ST JOE CO - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 30, 2004

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to .

Commission file number 1-10466

The St. Joe Company

(Exact name of registrant as specified in its charter)


Florida		59-0432511
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Suite 500, 245 Riverside Avenue, Jacksonville, Florida (Address of principal executive offices)		32202 (Zip Code)

(904) 301-4200

(Registrant’s telephone number, including area code)

None.

(Former name, former address and former fiscal year, if changed since last 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES þ NO o

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of July 30, 2004, there were 102,594,860 shares of common stock, no par value, issued and 76,196,929 shares outstanding, with 26,397,931 shares of treasury stock.

THE ST. JOE COMPANY

INDEX


		Page
		No.

PART I Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets — June 30, 2004 and December 31, 2003		2
	Consolidated Statements of Income — Three months and six months ended June 30, 2004 and 2003		3
	Consolidated Statement of Changes in Stockholders’ Equity — Six months ended June 30, 2004		4
	Consolidated Statements of Cash Flows — Six months ended June 30, 2004 and 2003		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		39
Item 4.	Controls and Procedures		39
PART II	Other Information
Item 1.	Legal Proceedings		40
Item 2.	Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities		40
Item 3.	Defaults upon Senior Securities		N/A
Item 4.	Submission of Matters to a Vote of Security Holders		N/A
Item 5.	Other Information		N/A
Item 6.	Exhibits and Reports on Form 8-K		40
Signatures			42
EX-10.2 Amended and Restated Credit Agreement
EX-10.3 Note Purchase Agreement dated 6-8-04
EX-31.1 Section 302 CEO Certification
EX-31.2 Section 302 CFO Certification
EX-32.1 Section 906 CEO Certification
EX-32.2 Section 906 CFO Certification

PART I. FINANCIAL INFORMATION


Item 1.	*Financial Statements*

THE ST. JOE COMPANY

CONSOLIDATED BALANCE SHEETS


			June 30, 2004			December 31, 2003

			(Unaudited)

			(Dollars in thousands)
ASSETS
Investment in real estate			$	902,009		$	886,076
Cash and cash equivalents				70,797			57,403
Accounts receivable, net				43,987			75,692
Prepaid pension asset				94,570			91,768
Property, plant and equipment, net				35,482			36,272
Goodwill, net				51,600			48,721
Intangible assets, net				38,209			37,795
Other assets				44,607			42,003
Assets held for sale				59,726			—

			$	1,340,987		$	1,275,730

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Debt			$	399,598		$	382,176
Accounts payable				62,674			60,343
Accrued liabilities				118,596			105,524
Deferred income taxes				240,440			232,184
Liabilities of assets held for sale				26,545			—

		Total liabilities		847,853			780,227
Minority interest in consolidated subsidiaries				5,989			8,188
STOCKHOLDERS’ EQUITY:
	Common stock, no par value; 180,000,000 shares authorized; 102,521,712 and 100,824,269 issued at June 30, 2004 and December 31, 2003, respectively			242,132			199,787
	Retained earnings			961,249			944,000
	Restricted stock deferred compensation			(17,245	)		(18,807	)
	Treasury stock at cost, 26,356,181 and 24,794,178 shares held at June 30, 2004 and December 31, 2003, respectively			(698,991	)		(637,665	)

		Total stockholders’ equity		487,145			487,315

			$	1,340,987		$	1,275,730

See notes to consolidated financial statements.

THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF INCOME



				Three Months Ended						Six Months Ended
				June 30,						June 30,

				2004			2003			2004			2003


				(Unaudited)
				(Dollars in thousands except per share amounts)
Revenues:
	Real estate sales			$	177,619		$	142,436		$	313,313		$	256,506
	Realty revenues				23,775			13,453			42,849			25,768
	Timber sales				9,201			10,168			19,076			19,813
	Rental revenues				9,760			7,292			19,224			14,280
	Other revenues				12,190			8,715			19,622			13,437

		Total revenues			232,545			182,064			414,084			329,804

Expenses:
	Cost of real estate sales				114,067			88,610			204,599			153,906
	Cost of realty revenues				15,523			7,400			26,215			14,142
	Cost of timber sales				5,731			6,824			11,756			13,562
	Cost of rental revenues				3,573			3,521			7,432			6,533
	Cost of other revenues				9,989			7,509			16,515			12,699
	Other operating expenses				25,358			21,632			49,327			41,991
	Corporate expense, net				9,451			8,685			18,616			14,691
	Depreciation and amortization				8,353			6,437			16,780			12,363
	Impairment losses				1,994			14,083			1,994			14,083

		Total expenses			194,039			164,701			353,234			283,970

			Operating profit		38,506			17,363			60,850			45,834

Other (expense) income:
	Investment income, net				89			421			200			597
	Interest expense				(2,919	)		(2,521	)		(5,851	)		(5,274	)
	Other, net				564			566			1,256			1,339

		Total other (expense) income			(2,266	)		(1,534	)		(4,395	)		(3,338	)

Income from continuing operations before equity in income (loss) of unconsolidated affiliates, income taxes, and minority interest					36,240			15,829			56,455			42,496
Equity in income (loss) of unconsolidated affiliates					931			7			1,639			(3,739	)
Income tax expense					14,209			5,690			22,276			14,263

Income from continuing operations before minority interest					22,962			10,146			35,818			24,494
Minority interest					397			431			480			680

Income from continuing operations					22,565			9,715			35,338			23,814

Discontinued operations:
	Income from discontinued operations (net of income taxes of $111, $130, $222 and $305 respectively)				184			216			371			508

		Total income from discontinued operations			184			216			371			508

		Net income		$	22,749		$	9,931		$	35,709		$	24,322

EARNINGS PER SHARE
Basic
Income from continuing operations				$	0.30		$	0.13		$	0.47		$	0.32
Earnings from discontinued operations					—			—			—			—

		Net income		$	0.30		$	0.13		$	0.47		$	0.32

Diluted
Income from continuing operations				$	0.30		$	0.13		$	0.46		$	0.31
Earnings from discontinued operations					—			—			—			—

		Net income		$	0.30		$	0.13		$	0.46		$	0.31

See notes to consolidated financial statements.

THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2004



		Common Stock									Restricted Stock
								Retained			Deferred			Treasury
		Shares			Amount			Earnings			Compensation			Stock			Total


		(Unaudited)

		(Dollars in thousands, except per share amounts)
Balance at December 31, 2003			76,030,091		$	199,787		$	944,000		$	(18,807	)	$	(637,665	)	$	487,315
Comprehensive income:
	Net income		—			—			35,709			—			—			35,709

Total comprehensive income			—			—			—			—			—			35,709

Issuances of restricted stock			38,365			1,515			—			(1,515	)		—			—
Forfeitures of restricted stock			(1,050	)		(42	)					42
Dividends ($.24 per share)			—						(18,460	)		—			—			(18,460	)
Issuances of common stock			1,660,128			25,632			—			—			—			25,632
Tax benefit on exercises of stock options			—			15,240			—			—			—			15,240
Amortization of restricted stock deferred compensation			—			—			—			3,035			—			3,035
Purchases of treasury shares, including surrenders of shares by executives			(1,562,003	)		—			—			—			(61,326	)		(61,326	)

Balance at June 30, 2004			76,165,531		$	242,132		$	961,249		$	(17,245	)	$	(698,991	)	$	487,145

See notes to consolidated financial statements.

THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOW



				Six Months Ended
				June 30,

				2004			2003


				(Unaudited)

				(Dollars in thousands)
Cash flows from operating activities:
	Net income			$	35,709		$	24,322
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			18,246			13,752
		Minority interest in income			480			680
		Equity in (income) loss of unconsolidated joint ventures			(1,639	)		3,739
		Distributions from unconsolidated towns & resorts joint ventures			2,000			5,310
		Deferred income tax expense			8,256			5,710
		Impairment losses			1,994			14,083
		Tax benefit on exercise of stock options			15,240			8,602
		Cost of operating properties sold			189,068			154,139
		Expenditures for operating properties			(237,478	)		(175,393	)
		Changes in operating assets and liabilities:
			Accounts receivable		18,877			(60,857	)
			Other assets and deferred charges		(21,398	)		(8,650	)
			Accounts payable and accrued liabilities		13,923			16,188
			Income taxes payable		(1,716	)		—
		Cash of discontinued operations			(696	)		—

Net cash provided by operating activities				$	40,866		$	1,625

Cash flows from investing activities:
	Purchases of property, plant and equipment				(6,411	)		(2,989	)
	Purchases of investments in real estate				(23,781	)		(11,952	)
	Investments in joint ventures and purchase business acquisitions, net of cash received				631			(3,163	)
	Proceeds from dispositions of assets				11,848			—
	Maturities and redemptions of short-term investments, net of purchases				—			250

Net cash used in investing activities				$	(17,713	)	$	(17,854	)

Cash flows from financing activities:
	Proceeds from revolving credit agreements, net of repayments				(40,000	)		15,000
	Proceeds from other long-term debt				118,208			14,520
	Repayments of other long-term debt				(46,651	)		(782	)
	Proceeds from exercises of stock options and stock purchase plan				8,230			15,090
	Dividends paid to stockholders				(18,460	)		(6,179	)
	Treasury stock purchases				(31,086	)		(45,731	)

Net cash used in financing activities				$	(9,759	)	$	(8,082	)

Net increase in cash and cash equivalents					13,394			(24,311	)
Cash and cash equivalents at beginning of year					57,403			73,273

Cash and cash equivalents at end of year				$	70,797		$	48,962

See notes to consolidated financial statements.

THE ST. JOE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Basis of Presentation

The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States for complete financial statements are not included herein. The interim statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2004 and December 31, 2003 and the results of operations and cash flows for the three-month and six-month periods ended June 30, 2004 and 2003. The results of operations and cash flows for the three-month and six-month periods ended June 30, 2004 and 2003 are not necessarily indicative of the results that may be expected for the full year.

At June 30, 2004, the Company had plans in place to sell two of its commercial buildings. On July 30, 2004, one of these office buildings was sold. The assets and liabilities related to these buildings have been included on the June 30, 2004 balance sheet as assets held for sale and liabilities related to assets held for sale. The consolidated income statements and notes to consolidated financial statements reflect the two buildings as discontinued operations for all periods presented.


2.	Summary of Significant Accounting Policies


	*Principles of Consolidation*

In December 2003, the FASB issued Interpretation No. 46R (“FIN 46R”), Consolidation of Variable Interest Entities, to replace Interpretation No. 46 (“FIN 46”) which was issued in January 2003. FIN 46R addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and whether it should consolidate the entity. FIN 46R is applicable immediately to variable interest entities created after January 31, 2003 and as of the first interim period ending after March 15, 2004 to those created before February 1, 2003 and not already consolidated under FIN 46 in previously issued financial statements. The Company did not create any significant variable interest entities before February 1, 2003 or after January 31, 2003. The Company has adopted FIN 46R, analyzed the applicability of this interpretation to its structures, and determined that the Company is not a party to any variable interest entities that should be consolidated.

In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“FAS 150”). FAS 150 affects the accounting for certain financial instruments, including requiring companies having consolidated entities with specified termination dates to treat minority owner’s interests in such entities as liabilities in an amount based on the fair value of the entities. Although FAS 150 was originally effective July 1, 2003, the FASB has indefinitely deferred certain provisions related to classification and measurement requirements for mandatorily redeemable financial instruments that become subject to FAS 150 solely as a result of consolidation. As a result, FAS 150 has no impact on the Company’s Consolidated Statements of Income for the six months ended June 30, 2004. The Company has two consolidated entities with specified termination dates: Artisan Park, L.L.C. (“Artisan Park”) and Westchase Development Venture, L.C. (“Westchase”). At June 30, 2004, the carrying amounts of the minority interests in Artisan Park and Westchase were $5.4 million and $0.5 million, respectively. These carrying amounts approximate their fair value. The Company has no other material financial instruments that are affected currently by FAS 150.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Stock-Based Compensation*

Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“FAS 123”), permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, FAS 123 also allows entities to apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value based method defined in FAS 123 has been applied. Under APB 25, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price.

Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“FAS 148”), requires prominent disclosure in both annual and interim financial statements of the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As permitted under FAS 148 and FAS 123, the Company has elected to continue to apply the provisions of APB 25 and provide the pro forma disclosure provisions of FAS 148 and FAS 123. Accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements.

