UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 14A

SCHEDULE 14A INFORMATION

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THE ST. JOE COMPANY

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

To Be Held May 15, 2007

 

The 2007 Annual Meeting of Shareholders of The St. Joe Company will be held in the Riverfront Conference Room at 245 Riverside Avenue, Jacksonville, Florida 32202, on Tuesday, May 15, 2007, at 10:00 a.m., eastern time.

 

Shareholders will vote on the following matters:

 

 

Shareholders of record as of the close of business on March 30, 2007, are entitled to vote at the meeting.

 

Your vote is important. We urge you to sign, date and return the enclosed proxy card to vote your shares whether or not you plan to attend the meeting. This will ensure your shares will be represented at the meeting.

 

Our Annual Report on Form 10-K for the year ended December 31, 2006 is also enclosed.

 

By Order of the Board of Directors,

 

Christine M. Marx

General Counsel and Corporate Secretary

Dated: April 13, 2007

 

Table of Contents

 

The St. Joe Company

245 Riverside Avenue, Suite 500

Jacksonville, Florida 32202

 

PROXY STATEMENT

 

 

This proxy statement contains information about the 2007 Annual Meeting of Shareholders of The St. Joe Company.

 

The meeting will be held on Tuesday, May 15, 2007, beginning at 10:00 a.m., eastern time, in the Riverfront Conference Room at 245 Riverside Avenue, Jacksonville, Florida 32202.

 

This proxy statement is first being sent to our shareholders on or about April 13, 2007, in connection with the solicitation of proxies by the Board of Directors for the meeting.

 

 

 

You are entitled to vote at the meeting if our records show that you held shares of common stock of the Company as of March 30, 2007. At the close of business on March 30, 2007, a total of 74,370,854 shares of common stock of the Company were outstanding and entitled to vote. Each share of common stock has one vote. The enclosed proxy card shows the number of shares you are entitled to vote. Your individual vote is confidential and will not be disclosed to third parties except as required by law.

 

If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered the “registered stockholder” of those shares. We mail the proxy statement materials and our 2006 Annual Report on Form 10-K to you directly.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of the shares. In that case, the proxy materials and our 2006 Annual Report on Form 10-K were forwarded to you by your broker, bank or other nominee who is considered the registered stockholder. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by following the voting instructions included in their mailing.

 

Our shareholders will be voting on the following matters:

 

 

 

We are not aware of any other matters to be presented at the meeting except for those described in this proxy statement. If any other matters are properly presented at the meeting, the appointed proxies (who are named in your proxy card if you are a registered shareholder) will use their own judgment to determine how to vote your shares. If the meeting is continued or postponed, your common stock may be voted by the proxies at the new meeting as well, unless you revoke your proxy instructions.

 

If your shares are registered in your name, you may vote using any of the methods described below. If your shares are held in the name of a broker, bank or other nominee (often called “holding shares in street name”), your nominee will provide you with voting instructions.

 

By Internet or Telephone.  Our internet and telephone voting procedures for registered shareholders are designed to authenticate your identity, allow you to give your voting instructions and confirm that those instructions are properly recorded.

 

You may access the internet voting site at www.proxyvote.com. Please have your proxy card in hand when you go online. You will receive instructional screen prompts to guide you through the voting process. You also will have the ability to confirm your voting selections before your vote is recorded.

 

You can vote by calling toll free 1-800-690-6903 within the U.S., Canada and Puerto Rico. Please have your proxy card in hand when you call. You will receive voice prompts to guide you through the process, and an opportunity to confirm your voting selections before your vote is recorded.

 

Internet and telephone voting facilities for registered shareholders will be available 24 hours a day up until 11:59 p.m., eastern time, on May 14, 2007. If you vote on the internet or by telephone, you do not have to return your proxy card.

 

The availability of internet and telephone voting for beneficial owners will depend on the voting processes of your broker, bank or other nominee. We recommend that you follow the voting instructions in the materials that you receive from your nominee.

 

By Mail.  Simply mark, date and sign the proxy card and return it in the postage-paid envelope provided. If you want to vote in accordance with the Board’s recommendations, all you have to do is sign, date and return the proxy card. The named proxies will vote unmarked proxy cards per the Board’s recommendations.

 

If you are a registered shareholder and the prepaid envelope is missing, please mail your completed proxy card to The St. Joe Company, c/o Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717.

 

In Person at the Annual Meeting.  All shareholders may vote in person at the Annual Meeting. Voting your proxy by internet, telephone or mail does not limit your right to vote at the Annual Meeting. You also may be represented by another person at the Annual Meeting by executing a legally valid proxy designating that person to vote on your behalf. If you are a beneficial owner of shares, you must obtain a legally valid proxy from your broker, bank or

other nominee and present it to the inspector of elections with your ballot to be able to vote at the Annual Meeting. A legally valid proxy is an authorization from your broker, bank or other nominee to vote the shares held in the nominee’s name that satisfies Florida and Securities and Exchange Commission (“SEC”) requirements for proxies.

 

Yes. If you are a registered shareholder, you can change your proxy vote or revoke your proxy at any time before the Annual Meeting by:

 

 

If you are a beneficial owner of shares, you may submit new voting instructions by contacting your bank, broker or other nominee. You may also vote in person at the Annual Meeting if you obtain a legally valid proxy from the registered shareholder as described in the answer to the previous question.

 

Your personal attendance at the Annual Meeting does not revoke your proxy. Your last vote, prior to or at the Annual Meeting, is the vote that will be counted.

 

Proxies and voting directions that are signed and returned but do not contain voting instructions will be voted:

 

 

In order for us to conduct our Annual Meeting, a majority of the shares outstanding and entitled to vote as of March 30, 2007 must be present in person or by proxy. This is referred to as a quorum. Your shares are counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by internet, telephone or mail. We will count abstentions and broker non-votes (as defined below) for purposes of determining a quorum.

