-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PVhK5Pfhvmhk2FQJTyX/of4Kuq7X/mJRKdW1Yjz7Zl4MSZaYgdpU56u2qOFXSQU0 11OG+IyAFckrQvY90PHOCA== 0000745308-95-000005.txt : 19951027 0000745308-95-000005.hdr.sgml : 19951027 ACCESSION NUMBER: 0000745308-95-000005 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19951026 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ST JOE PAPER CO CENTRAL INDEX KEY: 0000745308 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 590432511 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10466 FILM NUMBER: 95584372 BUSINESS ADDRESS: STREET 1: 1650 PRUDENTIAL DR STE 400 CITY: JACKSONVILLE STATE: FL ZIP: 32207 BUSINESS PHONE: 9043966600 MAIL ADDRESS: STREET 2: P O BOX 1380 CITY: JACKSONVILLE STATE: FL ZIP: 32201 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K/A [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1994 OR [ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission File No. 0-12001 S T. J O E P A P E R C O M P A N Y (Exact name of registrant as specified in its charter) Florida 59-0432511 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Suite 400, 1650 Prudential Drive Jacksonville, Florida 32207 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (904) 396-6600 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, No par value New York Stock Exchange Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 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 [X] NO [ ] The aggregate market value of registrant's Common Stock held by non-affiliates based on the closing price on March 15, 1995 was $560,474,346. As of March 15, 1995 there were 30,498,650 shares of Common Stock No par value outstanding. DOCUMENTS INCORPORATED BY REFERENCE (Specific pages incorporated are identified under the applicable item herein.) Portions of the Registrant's Annual Report to Stockholders for 1994 (the 1994 Annual Report to Stockholders) are incorporated by reference in Part I and Part II of this Report. Portions of the Registrant's definitive Proxy Statement dated March 31, 1995 (the "Proxy Statement") are incorporated by reference in Part III of this Report. Other documents incorporated by reference in this Report are listed in the Exhibit Index. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on February 28, 1995. ST. JOE PAPER COMPANY By: D. Michael Groos Comptroller EX-13 2 ST. JOE PAPER COMPANY HISTORICAL SUMMARY (Dollar amounts in thousands except per share amounts) FINANCIAL CONDITION 1994 1993 1992 1991 1990 Total Assets $1,552,330 $1,491,271 $1,388,300 $1,372,961 $1,342,818 Current Assets $ 301,002 $ 283,856 $ 233,349 $ 265,581 $ 308,381 Less: Current Liabilities 96,827 93,399 86,707 88,358 80,115 Working Capital 204,175 190,457 146,642 177,223 228,266 Current Ratio (to 1) 3.1 3.0 2.7 3.0 3.8 Investments and Other Assets 224,453 199,693 171,527 180,200 148,790 Properties, at Cost 1,645,581 1,581,663 1,506,309 1,401,533 1,319,839 Less: Accumulated Depreciation 618,706 573,941 522,885 474,353 434,192 Long-Term Debt 37,220 38,947 40,959 42,858 45,007 Reserves and Other Liabilities 14,534 11,063 11,703 14,959 10,207 Deferred Income Taxes 215,311 205,531 185,300 182,021 183,789 Minority Interests 251,457 238,878 229,949 220,573 220,996 Net Assets Applicable to Common Stock $ 936,981 $ 903,453 $ 833,682 $ 824,192 $ 802,704 FINANCIAL RESULTS Net Sales and Operating Revenues $ 685,762 $ 591,968 $ 591,912 $ 582,180 $ 610,200 Operating Profit 64,478 32,102 24,056 24,476 49,572 Other Income 27,395 12,473 17,458 37,201 35,307 Less: Taxes on Income 33,937 22,209 14,850 20,722 28,877 Income Applicable to Minority Interest 15,827 10,241 11,074 13,367 14,712 Cummulative Effect of Change Accounting Principle - 20,518 - - - Net Income $ 42,109 $ 32,643 $ 15,590 $ 27,588 $ 41,290 Depreciation and Depletion Expense $ 62,392 $ 62,872 $ 59,757 $ 55,241 $ 53,657 PER COMMON SHARE Book Value - End of Year $ 30.72 $ 29.62 $ 27.34 $ 27.02 $ 26.32 Income before Cumulative Effect of Change in Accounting Principle $ 1.38 $ 0.39 $ 0.51 $ 0.90 $ 1.35 Cumulative Effect of Change in Accounting Principle $ - $ .68 $ - $ - $ - Net Income $ 1.38 $ 1.07 $ 0.51 $ 0.90 $ 1.35 Net Income as % of Book Value 4.5 3.6 1.9 3.3 5.1 Dividends Paid $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.19 MARKET FOR COMMON STOCK AND RELATED STOCKHOLDERS MATTERS 1994 1993 Quarter ended Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 High 61 7/8 62 5/8 57 57 7/8 54 55 41 5/8 44 1/2 Low 54 1/4 49 1/4 49 1/8 50 1/4 45 3/4 39 1/4 38 1/2 37 1/2 Dividends .05 .05 .05 .05 .05 .05 .05 .05 a. Principal market on which St. Joe Paper Company common stock is traded: New York Stock Exchange b. The table above presents the high and low market prices and dividend information for St. Joe Paper Company common shares. c. The total number of holders of record of St. Joe Paper Company common stock as of March 7, 1995 was 882. (Total dividends per common share: 1994 = $0.20; 1993 = $0.20) CONSOLIDATED BALANCE SHEET (Dollars in thousands) December 31 ASSETS 1994 1993 Current Assets: Cash and cash equivalents $ 71,890 $ 48,304 Short-term investments 61,156 66,307 Accounts receivable 88,606 74,127 Inventories 57,673 69,398 Other assets 21,677 25,720 Total current assets 301,002 283,856 Investments and Other Assets: Marketable securities 174,027 159,523 Other assets 50,426 40,170 Total investments and other assets 224,453 199,693 Property, Plant and Equipment, net 1,026,875 1,007,722 Total Assets $ 1,552,330 $ 1,491,271 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 44,804 $ 41,515 Accrued liabilities 25,339 27,838 Income taxes payable 7,012 2,737 Long-term debt due within one year 19,672 21,309 Total current liabilities 96,827 93,399 Accrued casualty reserves and other liabilities 14,534 11,063 Long-term debt due after one year 37,220 38,947 Deferred income taxes and income tax credits 215,311 205,531 Minority interest in consolidated subsidiaries 251,457 238,878 Stockholders' Equity: Common stock, no par value; 60,000,000 shares authorized; 30,498,650 shares