St. Joe Company - 10-K annual report

      Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.     YES þ          NO o

      Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     YES þ          NO o

      The aggregate market value of the registrant’s Common Stock held by non-affiliates based on the closing price on June 30, 2004 was approximately $2.24 billion.

      As of February 28, 2005, there were 103,464,901 shares of Common Stock, no par value, issued and 76,076,931 shares outstanding with 27,387,970 shares of treasury stock.

      Portions of the Registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 17, 2005 (the “proxy statement”) are incorporated by reference in Part III of this Report. Other documents incorporated by reference in this Report are listed in the Exhibit Index.

      As used throughout this Form 10-K Annual Report, the terms “we,” “JOE,” “Company” and “Registrant” mean The St. Joe Company and its consolidated subsidiaries unless the context indicates otherwise.

      JOE is one of Florida’s largest real estate operating companies. We believe that we are the largest private landowner in the State of Florida. The majority of our land is located in Northwest Florida. We own approximately 820,000 acres, approximately 352,000 acres of which are within ten miles of the coast.

      We are engaged in town and resort development, commercial and industrial development, land sales, and commercial real estate services. We also have significant interests in timber. We believe we are one of the few real estate operating companies to have assembled the range of real estate, financial, marketing and regulatory expertise necessary to take a large-scale approach to real estate development and services.

      Our four operating segments are:

      We believe we have a number of key business strengths and competitive advantages, including one of the largest inventories of private land suitable for development in the state of Florida, a very low cost basis in our land and a strong financial condition, which allow us the financial flexibility to pursue development opportunities.

      In order to optimize the value of our core real estate assets in Northwest Florida, our strategic plan calls for us to continue to reposition our timberland holdings for higher and better uses. This value creation results from market analysis, land use/zoning changes, and parceling of our land holdings. We are currently seeking additional entitlements and zoning improvements throughout our land holdings. These entitlements are intended to facilitate alternative uses of our property and to increase its per acre value.

      During 2004, our business experienced the following developments:

      We have a broad range of land-use entitlements in hand or in various stages of the approval process for primary residential, resort, and RiverCamps communities in Northwest Florida and other high-growth regions of the state. The following table describes the primary residential, resort and RiverCamps communities with land-use entitlements that we are currently planning and developing in Florida. As shown in the table, the expected build out periods for these communities range from 2005 to 2017, the maximum project units for these communities exceed 26,000, and the total acreage encompassed by these communities is approximately 29,000 acres. Most of the communities are on lands we own. We expect some of the communities to be developed through ventures with unrelated third parties.

      Our Towns & Resorts Development segment develops large-scale, mixed-use communities primarily on land that we have owned for a long period of time. We own large tracts of land in Northwest Florida, including large tracts near Tallahassee, the state capital, and significant Gulf of Mexico beach frontage and waterfront properties, which we believe are suited for primary housing, resort and second-home communities. We believe this large, established land inventory, with a low cost basis, provides us an advantage over our competitors who must purchase real estate at current market prices before beginning projects. We manage the conceptual design, planning and permitting process for each of our new communities. We then construct or contract for the construction of the infrastructure for the community. Developed home sites and finished housing units are then marketed and sold.

      In addition, we own all of the outstanding stock of Saussy Burbank, a homebuilder located in Charlotte, North Carolina. In 2004, Saussy Burbank closed sales of 748 homes it constructed in North and South Carolina.

      The following is a description of some of the communities we are developing:

      WaterColor is situated on approximately 499 acres on the beaches of the Gulf of Mexico in south Walton County. We are building homes and condominiums and selling developed home sites in WaterColor. The community is planned to include approximately 1,140 units, including a private residence club with fractional ownership. Amenities include a beach club, tennis center, boat house, restaurant on an

      WaterSound Beach is located approximately five miles east of WaterColor. Situated on approximately 256 acres, WaterSound Beach includes over one mile of beachfront on the Gulf of Mexico. This community is currently planned to include approximately 499 units. Eighty-one beachfront, multi-family units were closed in 2004. The remaining 43 multi-family units are scheduled to be released for sale in 2006. Construction of 22 of the 43 units is scheduled to begin in late 2005, and the remaining 21 units are scheduled to start in early 2006.

      WaterSound West Beach is located over one half mile west of WaterSound Beach on the beach side of County Road 30A. It is being designed as a gated, high-end community with 197 units which includes beach access through the adjacent Deer Lake State Park. Construction is scheduled to begin in the first half of 2005, with sales expected to begin in mid-2005.

      WaterSound is located northeast of WaterSound Beach with frontage on Lake Powell. This project is situated on approximately 1,443 acres. The Walton County Board of Commissioners has approved the Application for Planned Unit Development enabling development of 478 residential units and 35,000 square feet of commercial space. Including the amount above, the plan for WaterSound calls for approximately 1,060 residential units, 470,000 square feet of commercial space and a golf course. The DRI process for that project commenced in early 2003 and is expected to continue through 2005. General infrastructure construction began in late 2004 and sales are currently expected to start in early 2006.

      WindMark Beach is situated on approximately 2,080 acres in Gulf County and includes approximately 15,000 feet of beachfront that we own. Phase I of WindMark Beach, situated on approximately 80 acres, includes approximately 110 home sites, many of which are located on the beachfront. Future phases are planned to include approximately 1,552 units. The DRI process for WindMark Beach was completed in 2004. Plans also include the realignment of approximately four miles of US Highway 98. Field survey work and project engineering and design of the relocated road are ongoing.

      SouthWood is situated on approximately 3,770 acres in southeast Tallahassee. Plans for SouthWood include approximately 4,770 residential units and a traditional town center with restaurants, entertainment facilities, retail shops and offices. Over 35% of the land in this community is designated for future greenspaces, including a 123-acre central park. Certain regulatory approvals are required prior to commencing development on phases of construction that are scheduled to begin in the 2006-2007 timeframe.

      SummerCamp, in Franklin County, is situated on approximately 782 acres. Current plans include approximately 499 units, a beach club, a community dock and nature trails. Sales of 52 home sites are scheduled to close in 2005, pending the receipt of environmental permits, one of which is the subject of a legal challenge.

      St. Johns Golf and Country Club is a primary residential community situated on approximately 820 acres we acquired in St. Johns County in 2001. The community is planned to include a total of approximately 799 housing units and an 18-hole golf course. Most homes will be adjacent to a golf course, conservation land, lakes, or natural wooded areas.

      RiverTown is situated on approximately 4,200 acres located in St. Johns County south of Jacksonville along the St. Johns River. A Comprehensive Plan Amendment and DRI were approved for RiverTown by the St. Johns County Board of Commissioners in February 2004, and environmental permits are pending. Infrastructure development is expected to begin in late 2005 and sales in 2006.

