SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
___ OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
___ TRANSITION REPORT PURSUANT TO SECTIONS 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.)
149 South Ridgewood Avenue
Daytona Beach, Florida 32114
(Address of principal executive offices) (Zip Code)
(386) 255-7558
(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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding
November 1, 2002
$1.00 par value 5,615,579
1
CONSOLIDATED-TOMOKA LAND CO.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
September 30, 2002 and December 31, 2001 3
Consolidated Condensed Statements of Income -
Quarter Ended and Nine Months Ended
September 30, 2002 and 2001 4
Consolidated Statement of Shareholders' Equity -
Nine Months Ended September 30, 2002 5
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 2002 and 2001 6
Notes to Consolidated Condensed Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Controls and Procedures 18
PART II -- OTHER INFORMATION 19
SIGNATURES 20
2
PART I -- FINANCIAL INFORMATION
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2002 2001
------------ -----------
ASSETS
Cash $ 1,202,394 $ 2,797,868
Restricted Cash 9,824,855 --
Investment Securities 5,601,856 5,487,052
Notes Receivable 8,792,117 9,245,576
Real Estate Held for Development and Sale 8,051,609 9,189,609
Refundable Income Taxes 2,670,832 1,411,557
Other Assets 2,979,502 2,314,140
---------- ----------
$ 39,123,165 $ 30,445,802
---------- ----------
Property, Plant, and Equipment:
Land, Timber and Subsurface Interests 1,948,045 1,877,240
Golf Buildings, Improvements & Equipment 11,245,765 11,209,610
Income Properties, Land, Buildings & Improvements 19,808,770 19,808,770
Other Furnishings and Equipment 850,147 790,520
---------- ----------
Total Property, Plant & Equipment 33,852,727 33,686,140
Less Accumulated Depreciation and Amortization ( 2,507,841) ( 1,915,241)
---------- ----------
Net - Property, Plant & Equipment 31,344,886 31,770,899
---------- ----------
TOTAL ASSETS $ 70,468,051 $ 62,216,701
========== ==========
LIABILITIES
Accounts Payable $ 49,291 $ 181,712
Accrued Liabilities 4,063,328 4,321,739
Deferred Income Taxes 7,332,302 2,872,779
Notes Payable 9,321,996 9,457,698
---------- ----------
TOTAL LIABILITIES 20,766,917 16,833,928
---------- ----------
SHAREHOLDERS' EQUITY
Common Stock 5,615,579 5,615,579
Additional Paid in Capital 758,470 758,470
Retained Earnings 44,090,935 39,008,724
Accumulated Other Comprehensive Loss ( 763,850) --
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 49,701,134 45,382,773
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 70,468,051 $ 62,216,701
========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
3
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited) (Unaudited)
Quarter Ended Nine Months Ended
-------------------------- --------------------------
September 30,September 30, September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Income
Real Estate Operations:
Sales and Other Income $ 8,654,626 $ 1,724,155 $ 18,023,918 $ 6,666,578
Costs and Other Expenses (2,620,540) (2,009,651) ( 6,901,840) (5,894,499)
------------ ----------- ----------- ------------
6,034,086 ( 285,496) 11,122,078 772,079
------------ ----------- ----------- ------------
Profit on Sales of Undeveloped
Real Estate Interests 1,000 4,333 150,866 56,612
------------ ----------- ----------- ------------
Interest and Other Income 244,286 236,642 710,254 1,034,155
------------ ----------- ----------- ------------
6,279,372 ( 44,521) 11,983,198 1,862,846
General and Administrative Expenses ( 738,023) (2,135,284) ( 2,528,704) (4,037,896)
------------ ----------- ----------- ------------
Income (Loss) Before Income Taxes 5,541,349 (2,179,805) 9,454,494 (2,175,050)
Income Taxes (2,082,945) 803,011 ( 3,529,946) 801,229
------------ ----------- ----------- ------------
Net Income (Loss) $ 3,458,404 $ (1,376,794) $ 5,924,548 $ (1,373,821)
============ =========== =========== ============
Per Share Information:
Basic and Diluted
Net Income (Loss) $ 0.62 ($0.25) $ 1.06 ($0.25)
============ ============ ============ ============
Dividends $ 0.05 $0.05 $ 0.15 $0.15
============ ============ ============ ============
See accompanying Notes to Consolidated Condensed Financial Statements.
