NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise stated)
(Unaudited)
1. Nature of Operations
The St. Joe Company together with its consolidated subsidiaries (the “Company”) is a real estate development, asset management, and operating company with real estate assets and operations currently concentrated primarily between Tallahassee and Destin, Florida.
The Company conducts primarily all of its business in the following
five
reportable operating segments: 1) residential real estate, 2) commercial real estate, 3) resorts and leisure, 4) leasing operations and 5) forestry.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements are not included herein. The unaudited interim condensed consolidated financial statements include the accounts of the Company and all of its majority-owned and controlled subsidiaries. The equity method of accounting is used for investments in which the Company has significant influence, but not a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation. The
December 31, 2015
balance sheet amounts have been derived from the Company’s
December 31, 2015
audited consolidated financial statements. Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on the Company’s previously reported stockholders’ equity or net income (loss). Operating results for the three months ended
March 31, 2016
are not necessarily indicative of the results of the Company that may be expected for the year ending
December 31, 2016
.
A variable interest entity (“VIE”) is an entity in which a controlling financial interest may be achieved through arrangements that do not involve voting interests. A VIE is required to be consolidated by its primary beneficiary, which is the entity that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it. The Company consolidates VIEs when it is the primary beneficiary of the VIE, including real estate joint ventures determined to be VIEs (see Note 9,
Real Estate Joint Ventures
) and VIEs involved in a 2014 real estate sale, as further described below.
The statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
. The Company adheres to the same accounting policies in preparation of its unaudited interim condensed consolidated financial statements as the Company’s
December 31, 2015
annual financial statements. As required under GAAP, interim accounting for certain expenses, including income taxes, are based on full year assumptions. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.
Recently Adopted Accounting Pronouncements
Consolidation
In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02 that amends the existing consolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of variable interests for fees paid to decision makers or service providers, (iii) the effect of fee arrangements and related parties on the primary beneficiary determination and (iv) certain investment funds. These changes are expected to limit the number of consolidation models and place more emphasis on risk of loss when determining a controlling financial interest. The Company adopted the new guidance as of January 1, 2016. The adoption of this guidance had no impact on the Company’s condensed consolidated balance sheets, statements of operations, statements of comprehensive income (loss), statements of cash flows or notes to the condensed financial statements.
Debt issuance costs
In April 2015, the FASB issued ASU 2015-03 that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendment does not affect the recognition and measurement guidance for debt issuance costs. During the three months ended March 31, 2016, the Company adopted this ASU, which required retrospective application and resulted in the reclassification of debt issuance costs of
$2.1 million
from other assets to a reduction of
$0.7 million
in debt and a reduction of
$1.4 million
in Senior Notes held by special purpose entity in the Company’s condensed consolidated balance sheet as of December 31, 2015. Other than this change in presentation, this ASU did not have an impact on the Company’s condensed consolidated financial condition, results of operations or cash flows. See Note 10,
Debt
for more information.
Cloud computing costs
In April 2015, the FASB issued ASU 2015-05,
Customer’s Accounting For Fees Paid In A Cloud Computing Arrangement,
which provides guidance for a customer’s accounting for cloud computing costs. This ASU is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015. The adoption of this ASU had no impact on the Company’s financial condition, results of operations or cash flows.
Recently Issued Accounting Pronouncements
Revenue recognition
In May 2014, the FASB issued an ASU that establishes the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08 that further clarifies the implementation guidance on principal versus agent considerations. The new guidance will be effective for annual and interim periods beginning after December 15, 2017. Early application will be permitted, but not before annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial condition, results of operations and cash flows.
Financial Instruments
In January 2016, the FASB issued ASU 2016-01 that amends existing guidance to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The new guidance will require equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. Additionally, certain disclosure requirements and other aspects of accounting for financial instruments will change as a result of the new guidance, which is effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact that the adoption of the new guidance will have on its financial condition and results of operations.
Leases
In February 2016, the FASB issued ASU 2016-02 that amends the existing accounting standards for lease accounting, including requiring lessees to recognize both finance and operating leases with terms of more than 12 months on the balance sheet. The accounting applied by a lessor is largely unchanged from existing guidance. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The new guidance will be effective for annual and interim periods beginning after December 15, 2018 and requires a modified retrospective adoption. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial condition, results of operations and cash flows.
2. Investment in Real Estate
Real estate by property type and segment includes the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Development property:
|
|
|
|
Residential real estate
|
$
|
98,766
|
|
|
$
|
99,413
|
|
Commercial real estate
|
56,652
|
|
|
56,587
|
|
Leasing operations
|
528
|
|
|
360
|
|
Forestry
|
2,639
|
|
|
2,681
|
|
Corporate
|
2,271
|
|
|
2,211
|
|
Total development property
|
160,856
|
|
|
161,252
|
|
|
|
|
|
Operating property:
|
|
|
|
Residential real estate
|
8,091
|
|
|
8,091
|
|
Resorts and leisure
|
109,525
|
|
|
109,425
|
|
Leasing operations
|
79,571
|
|
|
79,550
|
|
Forestry
|
19,234
|
|
|
19,300
|
|
Other
|
50
|
|
|
50
|
|
Total operating property
|
216,471
|
|
|
216,416
|
|
Less: Accumulated depreciation
|
65,589
|
|
|
64,069
|
|
Total operating property, net
|
150,882
|
|
|
152,347
|
|
Investment in real estate, net
|
$
|
311,738
|
|
|
$
|
313,599
|
|
Development property consists of land the Company is developing or intends to develop for sale or future operations. Residential real estate includes mixed-use resort, primary and seasonal residential communities and includes costs directly associated with the land, development and construction of these communities, including common development costs such as roads, utilities and amenities and indirect costs such as development overhead, capitalized interest, marketing and project administration. Commercial real estate includes land for commercial and industrial uses, including land holdings near the Northwest Florida Beaches International Airport and Port of Port St. Joe, and includes costs directly associated with the land and development costs for these properties, which also include common development costs such as roads and utilities. Leasing development property primarily includes the land development and construction for the consolidated joint venture at Pier Park North. This leasing development property is being reclassified as operating property as tenants commence operations at Pier Park North.
