UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
___ OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 0-5556
CONSOLIDATED-TOMOKA LAND CO.
(Exact name of registrant as specified in its charter)
Florida 59-0483700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1530 Cornerstone Blvd., Suite 100
Daytona Beach, Florida 32117
(Address of principal executive offices) (Zip Code)
(386) 274-2202
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined by rule 12b-2 of the Exchange Act).
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding
May 1, 2005
$1.00 par value 5,662,916
1
CONSOLIDATED-TOMOKA LAND CO.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2005 and December 31, 2004 3
Consolidated Statements of Income -
Three Months Ended March 31, 2005 and 2004 4
Consolidated Statement of Shareholders' Equity and
Comprehensive Income
Three Months Ended March 31, 2005 5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2005 and 2004 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Item 4. Controls and Procedures 16
PART II -- OTHER INFORMATION 17
SIGNATURES 18
2
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
2005 2004
------------ -----------
ASSETS
Cash $ 462,966 $ 273,911
Restricted Cash 32,110,043 27,717,882
Investment Securities 4,491,763 3,642,785
Notes Receivable 4,334,979 4,425,252
Land and Development Costs 10,702,595 9,821,988
Intangible Assets 3,248,124 2,726,763
Other Assets 2,493,446 2,034,530
---------- ----------
$ 57,843,916 $50,643,111
---------- ----------
Property, Plant and Equipment:
Land, Timber and Subsurface Interests $ 2,071,931 $ 2,091,080
Golf Buildings, Improvements and Equipment 11,363,137 11,345,915
Income Properties Land, Buildings and Improvements 68,301,231 58,703,711
Other Furnishings and Equipment 1,365,112 1,228,400
---------- ----------
Total Property, Plant and Equipment 83,101,411 73,369,106
Less Accumulated Depreciation and Amortization (5,139,908) (4,791,243)
---------- ----------
Net - Property, Plant and Equipment 77,961,503 68,577,863
---------- ----------
TOTAL ASSETS $135,805,419 $119,220,974
=========== ===========
LIABILITIES
Accounts Payable $ 87,884 $ 405,609
Accrued Liabilities 5,130,808 3,895,125
Income Taxes Payable 1,449,863 658,040
Deferred Income Taxes 30,932,964 25,934,475
Notes Payable 8,663,627 8,716,976
---------- ----------
TOTAL LIABILITIES $ 46,265,146 $ 39,610,225
---------- ----------
SHAREHOLDERS' EQUITY
Common Stock 5,655,995 5,641,722
Additional Paid in Capital 3,266,205 2,176,184
Retained Earnings 81,003,369 72,316,660
Accumulated Other Comprehensive Loss (385,296) (523,817)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 89,540,273 79,610,749
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $135,805,419 $119,220,974
=========== ===========
See accompanying Notes to Financial Statements.
3
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
---------------------------
March 31, March 31,
2005 2004
---------------------------
$ $
INCOME:
Real Estate Operations:
Real Estate Sales
Sales and Other Income 20,187,813 1,037,003
Costs and Other Expenses (3,624,054) (719,157)
---------- ---------
16,563,759 317,846
---------- ---------
Income Properties
Leasing Revenues and Other Income 1,437,255 900,014
Costs and Other Expenses (262,637) (172,480)
---------- ---------
1,174,618 727,534
---------- ---------
Golf Operations
Sales and Other Income 1,457,575 1,391,802
Costs and Other Expenses (1,517,549) (1,411,975)
---------- ---------
(59,974) (20,173)
---------- ---------
Total Real Estate Operations 17,678,403 1,025,207
Profit on Sales of Other Real Estate Interests 23,000 36,327
Interest and Other Income 224,350 210,999
---------- ---------
Operating Income 17,925,753 1,272,533
General and Administrative Expenses (3,138,999) (1,485,212)
---------- ---------
Income (Loss) Before Income Taxes 14,786,754 (212,679)
Income Taxes (5,704,321) 81,640
---------- ---------
Net Income (Loss) 9,082,433 (131,039)
========== =========
PER SHARE INFORMATION:
Basic Income (Loss) Per Share $1.61 ($0.02)
========== =========
Diluted Income (Loss) Per Share $1.59 ($0.02)
========== =========
Dividends $0.07 $0.06
========== =========
See accompanying Notes to Financial Statements.