issued and outstanding 8,714 8,714 Retained earnings 887,520 851,511 Net unrealized gain on debt and marketable equity securities 40,747 43,228 Total stockholders' equity 936,981 903,453 Total Liabilities and Stockholders' Equity $ 1,552,330 $ 1,491,271 See notes to consolidated financial statements. (12) Management Discussion and Analysis of Balance Sheet The Consolidated Balance Sheet gives the financial position or status of accounts on the date shown and, taken as a whole, provides a picture of the entire enterprise on that date. A series of balance sheets will show the progress or movement of the enterprise from one period to the next. The balance sheet should be viewed as a unit with the income statement to obtain a sufficiently clear picture of the status and progress of a business. In 1994, the Company continued to have a strong balance sheet. Management's long standing policy of retaining funds to internally finance capital additions was continued in 1994. Cash, short-term investments and marketable securities totaled $307 million at December 31, 1994, a $32.9 million increase over the 1993 year end amount. The Forest Products segment generated $20.7 million of this increase as a result of improved operating results. Florida East Coast Industries, Inc. (FECI) received over $11 million from a condemnation sale of realty properties to the State of Florida which was invested and will be used to finance realty improvements in 1995. A reduction in unrealized gains on debt and marketable equity securities decreased the carrying value of investments by $4 million. Accounts receivable increased $14.5 million in 1994 with $12.6 million being in Forest Products. This increase reflects the strong pricing increases experienced during the year. Inventories fell by $11.7 million. A shortage of containerboard led to a $4.9 million decrease in Forest Products' inventory. The Sugar segment's inventory decreased by $6.4 million due to harvesting delays caused by rain. Other assets increased by $6.2 million, primarily due to a $2.9 million increase in the Communications segment's equity in four cellular partnerships and a $1.4 million increase in prepaid pension plan costs. Property, plant and equipment additions were $86.5 million in 1994. Depreciation expense was $62.4 million. All segments showed a net increase in fixed assets with the largest increase in FECI. Stockholders' equity at December 31, 1994 was $30.72, an increase of $1.10 or 4%. Over the last five years, stockholders' equity has increased 17%. The Company is currently a party to, or involved in, legal proceedings directed at the cleanup of two Superfund sites. The Company has accrued its allocated share of the total estimated cleanup costs for these two 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. The Company is subject to substantial 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. 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 is reasonably estimable. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available. It is not possible to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. Based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position or liquidity of the Company, but could be material to the results of operations of the Company in any one period. As of December 31, 1994 and 1993, the aggregate environmental related accruals were $6.7 million. Environmental liabilities are paid over an extended period and the timing of such payments cannot be predicted with any confidence. The Company's financial position continues to strengthen. Net working capital (current assets less current liabilities) increased 7% at December 31, 1994 over 1993 to $204.2 million. The current ratio (current assets divided by current liabilities) grew to 3.1 from 3.0 in 1993. (13) CONSOLIDATED STATEMENT OF INCOME (Dollars in thousands except per share amounts) Years ended December 31, 1994 1993 1992 Net sales $ 479,050 $ 387,720 $ 395,074 Operating revenues 206,712 204,248 196,838 685,762 591,968 591,912 Cost of sales 412,577 360,679 366,342 Operating expenses 150,901 147,270 146,837 Selling, general and administrative expenses 57,806 51,917 54,677 621,284 559,866 567,856 Operating profit 64,478 32,102 24,056 Other income (expense): Dividends 2,187 2,144 2,312 Interest income 11,085 9,575 13,581 Interest expense (4,080) (3,711) (3,884) Gain on dispositions of property, plant and equipment 14,450 1,085 2,511 Other, net 3,753 3,380 2,938 27,395 12,473 17,458 Income before income taxes, minority interest, and cumulative effect of change in accounting principle 91,873 44,575 41,514 Provision for income taxes: Current 21,905 13,294 14,259 Deferred 12,032 8,915 591 Total provision for income taxes 33,937 22,209 14,850 Income before minority interest and cumulative effect of change in accounting principle 57,936 22,366 26,664 Less income applicable to minority interest in consolidated subsidiaries 15,827 10,241 11,074 Income before cumulative effect of change in accounting principle 42,109 12,125 15,590 Cumulative effect of change in accounting principle for income taxes --- 20,518 --- Net income $ 42,109 $ 32,643 $ 15,590 Per Share Data: Income before cumulative effect of change in accounting principle $ 1.38 $ 0.39 $ 0.51 Cumulative effect of change in accounting principle for income taxes --- 0.68 --- Net income per share $ 1.38 $ 1.07 $ 0.51 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands except per share amounts) Years ended December 31, 1994 1993 1992 COMMON STOCK Balance, at end of year (1994, 1993 and 1992 - 30,498,650 shares) $ 8,714 $ 8,714 $ 8,714 RETAINED EARNINGS Balance, at beginning of year $ 851,511 $ 824,968 $ 815,478 Net income 42,109 32,643 15,590 Dividends: Cash ($0.20 per share - 1994, 1993 and 1992) (6,100) (6,100) (6,100) Balance, at end of year $ 887,520 $ 851,511 $ 824,968 NET UNREALIZED GAIN ON DEBT AND MARKETABLE EQUITY SECURITIES Balance, at beginning of year $ 43,228 $ --- $ --- Decrease in net unrealized gain, net of tax effect (2,481) --- --- Cumulative