Had the Company determined compensation costs based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net income would have been reduced to the pro forma amounts indicated below (in thousands except per share amounts):



	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2004			2003			2004			2003

Net income:
Net income as reported	$	22,749		$	9,931		$	35,709		$	24,322
Add: stock-based employee compensation expense included in reported net income, net of related tax effects		927			148			1,897			280
Deduct: total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(2,042	)		(2,159	)		(4,184	)		(3,336	)

Net income — pro forma	$	21,634		$	7,920		$	33,422		$	21,266

Per share — Basic:
Earnings per share as reported	$	0.30		$	0.13		$	0.47		$	0.32
Earnings per share — pro forma	$	0.29		$	0.10		$	0.44		$	0.28
Per share — Diluted:
Earnings per share as reported	$	0.30		$	0.13		$	0.46		$	0.31
Earnings per share — pro forma	$	0.28		$	0.10		$	0.44		$	0.27


	*Earnings Per Share*

Earnings per share (“EPS”) is based on the weighted average number of common shares outstanding during the period. Diluted EPS assumes weighted average options have been exercised to purchase 1,118,203 and 1,866,731 shares of common stock in the three months ended June 30, 2004 and 2003, respectively, net of assumed repurchases using the treasury stock method. Diluted EPS assumes weighted average options have been exercised to purchase 1,454,839 and 2,097,540 shares of common stock in the six months ended June 30, 2004 and 2003, respectively, net of assumed repurchases using the treasury stock method.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

From August 1998 through June 30, 2004, the Board of Directors authorized a total of $800.0 million for the repurchase of the Company’s outstanding common stock from time to time on the open market (the “Stock Repurchase Program”), of which a total of approximately $637.9 million had been expended through June 30, 2004. The Alfred I. duPont Testamentary Trust (the “Trust”) and its beneficiary, The Nemours Foundation (the “Foundation”), have participated in the Stock Repurchase Program from time to time by selling weekly to the Company shares equal to a share multiplier (0.31 as of May 8, 2004) times the number of shares the Company purchased from the public during the previous week (the “public shares”) at a price equal to the volume weighted average price, excluding commissions, paid by the Company for the public shares, subject to a minimum sales price ($37.00 per share through August 6, 2004). The most recent stock repurchase agreement with the Trust expired on August 6, 2004 and the Company has no immediate plans to renew the agreement.

From the inception of the Stock Repurchase Program to June 30, 2004, the Company repurchased 16,606,866 shares on the open market and 7,908,755 shares from the Trust and the Foundation. In addition, executives surrendered 1,929,089 shares as payment for strike prices and taxes due on exercised stock options and taxes due on vested restricted stock. During the six months ended June 30, 2004, the Company repurchased 549,000 shares on the open market and 235,775 shares from the Trust and the Foundation and 777,228 shares were surrendered to the Company by executives as payment for the strike price and taxes due on exercised stock options and taxes due on vested restricted stock. During the six months ended June 30, 2003, the Company repurchased 924,400 shares on the open market and 678,960 shares from the Trust and the Foundation and executives surrendered 341,884 shares of Company stock as payment for the strike price and taxes due on exercised stock options and taxes due on vested restricted stock.

Shares of Company stock issued upon the exercise of stock options for the six months ended June 30, 2004 and 2003 were 1,660,128 shares and 1,634,822 shares, respectively.

Weighted average basic and diluted shares, taking into consideration shares issued, weighted average unvested restricted shares, weighted average options used in calculating EPS and treasury shares repurchased for each of the periods presented are as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2004		2003		2004		2003

Basic		75,351,505		75,869,185		75,645,560		75,937,511
Diluted		76,695,142		77,735,916		77,213,116		78,035,051


	*Supplemental Cash Flow Information*

The Company paid $10.5 million and $10.0 million for interest in the first six months of 2004 and 2003, respectively. The Company paid income taxes of $2.1 million, net of refunds, in the first six months of 2004 and received income tax refunds, net of payments made, of $3.1 million in the first six months of 2003. The Company capitalized interest expense of $4.1 million and $4.2 million during the first six months of 2004 and 2003, respectively.

The Company’s non-cash activities included the execution of a debt agreement in payment for an interest in a new unconsolidated affiliate, the surrender of shares of Company stock by executives of the Company as payment for the exercise of stock options and the tax benefit on exercises of stock options. During the first quarter of 2004, the Company executed a debt agreement in the amount of $11.4 million as payment for its interest in a new unconsolidated affiliate. (See Note 4.) During the six months ended June 30, 2004 and 2003, executives surrendered Company stock worth $17.4 million and $6.5 million, respectively, as payment for the strike price of stock options.

Cash flows related to residential and commercial real estate development activities are included in operating activities on the statements of cash flows.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Percentage of Completion Adjustment*

Revenue for the Company’s multi-family residences under construction at WaterSound Beach is recognized, in accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate (FAS 66), using the percentage-of-completion method of accounting. Under this method, revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. Since the project was substantially completed as of December 31, 2003, the Company had recorded substantially all of the activity related to this property during the year ended December 31, 2003. During the period ended March 31, 2004, the Company incurred $2.0 million in construction costs for contract adjustments related to the project. These costs represented changes to the original construction cost estimates for this project. Had these costs been quantified in 2003, they would have been included within the Company’s budgets and thus have had an impact on its results for the year ended December 31, 2003. If these costs had been included within 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 percentage of revenue would also have been recognized. The results for the six months ended June 30, 2004 would have been increased by $3.6 million (pre-tax), $2.3 million (after tax).

Management has evaluated the impact of this item, which represented 3% of net income ($0.03 per diluted share) for the year ended December 31, 2003, and concluded that it is not significant to its 2003 results of operations. In addition, while the impact of this item would increase net income for the first six months of 2004 by 6% ($0.03 per diluted share), management has concluded that it is not expected to be significant to its results of operations for the year ending December 31, 2004, based upon its current forecast for the full year period.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


3.	Investment in Real Estate

Real estate investments by segment include the following (in thousands):


		June 30, 2004		December 31, 2003

Operating property:
	Towns & resorts development	$	74,911	$	74,547
	Commercial real estate		27,089		94,904
	Land sales		942		959
	Forestry		78,362		80,617
	Other		1,844		2,225

Total operating property			183,148		253,252

Development property:
	Towns & resorts development		307,754		262,893
	Land sales		7,763		5,591

Total development property			315,517		268,484

Investment property:
	Commercial real estate		380,671		350,456
	Land sales		182		167
	Forestry		973		981
	Other		3,993		4,802

Total investment property			385,819		356,406

Investment in unconsolidated affiliates:
	Towns & resorts development		34,070		22,625
	Commercial real estate development and services		12,629		15,745

Total investment in unconsolidated affiliates			46,699		38,370

Total real estate investments			931,183		916,512
Less: Accumulated depreciation			29,174		30,436

Net real estate investments		$	902,009	$	886,076

Included in operating property are Company-owned amenities related to towns & resorts development, the Company’s timberlands and land and buildings developed by the Company and used for commercial rental purposes. Development property consists of towns & resorts development land and inventory currently under development to be sold. Investment property includes the Company’s commercial buildings purchased with tax-deferred proceeds and land held for future use.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


4.	Debt

Debt consists of the following (in thousands):


		June 30, 2004		December 31, 2003

Senior notes		$	275,000	$	175,000
Debt secured by certain commercial and residential property			109,303		163,026
Senior revolving credit facility			—		40,000
Various secured and unsecured notes payable			15,295		4,150

	Total debt	$	399,598	$	382,176

During the first quarter, the Company entered into a debt agreement with a new joint venture in the amount of $11.4 million. The other party to the joint venture contributed land with a fair value of equal amount. This debt reflects the Company’s agreement to pay all of the expenses of the joint venture up to the amount of principal and interest owed. Thereafter, all expenses of the joint venture will be shared equally. The $11.4 million debt bears interest at one-month LIBOR plus 100 basis points. The principal is due at the earlier of December 31, 2008 or the date of the first partnership distribution. Interest is payable annually on the anniversary of the date of the agreement.

On June 8, 2004, the Company issued senior notes in a private placement with an aggregate principal amount of $100 million, with $25 million maturing on June 8, 2009 with a fixed interest rate of 4.97% and $75 million maturing on June 8, 2011 with a fixed interest rate of 5.31%. Interest will be payable semiannually. The notes, as well as the $175 million senior notes issued previously, contain financial covenants similar to those in the Company’s $250.0 million senior revolving credit facility.

The aggregate maturities of debt subsequent to June 30, 2004 are as follows: 2004, $0.7 million; 2005, $20.2 million; 2006, $3.7 million; 2007, $70.1 million; 2008, $86.0 million; thereafter, $218.9 million.


5.	Employee Benefit Plans

A summary of the net periodic pension credit follows (in thousands):



		Three Months Ended						Six Months Ended

		June 30, 2004			June 30, 2003			June 30, 2004			June 30, 2003

Service cost		$	1,200		$	1,416		$	2,400		$	2,831
Interest cost			2,100			2,527			4,200			5,055
Expected return on assets			(4,900	)		(5,264	)		(9,800	)		(10,529	)
Actuarial gain			—			—			—			—
Prior service costs			200			221			400			443
Curtailment loss			—			—			—			—

	Total pension income	$	(1,400	)	$	(1,100	)	$	(2,800	)	$	(2,200	)


6.	Segment Information

The Company conducts primarily all of its business in four reportable operating segments: towns & resorts development, commercial real estate development and services, land sales, and forestry. The towns & resorts development segment develops and sells housing units and homesites and manages residential communities. The commercial real estate development and services segment owns, leases, and manages commercial, retail, office and industrial properties throughout the Southeast and sells developed and undeveloped land and buildings. The land sales segment sells parcels of land included in the Company’s vast holdings of timberlands. The forestry segment produces and sells pine pulpwood and timber and cypress products.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company uses earnings before interest, taxes, depreciation and amortization (“EBITDA”) as a supplemental performance measure, along with net income, to report operating results. The Company’s management believes EBITDA is an important metric commonly used by companies in the real estate industry for comparative performance purposes. EBITDA is not a measure of operating results or cash flows from operating activities as defined by generally accepted accounting principles (“GAAP”). Additionally, EBITDA is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to cash flows as a measure of liquidity. However, management believes that EBITDA provides relevant information about the Company’s operations and, along with net income, is useful in understanding the Company’s operating results.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Total revenues represent sales to unaffiliated customers, as reported in the Company’s consolidated income statements. All intercompany transactions have been eliminated. The caption entitled “Other” primarily consists of general and administrative expenses, net of investment income.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information by business segment follows:



			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2004			2003			2004			2003

Total Revenues:
	Towns & resorts development		$	171,011		$	125,414		$	276,683		$	215,102
	Commercial real estate development and services			38,357			29,792			81,637			55,134
	Land sales			13,996			16,710			36,731			39,668
	Forestry			9,193			10,158			19,053			19,782
	Other			(12	)		(10	)		(20	)		118

		Total revenues	$	232,545		$	182,064		$	414,084		$	329,804

EBITDA:
	Towns & resorts development		$	39,672		$	26,120		$	53,690		$	37,460
	Commercial real estate development and services			7,833			(5,805	)		15,643			2,629
	Land sales			10,447			12,860			29,353			30,558
	Forestry			3,438			3,275			7,250			6,222
	Other			(9,539	)		(8,748	)		(18,798	)		(14,779	)

	EBITDA		$	51,851		$	27,702		$	87,138		$	62,090
Adjustments to reconcile to income from continuing operations:
	Depreciation and amortization		$	(8,537	)	$	(6,435	)	$	(17,156	)	$	(12,361	)
	Interest expense			(5,081	)		(4,434	)		(9,454	)		(8,634	)
	Income tax expense			(14,209	)		(5,690	)		(22,276	)		(14,263	)
	Discontinued operations			(1,471	)		(1,475	)		(2,956	)		(3,110	)
	Minority interest			12			47			42			92

		Income from continuing operations	$	22,565		$	9,715		$	35,338		$	23,814


			June 30, 2004		December 31, 2003

Total Assets:
	Towns & resorts development		$	498,297	$	465,290
	Commercial real estate development and services			544,246		527,157
	Land sales			15,442		15,093
	Forestry			91,240		90,837
	Other corporate assets			191,762		177,353

		Total assets	$	1,340,987	$	1,275,730


7.	Contingencies

The Company and its affiliates are involved in litigation on a number of matters and are subject to various 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 the Company’s 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company has 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.

At June 30, 2004, the Company was party to surety bonds and standby letters of credit in the amounts of $27.9 million and $15.1 million, respectively, which may potentially result in liability to the Company if certain obligations of the Company are not met.

The Company is not liable as guarantor on any credit obligations that related to unconsolidated affiliates in accordance with Financial Accounting Standards Board Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.

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 and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals will be reviewed and adjusted, if necessary, as additional information becomes available.

Pursuant to the terms of various agreements by which the Company disposed of its sugar assets in 1999, the Company is 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. The Company has separately funded the costs of remediation. In addition, approximately $1.7 million is being held in escrow representing the value of the land subject to remediation. Remediation was substantially completed in 2003. The Company expects remaining remediation to be complete by the end of the third quarter and the amounts held in escrow to be released to the Company after the third quarter of 2004.

