5% during 2012, as compared to 2011, due to increased demand and prices in our RiverTown community.
Other operating expenses decreased $4.5 million, or 32%, in 2012 as compared to 2011, due primarily to reductions in employee costs, insurance and owners’ association costs, and real estate taxes.
During 2012 and 2011, we capitalized less than $0.1 million of indirect development costs related to our residential development projects.
    

45


Impairment losses were primarily due to a change in our real estate investment strategy during 2011. For a further discussion of these impairment charges, see Note 4, Impairments of Long-lived Assets, to the Notes to the Consolidated Financial Statements.
Other expense decreased $0.8 million during 2012, as compared to 2011, which was primarily due a decrease in interest expense related to our CDD assessments, which we made a prepayment on during the third quarter of 2012.
Commercial Real Estate
Our commercial real estate we plan, develop entitle and sell 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 years ended December 31, 2013
 
2013
 
2012
 
2011
 
In millions
Revenues:
 
 
 
 
 
Real estate sales
$
10.9

 
$
10.4

 
$
3.8

Expenses:
 
 
 
 
 
Cost of real estate sales
5.3

 
6.9

 
1.9

Other operating expenses
2.5

 
3.5

 
5.2

Depreciation and amortization

 
0.2

 
0.3

Impairment losses

 

 
38.3

Restructuring charges

 

 
1.7

Total expenses
7.8

 
10.6

 
47.4

Operating income (loss)
3.1

 
(0.2
)
 
(43.6
)
Other income
0.2

 

 
1.0

Income (loss)
$
3.3

 
$
(0.2
)
 
$
(42.6
)
Real Estate Sales. Commercial real estate sales for the three years ended December 31, 2013 include the following:
 
    Period    
 
Number of
Sales
 
Acres Sold        
 
Average Price Per Acre         
 
    Revenue    
 
Gross Profit on Sales         
 
 
 
 
 
 
 
 
In millions
2013
 
8

 
18

 
$
605,556

 
$
10.9

 
$
5.6

2012
 
6

 
67

 
$
153,919

 
$
10.4

 
$
3.5

2011
 
7

 
9

 
$
363,000

 
$
3.8

 
$
1.9

 
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
During 2013, there were eight commercial real estate sales for a total of $10.9 million as compared to six commercial real estate sales for a total of $10.4 million during 2012, which included one sale for $5.4 million. Two of the commercial real estate sales in 2013 totaling $6.0 million were for built-to-suit commercial operating properties that we constructed and were leasing under long-term leases totaling $0.4 million in annual rental income. The leasing operations, including the related operating revenues and costs, of these properties were managed in our resorts, leisure and operations segment.

46


Other operating expenses include salaries and benefits, professional fees and other administrative expenses. Other operating expenses decreased $1.0 million during 2013, as compared to 2012, primarily due to reduced employee costs and property taxes.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Commercial real estate sales increased $6.6 million or 174% in 2012 as compared to 2011 due to three large sales, one of which one was for $5.4 million and the other two were for a total of $1.8 million. Average price per-acre reflects a change in the mix of commercial land sold in each period, with varying compositions of retail, office, light industrial and other commercial uses.
Impairment losses were primarily due to the adoption of the real estate investment strategy during 2011. For a further discussion of these impairment charges, see Note 4, Impairments of Long-lived Assets to the Notes to the Consolidated Financial Statements.
In 2011, other income includes approximately $0.7 million of recognized gain previously deferred associated with three buildings sold in 2007 which we had a sale and leaseback arrangement with the buyer.
Rural Land
Our rural land segment markets and sells tracts of land of varying sizes for rural recreational, conservation and timberland uses. The table below sets forth the results of operations of our rural land segment for the three years ended December 31, 2013
 
2013
 
2012
 
2011
 
In millions
Revenues:
 
 
 
 
 
Real estate sales
$
0.1

 
$
23.4

 
$
3.5

Expenses:
 
 
 
 
 