effect of change in accounting principle for investments --- 43,228 --- Balance, at end of year $ 40,747 $ 43,228 $ --- See notes to consolidated financial statements. (14) Management Discussion and Analysis of Statement of Income The Consolidated Statement of Income compares in summary form the results of operations for the three year period 1992, 1993 and 1994. This discussion is to provide help in understanding the significant events which caused the changes between the years. Net sales and operating revenues increased 16% in 1994 over 1993 due principally to a $74.1 million increase in the Forest Products segment. All segments reported increased revenues in 1994. In 1993, net sales and operating revenues were flat with increases in the Transportation, Communications and Real Estate segments and declines in Forest Products and Sugar. Cost of sales in 1994 increased 14% over 1993 due mainly to a $46.9 million increase in Forest Products. In 1993, cost of sales decreased 2% from 1992. Operating expenses increased 3% in 1994 compared to 1993, which held steady from 1992. Selling, general and administrative expenses were 11% ($5.9 million) higher in 1994 than 1993. The 1993 expenses were $2.8 million lower than 1992. Operating profit in 1994 was slightly more than double the 1993 amount which was a third higher than 1992. Forest Products increased 109%, Real Estate 82%, Communications 32%, Sugar 25% and Transportation decreased 3% in 1994. In 1993, Forest Products, Transportation and Real Estate had increased operating profits while Sugar and Communications decreased. Other income increased in 1994 by $14.9 million due primarily to land sales of $3.5 million more by FECI and $8.7 million more by Forest Products. 1993 other income was down by $4.9 million from 1992 due to decreases in interest income and sales of property. The provision for income taxes increased $11.7 million in 1994 and $7.4 million in 1993. The 1994 increase is due to the higher income while 1993 also reflects the deferred tax effect of the change in the federal income tax rate. The Company files a consolidated federal income tax return for the parent and all 80% or greater owned subsidiaries. The effective income tax rate was 36.9%, 49.8% and 35.8% for 1994, 1993, and 1992 respectively. In 1993, the Company adopted Statement of Financial Accounting Standards No. 109 which resulted in the recognition of $20.5 million in additional income in the first quarter of 1993 for the cumulative effect of the change in accounting for income taxes. Net income before the cumulative effect of a change in accounting principle for income taxes rose $30 million in 1994 after a decline of $3.5 million in 1993. Net income per share before the cumulative effect of change in accounting principle for income taxes rose to $1.38 in 1994 compared to $0.39 in 1993 and $0.51 in 1992. Increased profitability in the Forest Products segment, a condemnation sale to the State of Florida and the other land sales mentioned above were the primary cause of the improvement in 1994. The decline in 1993 was largely due to the effect of the enacted income tax rate increase. Forest Products The operating results for the Forest products segment were dramatically affected by the rapid tightening of the containerboard market during the latter half of 1994. Domestic prices for kraft linerboard rose from $320 per ton in January 1994 to $340 per ton in June to $430 per ton in December. The average sales price of the Company's kraft linerboard rose by $40 per ton and boxes by $49 per ton. Volumes also contributed to the $74.1 million increase in Forest Products sales in 1994. Mill sales to outside customer increased 22% and container sales increased by 10%. The mill also changed its product mix as Crest White revenues rose to 60% of total mill sales compared to 55% in 1993. Sales by the forestry operation remained constant in 1994. In 1994, Forest Products revenue was 56% of the Company's total compared with 53% in 1993 and 54% in 1992. In 1993, mill sales to outside customers and our plants declined $14.1 million due to a decline in the average sales price. The container operations sales in 1993 were lower than 1992 due to a decrease in selling price and reduced volume while the forestry operation's revenues were flat. Cost of sales for the Forest Products segment rose 15% in 1994 over 1993. The container plants accounted for most of the increase largely due to the higher linerboard prices referenced above. The mill cost rose 10% on a volume increase of 9%. The forestry operation had a slightly lower cost of sales in 1994 than in 1993. In 1993, the mill and forestry units had increased cost of sales while container costs were lower than 1992 due to lower linerboard prices. The mill experienced higher natural gas and fuel oil costs in 1993 than in 1992 and spent more on repair materials. Selling, general and administrative expenses were 22% higher for the Forest Products segment in 1994 than in 1993. The mill operation decreased its expenses by 8%, forestry increased by 2% and the container plants increased by 8%. In 1993, the mill's expenses were about the same as 1992 while forestry increase 1% and containers decreased 2%. (15) Management Discussion and Analysis of Statement of Income Transportation In 1994, the Transportation segment accounted for 26% of the Company's total revenue, compared to 30% in 1993 and 28% in 1992. The Florida East Coast Railway Company (FEC) experienced an $0.8 million increase in revenue in 1994 over 1993. Adverse weather conditions in the fourth quarter slowed the gain in rock shipments which increased 6% in 1994 after growing by 14% in 1993. Intermodal shipments were slightly down in both 1994 and 1993 for FEC while automotive and other traffic increased by a small percentage in 1994 after a decline in 1993. In 1995, FEC is enlarging its scope of operations to include Macon, Georgia where it will operate an intermodal facility. The Apalachicola Northern Railroad Company's (ANRR) revenue increased by 2% in 