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EX-31.1 - EXHIBIT 31.1 - ST JOE COjoe-2016630xex311.htm
EX-32.2 - EXHIBIT 32.2 - ST JOE COjoe-2016630xex322.htm
EX-32.1 - EXHIBIT 32.1 - ST JOE COjoe-2016630xex321.htm
EX-31.2 - EXHIBIT 31.2 - ST JOE COjoe-2016630xex312.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission file number: 1-10466
 
The St. Joe Company
(Exact name of registrant as specified in its charter)
 
Florida
 
59-0432511
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
133 South Watersound Parkway
Watersound, Florida
 
32461
(Address of principal executive offices)
 
(Zip Code)
(850) 231-6400
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  þ    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  þ    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨

Accelerated filer
þ

Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  þ
As of August 1, 2016, there were 74,342,826 shares of common stock, no par value, outstanding.



THE ST. JOE COMPANY
INDEX
 

 
Page No.
 
 



2


PART I - FINANCIAL INFORMATION
Item 1.     Financial Statements

THE ST. JOE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 
June 30,
2016
 
December 31,
2015
ASSETS
 
 
 
Investment in real estate, net
$
310,242

 
$
313,599

Cash and cash equivalents
183,483

 
212,773

Investments
216,270

 
191,240

Restricted investments
5,653

 
7,072

Notes receivable, net
2,398

 
2,555

Property and equipment, net of accumulated depreciation of $57.8 million and $57.1 million at June 30, 2016 and December 31, 2015, respectively
9,414

 
10,145

Claim settlement receivable
12,651

 

Other assets
35,867

 
36,573

Investments held by special purpose entities
208,462

 
208,785

Total assets
$
984,440

 
$
982,742

LIABILITIES AND EQUITY
 
 
 
LIABILITIES:
 
 
 
Debt
$
54,206

 
$
54,474

Other liabilities
47,719

 
41,880

Deferred tax liabilities
37,498

 
36,847

Senior Notes held by special purpose entity
176,201

 
176,094

Total liabilities
315,624

 
309,295

EQUITY:
 
 
 
Common stock, no par value; 180,000,000 shares authorized; 92,341,484 and 92,332,565 issued at June 30, 2016 and December 31, 2015, respectively; and 74,342,826 and 75,329,557 outstanding at June 30, 2016 and December 31, 2015, respectively
892,443

 
892,387

Retained earnings
89,325

 
78,851

Accumulated other comprehensive loss
(685
)
 
(686
)
Treasury stock at cost, 17,998,658 and 17,003,008 held at June 30, 2016 and December 31, 2015, respectively
(320,109
)
 
(305,289
)
Total stockholders’ equity
660,974

 
665,263

Non-controlling interest
7,842

 
8,184

Total equity
668,816

 
673,447

Total liabilities and equity
$
984,440

 
$
982,742

See notes to the condensed consolidated financial statements.

3



THE ST. JOE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)

The following presents the portion of the consolidated balances presented above attributable to the Company’s consolidated variable interest entities. The Company’s consolidated variable interest entities include the Pier Park North joint venture, Artisan Park, L.L.C., Panama City Timber Finance Company, L.L.C. and Northwest Florida Timber Finance Company L.L.C as discussed in Note 1, Nature of Operations. Basis of Presentation. The following assets may only be used to settle obligations of the consolidated variable interest entities and the following liabilities are only obligations of the variable interest entities and do not have recourse to the general credit of the Company, except for the guarantees and covenants discussed in Note 10, Debt.
 
 
June 30,
2016
 
December 31,
2015
ASSETS
 
 
 
Investment in real estate, net
$
46,276

 
$
46,156

Cash and cash equivalents
3,600

 
4,067

Other assets
12,477

 
12,853

Investments held by special purpose entities
208,462

 
208,785

Total assets
$
270,815

 
$
271,861

LIABILITIES
 
 
 
Debt
$
47,538

 
$
47,480

Other liabilities
4,374

 
4,416

Senior Notes held by special purpose entity
176,201

 
176,094

Total liabilities
$
228,113

 
$
227,990

See notes to the condensed consolidated financial statements.

4


THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(Unaudited) 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016

2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Real estate sales
$
6,744

 
$
14,019

 
$
13,825

 
$
19,456

Resorts and leisure revenues
19,793

 
19,318

 
28,544

 
27,121

Leasing revenues
2,321

 
2,167

 
4,682

 
4,212

Timber sales
693

 
2,342

 
2,754

 
4,148

Total revenues
29,551

 
37,846

 
49,805

 
54,937

Expenses:
 
 
 
 
 
 
 
Cost of real estate sales
2,975

 
6,588

 
4,739

 
9,723

Cost of resorts and leisure revenues
15,645

 
14,694

 
24,964

 
23,500

Cost of leasing revenues
759

 
628

 
1,509

 
1,262

Cost of timber sales
203

 
258

 
413

 
442

Other operating and corporate expenses
5,725

 
7,732

 
12,543

 
14,849

Depreciation, depletion and amortization
2,101

 
2,135

 
4,390

 
5,050

Total expenses
27,408

 
32,035

 
48,558

 
54,826

Operating income
2,143

 
5,811

 
1,247


111

Other income (expense):
 
 
 
 
 
 
 
Investment income, net
2,959

 
5,438

 
5,689

 
10,651

Interest expense
(3,145
)
 
(2,645
)
 
(6,180
)
 
(5,522
)
Claim settlement

 

 
12,548

 

Other, net
601

 
(7,013
)
 
1,050

 
(6,436
)
Total other income (expense)
415

 
(4,220
)
 
13,107

 
(1,307
)
Income (loss) before income taxes
2,558

 
1,591


14,354


(1,196
)
Income tax expense
(978
)
 
(1,862
)
 
(4,222
)
 
(790
)
Net income (loss)
1,580


(271
)

10,132


(1,986
)
Net loss attributable to non-controlling interest
230

 
47

 
342

 
25

Net income (loss) attributable to the Company
$
1,810

 
$
(224
)

$
10,474


$
(1,961
)
 
 
 
 
 
 
 
 
NET INCOME (LOSS) PER SHARE
 
 
 
 
 
 
 
Basic and Diluted
 
 
 
 
 
 
 
Weighted average shares outstanding
74,338,023

 
92,302,636

 
74,573,517

 
92,297,467

Net income (loss) per share attributable to the Company
$
0.02

 
$
(0.00
)
 
$
0.14

 
$
(0.02
)
See notes to the condensed consolidated financial statements.

5


THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
 (Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016

2015
 
2016
 
2015
Net income (loss):
$
1,580

 
$
(271
)
 
$
10,132

 
$
(1,986
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Available-for-sale investment items:
 
 
 
 
 
 
 
Net unrealized gains on available-for-sale investments
90

 
1,989

 
2

 
3,246

Total before income taxes
90

 
1,989


2


3,246

Income tax expense
(35
)
 
(789
)
 
(1
)
 
(1,273
)
Total
55

 
1,200


1


1,973

Total other comprehensive income, net of tax
55

 
1,200


1


1,973

Total comprehensive income (loss), net of tax
$
1,635

 
$
929


$
10,133


$
(13
)
See notes to the condensed consolidated financial statements.


6


THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)

 
Common Stock
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
 
Outstanding
Shares
 
Amount
 
Treasury
Stock
 
Non-controlling
Interest
 
Total
Balance at December 31, 2015
75,329,557

 
$
892,387

 
$
78,851

 
$
(686
)
 
$
(305,289
)
 
$
8,184

 
$
673,447

Net income (loss)

 

 
10,474

 

 

 
(342
)
 
10,132

Other comprehensive income

 

 

 
1

 

 

 
1

Issuance of common stock for director’s fees
8,919

 
56

 

 

 

 

 
56

Repurchase of common shares
(995,650
)
 

 

 

 
(14,820
)
 

 
(14,820
)
Balance at June 30, 2016
74,342,826

 
$
892,443

 
$
89,325

 
$
(685
)
 
$
(320,109
)
 
$
7,842

 
$
668,816

 
 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to the condensed consolidated financial statements.


