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, 2002
---- 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.)
149 South Ridgewood Avenue
Daytona Beach, Florida 32114
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code
(386) 255-7558
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. X
---
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, 2002 was approximately
$112,592,359.
The number of shares of the Registrant's Common Stock outstanding on
March 1, 2003 was 5,615,579.
Portions of the Proxy Statement of Registrant, which the Company
expects will be dated March 14, 2003 are incorporated by reference in
Part III of this report.
"Safe Harbor"
STATEMENT UNDER THE SECURITIES REFORM ACT OF 1995
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, 2003, 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 for 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.............................................6
Item 3. LEGAL PROCEEDINGS......................................7
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....7
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................7
Item 6. SELECTED FINANCIAL DATA................................9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................10
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ..........16
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES...................16
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....16
Item 11. EXECUTIVE COMPENSATION.................................16
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................16
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........16
PART IV
Item 14. CONTROLS AND PROCEDURES ...............................17
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K...............................................18
Signatures.........................................................19
Certifications.....................................................20
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., and Palms Del Mar Inc.
Real estate operations include commercial real estate, real estate
development, residential, leasing properties for oil and mineral
exploration, and forestry operations. 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 in Florida,
with various income properties located throughout the State of
Florida.
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, gains earned on the sale of operating
properties and other miscellaneous income and expense items.
2002 2001 2000
(IN THOUSANDS)
---------------------------------
Revenues of each segment are as follows:
Real Estate $20,627 $ 3,352 $16,401
Income Properties 2,062 1,831 248
Golf 4,227 4,065 3,212
General, Corporate and Other 1,615 2,102 3,365
---------------------------------
$28,531 $11,350 $23,226
=================================
Operating income before income tax for each segment is as follows:
Real Estate $16,350 $ 1,252 $12,396
Income Properties 1,662 1,403 184
Golf (1,264) (1,329) ( 764)
General, Corporate and Other (1,792) (2,493) --
--------------------------------
$14,956 $(1,167) $11,816
================================
Identifiable assets of each segment are as follows:
Real Estate $15,774 $15,171 $20,606
Income Properties 25,243 22,643 6,333
Golf 10,410 10,769 10,285
General, Corporate and Other 22,899 13,634 26,130
-------------------------------
$74,326 $62,217 $63,354
===============================
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, 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. This development is on approximately 3,000
acres owned by the Company's real estate development subsidiary,
Indigo Development Inc. ("IDI"), the City of Daytona Beach, other
developers, and individual homesite owners. The LPGA International
development is part of a 4,500-acre tract located both west and east
of Interstate 95, which received Development of Regional Impact (DRI)
approval in 1993. The LPGA has 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 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). The property is expected to
be developed into several distinct communities, with lots sold to
major builders. The Company maintains its position as master
developer of the project.
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, now under construction, at the
Company's new Cornerstone Office Park located at the southeast
quadrant of the interchange.
Indigo Commercial Realty Inc., a commercial real estate brokerage
company formed in 1991, is the Company's agent in the marketing and
management of commercial properties. In addition to the LPGA
development, approximately 50 acres of fully developed sites located
in the Daytona Beach area and owned by Indigo Group Inc. were
available for sale at December 31, 2002. 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 the following communities: Riverwood Plantation, a 180-
acre community in Port Orange, Florida, with 16 lots remaining at
December 31, 2002; and Tomoka Heights, a 180-acre development adjacent
to Lake Henry in Highlands County, Florida. There are approximately
75 developable lots remaining to be sold including 32 fully developed
lots.
The remaining lots within Indigo Lakes, a 200-acre development
located in Daytona Beach, were sold in 2000.
IG LTD also had an inventory of fully developed non-contiguous lots
in Palm Coast. The remaining lots were sold during 2000.
FOREST PRODUCT SALES. The timber lands encompass approximately
12,500 acres west 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 of forest
fires, as occurred during the summer of 1998. The wildfires which
ravaged central Florida burned approximately 9,000 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 530,000 "surface"
acres of land owned by others in various parts of Florida, equivalent
to approximately 292,400 acres in terms of full interest. The
Company leases its interests to mineral exploration firms whenever
possible.
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 82,543 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 72,137
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
3
ITEM 1. BUSINESS (CONTINUED)
- ------ -------------------
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, 2002, there were two producing oil wells on
the Company's interests. Volume in 2002 was 115,453 barrels and
volume in 2001 was 116,341 barrels from three producing wells.
Production, in barrels, for prior recent years was: 2000 - 133,280;
1999 - 141,973; and 1998 - 138,664.
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 Florida
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 Eckerd 10,880 2000
Daytona Beach, Florida Barnes & Noble 28,000 2001
Lakeland, Florida Barnes & Noble 18,150 2001
Sanford, Florida Eckerd 11,900 2001
Palm Bay, Florida Walgreens 13,905 2001
Clermont, Florida Eckerd 13,824 2002
- ---------------------- ------------
6 Properties 96,659
====================== ============
All properties are leased on a long-term, triple-net lease basis,
with the exception of the Walgreens' site in Palm Bay, Florida, which
is leased on a double-net lease basis.
Other rental property is limited to a 17,000 square-foot office
building, and a 12-acre auto dealership site, which are located in
Daytona Beach, Florida, along with ground leases for billboards, a
communication tower site, and a hunting lease covering 8,300 acres.
The office building is under a lease/purchase agreement which is
considered a direct-financing lease. 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.
Prior to 2000, the Company had successfully implemented a strategy of
disposing of its inventory of miscellaneous income properties. During
1998, the Company sold its 50% interest in a 70,000 square-foot
shopping center located in Marion County, Florida. At the end of
1997, the Company sold an office building located in Daytona Beach,
known as Consolidated Center. The Company continues to use a portion
of the building as its headquarters.
4
ITEM 1. BUSINESS (CONTINUED)
- ------ -------------------
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. The second golf course was
constructed by the Company and opened for play in October 1998. The
first phase of the clubhouse, which consists 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.
CITRUS
- ------
The Company, under the name Lake Placid Groves, owned and operated
approximately 3,900 acres of orange and grapefruit groves located
primarily on two large parcels in Highlands County, Florida. On April
7, 1999, the Company's citrus business, Lake Placid Groves, was sold.
The Company harvested and sold both fresh and to-be-processed citrus
from its groves. In connection with the groves, the Company owned
and operated an efficient fresh fruit citrus packing plant, in which
the portion of the crop which was sold as fresh fruit was packed.
Fresh fruit sales were made by the Company to wholesale produce
distributors and retail grocery chains primarily in the Eastern and
Midwestern regions of the United States and Canada. In an effort to
achieve optimum utilization of the packing facility, the Company also
handled the fruit of other growers in the area.
That portion of the Company's citrus crop, which was not sold as
fresh fruit, was processed by Citrus World Incorporated ("Citrus
World"), an agricultural cooperative, under a participating marketing
pool agreement. Citrus World, one of the larger processors of citrus
products in the United States, pooled its own fruit with the fruit
received from the Company and other citrus growers, processed the
pooled fruit, and sold the products produced therefrom. Each
participant in the pool, including Citrus World, shared ratably in
the proceeds from the sales of these products, net of Citrus World's
actual processing and marketing costs, plus a per-unit handling fee.
Citrus World made periodic payments to all participants on their pro
rata share of net sales proceeds and made final payment after all the
products in the pool had been sold.
5
ITEM 1. BUSINESS (CONTINUED)
- ------ -------------------
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 32120-08089.
ITEM 2. PROPERTIES
- ------- ----------
Land holdings of the Company and its affiliates, all of which are
located in Florida, include: approximately 13,800 acres (including
commercial/retail sites) in the Daytona Beach area of Volusia County;
approximately 65 acres in Highlands County, adjacent to Lake Henry;
retail buildings located on 16 acres throughout Florida; and full or
fractional subsurface oil, gas, and mineral interests in approximately
530,000 "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 13,800 acres within
the city limits of Daytona Beach and small acreages in the Cities of
Ormond Beach and Port Orange. Of the 13,800 acres inside the city
limits of Daytona Beach, approximately 3,000 acres have received
development approval by governmental agencies. The 3,000 acres plus
approximately 730 acres owned by the City of Daytona Beach, 15 acres
owned by Indigo Community Development District, and 690 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. Construction of homes
around the first golf course, on 70 acres of land sold to a
residential developer, began in 1995 with the first residences
completed in early 1996. In 1999, an additional 180 acres and 44
developed lots in LPGA International were sold to Renar Development,
with 261 acres sold to MSKP in 2002. The Company continues as master
developer. 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 11,500 acres west and 2,300 acres
6
ITEM 2. PROPERTIES (CONTINUED)
- ------- ----------
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 65
acres. These are primarily in a subsidiary's inventory of residential
or industrial lands.