Operating property includes property that the Company uses for operations and activities. The resorts and leisure operating property includes the WaterColor Inn, golf courses and marinas. Leasing operating property includes property developed or purchased by the Company and used for retail and commercial rental purposes, including property in the consolidated joint venture at Pier Park North. Operating property may be sold in the future as part of the Company
’
s principal real estate business. Forestry operating property includes the Company’s timberlands.
The Company had
no
capitalized indirect development costs during the three months ended
March 31, 2016
and less than
$0.1 million
during the three months ended
March 31, 2015
, primarily related to the consolidated joint venture at Pier Park North.
3. Impairment of Long Lived Assets
The Company reviews its long-lived assets for impairment quarterly to determine whether events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Long-lived assets include the Company’s investments in operating and development property and property and equipment. As part of the Company’s review for impairment of its long-lived assets, the Company reviews long-lived asset’s carrying value, current period actual financial results as compared to prior period and forecast contained in the Company’s business plan and any other events or changes in circumstances to identify whether an indicator of potential impairment may exist. Some of the events or changes in circumstances that are considered by the Company as indicators of potential impairment include:
|
|
•
|
a prolonged decrease in the fair value or demand for the Company’s properties;
|
|
|
•
|
a change in the expected use or development plans for the Company’s properties;
|
|
|
•
|
a material change in strategy that would affect the fair value of the Company’s properties;
|
|
|
•
|
continuing operating or cash flow losses for an operating property;
|
|
|
•
|
an accumulation of costs in excess of the projected costs for a development property; and
|
|
|
•
|
any other adverse change that may affect the fair value of the property.
|
The Company uses varying methods to determine if an 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 its carrying value or (iii) determining market resale values.
There were no events or changes in circumstances that would indicate that the carrying value of the Company’s long-lived assets would not be recoverable, and, therefore, the Company did not record any impairment charges during the
three
months ended
March 31, 2016
and
2015
.
4. Investments
Investments and restricted investments consist of available-for-sale securities and are recorded at fair value, which is based on quoted market prices and pricing data from external pricing services that use prices observed for recently executed market transactions. Unrealized gains and temporary losses on investments, net of tax, are recorded in other comprehensive (loss) income. Realized gains and losses are determined using the specific identification method. The amortized cost of debt securities are adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method. Such amortization and accretion is included in investment income, net. In addition, at
March 31, 2016
, the Company had investments in short term commercial paper that are classified as cash equivalents, since they had maturity dates of ninety days or less from the date of purchase.
At
March 31, 2016
investments and restricted investments classified as available-for-sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Debt securities:
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
184,930
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
184,949
|
|
Corporate debt securities
|
9,546
|
|
|
11
|
|
|
1,117
|
|
|
8,440
|
|
Preferred stock
|
265
|
|
|
—
|
|
|
117
|
|
|
148
|
|
|
194,741
|
|
|
30
|
|
|
1,234
|
|
|
193,537
|
|
Restricted investments:
|
|
|
|
|
|
|
|
Money market fund
|
5,651
|
|
|
—
|
|
|
—
|
|
|
5,651
|
|
|
$
|
200,392
|
|
|
$
|
30
|
|
|
$
|
1,234
|
|
|
$
|
199,188
|
|
At
December 31, 2015
investments and restricted investments classified as available-for-sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Debt securities:
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
184,819
|
|
|
$
|
—
|
|
|
$
|
79
|
|
|
$
|
184,740
|
|
Corporate debt securities
|
7,273
|
|
|
—
|
|
|
981
|
|
|
6,292
|
|
Preferred stock
|
265
|
|
|
—
|
|
|
57
|
|
|
208
|
|
|
192,357
|
|
|
—
|
|
|
1,117
|
|
|
191,240
|
|
Restricted investments:
|
|
|
|
|
|
|
|
Guaranteed income fund
|
7,072
|
|
|
—
|
|
|
—
|
|
|
7,072
|
|
|
$
|
199,429
|
|
|
$
|
—
|
|
|
$
|
1,117
|
|
|
$
|
198,312
|
|
Fairholme Capital Management, L.L.C., or one of its affiliates (“Fairholme Capital”), has served as an investment advisor to the Company since April 2013. As of
March 31, 2016
, funds managed by Fairholme Capital beneficially owned approximately
32.3%
of the Company’s common stock. Mr. Bruce Berkowitz is the Managing Member of Fairholme Capital and the Chairman of the Company’s Board of Directors. Fairholme Capital does not receive any compensation for services as the Company’s investment advisor.
Pursuant to the terms of the Company’s Investment Management Agreement with Fairholme Capital, as amended (the “Agreement”), Fairholme Capital agreed to supervise and direct the investments of investment accounts established by the Company in accordance with the investment guidelines and restrictions approved by the Investment Committee of the Company’s Board of Directors. The investment guidelines are set forth in the Agreement and require that, as of the date of any investment: (i) at least
50%
of the investment account be held in cash or cash equivalents, as defined in the Agreement, (ii) no more than
15%
of the investment account may be invested in securities of any one issuer (excluding the U.S. Government) and (iii) any investment in any one issuer (excluding the U.S. Government) that exceeds
10%
, but not
15%
, requires the consent of at least two members of the Investment Committee. The investment account may not be invested in common stock securities.
As of
March 31, 2016
, the investment account included
$184.9 million
of U.S. Treasury securities,
$8.4 million
of corporate debt securities and
$0.2 million
of preferred stock investments (all of which are classified within investments on the Company’s condensed consolidated balance sheets). The corporate debt securities and preferred stock are issued by Sears Holdings Corp or affiliates, and are non-investment grade.
During the three months ended
March 31, 2016
, there were
no
realized losses from the sale or maturity of available-for-sale securities and proceeds from the sale of available-for-sale securities were
$8.5 million
.
During the three months ended
March 31, 2015
, there were
no
realized losses from the sale of available-for-sale securities, proceeds from the sale of available-for-sale securities were
$129.1 million
and proceeds from the maturity of available-for-sale securities were
$125.0 million
.
