UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
___ OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 0-5556
CONSOLIDATED-TOMOKA LAND CO.
(Exact name of registrant as specified in its charter)
Florida 59-0483700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1530 Cornerstone Blvd., Suite 100
Daytona Beach, Florida 32117
(Address of principal executive offices) (Zip Code)
(386) 274-2202
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined by rule 12b-2 of the Exchange Act).
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding
August 1, 2005
$1.00 par value 5,667,796
1
CONSOLIDATED-TOMOKA LAND CO.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2005 and December 31, 2004 3
Consolidated Statements of Income -
Three Months and Six Months
Ended June 30, 2005 and 2004 4
Consolidated Statement of Shareholders' Equity and
Comprehensive Income
Three Months and Six Months
Ended June 30, 2005 and 2004 5
Consolidated Statements of Cash Flows -
Three Months and Six Months
Ended June 30, 2005 and 2004 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 19
Item 4. Controls and Procedures 19
PART II -- OTHER INFORMATION 20-21
SIGNATURES 22
2
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
2005 2004
------------ -----------
ASSETS
Cash $ 1,208,825 $ 273,911
Restricted Cash 5,630,699 27,717,882
Investment Securities 16,730,505 3,642,785
Notes Receivable 2,763,279 4,425,252
Land and Development Costs 9,833,866 9,821,988
Intangible Assets 4,247,293 2,726,763
Other Assets 2,274,911 2,034,530
---------- ----------
$ 42,689,378 $ 50,643,111
---------- ----------
Property, Plant and Equipment:
Land, Timber and Subsurface Interests $ 2,101,209 $ 2,091,080
Golf Buildings, Improvements and Equipment 11,369,717 11,345,915
Income Properties Land, Buildings and Improvements 84,283,743 58,703,711
Other Furnishings and Equipment 1,415,279 1,228,400
---------- ----------
Total Property, Plant and Equipment 99,169,948 73,369,106
Less Accumulated Depreciation and Amortization (5,504,352) (4,791,243)
---------- ----------
Net - Property, Plant and Equipment 93,665,596 68,577,863
---------- ----------
TOTAL ASSETS $136,354,974 $119,220,974
=========== ===========
LIABILITIES
Accounts Payable $ 77,008 $ 405,609
Accrued Liabilities 6,446,748 3,895,125
Income Taxes Payable 1,629,659 658,040
Deferred Income Taxes 28,549,326 25,934,475
Notes Payable 8,609,293 8,716,976
---------- ----------
TOTAL LIABILITIES $ 45,312,034 $ 39,610,225
---------- ----------
SHAREHOLDERS' EQUITY
Common Stock 5,667,796 5,641,722
Additional Paid in Capital 4,421,269 2,176,184
Retained Earnings 81,457,902 72,316,660
Accumulated Other Comprehensive Loss (504,027) (523,817)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 91,042,940 79,610,749
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $136,354,974 $119,220,974
=========== ===========
See accompanying Notes to Financial Statements.
3
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
--------------------------- ------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
--------------- ---------- ----------- ---------
$ $ $ $
INCOME:
Real Estate Operations:
Real Estate Sales
Sales and Other Income 3,066,213 1,951,488 23,254,026 2,988,491
Costs and Expenses (1,155,821) (813,394) (4,779,875) (1,532,551)
--------- --------- ---------- ----------
1,910,392 1,138,094 18,474,151 1,455,940
--------- --------- ---------- ----------
Income Properties
Leasing Revenues and Other Income 1,580,338 1,210,446 3,017,593 2,110,460
Costs and Other Expenses (310,626) (213,241) (573,263) (385,721)
--------- --------- ---------- ----------
1,269,712 997,205 2,444,330 1,724,739
--------- --------- ---------- ----------
Golf Operations
Sales and Other Income 1,269,644 1,232,714 2,727,219 2,624,516
Costs and Other Expenses (1,552,703)(1,491,551) (3,070,252) (2,903,526)
--------- --------- ---------- ----------
(283,059) (258,837) (343,033) (279,010)
--------- --------- ---------- ----------
Total Real Estate Operations 2,897,045 1,876,462 20,575,448 2,901,669
Profit on Sales of Other
Real Estate Interests 214,733 17,225 237,733 53,552
Interest and Other Income 244,696 162,328 469,046 373,327
--------- --------- ---------- ----------
Operating Income 3,356,474 2,056,015 21,282,227 3,328,548
General and Administrative Expenses (3,124,627)(1,262,187) (6,263,626) (2,747,399)
--------- --------- ---------- ----------
Income Before Income Taxes 231,847 793,828 15,018,601 581,149
Income Tax Benefit (Expense) 619,279 (302,795) (5,085,042) (221,155)
--------- --------- ---------- ----------
Net Income 851,126 491,033 9,933,559 359,994
========= ========= ========== ==========
PER SHARE INFORMATION:
Basic Income Per Share $0.15 $0.08 $1.76 $0.06
========= ========= ========== ==========
Diluted Income Per Share $0.14 $0.08 $1.73 $0.06
========= ========= ========== ==========
Dividends $0.07 $0.06 $0.14 $0.12
========= ========= ========== ==========
See accompanying Notes to Financial Statements.