The Company's oil, gas, and mineral interests, which are equivalent
to full rights on 292,400 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, 2002 are: 16 lots in Riverwood Plantation, a
community of 180 acres in Port Orange, Florida; 32 developed and 43
developable 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, 2002.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
- ------ ----------------------------------------------------
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 over the five years ended December 31, 2002:
2002 $.20 1999 $.35
2001 $.20 1998 $.70
2000 $.20
7
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS (CONTINUED)
- ------ ----------------------------------------------------
Indicated below are high and low sales prices for the quarters of the
last two fiscal years. All quotations represent actual transactions.
2002 2001
--------------- ------------------
High Low High Low
--------------- ------------------
$ $ $ $
First Quarter 21.50 19.50 15.25 11.875
Second Quarter 22.90 19.86 15.20 14.20
Third Quarter 20.25 14.65 26.70 14.75
Fourth Quarter 19.25 17.49 20.62 17.60
Approximate number of shareholders of record as of February 20, 2003
(without regard to shares held in nominee or street name): 1,259.
There have been no sales of unregistered securities within the past
three years.
8
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)
2002 2001 2000 1999 1998
---------------------------------------
$ $ $ $ $
Summary of Operations:
Revenues:
Real Estate 26,916 9,248 19,860 17,130 6,388
Profit on Sales of
Other Real Estate Interest 151 57 1,379 2,115 132
Interest and Other Income 1,464 2,045 1,987 1,854 785
------ ------ ------ ------ ------
TOTAL 28,531 11,350 23,226 21,099 7,305
------ ------ ------ ------ ------
Operating Costs and Expenses 10,168 7,923 8,045 8,600 4,867
General and Administrative Expenses 3,407 4,594 3,365 2,879 2,319
Income Taxes 5,670 ( 531) 2,956 3,261 19
------ ----- ----- ------ ------
Income (Loss) From Continuing Operations 9,286 ( 636) 8,860 6,359 100
Income from Discontinued Operations
(Net of Tax) -- -- -- 9,424 1,204
------ ----- ----- ------ ------
Net Income (Loss) 9,286 ( 636) 8,860 15,783 1,304
====== ===== ===== ====== ======
Basic and Diluted Earnings per Share:
Income (Loss) from Continuing Operations 1.65 ( .11) 1.51 1.00 0.01
Net Income (Loss) 1.65 ( .11) 1.51 2.48 0.20
Dividends Paid Per Share 0.20 0.20 0.20 0.35 0.70
Summary of Financial Position:
Total Assets 74,326 62,217 63,354 63,420 50,101
Shareholders' Equity 52,858 45,383 46,555 48,034 34,698
Long-Term Debt 8,932 1,335 9,401 9,854 10,276
9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
2002 Compared to 2001
Real Estate Operations
- ----------------------
Real Estate Sales
- -----------------
The sale of 621 acres of commercial land during the twelve months of
2002 produced gross profits approximating $17,490,000. These results
represented a substantial improvement over 2001's calendar year
results when gross profits of $2,190,000 were realized on the sale of
82 acres of property. The average sales price per acre of land sold
increased to $31,390 per acre in 2002 from $29,378 per acre in 2001.
Forestry operations produced a loss of $78,000 in 2002 compared to a
loss of $12,000 in the prior year. Both years produced nominal
revenues on limited harvesting due to depressed prices along with
damage sustained from the 1998 fires, which burned approximately
9,000 acres of timber on the Company's lands.
Golf Operations
- ---------------
Revenues from golf operations rose 4% in 2002 to $4,227,000. This
gain in revenues was primarily achieved on a 22% increase in revenues
realized from food and beverage operations on increased activity.
This increase was somewhat offset by a 2% decrease in revenues from
golf course operations. The decrease from golf occurred on a 12%
decline in number of rounds played, although the average rate per
round increased 10%. Operating expenses increased 2% for the twelve
month period when compared to prior year. The rise in expenses, to
$5,490,000, was attributed to additional costs associated with the
increased food and beverage activity. Overall golf operations posted a
loss of $1,264,000 in 2002, which represented a 5% improvement over
the $1,329,000 loss recorded in 2001.
Income Properties
- -----------------
For the twelve months of 2002 profits from income properties totaled
$1,662,000. These profits represented an 18% increase over the
profits of $1,403,000 generated in 2001. Revenues rose 13% to
$2,063,000 in 2002. Revenues from income properties posted in 2001
totaled $1,831,000. The higher revenues and profits were
predominantly due to the acquisition of new properties during 2001 and
2002. Four properties were purchased throughout the year in 2001 with
one new property added in 2002. Somewhat offsetting these improved
results was lower rental income due to the sale of a portion of the
auto dealership site located in Daytona Beach, Florida.
10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS (CONTINUED)
------------------------------------
General, Corporate and Other
- ---------------------------
Profits on the sale of other real estate interests totaled $150,865
during 2002. This profit was realized on the sale of 7 acres of
property and the release of two acres of subsurface interest rights.
The sale of one acre of property and the release of subsurface
interests on 34 acres produced $56,607 for the year ended December 31,
2001.
Interest and other income declined 32% to $1,463,820 in 2002, from
$2,044,825 one year earlier. Interest and other income for 2001
included $675,000 realized on the sale of a portion of the auto
dealership site in Daytona Beach, Florida.
General and administrative expenses decreased 26% in 2002 when
compared to 2001. This decrease was primarily the result of charges
in 2001 amounting to $1,256,695 from the exercise of stock options,
along with an increase in expense from stock appreciation rights, due
to the rise in the Company's stock price.
Net Income and Earnings Before Depreciation and Deferred Taxes
- --------------------------------------------------------------
Net Income of $9,285,841, equivalent to $1.65 per share, for the year
ended December 31, 2002 represented a significant improvement over the
net loss of $635,896 posted in 2001. This turnaround was primarily
due to the substantial improvement in profits from land sales. Also
contributing to the favorable results were increased profits from
income properties due to the increased rental property inventory in
place and decreased general and administrative expenses.
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.
Following is the calculation of EBDDT:
Year Ended
-----------------------------
December 31, December 31,
2002 2001
-----------------------------
Net Income $ 9,285,841 $( 635,896)
Add Back:
Depreciation 806,842 739,007
Deferred Taxes 5,970,949 701,341
---------- ---------
Earnings Before Depreciation and Deferred Taxes $16,063,632 $ 804,452
========== =========
11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS (CONTINUED)
------------------------------------
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 and deferred income taxes to
net income as they represent non-cash charges.
EBDDT improved notably for the calendar year 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 year for
income tax purposes through the like-kind exchange process along with
the payout and deduction of some deferred compensation expenses during
the year.
Liquidity and Capital Resources
- -------------------------------
Operating activities provided a significant increase in cash during
2002, with cash totaling $13,359,503 at December 31, 2002. Of cash on
hand $12,339,527 is being held by a qualified intermediary to complete
the acquisition of income properties through the deferred tax like-kind
exchange process. Cash flows related to the sale of land are included in
investing activities on the statements of cash flows. Cash flows related
to the sale of land are included in investing activities on the
statements of cash flows. During 2002, $3,471,135 was used to acquire
property, plant and equipment. The primary asset acquired during the
year was a 13,824 square-foot triple-net lease property occupied by
Eckerd, located in Clermont, Florida. This property was acquired at a
price of $3,155,941. The Company paid dividends amounting to $1,123,116,
equivalent to $.20 per share, during 2002.
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
variable rate debt has been effectively fixed at a rate of 7.35% through
an interest rate swap agreement. This borrowing is secured by
approximately 3,000 acres of the Company's most western lands. The funds
provided by this financing 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 was no outstanding balance on the line of credit at
December 31, 2002. The interest rate on the line of credit is the lower
of 1.5% above the 30-day LIBOR or 1% below the prime market rate.
12
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS (CONTINUED)
------------------------------------
Capital expenditures for 2003 are projected to approximate $20,600,000.
Of this amount, $14,000,000 will be used to acquire five properties
currently under contract for closing in the first quarter of 2003. Funds
totaling $12,339,527 are being held by an intermediary and will complete
the like-kind exchange process from 2002 closings. Other capital
expenditures for 2003 include $2,700,000 for site development of the
Cornerstone Office Park at the Interstate 95 interchange at LPGA
Boulevard, and $3,300,000 for road construction on Company owned lands
adjacent to Interstate 95. Capital to fund these requirements will be
provided by cash on-hand, maturing investment securities, operating
activities, and financing sources in place. Additionally, as funds
become available from qualified sales, the Company expects additional
triple-net lease income properties will be acquired through the like-kind
exchange process. 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.