4
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
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 -- -- 5,924,548 -- 5,924,548 5,924,548
Other Comprehensive
Loss:
Cash Flow Hedging
Derivative,
Net of Tax -- -- -- ( 763,850) ( 763,850) ( 763,850)
---------
Comprehensive Income -- -- -- -- -- $5,160,698
=========
Cash Dividends
($.15 per share) -- -- ( 842,337) -- ( 842,337)
--------- ------- ---------- ---------- ----------
Balance,
September 30, 2002 $5,615,579 $758,470 $44,090,935 $( 763,850) $49,701,134
========= ======= ========== ========== ==========
5
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
----------------------------
September 30, September 30,
2002 2001
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 5,924,548 $( 1,373,821)
Adjustments to Reconcile Net Income to Net Cash
Provided By (Used In) Operating Activities:
Depreciation and Amortization 599,496 536,967
Compensation Expense on Exercise of Stock Options -- 660,834
Tax Benefit of Stock Options Exercised -- 132,297
Loss on Sale of Property, Plant and Equipment 11,262 --
Decrease (Increase) in Assets:
Notes Receivable 453,459 5,016,609
Real Estate Held for Development and Sale 1,138,000 344,110
Refundable Income Taxes ( 1,259,275) ( 377,607)
Other Assets ( 665,362) 217,440
(Decrease) Increase in Liabilities:
Accounts Payable ( 132,421) ( 113,629)
Accrued Liabilities ( 1,022,261) 1,040,544
Deferred Income Taxes 4,459,523 141,123
---------- -----------
Net Cash Provided By Operating Activities 9,506,969 6,224,867
---------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of Property, Plant, and Equipment ( 199,245) (13,839,362)
Increase in Restricted Cash for Acquisitions
Through the Like-Kind Exchange Process ( 9,824,855) --
Net Increase in Investment Securities ( 114,804) ( 1,710,407)
Proceeds from Sale of Property, Plant and Equipment 14,500 --
---------- -----------
Net Cash Used In Investing Activities (10,124,404) (15,549,769)
---------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable 9,295,000 688,000
Payments on Notes Payable ( 9,430,702) ( 1,025,093)
Cash Proceeds from Exercise of Stock Options -- 15,134
Funds Used to Repurchase Common Stock -- ( 226,521)
Dividends Paid ( 842,337) ( 836,869)
---------- ------------
Net Cash Used in Financing Activities ( 978,039) ( 1,385,349)
---------- ------------
Net Decrease in Cash ( 1,595,474) (10,710,251)
Cash, Beginning of Year 2,797,868 12,909,722
---------- ------------
Cash, End of Period $ 1,202,394 $ 2,199,471
========== ============
See accompanying Notes to Consolidated Condensed Financial Statements.
6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Principles of Interim Statements. The following unaudited
condensed 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 generally accepted accounting principles have
been condensed or omitted pursuant to those rules and
regulations. The consolidated condensed financial statements
reflect all adjustments which are, in the opinion of the
management, necessary to present fairly the Company's financial
position and the results of operations for the interim periods.
The consolidated condensed 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, 2001.
The consolidated condensed financial statements include the
accounts of the Company and its wholly owned subsidiaries.
Inter-company balances and transactions have been eliminated in
consolidation.
Certain reclassifications were made to the 2001 accompanying
consolidated financial statements to conform to the 2002
presentation.
Long-Lived Assets. In August, 2001, the FASB issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. This
Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value
of the asset. SFAS 144 requires companies to separately report
discontinued operations and extends that reporting to a
component of an entity that either has been disposed of (by
sale, abandonment, or in a distribution to owners) or is
classified as held for sale. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. The Company adopted SFAS No. 144 on January 1,
2002. There were no adjustments to long-lived assets resulting
from the adoption of SFAS No. 144 as of September 30, 2002.