The Company is currently a party to, or involved in, legal proceedings directed at the cleanup of Superfund sites. The Company is also involved in regulatory proceedings related to the Company’s former mill site in Gulf County, Florida. The Company has accrued an allocated share of the total estimated cleanup costs for these sites. Based upon management’s evaluation of the other potentially responsible parties, the Company does not expect to incur additional amounts even though the Company has joint and several liability. Other proceedings involving environmental matters such as alleged discharge of oil or waste material into water or soil are pending or threatened against the Company. 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 the Company’s 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. Aggregate environmental-related accruals were $4.2 million and $4.0 million as of June 30, 2004 and December 31, 2003, respectively.


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

Overview

The St. Joe Company is one of Florida’s largest real estate operating companies. We have one of the largest inventories of private land suitable for development in the State of Florida, with 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, homesites, 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:

• the sale of housing units built by us;

• the sale of developed homesites;

• rental income;

• club operations;

• investments in limited partnerships and joint ventures;

• brokerage and title issuance fees; and

• management fees.

Our commercial real estate development and services segment generates revenues from:

• the rental of commercial properties owned by us;

• the sale of developed and undeveloped land and in-service buildings;

• realty revenues, consisting of property and asset management fees, construction management fees and lease and sales brokerage commissions;

• development fees; and

• investments in limited partnerships and joint ventures.

Our land sales segment generates revenues from:

• the sale of parcels of undeveloped land; and

• the sale of developed rural homesites.

Our forestry segment generates revenues from:

• the sale of pulpwood and timber;

• the sale of cypress, lumber and mulch; and

• the sale of bulk land.

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, particularly primary housing, commercial properties we develop or sell, and lots we develop. However, we currently 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 local competitors’ product offerings to evaluate the competitive position of our products. We are being 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. 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 next two to five years.

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.

Forward Looking Statements

This report 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. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about our business, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2003, those described from time to time in other filings with the Securities and Exchange Commission, and the following:

• Economic conditions, particularly in Northwest Florida, Florida as a whole and key areas of the southeastern United States that serve as feeder markets to our Northwest Florida operations;

• Acts of war or terrorism or other geopolitical events;

• Local conditions such as an oversupply of homes and homesites and residential or resort properties or a reduction in the demand for real estate in an area;

• Timing and costs associated with property developments and rentals;

• The pace of commercial development in Northwest Florida;

• Competition from other real estate developers;

• Whether potential residents or tenants consider our properties attractive;

• Increases in operating costs, including increases in real estate taxes and the cost of construction materials;

• Changes in the amount or timing of federal and state income tax liabilities resulting from either a change in our application of tax laws, an adverse determination by a taxing authority or court, or legislative changes to existing laws;

• How well we manage our properties;

• Changes in interest rates and the performance of the financial markets;

• Decreases in market rental rates for our commercial and resort properties;

• Changes in the prices of wood products;

• The development of public infrastructure, particularly in Northwest Florida, including a proposed new airport in Bay County which is dependent on approvals of the local airport authority and the Federal Aviation Administration and the availability of adequate funding;

• Potential liability under environmental laws or other laws or regulations;

• Adverse changes in laws, regulations or the regulatory environment affecting the development of real estate;

• The availability of adequate funding from governmental agencies and others to purchase conservation lands;

• Fluctuations in the size and number of transactions from period to period; and

• Adverse weather conditions or natural disasters.

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-Q not to occur.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with 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.

The critical accounting policies that we believe reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements are set forth in Item 7 of our annual report on Form 10-K for the year ended December 31, 2003. There have been no significant changes in these policies during the first six months of 2004.

Investments in Real Estate and Cost of Real Estate Sales. Revenue for the Company’s multi-family residences under construction at WaterSound Beach is recognized, in accordance with FAS 66, using the percentage-of-completion method of accounting. Under this method, revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. Since the project was substantially completed as of December 31, 2003, the Company had recorded substantially all of the activity related to this property during the year ended December 31, 2003. During the period ended March 31, 2004, the Company incurred $2.0 million in construction costs for contract adjustments related to the project. These costs represented changes to the original construction cost estimates for this project. Had these costs been quantified in 2003, they would have been included within its budgets and thus have had an impact on its results for the year ended December 31, 2003. If these costs had been included within 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 percentage of revenue would also have been recognized. The results for the six months ended June 30, 2004 would have been increased by $3.6 million (pre-tax), $2.3 million (after tax).

Results of Operations

Net income for the second quarter of 2004 was $22.7 million, or $0.30 per diluted share, compared with $9.9 million, or $0.13 per diluted share, for the second quarter of 2003. Net income for the first six months of 2004 was $35.7 million, or $0.46 per diluted share, compared with $24.3 million, or $0.31 per diluted share, for the first six months of 2003. Net income for the 2003 periods included a non-cash charge of $8.8 million net of tax, or $0.11 per share, to reduce the carrying value of goodwill associated with Advantis Real Estate Services (“Advantis”), the company’s commercial real estate services unit. Net income for the second quarter of 2004 included after tax conservation land sales gains of $1.5 million, or $0.02 per share, compared to $3.2 million, or $0.04 per share, in the first quarter of 2003. Net income for the first six months of 2004 included after tax conservation land sales gains of $1.5 million, or $0.02 per share, compared to $11.4 million, or $0.15 per share, in the first six months of 2003.

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 homesites in our towns & resorts development segment, developed and undeveloped land and in-service buildings in our commercial real estate development and services segment, parcels of undeveloped land and developed rural sites in our land sales segment and occasionally sales of bulk land from our forestry segment. Realty revenues, consisting of property and asset management fees, construction management fees, and lease and sales commissions, are generated from the commercial real estate development and services segment. Timber sales are generated from the forestry segment. Rental revenue is generated primarily from lease income related to our portfolio of investment and development properties as a component of the commercial real estate development and services segment. Other revenues are primarily club operations and management fees from the towns & resorts development segment and development fees from the commercial real estate development and services segment.

Consolidated Results

Revenues and expenses. The following table sets forth a comparison of the revenues and expenses for the three–month and six-month periods ended June 30, 2004 and 2003.



			Three Months Ended June 30,										Six Months Ended June 30,

			2004		2003		Difference			% Change			2004		2003		Difference			% Change


			(Dollars in millions)
Revenues:
	Real estate sales		$	177.6	$	142.4	$	35.2			25	%	$	313.3	$	256.5	$	56.8			22	%
	Realty			23.8		13.5		10.3			76			42.8		25.8		17.0			66
	Timber sales			9.2		10.2		(1.0	)		(10	)		19.1		19.8		(0.7	)		(4	)
	Rental			9.7		7.3		2.4			33			19.2		14.3		4.9			34
	Other			12.2		8.7		3.5			40			19.6		13.4		6.2			46

		Total		232.5		182.1		50.4			28			414.0		329.8		84.2			26

Expenses:
	Cost of real estate sales			114.1		88.6		25.5			29			204.6		153.9		50.7			33
	Cost of realty revenues			15.5		7.4		8.1			109			26.2		14.1		12.1			86
	Cost of timber sales			5.7		6.8		(1.1	)		(16	)		11.8		13.6		(1.8	)		(13	)
	Cost of rental revenues			3.6		3.5		0.1			3			7.4		6.5		0.9			14
	Cost of other revenues			10.0		7.5		2.5			33			16.5		12.7		3.8			30
	Other operating expenses			25.3		21.6		3.7			17			49.3		42.0		7.3			17

		Total	$	174.2	$	135.4	$	38.8			29	%	$	315.8	$	242.8	$	73.0			30	%

The increases in revenues from real estate sales and cost of real estate sales were in each case primarily due to increased sales in the towns & resorts development segment and, in the six months ended June 30, 2004, to the sale of a building in the commercial real estate development and services segment. Additionally, in the six months ended June 30, 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 “Critical Accounting Estimates — Investment in Real Estate and Cost of Real Estate Sales.” The increase in realty revenues was primarily due to increases in construction and brokerage revenues. The increase in cost of realty revenues was primarily associated with the increased revenues. The increases in rental revenues and cost of rental revenues were in each case primarily due to an increase in our investment in operating properties and improved leased percentages of rental property in the commercial real estate development and services segment. Timber revenue decreased due to a decrease in demand. Cost of timber revenues decreased primarily due to increased efficiencies in the cypress mill operation. Other revenues and cost of other revenues increased primarily due to increases in the towns & resorts development segment’s club operations. Other operating expenses increased primarily due to increases in marketing and project administration costs in the towns & resorts development segment and staffing costs in the commercial real estate development and services segment. For further discussion of revenues and expenses, see Segment Results below.

Corporate expense. Corporate expense, which represents corporate general and administrative expenses, increased $0.8 million, or 9%, to $9.5 million in the second quarter of 2004, from $8.7 million in the second quarter of 2003. The increase was due to an increase of $1.4 million in compensation expense on restricted stock issuances and $0.8 million in miscellaneous corporate expenses, including increased audit and audit related fees, offset by an increase of $0.3 million in pension income and a decrease of $1.1 million in other employee benefits expenses. Corporate expense increased $3.9 million, or 27%, to $18.6 million in the first six months of 2004, from $14.7 million in the first six months of 2003. The increase was due to an increase of $1.8 million in compensation expense on restricted stock issuances, $0.7 million in other employee benefits expenses, and $1.4 in miscellaneous other corporate expenses, including increased audit and audit related fees.

Depreciation and amortization. Depreciation and amortization increased $2.0 million, or 31%, to $8.4 million in the second quarter of 2004, compared to $6.4 million in the second quarter of 2003. The increase was due to a $1.1 million increase in depreciation resulting primarily from additional investments in commercial and residential operating property and property, plant and equipment and a $0.9 million increase in amortization resulting from an increase in intangible assets associated with our commercial operating properties. Depreciation and amortization increased $4.4 million, or 35%, to $16.8 million in the first six months of 2004, compared to $12.4 million in the first six months of 2003. The increase was due to a $2.0 million increase in depreciation resulting primarily from additional investments in commercial and residential operating property and property, plant and equipment and a $2.4 million increase in amortization resulting from an increase in intangible assets.

Impairment losses. During the second quarter of 2004, we recorded a $2.0 million impairment loss related to one of our towns & resorts development projects in North Carolina. During the second quarter of 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. This resulted in an impairment loss of $14.1 million pre-tax, or $8.8 million net of tax.

Other (expense) income. Other (expense) income was made up of investment income, interest expense, gains on sales and dispositions of assets and other income. Other income (expense) was $(2.3) million in the second quarter of 2004 and $(1.5) million in the second quarter of 2003. Other income (expense) was $(4.4) million in the first six months of 2004 and $(3.3) million in the first six months of 2003. Interest expense was higher in the 2004 periods due to new borrowings.

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 $0.9 million in the second quarter of 2004 and less than $0.1 million in the second quarter of 2003. Equity in income (loss) of unconsolidated affiliates totaled $1.6 million in the first six months of 2004 and $(3.7) million in the first six months of 2003.

The towns & resorts development segment recorded equity in the income (loss) of unconsolidated affiliates of $1.0 million for the second quarter of 2004, compared to $(0.2) million for the second quarter of 2003. The increase was primarily due to an increase in closings at Paseos and Rivercrest, two 50% owned

unconsolidated affiliates. The towns & resorts development segment recorded equity in the income (loss) of unconsolidated affiliates of $2.0 million for the first six months of 2004, compared to $(4.1) million for the first six months of 2003. Equity in the income (loss) of unconsolidated affiliates for the first six months of 2003 included a $(3.5) million pre-tax charge representing estimates of future costs and future cash distributions associated with the completion of operations of Arvida / JMB Partners, L.P. (“Arvida/ JMB”), which completed its operations in 2003 and is winding up its affairs. Arvida/ JMB had no contribution to equity in (loss) income of unconsolidated affiliates in the first six months of 2004. Equity in the income (loss) of other joint ventures increased $2.7 million from $(0.6) million for the first six months of 2003 to $2.0 million for the first six months of 2004, primarily as a result of an increase in closings of residential sales at these unconsolidated affiliates.

The commercial real estate development and services segment recorded equity in the income (loss) of unconsolidated affiliates of $(0.1) million in the second quarter of 2004, compared to $0.2 million in the second quarter of 2003 and $(0.4) million in the first six months of 2004, compared to $0.4 million in the first six months of 2003. Included were losses related to our 50% interest in the Codina Group, Inc. (“Codina”), a commercial services company in Coral Gables, Florida, in the amounts of $(0.7) million and $(0.3) million for the quarters ended June 30, 2004 and 2003, respectively, and $(0.9) million for the six months ended June 30, 2004. We recognized income of $0.4 million related to our investment in Codina for the six months ended June 30, 2003. Although the first six months of 2004 results were negative, we expect Codina to return to profitability in the near term.

Income tax expense. Income tax expense totaled $14.2 million in the three months ended June 30, 2004 and $5.7 million in the three months ended June 30, 2003. Our effective tax rate was 39% and 37% in the three month periods ended June 30, 2004 and 2003, respectively. Income tax expense totaled $22.3 million in the first six months of 2004 and $14.3 million in first six months of 2003. Our effective tax rate was 39% and 37% in the six month periods ended June 30, 2004 and 2003, respectively. The increase was due to an increase in restricted stock deferred compensation, a portion of which is not deductible for tax purposes.

