- -------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-KSB/A
AMENDMENT TO FORM 10-KSB
Filed Pursuant to
THE SECURITIES EXCHANGE ACT OF 1934
THE PARKWAY COMPANY
-------------------------------------
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 3
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Annual
Report on Form 10-KSB for the year ended June 30, 1994 as set forth
in the pages attached hereto:
Item 6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Item 7. Consolidated Financial Statements
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 8, 1995 THE PARKWAY COMPANY
By /s/ Sarah P. Clark
-------------------------------
Sarah P. Clark
Vice President,
Chief Financial Officer
and Secretary
PART I
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
Assets of the Company increased from $55,850,000 at June 30,
1993 to $59,735,000 at June 30, 1994, a net increase of $3,885,000.
Liabilities decreased $661,000 to $28,006,000 during the same
period. Book value per share decreased from $21.57 at June 30,
1993 to $20.56 at June 30, 1994.
Effective May 10, 1994, the merger of First Continental Real
Estate Investment Trust ("First Continental" or "FCREIT") with
Parkway Texas Corporation (a wholly owned subsidiary of the
Company) was completed. This merger increased the Company's net
assets as follows:
Operating real estate $2,298,000
Real estate held for sale 2,696,000
Mortgage loans 1,451,000
Interest receivable & other assets 228,000
Cash 195,000
Notes payable to banks (1,912,000)
Accounts payable & other liabilities (158,000)
----------
$4,798,000
==========
The Company's purchase price of these assets consisted of:
Investment in FCREIT at 5/9/94 $1,235,000
Common stock issued 3,393,000
Merger expenses 170,000
----------
$4,798,000
==========
The financial reporting and income tax accounting may vary
considerably in a business combination. Parkway has historically
used and plans to continue to use the purchase method of accounting
for financial reporting purposes. Because mergers have such a
material impact on Parkway, a brief explanation of the purchase
method of accounting and its effect on Parkway is set forth below.
For financial reporting purposes, the assets of the company
acquired are assigned new cost basis amounts based on the cost of
the assets to Parkway. The cost to Parkway consists of the new
shares issued at the market price of the Parkway stock on the date
of the merger plus cash paid, if any, and the previous investment
Parkway has in the company. Since the Parkway stock is selling at
a discount to book value and the stocks acquired are also selling
at discounts, the accounting results in a writedown of the assets
acquired from their book value and also a decrease in book value
per share of the Parkway stock. In some cases, real estate and
loans are written down as much as 50% from their previous book
values. As the assets are sold or loans are collected, income will
be recorded to the extent of cash received less the new written
down basis.
For income tax purposes, Parkway typically receives a carryover
basis in the assets purchased which is equal to the tax basis of
those assets prior to the merger. In most cases, this basis is
higher than book basis due to allowance for losses and writedowns
that were recorded for financial reporting purposes but not income
tax purposes, so as in the example above assets sold may generate
tax losses.
In summary, if assets from merged companies are sold for their
pre-merger book value, two positive things happen - (1) gains for
financial reporting purposes are recorded and (2) losses for income
tax purposes are recorded. We believe that Parkway is positioned
to record earnings without creating income tax liabilities by
selling assets of the acquired companies.
During fiscal 1994, the Company's investment in real estate
increased a net $4,542,000. This increase is due primarily to the
merger of First Continental. Also contributing to an increase in
real estate was the purchase of an additional 23.45% interest in
the Big Run land for $10,000. Real estate assets decreased
$472,000 due to the sale of 2.8556 acres in Sugarland, Texas. The
2.8556 acres was a part of the Company's 18.3 acre tract of land
referred to as Sugar Creek. The sales price was $525,000 and the
Company recorded a loss on the sale of $14,000. The Company
received $125,000 cash and a $420,000 mortgage note in the sale.
Terms of the mortgage note include interest at 8%, quarterly
interest payments and maturity on March 16, 1996. Real estate
assets also decreased $62,000 due to writedowns on real estate to
fair value.
The investment in real estate companies increased a net
$5,998,000 during the year. The Company recorded equity in
earnings of $755,000, unrealized gains on securities of $652,000,
and dividends received of $332,000 during that period. The Company
purchased an additional 453,471 shares of EB, Inc., an equity
method investee, for $5,864,000 increasing its ownership to 51.5%.
The Company will continue to record this investment on the equity
method due to voting restrictions on the additional shares. The
Company also purchased shares of another real estate investment
trust for $312,000 from EastGroup Properties, an affiliated
company. The price was based on the market price of the shares on
the open market on the date the shares were purchased. The Company
also purchased 117,232 shares of Congress Street Properties at $.80
a share for a total purchase price of $94,000 pursuant to a rights
offering by Congress Street.
On December 13, 1993, the Company purchased 1,218,910 shares of
First Continental from EastGroup Properties for $1,198,000. As
previously mentioned, the merger with First Continental was
effective May 10, 1994 and decreased investments in real estate
companies by $1,235,000, which represented Parkway's investment in
First Continental prior to the merger.
Also, a decrease of $1,077,000 in investments in real estate
companies was due to the sale of all of the securities of Medical
Resources Co. of America and Hotel Investors, shares of EastGroup
Properties and other stock investments.
The investment in mortgage loans increased a net $2,566,000,
primarily due to the merger of First Continental discussed
previously, the mortgage note received in the sale discussed above
and the purchase of 35 mortgage loans and two foreclosed lots from
EastGroup Properties. In December 1989, the Company transferred 53
mortgages with a yield of 10.25% to EastGroup in exchange for
327,981 shares of EastPark Realty Trust ("EastPark") stock.
EastPark is a former equity method investee of the Company. As a
result of the exchange with EastGroup, the Company's ownership
increased from 38.6% to 77.2% of the EastPark stock outstanding.
This acquisition of EastPark stock was the first in a series of
transactions that led to the Company's purchase of 100% of
EastPark's assets (subject to its liabilities) and the subsequent
liquidation of EastPark in April 1990. The Company guaranteed the
collection of 100% of the mortgage loans transferred. The gain on
the transaction of $411,000 was deferred at the time of the sale.
At September 30, 1993, two of these mortgages had defaulted and
been foreclosed and 35 loans remained. Parkway purchased the
remaining loans and foreclosed property for a purchase price of
$956,000, which represented EastGroup's book value of those loans
on September 30, 1993 and will yield a 10.25% return to the
Company. The Company recognized $270,000 of the deferred gain on
the loans during the year ending June 30, 1994. Principal payments
on mortgage loans totalled $269,000 during the year.
The investment in real estate partnerships and corporate joint
venture decreased a net $29,000 during the year ended June 30,
1994. The Company recorded equity in earnings of real estate
partnerships and corporate joint ventures of $239,000 and received
distributions totalling $571,000. The decrease in real estate
partnerships and corporate joint venture is also due in part to the
sale of the Company's 22% investment in GV Partners to its 78%
partner, EastGroup Properties. The sales price was $275,000 cash
plus the assumption of 22% of the outstanding mortgage and was
based on an appraisal by an independent third party. The Company
recognized a gain of $280,000 on the sale.
