SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 1-9997
KOGER EQUITY, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2898045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3986 BOULEVARD CENTER DRIVE, SUITE 101
JACKSONVILLE, FLORIDA 32207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 398-3403
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the latest practicable date.
Class Outstanding at May 5, 1995
Common Stock, $.01 par value 17,739,057 shares
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KOGER EQUITY, INC. AND SUBSIDIARIES
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Independent Accountants' Report...........................................2
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1995 and December 31, 1994.....................................3
Condensed Consolidated Statements Of Operations
for the Three Month Periods Ended
March 31, 1995 and 1994..................................................4
Condensed Consolidated Statement Of Changes in
Shareholders' Equity for the Three Month Period
Ended March 31,1995......................................................5
Condensed Consolidated Statements Of Cash Flows
for the Three Month Periods Ended March 31, 1995
and 1994.................................................................6
Notes to Condensed Consolidated Financial
Statements for the Three Month Periods
Ended March 31, 1995 and 1994............................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results Of Operations..................................10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................14
Item 5. Other Information....................................................17
Item 6. Exhibits And Reports On Form 8-K.....................................19
Signatures...................................................................20
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INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Koger Equity, Inc.
Jacksonville, Florida
We have reviewed the accompanying condensed consolidated balance sheet of
Koger Equity, Inc. and subsidiaries (the "Company") as of March 31, 1995, and
the related condensed consolidated statements of operations and cash flows for
the three month periods ended March 31, 1995 and 1994, and the condensed
consolidated statement of changes in shareholders' equity for the three month
period ended March 31, 1995. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1994, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated March 10, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1994 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE, LLP
Jacksonville, Florida
May 8, 1995
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - See Independent Accountants' Report)
(In thousands)
MARCH 31, DECEMBER 31,
1995 1994
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ASSETS
Real Estate Investments:
Operating properties:
Land $102,161 $102,161
Buildings 477,528 474,879
Furniture and equipment 1,306 1,197
Accumulated depreciation (50,197) (46,106)
Operating properties - net 530,798 532,131
Undeveloped land held for investment 33,054 33,054
Undeveloped land held for sale, at lower
of cost or market value 2,958 2,958
Cash and temporary investments 25,543 23,315
Accounts receivable, net of allowance for
uncollectible rents of $334 and $362 3,527 4,276
Management fees and other receivables
from TKPL 1,959 1,851
Cost in excess of fair value of net assets
acquired from KPI, net of accumulated
amortization of $855 and $688 9,138 9,295
Other assets 6,788 6,926
TOTAL ASSETS $613,765 $613,806
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages and loans payable $320,692 $323,765
Accounts payable 1,638 2,823
Accrued interest 1,341 1,047
Accrued real estate taxes payable 2,260 970
Accrued liabilities - other 249 1,268
Advance rents and security deposits 3,838 3,332
Total Liabilities 330,018 333,205
Contingencies (Note 7) - -
Shareholders' Equity
Common stock 205 205
Capital in excess of par value 318,590 318,589
Warrants 2,251 2,251
Accumulated dividends in excess of net income (13,582) (15,657)
Treasury stock, at cost (23,717) (24,787)
Total Shareholders' Equity 283,747 280,601
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $613,765 $613,806
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Independent Accountants' Report)
(In thousands, except per share data)
Three Month Period
Ended March 31,
1995 1994
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REVENUES
Rental $ 23,482 $ 23,073
Other rental services 123 481
Management fees ($1,006 and $785 from TKPL) 1,348 1,206
Interest 365 148
Gain on early retirement of debt 128
Total revenues 25,446 24,908
EXPENSES
Property operations 9,709 9,378
Mortgage and loan interest 6,516 6,298
Depreciation and amortization 4,476 3,881
General and administrative 1,445 1,716
Direct cost of management fees 913 734
Undeveloped land costs 162 201
Loss on sale of assets 2 8
Total expenses 23,223 22,216
INCOME BEFORE INCOME TAXES 2,223 2,692
Income taxes 19
NET INCOME $ 2,204 $ 2,692
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE $ 0.12 $ 0.15
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES OUTSTANDING 17,747 17,597
See Notes to Condensed Consolidated Financial Statements.