Accounting for Costs Associated with Exit or Disposal
Activities. In June 2002, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS 146"). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
Issue No. 94-3 "Liability Recognition for Certain Employee
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS
146 requires that a liability for costs associated with an exit
or disposal activity be recognized when the liability is
incurred rather than when a company commits to such an activity
and also establishes fair value as the objective for initial
measurement of the liability. SFAS 146 is effective for exit
or disposal activities that are initiated after December 31,
2002. We have not yet fully assessed the impact of SFAS 146 on
our consolidated financial statements, but do not anticipate it
to be material.
Restricted Cash. Restricted cash represents cash held by an
intermediary to complete the acquisition of income properties
through the deferred income tax like-kind exchange process.
2. Common Stock and Earnings Per Common Share. Pursuant to the
stock repurchase program, approved by the Board of Directors at
their July 21, 1999 meeting, the Company repurchased 18,900
shares of its common stock at a cost of $226,521 during the
nine months ended September, 2001.
During the quarter ended September 30, 2001, 220,000 stock
options were exercised. Of these options, 170,205 were
surrendered in payment of the cash exercise price of the
remaining options. The option exercise and accrual of stock
appreciation rights resulted in compensation expense of
$660,834, and $595,862, respectively, included in general
and administrative expenses. Additionally, the exercise
resulted in $472,895 of income tax benefit, of which $132,297
was recorded as an addition to additional paid-in capital.
Basic earnings per common share are computed by dividing
net income by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings
per common share are determined 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.
8
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------- ------------
Income Available to Common
Shareholders:
Net Income (Loss) $ 3,458,404 $( 1,376,794) $ 5,924,548 $( 1,373,821)
============ ============ ============ ===========
Weighted Average
Shares Outstanding 5,615,579 5,602,790 5,615,579 5,578,375
Common Shares Applicable to
Stock Options Using the
Treasury Stock Method 12,135 -- 8,896 --
----------- ------------ ------------ -----------
Total Shares Applicable to
Diluted Earnings Per Share 5,627,714 5,602,790 5,624,475 5,578,375
=========== ============ ============ ===========
Basic and Diluted Earnings
Per Share:
Net Income (Loss) $0.62 ($0.25) $1.06 ($0.25)
=========== ============ ============ ===========
3. Notes Payable. Notes payable consist of the following:
September 30, 2002
--------------------------
Due Within
Total One Year
--------- ----------
$7,000,000 Line of Credit $ -- $ --
Mortgage Notes Payable 9,167,620 197,875
Industrial Revenue Bond 154,376 111,706
--------- ----------
$9,321,996 $ 309,581
========= ==========
Payments applicable to reduction of principal amounts will be
required as follows:
Year Ending September 30,
------------------------
2003 $ 309,581
2004 242,851
2005 215,420
2006 1,431,977
2007 & Thereafter 7,122,167
---------
$9,321,996
=========
9
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
In the first nine months of 2002 and 2001, interest totaled
$588,632 and $632,678 respectively. No interest was capitalized
during either period.
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 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. In
addition, the Company has placed its unsecured $7,000,000 revolving
line of credit with the same financing source. There is no
outstanding balance on the line of credit at this time.
The line of credit agreement contains restrictive covenants, all of
which have been met as of and for the period ended September 30,
2002.
4. 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 accounting policies of the segments are the same as those
described in the summary of significant accounting policies in the
Company's Annual Report Form 10-K. 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.