4
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED)
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Shareholders' Comprehensive
Stock Capital Earnings Income Equity Income
--------- -------- ---------- ---------- ---------- -----------
Balance,
December 31, 2004 $5,641,722 $2,176,184 $72,316,660 ($523,817) $79,610,749
Net Income 9,082,433 9,082,433 9,082,433
Other Comprehensive
Income:
Cash Flow Hedging
Derivative, Net
of Tax 138,521 138,521 138,521
---------
Comprehensive Income $9,220,954
=========
Stock Options 14,273 1,090,021 1,104,294
Cash Dividends
($.07 per share) (395,724) (395,724)
--------- --------- ---------- ---------- -----------
Balance,
March 31, 2005 $5,655,995 $3,266,205 $81,003,369 ($385,296) $89,540,273
========= ========= ========== ========== ===========
See accompanying Notes to Financial Statements.
5
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
--------------------------
March 31, March 31,
2005 2004
---------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 9,082,433 $ (131,039)
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation and Amortization 399,731 285,459
Loss on Sale of Property, Plant & Equipment 19,148 1,410
Non Cash Compensation 1,090,021 133,013
Decrease (Increase) in Assets:
Notes Receivable 90,273 2,532,299
Land and Development Costs (880,607) (464,743)
Other Assets (458,916) 320,730
(Decrease) Increase in Liabilities:
Accounts Payable (317,725) 77,400
Accrued Liabilities 1,374,204 285,525
Income Taxes Payable 791,823 256,959
Deferred Income Taxes 4,998,489 (420,290)
---------- ----------
Net Cash Provided By Operating Activities 16,188,874 2,876,723
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of Property, Plant, and Equipment (9,751,453) (12,643,655)
Intangible Assets (572,427) (932,612)
Decrease (Increase) in Restricted Cash for Acquisitions
Through the Like-Kind Exchange Process (4,392,161) 12,779,005
Net Increase in Investment Securities (848,978) (1,506,461)
---------- ----------
Net Cash Used In Investing Activities (15,565,019) (2,303,723)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable -- 1,349,000
Payments on Notes Payable (53,349) (2,360,664)
Cash Proceeds from Exercise of Stock Options 14,273 11,220
Dividends Paid (395,724) (337,445)
---------- ----------
Net Cash Used In Financing Activities (434,800) (1,337,889)
---------- ----------
Net Increase (Decrease) In Cash 189,055 (764,889)
Cash, Beginning of Year 273,911 1,026,210
---------- ----------
Cash, End of Period $ 462,966 $ 261,321
========== ==========
See accompanying Notes to Financial Statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Interim Statements. The unaudited consolidated
financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and note disclosures, which are normally included in
annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America,
have been or omitted pursuant to those rules and regulations. The
consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary to present fairly the
Company's financial position and the results of operations for the
interim periods. The consolidated format is designed to be read
in conjunction with the last annual report. For further
information refer to the consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2004.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Inter-company balances
and transactions have been eliminated in consolidation.
2. Common Stock and Earnings Per Share. Basic earnings per common
share were computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the
period. Diluted earnings per common share are based on the
assumption of the conversion of stock options at the beginning of
each period using the treasury stock method at average cost for
the periods.