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KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited - See Independent Accountants' Report)
(In thousands)
Accumulated Total
Capital in Dividends in Share-
Common Stock Excess of Excess of Net Treasury Stock holders'
Shares Par Value Par Value Warrants Income Shares Costs Equity
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Balance, January 1, 1995 20,474 $205 $318,589 $2,251 $(15,657) 2,870 $(24,787) $280,601
Warrants Exercised 1 1
401(K) Plan Contribution (122) (122) 1,010 888
Treasury Stock Reissued (7) (8) 60 53
Net Income 2,204 2,204
Balance, March 31, 1995 20,474 $205 $318,590 $2,251 $(13,582) 2,740 $(23,717) $283,747
See Notes to Condensed Consolidated Financial Statements.
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KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Independent Accountants' Report)
(In thousands)
Three Month Period
Ended March 31,
1995 1994
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OPERATING ACTIVITIES
Net income $ 2,204 $ 2,692
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,476 3,881
Accrued interest added to principal 295 342
Amortization of mortgage discounts 44 52
Gain on early debt repayment (128)
Loss on sale of assets 2 8
Increase (decrease) in accounts payable, accrued
liabilities and other liabilities 773 (732)
Decrease in receivables and other assets 622 73
Increase in receivable from TKPL (108) (140)
Net cash provided by operating activities 8,180 6,176
INVESTING ACTIVITIES
Tenant improvements to existing properties (2,195) (1,161)
Building improvements to existing properties (454) (670)
Deferred tenant costs (139) (51)
Additions to furniture and equipment (109) (30)
Merger costs (109)
Proceeds from sale of assets 62 403
Cash acquired in purchase of assets from KPI 129 9
Net cash used in investing activities (2,706) (1,609)
FINANCING ACTIVITIES
Proceeds from sale of stock under Stock Investment Plan 53
Proceeds from exercise of warrants and stock options 1
Principal payments on mortgages and loans (3,284) (981)
Financing costs (16) (6)
Net cash used in financing activities (3,246) (987)
Net increase in cash and cash equivalents 2,228 3,580
Cash and cash equivalents - beginning of period 23,315 18,566
Cash and cash equivalents - end of period $ 25,543 $ 22,146
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 5,884 $ 5,692
Cash paid during the period for income taxes $ 4 $ 0
See Notes to Condensed Consolidated Financial Statements.
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KOGER EQUITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1994
(Unaudited - See Independent Accountants' Report)
1. BASIS OF PRESENTATION. The condensed consolidated financial statements
include the accounts of Koger Equity, Inc. and its wholly-owned subsidiaries
(the "Company"). All significant intercompany transactions have been eliminated.
The financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission related to interim
financial statements.
The financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1994, included in the Company's Form 10-K Annual Report for the year ended
December 31, 1994. The balance sheet at December 31, 1994, has been derived from
the audited financial statements at that date and is condensed.
All adjustments of a normal recurring nature which, in the opinion of
management, are necessary to present a fair statement of the results for the
interim periods have been made. Results of operations for the three month period
ended March 31, 1995, are not necessarily indicative of the results to be
expected for the full year.
2. ORGANIZATION. The Company, a Florida corporation, was incorporated in
1988, for the purpose of investing in the ownership of income producing
properties, primarily commercial office buildings developed by Koger Properties,
Inc. ("KPI"). On December 21, 1993, KPI was merged with and into the Company
(the "Merger"). Pursuant to the Merger, Southeast Properties Holding
Corporation, Inc. ("Southeast"), a wholly owned subsidiary of the Company,
became the managing general partner of The Koger Partnership, Ltd. ("TKPL").
3. FEDERAL INCOME TAXES. The Company is operated in a manner so as to
qualify and has elected tax treatment as a real estate investment trust under
the Internal Revenue Code (a "REIT"). As a REIT, the Company is required to
distribute annually at least 95 percent of its REIT taxable income to its
shareholders. Since the Company had no REIT taxable income during 1994 and does
not expect to have REIT taxable income during 1995, no provision has been made
for Federal income taxes. However, the Company has recorded a provision of
$15,000 for alternative minimum tax during the quarter ended March 31, 1995. To
the extent that the Company pays dividends equal to 100 percent of REIT taxable
income, the
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earnings of the Company are taxed at the shareholder level; however,
under existing loan covenants the Company may be prohibited from paying
dividends in excess of amounts required to maintain its status as a REIT, i.e.
95 percent of REIT taxable income. See Note 8, Dividends.