Segment Results


	*Towns & Resorts Development*

The table below sets forth the results of operations of our towns & resorts development segment for the three month and six month periods ended June 30, 2004 and 2003.



			Three Months					Six Months
			Ended June 30,					Ended June 30,

			2004			2003		2004			2003


			(In millions)
Revenues:
	Real estate sales		$	158.9		$	117.0	$	257.3		$	202.6
	Rental revenues			0.3			0.3		0.5			0.4
	Other revenues			11.8			8.1		18.9			12.1

		Total revenues		171.0			125.4		276.7			215.1

Expenses:
	Cost of real estate sales			110.3			82.7		186.6			143.9
	Cost of rental revenues			0.1			0.5		0.5			0.9
	Cost of other revenues			9.6			7.5		16.0			12.5
	Other operating expenses			12.1			9.9		23.1			19.0
	Depreciation and amortization			2.4			1.8		4.9			3.5
	Impairment loss			2.0			—		2.0			—

		Total expenses		136.5			102.4		233.1			179.8

Other income (expense)				(0.1	)		—		(0.1	)		0.1

Pretax income from continuing operations			$	34.4		$	23.0	$	43.5		$	35.4

Our towns & resorts development division develops large-scale, mixed-use communities primarily on land we have owned for a long period of time. 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.

Northwest Florida

WaterColor is situated on approximately 499 acres on the beaches of the Gulf of Mexico in south Walton County, Florida. We are building single-family and multi-family residences and selling developed homesites in WaterColor. At full build-out, the community is planned to include approximately 1,140 units, a beach club, tennis center, boat house, restaurant on an inland freshwater lake, a 60-room inn and restaurant, commercial space and parks. Among the amenities are the beach club and several community pools, the boat house, a fitness center, the Fresh Daily Market, the tennis facility, the Watercolor Inn and Fish Out of Water restaurant. Predevelopment activity continues for phase four, with development scheduled to begin later in 2004. Phase four, a 60-acre parcel on the east side of County Road 395, is planned to include approximately 185 units. Construction of the 11 residential units at the WaterColor Private Residence Club (“PRC”), adjacent to the WaterColor Inn, is expected to be completed in late 2004. Each PRC owner receives a deed to 1/8 interest in a specific residence and is entitled to a minimum of five weeks per year in that residence. From WaterColor’s inception through June 30, 2004, total contracts accepted or closed totaled 764 homes and homesites and 49 Private Residence Club (“PRC”) shares.

WaterSound Beach is located approximately four miles east of WaterColor. Situated on approximately 256 acres, this gated beachfront community is currently expected to have 499 units at full build-out. Construction has started on the initial 49 units of Compass Point, a 92-unit neighborhood of multi-family

residences. As of June 30, 2004, contracts had been accepted for 24 units in Compass Point II, with another contract expected to be accepted in the third quarter of 2004. At Compass Point I, 24 units are scheduled to be released for sale in the third quarter of 2004. The remaining units are scheduled for sales release in 2005 and 2006. In addition, there were 18 single-family home sites released, contracted and closed during the second quarter of 2004. As of June 30, 2004, there were 95 single family home sites remaining which had not been released for sale, including 8 on the beachfront and 33 slated for homes to be constructed by the Company. From WaterSound Beach’s inception through June 30, 2004, contracts for 335 units were accepted or closed.

We began infrastructure construction in the second quarter on WaterSound, located on 1,443 acres of timberland between U.S. Highway 98 and the Intracoastal Waterway. The master plan calls for a full package of amenities, including golf courses, tennis, access to Lake Powell, and the opportunity to purchase memberships in a beach club at WaterSound Beach and Camp Creek Golf Club. We have final land-use approval for 487 of 1,060 units planned for the community, with the balance in a Development of Regional Impact (“DRI”) process. This initial phase of WaterSound also provides for 35,000 square feet of commercial space. Progress is expected on the DRI by the end of 2004. Although additional permits are required, sales are expected to begin in late 2005 or 2006.

We have final land use approvals for 197 units at WaterSound West Beach, a gated community located approximately one mile west of WaterSound Beach on the beach side of County Road 30A. A number of environmental regulatory steps remain before construction can begin. Sales are expected to begin in 2005.

During the second quarter of 2004, land-use approvals were finalized for WindMark Beach, consisting of 1,662 residential units in a mixed use development on approximately 2,080 acres in Gulf County, Florida. WindMark Beach includes a previously approved 80-acre first phase, with 110 home sites, seven of which remain unsold or not under contract. Although additional regulatory steps remain, sales in the new phases of WindMark Beach are scheduled to begin in 2005. Plans for WindMark Beach include a 3.5 mile public beachfront trail system, with no residential development planned seaward of the beachfront trails. From WindMark Beach’s inception through June 30, 2004, contracts for 103 homesites were accepted or closed.

SouthWood, four miles east of the state capitol building in Tallahassee, Florida, is entitled for 4,770 residential units plus retail shops, restaurants, community facilities, light industrial sites and professional offices. Certain regulatory approvals are required prior to commencing development on construction in Phase II that is scheduled to begin in the 2006-2007 timeframe. From SouthWood’s inception through June 30, 2004, contracts for 715 units were accepted or closed.

SummerCamp is located in Franklin County, Florida, approximately 45 miles south of Tallahassee on the Gulf Coast. With nearly 4 miles of waterfront, the community is planned for 499 units on 762 acres of timberland. Current plans call for beach clubs, observation piers, gathering pavilions, a canoe and kayak boathouse, a community dock and nature trails. On July 9, 2004, with the second release of homesites for sale, 296 potential buyers sought reservations for 12 homesites at SummerCamp. Pending the receipt of regulatory and environmental permits, infrastructure construction is expected to begin in the third quarter of 2004, with closings expected to begin in the fourth quarter of 2004.

Northeast Florida

RiverTown is being planned for approximately 4,500 units situated on 4,170 acres located in St. Johns County, Florida, south of Jacksonville, with 3.5 miles of frontage on the St. Johns River. RiverTown is being designed for a wide range of housing options, retail and commercial areas and amenities designed to build a sense of community, including a 58-acre riverfront public park. Land use entitlements for RiverTown were finalized in the second quarter of 2004, with sales expected to start in 2006.

In the second quarter of 2004, construction continued on infrastructure for the final phases of St. Johns Golf and Country Club. Sales in this community are expected to be completed by early 2006. From its inception through June 30, 2004, contracts for 585 units of this 799 unit community were accepted or closed.

Central Florida

Victoria Park, located in Volusia County in central Florida, is situated on approximately 1,859 acres we acquired near Interstate 4 in Deland, Florida, between Daytona Beach and Orlando. Plans for Victoria Park include approximately 4,000 residences built among parks, lakes and conservation areas. From Victoria Park’s inception through June 30, 2004, contracts for 501 units were accepted or closed.

Artisan Park, a 160-acre village located in Celebration, Florida, near Orlando, is being developed through a joint venture managed by us in which we own 74%. Plans include approximately 314 single-family homes and 302 condominiums as well as parks, trails, and an outdoor performance area and community clubhouse with a fitness center, pool and educational and recreational programs. From Artisan Park’s inception through June 30, 2004, contracts for 208 units were accepted or closed.


	*Three Months Ended June 30*

Real estate sales include sales of homes and homesites and sales of land. Cost of real estate sales includes direct costs, selling costs and other indirect costs. In the second quarter of 2004, the components of cost of real estate sales were $90.9 million in direct costs, $7.9 million in selling costs, and $11.4 million in other indirect costs. In the second quarter of 2003, the components of cost of real estate sales were $69.9 million in direct costs, $5.6 million in selling costs, and $7.4 million in other indirect costs. The overall increase in real estate sales was primarily due to an increase in the number of units sold and higher selling prices. Cost of real estate sales increased primarily due to the increased volume of sales. Increases in real estate sales and cost of real estates sales were both partially offset by a decrease in revenues and cost of sales recorded on multi-family residences using the percentage-of-completion method of accounting.

Sales of homes in the second quarter of 2004 totaled $113.7 million, with related cost of sales of $97.0 million, resulting in a gross profit percentage of 15%, compared to sales in the second quarter of 2003 of $94.8 million, with cost of sales of $74.6 million, resulting in a gross profit percentage of 21%. The decrease in gross profit percentage was primarily due to fewer high margin condominiums being built and under contract at WaterSound Beach, causing a decrease in the gross profit recognized using the percentage-of-completion method of accounting. Margins were also impacted by a $1.7 million expense taken in the second quarter of 2004 for warranty costs in excess of the warranty reserves at Summerwood, a small primary home community completed in 2002.

Cost of real estate sales for homes in the second quarter of 2004 consisted of $81.1 million in direct costs, $5.8 million in selling costs, and $10.1 million in indirect costs. Cost of real estate sales for homes in the second quarter of 2003 consisted of $63.4 million in direct costs, $4.5 million in selling costs, and $6.7 million in indirect costs.

Sales of homesites in the second quarter of 2004 totaled $44.8 million, with related cost of sales of $13.2 million, resulting in a gross profit percentage of 70%, compared to sales in the second quarter of 2003 of $21.6 million, with related cost of sales of $8.3 million, resulting in a gross profit percentage of 62%. The increase in gross profit percentage was primarily due to an increase in the number of homesite closings and better pricing at WaterColor, WaterSound Beach and Windmark Beach. Cost of real estate sales for homesites in the second quarter of 2004 consisted of $9.8 million in direct costs, $2.1 million in selling costs, and $1.3 million in indirect costs. Cost of real estate sales for homesites in the second quarter of 2003 consisted of $6.5 million in direct costs, $1.1 million in selling costs, and $0.7 million in indirect costs.

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



					Three Months Ended									Three Months Ended
					June 30, 2004									June 30, 2003

					Closed				Cost of		Gross			Closed				Cost of		Gross
					Units		Revenues		Sales		Profit			Units		Revenues		Sales		Profit


					(Dollars in Millions)
Northwest Florida:
	Walton County:
		WaterColor:
			Homes:
				Single-family		2	$	2.1	$	1.8	$	0.3			1	$	0.8	$	0.6	$	0.2
				Multi-family		—		—		—		—			—		0.2		0.2		—
				Private Residence Club		—		4.3		2.3		2.0			—		—		—		—
			Homesites			47		26.8		8.3		18.5			27		9.5		3.3		6.2
		WaterSound Beach:
			Multi-family homes			—		11.1		6.9		4.2			—		30.9		18.3		12.6
			Homesites			18		10.9		2.5		8.4			21		8.3		3.1		5.2
	Bay County:
		The Hammocks:
			Homes			10		1.4		1.3		0.1			11		1.6		1.5		0.1
			Homesites			38		1.4		0.7		0.7			9		0.3		0.2		0.1
		Palmetto Trace: Homes				25		3.8		3.4		0.4			19		2.7		2.5		0.2
		Summerwood: Homes				—		—		1.7		(1.7	)		—		—		—		—
		Woodrun: Homes				—		—		—		—			—		—		—		—
	Leon County:
		SouthWood:
			Homes			34		8.4		7.1		1.3			29		5.3		4.4		0.9
			Homesites			4		0.5		0.2		0.3			22		2.1		1.0		1.1
	Gulf County:
		Windmark Beach: Homesites				3		3.1		0.5		2.6			—		—		—		—
Northeast Florida:
	St. Johns County:
		St. Johns Golf & Country Club:
			Homes			28		10.2		8.2		2.0			30		9.2		7.7		1.5
			Homesites			7		0.8		0.3		0.5			21		1.1		0.5		0.6
	Duval County:
		James Island: Homes				6		2.3		2.2		0.1			21		6.9		6.0		0.9
		Hampton Park: Homes				21		6.7		6.0		0.7			8		2.5		2.1		0.4
Central Florida:
	Osceola County:
		Artisan Park:
			Homes			12		5.5		3.8		1.7			—		—		—		—
			Homesites			3		0.5		0.3		0.2			—		—		—		—
	Volusia County:
		Victoria Park:
			Homes			52		11.5		9.9		1.6			26		4.7		4.2		0.5
			Homesites			10		0.8		0.4		0.4			3		0.3		0.1		0.2
North Carolina and South Carolina:
	Saussy Burbank:
		Homes				220		46.4		42.4		4.0			146		29.9		27.1		2.8
		Homesites				—		—		—		—			5		0.1		0.1		—

Total						540	$	158.5	$	110.2	$	48.3			399	$	116.4	$	82.9	$	33.5

Revenue and costs of sales associated with multi-family units and PRC units under construction are recognized using the percentage of completion method of accounting. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. If a deposit is received for less than

10% for a multi-family unit or a PRC unit, percentage of completion accounting is not utilized. Instead, full accrual accounting criteria is used, which generally recognizes revenue when sales contracts are closed and adequate investment from the buyer is received. In the WaterSound Beach community, deposits of 10% are required upon executing the contract and another 10% is required 180 days later. For PRC units, a 10% deposit is required. All deposits are non-refundable (subject to a 10-day waiting period as required by law) except for non-delivery of the unit. In the event a contract does not close for reasons other than non-delivery, we are entitled to retain the deposit. However, the revenue and margin related to the previously recorded contract would be reversed. Revenues and cost of sales associated with multi-family units where construction has been completed before contracts are signed and deposits made are recognized on the full accrual method of accounting, as contracts are closed.