7


THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
Six Months Ended 
 June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
10,132

 
$
(1,986
)
Adjustments to reconcile net income (loss) to net cash from operating activities:
 
 
 
Depreciation, depletion and amortization
4,390

 
5,050

Stock based compensation
56

 
150

Deferred income tax expense
650

 
894

Cost of real estate sold
3,951

 
8,902

Expenditures for and acquisition of real estate to be sold
(1,736
)
 
(4,244
)
Accretion income and other
(778
)
 
(1,213
)
Loss on disposal of real estate and property and equipment
5

 

Changes in operating assets and liabilities:
 
 
 
Notes receivable
157

 
21,209

Claim settlement receivable
(12,651
)
 

Other assets
(141
)
 
(1,079
)
Other liabilities
6,544

 
10,505

Income taxes receivable
1,272

 
(143
)
Net cash provided by operating activities
11,851

 
38,045

Cash flows from investing activities:
 
 
 
Expenditures for Pier Park North joint venture
(1,084
)
 
(4,173
)
Purchases of property and equipment
(1,986
)
 
(1,550
)
Proceeds from the disposition of assets
3

 

Purchases of investments
(216,698
)
 
(184,520
)
Maturities of investments
185,000

 
310,000

Sales of investments
8,413

 
140,984

Maturities of assets held by special purpose entities
415

 
415

Net cash (used in) provided by investing activities
(25,937
)
 
261,156

Cash flows from financing activities:
 
 
 
Repurchase of common shares
(14,820
)
 

Borrowings on construction/refinanced loan in Pier Park joint venture

 
4,507

Principal payments for debt
(384
)
 
(251
)
Net cash (used in) provided by financing activities
(15,204
)
 
4,256

Net (decrease) increase in cash and cash equivalents
(29,290
)
 
303,457

Cash and cash equivalents at beginning of the period
212,773

 
34,515

Cash and cash equivalents at end of the period
$
183,483

 
$
337,972


See notes to the condensed consolidated financial statements.

8


THE ST. JOE COMPANY
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Dollars in thousands)
(Unaudited)
 
 
Six Months Ended 
 June 30,
 
 
2016
 
2015
Cash paid during the period for:
 
 
 
 
Interest expense
 
$
5,859

 
$
4,908

Income taxes
 
$
2,300

 
$

 
 
 
 
 
Non-cash financing and investing activities:
 
 
 
 
Increase in Community Development District debt
 
$
57

 
$
529

Decrease in pledged treasury securities related to defeased debt
 
$

 
$
310

Expenditures for operating properties and property and equipment financed through accounts payable
 
$
577

 
$
1,133


See notes to the condensed consolidated financial statements.

9


THE ST. JOE COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise stated)
(Unaudited)
1. Nature of Operations
The St. Joe Company together with its consolidated subsidiaries (the “Company”) is a real estate development, asset management and operating company with real estate assets and operations currently concentrated primarily between Tallahassee and Destin, Florida.
The Company conducts primarily all of its business in the following five reportable operating segments: 1) residential real estate, 2) commercial real estate, 3) resorts and leisure, 4) leasing operations and 5) forestry.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements are not included herein. The unaudited interim condensed consolidated financial statements include the accounts of the Company and all of its majority-owned and controlled subsidiaries. The equity method of accounting is used for investments in which the Company has significant influence, but not a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation. The December 31, 2015 balance sheet amounts have been derived from the Company’s December 31, 2015 audited consolidated financial statements. Certain prior period amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on the Company’s previously reported stockholders’ equity or net income (loss). Operating results for the six months ended June 30, 2016 are not necessarily indicative of the results of the Company that may be expected for the year ending December 31, 2016.
A variable interest entity (“VIE”) is an entity in which a controlling financial interest may be achieved through arrangements that do not involve voting interests. A VIE is required to be consolidated by its primary beneficiary, which is the entity that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it. The Company consolidates VIEs when it is the primary beneficiary of the VIE, including real estate joint ventures determined to be VIEs (see Note 9, Real Estate Joint Ventures) and VIEs involved in a 2014 real estate sale.
The statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Company adheres to the same accounting policies in preparation of its unaudited interim condensed consolidated financial statements as the Company’s December 31, 2015 annual financial statements. As required under GAAP, interim accounting for certain expenses, including income taxes, are based on full year assumptions. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.

Recently Adopted Accounting Pronouncements
Consolidation
In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02 that amends the existing consolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of variable interests for fees paid to decision makers or service providers, (iii) the effect of fee arrangements and related parties on the primary beneficiary determination and (iv) certain investment funds. These changes are expected to limit the number of consolidation models and place more emphasis on risk of loss when determining a controlling financial interest. The Company adopted the new guidance as of January 1, 2016. The adoption of this guidance had no impact on the Company’s condensed consolidated balance sheets, statements of operations, statements of comprehensive income (loss), statements of cash flows or notes to the condensed consolidated financial statements.

10


Debt issuance costs
In April 2015, the FASB issued ASU 2015-03 that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendment does not affect the recognition and measurement guidance for debt issuance costs. As of January 1, 2016, the Company adopted this ASU, which required retrospective application and resulted in the reclassification of debt issuance costs of $2.1 million from other assets to a reduction of $0.7 million in debt and a reduction of $1.4 million in Senior Notes held by special purpose entity in the Company’s condensed consolidated balance sheet as of December 31, 2015. Other than this change in presentation, this ASU did not have an impact on the Company’s condensed consolidated financial condition, results of operations or cash flows. See Note 10, Debt for more information.

Recently Issued Accounting Pronouncements
Revenue recognition
In May 2014, the FASB issued an ASU that establishes the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08 that further clarifies the implementation guidance on principal versus agent considerations. The new guidance will be effective for annual and interim periods beginning after December 15, 2017. Early application will be permitted, but not before annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial condition, results of operations and cash flows.
Financial Instruments
In January 2016, the FASB issued ASU 2016-01 that amends existing guidance to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance will require equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in results of operations. Additionally, certain disclosure requirements and other aspects of accounting for financial instruments will change as a result of the new guidance, which is effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact that the adoption of the new guidance will have on its financial condition, results of operations and cash flows.
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13 that requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected and requires that credit losses from available-for-sale debt securities be presented as an allowance for credit losses. This new guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of the new guidance will have on its financial condition, results of operations and cash flows.
Leases
In February 2016, the FASB issued ASU 2016-02 that amends the existing accounting standards for lease accounting, including requiring lessees to recognize both finance and operating leases with terms of more than 12 months on the balance sheet. The accounting applied by a lessor is largely unchanged from existing guidance. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The new guidance will be effective for annual and interim periods beginning after December 15, 2018 and requires a modified retrospective adoption. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial condition, results of operations and cash flows.





11



2. Investment in Real Estate
Real estate by property type and segment includes the following:
 
June 30,
2016
 
December 31,
2015
Development property:
 
 
 
Residential real estate
$
96,731

 
$
99,413

Commercial real estate
56,586

 
56,587

Leasing operations
1,120

 
360

Forestry
2,606

 
2,681

Corporate
2,384

 
2,211

Total development property
159,427

 
161,252

 
 
 
 
Operating property:
 
 
 
Residential real estate
8,091

 
8,091

Resorts and leisure
109,556

 
109,425

Leasing operations
81,024

 
79,550

Forestry
19,184

 
19,300

Other
50

 
50

Total operating property
217,905

 
216,416

Less: Accumulated depreciation
67,090

 
64,069

Total operating property, net
150,815

 
152,347

Investment in real estate, net
$
310,242

 
$
313,599


Development property consists of land the Company is developing or intends to develop for sale or future operations. Residential real estate includes mixed-use resort, primary and seasonal residential communities and includes costs directly associated with the land, development and construction of these communities, including common development costs such as roads, utilities and amenities and indirect costs such as development overhead, capitalized interest, marketing and project administration. Commercial real estate includes land for commercial and industrial uses, including land holdings near the Northwest Florida Beaches International Airport and Port of Port St. Joe, and includes costs directly associated with the land and development costs for these properties, which also include common development costs such as roads and utilities. Leasing development property primarily includes the land development and construction for the consolidated joint venture at Pier Park North. This leasing development property is being reclassified as operating property as tenants commence operations at Pier Park North.    
Operating property includes property that the Company uses for operations and activities. The resorts and leisure operating property includes the WaterColor Inn, golf courses, a beach club and marinas. Leasing operating property includes property developed or purchased by the Company and used for retail and commercial rental purposes, including property in the consolidated joint venture at Pier Park North. Operating property may be sold in the future as part of the Companys principal real estate business. Forestry operating property includes the Company’s timberlands.
The Company had no capitalized indirect development costs during the three and six months ended June 30, 2016 and $0.1 million during the three and six months ended June 30, 2015, primarily related to the consolidated joint venture at Pier Park North.

