0000919607-95-000021.txt : 19950815
0000919607-95-000021.hdr.sgml : 19950815
ACCESSION NUMBER: 0000919607-95-000021
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950814
SROS: AMEX
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: KOGER EQUITY INC
CENTRAL INDEX KEY: 0000835664
STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798]
IRS NUMBER: 592898045
STATE OF INCORPORATION: FL
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-09997
FILM NUMBER: 95562516
BUSINESS ADDRESS:
STREET 1: 3986 BLVD CTR DR STE 101
CITY: JACKSONVILLE
STATE: FL
ZIP: 32207
BUSINESS PHONE: 9043983403
MAIL ADDRESS:
STREET 1: 3986 BLVD CTR DR
STREET 2: SUITE 101
CITY: JACKSONVILLE
STATE: FL
ZIP: 32207
10-Q
1
QUARTERLY REPORT
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 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 August 4, 1995
Common Stock, $.01 par value 17,744,821 shares
KOGER EQUITY, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Independent Accountants' Report................................ 2
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1995 and December 31, 1994......................... 3
Condensed Consolidated Statements of Operations
for the Three Month and Six Month Periods Ended
June 30, 1995 and 1994...................................... 4
Condensed Consolidated Statement of Changes in
Shareholders' Equity for the Six Month Period
Ended June 30, 1995......................................... 5
Condensed Consolidated Statements of Cash Flows
for the Six Month Periods Ended June 30, 1995
and 1994.................................................... 6
Notes to Condensed Consolidated Financial
Statements for the Three and Six Month Periods
Ended June 30, 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 4. Submission of Matters to a Vote of Security Holders ........... 16
Item 5. Other Information.............................................. 17
Item 6. Exhibits and Reports on Form 8-K............................... 19
Signatures.............................................................. 20
1
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 June 30, 1995, and the
related condensed consolidated statements of operations for the three and six
month periods ended June 30, 1995 and 1994, the condensed consolidated statement
of changes in shareholders' equity for the six month period ended June 30, 1995
and the condensed consolidated statements of cash flows for the six month
periods ended June 30, 1995 and 1994. 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
August 9, 1995
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - See Independent Accountants' Report)
(In thousands)
June 30, December 31,
1995 1994
ASSETS -------- ------------
Real Estate Investments:
Operating properties:
Land $ 102,161 $ 102,161
Buildings 481,091 474,879
Furniture and equipment 1,389 1,197
Accumulated depreciation (54,270) (46,106)
---------- -----------
Operating properties - net 530,371 532,131
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
Investment in TKPL mortgage notes 10,689
Cash and temporary investments 17,420 23,315
Accounts receivable, net of allowance for
uncollectible rents of $332 and $362 3,931 4,276
Management fees and other receivables from TKPL 2,773 1,851
Cost in excess of fair value of net assets acquired from
KPI, net of accumulated amortization of $1,013 and $688 8,952 9,295
Other assets 7,382 6,926
----------- -----------
TOTAL ASSETS $ 617,530 $ 613,806
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages and loans payable $ 318,753 $ 323,765
Accounts payable 1,726 2,823
Accrued interest 1,596 1,047
Accrued real estate taxes payable 4,561 970
Accrued liabilities - other 917 1,268
Advance rents and security deposits 4,151 3,332
----------- ------------
Total Liabilities 331,704 333,205
----------- ------------
Contingency (Note 8) - -
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 (11,560) (15,657)
Treasury stock, at cost (23,660) (24,787)
----------- -----------
Total Shareholders' Equity 285,826 280,601
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 617,530 $ 613,806
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
3
KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Independent Accountants' Report)
(In thousands, except per share data)
Three Month Period Six Month Period
Ended June 30, Ended June 30,
--------------------- ---------------------
1995 1994 1995 1994
REVENUES -------- -------- -------- --------
