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 September 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 by check mark whether the registrant is a shell company
(as defined by rule 12b-2 of the Exchange Act).
Yes No X
------ -----
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
November 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 -
September 30, 2005 and December 31, 2004 3
Consolidated Statements of Income -
Three Months and Nine Months
Ended September 30, 2005 and 2004 4
Consolidated Statement of Shareholders' Equity and
Comprehensive Income
Three Months and Nine Months
Ended September 30, 2005 and 2004 5
Consolidated Statements of Cash Flows -
Three Months and Nine Months
Ended September 30, 2005 and 2004 6
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-19
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20
Item 4. Controls and Procedures 20
PART II -- OTHER INFORMATION 21
SIGNATURES 22
2
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
2005 2004
------------ -----------
ASSETS
Cash $ 3,604,674 $ 273,911
Restricted Cash 1,634,357 27,717,882
Investment Securities 16,879,903 3,642,785
Notes Receivable 490,000 4,425,252
Land and Development Costs 9,689,237 9,821,988
Intangible Assets 4,378,892 2,726,763
Other Assets 2,033,115 2,034,530
----------- -----------
$ 38,710,178 $ 50,643,111
----------- -----------
Property, Plant and Equipment:
Land, Timber and Subsurface Interests $ 2,255,979 $ 2,091,080
Golf Buildings, Improvements and Equipment 11,371,524 11,345,915
Income Properties Land, Buildings and Improvements 87,577,787 58,703,711
Other Furnishings and Equipment 1,821,044 1,228,400
----------- -----------
Total Property, Plant and Equipment 103,026,334 73,369,106
Less Accumulated Depreciation and Amortization (5,886,851) (4,791,243)
----------- -----------
Net - Property, Plant and Equipment 97,139,483 68,577,863
----------- -----------
TOTAL ASSETS $135,849,661 $119,220,974
=========== ===========
LIABILITIES
Accounts Payable $ 361,308 $ 405,609
Accrued Liabilities 6,138,637 3,895,125
Income Taxes Payable 1,195,296 658,040
Deferred Income Taxes 28,142,522 25,934,475
Notes Payable 7,353,955 8,716,976
----------- -----------
TOTAL LIABILITIES $ 43,191,718 $ 39,610,225
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock 5,667,796 5,641,722
Additional Paid in Capital 3,665,006 2,176,184
Retained Earnings 83,693,326 72,316,660
Accumulated Other Comprehensive Loss (368,185) (523,817)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 92,657,943 79,610,749
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $135,849,661 $119,220,974
=========== ===========
See accompanying Notes to Financial Statements.
3
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
----------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
--------------- ------------ ------------ -------------
$ $ $ $
INCOME:
Real Estate Operations:
Real Estate Sales
Sales and Other Income 3,735,564 1,949,400 26,989,590 4,937,891
Costs and Other Expenses (635,538) (676,455) (5,415,413) (2,209,006)
--------- --------- ---------- ----------
3,100,026 1,272,945 21,574,177 2,728,885
--------- --------- ---------- ----------
Income Properties
Leasing Revenues and Other Income 1,793,609 1,330,986 4,811,202 3,441,446
Costs and Other Expenses (314,467) (219,327) (887,730) (605,048)
--------- --------- ---------- ----------
1,479,142 1,111,659 3,923,472 2,836,398
--------- --------- ---------- ----------
Golf Operations
Sales and Other Income 920,836 710,610 3,648,055 3,335,126
Costs and Other Expenses (1,439,149)(1,303,469) (4,509,401) (4,206,995)
--------- --------- ---------- ----------
(518,313) (592,859) (861,346) (871,869)
--------- --------- ---------- ----------
Total Real Estate Operations 4,060,855 1,791,745 24,636,303 4,693,414
Profit on Sales of Other
Real Estate Interests 21,210 38,975 258,943 92,527
Interest and Other Income 207,070 164,760 676,116 538,087
--------- --------- ---------- ----------
Operating Income 4,289,135 1,995,480 25,571,362 5,324,028
General and Administrative (Expenses) 51,130 (814,493) (6,212,496) (3,561,892)
--------- --------- ---------- ----------
Income Before Income Taxes 4,340,265 1,180,987 19,358,866 1,762,136
Income Taxes (1,651,418) (448,452) (6,736,460) (669,607)
--------- --------- ---------- ----------
Net Income 2,688,847 732,535 12,622,406 1,092,529
========= ========= ========== ==========
PER SHARE INFORMATION:
Basic Income Per Share $0.47 $0.13 $2.23 $0.19
========= ========= ========== ==========
Diluted Income Per Share $0.47 $0.13 $2.20 $0.19
========= ========= ========== ==========
Dividends $0.08 $0.07 $0.22 $0.19
========= ========= ========== ==========
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 Income Equity Income
--------- -------- ----------- ---------- ------------ -----------
Balance,
December 31, 2004 $5,641,722 $2,176,184 $72,316,660 ($523,817) $79,610,749
Net Income 12,622,406 12,622,406 12,622,406
Other Comprehensive
Income:
Change in
Cash Flow Hedging
Derivative, Net
of Tax 155,632 155,632 155,632
----------
Comprehensive Income $12,778,038
==========
Stock Options 26,074 1,488,822 1,514,896
Cash Dividends
($.22 per share) (1,245,740) (1,245,740)
--------- --------- ---------- ---------- -----------
Balance,
September 30, 2005 $5,667,796 $3,665,006 $83,693,326 ($368,185) $92,657,943
========== ========== =========== ========== ===========
See accompanying Notes to Financial Statements.
