SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1996
Commission File Number 1-6762
KILLEARN PROPERTIES, INC.
(Exact name of small business issuer in its charter)
Florida 59-1095497
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
100 Eagle's Landing Way Stockbridge, Georgia 30281
(Address of principal executive offices)
Issuer's telephone number, including area code: (770) 389-2020
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class:
Common Stock Name of Each Exchange on which Registered:
($.10 Par Value) American Stock Exchange, Inc.
Securities registered pursuant to Section 12 (g) of the Act: NONE
Check whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act of 1934 during the
past 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 _______ .
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB ( X )
Revenues for the fiscal year ended April 30, 1996 were $ 21,027,267.
As of July 22, 1996, the aggregate market value of the voting stock
held by non-affiliates of the Issuer was approximately $5,427,747. This
is based upon a closing market price of $9.75 per share of common stock,
as reported on the American Stock Exchange - composite transaction tape.
The number of shares outstanding of the registrant's common stock as
of July 19, 1996 was 1,438,733.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Issuer's Proxy Statement in connection with its 1996
Annual Meeting of Shareholders (Part III)
Exhibit Index at Page 10 and 11.
1
PART I
ITEM 1. BUSINESS
Killearn Properties, Inc. (the "Company") was organized as a Florida
corporation in 1964. The Company is engaged primarily in the
development of planned communities (see "ITEM 1. BUSINESS - Land
Development," below) in the vicinity of Henry County, Georgia (see "ITEM
2. PROPERTIES," below.) The Company's principal executive offices are
located at 100 Eagle's Landing Way, Stockbridge, Georgia 30281, (770)
389-2020.
Recent Developments
In May 1996, Proactive Technologies, Inc. ("Proactive"), the
Company's second largest shareholder, proposed to the Company a
transaction pursuant to which the Company would transfer certain of its
assets and liabilities to a newly-formed wholly owned subsidiary, and
subsequently transfer all of the capital stock of the subsidiary to
J.T. Williams, Jr., the Company's Chairman of the Board and Chief
Executive Officer, in exchange for 551,321 shares of Common Stock owned
by Mr. Williams (approximately 42% of the outstanding Common Stock) and
the cancellation of his option to purchase an additional 100,000 shares
of Common Stock. The assets proposed to be transferred are comprised
principally of the Eagle's Landing Golf Course and Country Club, the Inn
at Eagle's Landing, approximately 250 acres of commercial and industrial
real estate, land sufficient to construct an additional nine hole golf
course, the Company's interest in certain joint ventures and
approximately $2 million cash. The assets would be transferred subject
to approximately $7 million in liabilities. If consummated, the
transaction would be given effect as of May 1, 1996. It is a condition
to consummation of the proposed transaction that the holders of a
majority of the outstanding Common Stock of the Company, other than
shares held by J.T. Williams, Jr., approve the transaction.
The proposed transaction is being reviewed by the Company's Board of
Directors, which has engaged an independent firm to render an opinion as
to the fairness of the transaction, from a financial point of view, to
the shareholders of the Company other than Mr. Williams. If the Board
of Directors approves the proposed transaction, the transaction will be
submitted to the shareholders of the Company for approval at the annual
meeting of shareholders scheduled to be held in September 1996.
Proactive also proposed in May 1996 a business combination
transaction with the Company pursuant to which the Company's
shareholders would receive four shares of Proactive common stock for
each share of the Company's Common Stock. This proposal was
subsequently withdrawn in June 1996.
Henry County, Georgia
In April 1986, the Company purchased approximately 2,600 acres of
property, known as the Eagle's Landing (see ITEM 2 "PROPERTIES,"
below), which is located in Henry County, Georgia. During fiscal 1987,
the Company purchased 217 additional acres and obtained options to
purchase 45 additional acres. Henry County is an attractive location
for industrial, commercial and residential development due to its close
proximity to the Atlanta International Airport and downtown Atlanta.
The property is on an I-75 interchange.
Henry County is a part of the metropolitan Atlanta area. Its
principal cities are McDonough and Stockbridge. A portion of the
property is within the City of Stockbridge. It is estimated that Henry
2
County, at present, has a population of approximately 87,000 persons and
is projected to reach a population of approximately 111,200 persons by
the year 2000.
The greatest influence on the economy of Henry County is the service
industry, followed by manufacturing, retail and trade administration.
Sale of Tallahassee, Florida Assets
During fiscal 1994 and the first quarter of fiscal 1995, the Company
sold substantially all of its Tallahassee properties to an unrelated
third party. See Item 2 "Properties", Item 6 "Management's Discussion
and Analysis and Summary of Operations" and Note 12 to Consolidated
Financial Statements. Prior to the sale, the Company had developed
communities in Tallahassee for thirty years, and had been the largest
land developer in Leon County, Florida.
On April 30, 1996, the Company had approximately 28 fully developed
lots remaining to be sold in Tallahassee, Florida. It is anticipated
these lots will be sold in fiscal 1997. In addition, the Company and a
former stockholder participate in a joint venture for the development
and sale of approximately 192 acres of land in one of the Company's
former subdivisions.
Land Development
Historically, the Company has acquired large areas of unimproved
real estate, and has subdivided, developed and then resold the developed
real estate in smaller parcels to individuals and builders. Following
the acquisition of a large area of unimproved real estate, the Company
retains a landscape architect who, together with personnel of the
Company, prepare a master land use plan for the entire subdivision. The
subdivision is platted and divided into units and the units are further
divided into lots.
After securing the necessary zoning and other applicable regulatory
approvals from local, state and federal authorities, the Company
commences the development of the subdivision by developing one or more
units located within each such subdivision.
In units where lots are sold, the Company generally makes provision
for water lines, storm drainage, underground or overhead electrical
service, telephone lines and paved streets. (See "Item I. BUSINESS -
Liability for Improvements," below.) In all units where lots are sold
by the Company, arrangements are made with appropriate governmental
agencies and utility companies for police and fire protection and for
electricity, telephone and water service.
The Company believes it is the largest land developer in Henry
County, Georgia. At April 30, 1996, the Company had approximately 234
platted lots available for immediate sale and approximately 1,450 acres
of undeveloped land available for immediate or future development in
Henry County. In addition, the Company has a country club and golf
course which were developed in prior years. The property remaining is
presently zoned approximately 16% for industrial uses, 48% residential
uses and 36% for commercial and other uses. The Company intends to
develop and divide its Henry County property into lots and sell certain
parcels to other developers, as development continues.
The management of the Company believes that, if the Company does not
acquire any additional real estate and if the Company makes no bulk
dispositions of real estate, the Company's present inventory of land is
sufficient, at present levels of land sales, for at least seven years of
operation.
3
Liability for Improvements
The Company is obligated to complete the improvements to each
partially developed lot sold by it on a specified date no later than one
year from the date of sale of each such lot.
Pursuant to an agreement with the Leon County Commission and the
Division of Florida Land Sales, the Company maintains an improvement
trust fund as partial assurance to provide funds to complete
improvements to its Florida properties. The cash balance of this
improvement trust fund at April 30, 1996 was $164,127.
