SEC Filing - CTO Realty Growth

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, 1998 ___ 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 32114 Daytona Beach, Florida (Zip Code) (Address of principal executive offices) (904) 255-7558 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding Class of Common Stock November 1, 1998 _____________________ _________________ $1.00 par value 6,371,833 1

CONSOLIDATED-TOMOKA LAND CO. INDEX Page No. ________ PART I - - FINANCIAL INFORMATION Consolidated Condensed Balance Sheets - September 30, 1998 and December 31, 1997 3 Consolidated Condensed Statements of Income and Retained Earnings - Three Months and Nine Months Ended September 30, 1998 and 1997 4 Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 30, 1998 and 1997 5 Notes to Consolidated Condensed Financial Statements 6-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 PART II -- OTHER INFORMATION 13 SIGNATURES 14 2

PART I -- FINANCIAL INFORMATION CONSOLIDATED-TOMOKA LAND CO. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) September 30, December 31, 1998 1997 ------------ ------------ ASSETS Cash $ 136,317 $ 9,387,433 Investment Securities 1,185,710 1,026,679 Notes Receivable 10,104,836 10,018,350 Accounts Receivable 1,833,257 1,824,973 Inventories 778,631 921,454 Cost of Fruit on Trees 3,245,588 2,786,501 Real Estate Held for Development and Sale 14,280,762 13,819,068 Net Investment in Direct Financing Lease 563,532 625,256 Prepaid Income Taxes 735,294 -- Deferred Income Taxes 335,530 335,530 Other Assets 704,457 597,761 Property, Plant, and Equipment - Net 18,579,739 16,891,137 ---------- ---------- TOTAL ASSETS $52,483,653 $58,234,142 ========== ========== LIABILITIES Accounts Payable $ 519,627 $ 919,241 Notes Payable 12,543,782 13,497,523 Accrued Liabilities 5,447,617 3,853,403 Income Taxes Payable -- 2,109,528 ---------- ---------- TOTAL LIABILITIES 18,511,026 20,379,695 ---------- ---------- SHAREHOLDERS' EQUITY Common Stock 6,371,833 6,371,833 Additional Paid-in Capital 3,793,066 3,793,066 Retained Earnings 23,807,728 27,689,548 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 33,972,627 37,854,447 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $52,483,653 $58,234,142 ========== ========== See Accompanying Notes to Consolidated Condensed Financial Statements. 3

CONSOLIDATED-TOMOKA LAND CO. CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (Unaudited) (Unaudited) Three Months Ended Nine Months Ended -------------------------- -------------------------- September 30, September 30, September 30, September 30, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ INCOME: Citrus Operations: Sales of Fruit and Other Income $ 3,729 $ 77,896 $ 7,551,787 $ 6,314,689 Production and Selling Expenses ( 497,136) ( 535,438) ( 6,671,515) ( 5,641,941) ---------- ---------- ---------- ---------- ( 493,407) ( 457,542) 880,272 672,748 ---------- ---------- ---------- ---------- Real Estate Operations: Sales and Other Income $ 1,515,308 1,242,735 4,425,028 3,566,329 Costs and Other Expenses ( 792,639) ( 805,745) ( 3,075,964) ( 2,348,168) ---------- ---------- ---------- ---------- 722,669 436,990 1,349,064 1,218,161 ---------- ---------- ---------- ---------- Profit On Sales of Undeveloped Real Estate Interests 10,385 1,700 124,723 19,700 ---------- ---------- ---------- ---------- Interest and Other Income 242,622 274,415 578,553 1,104,955 ---------- ---------- ---------- ---------- GENERAL AND ADMINISTRATIVE EXPENSES ( 598,144) ( 1,032,553) ( 2,127,894) ( 2,696,723) ---------- ---------- ---------- ---------- INCOME(LOSS)BEFORE MINORITY INTEREST IN PARTNERSHIP ( 115,875) ( 776,990) 804,718 318,841 MINORITY INTEREST IN PARTNERSHIP 1,717 11,868 105,128 27,754 ---------- ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES ( 114,158) ( 765,122) 909,846 346,595 INCOME TAXES 41,473 251,868 ( 331,382) ( 117,531) ---------- ---------- ---------- ---------- NET INCOME (LOSS) ( 72,685) ( 513,254) 578,464 229,064 RETAINED EARNINGS, Beginning of Period 26,110,555 26,611,944 27,689,548 27,748,008 DIVIDENDS ( 2,230,142) ( 2,191,445) ( 4,460,284) ( 4,069,827) ---------- ---------- ---------- ---------- RETAINED EARNINGS, End of Period $23,807,728 $23,907,245 $23,807,728 $23,907,245 ========== ========== ========== ========== PER SHARE INFORMATION: Average Shares Outstanding 6,371,833 6,265,040 6,371,833 6,262,542 ========== ========== ========== ========== Net Income (Loss) Per share: Basic $(.01) $(.08) $.09 $.04 ========== ========== ========== ========== Diluted $(.01) $(.08) $.09 $.04 ========== ========== ========== ========== DIVIDENDS PER SHARE $ .35 $ .35 $.70 $.65 ========== ========== ========== ========== See Accompanying Notes to Consolidated Condensed Financial Statements. 4