As of
March 31, 2016
and December 31, 2015, certain of the Company’s debt securities and preferred stock had unrealized losses of
$1.2 million
and
$1.1 million
, respectively, that were deemed temporary and included in accumulated other comprehensive loss. The following table provides the debt securities and preferred stock unrealized loss position and related fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
184,740
|
|
|
$
|
79
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities
|
8,251
|
|
|
1,117
|
|
|
—
|
|
|
—
|
|
|
6,292
|
|
|
981
|
|
|
—
|
|
|
—
|
|
Preferred stock
|
148
|
|
|
117
|
|
|
—
|
|
|
—
|
|
|
208
|
|
|
57
|
|
|
—
|
|
|
—
|
|
|
$
|
8,399
|
|
|
$
|
1,234
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
191,240
|
|
|
$
|
1,117
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As of March 31, 2016 and December 31, 2015, the Company did not intend to sell the investments with unrealized losses and it is more likely than not that the Company will not be required to sell any of these securities prior to their anticipated recovery, which could be maturity; therefore, the Company does not believe that its investment in the corporate debt securities was other-than-temporarily impaired at March 31, 2016 and December 31, 2015.
The net carrying value and estimated fair value of investments and restricted investments classified as available-for-sale at
March 31, 2016
, by contractual maturity are shown in the following table. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Fair Value
|
Due in one year or less
|
$
|
184,930
|
|
|
$
|
184,949
|
|
Due after one year through five years
|
9,448
|
|
|
8,359
|
|
Due after ten years through fifteen years
|
98
|
|
|
81
|
|
|
194,476
|
|
|
193,389
|
|
Preferred stock
|
265
|
|
|
148
|
|
Restricted investments
|
5,651
|
|
|
5,651
|
|
|
$
|
200,392
|
|
|
$
|
199,188
|
|
5. Financial Instruments and Fair Value Measurements
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
Level 1. Quoted prices in active markets for identical assets or liabilities;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, such as internally-developed valuation models which require the reporting entity to develop its own assumptions.
The financial instruments measured at fair value on a recurring basis at
March 31, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Fair Value
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
20,308
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,308
|
|
Commercial paper
|
158,973
|
|
|
—
|
|
|
—
|
|
|
158,973
|
|
Debt securities:
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
184,949
|
|
|
—
|
|
|
—
|
|
|
184,949
|
|
Corporate debt securities
|
—
|
|
|
8,440
|
|
|
—
|
|
|
8,440
|
|
Preferred stock
|
—
|
|
|
148
|
|
|
—
|
|
|
148
|
|
Restricted investments:
|
|
|
|
|
|
|
|
Money market fund
|
5,651
|
|
|
—
|
|
|
—
|
|
|
5,651
|
|
|
$
|
369,881
|
|
|
$
|
8,588
|
|
|
$
|
—
|
|
|
$
|
378,469
|
|
The financial instruments measured at fair value on a recurring basis at
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Fair Value
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
18,233
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,233
|
|
Commercial paper
|
174,973
|
|
|
—
|
|
|
—
|
|
|
174,973
|
|
Debt securities:
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
184,740
|
|
|
—
|
|
|
—
|
|
|
184,740
|
|
Corporate debt securities
|
—
|
|
|
6,292
|
|
|
—
|
|
|
6,292
|
|
Preferred stock
|
—
|
|
|
208
|
|
|
—
|
|
|
208
|
|
Restricted investments:
|
|
|
|
|
|
|
|
|
Guaranteed income fund
|
—
|
|
|
7,072
|
|
|
—
|
|
|
7,072
|
|
|
$
|
377,946
|
|
|
$
|
13,572
|
|
|
$
|
—
|
|
|
$
|
391,518
|
|
Money market funds, U.S. Treasury securities and commercial paper are measured based on quoted market prices in an active market and categorized within level 1 of the fair value hierarchy. Money market funds and commercial paper with a maturity date of ninety days or less from the date of purchase are classified as cash equivalents in the Company’s condensed consolidated balance sheets.
Corporate debt securities and preferred stock are measured primarily using pricing data from external pricing services that use prices observed for recently executed market transactions for the corporate debt security and the preferred stock that the Company owns. Corporate debt securities and preferred stock are not traded on a nationally recognized exchange but rather are traded in the U.S. over the counter market where there is less trading activity. For these reasons, the Company has determined that the corporate debt securities and preferred stock are categorized as level 2 financial instruments since their fair values were determined from market inputs in an inactive market.
Restricted investments include certain of the surplus assets that were transferred from the Company’s Pension Plan to a suspense account in the Company’s 401(k) Plan in December 2014. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated financial statements until they are allocated to participants. As of December 31, 2015, the assets held in the suspense account were invested in the Prudential Guaranteed Income Fund, which is a stable value fund designed to provide safety of principal, liquidity, and a rate of return. The Prudential Guaranteed Income Fund is valued based upon the contributions made to the fund, plus earnings at guaranteed crediting rates, less withdrawals and fees and are categorized as level 2 financial instruments. As of
March 31, 2016
the assets were transferred to a Vanguard Money Market Fund, which invests in U.S. government securities and seeks to provide current income and preserve shareholders’ principal investment. The Vanguard Money Market Fund is measured based on quoted market prices in an active market and categorized within level 1 of the fair value hierarchy. The Company’s Retirement Plan Investment Committee is responsible for investing decisions and allocation decisions of the suspense account. Refer to Note 15,
Employee Benefit Plans
.