On June 15, 1994, the Company purchased a 50% interest in the
Wink Office Building, a 32,000 square foot office/warehouse
building in New Orleans, Louisiana. The Company's 50% ownership is
held through the Wink-Parkway Partnership. The building was
purchased from 4949 Partnership, a 50/50 partnership consisting of
Wink Engineering and Lake Forest, Inc. The purchase price was
$1,500,000 (of which the Company's 50% share was $750,000)
consisting of $500,000 cash plus the refinancing of debt totalling
$1,000,000. This debt is a 15 year non-recourse mortgage. At June
30, 1994, Wink Engineering occupied 93% of the building on a 15
year non cancelable net lease. This building will be managed by
Wink Engineering and will be accounted for under the equity method.
Parkway's investment at June 30, 1994 totalled $291,000.
Notes payable to banks increased a net $2,691,000 during the
year. The borrowings were from two lines of credit totalling
$6,000,000. One line of credit has a $5,000,000 credit limit,
interest at the prime rate with interest due monthly, an unused
line fee of .25% due quarterly and maturity on June 30, 1995. The
balance on this note totalled $1,991,000 at June 30, 1994. The
second line has a $1,000,000 credit limit, interest at prime plus
.50% with interest due monthly, an unused line fee of .75% due
quarterly and maturity on April 30, 1995. The balance on this note
totalled $1,000,000 at June 30, 1994. Notes payable to banks also
increased by $1,912,000 due to the merger of First Continental.
Immediately following the merger, the $1,912,000 debt of First
Continental was repaid.
Notes payable to affiliate had a decrease of $2,274,000 for the
year due to the pre-payment of the note payable to Lake Forest,
Inc. on June 28, 1994. As a result of this pre-payment, Lake
Forest, Inc. repaid its $750,000 note payable to Parkway. This
decrease in Parkway's note receivable is included in the decrease
in other assets.The decrease in mortgage notes payable without
recourse of $867,000 is due to scheduled payments and maturities of
outstanding debt.
Shareholders' equity increased $4,546,000 during the year as a
result of the following factors:
Increase (Decrease)
-------------------
In thousands
Net income $1,303
Dividends declared (799)
Adjustment to unrealized
gain on securities 652
Shares issued - FCREIT merger 3,393
Stock options exercised (3)
------
$4,546
======
The Company retired 1,073,000 treasury shares during the year
ended June 30, 1994.
RESULTS OF OPERATIONS
1994 Compared to 1993
Revenues increased to $8,956,000 for the 1994 fiscal year
compared to $8,719,000 for the 1993 fiscal year.
Operations of real estate properties are summarized below:
Twelve Months Ended
June 30
-------------------
1994 1993
-------- --------
(In thousands)
Income from real estate properties $ 6,429 $ 6,019
Real estate operating expense (3,760) (3,686)
-------- --------
2,669 2,333
Interest expense on real estate
properties (2,392) (2,487)
Depreciation and amortization (1,022) (981)
Minority interest 542 598
-------- --------
$ (203) $ (537)
======== ========
Revenues have increased reflecting higher occupancy levels, as
well as the added revenues from the properties acquired in the
merger with First Continental from May 10, 1994 through June 30,
1994.
Operations of One Place Partners have been recorded through
consolidation for fiscal years 1994 and 1993 and are included in
the preceding table. The effect on the Company's operations
related to One Jackson Place follows:
Twelve Months Ended
June 30
-------------------
1994 1993
-------- --------
(In thousands)
Revenues $ 3,517 $ 3,317
Operating expenses (1,463) (1,370)
Interest expense (2,072) (2,076)
Depreciation (887) (870)
Minority interest 542 598
-------- --------
$ (363) $ (401)
======== ========
Interest on mortgage loans decreased $147,000 primarily as a
result of scheduled maturities of mortgage loans and the payoff of
the Cedar Park first and second mortgages in fiscal 1993. The
interest recorded during fiscal 1993 on the Cedar Park mortgages
was $276,000. Interest income on mortgage loans increased during
the year as a result of the purchase of loans from EastGroup
discussed previously and the loans acquired in the merger with
First Continental.
The gain on sale of real estate partnership of $280,000 in fiscal
1994 represents the sale of the Company's 22% investment in GV
Partners to the 78% partner, EastGroup Properties. The sales price
was $275,000 cash plus the assumption of 22% of the outstanding
mortgage and was based on an appraisal by an independent third
party.
The gain (loss) on real estate and mortgage loans varied from
that recognized in the prior year as follows:
Twelve Months Ended
June 30
-------------------
1994 1993
-------- --------
(In thousands)
Gain on sales of real estate $ 19 $ 1,707
Writedown of real estate and
loans to fair value (132) -
Gain on payoff of mortgage loan - 767
------- -------
$ (113) $ 2,474
======= =======
In fiscal 1993, the Company sold one 247 acre tract of land
in Louisville, Kentucky for a gain of $1,712,000 and recognized
deferred gains of $767,000 upon the payoff of the Cedar Park
first and second mortgage loans.
Equity in earnings (losses) of real estate companies consists
of the following:
Twelve Months Ended
June 30
-------------------
1994 1993
-------- --------
(In thousands)
EB, Inc. 337 (758)
EastGroup 443 (2)
Congress Street (67) (64)
FCREIT (9) -
------- -------
704 (824)
Plus amounts recognized as
discontinued operations
from EB, Inc. 51 1,490
------- -------
$ 755 $ 666
======= =======
Equity in earnings of real estate partnerships and corporate
joint venture consists of the following:
Twelve Months Ended
June 30
-------------------
1994 1993
-------- --------
(In thousands)
Golf Properties Inc. $ 233 $ 289
GV Partners 6 30
-------- --------
$ 239 $ 319
======== ========
The gain on securities of $579,000 represents the sale of the
Company's remaining investment in Medical Resources Co. of America
for $212,000 with a gain of $104,000, all of the investment in
Hotel Investors for $268,000 with a gain of $125,000, 58,525 shares
of EastGroup Properties, an equity method investee for $1,152,000
with a gain of $337,000 and other stock investments for $24,000
with gains of $13,000. Gain on securities of $22,000 in fiscal
1993 represented the sale of 11,000 shares of Medical Resources
Co. of America for $37,000 having a net basis of $15,000.
Net income for the year ending June 30, 1994, was $1,303,000
($1.00 per share) compared to net income for the year ending June
30, 1993, of $2,712,000 ($2.15 per share). Income before
discontinued operations for the year ending June 30, 1994, was
$1,252,000 ($.96 per share) compared to $1,222,000 ($.97 per share)
for the year ending June 30, 1993. Below is a table showing the
effect of gains included in net income.
