Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 1 of 60. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF FLORIDA Pensacola Division

Transcription

1 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 1 of 60 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF FLORIDA Pensacola Division ) ROBERT J. MEYER, Individually and On Behalf ) of All Others Similarly Situated, ) ) CIVIL ACTION NO. Plaintiff, ) ) vs. ) )CLASS ACTION COMPLAINT THE ST. JOE COMPANY, WILLIAM BRITTON ) GREENE, WILLIAM S. MCCALMONT, PETER ) S. RUMMELL, JANNA L. CONNOLLY, ) MICHAEL L. AINSLIE, HUGH M. DURDEN, ) JURY TRIAL DEMANDED THOMAS A. FANNING, HARRY H. ) FRAMPTON, III, ADAM W. HERBERT, JR., ) DELORES M. KESLER, JOHN S. LORD, ) WALTER L. REVELL, WILLIAM H. WALTON, ) III, DEUTSCHE BANK SECURITIES INC. and ) KPMG LLP, ) Defendants. ) ) Plaintiff, Robert J. Meyer ( Plaintiff ), alleges the following based upon the investigation of Plaintiff s counsel, which included, among other things, a review of defendants public documents, conference calls and announcements, United States Securities and Exchange Commission ( SEC ) filings, wire and press releases published by and regarding The St. Joe Company ( St. Joe or the Company ) and securities analysts reports and advisories about the Company. Plaintiff incorporates by reference the October 13, 2010 presentation about St. Joe by David Einhorn ( Einhorn ) entitled Field of Schemes: If You Build It, They Won t Come. Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. 1

2 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 2 of 60 NATURE OF THE ACTION AND OVERVIEW 1. This is a federal class action on behalf of purchasers of the securities of St. Joe, who purchased or otherwise acquired St. Joe securities between February 19, 2008 and October 12, 2010, inclusive (the Class Period ), including purchasers of the Company s securities pursuant or traceable to the Company s public offering of over 17 million shares of common stock on or about February 27, 2008, seeking to pursue remedies under the Securities Act of 1933 (the Securities Act ) and the Securities Exchange Act of 1934 (the Exchange Act ). 2. St. Joe is one of the largest real estate development companies in Florida. The Company is engaged in town and resort development, commercial and industrial development and rural land sales. The Company operates in four segments: Residential Real Estate, Commercial Real Estate, Rural Land Sales and Forestry. As of December 31, 2009, St. Joe owned approximately 577,000 acres of land concentrated primarily in northwest Florida, as well as approximately 405,000 acres on the coast of the Gulf of Mexico. St. Joe s 2009 Annual Report valued the Company s real estate holdings at $749,500, On October 13, 2010, St. Joe s investors were shocked as Greenlight Capital s Mr. Einhorn detailed at the Value Investing Congress how St. Joe needed to take substantial impairments and accounting writedowns on many of its properties, and that further building by the Company will drive the stock price to zero. As subsequently reported by Reuters, Mr. Einhorn s presentation, entitled Field of Schemes: If You Build It, They Won t Come, noted that St. Joe s development plans have fallen flat, leaving it with ghost towns and inevitable writedowns. For example, Mr. Einhorn said he would generously place a value of $17.8 million on the remaining residential development at St. Joe s Windmark Beach property while 2

3 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 3 of 60 the company is carrying the property at $164.5 million on its balance sheet. Mr. Einhorn also stated that the Company was stuck after making an aggressive bet on beachfront developments that have gone nowhere, and that it was overvaluing the real estate holdings on its books. According to Mr. Einhorn, [t]here s little evidence of how Joe spent so much money on these developments. Many developments are ghost towns and little value remains. 4. On this news, shares of the Company s stock fell $2.38 per share, or 9.7 percent, to close on October 13, 2010 at $22.16 per share, on unusually heavy trading volume. The following day the Company s shares declined an additional $2.42 per share, or 10.9 percent, to close on October 14, 2010 at $19.74 per share, again on heavy trading volume. Cumulatively, over these two days St. Joe s shares declined a total of $4.80 per share, or over 19.5 percent. 5. The Complaint alleges that, throughout the Class Period, defendants failed to disclose material adverse facts about the Company s financial well-being, business relationships, and prospects. Specifically, defendants failed to disclose that: (1) as the Florida real estate market was in decline, St. Joe was failing to take adequate and required impairments and accounting write-downs on many of its Florida based property developments; (2) as a result, St. Joe s financial statements materially overvalued the Company s Florida based property developments; (3) the Company s financial statements were not prepared in accordance with Generally Accepted Accounting Principles ( GAAP ); (4) the Company lacked adequate internal and financial controls; and (5) as a result of the foregoing, the Company s financial statements were materially false and misleading at all relevant times. 6. As a result of defendants wrongful acts and omissions, and the precipitous decline in the market value of the Company s securities, Plaintiff and other Class Members suffered damages. 3

4 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 4 of 60 JURISDICTION AND VENUE 7. The claims asserted herein arise under and pursuant to Sections 11, 12(a)(2), and 15 of the Securities Act (15 U.S.C. 77k and 77o), and under and pursuant to Sections 10(b) and 20(a) of the Exchange Act, (15 U.S.C. 78j(b) and 78t(a)), and Rule 10b-5 promulgated thereunder (17 C.F.R b-5). 8. This Court has jurisdiction over the subject matter of this action pursuant to Section 22 of the Securities Act (15 U.S.C. 77v) and pursuant to Section 27 of the Exchange Act (15 U.S.C. 78aa) and 28 U.S.C Venue is proper in this District pursuant to Section 22 of the Securities Act and pursuant to Section 27 of the Exchange Act, 15 U.S.C. 78aa and 28 U.S.C. 1391(b). Many of the acts and transactions alleged herein, including the preparation and dissemination of materially false and misleading information, occurred in substantial part in this District. Additionally, St. Joe s principal executive offices are located within this District. 10. In connection with the acts, conduct and other wrongs alleged in this Complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce. PARTIES 11. Plaintiff, Robert J. Meyer, as set forth in the accompanying certification, incorporated by reference herein, purchased St. Joe securities at artificially inflated prices during the Class Period and has been damaged thereby. 12. Defendant St. Joe is a Florida corporation with its principal executive offices located at 133 South WaterSound Parkway, WaterSound, Walton County, Florida. 13. Defendant William Britton Greene ( Greene ) was, at relevant times, the Company s President, Chief Executive Officer ( CEO ), and a member of the Company s Board 4

5 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 5 of 60 of Directors. 14. Defendant William S. McCalmont ( McCalmont ) was, at relevant times, the Company s Chief Financial Officer ( CFO ) and an Executive Vice President. 15. Defendant Peter S. Rummell ( Rummell ) was, at relevant times, the Company s CEO and Chairman of the Board. 16. Defendant Janna L. Connolly ( Connolly ) was, at relevant times, the Company s Controller. 17. Defendant Michael L. Ainslie ( Ainslie ) was, at relevant times, a member of the Company s Board of Directors. 18. Defendant Hugh M. Durden ( Durden ) was, at relevant times, a member of the Company s Board of Directors. 19. Defendant Thomas A. Fanning ( Fanning ) was, at relevant times, a member of the Company s Board of Directors. 20. Defendant Harry H. Frampton, III ( Frampton ) was, at relevant times, a member of the Company s Board of Directors. 21. Defendant Adam W. Herbert, Jr. ( Herbert ) was, at relevant times, a member of the Company s Board of Directors. 22. Defendant Delores M. Kesler ( Kesler ) was, at relevant times, a member of the Company s Board of Directors. 23. Defendant John S. Lord ( Lord ) was, at relevant times, a member of the Company s Board of Directors. 24. Defendant Walter L. Revell ( Revell ) was, at relevant times, a member of the Company s Board of Directors. 5

6 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 6 of Defendant William H. Walton, III ( Walton ) was, at relevant times, a member of the Company s Board of Directors. 26. Defendants Greene, McCalmont, Rummell, Connolly, Ainslie, Durden, Fanning, Frampton, Herbert, Kesler, Lord, Revell and Walton are collectively referred to hereinafter as the Individual Defendants. The Individual Defendants, because of their positions with the Company, possessed the power and authority to control the contents of St. Joe s reports to the SEC, press releases and presentations to securities analysts, money and portfolio managers and institutional investors, i.e., the market. Each defendant was provided with copies of the Company s reports and press releases alleged herein to be misleading prior to, or shortly after, their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them, each of these defendants knew that the adverse facts specified herein had not been disclosed to, and were being concealed from, the public, and that the positive representations which were being made were then materially false and misleading. The Individual Defendants are liable for the false statements pleaded herein, as those statements were each grouppublished information, the result of the collective actions of the Individual Defendants. 27. Defendant Deutsche Bank Securities Inc. ( Deutsche Bank ) was an underwriter of the Company s February 2008 public stock offering. Deutsche Bank served as a financial advisor and assisted in the preparation and dissemination of the offering materials for St. Joe s public stock offering. 28. Defendant KPMG LLP ( KPMG ) was, at all relevant times, the Company s public accounting firm. KPMG audited St. Joe s financial statements, and issued unqualified opinions about the effectiveness of the Company s internal control over financial reporting. 6