Fair Value of Financial Instruments
|
|
•
|
The fair value of the Company’s retained interest investments is based on the present value of the expected future cash flows at the effective yield.
|
|
|
•
|
The fair value of the Investments held by special purpose entities is based on the present value of future cash flows at the current market rate.
|
|
|
•
|
The fair value of the Investments held by special purpose entities - U.S. Treasury securities are measured based on quoted market prices in an active market.
|
|
|
•
|
The fair value of the Senior Notes held by special purpose entity is based on the present value of future cash flows at the current market rate.
|
The carrying amount and fair value of the Company’s financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Carrying
value
|
|
Fair value
|
|
Level
|
|
Carrying
value
|
|
Fair value
|
|
Level
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Retained interest investments
|
$
|
10,316
|
|
|
$
|
13,257
|
|
|
3
|
|
$
|
10,246
|
|
|
$
|
13,333
|
|
|
3
|
Investments held by special purpose entities:
|
|
|
|
|
|
|
|
|
|
|
|
Time deposit
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
3
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
3
|
U.S. Treasury securities and cash equivalents
|
$
|
8,414
|
|
|
$
|
8,952
|
|
|
1
|
|
$
|
8,785
|
|
|
$
|
9,033
|
|
|
1
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes held by special purpose entity
|
$
|
176,147
|
|
|
$
|
208,525
|
|
|
3
|
|
$
|
176,094
|
|
|
$
|
178,035
|
|
|
3
|
Retained Interest Investments
The Company has a beneficial interest in certain bankruptcy remote qualified special purpose entities (the “SPEs”) used in the installment sale monetization of certain sales of timberlands in 2007 and 2008. The SPEs’ assets are not available to satisfy the Company’s liabilities or obligations and the liabilities of the SPEs are not the Company’s liabilities or obligations. In the event that proceeds from the financial instruments are insufficient to settle all of the liabilities of the SPEs, the Company is not obligated to contribute any funds to the SPEs. The Company has determined that it is not the primary beneficiary of the SPEs, since the Company is not the primary decision maker with respect to activities that could significantly impact the economic performance of the SPEs, nor does the Company perform any service activity related to the SPEs. Therefore, the SPEs’ assets and liabilities are not consolidated in the Company’s condensed consolidated financial statements as of
March 31, 2016
and
December 31, 2015
.
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 retained interest, using management’s best estimate of underlying assumptions, including credit risk and discount rates. The Company’s continuing involvement with the SPEs is the receipt of the net interest payments and the remaining principal of approximately
$15.1 million
to be received at the end of the installment notes’
fifteen
year maturity period, in
2022
through
2024
.
The Company has a beneficial or retained interest investment related to these SPEs of
$10.3 million
and
$10.2 million
as of
March 31, 2016
and December 31,
2015
, respectively, recorded in other assets on the Company’s condensed consolidated balance sheets. The Company has classified its retained interest investment as held-to-maturity because the Company has both the intent and the ability to hold its interest in the SPEs to maturity. Accordingly, the Company has recorded the retained interest investment at cost, adjusted for the accretion of investment income over the life of the retained interest using the effective yield method with rates ranging from
3.7%
to
11.4%
. The Company continues to update the expectation of cash flows to be collected over the term 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. The Company has not recorded an other-than-temporary impairment related to its retained interest investments during the
three
months ended
March 31, 2016
and
2015
.
In the event of a failure and liquidation of the counterparties involved in the installment sales, the Company could be required to write-off the remaining retained interest recorded on its condensed consolidated balance sheets in connection with the installment sale monetization transactions in 2007 and 2008.
Investments and Senior Notes Held by Special Purpose Entities
In connection with a real estate sale in 2014, the Company received consideration consisting of (i) cash, (ii) a
$200.0 million
fifteen
-year installment note (the “Timber Note”) issued by Panama City Timber Finance Company, LLC, a buyer-sponsored special purpose entity (“AgReserves SPE”) and (iii) an Irrevocable Standby Letter of Credit issued by JPMorgan Chase Bank, N.A. (the “Letter of Credit”) at the request of AgReserves SPE, in favor of the Company. In 2014, the Company contributed the Timber Note and assigned its rights as a beneficiary under the Letter of Credit to Northwest Florida Timber Finance, LLC (“NFTF”), a bankruptcy-remote, qualified special purpose entity wholly-owned by the Company. NFTF monetized the Timber Note by issuing
$180.0 million
aggregate principal amount of its
4.8%
Senior Secured Notes due in 2029 (the “Senior Notes”) at an issue price of
98.5%
of face value to third party investors. AgReserves SPE and NFTF are VIEs, which the Company consolidates as the primary beneficiary of each entity. The investments held by special purpose entities consist of a
$200.0 million
time deposit that, subsequent to April 2, 2014, pays interest at
4.0%
and matures in March 2029, U.S. Treasuries of
$8.1 million
, and cash of
$0.3 million
. The Senior Notes issued by NFTF consist of
$176.1 million
net of the
$3.9 million
discount and debt issuance costs.
6. Notes Receivable, Net
Notes receivable, net consists of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Pier Park Community Development District notes, non-interest bearing, due December 2024, net of unamortized discount of $0.1 million, effective rates 5.73% — 8.0%
|
$
|
1,986
|
|
|
$
|
1,985
|
|
Interest bearing homebuilder notes, secured by the real estate sold — 4.0% interest rate, any remaining payments outstanding are due August 2016
|
33
|
|
|
90
|
|
Various mortgage notes, secured by certain real estate, bearing interest at various rates
|
472
|
|
|
480
|
|
Total notes receivable, net
|
$
|
2,491
|
|
|
$
|
2,555
|
|
The Company evaluates the carrying value of the notes receivable and the need for an allowance for doubtful notes receivable at each reporting date.
7. Claim Settlement Receivable
On March 24, 2016, the Company entered into a full and final release agreement with BP p.l.c. and various related entities pursuant to which the Company, on its own behalf and on behalf of certain wholly owned subsidiaries, released any and all claims related to the Deepwater Horizon oil spill which occurred on April 20, 2010. In exchange for this release, the Company will receive the amount of
$13.2 million
from BP Exploration & Production Inc., a large portion of which will reimburse the Company for expenses incurred. Payment of the settlement amount is to be made pursuant to the following schedule: the amount of
$5.0 million
is to be paid in October of 2016 followed by payments of
$2.7 million
due in October of 2017, 2018 and 2019. The Company also received a guaranty of payments from BP North America Corporation Inc. During the three months ended
March 31, 2016
, the Company recorded the claim settlement receivable using an imputed interest rate of
3.0%
, based on its best estimate of the prevailing market rates for the source of credit, resulting in an initial present value of
$12.5 million
and discount of
$0.7 million
.