Twelve Months Ended
June 30
-------------------
1994 1993
-------- --------
(In thousands)
Gain on sale of real estate partnership $ 280 $ -
Gain (loss) on real estate and
mortgage loans, net (113) 2,474
Gain on securities 579 22
-------- --------
Gain included in income before
discontinued operations 746 2,496
Equity in earnings from sale of
discontinued operations by equity
method investee - 1,030
-------- --------
Gains included in net income $ 746 $ 3,526
======== ========
LIQUIDITY AND CAPITAL RESOURCES
Funds provided by operations, mortgage loan payments, bank
borrowings, proceeds from the sales of stock, sales of real estate
and the sale of a partnership interest were the primary sources of
funds for the Company during fiscal 1994. Funds provided by these
sources and cash balances were sufficient to cover repayment of
long-term debt, bank debt, dividends paid to shareholders,
improvements to real estate owned properties, the purchase of real
estate investments and the payment of operating expenses. At June
30, 1994, the Company had available $217,000 in cash and short-term
investments. Management believes that funds generated from
operations, borrowings and cash on hand will be sufficient to
cover future cash requirements.
As discussed previously, the Company established two lines of
credit during the year totalling $6,000,000. One line of credit
has a $5,000,000 credit limit, interest at prime due monthly, an
unused line fee of .25% due quarterly and maturity on June 30,
1995. The second line has a $1,000,000 credit limit, interest at
prime plus .50% due monthly, an unused line fee of .75% due
quarterly and maturity on April 30, 1995. At June 30, 1994, the
balance on these lines totalled $2,991,000 leaving $3,009,000
available for use.
On July 6, 1994, Parkway and Congress Street jointly announced
that their Boards of Directors have agreed in principle to a merger
of Congress Street and a wholly-owned subsidiary of Parkway. Under
the terms of the proposed merger, Congress Street shareholders will
receive .29 shares of Parkway for each Congress Street share owned.
The exchange ratio was recommended to the Boards by negotiating
committees comprised of independent directors. The merger is
subject to a number of conditions, including negotiation of a
merger agreement and approval of such agreement by the Boards of
each company, receipt of satisfactory fairness opinions,
shareholder approval in the case of Congress Street, and
registration of the Parkway shares to be issued in the proposed
merger with the Securities and Exchange Commission.
On July 27, 1994, Parkway and EB, Inc. jointly announced that
their Boards of Directors have agreed in principle to a merger of
EB and a wholly-owned subsidiary of Parkway. EB shareholders would
receive $17.25 for each EB share consisting of cash of $8 per share
and shares of Parkway with a value of $9.25 based on a defined
formula. The merger is subject to several conditions, including
execution and approval of the merger agreement by the Boards of
each company, shareholder approval in the case of EB, receipt of
satisfactory fairness opinions by Parkway and EB, and registration
of the Parkway shares to be issued in the merger with the
Securities and Exchange Commission.
The Company believes that the balance of funds available on the
lines of credit, along with the cash available from the proposed
merger with EB, Inc. will be sufficient for the cash requirements
of the proposed merger of approximately $5,527,000. At June 30,
1994, EB, Inc. had available $2,784,000 in cash and cash
equivalents and Grenada Sunburst stock with a market value of
$11,192,000.
On September 2, 1994, the Company purchased the remaining 50%
interest in the Sugarland Triangle land. The purchase price was
$1,500,000 and was purchased with funds drawn under the available
lines of credit.
Item 7. Consolidated Financial Statements
Index to Consolidated Financial Statements
--------------------------------------------
Page
----
Report of Independent Auditors........ ....................
Consolidated Balance Sheets--as of June 30, 1994 and 1993..
Consolidated Statements of Income--
for the years ended June 30, 1994 and 1993..... .........
Consolidated Statements of Cash Flows--
for the years ended June 30, 1994 and 1993...............
Consolidated Statements of Shareholders' Equity--
for the years ended June 30, 1994 and 1993...............
Notes to Consolidated Financial Statements.................
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
The Parkway Company
We have audited the accompanying consolidated balance sheets of
The Parkway Company and subsidiaries as of June 30, 1994 and 1993,
and the related consolidated statements of income, shareholders'
equity, and cash flows for the years 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 audits. The financial statements of
EB, Inc. and EastGroup Properties (investees in which the Company
has a 51.5%, and 2.7% interest, respectively), have been audited by
other auditors whose reports have been furnished to us; insofar as
our opinion on the consolidated financial statements relates to
data included for EB, Inc. for its years ended December 31, 1993
and 1992; and EastGroup Properties for its years ended December 31,
1993 and 1992; it is based in part on their reports.
We conducted our audits 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 audits and
the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of The Parkway Company and subsidiaries at June 30, 1994
and 1993, and the consolidated results of their operations and
their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
----------------------
Ernst & Young LLP
Jackson, Mississippi
September 9, 1994
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30
----------------------
1994 1993
---------- ---------
Assets
Real estate related investments
Operating real estate (net of
accumulated depreciation of $5,633
in 1994 and $4,739 in 1993)...........$ 27,400 $ 33,488
Real estate held for sale............... 10,630 -
Real estate companies................... 14,689 8,691
Mortgage loans.......................... 3,482 916
Real estate partnerships and corporate
joint venture......................... 1,022 1,051
-------- --------
57,223 44,146
Notes receivable from affiliates.......... 413 548
Interest and rents receivable and other
assets.................................. 1,687 2,404
Cash and cash equivalents................. 217 237
Reverse repurchase agreements............. - 8,310
Restricted cash........................... 195 205
-------- --------
$ 59,735 $ 55,850
======== ========
Liabilities
Notes payable to banks....................$ 3,631 $ 940
Note payable to affiliate without recourse - 2,274
Mortgage notes payable without recourse... 22,902 23,769
Accounts payable and other liabilities.... 1,332 1,273
Deferred gain............................. 141 411
-------- --------
28,006 28,667
-------- --------
Shareholders' Equity
Common stock, $1.00 par value, 10,000,000
shares authorized, 1,542,942 shares
issued in 1994 and 2,333,296 in 1993.... 1,543 2,333
Additional paid-in capital................ 27,134 39,271
Retained earnings......................... 2,400 1,899
-------- --------
31,077 43,503
Less: Treasury shares at cost - retired in
1994 and 1,073,070 shares in 1993....... - (16,320)
Unrealized gain on securities............. 652 -
-------- --------
31,729 27,183
-------- --------
$ 59,735 $ 55,850
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended June 30
------------------------
1994 1993
---------- ----------
Revenues
Income from real estate properties..... $ 6,429 $ 6,019
Interest on mortgage loans............. 265 412
Gain on sale of real estate partnership 280 -
Gain (loss) on real estate and mortgage
loans, net (costs of sales were $573
in 1994 and $1,001 in 1993).......... (113) 2,474
Equity in earnings (losses):
Real estate companies................ 704 (824)
Real estate partnerships and
corporate joint venture............ 239 319
Gain on securities..................... 579 22
Interest on short-term investments..... 235 240
Dividends, deferred gains and other
income............................... 338 57
---------- ----------
8,956 8,719
---------- ----------
Expenses
Real estate owned:
Operating expense.................... 3,760 3,686
Interest expense..................... 2,392 2,487
Depreciation and amortization........ 1,022 981
Minority interest.................... (542) (598)
Shared general and administrative