4
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED)
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Shareholders' Comprehensive
Stock Capital Earnings Loss Equity Income
--------- -------- ---------- ---------- ---------- -----------
Balance,
December 31, 2004 $5,641,722 $2,176,184 $72,316,660 ($523,817) $79,610,749
Net Income 9,933,559 9,933,559 9,933,559
Other Comprehensive
Income:
Change in
Cash Flow Hedging
Derivative, Net
of Tax 19,790 19,790 19,790
---------
Comprehensive Income $9,953,349
=========
Stock Options 26,074 2,245,085 2,271,159
Cash Dividends
($.14 per share) (792,317) (792,317)
--------- --------- ---------- ---------- -----------
Balance,
June 30, 2005 $5,667,796 $4,421,269 $81,457,902 ($504,027) $91,042,940
========= ========= ========== ========== ===========
See accompanying Notes to Financial Statements.
5
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
--------------------------
June 30, June 30,
2005 2004
---------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 9,933,559 $ 359,994
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation and Amortization 825,073 615,947
Loss on Sale of Property, Plant & Equipment 19,146 6,045
Non Cash Compensation 2,245,085 328,086
Decrease (Increase) in Assets:
Notes Receivable 1,661,973 2,532,299
Land and Development Costs (11,878) (864,837)
Other Assets (240,381) 366,587
(Decrease) Increase in Liabilities:
Accounts Payable (328,601) 216,384
Accrued Liabilities 2,571,413 432,579
Income Taxes Payable 971,619 123,566
Deferred Income Taxes 2,614,851 207,332
---------- ----------
Net Cash Provided By Operating Activities 20,261,859 4,323,982
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of Property, Plant, and Equipment (25,819,990) (20,464,529)
Intangible Assets (1,632,492) (1,589,081)
Decrease in Restricted Cash for Acquisitions
Through the Like-Kind Exchange Process 22,087,183 19,359,098
Net (Increase) Decrease in Investment Securities (13,087,720) 292,506
---------- ----------
Net Cash Used In Investing Activities (18,453,019) (2,402,006)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable 267,000 1,349,000
Payments on Notes Payable (374,683) (2,658,159)
Cash Proceeds from Exercise of Stock Options 26,074 12,452
Dividends Paid (792,317) (675,599)
---------- ----------
Net Cash Used In Financing Activities (873,926) (1,972,306)
---------- ----------
Net Increase (Decrease) In Cash 934,914 (50,330)
Cash, Beginning of Year 273,911 1,026,210
---------- ----------
Cash, End of Period $ 1,208,825 $ 975,880
========== ==========
See accompanying Notes to Financial Statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Interim Statements. The unaudited consolidated
financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and note disclosures, which are normally included in
annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America,
have been or omitted pursuant to those rules and regulations. The
consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary to present fairly the
Company's financial position and the results of operations for the
interim periods. The consolidated format is designed to be read
in conjunction with the last annual report. For further
information, refer to the consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2004.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Inter-company balances
and transactions have been eliminated in consolidation.
2. Income Taxes. The Company accounts for income taxes under Statement
of Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." In assessing the realizability of deferred tax assets,
management considers wether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. A
valuation allowance for deferred tax assets is provided when it is
more likely than not that some portion or all of the deferred tax
assets will not be realized. During the quarter ended June 30,
2005, the Company generated significant taxable income. Due to
this taxable income, the deferred tax asset valuation allowance
associated with charitable contribution carryforwards was
reversed. This resulted in a $695,000 positive adjustment
(income tax benefit) to the income tax provision for the quarter
and six months ended June 30, 2005.
3. Common Stock and Earnings Per Share. Basic earnings per common
share were computed by dividing net income by the weighted
average number of shares of common stock outstanding during the
period. Diluted earnings per common share are based on the
assumption of the conversion of stock options at the beginning of
each period using the treasury stock method at average cost for
the periods.