$12.5 million
of the claim settlement was recognized as other income in the Company’s condensed consolidated statements of operations for the three months ended
March 31, 2016
. The discount is being accreted over the expected three and a half year term of the receivable using the effective interest method. Interest income during the period from March 24, 2016 through
March 31, 2016
was less than
$0.1 million
.
8. Other Assets
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Retained interest investments
|
$
|
10,316
|
|
|
$
|
10,246
|
|
Accounts receivable, net
|
4,575
|
|
|
4,382
|
|
Prepaid expenses
|
6,187
|
|
|
5,849
|
|
Straight line rent
|
3,741
|
|
|
3,732
|
|
Income tax receivable
|
138
|
|
|
2,275
|
|
Other assets
|
7,248
|
|
|
6,751
|
|
Accrued interest receivable for Senior Notes held by special purpose entity
|
1,335
|
|
|
3,338
|
|
Total other assets
|
$
|
33,540
|
|
|
$
|
36,573
|
|
9. Real Estate Joint Ventures
The Company enters into real estate joint ventures, from time to time, for the purpose of developing real estate in which the Company may or may not have a controlling financial interest. GAAP requires consolidation of VIEs in which an enterprise has a controlling financial interest and is the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE. The Company examines specific criteria and uses judgment when determining whether the Company is the primary beneficiary and must consolidate a VIE. The Company continues to assess whether it is the primary beneficiary on an ongoing basis.
Consolidated Real Estate Joint Ventures
During 2012, the Company entered into a joint venture agreement with a partner to develop a retail center at Pier Park North. The Company’s partner is responsible for the day-to-day activities of the joint venture. However, the Company has significant involvement in the design of the development and approves all major decisions, including project development, annual budgets and financing. The Company determined the joint venture is a VIE and that the Company is the VIE’s primary beneficiary as of March 31, 2016 and December 31, 2015.
In October 2015, the Pier Park North joint venture refinanced a construction loan by entering into a
$48.2 million
loan (the “Refinanced Loan”), which is secured by a first lien on, and security interest in, a majority of the Pier Park North joint venture’s property and a
$6.6 million
short-term letter of credit. Additionally, in connection with this refinancing, each of the Pier Park North joint venture partners executed a limited guarantee in favor of the lender, based on their percentage ownership in the joint venture. See Note 10,
Debt
.
In addition, the Company is the primary beneficiary of another real estate joint venture, Artisan Park, L.L.C, that is consolidated within the financial results of the Company. The Company is entitled to
74%
of the profits or losses of this VIE and is responsible for the day-to-day activities of the joint venture. The Company has determined that the Company is the primary beneficiary as it has the power to direct the activities that most significantly impact the joint venture’s economic performance; therefore, the results of the VIE have been consolidated within the financial results of the Company.
Unconsolidated Real Estate VIE
As of
March 31, 2016
, the Company is a partner in ALP Liquidating Trust (
“
ALP
”
) that is accounted for using the equity method. The joint venture was entered into to develop and sell certain mixed use residential and commercial projects. The Company has evaluated the VIE consolidation requirements with respect to this joint venture and has determined that the Company is not the primary beneficiary, since the Company does not have the power to direct the activities that most significantly impact the economic performance of the VIE. The Company is not required to contribute additional funds to ALP.
Summarized financial information for ALP is as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
|
Cash and cash equivalents
|
$
|
13,164
|
|
|
$
|
13,760
|
|
Other assets
|
59
|
|
|
58
|
|
Total assets
|
$
|
13,223
|
|
|
$
|
13,818
|
|
|
|
|
|
Accounts payable and other liabilities
|
$
|
1,381
|
|
|
$
|
1,978
|
|
Equity
(1)
|
11,842
|
|
|
11,840
|
|
Total liabilities and equity
|
$
|
13,223
|
|
|
$
|
13,818
|
|
(1) In 2008 the Company wrote-off its investment in ALP as a result of ALP reserving its assets to satisfy potential claims and obligations in accordance with its publicly reported liquidation basis of accounting. Subsequently, ALP changed its method of accounting to a going concern basis and reinstated its equity and stated it would report certain expenses as they are incurred. The Company has not recorded any additional equity income as a result of ALP’s change in accounting.
For the three months ended
March 31, 2016
and
2015
, ALP reported net income of less than
$0.1 million
and a net loss of
$0.6 million
, respectively.
10. Debt
Debt consists of the following at
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
Unamortized Discount and Debt Issuance Costs
|
|
Net
|
Refinanced loan in the Pier Park North joint venture, due November 2025, bearing interest at 4.1%
|
$
|
48,200
|
|
|
$
|
688
|
|
|
$
|
47,512
|
|
Community Development District debt, secured by certain real estate and standby note purchase agreements, due May 2031 - May 2039, bearing interest at 3.1% to 7.0% at March 31, 2016
|
7,134
|
|
|
—
|
|
|
7,134
|
|
Total debt
|
$
|
55,334
|
|
|
$
|
688
|
|
|
$
|
54,646
|
|
Debt consists of the following at
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
Unamortized Discount and Debt Issuance Costs
|
|
Net
|
Refinanced loan in the Pier Park North joint venture, due November 2025, bearing interest at 4.1%
|
$
|
48,200
|
|
|
$
|
720
|
|
|
$
|
47,480
|
|
Community Development District debt, secured by certain real estate and standby note purchase agreements, due May 2016 - May 2039, bearing interest at 2.8% to 7.0% at December 31, 2015
|
6,994
|
|
|
—
|
|
|
6,994
|
|
Total debt
|
$
|
55,194
|
|
|
$
|
720
|
|
|
$
|
54,474
|
|
The Refinanced Loan accrues interest at a rate of
4.1%
per annum and matures in November 2025. In connection with the Refinanced Loan, the Company entered into a limited guarantee in favor of the lender, based on its percentage ownership of the joint venture. In addition, the guarantee can become full recourse in the case of any fraud or intentional misrepresentation by the Pier Park North joint venture; any voluntary transfer or encumbrance of the property in violation of the due-on-sale clause in the security instrument; upon commencement of voluntary or insolvency proceedings and upon breach of covenants in the security instrument.