Rental $ 24,255 $ 23,190 $ 47,737 $ 46,263
Other rental services 151 217 274 698
Management fees ($875, $810, $1,881 and
$1,595 from TKPL) 1,406 1,038 2,754 2,244
Interest 294 233 659 381
Gain on early retirement of debt 19 147
-------- -------- -------- --------
Total 26,125 24,678 51,571 49,586
-------- -------- -------- --------
EXPENSES
Property operations 9,840 9,836 19,549 19,214
Mortgage and loan interest 6,567 6,502 13,083 12,800
Depreciation and amortization 4,406 3,897 8,882 7,778
General and administrative 2,175 1,492 3,620 3,208
Provision for uncollectible rents 54 54
Direct cost of management fees 935 728 1,848 1,462
Undeveloped land costs 152 225 314 426
Loss on sale of assets 1 53 3 61
Settlement of litigation and related
attorneys fees 2,120 2,120
Provision for loss on land held for sale 846 846
-------- -------- -------- --------
Total 24,076 25,753 47,299 47,969
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 2,049 (1,075) 4,272 1,617
Income taxes 23 42
-------- -------- -------- --------
NET INCOME (LOSS) $ 2,026 $ (1,075) $ 4,230 $ 1,617
======== ======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE $ 0.11 $ (0.06) $ 0.24 $ 0.09
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES AND COMMON EQUIVALENT
SHARES OUTSTANDING 17,841 17,597 17,794 17,597
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
4
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
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 (11) (14) 117 106
Net Income 4,230 4,230
------ ---- -------- ------ ---------- ----- --------- --------
Balance, June 30, 1995 20,474 $205 $318,590 $2,251 $ (11,560) 2,734 $(23,660) $285,826
====== ==== ======== ====== ========== ===== ========= ========
See Notes to Condensed Consolidated Financial Statements.
5
KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Independent Accountants' Report)
(In thousands)
Six Month Period
Ended June 30,
-------------------------
1995 1994
-------- --------
OPERATING ACTIVITIES
Net income $ 4,230 $ 1,617
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,882 7,778
Provision for litigation settlement 2,000
Provision for loss on land held for sale 846
Accrued interest added to principal 393 685
Amortization of mortgage discounts 88 120
Gain on early debt repayment (147)
Loss on sale of assets 3 61
Provision for uncollectible rents 54
Increase in accounts payable, accrued
liabilities and other liabilities 4,398 2,337
Increase in receivables and other assets (46) (1,930)
Increase in receivable from TKPL (922) (701)
-------- --------
Net cash provided by operating activities 16,879 12,867
-------- --------
INVESTING ACTIVITIES
Purchase of TKPL mortgage notes (10,689)
Tenant improvements to existing properties (4,605) (2,869)
Building improvements to existing properties (1,607) (1,435)
Deferred tenant costs (644) (230)
Additions to furniture and equipment (192) (204)
Merger costs (129)
Proceeds from sale of assets 61 459
Cash acquired in purchase of assets from KPI 157 1,528
-------- --------
Net cash used in investing activities (17,519) (2,880)
-------- --------
FINANCING ACTIVITIES
Proceeds from sale of stock under Stock Investment Plan 106
Proceeds from exercise of warrants and stock options 1 3
Principal payments on mortgages and loans (5,346) (3,353)
Financing costs (16) (43)
-------- --------
Net cash used in financing activities (5,255) (3,393)
-------- --------
Net increase (decrease) in cash and cash equivalents (5,895) 6,594
Cash and cash equivalents - beginning of period 23,315 18,566
-------- --------
Cash and cash equivalents - end of period $ 17,420 $ 25,160
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 12,004 $ 11,465
======== ========
Cash paid during the period for income taxes $ 39 $
======== ========
See Notes to Condensed Consolidated Financial Statements.
6
KOGER EQUITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS
ENDED JUNE 30, 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 six month period
ended June 30, 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
$30,000 for alternative minimum tax for the six month period ended June 30,
1995. To the extent that the Company pays dividends equal to 100 percent of REIT
taxable income, the earnings of the Company are not taxed at the corporate
level; however, under existing loan covenants the Company may be prohibited from
paying dividends in excess of amounts necessary to maintain its status as a
REIT. See Note 9, Dividends.