Development activities, which tend to spur interest by buyers, continue
to progress on Company owned and surrounding lands. These activities
include the development of the Cornerstone Office Park at the Interstate
95 interchange at LPGA Boulevard, the completion of the United State
Tennis Association Florida district headquarters facility on lands
adjacent to the LPGA International development and the sale of land for
construction in 2003 of a 92,000-square-foot medical facility. Also
during the year, the Company sold an additional 261 acres of residential
land within the LPGA International development. This property is
expected to be developed into several distinct communities with lots sold
to major homebuilders.
While national and local economic and political issues affect
prospective development on Company owned lands, at this time interest in
real estate remains relatively strong, while a backlog of contracts is in
place for closing in 2003 and future years. Management continues to focus
its efforts on converting its contract backlog to closings while
developing new contracts. As closings occur, gains will continue to
be deferred, when appropriate, 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. As the inventory of triple-
net-lease properties grows management will look to continue to diversify
the Company through other real estate investments as opportunities arise.
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 66, or the Company retains some form of continuing involvement
with the property. No income has been deferred for the three years ended
December 31, 2002 as sales have met the established criteria.
13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS (CONTINUED)
------------------------------------
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
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 held for development and sale
is evaluated for impairment by estimating sales prices less costs to
sell. Impairment on income properties and other property, plant, and
equipment is measured using an undiscounted cash flow approach. There
has been no material impairment of long-lived assets reflected in the
consolidated financial statements.
At the time the Company's debt was refinanced, 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. 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 year ended December 31, 2002. At
December 31, 2002, a liability of $1,245,626 had been established on the
Company's balance sheet. Other comprehensive loss of $765,127
($1,245,626 net of income taxes of $480,499) was also recorded during
the period.
Results of Operations
2001 Compared to 2000
Real Estate Operations
- ----------------------
Real Estate Sales
- -----------------
Profits from real estate operations totaling $1,252,000 for the year
ended December 31, 2001 represent a 90% decline when compared to profits
of $12,396,000 posted for the year 2000. Lower commercial closing volume
was the primary factor contributing to this decline. During 2001, gross
profits of $2,190,000 were produced on the sale of 82 acres of commercial
acreage. This volume compares to the sale of 391 acres of land in 2000,
which generated gross profits totaling $13,200,000.
14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ------------------------------------------------------------
AND RESULTS OF OPERATIONS (CONTINUED)
------------------------------------
Forestry operations produced a nominal loss for 2001 on revenues of
$45,000 as harvesting was limited due to depressed timber prices along
with the 1998 fires, which burned approximately 9,000 acres of Company
owned lands. This loss compares to profits of $125,000 earned from
forestry operations in 2000 on revenues amounting to $206,000.
Golf Operations
- ---------------
The opening and operation of the new clubhouse facility at LPGA
International as of January 2001 resulted in increased golf revenues of
27% for 2001 when compared to 2000. The increase in revenues was
predominantly due to the additional food and beverage services provided
with the new clubhouse facility. Despite this increase in revenues,
losses rose 74% to $1,329,000. Losses from golf operations for 2000
amounted to $764,000. The higher losses were the result of increased
food and beverage, and maintenance and depreciation expenses associated
with the new clubhouse.
Income Properties
- -----------------
Somewhat offsetting the lower earnings from commercial land sales and
golf operations were higher earnings from income properties. Profits
from income properties jumped to $1,403,000 in 2001 from $184,000 in the
prior year. The improved results were achieved with the acquisition of
six new properties, primarily through the deferred tax like-kind exchange
process, in 2001 and the last quarter of 2000.
General, Corporate and Other
- ----------------------------
The sale of one acre of land and the release of 34 acres of subsurface
interests produced income of $56,607 for the year ended December 31,
2001. This compares to income of $1,378,918 generated on the sale of 75
acres of undeveloped land and the release of subsurface rights on 2,551
acres for 2000.
Results for 2000 include the resolution of several income tax issues
under examination with tax authorities, which resulted in the reduction
of deferred income taxes by $1,500,000.
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 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.
15
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.
On July 24, 2002, the Company dismissed Arthur Andersen LLP as the
Company's independent auditors. This decision was approved by the
Company's Board of Directors upon the recommendation of the Audit
Committee.
The reports of Arthur Andersen LLP for the fiscal years ended December
31, 2000 and December 31, 2001 did not contain an adverse opinion,
disclaimer of opinion, qualifications, or modifications as to
uncertainty, audit scope or accounting principles. There were no
disagreements with Arthur Andersen LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure for fiscal years ended December 31, 2000 and December
31, 2001, or in the interim for periods subsequent to December 31, 2001
that, if not resolved to Arthur Andersen LLP's satisfaction, would have
caused Arthur Andersen LLP to make reference to the subject matter of the
disagreement in their report on the financial statements, and, during
such periods, there were no "reportable events," as that term is defined
in Item 304 of Regulation S-K and the related instructions to Item 304 of
Regulation S-K.
For the fiscal years ended December 31, 2000 and December 31, 2001 and
the interim period subsequent to December 31, 2001, the Company did not
consult with KPMG regarding (i) either the application of accounting
principles to a specified transaction, either completed or proposed, or
the type of audit opinion that might be rendered on the registrant's
financial statements, where either a written report or oral advice was
provided to the Company by KPMG that KPMG concluded was an important
factor considered by the registrant in reaching a decision as to the
accounting, auditing or financial reporting issue; or (ii) any matter
that was either the subject of a "disagreement" or "reportable event," as
those terms are used in Item 304 of Regulation S-K and the related
instructions to Item 304 of Regulation S-K.
PART III
The information required by Items 10, 11, 12, and 13 is incorporated
herein by reference to the Company's 2003 annual meeting proxy
statement pursuant to Instruction G to Form 10-K. On March 14, 2003, 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 2003 annual meeting of
shareholders at which directors will be elected for the ensuing year.
16
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The executive officers of the Company, their ages at January 31, 2003,
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, 56, 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, 57, senior vice president-finance and treasurer,
since January 1988.
Robert F. Apgar, 55, 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.
ITEM 14. 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 the Company's 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.
17
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
- ------- 8-K
------------------------------------------------------------
1. Financial Statements
--------------------
The following financial statements are filed as part of this
report:
Page No.
--------------
Independent Auditors' Reports F-2
Consolidated Balance Sheets as of December 31,
2002 and 2001 F-4
Consolidated Statements of Income for the
three years ended December 31, 2002 F-5
Consolidated Statements of Shareholders' Equity
for the three years ended December 31, 2002 F-6
Consolidated Statements of Cash Flows for the three
years ended December 31, 2002 F-7
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 27 of
Form 10-K
Schedule IV - Mortgage Loans on Real Estate
on page 28 of Form 10-K
2. Financial Statement Schedules (Continued)
----------------------------------------
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 25 of this Annual Report on
Form 10-K.
Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the last
quarter of the fiscal year ended December 31, 2002.
18
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, thereunto duly authorized.
CONSOLIDATED-TOMOKA LAND CO.
(Registrant)
3/14/03 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.
3/14/03 Chairman of the Board
and Director By: /s/ Bob D. Allen
---------------------
3/14/03 President and Chief Executive
Officer (Principal Executive
Officer) and Director /s/ William H. McMunn
---------------------
3/14/03 Senior Vice President-Finance,
Treasurer (Principal Financial
and Accounting Officer), and
Director /s/ Bruce W. Teeters
---------------------
3/14/03 Director /s/ John C. Adams, Jr.
---------------------
3/14/03 Director /s/ Robert F. Lloyd
---------------------
19
CERTIFICATION
I, William H. McMunn, certify that:
1. I have reviewed this annual report on Form 10-K of Consolidated-
Tomoka Land Co. ("registrant");
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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-14 and 15d-14) for the
registrant and 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
annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 officer 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 functions):
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
20
CERTIFICATION (CONTINUED)
- ------------------------
6. The registrant's other certifying officer and I have indicated in
this annual report whether 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: March 14, 2003
By:/s/ William H. McMunn
------------------------
William H. McMunn
President and
Chief Executive Officer
21
CERTIFICATION
I, Bruce W. Teeters, certify that:
1. I have reviewed this annual report on Form 10-K of Consolidated-
Tomoka Land Co. ("registrant");
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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-14 and 15d-14) for the
registrant and 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
annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 officer 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 functions):
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
22
CERTIFICATION (CONTINUED)
- ------------------------
6. The registrant's other certifying officer and I have indicated in
this annual report whether 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: March 14, 2003
By:/s/ Bruce W. Teeters
--------------------------
Bruce W. Teeters
Sr. Vice President-Finance
and Treasurer
23
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, 2002
COMMISSION FILE NO. 0-5556
CONSOLIDATED-TOMOKA LAND CO.