10
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Information about the Company's operation in different industries
is as follows:
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
-------------------------- --------------------------
Revenues:
Real Estate $ 7,211,979 $ 352,997 $13,219,154 $ 2,247,276
Income Properties 619,900 558,260 1,549,318 1,334,161
Golf 822,747 812,898 3,255,446 3,085,141
General, Corporate and Other 245,286 240,975 861,120 1,090,767
--------- --------- ---------- ---------
$ 8,899,912 1,965,130 $18,885,038 $ 7,757,345
========= ========= ========== =========
Income (Loss) Before Income taxes:
Real Estate $ 5,974,304 $( 175,888) $10,616,321 $ 778,890
Income Properties 522,206 453,629 1,251,516 1,034,560
Golf ( 462,424) ( 563,237) ( 745,759) (1,041,371)
General, Corporate and Other ( 492,737) (1,894,309) (1,667,584) (2,947,129)
--------- --------- --------- ---------
$ 5,541,349 $(2,179,805) $ 9,454,494 $(2,175,050)
========= ========= ========= =========
General, Corporate, and Other revenues consist of revenues from Profit on Sales of
Undeveloped Real Estate Interests, and Interest and Other Income.
5. Derivative Instruments and Hedging Activities. On January 1, 2001,
the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, but had no derivative instruments or
hedging activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments. Specifically, SFAS
133 requires that all derivative instruments be recognized as
assets or liabilities on the balance sheet at fair value.
Additionally, changes in fair value of the derivative shall be
reported as adjustments to accumulated other comprehensive income,
provided the derivative is designated as a qualifying cash flow
hedge.
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.
The change in the fair value of the interest rate swap has resulted
in the recording of an accrued liability in the amount of
$1,243,548 at September 30, 2002. The change in fair value, net of
applicable taxes, in the amount of $763,850, has been recorded as
accumulated other comprehensive loss, a component of stockholders'
equity. This activity represents a non-cash transaction.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis is designed to be read in
conjunction with the financial statements and Management's Discussion
and Analysis in the last annual report.
Certain statements contained in this report (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," 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, 2002, 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; 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.
RESULTS OF OPERATIONS
Real Estate Operations
- ----------------------
Real Estate Sales
-----------------
The sale of 301 acres of land during the third quarter of 2002
produced gross profits of $6,100,000. Land sales during the period
included the sale of 261 acres of residential property within the
LPGA International mixed-use development, including land around the
southern Legends golf course. During 2001's third quarter there
were no land sales.
12
Real Estate Sales (Continued)
----------------------------
For the first nine months of 2002, gross profits of $11,385,000
were generated on the sale of 440 acres of land. This gross profit
production represented a significant improvement over the gross
profits of $1,440,000 posted on the sale of 32 acres of land during
the first nine months of 2001.
Golf Operations
---------------
Losses from golf operations during the normally slower third
quarter totaled $462,000 in 2002, and represent an 18% improvement
over 2001's third quarter loss of $563,000. The loss reduction was
primarily achieved on a 7% decrease in costs and expenses when
compared to prior year. The cost reductions consisted of decreased
golf course maintenance costs along with lower food and beverage
costs. Overall revenues rose 1% during the three-month period as
food and beverage revenues increased 6%, while golf course revenues
decreased 1%.
For the first nine months of 2002, losses from golf operations
totaled $746,000. This loss compares to 2001's same period loss of
$1,041,000. Losses before depreciation were $436,000 and $741,000
for the nine-month period of 2002 and 2001, respectively. The 28%
improvement in bottom line results can be attributed to a 6%
increase in revenues combined with a 3% decline in costs and
expenses. The revenue gain was the result of increased activity
from the food and beverage operations, as revenues from this
operation rose 26%. Revenues from golf course activities decreased
1% during the nine-month period as higher average greens fees
offset a 16% decline in course play. The cost reductions were
realized on cost-saving golf course maintenance practices put in
place. Higher food and beverage volume somewhat offset these cost
reductions; although, improvements have been made in gross margins
realized from these operations.
Income Properties
-----------------
Revenues from income properties increased 11% during the third
quarter of 2002, due to the acquisition of a triple-net lease
property in November 2001. These gains were somewhat offset by the
year-end 2001 disposition of a portion of the auto dealership site
which was acquired in 2000. Income properties costs and expenses
declined 7% for the quarter due to expenses associated with the
auto dealership site sold. Profits from income properties totaled
$522,000 for the period a 15% improvement over profits of $454,000
posted in 2001's same period.