7
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 six month
period ended June 30, 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 six month period ended June 30,
1994.
5. EARNINGS (LOSS) PER COMMON SHARE. Earnings (loss) 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. INVESTMENT IN TKPL MORTGAGE NOTES. During April, 1995, the Company
acquired $21.0 million principal amount of TKPL New Secured Notes and $4.5
million principal amount of TKPL Converted Loan Notes for approximately $10.7
million in the aggregate. During July, 1995, the Company acquired an additional
$6.8 million principal amount of TKPL New Secured Notes for $6.8 million. 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. The Company's accounting for these notes is on the
cost-recovery method. Cash received will be applied first against the recorded
amount of these notes until it is reduced to zero. Further, receipts of cash
will then be recognized as income. As of June, 30, 1995, no cash has been
received on these notes, therefore, no interest revenue or discount amortization
has been recognized in the Condensed Consolidated Statements of Operations. With
the sale of substantially all of TKPL's operating properties on July 31, 1995,
these notes will be repaid during the quarter ended September 30, 1995, subject
to a 10 percent discount of the principal, due to the early repayment, as
provided for in the TKPL Plan of Reorganization.
7. MORTGAGES AND LOANS PAYABLE. At June 30, 1995, the Company had
$318,753,000 of loans outstanding, which are collateralized by mortgages on
certain operating properties. During the six month period ended June 30, 1995,
the Company fully repaid $3,023,000 of the outstanding balances of 17 tax notes
assumed from KPI pursuant to the Merger.
Annual maturities for mortgages and loans payable, which are gross of $985,000
of discounts, are as follows (in thousands):
Year Ending December 31,
1995 $ 2,424
1996 7,823
1997 14,204
1998 20,035
1999 7,381
Subsequent Years 267,871
---------
Total $ 319,738
=========
8
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.
8. 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.
9. 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.
10. STOCK OPTIONS AND RIGHTS. Pursuant to the Company's 1993 Stock
Option Plan (the "1993 Plan"), the Compensation Committee of the Company's Board
of Directors granted options to purchase 14,000 shares on May 15, 1995 to
certain key employees at an exercise price of $8.125 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 the date of grant. At June 30, 1995, options to purchase 957,389
shares pursuant to the 1993 Plan were outstanding, 663,589 shares of which were
at an exercise price of $7.625 per share, 279,800 shares of which were at an
exercise price of $7.50 per share and 14,000 shares of which were at an exercise
price of $8.125 per share.
On June 29, 1995 all stock purchase options which had been granted during 1988
pursuant to the 1988 Stock Purchase Option Plan expired. None of the granted
stock purchase options were exercised between the date of grant and the date of
expiration.
11. SUBSEQUENT EVENTS. On July 31, 1995, the Company sold three office
buildings, containing 233,980 net rentable square feet, and two undeveloped land
parcels, totalling approximately 44 acres, for $25,260,000. Proceeds from the
sale were used in
9
part to repay approximately $21.4 million of mortgage loans on the three
buildings. On July 28, 1995, the Company acquired an additional $6.8 million
principal amount of TKPL New Secured Notes for $6.8 million.
On July 31, 1995, Southeast, as the managing general partner, closed
the sale of 90 office buildings and related land of TKPL for an aggregate gross
sales price of $152.5 million. The Company expects to receive approximately
$31,260,000 in repayment for the TKPL mortgage notes which the Company purchased
during 1995. In addition, management currently believes that the proceeds from
the sale of TKPL's operating properties will be sufficient to repay
approximately $14,000,000 of TKPL's subordinated note to Southeast.
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 $24,255,000 for the quarter
ended June 30, 1995, compared to $23,190,000 for the quarter ended June 30,
1994. The increase in rental revenues resulted primarily from increases in the
percentage leased rate and the average rental rate in the Company's buildings.