      Timber Island, located near Carrabelle, is a 49-acre parcel entitled for 400 units for resort and transient uses, including private residence clubs with fractional ownership. Timber Island land-use approvals also allow 480 wet/dry marina slips.

      Victoria Park is situated on approximately 1,859 acres in Volusia County near Interstate 4 in the historic college town of Deland between Daytona Beach and Orlando. Plans for Victoria Park include

      Artisan Park, located in Celebration, Florida near Orlando, is being developed through a joint venture in which we own 74%. Artisan Park is situated on approximately 160 acres which we acquired in 2002. Current plans include approximately 267 single-family units, 47 townhomes, and 302 condominiums as well as parks, trails, and a community clubhouse with a pool and educational and recreational programming.

      Perico Island is situated in the City of Bradenton in Manatee County on Tampa Bay. Planned as an upscale 686-unit condominium community on 352 acres, it is being designed as an environmentally sensitive community. Sales activity at Perico Island is expected to begin in late 2006.

      Several of our planned developments are in the midst of the entitlement process or are in the planning stage. We cannot assure you that:

      It is not feasible to estimate project development costs until entitlements have been obtained. Large-scale development projects can require significant infrastructure development costs and may raise environmental issues that require mitigation.

      Our Commercial Real Estate Development and Services segment develops and sells real estate for commercial purposes. We also own and manage office, industrial and retail properties throughout the southeastern United States. Through the Advantis business unit, we provide commercial real estate services, including brokerage, property management and construction management.

     Development and Sales. We focus on commercial development in Northwest Florida because of our large land holdings along roadways and near or within business districts in the region. We also develop parcels within or near existing Towns & Resorts development projects. For each new development, we direct the conceptual design, planning and permitting process and then contract for the construction of the horizontal infrastructure and any vertical building.

      We develop and sell properties focused on the following products:

      Many of our projects are mixed-use in nature due to the large size of the land parcels that we own. The following table shows our mixed-use projects in the Northwest Florida region.

      The table below summarizes the status of JOE commerce parks throughout Northwest Florida at December 31, 2004.

     Investment Property Portfolio. Our commercial development operations, combined with our tax deferral strategy of reinvesting qualifying asset sale proceeds into like-kind properties, have enabled us to create a portfolio of rental properties totaling 2.8 million square feet. As the table below shows, our portfolio of investment properties was 85% leased, based on net rentable square feet, as of December 31, 2004.

     Other Real Estate Assets. We have investments in certain other assets including land positions that are held for investment and investments in real estate ventures. It is generally our intent to sell these land positions, which include approximately 76 acres and are located in Florida, Georgia, Northern Virginia and Texas. Our investments in real estate ventures include investments in land and buildings located in Georgia and an investment in a full-service real estate company located in South Florida.

     Services. We provide commercial real estate services in the southeastern United States through Advantis Real Estate Services Company (“Advantis”). Advantis provides our clients with a complete array of services, including:

      We provide property management services for projects owned by us and others. We generally receive a property management fee based on the gross rental revenues of a managed project or building or on a fixed-fee basis. The table below summarizes, by state and by type of property, the approximately 24.4 million rentable square feet of property we manage.

      Our Land Sales segment markets parcels for a variety of rural residential and recreational uses on a portion of our long-held timberlands in Northwest Florida. We are developing a range of innovative products for rural settings including RiverCamps, St. Joe Ranches, St. Joe Farmsteads and St. Joe Woodlands.

      In 2004, our Land Sales segment closed 169 transactions totaling 18,376 acres, excluding RiverCamps.

      The vast majority of the holdings marketed by our Land Sales segment will continue to be managed as timberland until sold. The revenues and income from our timberland operations are reflected in the results of our forestry segment.

      Our Woodlands product consists of land, marketed in tracts from one to 1,000 acres for primary or secondary home building, recreation, timber or private retreats throughout Northwest Florida. Improvements to these tracts vary, but are typically minimal, and are generally restricted to burning, the thinning of timber, and simple fencing. Prices for Woodlands parcels vary depending on the physical attributes of each site, including timber stands, topography and proximity to rivers, creeks, and bays.

      Work continued in 2004 on our Farmsteads and Ranches, new real estate products which are designed to transform what were once timberlands to higher and better uses. Farmsteads are being designed as rural residential products to allow owners to live close to the land with modern conveniences. Initial designs call for parcels of five to 20 acres, featuring cleared acreage, fencing, trails and entry features. Each Farmstead would include a home site for a main farmhouse along with sites for other optional outbuildings, such as barns, guest houses, stables and sheds.

      Ranches are for customers who want to own larger parcels from 50 to 150 acres in rural settings. Improvements may generally include clearing, fencing, road stabilization and entry features.

      Prices for Farmstead and Ranch parcels are expected to vary depending on the physical attributes of each site, including timber stands, topography and proximity to rivers, creeks and bays.

      RiverCamps are planned developments in rustic settings, supplemented with amenities that may include docks, pools, and community river houses. Most of the lots in these developments are expected to be located on or near waterfront property. The RiverCamps concept envisions home sites and high-quality finished cabins in low-density settings with access to various outdoor activities such as fishing, boating, and hiking.

      The first of potentially several RiverCamp developments is RiverCamps on Crooked Creek, situated on approximately 1,491 acres of our timberland in western Bay County, Florida and bounded by West Bay, the Intracoastal Waterway and Crooked Creek. In the fourth quarter of 2004, RiverCamps on Crooked Creek offered 42 home sites for sale, of which 41 closed during the quarter. Prices ranged from $129,000 to $595,000, plus one bay-front site priced at $750,000. In February 2005, we released 37 home sites for sale with prices ranging from $148,500 to $849,500 and averaging $276,000. Additional home site releases are planned for later in the year.

      A majority of the permits for construction of the project have been received, and the pace of infrastructure development is accelerating with 190 home sites currently under construction.

      Planning and evaluation of a 6,000-acre parcel located on Sandy Creek in Bay County, Florida is also currently underway. Additional RiverCamps locations are actively being reviewed in other parts of Northwest Florida.

      Planned as a primary home community with 24 units on 10 acres, construction started at Cutter Ridge in Franklin County in the fourth quarter of 2004. In addition, during the fourth quarter of 2004, marketing began for RiverSide at Chipola, a 10-unit gated community on the Chipola River in Calhoun County.

      Our Land Sales segment also periodically considers the sale of land to conservation groups and governmental agencies. In 2004, we closed three conservation land transactions, totaling 1,798 acres.