(Exact name of registrant as specified in the charter)
24
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) 1998-1999 Citrus World Marketing Agreement dated September 1,
1998 between Citrus World, Inc. and Consolidated-Tomoka Land
Co. filed on Form 10-K for the year ended December 31, 1998
and incorporated by this reference. *
(10.2) 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. *
(10.3) 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. *
(10.4) 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. *
(10.5) 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. *
(10.6) 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. *
(10.7) Purchase and Sale Agreement dated December 28, 1998
between Alton D. Rogers and Wade H. Walker and
Consolidated-Tomoka Land Co. filed on Form 10-K for the
year ended December 31, 1998 and incorporated by this
reference. *
(10.8) 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. *
(10.9) 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. *
25
EXHIBIT INDEX (CONTINUED)
- ------------------------
(10.10) 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. *
(10.11) 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 29
(23) Independent Auditors' Reports on Financial Statement
Schedules. 30
(23.2) Independent Auditors' Consent 31
(23.3) Notice Regarding Consent of Arthur Andersen LLP 32
99 Other Exhibits
(99.1) Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. 33
(99.2) Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. 34
* - Incorporated by Reference
26
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 2002
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-
Eckerd, Tallahassee, FL -0- 590,800 1,595,000 -0- -0-
Eckerd, 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-
Walgreen, Palm Bay, FL -0- 1,102,640 3,157,360 -0- -0-
Eckerd, Clermont, FL -0- 1,600,013 1,555,929 -0- -0-
Miscellaneous -0- 673,826 -0- 1,284,725 -0-
-------------------------------------------------------------------------------
-0- 9,008,476 14,630,062 1,284,725 -0-
===============================================================================
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
-----------------------------
DATE OF
ACCUMULATED COMPLETION OF DATE DEPR
LAND BUILDINGS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE
-------------------------------------------------------------------------------
Income Properties:
Gary Yeomans Ford,
Daytona Beach, FL 435,121 743,902 1,179,023 40,295 N/A 10/31/00 40Yrs.
Eckerd, Tallahassee, FL 590,800 1,595,000 2,185,800 83,073 N/A 12/13/00 40Yrs.
Eckerd, Sanford, FL 1,565,176 1,890,671 3,455,847 55,145 N/A 11/15/01 40Yrs.
Barnes & Noble,
Daytona Beach, FL 1,798,600 3,803,000 5,601,600 190,150 N/A 01/11/01 40Yrs.
Barnes & Noble, Lakeland, FL 1,242,300 1,884,200 3,126,500 94,210 N/A 01/11/01 40Yrs.
Walgreen, Palm Bay, FL 1,102,640 3,157,360 4,260,000 124,979 N/A 06/12/01 40Yrs.
Eckerd, Clermont, FL 1,600,013 1,555,929 3,155,942 3,242 N/A 11/22/02 40Yrs.
Miscellaneous 1,958,551 -0- 1,958,551 275,647 Various N/A 5-30Yrs.
---------------------------------------------
10,293,201 14,630,062 24,923,263 866,741
=============================================
2002 2001 2000
---------- ---------- ----------
Cost:
Balance at Beginning of Year 21,715,945 7,817,603 1,752,706
Improvements 3,207,318 16,524,370 6,071,748
Cost of Real Estate Sold -- ( 2,626,028) ( 6,851)
--------------------------------------------
Balance at End of Year 24,923,263 21,715,945 7,817,603
============================================
Accumulated Depreciation:
Balance at Beginning of Year 527,193 273,665 267,299
Depreciation and Amortization 399,548 301,822 6,366
Depreciation on Real Estate Sold -- ( 48,294) 0
---------------------------------------------
Balance at End of Year 866,741 527,193 273,665
=============================================
27
SCHEDULE IV
CONSOLIDATED-TOMOKA LAND CO.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2002
PRINCIPAL
FINAL PERIODIC AMOUNT OF
INTEREST MATURITY PAYMENT PRIOR FACE CARRYING LOANS
DESCRIPTION RATE DATE TERMS LIENS AMOUNT AMOUNT (A) DELINQUENT
- ------------------------------------------------------------------------------------------------------------------
MORTGAGE N/R
SECURED BY
REAL ESTATE:
Volusia Co. 6.25% 02/03 Balloon of $ 20,400 -- $ 20,400 $ 20,400 --
Volusia Co. 6.00% 03/03 Balloon of $ 504,280 -- 504,280 504,280 --
Volusia Co. 7.50% 09/03 Balloon of $ 242,152 -- 284,050 242,152 --
Volusia Co. 7.75% 01/03 Balloon of $ 576,000 -- 1,372,000 576,000 --
Volusia Co. 4.75% 12/03 Balloon of $ 967,051 -- 967,051 967,051 --
Volusia Co. 6.50% 10/03 Balloon of $1,742,743 -- 1,805,424 1,742,743 --
Volusia Co. 7.00% 12/06 Level, plus Balloon of $2,389,841 -- 2,792,250 2,624,139 --
Volusia Co. -- 12/03 Balloon of $ 575,250 575,250 575,250 --
Highlands Co. 6.00% 04/09 Level, plus Balloon of $1,753,415 -- 2,550,000 2,329,311 --
Highlands Co. -- Various Balloon of $ 30,000 -- 30,000 30,000 --
-----------------------------------------
-- $10,900,705 $9,611,326 --
=========================================
(A) FOR FEDERAL INCOME TAX PURPOSES, THE AGGREGATE BASIS OF THE LISTED MORTGAGES WAS $9,611,326.
(B) A RECONCILIATION OF THE CARRYING AMOUNT OF MORTGAGES FOR THE THREE YEARS ENDED DECEMBER 31, 2002, 2001
AND 2000 IS AS FOLLOWS:
2002 2001 2000
------------------------------------
BALANCE AT BEGINNING OF YEAR $9,191,679 $11,526,249 $7,269,211
NEW MORTGAGE LOANS 2,066,981 2,792,250 4,795,644
COLLECTIONS OF PRINCIPAL (1,647,334) ( 5,126,820) ( 538,606)
------------------------------------
BALANCE AT END OF YEAR $9,611,326 $ 9,191,679 $11,526,249
====================================
28
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
* 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.
29
EXHIBIT 23
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
TO BOARD OF DIRECTORS AND SHAREHOLDERS
OF CONSOLIDATED-TOMOKA LAND CO.
Under date of January 28, 2003, we reported on the consolidated
balance sheet of Consolidated-Tomoka Land Co. and its subsidiaries as
of December 31, 2002, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year ended
December 31, 2002, as contained in the 2002 annual report on Form 10-
K. In connection with our audit of the aforementioned consolidated
financial statements, we also audited the related consolidated
financial statement schedules as listed in Item 15(a)2 of the 2002
annual report on Form 10-K. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements schedules based on
our audit.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set
forth therein.
KPMG
Orlando, Florida
January 28, 2003
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
TO CONSOLIDATED-TOMOKA LAND CO.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Consolidated-
Tomoka Land Co. included in this Form 10-K, and have issued our
report thereon dated January 25, 2002. Our audits were made for the
purpose of forming an opinion on the basic financial statements taken
as a whole. The schedules listed in item 14(a)2 are the
responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commission's
rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects
the financial data, required to be set forth therein in relation to
the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Orlando, Florida
January 25, 2002
THE REPORT ABOVE IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR
ANDERSEN LLP. THE REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP
NOR HAS ARTHUR ANDERSEN LLP PROVIDED A CONSENT TO THE INCLUSION OF ITS
REPORT IN THIS FORM 10-K.
30
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
TO 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 January 28, 2003, with respect to the
consolidated balance sheet of Consolidated-Tomoka Land Co. as of
December 31, 2002 and the related consolidated statements of income,
shareholders' equity, and cash flows for the year ended December 31,
2002 and all related financial statement schedules, which reports
appear in the December 31, 2002 annual report on Form 10-K of
Consolidated-Tomoka Land Co.