At June 30, 1995, the Company's buildings were on average 90 percent leased with
an average rental rate of $13.58. Rental revenues increased to $47,737,000
during the six month period ended June 30, 1995, compared to $46,263,000 during
the same period last year, primarily for the same reasons mentioned above. Other
rental revenues declined $66,000 and $424,000, respectively, for the three and
six month periods ended June 30, 1995, compared to the same periods last year,
due to the reduction in these type of services requested by tenants in the
Company's buildings.
Management fee revenues totalled $1,406,000 for the quarter ended June 30, 1995,
compared to $1,038,000 for the quarter ended June 30, 1994. This increase was
due primarily to an increase in management fees earned from Centoff Realty
Company, Inc. ("Centoff"). Management fee revenues increased to $2,754,000
during the six month period ended June 30, 1995, compared to $2,244,000 during
the same period last year, primarily due to increases in the management fees
earned from Centoff and TKPL. On May 5, 1994, third party management contracts
on two buildings terminated due to a change of ownership for these buildings.
Management fee revenue related to the management of these two buildings was
approximately $79,000 for the six month period ended June 30, 1994.
Interest revenues increased $61,000 for the quarter ended June 30, 1995,
compared to the same period last year, due to higher interest rates earned on
the Company's temporary cash investments. Interest revenues increased $278,000
for the six month period ended
10
June 30, 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:
% of Rental
Period Amount Revenues
June 30, 1995 - Quarter $ 9,840,000 40.3%
June 30, 1994 - Quarter 9,836,000 42.0%
June 30, 1995 - Six Months 19,549,000 40.7%
June 30, 1994 - Six Months 19,214,000 40.9%
For the six month period ended June 30, 1995, property operating expenses
increased $335,000 due primarily to the increase in management cost for the
Company's buildings.
Interest expense increased by $65,000 and $283,000 respectively, during the
three and six month periods ended June 30, 1995, compared to the same periods
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 three
and six month periods ended June 30, 1995, compared to the same periods 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 $491,000 and $999,000 respectively, for the three
and six month periods ended June 30, 1995, compared to the same periods last
year, due to improvements made to the Company's existing properties during 1994.
Amortization expense increased $18,000 and $105,000 respectively, for the three
and six month periods ended June 30, 1995, compared to the same periods last
year, due primarily to amounts incurred for deferred tenant costs after June 30,
1994.
General and administrative expenses for the three month periods ended June 30,
1995 and 1994, totalled $2,175,000 and $1,492,000, respectively, which is 1.4
percent and 1.0 percent (annualized) of average invested assets. General and
administrative expenses for the six month periods ended June 30, 1995 and 1994,
totalled $3,620,000 and $3,208,000, respectively, which is 1.2 percent and 1.1
percent of average invested assets. General and administrative expenses
increased primarily due to (i) increases in professional fees incurred, (ii)
increases in the accrual for the Company's contribution to the 401(k) Plan, and
(iii) increases in the accrual for compensation expense related to stock
appreciation rights granted in conjunction with stock options.
11
Direct costs of management contracts increased $207,000 and $386,000
respectively, for the three and six months periods ended June 30, 1995, compared
to the same periods last year, due to increased costs associated with providing
property management services for the TKPL and Centoff management contracts.
Net income totalled $2,026,000 for the quarter ended June 30, 1995, compared to
net loss of $1,075,000 for the corresponding period of 1994. This improvement is
due to (i) increases in rental revenues and (ii) no requirement for provisions
related to litigation settlement and loss on land held for sale during the three
months ended June 30, 1995. These items were partially offset by the increase in
depreciation and amortization expense. Net income increased $2,613,000 during
the six month period ended June 30, 1995, compared to the same period last year
due to the same items detailed above.
On July 31, 1995, the Company sold three office buildings and two land parcels
for $25,260,000. Proceeds from the sale were used in part to repay approximately
$21.4 million of outstanding mortgage loans. The major revenues and expenses
related to the buildings sold for the six month period ended June 30, 1995 are
as follows:
Rental revenues $1,929,000
Property operations expense 798,000
Mortgage and loan interest expense 757,000
Depreciation expense 233,000
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 REIT 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
six months ended June 30, 1995, the Company generated approximately $16.9
million in net cash from operating activities.
