UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
X QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2009
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 01-11350
CONSOLIDATED-TOMOKA
LAND CO.
(Exact
name of registrant as specified in its charter)
Florida
59-0483700
(State
or other jurisdiction of incorporation or
organization) (I.R.S.
Employer Identification No.)
1530 Cornerstone Blvd., Suite 100
Daytona Beach,
Florida 32117
(Address
of principal executive
offices) (Zip
Code)
(386)
274-2202
(Registrant's
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
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 o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
website,
if any,
every
Interactive Data File required to be submitted and posted pursuant to
Rule
405 of Regulation S-T during the preceeding 12 months
(or such shorter period that the registrant was required to submit
and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated
filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the
definitions of "accelerated filer," "smaller reporting company," and
"large accelerated filer" in
Rule
12b-2 of the Exchange Act.
Large
accelerated filer o Accelerated
filer x
Non-accelerated
filer o(Do not check if a
smaller reporting company) Smaller Reporting
Company o
Indicate
by check mark whether the registrant is a shell company
(as
defined in rule 12b-2 of the Exchange Act).
Yes o No x
Indicate
the number of shares outstanding of each of the issuer's
classes
of common stock, as of the latest practicable date.
Class of
Common Stock Outstanding
November
01, 2009
$1.00 par
value 5,723,268
|
PART I - FINANCIAL
INFORMATION
|
Page
No.
|
|
Item
1. Financial Statements
|
|
|
September 30, 2009 (Unaudited) and December 31, 2008
|
3
|
|
Three Months and Nine Months ended September 30, 2009 and
2008
|
|
|
(Unaudited)
|
4
|
|
Comprehensive Income
|
|
|
Nine Months Ended September 30, 2009
|
|
|
(Unaudited)
|
5
|
|
Nine
Months Ended September 30, 2009 and 2008
|
|
|
(Unaudited)
|
6
|
|
7-11
|
|
|
12-16
|
|
|
17
|
|
|
17
|
|
| 18 | |
| Item 1A. Risk Factors | 18 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
|
19
|
|
|
Exhibit 3.1
Exhibit 3.2
|
|
|
20
|
PART
I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
|
CONSOLIDATED
TOMOKA LAND CO.
|
||||||||
|
(Unaudited)
|
||||||||
|
September
30,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Cash
|
$
|
234,808
|
$
|
388,787
|
||||
|
Restricted
Cash
|
--
|
462,765
|
||||||
|
Investment
Securities
|
5,009,653
|
5,260,868
|
||||||
| Refundable Income Tax | 328,684 | -- | ||||||
|
Notes
Receivable
|
2,158,317
|
4,153,693
|
||||||
|
Land
and Development Costs
|
22,241,222
|
18,973,138
|
||||||
|
Intangible
Assets
|
4,693,942
|
5,009,819
|
||||||
|
Other
Assets
|
5,317,337
|
6,048,126
|
||||||
| $ |
39,983,963
|
$ |
40,297,196
|
|||||
|
Property,
Plant and Equipment:
|
||||||||
|
Land,
Timber and Subsurface Interests
|
$ |
13,555,317
|
$ |
12,643,391
|
||||
|
Golf
Buildings, Improvements & Equipment
|
11,789,193
|
11,750,711
|
||||||
|
Income
Properties Land, Buildings and Improvements
|
119,461,552
|
116,517,534
|
||||||
|
Other
Furnishings and Equipment
|
3,257,409
|
3,207,845
|
||||||
|
Construction
in Process
|
--
|
1,217,549
|
||||||
|
Total
Property, Plant and Equipment
|
148,063,471
|
145,337,030
|
||||||
|
Less,
Accumulated Depreciation and Amortization
|
(14,233,330
|
)
|
(12,488,163
|
)
|
||||
|
Net
- Property, Plant and Equipment
|
133,830,141
|
132,848,867
|
||||||
|
TOTAL
ASSETS
|
$
|
173,814,104
|
$
|
173,146,063
|
||||
|
LIABILITIES
|
||||||||
|
Accounts
Payable
|
$
|
284,085
|
$
|
706,095
|
||||
|
Accrued
Liabilities
|
7,700,854
|
7,204,749
|
||||||
|
Accrued
Stock Based Compensation
|
1,944,384
|
1,190,725
|
||||||
| Pension Liability | 2,980,400 | 3,127,230 | ||||||
|
Income
Taxes Payable
|
--
|
1,236,206
|
||||||
|
Deferred
Income Taxes
|
33,477,607
|
33,316,436
|
||||||
|
Notes
Payable
|
10,297,476
|
8,550,315
|
||||||
|
TOTAL
LIABILITIES
|
56,684,806
|
55,331,756
|
||||||
|
SHAREHOLDERS'
EQUITY
|
||||||||
|
Common
Stock
|
5,723,268
|
5,727,515
|
||||||
|
Additional
Paid in Capital
|
5,131,246
|
5,217,955
|
||||||
|
Retained
Earnings
|
108,844,497
|
109,556,103
|
||||||
|
Accumulated
Other Comprehensive Loss
|
(2,569,713
|
)
|
(2,687,266
|
)
|
||||
|
TOTAL
SHAREHOLDERS' EQUITY
|
117,129,298
|
117,814,307
|
||||||
|
TOTAL
LIABILITIES AND
|
||||||||
|
SHAREHOLDERS'
EQUITY
|
$
|
173,814,104
|
$
|
173,146,063
|
||||
See
Accompanying Notes to Consolidated Financial Statements
3
|
CONSOLIDATED-TOMOKA
LAND CO.