 

If you are a registered shareholder, your shares will not be voted unless you provide a proxy or vote in person at the Annual Meeting. If you hold shares through an account with a

bank, broker or other nominee and you do not provide voting instructions on a voting direction card, your shares may still be voted on certain matters.

 

Brokerage firms have authority under New York Stock Exchange (“NYSE”) rules to vote shares on routine matters for which their customers do not provide voting instructions at least 10 days before the meeting. The election of directors and the ratification of KPMG LLP as our independent auditors for the 2007 fiscal year are considered routine matters. If a proposal is not routine and the brokerage firm does not receive voting instructions from the beneficial owner, the brokerage firm cannot vote the shares on that proposal. Shares that a broker is not authorized to vote are known as “broker non-votes.” We do not count abstentions and broker non-votes as votes for or against any proposal. Broker non-votes, however, count for quorum purposes.

 

For Proposal 1, directors must be elected by a plurality of the votes cast at the meeting. Votes withheld for any director will not be counted.

 

Proposal 2, ratification of KPMG LLP as the Company’s independent auditors for the 2007 fiscal year, requires an affirmative vote of the majority of the votes cast at the Annual Meeting.

 

A representative of Broadridge Financial Solutions, Inc. will tabulate the votes and act as inspector of elections for the Annual Meeting.

 

We will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, our employees may solicit proxies personally and by telephone. No employee will receive any additional or special compensation for doing this. We will, upon request, reimburse brokers, banks and other nominees for their reasonable expenses in sending proxy materials to their principals and obtaining their proxies.

 

If you and other residents at your mailing address own shares of the Company’s common stock in “street” name, your broker or bank may have given you notice that each household will receive only one annual report and one proxy statement for each company in which you hold stock through that broker or bank. This practice is known as “householding.” Unless you responded that you do not wish to participate in householding, you will be deemed to have consented to participating, and only one copy of the Company’s 2006 Annual Report on Form 10-K and proxy statement will be sent to that address. Each shareholder will, however, receive a separate proxy card.

 

If you wish to receive your own set of the Company’s annual report and proxy statement for this year or for future years, or if you share an address with another shareholder and would like to receive only one set of these documents, please contact the Corporate Secretary of The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, Florida 32202 (904-301-4200), being sure to supply the names of all shareholders at the same address, the

name of the bank or brokerage firm, and the account number(s). The revocation of a consent to householding will be effective 30 days after the revocation notice is received.

 

A copy of our 2006 Annual Report on Form 10-K is included with this proxy statement. If you did not receive a copy, or would like an additional copy, we will provide one without charge, upon written request, to any registered or beneficial owner of common stock entitled to vote at the Annual Meeting. Requests should be made in writing addressed to The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, FL 32202, attn: Investor Relations, or by calling 904-301-4200.

 

Yes. This proxy statement and our 2006 Annual Report on Form 10-K are available on our website at www.joe.com/web/corporate/investorrelations/filings.aspx. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants, including the Company. Please note that the information on our website is not incorporated by reference in this proxy statement.

 

If you are a street name shareholder, you can elect to view future proxy statements and annual reports over the Internet instead of receiving paper copies in the mail. Please refer to the information provided by the institution that holds your shares and follow their instructions on how to elect to view future proxy statements and annual reports over the Internet.

 

Yes. Although the information contained on our website is not part of this proxy statement, you will find information about the Company, including our Board, charters of Board committees, excerpts from our Amended and Restated Articles of Incorporation and Bylaws,  Code of Conduct and Governance Principles and Policies at www.joe.com/web/corporate. Information about insider transactions is available on our website at www.joe.com/web/corporate/investorrelations/filings.aspx.

 

You may also view our online 2006 Annual Report to Shareholders on our website at www.joe.com, Keyword: NEXT.

 

Shareholders may obtain, without charge, hard copies of any of the above documents by writing to: The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, FL 32202, attn: Investor Relations.

 

The Board of Directors, comprised of ten members, is to be elected at this meeting. Each director elected shall hold office until the next annual meeting and the election of a successor. All of the nominees are current directors of the Company. Each has agreed to be named in this proxy statement and to serve if elected.

 

 

The Board recommends the shareholders vote FOR election of each of the director nominees listed above to serve until the next annual meeting and the election of a successor.

 

The Audit Committee has appointed the firm of KPMG LLP to audit our consolidated financial statements for the 2007 fiscal year and has directed that such appointment be submitted to our shareholders for ratification at the annual meeting. If the shareholders do not ratify the appointment of KPMG LLP as independent auditors, the Audit Committee will reconsider the appointment.

 

KPMG LLP has served as our independent auditors since 1990. It is expected that a representative of KPMG LLP will be present at the meeting to answer shareholders’ questions and will be given an opportunity to make a statement. For more information regarding KPMG’s 2006 engagement, see Independent Auditor Information on page 16.

 

The Board recommends the shareholders vote FOR ratification of KPMG LLP as our independent auditors for the 2007 fiscal year.

 

The Board of Directors does not know of any other business to be presented at the meeting. If, however, any other matters come before the meeting, it is the intention of the proxies to vote your shares in accordance with their own judgment in such matters.

 

Our Board of Directors has adopted corporate governance principles and policies to provide, along with the charters of the Board committees, a framework for the governance and management of the Company in accordance with high ethical standards and in recognition of its responsibilities to various constituencies. These principles are intended to reflect the Board’s long-standing commitment to the ethical conduct of our business in compliance with the letter and the spirit of applicable laws, regulations and accounting principles. Recognizing that corporate governance is subject to on-going and energetic debate, the Board reviews these principles and other aspects of the Company’s governance at least annually. Our corporate governance principles address the role of the Board, the composition of the Board, Board leadership, the functioning of the Board, the committees of the Board, management succession, ethics and conflicts of interest. These principles specifically provide that two-thirds of the members of the Board must be outside directors who meet the independence criteria established by the NYSE and that no more than one member of the Board will be an employee of the Company unless the Board, in its discretion, determines that an additional employee-director would facilitate the Company’s succession plan.

