UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
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 0-06181
J.C. NICHOLS COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0371610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 Ward Parkway
Kansas City, Missouri 64112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 561-3456
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, $.01 par value NOT APPLICABLE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
The aggregate market value of the Common Stock, par value $.01 per share, of the
registrant held by nonaffiliates of the registrant (1,998,396 shares)as of
March 21, 1997 was $62.0 million, based on a bid price of $31.00.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, outstanding as of March 21, 1997: 3,849,358 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Proxy Statement for the Annual Meeting
of Stockholders to be held May 28, 1997, are incorporated by reference into Part
III.
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INDEX
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PAGE
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ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, UNREGISTERED SALES
OF EQUITY SECURITIES AND RELATED STOCKHOLDER MATTERS 25
ITEM 6. SELECTED FINANCIAL DATA 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 81
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 82
ITEM 11. EXECUTIVE COMPENSATION 82
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 82
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 82
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 83
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PART I
ITEM 1. BUSINESS
The J. C. Nichols Company (the "Company" or "JCN") is a real estate
operating company engaged in the acquisition, development, ownership, and
management of a diversified portfolio of real estate properties, principally
located in the Kansas City, Missouri metropolitan area. The Company's real
estate development activities were initiated in 1902. The Company was
incorporated in Missouri in 1908 and its principal office has been at 310 Ward
Parkway, Kansas City, Missouri since July 1930.
The Company is best known for its development, ownership, and
management of the Country Club Plaza area (the "Plaza"), a prestigious shopping,
entertainment, and office district of Spanish architecture containing
approximately 1,100,000 square feet of retail space (including basement
space) and approximately 1,100,000 square feet of office space. The Plaza is
surrounded principally by single family residences, condominiums, and upscale
apartments, many of which are owned by the Company. The Plaza is generally
regarded as the oldest major suburban shopping center in the United States.
At December 31, 1996, the portfolio of real estate assets of JCN and
consolidated subsidiaries included 54 retail, office and industrial properties
with over 4.6 million square feet of leasable space, approximately 2,400
residential apartment units, three residential subdivisions under development,
and over 1,000 acres of land held for development.
In addition, the Company owns equity interests in twelve active
entities whose holdings are not consolidated with the financial statements of
JCN. The largest of these interests relates to property in the Des Moines, Iowa
area, which, at December 31, 1996, consisted of approximately 840,000 square
feet of office space, 200,000 square feet of industrial space, and 106 acres to
be developed.
Management estimates the Company's real estate holdings had a total
fair market value of approximately $514 million at December 31, 1996, including
the Company's percentage interest in the real estate holdings of consolidated
and unconsolidated subsidiaries, but exclusive of any related liabilities or
potential liquidation costs. See Item 2, "Properties" for an explanation of this
estimate and the assumptions used in preparing the estimate.
Senior management of the Company has changed significantly since May
1995. This change occurred as a result of a number of factors described below
under "Development of the Business" and in Item 3, "Legal Proceedings." The new
management team is focusing on reducing the Company's financial leverage,
enhancing the condition and revenue stream of the Company's existing properties,
developing selected strategic properties, and generally returning the Company to
its historically successful mission of creating value for its shareholders
through the development, ownership, and management of high quality, diverse real
estate properties. Management expects to concentrate primarily on the
development, ownership, and management of the retail and residential segments of
the real estate industry. See "Description of the Business" in this Item.
DEVELOPMENT OF THE BUSINESS.
The Company was founded by Mr. J. C. Nichols, who began developing
real estate in the Kansas City area following his return from Harvard
University in 1902. Mr. Nichols was captivated by the real estate development
theories of landscape architect Frederick Law Olmsted, a designer of New York's
Central Park. To pursue these theories, Mr. Nichols formed a syndicate to
purchase land for development in 1904 and incorporated the Company as a
Missouri corporation on December 8, 1908.
Mr. J. C. Nichols died in 1950 and management of the Company passed
to his son, Miller Nichols, who led the Company until his retirement as
Chairman of the Board in July 1988. During the management tenure of Miller
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Nichols, the Company followed a strategy of completing "Quality of Life"
mixed use community developments that combined shopping, recreation
(generally golf courses), and upscale residences. From 1950 until the late
1980s (approximating the date of Miller Nichols' retirement), the Company
continued its aggressive purchase, development and management of Kansas City
area properties, as well as hotels in Chicago and San Francisco. During
this period, the Company developed approximately 50 subdivisions, 15
shopping centers, and 30 office buildings and built or acquired over 2,000
apartment units, several hotels, and two industrial parks. Most of these
shopping centers and office buildings are still owned by the Company today.
Following Miller Nichols' sale of shares to the Company's Employee Stock
Ownership Trust and subsequent retirement, the Company's development
activities slowed significantly.
In 1987, a subsidiary of the Company entered into various contracts
with the City of St. Petersburg, Florida (the "City") for the redevelopment and
construction of certain parking, commercial and retail facilities to be known as
Bay Plaza. Due to a delay in significant development activities, the Company
ceased capitalization of interest, property taxes, insurance, and other
development costs in 1990, and reduced the properties' carrying value by $23.8
million to $3.0 million at December 31, 1994. In November 1995, the Company
informed the City that it had ceased plans to develop the properties. In 1996,
the Company disposed of certain of the properties and intends to dispose of the
remaining properties as soon as practicable. At December 31, 1996, the carrying
value of Bay Plaza assets, net of liabilities, was approximately $900,000.
The Company sold its hotel division in 1989, but retained its
leasehold interest in the Raphael Hotel of San Francisco. The underlying lease
of the Raphael Hotel of San Francisco expired on September 30, 1996, and was not
renewed. In the opinion of management, the impact of this lease expiration is
not material to the Company's consolidated financial position or results of
operations.
In 1991, the Company purchased a 5% limited partnership interest in
Raphael Hotel Group, L.P., the partnership to which the hotel division was
originally sold. At the same time, the Company also purchased a 50% interest in
a management agreement for a hotel in Kansas City managed by the limited
partnership. That agreement has provided revenues to the Company of
approximately $259,000, $259,000 and $304,000 for the years ended December 31,
1996, 1995 and 1994, respectively, and expires in December 1997.
In 1989, the Company acquired a 50% interest in a joint venture,
Kantel, L.P. (the "Venture"), with an affiliate of The Ritz-Carlton Hotel
Company, (the "Ritz") to convert an existing hotel owned by the Company to a
Ritz-Carlton. The Company borrowed $70 million from an unaffiliated entity,
Teachers Insurance and Annuity Association of America, on a non-recourse basis
using the assets of the hotel as collateral. The Company then advanced funds to
the Venture for the conversion. As a result of low occupancy, the hotel did not
meet expected operating results or cash flows, and, accordingly, the Venture was
unable to meet its obligations under the debt and lease agreements. In September
1993, the Company acquired an additional 49% interest in the Venture from the
Ritz when the Ritz assigned $7.5 million of mortgage notes to the Company
and assigned to the Company its interest in the Venture. The Company paid no
amounts for the additional interest in the Venture. The notes acquired by
the Company were secured by a second mortgage on improvements to the hotel and
subsequently proved worthless.
On February 22, 1994, the lender foreclosed on the hotel, and the
Company was released from its obligations under the non-recourse debt and from
its interest payable obligation aggregating approximately $14.1 million which
had been accrued through December 31, 1993. In 1994, the Company recognized a
gain (net of taxes) of approximately $29.1 million as an extraordinary item
related to gain on extinguishment of debt. The transaction also resulted in the
reduction of the Company's revenue-producing properties by approximately $23.9
million ($10.6 million, net of accumlated depreciation) and the segregation of
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$5.6 million and $1.7 million of operating losses in 1993 and 1994,
respectively, related to the hotel's operation into a separate
classification in the Company's consolidated statements of operations.
The 5% ownership in Raphael Hotel Group, L.P. and the 50% interest
in the hotel management agreement for the Kansas City hotel that expires in
1997, as discussed above, represent the Company's only remaining involvement
after December 1996 in either the ownership or management of hotels.
In 1987, the Company formed an Employee Stock Ownership Trust
("ESOT"). In 1988, the ESOT purchased 133,684 shares (pre-split) of the
Company's stock (69% of the then outstanding shares), the majority of which was
acquired from descendants of the Company's founder (including Mr. Miller
Nichols) and his business associates. These shares were purchased for $98.2
million, with $50.0 million borrowed from an outside source and guaranteed by
the Company and $48.2 million borrowed directly by the Company and advanced to
the ESOT. At December 31, 1987 (prior to the management transition and ESOT
transaction), the Company's interest bearing debt was approximately $198.8
million. By December 31, 1988, the Company's direct and guaranteed interest
bearing debt had increased by approximately $129.9 million to $328.7 million,
while the Company's assets had increased by $26.3 million, of which $15.0
million were classified as assets related to discontinued operations. In January
1991, the Company effected the retirement of the remaining $45.8 million of the
ESOT's debt to outside lenders, although the ESOT remained indebted to the
Company.
In May 1992, a limited partnership (the "Bowser Partnership")
controlled by the Company's former president, acquired 125,242 unallocated
shares (pre-split) of the Company's common stock, from the ESOT for $124.5
million by the assumption of existing principal indebtedness of $94.3 million
and accrued interest and other advances of $30.2 million owed by the ESOT to the
Company. These shares were later conveyed back to the Company as treasury stock
and the debt to the Company extinguished as a part of the settlement agreement
(the "Settlement Agreement") referred to in Item 3, "Legal Proceedings."
In late 1994, various shareholders attempted to restructure the
Company and the Company's shares were the subject of various purchase offers.
The then current management and board of directors did not accept any of these
offers. Concurrently, as a result of certain transactions occurring among JCN,
former executive officers, the ESOT, and others, JCN became involved in various
legal actions as plaintiff and defendant. In May 1995, the long time chief
executive officer and chief financial officer each resigned. In addition, by
virtue of certain directors resigning, others not standing for re-election,
appointment of new directors to the Board, and election of new directors by the
shareholders at the Company's December 13, 1995 annual meeting, a majority of
the Company's directors, following the meeting, were new to the Board.
As a result of the litigation and certain transactions among JCN,
former executive officers, the ESOT, and others, JCN and other parties entered
into the Settlement Agreement. The result of the litigation and this agreement
was the installation of a new management team, the conveyance to the Company
from the Bowser Partnership of 125,242 shares (pre-split) of the Company's
common stock (approximately 64% of the then outstanding shares) as treasury
stock in exchange for extinguishment of a $94.3 million note receivable and
accrued interest and advances thereon, and the rescinding and unwinding of
several transactions and conveyances involving the exchange of properties and
stock as described in the Settlement Agreement. See Item 3, "Legal Proceedings"
for a detailed explanation of the Settlement Agreement.
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Following this settlement, the new management team is initially
focusing on reducing the Company's financial leverage, enhancing the condition
and revenue stream of the Company existing properties, developing selected
strategic properties and generally returning the Company to its historically
successful mission of creating value for its shareholders through the
aggressive ownership, management and development of high quality, diverse
real estate properties. Management expects to concentrate primarily on the
development, ownership, and management of the retail and residential
segments of the real estate industry. Management expects to accomplish
the foregoing goals by improving the efficiency of its operations by
establishing performance benchmarks and streamlining current operations,
by using positive cash flow from operations and cash on hand to pay down
existing mortgage indebtedness, by refinancing existing mortgage
indebtedness when favorable market opportunities permit, and by
identifying strategic opportunities for additional development.
See "Description of the Business" in this Item.
DESCRIPTION OF THE BUSINESS.
JCN is a diversified real estate operating company engaged in the
acquisition, development, ownership, and management of income producing
properties located primarily in the Kansas City, Missouri metropolitan area.
These properties include retail centers, apartments, office buildings,
industrial properties, and mixed-use projects. The Company is also engaged in
the development and sale of land for residential and commercial use.
At December 31, 1996, JCN and consolidated subsidiaries owned 18
retail centers consisting of approximately 2,600,000 square feet of retail space
occupied by approximately 470 tenants, 14 apartment communities (including a
majority interest in a partnership owning a Des Moines, Iowa area apartment
complex) representing approximately 2,400 residential apartment units, 34 office
properties (including majority interests in partnerships owning seven Des
Moines, Iowa area office buildings) consisting of approximately 1,629,000 square
feet of office space occupied by over 500 tenants, two industrial and warehouse
properties consisting of approximately 337,000 square feet of space occupied by
approximately 51 tenants, three developments containing approximately 252 lots
available for sale, and over 1,000 acres available for residential and
commercial development, as well as complete or partial ownership in several
other minor properties. JCN also owns 12 unsold units in its Alameda Towers
condominium project, and continues to own assets now held for sale which are a
part of the Company's discontinued Bay Plaza project in St. Petersburg, Florida.
In the opinion of management, all of the properties of the Company and its
consolidated and unconsolidated subsidiaries are adequately insured.
The Company owns an equity interest in twelve active entities whose
holdings are not consolidated with the financial statements of JCN. The largest
of these holdings are the Company's approximately 50% interest in six
partnerships in the Des Moines, Iowa area. At December 31, 1996, these
partnerships owned twelve buildings containing approximately 840,000 square feet
of offices, 200,000 square feet of industrial space and 106 acres to be
developed. The 106 acres are located in three separate developments in the Des
Moines, Iowa area. Seventy-one acres are owned by Dallas County Partners, a
general partnership, and are planned for development as an office complex with
related retail development and, perhaps, a hotel. Approximately 85,000 square
feet of speculative office space was started and completed in 1996 and, when
that space is significantly leased, additional office space will be constructed.
Approximately 15 acres are held by Fountain III, a general partnership, and are
also planned for office and related retail development. The partnership started
construction of the necessary infrastructure and expects within the next three
years to build approximately 60,000 square feet of restaurant and retail space
suitable for an office development. Approximately 12 acres are owned by Meredith
Drive Associates, L.P., a limited partnership. Management of the Company expects
such property to be developed within three to five years as an industrial park.
The remaining 8 acres are owned by Dallas County Partners II, a general
partnership, and are planned for office development upon the exercise of an
option by the sole tenant of the adjacent office building. One of the Company's
twelve partnership interests is a 40% interest in J. C. Nichols Real Estate, a
residential sales and brokerage business. J. C. Nichols Real Estate also has an
interest in an entity which owns a mortgage origination company.
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Management estimates that the Company's real estate holdings had a
total fair market value of approximately $514 million at December 31, 1996, as
compared to a $233 million depreciated cost basis (including the Company's
percentage interest in the real estate holdings of consolidated and
unconsolidated subsidiaries, but exclusive of any related liabilities or
potential liquidation costs). Of the estimated $514 million of real estate value
held by the Company, approximately $172 million is in retail properties, $103
million is in office and industrial properties, $81 million is in apartments,
$78 million is in its Iowa investments, $57 million is in land awaiting sale or
development and $23 million is in other miscellaneous real estate assets of the
Company. See Item 2, "Properties," for an explanation of these estimates and the
assumptions used in their preparation.
For the years 1994, 1995, and 1996, the Company derived
approximately $75.0 million (79.6%), $79.8 million (80.4%), and $79.9 million
(60.2%), respectively, of its consolidated revenues from rental income and $10.7
million (11.4%), $6.0 million (6.1%), and $6.6 million (5.0%) from property
sales.
RETAIL PROPERTIES.
The Company owns and manages 18 retail centers consisting of
approximately 2,600,000 square feet of retail space, of which approximately
1,100,000 square feet (42%) is located in the Plaza (including basement space)
and the balance is in suburban shopping centers. The Company's retail properties
are leased to approximately 470 tenants and management does not believe the
Company is dependent upon any single tenant. Management estimates the fair
market value of its retail properties was approximately $172 million at December
31, 1996. Consolidated rental income from these properties was approximately
$25.2 million in 1994, $27.4 million in 1995, and $29.2 million in 1996.
The Plaza is a mixed-use area of Spanish architecture composed of
upscale specialty stores (such as Halls, Saks Fifth Avenue, Williams-Sonoma,
Talbots, Brooks Brothers, and Eddie Bauer), restaurants, art galleries, and two
movie theaters containing a total of seven screens. The shopping and
entertainment area is bordered on its south side by a contained waterway, Brush
Creek, and surrounded principally by single family residences, condominiums,
and upscale apartments, many of which are owned by the Company. Development
of the Plaza began in 1922, and it is regarded as one of the oldest suburban
shopping centers in the United States. In 1993, the Plaza received the
Urban Land Institute Heritage Award for Excellence, in only its second
presentation, the first being to Rockefeller Center in New York City.
In 1994, the Plaza received a special award for Shopping Center Excellence
at the International Property Market in Cannes, France.
The Company's suburban shopping centers are generally located in
relatively affluent areas and contain a mix of grocery stores, local department
stores, restaurants, and smaller shops. The average retail tenant, including
both Plaza and suburban centers, leases approximately 5,000 square feet. Rents
at both the Plaza and suburban centers typically include minimum annual rents,
contingent rentals based on a percentage of the lessee's sales, and, in many
instances, the tenant's proportionate share of real estate taxes, insurance, and
maintenance. These leases generally have a term of three to five years, or
longer in the case of most major tenants.
The Company's services related to its retail properties include
initial market and consumer research, evaluating tenant mix and consumer
demographics, identifying potential tenants, negotiating lease terms, renovating
and expanding its retail properties, and the ongoing management of those
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properties. Management believes that managing the Company's properties enables
the Company to better control operating expenses and establish long-term
relationships with its retail tenants.