      Our Forestry segment focuses on the management and harvesting of our extensive timberland holdings. We grow, harvest and sell timber and wood fiber. We believe we are the largest private landowner in Florida, owning:

      Our principal forestry product is softwood pulpwood. We also grow and sell softwood and hardwood sawtimber. In addition, we own and operate a cypress sawmill and mulch plant (“Sunshine State Cypress”) which converts cypress logs into wood products and mulch.

      On December 31, 2004, our standing pine inventory totaled approximately 23.4 million tons and our hardwood inventory totaled approximately 6.7 million tons. Our timberlands are harvested by local independent contractors under agreements that are generally renewed annually. Our timberlands are located near key transportation links, including roads, waterways and railroads.

      Our strategy is to actively manage, with the best available silviculture practices, portions of our timberlands that produce adequate amounts of timber to meet our pulpwood supply agreement obligation with Smurfit-Stone Container Corporation, which expires June 30, 2012. We also harvest and sell additional timber to regional sawmills that produce products other than pulpwood. In addition, our forestry

      Information regarding the revenues, income and total assets of each of our operating segments can be found in note 14 to our Consolidated Financial Statements included in this Report.

      Our business faces numerous risks, including those set forth below. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.

      Our ability to generate revenues is directly related to the real estate market, primarily in Florida, and to the national and local economy in general. Considerable economic and political uncertainties currently exist that could have adverse effects on consumer buying habits, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general.

      Significant expenditures associated with investment in real estate, such as real estate taxes, maintenance costs and debt payments, cannot generally be reduced if changes in Florida’s or the nation’s economy cause a decrease in revenues from our properties. In particular, if the growth rate for the Florida economy declines or if a recession in the Florida economy occurs, our profitability could be materially adversely affected.

      While real estate market conditions have generally remained healthy in our regions of development, particularly in Northwest Florida, continued demand for our services and products is dependent on long term prospects for job growth and strong in-migration population expansion in our regions of development.

      Over the last several years, investors have increasingly utilized real estate as an investment. Florida resort real estate has particularly benefited from this trend, creating demand, in addition to that described above, for our products. If this trend were to lessen, the demand for our products could decline, potentially impacting selling prices and/or absorption rates.

      The economic growth and health of the State of Florida, particularly Northwest Florida where the majority of our land is located, are important factors in sustaining demand for our products and services. As a result, any adverse change to the economic growth and health of Florida, particularly Northwest Florida, could materially adversely affect our financial results. The future economic growth in certain portions of Northwest Florida may be adversely affected if its infrastructure, such as roads, airports, medical facilities and schools, are not improved to meet increased demand. There can be no assurance that these improvements will occur.

      Currently, the Federal Aviation Administration is considering five alternatives to expand the capacity of the Panama City — Bay County International Airport. Two of these alternatives involve expansion of the current facility, and two alternatives require relocation of the airport to a new site proposed by the airport authority in the West Bay Sector on land owned by us. The final alternative is to take no action at all.

      The relocation of the airport is a condition to certain of our land-use entitlements in Bay County. We also believe that the relocation of the airport is important to the overall economic development of Northwest Florida. The FAA has issued a draft Environmental Impact Study (“EIS”) with respect to the

      Florida has experienced strong recent population growth, including the migration of Baby Boomers to the state. This population growth is expected to continue into the foreseeable future. Baby Boomers seeking retirement or vacation homes in Florida represent a significant portion of purchasers in many of our developments, and we intend to continue to plan and market future developments to Baby Boomers. Any decrease in the demographic trend of Baby Boomers moving to Florida could adversely affect our business.

      The occurrence of natural disasters in Florida, such as hurricanes, floods, fires, unusually heavy or prolonged rain and droughts, could have a material adverse effect on our ability to develop and sell properties or realize income from our projects. The occurrence of natural disasters could also cause increases in property insurance rates and deductibles which could reduce demand for our properties.

      An increase in interest rates could reduce the demand for homes we build, particularly primary housing and home sites we develop, commercial properties we develop or sell, and land we sell. A reduction in demand could materially adversely affect our profitability.

      Our business is affected by demographic and economic trends and the supply and rate of absorption of lot sales and new construction. As a result, our real estate operations are cyclical which may cause our quarterly revenues and operating results to fluctuate significantly from quarter to quarter and to differ from the expectations of public market analysts and investors. If this occurs, our stock’s trading price could also fluctuate significantly.

      Our real estate development activities entail risks that include:

      In addition, our real estate development activities require significant capital expenditures. We obtain funds for our capital expenditures through cash flow from operations, property sales or financings. We cannot be sure that the funds available from these sources will be sufficient to fund our required or desired capital expenditures for development. If we are unable to obtain sufficient funds, we may have to defer or otherwise limit our development activities. Our residential projects require significant capital expenditures

      Development of real property in Florida entails an extensive approval process involving overlapping regulatory jurisdictions. Real estate projects must generally comply with the provisions of the Local Government Comprehensive Planning and Land Development Regulation Act (the “Growth Management Act”) and local land development regulations. In addition, development projects that exceed certain specified regulatory thresholds require approval of a comprehensive Development of Regional Impact, or DRI, application. Compliance with the Growth Management Act, local land development regulations, and the DRI process is usually lengthy and costly and can be expected to materially affect our real estate development activities.

      The Growth Management Act requires counties and cities to adopt comprehensive plans guiding and controlling future real property development in their respective jurisdictions. After a local government adopts its comprehensive plan, all development orders and development permits must be consistent with the plan. Each plan must address such topics as future land use, capital improvements, traffic circulation, sanitation, sewerage, potable water, drainage and solid waste disposal. The local governments’ comprehensive plans must also establish “levels of service” with respect to certain specified public facilities and services to residents. Local governments are prohibited from issuing development orders or permits if facilities and services are not operating at established levels of service, or if the projects for which permits are requested will reduce the level of service for public facilities below the level of service established in the local government’s comprehensive plan. If the proposed development would reduce the established level of services below the level set by the plan, the development order will require that, at the outset of the project, the developer either sufficiently improve the services to meet the required level or provide financial assurances that the additional services will be provided as the project progresses.

      The Growth Management Act, in some instances, can significantly affect the ability of developers to obtain local government approval in Florida. In many areas, infrastructure funding has not kept pace with growth. As a result, substandard facilities and services can delay or prevent the issuance of permits. Consequently, the Growth Management Act could adversely affect our ability to develop our real estate projects.

      The DRI review process includes an evaluation of a project’s impact on the environment, infrastructure and government services, and requires the involvement of numerous state and local environmental, zoning and community development agencies. Local government approval of any DRI is subject to appeal to the Governor and Cabinet by the Florida Department of Community Affairs, and adverse decisions by the Governor or Cabinet are subject to judicial appeal. The DRI approval process is usually lengthy and costly, and conditions, standards or requirements may be imposed on a developer with respect to a particular project, which may materially increase the cost of the project. The DRI approval process is expected to have a material impact on our real estate development activities in the future.