|
||||||||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
|
Three
Months Ended
|
Nine Months
Ended
|
|||||||||||||||
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Income
|
||||||||||||||||
|
Real
Estate Operations:
|
||||||||||||||||
|
Real
Estate Sales
|
||||||||||||||||
|
Sales
and Other Income
|
$
|
959,081
|
$
|
97,735
|
$
|
2,585,974
|
$
|
2,358,789
|
||||||||
|
Costs
and Other Expenses
|
(256,400
|
)
|
(345,055
|
)
|
(813,270
|
)
|
(1,231,908
|
)
|
||||||||
|
702,681
|
|
(247,320
|
) |
1,772,704
|
1,126,881
|
|||||||||||
|
Income
Properties
|
||||||||||||||||
|
Leasing
Revenues and Other Income
|
2,429,747
|
2,380,052
|
7,106,796
|
6,874,518
|
||||||||||||
|
Costs
and Other Expenses
|
(606,771
|
)
|
(515,425
|
)
|
(1,612,814
|
)
|
(1,409,361
|
)
|
||||||||
|
1,822,976
|
1,864,627
|
5,493,982
|
5,465,157
|
|||||||||||||
|
Golf
Operations
|
||||||||||||||||
|
Sales
and Other Income
|
881,775
|
814,067
|
3,566,746
|
3,481,770
|
||||||||||||
|
Costs
and Other Expenses
|
(1,540,284
|
)
|
(1,531,483
|
)
|
(4,847,456
|
)
|
(4,917,257
|
)
|
||||||||
|
(658,509
|
)
|
(717,416
|
)
|
(1,280,710
|
)
|
(1,435,487
|
)
|
|||||||||
|
Total
Real Estate Operations
|
1,867,148
|
899,891
|
5,985,976
|
5,156,551
|
||||||||||||
|
Profit
on Sales of Other
|
||||||||||||||||
|
Real
Estate Interests
|
18,289
|
590,439
|
32,839
|
794,696
|
||||||||||||
|
Interest
and Other Income
|
55,718
|
91,089
|
161,712
|
535,839
|
||||||||||||
|
Operating
Income
|
1,941,155
|
1,581,419
|
6,180,527
|
6,487,086
|
||||||||||||
|
General
and Administrative Expenses
|
(1,602,005
|
)
|
(1,410,864
|
)
|
(5,013,474
|
)
|
(2,555,806
|
)
|
||||||||
|
Income Before
Income Taxes
|
339,150
|
170,555
|
1,167,053
|
3,931,280
|
||||||||||||
|
Income
Taxes
|
(129,488
|
)
|
(65,309
|
)
|
(447,376
|
)
|
(1,498,718
|
)
|
||||||||
|
Net
Income
|
$
|
209,662
|
$
|
105,246
|
$
|
719,677
|
$
|
2,432,562
|
||||||||
|
Per
Share Information:
|
||||||||||||||||
|
Basic
and Diluted Income Per Share
|
$
|
0.04
|
$
|
0.02
|
$
|
0.13
|
$
|
0.42
|
||||||||
|
Dividends
|
$
|
0.05
|
$
|
0.10
|
$
|
0.25
|
$
|
0.30
|
||||||||
See
Accompanying Notes to Consolidated Financial Statements
4
|
CONSOLIDATED-TOMOKA
LAND CO.
|
||||||||||||||||||||||||
|
AND
COMPREHENSIVE INCOME
|
||||||||||||||||||||||||
|
(Unaudited)
|
||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||
|
Common
|
Additional Paid-
In |
Retained
|
Other
Comprehensive
|
Total Shareholders' |
Comprehensive
|
|||||||||||||||||||
|
Stock
|
Capital
|
Earnings
|
Income
|
Equity
|
Income
|
|||||||||||||||||||
|
Balance
December 31, 2008
|
$ | 5,727,515 | $ | 5,217,955 | $ | 109,556,103 | $ | (2,687,266 | ) | $ | 117,814,307 | |||||||||||||
|
Net
Income
|
-- | -- | 719,677 | -- | 719,677 | $ | 719,677 | |||||||||||||||||
|
Other
Comprehensive Income: Cash Flow
|
||||||||||||||||||||||||
|
Hedging
Derivative, Net of Tax
|
-- | -- | -- | 117,553 | 117,553 | 117,553 | ||||||||||||||||||
|
Comprehensive
Income
|
-- | -- | -- | -- | -- | $ | 837,230 | |||||||||||||||||
|
Stock
Options
|
413 | 13,278 | -- | -- | 13,691 | |||||||||||||||||||
| Stock Buyback | (4,660 | ) | (99,987 | ) | (104,647 | ) | ||||||||||||||||||
|
Cash
Dividends ($.25 per share)
|
-- | -- | (1,431,283 | ) | -- | (1,431,283 | ) | |||||||||||||||||
|
Balance
September 30, 2009
|
$ | 5,723,268 | $ | 5,131,246 | $ | 108,844,497 | $ | (2,569,713 | ) | $ | 117,129,298 | |||||||||||||
See
Accompanying Notes to Consolidated Financial Statements
5
|
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
|
||||||||
|
(Unaudited)
Nine
Months Ended
|
||||||||
|
September
30,
|
September
30,
|
|||||||
|
2009
|
2008
|
|||||||
|
Cash
Flow from Operating Activities
|
||||||||
|
Net
Income
|
$
|
719,677
|
$
|
2,432,562
|
||||
|
Adjustments
to Reconcile Net Income to Net Cash
|
||||||||
|
Provided
By Operating Activities:
|
||||||||
|
Depreciation
and Amortization
|
2,063,969
|
1,966,494
|
||||||
|
Loss
on sale of Property, Plant, and Equipment
|
--
|
11,743
|
||||||
|
Deferred
Income Taxes
|
161,171
|
1,137,206
|
||||||
|
Non
Cash Compensation
|
769,167
|
|
(1,431,778
|
) | ||||
|
Decrease
(Increase) in Assets:
|
||||||||
|
Notes
Receivable
|
150,000
|
960,728
|
||||||
|
Land
and Development Costs
|
(1,422,708
|
)
|
(1,781,516
|
)
|
||||
|
Refundable
Income Taxes
|
(328,684
|
) |
--
|
|||||
|
Other
Assets
|
730,789
|
1,114,622
|
||||||
|
(Decrease)
Increase in Liabilities:
|
||||||||
|
Accounts
Payable
|
(422,010
|
) |
388,472
|
|||||
|
Accrued
Liabilities
|
466,830
|
79,595
|
||||||
|
Income
Taxes Payable
|
(1,236,206
|
)
|
(2,956,409
|
) | ||||
|
Net
Cash Provided By Operating Activities
|
1,651,995
|
1,921,719
|
||||||
|
Cash
Flow From Investing Activities:
|
||||||||
|
Acquisition of Property, Plant, and Equipment
|
(2,729,366
|
)
|
(16,839,750
|
)
|
||||
|
Acquisition of Intangible Assets
|
--
|
|
(704,485
|
) | ||||
|
Decrease in Restricted Cash for Acquisitions
|
||||||||
|
Through
the Like-Kind Exchange Process
|
462,765
|
9,926,995
|
|
|||||
| Proceeds from Calls or Maturities of Investment Securities | 4,878,589 | 14,022,746 | ||||||
| Acquisition of Investment Securities | (4,627,374 | ) | (9,002,824 | ) | ||||
|
Net
Cash Used In Investing Activities
|
(2,015,386
|
)
|
(2,597,318
|
)
|
||||
|
Cash
Flow from Financing Activities:
|
||||||||
|
Proceeds
from Notes Payable
|
11,413,000
|
8,759,000
|
||||||
|
Payments
on Notes Payable
|
(9,665,839
|
)
|
(6,986,838
|
)
|
||||
|
Cash
Proceeds from Exercise of Stock Options
|
2,059
|
5,090
|
||||||
|
Cash
Used to Settle Stock Appreciation Rights
|
(3,878
|
)
|
(36,315
|
)
|
||||
| Cash Used for Repurchase of Common Stock | (104,647 | ) | -- | |||||
|
Dividends
Paid
|
(1,431,283
|
)
|
(1,718,084
|
)
|
||||
|
Net
Cash Provided by Financing Activities
|
209,412
|
22,853
|
|
|||||
|
Net
Decrease in Cash
|
(153,979
|
)
|
(652,746
|
) | ||||
|
Cash,
Beginning of Year
|
388,787
|
863,826
|
||||||
|
Cash,
End of Period
|
$
|
234,808
|
$
|
211,080
|
||||
The
Company paid income taxes totaling $1,924,919 for the nine-months ended
September 30, 2009.
On August 5, 2009, the Company completed foreclosure on a mortgage
note receivable in the amount of $1,845,376, with the note receivable written
off, and the land reacquired. There was no gain or loss recognized on the
transaction.