12



3. Impairment of Long Lived Assets
The Company reviews its long-lived assets for impairment quarterly to determine whether events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Long-lived assets include the Company’s investments in operating and development property and property and equipment. As part of the Company’s review for impairment of its long-lived assets, the Company reviews long-lived asset’s carrying value, current period actual financial results as compared to prior period and forecast contained in the Company’s business plan and any other events or changes in circumstances to identify whether an indicator of potential impairment may exist. Some of the events or changes in circumstances that are considered by the Company as indicators of potential impairment include:

a prolonged decrease in the fair value or demand for the Company’s properties;
a change in the expected use or development plans for the Company’s properties;
a material change in strategy that would affect the fair value of the Company’s properties;
continuing operating or cash flow losses for an operating property;
an accumulation of costs in excess of the projected costs for a development property; and
any other adverse change that may affect the fair value of the property.

The Company uses varying methods to determine if an impairment exists, such as (i) considering indicators of potential impairment, (ii) analyzing expected future cash flows and comparing the expected future undiscounted cash flows of the property to its carrying value or (iii) determining market resale values.
There were no events or changes in circumstances that would indicate that the carrying value of the Company’s long-lived assets would not be recoverable, therefore, the Company did not record any impairment charges during the three and six months ended June 30, 2016 and 2015.

4. Investments
Investments and restricted investments consist of available-for-sale securities and are recorded at fair value, which is based on quoted market prices and pricing data from external pricing services that use prices observed for recently executed market transactions. Unrealized gains and temporary losses on investments, net of tax, are recorded in other comprehensive income (loss). Realized gains and losses are determined using the specific identification method. The amortized cost of debt securities are adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method. Such amortization and accretion is included in investment income, net. In addition, at June 30, 2016, the Company had investments in short term commercial paper that are classified as cash equivalents, since they had maturity dates of ninety days or less from the date of purchase.
At June 30, 2016 investments and restricted investments classified as available-for-sale securities were as follows:
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Debt securities:
 
 
 
 
 
 
 
U.S. Treasury securities
$
174,367

 
$
197

 
$

 
$
174,564

Corporate debt securities
20,086

 
78

 
1,152

 
19,012

Preferred stock
22,930

 

 
236

 
22,694

 
217,383


275


1,388


216,270

Restricted investments:
 
 
 
 
 
 
 
Money market fund
5,653

 

 

 
5,653

 
$
223,036


$
275


$
1,388


$
221,923



13


At December 31, 2015 investments and restricted investments classified as available-for-sale securities were as follows:
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Debt securities:
 
 
 
 
 
 
 
U.S. Treasury securities
$
184,819

 
$

 
$
79

 
$
184,740

Corporate debt securities
7,273

 

 
981

 
6,292

Preferred stock
265

 

 
57

 
208

 
192,357




1,117


191,240

Restricted investments:
 
 
 
 
 
 
 
Guaranteed income fund
7,072

 

 

 
7,072

 
$
199,429


$


$
1,117


$
198,312


Fairholme Capital Management, L.L.C., or one of its affiliates (“Fairholme Capital”), has served as an investment advisor to the Company since April 2013. As of June 30, 2016, funds managed by Fairholme Capital beneficially owned approximately 32.9% of the Company’s common stock. Mr. Bruce Berkowitz is the Managing Member of Fairholme Capital and the Chairman of the Company’s Board of Directors. Fairholme Capital does not receive any compensation for services as the Company’s investment advisor.
Pursuant to the terms of the Company’s Investment Management Agreement with Fairholme Capital, as amended (the “Agreement”), Fairholme Capital agreed to supervise and direct the investments of investment accounts established by the Company in accordance with the investment guidelines and restrictions approved by the Investment Committee of the Company’s Board of Directors. The investment guidelines are set forth in the Agreement and require that, as of the date of any investment: (i) at least 50% of the investment account be held in cash or cash equivalents, as defined in the Agreement, (ii) no more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government) and (iii) any investment in any one issuer (excluding the U.S. Government) that exceeds 10%, but not 15%, requires the consent of at least two members of the Investment Committee. The investment account may not be invested in common stock securities.
As of June 30, 2016, the investment account included $174.6 million of U.S. Treasury securities, $19.0 million of corporate debt securities and $22.7 million of preferred stock investments (all of which are classified within investments on the Company’s condensed consolidated balance sheets). $8.5 million of the $19.0 million corporate debt securities and $0.2 million of the $22.7 million preferred stock are issued by Sears Holdings Corp or affiliates.
During the three and six months ended June 30, 2016, there were no realized losses from the sale or maturity of available-for-sale securities. During the six months ended June 30, 2016, proceeds from the sale of available-for-sale securities were $8.4 million and proceeds from the maturity of available-for-sale securities were $185.0 million.
During the three months ended June 30, 2015, realized losses from the sale of available-for-sale securities were less than $0.1 million and proceeds from the sale of available-for-sale securities were $11.8 million. During the six months ended June 30, 2015, realized losses from the sale of available for-sale securities were less than $0.1 million, proceeds from the sale of available-for-sale securities were $141.0 million and proceeds from the maturity of available-for-sale securities were $310.0 million.

    

14


As of June 30, 2016 and December 31, 2015, certain of the Company’s debt securities and preferred stock had unrealized losses of $1.4 million and $1.1 million, respectively, that were deemed temporary and included in accumulated other comprehensive loss. The following table provides the debt securities and preferred stock unrealized loss position and related fair values:    
 
As of June 30, 2016
 
As of December 31, 2015
 
Less Than 12 Months
 
12 Months or Greater
 
Less Than 12 Months
 
12 Months or Greater
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$

 
$

 
$

 
$
184,740

 
$
79

 
$

 
$

Corporate debt securities
18,262

 
1,152

 

 

 
6,292

 
981

 

 

Preferred stock
22,694

 
236

 

 

 
208

 
57

 

 

 
$
40,956

 
$
1,388

 
$

 
$

 
$
191,240

 
$
1,117

 
$

 
$


As of June 30, 2016 and December 31, 2015, the Company did not intend to sell the investments with unrealized losses and it is more likely than not that the Company will not be required to sell any of these securities prior to their anticipated recovery, which could be maturity; therefore, the Company does not believe that its investment in the debt securities and preferred stock was other-than-temporarily impaired at June 30, 2016 and December 31, 2015.
The net carrying value and estimated fair value of investments and restricted investments classified as available-for-sale at June 30, 2016, by contractual maturity are shown in the following table. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations.
 
Amortized Cost
 
Fair Value
Due in one year or less
$
174,367

 
$
174,564

Due after one year through five years
19,987

 
18,929

Due after ten years through fifteen years
99

 
83

 
194,453

 
193,576

Preferred stock
22,930

 
22,694

Restricted investments
5,653

 
5,653

 
$
223,036

 
$
221,923


15



5. Financial Instruments and Fair Value Measurements
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
Level 1. Quoted prices in active markets for identical assets or liabilities;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, such as internally-developed valuation models which require the reporting entity to develop its own assumptions.
The financial instruments measured at fair value on a recurring basis at June 30, 2016 were as follows:
 
Level 1
 
Level 2
 
Level 3
 
Total Fair Value
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
24,185

 
$

 
$

 
$
24,185

Commercial paper
139,058

 

 

 
139,058

Debt securities:
 
 
 
 
 
 
 
U.S. Treasury securities
174,564

 

 

 
174,564

Corporate debt securities

 
19,012

 

 
19,012

Preferred stock
18,739

 
3,955

 

 
22,694

Restricted investments:
 
 
 
 
 
 
 
Money market fund
5,653

 

 

 
5,653

 
$
362,199

 
$
22,967

 
$

 
$
385,166

The financial instruments measured at fair value on a recurring basis at December 31, 2015 were as follows:
 
Level 1
 
Level 2
 
Level 3
 
Total Fair Value
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
18,233

 
$

 
$

 
$
18,233

Commercial paper
174,973

 

 

 
174,973

Debt securities:
 
 
 
 
 
 
 
U.S. Treasury securities
184,740

 

 

 
184,740

Corporate debt securities

 
6,292

 

 
6,292

Preferred stock

 
208

 

 
208

Restricted investments:
 
 
 
 
 
 


Guaranteed income fund

 
7,072

 

 
7,072

 
$
377,946

 
$
13,572

 
$

 
$
391,518

Money market funds, U.S. Treasury securities, commercial paper and certain preferred stock are measured based on quoted market prices in an active market and categorized within level 1 of the fair value hierarchy. Money market funds and commercial paper with a maturity date of ninety days or less from the date of purchase are classified as cash equivalents in the Company’s condensed consolidated balance sheets.
Corporate debt securities and certain preferred stock are not traded on a nationally recognized exchange but rather are traded in the U.S. over-the-counter market where there is less trading activity and these are measured primarily using pricing data from external pricing services that use prices observed for recently executed market transactions. For these reasons, the Company has determined that the corporate debt securities and certain preferred stock are categorized as level 2 financial instruments since their fair values were determined from market inputs in an inactive market.

