SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
-----------------------------------
For Quarterly Period Ended March 31, 1996
Commission File Number 0-12505
The Parkway Company
- -----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Texas 74-2123597
- ------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 One Jackson Place
188 East Capitol Street
P. O. Box 22728
Jackson, Mississippi 39225-2728
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (601) 948-4091
----------------
- -------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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
------- -------
3,016,962 shares of common stock, $1.00 par value, were
outstanding at May 9, 1996.
<PAGE>
THE PARKWAY COMPANY
FORM 10-QSB
TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 1996
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Pages
-----
Part I. Financial Information
Item 1. Financial Statements
Consolidated balance sheet, March 31, 1996 and
December 31, 1995 3
Consolidated statements of income for the three months
ended March 31, 1996 and 1995 4
Consolidated statements of cash flows for the three
months ended March 31, 1996 and 1995 5
Consolidated statements of shareholders' equity for the
three months ended March 31, 1996 and 1995 7
Notes to consolidated financial statements
8
Item 2. Management's discussion and analysis of
financial condition and results of operations
10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
16
Signatures
Authorized signatures
16
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31 December 31
1996 1995
---------- -----------
Assets
Real estate related investments
Office buildings....................... $ 66,431 $ 59,406
Accumulated depreciation............... (7,526) (7,122)
-------- --------
58,905 52,284
Real estate held for sale
Land................................. 8,386 8,441
Operating properties................. 4,773 3,990
Mortgage loans......................... 11,511 11,161
Real estate securities................. 1,993 2,866
Real estate partnerships and
corporate joint venture.............. 672 685
-------- --------
86,240 79,427
Interest and rents receivable and other
assets................................. 2,559 2,572
Cash and cash equivalents................ 4,245 6,044
-------- --------
$ 93,044 $ 88,043
======== ========
Liabilities
Mortgage notes payable without recourse.. $ 33,884 $ 29,336
Mortgage notes payable on wrap mortgages. 4,602 5,368
Accounts payable and other liabilities... 4,444 3,834
Deferred gain............................ 292 294
-------- --------
43,222 38,832
-------- --------
Shareholders' Equity
Common stock, $1.00 par value, 10,000,000
shares authorized, 3,016,512 and
3,011,487 shares issued in 1996
and 1995, respectively................. 3,017 2,008
Additional paid-in capital............... 31,920 32,882
Retained earnings........................ 14,175 13,729
-------- --------
49,112 48,619
Unrealized gain on securities............ 710 592
-------- --------
49,822 49,211
-------- --------
$ 93,044 $ 88,043
======== ========
- ------------------------------------------------------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31
--------------------
1996 1995
-------- --------
(In thousands,
except per share data)
Revenues
Income from real estate properties........ $ 3,475 $ 1,783
Management company income................. 279 235
Interest on mortgage loans................ 564 152
Equity in earnings (losses):
Real estate companies................... - 135
Real estate partnerships and
corporate joint venture............... 4 17
Loss on securities........................ (190) (24)
Interest on investments................... 99 2
Deferred gains and other income........... 47 55
Dividend income........................... 66 51
Gain on real estate and mortgage loans.... 193 123
-------- --------
4,537 2,529
-------- --------
Expenses
Real estate owned:
Operating expense....................... 1,677 977
Interest expense........................ 655 544
Depreciation and amortization........... 418 274
Minority interest....................... (28) (37)
Interest expense:
Notes payable to banks.................. - 85
Notes payable on wrap mortgages......... 120 -
Management company expenses............... 239 170
Other expenses............................ 669 443
-------- --------
3,750 2,456
-------- --------
Net income................................ $ 787 $ 73
======== ========
Net income per share...................... $ .26 $ .03
======== ========
Weighted average shares outstanding....... 3,012 2,345
======== ========
- ------------------------------------------------------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
---------------------
1996 1995
-------- --------
(In thousands)
Operating Activities
Net income............................... $ 787 $ 73
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in earnings..................... (4) (152)
Distributions from operations of
real estate partnership and
corporate joint venture.............. 17 13
Depreciation and amortization.......... 418 274
Amortization of discounts, deferred
gains and other...................... (19) (77)
(Gain) loss on real estate and
mortgage loans...................... (193) (123)
Loss on securities..................... 190 24
Minority interest depreciation......... (50) (52)
Changes in operating assets and
liabilities:
Decrease (increase) in
receivables........................ 12 387
Increase in accounts payable and
accrued expenses................... 607 (734)
-------- --------
Cash provided by (used in) operating
activities........................... 1,765 (367)
-------- --------
Investing Activities
Payments received on mortgage loans...... 218 155
Purchases of mortgage loans.............. (600) -