For the first nine months of 2002, profits from income properties
rose 21% to $1,252,000. Profits of $1,035,000 were posted in
2001's same period. This gain was generated on a 16% increase in
revenues, the result of the acquisition of two income properties in
2001, offset by the disposition of a portion of the auto dealership
site. Expenses from income properties were in line with the prior
year's costs.
13
General Corporate and Other
- ---------------------------
Profits on the sale of undeveloped real estate interests totaled
$151,000 for the nine-month period ended September 30, 2002 on the
sale of 7 acres of land and the release of subsurface interests. This
compares to the sale of 1 acre of land along with release of
subsurface interests in 2001's same period, which produced profits of
$57,000. Sales in third quarter were minimal in both years.
Interest and other income increased 3% during 2002's third quarter to
$244,000. This increase, from $237,000, was attributable to higher
interest earned on notes receivable and interest on funds held to
purchase properties through the like-kind exchange process. For the
nine-month period, interest and other income totaled $710,000 in 2002
compared to $1,034,000 in 2001. This decline was due to lower
investment interest earned on reduced investable funds over the nine-
month period compared to 2001.
General and administrative expenses decreased 65% and 37% for the
three-month and nine-month periods ended September 30, 2002,
respectively. The primary reason for these reductions was stock
option expense recorded in 2001 on the exercise of stock options and
an increase in costs associated with stock appreciation rights.
Net Income and Earnings Before Depreciation and Deferred Taxes
- --------------------------------------------------------------
Net income totaling $5,924,548, equivalent to $1.06 per share, for the
first nine months of 2002 represented a substantial improvement over
the loss of $1,373,821, equivalent to $.25 per share posted in 2001's
same period. These favorable results were attributable to the
increase in commercial land sales volume, improved financial
performance from golf operations and higher income earned from income
properties. Also contributing to the improved results were reductions
in general and administrative costs, primarily associated with stock
options expenses posted in 2001.
The Company also uses Earnings Before Depreciation 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. This measure tracks results in this area.
14
Following is the calculation of EBDDT:
Quarter Ended
-----------------------------------
September 30, September 30,
2002 2001
-----------------------------------
Net Income (Loss) $3,458,404 $(1,376,794)
Add Back:
Depreciation 201,428 185,154
Deferred Taxes 2,267,224 66,842
--------- ----------
Earnings (Loss) Before Depreciation and
Deferred Taxes $5,927,056 $(1,124,798)
========= =========
Nine Months Ended
-----------------------------------
September 30, September 30,
2002 2001
-----------------------------------
Net Income (Loss) $ 5,924,548 $(1,373,821)
Add Back:
Depreciation 599,496 536,968
Deferred Taxes 4,459,523 141,123
---------- ---------
Earnings (Loss) Before Depreciation and
Deferred Taxes $10,983,567 $( 695,730)
========== =========
EBDDT is not a measure of operating results or cash flows from
operating activities as defined by generally accepted accounting
principles. 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.
EBDDT improved dramatically for the first nine months of 2002, not
only due to the improved operating results, but also due to a
significant change in deferred taxes. The change in deferred taxes
was predominantly the result of deferring gains on land sales closed
during the period for income tax purposes through the like-kind
exchange process along with the deduction of certain deferred
compensation expenses during the period.
The sale of the 261 acres of residential land within the LPGA
International mixed-use development, along with other development and
sales activities, such as the completion and grand opening of the
USTA Florida district headquarters facility, on lands adjacent to the
LPGA International development, continues to spur buyers' interest in
15
Company owned land. Contract activity has been relatively strong
during 2002; although, it has slowed during summer months, as is
typical for the season. A significant contract backlog is in place
for closing the remainder of 2002 and in future years. Management
continues to focus its efforts on converting this contract backlog to
closings. As closings occur, qualifying gains will continue to be
deferred for income tax purposes with the acquisition of triple-net-
lease properties through the like-kind exchange process. In the event
such closings on replacement properties do not occur within the
required time frames, income taxes relative to the gains experienced
would become currently payable.