The total cost to complete the improvements to units from which
sales of partially developed lots have been made is estimated to be
approximately $460,000 at April 30, 1996, all of which is expected to be
made in fiscal 1997.
The Company is obligated to provide sewer in specified areas of the
Florida property which it previously owned and sold to other developers
for investment and resale. The estimated cost to the Company is
$525,429, all of which is expected to be paid in fiscal 1997 and fiscal
1998.
Residential Construction
In September 1983, the Company began constructing homes in certain
of its subdivisions. During fiscal 1992, the Company discontinued the
direct construction of homes in Henry County which it had begun in March
1990. During fiscal 1994 the Company discontinued the construction of
homes in Leon County. At April 30, 1996, one house built by the
Company remained to be sold.
Sales and Marketing
At present, the Company's sales force consists of 6 full-time
salespersons. These salespersons are compensated by the Company on a
salary plus commission or commission-only basis. Lots are sold by the
Company primarily to builders and to persons who presently reside or who
plan to reside in the Company's developments. The Company no longer
maintains a sales force in Leon County.
The Company sells fully developed lots, or lots which will be
developed within one year, pursuant to installment sales contracts which
generally have provided for a relatively small down payment and monthly
installments, including interest at rates ranging from 8% to 11.5% per
annum, over periods which range from one to three years.
Sales of lots to builders and sales of commercial tracts are made by
the Company primarily for cash. Sales of constructed homes are made
for cash. (See notes 1, 2 and 4 of Notes to Consolidated Financial
Statements of the Company.)
Joint Ventures
The Company is a partner in four separate joint ventures for the
development of land and/or the construction of buildings, all of which
were at different stages of development at April 30, 1996. For a more
complete description of these joint ventures, see Note 3 of Notes to the
Consolidated Financial Statements of the Company.
4
Employees
At April 30, 1996, the Company had approximately 136 employees at
its Henry County development, including salespersons. The Company no
longer has any employees in Florida. The management of the Company
believes that its relationship with its employees is good.
Competition
The land development industry in the State of Georgia is highly
competitive. Land development firms located in all geographic areas of
Georgia, many of which possess greater sales and financial resources
than the Company, compete to attract local residents, retired persons,
and other persons who are relocating. The Company competes with such
firms on the basis of a number of interrelated factors, including
reputation, location, design, quality and price. Individual resales of
residential units and lots provide additional competition.
The Company believes that it is the largest land developer in Henry
County, but it competes with larger developers in the metropolitan
Atlanta area, as well as with smaller developers.
Regulations
As a land developer, the Company is subject to environmental,
building, zoning and real estate sales regulation by, among others,
local zoning and planning authorities, the Division of Georgia Land
Sales and various state and federal environmental protection agencies.
All of the necessary local, state and federal regulatory approvals
for the development of its presently active subdivision projects in
Henry County, Georgia have been secured by the Company. Additional
permits and approvals may be required as new subdivisions are
constructed; however, the Company does not anticipate any difficulty in
securing such permits and approvals. (See "Item 2 Properties", below.)
The Company's management is not presently aware of any anticipated
revocation or amendment of any of its regulatory approvals. However, in
the event that any regulatory approvals presently secured by the Company
are revoked or materially altered, the business of the Company could be
adversely affected.
Economic Conditions
The Company's business, as well as the real estate industry in
general, is affected by a number of economic factors, including interest
rates and inflation. Interest rates affect both the cost to individuals
and builders of purchasing homes and lots from the Company and the
carrying costs of undeveloped land. During the past fiscal year,
interest rates on residential mortgage loans remained stable. In the
past, the Company has increased the price of lots offered for sale to
offset increased inflation. Such increases reduce the number of persons
who are able to afford the lots and homes offered by the Company. If
interest rates and inflation increase substantially, the real estate and
construction industries would be adversely affected and the Company's
ability to sell its real estate could be significantly adversely
affected.
ITEM 2. PROPERTIES
The Company's principal subdivisions are as follows:
Eagle's Landing (formerly known as Atlanta Tech Center)
5
Eagle's Landing comprises approximately 3,000 acres in Henry County,
Georgia, and is approximately 23 miles south of downtown Atlanta and 15
miles south of the Atlanta International Airport.
This "mixed use" development is presently zoned to allow development
in the categories of office, industrial, retail, multi-family
residential, single-family residential, lodging, schools, municipal
services, religious institutions, parks and recreation, golf course,
open space and lakes. The community is planned around the Company's
Eagle's Landing golf course and country club.
At April 30, 1996, approximately 721 residential lots and 375 acres
of other property had been sold by the Company. Approximately 234
platted residential lots remained to be sold and approximately 1,450
acres of other property remained to be platted and/or sold. In
addition, the Company had approximately 229 acres which will be used for
road right-of-way, utility asements and green areas. At April 30, 1996,
approximately 573 houses had been constructed and 139 houses were under
construction by other builders.
Tallahassee Properties
The Company developed two major subdivisions in northeast
Tallahassee, Florida. During fiscal 1994 and the first quarter of
fiscal 1995, substantially all of the Company's remaining Tallahassee
properties were sold to a party whose parent company subsequenly became
a shareholder in the Company, see Item 6 "Management's Discussion and
Analysis and Summary of Operations" and Note 12 to Consolidated
Financial Statements.
At April 30, 1996, the Company owned 16 platted lots and 7 acres in
Killearn Estates, a mixed use development in northeast Tallahassee. All
of the properties are expected to be sold within fiscal 1997.
The Company also owns, at April 30, 1996, 11 lots in Killearn Lakes
Plantation, a mixed use development in northeast Tallahassee. It is
anticipated that these properties will be sold in fiscal 1997.
The Company is also a joint venture partner in the development of
approximately 192 acres of land located within the Killearn Estates
subdivision. Under the joint agreement, the Company will develop, sell
and finance the project and will receive one-half of the profits from
the development and sale of the project. (See Note 3 of Notes to
Consolidated Financial Statements.)
Encumbrances
Substantially all of the land owned by the Company in the above
described subdivisions serve as collateral for the indebtedness of the
Company. (See Notes 6 and 12 of Notes to Consolidated Financial
Statements.)
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings in the ordinary
course of business. In the opinion of the management of, and general
counsel to the Company, none of these proceedings, alone or in the
aggregate, should have a material adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by the Company to a vote of its security
holders during the fourth quarter of fiscal 1996.
6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock has been traded on the American Stock Exchange
since 1980. Quarterly closing sales prices for the fiscal years ended
April 30, 1996 and 1995 were as follows:
Quarter 1996 1995
Fiscal Year High Low High Low
First 5 1/8 4 11/16 4 7/8 4 1/4
Second 6 1/2 4 9/16 6 4 1/2
Third 6 3/8 5 4 7/8 4 1/8
Fourth 9 3/4 5 3/4 6 3/8 4 1/8
The Company has never declared nor paid dividends.