1994 and 1993 principally due to increases in coal and pulpboard shipments. Operating expenses for the Transportation segment increased by 2% in 1994 caused principally by increased property taxes at FEC. In 1993, operating expenses dropped 2% at FEC (primarily due to decreased property taxes) and increased 10% at ANRR (due to increased depreciation and locomotive repairs). Sugar Net sales for the sugar segment increased $5.8 million on a 12,233 ton increase in volume and a slight price increase. The increased volume reduced per ton costs and led to increased profitability. In 1993, sales decreased 10% due to a reduction in volume. Cost of sales decreased 9% in 1993, again due principally to the lost volume. As a result of the Everglades Forever Act, the Company was required to pay approximately $1.3 million new taxes in 1994 Communications In 1994, Communication operating revenues grew 5% due mainly to increased interstate long distance pooling settlements. Operating expenses in 1994 were flat while selling, general and administrative expenses decreased 2% because of outsourcing of certain customer billing functions. 1993 revenues were up by 6% due mainly to the reversal of excess earning accruals made in 1992. Outside plant maintenance and increased depreciation were the main factors in the 10% growth in operating expenses compared to 1992. Selling, general and administrative expenses remained stable form 1992 to 1993. Real Estate Real Estate segment revenues increased by $11.4 million in 1994. A condemnation sale to the State of Florida in the amount of $11.3 million offset declines in other property sales. Rental income continued to increase and grew by $3.9 million in 1994. Cost of sales and operating expenses increased by $2.6 million while selling, general and administrative expenses were the same as 1993. 1993 revenues were 39% higher than 1992 due mainly to land sales. Cost of sales and operating expenses increased by $3.6 million while selling, general and administrative expenses were the same as 1992. The Company continues to add rental buildings. .6 million square feet were added in 1994 bringing the total available to 3.8 million square feet with an additional .4 million square feet of leasable space under construction at year end. (16) CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) Years ended December 31, 1994 1993 1992 Cash flows from operating activities: Net Income $ 42,109 $ 32,643 $ 15,590 Adjustments to reconcile net income to cash provided by operating activities: Cumulative effect of a change in accounting principle --- (20,518) --- Depreciation and depletion 62,392 62,872 59,757 Minority interest in income 15,827 10,241 11,074 Gain on sale of property (14,450) (1,085) (2,511) Increase in deferred income taxes 12,032 8,915 3,279 Changes in operating assets and liabilities: Accounts receivable (14,479) (2,772) 3,925 Inventories 11,725 (9,378) (1,255) Other assets (6,213) (2,865) (7,569) Accounts payable, accrued liabilities and casualty reserves 4,261 (362) (1,720) Income taxes payable 4,275 2,737 (5,674) Cash provided by operating activities 117,479 80,428 74,896 Cash flows from investing activities: Purchases of property, plant and equipment (86,450) (93,045) (120,736) Proceeds from sales of property 18,594 6,960 7,246 Purchases of investments --- (77,964) (162,031) Available for sale (1) (18,851) --- --- Held-to-maturity (1) (115,210) --- --- Proceeds from maturities of investments --- 95,941 189,542 Available for sale (1) 12,779 --- --- Held-to-maturity (1) 106,388 --- --- Cash used in investing activities (82,750) (68,108) (85,979) Cash flows from financing activities: Net change in short-term borrowings (1,658) 3,400 (4,803) Proceeds from long-term debt --- --- 7,633 Dividends paid to stockholders (6,100) (6,100) (6,100) Repayment of long-term debt (1,706) (1,735) (2,242) Dividends paid to minority interest (1,679) (1,718) (1,698) Cash used in financing activities (11,143) (6,153) (7,210) Net increase (decrease) in cash and cash equivalents 23,586 6,167 (18,293) Cash and cash equivalents at beginning of period 48,304 42,137 60,430 Cash and cash equivalents at end of period $ 71,890 $ 48,304 $ 42,137 Supplemental disclosure of cash flow information: Cash paid during the year for certain expense items: Interest $ 3,973 $ 3,340 $ 4,117 Income taxes $ 20,494 $ 12,476 $ 21,693 Mortgage assumed in purchase of property, plant and equipment $ --- $ --- $ 2,200 (1) Disclosure is not applicable for the years ended December 31, 1993 and 1992. See note 2. See notes to consolidated financial statements. (17) Management Discussion and Analysis of Statement of Cash Flows The Statement of Cash Flows details information concerning the Company's sources and uses of cash in its operating, investing and financing activities. In 1994, the Company experienced a net increase in cash and cash equivalents of $23.6 million compared to a $6.2 million increase in 1993 and a decrease of $18.3 in 1992. The improvement in 1994 was due to the increase in cash provided by operations while 1993 resulted from an increase in cash provided by operations together with reductions in cash used by investing and financing activities. Cash flows from operations increased by $37.1 million in 1994 and $5.5 million in 1993. The 1994 increase is due to the improved operations of the Forest Products segment and the condemnation sale mentioned previously. The Company purchased property, plant and equipment of $86.5 million in 1994, down from $93 million in 1993 and $120.7 million in 1992. The Real Estate segment spent $9.3 million less in 1994 than 1993 while Transportation spent $2.3 million more and the other segments remained relatively constant. In 1993, Forest Products reduced expenditures by $22.5 million, Sugar by $4.5 and Communications by $2.4 while Real Estate remained constant and Transportation increased by $1.5 million. In 1992 and 1993, the Company used $27.5 million and $18 million respectively, of its investments to fund its capital projects. The improved