7
Three Months Ended Six Months Ended
------------------------- ----------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------- ---------- ---------- ---------
Income Available to Common
Shareholders:
Net Income $ 851,126 $ 491,033 $9,933,559 $ 359,994
========= ========= ========== ==========
Weighted Average Shares Outstanding 5,663,898 5,635,569 5,656,888 5,632,458
Common Shares Applicable to Stock
Options Using the Treasury Stock Method 88,158 59,671 74,587 55,566
--------- --------- ---------- ----------
Total Shares Applicable to Diluted
Earnings Per Share 5,752,056 5,695,240 5,731,475 5,688,024
========= ========= ========== ==========
Earnings Per Share:
Basic $0.15 $0.08 $1.76 $0.06
========= ========= ========== ==========
Diluted $0.14 $0.08 $1.73 $0.06
========= ========= ========== ==========
4. Notes Payable. Notes payable consist of the following:
June 30, 2005
------------------------------
Due Within
Total One Year
---------- --------------
$10,000,000 Line of Credit $ -- $ --
Mortgage Notes Payable 8,609,293 1,427,361
---------- ----------
$ 8,609,293 $ 1,427,361
========== ==========
Payments applicable to reduction of principal amounts will be
required as follows:
Year Ending June 30
------------------------
2006 $ 1,427,361
2007 244,772
2008 263,807
2009 283,520
2010 320,802
2011 & thereafter 6,069,031
----------
$ 8,609,293
==========
In the first six months of 2005 and 2004, interest totaled $336,662
and $346,062, respectively.
8
5. Stock Options. The Company applies the intrinsic value-based
method of accounting for stock options to its variable stock
compensation plan as allowed by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," and SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - An Amendment to
Financial Accounting Standards Board ("FASB") Statement No. 123."
Had compensation expense for the stock compensation plan been
determined in accordance with SFAS No. 123 using the fair value-
based method the Company's net income and income per share would
have been as follows:
<Table>
<Caption>
Three Months Ended Six Months Ended
------------------------------ -------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
------------- --------- ----------- ----------
Net Income:
As reported $ 851,126 $ 491,033 $ 9,933,559 $ 359,994
Deduct:
Stock-Based Compensation
Under Fair Value Based Method
(Net of Tax) (69,811) (50,269) (278,690) (142,091)
Add Back:
Stock Based Compensation
Under Intrinsic Value Method 696,003 113,851 1,329,321 195,968
(Net of Tax)
---------- --------- --------- ----------
Pro Forma Income $1,477,318 $ 554,615 $10,984,190 $ 413,871
========== ========= ========== ==========
Basic and Diluted Income Per Share
As Reported $0.15 $0.08 $1.76 $0.06
Pro Forma $0.26 $0.10 $1.94 $0.07
</Table>
6. Pension Plan. The Company maintains a defined benefit pension
plan. The pension benefits are based primarily on age, years of
service, and average compensation. The benefit formula provides for
a life annuity benefit.
Following are the components of the Net Period Benefit Cost:
Three Months Ended Six Months Ended
-------------------------- -------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
--------- --------- -------- --------
Service Cost $ 60,680 $ 56,988 $ 121,360 $ 113,976
Interest Cost 86,011 77,416 172,022 154,832
Expected Return on Plan Assets (118,596) (111,056) (237,192) (222,112)
Net Amortization 3,432 3,433 6,864 6,866
--------- --------- -------- --------
Net Periodic Benefit Cost $ 31,527 $ 26,781 $ 63,054 $ 53,562
========= ========= ======== ========
</Table>
The plan is fully funded for 2005. As a result, no contribution is
anticipated for this period.
9
7. Business Segment Data. The Company primarily operates in three
business segments: real estate, income properties, and golf.
Real estate operations include commercial real estate,
real estate development, residential, leasing properties for oil
and mineral exploration, and forestry operations.
The Company evaluates performance based on profit or loss from
operations before income taxes. The Company's reportable segments
are strategic business units that offer different products. They
are managed separately because each segment requires different
management techniques, knowledge, and skills.