16


Restricted investments include certain of the surplus assets that were transferred from the Company’s Pension Plan to a suspense account in the Company’s 401(k) Plan in December 2014. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated financial statements until they are allocated to participants. As of December 31, 2015, the assets held in the suspense account were invested in the Prudential Guaranteed Income Fund, which is a stable value fund designed to provide safety of principal, liquidity and a rate of return. The Prudential Guaranteed Income Fund was valued based upon the contributions made to the fund, plus earnings at guaranteed crediting rates, less withdrawals and fees and was categorized as a level 2 financial instrument. During the six months ended June 30, 2016 the assets were transferred to a Vanguard Money Market Fund, which invests in U.S. government securities and seeks to provide current income and preserve shareholders’ principal investment. The Vanguard Money Market Fund is measured based on quoted market prices in an active market and categorized within level 1 of the fair value hierarchy. The Company’s Retirement Plan Investment Committee is responsible for investing decisions and allocation decisions of the suspense account. Refer to Note 15, Employee Benefit Plans.
Fair Value of Financial Instruments

The fair value of the Company’s retained interest investments is based on the present value of the expected future cash flows at the effective yield.
The fair value of the Investments held by special purpose entities - Time deposit is based on the present value of future cash flows at the current market rate.
The fair value of the Investments held by special purpose entities - U.S. Treasury securities are measured based on quoted market prices in an active market.
The fair value of the Senior Notes held by special purpose entity is based on the present value of future cash flows at the current market rate.

The carrying amount and fair value of the Company’s financial instruments were as follows:
 
June 30, 2016
 
December 31, 2015
 
Carrying 
value
 
Fair value
 
Level
 
Carrying 
value
 
Fair value
 
Level
Assets
 
 
 
 
 
 
 
 
 
 
 
Retained interest investments
$
10,429

 
$
13,328

 
3
 
$
10,246

 
$
13,333

 
3
Investments held by special purpose entities:
 
 
 
 
 
 
 
 
 
 
 
Time deposit
$
200,000

 
$
200,000

 
3
 
$
200,000

 
$
200,000

 
3
U.S. Treasury securities and cash equivalents
$
8,462

 
$
9,169

 
1
 
$
8,785

 
$
9,033

 
1
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Senior Notes held by special purpose entity
$
176,201

 
$
217,863

 
3
 
$
176,094

 
$
178,035

 
3
Retained Interest Investments
The Company has a beneficial interest in certain bankruptcy remote qualified special purpose entities (the “SPEs”) used in the installment sale monetization of certain sales of timberlands in 2007 and 2008. The SPEs’ assets are not available to satisfy the Company’s liabilities or obligations and the liabilities of the SPEs are not the Company’s liabilities or obligations. In the event that proceeds from the financial instruments are insufficient to settle all of the liabilities of the SPEs, the Company is not obligated to contribute any funds to the SPEs. The Company has determined that it is not the primary beneficiary of the SPEs, since the Company is not the primary decision maker with respect to activities that could significantly impact the economic performance of the SPEs, nor does the Company perform any service activity related to the SPEs. Therefore, the SPEs’ assets and liabilities are not consolidated in the Company’s condensed consolidated financial statements as of June 30, 2016 and December 31, 2015.
At the time of monetization the initial retained interest recorded was an estimate based on the present value of future excess cash flows expected to be received over the life of the retained interest, using management’s best estimate of underlying assumptions, including credit risk and discount rates. The Company’s continuing involvement with the SPEs is the receipt of the net interest payments and the remaining principal of approximately $15.0 million to be received at the end of the installment notes’ fifteen year maturity period, in 2022 through 2024.

17


The Company has a beneficial or retained interest investment related to these SPEs of $10.4 million and $10.2 million as of June 30, 2016 and December 31, 2015, respectively, recorded in other assets on the Company’s condensed consolidated balance sheets. The Company has classified its retained interest investment as held-to-maturity because the Company has both the intent and the ability to hold its interest in the SPEs to maturity. Accordingly, the Company has recorded the retained interest investment at cost, adjusted for the accretion of investment income over the life of the retained interest using the effective yield method with rates ranging from 3.7% to 11.3%. The Company continues to update the expectation of cash flows to be collected over the term of the retained interest. Changes to the previously projected cash flows are accounted for prospectively, unless based on management’s assessment of current information and events, it is determined that there is an other-than-temporary impairment. The Company has not recorded an other-than-temporary impairment related to its retained interest investments during the three and six months ended June 30, 2016 and 2015.

In the event of a failure and liquidation of the counterparties involved in the installment sales, the Company could be required to write-off the remaining retained interest recorded on its condensed consolidated balance sheets in connection with the installment sale monetization transactions in 2007 and 2008.
Investments and Senior Notes Held by Special Purpose Entities
In connection with a real estate sale in 2014, the Company received consideration consisting of (i) cash, (ii) a $200.0 million fifteen-year installment note (the “Timber Note”) issued by Panama City Timber Finance Company, LLC, a buyer-sponsored special purpose entity (“AgReserves SPE”) and (iii) an Irrevocable Standby Letter of Credit issued by JPMorgan Chase Bank, N.A. (the “Letter of Credit”) at the request of AgReserves SPE, in favor of the Company. In 2014, the Company contributed the Timber Note and assigned its rights as a beneficiary under the Letter of Credit to Northwest Florida Timber Finance, LLC (“NFTF”), a bankruptcy-remote, qualified special purpose entity wholly-owned by the Company. NFTF monetized the Timber Note by issuing $180.0 million aggregate principal amount of its 4.8% Senior Secured Notes due in 2029 (the “Senior Notes”) at an issue price of 98.5% of face value to third party investors. AgReserves SPE and NFTF are VIEs, which the Company consolidates as the primary beneficiary of each entity. The investments held by special purpose entities consist of a $200.0 million time deposit that, subsequent to April 2, 2014, pays interest at 4.0% and matures in March 2029, U.S. Treasuries of $8.1 million and cash of $0.4 million. The Senior Notes issued by NFTF consist of $176.2 million net of the $3.8 million discount and debt issuance costs.
6. Notes Receivable, Net
Notes receivable, net consists of the following: 
 
June 30,
2016
 
December 31,
2015
Pier Park Community Development District notes, non-interest bearing, due September 2022, net of unamortized discount of $0.1 million, effective rates 5.93% — 8.0%
$
1,988

 
$
1,985

Interest bearing homebuilder notes, secured by the real estate sold — 4.0% interest rate, any remaining payments outstanding are due August 2016
33

 
90

Various mortgage notes, secured by certain real estate, bearing interest at various rates
377

 
480

Total notes receivable, net
$
2,398

 
$
2,555

The Company evaluates the carrying value of the notes receivable and the need for an allowance for doubtful notes receivable at each reporting date.

18


7. Claim Settlement Receivable
On March 24, 2016, the Company entered into a full and final release agreement with BP p.l.c. and various related entities pursuant to which the Company, on its own behalf and on behalf of certain wholly owned subsidiaries, released any and all claims related to the Deepwater Horizon oil spill which occurred on April 20, 2010.  In exchange for this release, the Company will receive the amount of $13.2 million from BP Exploration & Production Inc., a large portion of which will reimburse the Company for expenses incurred.  Payment of the settlement amount is to be made pursuant to the following schedule: the amount of $5.0 million is to be paid in October of 2016 followed by payments of $2.7 million due in October of 2017, 2018 and 2019.  The Company also received a guaranty of payments from BP North America Corporation Inc. As of March 24, 2016, the Company recorded the claim settlement receivable using an imputed interest rate of 3.0%, based on its best estimate of the prevailing market rates for the source of credit, resulting in an initial present value of $12.5 million and a discount of $0.7 million. $12.5 million of the claim settlement was recognized as other income (expense) in the Company’s condensed consolidated statements of operations for the six months ended June 30, 2016. The discount is being accreted over the expected three and a half year term of the receivable using the effective interest method. Interest income for the three months ended June 30, 2016 and the period from March 24, 2016 to June 30, 2016 was $0.1 million.

