NOTES TO FINANCIAL STATEMENTS
December 31,
2015
and
2014
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NOTE 1
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DESCRIPTION OF PLAN
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The following description of The St. Joe Company Retirement Plan (the “Plan”), as amended and restated effective January 1, 2015, is provided for general information purposes only. Participants should refer to the Summary Plan document for a more complete description of the Plan’s provisions.
General
– The St. Joe Company (the “Company”) adopted the Plan, effective as of January 1, 1989. The Plan is a defined contribution plan that is intended to provide participating eligible employees of the Company the opportunity to accumulate funds for retirement. The Plan is for the exclusive benefit of the Company’s employees and eligible employees may begin participating in the Plan immediately after hire. The Plan and its related trust are intended to qualify as a profit-sharing plan and trust under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended (the “Code”), with a cash or deferred arrangement within the meaning of Code Section 401(k). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Contributions
– The Plan is contributory and provides for the automatic enrollment of new employees who do not elect to opt out of the Plan and an annual escalation feature of 1% per year up to 6% for participants who do not make an affirmative election otherwise. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans (“rollover”). The Company may make discretionary matching and non-elective contributions. Contributions are subject to certain limitations as prescribed by law.
In connection with the termination of The St. Joe Company Pension Plan (the “Pension Plan”) on March 27, 2013, the Plan became a “replacement plan,” within the meaning of the Code, and in December 2014, the Pension Plan transferred
$7,940,249
in surplus assets to the Plan so that such surplus assets could be used for future allocations to current and future Plan participants up to the next seven years. As required, the surplus assets that were contributed will be maintained in a suspense account until they are allocated to eligible Plan participants. The Company’s Retirement Plan Investment Committee is responsible for investing the funds in the suspense account. As of December 31, 2015 and 2014, there were assets of $7,072,427 and $7,944,652, respectively, of unallocated funds in the suspense account. During the year ended December 31, 2015, the Plan allocated $989,706 of the assets in the suspense account to eligible Plan participants. In March 2016, the Plan allocated $1,380,110 of the assets in the suspense account to eligible Plan participants. See Note 3,
Nonparticipant-Directed Investments
for additional information.
Vesting
–
All contributions elective, matching and non-elective are 100% vested upon contribution to a participant’s account.
Participant Accounts
– Each participant’s account is credited with (a) the participant’s contributions, if any, (b) the Company’s contributions, if any, (c) the allocation from the suspense account, (d) rollover contributions, if any, and (e) earnings and losses. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Administration
– The Plan is administered by The St. Joe Company Retirement Plan Investment Committee, which is the Plan Administrator. The Plan Administrator has engaged a third party, Prudential Bank and Trust Company, FSB, to provide recordkeeping and administrative services.
Administrative Expenses
– All third party administrative expenses are paid by the Plan, unless otherwise provided for by the Company.
Distributions
– Upon reaching age 59 1/2, retirement, permanent disability, termination or death, benefits can be received in a lump sum payment. Alternatively, based on a participant’s election, the Plan can establish a monthly payment schedule to distribute the benefits to the participant over a period of time. Hardship withdrawals are available if the participant meets certain criteria.
Investments
– As of December 31, 2015, The Plan’s assets were held and invested by Prudential Bank and Trust, FSB (the “Trustee”) based upon the participants’ elections. Participants direct the investment of their contributions and the Company’s contributions into various investment options offered by the Plan.
Notes Receivable From Participants
– Participants may borrow from their Plan accounts, subject to certain limitations and conditions established to comply with the current requirements of the Code. Participants may borrow a minimum of $1,000, up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. The loans are secured by the balance in the participant’s account and bear interest at a commercially reasonable rate of interest as determined by the Plan Administrator. Principal and interest, based upon the bank prime rate plus 1%, is set quarterly and paid ratably through biweekly payroll deductions.
Payment of Benefits –
Upon
t
ermina
ti
on of servi
ce
due
t
o death,
di
sab
i
lity
o
r r
et
ir
ement
,
a particip
ant
may elect to
r
eceive either a
l
ump sum amoun
t
equa
l t
o
t
he value of the part
icipant’s
v
es
te
d
i
n
t
erest in his o
r
he
r
account or annua
l
ins
tallmen
ts.
F
or term
ination
o
f
serv
ice
for other reasons, a
p
articipant may rece
ive t
he va
lue
of the ves
ted
interes
t i
n his o
r
he
r
acco
unt
as a
l
ump su
m
d
is
tribution.
Plan Termination
– The Company has established the Plan with the intent to maintain it indefinitely, but does retain the right, at any time, to discontinue contributions and terminate the Plan.
Upon termination of the Plan, any unallocated amounts shall be allocated to the accounts of all participants to the extent permitted by law. Upon such termination, the Trustee may direct the Plan Administrator to either distribute the full amount of benefits credited to each participant’s account or continue the trust and distribute the benefits in such manner as though the Plan had not been terminated.