Information about the Company's operations in different segments
is as follows (amount in thousands):
Quarter Ended Six Months Ended
-------------------------- -------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2005
----------- ----------- ----------- ----------
Revenues:
Real Estate $ 3,066 $ 1,951 $ 23,254 $ 2,988
Income Properties 1,580 1,210 3,018 2,110
Golf 1,270 1,233 2,727 2,625
General, Corporate & Others 460 180 707 427
-------- -------- --------- --------
$ 6,376 $ 4,574 $ 29,706 $ 8,150
======== ======== ========= ========
Profit (Loss) Before
Income Tax
Real Estate $ 1,910 $ 1,138 $ 18,474 $ 1,456
Income Properties 1,270 997 2,444 1,725
Golf (283) (259) (343) (279)
Corporate, General & Others (2,665) (1,082) (5,556) (2,321)
------- ------- --------- -------
$ 232 $ 794 $ 15,019 $ 581
======= ======= ========= =======
Identifiable Assets:
Real Estate $ 12,820
Income Properties 89,165
Golf 9,444
Corporate, General & Others 24,926
---------
$ 136,355
=========
Depreciation and Amortization:
Real Estate $ 46
Income Properties 529
Golf 210
Corporate, General & Others 40
---------
$ 825
=========
Capital Expenditures:
Real Estate $ 172
Income Properties 25,587
Golf 24
Corporate, General & Others 37
--------
$ 25,820
========
10
Income represents income before income taxes. Identifiable assets by
industry are those assets that are used in the Company's operations
in each industry. General corporate assets and assets used in
the Company's other operations consist primarily of cash, investment
securities and property, plant, and equipment.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS.
--------------------------
The Management's Discussion and Analysis of Financial Condition and
Results of Operations is designed to be read in conjunction with the
financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations in the last annual
report.
"Safe Harbor"
Certain statements contained in this Form 10-Q (other than the
financial statements and statements of historical fact), are forward-
looking statements. The words "believe," "estimate," "expect,"
"intend," "anticipate," "will," "could," "may," "should," "plan,"
"potential," "predict," "forecast," "project," and similar expressions
and variations thereof identify certain of such forward-looking
statements, which speak only as of the dates on which they were made.
Forward-looking statements are made based upon management's
expectations and beliefs concerning future developments and their
potential effect upon the Company. There can be no assurance that
future developments will be in accordance with management's
expectations or that the effect of future developments on the Company
will be those anticipated by management.
The Company wishes to caution readers that the assumptions, which form
the basis for forward-looking statements with respect to or that may
impact earnings for the year ended December 31, 2005, and thereafter,
include many factors that are beyond the Company's ability to control
or estimate precisely. These risks and uncertainties include, but are
not limited to, the market demand of the Company's real estate
parcels, income properties, timber and other products; the impact of
competitive real estate; changes in pricing by the Company or its
competitors; the costs and other effects of complying with
environmental and other regulatory requirements; losses due to natural
disasters; and changes in national, regional or local economic and
political conditions, such as inflation, deflation, or fluctuation in
interest rates.
While the Company periodically reassesses material trends and
uncertainties affecting its results of operations and financial
condition, the Company does not intend to review or revise any
particular forward-looking statement referenced herein in light of
future events.
OPERATIONS OVERVIEW
- -------------------
The Company is primarily engaged in real estate land sales and
development, investment of proceeds from sale of its forestry land in
income properties, and golf course operations. The Company has
substantial land holdings in the Daytona Beach, Florida area,
including its golf operations. The Company's lands are well located in
the growing central Florida Interstate 4 corridor, providing an
excellent opportunity for reasonably stable land sales in the near
term future and following years.
With its substantial land holdings in Daytona Beach, the Company has
parcels available for the entire spectrum of real estate uses. Along
with land sales, the Company selectively develops parcels primarily
for commercial uses. Sales and development activity on and around
Company owned lands have been strong in the last three years.
12
The sale of the second office building site in Cornerstone Office Park
closed during the second quarter of 2005. Construction of the 46,000
square-foot office building commenced upon closing, with completion
scheduled for the first quarter 2006. During the first quarter of
2005, the Company sold approximately 120 acres to Florida Hospital,
which has announced plans to construct a new hospital on the property
located north of the I-95 interchange at LPGA Blvd. Also during the
first quarter, a 54-acre residential site was sold. These development
and sales activities along with additional activities, which took
place prior to 2005 and continue at this time, including development
and sales within the 250-acre Gateway Commerce Park industrial and
distribution project, the development of the second phase of Daytona
Beach Auto Mall, the future relocation of Halifax Medical Center, the
sale of substantially all of the remaining land within the LPGA
International community, and sale of lands west of LPGA Blvd. for a
large-scale residential community, all in the LPGA corridor, tend to
create additional buyer interest and sales opportunities. A strong
backlog of contracts is in place for closing in 2005 and future years.