March 31, March 31,
2005 2004
---------- ----------
Income (Loss) Available to Common Shareholder:
Net Income (Loss) $9,082,433 $ (131,039)
========= =========
Weighted Average Shares Outstanding 5,649,799 5,629,347
Common Shares Applicable to Stock
Options Using the Treasury Stock Method 67,784 --
--------- ---------
Total Shares Applicable to Diluted Earnings Per Share 5,717,583 5,629,347
========= =========
Earnings (Loss) Per Share:
Basic $1.61 ($0.02)
========= =========
Diluted $1.59 ($0.02)
========= =========
7
3. Notes Payable. Notes payable consist of the following:
March 31, 2005
------------------------------
Due Within
Total One Year
------------------------------
$10,000,000 Line of Credit $ -- $ --
Mortgage Notes Payable 8,663,627 1,423,230
--------- ---------
$ 8,663,627 $ 1,423,230
========= =========
Payments applicable to reduction of principal amounts will be
required as follows:
Year Ending March 31,
---------------------
2006 $ 1,423,230
2007 240,326
2008 259,025
2009 278,374
2010 315,264
2011 & thereafter 6,147,408
---------
$ 8,663,627
=========
In the first three months of 2005 and 2004, interest totaled $168,075
and $173,229 respectively.
8
4. Stock Options. The Company applies the intrinsic value-based
method of accounting for stock options to its variable stock
compensation plan as allowed by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," and SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - An Amendment to
Financial Accounting Standards Board ("FASB") Statement No. 123."
Had compensation expense for the stock compensation plan been
determined in accordance with SFAS No. 123 using the fair value-
based method the Company's net income (loss) and income (loss)
per share would have been as follows:
Three Months Ended
March 31, March 31,
2005 2004
------------------------------
Net Income (Loss):
As reported $ 9,082,433 $ (131,039)
Deduct:
Stock-Based Compensation
Under Fair Value Based Method
(Net of Tax) (208,879) (91,822)
Add Back:
Stock Based Compensation
Under Intrinsic Value Method 633,318 82,117
(Net of Tax)
--------- ---------
Pro Forma Income (Loss) $ 9,506,872 $ (140,744)
========= =========
Income (Loss) Per Share
As Reported
Basic $1.61 ($0.02)
Diluted $1.59 ($0.02)
Pro Forma
Basic $1.68 ($0.02)
Diluted $1.66 ($0.02)
In December 2004, the FASB issued SFAS No. 123R, "Share-Based
Payment" ("SFAS No. 123R"). This statement revises SFAS No. 123
and among other changes, requires a public entity to measure the
cost of stock-based compensation on the grant date of the award at
fair-value. The cost will be recognized over the period during
which an employee is required to provide service in exchange for
the award, usually the vesting period. The Securities and
Exchange Commission has deferred the effective date for SFAS No.
123R. Companies previously required to adopt SFAS No. 123R at the
beginning of the first interim period after June 15, 2005, may now
adopt the provision at the beginning of their first annual period
beginning after June 15, 2005. The Company is in the process of
evaluating the effect the adoption of SFAS No. 123R will have on
its financial statements.
9
5. Pension Plan. The Company maintains a defined benefit pension
plan. The pension benefits are based primarily on years of service
and average compensation. The benefit formula provides for a life
annuity benefit.
Following are the components of the Net Period Benefit Cost:
Three Months Ended
March 31, March 31,
2005 2004
-------- --------
Service Cost $ 60,680 $ 56,988
Interest Cost 86,011 77,416
Expected Return on Plan Assets (118,596) (111,056)
Net Amortization 3,432 3,433
-------- ---------
Net Periodic Benefit Cost $ 31,527 $ 26,781
========= =========
As previously disclosed in the Company's financial statements for
the year ended December 31, 2004, the Company expects the plan
to be fully funded for 2005. As a result, no contribution is
anticipated for this period.
6. Exchange of Non-Monetary Assets. In December 2004, the FASB
issued Statement No. 153, Exchange of Non-monetary Assets - an
amendment of APB Opinion No. 29 ("Statement 153"). The guidance
in APB Opinion 29, Accounting for Non-monetary Transactions, is
based on the principle that exchanges of non-monetary assets
should be measured based on the fair value of the assets
exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. Statement 153 amends Opinion
No. 29 to eliminate the exception for non-monetary assets that do
not have commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange.
Statement 153 is effective for non-monetary exchanges occurring in
fiscal periods beginning after June 15, 2005. The impact of
adopting Statement 153 is not expected to have a material impact on
the Company's financial position or result of operations.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS.