Forfeitures
– At December 31,
2015
and
2014
, unclaimed forfeited amounts totaled $12,362 and $3,466, respectively. Forfeitures of $3,493 were used to pay Plan administrative expenses during 2015. Forfeitures are first used to pay Plan administrative expense and any remaining balance may be used to fund future employer contributions.
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NOTE 2
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Basis of Accounting
– The financial statements of the Plan are prepared on the accrual basis of accounting.
Investment Valuation and Income Recognition
– Investments are reported at fair value except for the investment in insurance contract, which is valued at contract value (Note 5). Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 4 for discussion of fair value measurements.
Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date and interest income is recognized on the accrual basis. Net depreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Notes Receivable from Participants
– Notes receivable from participants are measured at their unpaid principal balance. Delinquent participant loans are reclassified as distributions based on the terms of the plan document. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31,
2015
and
2014
. If a participant ceases to make loan repayments and the Plan Administrator deems the participant loan to be in default, the participant loan balance is reduced and a benefit payment is recorded.
Payment of Benefits –
Benefits are recorded when paid.
Expenses –
Certain expenses of ma
intaining
the Plan are paid directly by the Company and are excluded from these financial statements. Fees
r
elated to the adm
inistration
of notes
r
eceivable from participan
ts
are charged direct
ly
to the part
icipant’s
account and are included in administrative expenses
.
Investment related expenses are included in net depreciation of fair value investments.
Use of Estimates
– The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions to and deductions from net assets during the reporting period. Actual results could differ from those estimates.
Reclassification
– Certain amounts in the 2014 financial statements have been reclassified to conform to the 2015 financial statement presentation.
Recent Accounting Pronouncements
– In July 2015, the FASB issued Accounting Standards Update 2015-12,
Plan Accounting: Defined Benefit Pension Plans, Defined Contribution Pension Plans, Health and Welfare Benefit Plans: (“Part I”) Fully Benefit-Responsive Investment Contracts, (“Part II”) Plan Investment Disclosures, (“Part III”) Measurement Date Practical Expedient
(“ASU 2015-12”)
.
Part III is not applicable to the Plan. Part I eliminates the requirements that employee benefit plans measure the fair value of fully benefit–responsive investment contracts and provide the related fair value disclosures, rather these contracts will be measured and disclosed only at contract value. Part II eliminates the requirements to disclose individual investments that represent five percent or more of net assets available for benefits and the net appreciation or depreciation in fair value of investments by general type. Part II also simplifies the level of disaggregation of investments that are measured using fair value. Plans will continue to disaggregate investments that are measured using fair value by general type; however, plans are no longer required to also disaggregate investments by nature, characteristics and risks. Further, the disclosure of information about fair value measurements shall be provided by general type of plan asset. ASU 2015-12 is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. Part II is to be applied retrospectively. The Plan's management has elected to early adopt Part II and the adoption is reflected retrospectively in these financial statements. The adoption had no impact on the statements of net assets available for benefits as of December 31, 2015 and December 31, 2014 or the statement of changes in net assets available for benefits for the year ended December 31, 2015.
Subsequent Events
– In preparing the financial statements, subsequent transactions and events were evaluated for potential recognition. On January 15, 2016, the Trustee changed from Prudential Bank and Trust, FSB to Ascensus Trust Company in connection with The Vanguard Group, Inc. As of June 28, 2016, the date the financial statements were available for issuance,
there were no subsequent transactions and events other than disclosed in these financial statements.
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NOTE 3
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NONPARTICIPANT-DIRECTED INVESTMENTS
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Information about the net assets and the significant components of the changes in net assets relating to the nonparticipant-directed investments is as follows:
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December 31,
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Net Assets
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2015
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2014
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Guaranteed Income Fund (Note 5)
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$
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7,072,427
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$
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7,944,652
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Year Ended December 31, 2015
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Changes in Net Assets
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Interest income
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$
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117,481
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Transfers to participant directed investments
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(989,706
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)
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Net change
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$
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(872,225
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NOTE 4
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FAIR VALUE MEASUREMENTS
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FASB
Accounting Standards Codification
(“ASC”) 820,
Fair Value Measurements and Disclosures,
provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:
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Level 1
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Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
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Level 2
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Inputs to the valuation methodology include quoted prices for similar assets or liabilities in an active market; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
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Level 3
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Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
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The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31,
2015
and
2014
.
Mutual Funds:
Valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-end mutual funds that are registered with the Securities Exchange Commission. These funds are required to publish their daily net asset value and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded.
Common stock:
Valued at the closing price reported on the active market on which the individual securities are traded.