Over the last five years, the Company's retail properties,
particularly the Plaza, have reflected national trends in retailing with a
changing mix of operations. For example, in 1991, the Company signed a number of
new tenants for the Plaza such as the Jayne Gallery, the Body Shop, Circle
Gallery and KC Masterpiece BBQ. In that same year, the retailing division of
Hallmark Cards made the decision to close its women's clothing store, Swansons,
and combine its operations with Halls, the division's larger specialty store in
the Plaza. The majority of the space vacated by Swansons was leased promptly to
another upscale clothing store. In 1992, Woolf Brothers, an upscale
clothing store that had maintained a store in Kansas City continuously since
1927, announced the closing of its Plaza store, among other of its store
closings. The Company quickly replaced it with one of the country's largest
premier Eddie Bauer stores.
An older Dillard's store closed in 1993 and the majority of the
space was quickly leased to Barnes and Noble for a major book store. Also in
1993, many of the Plaza's restaurants were remodeled and older style restaurants
replaced with newer ones. Existing properties performed well in 1994 and
important new tenants, such as FAO Schwarz, were brought to the Plaza.
Several new leases were signed in 1995 with local and national
retailers such as The Cheesecake Factory. Also, late in 1995, construction began
on a new building located on the Plaza's central parking lot which is now home
for The Great Train Store and the Store of Knowledge, a store affiliated with
public television.
The retail industry met with mixed performance in 1996, as certain
retail types performed better than others and the continuing difficulties of
major retailers emphasized the competitiveness within the retail environment.
While the overall retail vacancy rate in the Kansas City market was
approximately 10%, as compared to the national average of 8.7%, the Company
maintained a vacancy rate of approximately 3% in the retail division. In 1996,
the Company signed leases with new tenants such as Canyon Cafe, Barami,
Speedo, Baby Gap and April Cornell. Several long-time tenants expanded or
relocated to larger spaces including Williams Sonoma, Diebels, Maxim's and
Superlatives.
Management believes the "repositioning" of the Company's tenant mix
is critical and niche marketing will be necessary to move with the changing
demographics of an aging society. These changes require retailers to
remerchandise to meet the makeup of local submarkets. Management believes the
Company, by virtue of its first-hand knowledge of growth patterns and local
economics in the Kansas City market, is especially well positioned to assist
retailers as they work to meet the needs of the changing Midwest market place.
Management intends to increase the value of the Company's portfolio
of retail income producing properties by increasing revenues from existing
properties through improved tenant mix, improved tenant relations and
communication, completion of deferred maintenance, and improved services to
tenants from its team of experienced management and service personnel. In 1997,
the primary emphasis has been and will continue to be on improving the
performance of the Company's existing properties. Specifically, management
expects to increase revenues from the Company's retail properties division by
focusing on the following:
* Expanding and renovating retail properties
* Increasing minimum rents for new and existing
leases
* Negotiating contractual rent escalations
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The Company seeks to require tenants to pay 100% of their pro rata
share of operating expenses, real estate taxes, and promotional expenses in
addition to an administrative charge. Currently, approximately 80% of the
Company's retail leases require tenants to pay their pro rata share of such
expenses. In order to reduce the risk of certain operating expense increases to
the Company, the Company has a goal of attempting to convert, upon expiration or
termination, the approximately 20% of retail leases which do not now share
expenses pro rata. The Company anticipates completion of this conversion when
possible over the next five to ten years.
In the past, the Company has developed suburban retail centers
primarily for ownership. No significant suburban retail center developments are
now underway.
In the future, the Company will seek to take advantage of
opportunities to develop or acquire additional retail properties both on
the Plaza and in suburban areas.
OFFICE AND INDUSTRIAL PROPERTIES.
At December 31, 1996, JCN and its consolidated subsidiaries,
including certain consolidated partnerships in the Des Moines, Iowa area, owned
and managed 34 office properties containing approximately 1,629,000 square feet.
The largest portion of this space, approximately 700,000 square feet (43%), is
located in the Plaza area of Kansas City, with the balance located in suburban
Kansas City and the Des Moines area. Consolidated rental income from the
Company's office and industrial properties division was $26.2 million in 1994,
$27.9 million in 1995 and $26.8 million in 1996.
In addition to the Company's consolidated office properties, the
Company owns an equity interest in entities whose office holdings are not
consolidated with the financial statements of JCN. These holdings include twelve
buildings containing approximately 840,000 square feet of office space in the
Des Moines, Iowa area and two buildings in the Plaza area of Kansas City,
containing approximately 400,000 square feet of office space.
The Company leases the majority of its space to smaller tenants,
although it has entered into a long term lease for 175,000 square feet with a
major tenant. At December 31, 1996, the average lease for the Company's over 500
office tenants in the Kansas City area was approximately 2,600 square feet.
Office rental rates in the Kansas City area ranked in the bottom
third of the rates nationwide during 1996. Vacancy rates, however, are slightly
lower than the national average. According to Valuation International, an
independent valuation source, the Kansas City metropolitan area experienced
office occupancy rates of approximately 89% during 1996. Occupancy rates for the
Company's Kansas City area office properties were 90% in 1994, 89% in 1995 and
92% in 1996. During 1996, occupancy rates for the Company's Plaza properties
were 96% and for its suburban properties were 83%. Approximately 61% of the
Company's suburban vacancy rate was due to one building which was vacant during
1996. This building was fully leased in the first quarter of 1997.
At December 31, 1996, the Company owned two industrial properties
containing approximately 337,000 square feet, 99% of which was occupied by 51
tenants. During the fourth quarter of 1996, the Company sold a 42,000 square
foot industrial property. The Company's industrial properties generated
consolidated revenues of approximately $2.1 million in 1994, $1.9 million in
1995 and $2.1 million in 1996. The Company also has an interest in an
unconsolidated partnership in the Des Moines, Iowa area, which owns an
industrial property containing 200,000 square feet.
The Company's office and industrial properties contribute positive
cash flows to the Company. However, primarily due to the recurring nature of
capital contributions required for tenant finish and
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the relatively low rental rates in the Kansas City market, not all of the
Company's office properties are meeting management's return objective of at
least 10% on existing properties. Management is evaluating each of its office
properties with the goal of improving its return. If management determines that
a property in unlikely to meet its return objectives or does not fit within its
long term strategy, it will consider its options, including disposal, for that
property.
APARTMENTS.
At December 31, 1996, JCN and consolidated subsidiaries owned and
managed 14 apartment communities with 2,437 units. These units experienced
occupancy of approximately 98% in 1994, 96% in 1995 and 98% in 1996. During
1995, 26 units near the Plaza were razed to make way for additional surface
parking. Consolidated revenue from the Company's apartments was $17.7 million in
1994, $18.6 million in 1995, and $19.6 million in 1996.
The Company seeks to distinguish itself by providing high quality
customer service to both prospective and existing residents by training and
motivating its management teams to surpass industry standards in all areas. In
an effort to give the Company's properties an advantage over their competition,
close attention is paid to marketing requirements such as drive-by appeal,
physical appearance, signage, clubhouse amenities, model apartments and
brochures. As a result of this focus on service and appearance, the Company
believes that its resident retention rate is higher than industry averages and,
as a result, turnover and capital improvement costs are lower.
During past years, the market for the Company's apartment units has
been strong, although there has been some pressure in recent years from newer
suburban units. The strength of the Kansas City area market is confirmed by a
recent survey presented by a major real estate valuation and consulting firm,
which indicated 1996 apartment vacancy rates in the Kansas City area market of
approximately 5%. As market occupancies exceed 95%, there is an upward pressure
on rental rates that typically grows faster than the median income levels. The
Company attempts to balance rent increases with high occupancy and controlled
turnover costs. The Company believes that its customer service program allows
for increases in market rental rates while maintaining lower overall resident
turnover.
The Company is currently seeking to expand its apartment operations
and looking for opportunities to buy or develop new apartments. The Company has
proposed plans to develop a new residential community ("Kirkwood Circle") on
approximately 10 acres it owns near the Plaza. All plans related to the Kirkwood
Circle project are subject to approval of tax increment financing currently
being sought by the Company. Accordingly, the Company has not yet proposed a
definite schedule for the Kirkwood Circle project or selected the means of
providing additional financing that will be required. The Company's tax
increment financing is described further in Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview.
The Company generally will seek to acquire or develop multi-family
properties that are similar to those in its existing portfolio and are (i) no
more than ten years old at the time of acquisition; (ii) strategically located
in the Company's market; (iii) capable of enhanced performance through intensive
management and cosmetic improvements; and (iv) capable of producing a high
component of anticipated total return derived from current income. In connection
with its acquisition and development of multi-family properties, the Company
will consider such facts as: (i) the geographic location and type of property;
(ii) the age, construction quality and cost, condition, and design of the
property; (iii) the current and projected cash flow of the property and the
ability to increase cash flow; (iv) the potential for capital appreciation of
the property; (v) the terms of tenant leases, including
potential for rent increases; (vi) the potential for economic growth and the
tax and regulatory environment in the area in which the property is located;
(vii) the occupancy and demand by tenants for properties of similar type in the
vicinity; and (viii) the prospects for liquidity through sale, financing,
or refinancing of the property.
9
<PAGE>
RESIDENTIAL PROPERTIES.
At December 31, 1996, the Company had three residential subdivisions
("Woodsonia," "Green Meadows," and "White Horse") under development with
approximately 200 lots platted for sale and over 500 acres yet to be developed.
All of the subdivisions are within the Kansas City metropolitan area. The
Company sold 138 lots in 1994, 101 lots in 1995 and 78 lots in 1996. Revenues
from sales of lots were $4.6 million in 1994, $3.5 million in 1995 and $2.8
million in 1996.
The Company acquires land periodically in order to provide an
adequate and optimally located supply for its residential subdivisions. In
evaluating possible opportunities to acquire land, the Company considers such
factors as the feasibility of development, proximity to developed areas,
population growth patterns, customer preferences, estimated cost of development,
and availability and cost of financing.
The Company engages in many phases of development activity,
including land and site planning, obtaining environmental and other regulatory
approvals, and contracting for the construction of roads, sewer, water, and
drainage facilities, recreation facilities, and other amenities.
The Company agreed to sell the 812 acre residential portion of its
Lionsgate property in 1994, while keeping 88 acres for the future development
of offices and a shopping center. Management remains committed to quality
developments and dedicated to planned communities and will continue to consider
the purchase of additional land for future development of planned communities.
The Company also continues to market the 12 remaining condominium
units in its upscale Alameda Towers project. The project was completed and sales
commenced in September 1989. The project was originally conceived as having two
connected towers with approximately 120 units. However, the Company currently
has no plans to complete the second tower. Revenues from sales of condominiums
were $5.6 million in 1994, $2.5 million in 1995 and $2.9 million in 1996.
FUTURE ACQUISITIONS AND DEVELOPMENT.
Management's objective is to earn a normalized annual cash flow rate
of return of at least 10% on new acquisitions of income producing properties and
higher rates of return on properties that the Company develops. Management
believes that the Company's reputation for quality and its extensive knowledge
and thorough understanding of the Kansas City market gives it a distinct
advantage in purchasing, developing, and managing properties compared to many
other real estate entities operating in the area.
DEVELOPMENT FOR THIRD PARTIES.
JCN has, in the past, engaged in the development of retail,
apartment, office, and mixed-use projects primarily for ownership. The
activities involved in the development, renovation, and expansion of retail
centers and mixed-use projects include: initial market and consumer research,
land site evaluation and acquisition, public and governmental approval,
oversight of project design, cost control, contractor selection and supervision,
acquisition of financing, identification of tenants, negotiation of lease terms,
negotiation of partnership and other combination agreements, and promoting
completed projects. Third parties have requested JCN to consider performing
various of these services on their behalf. Management will consider such
requests on a case-by-case basis, and the Company may, in the future, develop
properties or provide services on behalf of third parties.
10
<PAGE>
MANAGEMENT OF PROPERTIES FOR OTHERS.
JCN also operates and manages six properties in which it does not
own a controlling interest. The largest of these is the Plaza West building, a
257,932 square foot office building in which the Company owns a 12.5% interest.
The Company also manages the 147,642 square foot Board of Trade building in
which the Company owns a 49% interest. The remaining properties managed by the
Company, in which the Company has no ownership interest, are primarily
residential in nature and generally include communities or projects developed by
the Company. Management of the Company is considering expanding its third party
real estate management services.
OTHER BUSINESS LINES.
In addition to owning, operating, and managing real property, JCN,
through partnerships and other business combinations, is involved in real estate
brokerage services and providing other services incidental to ownership,
management, and development of real property. A wholly-owned subsidiary of JCN
has a 40% equity interest in J. C. Nichols Real Estate, a residential sales and
brokerage business. J. C. Nichols Real Estate also has an interest in an entity
which owns a mortgage origination company.
BUSINESS STRATEGY.
Management intends to operate the Company as a real estate operating
company and, as such, retain the majority of the Company's funds from operations
in the business. These funds will be used to reduce indebtedness and to improve
and increase the value of the Company's portfolio of revenue-producing
properties. The Board of Directors of the Company has not determined if, when,
or in what amount future dividends will be declared or paid, but expects that
the primary factor in the Company's total return to shareholders will be the
increase in the Company's equity value per share.
Management will strive to increase the equity value of the Company's
income producing portfolio by increasing the net operating income from existing
properties, increasing the number of properties in its portfolio, and by
reducing the amount of debt associated with its existing properties. The number
of properties in the Company's portfolio is expected to increase by both the
acquisition and development of revenue-producing properties, as well as by the
acquisition of land for development and resale principally in the Midwest, and
predominately in the Kansas City metropolitan area.
In management's opinion, the Kansas City metropolitan area
represents a stable and growing market for the Company's properties. According
to Valuation International, during the period 1992-1996, the Kansas City
metropolitan area population grew at an annual rate of approximately .9%, 26th
among the 50 major metropolitan statistical areas in the United States, while
average household income during the period grew at a rate of 2.2%, 27th among
this same group of cities.
Management believes the Company's strategy of enhancing its existing
portfolio of properties and focusing initially on acquisitions and developments
in Kansas City and surrounding markets allows the Company to best capitalize on
its reputation for quality and its employees' in-depth knowledge and experience
in those markets. Management also believes that by developing, owning, and
managing a diverse portfolio of properties in a relatively small geographic
area, it can better control the overall character of the Company's developments
and thus create greater value than were it to concentrate on a single type of
property over a wider geographic area.
In management's opinion, the success of this strategy is more
appropriately measured by changes in the underlying value of the assets, less
related liabilities, than by "Net Income," as defined by generally accepted
accounting principles. For this reason, management has estimated the fair market
11
<PAGE>
value of the Company's real estate assets at December 31, 1996 and expects to
develop similar estimates at subsequent year-end periods. Management may
consider involving independent third party appraisers in this process, but has
not yet determined the relative cost versus the benefit of doing so.
COMPETITION.
Substantially all of the Company's properties are located in the
Kansas City metropolitan area, except those held in its Iowa investment
partnerships. The Kansas City market area is a highly competitive one for real
estate and real estate services. The Company's retail properties face increasing
competition from newer upscale shopping centers, discount shopping centers,
outlet malls, catalogues, discount shopping clubs, and telemarketing. All of the
Company's retail properties overlap to some degree with the trade area of other
shopping centers. Renovations and expansions at existing competing centers as
well as the development of new centers in the Company's market area could
negatively affect revenues of the Company.
The Company's office building properties compete for tenants
principally with office buildings in the same general geographic location. In
many areas where the Company's office buildings are located, there have been new
office buildings built and planned office building construction which have and
will continue to increase the supply of rentable office space, potentially
placing downward pressure on market rental rates.
With respect to its apartment properties, there are numerous other
apartment properties within the market area of each of the Company's properties
which could have a material effect on the rental rates charged at the
properties, as well as the Company's ability to rent its apartment properties.
JCN competes directly with developers and other buyers with respect
to the acquisition of development sites for retail, office, and apartment
development and for financing sources.
With respect to all of its real estate operations, the Company
competes for tenants and property acquisitions with others who may have greater
resources than the Company and whose management may have more experience in
operating and acquiring properties than the Company's management.
REGULATION AND LEGISLATION.
Federal, state, and local statutes and regulations relating to
environmental protection have not had a material impact on the businesses of
JCN. However, existing properties and future development of other opportunities
by JCN may require additional capital and other expenditures in order to comply
with such statutes and regulations. It is impossible at this time to predict
with any certainty the magnitude of any such expenditures or the long range
effect, if any, on JCN's operations. JCN is currently not aware of any material
violation of any applicable environmental statute or regulation with respect to
any of its properties owned, managed, or held for development.
The federal government and the states in which JCN operates have
adopted handicapped facilities and energy laws and regulations impacting the use
and development of real estate. These laws and regulations may operate to reduce
the number, attractiveness, and investment potential of properties and
developments available to JCN. JCN has reviewed the properties it owns or in
which it has an interest to determine the extent and amount of capital
expenditures necessary to comply with the aforementioned laws and regulations.
These expenditures will be incurred by the Company over the course of the next
several years as modifications to such properties are undertaken. The
expenditures to be incurred by the Company as a result of such modifications are
not expected to be material in any single year.
12
<PAGE>
GENERAL CONDITIONS.