As of July 22, 1996 there were approximately 542 shareholders of
record of the Company's Common Stock, excluding security position
listings.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR SUMMARY OF OPERATION
Liquidity and Capital Resources
During the two year period ended April 30, 1996, the Company
generated strong cash flows due, in part, to the receipt of proceeds
from the sale of the Tallahassee properties in fiscal 1994 and fiscal
1995. These positive cash flows assisted in funding the construction of
a 60 room Inn located on the Company's Georgia property. Subsequent to
year end, the Company closed a loan for $3 million to provide the
remaining cash necessary to complete construction and furnishings of the
Inn, and for working capital needs. Additionally, a joint venture, in
which the Company is a partner, sold the facility the venture built for
a profit of approximately $492,000.
In December 1995, the Company modified its loan agreement with a
bank, involving its Georgia operations. The modified agreement
effectively changed what was previously three loans totaling $13.5
million into two loans totaling $13.5 million. One of the loans, for
$8.5 million, is collateralized by first mortgages on substantially all
of the undeveloped land in the Company's Georgia project and certain
contracts receivable. Upon the sale of the property serving as
collateral, release prices, which vary with the development, are applied
against the loan balance owed to the bank. As these properties are
developed, the Company has been able to secure development loans from
other lenders in an amount sufficient to pay the release price and all
development costs. Interest on this loan is payable at the Bank's prime
rate plus 1.5%. The other loan, for $5 million, is collateralized by a
first mortgage on a golf course and country club. The principal is
payable at the rate of $250,000 per year with a maturity of June 10,
1997. Interest on this loan is payable at the Bank's prime rate plus
2%. The failure of this lender to extend the Company's loans, or the
failure of the Company to obtain replacement financing, could have a
material adverse affect on the Company's financial condition. Based
upon the Company's past relationship with its lender, management
believes this debt will be extended, as it has been in the past.
During the next two fiscal years, the Company has other debt
maturing in the amounts of approximately $4.0 million and $2.1 million,
respectively. The Company normally borrows its development loans for
its Georgia properties from banks. The Company anticipates that such
debt will be paid through funds generated by its normal operations, an
7
extension of debt, or new borrowings on the same collateral. During the
past fiscal year, the Company reduced its debt by approximately $7.1
million and had new borrowings totaling approximately $6.7 million. The
Company continues to seek lines of credit to satisfy its capital
requirements.
On November 14, 1993, the Company entered into agreements to sell
substantially all of its Florida assets for $25.7 million. As of April
30, 1996, $25.0 million of the sale had closed with the Purchaser
assuming $9.2 million of the Company's debt; issuing notes to the
Company, totaling $8.1 million and paying $7.7 million in cash. The
notes are payable over the next 3 years. The remaining $700,000 of the
sale is scheduled to close during fiscal 1997, for cash. Of the amount
of debt assumed, the remaining balance at April 30,1996 was $90,374
(See Note 12 of the Notes to Consolidated Financial Statements).
During fiscal year 1997, the Company anticipates completing
improvements of partially developed lots and tracts at a cost estimated
to be $460,000 and improving undeveloped land at a cost of approximately
$2.1 million. The Company anticipates financing these improvements
through: (1) funds generated in the normal course of the Company's
business; (2) utilization of existing lines of credit; and (3) securing
additional lines of credit. The Company anticipates that funds
available from these sources will be sufficient to meet the needs of the
Company during fiscal 1997. At April 30, 1996, the Company had
available lines of credit totaling $5.6 million with its lenders,
including the $3 million loan to complete development of the Inn. The
balance of the lines of credit will be drawn as needed for the
development of the Company's property and operational expenses.
Results of Operations
During fiscal 1996, lots sales decreased $1.2 million (17.6%) while
other land sales increased $3.7 million (52.6%) over fiscal 1995. The
decrease in lot sales was primarily the result of the Company's
development of new residential units in its Georgia project in Fiscal
1995. The increase in the other land sales was primarily the result of
the recognition of the sale to the purchaser of substantially all of the
Florida assets.
Fiscal 1996 sales of residential construction decreased 76.0% over
fiscal 1995. The Company discontinued its residential construction
operation in its Florida property during fiscal 1994 and sold all but
one of the homes constructed by it during fiscal 1995 and 1996.
Operating revenues from the golf and country club increased
approximately $104,000 for fiscal 1996 over fiscal 1995. The operating
costs of golf and the country club (as a percentage of revenues) were
96.7% and 102.2% for fiscal years 1996 and 1995, respectively,
reflecting an increase in memberships and utilization of these
facilities. Although the operation of the golf and country club is not
expected to contribute significantly to the Company's profitability, the
Company believes that these properties enhance the value of its other
properties.
Interest income increased approximately $382,000 due to the notes
receivable from the purchaser of the Tallahassee properties (see Note 12
to the consolidated financial statements). Additionally, income from
joint ventures increased approximately $476,000 due to the sale by one
of the joint ventures in which the Company is a partner of an industrial
building.
Cost of lots sold as a percentage of lot sales was 70.5% and 60.6%
8
in fiscal 1996 and 1995, respectively. In prior years such percentage
was lower due primarily to the Company's use of third party contracts
in its Florida projects to provide utilities for those developments, as
opposed to normal utility costs incurred by the Company in its Georgia
operations. Cost of other land sales as a percentage of other land
sales was 75.4% and 71.4% in fiscal 1996 and 1995, respectively.
Commissions and selling expenses (net of commission income) as a
percentage of net sales of lots, land and residential construction
decreased to 4.7% during fiscal 1996 compared to 7.3% in fiscal 1995.
This decrease was primarily the result of the bulk sale of the Florida
properties, which required a lower than normal commission and selling
expense. Depreciation increased 8.0% in fiscal 1996 over fiscal 1995.
General and administrative expenses as a percentage of total
revenues were 7.6% and 8.0% in fiscal 1996 and 1995, respectively.
Inflation
The effect of inflation was negligible in fiscal 1996 and 1995. If
inflation and interest rates return to their previously higher levels,
they could have a material adverse effect upon the real estate and
construction industries and could significantly and adversely affect the
Company's ability to sell its real estate.
ITEM 7. FINANCIAL STATEMENTS
To the Board of Directors and Stockholders
Killearn Properties, Inc.
We have audited the consolidated balance sheet of Killearn Properties,
Inc. and subsidiaries as of April 30, 1996, and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows
for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Killearn Properties, Inc. and subsidiaries as of
April 30, 1996 and the consolidated results of its operations and its
cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Atlanta, Georgia Coopers & Lybrand, L.L.P.
July 2, 1996
9
To the Board of Directors and Stockholders
Killearn Properties, Inc.
We have audited the consolidated balance sheet of Killearn Properties,
Inc. and subsidiaries as of April 30, 1995, and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows
for the year ended April 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Killearn Properties, Inc. and subsidiaries as of
April 30, 1995 and the consolidated results of its operations and its
cash flows for the year ended April 30, 1995, in conformity with
generally accepted accounting principles.
Atlanta, Georgia BDO Seidman, L.L.P.