See
Accompanying Notes to Consolidated Financial Statements
6
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
The
unaudited consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures, which are normally included in annual
financial statements prepared in accordance with U.S. generally accepted
accounting principles, have been omitted pursuant to those rules and
regulations. The consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary to present fairly the Company’s
financial position and the results of operations for the interim periods. The
consolidated format is designed to be read in conjunction with the last annual
report. For further information, refer to the consolidated financial statements
and the notes thereto included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008.The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. Inter-company
balances and transactions have been eliminated in consolidation.
NOTE 2.
COMMON STOCK AND EARNINGS PER SHARE
|
Basic
earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
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 for the periods.
|
||||||||||||||||
|
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Income
Available to Common Shareholders:
|
||||||||||||||||
|
Net
Income
|
$
|
209,662
|
$
|
105,246
|
$
|
719,677
|
$
|
2,432,562
|
||||||||
|
Weighted
Average Shares Outstanding
|
5,723,268
|
5,727,515
|
5,724,336
|
5,727,072
|
||||||||||||
|
Common
Shares Applicable to Stock
|
||||||||||||||||
|
Options
Using the Treasury Stock Method
|
--
|
--
|
--
|
--
|
||||||||||||
|
Total
Shares Applicable to Diluted Earnings Per Share
|
5,723,268
|
5,727,515
|
5,724,336
|
5,727,072
|
||||||||||||
|
Per
Share Information:
|
||||||||||||||||
|
Basic
& Diluted Income Per share
|
||||||||||||||||
|
Net
Income
|
$
|
0.04
|
$
|
0.02
|
$
|
0.13
|
$
|
0.42
|
||||||||
No impact was
considered on the conversion of stock options during the periods as the effect
would be antidilutive.
7
NOTE 3. NOTES
PAYABLE
|
Notes
payable consist of the following:
|
||||||||
|
September 30,
2009
|
||||||||
|
Due
Within
|
||||||||
|
Total
|
One
Year
|
|||||||
|
$20,000,000
Line of Credit
|
$
|
3,983,598
|
$
|
3,983,598
|
||||
|
Notes
Payable
|
6,313,878
|
283,945
|
||||||
|
$
|
10,297,476
|
$
|
4,267,543
|
|||||
|
Payments
applicable to reduction of principal amounts will be required as
follows:
|
||||||||
|
Year Ending September 30,
|
||||||||
|
2010
|
$
|
4,267,543
|
||||||
|
2011
|
332,303
|
|||||||
|
2012
|
5,697,630
|
|||||||
|
2013
|
--
|
|||||||
|
2014
& Thereafter
|
--
|
|||||||
|
$
|
10,297,476
|
|||||||
| The $20,000,000 line of credit expires on March 29, 2010 | ||||||||
|
For
the first nine months of 2009, interest expense was $273,247, net of
$137,644 interest capitalized to
|
||||||||
|
land
and development costs and construction in process, with interest of
$410,891 paid during the period.
|
||||||||
|
For
the first nine months of 2008, interest expense was $256,522, net of
$131,864 interest capitalized to land
|
||||||||
|
and
development costs, and construction in process, with interest of $388,386
paid during the period.
|
||||||||
8
|
NOTE 4. 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. A summary
of share option activity
under the Plan as of September 30, 2009 and changes during the nine
months then ended is presented below:
|
||||||||||||||||
|
Wtd
Avg
|
||||||||||||||||
|
STOCK
OPTIONS FOR THE NINE MONTHS
|
Remaining
|
|||||||||||||||
|
ENDED
SEPTEMBER 30, 2009
|
Contractual
|
Aggregate
|
||||||||||||||
|
Wtd
Avg
|
Term
|
Intrinsic
|
||||||||||||||
|
Shares
|
Ex
Price
|
(Years)
|
Value
|
|||||||||||||
|
Outstanding
at December 31, 2008
|
226,000
|
$
|
58.11
|
|||||||||||||
|
Granted
|
55,000
|
$
|
33.16
|
|||||||||||||
|
Exercised
|
(1,600
|
)
|
$
|
25.88
|
||||||||||||
|
Expired
|
(800
|
) | $ |
42.87
|
||||||||||||
|
Oustanding
at September 30, 2009
|
278,600
|
$
|
53.42
|
7.18
|
$
|
557,956
|
||||||||||
|
Exercisable
at September 30, 2009
|
111,000
|
$
|
53.91
|
5.94
|
$
|
275,256
|
||||||||||
|
Wtd
Avg
|
||||||||||||||||
|
STOCK
APPRECIATION RIGHTS FOR THE NINE MONTHS
|
Remaining
|
|||||||||||||||
|
ENDED
SEPTEMBER 30, 2009
|
Contractual
|
Aggregate
|
||||||||||||||
|
Wtd
Avg
|
Term
|
Intrinsic
|
||||||||||||||
|
Shares
|
Fair
Value
|
(Years)
|
Value
|
|||||||||||||
|
Outstanding
at December 31, 2008
|
226,000
|
$
|
3.12
|
|||||||||||||
|
Granted
|
55,000
|
$
|
4.76
|
|||||||||||||
|
Exercised
|
(1,600
|
)
|
$
|
2.42
|
||||||||||||
|
Expired
|
(800
|
) |
--
|
|||||||||||||
|
Oustanding
at September 30, 2009
|
278,600
|
$
|
4.65
|
7.18
|
$
|
300,438
|
||||||||||
|
Exercisable
at September 30, 2009
|
111,000
|
$
|
3.71
|
5.94
|
$
|
148,215
|
||||||||||
|
In
connection with the exercise of 1,600 option shares, 413 shares of stock
were issued and
|
||||||||||||||||
|
1,187
shares of stock were withheld via net exercise to relieve the stock option
liability by $11,632. Cash
|
||||||||||||||||
|
proceeds
of $2,059 were received on the exercise of the stock
options.
|
||||||||||||||||
| There are no options remaining to be granted under the plan. | ||||||||||||||||
9
|
NOTE 5. PENSION
PLAN
|
||||||||||||||||
|
The
Company maintains a defined benefit pension plan for all employees who
have attained the age of 21 and completed one year of
service.
|
||||||||||||||||
|
The
pension benefits are based primarily on age, years of service, and the
average compensation for the highest five years during the final ten years
of employment.
|
||||||||||||||||
|
The
benefit formula generally provides for a life annuity benefit.
|
||||||||||||||||
|
Following
are the components of the Net Periodic Benefit Cost:
|
||||||||||||||||
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Service
Cost
|
$
|
88,803
|
$
|
84,092
|
$
|
266,409
|
$
|
252,276
|
||||||||
|
Interest
Cost
|
112,753
|
108,800
|
338,259
|
326,400
|
||||||||||||
|
Expected
Return on Plan Assets
|
(116,096
|
)
|
(130,116
|
)
|
(348,288
|
)
|
(390,348
|
)
|
||||||||
|
Net
Amortization
|
47,335
|
19,879
|
142,005
|
59,637
|
||||||||||||
|
Net
Periodic Benefit Cost
|
$
|
132,795
|
$
|
82,655
|
$
|
398,385
|
$
|
247,965
|
||||||||
|
The
Company has made contributions totaling $545,215 in 2009.
|
||||||||||||||||
NOTE 6. NOTES
RECEIVABLE
Notes receivable relate to the financing of real estate sales, bear
interest at a market rate, and are recorded at face value. The Company has not
and does not intend to sell these receivables. Amounts collected on notes
receivables are included in net cash provided by operating activities in the
consolidated statements of cash flows.