Community Development District (“CDD”) bonds financed the construction of infrastructure improvements at several of the Company’s projects. The principal and interest payments on the bonds are paid by assessments on, or from sales proceeds of, the properties benefited by the improvements financed by the bonds. The Company has recorded a liability for CDD assessments that are associated with platted property, which is the point at which the assessments become fixed or determinable. Additionally, the Company has recorded a liability for the balance of the CDD assessment that is associated with unplatted property if it is probable and reasonably estimable that the Company will ultimately be responsible for repaying. The Company has recorded debt of
$7.1 million
and
$7.0 million
related to CDD assessments as of
March 31, 2016
and December 31,
2015
, respectively. The Company’s total outstanding CDD assessments were
$22.5 million
at both
March 31, 2016
and December 31,
2015
. The Company pays interest on the total outstanding CDD assessments.
The aggregate maturities of debt subsequent to
March 31, 2016
are:
|
|
|
|
|
|
March 31,
2016
|
2016
|
$
|
213
|
|
2017
|
988
|
|
2018
|
1,029
|
|
2019
|
1,071
|
|
2020
|
1,116
|
|
Thereafter
|
50,917
|
|
|
$
|
55,334
|
|
11. Other Liabilities
Other liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Accounts payable
|
$
|
3,333
|
|
|
$
|
2,585
|
|
Accrued compensation
|
1,802
|
|
|
3,366
|
|
Deferred revenue
|
14,998
|
|
|
15,222
|
|
Membership deposits
|
7,202
|
|
|
7,778
|
|
Advance deposits
|
8,233
|
|
|
3,574
|
|
Other accrued liabilities
|
6,866
|
|
|
6,505
|
|
Accrued interest expense for Senior Notes held by special purpose entity
|
712
|
|
|
2,850
|
|
Total other liabilities
|
$
|
43,146
|
|
|
$
|
41,880
|
|
Deferred revenue at
March 31, 2016
and December 31,
2015
includes
$12.5 million
related to a 2006 agreement pursuant to which the Company agreed to sell approximately
3,900
acres of rural land to the Florida Department of Transportation (the “FDOT”). Revenue is recognized when title to a specific parcel is legally transferred.
Advance deposits consist of deposits received on hotel rooms and vacation rentals, are recorded as other liabilities in the condensed consolidated balance sheets without regard to whether they are refundable and are recognized as income at the time the service is provided for the related deposit.
12. Income Taxes
Income tax expense differed from the amount computed by applying the federal statutory rate of
35%
to pre-tax loss or income as a result of the following:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
Tax expense (benefit) at the federal statutory rate
|
$
|
4,168
|
|
|
$
|
(982
|
)
|
State income tax expense (benefit) (net of federal benefit)
|
417
|
|
|
(98
|
)
|
Tax effect of timber at the federal statutory rate of 23.8%
|
(206
|
)
|
|
—
|
|
Decrease in valuation allowance
|
(354
|
)
|
|
(14
|
)
|
Other
|
(781
|
)
|
|
21
|
|
Total income tax expense (benefit)
|
$
|
3,244
|
|
|
$
|
(1,073
|
)
|
As of
March 31, 2016
, the Company had
no
federal net operating loss carryforwards and had
$319.0 million
of state net operating loss carryforwards, which are available to offset future taxable income through
2031
.
In general, a valuation allowance is recorded if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Realization of the Company’s deferred tax assets is dependent upon the Company 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. As of
December 31, 2015
, based on the timing of reversal of future taxable amounts and the Company’s history of losses, management did not believe it met the requirements to realize the benefits of certain of its deferred tax assets; therefore, the Company had maintained a valuation allowance of
$6.0 million
. During the
three
months ended
March 31, 2016
, the Company reversed
$0.3 million
of the valuation allowance that was recorded as of December 31, 2015. As of
March 31, 2016
, management believes it has not met the requirements to realize the benefits for a portion of its deferred tax assets for state net operating loss carryforwards; therefore, the Company has maintained a valuation allowance of
$5.7 million
for these deferred tax assets.
13. Accumulated Other Comprehensive Loss
Following is a summary of the changes in the accumulated balances for each component of accumulated other comprehensive loss, which is presented net of tax, for the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
Unrealized Losses on Available-for-Sale Securities
|
|
Total
|
Accumulated other comprehensive loss at December 31, 2015
|
$
|
(686
|
)
|
|
$
|
(686
|
)
|
Other comprehensive loss
|
(54
|
)
|
|
(54
|
)
|
Accumulated other comprehensive loss at March 31, 2016
|
$
|
(740
|
)
|
|
$
|
(740
|
)
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains and (Losses) on Available-for-Sale Securities
|
|
Total
|
Accumulated other comprehensive loss at December 31, 2014
|
$
|
(1,325
|
)
|
|
$
|
(1,325
|
)
|
Other comprehensive income
|
773
|
|
|
773
|
|
Accumulated other comprehensive loss at March 31, 2015
|
$
|
(552
|
)
|
|
$
|
(552
|
)
|
Following is a summary of the tax effects allocated to each component of other comprehensive loss for the
three
months ended
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Before-Tax Amount
|
|
Tax Benefit or (Expense)
|
|
Net-of-Tax Amount
|
Unrealized losses on available-for-sale investments
|
$
|
(88
|
)
|
|
$
|
34
|
|
|
$
|
(54
|
)
|
Following is a summary of the tax effects allocated to each component of other comprehensive income for the
three
months ended
March 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
Before-Tax Amount
|
|
Tax Benefit or (Expense)
|
|
Net-of-Tax Amount
|
Unrealized gains on available-for-sale investments
|
$
|
1,257
|
|
|
$
|
(484
|
)
|
|
$
|
773
|
|
14. Stock Repurchase Program
As of January 1, 2016, the Company had a total authority of
$205.7 million
available for purchase of shares of its common stock pursuant to its stock repurchase program (the “Stock Repurchase Program”). In the first quarter of 2016, the Company repurchased
995,650
shares of its common stock at an average purchase price of
$14.88
per share, for an aggregate purchase price of
$14.8 million
, pursuant to its Stock Repurchase Program. As of March 31, 2016, the Company had a total authority of
$190.9 million
remaining available for purchase of shares under its Stock Repurchase Program. The Company may repurchase its common stock in open market purchases from time to time, in privately negotiated transactions or otherwise, pursuant to Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The timing and amount of any additional shares to be repurchased will depend upon a variety of factors, including market and business conditions and other factors. Repurchases may be commenced or suspended at any time or from time to time without prior notice. The Stock Repurchase Program will continue until otherwise modified or terminated by the Company’s Board of Directors at any time in its sole discretion.