--------------------------
The Management's Discussion and Analysis of Financial Condition and
Results of Operations is designed to be read in conjunction with the
financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations in the last annual
report.
"Safe Harbor"
Certain statements contained in this Form 10-Q (other than the
financial statements and statements of historical fact), are forward-
looking statements. The words "believe," "estimate," "expect,"
"intend," "anticipate," "will," "could," "may," "should," "plan,"
"potential," "predict," "forecast," "project," and similar expressions
and variations thereof identify certain of such forward-looking
statements, which speak only as of the dates on which they were made.
Forward-looking statements are made based upon management's
expectations and beliefs concerning future developments and their
potential effect upon the Company. There can be no assurance that
future developments will be in accordance with management's
expectations or that the effect of future developments on the Company
will be those anticipated by management.
The Company wishes to caution readers that the assumptions, which form
the basis for forward-looking statements with respect to or that may
impact earnings for the year ended December 31, 2005, and thereafter,
include many factors that are beyond the Company's ability to control
or estimate precisely. These risks and uncertainties include, but are
not limited to, the market demand of the Company's real estate
parcels, income properties, timber and other products; the impact of
competitive real estate; changes in pricing by the Company or its
competitors; the costs and other effects of complying with
environmental and other regulatory requirements; losses due to natural
disasters; and changes in national, regional or local economic and
political conditions, such as inflation, deflation, or fluctuation in
interest rates.
While the Company periodically reassesses material trends and
uncertainties affecting its results of operations and financial
condition, the Company does not intend to review or revise any
particular forward-looking statement referenced herein in light of
future events.
OPERATIONS OVERVIEW
- -------------------
The Company is primarily engaged in real estate land sales and
development, investment of proceeds from sale of its forestry land in
income properties, and golf course operations. The Company has
substantial land holdings in the Daytona Beach, Florida area,
including its golf operations. The Company's lands are well located in
the growing central Florida Interstate 4 corridor, providing an
excellent opportunity for reasonably stable land sales in the near
term future and following years.
With its substantial land holdings in Daytona Beach, the Company has
parcels available for the entire spectrum of real estate uses. Along
with land sales, the Company selectively develops parcels primarily
for commercial uses. Sales and development activity on and around
Company owned lands have been strong in the last three years.
11
During the first quarter of 2005, the Company sold approximately 120
acres to Florida Hospital, which has announced plans to construct a
new hospital on the property located north of the I-95 interchange at
LPGA Blvd. Also during the quarter, a 54-acre residential site was
sold. These development and sales activities along with additional
activities, which took place prior to 2005, including development of
the Cornerstone Office Park and occupation of the first office
building, development and sales within the 250-acre Gateway Commerce
Park industrial and distribution park, the development of the second
phase of Daytona Beach Auto Mall, the future relocation of Halifax
Medical Center, along with the sale of substantially all of the
remaining land within the LPGA International community, and lands west
of LPGA Blvd. for a large-scale residential community, tend to create
additional buyer interest and sales opportunities. A strong backlog
of contracts is in place for closing in 2005 and future years. It is
management's priority to convert this backlog into closings.
The Company continues, when appropriate, to utilize its strategy of
investing in income properties through the like-kind exchange process
with proceeds of forestry land sales qualifying for income tax
deferral. At March 31, 2005, the Company had approximately $70
million invested in seventeen income properties through this process
with an additional $32 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.
With this investment, base lease income in excess of $5.6 million will
be generated annually. This income, along with additional net-lease
income properties, is expected to decrease the potential for earnings
volatility in future years and add to overall financial performance.
The Company is now in a position to consider other forms of real
estate investment to diversify and enhance potential returns.