 

The top priority of our Board of Directors is the ethical management of the Company for profitable, long-term growth for the benefit of our shareholders. To that end, the Board has adopted corporate governance policies to align management and shareholder interests. Some of the more noteworthy of these corporate governance policies include:

 

 

 

Our Board of Directors has adopted a Code of Conduct applicable to all directors, officers and employees. Its purpose is to promote our commitment to the Company’s standards for ethical business practices. The Code of Conduct provides that it is our policy that our business be conducted in accordance with the highest legal and ethical standards. Our reputation for integrity is one of our most valuable assets, and each employee and member of the Board is expected to contribute to the care and preservation of that asset. Our Code of Conduct addresses a number of issues, including conflicts of interest, corporate opportunities, protection of company assets, confidentiality, insider trading, accounting matters, record keeping, working with governments, antitrust, legal compliance and fair dealing. Under our corporate governance principles, no waiver of any ethics policy is permitted for directors and executive officers. Our directors review the Code of Conduct annually to ensure that it appropriately addresses the business practices of the Company.

 

Our corporate governance principles and policies and our Code of Conduct are available on our website at www.joe.com/web/corporate/governance. We intend to post on our website information regarding any amendment to the Code of Conduct or any waiver granted under the Code of Conduct covered by Item 5.05 of Form 8-K. Please note that the information on our website is not incorporated by reference in this proxy statement.

 

Copies of our corporate governance principles and policies and our Code of Conduct are also available upon request by contacting us at the following address: The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, FL 32202, Attn: Corporate Secretary.

 

The Board met six times in 2006. Each member of the Board attended at least 75% of the meetings of the Board and committees on which he or she served in 2006. Non-management directors meet in executive session without management at each regularly scheduled Board meeting. In accordance with our corporate governance principles, the Chair of the Governance and Nominating Committee, Hugh M. Durden, presides as lead director during such sessions. Board members are expected to attend our annual meetings. At our 2006 annual meeting, all members of the Board were present.

 

The Board annually determines the independence of directors based on a review by the directors and the recommendation of the Governance and Nominating Committee. The Governance and Nominating Committee considers director independence when making its recommendations regarding director nominees. No director is considered independent unless the Board has determined that he or she has no material relationship with the Company, either directly or as a partner, shareholder, or officer of an organization that has a material relationship with the Company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among others.

 

To evaluate the materiality of any director relationship with the Company, the Board applies the categorical independence standards found in the NYSE listing guidelines. The NYSE guidelines state that a director will not be deemed independent in any of the following circumstances:

 

 

In addition to the NYSE standards for director independence, the Board has adopted an additional categorical standard for director independence. The Board has determined that

transactions with the Company involving a director or candidate for director or an entity with whom the director or candidate is affiliated that are conducted on an arm’s-length basis in the ordinary course of business will not be deemed to affect a director’s independence. This categorical standard for independence may be found in our Governance Principles on our website at www.joe.com/web/corporate/governance/principles.html.

 

Members of the Audit Committee, Compensation Committee and Governance and Nominating Committees must also meet all applicable independence tests of the NYSE, the SEC and the Internal Revenue Service.

 

In January 2007, all directors completed questionnaires which asked directors about their relationships with the Company (and those of their immediate family members) and other potential conflicts of interest. The responses to these questionnaires did not reveal any transaction or relationship between the directors and the Company that would disqualify the independence of any non-management director.

 

Based on the review and recommendations of the Governance and Nominating Committee, the Board determined that all of the nominees, other than Mr. Rummell, are independent as required by the NYSE in that they have no material relationships with the Company, either directly or indirectly. The Board also determined that all the members of the Audit, Compensation and Governance and Nominating Committees also meet the applicable independence tests. There were no categories or types of transactions, relationships or arrangements other than those described above considered by the Board in reaching its independence determination. With 90% independence, our Board exceeds the required number of independent directors set forth in our corporate governance principles (two-thirds) and the rules of the NYSE (majority).

 

 

The Board has the following four standing committees: Governance and Nominating Committee, Audit Committee, Compensation Committee and Finance Committee. Each committee is further described below. The Board of Directors has adopted a written charter for each committee. These charters are available on our website at www.joe.com/web/corporate/governance/charters.html. Please note that the information on our website is not incorporated by reference in this proxy statement. Copies of our Board committee charters are also available upon request by contacting us at the following address: The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, FL 32202, Attn: Corporate Secretary.

 

 

The current members of the Governance and Nominating Committee are Hugh M. Durden (Chair), Michael L. Ainslie, Dr. Adam W. Herbert, Jr., John S. Lord and William H. Walton, III. Each member is independent as required by the NYSE. The Governance and Nominating Committee met three times in 2006. The primary functions of the Governance and Nominating Committee are to:

 

 

In fulfilling its duty to recommend nominees for election as directors, the committee seeks a diverse group of candidates (in the broadest sense, including with respect to age, gender, ethnic background and national origin) who combine a broad spectrum of backgrounds, experience, skills and expertise and who would make a significant contribution to the Board, the Company and its shareholders. The committee considers, among other things, the following criteria:

 

 

The Governance and Nominating Committee would consider qualified candidates for directors suggested by our shareholders and would evaluate such candidates according to the same criteria used for other director nominees. To date, no suggestions from shareholders have been received. Shareholders can suggest qualified candidates for director by writing to The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, FL 32202, attn: Corporate Secretary. Submissions that meet the criteria outlined above, on our website and in the committee charter will be forwarded to the Chair of the Governance and Nominating Committee for further review and consideration.

 

The current members of the Audit Committee are Walter L. Revell (Chair), Delores M. Kesler, Thomas A. Fanning and Harry H. Frampton, III. Each of the committee members is independent as required by the NYSE. The Audit Committee met 12 times in 2006. The primary functions of the Audit Committee are to:

 

 

 

The Board has determined that:

 

 

See Audit Committee Report on page 15 for more information on the responsibilities of the Audit Committee.