General economic conditions and trends, including interest rates,
inflation, availability of credit, real estate trends, construction costs,
income tax laws, governmental regulations and legislation, increases or
decreases in operating expenses, zoning laws, population trends, and the ability
of JCN to attract tenants and purchasers for its properties, among other
factors, will affect JCN's success.
Generally, JCN's business and that of the industry is not seasonal
in nature.
RELIANCE ON CUSTOMERS OR TENANTS.
None of JCN's business segments depends upon a sole customer or
tenant or a few customers or tenants, the loss of which would materially
adversely affect the business or financial condition of JCN. No single customer
or tenant accounts for 5% or more of the consolidated revenues of JCN.
EMPLOYEES.
JCN and consolidated subsidiaries directly employed approximately
300 full or part-time employees as of December 31, 1996. Overall, management
believes JCN has good employee relations.
STOCK SPLIT.
On May 29, 1996, the shareholders of JCN approved a resolution to
amend the Articles of Incorporation of JCN to increase from 225,000 to
10,000,000 the number of shares of common stock authorized for issuance by the
Company and to decrease the par value per share of common stock from $20.00 to
$.01. Additionally, the Board of Directors of JCN approved, in conjunction with
such increase in the authorized number of shares and decrease in the par value,
an 80-for-1 stock split of the Company's common stock for all issued and
outstanding shares not then held in the Company's treasury.
The increase in the number of shares authorized, decrease in par
value, and stock split described above had offsetting effects on the
shareholders' equity section of JCN's consolidated balance sheet. The common
stock, par value line of the shareholders' equity section of JCN's consolidated
balance sheet decreased from $4,500,000 to $100,000, with an offsetting increase
in the additional paid in capital line of the consolidated balance sheet from
$2,679,000 to $7,079,000.
Unless otherwise indicated in this Form 10-K, all references to per
share data shall be on a post-stock split basis.
ITEM 2. PROPERTIES
Management has estimated the market value of the Company's real
estate holdings, including the properties itemized below, to be approximately
$514 million as of December 31, 1996 (including the Company's percentage
interest in the real estate holdings of consolidated and unconsolidated
subsidiaries, but exclusive of any related liabilities or potential liquidation
costs). The estimated value of the Company's wholly-owned real estate holdings
and the Company's percentage interest in real estate holdings of consolidated
subsidiaries was determined to be approximately $459 million at December 31,
1996. The carrying value of such holdings was $199 million at December 31, 1996.
The estimated value of the Company's interest in real estate holdings of
unconsolidated subsidiaries was determined to be approximately $55 million. The
Company's interest in the carrying value of properties held by unconsolidated
subsidiaries was approximately $34 million at December 31, 1996. Market values
were determined based on a market capitalization approach for revenue-producing
properties and estimates of fair value based on the values of comparable
properties for land and improvement inventories and property held for future
development. Under the market capitalization approach for revenue-producing
properties, capitalization rates were determined based on the characteristics of
each property (such as age, property type, location, condition, etc.) and by
reference to information on capitalization rates made available by Valuation
International, an independent valuation source. The capitalization rates were
applied to stabilized net operating income amounts for each revenue-producing
property less an estimate of recurring capital expenditures. Capitalization
rates applied ranged from 8% to 15%. Management's estimate of market value is
primarily based upon the value of these assets as an investment and is not
intended to present the current liquidation value of real estate holdings. Such
an estimation requires significant and subjective judgments to be made by
management. These estimates are based on information and assumptions considered
by management to be adequate and appropriate under the then existing
circumstances. The estimates are not based on technical appraisals and may
change from time to time as economic and market factors change, and as
management evaluates those and other factors.
13
<PAGE>
<TABLE>
<CAPTION>
Land Rentable Percent
Ownership Company's Year Year Area Area Leased
Name/Location Interest Ownership Developed Acquired (Acres) (Sq. Ft.) 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL
- ------
KANSAS CITY, MISSOURI
Country Club Plaza (Retail
only, includes basement space)
Millcreek Block Fee 100% 1920 1906-1910 0.971 51,114 80%
Triangle Block Fee 100% 1925 1906-1910 0.435 25,634 100%
Balcony Block Fee 100% 1925 1906-1910 1.068 38,571 100%
Macy Building Fee 100% 1926 1906-1910 0.555 71,365 96%
Esplanade Block Fee 100% 1928 1906-1910 1.838 145,694 100%
Plaza Central Fee 100% 1958 1906-1910 1.478 9,653 93%
Theatre Block Fee 100% 1928 1906-1910 1.223 99,699 100%
Swanson Block Fee 100% 1967 1906-1910 1.373 78,020 100%
Halls Building Fee 100% 1964 1906-1910 1.346 73,680 100%
Nichols Block Fee 100% 1930 1906-1910 1.161 59,085 100%
Time Block Fee 100% 1929 1906-1910 2.859 249,844 100%
48th & Penn Fee 100% 1948 1906-1910 0.560 37,654 100%
Seville Shops West Fee 100% 1980 1906-1910 2.972 19,517 100%
Plaza Savings South Fee 100% 1948 1906-1910 0.853 39,967 91%
Court of the Penguins Fee 100% 1945 1975 0.678 28,707 100%
Seville Square Fee 100% 1945 1975 0.832 70,426 92%
Colonial Shops Fee 100% 1907 1907 0.517 14,160 100%
Crestwood Shops Fee 100% 1932 1923 1.079 20,261 100%
Brookside Shops (Retail Fee 100% 1919 1920 10.000 159,254 100%
only)
Romanelli Shops Fee 100% 1925 1925 1.500 24,360 100%
Red Bridge Shops (Retail Fee 100% 1959 1959 21.592 153,015 100%
only)
Romanelli Annex (Retail Fee 100% 1963 1993 1.000 4,500 100%
only)
GRANDVIEW, MISSOURI
Grandview Shops Fee 100% 1987 1987 2.623 34,140 99%
SHAWNEE MISSION, KANSAS
Westwood Shops Fee 100% 1926 1926 0.626 5,773 56%
Fairway Shops Fee 100% 1940 1940 3.558 49,582 100%
Prairie Village Shops Fee 100% 1948 1948 21.375 363,311 98%
(Retail only)
Corinth Square Shops Fee 100% 1962 1955 24.987 231,550 100%
95th & Mission Shops Fee 100% 1965 1972 1.788 13,136 100%
14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Land Rentable Percent
Ownership Company's Year Year Area Area Leased
Name/Location Interest Ownership Developed Acquired (Acres) (Sq. Ft.) 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
Corinth Shops South Fee 100% 1953 1953 6.880 86,390 98%
Trailwood Shops Fee 100% 1968 1972 8.855 57,583 100%
Trailwood III Shops Fee 100% 1986 1972 2.946 25,279 60%
96th & Nall Shops Fee 100% 1976 1981 1.027 7,202 100%
Shannon Valley Shops Fee 100% 1988 1988 11.378 98,127 100%
Oak Park Mall Land Lease Fee 100% 1959 1959 109.000 N/A 100%
Georgetown Market Place Fee 100% 1974 196 12.191 101,613 98%
OLATHE, KANSAS
119th Plaza Fee 100% 1994 1992 7.261 47,623 100%
INDUSTRIAL
- ----------
KANSAS CITY, MISSOURI
Bannister Business Center Fee 100% 1985 1985 4.365 32,346 96%
SHAWNEE MISSION, KANSAS
Quivira Business Park
Building A Fee 100% 1975 1973 1.695 20,848 100%
Building B Fee 100% 1973 1973 2.064 12,960 92%
Building C Fee 100% 1973 1973 1.589 20,778 100%
Building D Fee 100% 1973 1973 1.597 20,798 100%
Building E Fee 100% 1973 1973 2.156 28,797 91%
Building F Fee 100% 1973 1973 2.346 29,876 100%
Building G Fee 100% 1973 1973 1.913 21,136 100%
Building H Fee 100% 1973 1973 2.485 26,060 100%
Southwestern Bell Fee 100% 1973 1973 3.127 58,644 100%
Building J Fee 100% 1973 1973 2.953 46,764 100%
Building K Fee 100% 1985 1965 1.179 9,017 100%
Building L Fee 100% 1985 1965 1.223 8,891 100%
URBANDALE, IOWA
Meredith Drive Fee 49.5%(1) 1986 1985 13.910 200,000 100%
OFFICE
- ------
KANSAS CITY, MISSOURI
Country Club Plaza
(Office only)
Millcreek Block Fee 100% 1925 1925 N/A 11,463(2) 72%
Balcony Block Fee 100% 1928 1928 N/A 10,096(2) 97%
Esplanade Block Fee 100% 1945 1945 N/A 37,133(2) 92%
Theatre Block Fee 100% 1928 1928 N/A 29,740(2) 100%
Nichols Block Fee 100% 1938 1938 N/A 13,310(2) 100%
15
<PAGE>
Land Rentable Percent
Ownership Company's Year Year Area Area Leased
Name/Location Interest Ownership Developed Acquired (Acres) (Sq. Ft.) 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
Time Block Fee 100% 1945 1945 N/A 25,964(2) 95%
Seville Square Fee 100% 1962 1962 N/A 20,412(2) 83%
Parkway Building Fee 100% 1906-1910 1955 0.588 26,365(2) 94%
Brookside (Office only) Fee 100% 1919 1919 N/A 6,796(2) 95%
Romanelli Annex (Office Fee 100% 1963 1993 N/A 7,948 89%
only)
Two Brush Creek Fee 100% 1983 1983 1.500 63,325 98%
One Ward Parkway Fee 100% 1980 1980 1.500 54,580(2) 98%
Red Bridge Professional Fee 100% 1972 1976 1.428 40,693(2) 100%
Park Plaza Fee 100% 1983 1983 0.952 80,315 98%
4900 Main Fee 100% 1986 1985 5.000 182,153 100%
Board of Trade Fee 49%(1) 1966 1966 3.000 147,642(2) 99%
Park Central Fee 51%(1) 1988-1990 1994 1.500 110,413 97%
Park Central II Fee 51%(1) 1994 1994 2.500 37,718 100%
Plaza West Fee 12.5%(1) 1988 1989 3.000 257,932 92%
SHAWNEE MISSION, KANSAS
Prairie Village (Office only) Fee 100% 1956 1956 1.500 9,265(2) 92%
Corinth Office Building Fee 100% 1960 1984 2.142 45,600(2) 99%
Corinth Executive Building Fee 100% 1973 1986 3.638 44,441(2) 100%
Nichols Building Fee 100% 1978 1979 3.941 37,964(2) 91%
Prairie Village Office Center Fee 100% 1960 1981 4.443 69,002(2) 72%
Brymar Building Fee 100% 1968 1984 1.500 55,890 0%
7315 Building Fee 100% 1978 1975 4.322 44,441(2) 97%
Fairway West Fee 100%(3) 1983 1948 5.483 67,519 75%
Fairway North Fee 100%(3) 1985 1948 4.141 61,225 95%
Oak Park National Bank Fee 100% 1976 1978 4.038 28,555(2) 97%
DES MOINES, IOWA
Terrace Place Fee 50%(1) 1987 1987 1.500 51,058 83%
WEST DES MOINES, IOWA
Crestwood Building Fee 90%(1) 1987 1987 3.208 29,967 88%
Highland Building Fee 90%(1) 1987 1987 6.120 72,637 84%
Waterford Building Fee 60%(1) 1990 1988 4.414 51,793 100%
Edgewater Fee 60%(1) 1989 1988 8.629 102,400 93%
Veridian Fee 60%(1) 1989 1988 7.480 78,116 71%
Sunset Building Fee 60%(1) 1989 1988 1.763 10,727 100%
Norwest Day Care Center Fee 50%(1) 1994 1994 1.030 6,500 100%
Wedgewood Building Fee 50%(1) 1994 1994 5.170 51,400 97%
16
<PAGE>
Land Rentable Percent
Ownership Company's Year Year Area Area Leased
Name/Location Interest Ownership Developed Acquired (Acres) (Sq. Ft.) 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
Coronado Building Fee 50%(1) 1994 1994 2.500 25,512 100%
Ashford Building I Fee 50%(1) 1993 1993 3.990 41,400 100%
Bristol Building I Fee 50%(1) 1992 1992 5.210 51,400 98%
Ashford Building II Fee 50%(1) 1994 1994 4.110 41,400 100%
Augusta Building I Fee 50%(1) 1994 1994 4.930 50,800 99%
Neptune Building Fee 85%(1) 1986 1986 6.530 61,430 95%
Norwest Card Services Fee 50%(1) 1993 1993 35.250 272,490 100%
Building
Norwood Building I Fee 50%(1) 1996 1996 4.420 42,400 17%
Norwood Building II Fee 50%(1) 1996 1996 4.420 42,400 11%
Palisade Building Fee 50%(1) 1983 1996 18.00 155,112 63%
APARTMENTS
- ----------
KANSAS CITY, MISSOURI
Coach House South Fee 100%(3) 1986-1987 1986-1987 35.276 489 units 100%
Wornall Road Fee 100% 1918 1968 0.220 17 units 100%
Coach House Fee 100%(3) 1984 1984 8.930 160 units 99%
Coach Lamp Fee 100% 1961 1962 8.500 158 units 97%
Saint Charles Fee 100% 1922 1971 0.150 12 units 100%
Alta Loma Fee 100% 1918 1983 0.210 18 units 100%
Biscayne Towers Fee 100% 1918 1975 0.200 24 units 100%
Santa Ana Fee 100% 1960's 1987 0.160 11 units 100%
Valencia Fee 100% 1918 1983 0.320 19 units 100%
La Solana Fee 100% 1918 1986 0.210 18 units 100%
Neptune Fee 100% 1988 1988 N/A 96 units 99%
Regency Fee 100% 1960 1976 1.150 131 units 99%
Sulgrave Fee 100% 1967 1976 1.410 144 units 96%
Park Lane Fee 100% 1924 1975 0.300 89 units 100%
Penn Wick Fee 100% 1960's 1987 0.150 6 units 100%
Cole Gardens Fee 100% 1960 1986 0.200 8 units 100%
Tama Fee 100% 1960's 1979 0.140 6 units 100%
Wornall Point Fee 100% 1950 1987 0.200 24 units 92%
SHAWNEE MISSION, KANSAS
Corinth Gardens Fee 100% 1961 1995 3.722 52 units 100%
Kenilworth Fee 100% 1965 1972 17.219 246 units 97%
Corinth Place Fee 100%(3) 1987 1987 7.888 76 units 99%
Mission Valley Fee 100% 1964 1972 5.300 89 units 95%
Corinth Paddock Fee 100% 1973 1995 10.128 126 units 95%
17
<PAGE>
Land Rentable Percent
Ownership Company's Year Year Area Area Leased
Name/Location Interest Ownership Developed Acquired (Acres) (Sq. Ft.) 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
JOHNSTON, IOWA
Winwood Apartments Fee 65%(1) 1986-1987 1985 31.237 418 units 80%
REAL ESTATE LOTS
AND MISCELLANEOUS
- -----------------------
SHAWNEE MISSION, KANSAS
Whitehorse (Residential) Fee 100% 1994 1983 32.878 N/A N/A
Whitehorse (Unplatted) Fee 100% N/A 1984 22.174 N/A N/A
Whitehorse (Commercial Fee 100% N/A 1983 69.844 N/A N/A
and Multi-Family)
Green Meadows Fee 100% 1986-1996 1984 26.198 N/A N/A
Green Meadows (Unplatted) Fee 100% N/A 1983 16.958 N/A N/A
Lionsgate Fee 100% N/A 1989 569.000 N/A N/A
(Residential--under
contract)
Lionsgate (Commercial) Fee 100% N/A 1989 88.000 N/A N/A
Woodsonia (Residential) Fee 100% 1985-1996 1981 20.152 N/A N/A
Woodsonia (Commercial Fee 100% 1985-1996 1981 101.240 N/A N/A
and Residential)
Clear Creek Fee 100% N/A 1981 371.000 N/A N/A
KANSAS CITY, MISSOURI
Alameda Towers Fee 100% 1988-1996 1988 15 units N/A N/A
(Condominiums)
54 Rental Houses Fee 100% N/A 1928-1989 10.800 N/A 85%
Vacant Commercial Land Fee 100% 1974 1954-1972 49.400 N/A 100%
and Land Leases (See
p. ___ For Detail)
Building Lease (See Fee 100% N/A 1929 2.928 1,200 100%
p. ___ For Detail)
LEE'S SUMMIT, MISSOURI
Lakewood Sales Office Fee 100% 1975 1993 8.738 1,363 100%
SHAWNEE MISSION, KANSAS
Vacant Commercial Land Fee 100% 1956-1972 1956-1972 237.790 N/A 100%
and Land Leases (See
p. ___ For Detail)
Corinth Place Villas (3 Fee 100% 1989 1957 0.400 N/A 100%
rental condominiums)
Farm Houses and Buildings Fee 100% 1940 1981-1983 N/A N/A N/A
OLATHE, KANSAS
Land Leases (See Fee 100% 1960 1995 1.070 N/A 100%
p. ___For Detail)
18
<PAGE>
Land Rentable Percent
Ownership Company's Year Year Area Area Leased
Name/Location Interest Ownership Developed Acquired (Acres) (Sq. Ft.) 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
OSAGE CITY, KANSAS
Manufactured Homes Plant Fee 100%(4) 1985 1985 29.800 N/A 100%
STONE COUNTY, MISSOURI
Ozark Mountain Village Lots Fee 100% 1986-1995 1986 60.000 N/A N/A
MIAMI COUNTY, KANSAS
810 Acre Farm (Someday, Fee 100% N/A 1994 810.000 N/A 100%
Inc.)