8. Other Assets
    
Other assets consist of the following:
 
June 30,
2016
 
December 31,
2015
Retained interest investments
$
10,429

 
$
10,246

Accounts receivable, net
4,344

 
4,382

Prepaid expenses
6,277

 
5,849

Straight line rent
3,717

 
3,732

Income tax receivable
1,003

 
2,275

Other assets
6,759

 
6,751

Accrued interest receivable for Senior Notes held by special purpose entity
3,338

 
3,338

Total other assets
$
35,867

 
$
36,573


9. Real Estate Joint Ventures
The Company enters into real estate joint ventures, from time to time, for the purpose of developing real estate in which the Company may or may not have a controlling financial interest. GAAP requires consolidation of VIEs in which an enterprise has a controlling financial interest and is the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE. The Company examines specific criteria and uses judgment when determining whether the Company is the primary beneficiary and must consolidate a VIE. The Company continues to assess whether it is the primary beneficiary on an ongoing basis.
Consolidated Real Estate Joint Ventures
During 2012, the Company entered into a joint venture agreement with a partner to develop a retail center at Pier Park North. The Company’s partner is responsible for the day-to-day activities of the joint venture. However, the Company has significant involvement in the design of the development and approves all major decisions, including project development, annual budgets and financing. The Company determined the joint venture is a VIE and that the Company is the VIE’s primary beneficiary as of June 30, 2016 and December 31, 2015.
In October 2015, the Pier Park North joint venture refinanced a construction loan by entering into a $48.2 million loan (the “Refinanced Loan”), which is secured by a first lien on, and security interest in, a majority of the Pier Park North joint venture’s property and a $6.6 million short-term letter of credit. Additionally, in connection with this refinancing, each of the Pier Park North joint venture partners executed a limited guarantee in favor of the lender, based on their percentage ownership in the joint venture. See Note 10, Debt.

19


In addition, the Company is the primary beneficiary of another real estate joint venture, Artisan Park, L.L.C, that is consolidated within the financial results of the Company. The Company is entitled to 74% of the profits or losses of this VIE and is responsible for the day-to-day activities of the joint venture. The Company has determined that the Company is the primary beneficiary as it has the power to direct the activities that most significantly impact the joint venture’s economic performance; therefore, the results of the VIE have been consolidated within the financial results of the Company.
Unconsolidated Real Estate VIE
As of June 30, 2016, the Company is a partner in ALP Liquidating Trust (ALP) that is accounted for using the equity method. The joint venture was entered into to develop and sell certain mixed use residential and commercial projects. The Company has evaluated the VIE consolidation requirements with respect to this joint venture and has determined that the Company is not the primary beneficiary, since the Company does not have the power to direct the activities that most significantly impact the economic performance of the VIE. The Company is not required to contribute additional funds to ALP.

Summarized financial information for ALP is as follows: 
 
June 30,
2016
 
December 31,
2015
 
 
 
 
Cash and cash equivalents
$
12,881

 
$
13,760

Other assets
59

 
58

Total assets
$
12,940

 
$
13,818

 
 
 
 
Accounts payable and other liabilities
$
1,424

 
$
1,978

Equity(1)
11,516

 
11,840

Total liabilities and equity
$
12,940

 
$
13,818

 
(1) In 2008 the Company wrote-off its investment in ALP as a result of ALP reserving its assets to satisfy potential claims and obligations in accordance with its publicly reported liquidation basis of accounting. Subsequently, ALP changed its method of accounting to a going concern basis and reinstated its equity and stated it would report certain expenses as they are incurred. The Company has not recorded any additional equity income as a result of ALP’s change in accounting.
For the three months ended June 30, 2016 and 2015, ALP reported net loss of $0.3 million and $0.8 million, respectively. For the six months ended June 30, 2016 and 2015, ALP reported net loss of $0.3 million and $1.2 million, respectively.

10. Debt

Debt consists of the following at June 30, 2016:

Principal

Unamortized Discount and Debt Issuance Costs

Net
Refinanced loan in the Pier Park North joint venture, due November 2025, bearing interest at 4.1%
$
48,200


$
662


$
47,538

Community Development District debt, secured by certain real estate and standby note purchase agreements, due May 2031 - May 2039, bearing interest at 3.1% to 7.0% at June 30, 2016
6,668




6,668

Total debt
$
54,868


$
662


$
54,206


20



Debt consists of the following at December 31, 2015:
 
Principal
 
Unamortized Discount and Debt Issuance Costs
 
Net
Refinanced loan in the Pier Park North joint venture, due November 2025, bearing interest at 4.1%
$
48,200

 
$
720

 
$
47,480

Community Development District debt, secured by certain real estate and standby note purchase agreements, due May 2016 - May 2039, bearing interest at 2.8% to 7.0% at December 31, 2015
6,994

 

 
6,994

Total debt
$
55,194

 
$
720

 
$
54,474

The Refinanced Loan accrues interest at a rate of 4.1% per annum and matures in November 2025. In connection with the Refinanced Loan, the Company entered into a limited guarantee in favor of the lender, based on its percentage ownership of the joint venture. In addition, the guarantee can become full recourse in the case of any fraud or intentional misrepresentation by the Pier Park North joint venture; any voluntary transfer or encumbrance of the property in violation of the due-on-sale clause in the security instrument; upon commencement of voluntary or insolvency proceedings and upon breach of covenants in the security instrument.
Community Development District (“CDD”) bonds financed the construction of infrastructure improvements at several of the Company’s projects. The principal and interest payments on the bonds are paid by assessments on, or from sales proceeds of, the properties benefited by the improvements financed by the bonds. The Company has recorded a liability for CDD assessments that are associated with platted property, which is the point at which the assessments become fixed or determinable. Additionally, the Company has recorded a liability for the balance of the CDD assessment that is associated with unplatted property if it is probable and reasonably estimable that the Company will ultimately be responsible for repaying. The Company has recorded debt of $6.7 million and $7.0 million related to CDD assessments as of June 30, 2016 and December 31, 2015, respectively. The Company’s total outstanding CDD assessments were $22.1 million and $22.5 million at June 30, 2016 and December 31, 2015, respectively. The Company pays interest on the total outstanding CDD assessments.

The aggregate maturities of debt subsequent to June 30, 2016 are:
 
June 30,
2016
2016
$
96

2017
991

2018
1,032

2019
1,075

2020
1,119

Thereafter
50,555

 
$
54,868



21


11. Other Liabilities
Other liabilities consist of the following:
 
June 30,
2016
 
December 31,
2015
Accounts payable
$
5,968

 
$
2,585

Accrued compensation
1,847

 
3,366

Deferred revenue
15,587

 
15,584

Membership deposits and initiation fees
7,200

 
7,416

Advance deposits
6,037

 
3,574

Other accrued liabilities
8,230

 
6,505

Accrued interest expense for Senior Notes held by special purpose entity
2,850

 
2,850

Total other liabilities
$
47,719

 
$
41,880

Deferred revenue at June 30, 2016 and December 31, 2015 includes $12.5 million related to a 2006 agreement pursuant to which the Company agreed to sell rural land to the Florida Department of Transportation (the “FDOT”). Revenue is recognized when title to a specific parcel is legally transferred.
Advance deposits consist of deposits received on hotel rooms and vacation rentals. Advance deposits are recorded as other liabilities in the condensed consolidated balance sheets without regard to whether they are refundable and are recognized as income at the time the service is provided for the related deposit.

12. Income Taxes
Income tax expense differed from the amount computed by applying the federal statutory rate of 35% to pre-tax income or loss as a result of the following: 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016

2015
 
2016
 
2015
Tax expense (benefit) at the federal statutory rate
$
976

 
$
563

 
$
5,144

 
$
(419
)
State income tax expense (benefit) (net of federal benefit)
97

 
56

 
514

 
(42
)
Tax effect of timber at the federal statutory rate of 23.8%
(54
)
 

 
(260
)
 

Decrease in valuation allowance
(9
)
 
(144
)
 
(363
)
 
(158
)
Fees and expenses for the SEC investigation

 
1,348

 

 
1,348

Other
(32
)
 
39

 
(813
)
 
61

Total income tax expense
$
978

 
$
1,862

 
$
4,222

 
$
790

As of June 30, 2016, the Company had no federal net operating loss carryforwards and had $317.8 million of state net operating loss carryforwards, which are available to offset future taxable income through 2031.
In general, a valuation allowance is recorded if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Realization of the Company’s deferred tax assets is dependent upon the Company generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from loss carryforwards. As of December 31, 2015, based on the timing of reversal of future taxable amounts and the Company’s history of losses, management did not believe it met the requirements to realize the benefits of certain of its deferred tax assets; therefore, the Company had maintained a valuation allowance of $6.0 million. During the six months ended June 30, 2016, the Company reversed $0.3 million of the valuation allowance that was recorded as of December 31, 2015. As of June 30, 2016, management believes it has not met the requirements to realize the benefits for a portion of its deferred tax assets for state net operating loss carryforwards; therefore, the Company has maintained a valuation allowance of $5.7 million for these deferred tax assets.
The Company had approximately $1.7 million of total unrecognized tax benefits as of each June 30, 2016 and December 31, 2015. Of this total, there are no amounts of unrecognized tax benefits that, if recognized, would affect the effective income tax rate. There were no decreases or increases related to prior year or current year tax positions.