4. STATEMENTS OF CASH FLOWS. Cash in excess of daily requirements is
invested in short-term monetary securities. Such temporary cash investments have
an original maturity date of less than three months and are deemed to be cash
equivalents for purposes of the statements of cash flows. During the quarter
ended March 31, 1995, the Company contributed 122,441 shares of common stock to
the Company's 401(K) Plan. These shares had a value of approximately $888,000
based on the closing price of the Company's common stock on the American Stock
Exchange on December 30, 1994. There were no material non-cash investing or
financing transactions for the three month period ended March 31, 1994.
5. EARNINGS PER COMMON SHARE. Earnings per common share have been computed
based on the weighted average number of shares of common stock and common stock
equivalents outstanding during the applicable periods.
6. MORTGAGES AND LOANS PAYABLE. At March 31, 1995, the Company had
$320,692,000 of loans outstanding, which are collateralized by mortgages on
certain operating properties. During the quarter ended March 31, 1995, the
Company fully repaid $2,167,000 of the outstanding balances of 12 tax notes
assumed from KPI pursuant to the Merger.
Annual maturities for mortgages and loans payable, which are gross of
$1,029,000 of discounts, are as follows (in thousands):
Year Ending December 31,
1995 $ 3,708
1996 7,980
1997 14,374
1998 20,220
1999 7,483
Subsequent Years 267,956
Total $321,721
In addition to reporting and other requirements, the Company's debt
agreements contain provisions limiting the amount of annual dividends, limiting
additional borrowings, and limiting general and administrative expenses. The
Company is also required to maintain certain financial ratios.
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7. LEGAL PROCEEDINGS. A derivative action against the Company in the U.S.
District Court, Middle District of Florida, which commenced on October 29, 1990,
has been resolved in favor of the Company. Various amended filings and
counter-claims have been filed against the Company of which the Company does not
believe that the outcome will materially affect its operations or financial
position. Accordingly, no provision has been made in the consolidated financial
statements for any liability that may result from this litigation.
8. DIVIDENDS. The Company intends that the quarterly dividend payout in the
last quarter of each year will be adjusted if necessary to reflect the
distribution of at least 95 percent of the Company's REIT taxable income as
required by the Federal income tax laws. The terms of the secured debt of the
Company provide that the Company will be subject to certain dividend limitations
which, however, will not restrict the Company from paying the dividends required
to maintain its qualification as a REIT. In the event that the Company no longer
qualifies as a REIT, additional dividend limitations would be imposed by the
terms of such debt. In addition, two of the Company's bank lenders have required
that until the Company has raised an aggregate of $50 million of equity the
following limitations on dividends will be applied: (a) in 1995, 1996 and 1997,
$11 million unless imposition of the limit would cause loss of REIT status and
(b) in 1998 and 1999, $11 million regardless of impact on REIT status.
9. STOCK OPTIONS. Pursuant to the Company's Amended and Restated 1988 Stock
Option Plan (the "1988 Plan"), the Compensation Committee of the Company's Board
of Directors (the "Compensation Committee") granted options to purchase 18,000
shares on February 21, 1995 to certain key employees at an exercise price of
$7.50 per share, which was the closing market price on the American Stock
Exchange on the date of the grant. These options expire seven years from the
date of grant and are exercisable beginning one year from the date of grant at a
cumulative annual rate of 20 percent of the shares covered by each option being
fully exercisable five years after the date of grant. At March 31, 1995, options
to purchase 493,725 shares pursuant to the 1988 Plan were outstanding, 284,950
shares of which were at an exercise price of $5.125 per share, 190,775 shares of
which were at an exercise price of $7.625 per share and 18,000 shares of which
were at an exercise price of $7.50 per share.
Pursuant to the Company's 1993 Stock Option Plan (the "1993 Plan"), the
Compensation Committee granted options to purchase 279,800 shares on February
21, 1995 to certain key employees at an exercise price of $7.50 per share, which
was the closing market price on the American Stock Exchange on the date of
grant. These options expire ten years from the date of grant and are exercisable
beginning one year from the date of the grant at the rate of 20 percent per
annum of the shares covered by each option on a cumulative basis being fully
exercisable five years after
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the date of grant. At March 31, 1995, options to
purchase 943,389 shares pursuant to the 1993 Plan were outstanding, 663,589
shares of which were at an exercise price of $7.625 per share and 279,800 shares
of which were at an exercise price of $7.50 per share.