Vacant Land Fee 100% N/A 1983 33.000 N/A N/A
DES MOINES, IOWA
Vacant Commercial Land Fee 50%(1) N/A 1984-1985 94.000 N/A N/A
Vacant Commercial Land Fee 49.5%(1) N/A 1985 12.000 N/A N/A
SANTA FE, NEW MEXICO
Sun Mountain Village Fee 44.1%(1) 1986 1986 6.000 74 lots N/A
Partners
ST. PETERSBURG, FLORIDA
Bay Plaza Shops Fee 100% 1992 1990 5.211 N/A N/A
Tropicana Fee 100% 1914 1992 1.000 39,690 75%
Women's Tennis Fee 50%(1) 1990 1990 0.750 13,367 100%
Association
South Core Parking Garage Fee 50%(1) 1991 1991 1.520 132.343 50%
</TABLE>
(1) The indicated percentage interest in the property reflects the
interest of the Company in the entity that owns the property.
(2) This square footage represents useable rather than rentable square
footage.
(3) The Company shares 50% of the cash flow from this property with an
outside entity providing credit enhancement support related to the
financing of such property.
(4) The Company owns a 99% profit sharing interest and a 100% loss
sharing interest in the partnership that owns this facility.
In the opinion of management, all properties of the Company listed above are
adequately insured.
The Company's only property that provided 10% or more of total
1996 rental income or 10% or more of the total gross land and building assets of
the Company at December 31, 1996 is the "Plaza" project, when the multiple
blocks of the Plaza are considered to be a single property.
19
<PAGE>
The following table summarizes the principal types of business
located on the Plaza at December 31, 1996, and the percentage of total square
footage occupied by each principal type of business.
TYPE OF BUSINESS % OF TOTAL SQUARE FOOTAGE
- ----------------------------------------------------------
Anchor (Department Stores) 23%
Miscellaneous Retail 15%
Office Space 17%
Restaurants and Food 14%
Apparel 11%
Specialty Items 8%
Vacant Space 4%
Bookstores 3%
Home Accessories 3%
Art Galleries 2%
-----------
TOTAL 100%
===========
The following table summarizes the Plaza's occupancy rates and
average rental rates per square foot (showing only "minimum" rents or rents
excluding the percentage component and operating expense recoveries) for the
last five years. These figures include both the retail and office portions of
the Plaza.
1992 1993 1994 1995 1996
- -------------------------------------------------------------------------------
Occupancy Percentage 97% 94% 93% 95% 96%
Average Rental Rate Per
Square Foot (Exclusive of
Basement Space) $9.15 $10.20 $10.83 $11.29 $11.45
20
<PAGE>
The following table sets forth for each of the next ten years and
all years thereafter (i) the number of leases on the Plaza that expire in each
period; (ii) the square feet covered by such leases expiring (excluding basement
space); (iii) the gross annual minimum rent revenue represented by such leases;
and (iv) the percentage of total gross annual minimum rent revenue from such
expiring leases based on December 31, 1996 rents. No single tenant leases more
than ten percent of the total rentable square footage at the Plaza.
<TABLE>
<CAPTION>
% of Total
Annualized
No. of Approximate Annualized Minimum Minimum Rent
Leases Leased Area Rent Under Represented
Date Expiring In Square Feet Expiring Leases ($) By Expiring Leases
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 93 117,803 1,497,866 13%
1998 34 58,678 755,175 6%
1999 31 140,547 1,145,388 10%
2000 27 84,777 1,476,338 12%
2001 23 78,954 1,197,067 10%
2002 9 29,389 403,426 3%
2003 9 50,643 903,704 8%
2004 8 36,647 501,931 4%
2005 11 57,409 992,372 8%
2006 10 43,984 891,692 8%
Thereafter 19 247,293 2,172,726 18%
-----------------------------------------------------------------------------------------------
TOTAL 274 946,124 $11,937,685 100%
================================================================================================
</TABLE>
The following table sets forth tax information for the Plaza.
<TABLE>
<CAPTION>
Federal Rate of 1996
Tax Basis Depreciation Method Life (In Years) Property Taxes
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Plaza $56,517,416 2% - 33% Straight Line 3-40 $1,733,673
</TABLE>
As discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the Company has announced a $240 million
comprehensive plan to redevelop areas in and around the Plaza. The Plan is to be
executed over the next ten years and is contingent on market demand and approval
of tax increment financing sought by the Company.
ITEM 3. LEGAL PROCEEDINGS
On April 20, 1995, a shareholder derivative lawsuit was filed in
which the Company, each of the then existing members of the Board of Directors
of the Company, and the Bowser Partnership were named as defendants. Among other
things, the plaintiffs alleged a breach of fiduciary duties by the then existing
directors of the Company and alleged that certain then existing officers of the
Company had engaged in insider transactions from which they benefitted
personally at the expense of the Company. Specifically, the plaintiffs alleged
that the former chief executive officer and former chief financial officer of
the Company: (i) acquired in a series of transactions certain real property and
other assets from the Company without paying fair value therefor; (ii) conveyed
real property and other assets to the Company in exchange for assets of far
greater value; (iii) caused the Company to make loans and investments unrelated
to the business of the Company and intended for their
21
<PAGE>
personal benefit; and (iv) failed to disclose to or attempted to conceal certain
of the foregoing matters from the other members of the board of directors. The
other members of the board of directors were named as defendants because of
their alleged failure to identify and prevent the foregoing actions.
This litigation was followed by a lawsuit initiated on behalf of the
beneficiaries of the ESOT against many of those defendants, including the
Company, named in the shareholder derivative lawsuit. The ESOT beneficiaries
alleged that the foregoing transactions resulted in damages to them because
of the significant interest in common stock of the Company held by the ESOT.
After completion of an internal investigation by a committee of outside
directors of the Company, the Company then filed a lawsuit against many of the
defendants named in the shareholder derivative lawsuit. All of such legal
actions were consolidated in the Federal District Court, Western District of
Missouri, where certain litigants, including the Company, requested, among
other things, that the District Court rescind certain transactions to which
individuals who were then officers or directors of the Company were a party.
The consolidated litigation ended when the Company and the other
parties thereto entered into a Mutual Release and Settlement Agreement dated as
of June 30, 1995 ("Settlement Agreement"). The parties to the Settlement
Agreement included the shareholders who had initiated the derivative litigation,
the Company, the ESOT beneficiaries that had initiated the litigation on behalf
of all ESOT participants, all of the individuals who were then directors of
the Company, four former directors of the Company who were on the Board of
Directors of the Company at the time of certain transactions that were, in
part, the subject of the litigation, the individuals who were at various times
prior to the Settlement Agreement the trustees of the ESOT, certain individuals
and entities related to or under the control of the former chief executive
officer and former chief financial officer of the Company, and SunChase Capital,
Inc. and Realty Capital Company, two outside entities that had entered into a
business arrangement with the Company prior to the Settlement Agreement. The
provisions of the Settlement Agreement that are material to the Company, and in
parenthesis, the impact of each such provision on the Company's recognition of
$19.6 million in net litigation settlement expense are as follows: (i) the
Company received, in total, $6.6 million in cash from the insurance companies
providing director and officer liability insurance and a fiduciary policy ($6.6
million income); (ii) the Company agreed to indemnify the then existing
directors and former directors for their litigation expenses and the Company
agreed to pay all attorney's fees, costs and expenses incurred on behalf of the
shareholders initiating the shareholder derivative litigation and on behalf of
the ESOT beneficiaries ($8.1 million expense); (iii) the Bowser Partnership
conveyed to the Company 125,242 shares (pre-split) of stock of the Company
acquired by that partnership from the ESOT, and the indebtedness owed by the
Bowser Partnership to the Company was deemed satisfied (no effect); (iv) all
rights of the Bowser Partnership and other entities pursuant to an option
agreement entered into with the ESOT were forfeited (no effect); (v) the former
chief executive officer of the Company conveyed to the Company 5,719 shares
(pre-split) of stock of the Company ($4.3 million income); (vi) the former chief
executive officer of the Company conveyed to the Company 6,508 shares of stock
of the Company that were pledged as collateral for an obligation owed to another
defendant in the litigation ($4.9 million income), and the Company agreed to pay
approximately $6.1 million to acquire such shares ($6.1 million expense); (vii)
the Company agreed to pay $3.6 million to the former chief executive officer of
the Company ($3.6 million expense), indebtedness owed by such individual or
other individuals to the Company or its subsidiaries, in the approximate amount
of $8.1 million, was cancelled ($5.6 million expense, net of reserves at
December 31, 1994 of $2.5 million), and $1.1 million of obligations of the
Company to such individuals was cancelled ($1.1 million income); (viii)
the Company received title to six properties from an entity controlled by the
former chief executive officer of the Company and indebtedness owed to the
Company relating to such properties was canceled (no effect); (ix) the Company
received a new secured note in the approximate amount of $1.2 million from an
entity affiliated with the former chief financial officer of the Company in
replacement of accounts receivable of the same amount (no effect);
(x) the former chief financial officer of the Company agreed to provide to
the Company the benefits of stock ownership of certain stock of an
entity affiliated with the Company (no effect); (xi) the Company agreed to
transfer 8,500 shares (pre-split) of stock received from the Bowser Partnership
22
<PAGE>
and to pay $2 million to the ESOT or the beneficiaries of the ESOT ($13.1
million expense); (xii) the Company agreed to appoint an independent
institutional trustee for the ESOT.
A summary of litigation settlement expenses is set forth in note
15 to the consolidated financial statements of the Company.
Except for those involving the ESOT, nearly all transactions,
conveyances, payments, and extinguishment required by the Settlement Agreement
were completed by November 30, 1995. As part of the Settlement Agreement, the
Company was given the option to submit to the IRS a request for a private letter
ruling on matters related to the ESOT's duties pursuant to the Settlement
Agreement. The private letter ruling request may result in JCN entering into a
closing agreement with the IRS, and the Company may be requested to pay to the
IRS some amount in order to obtain such a closing agreement.
The Company has entered into a separate agreement (the "Resolution
Agreement") with its prior auditor, Deloitte & Touche LLP, pursuant to which its
prior auditor denied any wrongdoing or fault and agreed to resolve disagreements
with the Company that arose out of the circumstances that were the subject of
the Settlement Agreement referred to above. The Resolution Agreement resulted in
the Company receiving a $4.6 million payment from Deloitte & Touche LLP and
recognizing approximately $3.2 million in income that is included within the
amount set forth under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Comparison of Year Ended
December 31, 1996 to Year Ended December 31, 1995 -- Other." The Resolution
Agreement also included a broad release by the Company of any claims it may have
against Deloitte & Touche LLP and an agreement by the Company to provide to
Deloitte & Touche LLP and various affiliates and related persons broad
indemnification, subject to a $2.5 million cap, for any losses, costs, or
expenses that Deloitte & Touche LLP and such affiliates and related persons may
in the future incur as a result of the prior auditor's relationship with the
Company.
The Company filed as a plaintiff on December 22, 1995 a petition
against its former attorney, Charles Schleicher, and the law firm of Schleicher
Latz, P.C. alleging certain breaches of fiduciary duties and obligations as an
attorney and the attorneys for the Company, and alleging certain failures in
performance of duties as attorney and attorneys for the Company. The suit
against Mr. Schleicher and his law firm was filed in the Circuit Court of
Jackson County, Missouri. The Settlement Agreement described above limits the
potential recovery realizable by the Company to $2.0 million. The actual amount
recovered by the Company, by settlement or otherwise, may be substantially less
than such amount.
The Company has no claims pending against it and no claims pending
by it against others that relate to the matters covered by the Settlement
Agreement, arise out of events or circumstances that gave rise to the Settlement
Agreement, or involve former officers, former directors, or professionals
providing services to the Company prior to the Settlement Agreement.
The Company has filed as a plaintiff a $3.0 million proof of claim
in the National Gypsum bankruptcy proceeding pending in United States Bankruptcy
Court, Northern District of Texas. The Company received an initial payment in
1996 of approximately $378,000. The Company's proof of claim in the National
Gypsum bankruptcy is based on tort liability arising from claims relating to the
quality of certain materials used in the construction of properties owned by the
Company. Total payments received by the Company under the National Gypsum plan
of reorganization will not equal the full amount of the proof of claim
originally filed by the Company. However, counsel for the Company has advised
management that such plan does provide for two additional payments on the
Company's claim that are expected to total approximately $800,000. Such
additional payments, if any, will be booked as income when received.
23
<PAGE>
The Company was named as a defendant in a complaint filed by
Petula Associates ("Petula") in December 1996 in the United States District
Court, Western District of Missouri. The complaint relates to a cost and revenue
sharing agreement entered into between the Company and Petula in 1985 for
construction and operation of the Coach House South Apartment complex now owned
by the Company. Construction of this project, which was accomplished with
modular units provided by Marley Continental Homes of Kansas, an affiliate of
the Company, cost more than budgeted. Petula's complaint alleges fraud ,
breach of contract, and breach of a fiduciary duty by the Company and seeks
$4.0 million in damages, interest thereon, and exemplary damages. The Company
believes it has meritorious defenses to these claims and expects to
aggressively assert such defenses.
Nichols Equity, Inc., a wholly-owned subsidiary of JCN, received
as defendant a complaint filed by Justin Management, Inc. ("Justin") and
Winstead's Restaurant, Inc. ("Winstead's") in August 1996 in the United States
District Court, Western District of Missouri. The suit sought to compel Nichols
Equity to participate in an arbitration hearing allegedly required by an
agreement allegedly entered into among Nichols Equity, Justin, and Winstead's.
The parties have now agreed to an arbitration hearing to determine whether a
separate provision of the agreement should be enforced which purports to require
Nichols Equity to forfeit its interest in 47th Street Development Corporation,
Grand Street Partners I, L.P., and Creekview Partners II, L.P. An adverse
outcome in this arbitration is not expected to have a material adverse impact on
the financial condition of the Company or results of operations.
The Company and its subsidiaries are parties to certain other
legal proceedings incident to their business. In the opinion of management, none
of these other matters, either individually or in the aggregate, is material to
the Company's financial condition or results of operations. All material legal
proceedings are described above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
24
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, UNREGISTERED SALES OF EQUITY
SECURITIES AND RELATED STOCKHOLDER MATTERS.
Although there is currently no established trading market for
shares of common stock of the Company, such shares have for many years been
traded over-the-counter very infrequently through inter-broker bulletin boards
trading under the symbol "NCJC.BB." The high and low bid information reflecting
inter-dealer bulletin board prices without retail mark-up, mark-down or
commission, for each quarter during the three most recent fiscal years is as
follows:
1994 HIGH LOW
1st Quarter $6.25 $5.625
2nd Quarter $6.25 $5.625
3rd Quarter $7.375 $7.3125
4th Quarter $9.375 $7.1875
1995 HIGH LOW
1st Quarter $11.41 $9.375
2nd Quarter $10.3125 $10.00
3rd Quarter No Trades No Trades
4th Quarter $21.875 $14.375
1996 HIGH LOW
1st Quarter $21.0625 $20.00
2nd Quarter $36.50 $32.00
3rd Quarter $34.00 $28.125
4th Quarter $31.0625 $27.00
These quotations merely reflect the prices at which transactions
were proposed, and do not necessarily represent actual transactions. The
quotations on March 21, 1997, were Bid $31.00 and Ask $33.50.
The Company has 80,000 shares of its common stock that are subject
to a vested option held by Mr. Brady, President and Chief Executive Officer.
Other than 304,302 shares of common stock held by the Company's Employee Stock
Ownership Trust and various other shareholders, the 3,849,358 currently
outstanding shares of common stock of the Company may be sold pursuant to Rule
144 under the Securities Act of 1933, as amended (the "Securities Act"). The
Company has entered into no agreements to register any shares of its common
stock pursuant to the Securities Act and is not publicly offering, and has not
publicly proposed to offer, any of its shares of common stock.
The number of shares reflected in the foregoing paragraph does not
include the 680,000 shares awaiting conveyance to the ESOT or ESOT beneficiaries
and does not include any shares subject to options granted to management of the
Company, but not yet exercised.
25
<PAGE>
HOLDERS.
As of March 21, 1997, there were approximately 166 record holders
of common stock and including those individuals and entities for whom shares are
held in nominee or street name by brokers, there were approximately 306 holders
of the common stock.
DIVIDEND POLICY.
Prior to 1995, the Company typically declared and paid an annual
cash dividend of $10.00 on each share of its common stock (or approximately
$.125 per post-split share). No dividend was declared on common stock in 1995 or
1996. The Board of Directors of the Company has not determined if, when or in
what amount future dividends will be declared or paid. The Company is not
currently under any dividend payment prohibition or restriction.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The selected financial data has been derived from the
Company's audited consolidated financial statements for each of the five
consecutive years ended December 31,1996. The information set forth below for
the years 1992 and 1993 is based on the Company's audited financial statements
for those years. Note, however, that the Company's prior auditor qualified its
report on the consolidated financial statements for the years ended December 31,
1993 and 1992 as a result of its inability to obtain sufficient evidence to
evaluate whether certain capitalized cost balances for the Company's Bay
Plaza assets as of December 31, 1993 and 1992 were in excess of recoverable
amounts.