7 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 7 of 60 SUBSTANTIVE ALLEGATIONS Background 29. St. Joe is a real estate development company, and is one of the largest such companies in Florida. The Company is engaged in town and resort development, commercial and industrial development and rural land sales. The Company operates in four segments: Residential Real Estate, Commercial Real Estate, Rural Land Sales and Forestry. The Residential Real Estate segment develops mixed-use resort, and seasonal and primary residential communities. This segment also focuses on selling undeveloped land to third-party developers or investors. The Commercial Real Estate segment develops and sells real estate primarily for commercial and light industrial uses. The Rural Land Sales segment markets parcels for rural recreational, conservation, and timberland uses. The Forestry segment grows, harvests and sells timber and wood fiber, and provides land management services for conservation properties. As of December 31, 2009, St. Joe owned approximately 577,000 acres of land concentrated primarily in northwest Florida, as well as approximately 405,000 acres on the coast of the Gulf of Mexico. Materially False and Misleading Statements Issued During the Class Period 30. The Class Period begins on February 19, On this day the Company issued a press release entitled The St. Joe Company (NYSE: JOE) Reports Fourth Quarter And Full Year 2007 Financial. The press release reported that the Company s investment in real estate was $943.5 million, and stated: The St. Joe Company (NYSE: JOE) today announced Net Income for the fourth quarter 2007 of $1.0 million, or $0.01 per share, compared with $22.3 million, or $0.30 per share, for the fourth quarter of JOE s fourth quarter results included pre-tax restructuring charges of $6.2 million, or $0.05 per share after tax, and $4.3 million, or $0.04 per share after tax, related to the write-off of a minority 7

8 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 8 of 60 position in a liquidating trust. All per share references in this release are presented on a diluted basis. For the full year 2007, JOE had Net Income of $39.2 million, or $0.53 per share, compared with $51.0 million, or $0.69 per share, for the full year Full year results were affected by: Pre-tax impairment charges for the full year 2007 totaled $23.2 million, or $0.19 per share after tax, which included: o Approximately $13.6 million primarily related to a write-down of costs on homes and home sites in JOE s residential segment to approximate fair value; Summary Balance Sheet Assets December 31, 2007 December 31, 2006 Investments in real estate $943,500,000 $1,213,500, On February 25, 2008, the Company filed its 2007 Annual Report with the SEC on Form 10-K. The Company s Form 10-K was signed by Defendants Rummell, Greene and McCalmont, among others, and reaffirmed the Company s 2007 financial results, financial position, and the reported value of the Company s investment in real estate as previously announced on February 19, With respect to the Company s asset impairment costs, St. Joe s 2007 Annual Report stated: During 2007, we recorded total asset impairment costs of $23.2 million, $13.0 million of which related to the write down of capitalized costs at certain projects due to changes in development plans and the impairment of completed homes in several of our communities due to current market conditions. If market conditions were to continue to deteriorate, and the market values for our home sites, remaining homes held in inventory and other project land were to fall below the book value of these assets, we would need to take additional writedowns of the book value of these assets. Any such write-downs would decrease the value of these assets on our balance sheet and would reduce our net income. 8

9 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 9 of 60 Impairment Losses. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and home-sites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing service potential of the project and using management s best estimates about future sales prices and holding periods. The decline in demand and market prices for residential real estate caused us to conclude that carrying amounts within our residential real estate segment may not be recoverable, and we performed an impairment analysis. As a result of our impairment analyses, we recorded an impairment charge of $13.6 million in the residential real estate segment. Impairment of Long-lived Assets and Goodwill. Our long-lived assets, primarily real estate held for investment, are carried at cost unless circumstances indicate that the carrying value of the assets may not be recoverable. If we determine that an impairment exists due to the inability to recover an asset s carrying value, a provision for loss is recorded to the extent that the carrying value exceeded estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell. Depending on the asset, we use varying methods to determine fair value, such as (i) analyzing expected future cash flows, (ii) determining resale values by market, or (iii) applying a capitalization rate to net operating income using prevailing rates in a given market. The fair value determined under these methods can fluctuate up or down significantly as a result of a number of factors, including changes in the general economy of our markets, demand for real estate and the projected net operating income for a specific property. Asset Impairments The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and home-sites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing service potential of the project and using management s best estimates about future sales prices and holding periods. The overall decrease in demand and 9

10 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 10 of 60 market prices for residential real estate indicated that carrying amounts of certain assets within its residential real estate segment may not be recoverable and, accordingly, the Company recorded an impairment charge of $13.6 million in the residential real estate segment during [Emphasis added.] 32. The Notes to Consolidated Financial Statements section of the 2007 Form 10-K also discussed asset impairments and the Company s segment results, and provided a schedule of the carrying value of the Company s residential real estate and accumulated depreciation. In relevant part, the Form 10-K stated: In 2007 we recorded impairments totaling $13.6 million primarily due to current adverse market conditions for residential real estate. Approximately $5.2 million of the impairments related to capitalized costs at certain projects due to changes in development plans, approximately $7.8 million related primarily to completed spec homes in several communities and approximately $0.6 million related to the modified terms of certain promissory notes. THE ST. JOE COMPANY SCHEDULE III (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2007 Initial Cost to Company Carried at Close of Period Description Encumbrances Land Buildings & Costs Land & Land Buildings and Total Accumulated Improvements Capitalized Improvements Improvements Depreciation Subsequent to Acquisition (in thousands) Bay County, Florida Land with infrastructure $3,346 $642 $ $30,545 $31,187 $ $31,187 $75 Buildings 1,296 11,850 13,146 13,146 1,113 Residential 2,203 53,474 55,677 55, Timberlands 8,257 3,896 12,046 15,942 15, Unimproved land 1,504 1,504 1,504 Broward County, Florida Building Calhoun County, Florida Buildings Timberlands 5,510 1,774 5,155 6,929 6, Unimproved land ,704 1,704 Duval County, Florida Land with infrastructure Buildings 2,795 2,795 2,795 1,983 Residential 10

11 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 11 of 60 Timberlands Franklin County, Florida Land with infrastructure Residential 9,003 27,326 36,329 36,329 Timberlands 415 1,241 1,367 2,608 2, Unimproved Land Buildings 1,537 7,499 9,036 9, Gadsden County, Florida Land with infrastructure 3,288 3,288 3,288 Timberlands 969 1, ,080 2, Unimproved land 1, ,165 2,165 Gulf County, Florida Land with infrastructure 1,591 1,520 3,111 3,111 Buildings 930 3,036 3,966 3, Residential 29, , , , Timberlands 14,958 5,238 17,939 23,177 23, Unimproved land ,225 1,225 Hillsborough County, Florida Buildings Jefferson County, Florida Buildings Timberlands 1,214 1,214 1, Unimproved land Leon County, Florida Land with infrastructure ,121 4,694 4, Buildings 5,718 11,513 17,231 17,231 2,666 Residential ,120 48, ,201 1,281 Timberlands 923 2,827 3,750 3, Unimproved land Liberty County, Florida Buildings Timberlands 4,401 3,449 4,679 8,128 8, Unimproved land Manatee County Land with infrastructure Buildings 2, ,446 2, Residential 26,730 17,225 43,955 43, Orange County, Florida Land with infrastructure Buildings Osceola County Land with infrastructure Residential 393 5,769 12,133 17,902 17,902 Buildings Palm Beach County, Florida Land with infrastructure Residential Buildings Pinellas County, Florida Buildings St. Johns County, Florida 11

12 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 12 of 60 Land with infrastructure 1,016 4,744 5,760 5, Buildings 1,854 2,632 4,486 4,486 1,093 Residential 30,276 9,142 56,473 65,615 65,615 Polusia County, Florida Land with infrastructure Buildings 1,644 2,265 3,909 3, Residential 14,005 60,900 74,905 74,905 1,864 Wakulla County, Florida Land with infrastructure Buildings Timberlands 1, ,218 1, Unimproved Land Walton County, Florida Land with infrastructure 56 3,435 3,491 3,491 Buildings 33,498 12,182 45,680 45,680 6,664 Residential 22, , , ,671 5,138 Timberlands ,040 1,394 1, Unimproved land Other Florida Counties Land with infrastructure Timberlands Unimproved land The Company s 2007 Form 10-K also contained Sarbanes-Oxley required certifications, signed by Defendants Rummell and McCalmont, which stated: I, [Peter S. Rummell / William S. McCalmont], certify that: 1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2007 of The St. Joe Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its 12

13 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 13 of 60 consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant s internal control over financial reporting that occurred during the registrant s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant s internal control over financial reporting; and 5. The registrant s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant s auditors and the audit committee of the registrant s board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant s internal control over financial reporting. Pursuant to 18 USC 1350, the undersigned officer of The St. Joe Company (the Company ) hereby certifies that the Company s Annual Report on Form 10-K for the year ended December 31, 2007 (the Report ) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company 34. St. Joe s 2007 Form 10-K also contained a report from KPMG, the Company s public accounting firm, which stated that the Company s financial statements present fairly, in all material respects, the financial position of The St. Joe Company and subsidiaries as of 13