expenses............................. 502 489
Other expenses......................... 569 449
---------- ----------
7,703 7,494
---------- ----------
Income before income taxes and
discontinued operations.............. 1,253 1,225
Income tax provision................... 1 3
---------- ----------
Income before discontinued operations.. 1,252 1,222
---------- ----------
Equity in earnings from discontinued
operations of equity method investees:
Income from discontinued operations 51 460
Income on sale of discontinued
operations....................... - 1,030
---------- ----------
51 1,490
---------- ----------
Net income............................. $ 1,303 $ 2,712
========== ==========
Income per share:
From continuing operations........... $ .96 $ .97
From discontinued operations......... .04 1.18
---------- ----------
Net income......................... $ 1.00 $ 2.15
========== ==========
Weighted average shares outstanding.... 1,300 1,260
========== ==========
Dividends declared per share........... $ .60 $ .80
========== ==========
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended June 30
--------------------
1994 1993
--------- ---------
Operating Activities
Net income....... ...................... $ 1,303 $ 2,712
Adjustments to reconcile net income to
net cash provided by operating
activities:
Equity in earnings................... (994) (985)
Dividends received................... 332 261
Distributions from operations of real
estate partnerships and corporate
joint venture...................... 543 940
Depreciation and amortization........ 1,022 981
Amortization of discounts, deferred
gains and other.................... (318) (26)
Gain on sale of real estate
partnership........................ (280) -
(Gain) loss on real estate and
mortgage loans, net................ 113 (2,474)
Gain on securities................... (579) (22)
Changes in operating assets and
liabilities:
Decrease in receivables............ 46 434
Increase in accounts payable and
accrued expenses................. 133 70
--------- ---------
Cash provided by operating activities... 1,321 1,891
--------- ---------
Investing Activities
Payments received on mortgage loans.... 269 3,659
Purchases of investments in real estate
companies............................ (7,468) (33)
Purchase of real estate................ (66) -
Purchase of mortgage loans............. (907) -
Purchase of real estate partnership
interest............................. (291) -
Proceeds from sale of investments in
real estate companies................ 1,656 37
Improvements to real estate owned...... (380) (426)
Proceeds from sale of real estate owned 100 2,559
Proceeds from sale of real estate
partnership owned.................... 296 -
Proceeds from merger of First
Continental (net).................... 25 -
Payments (advances) on notes receivable
from affiliates...................... 135 (43)
(Deposit) release of restricted cash... 165 (165)
--------- ---------
Cash provided by (used in) investing
activities.............................. (6,466) 5,588
--------- ---------
Financing Activities
Principal payments on long-term debt... (867) (258)
Proceeds from long-term financing of
partnership assets................... - 631
Proceeds from bank borrowings.......... 6,296 -
Principal payments on bank borrowings.. (5,517) (300)
Payments on note payable to affiliate.. (2,274) -
Dividends paid......................... (819) (1,009)
Purchases of treasury shares........... - (11)
Stock options exercised................ (4) -
--------- ---------
Cash used in financing activities....... (3,185) (947)
--------- ---------
Increase (decrease) in cash............. (8,330) 6,532
Cash and cash equivalents at beginning
of period............................. 8,547 2,015
--------- ---------
Cash and cash equivalents at end of
period.................................. $ 217 $ 8,547
========= =========
Supplemental cash flow information:
Mortgage loans received on sales of
real estate.......................... $ 420 $ -
Interest paid.......................... 2,441 2,491
See notes to consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Add'l Gain (Loss)
Common Paid-In Retained Treasury On
Stock Capital Earnings Shares Securities Total
------- ---------- --------- --------- ----------- --------
Balance, 06/30/92. $ 2,333 $ 39,271 $ 196 $(16,309) $ (65) $ 25,426
Net income...... 2,712 2,712
Cash dividends
declared ($.80
per share).... 1,009) (1,009)
Cash purchase of
treasury shares (11) (11)
Unrealized loss
on securities. 65 65
------- -------- -------- -------- --------- --------
Balance, 06/30/93. 2,333 39,271 1,899 (16,320) - 27,183
Net income.. 1,303 1,303
Cash dividends
declared ($.60
per share).... (799) (799)
Retirement of
treasury
shares........ (1,073) (15,247) 16,320 -
Merger with
First
Continental
Real Estate
Investment
Trust......... 283 3,110 - - 3,393
Unrealized gain
on securities. 652 652
Stock options
exercised (3) (3)
------- -------- -------- -------- --------- --------
Balance, 06/30/94. $ 1,543 $ 27,134 $ 2,400 $ - $ 652 $ 31,729
======= ======== ======== ======== ========= ========
See notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of
The Parkway Company ("Parkway" or "the Company"); Sugar Creek
Center Corporation and Parkway Texas Corporation, its wholly-owned
subsidiaries; AllMiss Capital Corporation, its 95% owned subsidiary
(dissolved in December 1993); and One Place Partners (a Mississippi
general partnership), its 51.5% owned partnership. All significant
intercompany transactions and accounts have been eliminated.
For years ending after June 30, 1993, the Company adopted the
financial statement reporting provisions of Regulation S-B of the
Securities and Exchange Commission.
Real estate operations
Gains from sales of real estate are recognized based on the
provisions of Statement of Financial Accounting Standards No. 66
which require upon closing, the transfer of rights of ownership to
the purchaser, receipt from the purchaser of an adequate cash down
payment and adequate continuing investment by the purchaser. If
the requirements for recognizing gains have not been met, the sale
and related costs are recorded, but the gain is deferred and
recognized generally on the installment method of accounting as
collections are received.
Depreciation of buildings and other improvements, including
personal property, is computed using the straight line method over
estimated useful lives of 40 years for buildings and building
improvements and 10 years for personal property. Maintenance and
repair expenses are charged to expense as incurred, while
improvements are capitalized and depreciated in accordance with the
useful lives outlined above.
Revenue on real estate rentals is recognized and accrued as
earned on a pro rata basis over the term of the lease.
Real estate held for sale is carried at the lower of fair value
minus estimated costs to sell or cost. Operating real estate held
for investment is stated at the lower of cost or net realizable
value.
Investments in real estate companies, partnerships and corporate
joint venture
The equity method of accounting is used to account for
investments where the Company has the ability to exercise
significant influence over the operating and financial policies of
the investee but does not have majority voting control. The
Company shares voting control in Golf Properties, Inc. ("GPI") with
a joint venture partner and, accordingly, accounts for its
investment in this corporate joint venture using the equity
method. The Company also shares voting control in the Wink-Parkway
Partnership with a partner and, accordingly, accounts for its
investment using the equity method. All other marketable equity
investments are stated at the lower of aggregate cost or market
(closing price). Loss in value of equity investments that is
considered to be an other than temporary decline is charged to
operations.
Interest income recognition
Interest is generally accrued monthly based on the outstanding
loan balances. Recognition of interest income is discontinued
whenever, in the opinion of management, the collectability of such
income becomes doubtful. After a loan is classified as non--
earning, interest is recognized as income when received in cash.
Reclassifications
Certain reclassifications have been made in the 1993 financial
statements to conform to the 1994 classifications.
Cash equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Business segment
The Company's operations are in the real estate industry.