CONSOLIDATED-TOMOKA LAND CO. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended ---------------------------- September 30, September 30, 1998 1997 ------------- ------------- CASH FLOW FROM OPERATING ACTIVITIES: CASH RECEIVED FROM: Citrus Sales and Other Income $ 7,861,724 $ 7,552,199 Real Estate Sales and Other Income 4,086,378 3,612,620 Sales of Undeveloped Real Estate Interest 124,723 19,700 Interest and Other Income 549,810 1,322,484 ---------- ---------- Total Cash Received from Operating Activities 12,622,635 12,507,003 ---------- ---------- CASH EXPENDED FOR: Citrus Production and Selling Expenses 6,815,106 6,576,475 Real Estate Costs and Expenses 2,713,969 974,881 General and Administrative Expenses 549,732 1,762,548 Interest 822,442 979,650 Income Taxes 3,176,203 1,765,000 ---------- ---------- Total Cash Expended for Operating Activities 14,077,452 12,058,554 ---------- ---------- Net Cash Provided by (Used In) Operating Activities ( 1,454,817) 448,449 ---------- ---------- CASH FLOW FROM INVESTING ACTIVITIES: Acquisition of Property, Plant, and Equipment ( 4,567,835) ( 410,428) Net (Increase) Decrease in Investment Securities ( 159,031) 395,338 Direct Financing Lease 61,724 63,896 Proceeds from Sale of Property, Plant, and Equipment 2,282,868 2,258,931 ---------- ---------- Net Cash Provided (Used In) Investing Activities ( 2,382,274) 2,307,737 ---------- ---------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds From Notes Payable 2,257,000 3,600,000 Payments on Notes Payable ( 3,210,741) ( 3,879,590) Dividends Paid ( 4,460,284) ( 4,069,827) ---------- ---------- Net Cash Used in Financing Activities ( 5,414,025) ( 4,349,417) ---------- ---------- NET DECREASE IN CASH & CASH EQUIVALENTS ( 9,251,116) ( 1,593,231) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,387,433 1,760,835 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 136,317 $ 167,604 ========== ========== See Accompanying Notes to Consolidated Condensed Financial Statements. 5