14 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 14 of 60 December 31, KPMG also expressed an unqualified opinion on the effectiveness of the Company s internal control over financial reporting: We have audited the accompanying consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in stockholders equity, and cash flow for each of the years in the three-year period ended December 31, In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule III Consolidated Real Estate and Accumulated Depreciation. These consolidated financial statements and financial statement schedule are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 presentation. 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 The St. Joe Company and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The St. Joe Company s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 2008, expressed an unqualified opinion on the effectiveness of the Company s internal control over financial reporting. 35. The statements contained in were materially false and misleading when made because defendants failed to disclose that: (1) as the Florida real estate market was in 14

15 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 15 of 60 decline, St. Joe was failing to take adequate and required impairments and accounting writedowns on many of its Florida based property developments; (2) as a result, St. Joe s financial statements materially overvalued the Company s Florida based property developments; (3) the Company s financial statements were not prepared in accordance with GAAP; (4) the Company lacked adequate internal and financial controls; and (5) as a result of the foregoing, the Company s financial statements were materially false and misleading at all relevant times. 36. On or about February 27, 2008, the defendants conducted a public offering (the Offering ) and sold 17,145,000 shares of St. Joe stock to investors at a price of $35.00 per share for proceeds of approximately $580,000,000. In connection with this Offering, the Company filed a Registration Statement and Prospectus on February 25, 2008 and a Prospectus Supplement on February 26, 2008 (collectively, the Offering Materials ). The Offering Materials were signed by the Individual Defendants, and incorporated certain information by reference, including the false statements identified at The Offering Materials stated, in relevant part: INFORMATION INCORPORATED BY REFERENCE The SEC allows us to incorporate by reference the information contained in documents we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus and any applicable prospectus supplement. Any statement contained in a document which is incorporated by reference in this prospectus or the applicable prospectus supplement is automatically updated and superseded if information contained in this prospectus or any applicable prospectus supplement, or information that we later file with the SEC, modifies or replaces that information. Any statement made in this prospectus or any applicable prospectus supplement concerning the contents of any contract, agreement or other document is only a summary of the actual contract, agreement or other document. If we have filed or incorporated by reference any contract, agreement or other document as an exhibit to the registration statement, you should read the exhibit for a more complete understanding of the document or matter involved. Each statement regarding a contract, agreement or other document is qualified in its entirety by reference to the actual document. 15

16 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 16 of 60 We incorporate by reference the following documents we filed with the SEC (other than any information contained therein or attached as exhibits thereto which has been furnished but not filed in accordance with SEC rules): (1) Our Annual Report on Form 10-K for the year ended December 31, 2007, filed February 25, 2008; (2) Our Current Reports on Form 8-K filed on January 24 and February 19, 2008; and (3) Our Proxy Statement on Schedule 14A filed April 13, The Offering Materials were materially false and misleading because defendants failed to disclose that: (1) as the Florida real estate market was in decline, St. Joe was failing to take adequate and required impairments and accounting write-downs on many of its Florida based property developments; (2) as a result, St. Joe s financial statements materially overvalued the Company s Florida based property developments; (3) the Company s financial statements were not prepared in accordance with GAAP; (4) the Company lacked adequate internal and financial controls; (5) the Company s financial statements were materially false and misleading at all relevant times; and (6) as a result of the foregoing, the Company s Offering Materials were false and misleading at all relevant times. 38. On February 27, 2008, St. Joe issued a press release announcing that it had priced the public offering of 17,145,000 shares of its common stock. The public offering price was $35.00 per share, and St. Joe stated that the approximately $580 million of net proceeds from the offering will be used to repay substantially all of JOE s outstanding indebtedness. The offering is expected to close on March 3, The sole underwriter for the Offering was Deutsche Bank Securities Inc. 39. On or about March 3, 2008, the Offering closed, and the Company received proceeds of approximately $580,000, On May 6, 2008, the Company issued a press release entitled The St. Joe 16

17 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 17 of 60 Company (NYSE: Joe) Reports First Quarter 2008 Financial Results. The press release reported that the Company s investment in real estate was $950.7 million, and stated: The St. Joe Company (NYSE: JOE) today announced Net Income for the first quarter 2008 increased $12.4 million to $32.1 million, or $0.40 per share, compared to Net Income of $19.7 million, or $0.27 per share, for the first quarter of JOE s first quarter results included pre-tax impairment charges of $2.3 million, or $.02 per share after taxes, as a result of continuing declines in sales and listing prices principally in our primary communities. Also included in 2008 results are pre-tax restructuring charges of $0.5 million, or less than $0.01 per share after tax, compared to $3.2 million, or $0.03 per share after tax, in All per share references in this release are presented on a diluted basis. Like the rest of the country, Florida is facing very challenging real estate market conditions. Consumer confidence is declining and many consumers seem to be deferring residential real estate purchases until there is more economic clarity, said chairman and CEO Peter S. Rummell. With the U.S. and Florida economies battling rising home foreclosures, a tightening of credit and a significant inventory of unsold homes, predicting when residential real estate markets will return to health remains difficult. However, demand for rural land remains strong, and we are having success selling non-strategic rural land parcels to a wide variety of customers. During the first quarter, significant progress was achieved in four areas: Construction of the Panama City - Bay County International Airport moved forward on time and on budget after several favorable judicial decisions; JOE s successful equity offering made JOE virtually debt free and increased its financial flexibility to weather the current market downturn; JOE sold 57,435 acres of non-strategic rural lands for a total of $91.1 million; and JOE s succession plan was implemented smoothly with president and COO Britt Greene slated to become CEO on May 13th. While it is impossible to predict when conditions in JOE residential markets will improve, we are taking important steps to be properly positioned when they do, said Rummell. We have become a leaner, more nimble company. Looking ahead two years from today, 2010 will be an important time for JOE, said Rummell. The new Panama City - Bay County airport is scheduled to open at that point and many economists think economic conditions will be improving by then. Our job between now and then is to focus on the demand side of the 17

18 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 18 of 60 equation and work with a broad range of strategic allies - from the state economic development organizations to third-party developers - to ensure West Bay and the new airport are a success. JOE s Balance Sheet On March 3, 2008, JOE sold 17,145,000 shares of its common stock. The approximately $580 million of net proceeds from the public offering were used to repay substantially all of JOE s outstanding indebtedness. JOE s successful equity offering has dramatically increased our financial flexibility in weathering the current market downturn, said William S. McCalmont, JOE s CFO. As we move forward, we are committed to maintaining a strong balance sheet. At March 31, 2008, JOE s debt was $288.7 million, including $30.2 million of defeased debt. On April 4, 2008, JOE paid off $240 million of Senior Notes making it virtually debt free. At the end of the first quarter, JOE had approximately $480.3 million of available capacity under its $500 million Revolving Credit Facility. Demand for both large and small tracts of rural land has held up well during this current market downturn, said JOE president and COO Britt Greene. We continue to see interest from large landowners, recreational land buyers, conservation land buyers and pension funds. Resort and primary residential sales generated $9.7 million in revenue. As anticipated, conditions in JOE s residential markets remain difficult. JOE did not close any commercial land sales during the first quarter. Due to the challenges facing the retail industry, as well as the nature of commercial land transactions, JOE expects its revenue from commercial land sales to remain lumpy. 41. Also on May 6, 2008, St. Joe filed its Quarterly Report with the SEC on Form 10- Q. The Company s Form 10-Q was signed by Defendants Rummell and Connolly, and reaffirmed the Company s quarterly financial results, financial position, and the reported value of the Company s investment in real estate. The Company s Form 10-Q also contained Sarbanes- Oxley required certifications, which were substantially similar to the certifications contained in 33. Additionally, the Form 10-Q discussed asset impairments, stating: 18

19 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 19 of 60 The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and home-sites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing service potential of the project and using management s best estimates about future sales prices and holding periods. The continued decrease in demand and market prices for residential real estate during the first quarter of 2008 indicated that certain carrying amounts within our residential real estate segment may not be recoverable. As a result of the first quarter 2008 impairment analysis, the Company has recorded an impairment charge of $2.3 million in the residential real estate segment. 42. On August 5, 2008, the Company issued a press release entitled The St. Joe Company (NYSE: JOE) Reports Second Quarter 2008 Financial Results. The press release reported that the Company s investment in real estate was $947.6 million, and stated: The St. Joe Company (NYSE: JOE) today announced a Net Loss for the second quarter 2008 of $(20.8) million, or $(0.23) per share, compared to Net Income of $25.3 million, or $0.34 per share, for the second quarter of 2007, a decrease of $46.1 million. All per share references in this release are presented on a diluted basis. JOE s second quarter results included the following significant charges: $29.9 million pre-tax, or $0.20 per share after-tax, related to a loss on the early extinguishment of debt in conjunction with the prepayment of JOE s senior notes; Pre-tax restructuring of $2.5 million, or $0.02 per share after-tax; Pre-tax impairment of $1.0 million, or $0.01 per share after-tax, associated with certain of JOE s communities and the write-down of a homebuilder note receivable; and $1.9 million pre-tax loss, or $0.01 per share after-tax, related to a fair value adjustment on retained interests of monetized installment notes. Net income for the first half of 2008 was $11.2 million, or $0.13 per share, compared to $45.0 million, or $0.61 per share, for the first half of Included in results for the first six months of 2008 were the following significant charges: $29.9 million pre-tax, or $0.21 per share after-tax, related to a loss on the early extinguishment of debt; Pre-tax restructuring of $3.0 million, or $0.02 per share after-tax; 19