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets measured at fair value as of December 31,
2015
and
2014
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Assets at Fair Value as of December 31,
2015
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Level 1
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Level 2
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Level 3
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Total
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Mutual funds
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$
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6,541,623
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$
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—
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$
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—
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$
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6,541,623
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Common stock
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155,298
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—
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—
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155,298
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$
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6,696,921
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$
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—
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$
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—
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$
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6,696,921
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Assets at Fair Value as of December 31,
2014
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Level 1
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Level 2
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Level 3
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Total
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Mutual funds
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$
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7,678,153
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$
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—
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$
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—
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$
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7,678,153
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Common stock
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185,483
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—
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—
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185,483
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$
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7,863,636
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$
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—
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$
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—
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$
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7,863,636
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NOTE 5
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INVESTMENT IN INSURANCE CONTRACTS
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Guaranteed Income Fund
The Guaranteed Income Fund is a group annuity insurance product issued by Evergreen Group Annuity. The Guaranteed Income Fund does not operate like a mutual fund, variable annuity product, or conventional fixed rate individual annuity product. Under the group annuity insurance contract that supports this product, participants may ordinarily direct permitted withdrawal or transfers of all or a portion of their account balance at contract value within reasonable time frames. Contract value represents deposits made to the contract, plus earnings at guaranteed crediting rates, less withdrawals and fees. The repayment of principal and interest credited to participants is a financial obligation of the issuer. There are no reserves against contract value for credit risk of the contract issuer or otherwise. Given these provisions, the Plan considers this contract to be benefit responsive.
The concept of a value other than contract value does not apply to this insurance company issued general account backed Evergreen (no maturity date) Group Annuity spread product even upon a discontinuance of the contract in which case contract value would be paid no later than 90 days from the date the sponsor provides notice to discontinue. This annuity contract, and therefore the liability of the insurer, is not backed by specific securities of its general account, and therefore the market value of the securities in the insurer’s general account does not represent the fair value. The Plan owns a promise to receive interest at crediting rates which are announced in advance and guaranteed for a specified period of time as outlined in the group annuity contract. This product is not a traditional guaranteed investment contract, and therefore there are no known cash flows that could be discounted. As a result, the contract value amount materially approximates fair value. The Guaranteed Income Fund is included at its contract value in the statements of net assets available for benefits. The contract value was
$8,505,429
and
$9,437,262
at December 31, 2015 and 2014, respectively.
Interest is credited on contract balances using a single “portfolio rate” approach, where a single interest crediting rate is applied to all contributions made to the product regardless of the timing of those contributions. Interest crediting rate resets are reviewed on a semi-annual basis. These rates are established without the use of a specific formula. The minimum crediting rate under the contract was 1.50% for
2015
and
2014
. The average yield earned by the Plan and credited to the participants was 1.55% in
2015
and 1.70% in
2014
. As a result of current stable value product construction, no adjustment will be required to mediate between the average earnings credited to the Plan and the average earnings credited to the participants. Generally there are not any events that could limit the ability of the Plan to transact at contract value paid within 90 days or in rare circumstances, contract value paid over time. There are not any events that allow the issuer to terminate the contract and which require the Plan Sponsor to settle at an amount different than contract value paid either within 90 days or over time. At December 31,
2015
, there are no unfunded commitments and investments are redeemed on a daily basis.
The Plan operates under a nonstandardized adoption agreement in connection with a prototype retirement plan and trust sponsored by The Prudential Insurance Company of America. This prototype plan document has been filed with the Internal Revenue Service and has been issued a favorable opinion letter. The Plan Administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Code and that the Plan was qualified and the related trust was tax-exempt as of the financial statement date; therefore, no provision for income taxes is necessary.
Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31,
2015
, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions and currently has an audit in progress. Plan management, based on an assessment of all relevant factors, does not expect the audit will have a negative outcome.
The Plan Administrator believes it is no longer subject to income tax examination for years prior to 2012.
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NOTE 7
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RELATED PARTY TRANSACTIONS, PARTY IN INTEREST TRANSACTIONS AND ADMINISTRATIVE EXPENSES
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Prudential Bank & Trust Company is the trustee as defined by the Plan and has managed the investments. Therefore, transactions related to these investments qualify as permitted party-in-interest transactions.
Administrative expenses of the Plan were paid by the Plan Administrator. Certain administrative functions are performed by officers or employees of the Company. No such officer or employee receives compensation from the Plan.
As of December 31, 2015, Prudential Insurance Company of America provided certain administrative services to the Plan pursuant to a Master Plan Services Agreement (MSA) between the Company and Prudential Insurance Company of America. Prudential Insurance Company of America receives revenue from mutual fund and collective trust fund service providers for services Prudential Insurance Company of America provides to the funds. This revenue is used to offset certain amounts owed to Prudential Insurance Company of America for its administrative services to the Plan.
If the revenue received by Prudential Insurance Company of America from such mutual fund or collective trust fund service providers exceeds the amount owed under the MSA, Prudential Insurance Company of America remits the excess to the Plan's trust on a quarterly basis. Such amounts may be applied to pay Plan administrative expenses or allocated to the accounts of the participants. During 2015 there were excess amounts totaling $4,660. The Plan or Plan Sponsor may make a payment to Prudential Insurance Company of America for administrative expenses not covered by revenue sharing.
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NOTE 8
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RISKS AND UNCERTAINTIES
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The Plan’s investments include funds which invest in various types of investment securities and in various companies within various markets. Investment securities are exposed to several risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the Plan’s financial statements and supplemental schedule.