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. Principles of Interim Statements. The following unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures which are normally included in annual financial statements pre- pared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. The consolidated condensed financial statements reflect all adjustments which are, in the opinion of the manage- ment, necessary to present fairly the Company's financial position and the results of operations for the interim periods. The consolidated condensed format is designed to be read in conjunction with the last annual report. For further information refer to the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The consolidated condensed financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. 2. Seasonal Operations. The Company's citrus operations involve a single crop agricultural commodity and are seasonal in nature. To a lesser extent, real estate operations including forestry and golf activities, are seasonal in nature. Accordingly, results for the nine months ended September 30, 1998 and 1997 are not necessarily indicative of results to be expected for the full year. Results of operations for the twelve months ended September 30, 1998 and 1997 are summarized as follows (in thousands): Twelve Months Ended September 30, ------------------------------------------------ 1998 1997 --------------------- ------------------------ Revenues Income Revenues Income --------- ----------- ---------- ----------- Citrus Operations $10,682 $ 1,300 $10,341 $ 1,686 Real Estate Operations 6,270 2,134 6,693 2,939 General Corporate & Other 8,673 3,387 6,625 3,009 ------ ----- ------ ------ Total Revenues $25,625 $23,659 ====== ====== Income Before Income Taxes 6,821 7,634 Income Taxes ( 2,460) ( 2,937) ------ ------ Net Income $ 4,361 $ 4,697 ====== ====== 6

3. Common Stock and Earnings Per Common Share. Effective December 15, 1997 the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." SAFS No. 128 requires companies to present basic earnings per share ("EPS") and diluted EPS, instead of primary and fully diluted EPS previously required. This accounting change had no material effect on previously reported EPS data for the third quarter and first nine months in 1997. Three Months Ended Nine Months Ended ------------------------ -------------------- Sept. 30, Sept. 30, Sept. 30, Sept.30, 1998 1997 1998 1997 ----------- ----------- ---------- ---------- Income Available to Common Shareholders ( 72,685) ( 513,254) 578,464 229,064 ========= ========= ========= ========= Weighted Average Shares Outstanding 6,371,833 6,265,040 6,371,833 6,262,542 Common Shares Applicable to Stock Options Using the Treasury Stock Method 7,662 60,038 16,003 46,706 --------- --------- --------- --------- Total Shares Applicable to Diluted Earnings Per Share 6,379,495 6,325,078 6,387,836 6,309,248 ========= ========= ========= ========= Basic Earnings Per Share ($0.01) ($0.08) $0.09 $0.04 ========= ========= ========= ========= Diluted Earnings Per Share ($0.01) ($0.08) $0.09 $0.04 ========= ========= ======== ======== 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 at the beginning of each period using the treasury stock method at average cost for the periods. 7

4. Comprehensive Income. During the first quarter of 1998, the Company adopted SFAS 130, "Reporting Comprehensive Income" which had no effect on the accompanying consolidated statements of net income. 5. Notes Payable. Notes payable consist of the following: September 30, 1998 ----------------------------- Due Within Total One Year ---------- ----------- Consolidated-Tomoka Land Co. ---------------------------- $ 7,000,000 Line of Credit $ 1,807,000 $ 1,807,000 Mortgages Payable 10,180,339 212,247 Industrial Revenue Bonds 556,443 81,166 ---------- ---------- 12,543,782 2,100,413 ========== ========== Notes Payable include $1,200,000 owed by Indigo Group Ltd. ("IG LTD."), a 100% owned limited partnership in the real estate business. Payments applicable to reduction of principal amounts will be required as follows: Year Ending Sept. 30, 1999 $ 2,100,413 2000 401,016 2001 436,728 2002 8,241,546 2003 121,410 Thereafter 1,242,669 ---------- $12,543,782 ========== In the first nine months of 1998 interest totaled $822,442 of which $563,244 was capitalized to land held for development and sale. Total interest for the nine months ended September 30, 1997 was $1,112,805, of which $133,153 was capitalized to land held for development and sale. 8