20 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 20 of 60 Pre-tax impairment of $3.2 million, or $0.02 per share after-tax; and $1.9 million pre-tax loss on the monetization of installment notes, or $0.01 per share after-tax. With continuing economic weakness in the national economy, our northern Florida real estate markets face difficult conditions, said JOE s president and CEO Britt Greene. We cannot predict exactly when the national economy or our real estate markets will recover, but we are continuing to execute our strategic plan and keep JOE lean and efficient to better withstand these very difficult conditions. We have significantly reduced capital expenditures, virtually eliminated our debt and meaningfully reduced employee headcount. We intend to be well positioned when real estate markets eventually return to health by providing a variety of real estate products for the cycle s upturn, said Greene. This includes key parcels in Bay County near the new international airport now under construction, and WindMark Beach in Port St. Joe. Commitment to a Solid Balance Sheet At June 30, 2008, JOE had cash and marketable securities of $74.0 million, compared to debt of $54.2 million, which includes $29.8 million of defeased debt. On April 4, 2008, JOE paid off $240 million of senior notes along with a $29.7 million make-whole payment with the proceeds of the first-quarter equity offering. JOE is committed to maintaining a strong balance sheet and continuing to reduce SG&A expenses, said CFO William McCalmont. We fully understand the importance of operating with extreme efficiency, and we are evaluating all expenditures and strategic initiatives to ensure we are well prepared when the real estate environment improves. With our strong balance sheet and cash position, we are prepared to withstand this prolonged downturn and will continue to prudently manage our inventory and assets to preserve long-term shareholder value. 43. Also on August 5, 2008, St. Joe filed its Quarterly Report with the SEC on Form 10-Q. The Company s Form 10-Q was signed by Defendants Greene and Connolly, and reaffirmed the Company s quarterly financial results, financial position, and the reported value of the Company s investment in real estate. The Company s Form 10-Q also contained Sarbanes- Oxley required certifications, which were substantially similar to the certifications contained in 20

21 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 21 of Additionally, the Form 10-Q discussed asset impairments, stating: The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and home-sites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing service potential of the project and using management s best estimates about future sales prices and holding periods. The continued decrease in demand and market prices for residential real estate during the first six months of 2008 indicated that certain carrying amounts within the Company s residential real estate segment may not be recoverable. In addition, for the second quarter 2008 the Company recorded an impairment charge of $0.8 million related to the write down of a renegotiated builder note receivable. As a result of its impairment analyses, the Company has recorded aggregate impairment charges of $3.2 million in the residential real estate segment for the first six months of 2008 of which $2.2 million was recognized in the first quarter and $1.0 million in the second quarter. 44. On November 4, 2008, the Company issued a press release entitled The St. Joe Company (NYSE: JOE) Reports Third Quarter 2008 Financial Results. The press release reported that the Company s investment in real estate was $930.4 million, and stated: The St. Joe Company (NYSE: JOE) today announced a Net Loss for the third quarter 2008 of $(19.2) million, or $(0.21) per share, compared to a Net Loss of $(6.8) million, or $(0.09) per share, for the third quarter of Third Quarter Highlights During these extraordinary times that are impacting the entire real estate industry, we continue to make progress in the third quarter fortifying JOE, said Britt Greene, JOE s President and CEO. With virtually no debt and a strong cash position, JOE s solid balance sheet better positions us to withstand the global financial crisis and the downturn in the Florida real estate market. We remain committed to continuing to manage costs during this prolonged downturn and will maintain our focus on managing our inventory and assets to preserve long-term shareholder value. At the same time, we are focusing on the opportunities to be presented by the opening of the airport and are positioning JOE for when the real estate markets begin to recover. 21

22 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 22 of 60 Third Quarter Operating Results The third quarter operating results reflect a challenging environment, said Greene. The summer selling season in our resort markets was disappointing and the primary home market remains difficult. We continue to see long-term interest in Northwest Florida commercial markets, but they continue to be affected by the current economic conditions. Year-to-Date Results Net Loss for the first nine months of 2008 was $(8.0) million, or $(0.09) per share, compared to Net Income of $38.2 million, or $0.51 per share, for the first nine months of Also on November 4, 2008, St. Joe filed its Quarterly Report with the SEC on Form 10-Q. The Company s Form 10-Q was signed by Defendants Greene and Connolly, and reaffirmed the Company s quarterly financial results, financial position, and the reported value of the Company s investment in real estate. The Company s Form 10-Q also contained Sarbanes- Oxley required certifications, which were substantially similar to the certifications contained in 33. Additionally, the Form 10-Q discussed asset impairments, stating: The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and home-sites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing project and using management s best estimates about future sales prices and holding periods. The continued decrease in demand and market prices for residential real estate during the first nine months of 2008 and 2007 indicated that certain carrying amounts within the Company s residential real estate segment may not be recoverable. In addition, during the second quarter 2008 the Company recorded an impairment charge of $0.8 million related to the write down of a renegotiated builder note receivable. As a result of its 2008 impairment analyses, the Company has recorded aggregate impairment charges of $1.3 million and $4.6 million in the residential real estate segment for the three and nine months ended September 30, The Company also recorded an impairment charge of $13.0 million in the third quarter of

23 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 23 of On February 24, 2009, the Company issued a press release entitled The St. Joe Company (NYSE: Joe) Reports Fourth Quarter and Full Year 2008 Financial Results. The press release reported that the Company s investment in real estate was $890.6 million, and stated: The St. Joe Company (NYSE: JOE) today announced a Net Loss for the fourth quarter 2008 of $(27.9) million, or $(0.31) per share, which includes non-cash charges of $57.9 million, or $0.36 per share after tax. This compares to Net Income of $1.0 million, or $0.01 per share, for the fourth quarter of 2007, which includes non-cash charges of $10.5 million, or $0.09 per share after tax. All pershare references in this release are presented on a diluted basis. JOE s fourth quarter 2008 results include the following non-cash charges: Pre-tax impairment charges of $55.8 million, or $0.34 per share after tax, including: o $28.3 million write-down related to its SevenShores condominium development project; o $19.0 million write-off of goodwill related to JOE s 1997 purchase of Arvida; o $8.3 million charge for the write-down of costs to approximate fair value on homes in several JOE communities; For the fourth quarter of 2007, JOE recorded pre-tax restructuring charges of $6.2 million, or $0.05 per share after tax, and $4.3 million, or $0.04 per share after tax, related to the write-off of a minority position in a liquidating trust. Preserving JOE s unique asset base while identifying and capitalizing on future growth options are our primary focus in these unprecedented economic times, said Britt Greene, JOE s President and CEO. Our solid balance sheet, bolstered by a strong cash position with virtually no debt, better positions JOE to weather this economic crisis. We have benefited greatly from our successful cost management and asset preservation initiatives. As we look forward, we are also committing significant resources to the opportunities presented by the opening of the new international airport in Panama City projected for May Liquidity and Capital Expenditures At December 31, 2008, JOE had cash and pledged treasury securities of $144.4 million, compared to debt of $49.6 million, which includes $28.9 million of 23

24 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 24 of 60 defeased debt. For the year 2008, JOE s capital expenditures were approximately $35 million, compared to approximately $247 million in During the economic uncertainty of 2008, we prudently managed our assets with a restructured business model, reduced capital expenditures and reduced operating and overhead expenses, said William S. McCalmont, JOE s Executive Vice President and CFO. Our strong balance sheet, augmented by our healthy cash position and virtually no debt, allows us to plan for future opportunities when economic conditions improve. Full-Year Results For the full year 2008, JOE had a Net Loss of $(35.9) million, or $(0.40) per share, compared to Net Income of $39.2 million, or $0.53 per share, for the full year Full year 2008 results include the following charges which totaled $109.5 million, or $0.69 per share after tax: Pre-tax impairment charges totaling $60.4 million and pre-tax loss of $1.9 million related to abandoned property, or an aggregate of $0.35 per share after tax; The full-year 2007 results were affected by the following: Pre-tax impairment charges totaling $23.2 million, or $0.19 per share after tax, which includes $9.6 million recorded in discontinued operations; Summary Balance Sheet Assets December 31, 2008 December 31, 2007 Investments in real estate $890,600,000 $943,500, Also on February 24, 2009, St. Joe filed its 2008 Annual Report with the SEC on Form 10-K. The Company s Form 10-K was signed by Defendants Greene and McCalmont, among others, and reaffirmed the Company s 2008 financial results, financial position, and the 24