5
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------------------
September 30, September 30,
2005 2004
------------ -------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 12,622,406 $ 1,092,529
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation and Amortization 1,277,275 964,412
Loss on Sale of Property, Plant and Equipment 19,916 15,146
Deferred Income Taxes 2,208,047 246,757
Non Cash Compensation 2,803,328 556,175
Decrease (Increase) in Assets:
Notes Receivable 3,935,252 2,532,299
Land and Development Costs 132,751 (1,377,609)
Other Assets 1,415 299,994
(Decrease) Increase in Liabilities:
Accounts Payable (44,301) 70,203
Accrued Liabilities 1,003,690 572,239
Income Taxes Payable 537,256 443,259
---------- ----------
Net Cash Provided By Operating Activities 24,497,035 5,415,404
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of Property, Plant, and Equipment (29,677,147) (20,539,475)
Intangible Assets (1,833,793) (1,589,081)
Decrease in Restricted Cash for Acquisitions
Through the Like-Kind Exchange Process 26,083,525 17,768,125
Net (Increase) Decrease in Investment Securities (13,237,118) 763,668
---------- ----------
Net Cash Used In Investing Activities (18,664,533) (3,596,763)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable 267,000 2,252,000
Payments on Notes Payable (1,630,021) (3,126,491)
Cash Proceeds from Exercise of Stock Options 107,022 22,968
Dividends Paid (1,245,740) (1,070,185)
---------- ----------
Net Cash Used In Financing Activities (2,501,739) (1,921,708)
---------- ----------
Net Increase (Decrease) In Cash 3,330,763 (103,067)
Cash, Beginning of Year 273,911 1,026,210
---------- ----------
Cash, End of Period $ 3,604,674 $ 923,143
========== ==========
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 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 whether 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
nine months ended September 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 during the fiscal second quarter of 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 Nine Months Ended
------------------------------------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
-------------- -------------- ---------- ---------
Income Available to Common
Shareholders:
Net Income $2,688,847 $ 732,535 $12,622,406 $1,092,529
========== ========= =========== ==========
Weighted Average Shares Outstanding 5,667,996 5,636,687 5,660,564 5,633,878
Common Shares Applicable to Stock
Options Using the Treasury Stock
Method 96,589 59,913 83,516 57,034
---------- --------- ----------- ----------
Total Shares Applicable to Diluted
Earnings Per Share 5,764,585 5,696,600 5,744,080 5,690,912
========== ========= =========== ==========
Earnings Per Share:
Basic $0.47 $0.13 $2.23 $0.19
========= ========= ========== ==========
Diluted $0.47 $0.13 $2.20 $0.19
========= ========= ========== ==========
4. Notes Payable. Notes payable consist of the following:
September 30, 2005
------------------------------
Due Within
Total One Year
---------- --------------
$10,000,000 Line of Credit $ -- $ --
Mortgage Notes Payable 7,353,955 231,777
---------- ----------
$ 7,353,955 $ 231,777
========== ==========
Payments applicable to reduction of principal amounts will be
required as follows:
Year Ending September 30
------------------------
2006 $ 231,777
2007 249,398
2008 268,359
2009 288,762
2010 310,715
2011 & thereafter 6,004,944
----------
$ 7,353,955
==========
For the three months ended September 30, 2005 and 2004, interest
expense was $168,803 and $173,467, respectively. In the first nine
months of 2005 and 2004, interest totaled $532,235 and $505,464,
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 Nine Months Ended
------------------------------ --------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
------------- ------------ ----------- ----------
Net Income:
As reported $2,688,847 $ 732,535 $12,622,406 $1,092,529
Deduct:
Stock-Based Compensation
Under Fair Value Based Method
(Net of Income Tax) (52,455) (43,268) (331,145) (185,359)
Add Back:
Stock Based Compensation
Under Intrinsic Value Method
(Net of Income Tax) (464,534) (56,042) 864,787 139,926
---------- ---------- ----------- ----------
Pro Forma Income $2,171,858 $ 633,225 $13,156,048 $1,047,096
========== ========== =========== ==========
Basic Income Per Share
As Reported $0.47 ($0.13) $2.23 $0.19
Pro Forma $0.38 ($0.11) $2.32 $0.19
Diluted Income Per Share
As Reported $0.47 ($0.13) $2.20 $0.19
Pro Forma $0.38 ($0.11) $2.29 $0.19
</Table>
During the quarter ended September 30, 2005, a stock option credit
(expense reduction), including expenses associated with stock
appreciation rights, resulted in a reduction to general and
administrative expenses totaling $1,163,481. This credit caused total
general and administrative expenses to be a credit of $51,130 during
the three month period ended September 30, 2005. For the nine-month
period ended September 30, 2005, stock option expense totaled $2,803,328.
9
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 Nine Months Ended
----------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Service Cost $ 60,680 $ 56,988 $ 182,040 $ 170,964
Interest Cost 86,011 77,416 258,033 232,248
Expected Return on Plan Assets (118,596) (111,056) (355,788) (333,168)
Net Amortization 3,432 3,433 10,296 10,299
--------- --------- -------- --------
Net Periodic Benefit Cost $ 31,527 $ 26,781 $ 94,581 $ 80,343
========= ========= ======== ========
</Table>
The plan is fully funded for 2005. As a result, no contribution is
anticipated for this period.
10
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 agriculture 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):
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2005
----------- ------------ ------------ ------------
Revenues:
Real Estate $ 3,735 $ 1,949 $ 26,990 $ 4,938
Income Properties 1,794 1,331 4,811 3,441
Golf 921 711 3,648 3,335
General, Corporate & Other 228 204 935 631
-------- -------- --------- --------
$ 6,678 $ 4,195 $ 36,384 $ 12,345
======== ======== ========= ========
Profit (Loss) Before
Income Tax:
Real Estate $ 3,100 $ 1,273 $ 21,574 $ 2,729
Income Properties 1,479 1,112 3,923 2,836
Golf (518) (593) (861) (872)
Corporate, General & Other 279 (611) (5,277) (2,931)
-------- -------- --------- --------
$ 4,340 $ 1,181 $ 19,359 $ 1,762
======== ======== ========= ========
At September 30,
2005
----------------
Identifiable Assets:
Real Estate $ 13,265
Income Properties 89,875
Golf 9,367
Corporate, General & Other 23,343
---------
$ 135,850
=========
Depreciation and Amortization:
Real Estate $ 77
Income Properties 825
Golf 315
Corporate, General & Other 60
---------
$ 1,277
=========
Capital Expenditures:
Real Estate $ 733
Income Properties 28,882
Golf 26
Corporate, General & Other 36
--------
$ 29,677
========
11
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.
12
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 agriculture 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.
13
During the third quarter of 2005, the Company sold lands for expansion
of the Daytona Beach Auto Mall along with bank sites in the LPGA Blvd.
area. 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, by the buyer of the property,
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, an industrial and distribution project,
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
agricultural land sales qualifying for income tax deferral. The
Company had approximately $91 million invested in 22 income properties
at September 30, 2005. During the first nine months of 2005, six
properties were purchased, including two properties in North Carolina
and one additional property in Atlanta, Georgia and the rest in
Florida. An additional $1.6 million, recorded as restricted cash on
the balance sheet, was held by a qualified intermediary at September
30, 2005, with one property under contract to close in the fourth
quarter. With this investment, base revenue approximating $7.4
million is expected to 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.
14
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 service
areas, smart growth, 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 September 30, 2005, the Company generated
profits totaling $2,688,847, equivalent to $.47 basic earnings per
share. This net income compares favorably to net income amounting to
$732,535,equivilant to basic earnings per share of $.13 realized in
2004's same period. These positive results were primarily achieved on
increased land sales profits and improved results from income
properties, with the addition of six new properties during the year.
Also contributing to the positive results were significantly lower
stock option expenses reflected in general and administrative expenses
on the Company's consolidated statement of income, as a result of the
change in the Company's stock price during the quarter.
Profits for the nine-month period amounted to $12,622,406, equivalent
to $2.23 basic earnings per share. Net income totaling $1,092,529,
equivalent to $.19 per share, was earned during 2004's first nine
months. Higher land sales volume along with increased profitability
from income properties as the result of the new properties acquired
during the year were primarily responsible for these positive results.
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.
15
The following is the calculation of EBDDT:
Three Months Ended
-------------------------------------
September 30, September 30,
2005 2004
-------------------------------------
Net Income $ 2,688,847 $ 732,535
Add Back:
Depreciation and Amortization 452,202 348,465
Deferred Taxes (406,804) 39,425
---------- ----------
Earnings Before Depreciation,
Amortization and Deferred Taxes $ 2,734,245 $1,120,425
========== ==========
Nine Months Ended
-------------------------------------
September 30, September 30,
2005 2004
-------------------------------------
Net Income $12,622,406 $1,092,529
Add Back:
Depreciation and Amortization 1,277,275 964,412
Deferred Taxes 2,208,047 246,757
---------- ----------
Earnings Before Depreciation,
Amortization and Deferred Taxes $16,107,728 $2,303,698
========== ==========
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 as they represent non-cash charges.
EBDDT totaling $2,734,245 for the third quarter represented a
substantial increase over 2004's third period EBDDT of $1,120,425 due
to the strong operating results, despite a negative adjustment for
deferred taxes. The negative adjustment for deferred taxes was 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. Also contributing to
the deferred tax adjustment was the recognition of a gain, for tax
purposes, on the collection on notes receivable, which had been
treated as an installment sale in prior years.
For the nine-month period, EBDDT totaled $16,107,728 and represented a
significant increase over 2004's EBDDT of $2,303,698 for the first
nine 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 the increase in deferred income taxes
on the deferral of gains on land sales, primarily in the first quarter
of 2005. Depreciation and amortization also rose with the addition of
six income properties during the first nine months of the year.
16
Real Estate Operations
- ----------------------
Real Estate Sales
- -----------------
The sale of 13 acres of land during the third quarter of 2005 produced
revenues and profits from real estate sales totaling $3,735,564 and
$3,100,026, respectively. During 2004's third quarter, revenues of
$1,949,400 were realized on the sale of 56 acres of property. Profits
of $1,272,945 were recognized during the third quarter of 2004.
Higher profit margin sales were closed in 2005's third quarter when
compared to the prior year's same period. Sales prices and profit
margins vary dependent on size, location, and intended use of the
parcels sold.
For the first nine months of 2005, profits from real estate sales
totaled $21,574,177 and represented a substantial improvement over
profits of $2,728,885 posted in 2004's same period. During 2005's
nine-month period, the sale of 214 acres of land produced revenues of
$26,989,590. Revenues amounting to $4,937,891 were recorded on the
sale of 75 acres of property in 2004's same period.
Income Properties
- -----------------
The acquisition of six properties in 2005's first nine months resulted
in a 35% increase in revenues and a 33% rise in profit from income
properties for the third quarter of 2005 when compared to the same
period of 2004. Revenues in 2005's period amounted to $1,793,609 and
generated profits totaling $1,479,142. Third quarter 2004 net income
totaled $1,111,659 on revenues of $1,330,986. Income properties'
costs and expenses rose 43% during the period when compared to the
prior year, primarily the result of increased depreciation expense
resulting from the acquisition of the properties.
For the nine-month period through September 30, 2005, profits from
income properties totaled $3,923,472 on revenues of $4,811,202. These
profits and revenues represented increases of 40% and 38%,
respectively when compared to 2004's same period results. During
2004's first nine months, profits of $2,836,398 were produced on
revenues of $3,441,446. These improvements, along with the 47% rise
in costs and expenses, again were the result of the addition of the
six properties acquired during 2005's first nine months.
Golf Operations
- ---------------
Golf operations bottom line results improved 13% during the third
quarter of 2005 when compared to the prior year. A loss of $518,313
was posted in 2005's third period compared to a loss of $592,859 one
year earlier. Revenues rose 30% to $920,836 with both golf and food
and beverage activities contributing to the increase. The number of
golf rounds played increased 32% with the average rate per round
played increasing 5%. Golf operations' costs and expenses rose 10% to
$1,439,149 on the greater activity, along with higher golf course
maintenance expenses. Profitability was negatively impacted in 2004
by the severe weather experienced in August and September, with three
hurricanes passing through the area during those months.
For the nine-month period golf operations posted a small improvement
in profitability with a loss of $861,346 recognized in 2005 compared
to a loss of $871,869 realized in 2004's first nine months. This
improvement was generated on a 9% gain in revenues offset by a 7% jump
in expenses for the nine-month period. The revenue gain, to
$3,648,055, was achieved on an 11% increase in golf activities
revenues and a 6% rise in food and beverage revenues. Total revenues
of $3,335,126 were recorded in 2004's nine-month period. The average
rate per round played increased 3% during the period while the number
of rounds played increased 7% to 45,463. The higher costs and
17
expenses were primarily the result of higher salaries and wages, cost
of sales, clubhouse repairs and maintenance, and golf course
maintenance expenses.
General Corporate and Other
- ---------------------------
Profits on the sale of other real estate interests totaled $21,210
and $258,943 for the third quarter and first nine months of 2005,
respectively. These profits were earned on the release of subsurface
interests on 1,358 acres of which 138 were released in the third
quarter. During the first nine months of 2004, profits on the release
of subsurface interest totaled $92,527 of which $38,975 were earned in
the third quarter. Releases were granted on 1,954 acres and 875
acres for the nine months and third quarter of 2004, respectively.
Interest and other income of $207,070 and $676,116 were earned in the
third quarter and first nine months of 2005, respectively. These
amounts represented a 26% increase for both periods compared to one
year earlier. Interest and other income during 2004's same periods
was $164,760 and $538,087. The increases for both periods was
attributable to increased interest earned on higher invested funds and
funds held by the qualified intermediary for reinvestment through the
like-kind exchange process. These gains were partially offset by
lower interest realized on mortgage notes receivable due to collection
of principal during 2005 and 2004.
For the third quarter of 2005,a decrease in the Company's stock price
resulted in a reversal of stock option expense, including expenses
associated with stock appreciation rights, totaling $1,163,481. This
credit from stock option expense caused total general and
administrative expenses to be a credit of $51,130 for the third
quarter of 2005. General and administrative expenses for 2004's third
quarter amounted to $814,493.
General and administrative expense rose substantially during the
nine-month period. The increase in costs was directly
attributable to higher stock option expense, as the result of the
increase in the Company's stock price, for the nine-month period.
General and administrative expenses were $6,212,496 and $3,561,892 for
the nine months ended September 30, 2005 and 2004, respectively.
During the first nine months 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
during the second quarter, resulting in a $695,000 positive adjustment
to the income tax provision.
Liquidity and Capital Resources
- -------------------------------
The Company's balance sheet remained strong at September 30, 2005,
with cash, restricted cash, and investment securities totaling
$22,118,934, while notes payable amounted to $7,353,955. During the
nine-month period, operating activities generated $24,497,035,
including the collection of notes receivable totaling $3,935,252.
Investing activities used $18,664,533 as funds held in restricted cash
were used to purchase property, plant and equipment, or returned, when
the Company was unable to find suitable investment property, and
transferred to short-term investment securities. The acquisition of
property, plant, and equipment, including the portion allocated to
intangible assets for the value associated with the leases in place on
income properties acquired totaled $31,510,940. Restricted cash
decreased $26,083,525 with the purchase of six income properties and
the return of approximately $12.1 million, which was unable to be
reinvested in properties, which met management's criteria and offset
18
by proceeds from 2005 closings. Financing activities used $2,582,687
during the period and included the payment of dividends totaling
$1,245,740, equivalent to $.22 per share, and the reduction in notes
payable totaling $1,363,021 including the payoff of a $1,200,000
mortgage note payable.
Capital requirements for the remainder of 2005 approximate $1.0
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 November for a price of $4.2 million.
Expenditures for road development and construction on the Company's
core Daytona Beach area lands, are the primary make-up of the
$1.0 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 September 30, 2005. In
addition to these sources, the Company believes that it 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. Income of $108,749 was
deferred during the first nine months of 2005. No income was deferred
for the first nine months of 2004, as sales 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 are 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 $599,405 has been established on the Company's balance
sheet. The cumulative change in fair value since inception, net of
applicable taxes, in the amount of $368,185 at September 30, 2005, has
been recorded as accumulated other comprehensive loss, a component of
shareholders' equity.
19
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
($7,353,955 outstanding at September 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 third 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.
20
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 through 5.
Not Applicable
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: November 8, 2005 By:/s/ William H. McMunn
----------------------------
William H. McMunn, President
and Chief Executive Officer
Date: November 8, 2005 By:/s/ Bruce W. Teeters
----------------------------
Bruce W. Teeters, Senior
Vice President - Finance
and Treasurer
22