<TABLE>
<CAPTION>
For the Years Ended December 31, 1996 1995 1994 1993 1992
- ----------------------------------- ------------ ------------- -------------- ------------ --------------
(in thousands, except per share data)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results:
Sales and revenues $ 132,628 $ 99,305 $ 94,213 $ 96,204 $ 112,554
Selling, general, operating expenses 45,555 46,118 43,203 44,615 46,769
Interest expense 23,305 27,696 27,049 26,693 33,832
Income (loss) before income taxes and
extraordinary gain 44,652 (16,498) (44,698) 26 5,483
Net income (loss) 27,902 (10,752) (14,534) 510 3,663
Per Share Data:
Income (loss) before extraordinary gain 5.62 (0.74) (2.89) 0.04 0.25
Net income (loss) 5.62 (0.74) (0.96) 0.04 0.25
Dividends 0.00 0.00 0.13 0.13 0.13
Weighted average common shares
outstanding (in thousands) 4,968 14,469 15,136 14,408 14,574
At December 31, 1996 1995 1994 1993 1992
- ------------------------------------- -------------- ------------ ------------- ------------- -------------
(in thousands)
-----------------------------------------------------------------------------
Financial Position:
Total properties $ 220,133 $ 229,524 $ 244,105 $ 239,008 $ 258,785
Total assets 320,327 328,695 350,302 362,112 410,897
Mortgage indebtedness 309,188 326,349 339,881 327,354 400,539
Treasury stock 117,427 117,427 14,582 23,038 22,306
Total stockholders' equity (deficit) (28,606) (36,725) (25,821) (31,568) (29,526)
</TABLE>
As part of the settlement resulting from the 1995 litigation (which
is described in Item 3 ), the Company received from the Bowser Partnership
125,242 shares (pre-split) and became obligated to convey 8,500 shares (680,000
shares post-split) of the Company's common stock and $2.0 million cash to the
ESOT or to beneficiaries of the ESOT. The receipt by the Company of shares from
the Bowser Partnership, which was reflected in the Company's consolidated
financial statements in November 1995, significantly reduced the weighted
average common shares outstanding for the year ended December 31, 1995 and
subsequent periods. The conveyance to the ESOT or the ESOT beneficiaries has not
occurred and will not occur until certain related issues are addressed by the
Internal Revenue Service (the "IRS"). Conveyance of the 680,000 shares of the
Company's common stock will result in a decrease in stockholders' deficit of
$11.1 million, which, together with the $2.0 million cash contribution to be
made, have already been reflected as expenses in the Company's 1995 consolidated
statement of operations and as liabilities in the Company's 1995 and 1996
consolidated
26
<PAGE>
balance sheets. The following table provides pro-forma data for the years ended
December 31, 1996 and 1995, had the conveyance occurred on December 31, 1995:
<TABLE>
<CAPTION>
PRO FORMA FOR CONVEYANCE TO ESOT
Year Ended Year Ended
December 31, 1996 December 31, 1995
<S> <C> <C>
Weighted average common shares outstanding
(in thousands) 5,648 14,469
Net income (loss) (in thousands) $27,902 $(10,752)
Net income (loss) per share $ 4.94 $ (.74)
As of As of
December 31, 1996 December 31, 1995
Total stockholders' equity (deficit)
(in thousands) $(17,556) $(25,675)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's operating results depend primarily upon income from
the rental of its retail, office, industrial, and residential properties. This
income is substantially influenced by the demand for the Company's rental space
in the Kansas City metropolitan area and, to a lesser degree, the Des Moines,
Iowa metropolitan area. The ability of the Company to increase its rental income
is dependent upon its ability to increase either or both of its occupancy rates
and rental rates, control expenses on its existing properties, and to acquire or
develop additional rental properties.
The Company's operating results are also dependent on the demand
for lots in its residential subdivisions. Demand for these lots is influenced by
a number of factors, including population growth in the Kansas City metropolitan
area, availability of existing housing stock, interest rates, tax rates, and the
number and financial health of home builders in the area.
The Company's primary markets in the Midwest have continued to
offer strong and stable local economies. Management believes this will continue
and the markets will offer attractive acquisition and development opportunities
because of their central location, established business and industrial base,
skilled work force, and moderate labor cost.
At December 31, 1996, the occupancy rate for the Company's retail
properties was 97.4%, 96.3% for its Plaza office properties and 82.5% for its
suburban office properties (the lower percentage due principally to one vacant
property which was fully leased in the first quarter of 1997), 98.6% for its
industrial properties and 98.4% for its multi-family residential properties.
On December 19, 1996, the Company announced a comprehensive plan
to redevelop areas on and around the Plaza. The proposed $240 million
redevelopment includes 780,000 square feet of new construction on the Plaza,
rehabilitation of 180,000 square feet of existing structures on the Plaza, and
the addition of 350 residential apartment units near the Plaza. The proposal
also includes construction of 3,965 parking spaces and $5 million of public
amenities on the Plaza. The Company filed on December 20, 1996 an application
with the Tax Increment Financing Commission of Kansas City seeking to use funds
generated from tax increment financing to fund approximately 25% of the proposed
redevelopment. The plan is to be executed over the next ten years and is
contingent on market demand and approval of the tax increment financing sought
by the Company. Accordingly, the Company has not yet identified the source or
sources of funds to be provided by it to fund the proposed redevelopment plan.
Prior to 1995, the Company typically declared and paid an annual
cash dividend of $10.00 on each share of its common stock ($.125 per share
post-split). No dividend was declared on common stock in 1995 or 1996.
27
<PAGE>
RESULTS OF OPERATIONS
Following is a summary of the Company's sales and revenues, costs
and expenses and net income (loss) for each of the three years ended December
31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Sales and Revenues ($000)
For the Years Ended December 31, 1996 1995 1994
================================ ============================================
<S> <C> <C> <C>
Rents $ 79,878 $ 79,818 $ 74,973
Property sales 6,623 6,047 10,694
Commissions and fees 1,232 1,459 1,862
Dividends and interest 4,634 4,806 4,053
Gains on sale of investments and other assets 34,867 5,711 727
Other 5,394 1,464 1,904
=============================================
Total sales and revenues $ 132,628 $ 99,305 $ 94,213
=============================================
Costs and Expenses ($000)
==============================================
For the Years Ended December 31, 1996 1995 1994
================================ ==============================================
Selling, general, and operating expenses $ 45,555 $ 46,118 $ 43,203
Cost of property sales 5,162 3,944 8,822
Interest 23,305 27,696 27,049
Depreciation and amortization 13,954 14,355 18,488
ESOT contribution - 1,787 -
Valuation allowances - 2,350 39,699
Litigation settlement - 19,553 -
Net operations of property subject to debt
extinguishment - - 1,650
=============================================
Total costs and expenses $ 87,976 $ 115,803 $ 138,911
=============================================
Net Income (Loss) ($000)
=============================================
For the Years Ended December 31, 1996 1995 1994
================================ =============================================
Income (loss) before extraordinary item $ 27,902 $ (10,752) $ (43,670)
Extraordinary gain, net of tax - - 29,136
---------------------------------------------
Net income (loss) $ 27,902 $ (10,752) $ (14,534)
=============================================
</TABLE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
SUMMARY. Net income increased by $38.7 million in 1996 from a net loss of $10.8
million in 1995 to net income of $27.9 million primarily as a result of the
gains from disposition of the Company's marketable equity securities portfolio,
the absence of litigation settlement expense in 1996, increased other income,
and lower interest expense.
RENTS. Rental income increased by $60,000 to $79.9 million in 1996. This
increase occurred even though one of the Company's larger office buildings was
substantially vacant during the first half of 1996 while the Company made
significant tenant improvements for a new tenant that is now leasing all of the
vacant space in that building. This vacancy resulted in a $1.8 million reduction
in rental income in 1996. Rental income from the Company's leasehold interest in
the Raphael Hotel of San
28
<PAGE>
Francisco decreased by $489,000 due to the expiration of the underlying lease.
As a result of apartment properties obtained pursuant to the Settlement
Agreement, rental income increased by approximately $700,000 in 1996. The
remainder of the $1.6 million increase is due primarily to $200,000 of certain
nonrecurring items and $1.4 million in improved rents on the Company's office,
retail, and apartment properties.
PROPERTY SALES. Property sales primarily represent sales of residential lots in
subdivisions developed by the Company, sales of condominiums in the Alameda
Towers project, and sales of villas in the Corinth Place Villas project.
Property sales increased by $576,000 (9.5%) to $6.6 million in 1996 and included
lot sales of $2.8 million, condominium sales of $2.9 million, and villa sales of
approximately $945,000. Property sales of $6.0 million in 1995 included $3.5
million of lot sales and condominium sales of $2.5 million.
DIVIDENDS AND INTEREST. Dividends are received on marketable equity securities
held by the Company for investment purposes. Interest income is received on the
Company's cash balances held in banks and on notes receivable. Interest income
fluctuates with interest rates, the level of the Company's excess cash, and the
level of notes receivable. The Company experienced no significant change in
dividends and interest in 1996 as compared to 1995.
GAINS ON SALES OF INVESTMENTS AND OTHER ASSETS. Gains on sales of investments
and other assets represent gains associated with the sales of revenue-producing
properties, property held for future development, marketable equity securities,
and other assets used in the business. These gains fluctuate with the volume of
asset dispositions and the magnitude of the difference between sales proceeds
and carrying value. In early 1996, the Company liquidated for $38.6 million its
entire investment in marketable equity securities held at December 31, 1995,
recognizing a pre-tax gain of approximately $33.0 million. Additionally, in
1996, the Company sold two industrial properties recognizing a pre-tax gain of
approximately $1.6 million.
OTHER. Other includes equity in earnings of unconsolidated affiliates and other
miscellaneous revenues. Other increased by $3.9 million in 1996 to $5.4 million.
This increase resulted primarily from a $4.6 million payment received from
the Company's prior auditor, Deloitte & Touche LLP, pursuant to the Resolution
Agreement described in Item 3. The Company incurred related legal expenses
totaling approximately $900,000 and reserved approximately $500,000 for
potential subrogation claims, to reduce to $3.2 million the amount of income
recognized by the Company as a result of such payment. The payment received by
the Company under the Resolution Agreement has prompted the two insurance
companies that provided officer and director liability insurance to the
Company and participated in payments made pursuant to the Settlement Agreement
to threaten a subrogation claim against the Company. If the insurance companies
were to pursue and prevail on the subrogation claims, the Company may be
obligated to pay to them as much as $3.7 million of the amount received from
its prior auditor. Furthermore, in the Resolution Agreement the Company agreed
to indemnify its prior auditor and various affiliates and related persons
thereof, in an amount up to $2.5 million, from a broad range of losses and
claims that may be incurred by such prior auditor as a result of its
relationship with the Company. See, Item 3, "Legal Proceedings." However,
management of the Company currently believes the occurrence of a material
reduction to the $3.2 million in recognized income is remote. In addition, the
Company received approximately $378,000 as a result of a claim it filed in the
National Gypsum bankruptcy proceeding now pending in the United States
Bankruptcy Court. The Company has received notice that it may receive an
additional $800,000 in satisfaction of such claim. The actual amount and date of
any such payment is uncertain and therefore will not be recorded until received.
See, Item 3, "Legal Proceedings." Earnings from the Company's investment in J.C.
Nichols Real Estate, an unconsolidated affiliate engaged in residential
brokerage services, increased by $255,000 in 1996 as a result of a record year
in its sales volume and net income.
29
<PAGE>
SELLING, GENERAL, AND OPERATING EXPENSES. Selling, general, and operating
expenses (S,G, & O) represent the expenses directly associated with operating
the Company's real estate assets and expenses that are considered to be
overhead. These expenses decreased by $563,000 (1.2%) to $45.6 million in 1996,
principally due to a decline of $2.3 million in operating expenses of the
discontinued Bay Plaza project, a decline of $827,000 in expenses related to the
operation of the Raphael Hotel of San Francisco due to the expiration of the
underlying lease, and the absence of $400,000 of nonrecurring items. These
reductions were partially offset by additional costs of $1.4 million incurred to
secure a new management team, and additional operating expenses of $255,000
related to apartment properties obtained in the Settlement Agreement. The
remainder of the $1.3 million increase over 1995 is due primarily to increased
overhead (primarily legal and professional fees) and property operating costs.
COST OF PROPERTY SALES. Cost of property sales represents the Company's cost
basis in residential lots, condominium units, and villas sold during the year.
The cost of property sales is a function of the number of lots, condominium
units, and villas sold and their underlying cost basis. Cost of property sales
increased by $1.2 million (30.9%) in 1996 to $5.2 million. Of this $1.2 million
increase, the cost of condominium sales increased by $952,000, the cost of lots
sold decreased by approximately $657,000, and the cost of villa sales increased
by approximately $923,000. The gross margin percentage on lot sales was 40% in
1996 as compared to 33% in 1995. The increase in gross margin percentage on lot
sales in 1996 resulted from a change in sales mix, as 1996 sales contained a
larger percentage of sales from higher margin subdivisions. The gross margin
percentage on condominium sales was 11% in 1996, as compared to 37% in 1995. The
decrease in gross margin percentage on condominium sales in 1996 resulted from
the Company incurring greater finishing costs on condominium sales in 1996 than
in 1995. The gross margin percentage on villa sales in 1996 was approximately
2%.
INTEREST EXPENSE. Fluctuations in interest expense occur due to the level of the
Company's interest bearing indebtedness and the effect changes in interest rates
have on the Company's variable rate indebtedness. Interest expense declined by
$4.4 million (15.9%) to $23.3 million in 1996. The primary reasons for this
decline are the pay-down or pay-off of notes and mortgages during 1996 of
approximately $16 million in addition to normal principal amortization, and the
restructuring of a mortgage note as discussed in Note 8 to the Company's
consolidated financial statements.
DEPRECIATION AND AMORTIZATION. Depreciation of the Company's revenue-producing
properties is computed using the straight-line method over the estimated useful
lives of the assets, generally seven to thirty-one years. Depreciation expense
fluctuates to some degree as properties are bought and sold. In addition,
certain financing charges and certain lease related costs are amortized over the
term of the associated loan or lease as applicable. The Company experienced no
significant change in depreciation and amortization in 1996 as compared to 1995.
EMPLOYEE STOCK OWNERSHIP TRUST CONTRIBUTION. The Company maintains an ESOT to
which it has the right to make annual contributions in amounts determined by the
Board of Directors. The Company made no contributions during 1996.
VALUATION ALLOWANCES. The Company's assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
is in excess of its net realizable value. If the carrying value of an asset is
determined, in the opinion of management, to be in excess of its net realizable
value, a charge to expense is recognized in the form of a valuation allowance.
No valuation allowances were recorded in 1996.
30
<PAGE>
LITIGATION SETTLEMENT. In 1995, the Company recorded a one time charge of $19.6
million as "Litigation Settlement" in its consolidated statement of operations
as a result of the Settlement Agreement. The circumstances leading to and the
impact of the Settlement Agreement are described in Item 3, "Legal Proceedings"
and in Note 15 "Litigation and Settlements" of the Company's consolidated
financial statements.
TAX CLAIM. As discussed in Note 10 to the Company's consolidated financial
statements, the Company has proposed to the Internal Revenue Service (IRS)
adjustments to the Company's federal income tax returns in order to claim $92
million of bad debt and accrued interest losses arising from a note receivable
to the Company from a limited partnership owned in part by the Company's former
president. This claim could have a material positive effect on the financial
condition of the Company. The IRS may reject all or a portion of such proposed
adjustments, and there is no assurance the Company will ultimately prevail on
all or any portion of its claimed losses. Accordingly, the Company may not
receive all or any portion of the benefits that result from such claimed losses.
Management of the Company has been advised by counsel that such
counsel believes the claim to be valid. Preliminary discussions with respect to
the Company's proposal to claim the losses have been held with representatives
of the IRS, who are conducting an examination of the Company's returns for the
years 1989 through 1995.
To the extent allowed, the loss would be used first to file for a
refund of taxes paid previously after offsetting deficiencies that may be
proposed by the IRS in connection with its examination (the Company believes it
has previously provided sufficient tax reserves for financial reporting purposes
to cover any such deficiencies); second, the balance remaining, if any, could be
used to offset the recognition of gains in future years that had occurred but
were unrecognized prior to a "change in control," as defined in Section 382 of
the Internal Revenue Code; and finally, after such offset, any remaining amount
may be available annually to reduce other taxable income, subject to limitations
set forth in Section 382.
Consistent with the requirements of generally accepted accounting
principles, none of this potential impact is reflected in the Company's
consolidated financial statements due to its uncertainty.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
SUMMARY. The net loss from continuing operations, before extraordinary items,
decreased by $32.9 million in 1995 from $43.7 million in 1994 to $10.8 million
principally due to increased rental income and gains on sale of investments and
other assets, decreased depreciation and amortization expense, and decreased
valuation allowances. These reductions to the net loss from continuing
operations, before extraordinary items were partially offset by increased
selling, general, and operating expenses and litigation settlement expenses.