15. Employee Benefit Plans
The Company maintains a 401(k) retirement plan covering substantially all officers and employees, which permits participants to defer up to the maximum allowable amount determined by the IRS of their eligible compensation.
As part of the Pension Plan termination in 2014, the Company directed the Pension Plan to transfer
$7.9 million
of the Pension Plan’s surplus assets into a suspense account in the Company’s 401(k) Plan. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated financial statements until they are allocated to participants. At
March 31, 2016
and
December 31, 2015
, the fair values of these assets were recorded in restricted investments on the Company’s condensed consolidated balance sheets and were
$5.7 million
and
$7.1 million
, respectively.
The Company expenses the fair value of the assets at the time the assets are allocated to participants, which is expected to be up to the next
five
years. During the
three
months ended
March 31, 2016
and
2015
, the Company recorded an expense of
$1.4 million
and
$0.9 million
, respectively, for the fair value of the assets, less expenses, that were allocated to participants during that period. In addition, any gains and losses on these assets are reflected in the Company’s condensed consolidated financial statements and were less than a
$0.1 million
gain for both the
three
months ended
March 31, 2016
and
2015
. Refer to Note 5,
Financial Instruments and Fair Value Measurements.
16. Other Income (Expense)
Other income (expense) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
Investment income, net
|
|
|
|
|
Net investment income from available-for-sale securities
|
|
|
|
|
Interest and dividend income
|
|
$
|
189
|
|
|
$
|
2,257
|
|
Accretion income
|
|
464
|
|
|
621
|
|
Total net investment income from available-for-sale securities
|
|
653
|
|
|
2,878
|
|
Interest income from investments in special purpose entities
|
|
2,050
|
|
|
2,003
|
|
Interest accrued on notes receivable and other interest
|
|
27
|
|
|
331
|
|
Total investment income, net
|
|
2,730
|
|
|
5,212
|
|
Interest expense
|
|
|
|
|
Interest expense and amortization of discount and issuance costs for Senior Notes issued by special purpose entity
|
|
(2,190
|
)
|
|
(2,188
|
)
|
Interest expense
|
|
(845
|
)
|
|
(688
|
)
|
Total interest expense
|
|
(3,035
|
)
|
|
(2,876
|
)
|
Claim settlement
|
|
12,548
|
|
|
—
|
|
Other income, net
|
|
|
|
|
Accretion income from retained interest investments
|
|
241
|
|
|
211
|
|
Hunting lease income
|
|
199
|
|
|
210
|
|
Other income, net
|
|
12
|
|
|
156
|
|
Other income, net
|
|
452
|
|
|
577
|
|
|
|
|
|
|
Total other income
|
|
$
|
12,695
|
|
|
$
|
2,913
|
|
Investment income, net
Interest and dividend income includes interest income accrued or received on the Company’s corporate debt securities and dividend income received from the Company’s preferred stock investments. Accretion income includes the amortization of the premium or discount related to the Company’s available-for-sale securities, which is amortized based on an effective interest rate method over the term of the available-for-sale securities.
Interest income from investments in special purpose entities primarily includes interest accrued or received on the Timber Note, which is used to pay the interest expense for the Senior Notes issued by NFTF.
Interest expense
Interest expense includes interest expense related to the Company’s CDD debt and the construction loan and Refinanced Loan in the Pier Park North joint venture. Borrowing costs, including the discount and issuance costs for the Senior Notes issued by the special purpose entity, are amortized based on the effective interest method at an effective rate of
4.9%
.
Claim settlement
Claim settlement during the three months ended
March 31, 2016
includes
$12.5 million
for a settlement related to the Deepwater Horizon oil spill. See Note 7,
Claim Settlement Receivable
for further discussion.
Other income, net
The Company records the accretion of investment income from its retained interest investment over the life of the retained interest using the effective yield method with rates ranging from
3.7%
to
11.4%
. Hunting lease income is recognized as income over the term of the lease.
17. Segment Information
The Company conducts primarily all of its business in the following
five
reportable operating segments: 1) residential real estate, 2) commercial real estate, 3) resorts and leisure, 4) leasing and 5) forestry.
The residential real estate segment generates revenues from the development and sale of homes and homesites and the sale of parcels of entitled, undeveloped lots. The commercial real estate segment sells undeveloped or developed land and commercial operating property. The resort and leisure segment generates revenues and incurs costs from the WaterColor Inn and Resort, vacation rental programs, management of The Pearl Hotel,
four
golf courses, marina operations and other related resort activities. The leasing segment generates revenues and costs from retail and commercial leasing operations, including the Company’s consolidated joint venture at Pier Park North. The forestry segment produces and sells woodfiber, sawtimber and other forest products and may sell the Company’s timber or rural land holdings.
The Company’s reportable segments are strategic business units that offer different products and services. They are each managed separately and decisions about allocations of resources are determined by management based on these strategic business units.
The Company uses income (loss) before income taxes and non-controlling interest for purposes of making decisions about allocating resources to each segment and assessing each segment’s performance, which the Company believes represents current performance measures.