At WaterColor, the average price of a single-family residence sold in the second quarter of 2004 increased to $1,060,000 from $792,000 in the second quarter of 2003. The gross profit percentage from single-family residence sales decreased to 14% in the second quarter of 2004 from 25% in the second quarter of 2003. The increase in price is primarily due to an increase in base prices as a result of market appreciation. The decrease in gross profit percentage is primarily due to an increase in construction costs. The average price of a homesite sold in the second quarter of 2004 was $576,000, compared to $356,000 in the second quarter of 2003. The increase in average price was primarily due to the mix of relative size and location of the homesites sold. The gross profit percentage from homesite sales increased slightly to 69% in the second quarter of 2004 from 65% in the second quarter of 2003 due to the increase in average price, partially offset by increases in development costs associated with amenities and roadway improvement. In the second quarter of 2004, there was no revenue or gross profit recognized on the sale of multi-family residences due to the wind up of the sale of multi-family residences in 2003.

At WaterSound Beach, the gross profit percentage from sales of multi-family residences, for which the percentage of completion method of accounting is used, was 38% in the second quarter of 2004, all of which was generated by sales at the new Compass Point community. In the second quarter of 2003, the gross profit percentage generated from sales of multi-family residences was 41%, all of which was generated by sales at the WaterSound Bridges community. The average price of a homesite sold in the second quarter of 2004 increased to $614,000 from $393,000 in the second quarter of 2003, primarily as a result of price increases on comparable homesites and the mix of relative locations of the homesites sold in each period. The gross profit percentage on homesites increased to 77% in the second quarter of 2004 from 63% in the second quarter of 2003, primarily due to the increase in average price and lower total development costs.

At Summerwood, there was a $1.7 million expense taken in the second quarter of 2004 for warranty costs in excess of warranty reserves.

At WindMark Beach, there were no closings in the second quarter of 2003 due to the timing of the release of homesites offered for sale.

At SouthWood, the gross profit percentage on homesite sales increased to 60% in the second quarter of 2004 from 52% in the second quarter of 2003, primarily due to the sale of larger lots with higher margins in the second quarter of 2004.

At St. Johns Golf and Country Club, the gross profit percentage on home sales increased to 20% in the second quarter of 2004 from 16% in the second quarter of 2003, primarily due to price increases on comparable homes sold in each period. The gross profit percentage on homesite sales increased to 63% in the second quarter of 2004 from 55% in the second quarter of 2003, primarily due to the mix of size of the homesites sold in each period.

At James Island, the gross profit percentage on home sales decreased to 4% in the second quarter of 2004 from 13% in the second quarter of 2003 primarily due to the winding down of the sales activity in the community.

At Hampton Park, the gross profit percentage on home sales decreased to 10% in the second quarter of 2004 from 16% in the second quarter of 2003, primarily due to increased marketing and real estate costs.

At Victoria Park, the gross profit percentage on home sales increased to 14% in the second quarter of 2004 from 11% in the second quarter of 2003, primarily due to a change in the mix of relative sizes and locations of homes sold in each period. The gross profit percentage on homesite sales decreased to 50% in the second quarter of 2004 from 66% in the second quarter of 2003, primarily due to the sale of more lots with higher development costs in the second quarter of 2004.

At Saussy Burbank, based in Charlotte, North Carolina, gross profit remained constant at 9% for the three month periods ended June 30, 2004 and 2003. During the second quarter of 2004, we recorded an impairment loss of $2.0 million related to one of Saussy Burbank’s community development projects that experienced higher than expected development costs and a reduction in planned homesites due to site development constraints.

Other revenues totaled $11.8 million in the second quarter of 2004 with $9.6 million in related costs, compared to revenues totaling $8.1 million in the second quarter of 2003 with $7.5 million in related costs. These included revenues from the WaterColor Inn, other resort operations and management fees.

Other operating expenses, including salaries and benefits of personnel and other administrative expenses, increased $2.2 million in the second quarter of 2004 compared to the second quarter of 2003. The increase was primarily due to increases in marketing and project administration costs attributable to the increase in residential development activity.

Six Months Ended June 30

Real estate sales include sales of homes and homesites and sales of land. Cost of real estate sales includes direct costs, selling costs and other indirect costs. In the first six months of 2004, the components of cost of real estate sales were $155.1 million in direct costs, $13.1 million in selling costs, and $18.5 million in other indirect costs. In the first six months of 2003, the components of cost of real estate sales were $121.7 million in direct costs, $9.6 million in selling costs, and $12.7 million in other indirect costs. The overall increase in real estate sales was primarily due to an increase in the number of units sold and higher selling prices. Cost of real estate sales increased primarily due to the increased volume of sales. Increases in real estate sales and cost of real estates sales were both partially offset by a decrease in revenues and cost of sales recorded on multi-family residences because the majority of the gross profit on units closed in the first six months of 2004 was recognized in 2003 due to the percentage-of-completion method of accounting.

Sales of homes in the first six months of 2004 totaled $188.3 million, with related cost of sales of $164.1 million, resulting in a gross profit percentage of 13%, compared to sales in the first six months of 2003 of $162.7 million, with cost of sales of $129.9 million, resulting in a gross profit percentage of 20%. Revenue for multi-family residences under construction at WaterSound Beach is recognized, in accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate (FAS 66), using the percentage-of-completion method of accounting. Under this method, revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. As a result of one of the projects being substantially complete as of December 31, 2003, we had recorded substantially all of the activity related to this property during the year ended December 31, 2003. During the first quarter of 2004, we incurred $2.0 million in construction costs for contract adjustments related to the project. These costs represented changes to the original construction cost estimates for this project. The decrease in gross profit percentage on multi-family home sales at WaterSound Beach was due to these additional construction costs and to fewer high margin condominiums being built and under contract at WaterSound Beach in the first six months of 2004 compared to the first six months of 2003.

Cost of real estate sales for homes in the first six months of 2004 consisted of $138.0 million in direct costs, $9.9 million in selling costs, and $16.2 million in indirect costs. Cost of real estate sales for homes in the first six months of 2003 consisted of $110.5 million in direct costs, $7.8 million in selling costs, and $11.6 million in indirect costs.

Sales of homesites in the first six months of 2004 totaled $68.5 million, with related cost of sales of $22.6 million, resulting in a gross profit percentage of 67%, compared to sales in the first six months of 2003 of

$38.9 million, with related cost of sales of $14.1 million, resulting in a gross profit percentage of 64%. The increase in gross profit percentage was due to better pricing at WaterColor, WaterSound Beach, and Windmark Beach, partially offset by an increase in cost of sales at WaterColor. Cost of real estate sales for homesites in the first six months of 2004 consisted of $17.1 million in direct costs, $3.2 million in selling costs, and $2.3 million in indirect costs. Cost of real estate sales for homesites in the first six months of 2003 consisted of $11.2 million in direct costs, $1.8 million in selling costs, and $1.1 million in indirect costs.

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



					Six Months Ended										Six Months Ended
					June 30, 2004										June 30, 2003

					Closed				Cost of			Gross			Closed				Cost of		Gross
					Units		Revenues		sales			Profit			Units		Revenues		sales		Profit


					(Dollars in Millions)
Northwest Florida:
	Walton County:
		WaterColor:
			Homes:
				Single-family		7	$	6.0	$	4.5		$	1.5			2	$	1.7	$	1.2	$	0.5
				Multi-family		—		—		—			—			7		2.6		2.2		0.4
				Private Residence Club		—		6.2		3.5			2.7			—		—		—		—
			Homesites			107		43.3		15.0			28.3			43		14.4		4.9		9.5
		WaterSound Beach:
			Multi-family homes			50		12.1		10.2			1.9			—		48.8		29.3		19.5
			Homesites			29		15.0		3.7			11.3			29		14.6		5.1		9.5
	Bay County:
		The Hammocks:
			Homes			31		4.7		4.4			0.3			22		3.0		2.7		0.3
			Homesites			38		1.4		0.7			0.7			29		0.9		0.7		0.2
		Palmetto Trace: Homes				35		5.6		5.0			0.6			33		4.8		4.4		0.4
		Summerwood: Homes				—		—		1.7			(1.7	)		—		—		—		—
		Woodrun: Homes				—		—		(0.1	)		0.1			—		—		—		—
	Leon County:
		SouthWood:
			Homes			87		20.1		16.8			3.3			54		10.1		8.6		1.5
			Homesites			14		1.3		0.6			0.7			30		2.8		1.3		1.5
	Gulf County:
		Windmark Beach: Homesites				3		3.1		0.5			2.6			6		3.6		0.7		2.9
Northeast Florida:
	St. Johns County:
		St. Johns Golf & Country Club:
			Homes			50		17.3		14.1			3.2			47		14.4		12.2		2.2
			Homesites			19		1.7		0.7			1.0			21		1.1		0.5		0.6
	Duval County:
		James Island: Homes				10		3.8		3.4			0.4			34		10.8		9.5		1.3
		Hampton Park: Homes				34		11.2		9.8			1.4			17		5.4		4.7		0.7
Central Florida:
	Osceola County:
		Artisan Park:
			Homes			16		6.9		4.9			2.0			—		—		—		—
			Homesites			9		1.4		0.8			0.6			—		—		—		—
	Volusia County:
		Victoria Park:
			Homes			83		17.9		15.5			2.4			48		9.3		8.2		1.1
			Homesites			16		1.3		0.7			0.6			13		1.0		0.5		0.5



			Six Months Ended								Six Months Ended
			June 30, 2004								June 30, 2003

			Closed				Cost of		Gross		Closed				Cost of		Gross
			Units		Revenues		sales		Profit		Units		Revenues		sales		Profit


			(Dollars in Millions)
North Carolina and South Carolina:
	Saussy Burbank:
		Homes		367		76.5		70.3		6.2		251		51.8		46.8		5.0
		Homesites		—		—		—		—		19		0.5		0.5		—

Total				1,005	$	256.8	$	186.7	$	70.1		705	$	201.6	$	144.0	$	57.6

At WaterColor, the average price of a single-family residence sold in the first six months of 2004 increased slightly to $857,000 from $849,000 in the first six months of 2003. An increase in base price was partially offset by decreases in prices due to the mix of relative sizes and locations of homes sold. The gross profit percentage from single-family residence sales decreased to 25% in the first six months of 2004 from 29% in the first six months of 2003, primarily due to the mix of relative location and size of the home sales closed in each period. The average price of a homesite sold in the first six months of 2004 was $400,000, compared to $337,000 in the first six months of 2003. The gross profit percentage from homesite sales was 65% in the first six months of 2004 and 66% in the first six months of 2003. Increases due to the mix of relative size and location of the homesites sold were offset by increases in development costs associated with amenities and roadway improvement. In the first six months of 2004, there was no revenue or gross profit recognized on the sale of multi-family residences due to the wind up of the sale of multi-family residences in 2003.

At WaterSound Beach, the gross profit percentage on sales of multi-family residences decreased to 16% in the first six months of 2004 from 40% in the first six months of 2003, primarily due to an increase in the cost of revenues associated with the 80 completed and sold multi-family residences caused by actual construction costs in excess of estimates in the first quarter of 2004. For the 50 multi-family units that closed in the first six months of 2004, most of the contribution to income was recorded in 2003 due to percentage of completion accounting. The gross profit percentage on homesites increased to 75% in the first six months of 2004 from 65% in the first six months of 2003, primarily due to price increases and a decrease in development costs.

At The Hammocks, the gross profit percentage on homesite sales increased to 50% in the first six months of 2004 from 22% in the first six months of 2003, primarily due to price increases and a decrease in development costs. The gross profit percentage on home sales decreased to 6% in the first six months of 2004 from 10% in the first six months of 2003 due to a change in the mix of relative size and location of homes sold in each period.

At St. Johns Golf and Country Club, the gross profit percentage on home sales increased to 18% in the first six months of 2004 from 15% in the first six months of 2003 primarily due to price increases on comparable homes sold in each period. The gross profit percentage on homesite sales increased to 59% in the first six months of 2004 from 52% in the first six months of 2003, primarily due to the mix of the relative size of the homesites sold in each period.

At Saussy Burbank, the gross profit percentage on home sales decreased to 8% in the first six months of 2004 from 10% in the first six months of 2003 due to a margin decline associated with selective discounting of sales prices on components of inventory. During the first six months of 2004, we recorded an impairment loss of $2.0 million related to one of Saussy Burbank’s community development projects.