25 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 25 of 60 reported value of the Company s investment in real estate. The Company s Form 10-K also contained Sarbanes-Oxley required certifications, which were substantially similar to the certifications contained in 33. With respect to the Company s asset impairment costs, St. Joe s 2008 Annual Report stated: If the market values of our homesites, our remaining inventory of completed homes and other developed real estate assets were to drop below the book value of those properties, we would be required to write-down the book value of those properties, which would have an adverse affect on our balance sheet and our earnings. Unlike most other real estate developers, we have owned the majority of our land for many years, having acquired most of our land in the 1930 s and 1940 s. Consequently, we have a very low cost basis in the majority of our lands. In certain instances, however, we have acquired properties at market values for project development. Also, many of our projects have expensive amenities, such as pools, golf courses and clubs, or feature elaborate commercial areas requiring significant capital expenditures. Many of these costs are capitalized as part of the book value of the project land. Adverse market conditions, in certain circumstances, may require the book value of real estate assets to be decreased, often referred to as a write-down or impairment. A write-down of an asset would decrease the value of the asset on our balance sheet and would reduce our earnings for the period in which the write-down is recorded. During 2008, we recorded total asset impairment costs of $60.5 million, $41.3 million of which primarily related to the write-down of capitalized costs at certain projects and the impairment of completed homes in several of our communities due to current market conditions. If market conditions were to continue to deteriorate, and the market values for our homesites, remaining homes held in inventory and other project land were to fall below the book value of these assets, we could be required to take additional write-downs of the book value of those assets. Impairment of Long-lived Assets and Goodwill. Our long-lived assets, primarily real estate held for investment, are carried at cost unless circumstances indicate that the carrying value of the assets may not be recoverable. If we determine that an impairment exists due to the inability to recover an asset s carrying value, a provision for loss is recorded to the extent that the carrying value exceeds estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell. 25

26 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 26 of 60 Depending on the asset, we use varying methods to determine fair value, such as (i) analyzing expected future cash flows, (ii) determining resale values by market, or (iii) applying a capitalization rate to net operating income using prevailing rates in a given market. The fair value determined under these methods can fluctuate up or down significantly as a result of a number of factors, including changes in the general economy of our markets, demand for real estate and the projected net operating income for a specific property. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management s best estimates about future sales prices and holding periods. The continued decline in demand and market prices for residential real estate during 2008 caused us to evaluate certain carrying amounts within our residential real estate segment. As a result of our property impairment analyses, we recorded aggregate impairment charges in our residential real estate segment of $40.3 million during In addition, we recorded a charge of $1.0 million related to the write down of a renegotiated builder note receivable during Asset Impairments The Company reviews its long-lived assets other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing service potential of the project and using management s best estimates about future sales prices and holding periods. The continued decrease in demand and market prices for residential real estate indicated that carrying amounts of certain assets within its residential real estate segment may not be recoverable. As a result of the Company s property impairment analyses for 2008, it recorded aggregate impairment charges of $41.3 million consisting of $12.0 million related to completed homes in several communities, $28.3 million related to the Company s SevenShores condominium project and $1.0 million related to the write down of a renegotiated builder note receivable. 26

27 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 27 of 60 The Seven Shores condominium project was written down in the fourth quarter of 2008 to approximate the fair market value of land entitled for 278 condominium units. This write-down was necessary because the Company elected not to exercise its option to acquire additional land under its option agreement. Certain costs had previously been incurred with the expectation that the project would include 686 units. Given the reduced potential scope of the project, the Company does not believe that those costs are recoverable. In 2007 the Company recorded impairments totaling $13.6 million due to the adverse market conditions for residential real estate. Approximately $5.2 million of the impairments related to capitalized costs at certain projects due to changes in development plans, approximately $7.8 million related primarily to the reduction in market value of completed homes in several communities, and approximately $0.6 million related to the modified terms of certain promissory notes. No impairment charges were recorded in The Company reviews its long-lived assets other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing service potential of the project and using management s best estimates about future sales prices and holding periods. The continued decrease in demand and market prices for residential real estate indicated that carrying amounts of certain assets within its residential real estate segment may not be recoverable. [Emphasis added.] 48. The Notes to Consolidated Financial Statements section of the 2008 Form 10-K also discussed asset impairments and the Company s segment results, and provided a schedule of the carrying value of the Company s residential real estate and accumulated depreciation. In relevant part, the Form 10-K stated: Segment Results Residential Real Estate Our residential real estate segment develops large-scale, mixed-use resort, primary and seasonal residential communities, primarily on our existing land. We own large tracts of land in Northwest Florida, including significant Gulf of Mexico beach frontage and waterfront properties, and land near Jacksonville, in Deland and near Tallahassee. Our residential sales have declined precipitously from 2006 to 2008 (91%) due to 27

28 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 28 of 60 the collapse of the housing markets in Florida. Inventories of resale homes and homesites remain high in our markets and prices have declined. With the U.S. and Florida economies battling rising foreclosures, severely restrictive credit, significant inventories of unsold homes and worsening economic conditions, predicting when real estate markets will return to health remains difficult. Currently, we do not expect any significant favorable change in these trends during In 1997, we recorded goodwill in our residential real estate segment in connection with our acquisition of certain assets of Arvida Company and its affiliates. Based on the continued worsening of the residential real estate markets in 2008 we have now determined that the remaining goodwill related to this acquisition is not recoverable based upon a discounted cash flow analysis. Accordingly, an impairment of $19.0 million was recorded in the residential real estate segment in the fourth quarter of 2008 to reduce the carrying amount of the goodwill to zero. Homes and homesites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed. The overall decrease in demand and market prices for residential real estate indicated that certain carrying amounts within our residential real estate segment may not be recoverable. As a result of our impairment analyses for 2008, we recorded aggregate impairment charges of $41.3 million, consisting of $12.0 million related to completed homes in several communities, $28.3 million related to our SevenShores condominium project, and $1.0 million related to the write down of a renegotiated builder note receivable. THE ST. JOE COMPANY SCHEDULE III (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2008 (in thousands) Initial Cost to Company Carried at Close of Period Description Encumbrances Land Buildings & Costs Land & Land Buildings and Total Accumulated Improvements Capitalized Improvements Improvements Depreciation Subsequent to Acquisition Bay County, Florida Land with infrastructure 3, ,323 32,962 32, Buildings 1,296 11,887 13,183 13,183 1,594 Residential 2,203 62,408 64,611 64, Timberlands 8,165 3,896 11,556 15,452 15, Unimproved land 1, ,520 1,520 Broward County, Florida Building 28

29 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 29 of 60 Calhoun County, Florida Buildings Timberlands 5,245 1,774 4,759 6,533 6, Unimproved land ,672 1,672 Duval County, Florida Land with infrastructure Buildings 2,743 2,743 2,743 2,095 Residential Timberlands Franklin County, Florida Land with infrastructure Residential 9,003 32,215 41,218 41,218 Timberlands 29 1,241 1,307 2,548 2, Unimproved Land Buildings 1,537 2,900 4,437 4, Gadsden County, Florida Land with infrastructure 3,290 3,290 3,290 Timberlands 943 1, ,780 1,780 9 Unimproved land 1, ,788 1,788 Gulf County, Florida Land with infrastructure 1,588 3,107 4,695 4,695 Buildings ,533 15,463 15,463 1,459 Residential 29, , , , Timberlands 12,704 5,238 15,352 20,590 20, Unimproved land ,199 1,199 Jefferson County, Florida Buildings Timberlands Unimproved land Leon County, Florida Land with infrastructure ,270 3,843 3, Buildings 5,718 11,412 17,130 17,130 3,559 Residential ,165 40, ,246 1,546 Timberlands 923 1,104 2,027 2, Unimproved land Liberty County, Florida Buildings Timberlands 2,851 3, ,697 3, Unimproved land Manatee County Land with infrastructure Buildings Residential 18, ,759 19, Osceola County Land with infrastructure Residential 393 5,588 5,606 11,194 11,194 Buildings Palm Beach County, Florida Land with infrastructure Residential Buildings Pinellas County, Florida Buildings 29