10. SUBSEQUENT EVENT. During April, 1995, the Company acquired $21.5
million principal amount of TKPL New Secured Notes and $4.5 million principal
amount of TKPL Converted Loan Notes for approximately $10.4 million in the
aggregate. The Company obtained necessary modifications to its debt agreements
which permitted the purchase of these debt instruments. The TKPL New Secured
Notes and the TKPL Converted Loan Notes are collateralized by a pool of
buildings owned by TKPL, mature during August, 2000 and accrue interest at 9
percent per annum. Following the full repayment of TKPL's reorganization
financing, these notes will be repaid from the proceeds of an annual cash sweep
mechanism and sales or refinancings of TKPL's office properties. Certain
discounts will apply to early payments of principal in respect of these notes.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the condensed
consolidated financial statements and related notes appearing elsewhere in this
Form 10-Q, and the Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the Company's December 31, 1994, Annual
Report on Form 10-K.
RESULTS OF OPERATIONS. Rental revenues totalled $23,482,000 for the quarter
ended March 31, 1995, compared to $23,073,000 for the quarter ended March 31,
1994. The increase in rental revenues resulted primarily from the increase in
the percentage leased rate in the Company's buildings. At March 31, 1995, the
Company's buildings were on average 90 percent leased. At March 31, 1994, the
Company's buildings were on average 89 percent leased. Other rental revenues
declined $358,000 for the quarter ended March 31, 1995, compared to the same
period last year, due to a reduction in these type of services requested by
tenants in the Company's building.
Management fee revenue totalled $1,348,000 for the quarter ended March 31,
1995, compared to $1,206,000 for the quarter ended March 31, 1994. This increase
was due primarily to an increase in management fees earned from TKPL. On May 5,
1994, third party management contracts on two buildings terminated. Management
fee revenue related to the management of these two buildings was approximately
$61,000 for the quarter ended March 31, 1994.
<PAGE>
Interest revenues increased $217,000 for the quarter ended March 31, 1995,
compared to the same period last year, due to (i) higher interest rates earned
on the Company's temporary cash investments and (ii) the higher average balance
of cash to invest.
Property operating expenses include such charges as utilities, taxes,
janitorial, maintenance and management costs. The amounts of property operating
expenses and their percentages of rental revenues for the applicable periods are
as follows:
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Percent of
Total Rental
Period Amount Revenues
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March 31, 1995 - Quarter $9,709,000 41.1%
March 31, 1994 - Quarter $9,378,000 39.8%
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Property operating expenses in 1995 were larger than 1994 primarily due to
the increase in management cost for the Company's buildings. This increase
resulted primarily from the payment of an incentive bonus during the quarter
ended March 31, 1995. During 1994, this incentive bonus was paid during the
quarter ended June 30, 1994.
Interest expense increased by $218,000 during the quarter ended March 31,
1995, compared to the same period last year, primarily due to the increase in
the interest rates on the Company's outstanding loans with variable interest
rates. These loans bear interest at rates based upon such institutions' prime
rates. The effect of increases in interest rates, on certain of the Company's
debt, was partially offset by a reduction in the average balance of mortgages
and loans payable for the quarter ended March 31, 1995, compared to the same
period last year.
Depreciation expense has been calculated on the straight line method based
upon the useful lives of the Company's depreciable assets, generally 4 to 40
years. Depreciation expense increased $508,000 for the quarter ended March 31,
1995, compared to the same period last year, due to improvements made to the
Company's existing properties during 1994. Amortization expense increased
$87,000 for the quarter ended March 31, 1995, compared to the same period last
year, due to amounts incurred for deferred tenant costs after March 31, 1994.
General and administrative expenses for the quarters ended March 31, 1995
and 1994, totalled $1,445,000 and $1,716,000, respectively, which is 0.9 percent
and 1.1 percent (annualized) of average invested assets. General and
administrative expenses decreased primarily due to decreases in legal expenses
and disbursement agent fees and expenses.
<PAGE>
Direct costs to generate management fees from TKPL and third party
management contracts increased by $179,000 during the quarter ended March 31,
1995, compared to the same period last year. This increase resulted primarily
from the payment of an incentive bonus during the quarter ended March 31, 1995.
During 1994, this incentive bonus was paid during the quarter ended June 30,
1994.
Net income decreased $488,000 during the three month period ended March 31,
1995 compared to the same period last year primarily due to the items detailed
above.
LIQUIDITY AND CAPITAL RESOURCES.
Operating Activities - The Company's primary internal sources of cash are
the collection of rents and income from management fees with respect to
properties managed for TKPL, Centoff Realty Company, Inc., and others. As a real
estate investment trust (a "REIT") for Federal income tax purposes, the Company
is required to pay out annually, as dividends, 95 percent of its REIT taxable
income (which, due to non-cash charges, including provision for losses and
depreciation, may be substantially less than cash flow). In the past, the
Company has paid out dividends in amounts at least equal to its taxable income.