      Changes in the Growth Management Act or the DRI review process or the interpretation thereof, new enforcement of these laws, the enactment of new laws regarding the development of real property, or the identification of new facts could all lead to new or greater liabilities that could materially adversely affect our business, profitability or financial condition.

      A substantial portion of our development properties in Florida is subject to federal, state and local regulations and restrictions that may impose significant limitations on our ability to develop them. Much of our property is undeveloped land located in areas where development may have to address the natural habitats of various endangered or protected wildlife species or in sensitive environmental areas such as wetlands and coastal areas.

      In addition, our current or past ownership, operation and leasing of real property, and our current or past transportation and other operations are subject to extensive and evolving federal, state and local environmental laws and other regulations. The provisions and enforcement of these environmental laws and regulations may become more stringent in the future. Violations of these laws and regulations can result in:

      In addition, some of these environmental laws impose strict liability, which means that we may be held liable for any environmental damages on our property regardless of fault.

      Some of our past and present real property, particularly properties used in connection with our previous transportation and papermill operations, involve the storage, use or disposal of hazardous substances that have contaminated and may in the future contaminate the environment. We may bear liability for this contamination and for the costs of cleaning up a site at which we have disposed of or to which we have transported hazardous substances. The presence of hazardous substances on a property may also adversely affect our ability to sell or develop the property or to borrow using the property as collateral.

      Changes in laws or the interpretation thereof, new enforcement of laws, the identification of new facts or the failure of other parties to perform remediation at our current or former facilities could all lead to new or greater liabilities that could materially adversely affect our business, profitability, or financial condition.

      We are involved in joint venture relationships and may initiate future joint venture projects as part of our overall development strategy. A joint venture involves special risks such as:

      Actions by our venture partners may subject property owned by the joint venture to liabilities greater than those contemplated by the joint venture agreement or have other adverse consequences.

      In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws. To the extent adjustments are required in any given period, we would include the adjustments in the tax provision in our statement of operations and/or balance sheet. These adjustments could materially impact our financial position and results of operation.

      A number of residential and commercial developers and real estate services companies, some with greater financial and other resources, compete with us in seeking properties for acquisition, resources for development and prospective purchasers and tenants. Competition from other real estate developers and real estate services companies may adversely affect our ability to:

      Many of our competitors in the forest products industry are fully integrated companies with substantially greater financial and operating resources. Our products are also subject to increasing competition from a variety of non-wood and engineered wood products. In addition, we are subject to competition from lumber products and logs imported from foreign sources. Any significant increase in competitive pressures from substitute products or other domestic or foreign suppliers could have a material adverse effect on our forestry operations.

      Our senior management has been responsible for our transformation from an industrial conglomerate to a successful real estate operating company. Our future success is highly dependent upon the continued employment of our senior management. The loss of one or more of our senior managers could have a material adverse effect on our business. In August 2003, we entered into five-year employment agreements with Peter Rummell, our Chairman and Chief Executive Officer, and Kevin Twomey, our President and Chief Operating Officer. We do not have key-person life insurance on any of our senior managers.

      Our future success largely depends on our ability to attract and retain experienced real estate development personnel. The market for these employees is highly competitive, and if we cannot continue to attract and retain quality personnel, our ability to effectively operate our business may be significantly limited.

      We own a large portfolio of commercial real estate rental properties. Our profitability could be adversely affected if:

      As of March 1, 2005, The Alfred I. duPont Testamentary Trust owned 5,689,355 shares, or approximately 7.5%, of our outstanding common stock. In addition, two of our current directors are trustees of the Trust. Under the terms of our registration rights agreement with the Trust, if the Trust beneficially owns less than 20% but at least 5% of our outstanding shares of common stock, the Trust will be entitled to nominate one member of our board. Accordingly, the Trust will continue to be able to have significant influence over our corporate and management policies, including decisions relating to mergers, acquisitions, the sale of all or substantially all of our assets and other significant transactions. The interests of the Trust may not be aligned with our interests or the interests of other shareholders.

      This Form 10-K includes forward-looking statements, particularly in the Management’s Discussion and Analysis Section. The Private Securities Litigation Reform Act of 1995 provides a safe-harbor for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ, possibly materially, from those in the information. Any statements in this Form 10-K that are not historical facts are forward-looking statements. You can find many of these forward-looking statements by looking for words such as “intend”, “anticipate”, “believe”, “estimate”, “expect”, “plan”, “should”, “forecast” or similar expressions. In particular, forward-looking statements include, among others, statements about the following:

      Forward-looking statements are not guarantees of future performance. You are cautioned not to place undue reliance on any of these forward-looking statements. These statements are made as of the date hereof based on current expectations, and we undertake no obligation to update the information contained in this release.

      Forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by a forward-looking statement include the risk factors described above as well as, among others, the following:

      The foregoing list is not exhaustive and should be read in conjunction with other cautionary statements contained herein and in our periodic and other filings with the Securities and Exchange Commission. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or risks. New information, future events or risks may cause the forward-looking events we discuss in this Form 10-K not to occur.

      We had approximately 1,603 full-time employees and 138 part-time employees at December 31, 2004. We consider our relations with our employees to be good. These employees work in the following segments:

      We will make available, free of charge, access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC, through our home page at www.JOE.com.

      We own our principal executive office located in Jacksonville, Florida.

      We own approximately 820,000 acres, the majority of which are located in Northwest Florida, including substantial gulf, lake and riverfront acreage. Most of our raw land assets are managed as timberland until designated for development. For more information on our real estate assets, see Item 1. Business.

      We are involved in litigation on a number of matters and are subject to certain claims which arise in the normal course of business, none of which, in the opinion of management, is expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, the aggregate amount being sought by the claimants in these matters is presently estimated to be several million dollars.

      We have retained certain self-insurance risks with respect to losses for third-party liability, worker’s compensation, property damage, group health insurance provided to employees, and other types of insurance.

      We are subject to costs arising out of environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites, including sites which have been previously sold. It is our policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available.

      Pursuant to the terms of various agreements by which we disposed of our sugar assets in 1999, we are obligated to complete certain defined environmental remediation. Approximately $5.0 million of the sales proceeds are being held in escrow pending the completion of the remediation. We have separately funded the costs of remediation. Remediation was substantially completed in 2004 and is expected to be finalized in early 2005. We expect the amounts held in escrow to be released to us during the first half of 2005.