Purchase of real estate properties....... (7,393) -
Proceeds from sale of real estate
owned.................................. 148 161
Proceeds from sale of investments in
real estate companies.................. 799 203
Improvements to real estate owned........ (344) (62)
-------- --------
Cash provided by (used in) investing
activities.............................. (7,172) 457
-------- --------
Financing Activities
Principal payments on long-term debt..... (898) (38)
Proceeds from borrowings on
mortgage notes payable 4,800 -
Proceeds from bank borrowings............ - 1,278
Principal payments on bank borrowings.... - (1,152)
Dividends paid........................... (341) (250)
Stock options exercised.................. 47 -
-------- --------
Cash provided by (used in) financing
activities.............................. 3,608 (162)
-------- --------
Decrease in cash.......................... (1,799) (72)
Cash and cash equivalents at beginning
of period............................... 6,044 320
-------- --------
Cash and cash equivalents at end of
period.................................. $ 4,245 $ 248
======== ========
- -------------------------------------------------------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Three Months Ended
March 31
---------------------
1996 1995
-------- --------
(In thousands)
Common stock, $1.00 par value
Balance at beginning of period...... $ 2,008 $ 1,563
Exercise stock options.............. 3 -
Retire treasury shares.............. - -
Shares issued - stock dividend...... 1,006 -
-------- --------
Balance at end of period............ 3,017 1,563
-------- --------
Additional paid-in capital
Balance at beginning of period...... 32,882 26,847
Exercise stock option............... 44 -
Stock dividend...................... (1,006) -
-------- --------
Balance at end of period............ 31,920 26,847
-------- --------
Retained Earnings
Balance at beginning of period...... 13,729 3,158
Net income.......................... 787 73
Cash dividends declared............. (341) (250)
-------- --------
Balance at end of period............ 14,175 2,981
-------- --------
Unrealized gain on securities
Balance at beginning of period...... 592 670
Unrealized gain on securities....... 118 417
-------- --------
Balance at end of period............ 710 1,087
-------- --------
Total shareholders' equity............ $49,822 $32,478
======== ========
- ------------------------------------------------------------------
See notes to consolidated financial statements
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1996
(1) Basis of Presentation
The accompanying financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. All
such adjustments are of a normal recurring nature. The financial
statements should be read in conjunction with the annual report and
the notes thereto.
(2) Reclassifications
Certain reclassifications have been made in the 1995 financial
statements to conform to the 1996 classifications.
(3) Stock Split
On April 30, 1996, the Company completed a 3 for 2 common stock
split effected as a dividend of one share for every two shares
outstanding. The March 31, 1996 shareholders equity and all per
share information has been restated to reflect the split.
(4) Supplemental Cash Flow Information
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Three Months Ended
March 31
-----------------------
1995 1994
---------- ----------
Cash paid for interest....... $ 501,000 $ 612,000
Cash paid for income taxes... - 2,000
(5) Acquisitions and Dispositions
On March 8, 1996, the Company purchased the One Park 10 Plaza
Office Building in Houston, Texas from a major insurance company.
One Park 10 Plaza is an eight-story office building with
approximately 161,000 square feet of rentable area and 609 parking
spaces located in the Katy Freeway/Energy Corridor office submarket
of Houston. The $6,700,000 purchase price was funded with existing
cash reserves.
(6) Subsequent Events
On April 15, 1996, Parkway Houston, Inc., a wholly-owned
subsidiary of the Company purchased the 400 North Belt Centre'
Office Building and the Woodbranch Office Building in Houston,
Texas from a major insurance company. The 400 North Belt Centre'
Office Building is a 12-story Class A office building with
approximately 223,000 square feet of rentable area and a 723 space
parking garage located in the Greenpoint/North Belt office
submarket of Houston near the Houston Intercontinental Airport.
The Woodbranch Office Building is a 6-story office building with
approximately 110,000 square feet of rentable area and a 352 space
parking garage located in the Katy Freeway/Energy Corridor. The
total purchase price for these two buildings was $13,900,000 and
was funded with existing cash reserves and advances on the
Company's acquisition line of credit and working capital line of
credit.
<PAGE>
THE PARKWAY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
(Comments are for the balance sheet dated March 31, 1996 compared
to the balance sheet dated December 31, 1995. All per share
amounts have been adjusted to reflect the April 30, 1996 stock
split.)
Total assets of the Company were $93,044,000 at March 31,
1996, a increase of $5,001,000 from December 31, 1995. Liabilities
increased $4,390,000 to $43,222,000 during the same period. Book
value per share increased from $16.34 at December 31, 1995 to
$16.52 at March 31, 1996.
Office building investments increased a net $6,621,000 during
the three months ended March 31, 1996. This is primarily due to
the March 7, 1996 purchase of the One Park 10 Plaza Building ("One
Park 10 Plaza") in Houston, Texas from an insurance company for
$6,721,000, including closing costs. One Park 10 Plaza is an
eight-story Class A building with 609 parking spaces. The building
was 92% leased at April 30, 1996.