It is management's priority to convert this backlog into closings.
The Company continues to utilize its strategy of investing in income
properties through the like-kind exchange process with proceeds of
forestry land sales qualifying for income tax deferral. The Company
had approximately $89 million invested in 21 income properties at June
30, 2005. During the first six months of 2005, five properties were
purchased, including two properties in North Carolina and one
additional property in Atlanta, Georgia. An additional $5.6 million,
recorded as restricted cash on the balance sheet, was held by a
qualified intermediary at June 30, 2005, with one property under
contract to close in the third quarter. With this investment, base-
ease revenue in excess of $7 million will be generated annually. This
income source, along with additional net-lease property income, is
expected to decrease earnings volatility in future years and add to
overall financial performance. The Company is now in a position to
consider other forms of real estate investment to diversify and
enhance potential returns.
During 2004, the Company's 2002 Federal Income Tax Return was examined
by the Internal Revenue Service (IRS). A "Notice of Proposed
Adjustment" has been received by the Company. The IRS is questioning
the deferral of gains for tax purposes on three transactions, which
took place on lands within the Company's Development of Regional
Impact. Nine additional 2002 sales transactions, on which the Company
deferred gains, were not contested by the IRS. The proposed
adjustment totals approximately $7.7 million of taxable income. If
the IRS prevails, the adjustment would result in federal income
taxes becoming currently due in the amount of approximately
$2.7 million. The Company has adequate funds from cash and
investments, as they mature, operating activities and current
financing sources, to pay the taxes should they become currently due.
The adjustment would not have an impact on current earnings as it
would be a balance sheet reclassification from deferred income taxes
payable to current income taxes payable. The adjustment would have an
impact on future Earnings Before Depreciation, Amortization and
Deferred Taxes (EBDDT) discussed under Results of Operations. The
Company and its tax advisors believe that the income tax treatment for
these transactions was appropriate and are in the process of disputing
the proposed adjustment.
13
RISKS AND COMPETITION
- ---------------------
The real estate business is subject to a number of economic factors
including the impact of rising and falling interest rates, which
affect the ability of purchasers to obtain financing, and population
growth, which impacts supply and demand for new homes, as well as
goods and services, and hence land to meet those needs. Also
impacting the ability to sell land are the availability of roads and
utilities, environmental impacts, density limitations, urban growth
boundaries, and other factors associated with national, regional or
local economic and political conditions. All of these factors have an
impact on the Company's three lines of business and their success.
Most directly impacted is the real estate sales and development
business currently centered in the Daytona Beach market. Pricing
levels and changes by the Company and its immediate competitors can
affect sales, although the Company generally enjoys a competitive edge
due to low costs associated with long-time land ownership and a
significant ownership position in the immediate market.
RESULTS OF OPERATIONS
- ---------------------
Summary of Operating Results
For the three months ended June 30, 2005, profits totaling $851,126,
equivalent to $.15 per share, were posted. These profits represent a
73% increase over profits amounting to $491,033, equivalent to $.08
per share, earned in 2004's second quarter. The favorable results
were generated on greater earnings from land sales and increased
profits from income properties with the acquisition of five new
properties during the first half of the year. Also, contributing to
the improved results was a $695,000 favorable adjustment to the income
tax provision for the reversal of the valuation allowance on deferred
tax assets associated with charitable contribution carryforwards.
This reversal resulted from the reasonable assurance of generating
sufficient taxable income to utilize these carryforwards. Offsetting
these improvements were higher general and administrative expenses,
the result of a significant increase in stock option expense due to
the increase of the price of the Company's stock.
Strong profits realized on land sales and investment in income
properties also produced improved results for the six months ended
June 30, 2005, with net income of $9,933,559, equivalent to $1.76 per
share, posted for the six month period. These profits compared to
profits of $359,994, equivalent to $.06 per share, earned for the same
period one year earlier.
The Company also uses Earnings Before Depreciation, Amortization and
Deferred Taxes (EBDDT) as a performance measure. The Company's
strategy of investing in income properties through the deferred tax
like-kind exchange process produces significant amounts of
depreciation and deferred taxes.