KPMG LLP
Orlando, Florida
March 14, 2003
31
EXHIBIT 23.3
NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP
Section 11(a) of the Securities Act of 1933 provides that if any part
of a registration statement at the time such part becomes effective
contains an untrue statement of a material fact or an omission to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, any person acquiring a
security pursuant to such registration statement (unless it is
provided that at the time of such acquisition such person know of such
untruth or omission) may sue, among others, every accountant who has
consented to be named as having prepared or certifies any part of the
registration statement, or as having prepared or certified any report
or valuation, which is used in connection with the registration
statement, report or valuation which purports to have been prepared or
certified by the accountant.
This Annual Report on Form 10-K is incorporated by reference into
Registration Statement File Nos. 33-6279 and 333-63400 on Form S-8
(collectively, the "Registration Statements") of Consolidated-Tomoka
Land Co. (The "Company") and, for purposes of determining any
liability under the Securities Act, is deemed to be a new registration
statement for each Registration Statement into which it is
incorporated by reference.
On July 24, 2002, the Company dismissed Arthur Andersen LLP
("Andersen") as the Company's independent auditors. Despite the
Company's reasonable efforts, representatives of Andersen are not
available to provide any written consent to the incorporation by
reference into the Registration Statements of it audit reports with
respect to the Company's financial statements as of and for the fiscal
years ended December 31, 2001 and 2000.
Under these circumstances, Rule 437a under the Securities Act permits
the Company to file this Form 10-K without a written consent from
Andersen. However, as a result, with respect to transactions in the
Company's securities pursuant to the Registration Statements that
occur subsequent to the date this Annual Report on Form 10-K is filed
with the Securities and Exchange Commission, Andersen will not have
any liability under Section 11(a) of the Securities Act for any untrue
statements of a material fact contained in the financial statements
audited by Andersen or any omissions of a material fact required to be
stated therein. Accordingly, you would be unable to assert a claim
against Andersen under Section 11(a) of the Securities Act because it
has not consented to the incorporation by reference of its previously
issued reports into the Registration Statements. To the extent
provided in Section 11(b)(3)(C) of the Securities Act, however, other
persons who are liable under Section 11(a) of the Securities Act,
including the Company's officers and directors, may still rely on
Andersen's original audit reports.
32
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
In connection with the Annual Report of Consolidated-Tomoka Land Co.
(The "Company") on Form 10-K for the period ending December 31, 2002
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, 2003
33
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
In connection with the Annual Report of Consolidated-Tomoka Land Co.
(The "Company") on Form 10-K for the period ending December 31, 2002
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, 2003
34
CONSOLIDATED-TOMOKA LAND CO.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Reports F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 F-4
Consolidated Statements of Income for the three years ended
December 31, 2002 F-5
Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 2002 F-6
Consolidated Statements of Cash Flows for the three years
ended December 31, 2002 F-7
Notes to Consolidated Financial Statements F-9
F-1
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
Consolidated-Tomoka Land Co.
We have audited the 2002 financial statements of Consolidated-
Tomoka Land Co. and subsidiaries, as listed in the accompanying index.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The 2001 and 2000
consolidated financial statements of Consolidated-Tomoka Land Co. and
subsidiaries, as listed in the accompanying index, were audited by
other auditors who have ceased operations. Those auditors expressed
an unqualified opinion on those financial statements in their report
dated January 25, 2002.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. 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 audit
provides a reasonable basis for our opinion.
In our opinion, the 2002 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Consolidated-Tomoka Land Co. and subsidiaries as
of December 31, 2002, and the results of their operations and their
cash flows for the year then ended in conformity with accounting
principles generally accepted in the United Stated of America.
KPMG LLP
Orlando, Florida
January 28, 2003
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
Consolidated-Tomoka Land Co.
We have audited the accompanying consolidated balance sheets of
Consolidated-Tomoka Land Co. and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the 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 Consolidated-Tomoka Land Co. and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
Orlando, Florida
January 25,2002
THE REPORT ABOVE IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR
ANDERSEN LLP. THE REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP
NOR HAS ARTHUR ANDERSEN LLP PROVIDED A CONSENT TO THE INCLUSION OF ITS
REPORT IN THIS FORM 10-K.
F-3
Consolidated Balance Sheets
December 31,
---------------------------
2002 2001
----------- -----------
Assets
Cash $ 1,019,976 $ 2,042,631
Restricted Cash (Note 1) 12,339,527 755,237
Investment Securities (Note 2) 5,013,224 5,487,052
Notes Receivable (Note 4) 9,640,676 9,245,576
Real Estate Held for Development and Sale (Note 5) 7,453,628 9,189,609
Refundable Income Taxes (Note 3) 815,503 1,411,557
Other Assets 3,684,860 2,314,140
---------- ----------
39,967,394 30,445,802
---------- ----------
Property, Plant and Equipment
Land, Timber and Subsurface Interests 1,958,550 1,877,240
Golf Buildings, Improvements and Equipment 11,259,631 11,209,610
Income Properties: Land, Buildings and Improvements 22,964,712 19,808,770
Other Buildings, Equipment and Land Improvements 886,767 790,520
---------- ----------
Total Property, Plant and Equipment 37,069,660 33,686,140
Less Accumulated Depreciation and Amortization ( 2,710,992) ( 1,915,241)
---------- ----------
Net Property, Plant and Equipment 34,358,668 31,770,899
---------- ----------
Total Assets $74,326,062 $62,216,701
========== ==========
Liabilities
Accounts Payable $ 304,480 $ 181,712
Accrued Liabilities 3,085,131 4,321,739
Deferred Income Taxes (Note 3) 8,843,728 2,872,779
Notes Payable (Note 6) 9,235,072 9,457,698
---------- ----------
Total Liabilities 21,468,411 16,833,928
---------- ----------
Commitments and Contingencies (Note 11)
SHAREHOLDERS' EQUITY
Preferred Stock - 50,000 Shares Authorized,
$100 Par Value; None Issued -- --
Common Stock - 10,000,000 Shares Authorized;
$1 Par Value; 5,615,579 Shares Issued and
Outstanding at December 31, 2002 and 2001 5,615,579 5,615,579
Additional Paid-In Capital 835,750 758,470
Retained Earnings 47,171,449 39,008,724
Accumulated Other Comprehensive Loss ( 765,127) --
---------- ----------
Total Shareholders' Equity 52,857,651 45,382,773
---------- ----------
Total Liabilities and Shareholders' Equity $74,326,062 $62,216,701
========== ==========
The accompanying notes are an integral part of these consolidated statements.
F-4
Consolidated Statements of Income
Calendar Year
------------------------------------------
December 31, December 31, December 31,
2002 2001 2000
------------------------------------------
Income:
Real Estate Operations:
Real Estate Sales
Sales and Other Income $20,626,879 $3,351,893 $16,400,999
Costs and Other Expenses ( 4,277,367) (2,100,264) ( 4,005,109)
---------- ---------- ----------
16,349,512 1,251,629 12,395,890
---------- ---------- ----------
Income Properties
Leasing Revenues and Other Income 2,062,552 1,831,344 247,531
Costs and Other Expenses ( 400,157) ( 428,473) ( 63,134)
---------- ---------- ----------
1,662,395 1,402,871 184,397
---------- ---------- ----------
Golf Operations
Sales and Other Income 4,226,608 4,065,318 3,211,973
Costs and Other Expenses ( 5,490,455) ( 5,393,977) ( 3,976,835)
---------- ---------- ----------
( 1,263,847) ( 1,328,659) ( 764,862)
---------- ---------- ----------
Total Real Estate Operations 16,748,060 1,325,841 11,815,425
Profit On Sales of Other
Real Estate Interests 150,865 56,607 1,378,918
Interest and Other Income 1,463,820 2,044,825 1,986,608
---------- ---------- ----------
Operating Income 18,362,745 3,427,273 15,180,951
General and Administrative Expenses ( 3,407,175) (4,594,330) ( 3,364,792)
---------- ---------- ----------
Income (Loss) Before Income Taxes 14,955,570 (1,167,057) 11,816,159
Income Taxes (Note 3) ( 5,669,729) 531,161 ( 2,956,348)
---------- ---------- ----------
Net Income (Loss) $ 9,285,841 $( 635,896) $ 8,859,811
========== ========== ==========
Per Share Information (Note 10):
Basic and Diluted
Net Income (Loss) $1.65 $(0.11) $1.51
========== ========== ==========
The accompanying notes are an integral part of these consolidated
statements.