During 2004, the Company's 2002 Federal Income Tax Return was examined
by the Internal Revenue Service (IRS). A "Notice of Proposed
Adjustment" has been received by the Company. The IRS is questioning
the deferral of gains for tax purposes on three transactions, which
took place on lands within the Company's Development of Regional
Impact. Nine additional 2002 sales transactions, on which the Company
deferred gains, were not contested by the IRS. The proposed
adjustment totals approximately $7.7 million of taxable income. If
the IRS prevails, the adjustment would result in federal income
taxes becoming currently due in the amount of approximately
$2.7 million. The Company has adequate funds from cash and
investments, as they mature, operating activities and current
financing sources, to pay the taxes should they become currently due.
The adjustment would not have an impact on 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
12
utilities, environmental impacts, density limitations, urban growth
boundaries, and other factors associated with national, regional or
local economic and political conditions. All of these factors have an
impact on the Company's three lines of business and their success.
Most directly impacted is the real estate sales and development
business currently centered in the Daytona Beach market. Pricing
levels and changes by the Company and its immediate competitors can
affect sales, although the Company generally enjoys a competitive edge
due to low costs associated with long-time land ownership and a
significant ownership position in the immediate market.
RESULTS OF OPERATIONS
- ---------------------
Summary of Operating Results
For the three months ended March 31, 2005, the Company posted net
income of $9,082,433, equivalent to $1.61 per share. These earnings
compare to the loss of $131,039, equivalent to $.02 per share,
recorded in 2004's first three month period. The significantly
improved results can be attributed to increased profits generated on
land sales and higher lease income produced from the portfolio of
income properties. Somewhat offsetting these favorable impacts were
high general and administrative costs primarily attributable to
increased stock option expense resulting from the higher price of the
Company's common stock.
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.
The following is the calculation of EBDDT:
Quarter Ended
-------------------------------------
March 31, March 31,
2005 2004
-------------------------------------
Net Income (Loss) $ 9 ,082,433 $( 131,039)
Add Back:
Depreciation and Amortization 399,731 285,459
Deferred Taxes 4,998,489 ( 420,290)
----------- ----------
Earnings Before Depreciation,
Amortization and Deferred Taxes $14,480,653 $( 265,870)
=========== ==========
EBDDT is not a measure of operating results or cash flows from
operating activities as defined by accounting principles generally
accepted in the United States of America. Further, EBDDT is not
necessarily indicative of cash availability to fund cash needs and
should not be considered as an alternative to cash flow as a measure
of liquidity. The Company believes, however, that EBDDT provides
relevant information about operations and is useful, along with net
income, for an understanding of the Company's operating results.
EBDDT is calculated by adding depreciation, amortization, and deferred
income taxes to net income (loss) as they represent non-cash charges.
13
The substantial rise in EBDDT, when compared to the prior year's same
period, is not only the result of the greater income generated from
land sales and income properties, but is also due to the increased add
back for both depreciation and amortization and deferred taxes.
Depreciation and amortization increased due to the larger inventory of
income properties, with the addition of five properties in the first
five months of 2004 and an additional property in January 2005.
Higher deferred income taxes were generated on the deferral of gains,
for income tax purposes, on two land sales during the period.
Real Estate Operations
- ----------------------
Real Estate Sales
- -----------------
The sale of 174 acres of land during the first quarter of 2005
generated revenues and profits totaling $20,187,813 and $16,563,759,
respectively. These sales included the sale of approximately 120
acres north of the I-95 interchange at LPGA Blvd. to Florida Hospital
for the future site of their hospital to be constructed. During the
first quarter of 2004, the sale of 8 acres of property produced
profits of $317,846 on revenues totaling $1,037,003.
Income Properties
- -----------------
The addition of five new properties in the first five months of 2004
and one property in 2005 to date resulted in a 60% gain in revenues
and a 61% increase in profits from income properties during the first
quarter of 2005 when compared to 2004's same period. Revenues and
profits of $1,437,255 and $1,174,618, respectively, were generated in
the first three months of 2005, with revenues and profits totaling
$900,014 and $727,534, respectively, produced in 2004's same period.