Other net changes in office building investments include
improvements of $276,000 and depreciation of $404,000.
Real estate held for sale increased a net $728,000 during the
quarter ended March 31, 1996. Land held for sale decreased $55,000
due to the sale of seven residential lots. These sales resulted in
a gain of $93,000 with net cash proceeds of $148,000. Operating
properties held for sale increased $783,000 during the quarter,
primarily due to the purchase of the minority owner's interest in
two properties received in the EB, Inc. merger. The Company
purchased an additional 16% interest in the Club at Winter Park for
$404,000 and an additional 13% interest in the Oak Creek Apartments
for $268,000. Other increases in operating properties held for
sale include improvements of $68,000 and the foreclosure of one
mortgage loan during the quarter with a net basis of $43,000.
Mortgage loans increased a net $350,000 during the quarter.
In March 1996, the Company purchased a portfolio of 10 mortgage
loans with a principal balance of $648,000 for $600,000 and a yield
of 10%. In connection with the purchase, the Company received
repayment of notes receivable from a former affiliate of $177,000.
Mortgage loans decreased $218,000 due to principal payments
received and increased $17,000 due to the amortization of interest
rate valuations on mortgage loans. The Company foreclosed on one
mortgage loan during the quarter with a net balance of $30,000 and
recognized $100,000 in gains on mortgage loans.
The investment in real estate securities decreased a net
$873,000 during the three months ended March 31, 1996, primarily
due to the sale of an investment in a real estate investment trust
that resulted in a loss of $190,000 and cash proceeds of $799,000.
The Company also recorded a net increase in unrealized gains of
$118,000.
The net decrease in real estate partnerships and corporate
joint venture for the quarter was $13,000. The Company recorded
equity in earnings of real estate partnerships and corporate joint
venture of $4,000 and received distributions of $17,000.
Notes payable to banks increased a net $4,548,000 largely due
to the placement of $4,800,000 in long term financing on the IBM
Building on February 15, 1996. This note is a 15-year fully
amortizing loan with a fixed interest rate of 7.70% and maturity
date of March 2011. Decreases of $252,000 in notes payable without
recourse reflect scheduled principal payments.
Mortgage notes payable on wrap mortgages decreased $766,000
due to the payoff of one wrap note totalling $698,000 and scheduled
principal payments of $68,000.
Shareholders' equity increased $611,000 during the comparison
period as a result of the following factors:
Increase (decrease)
-------------------
(In thousands)
Net income $ 787
Dividends declared and paid (341)
Increase in unrealized gains 118
Exercise of stock options 47
------
$ 611
======
On April 30, 1996, the Company completed a 3 for 2 common
stock split, effected in the form of a stock dividend of one share
for every two shares outstanding. Common stock and additional
paid-in capital for March 31, 1996 have been adjusted to reflect
the split.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
(Comments are for the three months ended March 31, 1996 compared to
the three months ended March 31, 1995.)
Operations of real estate properties are summarized below:
Three Months Ended
March 31
--------------------
1996 1995
-------- --------
(In thousands,
Income from real estate properties... $ 3,475 $ 1,783
Real estate operating expense........ (1,677) (977)
-------- --------
1,798 806
Interest expense on real estate
properties......................... (655) (544)
Depreciation and amortization........ (418) (274)
Minority interest.................... 28 37
-------- --------
$ 753 25
======== ========
The operations in 1996 reflect increases as compared to 1995
as a result of the purchase of Mtel Centre' in July 1995, IBM
Building in October 1995, Waterstone in December 1995 and One Park
10 Plaza in March 1996.
The effect on the Company's operations related to One Jackson
Place (which have been included in the operations of real estate
properties above) follows:
Three Months Ended
March 31
---------------------
1996 1995
-------- --------
(In thousands)
Revenues $ 937 $ 898
Operating expenses (368) (328)
Interest expense (394) (518)
Depreciation (213) (226)
Minority interest income 28 37
------ ------
Net loss $ (10) $ (137)
====== ======
The effect on the Company's operations related to Mtel Centre'
(which have been included in the operations of real estate
properties above) follows:
Three Months Ended
March 31
---------------------
1996 1995
-------- --------
(In thousands)
Revenues $ 969 $ 0
Operating expenses (413) 0
Interest expense (215) 0
Depreciation ( 80) 0
------ ------
Net income $ 261 $ 0
====== ======
The increase in interest on mortgage loans of $412,000 is due
primarily to $427,000 of interest income recorded on the mortgage
loans received in the April 27, 1995 merger with EB, Inc. and loans
made to facilitate sales in 1995. This is offset by decreases in
interest income due to payoffs of loans received in 1995.