However, the Company currently expects that it will not be required to pay any
dividends during 1995 to maintain its REIT status. The Company believes that its
cash provided by operating activities will be sufficient to cover debt service
payments through 1995.
The level of cash flow generated by rents depends primarily on the
occupancy rates of the Company's buildings and increases in rental rates on new
and renewed leases and under escalation provisions in existing leases. During
the three months ended March 31, 1995, the Company generated approximately $8.2
million in net cash from operating activities.
At March 31, 1995, leases representing approximately 24.5 percent of the
gross annual rent from the Company's properties, without regard to the exercise
of options to renew, were due to expire during the remainder of 1995. This
represents 889 leases for space in buildings located in 20 of the 21 centers in
which the Company owns buildings. Certain of these tenants may not renew their
leases or may reduce their demand for space. During the three months ended March
31, 1995, leases were renewed on approximately 70 percent of the Company's net
rentable square feet which were scheduled to expire during the three month
period. For those leases which renewed during the three months ended March 31,
1995, the average rental rate increased from $12.61 to $13.15. However, current
market conditions in certain markets may require that rental rates at which
leases are renewed or at which vacated space is leased be lower than rental
rates under existing leases. Based upon the significant number of leases which
will expire during 1995 and the competition for tenants in the markets in which
the Company operates, the Company
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has and expects to continue to offer incentives to certain new and renewal
tenants. These incentives may include the payment of tenant improvement costs
and in certain markets reduced rents during initial lease periods. During 1994
and 1995, the Company has benefitted from improving economic conditions and
reduced vacancy levels for office buildings in many of the metropolitan areas in
which the Company owns buildings. The Company believes that the southeastern and
southwestern regions of the United States provide significant economic growth
potential due to their diverse regional economies, expanding metropolitan areas,
skilled work force and moderate labor costs. However, the Company cannot predict
whether such economic growth will continue. Cash flow from operations could be
reduced if economic growth were not to continue in the Company's markets and if
this resulted in lower occupancy rates for the Company's buildings.
Governmental tenants (including the State of Florida and the United States
Government) which account for approximately 22 percent of the Company's leased
space at March 31, 1995, may be subject to budget reductions in times of
recession and governmental austerity; therefore, there can be no assurance that
governmental appropriations for rents may not be reduced. Additionally, certain
of the private sector tenants which have contributed to the Company's rent
stream may reduce their current demands or curtail their need for additional
office space.
Investing Activities - At March 31, 1995, all of the Company's invested
assets were in properties. Improvements to the Company's existing properties
have been financed through internal operations. During the quarter ended March
31, 1995, the Company's expenditures for improvements to existing properties
increased by $818,000 over the corresponding period of the prior year primarily
due to increased leasing and renewal activity.
During the quarter ended March 31, 1995, the Company sold various items of
furnishings and equipment which it had acquired pursuant to the Merger for
approximately $62,000, net of selling costs.
The terms of the Company's existing indebtedness require that a substantial
portion of any debt or equity financing achieved by the Company during the
foreseeable future be applied to the reduction of the current secured
indebtedness of the Company and contain limitations on incurrence of additional
debt and other restrictions.
Financing Activities - The Company has no open lines of credit, but has a
cash balance at March 31, 1995 of $25,543,000. At March 31, 1995, the Company
had 51 buildings which contain 1,387,130 net rentable square feet which are
unencumbered. During the quarter ended March 31, 1995, the Company fully repaid
$2,167,000 of the outstanding balances of 12 tax notes assumed from KPI pursuant
to the Merger.
<PAGE>
Loan maturities and normal amortization of mortgages and loans payable are
expected to total approximately $5.7 million over the next twelve months. The
Company believes that these obligations will be paid from cash provided by
operations or from current cash balances. Significant maturities of the
Company's mortgages and loans payable do not begin to occur until 1998.
Depending on market conditions, the Company may seek to raise additional equity
capital, the proceeds of which would be used to reduce existing indebtedness. On
August 22, 1994, the Company filed a shelf registration statement with respect
to the possible issuance of up to $100,000,000 of its common and or preferred
stock. However, due to existing market conditions, the Company has not been able
to go forward with an equity offering on terms which it would consider
satisfactory.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A derivative action in the U.S. District Court, Middle District of Florida
(the "District Court") was commenced on October 29, 1990, by Howard Greenwald
and Albert and Phyllis Schlesinger, shareholders of the Company, against the
Company, all of the then current directors of the Company, including: Ira M.