June 30, 1995
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
Year Ended April 30
--------------------
1996 1995
<S> <C> ---- <C> ----
Revenues
Sales of lots $ 5,437,540 $ 6,600,313
Other land sales 10,691,633 7,006,448
Less:
Estimated uncollectible sales (85,285) ( 18,390)
---------- -----------
Net sales of lots and land 16,043,888 13,588,371
Sales of residential construction 45,500 189,500
Commission income 321,803 411,878
Revenues from golf and country club 3,122,522 3,018,539
Interest income 899,115 517,109
Equity in income from joint ventures 563,064 86,732
Other income 31,375 83,837
---------- ----------
Total revenues 21,027,267 17,895,966
---------- ----------
Costs and expenses:
Cost of lots sold 3,833,208 4,002,362
Cost of other land sold 8,059,027 5,000,543
Cost of residential construction sold 42,063 242,854
Commissions and selling expenses 1,078,646 1,398,405
Operating costs of golf and country club 3,019,724 3,085,860
Interest expense 451,766 611,149
10
Depreciation 735,551 681,194
Property taxes 282,425 246,695
Litigation settlement and expenses 27,197 192,732
General and administrative expenses 1,589,409 1,432,738
---------- ----------
Total costs and expenses 19,119,016 16,894,532
---------- ----------
Earnings before income taxes 1,908,251 1,001,434
Income taxes 664,896 380,504
--------- -------
Net earnings $ 1,243,355 $ 620,930
========= =======
Earnings per share $ .84 $ .42
========= =======
Weighted average number of common shares 1,438,733 1,438,733
</TABLE>
The accompanying notes are integral part of these consolidated
financial statements.
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 1996
<CAPTION>
<S> <C>
ASSETS
Cash (including restricted cash of $12,500) $ 160,147
Cash in improvement trust funds 164,127
Accounts receivable 762,389
Notes receivable 6,833,066
Land contracts receivable
Retail 445,821
Other 111,018
---------
Total receivables 8,152,294
Less: Allowance for uncollectibles (151,295)
----------
Net receivables 8,000,999
---------
Investment in joint ventures 76,105
Residential real estate held for sale 158,306
Real estate held for development and sale, at cost
Land developed and under development 30,605,307
Real estate under contract for sale 2,796,104
----------
33,401,411
----------
Property under contract for sale 383,193
----------
Property and equipment, at cost
Golf course 1,660,931
Buildings 8,511,605
11
Machinery, equipment and vehicles 2,599,651
Furniture and fixtures 216,758
---------
Total property and equipment 12,988,945
Less: Allowance for depreciation (3,612,472)
-----------
Property and equipment - net 9,376,473
----------
Construction under development 3,949,947
Other assets 242,990
----------
Total assets $ 55,913,698
==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
Liabilities:
<S> <C>
Accounts payable and other accrued expenses $ 5,318,323
Income taxes payable 1,774,335
Accrued interest 447,964
Customers' deposits 1,518,737
Debt (including current maturities of $11,540,448) 19,664,813
Deferred income 2,694,745
Deferred income taxes 5,272,197
----------
Total liabilities 36,691,114
----------
Stockholders' equity:
Common stock - $ .10 par value - authorized 6,000,000
shares, 1,438,733 shares issued and outstanding 143,874
Additional paid-in capital 6,846,014
Retained earnings 12,232,696
----------
Total stockholders' equity 19,222,584
----------
Total liabilities and stockholders' equity $ 55,913,698
===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
12
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Year Ended April 30
-------------------
1996 1995
---- ----
<S> <C> <C>
Common Stock: $ 143,874 $ 143,874
--------- ---------
Additional paid-in capital: 6,846,014 6,846,014
--------- ---------
Retained earnings:
Balance at beginning of year 10,989,341 10,368,411
Net earnings 1,243,355 620,930
---------- ----------
Balance at end of year 12,232,696 10,989,341
---------- ----------
Total stockholders' equity $ 19,222,584 $ 17,979,229
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended April 30
-------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,243,355 $ 620,930
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation 735,551 681,194
(Gain) Loss on disposition of assets 4,552 (45,715)
Equity in income from joint ventures (563,064) (86,732)
Changes in operating assets and
liabilities:
Accounts receivable (263,507) 478,489
Notes receivable 703,807 (7,068,130)
Deferred income (2,456,790) 4,924,057
Residential construction in process 537,798 226,906
Real estate held for development
and sale 395,439 6,024,607
Utility deposits 22,000 66,485
Other assets 41,043 (101,162)
Accounts payable 1,614,255 441,495
Current and deferred income
taxes payable 782,599 307,545
Customers' deposits 249,905 (74,716)
Other liabilities 226,351 (279,529)
--------- ---------
Net cash provided by operating
activities 3,273,294 6,115,724
--------- ---------
13
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net of
non-cash transactions (149,006) (126,430)
Investment in joint ventures (297,616) (357,084)
Distributions from joint ventures 1,167,747 266,000
Proceeds from sale of fixed assets 16,574 59,029
Construction under development (3,949,947) -
----------- ---------
Net cash used in investing activities (3,212,248) (158,485)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 6,716,322 9,214,032
Principal payments on debts (7,124,498) (15,191,521)
----------- ------------
Net cash used in financing activities (408,176) (5,977,489)
----------- -----------
NET DECREASE IN CASH (347,130) (20,250)
Cash - beginning of year 507,277 527,527
--------- -------
Cash - end of year $ 160,147 $ 507,277
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Supplemental Information
Cash paid:
Interest, net of amounts capitalized, was $225,415 and $738,183 in
1996 and 1995, respectively.
Income taxes were $10,000 and $30,000 in 1996 and 1995,
respectively.
Supplemental Schedules of Non-Cash Investing and Financing Activities,
which are not reflected above:
During fiscal 1995, $7,592,343 in debt was assumed by the purchaser
in a land sale transaction, of which $90,374 was outstanding at April
30, 1996 and $6,450,853 was outstanding at April 30, 1995.
The accompanying notes are an integral part of these consolidated
financial statements.
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Two Year Period Ended April 30, 1996
NOTE 1 - Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
Killearn Properties, Inc. and its wholly-owned subsidiaries (the
"Company"). Investments in which the Company owns less than a majority
interest, but does not have a unilateral controlling interest, or has
shared control, are accounted for under the equity method. Additionally,
all significant intercompany accounts and transactions have been
eliminated.
14
(b) Revenue Recognition
Lot Sales
The Company sells fully developed and partially developed
homesites primarily in Henry County, Georgia to builders and individuals
under contracts, which generally provide for small down payments and
monthly installments. Profit from lot sales is recorded on the full
accrual, percentage of completion, or cost recovery method depending
upon the terms of the sale. On sales to builders, a small down payment
is made at the time of sale and a total of 20% to 100% is required at
the time the builder receives a deed and gives the Company a mortgage
securing the balance due. Sales prices are discounted to produce a
minimum yield on the contract balance over its life. The amount of
revenue recognized at the time a sale is recognized is measured by the
relationship of costs already incurred to total estimated costs to be
incurred. If certain improvements are incomplete, the portion of
revenue related to costs not yet incurred is recognized as the costs are
incurred.