Other revenues totaled $18.9 million in the first six months of 2004 with $16.0 million in related costs, compared to revenues totaling $12.1 million in the first six months of 2003 with $12.5 million in related costs. These included revenues from the WaterColor Inn, other resort operations and management fees.

Other operating expenses, including salaries and benefits of personnel and other administrative expenses, increased $4.1 million during the first six months of 2004 compared to the first six months of 2003. The increase was primarily due to increases in marketing and project administration costs attributable to the increase in residential development activity.


	*Commercial Real Estate Development and Services*

The table below sets forth the results of operations of our commercial real estate development and services segment for the three month and six month periods ended June 30, 2004 and 2003.



			Three Months						Six Months
			Ended June 30,						Ended June 30,

			2004			2003			2004			2003


			(In millions)
Revenues:
	Real estate sales		$	4.7		$	8.7		$	19.3		$	14.2
	Realty revenues			23.8			13.4			42.8			25.7
	Rental revenues			9.4			7.0			18.7			13.9
	Other revenues			0.4			0.6			0.8			1.3

		Total revenues		38.3			29.7			81.6			55.1

Expenses:
	Cost of real estate sales			2.0			3.7			14.2			4.2
	Cost of realty revenues			15.5			7.4			26.2			14.1
	Cost of rental revenues			3.4			3.0			6.9			5.7
	Other operating expenses			11.1			9.1			21.6			17.8
	Depreciation and amortization			3.9			2.6			7.8			5.0
	Impairment losses			—			14.1			—			14.1

		Total expenses		35.9			39.9			76.7			60.9

Other income (expense)				(1.4	)		(1.4	)		(2.8	)		(2.8	)

Pretax income from continuing operations			$	1.0		$	(11.6	)	$	2.1		$	(8.6	)

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 for company owned assets as well as third parties.


	*Three Months Ended June 30*

Rental revenues. Rental revenues generated by our commercial real estate development and services segment on owned operating properties increased $2.4 million, or 34%, in the second quarter of 2004 compared to the second quarter of 2003, due to three buildings with an aggregate of 752,000 square feet placed in service or acquired since June 30, 2003 and an increase in the overall leased percentage, partially offset by the sale of a building with 100,000 square feet on February 12, 2004. Operating expenses related to these revenues increased $0.4 million, or 13% primarily due to the three buildings acquired since June 30, 2003. As of June 30, 2004, our commercial real estate development and services segment had interests in 24 operating properties with 2.9 million total rentable square feet in service, including one building, totaling approximately 0.1 million square feet, that was owned by partnerships and accounted for using the equity method of accounting. At June 30, 2003, our commercial real estate development and services segment had interests in 20 operating properties with 2.5 million total rentable square feet in service, including three buildings, totaling 0.4 million square feet, that were owned by partnerships and accounted for using the equity method of accounting. Excluding buildings accounted for using the equity method of accounting, the overall leased percentage increased to 85% at June 30, 2004, compared to 79% at June 30, 2003. Further information about

commercial income producing properties that we owned or managed, along with results of operations for the three month periods ended June 30, 2004 and 2003, is presented in the tables below.


			Net Rentable			Percentage			Net Rentable			Percentage
			Square Feet			Leased at			Square Feet			Leased at
			at June 30,			June 30,			at June 30,			June 30,
	Location		2004			2004			2003			2003

Buildings purchased with tax-deferred proceeds:
Harbourside		Clearwater, FL		149,000			79	%		149,000			93	%
Prestige Place I and II		Clearwater, FL		144,000			91			144,000			83
Lakeview		Tampa, FL		126,000			78			126,000			77
Palm Court		Tampa, FL		60,000			68			60,000			67
Westside Corporate Center		Plantation, FL			(a)			(a)		100,000			84
280 Interstate North		Atlanta, GA		126,000			75			126,000			67
Southhall Center		Orlando, FL		155,000			49			155,000			88
1133 20th Street		Washington, DC		119,000			99			119,000			99
1750 K Street(d)		Washington, DC		152,000			90			152,000			92
Millenia Park One		Orlando, FL		158,000			84			158,000			57
Beckrich Office		Panama City Beach, FL		67,000			72			34,000			88
5660 New Northside		Atlanta, GA		273,000			96			273,000			89
SouthWood Office One		Tallahassee, FL		89,000			92			89,000			50
Crescent Ridge		Charlotte, NC		158,000			100				(b)			(b)
Windward Plaza Portfolio		Atlanta, GA		465,000			89				(b)			(b)
245 Riverside		Jacksonville, FL		136,000			56				(c)			(c)
Overlook		Richmond, VA		129,000			100				(b)			(b)

Subtotal/Average				2,506,000			84	%		1,685,000			81	%

Development property:
Westchase Corporate Center(d)		Houston, TX		184,000			94	%		184,000			92	%
TNT Logistics		Jacksonville, FL		99,000			94			99,000			77
245 Riverside		Jacksonville, FL			(c)			(c)		134,000			38

Subtotal/Average				283,000			94			417,000			71

Total/Average				2,789,000			85	%		2,102,000			79	%


(a)		On February 12, 2004, we sold Westside Corporate Center.

(b)		These properties were acquired after the date reported.

(c)		245 Riverside was transferred from development property to buildings purchased with tax-deferred proceeds after the date reported.

(d)		These buildings are reflected as discontinued operations in the consolidated financial statements and footnotes to the consolidated financial statements. 1750 K Street was sold on July 30, 2004.



	Three Months Ended June 30, 2004														Three Months Ended June 30, 2003

												Pre-tax														Pre-tax
	Rental		Operating			NOI			Adjustments			Income			Rental			Operating		NOI			Adjustments			Income
	Revenues		Expenses			(a)			(b)			(Loss)			Revenues			Expenses		(a)			(b)			(Loss)


	(In millions)
Buildings purchased with tax- deferred proceeds:
Harbourside	$	0.7	$	0.3		$	0.4		$	(0.3	)	$	0.1		$	0.8		$	0.3	$	0.5		$	(0.4	)	$	0.1
Prestige Place I and II		0.6		0.3			0.3			(0.3	)		—			0.6			0.3		0.3			(0.3	)		—
Lakeview		0.5		0.2			0.3			(0.3	)		—			0.5			0.3		0.2			(0.3	)		(0.1	)
Palm Court		0.1		0.1			—			—			—			0.1			0.1		—			(0.1	)		(0.1	)
Westside Corporate Center		—		(0.1	)		0.1			—			0.1			0.5			0.2		0.3			(0.3	)		—
280 Interstate North		0.4		0.2			0.2			(0.2	)		—			0.5			0.2		0.3			(0.3	)		—
Southhall Center		0.3		0.2			0.1			(0.4	)		(0.3	)		0.7			0.2		0.5			(0.4	)		0.1
1133 20th Street		1.0		0.4			0.6			(0.5	)		0.1			0.9			0.4		0.5			(0.5	)		—
Millenia Park One		0.6		0.1			0.5			(0.5	)		—			0.4			0.2		0.2			(0.3	)		(0.1	)
Beckrich Office		0.1		0.1			—			—			—			0.2			0.1		0.1			—			0.1
5660 New Northside		1.5		0.5			1.0			(0.4	)		0.6			1.6			0.4		1.2			(0.3	)		0.9
SouthWood Office One		0.2		0.1			0.1			(0.1	)		—			—			—		—			(0.1	)		(0.1	)
Crescent Ridge		0.8		0.2			0.6			(0.5	)		0.1			—					—			—			—
Windward Plaza		1.9		0.5			1.4			(0.8	)		0.6			—					—			—			—
245 Riverside(c)		0.1		0.2			(0.1	)		(0.2	)		(0.3	)		—			—		—			—			—
Overlook I and II		0.2		—			0.2			(0.2	)		—			—			—		—			—			—

Subtotal	$	9.0	$	3.3		$	5.7		$	(4.7	)	$	1.0		$	6.8		$	2.7	$	4.1		$	(3.3	)	$	0.8
Development property:
TNT Logistics		0.4		0.1			0.3			(0.3	)		—			0.3			0.1		0.2			(0.2	)		—
245 Riverside(c)		—		—			—			—			—			0.3			0.2		0.1			(0.2	)		(0.1	)
Other		—		—			—			—			—			(0.4	)		—		(0.4	)		0.4			—

Subtotal	$	0.4	$	0.1		$	0.3		$	(0.3	)	$	—		$	0.2		$	0.3	$	(0.1	)	$	—		$	(0.1	)

Total	$	9.4	$	3.4		$	6.0		$	(5.0	)	$	1.0		$	7.0		$	3.0	$	4.0		$	(3.3	)	$	0.7


(a)		NOI is Net Operating Income.

(b)		Adjustments include interest expense, depreciation and amortization.

(c)		245 Riverside was transferred from development property to buildings purchased with tax-deferred proceeds during the first quarter of 2004.

At Southhall Center, the loss of a large tenant caused a decrease in the leased percentage and rental revenues. We are now marketing this space.

Realty revenues. Advantis’ realty revenues in the second quarter of 2004 increased $10.4 million, or 78%, over the second quarter of 2003, primarily due to increases in construction and brokerage revenues. Cost of Advantis’ realty revenue increased $8.1 million, or 109%, primarily due to increased costs associated with the increase in construction and brokerage revenues. Advantis’ other operating expenses, consisting of office administration expenses, increased to $8.3 million in the second quarter of 2004 from $7.2 million in the second quarter of 2003, a 15% increase, primarily due to an increase in staffing costs. Advantis recorded a pre-tax loss of $(0.3) million for the second quarter of 2004 after eliminations of intercompany profits of $0.5 million, compared to $(15.5) million for the second quarter of 2003, including the 2003 impairment loss of $(14.1) million and after eliminations of intercompany profits of $0.3 million.

Real estate sales. Total proceeds from land sales in the second quarter of 2004 were $4.7 million, with a pre-tax gain of $2.7 million. Land sales included the following:


		Number of				Gross		Average
Land		Sales		Acres Sold		Sales Price		Price/Acre

						(In millions)		(In thousands)
Florida:
	Unimproved		1		42	$	1.5	$	36
	Improved		8		15		1.9		128
Texas			1		3		1.3		479

Total/Average			10		60	$	4.7	$	79

During the second quarter of 2003, total proceeds from land sales were $8.7 million, with a pre-tax gain of $5.0 million. Land sales included the following:


		Number of				Gross		Average
Land		Sales		Acres Sold		Sales Price		Price/Acre

						(In millions)		(In thousands)
Florida:
	Unimproved		3		13	$	1.5	$	114
	Improved		8		47		6.2		131
Texas			1		2		1.0		449

Total/Average			12		62	$	8.7	$	139

There were no building sales during the three month periods ended June 30, 2004 and 2003. On July 30, 2004, the Company sold 1750 K Street for an approximate pre-tax gain of $7.5 million.

Depreciation and amortization, primarily consisting of depreciation on operating properties and amortization of lease intangibles, was $3.9 million in the second quarter of 2004 compared to $2.6 million in the second quarter of 2003.


	*Six Months Ended June 30*

Rental revenues. Rental revenues generated by our commercial real estate development and services segment on owned operating properties increased $4.8 million, or 35%, in the first six months of 2004 compared to the first six months of 2003, primarily due to three buildings with an aggregate of 752,000 square feet placed in service or acquired since June 30, 2003 and an increase in the overall leased percentage, partially offset by the sale of a building with 100,000 square feet on February 12, 2004. Operating expenses related to these revenues increased $1.2 million, or 21% primarily due to the three buildings acquired since June 30, 2003. As of June 30, 2004, our commercial real estate development and services segment had interests in 24 operating properties with 2.9 million total rentable square feet in service, including one building, totaling approximately 0.1 million square feet, that was owned by partnerships and accounted for using the equity method of accounting. At June 30, 2003, our commercial real estate development and services segment had interests in 20 operating properties with 2.5 million total rentable square feet in service, including three buildings, totaling 0.4 million square feet, that were owned by partnerships and accounted for using the equity method of accounting. Excluding buildings accounted for using the equity method of accounting, the overall leased percentage increased to 85% at June 30, 2004, compared to 79% at June 30, 2003. Further information

about commercial income producing properties that we owned or managed, along with results of operations for the three month periods ended June 30, 2004 and 2003, is presented in the table below.