14
The following is the calculation of EBDDT:
Three Months Ended
-------------------------------------
June 30, June 30,
2005 2004
-------------------------------------
Net Income $ 851,126 $ 491,033
Add Back:
Depreciation and Amortization 425,342 330,488
Deferred Taxes (2,383,638) 627,622
---------- ----------
Earnings (Loss) Before Depreciation,
Amortization and Deferred Taxes $(1,107,170) $1,449,143
========== ==========
Six Months Ended
-------------------------------------
June 30, June 30,
2005 2004
-------------------------------------
Net Income $ 9,933,559 $ 359,994
Add Back:
Depreciation and Amortization 825,073 615,947
Deferred Taxes 2,614,851 207,332
---------- ----------
Earnings Before Depreciation, Amortization
and Deferred Taxes $13,373,483 $1,183,273
========== ==========
EBDDT is not a measure of operating results or cash flows from
operating activities as defined by accounting principles generally
accepted in the United States of America. Further, EBDDT is not
necessarily indicative of cash availability to fund cash needs and
should not be considered as an alternative to cash flow as a measure
of liquidity. The Company believes, however, that EBDDT provides
relevant information about operations and is useful, along with net
income, for an understanding of the Company's operating results.
EBDDT is calculated by adding depreciation, amortization, and deferred
income taxes to net income (loss) as they represent non-cash charges.
Although earnings were strong in the second quarter, EBDDT was a loss
of $1,107,170, due to the reversal of deferred taxes on gains from
year end 2004 transactions for which the like-kind exchange process
was not completed as the Company was unable to identify sufficient
investment opportunities which met its investment criteria.
For the six month period EBDDT totaled $13,373,483 and represented a
significant increase over 2004's first six months. The jump in EBDDT
was the result of not only the increased income from higher land
sales volume and increased profits from income properties, but also
due to the increase in deferred income taxes on the deferral of gains
on land sales in the first quarter of 2005. Depreciation and
amortization also rose with the addition of five new income properties
during the first half of the year.
15
Real Estate Operations
- ----------------------
Real Estate Sales
- -----------------
The sale of 26 acres of land during the second quarter of 2005
produced profits of $1,910,392 on revenues totaling $3,066,213.
During 2004's same period, profits from real estate sales amounted to
$1,138,094 on revenues of $1,951,488 generated on the sale of 11 acres
of land.
Year-to-date through June 30, 2005, profits of $18,474,151 were
recorded on revenues of $23,254,026 from the sale of 200 acres. These
sales included the sale in the first quarter of the year of
approximately 120 acres north of the I-95 interchange at LPGA Blvd. to
Florida Hospital for the construction of a hospital complex. The
sale of 19 acres of property in 2004's first six months generated
revenues and profits totaling $2,988,491 and $1,455,940, respectively.
Income Properties
- -----------------
Revenues from income properties increased 31%, with profits rising 27%
in the second quarter of 2005, when compared to 2004's same period.
The improved results were due to the addition of five new income
properties during the first six months of the year, as well as five
properties acquired in 2004's first half. Revenues and profits
totaled $1,580,338 and $1,269,712, respectively for 2005's second
quarter. Profits from income properties of $997,205 were realized on
revenues amounting to $1,210,446 during 2004's second three-month
period. Income properties costs and expenses increased 46% with the
recording of additional depreciation expense associated with the new
properties.
For the six-month period of 2005, profits of $2,444,330 were posted on
revenues totaling $3,017,593. These totals represent a 43%
improvement over prior year revenues and a 42% gain in profitability,
when revenues and income of $2,110,460 and $1,724,739 were produced,
respectively. The addition of the five new properties in 2005, as
well as five properties acquired in 2004's first half, accounted for
these favorable results along with the 49% increase in costs and
expenses.
Golf Operations
- ---------------
Golf Operations posted a loss of $283,059 during 2005's second
quarter. This loss represented a 9% downturn from 2004's second
period loss of $258,837, despite a 3% rise in revenues. Revenues of
$1,269,644 were recorded in 2005 compared to 2004's second quarter
revenues of $1,232,714. Golf activities and food and beverage
operations both contributed to the revenue improvement. Both the
number of rounds played and the average rate per round played remained
stable during the period, with merchandise sales and other income
contributing to the golf revenue gain. Golf operations costs and
expenses increased 4% during the period primarily due to higher food
cost of sales, increased repairs and maintenance, and higher
compensation costs.
For the first six months of 2005, profitability from golf operations
decreased 23% with a loss of $343,033 realized. Revenues increased 4%
to $2,727,219 for the period, while expenses rose 6% to $3,070,252.