Equity in earnings of real estate companies for the three
months ended March 31, 1995 reflects $135,000 recognized on the
Company's investment in EB, Inc. prior to the April 27, 1995
merger.
Equity in operations of real estate partnerships and corporate
joint venture consists of the following:
Three Months Ended
March 31
---------------------
1996 1995
-------- --------
(In thousands)
Golf Properties, Inc. $ (6) $ 2
Wink/Parkway Partnership 10 15
---- ----
$ 4 $ 17
==== ====
The loss on sale of securities for the three months ending
March 31, 1996 is due to the sale of shares in a real estate
investment trust for $799,000 net of closing costs with a basis of
$989,000. The loss on sale of securities for the three months
ending March 31, 1995 of $24,000 was due to the sale of an
investment in a real estate investment trust for $202,000 with a
basis of $226,000.
The increase in interest on investments reflects higher cash
balances invested in interest bearing accounts in 1996 as compared
to 1995.
The gain on real estate and mortgage loans of $193,000
consists of $93,000 due to the sale of seven residential lots and
$100,000 gain recognized on the collections of mortgage loans.
The gain on real estate and mortgage loans of $123,000 for the
three months ending March 31, 1995 was due primarily to the sale of
seven residential lots, one industrial lot and one townhome. The
above sales had a combined sales price of $170,000, and carrying
value of $62,000.
Interest expense on notes payable on wrap mortgages for the
three months ending March 31, 1996 of $120,000 is due to notes
received in the April 27, 1995 merger with EB, Inc. Interest
expense on bank debt of $85,000 in the quarter ending March 31,
1995 was due to borrowings under bank lines of credit.
The increase in other expenses is primarily due to an increase
in general and administrative costs associated with recent mergers
and acquisitions.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Funds provided by operations, mortgage loan payments, proceeds
from the sale of investments in real estate securities, sales of
real estate and proceeds from long term financing were the primary
sources of funds for the Company during the three months ended
March 31, 1996. Funds provided by these sources and cash balances
were sufficient to cover repayment of long-term debt, dividends
paid to shareholders, improvements to real estate properties, the
payment of operating expenses and the purchase of real estate
properties and mortgage loans. At March 31, 1996, the Company had
available $4,245,000 in cash and short-term investments.
Management believes that funds generated from operations,
borrowings on lines of credit and cash on hand will be sufficient
to cover long and short-term operating cash requirements.
At March 31, 1996, the Company had available a $20,000,000
acquisition line of credit and a $5,000,000 working capital line of
credit with Deposit Guaranty National Bank. The Company plans to
continue actively pursuing the purchase of office building
investments that meet the Company's investment criteria and intends
to use these lines of credit to fund those acquisitions. Both
lines of credit have an interest rate equal to the 90-day LIBOR
rate plus 2.35% (adjusted quarterly), interest due monthly and
commitment fees of .125% due upon acceptance. In addition, both
lines of credit have fees of .125% on the unused balances due
quarterly. The acquisition line of credit matures June 30, 1998
and the $5,000,000 line of credit matures June 30, 1997.
The Company has requested that the limits on these lines of credit
be increased to $45,000,000 and $10,000,000, respectively. While the Company
anticipates that such an increase will be negotiated, no assurance can be
given that the bank will agree to such an increase.
On April 15, 1996, Parkway Houston, Inc., a wholly-owned
subsidiary of the Company purchased the 400 North Belt Centre'
Office Building and the Woodbranch Office Building in Houston,
Texas from a major insurance company. The 400 North Belt Centre'
Office Building is a 12-story Class A office building with
approximately 223,000 square feet of rentable area and a 723 space
parking garage located in the Greenpoint/North Belt office
submarket of Houston near the Houston Intercontinental Airport.
The Woodbranch Office Building is a 6-story office building with
approximately 110,000 square feet of rentable area and a 352 space
parking garage located in the Katy Freeway/Energy Corridor. The
total purchase price for these two buildings was $13,900,000 and
was funded with existing cash reserves and advances on the
Company's acquisition line of credit and working capital line of
credit.
<PAGE>
THE PARKWAY COMPANY
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
--------------------------------
(a) Reports on Form 8-K
(1) Filed January 2, 1996
Reporting the December 19, 1995 acquisition of
the Waterstone Office Building from the
Massachusetts Mutual Life Insurance Company
for $8,031,000.
(2) Filed March 1, 1996
Amendment to Form 8-K filed January 2, 1996
reporting "Item 7. Financial Statements and
Exhibits".
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
DATED: May 14, 1996 THE PARKWAY COMPANY
/s/ Regina P. Shows
Regina P. Shows, CPA
Controller
/s/ Sarah P. Clark
Sarah P. Clark, CPA
Vice-President,
Chief Financial Officer
and Secretary
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