MANAGEMENT'S DISCUSSION AND ANALYSIS The Management's Discussion and Analysis is designed to be read in conjunction with the financial statements and Management's Discussion and Analysis in the last annual report. RESULTS OF OPERATIONS Citrus Operation - ---------------- Losses were posted from citrus operations for both the third period ended September 30, 1998 and 1997 as harvesting of the crop was completed in the late spring. A loss of $493,407 was realized for the three month period of 1998, representing an 8% increase over 1997's loss of $457,542. The higher loss can be attributed to higher repair and maintenance costs, along with the fact that no fruit was harvested during the period for 1998 while approximately 7,000 boxes were sold in 1997 as the season got off to an earlier start. For the nine months year-to-date net income from citrus operations totaled $880,272, a 31% increase over 1997's nine month profit of $672,748. The gain in profits was realized on a 20% increase in revenues resulting from a 28% rise in fruit harvested and sold during the period. A total of 903,000 boxes were harvested and sold during 1998 compared to 703,000 one year earlier. This gain was partially offset by an overall 7% reduction in average fruit prices, primarily attributable to fresh fruit pricing. Production and selling expenses rose 18% as a result of the increased fruit volume; although, this was partially offset by increased handling credits realized on packing outside growers fruit. Real Estate Operations - ---------------------- Profits from real estate operations increased 65% for the third quarter of 1998 on the strength of higher commercial real estate closing volume. Real estate profits totaled $722,669 for the period on the sale of 47 acres of land, while the sale of 27 acres during 1997's third period helped to generate total real estate profits of $436,990. Revenues from income properties declined 79% during the three month period due to the December 1997 sale of the 47,000-square-foot Daytona Beach office building and the June 1998 sale of the 70,000-square-foot shopping center located in Marion County, while profits remained stable. A 10% gain in profits from forestry operations was achieved on increased harvesting, with profits totaling $227,000. Golf operations at the LPGA International golf course added $205,000 in revenues over the prior year, while losses from the operation increased $120,000 during the three-month period as the Company took over the operation effective September 1997. 9

Year-to-date profits from real estate totaled $1,349,064, an 11% improvement over the $1,218,161 posted in 1997's first nine months. This improvement can be attributed to a $153,000 gain from golf course operations, along with $38,000 in additional income from forestry operations. Commercial real estate results are substantially in line with prior year results as a 9% reduction in gross profits from sales is offset by lower advertising and administrative costs. For 1998's first nine-month period closings on 58 acres produced gross profits of $950,000, while 1997's first nine-month period saw closings of 45 acres generating gross profits of $1,040,000. Results from income properties also are substantially in line with prior year; although, revenues are down $763,000 due to the sale of properties mentioned above in addition to the May 1997 sale of the 24,000-square-foot Palm Coast office building. General, Corporate and Other - ----------------------------------- Profits on the sale of undeveloped real estate interest for 1998's nine months to date totaled $124,723 on the release of surface entry rights on 3,427 acres. Interest and other income declined 12% for the third quarter of 1998 to $242,622 on reduced interest from mortgage notes receivable paid off. For the nine-month period interest and other income fell 48% to $578,553 on reduced interest from mortgage notes receivable, $160,000 loss posted on the sale of the Forest Center shopping center and a $250,000 gain realized on the sale of the Palm Coast office building during 1997. General and administrative costs declined 42% and 21% for the third three month period and nine months to date, respectively. These reductions can be attributed to lower stock options and interest expense, along with additional costs capitalized to the LPGA development and construction of the second golf course. 10