      During the fourth quarter of 2000, management became aware of an investigation being conducted by the Florida Department of Environmental Protection (“DEP”) of our former paper mill site and some adjacent real property north of the paper mill site in Gulf County, Florida (the “Mill Site”). The real property on which our former paper mill is located was sold to the Smurfit-Stone Container Corporation

      The DEP submitted a Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) Site Discovery/ Prescreening Evaluation to Region IV of the United States Environmental Protection Agency (“USEPA”) in Atlanta in September 2000. Based on this submission, the USEPA included the Mill Site on the CERCLIS List. The CERCLIS List is a list of sites which are to be evaluated to determine whether there is a potential presence of actionable contaminants.

      Based on its assessment of data obtained from voluntary testing performed by us and Smurfit, the DEP submitted a proposed Consent Order that we and Smurfit have executed. It obligates us to conduct further assessment of that portion of the Mill Site owned by us at that time and, if necessary, to rehabilitate that portion of the Mill Site. Smurfit has a corresponding obligation with respect to its portion of the Mill Site.

      Through incorporation of the data and findings which resulted from our voluntary testing, the DEP has completed and submitted a preliminary assessment/site investigation report to the USEPA, including a recommendation that the Mill Site be considered “low priority” under CERCLA. Based on this recommendation, the USEPA has deferred further action on the Mill Site and has agreed to allow the Mill Site to be assessed and rehabilitated, if necessary, under the guidance of the DEP.

      On November 5, 2002, the Mill Site was designated as a Brownfields Redevelopment Area for site rehabilitation under the provisions of applicable Florida law. Florida’s Brownfields program provides economic and tax incentives which may be available to us. We entered into a Brownfield Site Rehabilitation Agreement for the Mill Site that obligates us to conduct further assessment of our portion of the Mill Site to delineate the extent of contamination, if any, and, if necessary, to rehabilitate that portion. The Consent Order will be held in abeyance pending the completion of the assessment and remediation, if any, of the Mill Site under the terms of the Brownfield Site Remediation Agreement.

      Based on this current information, including the environmental test results, the recommendation for “low priority” USEPA consideration, the USEPA agreement to defer further action, and the Brownfields Area local designation, management does not believe our liability, if any, for the possible cleanup of any potential contaminants detected on the Mill Site will be material.

      We are currently a party to, or involved in, legal proceedings directed at the cleanup of Superfund sites. We have accrued an allocated share of the total estimated cleanup costs for these sites. Based upon management’s evaluation of the other potentially responsible parties, we do not expect to incur material additional amounts even though we have joint and several liability. Other proceedings involving environmental matters such as alleged discharge of oil or waste material into water or soil are pending against us. It is not possible to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. However, based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on our consolidated financial position, results of operations or liquidity. Environmental liabilities are paid over an extended period and the timing of such payments cannot be predicted with any confidence.

      None.

      We had approximately 77,000 beneficial owners of our common stock as of March 9, 2005. Our common stock is quoted on the New York Stock Exchange (“NYSE”) Composite Transactions Tape under the symbol “JOE.”

      The range of high and low prices for our common stock as reported on the NYSE Composite Transactions Tape and the dividends declared for the periods indicated is set forth below:

      On March 9, 2005, the closing price of our common stock on the NYSE was $73.90.

      The following table describes the Company’s purchases of its common stock during the fourth quarter of 2004.

      The selected consolidated financial data set forth below are qualified in their entirety by and should be read in conjunction with the consolidated financial statements and the related notes included elsewhere herein. The statement of income data with respect to the years ended December 31, 2004, 2003, and 2002 and the balance sheet data as of December 31, 2004 and 2003 have been derived from the financial statements of the Company included herein, which have been audited by KPMG LLP. The statement of income data with respect to the years ended December 31, 2001 and 2000 and the balance sheet data as of December 31, 2002, 2001, and 2000 have been derived from the financial statements of the Company previously filed with the SEC, and have also been audited by KPMG LLP. Historical results are not necessarily indicative of the results to be expected in the future.

      The St. Joe Company is one of Florida’s largest real estate operating companies. We believe we have one of the largest inventories of private land suitable for development in the State of Florida, with a very low cost basis. The majority of our land is located in Northwest Florida. In order to optimize the value of our core real estate assets in Northwest Florida, our strategic plan calls for us to reposition our substantial timberland holdings for higher and better uses. We increase the value of our raw land assets, most of which are currently managed as timberland, through the development and subsequent sale of parcels, home sites, and homes, or through the direct sale of unimproved land. In addition, we reinvest qualifying asset sales proceeds into like-kind properties under our tax deferral strategy which has enabled us to create a significant portfolio of commercial rental properties. We also provide commercial real estate services, including brokerage, property management, and construction management for Company-owned assets as well as for third parties.

      We have four operating segments: Towns & Resorts development; commercial real estate development and services; land sales; and forestry.

      Our Towns & Resorts development segment generates revenues from:

      Our ability to generate revenues, cash flows and profitability is directly related to the real estate market, primarily in Florida, and the economy in general. Considerable economic and political uncertainties exist that could have adverse effects on consumer buying behavior, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general. Additionally, increases in interest rates could reduce the demand for homes we build and home sites we develop, particularly primary housing and home sites, and commercial properties we develop or sell. However, we believe our secondary resort housing markets are less sensitive to changes in interest rates. We have the ability to mitigate these risks by building to contract as well as building in phases.

      Management periodically conducts market research in the early stages of a project’s development to ensure our product meets expected customer demand. We also continuously and actively monitor competitors’ product offerings to evaluate the competitive position of our products. We are disciplined about the release of new product in Northwest Florida. Our goal is to ensure that as much of our land as possible benefits from the appreciation that we are building with the region’s increased visibility, infrastructure development and place-making.

      Our commercial real estate development and services segment continues to build on strong market interest in Northwest Florida’s retail, office, multi-family and other mixed-use products caused by historical constraints on supply in the area as well as high interest by developers.

      Real estate market conditions in our regions of development, particularly for residential and resort property in Northwest Florida, have been exceptionally strong. These current market conditions place us in an unusually favorable position which may not continue in the future. However, we believe that long-term prospects of job growth, coupled with strong in-migration population expansion in Florida, indicate that demand levels may remain favorable over at least the near term horizon.

      Management’s discussion and analysis contains forward-looking statements, including statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions, as well as trends and uncertainties that could affect our results. These statements are subject to risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. For additional information concerning these factors and related matters, see “Risk Factors” and “Forward-looking Statements” in Item 1 of this Report.

      The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Additionally, we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

      We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

     Investment in Real Estate and Cost of Real Estate Sales.Costs associated with a specific real estate project are capitalized once we determine that the project is economically viable. We capitalize costs directly associated with development and construction of identified real estate projects. Indirect costs that clearly relate to a specific project under development, such as internal costs of a regional project field office, are also capitalized. We capitalize interest based on the amount of underlying expenditures (up to total interest expense), and real estate taxes on real estate projects under development. If we determine not to complete a project, any previously capitalized costs are expensed.