Notes Receivables consisted of the following:
| September 30, | ||||
| 2009 | ||||
| Mortgage note with variable interest rate at 200 basis points above the 30-day London Interbank Offer Rate "LIBOR," | ||||
| principal and interest payments due annually through 2012 | $ | 2,158,317 | ||
| $ | 2,158,317 | |||
On August 5, 2009, the Company completed
foreclosure on a mortgage note receivable in the amount of $1,845,376, with the
note receivable written-off, and the land reacquired. There was no gain or
loss recognized on the transaction.
Additionally, on November 6, 2009, foreclosure was
completed on a mortgage note receivable in the amount of $2,158,317.
In determining impairment on notes receivable, the
Company also evaluates the property which supports the mortgage note. The
accrual of interest on notes receivable is stopped at the time it is
determined that collection of the receivable is unlikely, and has been stopped
on the delinquent note. Actual losses could differ from those
estimated.
The
Company accounts for financial instruments as required by the Fair Value
Measurements and Disclosure Topic of Financial Accounting Standards Board
Accounting Standards Codification (“FASB ASC”). The largest carrying amounts of
the Company’s financial assets and liabilities, including cash, accounts
receivable, and accounts payable at September 30, 2009 and December 31, 2008,
approximate fair value because of the short maturity of these instruments. The
carrying amount of the Company’s notes receivable and notes payable is not
materially different from market value due to the short maturities on the
notes. The interest rate swap derivative is carried at its fair value at
September 30, 2009 and December 31, 2008.
At the
time the Company’s debt was refinanced in 2002, the Company entered into an
interest rate swap agreement. This swap arrangement changes the variable-rate
cash flow exposure on the debt obligations to fixed cash flows so that we 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 the Derivative Instruments
and Hedging Activities Topic of FASB ASC which 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 fair
market value of the interest rate swap agreement was determined using
Significant Other Observable Inputs (Level 2). A financial model is
used to determine the fair market value of the interest rate swap. The model
estimates the expected cash flows discounted at the risk-free rate, using the
treasury yield curve, plus the current market observable LIBOR interest rate
spread to treasuries, adjusted for the credit risk of the Company. The Fair
Market Value recorded on the Balance Sheet at September 30, 2009, was a
liability of $756,388. The change in fair value, net of applicable
taxes, in the cumulative amount of $464,611 at September 30, 2009, has been
recorded as accumulated other comprehensive loss, a component of shareholders’
equity.
The
amortized cost, gross unrealized holding gains, gross unrealized holding losses
and fair value of held-to-maturity investment securities by major security type
and class of security at September 30, 2009, were as follows:
|
Amortized
Cost
|
Gross
Unrealized Holding Gains
|
Gross
Unrealized Holding Losses
|
Fair
Value
|
|||||||||||||
|
At
September 30, 2009
|
||||||||||||||||
|
Debt Securities Issued by States
|
||||||||||||||||
|
and Political Subdivisions of States
|
$
|
4,880,409
|
$
|
5,602
|
(95,483
|
)
|
$ |
4,790,528
|
||||||||
|
Preferred
Stocks
|
129,244
|
--
|
(45,611
|
)
|
83,633
|
|||||||||||
|
$
|
5,009,653
|
$
|
5,602
|
(141,094
|
)
|
$
|
4,784,161
|
|||||||||
10
At the
end of 2008, the Company focused its efforts on obtaining federal stimulus
dollars to extend Dunn Avenue, a major east/west thoroughfare bridging
Interstate 95, to provide improved access to Company lands. In June, the Company
entered into a cost sharing agreement with the City of Daytona Beach and
the County of Volusia that will allow the use of federal funds to build this
road project. The Company's cost participation of $1,125,000 is not due
until 2010.
|
NOTE 9. BUSINESS SEGMENT
DATA
|
|||||||||||||||
|
The
Company primarily operates in three business segments: real estate, income
properties, and golf. Real estate operations include commercial real
estate,
|
|||||||||||||||
|
land
sales and development, agriculture, and leasing properties for oil
and mineral exploration.
|
|||||||||||||||
|
The
Company evaluates performance based on income or loss from operations
before income taxes. The Company's reportable segments are strategic
business units that offer
different products. They are managed separately because each segment
requires different management techniques, knowledge, and
skills.
|
|||||||||||||||
|
Information
about the Company's operations in different segments is as follows
(amounts in thousands):
|
|||||||||||||||
|
Three Months
Ended
|
Nine Months
Ended
|
||||||||||||||
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
|
Revenues:
|
|||||||||||||||
|
Real
Estate
|
$
|
959
|
$
|
98
|
$
|
2,586
|
$
|
2,359
|
|||||||
|
Income
Properties
|
2,430
|
2,380
|
7,107
|
6,875
|
|||||||||||
|
Golf
|
882
|
814
|
3,567
|
3,482
|
|||||||||||
|
General,
Corporate, and Other
|
74
|
681
|
194
|
1,330
|
|||||||||||
|
$
|
4,345
|
$
|
3,973
|
$
|
13,454
|
$
|
14,046
|
||||||||
|
Income
(Loss):
|
|||||||||||||||
|
Real
Estate
|
$
|
703
|
|
$
|
(247
|
) |
$
|
1,773
|
$
|
1,127
|
|||||
|
Income
Properties
|
1,823
|
1,865
|
5,494
|
5,465
|
|||||||||||
|
Golf
|
(659
|
)
|
(718
|
)
|
(1,281
|
)
|
(1,436
|
)
|
|||||||
|
General,
Corporate, and Other
|
(1,528
|
)
|
(729
|
)
|
(4,819
|
)
|
(1,225
|
)
|
|||||||
|
$
|
339
|
$
|
171
|
$
|
1,167
|
$
|
3,931
|
||||||||
|
Identifiable
Assets
|
|||||||||||||||
|
Real
Estate
|
$
|
38,230
|
|||||||||||||
|
Income
Properties
|
117,572
|
||||||||||||||
|
Golf
|
7,473
|
||||||||||||||
|
General,
Corporate, and Other
|
10,539
|
||||||||||||||
|
$
|
173,814
|
||||||||||||||
|
Depreciation
and Amortization
|
|||||||||||||||
|
Real
Estate
|
$
|
312
|
|||||||||||||
|
Income
Properties
|
1,317
|
||||||||||||||
|
Golf
|
366
|
||||||||||||||
|
General,
Corporate, and Other
|
69
|
||||||||||||||
|
$
|
2,064
|
||||||||||||||
|
Capital
Expenditures
|
|||||||||||||||
|
Real
Estate
|
$
|
947
|
|||||||||||||
|
Income
Properties
|
1,726
|
||||||||||||||
|
Golf
|
40
|
||||||||||||||
|
General, Corporate, and Other
|
16
|
||||||||||||||
|
$
|
2,729
|
||||||||||||||
|
Income
represents income (loss) from continuing operations before income
taxes.