At June 30, 1995, leases representing approximately 15.2 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 602 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 six months ended June
30, 1995, leases were renewed on approximately 73 percent
12
of the Company's net rentable square feet which were scheduled to expire during
the six month period. For those leases which renewed during the six months ended
June 30, 1995, the average rental rate increased from $13.77 to $14.19. 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 has and expects to continue to offer
incentives to certain new and renewal tenants. These incentives may include the
payment of tenant improvements 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 22.5 percent of the Company's leased
space at June 30, 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 June 30, 1995, the Company's invested assets
were in properties and mortgage notes receivable from TKPL. Improvements to the
Company's existing properties have been financed through internal operations.
During the six month period ended June 30, 1995, the Company's expenditures for
improvements to existing properties increased by $1,908,000 over the
corresponding period of the prior year primarily due to increased leasing and
renewal activity.
During April, 1995, the Company acquired $21.0 million principal amount of TKPL
New Secured Notes and $4.5 million principal amount of TKPL Converted Loan Notes
for approximately $10.7 million in the aggregate. During July, 1995, the Company
acquired an additional $6.8 million principal amount of TKPL New Secured Notes
for $6.8 million. 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. With the sale of substantially all of TKPL's operating
properties on July 31, 1995, these notes will be repaid during the quarter ended
September 30, 1995.
13
During the six month period ended June 30, 1995, the Company sold various items
of furnishings and equipment which it had acquired pursuant to the Merger for
approximately $61,000 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 June 30, 1995 of $17,420,000. During the six month period
ended June 30, 1995, the Company fully repaid $3,023,000 of the outstanding
balances of 17 tax notes assumed from KPI pursuant to the Merger.
Loan maturities and normal amortization of mortgages and loans payable are
expected to total approximately $4.9 million over the next 12 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 District Court was commenced on October 29,
1990, by Howard Greenwald and Albert and Phyllis Schlesinger, shareholders of
the Company, against the Company, KPI, 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 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
interests 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 alleged a new cause of action against Stephen D.
Lobrano for legal malpractice ("Count II"); and a new cause of action against
the members of the Special Litigation Committee for alleged violation of
fiduciary duties in
14
conducting their 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 Second Amended and Supplemental Complaint and
Derivative Action, which recommended that (1) Count I should be dismissed
pursuant to the Special Litigation Committee Report, (2) Count III against the
Special Litigation Committee members should be dismissed, and (3) Count II
against Mr. Lobrano 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 Amended and Supplemental 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 the Counter-Claim,
and moved in the United States Bankruptcy Court for the Middle District (the
"Bankruptcy Court") of Florida 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 CounterClaim") 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 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 CounterClaim 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 CounterClaim was dismissed with
prejudice. The Company and the other parties to the Derivative Action and
related cross-claims and counter-claims have agreed on a settlement of all
15
claims and have submitted documentation thereof to the District Court, which
must determine whether to approve this settlement after notice to stockholders
of the Company. 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.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
16
Item 5. Other Information
(a) The following table sets forth, with respect to the Company's centers
at June 30, 1995, number of buildings, net rentable square feet,
percentage leased, and the average annual rent per net rentable square
foot leased.
Average
Net Annual
Number Rentable Percentage Rent Per
of Square Leased Square
Center Buildings Feet (1) Foot (2)
------ --------- -------- ---------- --------
Atlanta Chamblee 22 947,920 94% $ 14.20
Austin 12 370,860 95% 14.44
Charlotte Carmel 1 109,600 96% 15.74
Charlotte East 11 468,820 84% 12.56
El Paso 14 251,930 96% 12.81
Greensboro South 13 610,470 92% 13.27
Greenville 8 290,560 88% 13.39
Jacksonville Baymeadows 4 468,000 100% 14.81
Jacksonville Central 32 677,540 90% 11.13
Memphis Germantown 3 258,400 93% 16.44
Miami (3) 1 96,800 98% 18.76
Norfolk West (3) 1 59,680 95% 16.18
Orlando Central 22 565,220 90% 13.64
Orlando University 2 159,600 82% 16.19
Raleigh Crossroads (3) 1 77,500 99% 15.93
San Antonio 26 788,670 76% 11.18
St. Petersburg 15 519,320 92% 12.58
Tallahassee Apal. Pkwy 14 408,500 91% 15.50
Tallahassee Cap. Circle 4 300,700 100% 17.59
Tulsa North 2 103,520 86% 10.52
Tulsa South 11 372,760 81% 9.35
--- ---------
TOTAL 219 7,906,370 90% $ 13.58
=== ========= === ========
(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.