The increase in revenues was generated on a 5% gain in golf revenues
and stable food and beverage revenues. Golf revenues rose on a 4%
increase in the average rate per round played and stable number of
rounds played. The 6% rise in golf costs and expenses again was due
to increased compensation costs, food cost of sales and repair and
maintenance expenses. A loss of $279,010 was posted in 2004 six
months ended June 30 on revenues totaling $2,624,516.
16
General Corporate and Other
- ---------------------------
Profits on the sale of other real estate interests totaled $214,733
and $237,733 for the second quarter and first six months of 2005,
respectively. These profits were earned on the release of subsurface
interests on 1,220 acres of which 1,094 were released in the second
quarter. During the first half of 2004, profits on the release of
subsurface interest totaled $53,552 of which $17,225 were earned in
the second quarter. Releases were granted on 1,079 acres and 617
acres for the six months and second quarter of 2004, respectively.
Interest and other income of $244,696 in the second quarter
represented a 51% increase over the prior year's second quarter with
interest and other income of $469,046, representing a 26% gain for the
six months when compared to 2004. These increases resulted from
greater interest realized on funds held by the qualified intermediary
for reinvestment through the like-kind exchange process. The gains
were partially offset by lower interest on mortgage notes receivable
due to collection of principal during the six months of 2005 and
throughout 2004.
General and administrative expense rose substantially during both the
quarter and six-month periods. The increase in costs was directly
attributable to higher stock option expense as the result of the
increase in the Company's stock price. General and administrative
expenses were $3,124,627 and $6,263,626 for the second quarter and
first six months of 2005, respectively. For the second quarter of
2004, general and administrative expenses amounted $1,262,187, with
general and administrative expenses in the first six months of 2004
totaling $2,747,399.
During the second quarter of 2005, the Company generated significant
taxable income, and there is reasonable assurance the Company will
produce taxable income for the remainder of the year. Due to this
taxable income, the deferred tax asset valuation allowance associated
with charitable contribution carryforwards was reversed, resulting in
a $695,000 positive adjustment to the income tax provision for the
quarter and six month periods.
Liquidity and Capital Resources
- -------------------------------
At June 30, 2005, the Company had cash totaling $1,208,825, restricted
cash amounting to $5,630,699 and an additional $16,730,505 held in
investment securities, while notes payable totaled $8,609,293.
Restricted cash decreased approximately $22 million during the first
half of 2005, as $27 million was used to purchase five income
properties, with an additional $12 million returned to the Company as
management was unable to locate investment property which met its
portfolio criteria. Offsetting these uses of restricted cash was the
addition of $17 million for investment from 2005 closings. The $12
million returned from the qualified intermediary, along with proceeds
from current year sales which did not qualify as like-kind exchange
transactions were placed in primarily short-term investment
securities, accounting for the approximate $13 million increase in
that category.
Other significant sources and uses of cash during the period included
the collection of notes receivable of $1.7 million, the payment of
income taxes of $1.5 million dollars and the payment of dividends
totaling $.8 million dollars, equivalent to $.14 per share.
Capital requirements for the remainder of 2005 approximate $2.5
million in addition to the funds to be invested in additional income
properties as funds become available through the like-kind exchange
process. At this time the Company has one income property under
contract to close in August for a price of $3.5 million. Expenditures
17
for road development and construction on the Company's core Daytona
Beach area lands, along with development and construction of a flex
office/warehouse building, are the primary make-up of the $2.5 million
in capital requirements. Capital to fund these planned expenditures
will be provided from cash and investment securities on hand, as they
mature, operating activities and existing financing sources currently
in place. The Company had no outstanding balance on its $10 million
revolving line of credit at June 30, 2005. In addition to these
sources the Company has the ability to borrow against its income
properties, as they are currently free of debt.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The profit on sales of real estate is accounted for in accordance with
the provisions of SFAS No. 66, "Accounting for Sales of Real Estate."
The Company recognizes revenue from the sale of real estate at the
time the sale is consummated unless the property is sold on a deferred
payment plan and the initial payment does not meet criteria
established under SFAS No. 66, or the Company retains some form of
continuing involvement with the property. No income was deferred for
the first six months of 2005 or 2004, as sales have met the
established criteria.
In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," the Company has reviewed the
recoverability of long-lived assets, including real estate and
development and property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may or may not be recoverable. Real estate and
development is evaluated for impairment by estimating sales prices
less costs to sell. Impairment on income properties and other
property, plant, and equipment is measured using an undiscounted cash
flow approach. There has been no material impairment of long-lived
assets reflected in the consolidated financial statements.