|
|||||||||||||||
|
Identifiable
assets by industry are those assets that are used in the Company's
operations in each industry.
|
|||||||||||||||
|
General
corporate assets and assets used in the Company's other operations consist
primarily of cash, investment securities, and property, plant, and
equipment.
|
|||||||||||||||
NOTE 10. CONCENTRATION OF
RISKS AND UNCERTAINTIES
| The Company’s real estate investments are concentrated in the State of Florida. Uncertainty of the duration of the prolonged real estate and economic slump could have an adverse impact on the Company’s real estate values. |
NOTE
11. ACCOUNTING STANDARDS
In
June 2009, the FASB issued Statement No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles”, (“SFAS 168”). SFAS 168 replaces FASB Statement No. 162,
The Hierarchy of Generally Accepted Accounting Principles, and establishes the
FASB Accounting Standards Codification as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with generally
accepted accounting principles (GAAP). The Company adopted SFAS 168 in the
third quarter of 2009. The adoption did not have an impact on the
consolidated results of the Company.
In
December 2008 the FASB issued guidance on Employers’ Disclosures about Pensions
and Other Postretirement Benefits which requires disclosures about plan assets
to be provided for fiscal years ending after December 15,
2009. Under the guidance disclosures requirements include
information about how investment allocation decisions are made, the fair value
of each major category of plan assets and the inputs and valuation techniques
used to develop fair value measurements of plan assets. The Company
plans to adopt the guidance during the fourth quarter of 2009. The
adoption of this guidance is not expected to have an impact on the Company’s
financial statements.
NOTE
12. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through November 9, 2009, the date of
issuance of the accompanying consolidated financial statements. On
November 6, 2009, the Company completed foreclosure on a mortgage receivable
note in the amount of $1,845,376.
Back to Index
11
The
Management’s Discussion and Analysis of Financial Condition and Results of
Operations is designed to be read in conjunction with the financial statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations in the last annual report on Form 10-K.
OPERATIONS
OVERVIEW
We
are primarily engaged in real estate land sales and development, reinvestment of
land sales proceeds into income properties, self development of income
properties, and golf course operations. We own approximately 11,200 acres in
Florida, of which approximately 10,200 are located within and form a substantial
portion of the western boundary of the City of Daytona Beach. Our lands are
well-located in the central Florida Interstate-4 and Interstate-95 corridors,
providing an excellent opportunity for reasonably stable land sales in future
years.
With
our substantial land holdings in Daytona Beach, we have parcels available for
the entire spectrum of real estate uses. Along with land sales, we selectively
develop parcels primarily for commercial uses. Although pricing levels and
changes by us and our immediate competitors can affect sales, we generally enjoy
a competitive edge due to low costs associated with long-time land ownership and
a significant ownership position in the immediate market. As a general policy we
do not discount sales prices to accelerate land sales.
Until
the dramatic downturn in the national and local economies in 2008, sales
activity on Company owned lands had been strong over several years. Development
activities on and around Company owned lands continued relatively strong
throughout 2008 and into 2009 with the commencement and completion of projects
planned or in process before the downturn. Sales and development activities over
the last several years included: the sale of 120 acres of land to Florida
Hospital for the construction of a new hospital, which opened in July of this
year; the expansion of the Daytona Beach Auto Mall; the opening of a second
office building in the Cornerstone Office Park; continued development
within the 250-acre Gateway Commerce Park (where a 32,000 square-foot
industrial building was completed in early 2009) and the 60-acre Interstate
Commerce Park, both adjacent to Interstate 95; and the sale of approximately 100
acres of land west of Interstate 95 on which a private high school was
constructed and opened in August 2008. In early 2009, the City of
Daytona Beach police headquarters, located adjacent to Gateway Commerce Park,
was completed and occupied. Also in 2009, construction was completed on a
288-unit apartment complex and a medical office building, with development of a
townhouse residential community on the east side of Interstate 95
continuing. During the first quarter of 2009, construction commenced on an
upscale restaurant on a parcel adjacent to the Interstate 95 and LPGA Boulevard
interchange, which the Company sold during the fourth quarter of 2008
.. On the west side of Interstate 95, development has been
completed on a fire station, a hotel, and a 59,000 square-foot furniture retail
store in the Interstate Commerce Park, along with a new elementary school which
opened in August 2009.
These
commercial and residential development activities tend to create additional
buyer interest and sales opportunities, although weak economic
conditions led us to continue in 2009 with a smaller than normal backlog of
contracts, with few select opportunities for additional transactions in the
near term.
In
2000, we initiated a strategy of investing in income properties utilizing the
proceeds of agricultural land sales qualifying for income tax deferral through
like-kind exchange treatment for tax purposes. As of September 30, 2009, we have
invested approximately $120 million in twenty-six income properties through this
process. With this investment base in income properties, lease revenue of
approximately $9.3 million is projected to be generated annually. This income,
along with income from additional net-lease income property investments, is
expected to decrease earnings volatility in future years and add to overall
financial performance. This has enabled us to enter into the business of
building, leasing, and holding in our portfolio select income-producing
properties that are strategically located on our lands.
In the third quarter of this year, we
were notified by Barnes & Noble that it would be vacating its store in
Lakeland, Florida, upon the expiration of the original lease term at the end
of January 2010. The Company is exploring all strategic
alternatives on this 18,150 square-foot property. All remaining
properties remain leased with the average remaining lease term in excess of 11
years, excluding additional option years. The Barnes & Noble
store in Daytona Beach, Florida which has a lease termination date at the end of
January 2011, excluding option years, is the next lease up for renewal. No
other leases have less than six-years remaining on the initial lease
term.
We
currently have two self-developed projects in the lease up stage. The first
project is a two-building 31,000 square-foot flex office space complex located
within Gateway Commerce Park. Construction of these buildings was completed
in 2008. As of September 30, 2009, there was one tenant under lease for
approximately 3,840 square feet, with negotiations ongoing with additional
tenant prospects. Also under development is the first phase of a
12-acre, 4-lot commercial complex located at the corner of LPGA and Williamson
Boulevards in Daytona Beach, Florida. The parcel includes a
23,000 square-foot “Class A” office building. With the exception of
additional tenant improvements, which are to be made as vacant space is leased,
construction of the building has been completed. Approximately 75% of
the building is under lease to two tenants. The first tenant
occupied the building in mid-July and the second tenant began occupying the
building in September.
Golf
operations consist of the operation of two championship golf courses and a
clubhouse facility, including food and beverage activities, located within the
LPGA International mixed-use residential community on the west side of
Interstate 95, south and east of LPGA Boulevard. The Champions course was
designed by Rees Jones and the Legends course was designed by Arthur
Hills.
Our
agricultural operations consist of growing, managing, and selling timber and hay
on approximately 10,700 acres of land primarily on the west side of Daytona
Beach, Florida. We are currently in the process of converting a significant
portion of our timberlands to hay production.