22


13. Accumulated Other Comprehensive Loss
Following is a summary of the changes in the accumulated balances for each component of accumulated other comprehensive loss, which is presented net of tax, as of June 30, 2016:
 
Unrealized Gains on Available-for-Sale Securities
 
Total
Accumulated other comprehensive loss at December 31, 2015
$
(686
)
 
$
(686
)
Other comprehensive income
1

 
1

Accumulated other comprehensive loss at June 30, 2016
$
(685
)

$
(685
)
                                                                                                                                                                                                                                        
14. Stockholders’ Equity
Issuance of Common Stock for Director’s Fees
On May 17, 2016, the Board approved the issuance of 8,919 restricted stock awards to three members of the Board of Directors as part of their compensation package and pursuant to the 2015 Performance and Equity Incentive Plan.  These restricted stock awards vested 25% on the date of issue with the remaining balance vesting 25% on August 17, 2016, November 17, 2016 and February 17, 2017.  For the six months ended June 30, 2016, the Company recorded expense of less than $0.1 million, related to restricted stock awards to the Company’s directors. 
Stock Repurchase Program
As of January 1, 2016, the Company had a total authority of $205.7 million available for purchase of shares of its common stock pursuant to its stock repurchase program (the “Stock Repurchase Program”). During the six months ended June 30, 2016, the Company repurchased 995,650 shares of its common stock at an average purchase price of $14.88 per share, for an aggregate purchase price of $14.8 million, pursuant to its Stock Repurchase Program. As of June 30, 2016, the Company had a total authority of $190.9 million remaining available for purchase of shares under its Stock Repurchase Program. The Company may repurchase its common stock in open market purchases from time to time, in privately negotiated transactions or otherwise, pursuant to Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The timing and amount of any additional shares to be repurchased will depend upon a variety of factors, including market and business conditions and other factors. Repurchases may be commenced or suspended at any time or from time to time without prior notice. The Stock Repurchase Program will continue until otherwise modified or terminated by the Company’s Board of Directors at any time in its sole discretion.

15. Employee Benefit Plans
The Company maintains a 401(k) retirement plan covering substantially all officers and employees of the Company, which permits participants to defer up to the maximum allowable amount determined by the IRS of their eligible compensation.
As part of the Pension Plan termination in 2014, the Company directed the Pension Plan to transfer $7.9 million of the Pension Plan’s surplus assets into a suspense account in the Company’s 401(k) Plan. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated financial statements until they are allocated to participants. At June 30, 2016 and December 31, 2015, the fair values of these assets were recorded in restricted investments on the Company’s condensed consolidated balance sheets and were $5.7 million and $7.1 million, respectively.
The Company expenses the fair value of the assets at the time the assets are allocated to participants, which is expected to be up to the next five years. During the six months ended June 30, 2016 and 2015, the Company recorded an expense of $1.4 million and $0.9 million, respectively, for the fair value of the assets, less expenses, that were allocated to participants during that period. In addition, any gains and losses on these assets are reflected in the Company’s condensed consolidated financial statements and were less than a $0.1 million gain for both the three and six months ended June 30, 2016 and 2015. Refer to Note 5, Financial Instruments and Fair Value Measurements.


23


16. Other Income (Expense)
Other income (expense) consists of the following:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2016
 
2015
 
2016
 
2015
Investment income, net
 
 
 
 
 
 
 
 
Net investment income from available-for-sale securities
 
 
 
 
 
 
 
 
Interest and dividend income
 
$
252

 
$
2,130

 
$
442

 
$
4,389

Accretion income
 
579

 
640

 
1,041

 
1,262

Total net investment income from available-for-sale securities
 
831

 
2,770

 
1,483

 
5,651

Interest income from investments in special purpose entities
 
2,050

 
2,003

 
4,101

 
4,005

Interest accrued on notes receivable and other interest
 
78

 
665

 
105

 
995

Total investment income, net
 
2,959

 
5,438

 
5,689

 
10,651

Interest expense
 
 
 
 
 
 
 
 
Interest expense and amortization of discount and issuance costs for Senior Notes issued by special purpose entity
 
(2,191
)
 
(2,189
)
 
(4,382
)
 
(4,377
)
Interest expense
 
(954
)
 
(456
)
 
(1,798
)
 
(1,145
)
Total interest expense
 
(3,145
)
 
(2,645
)
 
(6,180
)
 
(5,522
)
Claim settlement
 

 

 
12,548

 

Other, net
 
 
 
 
 
 
 
 
Fees and expenses for the SEC investigation
 

 
(7,430
)
 

 
(7,430
)
Accretion income from retained interest investments
 
243

 
227

 
484

 
438

Hunting lease income
 
169

 
169

 
370

 
378

Other income, net
 
189

 
21

 
196

 
178

Other, net
 
601

 
(7,013
)
 
1,050

 
(6,436
)
 
 
 
 
 
 
 
 
 
Total other income (expense)
 
$
415

 
$
(4,220
)

$
13,107


$
(1,307
)
Investment income, net
Interest and dividend income includes interest income accrued or received on the Company’s corporate debt securities and dividend income received from the Company’s preferred stock and other investments. Accretion income includes the amortization of the premium or discount related to the Company’s available-for-sale securities, which is amortized based on an effective interest rate method over the term of the available-for-sale securities.
    Interest income from investments in special purpose entities primarily includes interest accrued or received on the Timber Note, which is used to pay the interest expense for the Senior Notes issued by NFTF.
Interest expense
Interest expense includes interest expense related to the Company’s CDD debt and the construction loan and Refinanced Loan in the Pier Park North joint venture. Borrowing costs, including the discount and issuance costs for the Senior Notes issued by the special purpose entity, are amortized based on the effective interest method at an effective rate of 4.9%.
Claim settlement

Claim settlement during the six months ended June 30, 2016 includes $12.5 million for a settlement related to the Deepwater Horizon oil spill. See Note 7, Claim Settlement Receivable for further discussion.

24


Other, net
During the three and six months ended June 30, 2015, the Company expensed a total of $7.4 million related to the SEC investigation, which was resolved in October 2015. This amount was included in Other, net in the condensed consolidated statements of operations.
The Company records the accretion of investment income from its retained interest investment over the life of the retained interest using the effective yield method with rates ranging from 3.7% to 11.3%. Hunting lease income is recognized as income over the term of the lease.

17. Segment Information
The Company conducts primarily all of its business in the following five reportable operating segments: 1) residential real estate, 2) commercial real estate, 3) resorts and leisure, 4) leasing and 5) forestry.
The residential real estate segment generates revenues from the development and sale of homes and homesites and the sale of parcels of entitled, undeveloped lots. The commercial real estate segment sells undeveloped or developed land and commercial operating property. The resort and leisure segment generates revenues and incurs costs from the WaterColor Inn and Resort, vacation rental program, management of The Pearl Hotel, four golf courses, a beach club, marina operations and other related resort activities. The leasing segment generates revenues and costs from retail and commercial leasing operations, including the Company’s consolidated joint venture at Pier Park North. The forestry segment produces and sells woodfiber, sawtimber and other forest products and may sell the Company’s timber or rural land holdings.
The Company’s reportable segments are strategic business units that offer different products and services. They are each managed separately and decisions about allocations of resources are determined by management based on these strategic business units.
The Company uses income (loss) before income taxes and non-controlling interest for purposes of making decisions about allocating resources to each segment and assessing each segment’s performance, which the Company believes represents current performance measures.
The accounting policies of the segments are set forth in Note 2 to the Company’s consolidated financial statements contained in Item 15 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Total revenues represent sales to unaffiliated customers, as reported in the Company’s condensed consolidated statements of operations. All significant intercompany accounts and transactions have been eliminated in consolidation. The caption entitled “Other” consists of mitigation credit revenue and non-allocated corporate general and administrative expenses, net of investment income.