operating results enabled the Company to fully fund its capital needs in 1994 and increase its investments by $14.9 million. Long term debt of $1.7 million was repaid in 1994, the same amount as 1993. In addition, short term borrowing were reduced by $1.7 million as compared with an increase of $3.4 million in 1993. No new long term debt was incurred in 1994. The Company maintained its policy of paying a $0.20 per share dividend to its stockholders in 1994, as it had in 1993 and 1992. St. Joe Paper Company continues to have adequate internally generated cash flow to meet its foreseeable operating and capital needs. (18) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 1. Majority Stockholder The Alfred I. duPont Testamentary Trust (the "Trust") owns approximately 68% of the common stock of St. Joe Paper Company, (the "Company"). The Company and its subsidiaries had no significant transactions with the Trust during the period. 2. Summary of Significant Accounting Policies Principles of consolidation -- The consolidated financial statements include the accounts of St. Joe Paper Company and all of its majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Cash and cash equivalents -- For purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents include cash on hand, bank demand accounts, money market accounts, remarketed certificates of participation and repurchase agreements having original maturities of three months or less. Inventories -- Inventories are stated at the lower of cost or market. Cost for manufactured paper products and associated raw materials are determined under the last-in, first-out (LIFO) method. Costs for substantially all other inventories are determined under the first in, first out (FIFO) or the average cost method. Property, plant and equipment -- Depreciation is computed using both straight-line and accelerated methods over the useful lives of various assets. Depletion of timber is determined by the units of production method. Railroad and communications properties are depreciated and amortized using the straight-line method at rates established by regulatory agencies. Gains and losses on normal retirements of these items are credited or charged to accumulated depreciation. Deferred cane crop costs -- Sugar cane plantings generally yield two annual harvests, depending on weather conditions and soil quality, before replanting is necessary. New planting costs are amortized on a straight-line basis over two years. Income tax credits -- The Company uses the flow-through method of accounting for income tax credits except for credits relating to communications property and equipment which are accounted for using the deferral method with amortization over the service lives of the related assets as required by regulatory agencies. Reclassification -- The 1993 and 1992 consolidated financial statements have been reclassified to the current year formats. These reclassifications were not material to the consolidated financial statements. Earnings per common share -- Earnings per common share are based on the weighted average number of common shares outstanding during the year. Fair value of financial instruments -- The carrying amount of the following financial instruments approximated fair value because of their short maturity: cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities. The fair value of investments differs from the carrying value as disclosed in Note 6. The fair value of long term debt, as determined using current rates, approximates carrying value. (19) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 2. Summary of Significant Accounting Policies (continued) Income Taxes -- The Company follows the asset and liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes." Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to affect taxable income. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. SFAS 109 also requires the recognition of a deferred tax liability on the undistributed earnings of subsidiaries applied on a prospective basis. Effective January 1, 1993, the Company adopted SFAS 109 and has reported the cumulative effect of that change in the method of accounting for income taxes in the 1993 consolidated statement of income. Investments -- Investments consist principally of certificates of deposit, remarketed certificates of participation, mortgage backed securities, municipal bonds, common stocks, redeemable preferred stocks, and U.S. Government obligations. The Company adopted the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at December 31, 1993. Under SFAS 115, the Company classifies its debt and marketable equity securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities for which the Company has the ability and intent to hold the security until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related income tax effect and minority interest in consolidated subsidiaries, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. A decline in the market of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. (20) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 3. Inventories Inventories as of December 31 consist of: 1994 1993 Manufactured paper products and associated raw materials $ 27,023 $ 30,782 Materials and supplies 25,640 27,407 Sugar 5,010 11,209 $ 57,673 $ 69,398 The replacement cost of manufactured paper products and associated raw material inventories was in excess of LIFO stated cost by approximately $21,101 as of December 31, 1994 ($12,781 in 1993). 