F-5
Consolidated Statements of Shareholders' Equity
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Shareholders' Comprehensive
Stock Capital Earnings Loss Equity Income
--------- -------- ----------- ----------- ------------ -----------
Balance, December 31, 1999 $6,359,284 $3,588,751 $38,085,929 -- $48,033,964
Net Income -- -- 8,859,811 -- 8,859,811 $8,859,811
---------
Comprehensive Income $8,859,811
=========
Cash Dividends ($.20 per share) -- -- ( 1,186,851) -- ( 1,186,851)
Repurchase of 774,600 Shares ( 774,600) (3,588,751) ( 4,789,000) -- ( 9,152,351)
--------- --------- ---------- ---------- ----------
Balance, December 31, 2000 $5,584,684 $ -- $40,969,889 $ -- $46,554,573
Net Loss -- -- ( 635,896) -- ( 635,896) $( 635,896)
-------
Comprehensive Loss $( 635,896)
=======
Cash Dividend ($.20 per share) - -- ( 1,117,648) -- ( 1,117,648)
Repurchase of 18,900 Shares ( 18,900) -- ( 207,621) -- ( 226,521)
Issuance of 49,795 Shares
Pursuant to Exercise of
Stock Options 49,795 626,173 -- -- 675,968
Tax Benefit of Stock
Options Exercised -- 132,297 -- -- 132,297
--------- ------- ---------- ---------- -----------
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
Loss:
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
========= ======= ========== ========== ==========
The accompanying notes are an integral part of these consolidated
statements.
F-6
Consolidated Statements of Cash Flows
Calendar Year
--------------------------------------
December 31, December 31, December 31,
2002 2001 2000
----------- ----------- ------------
Cash Flow from Operating Activities:
Net Income (Loss) $ 9,285,841 $( 635,896) $ 8,859,811
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 806,842 739,007 278,655
Compensation Expense on Exercise of Stock Options -- 660,834 --
(Gain) Loss on Sale of Property, Plant and Equipment 55,624 ( 675,280) 23,937
Non-Cash Compensation 77,280 -- --
(Increase) Decrease in Assets:
Notes Receivable ( 395,100) 2,356,901 (4,236,723)
Real Estate Held for Development and Sale 1,735,981 578,026 1,857,198
Deferred Income Taxes -- -- 1,239,853
Refundable Income Taxes 596,054 ( 535,459) ( 743,801)
Other Assets (1,370,720) 202,495 ( 882,136)
Increase(Decrease) in Liabilities:
Accounts Payable 122,768 ( 38,803) ( 30,726)
Accrued Liabilities (2,001,735) ( 239,822) 328,741
Deferred Income Taxes 5,970,949 701,341 2,171,438
Income Taxes Payable -- -- ( 631,528)
---------- --------- ----------
Net Cash Provided by Operating Activities 14,883,784 3,113,344 8,234,719
---------- --------- ----------
Cash Flow from Investing Activities:
Acquisition of Property, Plant and Equipment ( 3,471,135) (17,452,183) (9,530,245)
Increase in Restricted Cash for Acquisitions
Through the Like-Kind Exchange Process (11,584,290) ( 755,237) --
Proceeds from the Disposition of Investment
Securities 5,666,603 18,539,679 65,430,988
Acquisition of Investment Securities ( 5,192,775) (15,848,545) (56,919,736)
Proceeds from Sale of Property, Plant and
Equipment 20,900 3,253,015 --
---------- ---------- ----------
Net Cash Used In Investing Activities (14,560,697) (12,263,271) ( 1,018,993)
---------- ---------- ----------
Cash Flow from Financing Activities:
Proceeds from Notes Payable 11,410,908 845,000 1,471,000
Payments on Notes Payable (11,633,534) ( 1,233,129) ( 1,896,010)
Cash Proceeds from Exercise of Stock Options -- 15,134 --
Funds Used to Repurchase Common Stock -- ( 226,521) ( 9,152,351)
Dividends Paid ( 1,123,116) ( 1,117,648) ( 1,186,851)
---------- ---------- ----------
Net Cash Used in Financing Activities ( 1,345,742) ( 1,717,164) (10,764,212)
---------- ---------- ----------
Net Decrease in Cash ( 1,022,655) (10,867,091) ( 3,548,486)
Cash, Beginning of Year 2,042,631 12,909,722 16,458,208
---------- ---------- ----------
Cash, End of Year $ 1,019,976 $ 2,042,631 $12,909,722
========== ========== ==========
F-7
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
$2,087,381, $2,792,250, and $4,935,624 for the years 2002, 2001, and
2000, respectively.
In addition, the Company received irrevocable letters of credit
totaling $191,759 and $632,495 as consideration for real estate sales
in 2002 and 2000, respectively, which are included in other assets.
Total interest paid was $779,974, $839,631, and $867,134, for the
years 2002, 2001, and 2000, respectively.
Income taxes of $1,377,774 and $697,044 were refunded in 2002 and
2001, respectively, with total income taxes paid of $920,387 for the
year 2000.
In connection with the exercise of stock options, the Company recorded
compensation expense and income tax benefit of $660,834 and $132,297,
respectively, for the year 2001.
The accompanying notes are an integral part of these consolidated
statements.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
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. 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 and forestry operations. These
operations are predominantly located in Volusia County, Florida, with
various income properties owned throughout the State of Florida.
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 $12,339,527 and $755,237 in
escrow, for the benefit of the Company, at December 31, 2002 and 2001,
respectively, to complete the purchase of income properties through
the deferred tax like-kind exchange process.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE
The carrying value of real estate held for development and sale
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.
No interest or property taxes were capitalized to real estate held for
development and sale during 2002 and 2001, as there was no significant
development during the periods.
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.
F-9
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------
The amount of depreciation and amortization recognized for the
years 2002, 2001 and 2000 was $806,842, $739,007, and $278,655,
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, 2002.
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
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 the 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. No income was deferred for
the three years ended December 31, 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.
F-10
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------
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, 2002 and 2001 was
$1,243,917 and $3,943,647, respectively.
PENSIONS
The Company has a funded, non-contributory defined benefit pension
plan covering all eligible full-time 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
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 its plan 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-
ased 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.
F-11
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.
EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share are presented in
accordance with SFAS No. 128, "Earnings Per Share," (SFAS 128). 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.
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, 2002 and 2001, 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, 2002 and 2001, 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, 2002.
DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITY
In June 1998 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Certain Hedging
Activities." In June 2000 the FASB issued SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activity, an
Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require that all
derivative instruments be recorded on the balance sheet at their
respective fair values. The Company adopted SFAS No. 133 and SFAS No.
138 on January 1, 2001.
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
F-12
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------
effective hedge, the Company discontinues hedge accounting
prospectively.
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 2001 accompanying
consolidated financial statements to conform to the 2002 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,
2002, 2001, and 2000, losses of $25,411, $57,380, and $99,375,
respectively, were recognized on the disposition of investment
securities. Investment securities as of December 31, 2002 and 2001
are as follows:
2002 2001
---------- -----------
Investments Held to Maturity
- ----------------------------
Debt Securities Issued by States
and Political Subdivisions of States $4,486,743 $4,258,049
Corporate Debt Securities -- 134,197
Preferred Stocks 526,481 1,094,806
--------- ----------
Total Investments Held to Maturity $5,013,224 $5,487,052
========= ==========
F-13
NOTE 2 INVESTMENT SECURITIES (CONTINUED)
- -----------------------------------------
The contractual maturities of investment securities held to maturity
are as follows:
Maturity Date Amount
-------------- ---------
Within 1 year $ 431,770
1-5 Years 663,852
6-10 Years 1,486,669
After 10 Years 2,430,933
---------
$5,013,224
=========
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, 2002 were as
follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
At December 31, 2002
Debt Securities Issued by States
and Political Subdivisions of State $4,486,743 $ 29,819 $( 121,250) $4,395,312
Preferred Stocks 526,481 -- ( 48,357) 478,124
--------- --------- -------- ---------
$5,013,224 $ 29,819 ( 169,607) $4,873,436
========= ========= ======== =========
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:
2002 2001 2000
---- ---- ----
Current Deferred Current Deferred Current Deferred
------------------- -------------------- -------------------
Federal $(369,928) $5,218,805 $(1,284,978) $ 821,226 $(609,756) $2,921,385
State 68,708 752,144 52,476 (119,885) 154,813 489,906
------- --------- --------- -------- ------- ---------
Total $(301,220) 5,970,949 $(1,232,502) $ 701,341 $(454,943) $3,411,291
======= ========= ========= ======== ======= =========
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.