At the time the Company's debt was refinanced, in April 2002, the
Company entered into an interest rate swap agreement. This swap
arrangement changes the variable-rate cash flow exposure on the debt
obligations to fixed cash flows so that the Company can manage
fluctuations in cash flows resulting from interest rate risk. This
swap arrangement essentially creates the equivalent of fixed-rate
debt. The above referenced transaction is accounted for under SFAS
No. 133, "Accounting for Derivative Instruments and Certain Hedging
Activities," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activity, an Amendment of SFAS No.
133." The accounting requires the derivative to be recognized on the
balance sheet at its fair value and the changes in fair value to be
accounted for as other comprehensive income or loss. A liability in
the amount of $820,556 has been established on the Company's balance
sheet. The change in fair value, net of applicable taxes, in the
amount of $504,027 at June 30, 2005 has been recorded as accumulated
other comprehensive loss, a component of shareholders' equity.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ---------------------------------------------------------
The principal market risk (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is
interest rates. The objective of the Company's asset management
activities is to provide an adequate level of liquidity to fund
operations and capital expansion, while minimizing market risk. The
Company utilizes overnight sweep accounts and short-term investments
to minimize the interest rate risk. The Company does not actively
invest or trade in equity securities. The Company does not believe
that its interest rate risk related to cash equivalents and short-term
investments is material due to the nature of the investments.
The Company manages its debt, considering investment opportunities and
risk, tax consequences and overall financial strategies. The Company
is primarily exposed to interest rate risk on its $8,000,000
($7,409,293 outstanding at June 30, 2005) long-term mortgage. The
borrowing bears a variable rate of interest based on market rates.
Management's objective is to limit the impact of interest rate changes
on earnings and cash flows and to lower the overall borrowing costs.
To achieve this objective the Company entered into an interest rate
swap agreement during the second quarter of 2002, which effectively
fixed the interest rate paid by the Company.
ITEM 4. CONTROLS AND PROCEDURES.
- ---------------------------------
As of the end of the period covered by this report, an evaluation was
carried out under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO"), of the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-
15(e) or 15d-15(e)under the Securities and Exchange Act of 1934 (the
"Exchange Act")). Based on that evaluation, the CEO and CFO have
concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. There
were no changes in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) or 15d-15(f)under the
Exchange Act) during the second fiscal quarter covered by this report
that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings to which
the Company or its subsidiaries is a party.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of equity securities by the issuer and
affiliated purchasers.
ISSUER PURCHASES OF EQUITY SECURITIES
-------------------------------------
Period (a) Total (b) Average Price (c)Total Number (d) Maximum Number
Number of Paid Per Share of Shares (or Approximate
Shares Purchased Dollar Value)
Purchased as Part of of Shares That
Publicly May Yet Be
Announced Purchased Under
Plans or The Plans or
Programs Programs
- -------------------------- ---------- -------------- ------------- -----------------
April 1 - April 30, 2005 300 $60.702 -- --
May 1 - May 31, 2005 -- - -- --
June 1 - June 30, 2005 -- -- -- --
---------- ------------- ------------- ----------------
Total 300 $60.702 -- --
========== ============= ============= ================
During April 2005, 300 shares of stock were delivered to the
Company for payment of the exercise price on the exercise of stock
options.
Item 3. Not Applicable
Item 4. Submission of matters to a vote of security holders.
The annual meeting of the Company's Shareholders was held
on April 27, 2005. The following votes were received for
each of the three nominees for Class II directors, each of
which was elected to a three-year term:
Number of Number of Votes
Nominee votes for Withheld
----------------- --------- ---------------
Byron E. Hodnett 5,104,128 69,644
Robert F. Lloyd 5,106,783 66,989
William H. McMunn 5,104,313 69,459
Item 5. Not Applicable
20
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 31.1 - Certification furnished pursuant to
Section 302 of the Sarbanes-Oxley
Act of 2002
Exhibit 31.2 - Certification furnished pursuant to
Section 302 of Sarbanes-Oxley Act of
2002.
Exhibit 32.1 - Certification pursuant to 18 U.S.C.
Section 1350, as Adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 32.2 - Certification pursuant to 18 U.S.C.
Section 1350, as Adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CONSOLIDATED-TOMOKA LAND CO.
(Registrant)
Date: August 9, 2005 By:/s/ William H. McMunn
----------------------------
William H. McMunn, President
and Chief Executive Officer
Date: August 9, 2005 By:/s/ Bruce W. Teeters
----------------------------
Bruce W. Teeters, Senior
Vice President - Finance
and Treasurer
22