4. Accrued Liabilities Accrued liabilities as of December 31 consist of: 1994 1993 Payroll and benefits $ 4,234 $ 5,034 Payroll taxes 666 103 Property and other taxes 3,794 5,561 Accrued casualty reserves 22,136 22,911 Other accrued liabilities 9,043 5,292 39,873 38,901 Less: noncurrent accrued casualty reserves and other liabilities 14,534 11,063 $ 25,339 $ 27,838 5. Property, Plant and Equipment Property, plant and equipment, at cost, as of December 31 consist of: Estimated 1994 1993 Useful Life Land and timber $ 131,876 $ 125,675 --- Land improvements 24,919 24,628 20 Buildings 47,255 47,174 45 Machinery and equipment 1,141,013 1,102,450 10 - 30 Office equipment 5,893 6,357 6 - 10 Autos and trucks 7,888 7,205 3 - 6 Construction in progress 12,409 18,161 --- Investment property 274,328 250,013 various 1,645,581 1,581,663 Accumulated depreciation 618,706 573,941 $1,026,875 $1,007,722 Real estate properties having net book value of $142.2 million at December 31, 1994 are leased under non-cancelable operating leases with expected aggregate rentals of $74.3 million of which $20.9, $18.6, $15.9, $11.4 and $7.5 million is due in the years 1995 through 1999, respectively. (21) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 6. Investments Investments at December 31, 1994, consist of : Amortized Carrying Fair Unrealized Unrealized Cost Value Value Holding Holding Gain Loss Short term investments (maturing within one year) Held to maturity: U. S. Government securities $ 43,041 $ 43,463 $ 43,875 $ 482 $ 70 Tax exempt municipals 3,157 3,157 3,091 --- 66 Mortgage backed securities 2,990 3,009 2,985 --- 24 Other corporate debt securities 3,473 3,499 3,499 --- --- Remarketed certificates of participation 4,986 5,061 5,061 --- --- Certificates of deposit 2,963 2,967 2,967 --- --- $ 60,610 $ 61,156 $ 61,478 $ 482 $ 160 Marketable securities Available for sale: U. S. Government securities Maturing in one to five years $ 3,003 $ 2,948 $ 2,948 $ --- $ 55 Tax exempt municipals Maturing in one to five years 4,457 4,236 4,236 --- 221 Maturing in five to ten years 22,148 21,278 21,278 --- 870 Maturing in more than ten years 3,364 3,272 3,272 --- 92 Equity securities 11,601 78,725 78,725 67,347 223 Mortgage backed securities Maturing in more than ten years 1,669 1,529 1,529 --- 140 Other corporate debt securities Maturing in more than ten years 2,250 2,176 2,176 --- 74 48,492 114,164 114,164 67,347 1,675 Held to maturity: U. S. Government securities Maturing within one year 40,080 40,080 41,136 1,056 --- Maturing in one to five years 17,249 17,226 17,350 543 419 Tax exempt municipals Maturing in one to five years 1,416 443 1,288 845 --- Other corporate debt securities Maturing in five to ten years 885 2,114 2,293 387 208 59,630 59,863 62,067 2,831 627 $108,122 $174,027 $176,231 $ 70,178 $ 2,302 (22) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 6. Investments (continued) Investments at December 31, 1993, consist of : Amortized Carrying Fair Unrealized Unrealized Cost Value Value Holding Holding Gain Loss Short term investments (maturing within one year) Held to maturity: U. S. Government securities $ 27,658 $ 27,695 $ 28,214 $ 523 $ 4 Tax exempt municipals 2,401 2,401 2,376 --- 25 Remarketed certificates of participation 5,000 5,028 5,028 --- --- Certificates of deposit 31,063 31,183 31,183 --- --- $ 66,122 $ 66,307 $ 66,801 $ 523 $ 29 Marketable securities Available for sale: U. S. Government securities Maturing in one to five years $ 393 $ 379 $ 379 $ --- $ 14 Tax exempt municipals Maturing in five to ten years 29,961 31,387 31,387 1,426 --- Equity securities 12,059 79,746 79,746 67,687 --- Mortgage backed securities Maturing in more than ten years 3,567 3,559 3,559 --- 8 Other corporate debt securities Maturing in five to ten years 1,684 1,699 1,699 15 --- 47,664 116,770 116,770 69,128 22 Held to maturity: U. S. Government securities Maturing within one year 23,731 23,731 24,500 769 --- Maturing in one to five years 11,104 11,267 11,462 197 2 Tax exempt municipals Maturing in one to five years 1,612 1,645 2,601 956 --- Mortgage backed securities Maturing in one to five years 2,990 3,003 3,007 4 --- Maturing in five to ten years 916 916 1,491 575 --- Maturing in more than ten years 91 91 103 12 --- Other corporate debt securities Maturing in five to ten years 812 2,100 2,045 --- 55 41,256 42,753 45,209 2,513 57 $ 88,920 $159,523 $161,979 $ 71,641 $ 79 Marketable securities, including certain investments which mature within one year, are held as a developmental fund created to accumulate capital expected to be required for future improvement of the Company's real estate properties. (23) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 7. Long-Term Debt Long-term debt as of December 31 consists of: 1994 1993 Notes payable to banks under lines of credit aggregating $70,000, due March 1995 through May 1996 with interest rates of 5.94% to 7.9% $ 32,671 $ 35,038 Rural Telephone Bank (RTB) 6.50 % to 10.25% mortgage notes with principal and interest due quarterly through 2016 15,443 15,917 Industrial Revenue Bonds payable in semiannual installments of $425 with interest payable at 67% of the prime rate 2,046 2,896 Rural Electrification Administration (REA) 2% mortgage notes with principal and interest due quarterly through 2008 3,019 3,394 Federal Financing Bank (FFB) notes at varying rates (weighted average: 1994 - 14.52%; 1993 - 14.50%) guaranteed by the REA 564 640 Mortgage loans payable to various institutions and individuals with interest rates of 4.5% to 9.75%, payable in variable installments 2,992 2,184 Other secured notes at variable interest rates and maturities 157 187 56,892 60,256 Long-term debt due within one year 19,672 21,309 Long-term debt due after one year $ 37,220 $ 38,947 The REA and RTB notes, the Industrial Revenue Bonds and the notes and mortgage loans payable are secured by company assets with a book value of approximately $47,780, $7,419 and $44,931, respectively. The aggregate amount of principal payments due in each of the years subsequent to December 31, 1994 is: Year ending December 31 Amount 1995 $ 19,672 1996 18,797 1997 1,570 1998 1,273 1999 1,213 2000 and later 14,367 $ 56,892 (24) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 8. Income Taxes Total income tax expense for the years ended December 31, was allocated as follows: 1994 1993 1992 Income from continuing operations $ 33,937 $ 22,209 $ 14,850 Shareholders' equity, for recognition of unrealized gain (loss) on debt and marketable equity securities (2,377) 25,472 --- $ 31,560 $ 47,681 $ 14,850 Income