Cost of real estate sales

 
6.2

 
0.1

Other operating expenses
0.1

 
0.6

 
1.2

Restructuring charges

 

 
0.2

Total expenses
0.1

 
6.8

 
1.5

Operating income (loss)

 
16.6

 
2.0

Other expense

 
0.2

 
0.3

Income (loss)
$

 
$
16.8

 
$
2.3

Real Estate Sales. Rural land sales for the three years ended December 31, 2013 included the following:
 
Period
 
Number of
Sales
 
Acres
Sold
 
Average Price
Per Acre
 
Revenue
 
Gross Profit
on Sales
 
 
 
 
 
 
 
 
In millions
2013
 
5

 
50

 
$
2,000

 
$
0.1

 
$
0.1

2012
 
9

 
6,221

 
$
3,758

 
$
23.4

 
$
17.2

2011
 
4

 
259

 
$
13,374

 
$
3.5

 
$
3.4

Average sales prices per acre can vary dramatically depending on several factors, including characteristics of the land, stage of development, acreage sold and location. As a result, average prices will vary from one parcel to another and one period to another. Revenues can vary drastically in our rural land segment. If the AgReserves Sale closes in early 2014, we may not have substantial revenues from rural land sales in the future.

47


Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
During 2013, there were no significant transactions in our rural land segment as compared to nine rural land sales for $23.4 million during 2012.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
As part of the rural land sales occurring in 2012, we sold a non-strategic 250 acre tract of rural land for approximately $6.8 million that was included in an agreement we had previously entered into. In addition, we sold a 3,000 acre tract of land that we owned in Georgia for $11.5 million, which $2.0 million had already been paid to us as a non-refundable deposit, and was included in deferred revenue.
Resorts, Leisure and Leasing Operations
Our resorts, leisure and leasing operations segment includes recurring revenues from our resort and leisure activities. The original purpose of the WaterColor Inn, vacation rentals and other leisure activities was to enhance and promote the desirability of our residential real estate. 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 years ended December 31, 2013
 
2013
 
2012
 
2011
 
In millions
Revenues:
 
 
 
 
 
Resorts and leisure operations
$
46.4

 
$
40.8

 
$
36.0

Leasing operations
4.4

 
3.6

 
2.2

Total revenues
50.8

 
44.4

 
38.2

Expenses:
 
 
 
 
 
Cost of resorts and leisure operations
39.1

 
36.5

 
35.1

Cost of leasing operations
2.1

 
2.6

 
2.0

Operating expenses
1.2

 
0.2

 

Depreciation
6.4

 
5.7

 
6.9

Impairment losses
4.9

 
2.6

 
1.4

Total expenses
53.7

 
47.6

 
45.4

Operating loss
(2.9
)
 
(3.2
)
 
(7.2
)
Other income
0.9

 
1.8

 
(0.9
)
Net loss
$
(2.0
)
 
$
(1.4
)
 
$
(8.1
)

48


The following table sets forth the detail of our resorts and leisure operations revenues and cost of revenues: 
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
 