 

The current members of the Compensation Committee are Michael L. Ainslie (Chair), Hugh M. Durden, Delores M. Kesler, and Walter L. Revell. Each member is independent as required by the NYSE. The Compensation Committee met eight times in 2006. The functions of the Compensation Committee are to review and approve compensation and benefits for the Company’s executive officers, and to supervise the administration of all employee benefit plans.

 

See the Compensation Discussion and Analysis (“CD&A”) on page 19, Compensation Committee Interlocks and Insider Participation on page 27 and the Compensation Committee Report on page 27 for more information regarding the Compensation Committee.

 

The members of the Finance Committee are John S. Lord (Chair), Thomas A. Fanning, Harry H. Frampton, III, Dr. Adam W. Herbert, Jr. and William H. Walton, III. The Finance Committee met four times in 2006. The functions of the Finance Committee are to:

 

 

Any shareholder or other interested party who desires to contact any member of the Board of Directors (including our lead director, Hugh M. Durden, or the non-management directors as a group) may do so in one of the following three ways:

 

 

Communications relating to relevant business matters are distributed by the Corporate Secretary to the members of the Board as appropriate depending on the facts and

circumstances outlined in the communication received. For example, any complaints regarding accounting, internal accounting controls and auditing matters would be forwarded by the Corporate Secretary to the Chair of the Audit Committee for review.

 

The role of the Audit Committee is to provide independent and objective oversight of the Company’s accounting functions and internal controls and to monitor the objectivity of the Company’s financial statements.

 

In the performance of its oversight function, the committee has reviewed and discussed the audited financial statements with management and our independent auditors, KPMG LLP. The committee has also discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as currently in effect, issued by the American Institute of Certified Public Accountants. The committee has received the written disclosures and the letter from KPMG LLP required by Independent Standards Board No. 1, Independence Discussions with Audit Committees, as currently in effect, and has discussed the independence of KPMG LLP with the auditors.

 

Finally, the committee also has received confirmation from management with respect to non-audit services provided by KPMG LLP to the Company and has considered whether the provision of non-audit services by the independent auditors to the Company is consistent with maintaining the auditor’s independence.

 

All members of the Audit Committee are financially literate under applicable NYSE rules, and Walter L. Revell and Thomas A. Fanning are audit committee financial experts as defined by the rules of the SEC. As described in the Audit Committee Charter, the committee’s responsibility is one of oversight. Members of the committee rely on the information provided to them and on the representations made by management, internal auditors and the independent auditors.

 

Based on the review and discussions described in this report, and subject to the limitations on the role and responsibilities of the committee referred to above and in the Audit Committee Charter, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the SEC.

 

Submitted by the Audit Committee:

 

Walter L. Revell, Chair

Thomas A. Fanning

Harry H. Frampton, III

Delores M. Kesler

 

The Audit Committee is responsible for approving every engagement of KPMG LLP to perform audit or permitted non-audit services on behalf of the Company or any of its subsidiaries before KPMG LLP is engaged to provide those services, subject to the de minimis exceptions permitted by the rules of the SEC.

 

 

In accordance with Audit Committee policy and legal requirements, all services to be provided by our independent auditors, including audit services, audit-related services, tax services and any other services, are required to be pre-approved by the Audit Committee prior to engagement. In most cases, pre-approval is provided by the full Audit Committee for a particular defined task or scope of work and is subject to a specific budget. For unexpected matters, the Chair of the Audit Committee has been delegated authority to pre-approve additional services, subject to certain dollar limitations, and the Audit Committee is then informed of each such service.

 

The following table sets forth fees billed to the Company by KPMG LLP in or for the fiscal years 2006 and 2005. The aggregate fees included in the Audit Fees category are fees billed for the fiscal years, and the aggregate fees included in each of the other categories are fees billed in the fiscal years. All fees described in the table below were approved by the Audit Committee in accordance with the Company’s pre-approval policy.

 

 

 

 

KPMG LLP also serves as independent auditors for The St. Joe Community Foundation (the “Community Foundation”). The Community Foundation paid KPMG LLP audit fees in the amount of $10,000 during 2006 and $8,000 during 2005. The Community Foundation also paid KPMG LLP fees in the amount of $3,000 for tax services in 2006 and $2,750 in 2005.

 

KPMG LLP also serves as independent auditors for three joint ventures in which the Company is a partner. These joint ventures paid KPMG LLP audit fees in the amount of $54,750 in 2006 and $48,000 in 2005; and tax fees of $5,250 in 2006 and $5,025 in 2005.

 

Related Person Transactions Policy and Procedures.  The Board has adopted a policy prohibiting transactions involving the Company and its employees, officers and directors (“related persons”), with certain exceptions. The policy is part of the Company’s Code of Conduct. The policy states that related persons may not have any direct or indirect material interest in any transaction, arrangement or relationship in which the Company, or a competitor of the Company, is a participant. Indirect interests include those through (1) an immediate family member; (2) any person acting on the related person’s behalf; or (3) any entity in which the related person or any of his or her immediate family members are an employee, officer, partner or principal or with which a related person or his or her immediate family members have a significant business relationship.

 

The Company’s policy prohibiting related person transactions does not apply to interests in transactions arising from (1) arms-length purchases or sales of goods, real property or services; (2) a related person’s position as a director of another corporation or organization that is a party to the transaction; (3) the direct or indirect ownership of less than a 5% equity interest in a public company which is a party to the transaction; and (4) Company benefit policies and programs.

 

Executive officers must disclose to the compliance officer any proposed related person transaction. The compliance officer will then report such proposed transaction to the Board. For related person transactions involving a director, the director must notify the Chairman of the Governance and Nominating Committee and the compliance officer, who will then bring the matter before the full Board. The Board will resolve any conflict of interest question involving an executive officer or director without compromising the Company’s interests. During its review, the Board will consider the nature of the related person’s interest in the transaction; the material terms of the transaction; whether or not the transaction would qualify for an exception to the policy; and any other matters the Board deems appropriate. Any director or executive officer involved in the transaction would be recused from all discussions and decisions about the transaction.