12
During
the quarter ended September 30, 2009, net income totaled $209,662, equivalent to
$.04 per share. This income was generated on the sale of nine acres
of land and continued strong earnings from income properties. During
2008’s third quarter, when no land sales were recorded, net income amounting to
$105,246, equivalent to $.02 per share, was produced.
Net
income of $719,677, equivalent to $.13 per share, was posted for the nine-month
period ended September 30, 2009 on the sale of 16 acres of land. This
net income represents a significant downturn from profits of $2,432,562,
equivalent to $.42 per share, recorded in 2008’s same period. The
unfavorable results can primarily be attributed to higher general and
administrative costs due to increased expenses associated with stock
options and shareholder relations. In addition, during 2008's first
nine months, the decrease in the price of the Company’s stock during the first
six months of the year resulted in an addition to income of $879,470 after
income taxes for stock option accruals.
We
also use Earnings before Depreciation, Amortization, and Deferred Taxes (EBDDT)
as a performance measure. Our strategy of investing in income properties through
the deferred tax like-kind exchange process produces significant amounts of
depreciation and deferred taxes.
The
following is the calculation of EBDDT:
|
Three
Months Ended
|
||||||||
|
September
30,
2009
|
September 30,
2008
|
|||||||
|
Net Income
|
$
|
209,662
|
$
|
105,246
|
||||
|
Add
Back:
|
||||||||
|
Depreciation
and Amortization
|
695,813
|
676,733
|
||||||
|
Deferred Taxes
|
47,308
|
321,607
|
||||||
|
E Earnings
before Depreciation, Amortization, and Deferred Taxes
|
$
|
952,783
|
$
|
1,103,586
|
||||
|
Nine
Months Ended
|
|||||||
|
September
30,
2009
|
September 30,
2008
|
||||||
|
Net Income
|
$
|
719,677
|
$
|
2,432,562
|
|||
|
Add
Back:
|
|||||||
|
Depreciation
and Amortization
|
2,063,970
|
1,966,494
|
|||||
|
Deferred Taxes
|
161,171
|
1,137,206
|
|||||
|
Earnings
before Depreciation, Amortization, and Deferred Taxes
|
$
|
2,944,818
|
$
|
5,536,262
|
|||
EBDDT is
calculated by adding depreciation, amortization, and the change in deferred
income tax to net income, as they represent non-cash charges. EBDDT is not a
measure of operating results or cash flows from operating activities as defined
by U.S. 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. We believe,
however, that EBDDT provides relevant information about operations and is
useful, along with net income, for an understanding of our operating
results.
EBDDT
totaling $952,783 and $2,944,818 for the third quarter and first nine months of
2009, respectively, was lower than 2008’s third quarter and first nine
months of EBDDT amounting to $1,103,586 and $5,536,262,
respectively. The decrease in EBDDT for both periods was partially
due to the reduced add back for deferred income taxes, primarily associated with
taxes relating to stock options accruals, with lower earnings also
contributing significantly to the decrease in EBDDT for the nine month
period.
13
REAL ESTATE
OPERATIONS
REAL
ESTATE SALES
During the
third quarter of 2009 the sale of nine acres of land produced revenues and
profits of $959,081 and $702,681, respectively. A loss of $247,320
was reported in 2008’s third quarter as no land sales occurred during the
period. Real estate sales costs and expenses were reduced during
2009’s third quarterly period primarily due to lower real estate taxes and
compensation costs.
The sale of 16 acres of land during the
first nine months of 2009 resulted in the realization of revenues and profits
totaling $2,585,974 and $1,772,704, respectively. During 2008’s same
period the sale of 21 acres of land generated profits of $1,126,881 on revenues
totaling $2,358,789. The decrease in costs and expenses during the
nine month period was again the result of lower real estate taxes and
compensation costs in addition to lower cost of sales associated with the land
sales.
INCOME
PROPERTIES
When compared to the prior year’s same
period, revenues from income properties rose a modest 2% for 2009’s third
quarter to $2,429,747. This rise was due to additional rental income
realized from leasing of the new self-developed Class A office building located
in Daytona Beach, Florida. Income properties costs and expenses
rose 18% during the period on costs, including depreciation, from the office
building along with costs associated with the Gateway Commerce Park flex
buildings. These increases in revenues and costs and expenses resulted in a 2%
decrease in profits to $1,822,976. Third quarter 2008 revenues and net income
from income properties totaled $2,380,052 and $1,864,627,
respectively.
Year-to-date through September 30, 2009
income properties profit totaled $5,493,982. These profits reflect a
modest 1% rise from the profits posted in 2008’s same period totaling
$5,465,157. The gain in profitability was produced on a 3% rise in
revenues offset by a 14% increase in costs and expenses. The increase
in revenues was the result of lease revenues from the new office building
coupled with additional revenues from the Charlotte, North Carolina, Harris
Teeter supermarket building, which was acquired in April 2008. These
two factors, in addition to the Gateway Commerce Center flex buildings, also
accounted for the rise in costs and expenses through September 30,
2009. Income properties revenues amounted to $7,106,796 and
$6,874,518, respectively, for 2009 and 2008.
GOLF
OPERATIONS
Losses from
golf operations for the quarter ended September 30, 2009, totaled $658,509, an
8% improvement over the loss of $717,416 posted in 2008’s third
quarter. The improvement was achieved on an 8% gain in total
revenues. Revenues of $881,775 were generated in 2009’s third quarter
with revenues amounting to $814,067 realized in 2008’s same
period. The increase in revenues was the result of a 7% gain in
revenues from golfing activities, coupled with a 12% increase in food and
beverage activities. The number of rounds played during the
period rose 33%, but was somewhat offset by a 15% decline in the average rate
paid per round played. Golf operations costs and expenses rose 1%, to
$1,540,284, on higher food and beverage cost of sales and wage costs, due to the
increased activity, offset by lower golf course maintenance
expenses.
During the
first nine months of 2009, a loss of $1,280,710 was realized from golf
operations. This loss represented an 11% reduction from the loss of
$1,435,487 generated in 2008’s first nine month period. Revenues
amounting to $3,566,746 were produced during the period, a 2% rise over the
prior year’s revenues totaling $3,481,770. This revenue gain was generated on a
1% increase in golfing activities revenues in addition to an 8% gain in food and
beverage revenues. The number of rounds of golf played during the
nine month period rose 28% over the prior year, but was offset by a 19% decline
in the average rate paid per round played. Lower compensation costs
and golf course maintenance expenses resulted in a 1% decrease in golf
operations costs and expenses.
GENERAL,
CORPORATE, AND OTHER
During
the first nine months of 2009, profits on the release of subsurface interests
totaled $32,839, of which $18,289 was earned in the third
quarter. Releases were granted on 18 acres and one acre for the
nine months and third quarter of 2009, respectively. Profits on the
sale of other real estate interests totaled $590,439 and $794,696 for the third
quarter and first nine months of 2008, respectively. These profits
were realized on the release of subsurface rights on 772 acres, of which the
release of 537 acres occurred in the third
quarter.