(3) These office buildings were sold on July 31, 1995.
17
(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 June 30, 1995 and
on the terms of leases in effect as of June 30, 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 73 percent of the Company's net rentable square feet which were
scheduled to expire during the six month period ended June 30, 1995.
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
------ --------- ----------- --------------- --------------- --------------- ---------------
1995 602 1,091,574 15.1% $13.70 $ 14,956,056 15.2%
1996 851 1,675,699 23.1% 13.53 22,672,783 23.1%
1997 497 1,343,304 18.6% 13.63 18,315,514 18.6%
1998 335 1,506,821 20.8% 13.35 20,109,364 20.5%
1999 128 637,546 8.8% 12.78 8,147,497 8.3%
2000 71 441,530 6.1% 14.95 6,599,773 6.7%
2001 10 135,303 1.9% 14.16 1,915,610 2.0%
2002 6 107,758 1.5% 12.71 1,369,470 1.4%
2003 12 93,111 1.3% 15.03 1,399,914 1.4%
OTHER 9 202,680 2.8% 13.73 2,783,103 2.8%
----- --------- ------ ----------- ------
TOTAL 2,521 7,235,326 100.0% $13.58 $98,269,084 100.0%
===== ========= ====== ====== =========== ======
18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
10(v) License Agreement, dated as of July 28, 1995,
between Koger Equity, Inc. and Koger Realty
Services, Inc.
15 Letter re: Unaudited interim financial information.
27 Financial Data Schedule.
(b) Reports on Form 8-K
On May 25, 1995, the Company filed a Form 8-K
reporting under Item 5, Other Events, that The Koger
Partnership, Ltd. (the "Partnership") of which
Southeast Properties Holding Corporation, Inc., a
subsidiary of the Company, is the managing general
partner, entered into an agreement for the sale of all
the properties of the Partnership and providing under
Item 7, Financial Statements and Exhibits, a copy of
the press release announcing the agreement of sale of
properties of the Partnership.
19
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: August 10, 1995
[JAMES L. STEPHENS]
JAMES L. STEPHENS
TREASURER AND
CHIEF ACCOUNTING OFFICER
20
EX-10.V
2
LICENSE AGREEMENT
Exhibit 10
LICENSE AGREEMENT
This License Agreement, dated as of July 28, 1995, between Koger Equity, Inc., a
Florida corporation (the "Licensor"), and Koger Realty Services, Inc., a
Delaware corporation (the "Licensee")
WITNESSETH:
WHEREAS, the Licensor is the owner of the trade name "Koger" (the
"Trade Name"), including all of the goodwill of the business associated
therewith;
WHEREAS, the Licensor is the owner of certain trademarks listed on
Exhibit A hereto (the "Trademarks"), including all of the goodwill of the
business associated therewith;
WHEREAS, the Licensor desires to grant to Licensee the perpetual and
non-exclusive right and license to use the Trade Name and the Trademarks to
identify certain services, all in accordance with the terms and conditions of
this Agreement;
WHEREAS, the Licensee desires to obtain from the Licensor such
perpetual and non-exclusive right and license to use the Trade Name and the
Trademarks, all in accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises of the parties contained herein, the parties agree as follows:
1. License Grant. The Licensor hereby grants to the Licensee a perpetual and
non-exclusive right, license and privilege to use (a) the Trade Name as part of
the Licensee's corporate name or as an assumed, fictitious or "doing business"
name and (b) the Trademarks to identify (i) services involving the development,
construction, leasing, operation and management of office buildings owned by
other parties and (ii) any other services for which the Trademarks are or may be
registered and which are performed by the Licensee pursuant to the Management
Agreement dated as of July 28, 1995 among Koala Miami Realty Holding Co., Inc.,
a Delaware corporation, Koala Norfolk Realty Holding Co., Inc., a Delaware
corporation, Koala Raleigh Realty Holding Co., Inc., a Delaware corporation,
Koala Richmond Realty Holding Co., Inc., a Delaware corporation, Koala Tampa
Realty Holding Co., Inc., a Delaware corporation, and the Licensee (the
"Services").