 

The Company’s legal staff is primarily responsible for the development and implementation of processes and controls to monitor and obtain information with respect to related person transactions. Although shareholders are not subject to the Company’s Code of Conduct, the Company does apply the policy against related person transactions to shareholders owning five percent or more of the Company’s outstanding common stock.

 

Reportable Transactions in 2006.  The Company had no transactions with related persons reportable under Item 404 of Regulation S-K during 2006.

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors, executive officers and beneficial owners of more than 10% of the Company’s common stock to file reports with the SEC and the NYSE reporting ownership of and transactions in common stock and to furnish copies of the reports to the Company. We believe all such reports were timely filed in 2006.

 

You may submit proposals on matters appropriate for shareholder action. These proposals must be made in accordance with the rules of the SEC and our Bylaws. A proposal for the

2008 Annual Meeting of Shareholders must be received by our Corporate Secretary at The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, Florida 32202 as follows:

 

1. Pursuant to the Company’s Bylaws, a shareholder proposal or a director nomination must be received no sooner than November 15, 2007 and no later than December 15, 2007, to be eligible to be presented from the floor for vote at the meeting (but not included in the Company’s 2008 proxy statement), or

 

2. Pursuant to the rules of the SEC, the proposal must be received by December 15, 2007, to be eligible for inclusion in the Company’s 2008 proxy statement.

 

 

Peter S. Rummell, 61, joined us in January 1997 as Chairman and Chief Executive Officer. From 1985 until 1996, Mr. Rummell was employed by The Walt Disney Company. His most recent position with Disney was as Chairman of Walt Disney Imagineering, the division responsible for Disney’s worldwide creative design, real estate and research and development activities. Mr. Rummell also served as President of Disney Development Company, the community development arm of Walt Disney, from 1992 to 1994 and as President of the Arvida Resort Communities Division during 1985. From 1983 until 1985, Mr. Rummell was Vice Chairman of the Rockefeller Center Management Corporation in New York City.

 

Wm. Britton Greene, 52, has served as Chief Operating Officer since August 2006. He joined us in January 1998 as Vice President of West Florida residential and resort operations and was appointed President of West Florida in 2000, President of St. Joe Towns & Resorts in February 2004 and President of St. Joe Commercial in March 2006. Prior to joining us, Mr. Greene was president of Markborough Florida, a real estate development firm, from 1992 to 1997. Mr. Greene also held management positions with a commercial mortgage company and an asset management services firm. Mr. Greene is a current member and past president of the Board of Trustees of The St. Joe Community Foundation.

 

Christopher T. Corr, 43, has served as Chief Strategy Officer since August 2006. He previously served as Senior Vice President — Strategic Planning since May 2004. He joined us in June 1998 as Vice President of Public Affairs. From 1992 to 1998, Mr. Corr was a senior manager with The Walt Disney Company. Mr. Corr served Disney Development Company and Walt Disney Imagineering in various positions, including as a developer of the town of Celebration, a 5,000-acre master planned community near Orlando. Mr. Corr has also served in a number of positions in state government, including as a member of the Florida House of Representatives from 1990 to 1992, the Florida Constitution Revision Commission from 1996 to 1998 and Governor Bush’s Growth Management Commission from 2000 to 2001. He presently serves on the Board of Directors of Enterprise Florida, Inc. and as a member of the Florida Century Commission.

 

Michael N. Regan, 59, has served as Chief Financial Officer since November 2006. He joined us in July 1997 as Vice President and was appointed Senior Vice President, Finance and Planning in February 1999. Prior to joining us, Mr. Regan was Vice President and Controller for Harrah’s Entertainment, Inc. Mr. Regan joined Harrah’s as a Senior Financial Analyst in Strategic Planning in 1980 and held several management positions in finance. Mr. Regan has announced that he plans to retire from the Company on September 30, 2007.

 

Christine M. Marx, 55, joined us as General Counsel and Corporate Secretary in March 2003. Prior to joining us, Ms. Marx was a partner in the law firm of Duane Morris LLP concentrating in securities and corporate law. From 1985 to 2000 she was a partner in the law firm of Edwards & Angell LLP.

 

The executive officers described above, other than Ms. Marx, are included in the Summary Compensation Table on page 28 and are sometimes referred to herein as our “named executives.” Also included as named executives are the following persons who no longer serve as executive officers of the Company: J. Everitt Drew, former President-Capital Region; Anthony M. Corriggio, former Chief Financial Officer; and Kevin M. Twomey, former President and Chief Operating Officer.

 

As a real estate development company, our mission is to create a family of places in Northwest Florida that inspire people and make the region an even better place to live, work and play. Going forward, it is critical that we continue to attract, motivate and retain highly talented individuals who are committed to our mission and long-term value creation for our shareholders. Our compensation program is an important tool to be used in achieving this goal. Specifically, we want our compensation program to:

 

 

To accomplish these objectives, the Company has implemented a compensation program for its executive officers consisting of base salaries, annual performance-based cash bonuses, equity awards and comprehensive fringe benefits. Each element of total compensation is linked to a compensation objective:

 

 

The Compensation Committee (the “Committee”) is charged with establishing, reviewing and approving the compensation of the Company’s executive officers. The Committee’s primary processes for overseeing executive compensation include:

 

 

As part of our analysis in determining executive officer compensation, we look to compensation practices at other companies that could be considered part of a “peer group” for JOE. These peer groups are important tools for reviewing compensation practices of companies competing with JOE for talent, resources, customers or investors. In the past, we have selected peer groups based on market capitalization, type of business (such as real estate development, land sales, timber or resort operations) and geographic location (such as the southeastern United States or the State of Florida). The type of peer group selected may differ depending on the position under review.

 

Towers Perrin typically assists us in the creation of peer groups. In addition, we purchase compensation survey data from third-party research firms. For example, we use ECS Watson Wyatt for market data compiled from many industries and broad geographic regions. We also purchase market data regarding commercial and residential development companies from CEL Associates and Lee Stephens. Management also collects compensation data published in public company proxy statements.