Koger, James B. Holderman, Allen R. Ransom, Wallace F. E. Kienast, S. D.
Stoneburner, Yank D. Coble, Jr., G. Christian Lantzsch, A. Paul Funkhouser and
Stephen D. Lobrano, alleging breach of fiduciary duty by favoring KPI over the
interest of the Company and failing to disclose or intentionally misleading the
public as to the Company's cash flow, dividend and financing policies and
status, and seeking damages therefor (the "Derivative Action"). During the
course of the Derivative Action, the plaintiffs therein further alleged Mr.
Lobrano was liable to the Company for certain alleged acts of legal malpractice.
During the pendency of the litigation a Special Litigation Committee, which was
composed of outside independent members of the Company's Board of Directors, was
appointed to conduct an extensive investigation of the facts and circumstances
surrounding the Derivative Action. Upon completion of its investigation, it was
the conclusion of this committee that the ultimate best interest of the Company
and its shareholders would not be served in prosecuting this litigation.
Subsequently, the Company moved that the Derivative Action be dismissed under
the provisions of Florida law. Thereafter, the plaintiffs filed a Second Amended
and Supplemental Complaint which realleged the original cause of action ("Count
I"); and realleged the cause of action against Stephen D. Lobrano ("Count II");
and a new cause of action against the members of the Special Litigation
Committee for alleged violation of fiduciary duties in conducting its
investigation ("Count III"). During 1993, the Company filed further motions
seeking dismissal of the Second Amended and Supplemental Complaint. On January
27, 1994, the United States Magistrate issued his Report and Recommendation
concerning the Derivative Action, which recommended that (1) Count I should be
dismissed pursuant to the Special Litigation Committee Report, (2) Count III
against the Special
<PAGE>
Litigation Committee members should be dismissed, and (3) Count II should
not be dismissed. The District Court adopted the Report and Recommendations of
the United States Magistrate by order entered March 8, 1994. Subsequently, Mr.
Lobrano filed his answer denying all of the material allegations of the Second
Complaint, and raised affirmative defenses, including, without limitation, the
defense that Mr. Lobrano was at all times acting under the direction of the
officers and directors of KPI. Mr. Lobrano and his law firm (the "Lobrano
Defendants") also filed a counter claim against the Company (the "Counter
Claim"), asserting that, in connection with the matters complained of in the
Second Amended and Supplemental Complaint, Mr. Lobrano and his law firm acted
under the direction and control of the officers and directors of KPI, that they
had suffered out-of-pocket expenses and reputation damage to their business due
to the directions of the officers and directors of KPI, and that they are
entitled to contribution or indemnity from the Company, as the successor of KPI
under the Merger consummated pursuant to the KPI Plan of Reorganization in its
Chapter 11 Bankruptcy Case, in respect of such damages. They have brought
similar cross claims against Ira M. Koger, Allen R. Ransom and Wallace F. E.
Kienast, former officers and directors of KPI. The Company moved to dismiss
these claims, and moved in the United States Bankruptcy Court for the Middle
District of Florida (the "Bankruptcy Court") for an order holding Mr. Lobrano,
the other members of his firm and his lawyers in contempt on the grounds that
any such claims against KPI were discharged in its Chapter 11 Case and that the
filing of the Counter-Claim against the Company was a violation of the
confirmation order in the Chapter 11 Case (the "Confirmation Order"). On July
22, 1994, the Bankruptcy Court entered its order finding that the filing of the
Counter-Claim was a violation of the Confirmation Order and in contempt of the
Bankruptcy Court. The Counter-Claim was then subsequently dismissed. The Lobrano
Defendants then filed an amended counter-claim (the "Amended Counter- Claim")
against the Company asserting, among other things, that the Company, through its
officers and directors, improperly shaped and influenced the Special Litigation
Committee Report so that it contains inaccurate and false statements about the
Lobrano Defendants which have, in turn, caused damage to the Lobrano Defendants.