2. Royalty. In consideration of the grant by the Licensor to the Licensee of the
license, right and privilege to use the Trade Name and the Trademarks as set
forth in Section 1, the Licensee shall pay to the Licensor on each anniversary
of the date hereof a royalty in the amount of $10,000.
-1-
3. Sublicenses. Upon the prior written consent of the Licensor (which consent
may be withheld by the Licensor in its sole and absolute discretion), the
Licensee may sublicense its rights under Section 1; provided, however, that any
such sublicense shall subject the sublicensee to the provisions, restrictions
and limitations of this Agreement.
4. Standards of Quality. The Licensee hereby acknowledges the prestige, high
reputation and goodwill hereby acquired by it in the Trade Name and the
Trademarks. The Licensee further acknowledges that, in order to preserve the
prestige, reputation and goodwill associated with and acquired in the Trade Name
and the Trademarks as of the date hereof, it is critical that the Services at
all times meet the same standards of quality as services provided by the
Licensor immediately prior to the date hereof.
5. Retention of Ownership. The Licensee acknowledges the title of the Licensor
to the Trade Name and the Trademarks and shall not at any time do or suffer to
be done any act or thing which will in any way impair the rights of the Licensor
in and to the Trade Name and the Trademarks. The Licensee acknowledges that it
shall not acquire, and agrees that it shall not claim, whether by virtue of the
license granted to it hereunder or through its use of the Trade Name and the
Trademarks or otherwise, any title to the Trade Name and the Trademarks that is
adverse to the Licensor. The parties expressly acknowledge and agree that it is
their intention that all use of the Trade Name and the Trademarks by the
Licensee shall at all times inure to the benefit of the Licensor.
6. Term. This Agreement shall continue in force indefinitely unless sooner
terminated in accordance with the termination provisions set forth in Section 7.
7. Termination. This Agreement may be terminated for any reason or no reason on
30 days' prior written notice by either party. In addition, this Agreement shall
immediately and automatically terminate upon (a) the bankruptcy or judicial or
administrative declaration of insolvency of the Licensee or (b) government
appropriation of any of the assets of the Licensee which relate to the
Licensee's activities contemplated by this Agreement.
8. Discontinuance of Use. Upon termination of this Agreement for any reason, the
Licensee (a) shall immediately discontinue use of the Trade Name and the
Trademarks, (b) shall not thereafter register or use any trade name or trademark
confusingly similar to the Trade Name or any Trademark and (c) shall, within 30
days of such termination, destroy all materials bearing the Trade Name or any
Trademark.
9. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Licensee shall not assign its rights and obligations
under this Agreement without the prior written consent of the Licensor (which
consent may be withheld by the Licensor in its sole and absolute discretion).
-2-
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
-3-
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement
to be executed and delivered as of the date first above written.
KOGER EQUITY, INC.
By S/S VICTOR A. HUGES
Title: Senior Vice President
and Chief Financial Officer
KOGER REALTY SERVICES, INC.
By S/S J.C. TEAGLE
Title: Senior Vice President
-4-
Exhibit A
TRADEMARKS
"Koger"
[Logo]
-5-
EX-15
3
LETTER
EXHIBIT 15
August 9, 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 June
30, 1995 and 1994, as indicated in our report dated August 9, 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 June 30, 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