 

We last undertook a formal peer group analysis in December 2005. At that time, we directed Towers Perrin to create a peer group of companies within a market capitalization range of $1.5 to $5.0 billion (the “Market Cap Peer Group”). Towers Perrin assembled this data from its internal database of information collected through its annual surveys and proxy

statement analyses. Approximately 150 companies were included in the Market Cap Peer Group.

 

As part of our analysis, we compared the total compensation package for each executive officer with similar positions at other companies within the Market Cap Peer Group — a practice known as “benchmarking.” The positions of our executive officers were benchmarked within the peer group by comparing position descriptions and individual scopes of financial responsibility or oversight. The purpose of the benchmarking process is to ascertain whether or not our compensation practices are in line with other similarly situated companies.

 

We used the following guidelines for setting what we believed to be competitive compensation targets for 2006:

 

 

In determining compensation, special consideration was given for individual performance, experience and competency, as well as the nature of the position and its importance in our business.

 

We generally target base salaries to be at or above the median of base salaries at comparable companies. The base salaries established for each executive officer for 2006 were within 10% of the 50th percentile for corresponding position benchmarks within the Market Cap Peer Group described above. In setting base salaries, we consider how the base salary will affect total compensation, including bonus and equity grants and retirement plan contributions. For executive officers, we believe that a base salary of approximately 33% to 50% of the executive’s target total compensation reflects an appropriate mix of fixed compensation and performance-based compensation. We believe having a significant, or even a majority, of an executive’s total compensation linked to the performance of the Company serves to more effectively align executives’ and shareholders’ interests. For 2006, the proportion of base salary to target total compensation for our named executives ranged from 33% (for Mr. Greene) to 50% (for Mr. Rummell). In determining target total compensation for base salary analysis, the Committee did not value equity awards according to financial statement expense recognition as required in the Summary Compensation Table below.

 

The employment agreements for our named executives require that their base salaries cannot be decreased. However, base salaries are eligible for annual increases. Typically, an increase is initially proposed in the amount of the budgeted percentage increase projected for all employees. Individual performance and benchmarking statistics are then considered in order to determine if the actual increase for the named executive will be greater or less than the initial projection.

 

Base salaries may be increased more frequently than annually if an executive officer’s responsibilities change significantly during the year. For example, Mr. Greene and Mr. Corr both received base salary increases (an increase from $450,000 to $500,000 for Mr. Greene;

and from $309,000 to $335,000 for Mr. Corr) at the time of their promotions during 2006. These base salary increases were intended to recognize their larger roles and responsibilities due to their promotions and the reorganization of the Company’s operating units.

 

In order to promote the short-term performance of the Company, a significant proportion of each executive officer’s annual compensation is linked to the Company’s achievement of specific performance measures. Making such compensation “at risk” provides significant motivation for increasing individual and Company performance. The Committee has adopted an Annual Incentive Plan that is designed to reward short term performance by linking cash bonus awards with the achievement of annual Company performance goals.

 

Mechanics of the Plan.  At the beginning of 2006, the Committee assigned each executive officer a designated target award calculated as a percentage of the executive officer’s base salary. The bonus target awards were determined in accordance with peer group position benchmarks, as described above. The target awards set for named executives are based on percentages of base salaries. For 2006, these percentages were as follows: Rummell, 100%; Greene, 75%, Corr, 60%, Regan, 50%; Drew, 60%; and Corriggio, 65%.

 

At the conclusion of the annual performance period, the target award is used to calculate a projected award based on the achievement of Company performance goals. The plan is designed such that for each percentage variation from the applicable performance objective, the amount of the projected award is increased or decreased, as applicable, at twice the rate. For example, achieved goals that are 50% or less of target will result in a 0% projected award, and goals that are exceeded by 50% or more will result in a 200% projected award.

 

2006 Performance Goals.  In 2006, the performance goals for all executive officers, other than Mr. Drew, were tied 100% to the Company performance goal. Mr. Drew’s performance goals were comprised of 75% for a land sales division goal and 25% for the Company’s overall performance goal. Consistent with prior years, we decided to use an earnings per share target as the Company performance objective for 2006. We believed that an earnings per share target would motivate our executive officers to focus on both generating revenues and increasing operating efficiencies. A bottom-line results approach would also have the potential to create value for shareholders through an increase in the Company’s stock price. For Mr. Drew, the Committee decided that including a goal based on earnings before taxes for the Company’s land sales division would more effectively focus his efforts on enhancing the performance of the division for which he had direct operational responsibility.

 

2006 Results.  In December 2005, the Committee set the Company’s 2006 earnings per share goal at $2.10. The Company’s actual earnings per share for 2006 was $0.69. Since the Company’s earnings per share for 2006 was significantly below the established objective for the year, it did not meet the minimum threshold for bonus payments under the plan. Consequently, Mr. Rummell, Mr. Greene and Mr. Corr did not receive a cash bonus for 2006. The Committee, in its discretion, however, did award significantly reduced cash bonuses to certain other officers and employees for retention purposes. The Committee also awarded a $75,000 cash bonus to Mr. Regan in connection with his amended employment agreement (described below).

 

Section 162(m) Considerations for the Annual Incentive Plan.  The Company seeks to maximize the tax deductibility of compensation by making such compensation “performance-based” under Section 162(m) of the Internal Revenue Code. Therefore, the application of the components of the annual incentive plan will vary for executive officers whose target

compensation is projected to be in excess of $1 million for the year (Mr. Rummell and Mr. Greene). For those officers, the objective performance measure established by the Committee will determine the projected award. Individual performance objectives will be considered solely for purposes of reducing the projected award, if necessary.

 

Our long-term incentive program is designed to align executive and shareholder interests and encourage long-term executive performance and retention. Long-term incentives are currently delivered exclusively in the form of restricted stock and stock option awards. The Company maintains several substantially identical stock incentive plans that are administered by the Committee. Each of these plans has been approved by our shareholders. The stock incentive plans provide for awards of restricted shares, options (incentive or non-qualified) and stock appreciation rights (although no stock appreciation rights have been awarded to date).