tax expense attributable to income from continuing operations differed from the amount computed by applying the statutory federal income tax rate to pre-tax income as a result of the following: 1994 1993 1992 Tax at the statutory federal rate $ 32,156 $ 15,601 $ 14,115 Dividends received deduction and tax free interest (1,075) (937) (745) State income taxes (net of federal benefit) 2,640 1,452 1,411 Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates --- 4,324 --- Undistributed earnings of FECI 1,245 775 --- Other, net (1,029) 994 69 $ 33,937 $ 22,209 $ 14,850 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of December 31, consist of: 1994 1993 Deferred tax assets: Accrued casualty and other reserves $ 10,348 $ 10,616 Alternative minimum tax credit carryforward 14,315 12,219 State net operating loss carryforward 6,371 6,183 Other 3,304 1,914 Total gross deferred tax assets 34,338 30,932 Valuation allowance 6,371 6,183 Net deferred tax assets 27,967 24,749 (25) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 8. Income Taxes (continued) 1994 1993 Deferred tax liabilities: Tax in excess of financial depreciation 159,531 154,817 Deferred gain on land sales 6,904 5,520 Deferred gain on subsidiary's defeased bonds 2,322 2,502 Unrealized gain on debt and marketable equity securities 23,123 25,472 Deferred gain on involuntary conversion of land 29,227 24,937 Prepaid pension asset recognized for financial reporting 7,804 7,285 Other 7,880 3,385 Total gross deferred tax liabilities 236,791 223,918 Net deferred tax liability $208,824 $199,169 Based on the timing of reversal of future taxable amounts and the Company's history of reporting taxable income, the Company believes that the deferred tax assets will be realized and a valuation allowance is not considered necessary except for those resulting from the net operating loss carryforward available for state income taxes. Because of the Company's history of reporting tax losses in certain states, the Company believes that substantially all carryforwards will not be realized and, accordingly, has recorded a valuation allowance equal to the entire amount. This valuation allowance was $6,371 and $6,183 at December 31, 1994 and 1993, respectively, which increased $188 and $547 in 1994 and 1993, respectively. The current deferred tax asset of $6,487 and $6,362 is recorded in other current assets as of December 31, 1994 and 1993, respectively. The Company has not recognized a deferred tax liability of approximately $17,862 for the undistributed earnings of FECI that arose in 1992 and prior years because the Company does not currently expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A deferred tax liability will be recognized when the Company expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investment. As of December 31, 1994, the undistributed earnings of the subsidiary for which no deferred tax liability was provided were approximately $48,454. For the year ended December 31, 1992, deferred income tax expense of $591 resulted from differences in the recognition of income and expense for income tax and financial reporting purposes. The sources and tax effects of those differences are: accelerated depreciation for tax purposes of $4,366; alternative minimum tax credit carryforward of ($3,025); prepaid pension cost of $1,200; accrued casualty reserves of ($468); and, other, net of ($1,482). 9. Pension and Retirement Plans The company sponsors defined benefit pension plans covering approximately 70% of its employees. The benefits are based on the employees' years of service or years of service and compensation during the last five or ten years of employment. The Company's funding policy is to contribute annually the maximum contribution required by ERISA. A summary of the net periodic pension credit follows: 1994 1993 Service cost $ 3,486 $ 2,761 Interest cost 7,418 6,147 Actual return on assets 1,365 (13,460) Net amortization and deferral (13,673) 1,272 Total pension income $ (1,404) $ (3,280) (26) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 9. Pension and retirement plans (continued) A summary of the plans' funded status as of December 31 was: 1994 1993 Accumulated benefit obligation, including vested benefits of $86,807 and $73,780 in 1994 and 1993, respectively $ 94,485 $ 80,438 Projected benefit obligation for service rendered to date 116,101 96,177 Plan assets at fair value, primarily listed stocks and U.S. bonds 141,090 144,713 Plan assets in excess of projected benefit obligation 24,989 48,536 Unrecognized net (gain) loss 2,615 (13,618) Unrecognized prior service cost 11,545 5,393 Unrecognized transition asset (17,961) (20,527) Prepaid pension cost $ 21,188 $ 19,784 The weighted-average discount rate for the plans was 7% in 1994 and 1993. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation for salaried employees was 6% in 1994 and 1993. The expected long-term rates of return on assets were 8% in 1994 and 7% in 1993. The Company has an Employee Stock Ownership Plan (ESOP) for the purpose of purchasing stock of the Company for the benefit of qualified employees. Contributions to the ESOP are limited to .5% of compensation of employees covered under the salaried pension plan. The Company also has other defined contribution plans which, in conjunction with the salaried pension plan, cover substantially all its salaried employees. Contributions are at the employees' discretion and are matched by the Company up to certain limits. Expense for these defined contribution plans was $1,213, $1,387, and $1,253 in 1994, 1993 and 1992, respectively. 