When
compared to the prior year’s same period, interest and other income decreased
39% for the quarter ended September 30, 2009, to $55,718, and 70% for the
nine-month period to $161,712. These declines resulted from lower
investment interest earned on decreased investment securities, lower interest
earned on mortgage notes receivable due to the non-accrual of interest on
delinquent notes, and lower interest on funds held for reinvestment through the
like-kind exchange process. During 2008’s third quarter and first
nine months, interest and other income totaled $91,089 and $535,839,
respectively.
General
and administrative expenses totaled $1,602,005 in 2009’s third quarter, while in
2008’s third quarter general and administrative expenses amounted to
$1,410,864. This 14% increase was principally the result of increased
stock option expense.
Increased
stock options accruals accounted for $2,200,945 of the rise in general and
administrative expenses during the first nine months of 2009. This
variance resulted from a significant decrease in the price of Company stock in
the first half of 2008, while the stock price has increased in
2009. Also contributing to the higher expenses were legal and other
costs associated with a shareholder lawsuit and proxy contest of approximately
$735,000. General and administrative expenses totaled $5,013,474 and
$2,555,806 for the nine-month periods ended September 30, 2009 and 2008,
respectively.
14
LIQUIDITY AND CAPITAL
RESOURCES
Cash,
restricted cash, and investment securities declined $867,959 during the first
nine months of 2009, with a balance of $5,244,461 at September 30,
2009. This balance included no funds being held by a qualified
intermediary for reinvestment through the like-kind exchange
process. The balance of cash, restricted cash, and investment
securities totaled $6,112,420 at December 31, 2008. In addition to
the decrease in cash and investment securities during the nine-month period,
notes payable increased $1,747,161, with $3,983,598 outstanding on the Company’s
$20,000,000 revolving line of credit at September 30, 2009.
Funds
used during the nine-month period were centered around construction and
development activities, continued hay conversion, payment of income taxes and
dividends. The completion of the 23,000 square-foot “Class A” office
building along with the completion of the construction of a road, Tournament
Drive, on our core lands adjacent to LPGA Boulevard in Daytona Beach,
Florida were the primary uses of the $3.1 million expended for construction and
development. Hay conversion costs approximated $850,000 during the
period. The payment of income taxes amounted to $1,949,919, with
dividends paid totaling $1,431,283, equivalent to $.25 per share, for the nine
month period.
During August
of 2009 the Company completed the reacquisition of a 6 acre parcel of land
through the foreclosure of a mortgage note receivable. The mortgage
note receivable was written-off with the land recorded in Land and Development
costs in the amount of $1,961,324. There was no gain or loss recognized on
the transaction. An additional mortgage note receivable was foreclosed in
early November. The mortgage note, valued at $2,269,580 including
accrued interest, was secured by 317 acres of property. In
determining impairment on notes receivable the Company also evaluates the
property which supports the mortgage note.
During
the fourth quarter of 2008, our Board of Directors authorized a program to
repurchase shares of our common stock having an aggregate value of up to
$8,000,000. The authorization permits us to effect the repurchases from time to
time through a variety of methods including open market repurchases and
privately negotiated transactions. The repurchase plan is intended to be funded
through reduced dividend payments in the future. We have no plans to increase
debt to fund the repurchase plan. Through November 1, 2009, 4,660 shares had
been repurchased at a total cost of $104,648, with no repurchases occurring in
the third quarter of 2009.
Capital
expenditures for the remainder of 2009 are projected to approximate $2.7
million. These expenditures include tenant improvements at the flex office
building located in Gateway Commerce Park, and the continuation of the
conversion of timber lands to hay. Also included in capital
expenditures for the remainder 2009 is the acquisition of property through
Internal Revenue Code Section 1033 involuntary conversion under threat of
condemnation tax deferral provisions. We plan to reinvest $2.2 million by
year-end 2009 through this process with an additional $7.9 million to be
expended in subsequent years.
At the
end of 2008, the Company focused its efforts on obtaining federal stimulus
dollars to extend Dunn Avenue, a major east/west thoroughfare bridging
Interstate 95, to provide improved access to Company lands. In June, the Company
entered into a cost sharing agreement with the City of Daytona Beach and
the County of Volusia that will allow the use of federal funds to build this
road project. The Company's cost participation of $1,125,000 is not due
until 2010.
Capital
to fund the planned expenditures in 2009 is expected to be provided from cash
and investment securities (as they mature), operating activities, and financing
sources that are currently in place, including the $20 million revolving line of
credit, which matures on March 29, 2010.
We also
believe that we have the ability, if needed, to borrow on a non-recourse
basis against our existing income properties, which are all free of debt as of
the date of this filing. As additional funds become available through
qualified sales, we expect to reinvest in additional real estate
opportunities.
Our Board
of Directors and management continually review the allocation of any excess
capital with the goal of providing the highest long-term return for all
shareholders. The reviews consider various alternatives, including
increasing or decreasing regular dividends, declaring special dividends,
repurchasing stock, and retaining funds for reinvestment, including road
development and hay conversion of timber lands. The Board of Directors has
reaffirmed its support for the stated business plan of reinvesting
agricultural land sales proceeds into 1031 tax-deferred income-producing
properties, self-development of income properties, and the creation of
infrastructure and entitlements on Company lands to increase long-term
shareholder value.
At its
regular Board of Directors meeting on October 28, 2009, the Company declared a
dividend of $.05 per share. The Company recognizes the importance of
providing a quarterly dividend and maintaining that commitment during the recent
economic downturn. The Board of Directors will continue to monitor the
national and local economic conditions and balance the Company's capital needs
against its desire to maintain the quarterly dividend at or near its current
level
15
CRITICAL ACCOUNTING
POLICIES
The
profit on sales of real estate is accounted for in accordance with the
Accounting for Sales of Real Estate Topic of FASB ASC. We recognize 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
established criteria, or we retain continuing involvement with the property. A
majority of our land sales contracts contain an anti-speculation clause. This
clause requires the buyer to begin construction of their project within a
specified period of time, generally two years. If this requirement is not met,
we have the right, but not the obligation, to repurchase the property at its
original sales price.
We
acquire income properties with long-term leases in place. Upon acquisition, the
portion of the purchase price that represents the market value associated with
the lease is allocated to an intangible asset. The amount of the intangible
asset represents the cost of replacing the tenant should the lease be
discontinued. Factors such as vacancy period, tenant improvements, and lease
commissions, among others, are considered in calculating the intangible asset.
The intangible asset is amortized over the remaining life of the lease at the
time of acquisition. At September 30, 2009, the intangible asset associated
with the income properties totaled $4,693,942, net of amortization of
$1,902,598.
In
accordance with Accounting for the Impairment or Disposal of Long-Lived Assets
Topic of FASB ASC we have reviewed the recoverability of long-lived assets,
including real estate development, income properties, and other 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.
Long-lived assets are evaluated for impairment by using an undiscounted cash
flow approach which considers future estimated capital expenditures. Impairment
on long-lived assets is measured at fair value. There has been no impairment of
long-lived assets reflected in the consolidated financial
statements.
At the
time our debt was refinanced in 2002, we 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 we 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 Derivative Instruments and Certain Hedging Activities Topic
of FASB ASC. 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.