 

Types of Awards.  For the past several years, we have used grants of restricted stock with time-based vesting as our primary method of delivering long-term incentive awards to our named executives. Restricted stock is an effective retention tool because it delivers value when the restrictions lapse even if the share price has decreased from the date of grant. Restricted stock grants also deliver value more efficiently than stock options, which benefits existing shareholders. In other words, granting restricted shares requires the issuance of fewer shares than granting options in order to deliver the same level of value to participants. Further, since the Company’s business is in a volatile and cyclical industry, we believe time-vested restricted stock is an important vehicle for securing leadership continuity. Because there are no performance-based requirements for vesting, this type of award helps moderate the potential retention risks associated with “down” economic cycles, when our executives may be most vulnerable to competitive offers.

 

In 2006, we reviewed our long-term incentive program and decided to reintroduce the grant of stock options as a key element of long term incentive compensation. Because stock options only have value to the extent the price of our stock appreciates after the date of grant, we believe that options have a much greater performance incentive inherent in their design. This incentive for stock price appreciation is a desirable feature, and we believe stock options should be a meaningful component of long-term compensation for executive officers. On the other hand, we continue to believe that restricted shares with time-based vesting should be a key component of our long-term incentive program for the reasons discussed above.

 

The mix of equity awards granted to executive officers in February 2007 was 50% stock options and 50% restricted stock. This long-term incentive mix encourages continued accountability of executives for stock price appreciation, aligns the financial interests of executive officers with shareholders, and provides stability of incentive payouts as an acknowledgement of the significant cyclicality of our business. The Company is currently considering the adoption of a long-term incentive plan with equity awards tied to the achievement of Company performance objectives.

 

Equity Grant Practices.  For the past several years, the Committee has awarded annual equity grants in September based on a percentage of each participant’s base salary. For the years 2003 through 2005, the Committee also chose to pay a portion (up to 35%) of bonuses awarded under the Company’s annual incentive plan in the form of equity. Going forward, the Company will not pay a portion of the annual incentive plan bonuses in the form of equity. This change is in recognition of the fact that requiring participants to receive a portion of their

annual cash bonus awards in equity is contrary to the purpose of annual cash bonus awards, which is to provide an immediate, current reward for past performance.

 

In 2006, the Committee granted stock options and restricted stock at its regularly scheduled quarterly meetings in February and September and at a special meeting in July. In 2007, however, the Committee plans to grant stock options and restricted stock only once, which grants were made at the Committee’s meeting in February. The Committee intends to continue this timing going forward. Quarterly meetings of the Board and the Committee for any year are generally scheduled in September of the prior year. Scheduling decisions are made without regard to anticipated earnings announcements or the release of other material, non-public information.

 

For two of the equity grants in 2006, the date the Committee took action was the same date as the grant date for the awards. At its February meeting, however, the Committee decided to approve awards of restricted stock to named executives, but the actual date of grant was established as March 3, 2006 in order to coincide with the payment of cash bonuses for 2005. Going forward, we intend for the date that the Committee takes action with respect to an award to be the grant date, except in new hire situations where the grant date could be a future employment commencement date.

 

Policies Regarding Equity Ownership.  Although we do not currently require our named executives to own any specified amount of Company stock, the Committee is considering the adoption of an equity ownership requirement. Mr. Rummell is currently subject to a stock retention requirement in his employment agreement, as described under Rummell Employment Agreement on page 26.

 

We do not backdate stock options or reprice stock options to account for decreases in our share price after the date of grant. We prohibit short sales on our stock, and the purchase or sale of options, puts, calls or other derivative securities that are directly linked to our stock, by named executives.

 

Determination of Awards.  The Committee, based on the recommendations of management, including Mr. Rummell and Mr. Greene, approves the executive officers and other employees who receive awards, the size of any award, and any vesting and other conditions. Both restricted stock and stock option awards are denominated in dollars, which amounts are converted to shares or options based on grant date valuations. Actual restricted shares granted are determined by dividing the approved award by the closing share price on the date of grant. The number of options granted is determined by dividing the approved grant value by the value of the options on the date of grant using the Black-Scholes valuation methodology.

 

2006 Equity Grants.  The Committee granted equity awards three times in 2006. First, the Committee granted awards of restricted stock to the named executives in March as a portion of each executive’s annual incentive bonus for 2005. In July 2006, the Committee granted special retention awards of restricted stock to four key executives as part of a succession planning initiative related to the Company’s top leadership. These awards were subject to time-based vesting and were calculated on the basis of a $1.5 million grant for Mr. Greene and $1.0 million grants for each of Messrs. Corr, Corriggio and Drew. The Committee wanted to provide these executive officers with a retention incentive as part of the Board of Directors’ succession planning process after the retirement of Mr. Twomey in May 2006. Because the key purpose of the grants was to motivate the executive officers to stay with the Company as part of its succession plan, the restricted shares were granted subject to time-based vesting.

 

In September 2006, in order to introduce a long-term performance element into the total compensation of the executive officers, the Committee decided to grant only stock options to the named executives who had received restricted share grants in July. These option grants were intended to provide incentives to the executive officers to enhance the performance of the Company. The September awards were calculated based on a percentage of the named executives’ base salaries determined in accordance with benchmarked long term incentive targets for like positions at certain companies within a market capitalization range of $1.5 to $3.5 billion. The award percentages ranged from 50% to 100% of base salary for the named executives.

 

Mr. Regan did not receive an equity grant in either July or September. He had announced his plans to retire from the Company in mid-2006, and we believed that additional equity grants would not serve to motivate Mr. Regan’s performance in the short term.