10. Quarterly Financial Data (Unaudited) Quarters Ended 1994 December 31 September 30 June 30 March 31 Net sales and operating revenues 186,251 166,257 165,886 167,886 Operating profit 23,599 7,887 13,972 19,020 Net income 18,802 7,520 7,627 8,160 Net income per share .61 .25 .25 .27 1993 December 31 September 30 June 30 March 31 Net sales and operating revenues 153,540 141,182 150,548 146,698 Operating profit 17,852 6,873 2,239 5,138 Net income 8,785 (875) 753 23,980 Net income per share .29 (.03) .02 .79 (27) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 11. Segment Information The Company is engaged in five principal lines of business. These lines of business are: Forest Products - the integrated production of corrugated containers, including the cultivation and harvesting of pulpwood and the manufacture of linerboard; Transportation - the operation of two railroads within the state of Florida; Sugar - the cultivation, harvesting and processing of sugar cane; Communications - the provision of telephone services and telecommunications equipment; and Real Estate - the ownership, management and development of real estate. Total net sales and operating revenues represent sales to unaffiliated customers, as reported in the Company's consolidated income statement and intersegment sales which occur principally between the Forest Products and Transportation segments. Operating profit is net sales and operating revenues less directly traceable costs and expenses. In computing operating profit, the following items have not been considered: other income (expense) and provision for income taxes. Identifiable assets by lines of business are those assets that are used in the Company's operations in each segment. Corporate assets are composed of cash, marketable securities and miscellaneous nonsegment assets. Information by lines of business segment follows: 1994 1993 1992 Net sales and operating revenues: Forest Products $ 386,978 $ 312,875 $ 322,096 Transportation 176,074 175,095 169,439 Sugar 54,900 49,138 54,866 Communications 30,638 29,153 27,399 Real Estate 39,774 28,405 20,493 Intersegment (2,602) (2,698) (2,381) Consolidated $ 685,762 $ 591,968 $ 591,912 Operating profit: Forest Products $ 1,832 $ (19,684) $ (20,509) Transportation 29,680 30,648 26,380 Sugar 6,329 5,058 6,313 Communications 6,753 5,130 5,240 Real Estate 19,884 10,950 6,632 Consolidated $ 64,478 $ 32,102 $ 24,056 (28) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 11. Segment information (continued) 1994 1993 1992 Assets: Forest Products $ 371,353 $ 373,551 $ 378,461 Transportation 424,241 390,332 387,778 Sugar 93,685 96,925 90,724 Communications 70,658 65,674 63,594 Real Estate 229,449 230,343 198,236 Corporate 362,944 334,446 269,507 Consolidated $1,552,330 $1,491,271 $1,388,300 Capital expenditures: Forest Products $ 24,270 $ 24,454 $ 46,950 Transportation 25,060 22,682 21,173 Sugar 3,381 2,944 7,441 Communications 5,385 5,271 7,612 Real Estate 28,354 37,694 37,560 Consolidated $ 86,450 $ 93,045 $ 120,736 Depreciation and depletion: Forest Products $ 31,352 $ 33,015 $ 32,646 Transportation 18,706 18,147 17,112 Sugar 1,605 1,769 1,634 Communications 5,612 5,848 5,051 Real Estate 5,117 4,093 3,314 Consolidated $ 62,392 $ 62,872 $ 59,757 12. Contingencies The Company and its subsidiaries are involved in litigation on a number of matters and are subject to certain claims which arise in the normal course of business. Certain self-insurance risks with respect to losses for third party liability, property damage and group health insurance provided to employees have been retained by the Company. In the opinion of management, none of these items are expected to have a material adverse effect on the Company's consolidated financial position or results of operations. The Company is currently a party to, or involved in, legal proceedings directed at the cleanup of two Superfund sites. The Company has accrued its allocated share of the total estimated cleanup costs for these two 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. The Company is subject to substantial 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. 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 is reasonably estimable. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available. It is not possible to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. Based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position or liquidity of the Company, but could be material to the results of operation of the Company in any one period. As of December 31, 1994 and 1993, the aggregate environmental related accruals were $6.7 million. Environmental liabilities are paid over an extended period and the timing of such payments cannot be predicted with any confidence. (29) Management's Statement The management of St. Joe Paper Company is responsible for the integrity and objectivity of the financial statements presented in this Annual Report. These statements have been prepared in conformity with generally accepted accounting principles and fairly represent the transactions and financial position of your company. Your company maintains a system of internal management controls designed to provide reasonable assurance that assets are safeguarded, transactions are properly recorded and executed in accordance with management's authorization, and that records are updated periodically to reflect assets actually on hand. These controls are supplemented by internal audits of various units of your company. Those audits are made on a random basis and are unannounced. Independent Auditors' Report The Board of Directors and Stockholders St. Joe Paper Company: We have audited the accompanying consolidated balance sheets of St. Joe Paper Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of St. Joe Paper Company and subsidiaries as of December 31, 1994, and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. As disclosed in notes 2 and 6 to the consolidated financial statements, the Company changed its method of accounting for investments to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at December 31, 1993. As disclosed in notes 2 and 8, the Company changed its method of accounting for income taxes effective January 1, 1993 to adopt the provisions of the Financial Accounting Standards Board's SFAS No. 109, "Accounting for Income Taxes". KPMG PEAT MARWICK LLP Certified Public Accountants Jacksonville, Florida February 28, 1995 (30) -----END PRIVACY-ENHANCED MESSAGE-----