30 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 30 of 60 St. Johns County, Florida Land with infrastructure 1,029 4,744 5,773 5, Buildings 1,854 2,633 4,487 4,487 1,575 Residential 30,276 9,142 68,001 77,143 77,143 Polusia County, Florida Land with infrastructure Buildings 1,644 2,001 3,645 3, Residential 13,761 56,259 70,020 70,020 2,211 Wakulla County, Florida Land with infrastructure Buildings Timberlands Unimproved Land Walton County, Florida Land with infrastructure 56 3,533 3,589 3,589 Buildings 29,128 12,100 41,228 41,228 8,405 Residential 22, , , ,080 6,433 Timberlands ,008 1,362 1,362 7 Unimproved land Other Florida Counties Land with infrastructure Timberlands Unimproved land St. Joe s 2008 Form 10-K also contained a report from KPMG, the Company s public accounting firm, which stated that the Company s financial statements present fairly, in all material respects, the financial position of The St. Joe Company and subsidiaries as of December 31, 2008 and KPMG also expressed an unqualified opinion on the effectiveness of the Company s internal control over financial reporting: We have audited the accompanying consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders equity, and cash flow for each of the years in the three-year period ended December 31, In connection with our audits of the consolidated financial statements, we also have audited financial statement Schedule III Consolidated Real Estate and Accumulated Depreciation. These consolidated financial statements and financial statement schedule are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 30

31 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 31 of 60 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 presentation. 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 The St. Joe Company and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The St. Joe Company s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2009, expressed an unqualified opinion on the effectiveness of the Company s internal control over financial reporting. 50. On May 5, 2009, the Company issued a press release entitled The St. Joe Company (NYSE: JOE) Reports First Quarter 2009 Financial Results. The press release reported that the Company s investment in real estate was $888.1 million, and stated: The St. Joe Company (NYSE: JOE) today announced a Net Loss for the first quarter 2009 of $(11.7) million, or $(0.13) per share, which includes non-cash charges of $1.5 million, or $0.01 per share after tax. This compares to Net Income of $32.1 million, or $0.40 per share, for the first quarter of 2008, which included non-cash charges of $2.8 million, or $0.02 per share after tax. All per-share references in this release are presented on a diluted basis. Although Northwest Florida s real estate markets remain challenging, our residential communities have seen a relatively modest improvement in traffic and sales activity since the end of last year, said Britt Greene, JOE s President and CEO. However, it is too early to predict a bottom or a trend. The actions we have taken, such as adjusting pricing for our inventory of homes, has helped us to respond to a market that seems interested but remains timid. We are also seeing measured activity in our commercial markets throughout the region. Our primary focus is on planning for the opportunities presented by the upcoming opening of the new Panama City - Bay County International Airport. The airport, centrally located within our key land assets, is scheduled to open in

32 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 32 of 60 As we have said earlier, although we expect rural land sales to be our largest contributor to revenues in 2009, we plan to sell significantly fewer acres in 2009 than in 2008, said Greene. During the first quarter 2009, JOE generated approximately $4.2 million of revenue from rural land sales, compared to $91.1 million in the first quarter last year. While the average price per acre increased during the quarter, JOE is carefully monitoring the potential impact that the current economic environment may have on pricing or overall demand for rural land. Liquidity and Balance Sheet At March 31, 2009, JOE had cash and pledged treasury securities of $138.2 million, compared to debt of $49.2 million, $28.5 million of which is defeased debt. JOE s $100 million line of credit remains undrawn at March 31, In light of the current economic challenges, we strengthened our liquidity position by virtually eliminating our debt, enhancing our cash position and securing a new credit facility in early 2008, said William S. McCalmont, JOE s Executive Vice President and CFO. We continue to take a very prudent approach as we manage our assets and continue to reduce capital expenditures, as well as operating and overhead expenses. We have the flexibility to execute our strategy on our valuable land holdings proximate to the new international airport. 51. Also on May 5, 2009, St. Joe filed its Quarterly Report with the SEC on Form 10- Q. The Company s Form 10-Q was signed by Defendants Greene and Connolly, and reaffirmed the Company s quarterly financial results, financial position, and the reported value of the Company s investment in real estate. The Company s Form 10-Q also contained Sarbanes- Oxley required certifications, which were substantially similar to the certifications contained in 33. Additionally, the Form 10-Q discussed asset impairments, stating: The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management s best estimates about future sales prices and holding periods. In the first quarter of 2009 and 2008, the Company recorded impairment charges in the residential real estate segment of $0.2 million and $2.3 million, respectively, related to completed unsold homes. In addition as discussed in Note 3, the Company recorded a $1.3 million impairment charge in the first quarter of 2009 related to a renegotiated builder note receivable. 32

33 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 33 of On August 4, 2009, the Company issued a press release entitled The St. Joe Company (NYSE: JOE) Reports Second Quarter 2009 Financial Results. The press release reported that the Company s investment in real estate was $869.8 million, and stated: The St. Joe Company (NYSE: JOE) today announced a Net Loss for the second quarter 2009 of $(44.6) million, or $(0.49) per share, which includes pre-tax noncash charges of $64.7 million, or $0.43 per share after tax. This compares to a Net Loss of $(20.8) million, or $(0.23) per share, for the second quarter of 2008, which included significant charges of $35.3 million, or $0.24 per share after tax. All per-share references in this release are presented on a diluted basis. The remaining non-cash charges of $20.0 million pre-tax, or $0.13 per share aftertax, included the $7.4 million write-off of a note receivable from GVA Advantis, the $6.7 million write-down related to JOE s SevenShores condominium and marina development project, $5.5 million of impairments associated with homes and home sites in certain of JOE s communities and $0.4 million of impairments for the write-down of a builder note receivable. Net Loss for the first half of 2009 was $(56.3) million, or $(0.62) per share, compared to Net Income of $11.2 million, or $0.13 per share, for the first half of Included in the results for the first six months of 2009 were the following significant non-cash charges: Settlement charge on pension annuitization of $44.7 million, or $0.30 per share after-tax; and Pre-tax impairment charges of $21.5 million, or $0.14 per share after-tax. With economic challenges unabated, we continue to take a very prudent approach as we manage our assets and continue to reduce capital expenditures, as well as operating and overhead expenses, said William S. McCalmont, JOE s Executive Vice President and CFO. Because we have managed our balance sheet in a conservative manner, we now have the flexibility to execute our growth strategy as we begin to implement the initial development plans on our valuable land holdings near the new international airport. 53. Also on August 4, 2009, St. Joe filed its Quarterly Report with the SEC on Form 10-Q. The Company s Form 10-Q was signed by Defendants Greene and Connolly, and 33

34 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 34 of 60 reaffirmed the Company s quarterly financial results, financial position, and the reported value of the Company s investment in real estate. The Company s Form 10-Q also contained Sarbanes- Oxley required certifications, which were substantially similar to the certifications contained in 33. Additionally, the Form 10-Q discussed asset impairments, stating: Impairment Losses. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management s best estimates about future sales prices and holding periods. During the second quarter of 2009 we recorded impairment charges of $12.1 million in the residential real estate segment related to completed unsold homes and homesites and a writedown of our SevenShores condominium and marina development project. During the second quarter of 2008 we recorded impairment charges of $0.2 million related to completed unsold homes. In addition, we recorded a $7.4 million writeoff of the Advantis note receivable and a $0.4 million write-down of a builder note receivable during the second quarter of 2009 and a $0.8 million write-down of a builder note receivable during the second quarter of During the first six months of 2009 we recorded impairment charges of $12.4 million in the residential real estate segment related to completed unsold homes and homesites and a write-down of our SevenShores condominium and marina development project. During the first six months of 2008 we recorded impairment charges of $ 2.4 million related to completed unsold homes. In addition, we recorded a $7.4 million write-off of the Advantis note receivable and a $1.7 million write-down of builder notes receivable during the first six months of 2009 and a $0.8 million write-down of a builder note receivable during A continued decline in demand and market prices for our real estate products may require us to record additional impairment charges in the future. In addition, due to the ongoing difficulties in the real estate markets and tightened credit conditions, we may be required to write-down the carrying value of our notes receivable and such notes may not ultimately be collectible. 54. On November 3, 2009, the Company issued a press release entitled The St. Joe Company Reports Third Quarter 2009 Results. The press release reported that the Company s investment in real estate was $844.9 million, and stated: The St. Joe Company (NYSE: JOE) today announced a Net Loss for the third 34

35 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 35 of 60 quarter of 2009 of $(14.4) million, or $(0.16) per share, which included pre-tax charges of $12.9 million, or $0.08 per share after tax. This compares to a Net Loss of $(19.2) million, or $(0.21) per share, for the third quarter of 2008, which included pre-tax charges of $13.0 million, or $0.09 per share after tax. All pershare references in this release are presented on a diluted basis. St. Joe s third quarter earnings included $11.1 million of pre-tax, non-cash impairment charges including $9.0 million related to the settlement of the Saussy Burbank notes receivable, $2.0 million associated with various homes, homesites and other long-term assets and $0.1 million related to various builder notes receivable. During the third quarter, we continued to make progress in our efforts to stimulate demand for our land in Northwest Florida with an emphasis on our land proximate to the new international airport, said St. Joe s President and CEO Britt Greene. The addition of a vice president of economic development and, of course, Southwest Airlines game-changing announcement of planned service to the new airport will help to create value for our shareholders for many years to come. Year-to-Date Results Net Loss for the first nine months of 2009 was $(70.7) million, or $(0.77) per share, compared to Net Loss of $(8.0) million, or $(0.09) per share, for the first nine months of Included in the results for the first nine months of 2009 were significant pre-tax charges of $79.1 million, or $0.52 per share after tax, compared to pre-tax charges of $51.8 million, or $0.35 per share after tax, in the first nine months of Also on November 3, 2009, St. Joe filed its Quarterly Report with the SEC on Form 10-Q. The Company s Form 10-Q was signed by Defendants Greene and Connolly, and reaffirmed the Company s quarterly financial results, financial position, and the reported value of the Company s investment in real estate. The Company s Form 10-Q also contained Sarbanes- Oxley required certifications, which were substantially similar to the certifications contained in 33. Additionally, the Form 10-Q discussed asset impairments, stating: Impairment Losses. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset 35