Until the required down payment percentage (generally 10% for
individuals and 20% to 100% for builders) and other accounting criteria
are met, all collections, including interest, are recorded as deposits,
commissions paid to salesmen, if any, are deferred, and the related land
cost is segregated in inventory. Once the required down payment has
been received, a sale is recognized, previously deferred commissions are
charged to expense, the related land costs and any improvements are
charged to cost of sales, the interest portion of the deposit is
recorded as income and the balance reduces the principal amount due from
the purchaser.
Upon cancellation of a contract, the difference between the
unpaid contract receivable balance and the cost of the related land is
charged to the allowance for uncollectible contracts. When a contract
cancels before qualifying as a sale, deferred selling costs are charged
to expense and deposits forfeited are credited to income.
The amount of the provision for uncollectible sales is based on
the Company's contract receivable cancellation history. Additionally,
the allowance includes a provision relating to all other receivables
where management believes collection is doubtful.
Other Land Sales
Sales of bulk land tracts are accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 66. Under the
Statement, the buyer's commitment must meet certain minimum requirements
as to initial and continuing investment (generally 10% to 25%) before
revenue and profit are recognized. As appropriate, some sales are
accounted for on the installment basis.
Golf and Country Club
The company recognizes revenues from its golf and country club
when services are performed. Initiation fees are recorded as revenue to
the extent they are non-refundable; otherwise, the refundable portion of
the initiation fee is recorded as a liability. Recurring membership
dues are recognized during the period earned.
(c) Cash
The Company classifies as cash equivalents any investment
which can be readily converted to cash and have an original maturity of
less than three months. At times, cash balances at a limited number of
banks and financial institutions may exceed insurable amounts. The
Company believes it mitigates its risks by depositing cash in major
financial institutions.
15
(d) Real Estate Held for Development and Sale
Real estate held for development and sale is recorded at the
lower of cost or estimated net realizable value. Expenditures for land
development are capitalized and allocated to development projects by the
specific identification method. Costs are allocated to specific lots
based on the ratio of the lot sales price to the estimated total project
sales price times the total project costs. Interest and property taxes
are capitalized while development is in progress. Total interest and
property taxes capitalized during 1996 and 1995 were as follows:
1996 1995
--------- ---------
Interest 1,786,914 1,796,806
Property Taxes 187,115 202,517
(e) Property and Equipment, and related depreciation
The Company periodically reviews the carrying value of its
long-lived assets (primarily property and equipment) to assess the
recoverability of these assets; any impairments would be recognized in
operating results if a permanent diminution in value were to occur. As
part of this assessment, the Company reviews the expected future net
operating cash flows from its facilities, as well as the values included
in any of its facilities, which have periodically been obtained in
connection with various refinancings.
Provision for depreciation is made primarily on the straight-
line method over the estimated useful lives of the related assets, as
follows:
Years
-----
Buildings 10-40
Machinery, equipment and vehicles 5-10
Furniture and fixtures 5-10
Golf course improvements 15
Expenditures for repairs and maintenance are charged to expense
as incurred. Additions, improvements, and major renewals are
capitalized. Upon the sale or retirement of properties, the cost of the
assets and accumulated depreciation and amortization are removed from
the accounts, and any resulting gains or losses are included in income.
(f) Construction under Development
The Company classifies as construction under development the
costs associated with constructing a 60 room Inn located on the
Company's Georgia property. The Company anticipates the entire cost of
the construction, including furnishings, to be $6.2 million. The
remaining costs of $2.3 million will be incurred in fiscal 1997. In
anticipation of these costs to be incurred, the Company obtained
financing of $3 million subsequent to year end.
(g) Income Taxes
The Company utilizes the asset and liability method of
accounting for deferred taxes. Deferred income taxes are recognized for
the future tax consequences of temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. Valuation allowances are established when necessary to
reduce a deferred tax asset to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
16
(h) Disclosures about Fair Value of Financial Instruments:
The amounts recorded in the financial statements for the
Company's receivables, payables, and investment in unconsolidated joint
ventures are carried at amounts that approximate fair value. Long-term
debt is carried at amounts which approximate fair value based on current
borrowing rates for loans with similar terms.
(i) Earnings Per Share
The weighted average number of shares outstanding is adjusted
to recognize the dilutive effect, if any, of outstanding stock options
in calculating earnings per share.
(j) New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of." This statement is effective for financial statements for fiscal
years beginning after December 15, 1995, but was adopted by the Company
during fiscal 1996. The effect of the adoption on the consolidated
financial statements was not material.
(k) Reclassifications
Certain amounts in the 1995 financial statements and notes to
consolidated financial statements have been reclassified to conform with
the 1996 presentation.
(l) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles 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
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
NOTE 2 - Land Contracts Receivable
At April 30, 1996, land contracts receivable, arising from sales of
lots to individuals and builders, are generally due over periods which
range from one to three years and provide for stated interest ranging
from 8% to 11.5% per annum. The weighted average stated interest rate
of retail land contracts receivable was 10.26% at April 30, 1996.
Scheduled principal collections of retail contracts receivable at April
30, 1996 are as follows:
1997 $ 392,699
1998 8,091
1999 45,031
-----------
$ 445,821
===========
NOTE 3 - Investment in Joint Ventures
Rolland Tract
In 1980, the Company and a former stockholder entered into a
development for approximately 192 acres of land in one of the Company's
subdivisions. The land (which was purchased by the former stockholder
17
from the Company in 1980) is being developed, marketed and sold to the
public by the Company. A portion of the Company's profit on the sale of
the land totaling $55,232 has been deferred and is included in deferred
profit in the accompanying financial statements. According to the
development agreement, earnings and losses are shared equally by the
parties. While the day to day events are managed by the Company, the
former stockholder shares control in its ability to approve or deny
certain transactions. As a result, the Company accounts for its
investment in this venture under the equity method. The Company has
recognized income from the joint venture of $136,549 and $86,732 for the
fiscal years ended 1996 and 1995, respectively.
Condensed financial information of the Venture as of April 30, 1996 is
as follows:
Assets
- ------
Cash $ 7,674
Land 766,549
Other assets 7,547
------------
Total $ 781,770
============
Liabilities and Partners' Capital
- ---------------------------------
Accounts payable $ 42,379
Other liabilities 11,375
Partners' capital 728,016
------------
Total $ 781,770
============
Results of Operations for the Year ended April 30
-------------------------------------------------
1996 1995
--------- --------
Sales $ 758,550 $ 542,515
Cost of sales (393,703) (328,479)
Other income 3,195 27,289
Other expenses (94,944) (67,861)
---------- --------
Net earnings $ 273,098 $ 173,464
========== ===========
Dunlop Venture
During fiscal 1995, the Company entered into a joint venture
agreement (the "Dunlop Venture") with an independent third party to
construct and lease a 168,000 square foot distribution center. The
Company has a 50% interest in the venture. During fiscal 1996, the
facility was sold to an independent third party for $4.9 million.
Subsequent to the sale, the net gain and remaining net assets of the
venture were distributed to the venture partners and the venture was
effectively dissolved. The Company recognized approximately $492,000
in income in the accompanying consolidated statement of earnings for
fiscal 1996 resulting from the operations of the joint venture and the
sale of the facility.