      Real estate inventory costs include land and common development costs, such as roads, sewers, and amenities, home construction costs, property taxes, capitalized interest, and certain indirect costs. A portion of real estate inventory and estimates for costs to complete are allocated to each unit based on the relative sales value of each unit as compared to the estimated sales value of the total project. These estimates are reevaluated at least annually, with any adjustments being allocated prospectively to the remaining units available for sale. The accounting estimate related to inventory valuation is susceptible to change due to the use of assumptions about future sales proceeds and related real estate expenditures. Management’s assumptions about future housing and home site sales prices, sales volume and sales velocity require significant judgment because the real estate market is cyclical and is highly sensitive to changes in economic conditions. In addition, actual results could differ from management’s estimates due to changes in anticipated development, construction and overhead costs. Although we have not made significant adjustments affecting real estate gross profit margins in the past, there can be no assurances that estimates used to generate future real estate gross profit margins will not differ from our current estimates.

     Revenue Recognition — Percentage-of-Completion.In accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate, revenue for multi-family residences under construction is recognized using the percentage-of-completion method when 1) construction is beyond a preliminary stage, 2) the buyer is committed to the extent of being unable to require a refund except for nondelivery of the unit, 3) sufficient units have already been sold to assure that the entire property will not revert to rental property, 4) sales price is assured, and 5) aggregate sales proceeds and costs can be reasonably estimated. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs.

      Revenue for our multi-family residences which were under construction at WaterSound Beach in 2003 was recognized using the percentage-of-completion method of accounting. Since the project was substantially completed as of December 31, 2003, we recorded substantially all of the activity related to this property during the year ended December 31, 2003. During the period ended March 31, 2004, we incurred $2.0 million in construction cost adjustments for this project. Had these costs been quantified in 2003, they would have been included in our budgets and thus have had an impact on our results for the year ended December 31, 2003. If these costs had been included in the total project budget, 2003 gross profit would have been reduced by $3.6 million (pre-tax), $2.3 million (after tax), since a lower

      Management has evaluated the impact of this item, which represented 3% of net income ($0.03 per diluted share) for both years ended December 31, 2004 and 2003, and concluded that it is not significant to our 2004 or 2003 results of operations.

     Impairment of Long-lived Assets and Goodwill. Our long-lived assets, primarily real estate held for investment, are carried at cost unless circumstances indicate that the carrying value of the assets may not be recoverable. We review long-lived assets for impairment whenever events or changes in circumstances indicate such an evaluation is warranted. This review involves a number of assumptions and estimates used in determining whether impairment exists, including estimation of undiscounted cash flows. Depending on the asset, we use varying methods to determine fair value, such as (i) discounting of expected future cash flows, (ii) determining resale values by market, or (iii) applying a capitalization rate to net operating income using prevailing rates in a given market. These methods of determining fair value can fluctuate up or down significantly as a result of a number of factors, including changes in the general economy of our markets and demand for real estate. If we determine that impairment exists due to the inability to recover an asset’s carrying value, a provision for loss is recorded to the extent that the carrying value exceeds estimated fair value.

      Goodwill is carried at the lower of cost or fair value and is tested for impairment at least annually, or whenever events or changes in circumstances indicate such an evaluation is warranted, by comparing the carrying amount of the net assets of each reporting unit with goodwill to the fair value of the reporting unit taken as a whole. The impairment review involves a number of assumptions and estimates including estimating discounted future cash flows, net operating income, future economic conditions, fair value of assets held, and discount rates. If this comparison indicates that the goodwill of a particular reporting unit is impaired, the aggregate of the fair value of each of the individual assets and liabilities of the reporting unit are compared to the fair value of the reporting unit to determine the amount of goodwill impairment, if any.

     Intangible Assets. We allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values, using customary estimates of fair value, including data from appraisals, comparable sales, discounted cash flow analysis, and other methods. These fair values can fluctuate up or down significantly as a result of a number of factors and estimates, including changes in the general economy of our markets, demand for real estate, amortization periods, and fair market values assigned to leases as well as fair value assigned to customer relationships.

     Pension Plan. The Company sponsors a defined benefit pension plan covering a majority of our employees. Currently, our pension plan is over-funded and contributes income to the Company. The accounting for pension benefits is determined by standardized accounting and actuarial methods using numerous estimates, including discount rates, expected long-term investment returns on plan assets, employee turnover, mortality and retirement ages, and future salary increases. Changes in these key assumptions can have a significant impact on the income contributed by the pension plan. We engage the services of an independent actuary and investment consultant to assist us in determining these assumptions and in the calculation of pension income. For example, in 2004, a 1% increase in the assumed long-term rate of return on pension assets would have resulted in a $2.4 million increase in pre-tax income ($1.5 million net of tax). A 1% decrease in the assumed long-term rate of return would have caused an equivalent decrease in pre-tax income. A 1% increase in the assumed discount rate on pension obligations would have resulted in a $0.4 million decrease in pre-tax income ($0.3 million net of tax). A 1% decrease in the assumed discount rate would have resulted in a $0.6 million increase in pre-tax income ($0.4 million net of tax).

     Income Taxes. In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets

      In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R) (“FAS 123(R)”), Share-Based Payment, a revision of FAS 123. FAS 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions), eliminating the alternative previously allowed by FAS 123 to use the intrinsic value method of accounting. The grant date fair value will be estimated using option-pricing models adjusted for the unique characteristics of the instruments using methods similar to those required by FAS 123 and currently used by the Company to calculate pro forma net income and earnings per share disclosures. The cost will be recognized ratably over the period during which the employee is required to provide services in exchange for the award. For public entities like the Company that do not file as small business issuers, FAS 123(R) is effective as of the beginning of the first interim or annual period that begins after June 15, 2005. The Company plans to adopt FAS 123(R) as of July 1, 2005. As a result of adopting FAS 123(R), the Company will recognize as compensation cost in its financial statements the unvested portion of existing options granted prior to the effective date and the cost of stock options granted to employees after the effective date based on the fair value of the stock options at grant date.

      Also in December 2004, the FASB issued Statement of Financial Accounting Standards No. 152, Accounting for Real Estate Time-Sharing Transactions (“FAS 152”). FAS 152 clarifies the accounting for sales and other transactions involving real estate time-sharing transactions and is effective for financial statements for fiscal years beginning after June 15, 2005. Upon adoption, the Company does not expect FAS 152 to have a material effect on its financial position or results of operations.

      Also in December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets (“FAS 153”). FAS 153 eliminates a previous exception from fair value reporting for nonmonetary exchanges of similar productive assets and introduces an exception from fair value reporting for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange is considered to have commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. FAS 153 is applicable to nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005, with earlier application permitted. Upon adoption, the Company does not expect FAS 153 to have a material effect on its financial position or results of operations.