Impact of recently issued accounting standards
In May, 1993, Statement of Financial Accounting Standard (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan" was
issued. The statement must be adopted for fiscal years beginning
after December 15, 1994. Management does not expect any material
effect to the Company from the application of Statement No. 114.
In March 1993, SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities", was issued and is to be effective
for fiscal years beginning after December 15, 1993. Management
does not expect any material effect to the Company from the
application of SFAS No. 115. Certain of the Company's investees
adopted SFAS No. 115 during fiscal 1994. The effect to the Company
is reflected in the accompanying consolidated statements of
shareholders' equity as unrealized gain on securities.
NOTE B - Investments in Real Estate Companies
The Company accounts for certain of its investees as shown
below using the equity method of accounting. The equity method is
used for EastGroup Properties ("EastGroup") because of the
ownership interest in EastGroup by the Company and its affiliates
(21% in the aggregate), the presence of three members of
EastGroup's eight-person Board of Trustees who are directors of the
Company and management of the day-to-day business of EastGroup by
officers who are also officers of the Company. The equity method is
used for Congress Street Properties, Inc. ("Congress Street")
because of the Company's ownership interest in Congress Street and
the presence of three members of Congress Street's five-person
Board of Directors who are directors of the Company and management
of the day-to-day business of Congress Street by officers who are
also officers of the Company.
Investments in real estate companies consist of the following:
Ownership
Percentage
June 30 June 30, 1994 June 30, 1993
------------- ---------------- -----------------
Invest- Invest-
1994 1993 ment Market ment Market
------ ------ ------- -------- ------- --------
Equity method (In thousands)
investees:
EB, Inc....... 51.5% 21.1% $12,376 $ 8,971 $ 5,779 $ (a)
EastGroup
Properties... 2.7% 7.0% 1,623 2,175 2,251 3,130
Congress St.
Properties... 10.3% 9.6% 378 (a) 352 (a)
------- -------
14,377 8,382
------- -------
Non-equity
method
investees:
Hotel
Investors.... - .9% - - 143 221
Medical
Resources Co.
of America... - .4% - - 108 233
First
Continental
Real Estate
Investment
Trust........ - 6.2% - - 47 172
Rockwood
National
Corporation.. 17.4% 17.4% - 37 - 37
Other......... 1.3% .2% 312 324 11 13
------- -------
312 309
------- -------
$14,689 $ 8,691
======= =======
(a) These stocks were not quoted on the National Association
of Securities Dealers Automated Quotation System
("NASDAQ") for the periods indicated nor were there any
other reliable market quotations. The market price of
the other investments represents the closing or bid price
at June 30, 1994 and 1993, respectively, as reported on
the exchange in which the shares are traded or on NASDAQ.
EB, Inc. began being quoted on NASDAQ on July 23, 1993.
During fiscal 1994, the Company purchased 453,471 shares of EB,
Inc.'s outstanding shares and received 221,784 shares through the
dissolution of AllMiss Capital Corporation ("AllMiss"), a 95% owned
subsidiary of Parkway, increasing its ownership to 51.5%. Under
the Mississippi Control Share Statue, certain of the shares of EB.,
Inc. may not be voted by the Company until (i) shareholders of EB,
Inc. approve voting rights for the shares or (ii) three years after
the shareholders of EB, Inc. fail to approve voting rights for the
shares. Although the Company's ownership is equal to 51.5%, the
Company does not have a majority voting interest and continues to
record this investment on the equity method of accounting until
majority voting interest is obtained.
The condensed financial information for EB, Inc. which is
presented below (in thousands) was summarized from the investees'
most currently available financial statements filed with the
Securities and Exchange Commission prior to June 30, 1994.
March 31, 1994
--------------
Assets
Loans.................................. $ 15,839
Real estate investments, net........... 2,983
Marketable securities.................. 9,217
Cash and short-term investments........ 1,865
Other assets........................... 554
--------
$ 30,458
========
Liabilities and Shareholders' Equity
Accounts payable and other expenses.... $ 1,481
Shareholders' equity................... 28,977
--------
$ 30,458
========
Condensed statements of income summarized from EB, Inc.'s
financial statements filed with the Securities and Exchange
Commission for the most recent twelve months prior to June 30, 1994
and 1993, respectively, and from which the Company has recorded its
equity in earnings are as follows:
For the Twelve Months
Ended March 31
---------------------
1994 1993
-------- --------
(In thousands)
Revenues............................. $ 2,650 $ 2,880
Expenses............................. (1,993) (6,935)
Income tax expense................... - (100)
Income from discontinued operations.. 342 7,174
------- -------
Net income........................... $ 999 $ 3,019
======= =======
Equity in earnings recorded by
Parkway............................ $ 388 $ 732
======= =======
On March 1, 1993, Eastover Bank for Savings sold its banking
operations to Sunburst Bank, Mississippi. The disposition of the
banking operations have been treated in the financial statements of
EB, Inc. as discontinued operations. Through equity in earnings of
EB, Inc., the Company has recorded income from discontinued
operations of $51,000 and $460,000 in the years ending June 30,
1994 and 1993 respectively.
EB, Inc. recognized a gain on sale of banking assets to
Sunburst of $4,992,000 which was calculated as follows (dollars in
thousands):
Liabilities assumed by Sunburst $ 408,700
Value of stock received
(FMV of $22.625 per share) 9,930
Cash received 100
---------
418,730
Less:
Basis of assets sold (396,383)
Loans made to EB ( 12,317)
Write off of deferred charges ( 4,025)
Costs of sale ( 1,013)
---------
Gain $ 4,992
=========
The Company's share of this gain was $1,030,000 and was
recorded through equity in earnings as Income on sale of
discontinued operations.
Condensed statements of income summarized from EastGroup's
financial statements filed with the Securities and Exchange
Commission for the most recent twelve months prior to June 30, 1994
and 1993, respectively, and from which the Company has recorded its
equity in earnings are as follows:
For the Twelve Months
Ended March 31
---------------------
1994 1993
-------- --------
(In thousands)
Revenues............................. $17,739 $14,137
Expenses............................. (15,053) (14,060)
Gain (loss) on investments........... 4,560 (3,598)
------- -------
Net income (loss).................... $ 7,246 $(3,521)
======= =======
Equity in earnings recorded by
Parkway............................ $ 443 $ 2
======= =======
Equity in losses of Congress Street during fiscal 1994 and 1993
was $67,000 and $64,000 respectively. In computing equity in
earnings (losses) to be recorded from the investment in Congress
Street, the equity in earnings (losses) of Parkway that are
reflected in the operations of Congress Street have been
eliminated.
The gain on securities of $579,000 during the year ended June
30, 1994 represents the sale of the Company's remaining investment
in Medical Resources Co. of America for $212,000 with a gain of
$104,000, all of the investment in Hotel Investors for $268,000
with a gain of $125,000, 58,525 shares of EastGroup Properties, an
equity method investee for $1,152,000 with a gain of $337,000 and
other stock investments for $24,000 with gains of $13,000.