Publix Venture
Also during Fiscal 1995 the Company entered into a second joint
venture (the "Publix Venture") with the same independent third party,
as discussed in the Dunlop Venture above, to construct and lease 67,000
square feet of retail space. The Company has a 50% interest in the
18
venture. The independent third party is the managing partner in the
venture and is responsible for the day to day activities. Significant
transactions, as defined in the agreement, require the approval of the
Company. During fiscal 1996, the venture completed construction and
entered into a 20 year lease agreement with a grocery store chain for
approximately 48,000 square feet. The Company recognized a loss of
$63,949 in the accompanying statement of earnings for fiscal year ended
April 30, 1996.
Condensed financial information of the Joint Venture as of April 30,
1996 is as follows:
Assets
- ------
Cash $ 15,761
Land 587,000
Improvements 4,136,991
Other assets 7,074
----------
Total $ 4,746,826
==========
Liabilities and Partners' Deficit
- ---------------------------------
Accounts payable $ 62,127
Loans payable 4,810,598
Partners' deficit (125,899)
----------
Total $ 4,746,826
==========
Results of Operations for the year ended April 30, 1996
- -------------------------------------------------------
Lease revenue $ 138,174
Other revenue 14,987
Interest expense (158,520)
Commission expense ( 48,918)
Depreciation ( 31,229)
Other expenses ( 42,125)
---------
Net loss $ (127,631)
=========
The results of operations for the fiscal year ended April 30, 1995 are
not presented since they are immaterial. The lender of the Publix loans
payable has recourse to the other assets of the venture and of the
general partner.
Champion Venture
Subsequent to year end, the Company entered into a joint venture
agreement to construct an industrial building with an independent third
party. In exchange for its 50% interest in the joint venture, the
Company contributed property with a net book value of approximately $1.9
million. In addition, the Company is a guarantor on a $10.3 million
loan to construct the industrial building.
NOTE 4 - Real Estate Held for Development and Sale
Information with respect to real estate held for development and
sale at April 30, 1996 is as follows:
19
Land developed and under development:
Land fully developed $ 5,894,184
Land under development 24,711,123
-----------
$ 30,605,307
===========
Real estate under contract for sale:
Lot sales $ 211,603
Other land sales 2,584,501
-----------
$ 2,796,104
===========
Included in land under development are portions of the properties
undergoing development activity which have not reached the stage at
which they can be offered for sale.
NOTE 5 - Customers' Deposits
At April 30, 1996, customers' deposits includes receipts relating to
real estate under contract for sale which have not yet been recorded as
sales of approximately $238,500, amounts received for refundable country
club initiation fees of $1,243,440 and deposits on contracts being
negotiated and other miscellaneous deposits of $36,797.
NOTE 6 - Debt
At April 30, 1996, the company had various note agreements with
financial institutions and individuals. These note agreements are
summarized as follows:
April 30, 1996
Balance
--------------
Term notes payable to Bank (A) $ 11,885,143
Note payable to a Stockholder (B) 492,181
Development notes payable to a Bank (C) 3,003,925
Other notes payable (D) 4,283,564
----------
$ 19,664,813
==========
(A) In December 1995, the Company modified its loan agreement with
a Bank, involving its Georgia operations. One loan, for $5,000,000 is
collateralized by a first mortgage on the golf course and country
club. The terms of the note call for monthly payments totaling $250,000
per year, with the remaining balance due June 10, 1997. The current
agreement provides for interest on this loan to be paid at the Bank's
prime rate + 2%. The Bank's prime rate at April 30, 1996 was 8.25%.
The other loan for $ 8,500,000, is collateralized by first mortgages on
substantially all of the undeveloped land in the Company's Georgia
project and certain contracts receivable. Upon the sale of secured
property, release prices, which vary with the development, reduce the
principal balance on this loan. As secured properties are developed by
the Company, the Company has been able to secure development loans from
other lenders in an amount sufficient to pay the release price and all
development costs. The modified current agreement provides for interest
on this loan to be paid at the Bank's prime rate plus 1.5%. The balance
on this loan expires on December 10, 1996, when the remaining balance
becomes due upon demand. Management of the Company anticipates the
terms to be extended on or before December 10, 1996. The failure of this
lender to extend the Company's loans, or the failure of the Company to
20
obtain replacement financing, could have a material adverse affect on
the Company's financial condition. Based upon the Company's
relationship with its lender, management believes this debt will be
extended, as it has been in the past.
(B) On April 24, 1986, Killearn Properties, Inc. of Georgia, a
wholly-owned subsidiary of the Company, purchased approximately 2,600
acres of real estate in Henry County, Georgia from two individuals. One
of the individuals was an unrelated third party. The other individual
is the President of the Company. In connection with this purchase, the
Company gave a note to the related party in the approximate amount of
$1,764,000, bearing annual interest at prime rate plus 1%. The prime
rate at April 30, 1996 was 8.25%. The Company made principal payments
and incurred interest expense to the related party during each of the
two years ended April 30 as follows:
Year Principal Interest
---- --------- --------
1996 $ 109,758 $ 55,018
1995 187,617 74,982
(C) The Company normally borrows its development loans for its
Georgia properties from a bank. The approximate balance of such loans
at April 30, 1995 was $4.2 million and at April 30, 1996 was $3 million.
The terms of such loans require interest at the bank's prime rate plus
1.5% or 2%. The bank's prime rate on April 30, 1996 was 8.25%. The
principal reduction of these loans is from lot release prices which vary
with the development. Normally, the loan is due one year from the date
of the loan and is extended for one year, if necessary.
(D) The Company has other notes payable, which are due in various
installments through 2001 and bear interest at 7.75% to 12% at April 30,
1996.
Maturities of debt outstanding at April 30, 1996 follow:
Fiscal Years of Maturity Amount
------------------------ ------
1997 $ 11,540,448
1998 6,456,878
1999 1,175,653
2000 93,203
2001 90,673
Thereafter 307,958
-------------
$ 19,664,813
=============
Substantially all of the Company's assets are mortgaged or pledged
as collateral for its indebtedness. Most of the agreements with the
lenders provide that the Company will not declare or pay dividends to
its stockholders.
NOTE 7 - Liability for Improvements
On partially developed lots, the Company is obligated to complete
the land improvements on various specified dates. A portion of the
funds received from the sale of partially developed lots was deposited
in improvement trust funds and may only be used for completing the
improvements on these lots. Under the agreement with the Leon County
Commission and the Division of Florida Land Sales, a monthly deposit is
required to be made to the fund in the amount of 16% of related
principal collections. The cash balance in the fund at April 30, 1996
was $164,127.
21
The total cost to complete the improvements to tracts from which
sales have been made is estimated to be $460,000 at April 30, 1996,
which pertains to lots and land previously sold. The Company has
deferred recognition of $394,064 of revenue from the sale of lots and
land for the uncompleted improvements which are included in the
accompanying consolidated balance sheets in deferred income.