	Six Months Ended June 30, 2004													Six Months Ended June 30, 2003

											Pre-tax														Pre-tax
	Rental		Operating		NOI			Adjustments			Income			Rental			Operating		NOI			Adjustments			Income
	Revenues		Expenses		(a)			(b)			(loss)			Revenues			Expenses		(a)			(b)			(Loss)


	(In millions)
Buildings purchased with tax- deferred proceeds:
Harbourside	$	1.4	$	0.5	$	0.9		$	(0.7	)	$	0.2		$	1.4		$	0.5	$	0.9		$	(0.8	)	$	0.1
Prestige Place I and II		1.1		0.5		0.6			(0.6	)		—			1.1			0.5		0.6			(0.6	)		—
Lakeview		1.0		0.4		0.6			(0.6	)		—			1.0			0.5		0.5			(0.6	)		(0.1	)
Palm Court		0.3		0.2		0.1			(0.1	)		—			0.2			0.2		—			(0.2	)		(0.2	)
Westside Corporate Center		—		0.1		(0.1	)		(0.2	)		(0.3	)		1.0			0.4		0.6			(0.6	)		—
280 Interstate North		0.8		0.4		0.4			(0.4	)		—			0.9			0.4		0.5			(0.5	)		—
Southhall Center		0.8		0.4		0.4			(0.9	)		(0.5	)		1.4			0.4		1.0			(0.8	)		0.2
1133 20th Street		2.0		0.8		1.2			(0.9	)		0.3			1.9			0.7		1.2			(1.0	)		0.2
Millenia Park One		1.2		0.3		0.9			(0.9	)		—			0.8			0.4		0.4			(0.7	)		(0.3	)
Beckrich Office		0.2		0.2		—			(0.2	)		(0.2	)		0.4			0.2		0.2			(0.1	)		0.1
5660 New Northside		3.0		0.9		2.1			(0.9	)		1.2			3.2			0.9		2.3			(0.7	)		1.6
SouthWood Office One		0.3		0.2		0.1			(0.2	)		(0.1	)		—			—		—			(0.1	)		(0.1	)
Crescent Ridge		1.6		0.4		1.2			(0.8	)		0.4			—			—		—			—			—
Windward Plaza		3.8		1.0		2.8			(1.5	)		1.3			—			—		—			—			—
245 Riverside(c)		0.2		0.4		(0.2	)		(0.5	)		(0.7	)		—			—		—			—			—
Overlook I and II		0.2		—		0.2			(0.2	)		—

Subtotal	$	17.9	$	6.7	$	11.2		$	(9.6	)	$	1.6		$	13.3		$	5.1	$	8.2		$	(6.7	)	$	1.5
Development property:
TNT Logistics		0.8		0.2		0.6			(0.5	)		0.1			0.7			0.3		0.4			(0.3	)		0.1
245 Riverside(c)		—		—		—			—			—			0.3			0.2		0.1			(0.2	)		(0.1	)
Other		—		—		—			—			—			(0.4	)		0.1		(0.5	)		0.2			(0.3	)

Subtotal	$	0.8	$	0.2	$	0.6		$	(0.5	)	$	0.1		$	0.6		$	0.6	$	—		$	(0.3	)	$	(0.3	)

Total	$	18.7	$	6.9	$	11.8		$	(10.1	)	$	1.7		$	13.9		$	5.7	$	8.2		$	(7.0	)	$	1.2


(a)		NOI is Net Operating Income.

(b)		Adjustments include interest expense, depreciation and amortization.

(c)		245 Riverside was transferred from development property to buildings purchased with tax-deferred proceeds during the first quarter of 2004.

Realty revenues. Advantis’ realty revenues in the first six months of 2004 increased $17.1 million, or 67%, over the first six months of 2003, due to increases in construction and brokerage revenues. Cost of Advantis’ realty revenue increased $12.1 million, or 86%, primarily due to increased costs associated with the increase in construction and brokerage revenues. Advantis’ other operating expenses, consisting of office administration expenses, increased to $16.5 million in the first six months of 2004 from $14.0 million in the first six months of 2003, an 18% increase, primarily due to an increase in staffing costs. Advantis recorded a pre-tax loss of $(0.4) million for the first six months of 2004, compared to $(17.1) million for the first six months of 2003, including the 2003 impairment loss of $(14.1) million.

Real estate sales. Total proceeds from land sales in the first six months of 2004 were $7.3 million, with a pre-tax gain of $5.1 million. Land sales included the following:


		Number of				Gross		Average
Land		Sales		Acres Sold		Sales Price		Price/Acre

						(In millions)		(In thousands)
Florida:
	Unimproved		6		116	$	3.9	$	33
	Improved		10		23		2.1		95
Texas			1		3		1.3		479

Total/Average			17		142	$	7.3	$	52

On February 12, 2004, we sold the 100,000-square-foot Westside Corporate Center building in Plantation, Florida, for proceeds of $12.0 million, with no pre-tax gain. The operations of Westside Corporate Center have not been recorded as a discontinued operation due to the fact that our affiliate continues to provide brokerage and leasing services for the building.

During the first six months of 2003, total proceeds from land sales were $14.2 million, with a pre-tax gain of $10.0 million. Land sales included the following:


		Number of				Gross		Average
Land		Sales		Acres Sold		Sales Price		Price/Acre

						(In millions)		(In thousands)
Florida:
	Unimproved		9		142	$	5.9	$	41
	Improved		17		69		7.3		105
Texas			1		2		1.0		449

Total/Average			27		213	$	14.2	$	66

There were no building sales during the first six months of 2003.

Depreciation and amortization, primarily consisting of depreciation on operating properties and amortization of lease intangibles, was $7.8 million in the first six months of 2004 compared to $5.0 million in the first six months of 2003.

Land Sales

The table below sets forth the results of operations of our land sales segment for the three and six month periods ended June 30, 2004 and 2003.



			Three Months				Six Months
			Ended June 30,				Ended June 30,

			2004		2003		2004		2003


					(In millions)
Revenues:
	Real estate sales		$	14.0	$	16.7	$	36.7	$	39.7

Expenses:
	Cost of real estate sales			1.8		2.2		3.8		5.8
	Cost of other revenues			0.3		—		0.5		0.1
	Other operating expenses			1.5		1.7		3.1		3.2
	Depreciation and amortization			0.1		—		0.2		0.1

		Total expenses		3.7		3.9		7.6		9.2

Pretax income from continuing operations			$	10.3	$	12.8	$	29.1	$	30.5

Land sales activity for the three month and six month periods ended June 30, 2004 and 2003, excluding conservation lands, was as follows:


		Number		Number of		Average Price		Gross
Period		of Sales		Acres		Per Acre		Sales Price		Gross Profit

								(In millions)		(In millions)
Three Months Ended:
	June 30, 2004		45		4,216	$	2,633	$	11.1	$	9.6
	June 30, 2003		47		5,896	$	1,867	$	11.0	$	9.3
Six Months Ended:
	June 30, 2004		92		12,184	$	2,709	$	33.0	$	29.3
	June 30, 2003		86		9,444	$	1,951	$	18.4	$	15.3

Included in land sales for the first six months of 2004 was one 866-acre parcel with some bay frontage in Bay County which sold for $10.0 million, or approximately $11,550 per acre.

Conservation land sales activity for the three month and six month periods ended June 30, 2004 and 2003 was as follows:


		Number		Number of		Average Price		Gross
Period		of Sales		Acres		Per Acre		Sales Price		Gross Profit

								(In millions)		(In millions)
Three Months Ended:
	June 30, 2004		2		1,749	$	1,544	$	2.7	$	2.5
	June 30, 2003		1		4,693	$	1,215	$	5.7	$	5.1
Six Months Ended:
	June 30, 2004		2		1,749	$	1,544	$	2.7	$	2.5
	June 30, 2003		2		18,610	$	1,107	$	20.6	$	18.3

During the first six months of 2004, there were no releases of homesites at RiverCamps on Crooked Creek, the first RiverCamps site located in Bay County, Florida. On July 4, we released a second group of 27 home sites. We expect to accept contracts and close sales of home sites in this release in the fourth quarter of 2004. Work also continues on other potential RiverCamps locations in Northwest Florida. During the second quarter of 2004, the land sales segment recognized $0.2 million in revenue related to RiverCamps, with related costs of $0.1 million. In the first six months of 2003, RiverCamps generated $0.7 million in revenues with $0.7 million in related costs, all from the sale of the 2003 HGTV Dream Home located on East Bay in Bay County, Florida.

Forestry

The table below sets forth the results of operations of our forestry segment for the three month and six month periods ended June 30, 2004 and 2003.



			Three Months				Six Months
			Ended June 30,				Ended June 30,

			2004		2003		2004		2003


			(In millions)
Revenues:
	Timber sales		$	9.2	$	10.2	$	19.0	$	19.8

Expenses:
	Cost of timber sales			5.7		6.8		11.8		13.6
	Other operating expenses			0.6		0.7		1.3		1.3
	Depreciation and amortization			1.1		1.1		2.1		2.1

		Total expenses		7.4		8.6		15.2		17.0

Other income				0.6		0.6		1.3		1.3

Pretax income from continuing operations			$	2.4	$	2.2	$	5.1	$	4.1

Revenues for the forestry segment in the second quarter of 2004 decreased 10% compared to the second quarter of 2003. Revenues for the first six months of 2004 decreased 4% compared to the first six months of 2003. Total sales under our fiber agreement with Smurfit-Stone Container Corporation were $3.4 million (178,000 tons) in the second quarter of 2004, compared to $3.0 million (173,000 tons) in the second quarter of 2003. Total sales under this agreement were $6.5 million (343,000 tons) in the first six months of 2004, compared to $5.7 million (335,000 tons) in the first six months of 2003. Sales to other customers totaled $3.3 million (153,000 tons) in the second quarter of 2004, compared to $4.4 million (217,000 tons) in the second quarter of 2003. Sales to other customers totaled $7.8 million (361,000 tons) in the first six months of 2004, compared to $8.7 million (457,000 tons) in the first six months of 2003. The increase in revenues under the fiber agreement was due to increasing prices under the terms of the fiber agreement. The decrease in sales to other customers was due to a decrease in demand. Revenues from the cypress mill operation were $2.5 million in the second quarter of 2004 and $2.8 million in the second quarter of 2003. Revenues from the cypress mill operation were $4.7 million in the first six months of 2004 and $5.4 million in the first six months of 2003.

Cost of timber sales decreased $1.1 million for the second quarter of 2004 compared to the second quarter of 2003. Cost of sales as a percentage of revenue was 62% for the second quarter of 2004 compared to 67% for the second quarter of 2003. Cost of timber sales decreased $1.8 million for the first six months of 2004 compared to the first six months of 2003. Cost of sales as a percentage of revenue was 62% for the first six months of 2004 compared to 69% for the first six months of 2003. The decrease in cost of sales as a percentage of revenue was due to increased efficiencies in the cypress mill operation in both periods. Cost of sales for the cypress mill operation were $1.7 million, or 69% of revenue, for the second quarter of 2004 compared to $2.4 million, or 85% of revenue, for the second quarter of 2003. Cost of sales for the cypress mill operation were $3.4 million, or 72% of revenue, for the first six months of 2004 compared to $4.9 million, or 89% of revenue, for the first six months of 2003. Cost of sales for timber as a percentage of revenue was 60% for both the second quarter of 2004 and the second quarter of 2003. Cost of sales for timber was $8.4 million, or 58% of revenue, for the first six months of 2004 compared to $8.7 million, or 60% of revenue, for the first six months of 2003.

Liquidity and Capital Resources

We generate cash from:

• Operations;

• Sales of land holdings, other assets and subsidiaries;

• Borrowings from financial institutions and other debt; and

• Issuances of equity, primarily from the exercise of employee stock options.

We use cash for:

• Operations;

• Payment of taxes;

• Real estate development;

• Construction and homebuilding;

• Repurchases of our common stock;

• Payments of dividends;

• Repayments of debt; and

• Investments in joint ventures and acquisitions.

Management believes that our financial condition is strong and that our cash, real estate and other assets, operating cash flows, and borrowing capacity, taken together, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses, including the continued investment in real estate developments. If our liquidity is not adequate to fund operating requirements, capital development, stock repurchases and dividends, we have various alternatives to change our cash flow, including eliminating or reducing our stock repurchase program, eliminating or reducing dividends, altering the timing of our development projects and/or selling existing assets.

Cash Flows from Operating Activities

Net cash provided by operations was $40.9 million and $1.6 million in the first six months of 2004 and 2003, respectively. Expenditures relating to our towns & resorts development segment were $216.1 million and $151.7 million in the first six months of 2004 and 2003, respectively. Expenditures for operating properties in the first six months of 2004 and 2003 totaled $21.4 million and $23.7 million, respectively, and were made up of commercial property development and residential club and resort property development.

The expenditures for operating activities relating to our towns & resorts development and commercial development and services segments are primarily for site infrastructure development, general amenity construction and construction of homes and commercial space. Approximately one-half of these expenditures are for home construction and generally take place after the signing of a binding contract with a buyer to purchase the home following construction. As a consequence, if contract activity slows, home construction will similarly slow. We expect this general expenditure level and relationship between expenditures and housing contracts to continue in the future.

We have generated a net operating loss for tax purposes in each of the three prior tax years, thereby negating the cash payment of federal income taxes during 2001-2003. For the full year 2004, however, federal taxable income may exceed our net operating loss and other carryforwards, thereby requiring a cash payment for federal income taxes. In 2005, it is highly likely that we will be obligated to make cash payment of federal income taxes.