Certain investments accounted for by the equity method have
been purchased at amounts different from the Company's pro rata
share of the investees' book value as follows:
Investee Amount
-------- --------------
(In thousands)
Equity in excess of cost:
EB, Inc............................ $3,506
Congress Street.................... 590
EastGroup.......................... 585
The amounts above have been assigned to the investees'
principal assets and are primarily being recognized in operations
as the assets are depreciated or sold.
Effective May 10, 1994, the merger of First Continental Real
Estate Investment Trust ("First Continental" or "FCREIT") with
Parkway Texas Corporation (a wholly owned subsidiary of the
Company) was completed. This merger, which has been accounted for
using the purchase method of accounting, increased the Company's
net assets as follows:
Real estate $4,994,000
Mortgage loans 1,451,000
Interest receivable & other assets 228,000
Cash 195,000
Notes payable to banks (1,912,000)
Accounts payable & other liabilities (158,000)
----------
$4,798,000
==========
The operations of First Continental subsequent to May 10, 1994
have been included in the accompanying consolidated statements of
income. The unaudited pro forma effects of the Company's
acquisition of First Continental as if it had occurred on July 1,
1992, would be to increase revenues by approximately $983,000 in
1994 and $1,911,000 in 1993 and decrease net income by $262,000 in
1994 and $953,000 in 1993 and income per share by $.32 in fiscal
1994 and $.80 in 1993.
NOTE C - Investments in Real Estate, Mortgage Loans, Real Estate
Partnerships And Corporate Joint Venture
The Company's investment in operating real estate includes five
office buildings, one retail center, one motel and 34 townhomes,
patio homes and condominiums. The operating properties represent
72% of the total investment in real estate at June 30, 1994. The
office buildings represent 64% of the investment in real estate.
The motel is located in Indianapolis, Indiana and has a carrying
value of $744,000. The office buildings are located in Jackson,
Mississippi ($19,942,000), Indianapolis, Indiana ($2,986,000),
Columbus, Ohio ($1,473,000) and Houston, Texas ($429,000). The
retail center is located in Lake Jackson, Texas and has a carrying
value of $1,124,000. All of the operating properties, with the
exception of the motel and townhomes, patio homes and condominiums
are leased to tenants under noncancellable operating leases with
lease terms ranging from six months to ten years. The location and
carrying value of the nonearning developed and undeveloped land,
which is held for sale, is as follows: Houston, Texas -
$6,039,000, New Orleans, Louisiana -$3,799,000, Atlanta, Georgia -
$530,000 and various other locations - $262,000.
The Company classified all of its nonearning real estate, which
has been held for several years, as held for sale as of June 30,
1994. All of these properties were previously classified as
investment properties. The real estate held for sale is carried at
the lower of fair value minus estimated costs to sell or cost. At
June 30, 1994, there was no valuation allowance related to real
estate held for sale. Management believes that current market
conditions are more favorable to allow them to actively market the
properties at prices they consider appropriate.
The following is a schedule by year of future approximate
minimum rental receipts under noncancelable leases for the office
buildings as of June 30, 1994:
Fiscal Year Amount
----------- --------------
(In thousands)
1995 $ 5,315
1996 4,346
1997 2,932
1998 1,256
1999 679
Subsequently 888
--------
$ 15,416
========
The Company owns a 38% effective interest in One Jackson Place,
an office building, through its partnership interest in One Place
Partners. One Place Partners has an effective ownership of 73.125%
of the One Jackson Place office building. The Company has majority
voting control over the building and has consequently consolidated
One Place Partners and its subsidiaries in its consolidated
financial statements since March 1990. The Company records a
reduction in real estate owned expenses for the minority owner's
(principally Congress Street) interest in the losses of One Jackson
Place because the first mortgage of One Jackson Place is non-
recourse and Congress Street, which owns 48.5% of One Place
Partners, has committed to fund its share of operating or other
losses.
The unpaid balances of mortgage loans, summarized by type of
loan, are as follows:
Type of Loan June 30
-------------------
1994 1993
-------- --------
(In thousands)
First Mortgages secured by:
Residential real estate.......... $ 1,699 $ 76
Motels........................... 1,029 840
Commercial real estate........... 487 -
Land............................. 195 -
Other............................ 72 -
-------- --------
Total carrying amount of mortgage
loans............................ $ 3,482 $ 916
======== ========
All loans are earning (performing) loans at June 30, 1994 and
1993.
Investments in real estate partnerships and corporate joint
venture at June 30, 1994 and 1993, were as follows:
Ownership June 30
--------------
Percentage 1994 1993
---------- ------ ------
(In thousands)
Corporate joint venture:
Golf Properties, Inc.
(GPI), Resort development
in Highlands, NC........... 65.45% $ 731 $1,021
GV Partners; owns a
100% interest in an
apartment complex in
Seattle, WA................ 22.00% - 30
Wink-Parkway Partnership;
owns a 100% interest in an
office/warehouse building
in New Orleans, LA......... 50.00% 291 -
------ ------
$1,022 $1,051
====== ======
Equity in earnings of GPI during fiscal 1994 and 1993 was
$233,000 and $289,000, respectively. The investment in GPI, which
is accounted for by the equity method, has been purchased at an
amount different from the Company's pro rata share of the
investee's book value. At June 30, 1994, the equity in excess of
cost was $246,000. This amount has been assigned to GPI's
principal net assets and is being recognized in operations as the
assets are depreciated or sold. The equity in earnings recorded by
the Company includes $65,000 and $132,000 amortization of equity in
excess of cost in 1994 and 1993, respectively.
Equity in earnings of GV Partners during fiscal 1994 and 1993
was $6,000 and $30,000, respectively. During fiscal 1994, the
Company sold its 22% investment in GV Partners to its 78% partner,
EastGroup Properties. The sales price was $275,000 cash plus the
assumption of 22% of the outstanding mortgage and was based on an
appraisal by an independent third party. The Company recognized a
gain of $280,000 on the sale.
NOTE D - Notes Payable
A summary of notes payable to banks secured by real estate and
security investments as of June 30, 1994 and 1993 is as follows:
1994 1993
------- -------
Notes Payable to Banks: (In thousands)
Note payable to a bank at prime plus 1% (8.25%)
thru June 1, 1996, due in quarterly principal
payments of $75,000 plus interest; maturing
June 1, 1996; secured by real estate with a
carrying value of $2,551,000.................. $ 640 $ 940
$5,000,000 line of credit with bank at prime
(7.25%) maturing June 30, 1995; secured by
securities with a carrying value of
$12,376,000................................... 1,991 -
$1,000,000 line of credit with bank at prime
plus .50% (7.75%) maturing April 30, 1995;
secured by securities with a carrying value
of $1,623,000................................. 1,000 -
------- -------
$ 3,631 $ 940
======= =======
Mortgage Notes Payable without Recourse:
Note payable to an insurance company at 9.25%;
payments of interest only through April 1996;
maturing in 1999; secured by real estate with
a carrying value of $19,942,000............... $22,404 $22,404
Note payable to an insurance company at 8.5%;
due in monthly payments of $22,000; maturing
June 1996; secured by real estate with a
carrying value of $2,375,000.................. 498 637
Note payable to an insurance company at 9.25%;
due in monthly payments of $7,000; the note
was repaid in September 1993;................. - 728
------- -------
$22,902 $23,769
======= =======
The principal maturities of all notes payable for the
succeeding five years are as follows:
Fiscal Year Amount
----------- --------
(In thousands)