RENTS. Rental income increased by $4.8 million (6.5%) to $79.8 million in 1995
due principally to increases in the occupancy and rental rates for the Company's
retail properties and increased rental income of approximately $2.2 million
associated with having a full year of operations in 1995 for an office property
that was acquired in late 1994. Retail occupancy increased from 88% in 1994 to
97% in 1995, while office occupancy rates declined slightly to 89% in 1995 from
90% in 1994. The Company's rental income from apartments increased by 5.1% in
1995 to $18.6 million from $17.7 million in 1994. Contingent rental income, or
percentage rents, remained flat from 1995 to 1994 at approximately $4.2 million.
31
<PAGE>
PROPERTY SALES. Property sales decreased by $4.7 million (43.5%) to $6.0 million
in 1995. Property sales of $6.0 million in 1995 included lot sales of $3.5
million and condominium sales of $2.5 million. Property sales of $10.7 million
in 1994 included lot sales of $4.6 million, condominium sales of $5.6 million,
and villa sales of approximately $500,000.
SELLING, GENERAL, AND OPERATING EXPENSES. Selling, general, and operating
expenses (S, G & O) increased by $2.9 million (6.7%) from $43.2 million in 1994
to $46.1 million in 1995 due principally to a refund of property taxes of
approximately $800,000 received in 1994 and credited against S, G & O, legal and
professional fees of approximately $500,000 incurred in 1995 during the
transition of management and the board of directors, and additional operating
expenses associated with the growth in the portfolio of revenue-producing
properties.
COST OF PROPERTY SALES. Cost of property sales decreased by $4.9 million (55.3%)
from $8.8 million in 1994 to $3.9 million in 1995. Of this $4.9 million
decrease, the cost of condominium sales decreased by $3.4 million, the cost of
lots sold decreased by approximately $800,000, and the cost of villa sales
decreased by approximately $700,000. The gross margin percentage on lot sales
was 33% in 1995 as compared to 31% in 1994. The gross margin percentage on
condominium sales was 37% in 1995 as compared to 11% in 1994. The increase in
gross margin percentage on condominium sales in 1995 resulted from the Company
incurring less finishing cost on condominium sales in 1995 than in 1994.
DEPRECIATION AND AMORTIZATION. In 1995, depreciation and amortization declined
by $4.1 million (22.4%) to $14.4 million principally due to a special one time
expense in 1994. Until 1994, the Company amortized tenant improvements over
their financial reporting or tax lives. In 1994, the Company changed its
depreciation of tenant improvements to correspond with the terms of the
individual leases. This change in amortization resulted in a more conservative
accounting treatment and an increase of approximately $4.0 million in
depreciation expense during 1994.
EMPLOYEE STOCK OWNERSHIP TRUST CONTRIBUTION. In 1995, the Company contributed
1,375 shares (or 110,000 post-split shares) of the Company's common stock valued
at $1.8 million to the ESOT. The Company made no contributions to the ESOT
during 1994.
VALUATION ALLOWANCES. In 1994, the Company recorded a charge of $39.7 million
resulting from valuation allowances, principally due to a reduction in carrying
value of $23.8 million on the Company's Bay Plaza project, $6.0 million on
various notes and accounts receivable of the Company, and $4.6 million on the
Company's Alameda Towers condominium project. The Company recorded a charge of
$2.3 million in valuation allowances in 1995 principally due to further
reductions in carrying value of the Bay Plaza project and various notes and
accounts receivable not related to Bay Plaza. See Note 5 in the Company's
consolidated financial statements.
The Company's development activities on the Bay Plaza Project have
ceased and, after further review by management, its carrying value net of
liabilities was reduced to zero at December 31, 1995. The Company has disposed
of certain of the Bay Plaza Project properties and intends to dispose of the
remaining Bay Plaza Project properties as soon as practical. The various notes
and accounts receivable for which the Company's carrying value was reduced were
related principally to business activities in which the Company is no longer
actively involved. The 1994 valuation allowance related to the Company's Alameda
Towers condominium project reflects the write-off of the costs associated with
Phase II of the project, which has been postponed indefinitely.
LITIGATION SETTLEMENT. In 1995, the Company recorded a one time charge of $19.6
million as "Litigation Settlement" in its consolidated statement of operations
as a result of the Settlement Agreement.
32
<PAGE>
The circumstances leading to and the impact of the Settlement
Agreement are described in Item 3 "Legal Proceedings" and in Note 15 "Litigation
and Settlements" of the Company's consolidated financial statements.
NET OPERATIONS OF PROPERTY SUBJECT TO DEBT EXTINGUISHMENT. On February 22, 1994,
a lender foreclosed on a hotel owned by a venture in which the Company owned a
99% interest. Because of the non-recourse nature of the debt, the Company was
released from its obligations and, as a result, recognized a gain in 1994 of
approximately $29.1 million. See "Extraordinary item" below. Operating expenses
relating to the hotel property of $1.7 million in 1994 were reclassified and
included in the Company's consolidated statement of operations as "Net
operations of property subject to debt extinguishment."
EXTRAORDINARY ITEM. The Company recorded an extraordinary item gain of $29.1
million in 1994. This gain stemmed from a lender's foreclosure on non-recourse
debt secured by a hotel property owned by Kantel L.P., a 99%-owned joint venture
(the "Venture") of the Company and an affiliate of the Ritz-Carlton Hotel
Company ("Ritz").
In 1989, the Company borrowed $70.0 million on a non-recourse
basis using the assets of the hotel as collateral. The hotel did not meet
expected operating results or cash flows, and the Venture was unable to meet its
obligations under the debt and lease agreements.
On February 22, 1994, the lender foreclosed on the hotel, and the
Company was released from its obligation under the non-recourse debt. In
addition to being released from obligations for the principal balance, interest
payable aggregating $14.1 million had been accrued and was included in the
release. As a result of this release, the Company recognized, as an
extraordinary item, a gain of approximately $29.1 million on extinguishment of
debt ($38.3 million net of $9.2 million of income taxes).
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, permanent mortgage
financing, and short term notes payable to banks represent the Company's primary
sources of liquidity to fund recurring capital costs associated with renovating
and renewing leases of the Company's properties, payments on the Company's
outstanding indebtedness, and distributions to shareholders. In January 1996,
the Company replaced its previous lines of credit with a $10 million unsecured
line of credit with Commerce Bank, N.A. (Kansas City, Missouri) bearing interest
at the prime rate. At December 31, 1996, there were no outstanding borrowings on
this line of credit.
Management anticipates that cash generated before debt payments
and capital expenditures, together with the bank line of credit, will provide
adequate liquidity to conduct the Company's operations, fund its recurring
capital costs and interest expense, and permit normal amortization payments on
outstanding indebtedness.
In addition to recurring capital expenditures, management
estimated at the end of 1996 that the Company should plan to expend
approximately $15 million for "deferred maintenance" items over the next five
years in order to maintain and restore the Company's properties to the condition
and quality standards established by management.
At December 31, 1996, the total of the Company's consolidated
interest bearing debt was $311.2 million. Such amount, with certain exceptions
discussed below, bears interest at rates ranging from 3.9% to 10.5%. Of the
Company's consolidated debt at that date, $2.0 million was a note
33
<PAGE>
payable to the ESOT and $309.2 million was mortgage indebtedness. Approximately
$273.3 million of the Company's $309.2 million of mortgage indebtedness at
December 31, 1996, was non-recourse to the Company. By including the Company's
percentage interest in the indebtedness of unconsolidated subsidiaries and
excluding the minority interest percentage in the indebtedness of consolidated
subsidiaries of the Company, the interest-bearing debt of the Company at
December 31, 1996 would be $320.6 million.
Of the Company's $311.2 million in consolidated debt at December
31, 1996, approximately $219.3 million accrued interest at fixed rates and $91.9
million was floating rate debt of various types. The interest expense of the
Company in future periods may be expected to fluctuate with short term interest
rates.
As discussed in Note 8 to the Company's consolidated financial
statements, the Company has restructured two debt agreements since 1992.
At December 31, 1996, the Company has classified as mortgage indebtedness
approximately $10.8 million in debt that will be forgiven if the Company
complies with certain conditions established by the lenders. The $10.8
million in forgiven debt will be amortized into income over the life of
the mortgages through monthly reductions to interest expense. This
amortization reduces the effective rate to the Company on restructured debt to
approximately 3% for financial reporting purposes. This treatment is in
compliance with generally accepted accounting principles, as the sum of the
future undiscounted debt service payments exceeded the face value of the debt
obligations at the time of the restructurings.
Also, as discussed in Note 8 to the Company's consolidated
financial statements, certain agreements to which the Company is a party provide
for a 50% sharing of positive and negative cash flows from operations and
certain capital expenditures. Interest expense recognized for such sharing
arrangements was $929,000, $479,000 and $709,000 for the years ended December
31, 1996, 1995 and 1994, respectively. In addition, at December 31, 1996,
mortgage indebtedness includes a non-interest bearing preference item of $4.0
million related to these agreements. The Company's liability is contingent upon
certain conditions being met upon the sale or refinancing of the mortgaged
properties.
At December 31, 1996, the Company's proportionate share of
interest bearing debt of $320.6 million was equal to approximately 62% of
management's estimated value of the Company's proportionate share of real estate
assets as of that date. Management intends, over a substantial period of time,
to continue to reduce the amount of indebtedness in relation to the fair value
of its existing real estate assets to approximately 50%.
The ESOT currently holds 769,647 shares of the Company's common
stock. As discussed in Note 13 to the consolidated financial statements, the
Company has committed to convey an additional 680,000 shares (8,500 shares
pre-split) of its common stock to the ESOT or to beneficiaries of the ESOT as
part of the Settlement Agreement referred to in Item 3 "Legal Proceedings".
Until such time as shares distributed by the ESOT to its beneficiaries can be
readily traded on an established securities market, the Company is obligated to
repurchase such shares for a specified period of time at a price determined by a
qualified appraiser. The most recent appraisal of the common stock held by the
ESOT was made as of December 31, 1996, and established a price of $35.00 per
share.
Management is taking actions to attempt to develop a liquid market
for shares of the Company's common stock. However, it can give no assurance that
such a market will develop. In the absence of a liquid market, the Company's
obligation to repurchase shares of its common stock that may in the future be
distributed to beneficiaries of the ESOT could constrain the Company's
liquidity. Given expected retirement trends, management expects it can meet
anticipated stock repurchase requirements with funds generated from operations
or additional borrowings.
34
<PAGE>
On January 29, 1997, the Company purchased all outstanding shares
of the Company owned beneficially and of record by AHI Metnall L.P. ("AHI").
Additionally, Mr. John Simon and Mr. James W. Quinn, who are affiliated with
AHI, resigned as directors of the Company.
The Company paid consideration of $27.25 per share, or a total of
$25.9 million for the 948,880 shares of the Company's common stock owned by AHI.
At the closing, the Company delivered to AHI approximately $12.8 million in cash
(which included approximately $39,000 of interest) and executed a promissory
note ("Note") in the approximate amount of $13.0 million (which reflected a
$57,500 reduction for certain expenses), bearing interest at a rate of eight
percent (8%) per annum with interest only payable quarterly. The Note is secured
by the pledge of a mortgage receivable and real property, and the Note is due on
January 29, 1999.
The purchase price for the stock held by AHI was based on a
negotiated price within the range of trades in the fourth quarter of 1996, which
trades were between $27 and $31.06 per share. The purchase by the Company of
such stock decreased the number of outstanding shares of common stock of the
Company from 4,852,400 to 3,903,520 shares. The number of outstanding shares of
common stock of the Company was further reduced to 3,849,358 in January 1997
when the ESOT transferred 54,162 shares to the Company in repayment of a loan
from the Company of approximately $2.0 million.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Net cash provided by operating activities increased by $7.7
million to $29.7 million in 1996. The primary reasons for such increase are
discussed above under "Results of Operations."
Net cash flows used in investing activities increased by $2.8
million in 1996 to $4.6 million, which amount was principally a result of
increasing temporary investments a net amount of $40.4 million, issuing an
additional $6.6 million of notes receivable and investing $8.3 million for
additions to revenue-producing properties. These investments were substantially
offset by the receipt of $8.8 million of payments on notes receivable, sales of
capital assets of $3.1 million and proceeds from the sale of marketable equity
securities of $38.6 million. In 1995, the Company's net cash used in investing
activities of approximately $1.7 million was principally a result of issuing an
additional $6.2 million of notes receivable, investing $7.9 million for
additions to revenue-producing properties and purchasing $3.0 million of
marketable equity securities. These investments were substantially offset by the
receipt of $6.9 million of payments on notes receivable, sales of capital assets
of $5.3 million, and the maturing of marketable securities of $2.4 million.
Net cash used by financing activities decreased by $9.4 million in
1996 to $17.9 million. The principal use of cash in financing activities in 1996
and 1995 was a net reduction of mortgage and notes payable indebtedness of $17.9
million and $22.8 million, respectively.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Net cash provided by operating activities increased by $16.7
million to $22.0 million in 1995. The primary reasons for such increase are
discussed above under "Results of Operations." Additionally, the timing of
income tax payments and refunds relating to the Company's $38 million
extraordinary gain on extinguishment of debt and nonrecurring losses, made net
cash provided by operating activities higher in 1995 as compared to 1994.
Net cash used in investing activities increased by approximately
$1.5 million in 1995 to $1.7 million, which amount was principally a result of
issuing an additional $6.2 million of notes receivable, investing $7.9 million
for additions to revenue-producing properties, and purchasing $3.0 million of
35
<PAGE>
marketable equity securities. These investments were substantially offset by the
receipt of $6.9 million of payments on notes receivable, sales of capital assets
of $5.3 million, and the maturing of marketable securities of $2.4 million. In
1994, the Company's net cash used in investing activities of $231,000 was
principally a result of issuing an additional $19.5 million of notes receivable
and investing $11.9 million for additions to revenue-producing properties. These
investments were substantially offset by the receipt of $18.9 million of
payments on notes receivable, sales of capital assets of $4.0 million, and a
decrease of $7.9 million in the Company's temporary investments.
Net cash used by financing activities increased by approximately
$5.8 million in 1995 to $27.3 million. The principal use of cash in financing
activities in 1995 and 1994 was a net reduction of mortgage and notes payable
indebtedness of $22.8 million and $18.7 million, respectively.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION
It is management's intent, as described in Item 1
"Business--Business Strategy," to apply the majority of the Company's operating
cash flows to reduce indebtedness and to improve and increase the Company's
portfolio of revenue-producing properties. The Company is organized as a
"Subchapter C" corporation and as such pays income taxes on its taxable income
and is generally not subject to distribution requirements based on net income.
Management believes that the Company's core operations are best measured by its
earnings before interest and dividend income, interest expense, income taxes,
depreciation and amortization, gains or losses from debt restructuring and sales
of assets, and valuation allowances, and after adjustments needed to similarly
convert the earnings of minority interests and unconsolidated partnerships.
Earnings, as so computed, are referred to herein as "EBITDA". This is a
supplemental performance measure used along with net income to report operating
results. EBITDA is not a measure of operating results or cash flows from
operating activities as defined by generally accepted accounting principles.
Additionally, EBITDA is not necessarily indicative of cash available to fund
operating needs and should not be considered as an alternative to cash flow as a
measure of liquidity. However, the Company believes that EBITDA provides
relevant information about its operations and, along with net income (loss),
facilitates understanding of its operating results. The EBITDA and EBITDA, as
adjusted, set forth below may not be comparable to other real estate companies,
as each real estate company may define differently such terms.
<TABLE>
<CAPTION>
EBITDA
($000)
For the Years Ended December 31, 1996 1995 1994
- -------------------------------- -----------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $ 27,902 $ (10,752) $ (14,534)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO EBITDA:
Interest and dividend income (4,634) (4,806) (4,053)
Interest expense 23,305 27,696 27,049
Income tax expense (benefit) 16,750 (5,746) (1,028)
Depreciation and amortization 13,954 14,355 18,488
Net operations of property subject to debt extinguishment - - 1,650
Gain on extinguishment of debt, net of income taxes - - (29,136)
Gains on sales of investments and other assets (34,867) (5,711) (727)
Valuation allowances - 2,350 39,699
Minority interest portion of add-backs (2,714) (3,081) (2,296)
Unconsolidated subsidiaries' portion of add-backs 3,684 3,997 3,892
-------------------------------------
EBITDA $ 43,380 $ 18,302 $ 39,004
======================================
</TABLE>
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<PAGE>
Because of the number and size of non-recurring transactions
included in the Company's consolidated financial statements during the last
three years, management believes it is important to also present a
reconciliation of the foregoing EBITDA to "adjusted" EBITDA, as described below,
which represents EBITDA exclusive of certain non-recurring transactions.
Management believes adjusted EBITDA is more representative of the Company's
underlying operations.