F-14
NOTE 3 INCOME TAXES (CONTINUED)
- --------------------------------
The sources of these differences and the related deferred income tax
assets (liabilities) are summarized as follows:
Deferred Taxes
------------------------
2002 2001
------------------------
Depreciation $( 127,936) $( 167,567)
Sales of Real Estate (11,283,840) (5,934,197)
Deferred Compensation 479,841 1,521,262
Basis Difference In Joint Venture 1,159,102 1,216,939
Revolving Fund Certificates 192,595 349,449
Charitable Contributions Carryforward 758,579 758,579
Cash Flow Hedge 480,499 --
Other 256,011 141,335
Less-Valuation Allowance ( 758,579) ( 758,579)
---------- ---------
$( 8,843,728) $(2,872,779)
========== =========
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, 2002 and 2001, 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,
2002 and 2001, the valuation allowance was $758,579.
Following is a reconciliation of the income tax computed at the
federal statutory rate of 35% for 2002, 2001 and 2000:
Calendar Year
------------------------------------
2002 2001 2000
------------------------------------
Income Tax Expense (Benefit) Computed at Federal
Statutory Rate $5,234,450 $(408,470) $4,135,656
Increase (Decrease) Resulting from:
State Income Tax, Net of Federal Income Tax Effect 533,554 ( 43,816) 419,067
Tax Exempt Interest Income ( 87,423) ( 86,959) ( 190,474)
Adjustment to Valuation Allowance -- 30,000 (1,375,000)
Other Reconciling Items ( 10,852) ( 21,916) ( 32,901)
-------- ------- ---------
Provision (Benefit) for Income Taxes $5,669,729 $(531,161) $2,956,348
========= ======= =========
F-15
NOTE 3 INCOME TAXES (CONTINUED)
- --------------------------------
During 2000, certain tax issues under examination with tax authorities
were resolved. The resolution of these issues resulted in a
$1,500,000 reduction in the valuation allowances associated with
deferred income taxes.
During 2002 and 2001, the Company generated a net operating loss for
income tax purposes. For Federal income tax, these losses can be
carried back to prior years, when the Company generated taxable
income. For State income tax purposes, the net operating losses
can only be carried forward against future taxable income.
NOTE 4 NOTES RECEIVABLE
- -------------------------
Notes Receivable consisted of the following:
December 31,
-------------------------
2002 2001
-------------------------
MORTGAGE NOTES RECEIVABLE
Various notes with interest rates ranging from 0% to
7.75% with payments due from 2003 through 2009.
Collateralized by real estate mortgages held by the Company $9,611,326 $8,991,679
OTHER NOTES RECEIVABLE
Interest at prime rate, receivable in monthly installments of
principal and interest to amortize the original note over a
period of 15 years, due January 2004 29,350 53,897
Payable in three annual installments of $200,000
through May 2002 -- 200,000
--------- ---------
Total Notes Receivable $9,640,676 $9,245,576
========= =========
The prime rate of interest was 4.25% and 4.75% at December 31, 2002
and 2001, respectively.
The required annual principal receipts are as follows:
Year ending December 31, Amount
----------------------------------------------
2003 $ 4,840,301
2004 167,862
2005 176,206
2006 2,488,174
2007 104,233
2008 and Thereafter (cumulative) 1,863,900
----------
$ 9,640,676
==========
F-16
NOTE 5 REAL ESTATE HELD FOR DEVELOPMENT AND SALE
- --------------------------------------------------
Real estate held for development and sale as of December 31, 2002 and
2001 is summarized as follows:
December 31,
---------------------------
2002 2001
---------------------------
Undeveloped Land $ -- $ 89,253
Land and Land Development 7,356,603 9,003,331
Completed Houses 97,025 97,025
--------- ----------
$7,453,628 $9,189,609
========= =========
NOTE 6 NOTES PAYABLE
- ----------------------
Notes Payable consisted of the following:
December 31,
--------------------------
2002 2001
--------------------------
MORTGAGE NOTES PAYABLE
Mortgage notes payable are collateralized by real estate
mortgages held by the respective lenders. As of
December 31, 2002 and 2001, 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 $7,910,343 $ --
(See discussion of interest rate swap)
Payments of $266,783, including interest at 8.8% payable
quarterly through April 2002, principal balance paid July 2002 -- 7,951,637
Interest payable quarterly at 10%, principal and outstanding
interest due October 2005 1,200,000 1,200,000
Payments of $6,019, payable monthly through November 2002 -- 66,209
INDUSTRIAL REVENUE BONDS
Industrial revenue bonds payable are collateralized by real
estate. Interest at 80.65% of prime rate, payable in monthly
installments of principal and interest to amortize the
original debt over a period of 18 years, due January 2004 124,729 239,852
LINE OF CREDIT
A line of credit totaling $7,000,000 payable on demand
expiring July 2003, with interest at the lower of the
30-DAY LIBOR Market Index rate plus 1.5% or 1% below
the prime commercial lending rate -- --
--------- ----------
$9,235,072 $9,457,698
========= ==========
F-17
NOTE 6 NOTES PAYABLE (CONTINUED)
- --------------------------------
The required annual principal payments on notes payable are as
follows:
Year Ending December 31, Amount
--------------------------------------------
2003 $ 303,231
2004 214,657
2005 1,419,403
2006 236,262
2007 and Thereafter (cumulative) 7,061,519
----------
$ 9,235,072
==========
Interest expense was $779,974, $839,631, and $867,134 for 2002, 2001,
and 2000, 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.
The change in the fair value of the interest rate swap has resulted in
the recording of an accrued liability in the amount of $1,245,626 at
December 31, 2002. The change in fair value, net of applicable taxes,
in the amount of $765,127, 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 $7,000,000 revolving
line of credit with the same financing source. There was no
outstanding balance on the line of credit at December 31, 2002.
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 period ended December 31, 2002.
The Company has letters of credit outstanding totaling $1,632,897 at
December 31, 2002. These letters of credit reserve capacity under the
line of credit. The balance available to borrow on the line of credit
is $5,367,103 at December 31, 2002.
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 10
years of employment. The benefit formula generally provides for a
life annuity benefit.
F-18
NOTE 7 PENSION PLAN (CONTINUED)
- -------------------------------
The Company's net periodic pension cost included the following
components:
December 31,
---------------------------------
2002 2001 2000
-------- ------- --------
Service Cost $ 182,503 $157,384 $169,060
Interest Cost on Projected Benefit Obligation 311,793 286,748 284,442
Actual Return on Plan Assets ( 32,453) (719,855) (409,113)
Net Amortization (405,033) 295,619 (18,031)
-------- ------- -------
Net Periodic Pension Cost $ 56,810 $ 19,896 $ 26,358
======== ======= =======
The change in benefit obligation is as follows:
December 31,
------------------------
2002 2001
------------------------
Benefit Obligation at Beginning of Year $4,309,898 $4,197,614
Service Cost 182,503 157,384
Interest Cost 311,793 286,748
Actuarial Loss 286,602 3,228
Benefits and Plan Expenses Paid (585,142) ( 335,076)
Plan Amendments 243,832 --
-------- ---------
Benefit Obligation at End of Year 4,749,486 $4,309,898
========= =========
The change in plan assets is as follows:
Fair Value of Plan Assets at Beginning of Year $5,123,381 $4,738,602
Actual Return on Plan Assets 32,453 719,855
Plan Expenses Paid ( 82,195) ( 82,711)
Benefits Paid ( 502,947) ( 252,365)
-------- ---------
Fair Value of Plan Assets at End of Year $4,570,692 $5,123,381
========= =========
The accrued pension asset consists of the following:
Plan (Liability) Assets In Excess of Projected
Benefit Obligation $( 178,794) $ 813,483
Unrecognized Prior Service Cost 225,875 3,261
Unrecognized Net Loss (Gain) 245,415 ( 459,951)
Unrecognized Transition Obligation ( 67,904) ( 75,391)
-------- --------
Prepaid Pension Asset $ 224,592 $ 281,402
======== ========
The actuarial assumptions made to determine the projected benefit
obligation and the fair value of plan assets are as follows:
December 31,
------------
2002 2001
---- ----
Weighted Average Discount Rate 6.5% 7.0%
Weighted Average Asset Rate of Return 9.0% 9.0%
Compensation Scale 5.0% 5.0%
F-19
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.
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 in
2002, 2001, and 2000 was $36,000, $64,590, and $67,781, respectively.
The accrued post-retirement benefit cost reflected in the consolidated
balance sheet at December 31, 2002 and 2001 was $119,609 and $130,107,
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
and replaces the previous stock option plan which expired in 2000.
Provisions under both plans are materially the same. 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.