The Company moved to dismiss the Amended Counter-Claim on various grounds and
renewed its motion that Mr. Lobrano, certain other members of his firm and their
lawyers be held in contempt of the Confirmation Order by reason of the filing of
the Amended Counter-Claim. On January 26, 1995, the Bankruptcy Court held that
the filing of the Amended Counter-Claim violated the Confirmation Order, ordered
that the Amended Counter-Claim be dismissed with prejudice on or before February
10, 1995, and imposed a fine of $500 per day on the Lobrano Defendants and their
attorneys for each day thereafter that the Amended Counter-Claim remained
pending. On February 2, 1995, the Amended Counter-Claim was dismissed with
prejudice. The Company and the other parties to the Derivative
<PAGE>
Action and related cross-claims and counterclaims have agreed on a
settlement of all claims, subject to the preparation of mutually satisfactory
documentation and the approval of the District Court. The Company does not
believe that the outcome of this litigation will materially affect its
operations or financial position.
On March 23, 1993, the Securities and Exchange Commission ("the
Commission") entered an Order directing a private investigation with respect to
KPI's accounting practices, including the accuracy of financial information
included in certain reports filed with the Commission, possible insider trading
in KPI's stock, and possible misleading statements concerning the financial
condition of KPI and its ability to pay dividends to its shareholders. Prior to
March 23, 1993, the Commission had been engaged in a confidential investigation
without a formal order. As a result of the Merger of KPI with and into the
Company, the Company has assumed responsibility for responding to the requests
and subpoenas of the Commission staff in connection with this private
investigation. Although the staff of the Commission had subpoenaed KPI documents
and former employees of KPI, who are presently employees of the Company, for
testimony, on February 8, 1994, the Commission staff advised the Company,
through its counsel, that the scheduled depositions of former KPI employees and
the review of documents of KPI had been suspended. The Company has received no
communication from the Commission staff since the above notice of suspension.
Based on the information currently available to the Company, it is unable to
determine whether or not the private investigation will lead to formal legal
proceedings or administrative actions or whether or not such legal proceedings
or administrative actions will involve the Company.
<PAGE>
Item 5. Other Information
(a) The following table sets forth, with respect to the Company's centers
at March 31, 1995, number of buildings, net rentable square feet, percentage
leased, and the average annual rent per net rentable square foot leased.
<TABLE>
<CAPTION>
Average
Net Annual
Number Rentable Percentage Rent Per
of Square Leased Square
Center Buildings Feet (1) Foot (2)
<S> <C> <C> <C> <C>
Atlanta Chamblee 22 947,920 93% $13.86
Austin 12 370,860 93% 13.93
Charlotte Carmel 1 109,600 91% 15.68
Charlotte East 11 468,820 86% 12.85
El Paso 14 251,930 96% 12.63
Greensboro South 13 610,470 93% 13.23
Greenville 8 290,560 88% 13.36
Jacksonville Baymeadows 4 468,000 100% 14.78
Jacksonville Central 32 677,540 88% 11.16
Memphis Germantown 3 258,400 92% 15.56
Miami 1 96,800 98% 19.00
Norfolk West 1 59,680 100% 16.15
Orlando Central 22 565,220 90% 13.47
Orlando University 2 159,600 88% 15.03
Raleigh Crossroads 1 77,500 99% 15.93
San Antonio 26 788,670 79% 11.01
St. Petersburg 15 519,320 94% 12.55
Tallahassee Apal. Pkwy 14 408,500 91% 15.56
Tallahassee Cap. Circle 4 300,700 100% 17.41
Tulsa North 2 103,520 88% 10.27
Tulsa South 11 372,760 79% 9.24
TOTAL 219 7,906,370 90% $13.38
</TABLE>
(1) The percent leased rates have been calculated by dividing total net
rentable square feet leased in an office building by net rentable square feet in
such building, which excludes public or common areas.
(2) Rental rates are computed by dividing annual gross rental revenues for
a center by the net rentable square feet applicable to such gross rental
revenues.
<PAGE>
(b) The following schedule sets forth for all of the Company's office
buildings (i) the number of leases which will expire during the remainder of
calender year 1995 and calendar years 1996 through 2003, (ii) the total net
rentable area in square feet covered by such leases, (iii) the percentage of
total net rentable square feet represented by such leases, (iv) the average
annual rent per square foot for such leases, (v) the current annual rental
represented by such leases, and (vi) the percentage of gross annual rental
contributed by such leases. This information is based on the buildings owned by
the Company on March 31, 1995 and on the terms of leases in effect as of March
31, 1995, on the basis of then existing base rentals, and without regard to the
exercise of options to renew. Furthermore, the information below does not
reflect that some leases have provisions for early termination for various
reasons, including, in the case of government entities, lack of budget
appropriations. Leases were renewed on approximately 70 percent of the Company's
net rentable square feet which were scheduled to expire during the quarter ended
March 31, 1995.