36 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 36 of 60 may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management s best estimates about future sales prices and holding periods. During the third quarter of 2009: We recorded a $9.0 million write-down related to the settlement of the Saussy Burbank notes receivable, a $0.1 million write-down of builder notes receivable and a $1.1 million impairment charge related to other long-term assets; and We recorded a $0.9 million write-down related to completed unsold homes and homesites within other communities. During the third quarter of 2008 we recorded impairment charges of $1.3 million related to completed unsold homes. During the first nine months of 2009: We recorded a $6.5 million impairment charge related to completed unsold homes and homesites in our communities and a $6.7 million writedown of our SevenShores condominium and marina development project; and We recorded a $9.0 million write-down related to the settlement of the Saussy Burbank notes receivable, a $7.4 million write-off of the Advantis note receivable, a $1.9 million write-down of builder notes receivable and a $1.1 million impairment charge related to other long-term assets. During the first nine months of 2008 we recorded impairment charges of $3.8 million related to completed unsold homes and a $0.8 million write-down of a builder note receivable. A continued decline in demand and market prices for our real estate products may require us to record additional impairment charges in the future. In addition, due to the ongoing difficulties in the real estate markets and tightened credit conditions, we may be required to write-down the carrying value of our notes receivable and such notes may not ultimately be collectible. 56. On February 23, 2010, the Company issued a press release entitled The St. Joe Company Reports Full Year and Fourth Quarter 2009 Results. The press release reported that the Company s investment in real estate was $749.5 million, and stated: 36

37 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 37 of 60 The St. Joe Company (NYSE: JOE) today announced a Net Loss for the full year ended 2009 of $(130.0) million, or $(1.42) per share, compared to a Net Loss of $(35.9) million, or $(0.40) per share, for the year ended Included in the 2009 results were significant pre-tax charges of $163.1 million, or $1.07 per share after tax, compared to pre-tax charges of $109.5 million, or $0.69 per share after tax, in the year ended All per-share references in this release are presented on a diluted basis. St. Joe s President and CEO Britt Greene stated, 2009 was marked by many St. Joe accomplishments during a very turbulent economic year for the country. We significantly strengthened our balance sheet, reduced overhead costs and increased our financial flexibility. We also focused our efforts on positioning the Company to benefit from the May 2010 opening of the new Northwest Florida Beaches International Airport. We are energized by the significant opportunities the airport will present since it is surrounded by some of St. Joe s most valuable land holdings. Fourth Quarter 2009 Financial Results For the fourth quarter of 2009, St. Joe had a Net Loss of $(59.3) million, or $(0.65) per share, which included pre-tax charges of $84.0 million, or $0.56 per share after tax. This compares to a Net Loss of $(27.9) million, or $(0.31) per share, for the fourth quarter of 2008, which included pre-tax charges of $57.9 million, or $0.36 per share after tax. St. Joe s fourth quarter earnings included $73.3 million of pre-tax, non-cash impairment charges including $67.8 million related to the sale of the remaining assets at Victoria Park ($6.9 million recorded in discontinued operations), $3.5 million related to the sale of the St. Johns Golf & Country Club (recorded in discontinued operations), $1.1 million related to the sale of the assets acquired in connection with the settlement of our Saussy Burbank notes receivable, $0.8 million associated with various homes and homesites and $0.1 million associated with a builder note receivable. The Company also wrote-off $7.2 million of capitalized costs related to abandoned development plans in certain of our projects and incurred a restructuring charge of $3.5 million related to one-time termination benefits. 37

38 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 38 of 60 Summary Balance Sheet December 31, 2009 December 31, 2008 Assets Investments in real estate $749,500,000 $890,600, Also on February 23, 2010, St. Joe filed its 2009 Annual Report with the SEC on Form 10-K. The Company s Form 10-K was signed by Defendants Greene and McCalmont, among others, and reaffirmed the Company s 2009 financial results, financial position, and the reported value of the Company s investment in real estate. The Company s Form 10-K also contained Sarbanes-Oxley required certifications, which were substantially similar to the certifications contained in 33. With respect to the Company s asset impairment costs, St. Joe s 2009 Annual Report stated: If the market values of our homesites, our remaining inventory of completed homes and other developed real estate assets were to drop below the book value of those properties, we would be required to write-down the book value of those properties, which would have an adverse affect on our balance sheet and our earnings. Unlike most other real estate developers, we have owned the majority of our land for many years, having acquired most of our land in the 1930 s and 1940 s. Consequently, we have a very low cost basis in the majority of our lands. In certain instances, however, we have acquired properties at market values for project development. Also, many of our projects have expensive amenities, such as pools, golf courses and clubs, or feature elaborate commercial areas requiring significant capital expenditures. Many of these costs are capitalized as part of the book value of the project land. Adverse market conditions, in certain circumstances, may require the book value of real estate assets to be decreased, often referred to as a write-down or impairment. A write-down of an asset would decrease the value of the asset on our balance sheet and would reduce our earnings for the period in which the write-down is recorded. If market conditions were to continue to deteriorate, and the market values for our homesites, remaining homes held in inventory and other project land were to fall below the book value of these assets, we could be required to take additional write-downs of the book value of those assets. 38

39 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 39 of 60 Long-Lived Assets and Discontinued Operations The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing project and using management s best estimates about future sales prices and holding periods. Investment in Real Estate: We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management s best estimates about future sales prices and holding periods. The continued decline in demand and market prices for residential real estate during 2007 through 2009 caused us to reevaluate certain carrying amounts within our residential real estate segment, which resulted in the recording of significant impairment charges. [Emphasis added.] 58. The Notes to Consolidated Financial Statements section of the 2009 Form 10-K also discussed asset impairments and the Company s segment results, and provided a schedule of the carrying value of the Company s residential real estate and accumulated depreciation. In relevant part, the Form 10-K stated: Segment Results Residential Real Estate Our residential real estate segment typically plans and develops mixed-use resort, primary and seasonal residential communities of various sizes, primarily on our existing land. We own large tracts of land in Northwest Florida, including significant Gulf of Mexico beach frontage and waterfront properties, and land near Jacksonville and Tallahassee. 39

40 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 40 of 60 Our residential sales remain weak due to the collapse of the housing markets in Florida. Inventories of resale homes and homesites remain high in our markets and prices continue to decline. With the U.S. and Florida economies battling the adverse effects of home foreclosures, severely restrictive credit, significant inventories of unsold homes and recessionary economic conditions, predicting when real estate markets will return to health remains difficult. Currently, we do not expect any significant favorable changes in these market conditions during THE ST. JOE COMPANY SCHEDULE III (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2009 (in thousands) Initial Cost to Company Carried at Close of Period Description Encumbrances Land Buildings & Costs Land & Land Buildings and Total Accumulated Improvements Capitalized Improvements Improvements Depreciation Subsequent to Acquisition Bay County, Florida Land with infrastructure $3,358 $636 $ $31,955 $32,591 $ $32,591 $69 Buildings 13,639 11, ,054 11,494 25,548 1,855 Residential 22,762 1,300 44,843 67,524 1,381 68, Timberlands 7,976 3,896 11,271 15,167 15, Unimproved land 1, ,522 1,522 Broward County, Florida Building Calhoun County, Florida Buildings Timberlands 5,123 1,774 4,623 6,397 6, Unimproved land ,672 1,672 Duval County, Florida Land with infrastructure Buildings 2,752 2,752 2,752 2,152 Residential Timberlands Franklin County, Florida Land with infrastructure Residential 8,778 32,990 41,768 41, Timberlands 28 1,241 1,234 2,475 2, Unimproved Land Buildings 731 1,830 2,561 2, Gadsden County, Florida Land with infrastructure 3,292 3,292 3,292 Timberlands 923 1, ,748 1, Unimproved land 1, ,786 1,786 Gulf County, Florida Land with infrastructure 1,586 3,876 5,462 5,462 40