Revenues
 
Gross
Profit
 
Gross
Profit Margin
 
Revenues
 
Gross
Profit
 
Gross
Profit Margin
 
Dollars in millions
Inn and vacation rentals
$
34.2

 
$
5.3

 
15.5
%
 
$
29.5

 
$
3.4

 
11.5
%
Golf courses
9.4

 
1.3

 
13.8
%
 
8.7

 
0.4

 
4.6
%
Marinas
2.8

 
0.8

 
28.6
%
 
2.6

 
0.5

 
19.2
%
Leasing
4.4

 
2.3

 
52.3
%
 
3.6

 
1.0

 
27.8
%
Total
$
50.8

 
$
9.7

 
19.1
%
 
$
44.4

 
$
5.3

 
11.9
%
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Revenues from resort and vacation rentals increased $4.7 million, or 16%, during 2013 as compared to 2012, primarily due to a 15% increase in the number and an increase in the size of homes in our vacation rental programs, higher average room rates and occupancy at the WaterColor Inn.
The increases in the gross profit margin in 2013, as compared to 2012, are primarily due to higher average rate increases, and increases in memberships, rounds played in our golf courses and boat slip revenue, which add minimal costs to the operations.
Revenues and gross profit from our leasing operations increased due to rent commencing from built-to-suit leases during the second half of 2012 combined with increased percentage rent from retail operating properties in or near our WaterColor and WaterSound Beach resort operations.
In 2013, we recorded an impairment charge of $4.9 million for a golf course that we operate, which incurred negative operating cash flows and the future estimated undiscounted cash flows were less than the carrying value of its assets.
During 2013, we have capitalized $0.7 million of indirect development costs related to Pier Park North, which construction began in 2013.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
 
Year Ended December 31, 2012
 
Year Ended December 31, 2011
 
Revenues
 
Gross
Profit
 
Gross
Profit Margin
 
Revenues
 
Gross
Profit
 
Gross
Profit Margin
 
(Dollars in millions)
Inn and vacation rentals
$
29.5

 
$
3.4

 
11.5
%
 
$
25.1

 
$
0.9

 
3.6
 %
Golf courses
8.7

 
0.4

 
4.6
%
 
8.2

 
(0.2
)
 
(2.4
)%
Marinas
2.6

 
0.5

 
19.2
%
 
2.7

 
0.2

 
7.4
 %
Leasing
3.6

 
1.0

 
27.8
%
 
2.2

 
0.2

 
9.1
 %
Total
$
44.4

 
$
5.3

 
11.9
%
 
$
38.2

 
$
1.1

 
2.9
 %
Revenues from resort and vacation rentals increased $4.4 million, or 18%, in 2012 as compared to 2011, due to rate increases at the WaterColor Inn that were implemented in 2012 and more vacation rental homes and higher occupancy in the vacation rental business and improved operating margins.

49


In addition, revenues from our leasing operations increased $1.4 million, or 64%, due to commencement of rent for our built-to-suit leases that began at the end of 2011 through mid-2012. Revenues and gross profit from our leasing operations increased due to rent commencing from built-to-suit leases during the second half of 2012 combined with increased percentage rent from retail operating properties in or near our WaterColor, WaterSound Beach and SouthWood communities and resort and leisure operations.
Impairment losses during 2012 are primarily due to the closure of the covered parking facility, which we have agreed to cease operating for a period of seven years, in return for which the Northwest Florida Beaches International Airport released us from a twenty-eight year land lease for a different parcel of land with total future payments of approximately $4.2 million and agreed to assume certain costs associated with the land. As a result of ceasing operations at the parking facility, we recorded an impairment charge of approximately $2.6 million in 2012 to write down the covered airport parking facility to its current fair value as a non-operating facility. For a further discussion of these impairment charges, see Note 4, Impairments of Long-lived Assets, to the Notes to the Consolidated Financial Statements.

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.
The table below sets forth the results of operations of our forestry segment for the three years ended December 31, 2013
 
 
2013
 
2012
 
2011
 
In millions
Revenues:
 
 
 
 
 
Timber sales
$
35.4

 
$
39.0

 
$
86.7

Expenses:
 
 
 
 
 
Cost of timber sales
21.5

 
24.0

 
22.9

Other operating expenses
1.0

 
1.6

 
1.9

Depreciation and depletion
1.8

 
2.1

 
5.0

Restructuring charges

 

 
0.1

Total expenses
24.3

 
27.7

 
29.9

Operating income
11.1

 
11.3

 
56.8

Other income
2.2

 
2.2

 
2.1

Net income
$
13.3

 
$
13.5

 
$
58.9

The relative contribution to our timber sales by major item for the three years ended December 31, 2013 is as follows: 
 
2013
 
2012
 
2011
Percent of total tons sold:
 
 
 
 
 
Pine pulpwood
71
%
 
68
%
 
21
%
Pine sawtimber
23
%
 
24
%
 
78
%
Pine grade logs
5
%
 
7