Liquidity and Capital Resources
- -------------------------------
During the nine months ended September 30, 2002, cash decreased
approximately $1,595,000. Operating activities provided cash of
$9,507,000, with investing activities using $10,124,000 and financing
activities using an additional $978,000. Financing activities included
the payment of dividends totaling $842,000, equivalent to $.15 per
share. The Company had cash, including restricted cash of $11,027,000
on its balance sheet at September 30, 2002, with an additional
$5,602,000 held in investment securities. Approximately $9,825,000
was being held by an intermediary for the purchase of income
properties utilizing like-kind exchange transactions. The Company has
three income properties under contract, for purchase prices totaling
$9,970,000. The purchase of one of these properties is expected to be
accomplished before the end of the year, with the purchases of the
other two properties to be consummated in the first quarter of 2003.
Other capital requirements for the remainder of 2002 approximate
$300,000. These funds will primarily be spent on roads, entrance
features and site development on lands adjacent to Interstate 95 in
Daytona Beach, Florida. The Company intends to finance these
expenditures with cash on hand and investment securities as they
mature, operating activities and existing financing sources.
On July 1, 2002 the Company entered into an $8,000,000 long-term
financing arrangement. The new debt is for a ten-year term, which as
variable rate debt has been effectively fixed at a rate of 7.35%
through a swap agreement, and secured by 3,000 acres of the Company's
most western lands. The funds were used to pay off the $7,860,000,
8.8% term note, which became due July 1, 2002. In addition, the
Company has placed its unsecured $7,000,000 revolving line of credit
with the same financing source. There is no outstanding balance on the
line of credit at this time. The interest rate on the line of credit
is the lower of 150 basis points above the 30-day LIBOR, or 100 basis
points below the prime rate. Currently, the income properties owned
by the Company are free of debt. The Company has the ability to
borrow against these properties on a non-recourse basis.
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."
16
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 66. No income has been deferred for the nine
months ended September 30, 2002 as sales have met the established
criteria.
In accordance with SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," the Company has reviewed the
recoverability of long-lived assets, including real estate held for
development and sale, property, plant and equipment and certain
identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may or may
not be recoverable. There has been no material impairment of long-
lived assets reflected in the consolidated financial statements.
At the time, the Company's debt was refinanced, 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 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. Through September 30, 2002, a liability
of $1,243,548 had been established on the Company's balance sheet.
Other comprehensive loss of $763,850 ($1,243,548 net of income taxes
of $479,698) was also recorded during the period. Should the Company
maintain the debt to maturity, Other Comprehensive Income or Loss will
reduce to zero and no income statement effect will be recognized.
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 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 swap agreement during the second quarter of
2002.
17
CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of 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 our disclosure controls and procedures. 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.
Subsequent to the date of their evaluation, there were no significant
changes in the Company's internal controls or in other factors that
could significantly affect the disclosure controls, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
18
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to
which the Company or its subsidiaries are a party.
Items 2 through 5.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Incorporated by Reference on Page 8
of this 10-Q report.
Exhibit 99.1 - Certification Pursuant to 18 U.S.C
Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-
Oxley Act Of 2002.
Exhibit 99.2 - Certification Pursuant to 18 U.S.C
Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-
Oxley Act Of 2002.
(b) Reports on Form 8-K
On July 24, 2002, a Form 8-K was filed reporting
under Item 4, "Changes in Registrant's Certifying
Accountant."
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CONSOLIDATED-TOMOKA LAND CO.
(Registrant)
Date: November 13, 2002
----------------------------
William H. McMunn, President
and Chief Executive Officer
Date: November 13, 2002
----------------------------
Bruce W. Teeters, Senior
Vice President - Finance
and Treasurer
20
EXHIBIT 99.1
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 quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002
-----------------------
William H. McMunn
President and
Chief Executive Officer
EXHIBIT 99.2
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 quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002
--------------------------
Bruce W. Teeters
Sr. Vice President-Finance
and Treasurer