25


Information by business segment is as follows:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016

2015
 
2016
 
2015
Operating Revenues
 
 
 
 
 
 
 
Residential real estate
$
5,796

 
$
4,020

 
$
12,784

 
$
9,430

Commercial real estate

 
4,660

 

 
4,660

Resorts and leisure
19,794

 
19,318

 
28,544

 
27,121

Leasing operations
2,321

 
2,167

 
4,682

 
4,212

Forestry
1,603

 
7,664

 
3,724

 
9,470

Other
37

 
17

 
71

 
44

Total operating revenues
$
29,551

 
$
37,846

 
$
49,805

 
$
54,937

 
 
 
 
 
 
 
 
Income (loss) before income taxes:
 
 
 
 
 
 
 
Residential real estate
$
1,081

 
$
(378
)
 
$
4,439

 
$
6

Commercial real estate
(548
)
 
(8
)
 
(1,148
)
 
(612
)
Resorts and leisure
2,795

 
3,466

 
994

 
535

Leasing operations
(336
)
 
283

 
(379
)
 
483

Forestry
1,241

 
6,770

 
3,094

 
8,408

Other
(1,675
)
 
(8,542
)
 
7,354

 
(10,016
)
Total income (loss) before income taxes
$
2,558

 
$
1,591

 
$
14,354

 
$
(1,196
)
 
 
 
 
 
 
 
 
 
June 30,
2016
 
December 31, 2015
Total Assets:
 
 
 
Residential real estate
$
106,306

 
$
109,791

Commercial real estate
60,169

 
62,649

Resorts and leisure
73,873

 
75,441

Leasing operations
81,284

 
81,400

Forestry
20,102

 
20,244

Other
642,706

 
633,217

Total assets
$
984,440

 
$
982,742


18. Commitments and Contingencies
The Company establishes an accrued liability when it believes it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company will evaluate the range of reasonably estimated losses and record an accrued liability based on what it believes to be the minimum amount in the range, unless it believes an amount within the range is a better estimate than any other amount. In such cases, there may be an exposure to loss in excess of the amounts accrued. The Company evaluates quarterly whether further developments could affect the amount of the accrued liability previously established or would make a loss contingency both probable and reasonably estimable.
The Company also provides disclosure when it believes it is reasonably possible that a loss will be incurred or when it believes it is reasonably possible that the amount of a loss will exceed the recorded liability. The Company reviews loss contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. This estimated range of possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.

26


The Company is subject to a variety of litigation, claims, other disputes and governmental proceedings that arise from time to time in the ordinary course of its business, including litigation related to its prior homebuilding activities and those described herein. The Company cannot assure that it will be successful in defending these matters. Based on current knowledge, the Company does not believe that loss contingencies arising from pending litigation, claims, other disputes and governmental proceedings, including those described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in these matters, an adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period.
The Company is subject to costs arising out of environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites, including sites which have been previously sold. It is the Company’s policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred or range of loss can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available.
The Company’s former paper mill site in Gulf County and certain adjacent properties are subject to various Consent Agreements and Brownfield Site Rehabilitation Agreements with the Florida Department of Environmental Protection (“FDEP”). The paper mill site has been rehabilitated by Smurfit-Stone Container Corporation in accordance with these agreements and a final Site Rehabilitation Completion Order (“SRCO”) issued by the FDEP has been received. The Company is in the process of assessing certain neighboring properties. Management is unable to quantify future rehabilitation costs above present accruals at this time or provide a reasonably estimated range of loss.
Other litigation, claims, disputes and governmental proceedings, including environmental matters, are pending against the Company. Accrued aggregate liabilities related to the matters described above and other litigation matters were $2.4 million and $2.5 million as of June 30, 2016 and December 31, 2015, respectively, including a $1.2 million accrual related to legal costs for the settled SEC investigation as of each such date. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable. Due to uncertainties related to these matters, accruals are based only on the information available at the time. As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company's results of operations in a given period.    
The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage, including its timber assets.
At June 30, 2016 and December 31, 2015, the Company was required to provide surety bonds that guarantee completion of certain infrastructure in certain development projects and mitigation banks of $6.2 million and $7.1 million, respectively, and standby letters of credit in the amount of $0.4 million and $0.5 million, respectively, which may potentially result in liability to the Company if certain obligations of the Company are not met.
At June 30, 2016, the Company has a total of $6.2 million in contractual obligations, of which $5.7 million are for the remainder of 2016, $0.1 million are for 2017 and $0.4 million are for 2018 and thereafter.
In connection with the Refinanced Loan, the Company guaranteed the joint venture’s obligations under a short term $6.6 million letter of credit which is securing a portion of the joint venture’s obligations under the Refinanced Loan. See Note 9, Real Estate Joint Ventures for a further discussion on the Refinanced Loan.
As part of the AgReserves Sale in 2014 and certain sales of timberlands in 2007 and 2008, the Company generated significant tax gains. The installment notes structure allowed the Company to defer the resulting tax liability of $61.8 million until 2022 - 2024 and $69.3 million until 2029, respectively, the maturity dates for the installment notes. The Company has a deferred tax liability related to the gains in connection with these sales.


27


19. Concentration of Risks and Uncertainties
The Company’s real estate investments are concentrated in Northwest Florida in a number of specific development projects. Uncertain economic conditions could have an adverse impact on the Company’s real estate values and could cause the Company to sell assets at depressed values in order to pay ongoing expenses. Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, investments, notes receivable, other receivables, investments held by special purpose entities and investments in retained interests. The Company deposits and invests cash with a major financial institution in the United States, which balances exceed the amount of F.D.I.C. insurance provided on such deposits. In addition, as of June 30, 2016, the Company had $174.6 million invested in U.S. Treasury securities, $19.0 million invested in five issuers of corporate debt securities that are non-investment grade, $18.9 million invested in two issuers of preferred stock that are non-investment grade and $3.8 million invested in one issuer of preferred stock that is investment grade. In addition, as of June 30, 2016, the Company had investments in short term commercial paper from six issuers of $139.1 million.




28



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

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

Segments
We conduct primarily all of our business in the following five reportable operating segments: 1) residential real estate, 2) commercial real estate, 3) resorts and leisure, 4) leasing operations and 5) forestry.
The following table sets forth the relative contribution of these operating segments to our consolidated operating revenues during the three and six months ended June 30, 2016 and 2015.
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016

2015
 
2016
 
2015
Segment Operating Revenues
 
 
 
 
 
 
 
Residential real estate
19.6
%
 
10.6
%
 
25.7
%
 
17.1
%
Commercial real estate
%
 
12.3
%
 
%
 
8.5
%
Resorts and leisure
67.0
%
 
51.0
%
 
57.3
%
 
49.4
%
Leasing operations
7.9
%
 
5.7
%
 
9.4
%
 
7.7
%
Forestry
5.4
%
 
20.3
%
 
7.5
%
 
17.2
%
Other
0.1
%
 
0.1
%
 
0.1
%
 
0.1
%
Consolidated operating revenues
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

For more information regarding our operating segments, see Note 17, Segment Information of our condensed consolidated financial statements included in this quarterly report.

Residential Real Estate
Our residential real estate segment typically plans and develops mixed-use resort, primary residential and seasonal residential communities of various sizes, primarily on our existing land. The following is a description of some of our major residential development communities in Florida that we are currently in the process of planning or developing:

The Watersound Origins community is a residential community in South Walton County, Florida, with direct access to Lake Powell. The project has received government approval for approximately 1,074 single-family units with an additional multi-family component, however, the actual number of units that we ultimately approve for development will depend on our development strategy, the extent to which the anticipated returns of the project meets our investment return criteria and the availability of capital resources to fund such development. The Watersound Origins community includes a six-hole golf course that is operated by our resorts and leisure segment.

The Breakfast Point community is a residential community in Panama City Beach, Florida. The project has received government approval for 368 single family units, however, the actual number of units that we ultimately approve for development will depend on our development strategy, the extent to which the anticipated returns of the project meet our investment return criteria and the availability of capital resources to fund such development. 


29


The SouthWood community is a large scale, mixed use community located in the southeastern section of Tallahassee. The project has received government approval for 4,770 residential units, including 2,074 single family residences and 2,696 multi-family units, however, the actual number of units that we ultimately approve for development will depend on our development strategy, the extent to which the anticipated returns of the project meet our investment return criteria and the availability of capital resources to fund such development. SouthWood also includes a golf clubhouse, 18-hole golf course and a town center with restaurants, retail shops and offices. The SouthWood Golf Club is operated by our resorts and leisure segment and a portion of the town center is leased and operated by our leasing segment.