      Net income for 2004 was $90.1 million, or $1.17 per diluted share, compared with $75.9 million, or $0.98 per diluted share, in 2003 and $174.4 million, or $2.14 per diluted share, in 2002. The results for 2003 included a non-cash charge of $8.8 million, or $0.11 per diluted share, to reduce the carrying value of goodwill associated with Advantis Real Estate Services (“Advantis”), our commercial real estate services unit. The results for 2002 included a gain on the forward sale of securities of $86.4 million, or $1.06 per diluted share, and earnings and a net gain on the sale of Arvida Realty Services (“ARS”), our former residential real estate services segment. The gain on sale of ARS was $20.7 million, or $0.25 per diluted share, and earnings from the discontinued operations of ARS were $2.3 million, or $0.03 per diluted share.

      We report revenues from our four operating segments: Towns & Resorts development, commercial real estate development and services, land sales, and forestry. Real estate sales are generated from sales of housing units and developed home sites in our Towns & Resorts development segment, developed and undeveloped land and in-service buildings in our commercial real estate development and services segment

     Revenues and Expenses. The following table sets forth a comparison of the revenues and expenses for the three years ended December 31, 2004.

      The increases in revenues from real estate sales and costs of real estate sales were in each case primarily due to increased sales in the Towns & Resorts development segment and land and building sales in the commercial real estate development and services segment. These increases were partially offset by a decrease in sales of conservation land. Additionally, during 2004, two buildings were sold by the commercial real estate development and services segment and recorded as discontinued operations. Also, in 2004, costs of real estate sales increased due to actual construction costs in excess of estimates at WaterSound Beach, one of our residential communities. (For a more detailed discussion of this increase, see Revenue Recognition — Percentage-of-Completion under Critical Accounting Estimates above.) The increases in realty revenues and cost of realty revenues were in each case primarily due to increases in construction and brokerage activity. The increases in rental revenues and costs of rental revenues were in each case primarily due to the purchase of commercial buildings and, from 2002 to 2003, to improved leased percentages of rental property in the commercial real estate development and services segment. Timber revenue decreased due to a reduction in volume harvested from Company-owned lands and an intentional reduction in production at the cypress mill operation for the purpose of improving margins and profitability, partially offset by price increases. Cost of timber revenues decreased due to lower costs in the timber operation and increased efficiencies in the cypress mill operation. Other revenues and costs of other revenues increased, from 2003 to 2004, primarily due to increases in resale brokerage activity in the Towns & Resorts development segment and, from 2002 to 2003, primarily due to an increase in club

     Corporate Expense. Corporate expense, representing corporate general and administrative expenses, increased $9.3 million, or 27%, to $43.8 million in 2004, from $34.5 million in 2003. The increase was due to increases of $3.8 million in compensation expense on restricted stock issuances, $3.2 million in salaries and other employee benefits, $1.7 million in audit and audit related fees, and $0.6 million in miscellaneous other corporate expenses. Corporate expense increased $7.0 million, or 25%, to $34.5 million in 2003, from $27.5 million in 2002. The increase was primarily due to a $4.3 million decrease in the income contribution from the St. Joe Company Pension Plan, an increase in employee benefit costs of $2.3 million and an increase of $0.4 million in miscellaneous other corporate expenses.

     Depreciation and Amortization. Depreciation and amortization increased $6.7 million, or 24%, to $35.1 million in 2004, compared to $28.4 million in 2003. The increase was due to a $3.3 million increase in depreciation resulting primarily from additional investments in commercial investment property and residential operating property and property, plant and equipment and a $3.4 million increase in amortization resulting from an increase in intangible assets associated with our commercial operating properties. Depreciation and amortization increased $8.3 million, or 41%, to $28.4 million in 2003, compared to $20.1 million in 2002. The increase was due to a $7.4 million increase in depreciation resulting primarily from additional investments in commercial investment property and residential operating property and property, plant and equipment and a $0.9 million increase in amortization resulting from an increase in intangible assets.

     Impairment Losses. During 2004, we recorded a $2.0 million impairment loss related to one of our Towns & Resorts projects in North Carolina pursuant to Statement of Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. During 2003, we recorded an impairment loss to reduce the carrying amount of Advantis’ goodwill from $28.9 million to $14.8 million, pursuant to Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. The impairment related to Advantis resulted in an impairment loss of $14.1 million pre-tax, or $8.8 million net of tax. See note 9 of Notes to Consolidated Financial Statements. Additionally, impairment losses of $0.3 million were recorded in 2003 related to commercial properties. No impairment losses were recorded in 2002.

     Other Income (Expense). Other income (expense) consists of investment income, interest expense, gains on sales and dispositions of assets and other income and, in 2002, gains and losses on the valuation and settlement of forward sale contracts. Other income (expense) was $(9.2) million in 2004, $(6.9) million in 2003, and $122.0 million in 2002.

      The gains and losses on the valuation and settlement of forward sale contracts in 2002 were related to a forward sale transaction that we entered into with a major financial institution in October 1999 that, in effect, provided for the monetization of our long-held portfolio of equity investments which, at December 31, 1998, had a cost of approximately $1.7 million and a fair value of approximately $144 million. Under the forward sale agreement, we received approximately $111.1 million in cash and were required to settle the forward transaction by October 15, 2002, by delivering either the securities or the equivalent value of the securities in cash to the financial institution. The agreement permitted us to retain that amount of the securities representing appreciation up to 20% of their value on October 15, 1999 should the value of the securities increase. The securities were recorded at fair value on the balance sheet and the related unrealized gain, net of tax, was recorded in accumulated other comprehensive income. At the time of entering into the forward sale contracts, we recorded a liability in long-term debt for approximately $111.1 million, subject to increase as interest expense was imputed at an annual rate of 7.9%. The liability was also subject to increase by the amount, if any, that the fair value of the securities increased beyond the retained 20%.

      In 2002, in two separate transactions, we settled our forward sale contracts by delivering equity securities to the financial institution for an aggregate pre-tax gain of $132.9 million. The aggregate liability related to the contracts settled was $135.6 million at the times of settlement and the resulting gain recognized in 2002 was $132.9 million pre-tax.

      Investment income decreased to $0.9 million for both 2004 and 2003 from $2.9 million in 2002, primarily due to lower dividend income resulting from the disposition of securities. Interest expense increased $2.2 million to $12.9 million in 2004 from $10.7 million in 2003, primarily due to an increase in the average amount of debt in 2004. Interest expense decreased $4.9 million to $10.7 million in 2003 compared to $15.6 million in 2002 due to the settlement of the debt related to the forward sale contracts, which was partially offset by interest expense attributable to medium term notes we issued in 2002 and debt secured by commercial buildings. Other income was $2.8 million in 2004, $2.9 million in 2003, and $1.8 million in 2002. Other income included a loss on the valuation of forward sale contracts of $(0.9) million in 2002.

