NOTE 1. DESCRIPTION OF BUSINESS AND PRINCIPLES OF INTERIM STATEMENTS

Description of Business

The terms “us,” “we,” “our,” and “the Company” as used in this report refer to Consolidated-Tomoka Land Co. (“CTLC”) together with our consolidated subsidiaries.

We are a diversified real estate operating company. We own and manage commercial real estate properties in nine states in the U.S., and two self-developed multi-tenant properties located in Florida. As of September 30, 2013, we owned 37 single-tenant income-producing properties, in nine states, with more than 759,000 square feet of gross leasable space. We also own and manage a land portfolio of over 10,000 acres in Florida, a majority of which is located within and forms a substantial portion of, the western boundary of the City of Daytona Beach (the “City”). Our land is well-located along both sides of Interstate 95 and near central Florida’s Interstate 4 corridor. We also have an investment in a commercial mortgage loan collateralized by a hotel property in Atlanta, Georgia. We have a golf course operation which consists of the LPGA International golf club, lease property for billboards, have agricultural operations that are managed by a third party and consist of leasing land for hay production, timber harvesting, and hunting leases, and own and manage subsurface interests. The results of our agricultural and subsurface leasing operations are included in Agriculture and Other Income and Real Estate Operations in our consolidated statements of operations, respectively.

More than 50% of the Company’s income property portfolio, based on annual revenues, and all of our land, golf operations, agriculture operations, and subsurface interests, are located in the State of Florida.

Interim Financial Information

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters. The unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Company and the results of operations for the interim periods.

The results of operations for the nine months ended September 30, 2013 are not necessarily indicative of results to be expected for the year ending December 31, 2013.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Any real estate entities or properties included in the consolidated financial statements have been consolidated only for the periods that such entities or properties were owned or under control by us. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Because of the fluctuating market conditions that currently exist in the Florida and national real estate markets, and the volatility and uncertainty in the financial and credit markets, it is possible that the estimates and assumptions, most notably those related to the Company’s investment in income properties and pension liability, could change materially during the time span associated with the continued volatility of the real estate and financial markets or as a result of a significant dislocation in those markets.

Fair Value of Financial Instruments

The largest carrying amounts of the Company’s financial assets and liabilities, including cash and cash equivalents, restricted cash, accounts receivable, and accounts payable at September 30, 2013 and December 31, 2012, approximate fair value because of the short maturity of these instruments. The carrying amount of the Company’s long-term debt and commercial mortgage loan approximates fair value at September 30, 2013 and December 31, 2012, since the notes are at floating rates or fixed rates, which approximate current market rates for notes with similar risks and maturities.

Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand and bank demand accounts having maturities at acquisition date of 90 days or less.

Restricted Cash

Restricted cash totaled approximately $323,000 at September 30, 2013 and consisted of cash being held in a reserve primarily for property taxes and insurance escrows in connection with our financing of two properties acquired in January 2013.

Classification of Loans

Loans held for investment are stated at the principal amount outstanding and include the unamortized deferred loan fees in accordance with GAAP.

Loan Impairment

The Company’s commercial mortgage loan is held for investment and collateralized by a hotel property in Atlanta, Georgia. The Company evaluates the performance of the collateral property and the financial and operating capabilities of the borrower/guarantor, in part, to assess whether any deterioration in the credit has occurred and for possible impairment of the loan. Impairment would reflect the Company’s determination that it is probable that all amounts due according to the contractual terms of the loan would not be collected. Impairment is measured based on the present value of the expected future cash flows from the loan discounted at the effective rate of the loan or the fair value of the collateral. Upon measurement of impairment, the Company would record an allowance to reduce the carrying value of the loan with a corresponding recognition of loss in the results of operations. Significant exercise of judgment is required in determining impairment, including assumptions regarding the estimate of expected future cash flows, collectability of the loan, the value of the underlying collateral and other provisions including guarantees. The Company has determined that, as of September 30, 2013, no allowance for impairment was required.

Interest Income Recognition

Interest income on commercial mortgage loans includes interest payments made by the borrower and the accretion of purchase discounts, offset by the amortization of fees. Interest payments are accrued based on the actual coupon rate and the outstanding principal balance and purchase discounts are accreted into income using the effective yield method, adjusted for prepayments.

Intangible Assets

As of September 30, 2013, the in-place lease value totaled $6,616,419, net of accumulated amortization of $2,923,476. At December 31, 2012, the in-place lease value totaled $4,527,426, net of accumulated amortization of $3,443,102. Amortization expense for the three months ended September 30, 2013 and 2012 was approximately $168,000 and $103,000, respectively. Amortization expense for the nine months ended September 30, 2013 and 2012 was approximately $500,000 and $303,000, respectively.

The estimated future amortization expense related to intangible assets is as follows:


Year Ending December 31,	Amount
Remainder of 2013	$	172,620
2014		690,481
2015		690,481
2016		652,393
2017		561,639
2018		553,951
Thereafter		3,294,854

	$	6,616,419

Reclassifications

Certain items in the prior year’s consolidated statements of operations have been reclassified to conform to the presentation of statements of operations for the three and nine months ended September 30, 2013. Specifically, loan cost amortization was previously included in depreciation and amortization on the consolidated financial statements and is now included in interest expense. In addition, deferred revenue was previously included with accrued liabilities on the consolidated balance sheets and is now segregated as its own line item. These reclassifications had no effect on the current year and prior year presentation of income (loss) from continuing operations before taxes.