The accounting policies of the segments are set forth in Note 2 to the Company’s consolidated financial statements contained in Item 15 of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
. Total revenues represent sales to unaffiliated customers, as reported in the Company’s condensed consolidated statements of operations. All intercompany transactions have been eliminated. The caption entitled “Other” consists of non-allocated corporate general and administrative expenses, net of investment income.
Information by business segment is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
Operating Revenues
|
|
|
|
Residential real estate
|
$
|
6,988
|
|
|
$
|
5,411
|
|
Commercial real estate
|
—
|
|
|
—
|
|
Resorts and leisure
|
8,751
|
|
|
7,803
|
|
Leasing operations
|
2,361
|
|
|
2,045
|
|
Forestry
|
2,121
|
|
|
1,806
|
|
Other
|
33
|
|
|
26
|
|
Total operating revenues
|
$
|
20,254
|
|
|
$
|
17,091
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
Residential real estate
|
$
|
3,357
|
|
|
$
|
382
|
|
Commercial real estate
|
(600
|
)
|
|
(604
|
)
|
Resorts and leisure
|
(1,800
|
)
|
|
(2,931
|
)
|
Leasing operations
|
(43
|
)
|
|
201
|
|
Forestry
|
1,854
|
|
|
1,637
|
|
Other
|
9,030
|
|
|
(1,474
|
)
|
Total income (loss) before income taxes
|
$
|
11,798
|
|
|
$
|
(2,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31, 2015
|
Total Assets:
|
|
|
|
Residential real estate
|
$
|
109,456
|
|
|
$
|
109,791
|
|
Commercial real estate
|
62,702
|
|
|
62,649
|
|
Resorts and leisure
|
74,611
|
|
|
75,441
|
|
Leasing operations
|
80,763
|
|
|
81,400
|
|
Forestry
|
20,085
|
|
|
20,244
|
|
Other
|
631,368
|
|
|
633,217
|
|
Total assets
|
$
|
978,985
|
|
|
$
|
982,742
|
|
18. Commitments and Contingencies
The Company establishes an accrued liability when it believes it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company will evaluate the range of reasonably estimated losses and record an accrued liability based on what it believes to be the minimum amount in the range, unless it believes an amount within the range is a better estimate than any other amount. In such cases, there may be an exposure to loss in excess of the amounts accrued. The Company evaluates quarterly whether further developments could affect the amount of the accrued liability previously established or would make a loss contingency both probable and reasonably estimable.
The Company also provides disclosure when it believes it is reasonably possible that a loss will be incurred or when it believes it is reasonably possible that the amount of a loss will exceed the recorded liability. The Company reviews loss contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. This estimated range of possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.
The Company is subject to a variety of litigation, claims, other disputes and governmental proceedings that arise from time to time in the ordinary course of its business, including litigation related to its prior homebuilding activities and those described herein. The Company cannot assure that it will be successful in defending these matters. Based on current knowledge, the Company does not believe that loss contingencies arising from pending litigation, claims, other disputes and governmental proceedings, including those described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in these matters, an adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period.
The Company is subject to costs arising out of environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites, including sites which have been previously sold. It is the Company’s policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred or range of loss can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available.
The Company’s former paper mill site in Gulf County and certain adjacent properties are subject to various Consent Agreements and Brownfield Site Rehabilitation Agreements with the Florida Department of Environmental Protection (“FDEP”). The paper mill site has been rehabilitated by Smurfit-Stone Container Corporation in accordance with these agreements and a final Site Rehabilitation Completion Order (“SRCO”) issued by the FDEP has been received. The Company is in the process of assessing certain neighboring properties. Management is unable to quantify future rehabilitation costs above present accruals at this time or provide a reasonably estimated range of loss.
Other litigation, claims, disputes and governmental proceedings, including environmental matters, are pending against the Company. Accrued aggregate liabilities related to the matters described above and other litigation matters were
$2.5 million
as of
March 31, 2016
and December 31,
2015
, including a
$1.2 million
accrual related to legal costs for the settled SEC investigation as of each such date. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable. Due to uncertainties related to these matters, accruals are based only on the information available at the time. As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company's results of operations in a given period.
The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage, including our timber assets.
At
March 31, 2016
and December 31,
2015
, the Company was required to provide surety bonds that guarantee completion of certain infrastructure in certain development projects and mitigation banks of
$6.2 million
and
$7.1 million
, respectively, and standby letters of credit in the amount of
$0.5 million
as of each such date, which may potentially result in liability to the Company if certain obligations of the Company are not met.
At
March 31, 2016
, the Company has a total of
$2.4 million
in contractual obligations, of which
$1.8 million
are for the remainder of 2016,
$0.2 million
are for 2017 and
$0.4 million
are for 2018 and thereafter.
In connection with the Refinanced Loan, the Company guaranteed the joint venture’s obligations under a short term
$6.6 million
letter of credit which is securing a portion of the joint venture’s obligations under the Refinanced Loan. See Note 9,
Real Estate Joint Ventures
for a further discussion on the Refinanced Loan.
As part of the AgReserves Sale in 2014 and certain sales of timberlands in 2007 and 2008, the Company generated significant tax gains. The installment notes structure allowed the Company to defer the resulting tax liability of
$61.8 million
until 2022 - 2024 and
$69.3 million
until 2029, respectively, the maturity dates for the installment notes. The Company has a deferred tax liability related to the gains in connection with these sales.
19. Concentration of Risks and Uncertainties
The Company’s real estate investments are concentrated in Northwest Florida in a number of specific development projects. Uncertain economic conditions could have an adverse impact on the Company’s real estate values and could cause the Company to sell assets at depressed values in order to pay ongoing expenses. Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, investments, notes receivable, other receivables, investments held by special purpose entities, and investments in retained interests. The Company deposits and invests cash with a major financial institution in the United States, which balances exceed the amount of F.D.I.C. insurance provided on such deposits. In addition, as of
March 31, 2016
, the Company had
$184.9 million
invested in U.S. Treasury securities and
$8.4 million
invested in
one
issuer of corporate debt securities that is non-investment grade. In addition, as of
March 31, 2016
, the Company had investments in short term commercial paper from
eight
issuers of
$159.0 million
.