	*Cash Flows from Investing Activities*

Net cash used in investing activities in the first six months of 2004 was $17.7 million and included $19.1 million for the purchase of two commercial buildings, $2.8 million for the purchase of the remaining interests in two commercial buildings of which we already owned a majority interest, and proceeds of $12.0 million for the sale of a commercial building. In the first six months of 2003, net cash used in investing activities was $17.9 million and included no sales or purchases of commercial buildings.


	*Cash Flows from Financing Activities*

In the first six months of 2004 and 2003, net cash used in financing activities was $9.8 million and $8.1 million, respectively.

We have approximately $0.7 million of debt maturing in the remainder of 2004. For the full year ended December 31, 2004, we expect to spend $125 million to $175 million for the repurchase of shares, the acquisition of surrendered shares and dividend payments in 2004.

We have a $250 million senior revolving credit facility (the “credit facility”), which matures on March 30, 2006 and can be used for general corporate purposes. The credit facility includes financial performance covenants relating to our leverage position, interest coverage and a minimum net worth requirement. The credit facility also has negative pledge restrictions. Management believes that we are currently in compliance with the covenants of the credit facility. At June 30, 2004, there was no balance on this credit facility. At December 31, 2003, the outstanding balance was $40.0 million.

On June 8, 2004, we issued senior notes in a private placement with an aggregate principal amount of $100 million, with $25 million maturing on June 8, 2009 with a fixed interest rate of 4.97% and $75 million maturing on June 8, 2011 with a fixed interest rate of 5.31%. Interest will be payable semiannually. The senior notes contain financial covenants similar to those in our $250.0 million senior revolving credit facility.

We have used community development district (“CDD”) bonds to finance the construction of on-site infrastructure improvements at four of our projects. The principal and interest payments on the bonds are paid by assessments on, or from sales proceeds of, the properties benefited by the improvements financed by the bonds. We record a liability for future assessments which are fixed or determinable and will be levied against our properties. At June 30, 2004, CDD bonds totaling $99.5 million had been issued, of which $84.9 million had been expended. At December 31, 2003, CDD bonds totaling $99.5 million had been issued, of which $79.0 million had been expended. In accordance with Emerging Issues Task Force Issue 91-10, Accounting for Special Assessments and Tax Increment Financing, we have recorded $35.0 and $30.0 million of this obligation as of June 30, 2004 and December 31, 2003, respectively.

Through June 30, 2004, our Board of Directors had authorized, through a series of five specific authorizations ranging from $150 million to $200 million, a total of $800.0 million for the repurchase of our outstanding common stock from time to time on the open market (the “Stock Repurchase Program”), of which $162.1 million remained available at June 30, 2004. The Trust and the Foundation have participated in the Stock Repurchase Program from time to time by selling weekly to us shares equal to a share multiplier (0.31 as of May 8, 2004) times the number of shares we purchased from the public during the previous week (the “public shares”) at a price equal to the volume weighted average price, excluding commissions, paid by us for the public shares, subject to a minimum sales price ($37.00 per share through August 6, 2004). The most recent stock repurchase agreement with the Trust expired on August 6, 2004 and we have no immediate plans to renew the agreement.

From the inception of the Stock Repurchase Program through June 30, 2004, we had repurchased 16,606,866 shares on the open market and 7,908,755 shares from the Trust and the Foundation. In addition, executives had surrendered 1,929,089 shares of our stock in payment of strike price and taxes due on exercised stock options and taxes due on vested restricted stock. During the first six months of 2004, we repurchased

549,000 shares on the open market and 235,775 shares from the Trust and the Foundation, and 777,228 shares were surrendered by our executives in payment of the strike price and taxes due on exercised stock options and taxes due on vested restricted stock. During the first six months of 2003, we repurchased 924,400 shares on the open market and 678,960 shares from the Trust and the Foundation, and executives surrendered 341,884 shares of our stock in payment of the strike price and taxes due on exercised stock options and taxes due on vested restricted stock. Through June 30, 2004, a total of $637.9 million has been expended as part of the Stock Repurchase Program, including $31.1 million in the first six months of 2004 and $45.7 million in the first six months of 2003.


	*Off-Balance Sheet Debt*

At June 30, 2004, we were not liable as guarantor on any credit obligations that related to unconsolidated affiliates in accordance with Financial Accounting Standards Board Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.


	*Contractual Obligations and Commercial Commitments*

There have been no material changes to contractual obligations and commercial commitments during the first six months of 2004.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

There have been no material changes to quantitative and qualitative disclosures about market risk during the first six months of 2004.


Item 4.	*Controls and Procedures*

(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company (including our consolidated subsidiaries) required to be included in our periodic filings under the Exchange Act.

(b) Changes in Internal Controls. During the quarter ended June 30, 2004, there have not been any changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION


Item 1.	*Legal Proceedings*

See Part I, Item 1, Note 7.

Item 2(e). Issuer Purchases of Equity Securities


					(c)		(d)
					Total Number of		Maximum Dollar
	(a)		(b)		Shares Purchased		Amount that
	Total Number		Average		as Part of Publicly		May yet Be
	of Shares		Price Paid		Announced Plans		Purchased Under
	Purchased		per Share		or Programs		the Plans or
Period	(1)(2)		(1)(2)		(1)(3)		Programs

							(In thousands)
Month Ended April 30, 2004		87,359	$	40.08		53,270	$	167,724
Month Ended May 31, 2004		724,534		38.66		72,600		164,932
Month Ended June 30, 2004		72,950		39.09		72,950		162,078

Total		884,843	$	38.83		198,820	$	162,078

(1) Includes shares purchased from The Alfred I. duPont Testamentary Trust and The Nemours Foundation equal in the aggregate to 11,270 in April 2004, 27,600 in May 2004, and 13,950 in June 2004.

(2) Includes shares surrendered to the Company by executives as payment for the strike price and taxes due on exercised stock options and/or taxes due on vested restricted stock equal in the aggregate to 34,089 in April 2004, 651,934 in May 2004 and 0 in June 2004.

(3) From August 1998 through June 30, 2004, the Board of Directors authorized a total of $800.0 million for the repurchase of the Company’s outstanding common stock from time to time on the open market (the “Stock Repurchase Program”), of which a total of approximately $637.9 million had been expended through June 30, 2004. The Stock Repurchase Program has no expiration date and was originally announced on August 12, 1998. The Stock Repurchase Program excludes the shares described in footnote 2 above.


Item 6.	*Exhibits and Reports on Form 8-K*

(a) Exhibits


	3.1			Restated and Amended Articles of Incorporation dated May 12, 1998 (incorporated by reference to Exhibit 3.1 of the registrant’s registration statement on Form S-1 (File 333-89146)).
	3.2			Amended and Restated By-laws of the registrant (incorporated by reference to Exhibit 3.01 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (File No. 1-10466)).
	4.1			Registration Rights Agreement between the registrant and the Alfred I. duPont Testamentary Trust, dated December 16, 1997 (incorporated by reference to Exhibit 4.01 to the registrant’s Amendment No. 1 to the registration statement on Form S-3 (File No. 333-42397)).
	4.2			Amendment No. 1 to the Registration Rights Agreement between the Alfred I. duPont Testamentary Trust and the registrant, dated January 26, 1998 (incorporated by reference to Exhibit 4.2 of the registrant’s registration statement on Form S-1 (File 333-89146)).
	4.3			Amendment No. 2 to the Registration Rights Agreement between the Alfred I. duPont Testamentary Trust and the registrant, dated May 24, 2002 (incorporated by reference to Exhibit 4.3 of the registrant’s registration statement on Form S-1 (File 333-89146)).
	4.4			Amendment No. 3 to the Registration Rights Agreement between the Alfred I. duPont Testamentary Trust and the registrant dated September 5, 2003 (incorporated by reference to Exhibit 4.4 of the registrant’s registration statement on Form S-3 (File No. 333-108292)).


	4.5			Amendment No. 4 to the Registration Rights Agreement between the Alfred I. duPont Testamentary Trust and the registrant dated December 30, 2003 (incorporated by reference to Exhibit 4.5 of the registrant’s registration statement on Form S-3 (File No. 333-111658)).
	10.1			Agreement between the registrant and the Alfred I. duPont Testamentary Trust dated May 6, 2004 (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.
	10.2			Third Amendment to Second Amended and Restated Credit Agreement dated as of June 8, 2004 among the registrant, Wachovia Bank, National Association, as agent, and the lenders party thereto.
	10.3			Note Purchase Agreement dated as of June 8, 2004, among the registrant and the purchasers party thereto ($100 million Senior Secured Notes).
	31.1			Certification by Chief Executive Officer.
	31.2			Certification by Chief Financial Officer.
	32.1			Certification by Chief Executive Officer.
	32.2			Certification by Chief Financial Officer.

(b) Reports on Form 8-K*

Form 8-K Item 12 — Results of Operation and Financial Condition — April 20, 2004

Form 8-K Item 9 — Regulation FD Disclosure — April 22, 2004

Form 8-K Item 9 — Regulation FD Disclosure — April 27, 2004

Form 8-K Item 9 — Regulation FD Disclosure — June 16, 2004

* These reports have been furnished only and shall not be deemed filed by virtue of their reference herein.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		THE ST. JOE COMPANY

Date: August 6, 2004		/s/ KEVIN M. TWOMEY Kevin M. Twomey President, Chief Operating Officer, and Chief Financial Officer

Date: August 6, 2004		/s/ MICHAEL N. REGAN Michael N. Regan Senior Vice President — Finance and Planning (Principal Accounting Officer)


	•	the sale of housing units built by us;

	•	the sale of developed homesites;

	•	rental income;

	•	club operations;

	•	investments in limited partnerships and joint ventures;

	•	brokerage and title issuance fees; and

	•	management fees.


	•	the rental of commercial properties owned by us;

	•	the sale of developed and undeveloped land and in-service buildings;

	•	realty revenues, consisting of property and asset management fees, construction management fees and lease and sales brokerage commissions;

	•	development fees; and

	•	investments in limited partnerships and joint ventures.


	•	the sale of parcels of undeveloped land; and

	•	the sale of developed rural homesites.


	•	the sale of pulpwood and timber;

	•	the sale of cypress, lumber and mulch; and

	•	the sale of bulk land.


	•	Economic conditions, particularly in Northwest Florida, Florida as a whole and key areas of the southeastern United States that serve as feeder markets to our Northwest Florida operations;

	•	Acts of war or terrorism or other geopolitical events;

	•	Local conditions such as an oversupply of homes and homesites and residential or resort properties or a reduction in the demand for real estate in an area;

	•	Timing and costs associated with property developments and rentals;

	•	The pace of commercial development in Northwest Florida;

	•	Competition from other real estate developers;

	•	Whether potential residents or tenants consider our properties attractive;

	•	Increases in operating costs, including increases in real estate taxes and the cost of construction materials;

	•	Changes in the amount or timing of federal and state income tax liabilities resulting from either a change in our application of tax laws, an adverse determination by a taxing authority or court, or legislative changes to existing laws;

	•	How well we manage our properties;

	•	Changes in interest rates and the performance of the financial markets;

	•	Decreases in market rental rates for our commercial and resort properties;

	•	Changes in the prices of wood products;


	•	The development of public infrastructure, particularly in Northwest Florida, including a proposed new airport in Bay County which is dependent on approvals of the local airport authority and the Federal Aviation Administration and the availability of adequate funding;

	•	Potential liability under environmental laws or other laws or regulations;

	•	Adverse changes in laws, regulations or the regulatory environment affecting the development of real estate;

	•	The availability of adequate funding from governmental agencies and others to purchase conservation lands;

	•	Fluctuations in the size and number of transactions from period to period; and

	•	Adverse weather conditions or natural disasters.


	•	Operations;

	•	Sales of land holdings, other assets and subsidiaries;

	•	Borrowings from financial institutions and other debt; and

	•	Issuances of equity, primarily from the exercise of employee stock options.


	•	Operations;

	•	Payment of taxes;

	•	Real estate development;

	•	Construction and homebuilding;

	•	Repurchases of our common stock;

	•	Payments of dividends;

	•	Repayments of debt; and

	•	Investments in joint ventures and acquisitions.


(1)	Includes shares purchased from The Alfred I. duPont Testamentary Trust and The Nemours Foundation equal in the aggregate to 11,270 in April 2004, 27,600 in May 2004, and 13,950 in June 2004.

(2)	Includes shares surrendered to the Company by executives as payment for the strike price and taxes due on exercised stock options and/or taxes due on vested restricted stock equal in the aggregate to 34,089 in April 2004, 651,934 in May 2004 and 0 in June 2004.

(3)	From August 1998 through June 30, 2004, the Board of Directors authorized a total of $800.0 million for the repurchase of the Company’s outstanding common stock from time to time on the open market (the “Stock Repurchase Program”), of which a total of approximately $637.9 million had been expended through June 30, 2004. The Stock Repurchase Program has no expiration date and was originally announced on August 12, 1998. The Stock Repurchase Program excludes the shares described in footnote 2 above.


*	These reports have been furnished only and shall not be deemed filed by virtue of their reference herein.