F-20
NOTE 9 STOCK OPTION PLAN (CONTINUED)
- ------------------------------------
A summary of the status of the Company's stock options for the three
years ended December 31, 2002 and changes during the years then ended
is as follows:
2002 2001 2000
---------------- ---------------- -----------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
------- -------- ------- -------- ------- --------
Outstanding at beginning of year 46,000 $14.45 220,000 $15.95 220,000 $15.95
Granted 48,000 $20.05 46,000 $14.45 --
Exercised -- (220,000) $15.95 --
Expired -- -- --
------ ------- -------
Outstanding at end of year 94,000 $17.31 46,000 $14.45 220,000 $15.95
====== ===== ======= ===== ======= =====
Exercisable at end of year 9,200 $14.45 -- 220,000 $15.95
====== ===== ======= ======= =====
Weighted average fair value of
options granted during the year $7.16 $5.08 --
====== ======= =======
Stock appreciation rights totaling 48,000 and 46,000 were issued and
outstanding in 2002 and 2001, respectively.
Of the 94,000 options outstanding at December 31, 2002, 9,200 of them
were exercisable and they had a contractual life of 8.5 years.
Of the 220,000 options exercised in 2001, 170,205 options 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 $605,192 of income tax benefit,
of which $132,297 was recorded as an addition to additional paid-in
capital.
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. 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 (loss) and
earnings (loss) per share would have been as follows:
F-21
NOTE 9 STOCK OPTION PLAN (CONTINUED)
- ------------------------------------
2002 2001 2000
---------- ---------- ----------
Net Earnings (Loss):
As Reported $ 9,285,841 $(635,896) $8,859,811
(Deduct) Add:
Difference in Stock-Based Compensation
Determined Under Fair Value Based Method
And Intrinsic Value Method ( 45,009) 404,847 --
--------- ------- ---------
Pro Forma $ 9,240,832 $(231,049) $8,859,811
========= ======= =========
Basic and Diluted Earnings (Loss)
Per Share:
As Reported $1.65 $(0.11) $1.51
Pro Forma $1.65 $(0.04) $1.51
The fair value of stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
assumptions:
2002 2001
---- ----
Risk Free Interest Rate 4.34% 4.76%
Dividend Yield 1.0% 1.38%
Volatility 29.10% 29.47%
Expected Option Life 7 years 7 years
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.
2002 2001 2000
--------- ---------- ---------
Income (Loss) Available to Common Shareholders: $9,285,841 $(635,896) $8,859,811
========= ========= ==========
Weighted Average Shares Outstanding 5,615,579 5,587,752 5,877,047
Common shares Applicable to Stock Options
Using the Treasury Stock Method 11,542 -- --
--------- --------- ---------
Total Shares Applicable to Diluted Earnings
Per Share 5,627,121 5,587,752 5,877,047
========= ========= =========
Basic and Diluted Earnings Per Share
Net Income (Loss) $1.65 $(0.11) $1.51
========= ========= ========
F-22
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, 2002,
are summarized as follows:
Year Ending December 31, Amounts
----------------------- --------
2003 $ 292,168
2004 268,379
2005 233,692
2006 219,623
2007 100,000
2008 and Thereafter (Cumulative) 6,250,000
---------
$7,363,862
=========
Rental expense under all operating leases amounted to $501,707,
$523,866, and $561,737, for the years ended December 31, 2002, 2001,
and 2000, 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, 2002,
are summarized as follows:
Year Ending December 31, Amounts
----------------------- ---------
2003 $ 1,995,245
2004 1,995,499
2005 2,024,843
2006 2,066,901
2007 2,069,899
2008 and Thereafter (Cumulative) 31,951,271
----------
$42,103,658
==========
Rental income under all operating leases amounted to $2,061,833,
$1,830,689, and $247,531, for the years ended December 31, 2002, 2001,
and 2000, 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-23
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):
2002 2001 2000
--------------------------------------------
Revenues:
Real Estate $20,627 $ 3,352 $16,401
Income Properties 2,062 1,831 248
Golf 4,227 4,065 3,212
General, Corporate and Other 1,615 2,102 3,365
------ ------ ------
$28,531 $11,350 $23,226
====== ====== ======
Income:
Real Estate $16,350 $ 1,252 $12,396
Income Properties 1,662 1,403 184
Golf ( 1,264) (1,329) ( 764)
General, Corporate and Other ( 1,792) (2,493) --
------ ------ ------
$14,956 $(1,167) $11,816
====== ====== ======
Identifiable Assets:
Real Estate $15,774 $15,171 $20,606
Income Properties 25,243 22,643 6,333
Golf 10,410 10,769 10,285
General, Corporate and Other 22,899 13,634 26,130
------ ------ ------
$74,326 $62,217 $63,354
====== ====== ======
Depreciation and Amortization:
Real Estate $ 46 $ 10 $ 23
Income Properties 330 303 20
Golf 408 403 217
General, Corporate and Other 23 23 19
------ ------ ------
$ 807 $ 739 $ 279
====== ====== ======
Capital Expenditures:
Real Estate $ 141 $ 133 $ 109
Income Properties 3,156 16,444 5,989
Golf 50 801 3,391
General, Corporate and Other 124 74 41
------ ------ ------
$ 3,471 $17,452 $ 9,530
====== ====== ======
Income represents income 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-24
QUARTERLY FINANCIAL DATA (Unaudited)
THREE MONTHS ENDED
March 31, June 30, September 30, December 31,
--------------------- ---------------------- -------------------- ----------------------
2002 2001 2002 2001 2002 2001 2002 2001
--------------------- ---------------------- -------------------- ----------------------
$ $ $ $ $ $ $ $
Income:
Real Estate Operations:
Real Estate Sales
Sales and Other
Income 726,832 677,235 5,280,343 1,217,044 7,211,979 352,997 7,407,725 1,104,617
Costs and Other
Expenses ( 474,960) ( 402,901) ( 890,198) ( 536,600) (1,237,675)( 528,885)(1,674,534) ( 631,878)
--------- --------- --------- --------- --------- --------- --------- ---------
251,872 274,334 4,390,145 680,444 5,974,304 ( 175,888) 5,733,191 472,739
--------- --------- --------- --------- --------- --------- --------- ---------
Income Properties
Leasing Revenues and
Other Income 464,984 369,157 464,434 406,744 619,900 558,260 513,234 497,183
Costs and Other
Expenses ( 102,751) ( 97,509) ( 97,357) ( 97,461) ( 97,694)( 104,631)( 102,355) ( 128,872)
--------- --------- --------- --------- --------- -------- --------- ---------
362,233 271,648 367,077 309,283 522,206 453,629 410,879 368,311
--------- --------- --------- --------- --------- -------- -------- ---------
Golf Operations
Sales and Other
Income 1,290,212 1,187,999 1,142,487 1,084,244 822,747 812,898 971,162 980,177
Costs and Other
Expenses (1,322,594) (1,272,121) (1,393,440) (1,478,256) (1,285,171)(1,376,135) (1,489,250)(1,267,465)
--------- --------- --------- --------- --------- -------- --------- ---------
( 32,382) ( 84,122) ( 250,953) ( 394,012) ( 462,424)( 563,237) ( 518,088)( 287,288)
--------- --------- --------- --------- --------- -------- --------- ---------
Total Real Estate
Operations 581,723 461,860 4,506,269 595,715 6,034,086 ( 285,496) 5,625,982 553,762
Profit on Sales of
Other Real Estate
Interests -- 1,340 149,866 50,939 1,000 4,333 -- ( 5)
Interest and Other
Income 228,973 390,404 236,995 407,109 244,286 236,642 753,565 1,010,670
--------- --------- --------- --------- --------- --------- --------- ---------
810,696 853,604 4,893,130 1,053,763 6,279,372 ( 44,521) 6,379,547 1,564,427
General and
Administrative
Expenses ( 998,754) (1,009,332) ( 791,927) ( 893,280) ( 738,023)(2,135,284)( 878,471) ( 556,434)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (Loss) Before
Income Taxes ( 188,058) ( 155,728) 4,101,203 160,483 5,541,349 (2,179,805) 5,501,076 1,007,993
Income Taxes 68,829 56,841 (1,515,830) ( 58,623) (2,082,945) 803,011 (2,139,783) ( 270,068)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) ( 119,229) ( 98,887) 2,585,373 101,860 3,458,404 (1,376,794) 3,361,293 737,925
========= ========= ========= ========= ========= ========= ========= =========
Per Share Information
Basic and Diluted (0.02) (0.02) 0.46 0.02 0.62 (0.25) 0.59 0.14
========= ======== ========= ========= ========= ========= ======== =========
F-25