FINANCIAL POSITION - ------------------ Net income for the first nine months of 1998 totaled $578,464, equivalent to $.09 per share, and represents an increase in excess of 150% when compared to 1997's nine-month profit of $229,064, equivalent to $.04 per share. This income growth was achieved on a 31% rise in citrus earnings and 11% gain in real estate profits coupled with a 21% reduction in general and administrative expenses. Dividends paid during the period amounted to $.70 per share, a 8% increase over the $.65 per share paid in the prior year. Cash flow was a negative $9,250,000 including $4,460,000 paid in dividends, $4,560,000 cash used to fund the acquisition of property, plant and equipment and $3,170,000 in payment of income taxes. Offsetting these cash outflows was $2,280,000 cash generated on the sale of property, plant and equipment, primarily on the sale of the Forest Center shopping center. Funds used for the acquisition of property, plant and equipment were centered on the construction of the second golf course at the LPGA International development. For the remainder of 1998 capital requirements are estimated to approximate $400,000 and will be focused on the golf course along with the clubhouse facilities. These requirements will be met with cash generated from operations along with available financing sources, if necessary. The USDA 1998-1999 Florida crop estimate was released in early October with the estimate of Florida round oranges totaling 190 million boxes. This estimate represents a 22% decrease from the 244 million boxes harvested during the 1997-1998 crop year. This significant decline, along with anticipated smaller crops from Brazil and California, should lead to significantly stronger prices. These stronger prices have already been seen to some extent as the 1998-1999 crop year begins production. The downturn in fruit production is primarily attributed to severe weather conditions in the first half of 1998, with heavy rains experienced in the winter and early spring months and near-drought conditions along with unusually high temperatures experienced in late spring and early summer. Company groves remain in very good condition as soil conditions allow the groves not to become saturated with moisture in periods of heavy rain, and irrigation systems supply them with enough water in dry periods. Early indications of production from Company groves project volume to be near the 1,255,000 boxes harvested in the 1997-1998 crop year. The Mediterranean fruit fly which had been located in groves in northern Highlands County has been controlled and eradicated with no ill effect to Company groves. The second golf course at the LPGA International mixed-use development opened to the public the 1st of October. The course has received rave reviews from both golf writers and players. The clubhouse facilities continue in the design 11

and permitting stage with plans scheduled to be ready the first quarter of 1999, at which time construction will commence. Efforts continue to secure a destination resort hotel adjacent to the clubhouse. The physical and psychological impacts of the wildfires, experienced in late June and July, on our real estate development and sales operations have been far less than anticipated. In general, the area has bounced back and greened up. It appears there aren't any long lasting negative impacts to our community because of the fires. Commercial real estate activity remains relatively strong, with several contracts in place and negotiations taking place on additional lands. The Company has evaluated and identified the risks of software failure due to processing errors arising from calculation using the Year 2000 date. A plan for conversion has been established to maintain the integrity of its financial systems and ensure the reliability of its operating systems. The cost of achieving Year 2000 compliance, which includes software and hardware installation, will be incurred during 1998 and 1999 and is not expected to be material in relation to the Company's financial statements. The good condition of Company citrus groves, relatively strong pricing and abundant citrus crops from citrus operations, along with continued healthy commercial sales activity lead to projections of continued near-term profits. 12

PART II -- OTHER INFORMATION Item 1. Legal Proceedings There are no material pending legal proceedings to which the Company or its subsidiaries is a party. Items 2 through 5. Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit (11) - Incorporated by Reference on Page 7 of this 10-Q report Exhibit (27) - Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter covered by this report. 13

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONSOLIDATED-TOMOKA LAND CO. (Registrant) Date: November 6, 1998 By: /s/ Bob D. Allen -------------------- Bob D. Allen,President and Chief Executive Officer Date: November 6, 1998 By: /s/ Bruce W. Teeters -------------------- Bruce W. Teeters Sr. Vice President - Finance and Treasurer 14

5 The schedule contains summary financial information extracted from Consolidated-Tomoka Land Co.'s September 30, 1998 10-q and is qualified in its entirety by reference to such financial statements.

9-MOS DEC-31-1998 SEP-30-1998 136,317 1,185,710 11,938,093 0 18,304,981 0 27,259,742 8,680,003 52,483,653 0 0 0 0 6,371,833 27,600,794 52,483,653 11,976,815 12,680,091 7,081,185 9,747,479 1,410,951 0 611,815 909,846 331,382 578,464 0 0 0 578,464 0.09 0.09