Golf Operations
- ---------------
For the first quarter of 2005 golf operations recorded a loss of
$59,974. This loss represented a slight downturn from the loss of
$20,173 posted in 2004's same period, despite a 5% increase in
revenues. The gain in revenues, to $1,457,575, was generated on a 7%
rise in golf activities offset by a 2% decline in food and beverage
revenues. The average rate per round played increased 7% for the
current year three-month period over last year's first quarter, with
the number of rounds played decreasing 1%. The fall in food and
beverage revenues was primarily due to a decline in banquet activity.
Costs and expenses from golf operations rose 7% over the prior year
to $1,517,549. This increase was due to higher repair and maintenance
costs combined with a rise in compensation costs.
General Corporate and Other
- ---------------------------
During the first quarter of 2005, the release of subsurface interests
on 126 acres produced income of $23,000. For the same period of 2004
income of $36,327 was realized on releases on 462 acres.
Interest and other income rose 6% to $224,350 in 2005, with $210,999
generated in 2004's first three-month period. The gain was primarily
attributed to higher interest earned on funds held for investment in
income properties through like-kind exchange transactions. This gain
was offset by lower interest on mortgage notes receivable due to
principal collections in 2004.
General and administrative expenses totaling $3,138,999 represented a
substantial increase over the prior year's general and administrative
expenses amounting to $1,485,212. Significantly higher stock options
expense, the result of a jump in the Company's stock price, accounted
for approximately $1,500,000 of this gain. Higher compensation costs
and accounting and auditing fees associated with compliance with the
Sarbanes-Oxley Act also contributed to the increase.
14
Liquidity and Capital Resources
- -------------------------------
At March 31, 2005, the Company had cash amounting to $462,966 with an
additional $32,110,043 being held by a qualified intermediary for
investment in income properties through the like-kind exchange
process. Cash increased $189,055 during the three-month period with
$16,188,874 provided from operating activities, $15,565,019 used for
investing activities, and $434,800 used in financing activities.
The cash provided from operating activities principally resulted from
land sales, including the deferral of the income taxes associated
with the gains on the sales, and lease income.
Investing activities included the addition of property, plant and
equipment totaling $10,323,880, including the purchase of the Lowe's
Home Improvement Center in Lexington, North Carolina, and the value
associated with the lease on the property. Also included in investing
activities was a $4,392,161 increase in cash held for reinvestment in
income properties. This restricted cash decreased with the purchase
of one income property and increased with the addition of funds from
the first quarter land sales. During the period, the Company also
received funds back from the qualified intermediary in the amount of
$2,419,105. These funds were funds from prior year's land sales for
which the Company was unable to identify suitable properties for
reinvestment.
The payment of dividends totaling $395,724, equivalent to $.07 per
share, substantially accounted for the net cash used in financing
activities. Additionally, notes payable was reduced $53,349 in the
first quarter. Debt totaled $8,663,627 at March 31, 2005, with no
balance outstanding on the unsecured revolving line of credit.
Capital requirements for the remainder of 2005, in addition to the
funds to be invested in additional income properties, approximate
$1,000,000. These expenditures are centered around road development
and construction on the Company's core Daytona Beach area lands.
These projects will be funded from cash on hand and investment
securities, as they mature, operations and existing financing sources
in place. In addition to these sources, the Company has the ability
to borrow against its income properties, as they are currently free of
debt. As additional funds become available through qualified sales,
the Company expects to invest in additional income properties.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The profit on sales of real estate is accounted for in accordance with
the provisions of SFAS No. 66, "Accounting for Sales of Real Estate."
The Company recognizes revenue from the sale of real estate at the
time the sale is consummated unless the property is sold on a deferred
payment plan and the initial payment does not meet criteria
established under SFAS No. 66, or the Company retains some form of
continuing involvement with the property. No income was deferred for
the first three months of 2005 or 2004, as sales have met the
established criteria.
In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," the Company has reviewed the
recoverability of long-lived assets, including real estate and
development and property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may or may not be recoverable. Real estate and
development is evaluated for impairment by estimating sales prices
less costs to sell. Impairment on income properties and other
property, plant, and equipment is measured using an undiscounted cash
flow approach. There has been no material impairment of long-lived
assets reflected in the consolidated financial statements.