The Company is required to provide improvements in settlement of
litigation (see Note 11) regarding future Government permits for assets
sold in its Florida sale. The estimated $525,429 cost of these
improvements is included in the accompanying balance sheet.
Anticipated expenditures for land improvements to complete all of
the areas from which sales have been made through April 30, 1996 are
expected to be incurred in the year ending April 30, 1997. These
anticipated expenditures do not include any future expenditures on new
communities or areas in existing communities which have not yet been
offered for sale.
NOTE 8 - Income Taxes
The Company had net operating loss carryforwards for state income
tax purposes of $7,626,356 and $8,416,792 at April 30, 1996 and April
30, 1995, respectively. The state net operating loss carryforwards
expire in years 2002 through 2010. The Company has recorded a deferred
tax liability for the expected reversal of the taxable temporary
differences. For financial reporting purposes, a valuation allowance
has not been recognized to offset the deferred tax asset related to the
net operating loss carryforwards.
The provision for income taxes consists of the following:
Income taxes 1996 1995
Current $ 1,289,010 $ 440,581
Deferred (624,114) (60,077)
---------- ---------
Total provision $ 664,896 $ 380,504
========= ========
Significant components of the Company's deferred tax liability as
of April 30, 1996 and April 30, 1995 are as follows:
Tax effect of 1996 1995
Net Operating Loss
Carryforwards $ (464,715) $ (505,007)
Taxable Temporary Differences:
Differences in the timing
of Profit Recognition of
Sale of Real Estate 914,138 239,734
Differences in Bases of Land 5,111,353 6,424,494
Depreciation 461,363 527,886
Deferred Compensation (699,445) (646,245)
Other (50,497) (144,552)
--------- ----------
Net Deferred Tax Liability $ 5,272,197 $ 5,896,310
========= =========
Deferred tax expenses results from timing differences in the
recognition of certain items for tax and financial reporting purposes.
The difference between the total income tax expense and the amount
computed by applying the U.S. federal statutory tax rate to pre-tax
income was not material.
22
NOTE 9 - Employee Benefit Plans
During Fiscal 1994, the Company adopted a 401(k) Retirement Plan.
The plan allows substantially all full time employees to make voluntary
contributions from their earnings, and provides for discretionary
contributions by the Company. Contributions by the Company for the
years ended April 30, 1996 and 1995 were $1,778 and $ 52,873,
respectively.
The Company has a defined contribution employee profit-sharing plan
(covering all full-time employees) which provides for discretionary
contributions by the Company based on its consolidated net earnings.
The Company contributed $53,960 for the year ended April 30, 1996 and
$7,043 for the year ended April 30, 1995.
On June 21, 1982, the Board of Directors entered into a long-term
employment agreement (Agreement) with the President of the Company. On
April 24, 1992, the Board extended the Agreement for an additional 5
years. The Agreement calls for salary payments initially totaling
approximately $120,000 per year plus bonuses not to exceed $80,000 per
year, adjusted annually for increases or decreases in the Consumer Price
Index. Subsequent to retirement, the President is to receive retirement
income (as defined), adjusted annually for cost of living changes, for
the remainder of his life with a guarantee of ten years of such
retirement income. The unfunded accumulated retirement obligation was
$1,831,002 and $1,605,226 at April 30, 1996 and 1995, respectively, and
is included in accounts payable and other accrued expenses on the
accompanying consolidated balance sheet. The net pension cost
recognized during fiscal years ended April 30, 1996 and 1995 was
$140,000 and $35,000, respectively. The weighted average assumed
discount rate used to measure the accumulated post retirement obligation
was 8.12% for the years ended April 30, 1996 and 1995.
The Board also agreed to a retirement plan for two key employees of
the Company. The required payments to the employees are being funded by
the purchase of insurance.
NOTE 10 - Stock Options
The Company has a Stock Option Plan which provided for issuance of
shares to employees at prices not less than the fair market value on
dates of grant (not less than 110% of fair market value for options
granted to persons owning 10% or more of the Company's common stock.)
The Company granted 25,000 stock options to certain employees at an
exercise price of $5.125 per share, all of which expired during the
current fiscal year. There were no stock options exercised or granted
under the plan for years ended April 30, 1996 and 1995.
On April 24, 1992, the Board of Directors issued a five year non-
ualified option to the President of the Company to purchase 100,000
shares of the Company's stock for $3.60, which was 10% above the market
value on such date. These options were the only remaining options
outstanding at April 30, 1996.
NOTE 11 - Commitments and Contingencies
In fiscal 1994 the First District Court of Appeals, in Florida,
issued a Final Order in the Company's lawsuit with the Department of
Community Affairs, State of Florida, regarding most of the Company's
undeveloped property in Florida. Among other things, the court ruled
that sanitary sewer had to be extended to some properties that had been
sold and developed by other developers. As of April 30, 1996 the
23
estimated cost is $525,429, which is included in the accompanying
balance sheet, and is expected to be incurred over the next two fiscal
years.
The Company is a party to certain other legal proceedings, in the
ordinary course of business. In the opinion of management, none of
these proceedings should have a material adverse effect upon the
Company.
The Company is the general partner in various joint ventures (see
Note 3). As the general partner, the Company may be liable for certain
deficiencies which arise in meeting the terms of loan obligations
incurred by the these partnerships and for operating expenses and other
liabilites incurred by these partnerships in the ordinary course of
business. It is the opinion of management that the Company does not
have any exposure related to these partnerships which should be
reflected in the accompanying financial statements.
The Company remains obligated on two notes that were assumed by the
purchaser referred to in Note 12 below. The balance of such debt at
April 30, 1996 was $90,374.
NOTE 12 - Sale of Florida Properties
On November 14, 1993, the Company entered into two agreements to
sell substantially all of its Florida assets to Capital First, Inc.,
whose parent company subsequently became a shareholder of the Company,
for approximately $25.7 million. As of April 30, 1996, approximately
$25.0 million of the sale closed, with the purchaser assuming
approximately $9.2 million of the Company's debt, on which the Company
remains liable; issuing notes to the Company, secured by a second
mortgage on most of the assets purchased, totaling approximately $8.1
million; and paying approximately $7.7 million in cash. The notes are
payable to the Company over the next 3 years and bear interest at 7% and
10% per annum. The amount of the notes due the Company at April 30,
1996 was $6.6 million, which is included in notes receivable in the
accompanying consolidated balance sheet. The remaining $700,000 of the
sale is scheduled to be closed during fiscal 1997, for cash. The
Company's cost of the assets sold, and to be sold, is approximately
$18.9 million. The resulting gross profit is being reported by the
Company on the installment method over 5 fiscal years, beginning with
fiscal 1994. At April 30, 1996, there remains approximately $1.7
million of gross profit to be recognized over the next 3 years as cash
is collected.
The Company's second mortgage is subordinate to a first mortgage,
which the Company has guaranteed payment, referred to above. The loan is
collateralized by land sold in the sale of Florida assets, and the loan
agreement expires June 30, 1997, when the balance becomes due. The
balance of the first mortgage at April 30, 1996 was $90,374.