<TABLE>
<CAPTION>
ADJUSTED EBITDA$(000)
For the Years Ended December 31, 1996 1995 1994
- -------------------------------- ---------------------------------------
<S> <C> <C> <C>
EBITDA $ 43,380 $ 18,302 $ 39,004
NON-RECURRING ITEMS:
Income from resolution of claims (3,578) - -
Litigation settlement expense - 19,553 -
Costs of securing new management (including stock 1,362 - -
options)
Property tax refund, net - - (800)
ESOT contribution - 1,787 -
Other, net (25) 400 -
----------------------------------------
ADJUSTED EBITDA $ 41,139 $ 40,042 $ 38,204
=========================================
</TABLE>
The above adjusted EBITDA amounts illustrate the Company's EBITDA
if certain non-recurring items had been eliminated from the Company's statements
of operations. These amounts are not necessarily indicative of future
performance. However, management does believe that, when read in conjunction
with the Company's consolidated financial statements, they assist the reader in
better understanding the Company's underlying business operations. The
adjustments made to arrive at adjusted EBITDA are explained as follows: "Income
from resolution of claims" reflects the income to the Company from the
resolution of certain claims in 1996. "Litigation settlement expense" reflects
the expenses incurred by the Company in connection with the Settlement
Agreement. The $19.6 million amount reflected for the year ended December 31,
1995 includes the expense to the Company of implementation of substantially all
of its obligations set forth in the Settlement Agreement and the related legal
and other professional expense. "Costs of securing new management (including
stock options)" reflects the expense to the Company in 1996 of obtaining the new
members of its senior management. "Property tax refund, net" reflects an
$800,000 property tax refund received by the Company in 1994 for excess property
taxes paid under protest in prior years on Missouri apartments owned by the
Company. "ESOT contribution" reflects the contribution by the Company to the
ESOT of 1,375 shares (or 110,000 post-split) of common stock of the Company in
1995. "Other, net" for the years ended December 31, 1996 and 1995 reflects the
net of other less significant, non-recurring adjustments.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of," was
adopted by the Company beginning January 1, 1996. This pronouncement requires
that long-lived assets, including real estate projects, and certain
indentifiable assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result the use of the asset and its
eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount
of the asset, an impairment is recognized. The adoption of SFAS No. 121 did
not have a significant impact on the Company's financial position or results
of operations.
Also, SFAS No. 123 "Accounting for Stock-Based Compensation" required
pro forma disclosure in 1996 of net income and income per share as if the
accounting method based on the estimated fair value of employee stock options
had been adopted.
38
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors
J. C. Nichols Company
Kansas City, Missouri:
We have audited the accompanying consolidated balance sheets of J. C. Nichols
Company and subsidiaries (the Company) as of December 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the three year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries as
of December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the years in the three year period ended December 31,
1996 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
March 7, 1997
39
<PAGE>
<TABLE>
<CAPTION>
J. C. NICHOLS COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
- ----------------------------------- ------------------------------------------------------------------
<S> <C> <C>
Revenue-producing properties (note 5) $189,011,000 195,688,000
Land and improvement inventories 29,645,000 32,344,000
Property held for future development 1,477,000 1,492,000
-------------------------------------------------------------------
Total properties 220,133,000 229,524,000
Cash and cash equivalents 14,454,000 7,209,000
Temporary investments 45,053,000 4,606,000
Marketable equity securities available-for-sale (note 3) -- 38,114,000
Accounts receivable (note 12) 2,000,000 4,205,000
Prepaid expenses 6,355,000 9,992,000
Income taxes receivable -- 4,192,000
Notes receivable (notes 4 and 12) 21,154,000 24,032,000
Investments in real estate partnerships (note 6) 2,163,000 1,857,000
Minority interest in consolidated partnerships 4,431,000 4,284,000
Deferred income taxes 3,456,000 --
Other assets, net 768,000 680,000
--------------------------------------------------------------------
$320,327,000 328,695,000
====================================================================
Liabilities and Stockholders' Equity (Deficit)
- ---------------------------------------------- --------------------------------------------------------------------
Mortgage indebtedness (note 8) $309,188,000 326,349,000
Notes payable to banks and others (notes 12 and 13) 2,000,000 5,658,000
Accounts payable and tenants' deposits 6,633,000 6,266,000
Accrued expenses and other liabilities 8,020,000 9,597,000
Income taxes payable 11,525,000 --
Accrued contribution to Employee Stock Ownership
Trust (note 13) 11,050,000 11,505,000
Deferred gains on the sale of property 517,000 552,000
Deferred income taxes -- 5,948,000
-------------------------------------------------------------------
348,933,000 365,420,000
-------------------------------------------------------------------
Stockholders' equity (deficit):
Common stock, par value $.01 per share;
10,000,000 shares authorized and 5,016,745 shares
issued (note 17) 100,000 100,000
Additional paid-in capital 8,319,000 7,079,000
Unrealized gain on marketable equity securities
available-for-sale, net of income taxes of
$11,466,000 -- 21,023,000
Retained earnings 80,402,000 52,500,000
------------------------------------------------------------------
88,821,000 80,702,000
Less treasury stock, at cost (164,345 shares of
common stock) (note 18) 117,427,000 117,427,000
-------------------------------------------------------------------
Total stockholders' equity (deficit) (28,606,000) (36,725,000)
Commitments and contingencies (notes 5, 11 and 13)
-------------------------------------------------------------------
$320,327,000 $328,695,000
===================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
<TABLE>
<CAPTION>
J. C. NICHOLS COMPANY
AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
Sales and revenues:
Rents $ 79,878,000 79,818,000 74,973,000
Property sales 6,623,000 6,047,000 10,694,000
Commissions and fees 1,232,000 1,459,000 1,862,000
Dividends and interest 4,634,000 4,806,000 4,053,000
Gains on sales of investments and other assets 34,867,000 5,711,000 727,000
Equity in earnings of unconsolidated affiliates 697,000 157,000 411,000
Other 4,697,000 1,307,000 1,493,000
-----------------------------------------------------------
132,628,000 99,305,000 94,213,000
-----------------------------------------------------------
Costs and expenses:
Selling, general and operating expenses 45,555,000 46,118,000 43,203,000
Cost of property sales 5,162,000 3,944,000 8,822,000
Interest 23,305,000 27,696,000 27,049,000
Depreciation and amortization 13,954,000 14,355,000 18,488,000
Employee Stock Ownership Trust contribution (note 13) -- 1,787,000 --
Valuation allowances -- 2,350,000 39,699,000
Litigation settlement (note 15) -- 19,553,000 --
Net operations of property subject to debt
extinguishment (note 9) -- -- 1,650,000
----------------------------------------------------------
87,976,000 115,803,000 138,911,000
----------------------------------------------------------
Income (loss) before income taxes and extraordinary gain 44,652,000 (16,498,000) (44,698,000)
Income tax expense (benefit) (note 10) 16,750,000 (5,746,000) (1,028,000)
----------------------------------------------------------
Income (loss) before extraordinary gain 27,902,000 (10,752,000) (43,670,000)
Extraordinary gain on extinguishment of debt
net of income taxes of $9,175,000 (note 9) -- -- 29,136,000
---------------------------------------------------------
Net income (loss) $ 27,902,000 (10,752,000) (14,534,000)
==========================================================
Per share data (note 17):
Income (loss) before extraordinary gain $ 5.62 (.74) (2.89)
Extraordinary gain on extinguishment of debt -- -- 1.93
-----------------------------------------------------------
Net income (loss) $ 5.62 (.74) (.96)
===========================================================
Dividends $ -- -- .125
===========================================================
Average number of shares outstanding 4,968,429 14,469,360 15,135,520
===========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
<TABLE>
<CAPTION>
J. C. NICHOLS COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended December 31, 1996, 1995 and 1994
<S> <C> <C> <C>
1996 1995 1994
-----------------------------------------
Common stock:
Balance at beginning and end of year (note 17) $ 100,000 100,000 100,000
---------------------------------------
Additional paid-in capital (note 17):
Balance at beginning of year 7,079,000 6,002,000 6,002,000
Contribution of 110,000 shares to Employee
Stock Ownership Trust (note 13) -- 1,077,000 --
Earned stock compensation (note 16) 1,240,000 -- --
---------------------------------------
Balance at end of year 8,319,000 7,079,000 6,002,000
---------------------------------------
Unrealized gain on marketable equity securities available-for-sale,
net of income taxes:
Balance at beginning of year 21,023,000 13,755,000 --
Unrealized gain upon adoption of Statement of
Financial Accounting Standards No. 115 on
January 1, 1994, net of income taxes of
$8,185,000 -- -- 15,053,000
Unrealized gain (loss), net of income taxes of
$184,000, $4,165,000 and ($700,000) 320,000 7,612,000 (1,298,000)
Realized loss from sale of securities, net of income
taxes of $23,000 -- 42,000 --
Realized gain from sale of securities, net of income
taxes of $11,636,000 and $208,000 (21,343,000) (386,000) --
--------------------------------------
Balance at end of year -- 21,023,000 13,755,000
--------------------------------------
Retained earnings:
Balance at beginning of year 52,500,000 63,252,000 79,736,000
Net income (loss) 27,902,000 (10,752,000)(14,534,000)
Cash dividends ($.125 per share in 1994) -- -- (1,950,000)
--------------------------------------
Balance at end of year 80,402,000 52,500,000 63,252,000
---------------------------------------
Treasury stock:
Balance at beginning of year (117,427,000) (14,582,000)(23,058,000)
Contribution of 110,000 shares to Employee Stock
Ownership Trust (notes 13 and 17) -- 710,000 --
Issuances of 1,478,400 shares (note 17) -- -- 9,392,000
Receipt of 12,227 shares in litigation settlement
(note 15) -- (9,207,000) --
Purchase of 1,295 shares -- -- (916,000)
Receipt of 125,242 shares previously securing
note receivable (note 15) -- (94,348,000) --
--------------------------------------
Balance at end of year (117,427,000) (117,427,000)(14,582,000)
---------------------------------------
Note receivable secured by the Company's common stock:
Balance at beginning of year -- (94,348,000)(94,348,000)
Transfer of 125,242 shares to treasury stock in
settlement of note receivable (note 15) -- 94,348,000 --
----------------------------------------
Balance at end of year -- -- (94,348,000)
----------------------------------------
Total stockholders' equity (deficit) $ (28,606,000) (36,725,000)(25,821,000)
========================================
See accompanying notes to consolidated financial statements.
41
<PAGE>
J. C. NICHOLS COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------------------------------------------
Operating activities:
Net income (loss) $ 27,902,000 (10,752,000) (14,534,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of properties 12,906,000 13,316,000 17,502,000
Amortization of deferred costs 1,048,000 1,039,000 986,000
Extraordinary gain - - (29,136,000)
Valuation allowances - 2,350,000 39,699,000
Earned stock compensation 1,240,000 - -
Noncash portion of litigation settlement - 13,588,000 -
Deferred income taxes 2,062,000 (2,597,000) (9,752,000)
Equity in earnings of unconsolidated affiliates (697,000) (157,000) (411,000)
Employee Stock Ownership Trust contribution - 1,787,000 -
Gains on sales of investments and other assets (1,888,000) (5,182,000) (809,000)
(Gains) losses on sales of marketable equity securities (32,979,000) (529,000) 82,000
Net operations of property, subject to debt extinguishment - - 1,650,000
Changes in:
Land and improvement inventories 2,714,000 7,280,000 3,253,000
Accounts receivable 2,165,000 577,000 160,000
Minority interest in consolidated partnerships (147,000) (430,000) (385,000)
Accounts payable and tenants' deposits (153,000) (539,000) (160,000)
Accrued expenses and other liabilities (577,000) (640,000) (451,000)
Current income taxes 15,717,000 1,437,000 (5,111,000)
Other, net 400,000 1,469,000 2,756,000
-----------------------------------------------
Net cash provided by operating activities 29,713,000 22,017,000 5,339,000
-----------------------------------------------
Investing activities:
Net (increase) decrease in temporary investments (40,447,000) (202,000) 7,882,000
Payments on notes receivable 8,773,000 6,927,000 18,870,000
Issuance of notes receivable (6,632,000) (6,174,000) (19,531,000)
Additions to revenue-producing properties (8,317,000) (7,862,000) (11,915,000)
Purchase of marketable equity securities - (3,021,000) (162,000)
Proceeds from sales of capital assets 3,056,000 5,269,000 4,031,000
Return of capital from unconsolidated affiliates 400,000 420,000 389,000
Proceeds from sales of marketable equity securities 38,617,000 925,000 215,000
Maturities of marketable securities - 2,359,000 -
Investments in and advances to unconsolidated affiliates (14,000) (394,000) -
Other, net (6,000) 30,000 (10,000)
-----------------------------------------------
Net cash used in investing activities $(4,570000) (1,723,000) (231,000)
-----------------------------------------------
Financing activities:
Payments on mortgage indebtedness (20,593,000) (11,825,000) (11,459,000)
Issuance of mortgage indebtedness 6,353,000 - 2,448,000
Purchases of treasury stock - (4,901,000) (916,000)
Issuance of notes to banks and others - 11,356,000 11,236,000
Payments on notes to banks and others (3,658,000) (22,362,000) (20,904,000)
Dividends paid - (1,180,000) (1,847,000)
Capital contributions from minority partners - 1,641,000 -
-----------------------------------------------
Net cash used in financing activities (17,898,000) (27,271,000) (21,442,000)
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents 7,245,000 (6,977,000) (16,334,000)
Cash and cash equivalents, beginning of year 7,209,000 14,186,000 30,520,000
-----------------------------------------------
Cash and cash equivalents, end of year $14,454,000 7,209,000 14,186,000
===============================================
See accompanying notes to consolidated financial statements.
</TABLE>
42
<PAGE>
J. C. NICHOLS COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts
of J. C. Nichols Company and its majority controlled
affiliates (the Company). Significant intercompany
profits, transactions and balances have been eliminated.
Minority interest in consolidated partnerships represents the
cumulative losses, after capital contributions,
attributable to minority interests in consolidated
general partnership investments of the Company.
REVENUE-PRODUCING PROPERTIES
Revenue-producing properties are carried at cost less accumulated
depreciation. All direct and indirect costs clearly
associated with the acquisition and development of real
estate projects are capitalized. Interest and certain
indirect costs are capitalized during periods in which
activities necessary to ready the property for its
intended use are in progress. Depreciation is generally
computed using the straight-line method over the
estimated useful lives of the assets, generally seven to
thirty-one years.
Real estate projects are reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If
the sum of the expected future cash flows (undiscounted
and without interest changes) of the asset is less than
the carrying amount of the asset, an impairment loss is
recognized. The amount of the impairment loss is
calculated based on an evaluation of discounted cash
flows.
Leases for office and warehouse space provide for fixed monthly
rents and may contain provisions for rent escalations,
utility charges and other adjustments. Retail leases
generally provide for minimum annual rents, contingent
rentals based on a percentage of the lessee's sales and,
in many instances, the tenant's proportionate share of
real estate taxes, insurance and maintenance. These
leases generally have a term of three to five years or
longer in the case of most major tenants. Apartment
leases provide for a fixed monthly rental primarily for a
term of one year. All leases are accounted for as
operating leases.
LAND AND IMPROVEMENTS INVENTORIES
Land and improvement inventories includes residentially zoned
land, land improvements and building improvements, and
are carried at the lower of average cost or market.
Revenues from property sales are recorded when sufficient
funds are received from the buyer and all conditions
precedent to the sale are completed, generally when the
property is deeded to the buyer. Improvement costs are
allocated to the parcels benefited on the basis of
estimated relative sales value.
43
<PAGE>
DEFERRED GAIN ON THE SALE OF PROPERTY
Gains on the sale of property are deferred until such time as
the Company is no longer required to perform significant
activities related to the property sold, has no
continuing involvement and has transferred the risks and
rewards of ownership. Additionally, the buyer must have
evidenced a substantial initial and continuing investment
in the property.
Gains on the sale of property to unconsolidated affiliates are
deferred to the extent of the Company's ownership
interest in such affiliates.
INVESTMENTS IN REAL ESTATE PARTNERSHIPS
Investments in real estate partnerships primarily consist of
investments in and advances to unconsolidated affiliates.
Investments in real estate partnerships are accounted for
on the equity method and reflect the Company's share of
income or loss of the partnerships, reduced by
distributions received and increased by contributions
made.
TEMPORARY INVESTMENTS AND CASH EQUIVALENTS
Temporary investments are marketable securities which are callable
within 30 to 150 days of purchase and are carried at the
lower of amortized cost or market value. Cash equivalents
include money market funds, certificates of deposit and
debt securities acquired with an original maturity of
three months or less.
MARKTABLE EQUITY SECURITIES
On January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) 115, "Accounting
for Certain Investments in Debt and Equity Securities."
The impact of adopting SFAS 115 resulted in an increase
in stockholders' equity of approximately $15,053,000, net
of income taxes of $8,185,000.
Held-to-maturity securities are recorded at amortized cost.
Available-for-sale and trading securities are recorded at
fair value. Unrealized holding gains and losses, net of
related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate
component of stockholders' equity until realized.
Unrealized holding gains and losses for trading
securities are included in earnings.
The Company classifies all investments in marketable equity
securities as available-for-sale. The Company computes
the cost of securities sold using the specific
identification method.
INCOME TAXES
Deferred tax assets and liabilities are recognized for temporary
differences between the financial reporting basis and the
income tax basis of the Company's assets and liabilities.
The impact on deferred taxes of changes in tax rates and
laws is reflected in the financial statements in the
period of change.
TREASURY STOCK
Treasury stock purchases have been recorded at cost. Other
receipts of treasury stock have been recorded at
estimated fair value.
44
<PAGE>
USE OF ESTIMATES
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported balances of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial
statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ
from these estimates.
INCOME (LOSS) PER SHARE
Income (loss) per share has been computed based on the average
number of common and common equivalent shares outstanding
during the year, including shares held by the Employee
Stock Ownership Trust (see note 13). All years presented
reflect retroactive adjustment of the 1996 stock split
(see note 17).