 

Mr. Rummell did not receive any equity grants in 2006. When he entered into his employment agreement with the Company in 2003, he was awarded 303,951 shares of restricted stock (101,317 shares of which have vested, and the remaining 202,634 shares are scheduled to vest in two equal installments on August 19, 2007 and 2008). Mr. Rummell is not currently expected to receive additional stock option or restricted stock awards during the term of his employment agreement, which expires on August 18, 2008.

 

The Company provides retirement benefits to the executive officers through a cash balance defined benefit pension plan (the “Pension Plan”), a 401(k) retirement plan, a non-qualified supplemental executive retirement plan (“SERP”) and a non-qualified deferred capital accumulation plan (“DCAP”). The terms of these plans and the benefits accrued to the executive officers under the plans are described below beginning on page 34. We believe that these retirement benefits are important tools for retaining and rewarding executive officers’ service to the Company by providing meaningful retirement savings through tax-favorable plans. Although we have no target percentage for retirement plans to contribute to total compensation, we do consider retirement benefits when setting an executive officer’s total compensation.

 

We provide our named executives with other benefits, reflected in the All Other Compensation column in the Summary Compensation Table below, that we believe are reasonable, competitive and consistent with our overall executive compensation program. The costs of these benefits constitute only a small percentage of each named executive’s total compensation, and include, among other things, financial planning expenses, relocation costs, premiums paid on life insurance policies and the cost of an annual physical. In July 2006, the Company replaced automobile allowances for named executives with corresponding increases in each of their base salaries in order to provide a more flexible benefit to the executives.

 

Consistent with prior years, during 2006 the Company provided Mr. Rummell and Mr. Twomey with the use of a corporate airplane for personal purposes for up to 60 hours of flight time. These hours of flight time are obtained by the Company through its participation in a fractional ownership program. Mr. Twomey was no longer entitled to use a corporate airplane for personal use after May 16, 2006, when he ceased to serve as an officer of the Company.

 

New Employment Agreements.  During 2006, the Committee, together with management and Towers Perrin, undertook a review of the Company’s employment and severance agreements for its executive officers. The terms of the existing agreements, which had been entered into over time, varied among executives. We believed that standardizing the form of agreement among executives would promote compensation fairness among executives and would help to ensure that the interests of the executives were appropriately aligned. As a result of this effort, the Committee approved a new form of employment agreement in July 2006 that was entered into by each named executive and certain other senior officers, excluding Mr. Rummell and Mr. Twomey whose existing employment agreements were unaffected.

 

The new employment agreements provide for a one-year term that automatically renews for additional one-year periods. During the employment period, the executive will be entitled to receive at least the base salary in effect for the executive on the date of the employment agreement, together with guaranteed participation in the Company’s annual bonus plan and other incentive, retirement and savings plans. The agreements also provide for an annual physical and up to $10,000 per year for financial planning expenses. The potential payments under the new employment agreements in connection with termination or a change in control are described under Employment Agreements of Messrs. Greene, Corr and Regan on page 40.

 

Regan Employment Agreement.  On January 5, 2007, the Company entered into an amendment to Mr. Regan’s employment agreement. The amendment provides for Mr. Regan’s continued employment until his retirement on September 30, 2007. Mr. Regan will serve as Chief Financial Officer until such time prior to his retirement date that a successor Chief Financial Officer is named. The amendment was needed in order to provide for additional compensation to Mr. Regan in consideration of the deferral of his retirement date at the Company’s request, and the additional responsibilities he assumed when he was appointed Chief Financial Officer in November 2006. The amendment provides for:

 

 

Rummell Employment Agreement.  In August 2003, we entered into an employment agreement with Mr. Rummell that expires on August 18, 2008. The agreement provides for a base salary of at least $766,782, subject to increase in accordance with our merit planning process. The agreement also provides that Mr. Rummell is eligible for performance-based bonuses under our annual incentive plan, with a target award equal to 100% of his base salary.

 

Mr. Rummell is not expected to receive stock option or additional restricted stock awards during the term of the agreement. Instead, in 2003 Mr. Rummell was awarded 303,951 shares of restricted stock vesting through 2008. Mr. Rummell agreed not to sell or transfer any of the restricted stock granted pursuant to his employment agreement, except for the number of shares necessary to pay taxes arising upon the lapse of restrictions on the restricted stock,

until the earlier of the termination of his employment by the Company, an unfriendly change of control, one year after a friendly change of control or August 18, 2008. The potential payments under Mr. Rummell’s employment agreement in connection with termination or a change in control are described under Potential Payments Upon Termination or Change in Control on page 37.

 

Compensation Committee Interlocks and Insider Participation

 

The Compensation Committee consists of independent members of the Board of Directors. No member of the Committee is or was during 2006 an executive officer of another company on whose board or its comparable committee one of the Company’s executive officers serves.

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on its review and discussions with management, the committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2007 proxy statement. This report is provided by the following independent directors, who comprise the committee:

 

Michael L. Ainslie, Chair

Hugh M. Durden

Delores M. Kesler

Walter L. Revell

 

The table below summarizes the total compensation paid or awarded to each of the named executives for the year ended December 31, 2006. For a description of the Company’s employment agreements with its named executives, see the CD&A above at page 26.

 

 

 

 

All Other Compensation Table.  The following table describes each component of the All Other Compensation column in the Summary Compensation Table.

 

 

 

The following table provides information about equity and non-equity awards granted to the named executives in 2006. The Company’s equity awards during 2006 consisted of restricted stock and stock options subject to time-based vesting. The Company did not grant any equity awards with varying, incentive-based payout amounts, and the columns related to such awards have been omitted from the table below.

 

 

 

 

The following table provides information on the holdings of restricted stock and stock options by the named executives at December 31, 2006. Each equity grant is shown separately for each named executive. The vesting schedule for each grant is shown in the footnotes to the table. No named executive had any unearned equity awards outstanding as of December 31, 2006, and the columns related to such awards have been omitted from the table below.

 

 

 

 

 

 

 

 

 

 

 

The following table sets forth certain information regarding exercises of stock options and the vesting of restricted stock held by our named executives during the year ended December 31, 2006.