1995 $ 3,443
1996 530
1997 338
1998 173
1999 190
Subsequently 21,859
--------
$ 26,533
========
NOTE E - Note Payable to Affiliate
In December 1990, the Company purchased 80 acres of undeveloped
commercial land in New Orleans from Lake Forest, Inc., a wholly-
owned subsidiary of its affiliate, Rockwood National Corporation,
for a total purchase price of $3,790,000. This purchase price
consisted of $1,516,000 cash at closing and a ten-year non recourse
promissory note of $2,274,000. This note was repaid on June 28,
1994. Interest paid was $210,000 in 1994 and $205,000 in 1993.
NOTE F - Income Taxes
The Parkway Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", effective
July 1, 1993. The adoption had no effect on the Company's
financial statements due to the establishment of valuation reserves
which offset the effect of potential deferred tax assets. Deferred
income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes, and (b) operating loss and tax credit carryforwards.
The tax effects of significant items comprising Parkway's net
deferred tax asset as of June 30, 1994 are as follows (in
thousands):
Deferred tax assets:
Differences in book and tax basis of assets......$3,779
Operating loss carryforwards..................... 3,489
------
7,268
Valuation allowance..............................(7,268)
------
Net deferred tax asset...........................$ -
======
An additional $16,000,000 of temporary differences related to
assets acquired in the merger with First Continental will be
limited during the five year period commencing with the merger
date, and therefore have not been included in the deferred tax
asset calculation. After the five year period, the temporary
differences that exist on assets remaining at that time will be
unrestricted and will be included in the deferred tax assets of the
Company.
The valuation allowance for the gross deferred tax assets as of
July 1, 1993 was $8,142,000. The net decrease in the total
valuation allowance for the year ended June 30, 1994 was $874,000
and relates primarily to differences in book and tax basis of
securities and real estate sold. At June 30, 1994, the net
deferred tax asset of $7,268,000 is entirely offset by a valuation
allowance because the Company does not expect the net deferred tax
asset to be realized.
The following is a reconciliation between the amount reported
for income taxes and the amount computed by multiplying income
before income tax by the statutory federal tax rate of 34%.
June 30
-------------------
1994 1993
-------- --------
(In thousands)
Income tax expense based on
statutory income tax rate.............. $ 443 $ 922
Operating loss carryforward for financial
reporting purposes..................... (353) (738)
Equity in earnings or other real estate
companies.................... ......... (90) (184)
-------- --------
Federal regular tax expense.............. - -
State income tax expense................. 1 3
-------- --------
Income tax expense....................... $ 1 $ 3
======== ========
At June 30, 1994, the Company has available net operating loss
carryforwards for federal income tax purposes of approximately
$10,265,000 which expire as follows:
Fiscal Year Amount
----------- --------------
(In thousands)
1995 $ 760
1996 2,296
1998 760
1999 14
2000 57
2001 12
2002 8
2003 300
2004 47
2007 1,052
2008 3,112
2009 1,847
--------
$ 10,265
========
In addition to these net operating losses, First Continental
had net operating losses of approximately $18,000,000 at the time
of the merger with Parkway. Parkway's utilization of these losses
will be limited to a maximum of approximately $280,000 in any given
year, therefore a majority of these loss carryforwards will be
unavailable for use by the Company. These loss carryforwards have
not been reflected in the deferred tax asset of Parkway at June 30,
1994.
The Company's income differs for tax and financial reporting
purposes principally because (1) the timing of the deduction for
the provision for possible losses or writedowns, (2) the timing of
the recognition of gains or losses from the sale of investments,
(3) the timing of the recognition of income or losses from
partnerships, (4) the equity in undistributed earnings of real
estate companies differing from dividends received from those
investments, (5) real estate owned has a different basis for tax
and financial reporting purposes, producing different gains upon
disposition, and (6) mortgage loans have a different basis for tax
and financial reporting purposes, producing different gains upon
collection of these receivables. At June 30, 1994, there was no
deferred federal or state income tax liability due to the
availability of net operating loss carryforwards.
NOTE G - Company Administration and Related Party Transactions
The Company is a party to an expense-sharing agreement whereby
certain general and administrative expenses are paid by Congress
Street and then allocated on a monthly basis among the
participants, as defined. At June 30, 1994, the parties to the
expense-sharing agreement were the Company, Congress Street,
Eastover Corporation and EastGroup Properties.
Parkway was a party to two loan agreements with Lake Forest,
Inc., a wholly owned subsidiary of Rockwood, the proceeds of which
were used to fund the continuing operations of Lake Forest, Inc.
On June 28, 1994, Parkway repaid its note payable of $2,274,000,
(See Note E) incurred with the purchase of 80 acres of undeveloped
commercial land in 1990, to Lake Forest, Inc. who in turn repaid
its $750,000 note payable to Parkway and the remaining line of
credit with a balance of $167,500 was reworked into two notes with
interest at the prime rate. The first note is for $117,500 and is
a one year note with quarterly interest. The second note is for
$59,174 whose principal includes $9,174 of unpaid interest
reclassed into the note balance at June 28, 1994, and is a two year
note with interest due quarterly. The notes are secured by real
property in New Orleans, Louisiana. No additional advances are
available under the two loan agreements.
In connection with the purchase of the 80 acres of undeveloped
commercial land in 1990 mentioned above, Rockwood issued to Parkway
a warrant to purchase 800,000 shares of Rockwood common stock
exercisable at $.375 per share during the period beginning June 17,
1991, and ending December 31, 1995. Parkway has not purchased any
Rockwood common stock under the warrant.
The Company signed an amendment to the One Place Partner's
Partnership Agreement whereby Parkway will loan Congress Street
Properties, Inc. (an affiliate) funds for their portion of capital
contributions. This note accrues interest at prime plus one
percent with interest due annually. At June 30, 1994, $413,000 was
outstanding on the loan to Congress Street. Interest earned on the
note for the years ended June 30, 1994 and 1993 was $32,000 and
$27,000, respectively.
On January 1, 1994, the Company renewed for one year a note
whereby it will loan up to $100,000 to its affiliate, Eastover
Corporation. This note accrues interest at prime plus 1% with
interest due quarterly. The collateral for this note is a security
interest in shares of EastGroup Properties. At June 30, 1994,
there was no balance outstanding on the note and interest earned on
the note for the years ended June 30, 1994 and 1993 was $2,000 and
$7,000, respectively.