41 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 41 of 60 Buildings 2,548 3,392 36,389 2,983 39,346 42,329 3,403 Residential 26, , , , Timberlands 12,006 5,238 14,916 20,154 20, Unimproved land ,476 1,476 Jefferson County, Florida Buildings Timberlands Unimproved land Leon County, Florida Land with infrastructure ,324 3,897 3, Buildings 21,054 8,614 12,440 21,054 5,050 Residential ,063 28,794 4,327 33,121 1,180 Timberlands 923 1,004 1,927 1, Unimproved land Liberty County, Florida Buildings Timberlands 2,332 2, ,025 3, Unimproved land St. Johns County, Florida Land with infrastructure 1,016 1,016 1,016 Buildings Residential 7,385 8,932 65,559 74,491 74,491 Wakulla County, Florida Land with infrastructure Buildings Timberlands Unimproved Land Walton County, Florida Land with infrastructure 56 3,575 3,631 3,631 Buildings 3,754 71,057 22,472 52,339 74,811 11,426 Residential 6,298 87,467 93,765 93,765 6,923 Timberlands ,336 1,336 9 Unimproved land Other Florida Counties Land with infrastructure Timberlands Unimproved land Georgia Land with infrastructure 12,093 1,229 13,322 13, Buildings 36 1,831 1,867 1, Timberlands 6, ,920 6,920 3 Unimproved land TOTALS 41, ,857 22, , , , ,664 35,000 Selected Consolidated Financial Date The following table sets forth Selected Consolidated Financial Data for the Company on a historical basis for the five years ended December 31, This information should be read in conjunction with the consolidated financial statements of the Company (including the related notes thereto) and Management s Discussion and Analysis of Financial Condition and Results of 41

42 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 42 of 60 Operations, each included elsewhere in this Form 10-K. This historical Selected Consolidated Financial Data has been derived from the audited consolidated financial statements and revised for discontinued operations.... December 31, Balance Sheet Data: Investment in real estate $749,500 $890,583 $944,529$1,214,550 $1,038,810 Cash and cash equivalents 163, ,472 24,265 36, ,432 Property, plant and equipment, net 15,269 19,786 23,693 44,593 40,176 Total assets 1,098,140 1,218,278 1,263,966 1,560,395 1,591,946 Debt 39,508 49, , , ,446 Total equity 895, , , , , St. Joe s 2009 Form 10-K also contained a report from KPMG, the Company s public accounting firm, which stated that the Company s financial statements present fairly, in all material respects, the financial position of The St. Joe Company and subsidiaries as of December 31, 2009 and KPMG also expressed an unqualified opinion on the effectiveness of the Company s internal control over financial reporting: We have audited the accompanying consolidated balance sheets of The St. Joe Company and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in equity, and cash flow for each of the years in the three-year period ended December 31, In connection with our audits of the consolidated financial statements, we also have audited financial statement Schedule III Consolidated Real Estate and Accumulated Depreciation. These consolidated financial statements and financial statement schedule are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 presentation. 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 The St. Joe Company and subsidiaries as of December 31, 2009 and 2008, and the results of their operations 42

43 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 43 of 60 and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The St. Joe Company s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 23, 2010, expressed an unqualified opinion on the effectiveness of the Company s internal control over financial reporting. 60. On May 4, 2010, the Company issued a press release entitled The St. Joe Company Reports First Quarter 2010 Results. The press release reported that the Company s investment in real estate was $747.3 million, and stated: The St. Joe Company (NYSE: JOE) today announced a Net Loss for the first quarter ended March 31, 2010 of $(11.4) million, or $(0.13) per share, compared to a Net Loss of $(12.0) million, or $(0.13) per share, for the first quarter of A positive regional transformation is beginning as we get closer to the opening of the country s newest international airport, said St. Joe s President and CEO Britt Greene. The new airport with service provided by Southwest Airlines and Delta Air Lines significantly improves the accessibility to Northwest Florida, its workforce and its beaches. Our nearly debt free balance sheet, efficient cost structure and more than 300,000 acres of land within 40 miles of the new airport position us to take full advantage of the many opportunities that will arise for decades to come. With virtually no debt, streamlined operations and our announced relocation that will consolidate our corporate offices at the heart of our vast land holdings, we are well positioned to pursue the opportunities that will contribute to building shareholder value for many years in the future, said William S. McCalmont, St. Joe s Executive Vice President and CFO. 61. Also on May 4, 2010, St. Joe filed its Quarterly Report with the SEC on Form 10- Q. The Company s Form 10-Q was signed by Defendants Greene and Connolly, and reaffirmed the Company s quarterly financial results, financial position, and the reported value of the 43

44 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 44 of 60 Company s investment in real estate. The Company s Form 10-Q also contained Sarbanes- Oxley required certifications, which were substantially similar to the certifications contained in 33. Additionally, the Form 10-Q discussed asset impairments, stating: The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. The fair value of homes and homesites is determined based upon final sales prices of inventory sold during the period (level 2 inputs). For inventory held for sale, estimates of selling prices based on current market data are utilized (level 3 inputs). For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management s best estimates about future sales prices and holding periods (level 3 inputs). In the first quarter of 2010 and 2009, the Company recorded impairment charges in the residential real estate segment of $0.1 million and $0.2 million, respectively. Impairment Losses. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management s best estimates about future sales prices and holding periods. During the first quarter 2010 and 2009 we recorded impairment charges of $0.1 million and $0.2 million, respectively in the residential real estate segment. In addition, we recorded a $1.3 million write down of a renegotiated builder note receivable in our residential real estate segment during the first quarter of [Emphasis added.] 62. On August 5, 2010, the Company issued a press release entitled The St. Joe Company Reports Second Quarter 2010 Results. The press release reported that the Company s investment in real estate was $748.2 million, and stated: The St. Joe Company (NYSE: JOE) today announced a Net Loss for the second quarter ended June 30, 2010 of $(8.6) million, or $(0.09) per share, including a pre-tax restructuring charge of $1.2 million or $0.01 per share after tax. This compares to a Net Loss in the second quarter of 2009 of $(44.8) million, or $(0.49) per share, which included pre-tax non-cash charges of $64.7 million or 44

45 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 45 of 60 $0.43 per share after tax. Net Loss for the first half of 2010 was $(20.0) million, or $(0.22) per share. This compares to a Net Loss during the same period of 2009 of $(56.9) million, or $(0.62) per share, which included pre-tax non-cash charges of $66.2 million or $0.44 per share after tax. Segment Results During the second quarter in its residential business, St. Joe accepted contracts on 20 homesites throughout its communities at an average price of $135,400. The Company also closed on 11 homesites at an average price of $109,000 in the resort communities of WaterColor and WaterSound West Beach in Walton County and five homesites at an average price of $56,700 in the primary community of Hawks Landing in Bay County. With our nearly debt-free balance sheet, efficient cost structure and more than 300,000 acres of land within 40 miles of the new airport, we have positioned the Company to take advantage of the increased economic activity that we expect to realize as a result of the opening of the new airport, said William S. McCalmont, St. Joe s Executive Vice President and CFO. 63. Also on August 5, 2010, St. Joe filed its Quarterly Report with the SEC on Form 10-Q. The Company s Form 10-Q was signed by Defendants Greene and Connolly, and reaffirmed the Company s financial results, financial position, and the reported value of the Company s investment in real estate. The Company s Form 10-Q also contained Sarbanes- Oxley required certifications, which were substantially similar to the certifications contained in 33. Additionally, the Form 10-Q discussed asset impairments, stating: The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at lower of carrying value or fair value less costs to sell. The fair value of homes and homesites is determined based upon final sales prices of inventory sold during the period (level 2 inputs). For inventory held for sale, estimates of selling prices based on current market data are utilized (level 3 inputs). For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and 45

46 Case 3:10-cv RS -EMT Document 1 Filed 11/03/10 Page 46 of 60 complete the existing project and using management s best estimates about future sales prices and holding periods (level 3 inputs). The Company s assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs during the current period. For the six months ending June 30, 2010, the valuation adjustments and write-offs were $0.1 million.... Long-lived assets sold or held for sale with a carrying amount of $41.5 million were written down to their fair value of $29.2 million, resulting in a loss of $12.4 million, which was included in impairment losses for the six months ending June 30, Impairment Losses. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Homes and homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain and complete the existing project and using management s best estimates about future sales prices and holding periods. During the second quarter of 2010 and the first six months of 2010, we recorded impairment charges on homes and homesites of zero and $0.1 million, respectively, in the residential real estate segment. During the second quarter of 2010 we also recorded a $0.5 million write-down resulting from a renegotiated builder note receivable in the residential segment. During the second quarter of 2009 we recorded impairment charges of $12.2 million in the residential real estate segment related to completed unsold homes and homesites and a write-down of a condominium and marina development project which was sold in the third quarter of In addition, we recorded a $7.4 million write-off of the Advantis note receivable and a $0.4 million write-down of a builder note receivable. During the first six months of 2009 we recorded impairment charges of $12.4 million in the residential real estate segment related to completed unsold homes and homesites and a write-down of a condominium and marina development project. In addition, we recorded a $7.4 million write-off of the Advantis note receivable and a $1.7 million write-down of builder notes receivable. A continued decline in demand and market prices for our real estate products may require us to record additional impairment charges in the future. In addition, due to the ongoing difficulties in the real estate markets and tightened credit conditions, we may be required to write-down the carrying value of our notes receivable when such notes are determined to not be collectible. [Emphasis added.] 46