We
measure 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 periods ended September 30,
2009 and September 30, 2008. A liability in the amount of $756,388 at
September 30, 2009, has been established on our balance sheet. The change
in fair value, net of applicable taxes, in the cumulative amount of $464,611 at
September 30, 2009, has been recorded as accumulated other comprehensive loss, a
component of shareholders’ equity.
We
maintain a stock option plan pursuant to which 500,000 shares of our common
stock may be issued. The current Plan was approved at the April 25, 2001
shareholders’ meeting. Under the Plan, the option exercise price equals the
stock market price on the date of grant. The options generally 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 shares at the time of exercise. All options granted to date have been
non-qualified options.
Both our
stock options and stock appreciation rights are liability classified awards
under the Share Based Payment Topic of FASB ASC and are required to be
remeasured to fair value at each balance sheet date until the award is
settled.
16
The principal
market risk (i.e., the risk of loss arising from adverse changes in market rates
and prices) to which we are exposed is interest rates. The objective of our
asset management activities is to provide an adequate level of liquidity to fund
operations and capital expansion, while minimizing market risk. We utilize
overnight sweep accounts and short-term investments to minimize the interest
rate risk. We do not actively invest or trade in equity securities. We do not
believe that our interest rate risk related to cash equivalents and short-term
investments is material due to the nature of the investments.
We manage
our debt considering investment opportunities and risk, tax consequences, and
overall financial strategies. We are primarily exposed to interest rate risk on
our $8,000,000 ($6,313,878 outstanding at September 30, 2009) 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, we entered into an interest rate swap agreement during the
second quarter of 2002. A hypothetical change in the interest rate of 100 basis
points (i.e. 1%) would not materially affect our financial position, results of
operations, or cash flows.
As of the end
of the period covered by this report, an evaluation, as required by Rules 13a-15
and 15d-15 under the Securities Exchange Act of 1934 (the "Exchange Act"),
was carried out under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of the effectiveness of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the
Exchange Act). Based on that evaluation, the CEO and CFO have
concluded that the design and operation of the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and to provide
reasonable assurance that information required to be disclosed by the Company in
such reports is accumulated and communicated to the Company's management,
including its CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure. There were no changes in the Company's internal
control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f)
under the Exchange Act) during the fiscal quarter ended September 30,
2009, that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
17
ITEM 1A. RISK
FACTORS
Certain
statements contained in this report (other than statements of historical fact)
are forward-looking statements. The words “believe,” “estimate,” “expect,”
“intend,” “anticipate,” “will,” “could,” “may,” “should,” “plan,” “potential,”
“predict,” “forecast,” “project,” and similar expressions and variations thereof
identify certain of such forward-looking statements, which speak only as of the
dates on which they were made. Forward-looking statements are made based upon
management’s expectations and beliefs concerning future developments and their
potential effect upon the Company. There can be no assurance that future
developments will be in accordance with management’s expectations or that the
effect of future developments on the Company will be those anticipated by
management.
We wish 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, 2009, 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 strength of the real estate
market in the City of Daytona Beach and Volusia County, Florida; the impact of a
prolonged recession or further downturn in economic conditions; our ability to
successfully execute acquisition or development strategies; any loss of key
management personnel; changes in local, regional, and national economic
conditions affecting the real estate development business and income properties;
the impact of environmental and land use regulations; the impact of competitive
real estate activity; variability in quarterly results due to the unpredictable
timing of land sales; the loss of any major income property tenants; and the
availability of capital. These risks and uncertainties may cause our actual
future results to be materially different than those expressed in our
forward-looking statements.
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I “Item 1A. Risk Factors” in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008. There
have been no material changes to those risk factors. The risks described in the
Annual Report on Form 10-K are not the only risks facing the Company. Additional
risks and uncertainties not currently known to the Company or that the Company
currently deems to be immaterial also may materially adversely affect the
Company.
While we
periodically reassesses material trends and uncertainties affecting our results
of operations and financial condition, we do not intend to review or revise any
particular forward-looking statement referenced herein in light of future
events.
ISSUER
REPURCHASES OF EQUITY SECURITIES
In
November 2008, the Company’s Board of Directors authorized the repurchase by the
Company from time to time of up to $8 million of its common
stock. This share repurchase program does not have a stated
expiration date. There were no repurchases made under the program
during the quarter ended September 30, 2009. From inception of the program, the
Company has repurchased 4,660 shares of its common stock at a total cost of
$104,648.
18
(a)
Exhibits:
Exhibit
3.1 - Amended and Restated Articles of Incorporation of Consolidated-Tomoka Land
Co., dated October 28, 2009, filed as Exhibit 3.1 to the registrant's
Current Report on Form 8-K
filed
October 30, 2009, and
incorporated herein by reference.
Exhibit
3.2 - Amended and Restated By Laws of Consolidated-Tomoka Land Co., dated
October 28, 2009, filed as Exhibit 3.2 to the registrant's Current
Report
on Form 8-K filed October 30, 2009, and incorporated herein by
reference.
Exhibit
31.1 - Certification furnished pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Exhibit
31.2 - Certification furnished pursuant to Section 302 of Sarbanes-Oxley Act of
2002.
Exhibit
32.1 - Certification pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit
32.2 - Certification pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
19
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CONSOLIDATED-TOMOKA
LAND CO.
(Registrant)
|
November
9, 2009 By:
|
/s/William
H. McMunn
|
|
William
H. McMunn, President and
Chief
Executive Officer
|
|
November
9, 2009 By:
|
/s/Bruce
W. Teeters
|
|
Bruce
W. Teeters, Senior Vice President
Finance
and Treasurer
|
20
EXHIBIT
31.1
CERTIFICATIONS
I,
William H. McMunn, certify that:
|
1.
|
I
have reviewed this Form 10-Q of Consolidated-Tomoka Land
Co.;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based on my knowledge, the
financial statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this
report;
|
|
4.
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
(d)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
|
5.
|
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors:
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
By:
/s/William H. McMunn
William
H. McMunn
President
and Chief Executive Officer
Date:
November 9, 2009
EXHIBIT
31.2
CERTIFICATIONS
I, Bruce
W. Teeters, certify that:
|
1.
|
I
have reviewed this Form 10-Q of Consolidated-Tomoka Land
Co.;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of he circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4.
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) nd 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and
have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that materialinformation relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
Evaluated the effectiveness of
the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this
report based on such evaluation;
and
|
|
(d)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
|
5.
|
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors:
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
By:/s/Bruce
W. Teeters
Bruce W.
Teeters
Senior
Vice President-Finance and Treasurer
Date: November
9, 2009
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Consolidated-Tomoka Land Co. (the
“Company”) on Form 10-Q for the period ended September 30, 2009, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I,
William H. McMunn, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
|
(1)
|
The
Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
By:/s/William
H. McMunn
William
H. McMunn
President
and Chief Executive Officer
November
9, 2009
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18 U.S.C
SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly report of Consolidated-Tomoka Land Co. (the
“Company”) on Form 10-Q for the period ended September 30, 2009, as filed
with the Securities and Exchange Commission on the date hereof (the “Report”),
I, Bruce W. Teeters, Senior Vice President - Finance and Treasurer of the
Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
By:/s/Bruce
W. Teeters
Bruce W.
Teeters
Senior
Vice President-Finance and Treasurer
November
9, 2009