     Equity in Income (Loss) of Unconsolidated Affiliates. We have investments in affiliates that are accounted for by the equity method of accounting. Equity in income (loss) of unconsolidated affiliates totaled $5.6 million in 2004, $(2.2) million in 2003, and $10.9 million in 2002.

      The Towns & Resorts development segment recorded equity in the income (loss) of unconsolidated affiliates of $5.8 million in 2004, $(4.1) million in 2003, and $11.9 million in 2002. The 2004 results were primarily due to increases in closings at two unconsolidated affiliates that are developing residential property in Florida. For 2003 and 2002, equity in income (loss) of unconsolidated affiliates included our 26% limited partnership interest in Arvida/ JMB Partners, L.P. (“Arvida/ JMB”). Arvida/ JMB completed its operations in 2003 and is winding up its affairs. Arvida/ JMB had no contribution to equity in income (loss) of unconsolidated affiliates in 2004, reported a $(3.5) million loss in 2003 made up of a pre-tax charge based on estimates of future costs and future cash distributions associated with the completion of operations, and recorded $13.2 million in income in 2002.

      The commercial real estate development and services segment recorded equity in the income (loss) of unconsolidated affiliates of $(0.2) million in 2004, $1.9 million in 2003, and $(1.0) million in 2002. Included were losses of $(1.5) million in 2004, $(0.3) million in 2003, and $(0.3) million in 2002 related to our 50% interest in Codina Group, Inc. (“Codina”), a commercial services company headquartered in Coral Gables, Florida. We expect Codina to return to profitability in the near term. The remainder of the decrease from 2003 to 2004 is primarily due to the sale in 2003 of our 45% partnership interest in the 355 Alhambra building for a gain of $1.0 million which is included in income of unconsolidated affiliates. The increase from 2002 to 2003 is primarily due to the equity in income of Deerfield, LLC, which increased $2.6 million to $1.4 million in 2003 compared to 2002 due to an increase in income from land sales and decreased $0.3 million to $1.1 million in 2004 compared to 2003 due to decreases in income from land sales as that company’s operations wind down.

     Income Tax Expense. Income tax expense on continuing operations totaled $53.3 million in 2004, $42.2 million in 2003, and $89.0 million in 2002. Our effective tax rate was 38% in 2004, 36% in 2003, and 37% in 2002. Our effective tax rate increased in 2004 due to increases in restricted stock deferred compensation, a portion of which is not deductible for tax purposes. Our effective tax rate decreased in 2003 because the deferred tax liability for state taxes was reduced to reflect the effect of a previously implemented strategy.

     Discontinued Operations. Discontinued operations include the operations and subsequent sales of two commercial office buildings which were sold in 2004, the gain on sale and the operations of ARS and the gain on sale and operations of two commercial office buildings which were sold in 2002. These entities’ results are not included in income from continuing operations.

      On July 30, 2004, we sold 1750 K Street for proceeds of $47.3 million ($21.9 million, net of the assumption of a mortgage by the purchaser) and a pre-tax gain of $7.5 million ($4.6 million, net of taxes). Prior to its sale, during 2004, 2003, and 2002, 1750 K Street generated revenues of $3.4 million,

      We completed the sale of ARS, our wholly-owned subsidiary, on April 17, 2002, with a gain recorded on the sale of $33.7 million before taxes, or $20.7 million net of taxes. Prior to its sale, ARS generated revenues of $76.2 million, operating expenses of $71.7 million and net income of $2.3 million during 2002. Also in 2002, we sold two commercial buildings with aggregate proceeds of $0.3 million and an aggregate pre-tax gain of $0.2 million ($0.1 million, net of taxes). Prior to these sales, these two buildings in total generated less than $0.1 million in revenue and pre-tax income during 2002.

     Towns & Resorts Development. The table below sets forth the results of operations of our Towns & Resorts development segment for the three years ended December 31, 2004.

      Our Towns & Resorts development division develops large-scale, mixed-use communities primarily on land with very low cost basis. We own large tracts of land in Northwest Florida, including significant Gulf of Mexico beach frontage and waterfront properties, and land near Jacksonville, in Deland, and near Tallahassee, the state capital. Our residential homebuilding in North Carolina and South Carolina is conducted through Saussy Burbank, Inc. (“Saussy Burbank”), a wholly owned subsidiary. We made a strategic decision to carefully manage inventories at our beachfront communities and, consequently, we released no new inventory in these communities in the fourth quarter of 2004.

      Real estate sales include sales of homes and home sites and sales of land. Cost of real estate sales for homes and home sites includes direct costs, selling costs and other indirect costs. In 2004, the components

      Sales of homes in 2004 totaled $462.0 million, with related costs of sales of $382.9 million, resulting in a gross profit percentage of 17%, compared to sales of homes in 2003 of $348.4 million, with costs of sales of $287.8 million, resulting in a gross profit percentage of 17%. As discussed above (see Revenue Recognition — Percentage-of-Completion under Critical Accounting Estimates), a small increase in the gross profit percentage was offset by $2.0 million in construction costs that we incurred in 2004 due to contract adjustments on a multi-family property for which substantially all of the activity had been recorded during 2003.

      Cost of real estate sales for homes in 2004 consisted of $323.4 million in direct costs, $24.7 million in selling costs, and $34.8 million in other indirect costs. Cost of real estate sales for homes in 2003 consisted of $242.1 million in direct costs, $17.8 million in selling costs, and $27.9 million in indirect costs.

      Sales of home sites in 2004 totaled $109.8 million, with related costs of sales of $35.5 million, resulting in a gross profit percentage of 68%, compared to sales of home sites in 2003 of $115.7 million, with costs of sales of $43.5 million, resulting in a gross profit percentage of 62%. The increase in gross profit percentage was due to increased pricing at WaterColor, WaterSound Beach, and WindMark Beach, partially offset by increases in the average per-unit costs of sales at WaterColor and Windmark Beach. Cost of real estate sales for home sites in 2004 consisted of $26.6 million in direct costs, $5.2 million in selling costs, and $3.7 million in other indirect costs. Cost of real estate sales for home sites in 2003 consisted of $34.3 million in direct costs, $5.8 million in selling costs, and $3.4 million in indirect costs. There were fewer home sites sold in our resort communities in 2004 compared to 2003 as we continued to manage inventory to maximize value to benefit from expected near-term price increases caused by strong demand in the market.

      The following table sets forth home and home site sales activity by individual developments: