UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
---- 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 Boulevard, Suite 100
Daytona Beach, Florida 32117
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code
(386) 274-2202
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF
THE SECURITIES EXCHANGE ACT OF 1934:
Name of each exchange on
Title of each class which registered
COMMON STOCK, $1 PAR VALUE AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
NONE
(Title of Class)
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 (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. YES X NO
-- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
---
Indicate by check mark whether the Registrant is an Accelerated Filer
(as defined in Exchange Act Rule 12b-2). YES X NO
--- ---
The aggregate market value of the shares of common stock held by non-
affiliates of the Registrant at June 30, 2004, was approximately
$212,811,357.
The number of shares of the Registrant's Common Stock outstanding on
March 1, 2005 was 5,653,595.
Portions of the Proxy Statement of Registrant, which the Company
expects will be dated March 25, 2005, are incorporated by reference in
Part III of this report.
"Safe Harbor"
Certain statements contained in this Form 10-K (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.
TABLE OF CONTENTS
PART I
Item 1. BUSINESS...............................................1
Item 2. PROPERTIES.............................................5
Item 3. LEGAL PROCEEDINGS......................................6
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....6
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES......................................7
Item 6. SELECTED FINANCIAL DATA................................8
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................9
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ..........17
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES...................17
Item 9A. CONTROLS AND PROCEDURES................................18
Item 9B. OTHER INFORMATION......................................18
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....19
Item 11. EXECUTIVE COMPENSATION.................................19
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.............19
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........19
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.................19
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.............20
Signatures.........................................................21
PART I
Item 1. Business
- ------ --------
Consolidated-Tomoka Land Co. (the "Company") is primarily engaged
in the real estate, income properties and golf businesses through its
wholly owned subsidiaries, Indigo Group Inc., Indigo Development Inc.,
Indigo International Inc., Indigo Group Ltd., W. Hay Inc., and Palms
Del Mar Inc. Real estate operations include commercial real estate,
land sales and development, residential, forestry operations and leasing
properties for oil and mineral exploration. Income properties primarily
consists of owning properties leased on a triple-net and double-net
basis. Golf operations consist of the operation of two golf courses,
clubhouse facility, and food and beverage activities. These
operations are predominantly located in Volusia County, Florida,
with various income properties located throughout Florida and Georgia.
The following is information regarding the Company's business segments.
The "General, Corporate and Other" category includes general and
administrative expenses, income earned on investment securities and other
miscellaneous income and expense items.
2004 2003 2002
(IN THOUSANDS)
--------------------------------
Revenues of each segment are as follows:
Real Estate $ 32,640 $25,496 $20,627
Income Properties 4,766 3,276 2,062
Golf 4,579 4,373 4,227
General, Corporate and Other 1,213 1,746 1,615
---------------------------------
$ 43,198 $34,891 $28,531
=================================
Operating income (loss) before income tax
for each segment is as follows:
Real Estate $ 24,939 $22,774 $16,350
Income Properties 3,940 2,681 1,662
Golf (1,199) (1,185) (1,264)
General, Corporate and Other (3,860) (2,842) (1,792)
---------------------------------
$ 23,820 $21,428 $14,956
=================================
Identifiable assets of each segment are as follows:
Real Estate $ 14,446 $18,635 $15,774
Income Properties 62,167 41,434 25,243
Golf 9,708 10,026 10,410
General, Corporate and Other 32,900 27,811 22,899
----------------------------------
$119,221 $97,906 $74,326
==================================
1
ITEM 1. BUSINESS (CONTINUED)
- ------ -------------------
Identifiable assets by segment are those assets that are used in each
segment. General corporate assets and those used in the Company's
other operations consist primarily of cash, investment securities,
notes receivable, and property, plant and equipment.
REAL ESTATE OPERATIONS
- ----------------------
COMMERCIAL DEVELOPMENT. In August of 1989, the Company reached an
agreement in principle with the Ladies Professional Golf Association
("LPGA") and the City of Daytona Beach, which called for the planning
and development of the site for the national headquarters of the LPGA
along with two championship golf courses. The mixed-use development
plan, on approximately 3,000 acres located immediately west of
Interstate 95 in Daytona Beach, Florida, and known as LPGA International,
additionally provided for a clubhouse, resort facilities, and residential
communities along with other commercial uses. The LPGA International
development is part of a 4,500-acre tract located both east and west of
Interstate 95, which received Development of Regional Impact ("DRI")
approval in 1993. The LPGA successfully relocated its headquarters to
Daytona Beach and occupies facilities constructed in 1996, within the
development. The official opening of the first LPGA International golf
course, constructed by the City of Daytona Beach, occurred in July 1994
with the second course constructed by the Company, opening in October
1998. The clubhouse opened for operation in January 2001.
During 1999, the Company sold 180 acres plus 44 developed lots,
surrounding the north golf course to Renar Development Company. In
the third quarter of 2002, the Company closed an additional sale of
261 acres of residential land surrounding the south golf course to
Morgan Stanley-Kitson Partnership ("MSKP"). Substantially all of the
remaining property within the development was sold to MSKP in 2004.
The property is expected to be developed into several distinct
communities, with lots sold to major builders.
In early 1996, the Interstate 95 interchange at LPGA Boulevard, which
is the north and main entrance to the LPGA International project, was
opened for use. At the end of 2002, the Company closed the sale of
the first corporate headquarters' site at the Company's new
Cornerstone Office Park, located within the 250-acre Gateway Business
Center at the southeast quadrant of the interchange. Development of
the Cornerstone Office Park was substantially complete by year-end
2003, with the first office building, which includes the Company's
corporate office, opened in January 2004.
Development of the Gateway Commerce Park, a 250-acre industrial,
warehouse and distribution park located south of Gateway Business Center
on the east side of Interstate 95 in Daytona Beach, commenced
in 2004 with the first phase substantially completed prior to year end.
The first sale within the development closed in February 2004, with
construction of a 60,000 square-foot manufacturing and distribution
facility completed in late 2004. Two additional 2004 sales in the
Gateway Commerce Park included an 11-acre site for a 100,000 square-
foot office and manufacturing facility and a 10-acre site for a 65,000
square-foot distribution facility.
Indigo Commercial Realty Inc., a commercial real estate brokerage
company formed in 1981, is the Company's agent in the marketing and
management of developed commercial and undeveloped acreage. Approximately
44 acres of fully developed sites located in the Daytona Beach area and
owned by Indigo Group Inc. were available for sale at December 31, 2004.
All development and improvement costs have been completed at these sites.
2
ITEM 1. BUSINESS (CONTINUED)
- ------ -------------------
RESIDENTIAL. Until December 1993, the Company, through Indigo Group
Ltd. ("IG LTD"),operated in residential development, home building and
sales. At the end of 1993, IG LTD closed down the development and
building functions. IG LTD continues to sell its remaining lot inventory
in Tomoka Heights, a 180-acre development adjacent to Lake Henry in
Highlands County, Florida. There are approximately 50-developed lots
remaining to be sold. During 2004, IG LTD sold its 7 remaining lots in
Riverwood Plantation, a 180-acre community in Port Orange, Florida.
FOREST PRODUCT SALES. The Company's timber lands encompass approximately
11,400 acres on the west side of Daytona Beach. We believe the
geographic location of the timber tract is excellent. In addition to
access by major highways (Interstate 95, State Road 40, and International
Speedway Boulevard), the internal road system for forestry purposes is
good. Income from sales of forest products varies considerably from
year-to-year depending on economic conditions and rainfall, which
sometimes limits access to portions of the woodlands. In addition,
drought conditions sharply increase the potential for forest fires, as
occurred during the summer of 1998. The wildfires, which ravaged
central Florida, destroyed approximately 8,500 acres of the Company's
timberland. This and the sale of the approximately 11,000-acre parcel
to St. Johns River Water Management District in 1997 have reduced the
Company's potential for future income from sales of forest products.
Expenses associated with forestry operations consist primarily of real
estate taxes, with additional expenses including the costs of
installing and maintaining roads and drainage systems, reforestation,
and wild fire suppression.
SUBSURFACE INTERESTS. The Company owns full or fractional subsurface
oil, gas, and mineral interests in approximately 518,000 "surface"
acres of land owned by others in various parts of Florida, equivalent
to approximately 285,000 acres in terms of full interest. The Company
leases its interests to mineral exploration firms whenever possible. The
Company's basis in subsurface interests is $5,278.
Leases on 800 acres have reached maturity; but, in accordance with
their terms, are held by the oil companies without annual rental
payments because of producing oil wells, on which the Company receives
royalties.
The purchasers of 82,515 surface acres, in which the Company has a
one-half reserved mineral interest, are entitled to releases of the
Company's rights if such releases are required for residential or
business development. Consideration for such releases on 71,772
of those acres would be at the rate of $2.50 per surface acre.
On other acres in Lee and Hendry Counties (where producing oil
wells exist), the Company's current policy is to grant no release
rights with respect to its reserved mineral rights. Periodically,
a release of surface entry rights might be granted upon request of a
surface owner who requires such a release for special financing or
development purposes. In counties other than Lee and Hendry, releases
are granted for a percentage of the surface value of a parcel of
land. At December 31, 2004, there were two producing oil wells on
the Company's interests. Volume in 2004 was 109,114 barrels and
volume in 2003 was 100,098 barrels from three producing wells.
Production, in barrels, for prior recent years was: 2002 - 115,453,
2001 - 116,341, and 2000 - 133,280.
3
ITEM 1. BUSINESS (CONTINUED)
- ------ -------------------
INCOME PROPERTIES
- -----------------
During 2000, the Company implemented a new business strategy. This
strategy involves becoming a company, over time, with a more
predictable earnings pattern from geographically dispersed real estate
holdings. To this end, the Company has acquired several income
properties since 2000. Following is a summary of these properties:
AREA YEAR
LOCATION TENANT (SQUARE FEET) PURCHASED
- ----------------------- -------------- ------------ ---------
Tallahassee, Florida CVS 10,880 2000
Daytona Beach, Florida Barnes & Noble 28,000 2001
Lakeland, Florida Barnes & Noble 18,150 2001
Sanford, Florida CVS 11,900 2001
Palm Bay, Florida Walgreens 13,905 2001
Clermont, Florida CVS 13,824 2002
Melbourne, Florida CVS 10,908 2003
Sebring, Florida CVS 12,174 2003
Kissimmee, Florida Walgreens 13,905 2003
Orlando, Florida Walgreens 15,120 2003
Sanford, Florida CVS 13,813 2003
Apopka, Florida Walgreens 14,560 2004
Clermont, Florida Walgreens 13,650 2004
Roseland, Florida CVS 13,813 2004
Alpharetta, Georgia Walgreens 15,120 2004
Powder Springs, Georgia Walgreens 15,120 2004
- ----------------------- ------------
16 Properties 234,842
======================= ============
All properties are leased on a long-term, double or triple-net lease
basis.
During the third quarter of 2004, CVS Corp.("CVS") completed the
acquisition of a portion of the Eckerd pharmacy chain, including all
of the Florida stores. As part of the integration of the Eckerd chain
into its system, some of the acquired stores have been closed.
Four of the seven stores owned by the Company have been closed by CVS.
The tenant is obligated on the leases and continues to make lease
payments.
Other rental property is limited to a 12-acre auto dealership site,
which is located in Daytona Beach, Florida, along with ground leases
for billboards, a communication tower site, and a hunting lease
covering 7,025 acres. A portion of the auto dealership site, which
was purchased in 2000, was sold in 2001, for a profit approximating
$675,000, with the remaining property under an operating lease
arrangement. The Company also owned a 17,000 square-foot office
building in Daytona Beach, Florida, which was under a lease-purchase
agreement. During the fourth quarter of 2003, the ownership was
transferred.
GOLF OPERATIONS
- ---------------
On September 1, 1997, responsibility for the operations of the LPGA
International golf courses was transferred from the City of Daytona
Beach to a wholly owned subsidiary of the Company. The agreement with
the City of Daytona Beach provided for the second golf course and a
clubhouse to be constructed by the Company in return for a long-term
lease from the City on both golf courses.
4
ITEM 1. BUSINESS (CONTINUED)
- ------ -------------------
The second golf course was constructed by the Company and opened for
play in October 1998. The first phase of the clubhouse, which consisted
primarily of the cart barn, was completed in 1999. Construction of the
final phase of the clubhouse, consisting of a 17,000 square-foot facility
including a pro shop, locker rooms, informal dining and banquet rooms,
and a swimming pool, was completed in December 2000 and opened for
business in January 2001.
GENERAL, CORPORATE AND OTHER OPERATIONS
- ---------------------------------------
Land development beyond that discussed at "Business - Real Estate
Operations" will necessarily depend upon the long-range economic and
population growth of Florida and may be significantly affected by
fluctuations in economic conditions, prices of Florida real estate,
and the amount of resources available to the Company for development.
EMPLOYEES
- ---------
The Company has sixteen employees and considers its employee relations
to be satisfactory.
AVAILABLE INFORMATION
- ---------------------
The Company's website is www.consolidatedtomoka.com. The Company
makes available on this website, free of charge, its annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports as soon as reasonably practicable
after the Company electronically files or furnishes such materials to
the SEC, and has done so since March 2003, the date that the Company's
website became active. The Company will also provide paper copies of
these filings free of charge upon a specific request in writing for
such filing to the Company's Secretary, P.O. Box 10809, Daytona Beach,
Florida 32120-0809.
ITEM 2. PROPERTIES
- ------ ----------
Land holdings of the Company and its affiliates, which are primarily
located in Florida, include: approximately 12,000 acres (including
commercial/retail sites) in the Daytona Beach area of Volusia County;
approximately 24 acres in Highlands County, adjacent to Lake Henry;
retail buildings located on 29 acres throughout Florida and Georgia; and
full or fractional subsurface oil, gas, and mineral interests in
approximately 518,000 "surface acres" in 20 Florida counties.
Approximately 3,000 acres of the lands located in Volusia County are
encumbered under a mortgage. The conversion and subsequent utilization
of these assets provides the base of the Company's operations.
The Volusia County holdings include approximately 10,800 acres within
the city limits of Daytona Beach and small acreages in the Cities of
Ormond Beach and Port Orange. During 2003, the Company acquired 946
acres of land, which will be used for wetlands mitigation. Of the
10,800 acres inside the city limits of Daytona Beach, approximately
1,260 acres have received development approval by governmental
agencies. The 1,260 acres plus approximately 730 acres owned by the
City of Daytona Beach, 15 acres owned by Indigo Community Development
District, and 1,800 acres sold to others for development are the site
of a long-term, mixed-use development which includes "LPGA
International." LPGA International is made up of the national
headquarters of the Ladies Professional Golf Association along with
two "Signature" golf courses and a residential community, a clubhouse,
and a maintenance facility, and main entrance roads to serve the LPGA
community.
5
ITEM 2. PROPERTIES (CONTINUED)
- ------- ----------------------
On October 22, 2004, the Company closed on the sale of most of the
remaining land (over 1,000 acres) within the LPGA International
community. The sale to MSKP, which had previously purchased 261 acres
within the development, was for a sales price of approximately
$18,000,000. The sale included acreage around the Legends golf
course, several commercial parcels fronting International Speedway
Boulevard and LPGA Boulevard, and a hotel/resort parcel adjacent to
the LPGA International Clubhouse. MSKP will become the community's
master developer, and a subsidiary of the Company will continue to
operate the golf facilities.
The lands not currently being developed, including those on which
development approvals have been received, are involved in an active
forestry operation. Except for a 12-acre parcel at the Interstate 95
and Taylor Road interchange in the Port Orange area, south of Daytona
Beach, the tract straddles Interstate 95 for 6-1/2 miles between
International Speedway Boulevard(U. S. Highway 92) and State Road 40,
with approximately 10,100 acres west and 1,900 acres east of the
interstate.
Subsidiaries of the Company are holders of the developed Volusia
County properties and are involved in the development of additional
lands zoned for residential, commercial, or industrial purposes.
In Highlands County, located in south central Florida, along U.S.
Highway 27, the Company sold its citrus operation of approximately
3,900 acres in 1999. The remaining Highlands County lands, located
adjacent to Lake Henry, Florida, which is about 75 miles east of
Sarasota and 150 miles northwest of Miami, total approximately 24
acres of industrial lands and 50 residential lots.
The Company's oil, gas, and mineral interests, which are equivalent
to full rights on 285,000 acres, were acquired by retaining
subsurface rights when acreage was sold many years ago.
From October 1990 until December 1993, IG LTD centered its operations
on residential community development, home construction, and sales.
In 1993, IG LTD discontinued its home building and sales activities
under lot marketing and sales arrangements. Residential lots owned
by IG LTD at December 31, 2004 are: limited to 50 developed lots at
the 180-acre Tomoka Heights development in Highlands County, Florida.
IG LTD is developing this community, located adjacent to Lake Henry,
and consisting of single-family and duplex units.
The Company also owns and operates properties for leasing. These
properties are discussed in "Business-Income Properties."
ITEM 3. LEGAL PROCEEDINGS
- ------ -----------------
There are no material pending legal proceedings to which the Company
or its subsidiaries are a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 2004.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
- ------ -------------------------------------------------------------
COMMON STOCK PRICES AND DIVIDENDS
The Company's common stock trades on the American Stock Exchange
("AMEX") under the symbol CTO. The Company has paid dividends on a
continuous basis since 1976, the year in which its initial dividends
were paid. The following table summarizes aggregate annual dividends
paid per share over the two years ended December 31, 2004:
2004 $.26
2003 $.22
Indicated below are high and low sales prices for the quarters of the
last two fiscal years. All quotations represent actual transactions.
2004 2003
--------------- -----------------
High Low High Low
--------------- -----------------
$ $ $ $
First Quarter 37.45 30.29 21.05 18.90
Second Quarter 39.90 32.80 26.32 20.50
Third Quarter 39.00 34.10 32.00 23.55
Fourth Quarter 43.50 34.61 33.00 29.03
Approximate number of shareholders of record as of February 3, 2005
(without regard to shares held in nominee or street name): 1,053.
There have been no sales of unregistered securities within the past
three years.
7
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following selected financial data should be read in conjunction
with the Company's Consolidated Financial Statements and Notes along
with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this report.
Five-Year Financial Highlights
(In thousands except per share amounts)
2004 2003 2002 2001 2000
-------------------------------------
$ $ $ $ $
Summary of Operations:
Revenues:
Real Estate 41,985 33,145 26,916 9,248 19,860
Profit on Sales of
Other Real Estate Interest 210 632 151 57 1,379
Interest and Other Income 1,003 1,114 1,464 2,045 1,987
------ ------ ------ ------ ------
TOTAL 43,198 34,891 28,531 11,350 23,226
------ ------ ------ ------ ------
Operating Costs and Expenses 14,305 8,875 10,168 7,923 8,045
General and Administrative Expenses 5,073 4,588 3,407 4,594 3,365
Income Taxes 9,168 8,234 5,670 ( 531) 2,956
------ ------ ------ ------ ------
Net Income (Loss) 14,652 13,194 9,286 ( 636) 8,860
====== ====== ====== ======= ======
Basic Earnings Per Share 2.60 2.35 1.65 ( .11) 1.51
Diluted Earnings Per Share 2.58 2.33 1.65 ( .11) 1.51
Dividends Paid Per Share 0.26 0.22 0.20 0.20 0.20
Summary of Financial Position:
Total Assets 119,221 97,906 74,326 62,217 63,354
Shareholders' Equity 79,611 65,658 52,858 45,383 46,555
Long-Term Debt 8,498 8,717 8,932 1,335 9,401
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
OPERATIONS OVERVIEW
- -------------------
The Company is primarily engaged in real estate land sales and
development, investment in income property, and golf course
operations. The Company is owner of approximately 12,100 acres in
Florida, of which approximately 10,800 are located within the City of
Daytona Beach, and form a substantial portion of the western boundary
of Daytona Beach. The Company 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.
During 2004, the development of Cornerstone Office Park, located
within the 250-acre Gateway Business Center, was completed with the
first office building opened in January. Development of the Gateway
Commerce Park, a 250-acre industrial warehouse and distribution park
located south of Gateway Business Center on the east side of
Interstate 95 in Daytona Beach, was commenced with the first phase
essentially complete by year end. The first sale within the
development closed in February 2004, with construction of a 60,000
square-foot manufacturing and distribution facility completed. Two
additional 2004 sales in the Gateway Commerce Park, include an 11-acre
site for a 100,000 square-foot office and manufacturing facility and
a 10-acre site for a 65,000 square-foot distribution facility.
Construction of the latter two projects is expected to commence in the
first quarter of 2005.
On October 22, 2004, the Company closed on the sale of most of the
remaining land (over 1,000 acres) within the LPGA International
community. The sale to MSKP, which had previously purchased 261 acres
within the development, was for a sales price approximating
$18,000,000. The sale included acreage around the Legends golf
course, several commercial parcels fronting International Speedway
Boulevard and LPGA Boulevard, and a hotel/resort parcel adjacent to
the LPGA International Clubhouse. MSKP will become the community's
master developer, and a subsidiary of the Company will continue to
operate the golf facilities.
Also during the fourth quarter of 2004, the Company sold
approximately 600 acres west of LPGA Boulevard in Daytona Beach to
Bayberry Colony, LLC ("Bayberry") for the second phase of a
residential community. Bayberry had purchased the first phase of the
development, which consisted of 365 acres, in 2003.
These development and sales activities, along with additional
activities such as the development of the second phase of the Grand
Preserve residential community, construction of a fourth professional
office building north of the surgical and imaging center, construction
of a middle school, the development of the second phase of Daytona
Beach Auto Mall, and the future relocation of Halifax Medical Center
all in the LPGA Boulevard corridor, tend to create additional buyer
interest and sales opportunities.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS(CONTINUED)
------------------------------------
In the year 2000, the Company initiated a strategy of investing in
income properties utilizing the proceeds of land sales qualifying for
income tax deferral through like-kind exchange treatment for tax
purposes. At the end of 2004, the Company had invested approximately
$60 million in sixteen income properties through this process with an
additional $27.7 million held by a qualified intermediary for
investment in additional properties. In January 2005 the Company used
$10.15 million of these funds to purchase a property occupied by a
Lowe's Home Improvement Center located in Lexington, North Carolina.
During the third quarter of 2004, CVS Corp ("CVS") completed the
acquisition of a portion of the Eckerd pharmacy chain, including all
of the Florida stores. As part of the integration of the Eckerd chain
into its system, some of the newly acquired stores have been closed.
Four of the seven CVS stores owned by the Company have been closed.
The tenant is obligated on the leases and continues to make lease
payments. Management has reassessed the value of these properties and
concluded there is no impairment.
With an investment base of approximately $70 million in income
properties, including the Lowe's Home Improvement Center purchased in
January 2005, lease income in excess of $5.6 million, will be
generated annually. This income, along with additional net-lease
income property, 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.
Golf operations consist of the operation of the two golf courses,
clubhouse facility, and food and beverage activities within the LPGA
International mixed-use residential community on the west side of
Interstate 95, south and east of LPGA Boulevard. The Champions course
was designed by Reese Jones and the Legends course was designed by
Arthur Hills.
Over the last two years, golf revenues have grown while profits have
shown small improvements, despite an overall decline in golf course
revenues in Florida. The Florida golf industry has been hurt by over
building of golf courses and a general economic downturn, which began
to show improvement in late 2003 and early 2004. The four hurricanes,
which Florida experienced in 2004's late summer and early fall, also
had an impact on the golf business. While little damage was
sustained from the hurricanes, business virtually came to a
standstill for several weeks as locals were preoccupied with cleanup
and repair and tourism was non-existent. Improvement in golf course
operations is a function of increased tourist demand, reduction in new
golf course construction experienced in the last several years, and
increased residential growth in LPGA International and adjoining land
to the west and northwest. LPGA International and nearby projects
currently under development are planned to contain about 4,000 additional
dwelling units.
Food and banquet service revenues at the clubhouse, which opened in
January 2001, have improved annually with revenues increasing 5% in
2004 despite down time due to the severe weather experienced.
Improvement over time is a function of the same factors impacting the
golf courses: increased demand and new home construction. The
Company's efforts to improve revenues and profitability have focused
on providing quality products and services while maintaining
consistent and stringent cost control for golf course and food service
activities.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS(CONTINUED)
------------------------------------
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 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 earnings before
depreciation, amortization and deferred taxes. 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.
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.
SUMMARY OF 2004 OPERATING RESULTS
- ---------------------------------
For the twelve months of 2004 the Company generated net income of
$14,651,739, equivalent to $2.60 per share. This net income
represented an 11% gain over 2003's net income totaling $13,194,395,
equivalent to $2.35 per share. The positive results were achieved on
a 9% increase in profits from real estate sales combined with a 47%
jump in earnings from income properties.
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.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS(CONTINUED)
------------------------------------
The following is the calculation of EBDDT:
Year Ended
----------------------------------
December 31, December 31,
2004 2003
----------------------------------
Net Income $14,651,739 $13,194,395
Add Back:
Depreciation and Amortization 1,344,315 1,120,153
Deferred Taxes 8,589,976 8,500,771
----------- ----------
Earnings Before Depreciation, Amortization
and Deferred Taxes $24,586,030 $22,815,319
=========== ==========
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 rose 8% the year ended December 31, 2004 when compared to
2003's results based not only on the higher income generated during
the year but also on greater depreciation associated with the larger
inventory of income properties. The add back for deferred taxes also
increased slightly on higher deferred gains for income tax purposes
offset to some extent by the recognition of income for income tax
purposes on installment sales with the collection of notes receivable.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS(CONTINUED)
------------------------------------
RESULTS OF OPERATIONS
2004 Compared to 2003
REAL ESTATE OPERATIONS
- ----------------------
REAL ESTATE SALES. Profits from real estate sales totaled $24,939,245
for the twelve months of 2004 on the sale of 1,725 acres. These
profits represented a 10% gain over the profits totaling $22,774,040
realized in calendar year 2003. Earnings from real estate sales in
2003 were produced on the sale of 653 acres of land. Land sales for
2004 included the sale of over 1,000 acres within the LPGA
International mix-use development at a price approximating $18
million.
INCOME PROPERTIES. Revenues from income properties totaled $4,765,723
during 2004 and produced net income of $3,939,664. These revenues and
income compared to revenues of $3,276,062 and net income of $2,681,542
posted in 2003, and represented gains of 45% and 47%, respectively.
The gains were achieved on the addition of five new properties during
the first five months of 2004. Income properties costs and expenses
rose 39% to $826,059 for the twelve months of 2004, on higher
depreciation expense associated with the addition of the new properties.
GOLF OPERATIONS. Bottom line results from golf operations were down
1%, with a loss of $1,199,088 posted in 2004's twelve month period on
revenues, which totaled $4,579,183. During 2003, a loss of $1,185,364
was recorded on revenues amounting to $4,373,414. Revenues realized
during the period represented a 5% increase over the prior year. The
revenue gain was produced on a 5% rise in revenue from both golf and
food and beverage activities, despite the severe hurricane weather
experienced in Florida during August and September. The number of
golf rounds played during 2004 increased 4%, while the average green
fee per round played remained flat. Golf operations costs and
expenses increased 4% on the increased activity. Also contributing to
the expense increase were costs associated with the hurricanes,
although minimal property damage was experienced due to the storms.
GENERAL, CORPORATE AND OTHER. The sale of other real estate interests
contributed $209,713 to the bottom line during 2004 on the release of
subsurface interests on 5,881 acres. During 2003, the release of
subsurface interests on 8,909 acres produced revenues and income
amounting to $631,875.
Interest and other income declined 10% during 2004 to $1,003,707.
This reduction, from $1,114,074 in 2003, can be attributed to lower
interest earned on mortgage notes receivable, due to declining
balances resulting from collections in 2003 and 2004. Offsetting
this decrease was higher interest earned on funds held for
reinvestment through the like-kind exchange process.
Higher costs associated with stock options, due to a rise in the
Company's stock price, along with higher compensation expense and
corporate governance costs resulted in an 11% increase in general and
administrative expenses in 2004 when compared to 2003.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS(CONTINUED)
------------------------------------
SUMMARY OF 2003 OPERATING RESULTS
- ---------------------------------
During 2003, the Company generated earnings of $13,194,395, equivalent
to $2.35 per share. These profits represent a 42% increase over
2002's net income totaling $9,285,841, equivalent to $1.65 per share.
The favorable results were generated on a 40% increase in profits from
commercial land sales coupled with a 61% improvement in bottom line
results from income properties.
The following is the calculation of EBDDT.
Year Ended
--------------------------
December 31, December 31,
2003 2002
----------- ----------
Net Income $13,194,395 $ 9,285,841
Add Back:
Depreciation & Amortization 1,120,153 806,842
Deferred Taxes 8,500,771 5,970,949
---------- ----------
Earnings Before Depreciation, Amortization
and Deferred Taxes $22,815,319 $16,063,632
========== ==========
When compared to prior year, EBDDT improved 42% for the twelve months
of 2003. This increase was not only due to the improved operating
results, but also due to the increased depreciation and amortization
add back and most notably due to the significant deferral of income
taxes. The change in deferred taxes was primarily the result of
deferring gains realized on the sale of land during the year through
the like-kind exchange process for income tax purposes, with increased
depreciation due to the purchase of new properties during 2003 and
late 2002.
RESULTS OF OPERATIONS
2003 Compared to 2002
REAL ESTATE OPERATIONS
- ----------------------
REAL ESTATE SALES. Profits from real estate sales totaled $22,774,040
for the year ended December 31, 2003. These profits represented a 39%
increase over 2002's profits from real estate sales amounting to
$16,349,512. During 2003, 653 acres of land were sold compared to 621
acres of land sold during 2002's calendar year. Prices for property
vary from property to property based on location, use and other factors.
The average price increase per acre was the primary cause of a 24%
increase in land sales revenues to $25,495,664 for 2003. During 2003,
the average sales price per acre of land sold increased to $39,091
from $31,390 in 2002.
INCOME PROPERTIES. For the twelve months of 2003, profits from income
properties totaled $2,681,542 on revenues amounting to $3,276,062.
These profits and revenues represented increases of 61% and 59%,
respectively, when compared to 2002 results. These significantly
improved results were the result of the addition of five new income
properties during 2003 and one new property during the fourth quarter
of 2002. Income properties costs and expenses increased 49% to
$594,520 for 2003 due to higher depreciation on the addition of the
new properties.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS(CONTINUED)
------------------------------------
REAL ESTATE OPERATIONS (CONTINUED)
- ----------------------------------
GOLF OPERATIONS. Bottom line results from golf operations improved 6%
to a loss of $1,185,364 for calendar year 2003. This loss compared to
2002's loss of $1,263,847. Revenues from golf operations gained 3%
with both golf activities and food and beverage activities
contributing to the increase. The average rate per round played
increased 7% for the year, while the number of rounds played declined
5%. Golf costs and expenses rose 1% when compared to the prior year.
This increase was attributed to higher food and beverage volume along
with increased insurance and land lease expenses.
GENERAL, CORPORATE AND OTHER. The Company recognized $631,875 from
the release of subsurface rights on 8,909 acres during 2003. This
compared to profits on the sale of other real estate interest totaling
$150,865 during 2002's calendar year on the sale of 7 acres of land
and the release of subsurface rights on 2 acres of property.
Interest and other income declined 24% to $1,114,074 in 2003 compared
to $1,463,820 earned for the twelve months of 2002. Lower earnings
were the result of lower investment interest on decreased investment
balances during the year and decreased interest on mortgage notes
receivable.
Compensation expenses associated with stock options and stock
appreciation rights, due to a 70% increase in the Company's stock
price, were the principal cause of the 35% increase in general and
administrative expenses in 2003 when compared to 2002.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 2004, the Company had cash of $273,911 in addition to
$27,717,882 of restricted cash which was being held by a qualified
intermediary for completion of like-kind exchange transactions. This
cash and restricted cash represents an increase of $7,606,485 over the
amounts held at December 31, 2003. The funds were primarily generated
from sales of real estate and other operating activities during the
year. Cash used in investing activities during the year totaled
$30,528,138. This use of funds included $22,418,266 for the
acquisition of property, plant and equipment, including the
acquisition of the 5 new income properties and the related intangible
asset associated with leases in place and the addition of $8,358,784 of
cash restricted for reinvestment. Financing activities used cash
totaling $2,859,466 during 2004, with debt reduction accounting for
$1,412,975 and the payment of dividends equivalent to $.26 per share
using funds amounting to $1,464,771.
At December 31, 2004, the Company had notes payable outstanding of
$8,716,976, with no borrowings outstanding on the Company's
$10,000,000 revolving line of credit and $7,516,976 outstanding on a
10-year term loan, which is secured by approximately 3,000 acres of
the Company's most westerly Daytona Beach lands. The remaining
$1,200,000 note payable is on a mortgage note, which becomes due in
the fourth quarter of 2005. Although the line of credit had no
borrowings outstanding at year end 2004, letters of credit totaling
$947,575 reserved capacity under the line leaving borrowing capacity
of $9,052,425 available on the line of credit at December 31, 2004.
At December 31, 2004, the Company is in compliance with all debt
covenants.
Capital requirements for 2005 approximate $4,000,000 in addition to
funds to be invested into income properties. These funds are
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS(CONTINUED)
------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
projected to be expended primarily for roads and development costs on
the Company's core Daytona Beach area lands. During January 2005, the
Company closed on the purchase of a Lowe's Home Improvement Center
located in Lexington, North Carolina, at a cost of $10,150,000. Also
in January of 2005, the Company received back $1,596,075 in funds
which were being held for reinvestment, as the Company was unable to
acquire investment property which met its criteria. As is the case
with all funds held for reinvestment through the like-kind exchange
process, the deferred gains become taxable if the funds are not
reinvested within the required time.
Capital to fund the planned expenditures in 2005 is expected to be
provided from cash and investment securities, as they mature,
operating activities and current financing sources in place. The
Company also has the ability to borrow on a non-recourse basis against
its existing income properties which are all free of debt as of this
date. As additional funds become available through qualified sales,
the Company expects to invest in additional real estate opportunities.
CONTRACTUAL OBLIGATIONS
- -----------------------
As of December 31, 2004, the Company had the following contractual
obligations:
Less More
Than 1 1-3 3-5 Than 5
Contractual Obligations Total Year Years Years Years
- ----------------------- ---------- --------- --------- --------- -----------
Long-Term Debt $12,427,687 $ 2,054,380 $1,529,397 $1,544,904 $ 7,299,006
Operating Leases 8,324,064 510,173 943,326 835,565 6,035,000
Income Properties
Purchase Contracts 10,150,000 10,150,000 -- -- --
---------- ---------- --------- --------- ----------
Total $30,901,751 $12,714,553 $2,472,723 $2,380,469 $13,334,006
========== ========== ========= ========= ==========
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 $1,131,135 was
deferred for the year ended December 31, 2003, as the initial payment
did not meet the criteria established under SFAS No. 66. Deferral of
this income and the related note receivable was reversed in 2004 as
the buyer did not meet its obligations under the purchase agreement.
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.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS(CONTINUED)
------------------------------------
At the time the Company's debt was refinanced, 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. The Company measures the
ineffectiveness of the interest rate swap derivative by comparing the
present value of the cumulative change in the expected future cash
flows on the variable leg of the swap with the present value of the
cumulative change in the expected future interest cash flows on the
floating rate liability. This measure resulted in no ineffectiveness
for the two years ended December 31, 2004. A liability in the amount
of $852,773 and $992,580 at December 31, 2004 and 2003 has been
established on the Company's balance sheet. The change in fair value,
net of applicable taxes, in the amount of $523,817 and $609,694 at
December 31, 2004 and 2003, respectively, has been recorded as
accumulated other comprehensive loss, a component of shareholders'
equity.
ITEM 7A. 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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The Company's Consolidated Financial Statements appear beginning on
page F-1 of this report. See Item 15 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------ AND FINANCIAL DISCLOSURES
----------------------------------------------------------
There were no disagreements with accountants on accounting and
financial disclosures.
17
ITEM 9A. CONTROLS AND PROCEDURES
- ------- -----------------------
DISCLOSURE 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-
5(e) or 15d-15(e) of the Securities Exchange Act of 1934). 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 Securities and Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and
to provide reasonable assurance that information required to be
disclosed by the Company in such reports is accumulated and
communicated to the Company's management, including its CEO and CFO,
as appropriate to allow timely decisions regarding required
disclosure.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
- ----------------------------------------------------------------
The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934.
The Company's management assessed the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004. In
making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on management's
assessment and those criteria, management believes that the Company's
maintained effective internal control over financial reporting as of
December 31, 2004.
The Company's independent auditors have issued an attestation report
on management's assessment of the Company's internal control over
financial reporting. This report appears on page F-3.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
- ----------------------------------------------------
There were no changes in the Company's internal control over financial
reporting (as defined in Rules 13a- 15(f) or 15d-15(f) of the
Securities Exchange Act of 1934) during the fourth 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.
LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS
- -----------------------------------------------------
The Company's internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. All internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Also, projections of
any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
18
ITEM 9B. OTHER INFORMATION
- ------- -----------------
None.
PART III
The information required by Items 10, 11, 12, 13, and 14 is
incorporated herein by reference to the Company's 2005 annual meeting
proxy statement pursuant to Instruction G to Form 10-K. On March 25,
2005, the Company anticipates filing with the Commission, pursuant to
Regulation 14A under the Securities Exchange Act of 1934, its
definitive proxy statement to be used in connection with its 2005
annual meeting of shareholders at which directors will be elected for
the ensuing year.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The executive officers of the Company, their ages at January 31, 2005,
their business experience during the past five years, and the year
first elected as an executive officer of the Company are as follows:
William H. McMunn, 58, president of the Company since January 2000
and chief executive officer since April 2001; chief operating
officer of the Company from January 2000 to April 2001; president,
Indigo Development Inc., a subsidiary of the Company, since
December 1990.
Bruce W. Teeters, 59, senior vice president-finance and treasurer,
since January 1988.
Robert F. Apgar, 57, senior vice president-general counsel since
January 2003; assistant corporate secretary, since February 2002;
and vice president-general counsel from December 1990 to January
2003.
All of the above are elected annually as provided in the By-laws.
19
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
- ------- ------------------------------------------------------------
1. FINANCIAL STATEMENTS
--------------------
The following financial statements are filed as part of this
report:
Page No.
--------------
Reports of Independent Registered Public F-2
Accounting Firm
Consolidated Balance Sheets as of December 31,
2004 and 2003 F-5
Consolidated Statements of Income for the
three years ended December 31, 2004 F-6
Consolidated Statements of Shareholders' Equity
and Comprehensive Income for the three years ended
December 31, 2004 F-7
Consolidated Statements of Cash Flows for the three
years ended December 31, 2004 F-8
Notes to Consolidated Financial Statements F-9
2. FINANCIAL STATEMENT SCHEDULES
-----------------------------
Included in Part IV on Form 10-K:
Schedule III - Real Estate and Accumulated
Depreciation on page 25 of
Form 10-K
Schedule IV - Mortgage Loans on Real Estate
on page 26 of Form 10-K
Other Schedules are omitted because of the absence of conditions
under which they are required, materiality or because the
required information is given in the financial statements or
notes thereof.
3. EXHIBITS
--------
See Index to Exhibits on page 23 of this Annual Report on
Form 10-K.
PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, there unto duly authorized.
CONSOLIDATED-TOMOKA LAND CO.
(Registrant)
3/14/05 By: /s/ William H. McMunn
---------------------
William H. McMunn
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
3/14/05 Chairman of the Board
and Director By: /s/ Bob D. Allen
----------------------
3/14/05 President and Chief Executive
Officer (Principal Executive
Officer) and Director /s/ William H. McMunn
----------------------
3/14/05 Senior Vice President-Finance,
Treasurer (Principal Financial
and Accounting Officer)
/s/ Bruce W. Teeters
----------------------
3/14/05 Director /s/ John C. Adams, Jr.
----------------------
3/14/05 Director /s/ William J. Voges
----------------------
3/14/05 Director /s/ Gerald L. DeGood
----------------------
21
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
COMMISSION FILE NO. 0-5556
CONSOLIDATED-TOMOKA LAND CO.
(Exact name of registrant as specified in the charter)
22
EXHIBIT INDEX
Page No.
(2.1) Agreement of Merger and Plan of Merger and Reorganization
dated April 28, 1993 between Consolidated-Tomoka Land Co.
and CTLC, Inc. filed with the registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1993 and
incorporated by this reference. *
(2.2) Certificate of Merger dated April 28, 1993 filed with the
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993 and incorporated by this reference. *
(3.1) Articles of Incorporation of CTLC, Inc. dated February 26,
1993 and Amended Articles of Incorporation dated March 30,
1993 filed with the registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1993 and incorporated
by this reference. *
(3.2) By-laws of CTLC, Inc. filed with the registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993
and incorporated by this reference. *
10 Material Contracts:
(10.1) The Consolidated-Tomoka Land Co. Unfunded Deferred
Compensation Plan filed with the registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1981
and incorporated by this reference. *
(10.2) The Consolidated-Tomoka Land Co. Unfunded Deferred
Compensation Plan executed on October 25, 1982 filed with
the registrant's Annual Report on Form 10-K for the year
ended December 31, 1982 and incorporated by this reference. *
(10.3) The Consolidated-Tomoka Land Co. 2001 Stock Option Plan
effective April 25, 2001, filed with the Registrant's Form S-8
filed on June 20, 2001 and incorporated by this reference. *
(10.4) Lease Agreement dated August 28, 1997 between the City of
Daytona Beach and Indigo International Inc., a wholly
owned subsidiary of Consolidated-Tomoka Land Co., filed
on Form 10-K for the year ended December 31, 1997 and
incorporated by this reference. *
(10.5) Development Agreement dated August 18, 1997 between the
City of Daytona Beach and Indigo International Inc., a
wholly owned subsidiary of Consolidated-Tomoka Land Co.,
filed on Form 10-K for the year ended December 31, 1997
and incorporated by this reference. *
(10.6) Master Loan and Security Agreement Between Consolidated-
Tomoka Land Co. and SunTrust Bank dated July 1, 2002,
filed on Form 10-Q for the quarter ended June 30, 2002
and incorporated by this reference. *
(10.7) Master Loan and Security Agreement Between Consolidated-
Tomoka Land Co. and SunTrust Bank dated May 31, 2002,
filed on Form 10-Q for the quarter ended June 30, 2002
and incorporated by this reference. *
(10.8) International Swap Dealers Association, Inc. Master
Agreement Dated April 8, 2002, between Consolidated-
Tomoka Land Co. and SunTrust Bank, filed on Form 10-Q
for the quarter ended June 30, 2002 and incorporated by
this reference. *
(10.9) Confirmation of Interest Rate Transaction Dated April 9,
2002, between Consolidated-Tomoka Land Co. and SunTrust
Bank, filed on Form 10-Q for the quarter ended June 30,
2002, and incorporated by this reference. *
(21) Subsidiaries of the Registrant 27
(23.2) Consent of Independent Registered Public Accounting Firm 28
23
EXHIBIT INDEX (CONTINUED)
- ------------------------
(31.1) Certification furnished pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. *
(31.2) Certification furnished pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. *
(32.1) Certification Pursuant to 18 U.S.C Section 1350,
adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002. *
(32.2) Certification Pursuant to 18 U.S.C. Section 1350,
adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002. *
* - Incorporated by Reference
24
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 2004
COSTS CAPITALIZED
INITIAL COST TO COMPANY SUBSEQUENT TO ACQUISITION
-------------------------------------------------------------------------
BUILDINGS &
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS CARRYING COSTS
- ----------- -------------------------------------------------------------------------
Income Properties:
Gary Yeomans Ford, Daytona Beach, FL -0- $ 435,121 $ 743,902 $ -0- -0-
CVS, Tallahassee, FL -0- 590,800 1,595,000 -0- -0-
CVS, Sanford, FL -0- 1,565,176 1,890,671 -0- -0-
Barnes & Noble, Daytona Beach, FL -0- 1,798,600 3,803,000 -0- -0-
Barnes & Noble, Lakeland, FL -0- 1,242,300 1,884,200 -0- -0-
CVS, Clermont, FL -0- 1,493,985 1,452,823 -0- -0-
CVS, Sebring, FL -0- 1,312,472 1,722,559 -0- -0-
CVS, Melbourne, FL -0- 1,567,788 919,186 -0- -0-
CVS, Sanford, FL -0- 2,345,694 1,275,625 -0- -0-
CVS, Sebastian, FL -0- 2,205,708 1,288,995 -0- -0-
Walgreens, Palm Bay, FL -0- 1,102,640 3,157,360 -0- -0-
Walgreens, Kissimmee, FL -0- 1,327,847 1,770,986 -0- -0-
Walgreens, Orlando, FL -0- 2,280,841 1,148,507 -0- -0-
Walgreens, Clermont, FL -0- 3,021,665 1,269,449 -0- -0-
Walgreens, Apopka, FL -0- 2,390,532 1,354,080 -0- -0-
Walgreens, Powder Springs, GA -0- 2,668,255 1,406,160 -0- -0-
Walgreens, Alpharetta, GA -0- 3,265,623 1,406,160 -0- -0-
Miscellaneous -0- 654,946 -0- 1,337,130 -0-
-------------------------------------------------------------------------
-0- $31,269,993 $28,088,663 $1,337,130 -0-
=========================================================================
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
-----------------------------
DATE OF
LAND AND ACCUMULATED COMPLETION OF DATE DEPR
IMPROVEMENTS BUILDINGS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE
----------------------------------------------------------------------------
$ $ $ $
Income Properties:
Gary Yeomans Ford, Daytona Beach, FL 435,121 743,902 1,179,023 77,490 N/A 10/31/00 40Yrs.
CVS, Tallahassee, FL 590,800 1,595,000 2,185,800 162,823 N/A 12/13/00 40Yrs.
CVS, Sanford, FL 1,565,176 1,890,671 3,455,847 149,678 N/A 11/15/01 40Yrs.
Barnes & Noble, Daytona Beach, FL 1,798,600 3,803,000 5,601,600 380,300 N/A 01/11/01 40Yrs.
Barnes & Noble, Lakeland, FL 1,242,300 1,884,200 3,126,500 188,420 N/A 01/11/01 40Yrs.
CVS, Clermont, FL 1,493,985 1,452,823 2,946,808 77,414 N/A 11/22/02 40Yrs.
CVS, Sebring, FL 1,312,472 1,722,559 3,035,031 82,539 N/A 02/04/03 40Yrs.
CVS, Melbourne, FL 1,567,788 919,186 2,486,974 42,129 N/A 03/05/03 40Yrs.
CVS, Sanford, FL 2,345,694 1,275,625 3,621,319 34,469 N/A 09/17/03 40Yrs.
CVS, Sebastian, FL 2,205,708 1,288,995 3,494,703 21,559 N/A 04/23/04 40Yrs.
Walgreens, Palm Bay, FL 1,102,640 3,157,360 4,260,000 282,847 N/A 06/12/04 40Yrs.
Walgreens, Kissimmee, FL 1,327,847 1,770,986 3,098,833 84,860 N/A 02/12/03 40Yrs.
Walgreens, Orlando, FL 2,280,841 1,148,507 3,429,348 55,033 N/A 02/13/03 40Yrs.
Walgreens, Clermont, FL 3,021,665 1,269,449 4,291,114 18,513 N/A 05/27/04 40Yrs.
Walgreens, Apopka, FL 2,390,532 1,354,080 3,744,612 25,389 N/A 03/29/04 40Yrs.
Walgreens, Powder Springs, GA 2,668,255 1,406,160 4,074,415 26,366 N/A 03/31/04 40Yrs.
Walgreens, Alpharetta, GA 3,265,623 1,406,160 4,671,783 26,366 N/A 03/31/04 40Yrs.
Miscellaneous 1,992,076 -0- 1,992,076 415,278 Various N/A 5-30Yrs.
--------------------------------------------
32,607,123 28,088,663 60,695,786 2,151,473
============================================
2004 2003 2002
---------- ---------- ----------
Cost:
Balance at Beginning of Year $40,427,010 $24,923,263 $21,715,945
Improvements 20,284,215 15,507,188 3,207,318
Cost of Real Estate Sold ( 15,439) ( 3,441) --
--------------------------------------------
Balance at End of Year $60,695,786 $40,427,010 $24,923,263
============================================
Accumulated Depreciation:
Balance at Beginning of Year $ 1,446,011 $ 866,741 $ 527,193
Depreciation and Amortization 705,462 579,270 339,548
Depreciation on Real Estate Sold -- -- --
--------------------------------------------
Balance at End of Year $ 2,151,473 $ 1,446,011 $ 866,741
============================================
25
SCHEDULE IV
CONSOLIDATED-TOMOKA LAND CO.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2004
PRINCIPAL
FINAL AMOUNT OF
INTEREST MATURITY PRIOR FACE CARRYING LOANS
DESCRIPTION RATE DATE PERIODIC PAYMENT TERMS LIENS AMOUNT AMOUNT (A) DELINQUENT
- ----------------------------------------------------------------------------------------------------------------
MORTGAGE N/R
SECURED BY
REAL ESTATE:
Volusia Co. 5.00% 10/04 Balloon of $1,652,472 -- $1,805,424 $1,652,473 $1,652,472(B)
Volusia Co. 7.00% 12/06 Level, Plus Balloon of $2,189,841 -- 2,790,250 2,273,279 --
Volusia Co. -- 12/04 Balloon of $1,142,720 -- 1,142,720 - $1,099,322(C)
Highlands Co. -- Various Balloon of $ 39,500 -- 39,500 39,500 --
Highlands Co. 5.00% 06/05 Balloon of $ 460,000 -- 460,000 460,000 --
---------------------------------------
-- $6,237,894 $4,425,252 $ 2,751,794
=======================================
(A) FOR FEDERAL INCOME TAX PURPOSES, THE AGGREGATE BASIS OF THE LISTED MORTGAGES WAS $4,425,251.
(B) THE $1,652,472 NOTE WHICH WAS DELINQUENT AT DECEMBER 31, 2004, WAS RESTRUCTURED IN FEBRUARY 2005 WITH A
PRINCIPAL PAYMENT COLLECTED AT THAT TIME BRINGING THE NOTE CURRENT.
(C) THE $1,099,322 NOTE WHICH WAS DELINQUENT AT DECEMBER 31, 2004, WAS RESERVED FOR AT YEAR END. THE PROPERTY
HELD AS SECURITY WAS TAKEN BACK IN FEBRUARY 2005 AND THE NOTE EXTINGUISHED.
(D) A RECONCILIATION OF THE CARRYING AMOUNT OF MORTGAGES FOR THE THREE YEARS ENDED DECEMBER 31, 2004, 2003,
AND 2002 IS AS FOLLOWS:
2004 2003 2002
--------- --------- ----------
BALANCE AT BEGINNING OF YEAR $9,150,217 $9,611,326 $9,191,679
NEW MORTGAGE LOANS 469,500 1,142,720 2,066,981
COLLECTIONS OF PRINCIPAL (4,095,143) (1,603,829) (1,647,334)
NOTED RESERVED (C) (1,099,322) -- --
------------------------------------
BALANCE AT END OF YEAR $4,425,252 $9,150,217 $9,611,326
====================================
26
EXHIBIT 21
Subsidiaries of the Registrant
Percentage of
Organized Voting Securities
Under Owned by
Laws of Immediate Parent
------------------------------------
Consolidated-Tomoka Land Co. Florida --
Indigo Group Inc. Florida 100.0
Indigo Group Ltd. Florida 99.0*
(A Limited Partnership)
Indigo Development Inc. Florida 100.0
Indigo Commercial Realty Inc. Florida 100.0
Palms Del Mar Inc. Florida 100.0
Indigo International Inc. Florida 100.0
W. Hay Inc. Florida 100.0
* Consolidated-Tomoka Land Co. is the limited partner of Indigo Group
Ltd., and owns 99.0% of the total partnership equity. Indigo Group
Inc. is the managing general partner of the partnership and owns an
additional 1.0% of the partnership equity.
All subsidiaries are included in the Consolidated Financial
Statements of the Company and its subsidiaries appearing elsewhere
herein.
27
EXHIBIT 23.2
Consent of Independent Registered Public Accounting Firm
To The Board of Directors
Consolidated-Tomoka Land Co.:
We consent to the incorporation by reference in Registration Statement
Nos. 33-62679 and 333-63400 on Form S-8 of Consolidated-Tomoka Land
Co. of our reports dated March 8, 2005, with respect to the
consolidated balance sheet of Consolidated-Tomoka Land Co. as of
December 31, 2004 and 2003, and the related consolidated statements of
income, shareholders' equity and comprehensive income, and cash flows for
the three years ended December 31, 2004, and all related financial
statement schedules, management's assessment of the effectiveness of
internal control over financial reporting as of December 31, 2004,
and the effectiveness of internal control over financial reporting as of
December 31, 2004, which reports appear in the December 31, 2004, annual
report on Form 10-K of Consolidated-Tomoka Land Co.
Orlando, Florida
March 10, 2005
28
CONSOLIDATED-TOMOKA LAND CO.
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2004 and 2003 F-5
Consolidated Statements of Income for the three years ended
December 31, 2004 F-6
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the three years ended
December 31, 2004 F-7
Consolidated Statements of Cash Flows for the three years
ended December 31, 2004 F-8
Notes to Consolidated Financial Statements F-9
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Consolidated-Tomoka Land Co.:
We have audited the accompanying consolidated balance sheets of
Consolidated-Tomoka Land Co. and subsidiaries (the Company) as of
December 31, 2004 and 2003, and the related consolidated statements of
operations, changes in shareholders' equity and comprehensive income,
and cash flows for each of the years in the three-year period ended
December 31, 2004. In connection with our audits of the consolidated
financial statements, we also have audited financial statement
schedules as listed in Item 15(a)2 of the 2004 annual report on Form
10-K. These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of the Company and subsidiaries as of December 31, 2004 and 2003, and
the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness
of the Company's internal control over financial reporting as of
December 31, 2004, based on criteria established in "Internal Control-
Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated
March 8, 2005 expressed an unqualified opinion on management's
assessment of, and the effective operation of, internal control over
financial reporting.
Orlando, Florida
March 8, 2005
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Consolidated-Tomoka Land Co.:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Controls over Financial Reporting,
that Consolidated-Tomoka Land Co. and subsidiaries ("the Company")
maintained effective internal control over financial reporting as of
December 31, 2004, based on criteria established in "Internal Control-
Integrated Framework", issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). The Company's
management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility is to
express an opinion on management's assessment and an opinion on the
effectiveness of the Company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of
the company's assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of December 31,
2004, is fairly stated, in all material respects, based on criteria
established in "Internal Control-Integrated Framework", issued by COSO.
Also, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of
December 31, 2004, based on criteria established in "Internal Control-
Integrated Framework", issued by COSO.
F-3
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated
balance sheets of the Company and subsidiaries as of December 31, 2004
and 2003, and the related consolidated statements of income,
shareholders' equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 2004, and our
report dated March 8, 2005, expressed an unqualified opinion on those
consolidated financial statements and financial statement schedules.
KPMG LLP
Orlando, FL
March 8, 2005
F-4
Consolidated Balance Sheets
December 31,
---------------------------
2004 2003
----------- -----------
Assets
Cash $ 273,911 $ 1,026,210
Restricted Cash (Note 1) 27,717,882 19,359,098
Investment Securities (Note 2) 3,642,785 3,891,697
Notes Receivable (Note 4) 4,425,252 9,150,217
Land and Development Costs (Note 5) 9,821,988 11,550,909
Intangible Assets 2,726,763 1,270,307
Other Assets 2,034,530 2,665,653
------------ -----------
50,643,111 48,914,091
------------ -----------
Property, Plant and Equipment
Land, Timber and Subsurface Interests 2,091,080 2,093,201
Golf Buildings, Improvements and Equipment 11,345,915 11,277,853
Income Properties: Land, Buildings and Improvements 58,703,711 38,442,481
Other Building, Equipment and Land Improvements 1,228,400 954,575
------------ -----------
Total Property, Plant and Equipment 73,369,106 52,768,110
Less Accumulated Depreciation and Amortization ( 4,791,243) ( 3,776,223)
------------ -----------
Net Property, Plant and Equipment 68,577,863 48,991,887
------------ -----------
Total Assets $119,220,974 $97,905,978
============ ===========
Liabilities
Accounts Payable $ 405,609 $ 105,922
Accrued Liabilities 3,895,125 3,510,824
Income Taxes Payable (Note 3) 658,040 25,868
Deferred Income Taxes (Note 3) 25,934,475 17,344,499
Deferred Profit (Note 1) -- 1,131,135
Notes Payable (Note 6) 8,716,976 10,129,951
----------- -----------
Total Liabilities 39,610,225 32,248,199
----------- -----------
SHAREHOLDERS' EQUITY
Preferred Stock - 50,000 Shares Authorized,
$100 Par Value; None Issued -- --
Common Stock - 25,000,000 Shares Authorized;
$1 Par Value; 5,641,722 and 5,623,442 Shares
Issued and Outstanding at December 31, 2004
and 2003, Respectively 5,641,722 5,623,442
Additional Paid-In Capital 2,176,184 1,514,339
Retained Earnings 72,316,660 59,129,692
Accumulated Other Comprehensive Loss ( 523,817) ( 609,694)
------------ -----------
Total Shareholders' Equity 79,610,749 65,657,779
------------ -----------
Total Liabilities and Shareholders' Equity $119,220,974 $97,905,978
============ ===========
F-5
Consolidated Statements of Income
Calendar Year
------------------------------------------
December 31, December 31, December 31,
2004 2003 2002
------------------------------------------
Income:
Real Estate Operations:
Real Estate Sales
Sales and Other Income $32,640,020 $25,495,664 $20,626,879
Costs and Other Expenses ( 7,700,775) ( 2,721,624) ( 4,277,367)
---------- ---------- ----------
24,939,245 22,774,040 16,349,512
---------- ---------- ----------
Income Properties
Leasing Revenues and Other Income 4,765,723 3,276,062 2,062,552
Costs and Other Expenses ( 826,059) ( 594,520) ( 400,157)
---------- ---------- ----------
3,939,664 2,681,542 1,662,395
---------- ---------- ----------
Golf Operations
Sales and Other Income 4,579,183 4,373,414 4,226,608
Costs and Other Expenses ( 5,778,271) ( 5,558,778) ( 5,490,455)
---------- ---------- ----------
( 1,199,088) ( 1,185,364) ( 1,263,847)
---------- ---------- ----------
Total Real Estate Operations 27,679,821 24,270,218 16,748,060
Profit on Sales of Other
Real Estate Interests 209,713 631,875 150,865
Interest and Other Income 1,003,707 1,114,074 1,463,820
---------- ---------- ----------
Operating Income 28,893,241 26,016,167 18,362,745
General and Administrative Expenses (5,073,285) ( 4,588,034) ( 3,407,175)
---------- ---------- ----------
Income Before Income Taxes 23,819,956 21,428,133 14,955,570
Income Taxes (Note 3) ( 9,168,217) ( 8,233,738) ( 5,669,729)
---------- ---------- ----------
Net Income $14,651,739 $13,194,395 $ 9,285,841
========== ========== ==========
Per Share Information (Note 10):
Basic $2.60 $2.35 $1.65
========== ========== ==========
Diluted $2.58 $2.33 $1.65
========== ========== ==========
F-6
Consolidated Statements of Shareholders' Equity
and Comprehensive Income
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Shareholders' Comprehensive
Stock Capital Earnings Loss Equity Income
--------- -------- ----------- ----------- ------------ -----------
Balance,
December 31, 2001 $5,615,579 $758,470 $39,008,724 $ -- $45,382,773
Net Income -- -- 9,285,841 -- 9,285,841 $9,285,841
Other Comprehensive
Income:
Cash Flow Hedging
Derivative, Net of Tax -- -- -- ( 765,127) ( 765,127) ( 765,127)
----------
Comprehensive Income $8,520,714
==========
Stock Options -- 77,280 -- -- 77,280
Cash Dividends
($.20 per share) -- -- (1,123,116) -- (1,123,116)
Balance, ---------- -------- ----------- ----------- -----------
December 31, 2002 $5,615,579 $835,750 $47,171,449 $( 765,127) $52,857,651
Net Income -- -- 13,194,395 -- 13,194,395 $13,194,395
Other Comprehensive
Income:
Cash Flow Hedging
Derivative, Net of Tax -- -- -- 155,433 155,433 155,433
-----------
Comprehensive Income $13,349,828
===========
Stock Options 7,863 678,589 -- -- 686,452
Cash Dividends
($.22 per share) -- -- (1,236,152) -- (1,236,152)
---------- ---------- ----------- ----------- -----------
Balance,
December 31, 2003 $5,623,442 $1,514,339 $59,129,692 $( 609,694) $65,657,779
Net Income -- -- 14,651,739 -- 14,651,739 $14,651,739
Other Comprehensive
Income:
Cash Flow, Hedging
Derivative, Net of Tax -- - -- 85,877 85,877 85,877
----------
Comprehensive Income $14,737,616
==========
Stock Options 18,280 661,845 -- -- 680,125
Cash Dividends
($.26 per share) -- -- (1,464,771) -- (1,464,771)
--------- --------- ---------- ------- ----------
Balance,
December 31, 2004 $5,641,722 $2,176,184 $72,316,660 $( 523,817) $79,610,749
========== ========== =========== ========== ===========
F-7
Consolidated Statements of Cash Flows
Calendar Year
--------------------------------------
December 31, December 31, December 31,
2004 2003 2002
----------- ----------- ------------
Cash Flow from Operating Activities:
Net Income $ 14,651,739 $13,194,395 $ 9,285,841
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,344,315 1,120,153 806,842
Loss on Sale of Property,
Plant, and Equipment 31,519 55,624
Non-Cash Compensation 661,845 678,589 77,280
Decrease (Increase) in Assets:
Notes Receivable 4,724,965 490,459 ( 395,100)
Land and Development Costs 1,728,921 (4,205,953) 1,735,981
Refundable Income Taxes -- 815,503 596,054
Other Assets 631,123 1,019,207 (1,370,720)
Increase(Decrease) in Liabilities:
Accounts Payable 299,687 ( 198,558) 122,768
Accrued Liabilities 470,178 581,126 (2,001,735)
Income Taxes Payable 632,172 25,868 --
Deferred Profit (1,131,135) 1,131,135 --
Deferred Income Taxes 8,589,976 8,500,771 5,970,949
---------- ---------- ---------
Net Cash Provided by Operating Activities 32,635,305 23,152,695 14,883,784
---------- ---------- ---------
Cash Flow from Investing Activities:
Acquisition of Property, Plant and Equipment (20,829,185) (15,589,778) ( 3,471,135)
Intangible Assets ( 1,589,081) (1,325,229) --
Increase in Restricted Cash for Acquisitions
Through the Like-Kind Exchange Process ( 8,358,784) ( 7,019,571) (11,584,290)
Proceeds from Calls or Maturities of
Investment Securities 3,447,662 2,180,465 5,666,603
Acquisition of Investment Securities ( 3,198,750) ( 1,058,938) ( 5,192,775)
Proceeds from Sale of Property, Plant and
Equipment -- -- 20,900
---------- ---------- ----------
Net Cash Used In Investing Activities (30,528,138) (22,813,051) (14,560,697)
---------- ---------- ----------
Cash Flow from Financing Activities:
Proceeds from Notes Payable 3,259,000 8,528,000 11,410,908
Payments on Notes Payable ( 4,671,975) ( 7,633,121) (11,633,534)
Cash Proceeds from Exercise of Stock Options 18,280 7,863 --
Dividends Paid ( 1,464,771) ( 1,236,152) ( 1,123,116)
---------- ---------- ----------
Net Cash Used In Financing Activities ( 2,859,466) ( 333,410) ( 1,345,742)
---------- ---------- ----------
Net (Decrease) Increase in Cash ( 752,299) 6,234 ( 1,022,655)
Cash, Beginning of Year 1,026,210 1,019,976 2,042,631
---------- ---------- ----------
Cash, End of Period $ 273,911 $ 1,026,210 $ 1,019,976
========== ========== ==========
F-8
Consolidated Statements of Cash Flows (continued)
Supplemental Disclosure of Operating Activities:
In connection with the sale of real estate and income properties, the
Company received, as consideration, mortgage notes receivable of
$469,500, $1,142,720, and $2,087,381, for the years 2004, 2003, and
2002, respectively.
In addition, the Company received an irrevocable letter of credit
totaling $191,759 as consideration for real estate sales in 2002.
Total interest paid was $692,470, $715,774, and $779,974, for the
years 2004, 2003, and 2002, respectively.
No income taxes were paid or refunded in 2004.
Income taxes of $1,010,791 and $1,377,774 were refunded in 2003 and
2002, respectively.
The accompanying notes are an integral part of these consolidated
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Consolidated-Tomoka Land Co., a Florida corporation, and its wholly
owned subsidiaries: Indigo Group Inc., Indigo Group Ltd., Indigo
International Inc., Indigo Development Inc., W. Hay Inc. and Palms Del
Mar Inc. (collectively, the Company). All significant intercompany
accounts and transactions have been eliminated in consolidation.
NATURE OF OPERATIONS
The Company is primarily engaged, through its wholly owned
subsidiaries, in the real estate industry. Real estate operations,
which are primarily commercial in nature, also include residential,
golf operations, income properties, leasing properties for oil and
mineral exploration, and forestry operations. These operations are
predominantly located in Volusia County, Florida, with various income
properties owned throughout Florida and Georgia.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RESTRICTED CASH
The Company's qualified intermediary held $27,717,882 and $19,359,098
in escrow, for the benefit of the Company, at December 31, 2004 and
2003, respectively, to complete the purchase of income properties
through the deferred tax like-kind exchange process.
In the event that such transactions are not completed, these funds
will become unrestricted and deferred income taxes in the amount of
$9,247,682, on the like-kind transactions will become currently payable.
F-9
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
LAND AND DEVELOPMENT COSTS
The carrying value of land and development includes the initial
acquisition costs of land, improvements thereto, and other costs
incidental to the acquisition or development of land. These costs are
allocated to properties on a relative sales value basis and are
charged to costs of sales as specific properties are sold. Due to the
nature of the business, land and development costs have been
classified as an operating activity on the consolidated statement
of cash flows.
Interest of $61,946 and $71,514 was capitalized to land and
development during 2004 and 2003, respectively. No real estate taxes
were capitalized for either period.
INTANGIBLE ASSETS
Intangible assets consist of the market lease value associated with
single-tenant income properties owned by the Company. This value is
amortized over the remaining term of the lease at the time the
properties are purchased. At December 31, 2004, the market lease
value totaled $2,726,763, which was net of accumulated amortization of
$132,624 for 2004. At December 31, 2003, the market lease value
totaled $1,270,307, which is net of amortization of $54,922 for 2003.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Such properties are depreciated on a
straight-line basis over their estimated useful lives. Renewals and
betterments are capitalized to property accounts. The cost of
maintenance and repairs is expensed as incurred. The cost of property
retired or otherwise disposed of, and the related accumulated
depreciation or amortization, are removed from the accounts, and any
resulting gain or loss is taken into income.
The amount of depreciation and amortization of property, plant, and
equipment, exclusive of depreciation related to intangible assets,
recognized for the years 2004, 2003 and 2002 was $1,211,691,
$1,065,231, and $806,842, respectively.
The range of estimated useful lives for property, plant and
equipment is as follows:
Golf Buildings and Improvements 10-40 Years
Golf Equipment 5-10 Years
Income Properties Buildings and Improvements 40 Years
Other Furnishings and Equipment 5-25 Years
LONG-LIVED ASSETS
The Company has reviewed the recoverability of long-lived assets,
including real estate held for development and sale, and property,
plant and equipment, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. There has been no material impairment of long-lived
assets reflected in the consolidated financial statements for the
three years ended December 31, 2004.
In August 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting For the Disposal or Impairment of Long-Lived Assets."
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and
requires that one accounting impairment model be used for long-lived
assets to be disposed of by sales, whether previously held and used or
F-10
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
newly acquired, and broadens the presentation of discontinued
operations to include more disposal transactions. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The
Company adopted SFAS No. 144 on January 1, 2002. There were no
adjustments from the adoption of SFAS No. 144 for the year ended
December 31, 2002.
SALE OF REAL ESTATE
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 in the property. Income of $1,131,135 was
deferred for the year ended December 31, 2003, as the initial payment
did not meet the criteria established under SFAS No. 66. No income
was deferred for the years ended December 31, 2004 and 2002.
INCOME PROPERTIES
The rental of the Company's income properties generally are classified
as operating leases. The Company recognizes lease income on these
properties on a straight-line basis over the term of the lease.
GOLF OPERATIONS
The Company operates two golf courses and a clubhouse facility,
including food and beverage operations. Revenues from this operation,
including greens fees, cart rentals, merchandise, and food and
beverage sales, are recognized at the time of sale. Membership dues
are recognized over the life of the membership.
UNFUNDED DEFERRED COMPENSATION PLANS
The Company maintains two unfunded deferred compensation plans. One
plan is established for the Board of Directors of the Company, with
the second plan established for the officers and key employees of the
Company. Under the plans, any member of the Board of Directors,
officer or key employee may elect to defer all or a portion of their
compensation. The amount of deferred compensation shall increase
annually by an amount which is equal to interest on the deferred
compensation at the rate of return earned by the Company on its short-
term investments. Compensation credited to a participant shall be
deferred until such participant ceases to be a member of the Board of
Directors, officer or key employee, at which time the amounts
accumulated shall be distributed in the manner elected. The plans are
non-qualified plans as defined by the Internal Revenue Service. The
amount of deferred compensation reflected in accrued liabilities on
the consolidated balance sheets at December 31, 2004 and 2003 was
$1,503,788 and $1,386,348, respectively. Deferred compensation
expense for the three years ended December 31, 2004 was $90,247,
$99,046 and $135,240, respectively.
PENSION
The Company has a funded, non-contributory defined benefit pension
plan covering all eligible employees. The Company's method of funding
and accounting for pension costs is to fund and accrue all normal
costs plus an amount necessary to amortize past service cost over a
period of 30 years. (See Note 7 "Pension Plan").
STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations including FASB Interpretation No. 44, "Accounting for
F-11
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
Certain Transactions Involving Stock Compensation, an Interpretation
of APB Opinion No. 25," issued in March 2000, to account for its
variable plan stock options. Under this method, compensation expense
is recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price, except for stock
appreciation rights and other variable stock option plans.
Compensation expense relating to such variable plans shall be measured
at the end of each period as the amount which the quoted market value
of shares covered by a grant exceeds the option price. The Company
accounts for these plans as a variable plan. SFAS No. 123,
"Accounting for Stock-Based Compensation," established accounting and
disclosure requirements using a fair value-based method of accounting
for stock-based employee compensation plans. As allowed by SFAS No. 123,
the Company has elected to continue to apply the intrinsic value-
based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure - an Amendment to FASB
Statement No. 123." SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, the
Statement amends the disclosure requirements of Statement No. 123 to
require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
SFAS No. 148 is effective for financial statements for fiscal years
ending after December 15, 2002.
The Company uses the Black-Scholes option pricing model to estimate the
grant date fair value of its option grants.
Had compensation cost for these options been determined in accordance
with SFAS No. 123, the Company's net earnings and earnings per share
would have been as follows:
2004 2003 2002
---------- ---------- ---------
Net Income As Reported $14,651,739 $13,194,395 $9,285,841
Deduct:
Stock-Based Compensation Under Fair Value
Based Method (Net of Income Tax) ( 221,595) ( 91,353) ( 92,480)
Add Back:
Stock-Based Compensation Under Intrinsic
Value Method (Net of Income Tax) 402,683 418,001 47,471
---------- --------- ---------
Pro Forma Income $14,832,827 $13,521,043 $9,240,832
========== ========== =========
Basic Earnings Per Share:
As Reported $2.60 $2.35 $1.65
Pro Forma $2.63 $2.41 $1.65
Diluted Earnings Per Share:
As Reported $2.58 $2.33 $1.65
Pro Forma $2.61 $2.39 $1.64
The fair value of stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
assumptions:
2004 2003 2002
---- ---- ----
Risk Free Interest Rate 3.22% 3.11% 4.34%
Dividend Yield .76% .99% 1.0%
Volatility 31.68% 28.77% 29.10%
Expected Option Life 7 years 7 years 7 years
F-12
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
INCOME TAXES
The Company uses the asset and liability method to account for income
taxes. Deferred income taxes result primarily from the net tax effect
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes (see Note 3, "Income Taxes").
EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share are presented in
accordance with SFAS No. 128, "Earnings Per Share." Basic earnings
per common share is computed by dividing net income by the weighted
average number of shares outstanding. Diluted earnings per common
share includes the dilutive effect of stock options (see Note 10,
"Earnings Per Share").
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash, investment
securities, accounts receivables, and notes receivable.
A majority of the Company's income property tenants consist of CVS,
Corp. and Walgreens neither of whose revenues amount to 10% of
consolidated revenues, which the Company considers good credit tenants.
The Company is diversifying its income property tenant mix with Barnes
and Noble, the acquisition, in January 2005, of an income property
with Lowe's Home Improvement Center as the tenant, and future
acquisitions of other credit tenants.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial assets and
liabilities, including cash, accounts receivable and accounts payable
at December 31, 2004 and 2003, approximate fair value because of the
short maturity of these instruments. The carrying amount of the
Company's notes receivable and notes payable approximates fair value
at December 31, 2004 and 2003, since the notes are at floating rates
or fixed rates which approximate current market rates for notes
with similar risks and maturities. The interest rate swap derivative
is carried at its fair value at December 31, 2004 and 2003.
DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITY
The Company accounts for derivatives and hedging activity under
Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (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."
All derivatives are recognized on the balance sheet at their fair
value. On the date the derivative contract is entered into, the
Company designates the derivative as a hedge of the variability of
cash flows to be paid related to a recognized liability ("cash flow
hedge"). The Company formally documents all relationships between
hedging instruments and hedged items, as well as its risk-management
objective and strategy for undertaking various hedge transactions.
This process includes linking all derivatives that are designated as
cash-flow hedges to specific liabilities on the balance sheet. The
Company also formally assesses, both at the hedge's inception and on
an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash flows
of hedged items. When it is determined that a derivative is not
highly effective as a hedge or that it has ceased to be a highly
effective hedge, the Company discontinues hedge accounting
prospectively.
F-13
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
Changes in the fair value of a derivative that is highly effective
and that is designated and qualifies as a cash-flow hedge are recorded
in other comprehensive income, until earnings are affected by the
variability in cash flows of the designated hedged item.
The Company discontinues hedge accounting prospectively when it is
determined that the derivative is no longer effective in offsetting
changes in the cash flows of the hedged item, the derivative expires
or is sold, terminated, or exercised, the derivative is re-designated
as a hedging instrument or management determines that designation of
the derivative as a hedging instrument is no longer appropriate.
When hedge accounting is discontinued, the Company continues to carry
the derivative at its fair value on the balance sheet, and recognizes
any changes in its fair value in earnings.
RECLASSIFICATIONS
Certain reclassifications were made to the 2003 accompanying
consolidated financial statements to conform to the 2004 presentation.
NOTE 2 INVESTMENT SECURITIES
- ------------------------------
The Company accounts for investment securities under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
This standard requires classification of the investment portfolio into
three categories: held to maturity, trading, and available for sale.
The Company classifies as held to maturity those securities which the
Company has the intent and ability to hold through their stated
maturity date. Investment securities, which are classified as held to
maturity, are carried at cost, adjusted for amortization of premiums
and accretion of discounts. Gains and losses are determined using the
specific identification method. For the years ended December 31,
2004, 2003, and 2002, losses of $33,829, $722, and $25,411,
respectively, were recognized on the disposition of investment
securities.
Investment securities as of December 31, 2004 and 2003 are as follows:
2004 2003
---------- ----------
Investments Held to Maturity
- ----------------------------
Debt Securities Issued by States
and Political Subdivisions of States $3,513,541 $3,762,453
Preferred Stocks 129,244 129,244
--------- ---------
Total Investments Held to Maturity $3,642,785 $3,891,697
========= =========
The contractual maturities of investment securities held to maturity
are as follows:
Maturity Date Amount
-------------- ---------
Within 1 year $ 661,861
1-5 Years 1,085,825
6-10 Years 803,788
After 10 Years 1,091,311
---------
$3,642,785
=========
F-14
NOTE 2 INVESTMENT SECURITIES (CONTINUED)
- ------------------------------------------
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses, and fair value of held-to-maturity securities by major
security type and class of security at December 31, 2004 and 2003 were
as follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
At December 31, 2004
Debt Securities Issued by States
and Political Subdivisions of States $3,513,541 $17,431 $(182,502) $3,348,470
Preferred Stocks 129,244 -- ( 27,252) 101,992
--------- ------ ------- ---------
$3,642,785 $17,431 $(209,754) $3,450,462
========= ======= ======== ==========
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
At December 31, 2003
Debt Securities Issued by States
and Political Subdivisions of States $3,762,453 $12,698 $(238,948) $3,536,203
Preferred Stocks 129,244 -- ( 41,169) 88,075
--------- ------ ------- ---------
$3,891,697 $12,698 $(280,117) $3,624,278
========= ======= ======== ==========
The following tables show the Company's investments' gross unrealized
losses and fair value, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized
loss position at December 31, 2004 and 2003, respectively. The
unrealized losses on investments in debt securities issued by states and
political subdivisions of states were caused by interest rate increases.
The contractual terms of these investments do not permit the issuer to
settle the securities at a price less than the amortized cost of the
investment. Because the Company has the ability and intent to hold
these investments until a market price recovery or maturity, these
investments are not considered other-than-temporarily impaired.
Less than 12 Months 12 Months or More Total
--------------------- --------------------- ---------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Held at December 31, 2004 Value Losses Value Losses Value Losses
--------- ---------- --------- ---------- --------- ----------
Description of Securities
Debt Securities Issued by
States and Political
Subdivisions of States $ 10,457 $ 5,535 $1,931,060 $ 176,967 $1,941,517 $ 182,502
Preferred Stocks -- -- 101,992 27,252 101,992 27,252
--------- ------ --------- ------- --------- -------
$ 10,457 $ 5,535 $2,033,052 $ 204,219 $2,043,509 $ 209,754
========= ====== ========= ======= ========= =======
F-15
NOTE 2 INVESTMENT SECURITIES (CONTINUED)
- ------------------------------------------
Less than 12 Months 12 Months or More Total
--------------------- --------------------- ---------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Held at December 31, 2003 Value Losses Value Losses Value Losses
--------- ---------- --------- ---------- --------- ----------
Description of Securities
Debt Securities Issued by
States and Political
Subdivisions of States $1,326,807 $29,768 $2,209,396 $209,180 $3,536,203 $238,948
Preferred Stocks -- -- 88,075 41,169 88,075 41,169
--------- ------ --------- ------- --------- -------
$1,326,807 $29,768 $2,297,471 $250,349 $3,624,278 $280,117
========= ====== ========= ======= ========= =======
NOTE 3 INCOME TAXES
- ---------------------
The Company accounts for income taxes under SFAS No. 109, "Accounting For
Income Taxes."
The provisions for income taxes are summarized as follows:
2004 2003 2002
---- ---- ----
Current Deferred Current Deferred Current Deferred
------------------- -------------------- -------------------
Federal $468,143 $7,399,296 $( 24,154) $7,204,198 $(369,928) $5,218,805
State 56,169 1,244,609 (145,266) 1,198,960 68,708 752,144
------- --------- ------- --------- --------- ---------
Total $524,312 $8,643,905 $(169,420) $8,403,158 $(301,220) $5,970,949
======= ========= ======= ========= ======= =========
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
The sources of these differences and the related deferred income tax
assets (liabilities) are summarized as follows:
Deferred Taxes
-------------------------
2004 2003
---------- ----------
Depreciation $( 17,491) $( 85,799)
Sales of Real Estate (28,943,281) (20,039,104)
Deferred Compensation 580,086 534,784
Basis Difference In Consolidated
Joint Venture 1,069,793 1,126,402
Revolving Fund Certificates 8,131 100,579
Charitable Contributions Carryforward 791,045 780,642
Interest Rate Swap 328,957 382,886
Other 1,039,330 635,753
Less-Valuation Allowance ( 791,045) ( 780,642)
---------- ----------
$(25,934,475) $(17,344,499)
========== ==========
F-16
NOTE 3 INCOME TAXES (CONTINUED)
- ---------------------------------
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. The ultimate
realization of deferred tax assets is dependent upon the realization
of future taxable income during the periods in which those temporary
differences become deductible. Management considers past history, the
scheduled reversal of taxable temporary differences, projected future
taxable income, and tax planning strategies in making this assessment.
As of December 31, 2004 and 2003, management believes it is more
likely than not that a portion of the Company's 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 of all
of the deferred tax assets will not be realized. As of December 31,
2004 and 2003, the valuation allowance was $791,045 and $780,642,
respectively.
Following is a reconciliation of the income tax computed at the
federal statutory rate of 35% for 2004, 2003 and 2002:
Calendar Year
-----------------------------------
2004 2003 2002
--------- --------- -------
Income Tax Expense Computed at Federal
Statutory Rate $8,336,985 $7,499,847 $5,234,450
Increase (Decrease) Resulting from:
State Income Tax, Net of Federal Income Tax Benefit 845,506 765,971 533,554
Tax Exempt Interest Income ( 66,787) ( 81,258) ( 87,423)
Adjustment to Valuation Allowance 10,403 22,063 --
Other Reconciling Items 42,110 27,115 ( 10,852)
--------- --------- -------
Provision for Income Taxes $9,168,217 $8,233,738 $5,669,729
========= ========= =========
During prior years, the Company generated a net operating loss for
income tax purposes. For Federal income tax, this loss can be carried
back to prior years, when the Company generated taxable income. For
State income tax purposes, the net operating loss can only be carried
forward against future taxable income. The Company had a net operating
loss carry forward of $6,225,065 for state income tax purposes at
December 31, 2004, which can be carried forward to 2020.
The Company's 2002 Federal Income Tax Return has been 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
adjustment would not have an impact on earnings as it would be a
balance sheet reclassification from deferred income taxes payable to
current income taxes payable. The Company and its tax advisors
believe that the income tax treatment for these transactions was
appropriate and are disputing the proposed adjustment.
F-17
NOTE 4 NOTES RECEIVABLE
- -------------------------
Notes Receivable consisted of the following:
December 31,
-------------------------
2004 2003
-------------------------
MORTGAGE NOTES RECEIVABLE
Various notes with interest rates ranging from 5.00% to
7.00% with payments due from 2005 through 2006.
Collateralized by real estate mortgages held by the Company $4,385,752 $7,977,497
Various Notes with Interest at 0%
Due in 2005 39,500 1,172,720
---------- ----------
Total Notes Receivable $4,425,252 $9,150,217
========= =========
The required annual principal receipts are as follows:
Year ending December 31, Amount
----------------------------------------------
2005 $ 2,235,411
2006 2,189,841
----------
$ 4,425,252
==========
A $1,652,472 mortgage note receivable was delinquent at December 31,
2004. The note was restructured in February 2005, with a principal
payment made at that time, bringing the note current. Additionally, a
$1,099,322 mortgage note receivable was delinquent and fully reserved
for at December 31, 2004. The property held as security for the note
was taken back by the Company in February 2005 with the note being
extinguished at that time.
NOTE 5 LAND AND DEVELOPMENT COSTS
- -----------------------------------
Real estate held for development at December 31, 2004 and 2003 is
summarized as follows:
December 31,
---------------------------
2004 2003
---------------------------
Undeveloped Land $ 1,002,370 $ 1,002,370
Land and Development 8,722,593 10,451,514
Completed Houses 97,025 97,025
---------- ----------
$ 9,821,988 $11,550,909
========== ==========
F-18
NOTE 6 NOTES PAYABLE
- ----------------------
Notes Payable consisted of the following:
December 31,
--------------------------
2004 2003
--------------------------
MORTGAGE NOTES PAYABLE
Mortgage notes payable are collateralized by real estate
mortgages held by the respective lenders. As of
December 31, 2004 and 2003, mortgage notes payable
consisted of the following:
Payable monthly based on 20-year amortization,
interest floating based on the 30-day LIBOR Market Index
rate plus 1.25%. Principal balance due July 2012 $7,516,976 $ 7,720,866
(See discussion of interest rate swap)
Interest payable quarterly at 10%, principal and outstanding
interest due October 2005 1,200,000 1,200,000
LINE OF CREDIT
A line of credit totaling $10,000,000 at December 31, 2004,
expiring July 2005, with interest at the lower of the
30-day LIBOR Market Index rate plus 1.5% or 1% below
the prime commercial lending rate -- 1,209,085
---------- ----------
$8,716,976 $10,129,951
========== ==========
The required annual principal payments on notes payable are as
follows:
Year Ending December 31, Amount
--------------------------------------------
2005 $ 1,419,174
2006 235,962
2007 254,329
2008 273,321
2009 and Thereafter (cumulative) 6,534,190
----------
$ 8,716,976
==========
Interest expense was $692,470, $715,774, and $779,974 for 2004, 2003,
and 2002, respectively.
On April 8, 2002, the Company entered into an interest rate swap
agreement to mitigate the interest rate risk on the variable rate debt
of the Company. The Company expects the cash flows related to the
swap to be highly effective in offsetting the changes in the cash
flows of the variable rate debt.
On July 1, 2002, the Company entered into an $8,000,000 long-term
financing arrangement. The new variable rate debt is for a ten-year
term, which has been fixed at a rate of 7.35% through the use of an
interest rate swap and secured by approximately 3,000 acres of the
Company's most westerly lands. The funds were used to pay off the
$7,860,000, 8.8% term note, which became due July 1, 2002.
F-19
NOTE 6 NOTES PAYABLE (CONTINUED)
- ----------------------------------
The change in the fair value of the interest rate swap, from its
inception, has resulted in the recording of an accrued liability in
the amount of $852,773 and $992,580 at December 31, 2004 and 2003,
respectively. The cumulative change in fair value, net of applicable
taxes, in the amount of $523,817 and $609,694 at December 31, 2004 and
2003, respectively, has been recorded as accumulated other
comprehensive loss, a component of shareholders' equity. This
activity represents a non-cash transaction.
In addition, the Company has placed its unsecured $10,000,000
revolving line of credit with the same financing source. There was no
outstanding balance on the line of credit at December 31, 2004. The
line of credit agreement contains restrictive covenants in regards to
debt service coverage ratio and minimum liquidity, both of which have
been met as of and for the periods ended December 31, 2004 and 2003.
The Company had letters of credit outstanding totaling $947,575 and
$2,576,942 at December 31, 2004 and 2003, respectively. These letters
of credit reserve capacity under the line of credit and guarantee
development work will be completed. The balance available to borrow
on the line of credit was $9,052,425 and $6,213,973 at December 31,
2004 and 2003, respectively. The Company is in compliance with all
debt covenants.
F-20
NOTE 7 PENSION PLAN
- ---------------------
The Company maintains a defined benefit plan for all employees who
have attained the age of 21 and completed one year of service. The
pension benefits are based primarily on years of service and the
average compensation for the highest five years during the final ten
years of employment. The benefit formula generally provides for a
life annuity benefit.
The Company's net periodic pension cost included the following
components:
December 31,
---------------------------------
2004 2003 2002
-------- ------- --------
Service Cost $227,953 $192,179 $182,503
Interest Cost on Projected Benefit Obligation 309,663 300,656 311,793
Actual Return on Plan Assets (654,431) (894,153) ( 32,453)
Net Amortization 223,938 510,320 (405,033)
------- ------- -------
Net Periodic Pension Cost $107,123 $109,002 $ 56,810
======= ======= =======
The change in projected benefit obligation is as follows:
December 31,
------------------------
2004 2003
------------------------
Benefit Obligation at Beginning of Year $ 5,026,413 $ 4,749,486
Service Cost 227,953 192,179
Interest Cost 309,663 300,656
Actuarial Loss 288,382 159,361
Benefits and Plan Expenses Paid ( 316,771) ( 375,269)
-------- ---------
Benefit Obligation at End of Year $ 5,535,640 $ 5,026,413
========= =========
The change in plan assets is as follows:
Fair Value of Plan Assets at Beginning of Year $ 5,089,576 $ 4,570,692
Actual Return on Plan Assets 654,431 894,153
Employer Contribution -- --
Plan Expenses Paid ( 85,601) ( 78,722)
Benefits Paid ( 231,170) ( 296,547)
-------- ---------
Fair Value of Plan Assets at End of Year $ 5,427,236 $ 5,089,576
========= =========
The accrued pension asset consists of the following:
Plan (Liability) Assets in Excess of Projected
Benefit Obligation $( 108,404) $ 63,163
Unrecognized Prior Service Cost 183,439 204,657
Unrecognized Net Loss ( 13,638) ( 91,813)
Unrecognized Transition Obligation ( 52,930) ( 60,417)
-------- ---------
Prepaid Pension Asset $ 8,467 $ 115,590
======== =========
F-21
NOTE 7 PENSION PLAN (CONTINUED)
- --------------------------------
Accumulated benefits obligation as of December 31, 2004 and 2003, was
$5,041,180 and $4,545,011, respectively.
The actuarial assumptions made to determine the projected benefit
obligation and the fair value of plan assets are as follows:
December 31,
------------
2004 2003
---- ----
Weighted Average Discount Rate 6.0% 6.0%
Weighted Average Asset Rate of Return 9.0% 9.0%
Compensation Scale 5.0% 5.0%
OTHER PENSION PLAN DISCLOSURE INFORMATION
- -----------------------------------------
Amortization Periods:
The transition liability (asset) re-established in January 1,
2001 is being amortized in level amounts over 11.07 years.
The excess of the unrecognized (gain) or loss (if any) over the
larger of 10% of the projected benefit obligation or 10% of the
market related value of assets is amortized in level amounts over
13.03 years.
The prior service cost re-established on January 1, 2001 is being
amortized in level amounts over 11.07 years.
The prior service cost established on January 1, 2002 is being
amortized in level amounts over 11.67 years.
Funding Policy:
Periodic employer contributions are made in conformance with minimum
funding requirements and maximum deductible limitations.
Benefit Payments and Other Disbursements:
During the measurement period, disbursements from plan assets were
as follows:
Benefit Payments $231,170
Administrative Expenses 85,601
-------
Total $316,771
=======
Unrecognized (Gain) or Loss:
The unrecognized (gain) or loss determined subsequent to last year's
measurement date is determined as follows:
Liability loss determined from the
January 1, 2004 census and included
this year's net periodic cost: $ 288,382
Asset gain occurring over the
measurement period: (210,207)
-------
Total unrecognized loss: $ 78,175
=======
F-22
NOTE 7 PENSION PLAN (CONTINUED)
- --------------------------------
Plan Assets:
The plan's weighted average asset allocations at December 31, 2004
and December 31, 2003 by asset category are as follows:
December 31, 2004 December 31, 2003
----------------- -----------------
Equity Securities: 47% 51%
Fixed Income Securities: 41% 41%
Cash and Money Market Funds: 9% 8%
REIT's 3% 0%
--- ---
Total 100% 100%
=== ===
Cash Flows:
Contributions
The Company expects the plan to be fully funded for 2005. As a
result, no contribution is anticipated during this period.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future
service as appropriate, are expected to be paid.
2005 $ 268,800
2006 269,900
2007 276,700
2008 296,500
2009 302,700
Years 2010-2014 $2,856,800
The following assumptions have been made regarding estimated
benefit payments:
All currently retired participants survive through 2014.
All currently active participants survive and retire on their
normal retirement dates.
Compensation is assumed to increase at the rate of 5% per year
for active participants to their normal retirement dates.
NOTE 8 POST-RETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
- ----------------------------------------------------------
The Company sponsors two defined benefit post-retirement plans of
certain health care and life insurance benefits for eligible retired
employees. All full-time employees become eligible to receive life
benefits if they retire after reaching age 55 with 20 or more years of
service, and supplemental medicare benefits if they reach age 65 and
20 years of service. The post-retirement health care plan is
contributory, with retiree contributions adjusted annually; the life
insurance plan is non-contributory up to $5,000 of coverage.
The accounting for the health care plan reflects caps on the amount of
annual benefit to be paid to retirees as stipulated by the plan. The
Company pays for the plan as costs are incurred.
F-23
NOTE 8 POST-RETIREMENT BENEFIT PLANS OTHER THAN PENSIONS (CONTINUED)
- ----------------------------------------------------------------------
The Company recognizes post-retirement expenses in accordance with
adopted SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other Than Pensions," which requires that expected costs of
post-retirement benefits be charged to expense during the years the
employees render service. The Company elected to amortize the
unfunded obligation measured at adoption of SFAS No. 106 over a period
of 20 years. The effect of this amortization expense recognized for
each of the three years ended December 31, 2004 was $36,000. The
accrued post-retirement benefit cost reflected in the consolidated
balance sheet at December 31, 2004 and 2003 was $99,800 and $125,232,
respectively.
NOTE 9 STOCK OPTION PLAN
- -------------------------
The Company maintains a stock option plan ("the Plan") pursuant to
which 500,000 shares of the Company's common stock may be issued. The
Plan in place was approved at the April 25, 2001 Shareholders'
meeting. Under the Plan, the option exercise price equals the stock
market price on the date of grant. The options vest over five years
and all expire after ten years. The Plan provides for the grant of
(1) incentive stock options, which satisfy the requirements of
Internal Revenue Code (IRC) Section 422, and (2) non-qualified options
which are not entitled to favorable tax treatment under IRC Section
422. No optionee may exercise incentive stock options in any calendar
year for shares of common stock having a total market value of more
than $100,000 on the date of grant (subject to certain carryover
provisions). In connection with the grant of non-qualified options, a
stock appreciation right for each share covered by the option may also
be granted. The stock appreciation right will entitle the optionee to
receive a supplemental payment, which may be paid in whole or in part
in cash or in shares of common stock equal to a portion of the spread
between the exercise price and the fair market value of the underlying
share at the time of exercise.
A summary of the status of the Company's stock options for the three
years ended December 31, 2004 and changes during the years then ended
is as follows:
2004 2003 2002
---------------- ---------------- -----------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
------- -------- ------- -------- ------- --------
Outstanding at beginning of year 134,400 $17.31 94,000 $17.31 46,000 $14.45
Granted 58,000 $31.64 58,000 $20.12 48,000 $20.05
Exercised (38,000) $18.59 (17,600) $14.70 -- --
Expired -- -- -- -- -- --
------- ----- ------ ------ ------- ------
Outstanding at end of year 154,400 $23.74 134,400 $18.86 94,000 $17.31
======= ===== ====== ===== ======= =====
Exercisable at end of year 2,800 $19.30 10,400 $19.19 9,200 $14.45
====== ===== ====== ===== ======= =====
Weighted average fair value of
options granted during the year $11.51 $6.56 $7.16
====== ====== =======
Stock appreciation rights totaling 58,000, 58,000 and 48,000 were
issued in 2004, 2003, and 2002, respectively. Stock appreciation
rights outstanding at December 31, 2004, 2003, and 2002 were 154,400,
134,400, and 94,000, respectively.
F-24
NOTE 9 STOCK OPTION PLAN (CONTINUED)
- -------------------------------------
Of the 154,400 options outstanding at December 31, 2004, 2,800 of
them were exercisable and they had a contractual life of 7.97 years.
The Company accounts for stock options using the intrinsic value
method. SFAS No. 123, "Accounting for Stock-Based Compensation,"
provides an alternative method of accounting for stock-based
compensation, which establishes a fair value method of accounting for
employee stock options.
NOTE 10 EARNINGS PER SHARE
- ---------------------------
Basic earnings per common share were computed by dividing income by
the weighted average number of shares of common stock outstanding
during the year. Diluted earnings per common share were determined
based on the assumption of the conversion of stock options using the
treasury stock method at average market prices for the periods.
2004 2003 2002
--------- --------- ---------
Income Available to Common Shareholders:
Net Income $14,651,739 $13,194,395 $9,285,841
========= ========= =========
Weighted Average Shares Outstanding 5,635,204 5,619,245 5,615,579
Common Shares Applicable to Stock Options Using
the Treasury Stock Method 53,969 34,123 11,542
--------- --------- ---------
Total Shares Applicable to Diluted Earnings
Per Share 5,689,173 5,653,368 5,627,121
========= ========= =========
Earnings Per Share
Basic $2.60 $2.35 $1.65
==== ==== ====
Diluted $2.58 $2.33 $1.65
==== ==== ====
F-25
NOTE 11 COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Company leases certain equipment, land and improvements under
operating leases.
Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of one year as of December 31, 2004,
are summarized as follows:
Year Ending December 31, Amounts
----------------------- --------
2005 $ 510,173
2006 503,996
2007 439,330
2008 527,619
2009 307,946
2010 and Thereafter (Cumulative) 6,035,000
---------
$8,324,064
=========
Rental expense under all operating leases amounted to $608,325,
$512,057, and $501,707, for the years ended December 31, 2004, 2003,
and 2002, respectively.
Additionally, the Company, as lessor, leases certain land, buildings
and improvements under operating leases.
Minimum future rental receipts under non-cancelable operating leases
having remaining terms in excess of one year as of December 31, 2004,
are summarized as follows:
Year Ending December 31, Amounts
----------------------- -----------
2005 $ 5,005,351
2006 5,042,180
2007 5,045,174
2008 5,037,989
2009 5,035,571
2010 and Thereafter (Cumulative) 53,077,718
-----------
$78,243,983
===========
Rental income under all operating leases amounted to $4,762,172,
$3,275,342, and $2,061,833, for the years ended December 31, 2004,
2003, and 2002, respectively.
NOTE 12 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.
F-26
NOTE 12 BUSINESS SEGMENT DATA (CONTINUED)
- -----------------------------------------
Information about the Company's operations in different segments for
each of the three years ended December 31 is as follows (amounts in
thousands):
2004 2003 2002
--------------------------------------------
Revenues:
Real Estate $ 32,640 $25,496 $20,627
Income Properties 4,766 3,276 2,062
Golf 4,579 4,373 4,227
General, Corporate and Other 1,213 1,746 1,615
------ ------ ------
$ 43,198 $34,891 $28,531
====== ====== ======
Income (Loss):
Real Estate $ 24,939 $22,774 $16,350
Income Properties 3,940 2,681 1,662
Golf ( 1,199) (1,185) (1,264)
General, Corporate and Other ( 3,860) (2,842) (1,792)
------ ------ ------
$23,820 $21,428 $14,956
====== ====== ======
Identifiable Assets:
Real Estate $ 14,446 $18,526 $15,774
Income Properties 62,167 41,434 25,243
Golf 9,708 10,026 10,410
General, Corporate and Other 32,900 27,920 22,899
------ ------ ------
$119,221 $97,906 $74,326
======= ====== ======
Depreciation and Amortization:
Real Estate $ 79 $ 114 $ 46
Income Properties 785 548 330
Golf 414 410 408
General, Corporate and Other 66 48 23
------ ------ ------
$ 1,344 $ 1,120 $ 807
====== ====== ======
Capital Expenditures:
Real Estate $ 304 $ 29 $ 141
Income Properties 20,261 15,478 3,156
Golf 68 18 50
General, Corporate and Other 196 65 124
------ ------ ------
$20,829 $15,590 $ 3,471
====== ====== ======
Income represents income (loss) from continuing operations 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, notes receivable and
property, plant and equipment.
F-27
NOTE 13 RELATED PARTIES
- -------------------------
William J. Voges, a director of the Company, serves as an
officer and director of the Managing Member of Silver Holly
Development, LLC, and serves or may serve as Trustee or Successor
Trustee to its members. On December 28, 2004, Silver Holly
Development, LLC , purchased 4.57 acres at a purchase price of
$1,073,858 from the Company. This contract contains a provision to
purchase impact fee credits (estimated $60,000 to $70,000), if needed,
from the Company. This was a cash transaction at market value and on
prevailing market terms and conditions.
F-28
QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
March 31, June 30, September 30, December 31,
--------------------- --------------------- -------------------- ----------------------
2004 2003 2004 2003 2004 2003 2004 2003
--------- ---------- --------- ---------- --------- --------- ---------- ----------
$ $ $ $ $ $ $ $
Income:
Real Estate Operations:
Real Estate Sales
Sales and Other
Income 1,037,003 3,318,469 1,951,488 720,303 1,949,400 807,471 27,702,129 20,649,421
Costs and Other
Expenses ( 719,157) ( 662,861) ( 813,394) ( 574,176) ( 676,455) ( 443,087)( 5,491,769)(1,041,500)
--------- --------- --------- --------- --------- --------- ---------- ----------
317,846 2,655,608 1,138,094 146,127 1,272,945 364,384 22,210,360 19,607,921
--------- --------- --------- --------- --------- --------- ---------- ----------
Income Properties
Leasing Revenues and
Other Income 900,014 715,737 1,210,446 826,385 1,330,986 877,368 1,324,277 856,572
Costs and Other
Expenses ( 172,480) ( 130,470) ( 213,241) ( 147,161) ( 219,327) ( 145,132) ( 221,011) ( 171,757)
--------- --------- -------- --------- ------- -------- --------- --------
727,534 585,267 997,205 679,224 1,111,659 732,236 1,103,266 684,815
--------- --------- -------- --------- ------- -------- --------- --------
Golf Operations
Sales and Other
Income 1,391,802 1,272,718 1,232,714 1,173,970 710,610 847,139 1,244,057 1,079,587
Costs and Other
Expenses (1,411,975) (1,361,788) (1,491,551) (1,471,569)(1,303,469)(1,345,242) (1,571,276)(1,380,179)
--------- --------- --------- --------- --------- -------- --------- ---------
( 20,173) ( 89,070) ( 258,837) ( 297,599) ( 592,859)( 498,103) ( 327,219) ( 300,592)
--------- --------- --------- --------- --------- -------- --------- ---------
Total Real Estate
Operations 1,025,207 3,151,805 1,876,462 527,752 1,791,745 598,517 22,986,407 19,992,144
Profit on Sales of
Other Real Estate
Interests 36,327 359,112 17,225 164,039 38,975 12,500 117,186 96,224
Interest and Other
Income 210,999 257,007 162,328 228,583 164,760 209,393 465,620 419,091
--------- --------- -------- --------- --------- --------- --------- ----------
1,272,533 3,767,924 2,056,015 920,374 1,995,480 820,410 23,569,213 20,507,459
General and
Administrative
Expenses (1,485,212) ( 977,534) (1,262,187) (1,291,073) ( 814,493) ( 997,333) ( 1,511,393)(1,322,094)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (Loss) Before
Income Taxes ( 212,679) 2,790,390 793,828 ( 370,699) 1,180,987 ( 176,923) 22,057,820 19,185,365
Income Taxes 81,640 (1,057,691) (302,795) 138,643 ( 448,452) 66,323 ( 8,498,610)(7,381,013)
--------- --------- --------- --------- --------- --------- ---------- ---------
Net Income (Loss) ( 131,039) 1,732,699 491,033 ( 232,056) 732,535 ( 110,600) 13,559,210 11,804,352
===========================================================================================
Per Share Information
Basic $(0.02) $0.31 $0.08 $(0.04) $0.13 $(0.02) $2.41 $2.10
========== ========= ========= ========= ======== ========= ========== ========
Diluted $(0.02) $0.31 $0.08 $(0.04) $0.13 $(0.02) $2.39 $2.08
========== ========= ========= ========= ========= ========= ========== ========
F-29
EXHIBIT 31.1
CERTIFICATIONS
I, William H. McMunn, certify that:
1. I have reviewed this annual report on Form 10-K of
Consolidated-Tomoka Land Co.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f))for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting,
or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors:
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
By: /s/ William H. McMunn
---------------------
William H. McMunn
President and Chief Executive Officer
Date: March 14, 2005
EXHIBIT 31.2
CERTIFICATIONS
I, Bruce W. Teeters, certify that:
1. I have reviewed this annual report on Form 10-K of
Consolidated-Tomoka Land Co.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f))for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting,
or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors:
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
By: /s/ Bruce W. Teeters
--------------------
Bruce W. Teeters
Senior Vice President-Finance
and Treasurer
Date: March 14, 2005
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
In connection with the Annual Report of Consolidated-Tomoka Land Co.
(the "Company") on Form 10-K for the period ending December 31, 2004
as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, William H. McMunn, President and Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirement of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
/s/ William H. McMunn
- ---------------------
William H. McMunn
President and
Chief Executive Officer
March 14, 2005
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
In connection with the Annual Report of Consolidated-Tomoka Land Co.
(the "Company") on Form 10-K for the period ending December 31, 2004
as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Bruce W. Teeters, Senior Vice President -
Finance and Treasurer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirement of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
/s/ Bruce W. Teeters
- --------------------
Bruce W. Teeters
Senior Vice President-
Finance and Treasurer
March 14, 2005