15
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. A liability in the amount of $627,261
has been established on the Company's balance sheet. The change in
fair value, net of applicable taxes, since the agreement was entered
into, in the amount of $385,296 at March 31, 2005, has been recorded
as accumulated other comprehensive loss, a component of shareholders'
equity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ---------------------------------------------------------
The principal market risk (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is
interest rates. The objective of the Company's asset management
activities is to provide an adequate level of liquidity to fund
operations and capital expansion, while minimizing market risk. The
Company utilizes overnight sweep accounts and short-term investments
to minimize the interest rate risk. The Company does not actively
invest or trade in equity securities. The Company does not believe
that its interest rate risk related to cash equivalents and short-term
investment securities is material due to the nature of the
investments.
The Company manages its debt, considering investment opportunities and
risk, tax consequences, and overall financial strategies. The Company
is primarily exposed to interest rate risk on its $8,000,000
($7,463,627 at March 31, 2005) long-term mortgage. The borrowing
bears a variable rate of interest based on market rates. Management's
objective is to limit the impact of interest rate changes on earnings
and cash flows and to lower the overall borrowing costs. To achieve
this objective the Company entered into an interest rate swap
agreement during the second quarter of 2002, which effectively fixed
the interest rate paid by the Company.
ITEM 4. CONTROLS AND PROCEDURES.
- ---------------------------------
As of the end of the period covered by this report, an evaluation was
carried out under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO"), of the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-
15(e) or 15d-15(e)under the Securities and Exchange Act of 1934 (the
"Exchange Act")). Based on that evaluation, the CEO and CFO have
concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. There
were no changes in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) or 15d-15(f)under the Exchange
Act) during the first 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.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings to which
the Company or its subsidiaries is a party.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of equity securities by the issuer and
affiliated purchasers.
ISSUER PURCHASES OF EQUITY SECURITIES
-------------------------------------
Period (a) Total (b) Average Price (c)Total Number (d) Maximum Number
Number of Paid Per Share of Shares (or Approximate
Shares Purchased Dollar Value)
Purchased as Part of of Shares That
Publicly May Yet Be
Announced Purchased Under
Plans or The Plans or
Programs Programs
- -------------------------- ---------- -------------- ------------- -----------------
January 1 - January 31, 2005 -- -- -- --
February 1 - February 28, 2005 200 $47.465 -- --
March 1 - March 31, 2005 -- -- -- --
---------- ------------- ------------- ----------------
Total 200 $47.465 -- --
========== ============= ============= ================
During February 2005, 200 shares of stock were delivered to the
Company on the exercise of stock options.
Item 3 through 5.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 31.1 - Certification furnished pursuant to
Section 302 of the Sarbanes-Oxley
Act of 2002
Exhibit 31.2 - Certification furnished pursuant to
Section 302 of Sarbanes-Oxley Act of
2002.
Exhibit 32.1 - Certification pursuant to 18 U.S.C.
Section 1350, as Adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 32.2 - Certification pursuant to 18 U.S.C.
Section 1350, as Adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned there unto duly authorized.
CONSOLIDATED-TOMOKA LAND CO.
(Registrant)
Date: May 10, 2005 By:/s/ William H. McMunn
----------------------------
William H. McMunn, President
and Chief Executive Officer
Date: May 10, 2005 By:/s/ Bruce W. Teeters
----------------------------
Bruce W. Teeters, Senior
Vice President - Finance
and Treasurer
18
EXHIBIT 31.1
CERTIFICATIONS
I, William H. McMunn, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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: May 10, 2005
EXHIBIT 31.2
CERTIFICATIONS
I, Bruce W. Teeters, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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: May 10, 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 Quarterly Report of Consolidated-Tomoka Land
Co. (The "Company") on Form 10-Q for the period ending March 31, 2005,
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 requirements 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
May 10, 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 Quarterly report of Consolidated-Tomoka Land
Co. (The "Company") on Form 10-Q for the period ending March 31, 2005,
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 requirements 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
May 10, 2005