<TABLE>
<CAPTION>
Percentage of Average Percentage
Total Square Annual Rent of Total
Number of Number of Feet Leased per Square Total Annual Annual Rents
Leases Square Feet Represented by Foot Under Rents Under Represented by
Period Expiring Expiring Expiring Leases Expiring Leases Expiring Leases Expiring Leases
<S> <C> <C> <C> <C> <C> <C>
1995 889 1,671,704 23.4% $14.05 $23,481,469 24.5%
1996 679 1,343,905 18.8% 12.83 17,243,442 18.0%
1997 495 1,356,958 18.9% 13.53 18,360,719 19.2%
1998 270 1,395,612 19.5% 13.26 18,508,611 19.3%
1999 124 629,666 8.8% 12.46 7,848,283 8.2%
2000 45 310,288 4.3% 14.50 4,500,319 4.7%
2001 6 74,711 1.0% 12.86 960,664 1.0%
2002 5 106,255 1.5% 12.72 1,351,689 1.4%
2003 11 76,301 1.1% 13.78 1,051,669 1.1%
OTHER 7 195,877 2.7% 12.95 2,536,244 2.6%
TOTAL 2,531 7,161,277 100.0% $13.38 $95,843,109 100.0%
</TABLE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
15 Letter re: Unaudited interim financial information.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
March 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KOGER EQUITY, INC.
Registrant
[VICTOR A. HUGHES]
VICTOR A. HUGHES
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Dated: May 10, 1995
[JAMES L. STEPHENS]
JAMES L. STEPHENS
TREASURER AND
CHIEF ACCOUNTING OFFICER
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<CAPTION>
EXHIBIT 27
Item
Reference
Description Number Value
<S> <C> <C>
Cash and cash items 5-02(1) $25,543
Marketable securities 5-02(2) 0
Notes and accoutns receivable-trade 5-02(3)(a)(1) 5,820
Allowances for doubtful accoutns 5-02(4) 334
Inventory 5-02(6) 0
Total current assets* 5-02(9) 0
Property, plant and equipment 5-02(13) 617,007
Accumulated depreciation 5-02(14) 50,197
Total assets 5-02(18) 613,765
Total current liabilities* 5-02(21) 0
Bonds, mortgages and similar debt 5-02(22) 320,692
Preferred stock-mandatory redemption 5-02(28) 0
Preferred stock-no mandatory redemption 5-02(29) 0
Common stock 5-02(30) 205
Other stockholders' equity 5-02(31) 283,747
Total liabilities and stockholders' equity 5-02(32) 613,765
Net sales of tangible products 5-03(b)1(a) 0
Total revenues 5-03(b)1 25,446
Cost of tangible goods sold 5-03(b)2(a) 0
Total costs and expenses applicable to sales
and revenues 5-03(b)2 10,622
Other costs and expenses 5-03(b)3 6,085
Provision for doubtful accounts and notes 5-03(b)5 0
Interest and amortization of debt discount 5-03(b)(8) 6,516
Income before taxes and other items 5-03(b)(10) 2,223
Income tax expense 5-03(b)(11) 19
Income/loss continuing operations 5-03(b)(14) 2,204
Discontinued operations 5-03(b)(15) 0
Extraordinary items 5-03(b)(17) 0
Cumulative effect-changes in accounting
principles 5-03(b)(18) 0
Net income or loss 5-03(b)(19) 2,204
Earnings per share-primary 5-03(b)(20) $0.12
Earnings per share-fully diluted 5-03(b)(20) $0.12
* The Company does not file a classified balance sheet, therefore these items
are not provided.
</TABLE>
<PAGE>
Exhibit 15
May 8, 1995
Koger Equity, Inc.
3986 Boulevard Center Drive
Jacksonville, Florida 32207
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of Koger Equity, Inc. and subsidiaries for the periods
ended March 31, 1995 and 1994, as indicated in our report dated May 8, 1995;
because we did not perform an audit, we expressed no opinion on such financial
information.
We are aware that our report referred to above, which is included in your
Quarterly Reports on Form 10-Q for the quarter ended March 31, 1995, is
incorporated by reference in Registration Statement No. 33-55179 on Form S-3 and
Registration Statement No. 33-54617 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436 (c)
under the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE, LLP
Jacksonville, Florida