We have other residential communities, such as the WaterColor, WaterSound Beach and WaterSound West Beach communities in addition to other communities that are substantially developed. The remaining developed and available homesites in these communities are available for sale.

The Bay-Walton Sector Plan was officially adopted by Bay County and Walton County in May 2015 and was found in compliance with state law and is therefore in effect as of June 2015. The Bay-Walton Sector Plan is a long term master plan that includes entitlements, or legal rights, to develop over 170,000 residential units and over 22 million square feet of retail, commercial and industrial uses on approximately 110,500 acres of our land holdings.  We anticipate a wide range of residential and commercial uses on these land holdings, including some portion of these entitlements serving the active adult retirement market.  We believe that there is a growing retirement demographic and that our development experience and the location, size and contiguous nature of our Florida land holdings provide us with strategic opportunities in this demographic. As is true with all of our projects, what will actually be developed will be a function of more detailed planning, analysis and market conditions, which will occur over time.

Our residential real estate segment generates revenues primarily from the sale of developed homesites; the sale of parcels of entitled, undeveloped land; a lot residual on homebuilder sales that provides us a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold; the sale of impact fee credits; marketing fees and other fees on certain transactions.

Our customer base for the sale of developed homesites is primarily focused on homebuilders. Homebuilders generally buy more homesites in a single transaction but tend to buy on a more sporadic basis. As a result, we may experience volatility in the consistency and pace of our residential real estate sales. In addition, the mix of homesites that we sell consists mostly of homesites in our primary communities which typically have a lower price and gross profit margin than homesites in our resort communities.
    
Our residential real estate segment incurs cost of revenues primarily from costs directly associated with the land, development and construction of real estate sold and indirect costs such as development overhead, capitalized interest, marketing, project administration and selling costs.

As part of the April 2014 RiverTown real estate sale, the buyer, Mattamy, is obligated to pay impact fees. Based on Mattamy’s current development plans and St. Johns County’s current costs for impact fees, we estimate that we may receive $20.0 million to $26.0 million for the impact fees over the five-year period following the closing (most of which, we expect to receive at the end of that five-year period). However, the actual additional consideration received for the impact fees will be based on a variety of factors outside our control.

Commercial Real Estate
In our commercial real estate segment we plan, develop and entitle our land holdings for a variety of uses including a broad range of retail, office, hotel and industrial uses. We sell land for commercial and light industrial uses. From time to time, our commercial real estate segment also evaluates opportunities to maximize value by selling some of our resorts, leisure or operating properties.

Our commercial real estate segment generates revenues from the sale of developed and undeveloped land for retail, office, hotel and industrial uses, from the sale of undeveloped land or land with limited development and easements and the sale of commercial operating properties. Our commercial real estate segment incurs costs of revenues from costs directly associated with the land, development, construction and selling costs.

Resorts and Leisure

Our resorts and leisure segment features a diverse portfolio of hotels and vacation rentals, as well as golf courses, a beach club, marinas and other related resort amenities.

30


WaterColor Inn, Vacation Rentals and Other Management Services - Our WaterColor Inn and vacation rentals generate revenue from (1) the WaterColor Inn and Resort and other management services, (2) our management of The Pearl Hotel, (3) our vacation rental business and (4) our restaurants. The WaterColor Inn incurs expenses from the cost of services and goods provided, personnel costs and third party management fees. Revenues generated for our management services of The Pearl Hotel include a management fee, fifty percent of certain resort fees and a percentage of The Pearl Hotel’s gross operating profit. Expenses include primarily internal administrative costs. Our vacation rental business generates revenues from the rental of private homes and other services, which includes the entire rental fee collected from the customer, including the homeowner’s portion. A percentage of the fee is remitted to the homeowner and presented in the cost of resorts and leisure revenues. The vacation rental business also incurs expenses from standard lodging personnel, such as front desk, reservations and marketing.

Clubs and Resorts - Our clubs and resorts operations include our golf courses, beach club and resort facilities that generate revenues from memberships, daily play at those golf courses that are not part of our St. Joe Club & Resorts, merchandise sales and food and beverage sales and incur expenses from the services provided, maintenance of the golf course and beach club facilities, personnel costs and third party management fees.

St. Joe Club & Resorts includes our private membership club that provides members, participating homeowners and their rental guests access to our clubs. The focus is on creating a world class membership experience combined with the all-inclusive aspects of a four star/four diamond resort.

Marinas - Our marinas generate revenues from boat slip rentals and fuel sales, and incur expenses from cost of services provided, maintenance of the marina facilities, personnel costs and third party management fees.

Leasing Operations
Our leasing operations generate revenues from leasing retail and commercial property, including properties located in our consolidated joint venture at Pier Park North, commerce parks and our industrial park, VentureCrossings, and incur expenses primarily from maintenance and management of these properties and personnel costs. Our Pier Park North joint venture also incurs interest and financing expenses related to its loan as described in Note 9, Real Estate Joint Ventures.

Forestry
Our forestry segment focuses on the management of our timber holdings in Northwest Florida. We grow and sell sawtimber, wood fiber and forest products. We generate revenue from our forestry segment primarily from open market sales of timber. We sell product on site without the associated delivery costs. Our forestry segment generates revenues from the sale of wood fiber, sawtimber, standing timber and forest products. Our forestry segment incurs costs of revenues from internal costs of forestry management and property taxes.

Our forestry segment may also generate revenues from the sale of our timber holdings, undeveloped land or land with limited development and easements. Costs incurred as part of a sale of these lands may include the cost of timber, land, minimal development costs and selling costs.

Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We base these estimates on historical experience, available current market information and on various other assumptions that management believes are reasonable under the circumstances. Additionally, we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and our accounting estimates are subject to change.
    
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, 2015. There have been no significant changes in these policies during the first six months of 2016, however we cannot assure you that these policies will not change in the future.


31


Recently Adopted and Issued Accounting Pronouncements
See Note 1 to our condensed consolidated financial statements included in this report for recently issued or adopted accounting standards, including the date of adoption and effect on our condensed consolidated financial statements.

Seasonality
Our businesses may be affected by seasonal fluctuations. For example, revenues from our resorts and leisure operations are typically higher in the second and third quarters; however, they can vary depending on the timing of holidays and school breaks, including spring break.

In addition to the seasonality effect described above, variability in our results of operations is further heightened by the change in our customer mix in our residential real estate business from retail sales, which have a more consistent flow of revenues, to predominantly sales to homebuilders, who tend to buy multiple lots in sporadic transactions. Our commercial real estate projects are likewise subject to one-off sales and the development of specific projects depending on demand. These variables have caused, and may continue to cause, our operating results to vary significantly from period to period.


32



    
Results of Operations
Consolidated Results
The following table sets forth a comparison of the results of our operations for the three and six months ended June 30, 2016 and 2015.
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016

2015
 
2016
 
2015
 
In millions
Revenues:
 
 
 
 
 
 
 
Real estate sales
$
6.7

 
$
14.0

 
$
13.8

 
$
19.5

Resorts and leisure revenues
19.8

 
19.3

 
28.5

 
27.1

Leasing revenues
2.3

 
2.2

 
4.7

 
4.2

Timber sales
0.7

 
2.3

 
2.8

 
4.1

Total
29.5

 
37.8

 
49.8

 
54.9

Expenses:
 
 
 
 
 
 
 
Cost of real estate sales
3.0

 
6.6

 
4.7

 
9.7

Cost of resorts and leisure revenues
15.6

 
14.7

 
25.0

 
23.5

Cost of leasing revenues
0.8

 
0.6

 
1.5

 
1.3

Cost of timber sales
0.2

 
0.3

 
0.4

 
0.4

Other operating and corporate expenses
5.7

 
7.7

 
12.6

 
14.8

Depreciation, depletion and amortization
2.1

 
2.1

 
4.4

 
5.1

Total expenses
27.4

 
32.0

 
48.6

 
54.8

Operating income
2.1

 
5.8

 
1.2

 
0.1

Other income (expense):



 
 
 
 
Investment income, net
3.0


5.4

 
5.7

 
10.6

Interest expense
(3.1
)

(2.6
)
 
(6.2
)
 
(5.5
)
Claim settlement

 

 
12.5

 

Other, net
0.6

 
(7.0
)
 
1.1

 
(6.4
)
Total other income (expense)
0.5


(4.2
)
 
13.1

 
(1.3
)
Income (loss) before income taxes
2.6

 
1.6

 
14.3

 
(1.2
)
Income tax expense
(1.0
)
 
(1.9
)
 
(4.2
)
 
(0.8