NOTE 13 - Subsequent Event - Offer for Treasury Stock Purchase
Subsequent to fiscal year end, the Company's second largest
shareholder proposed to the Company a transaction pursuant to which the
Company would transfer certain of its assets and liabilities to a newly-
formed wholly owned subsidiary, and subsequently transfer all of the
capital stock of the subsidiary to J.T. Williams, Jr., the Company's
Chairman of the Board and Chief Executive Officer, in exchange for
551,321 shares of Common Stock owned by Mr. Williams and the
cancellation of his option to purchase an additional 100,000 shares of
Common Stock (see Note 10). The assets proposed to be transferred are
comprised principally of the Eagle's Landing Golf Course and Country
24
Club, the Inn at Eagle's Landing, approximately 250 acres of commercial
and industrial real estate, land sufficient to construct an additional
nine hole golf course, the Company's interest in certain joint ventures
(see Note 3) and approximately $2 million cash. The assets would be
transferred subject to approximately $7 million in liabilities. If
consummated, the transaction would be given effect as of May 1, 1996.
It is a condition to consummation of the proposed transaction that the
holders of a majority of the outstanding Common Stock of the Company,
other than shares held by J.T. Williams, Jr., approve the transaction.
The proposed transaction is being reviewed by the Company's Board of
Directors, which has engaged an independent firm to render an opinion as
to the fairness of the transaction, from a financial point of view, to
the shareholders of the Company other than Mr. Williams. If the Board
of Directors approves the proposed transaction, the transaction will be
submitted to the shareholders of the Company for approval at the annual
meeting of shareholders scheduled to be held in September 1996.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the current fiscal year the Company engaged Coopers &
Lybrand, L.L.P. as independent accountants to audit the Company's
financial statements for the fiscal year ending April 30, 1996 and
elected not to renew the engagement of the Company's previous
independent accountants, BDO Seidman, L.L.P. No adverse opinions or
disclaimers of opinion were given by BDO Seidman, L.L.P. during the
fiscal years ended April 30, 1993, 1994, or 1995, nor were there any of
their opinions qualified as to uncertainty, audit scope, or accounting
principle, during the time BDO Seidman, L.L.P. was engaged. There was
no disagreement of any nature between the Company and BDO Seidman,
L.L.P. This decision was approved by the Company's Audit Committee and
Board of Directors.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
Executive Officers of the Company
Information with respect to the Company's executive officers as of
April 30, 1996 is as follows:
Name Age Position Held Since
- ---- ----- -------- ----------
J.T. Williams, Jr. 63 Pres. & Chmn. of the Bd. 1970
David K. Williams 36 Executive Vice Pres. and Scty. 1994
All executive officers of the Company serve at the pleasure of the
Company's Board of Directors, with the exception of J.T. Williams, Jr.,
who is employed by the Company pursuant to an employment agreement.
J.T. Williams, Jr. has been employed by the Company in various
executive capacities since 1964 and has been President of the Company
since September 1970. Mr. Williams is a certified public accountant.
David K. Williams has been Executive Vice President of the Company
since May 1994. Mr. Williams has been employed by the Company since
June 1983. He served as Vice President of Construction and Development
from January 1987 until June 1989 and as President of Florida Operations
from June 1989 until 1994. Mr. Williams is the son of J.T. Williams,
Jr.
25
The information required by this Item 9 concerning the Directors of
the Company will be contained in the Company's 1996 definitive proxy
material to be filed with the Securities and Exchange Commission and is
incorporated herein by this reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item 10 will be contained in the
Company's 1996 definitive proxy material to be filed with the Securities
and Exchange Commission and is incorporated herein by this reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 11 will be contained in the
Company's 1996 definitive proxy material to be filed with the Securities
and Exchange Commission and is incorporated herein by this reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 will be contained in the
Company's 1996 definitive proxy material to be filed with the Securities
and Exchange Commission and is incorporated herein by this reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report
on Form 10-KSB:
1. Financial Statements. The following financial statements are
included in Item 7 hereof:
1. Reports of Independent Certified Public Accountants
2. Consolidated Balance Sheet of the Company as of April 30, 1996
3. Consolidated Statements of Earnings for the fiscal years ended
April 30, 1996 and 1995
4. Consolidated Statements of Changes in Stockholders' Equity for
the fiscal years ended April 30, 1996 and 1995
5. Consolidated Statements of Cash Flows for the fiscal years ended
April 30, 1996 and 1995
6. Notes to Consolidated Financial Statements
2. Exhibits.
See Exhibit Index, below.
(b) Reports on form 8 - K
No reports on Form 8-K were filed during the fourth quarter
of fiscal 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities and Exchange Act of 1934, the Issuer has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
26
KILLLEARN PROPERTIES, INC.
Date: July 26, 1996 By:_/s/ J.T. Williams, Jr._____
J.T. Williams, Jr.,
Chairman of the Board and President
Pursuant to the requirements of the Securities and Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of the Issuer and in the capacities and on the date indicated.
DATE: July 26, 1996 _/s/ J. T. Williams, Jr._______
J.T. WILLIAMS, JR.,
Chairman of the Board and President
DATE: July 26, 1996 _/s/ Don Fuqua_________________
DON FUQUA, Director
DATE: July 26, 1996 _/s/ Mallory E. Horne__________
MALLORY E. HORNE, Director
DATE: July 26, 1996 _/s/ Melvin L. Pope, Jr._______
MELVIN L. POPE, JR., Director
DATE: July 26, 1996 _/s/ Peter Redmon______________
PETER REDMON, Director
DATE: July 26, 1996 _/s/ David K. Williams_________
DAVID K. WILLIAMS, Director and
Executive Vice President (Principal
Financial Accounting Officer)
EXHIBIT INDEX
Page No. or Incorporated by Reference
Exhibit No. Description to the Document Listed Below
(3) Articles of Incorporation as 1981 Form 10-K
amended and Bylaws of the
Company
(10.1) Executive Compensation Plan and Arrangements
(10.1) (a) Employee Profit Sharing Plan 1974 Form 10-K
(10.1) (b) Employment Agreement dated as of 1982 Form 10-K
July 7, 1982 by and between the
Company and J.T. Williams, Jr.
(10.1) (c) Modification of Employment 1992 Form 10-K
Agreement by and between the
Company and J.T. Williams,Jr.,
dated April 24, 1992
(10.1) (d) 1992 Incentive Stock Option Plan for 1994 Form 10-K
Employees
(10.2) Promissory notes dated May 1, 1991 1992 Form 10-K
from the Company to J.T. Williams, Jr.
(10.3) Agreement to Purchase and Sell Report on Form 8-K
between the Company and Capital dated November 22,
First Inc. 1993
27
(10.4) Loan Modification dated July 19, 1994 Form 10-K
1994 between First Union Bank of
Georgia and Killearn Properties, Inc.
(10.5) Loan Agreement dated July 19, 1994 1994 Form 10-K
between First Union Bank of Georgia
and Killearn Properties, Inc. for
$5,000,000
(13) Annual Report to Shareholders for 1996 Form 10-K
the fiscal year ended April 30, 1996
(22) Subsidiaries of the Company 1994 Form 10-K
28
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