In December 1989, the Company transferred 53 mortgage loans to
EastGroup in exchange for 327,981 shares of EastPark Realty Trust
("EastPark") stock. EastPark is a former equity method investee of
the Company. As a result of the exchange with EastGroup, the
Company's ownership increased from 38.6% to 77.2% of the EastPark
stock outstanding. This acquisition of EastPark stock was the
first in a series of transactions that led to the Company's
purchase of 100% of EastPark's assets (subject to its liabilities)
and the subsequent liquidation of EastPark in April 1990.The
Company guaranteed to EastGroup the collection of 100% of the
mortgage loans, and the gain on the transaction of $411,000 was
deferred to be recognized as the contingent liability resulting
from the guarantee was reduced. At September 30, 1993, two of
these mortgages had defaulted and been foreclosed and 35 loans
remained. Parkway purchased the remaining loans and foreclosed
property for a purchase price of $956,000, which represented
EastGroup's book value of those loans on September 30, 1993. The
Company recognized $270,000 of the deferred gain on these loans
during the year ending June 30, 1994. The balance of the deferred
gain will be recognized as the loans are repaid.
NOTE H - Accounts Payable and Other Liabilities
June 30
---------------------
1994 1993
--------- ---------
(In thousands)
Accounts payable....................... $ 385 $ 228
Accrued interest payable............... 138 144
Taxes payable, other than income taxes. 297 209
Dividends payable...................... 231 252
Other accrued expenses................. 212 183
Other payables......................... 69 29
Minority interests..................... - 228
--------- ---------
$ 1,332 $ 1,273
========= =========
NOTE I - Supplemental Profit and Loss Information
Included in expenses are taxes, principally property taxes, of
$871,000 and $901,000 for the years ended June 30, 1994 and 1993,
respectively.
NOTE J - Stock Option and Stock Appreciation Rights Plans
The 1991 Incentive Plan was approved at the 1991 Annual
Shareholder Meeting. Under the 1991 Incentive Plan, a total of
65,892 (52,498 exercisable at June 30, 1994) options may be granted
to directors, officers, or key employees of the Company. The stock
option plan also has an accompanying stock appreciation rights plan
applicable to 55% (36,241) of the options and incentive
compensation units applicable to 45% (29,651) of the options.
Compensation under the stock appreciation rights plan is accrued by
the Company based on the excess of the market price over the option
exercise price, subject to a three year vesting period.
Compensation under the incentive compensation units is accrued
based on the dividends paid on those units subject to a five year
vesting period. At June 30, 1994, 1,595 shares are available for
grant under the 1991 Incentive Plan.
Stock option activity for the two years prior to June 30, 1994
was as follows:
Number Option Price Total Option
of Shares Per Shares Price
--------- --------------- ------------
Outstanding at
June 30, 1992 65,892 $ 345,933
Relinquished (13,496) $5.25 to $5.625 (71,117)
Granted 12,201 $5.625 68,631
-------- ------------
Outstanding at
June 30, 1993 64,597 343,447
Exercised (600) $5.625 (3,375)
Relinquish (300) $5.625 (1,687)
Granted - -
-------- ------------
Outstanding at
June 30, 1994 63,697 $ 338,385
======== ============
The compensation expense applicable to the stock appreciation
rights plan totalled $135,000 and $66,000 for the years ended June
30, 1994 and 1993, respectively. Incentive compensation expense
applicable to the incentive compensation units totalled $21,000 and
$12,000 for the years ended June 30, 1994 and 1993, respectively.
Also approved at the 1991 Annual Shareholders Meeting was the
1991 Directors Stock Option Plan. Under this plan, options for up
to 40,000 shares may be granted to "non-employee directors". As of
June 30, 1994, 40,000 options have been granted at an option price
ranging from $6.00 per share to $14.00 per share, the market values
at date of grant. The total option price at June 30, 1994 of these
options was $310,000. The 1991 Directors Stock Option Plan does
not carry stock appreciation rights or incentive compensation units
and is exercisable in full on the date of grant. At June 30, 1994,
there were no options available for grant under the 1991 Directors
Stock Option Plan.
NOTE K - Litigation
The Company is not presently engaged in any litigation other
than ordinary routine litigation incidental to its business.
Management believes such litigation will not materially affect the
financial position, operations or liquidity of the Company.
NOTE L - Reverse Repurchase Agreements
The Company does not in the ordinary course of business take
possession of the securities which collateralize its reverse
repurchase agreements. The Company has controls which consist of
the right to demand additional collateral or return of these
invested funds at anytime the collateral value is less than the
invested funds plus any accrued earnings thereon. The Company
conducts these transactions on a short term basis with Trustmark
National Bank and Deposit Guaranty National Bank with which it has
normal business relationships.
At June 30, 1994, there were no reverse repurchase agreements.
At June 30, 1993, the balance of reverse repurchase agreements
consisted of $7,371,000 with Trustmark National Bank and $939,000
with Deposit Guaranty National Bank. The balances matured in July
1993.
NOTE M - Subsequent Events
On July 6, 1994, Parkway and Congress Street jointly announced
that their Boards of Directors have agreed in principle to a merger
of Congress Street and a wholly-owned subsidiary of Parkway. Under
the terms of the proposed merger, Congress Street shareholders will
receive .29 shares of Parkway for each Congress Street share owned.
The exchange ratio was recommended to the Boards by negotiating
committees comprised of independent directors. The merger is
subject to a number of conditions, including negotiation of a
merger agreement and approval of such agreement by the Boards of
each company, receipt of satisfactory fairness opinions,
shareholder approval in the case of Congress Street, and
registration of the Parkway share to be issued in the proposed
merger with the Securities and Exchange Commission.
On July 27, 1994, Parkway and EB, Inc. jointly announced that
their Boards of Directors have agreed in principle to a merger of
EB and a wholly-owned subsidiary of Parkway. EB shareholders would
receive $17.25 for each EB share consisting of cash of $8 per share
and shares of Parkway with a value of $9.25 based on a defined
formula. The merger is subject to several conditions, including
execution and approval of the merger agreement by the Boards of
each company, shareholder approval in the case of EB, receipt of
satisfactory fairness opinions by Parkway and EB, and registration
of the Parkway shares to be issued in the merger with the
Securities and Exchange Commission.
On September 2, 1994, the Company purchased the remaining 50%
interest in the Sugarland Triangle land for a purchase price of
$1,500,000.<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
EB, Inc.
Jackson, Mississippi
We have audited the accompanying balance sheets of EB, Inc. as of
December 31, 1993 and 1992 and the related statements of
operations, changes in stockholders' equity and cash flows for the
years 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
audits.
We conducted our audits 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 audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of EB, Inc. as of
December 31, 1993 and 1992 and the results of its operations and
its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
March 10, 1994<PAGE>
Independent Auditor's Report
----------------------------
The Trustees and Shareholders
EastGroup Properties:
We have audited the consolidated balance sheets of EastGroup
Properties and subsidiaries (the Company), a Maryland real estate
investment trust, as of December 31, 1993 and 1992, and the related
consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the years in the three-year
period ended December 31, 1993. Such consolidated financial
statements are not presented separately herein. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits 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 audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects,the financial
position of EastGroup Properties and subsidiaries at December 31,
1993 and 1992, and the results of their operations and their cash
flows for each of the years in the three-year period ended December
31, 1993 in conformity with generally accepted accounting
principles.
Jackson, Mississippi /s/ KPMG Peat Marwick LLP
-------------------------
March 17, 1994 KPMG PEAT MARWICK LLP