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements have
been reclassified to conform with the 1996 presentation.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
During 1994, the Company assumed debt of $18,316,000 in exchange
for a 51% interest in three separate consolidated
partnerships. The assets of these partnerships consisted
of revenue-producing properties with a cost basis of
approximately $18,472,000.
In 1994, the Company issued 1,036,480 shares of common stock
to acquire the remaining 50% interest in a partnership.
Upon acquisition of the remaining partnership interest,
the Company dissolved the partnership and assumed its
assets and liabilities. The net assets transferred had a
carrying value of approximately $12,795,000.
(3) MARKETABLE EQUITY SECURITIES
The following table summarizes the cost, fair value and gross
unrealized gains and losses of the Company's investment
in marketable equity securities at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
- ---------------------------------------------------------------------------------------------
Cost $ - 5,625,000
Fair value - 38,114,000
Unrealized gains - 32,551,000
Unrealized losses - 62,000
</TABLE>
During 1995, the Company sold equity securities for $3,284,000
resulting in gross realized gains of $594,000 and
gross realized losses of $65,000.
During 1996, the Company liquidated its investment in marketable
equity securities for $38,617,000, resulting in
gross realized gains of $33,048,000 and gross
realized losses of $69,000.
45
<PAGE>
(4) NOTES RECEIVABLE
Notes receivable at December 31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
----------------------------------------
Promissory notes, collateralized by $14,116,000 16,448,000
real estate, due 1997 to 2013
Notes receivable - miscellaneous 4,503,000 4,163,000
First mortgage and construction loans on residential property 2,895,000 3,421,000
-------------------------------------
$21,514,000 24,032,000
======================================
</TABLE>
The Company has valuation reserves of $3,799,000 and $3,453,000
related to notes receivable at December 31, 1996 and 1995,
respectively.
(5) REVENUE-PRODUCING PROPERTIES
Revenue-producing properties at December 31, 1996 and 1995
consisted of:
1996 1995
----------------------------------
Land and improvements $29,355,000 32,546,000
Buildings and improvements 308,837,000 302,585,000
Furnishings and equipment 4,163,000 6,361,000
Construction in progress 625,000 507,000
-----------------------------------
342,980,000 341,999,000
Less accumulated depreciation 153,969,000 146,311,000
----------------------------------
$189,011,000 195,688,000
==================================
Until 1994, the Company amortized tenant improvements over
their financial reporting or tax lives. In 1994, the
Company changed its depreciation of tenant improvements
to correspond with the terms of individual leases. This
change in amortization resulted in a more conservative
accounting treatment and an increase of approximately
$4,000,000 in depreciation expense during 1994.
As of December 31, 1996, future minimum lease payments
receivable under noncancelable operating leases,
excluding apartments, are as follows:
Year Amount
------------------------------------------------------------------
1997 $39,330,000
1998 33,034,000
1999 28,379,000
2000 22,165,000
2001 18,095,000
Thereafter 139,257,000
-----------
Total future minimum lease payments $280,260,000
===========
46
<PAGE>
Contingent rents amounted to $3,713,000, $4,162,000 and $4,201,000
for 1996, 1995 and 1994, respectively. Apartment rentals
under leases of one year or less aggregated $19,735,000,
$18,681,000 and $17,806,000 for 1996, 1995 and 1994,
respectively.
In 1987, a subsidiary of the Company entered into various
contracts with the City of St. Petersburg, Florida (the
City) for the redevelopment and construction of certain
parking, commercial and retail facilities known as Bay
Plaza. Due to a delay in significant development
activities, the Company ceased capitalization of
interest, property taxes, insurance and other development
costs on December 31, 1990. On June 30, 1995, the Company
and the City agreed to extend the Redevelopment Agreement
for an initial period of six months. In November 1995,
the Company informed the City that it had ceased plans to
develop the properties. The Company has disposed of many
of the properties and expects to dispose of the remaining
properties as soon as practicable.
Based on its assessment of the feasibility of developing Bay
Plaza under the existing cost structure, management
determined that the value of Bay Plaza had declined, and
a reduction in its carrying value of $18,600,000 was
recorded to reduce the carrying value of the assets to
$3,000,000 at December 31, 1994. The method used for
estimating the property value of Bay Plaza requires
making certain assumptions regarding market and economic
conditions. During 1996, the Company disposed of Bay
Plaza assets with a book value of $7,300,000 and was
released from related mortgages payable in the amount of
$2,200,000. At December 31, 1996, the carrying value of
Bay Plaza assets, net of liabilities, was approximately
$900,000.
(6) INVESTMENTS IN REAL ESTATE PARTNERSHIPS
At December 31, 1996, the Company had an equity interest in
the following unconsolidated entities:
Percent owned
------------------------------------------------------------------------
Center Court Partners 50.0%
Dallas County Partners 50.0
Dallas County Partners II 50.0
Dallas County Partners III L.C. 50.0
Fountain Three 50.0
Terrace Place Partners 50.0
Meredith Drive Associates L.P. 49.5
Board of Trade Investment Company 49.0
Sun Mountain Village Partners L.P. 44.1
J. C. Nichols Real Estate 40.0
4600 Madison Associates, L.P. 12.5
Raphael Hotel Group L.P. 5.0
Selected aggregate financial data for unconsolidated affiliates
for 1996 and 1995, is presented below:
1996 1995
- -------------------------------------------------------------------------------
Total assets $125,076,000 117,763,000
====================================
Total liabilities (note 11) $137,870,000 129,954,000
====================================
Net income $ 2,189,000 759,000
====================================
47
<PAGE>
(7) DEFERRED COMPENSATION
The Company accrues deferred compensation for certain key
personnel to be paid over a five or ten-year period
following retirement or death. Charges to operations,
including interest, amounted to $229,000, $275,000 and
$482,000 for 1996, 1995 and 1994, respectively, with the
accrued liability as of December 31, 1996 and 1995
aggregating $2,910,000 and $3,561,000, respectively. As
part of the settlement described in note 15, the deferred
compensation of one former officer amounting to $814,000
($759,000 as of December 31, 1996) will be paid according
to the plan agreement, and another former officer waived
his rights to $243,000 in deferred compensation.
(8) MORTGAGE INDEBTEDNESS
Mortgage indebtedness consists principally of first mortgage notes
on revenue-producing properties. These obligations, with
minor exceptions, bear annual interest at rates ranging
from 3.9% to 10.5% and mature from 1997 to 2021.
Substantially all of the Company's revenue-producing
properties are pledged to secure this debt.
Aggregate annual principal payments applicable to mortgage
indebtedness subsequent to December 31, 1996 are:
1997 $ 33,937,000
1998 8,707,000
1999 25,402,000
2000 7,436,000
2001 6,630,000
Thereafter 227,076,000
-----------
$ 309,188,000
===========
As a result of the bankruptcy of a primary tenant, the
Company ceased making debt service payments on the
underlying loan in 1991 and began negotiations with the
lender to restructure the debt agreement. As of December
31, 1993, this nonrecourse debt had a principal balance
of $7,149,000 and accrued interest of $1,818,000. In
March 1994, the Company and the lender agreed to
restructure the loan which required a cash payment of
$1,649,000 to reduce the loan balance to $5,500,000.
Accrued interest through February 1994 was waived under
the agreement. The restructuring reduced the effective
interest rate, for financial statement purposes, from 12%
to approximately 3%.
Due to the loss of a primary tenant in an office building
that had an underlying mortgage, the Company began
negotiations with the lender to restructure the debt
agreement. As of December 31, 1995, this nonrecourse debt
had a principal balance of $22,500,000 and accrued
interest of $3,720,000. In January 1996, the Company and
the lender agreed to restructure the loan, which required
a cash payment by the Company of $2,500,000. In addition,
the Company has the option to retire the outstanding
indebtedness prior to maturity for $14,000,000 less
future principal payments thereon. The restructuring
reduced the effective interest rate beginning in 1996,
for financial statement purposes, from 10.5% to
approximately 3%.
Certain debt agreements provide for a 50% sharing of positive and
negative cash flows from operations and capital
expenditures as defined between the parties. Interest
expense
48
<PAGE>
recognized for such sharing was $929,000, $479,000 and
$709,000 for 1996, 1995 and 1994, respectively.
Additionally, as of December 31, 1996 and 1995, mortgage
indebtedness includes a $4,026,000 and $3,963,000
preference item, respectively, related to these
agreements. The Company's liability is contingent upon
certain conditions being met upon the sale or refinancing
of the mortgaged properties.
Interest payments (net of capitalized interest of $14,000,
$121,000 and $289,000, respectively) aggregated
$22,897,000, $28,159,000 and $26,977,000 for 1996, 1995
and 1994, respectively.
In 1996, the Company obtained a $10,000,000 unsecured line
of credit with a bank. Interest on the line's outstanding
borrowings are at the prime rate and are due on demand.
There were no outstanding borrowings on this line of
credit at December 31, 1996.
(9) NET LIABILITIES SUBJECT TO EXTINGUISHMENT
The Company had a 50% interest in a joint venture, Kantel,
L.P. (the Venture), with an affiliate of The Ritz-Carlton
Hotel Company (Ritz) to convert and operate an existing
hotel owned by the Company. To finance the conversion,
the Company, through a wholly-owned subsidiary, borrowed
$70,000,000 on a nonrecourse basis using the assets of
the hotel as collateral, and through another wholly-owned
subsidiary, also leased the land and building to the
Venture. The hotel did not meet expected operating
results or cash flows, and the Venture was unable to meet
its obligations under the debt and lease agreements.
On February 22, 1994, the lender foreclosed on the hotel,
and the Company was released from its obligations under
the nonrecourse debt. As a result of extinguishing the
nonrecourse debt of $84,298,000, including interest, and
the write-off of all related assets, the Company
recognized a gain of $38,311,000, which is presented as
an extraordinary item, net of an allocation of income
taxes of $9,175,000.
Operations relating to the hotel property and related debt are
included in "net operations of property subject to debt
extinguishment" and consist of the following in 1994:
Rent and interest income $ 504,000
Interest expense (206,000)
Depreciation and amortization (114,000)
General and administrative expenses (135,000)
Equity in loss of Kantel, L.P. (1,699,000)
---------
$(1,650,000)
=========
(10) INCOME TAXES
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
----------------------------------------------------
Current $14,688,000 (3,149,000) (3,762,000)
Deferred 2,062,000 (2,597,000) 11,909,000
----------------------------------------------------
Total income tax expense (benefit) $16,750,000 (5,746,000) 8,147,000
====================================================
Income tax expense (benefit) before extraordinary item $16,750,000 (5,746,000) (1,028,000)
Income tax expense on extraordinary item - - 9,175,000
----------------------------------------------------
Total income tax expense (benefit) $16,750,000 (5,746,000) 8,147,000
====================================================
</TABLE>
49
<PAGE>
Deferred income taxes reflect the tax impact of temporary
differences between the amount of assets and liabilities
for financial reporting purposes and such amounts measured
by tax laws and regulations. Deferred income taxes are
comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
-----------------------------
Deferred tax assets:
Property and receivable allowances $10,590,000 14,047,000
Note receivable extinguished in settlement (note 15) 15,715,000 15,715,000
Deferred compensation 990,000 1,211,000
ESOT contributions 4,437,000 4,437,000
Gains recognized for tax purposes, deferred for book purposes 3,654,000 1,949,000
Other 106,000 26,000
------------------------------
Total gross deferred tax assets 35,492,000 37,385,000
Less valuation allowance (15,715,000) (15,715,000)
------------------------------
Total deferred tax assets 19,777,000 21,670,000
------------------------------
Deferred tax liabilities:
Accelerated depreciation (11,845,000) (11,825,000)
Gains recognized for book purposes, deferred for tax purposes (4,476,000) (4,288,000)
Investment securities valuation adjustment - (11,466,000)
Other - (39,000)
------------------------------
Total deferred tax liabilities (16,321,000) (27,618,000)
------------------------------
Net deferred tax assets (liabilities) $ 3,456,000 (5,948,000)
==============================
</TABLE>
The Company has proposed to the Internal Revenue Service
(IRS) adjustments to its federal income tax returns to
claim $92 million of partial bad debt and accrued
interest losses arising from a note receivable from a
limited partnership, owned in part by the Company's
former president, to the Company which could result in
immediate tax benefits to offset amounts currently
payable of $9,245,000 and additional current and deferred
tax benefits of up to $25 million. Due to the uncertainty
surrounding these issues, the Company has not recognized
these tax benefits in the accompanying consolidated
financial statements.
Total income tax expense (benefit) differs from expected income
tax benefit as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
----------------------------------------------------
Expected income tax expense (benefit) at 34% $15,182,000 (5,609,000) (2,172,000)
Tax-exempt income - (26,000) (113,000)
Valuation allowance for deferred tax assets related
to ESOT contributions and deferred interest income - - 15,715,000
Difference in tax basis on partnership interest - - (5,000,000)
State income taxes 1,455,000 - (161,000)
Dividend exclusion (7,000) (170,000) (167,000)
Excess fair value of contributions - - (8,000)
Other, net 120,000 59,000 53,000
---------------------------------------------------
Total income tax expense (benefit) $16,750,000 (5,746,000) 8,147,000
===================================================
</TABLE>
Net cash refunds (payments) for income taxes during 1996,
1995 and 1994 were $955,000, $4,588,000 and $(8,297,000),
respectively.
(11) CONCENTRATION OF CREDIT RISK
Several of the Company's consolidated general partnerships and
subsidiaries have revenue-producing real estate. During
the initial lease-up phase, this real estate generated
net operating losses, which upon consolidation resulted
in minority obligations to the Company of $4,431,000 and
$4,284,000 at December 31, 1996 and 1995, respectively.
If the outside partners fail to perform their
obligations, such amounts may not be realized by the
Company. Based on its evaluation of the outside partners,
the Company has determined that the outside partners have
the financial ability to perform their obligations.
As of December 31, 1996 and 1995, the aggregate of the
liabilities of unconsolidated partnerships in which the
Company is a general partner, excluding nonrecourse debt,
is approximately $12,534,000 and $6,238,000,
respectively. The Company could become liable for such
amounts in the event of default by the various
partnerships and nonperformance by the outside partners.
The collection of principal and interest balances secured by
revenue-producing properties and real estate under
development is dependent upon sufficient cash flows from
operations of the properties, refinancing, capital
infusions from outside parties or the sale of the related
property. All such property is principally located in the
metropolitan Kansas City, Missouri area.
(12) AFFILIATED PARTY BALANCES AND TRANSACTIONS
Included in the consolidated financial statements are the
following affiliated party balances:
1996 1995
---------------------------------------------
Notes receivable 4,084,000 4,936,000
Accounts receivable 737,000 1,207,000
Notes payable 2,000,000 3,008,000
The Company established a valuation allowance of $2,467,000
at December 31, 1994 related to notes and accounts
receivable from former executive officers and directors
of the Company who were removed from their positions on
May 26, 1995 by action of the Board of Directors. The
Company entered settlement agreements in August 1995 with
certain former executive officers and directors (see note
15).
Effective January 1, 1994, the Company sold a controlling interest
in its wholly-owned subsidiary, Plaza Insurers, Inc., to
the president of Plaza Insurers and a minority interest
to an officer of the Company. This officer was removed
from his position with the Company on May 26, 1995 by
action of the Board of Directors. The Company had an
exclusive insurance brokerage agreement with Plaza
Insurers through December 31, 1996. As part of the
settlement agreement described in note 15, the former
officer has relinquished his rights to any profits from
Plaza Insurers and future distributions in excess of the
former officer's tax liability on profits, if any, from
Plaza Insurers will be made to the Company.
50
<PAGE>
The Company also entered into a service agreement with Plaza
Insurers whereby the Company provided certain management
and clerical personnel to Plaza Insurers and was
reimbursed for all related costs. In addition, Plaza
Insurers paid service and stability fees to the Company
equal to 45% of the gross commissions received by Plaza
Insurers for all insurance business effected, renewed or
brokered by the Company through Plaza Insurers. The
service agreement remained in effect for the same period
as the exclusive insurance brokerage agreement.
(13) EMPLOYEE STOCK OWNERSHIP TRUST
The Company has an Employee Stock Ownership Plan (ESOP)
related to the Employee Stock Ownership Trust (ESOT). The
cost of the ESOP is borne by the Company through
contributions to the ESOT in amounts determined by the
Board of Directors.
As of December 31, 1996, the ESOT held 825,280 shares of
common stock of the Company which were allocated to
participants.
In 1995, the Company contributed 110,000 shares of the
Company's common stock to the ESOT which were valued at
$1,787,500.
As part of the settlement described in note 15, the Company
will convey 680,000 shares of the Company's common stock
and $2,000,000 cash to the ESOT, or directly to ESOT
participants, upon determination by the IRS whether such
settlement proceeds would be considered a qualified
contribution if conveyed to the ESOT. The Company has
recorded the $2,000,000 contribution as a note payable to
the ESOT, which bears interest at the prime rate (8.25%
as of December 31, 1996). The transfer of the 680,000
shares of Company common stock to the ESOT, or directly
to ESOT participants, will result in a decrease in
liabilities and a corresponding decrease in stockholders'
deficit of $11,050,000.
ESOT participants may request their distributions from the
ESOT in cash or Company common stock that is held by the
ESOT. Future distributions to ESOT participants for the
next five years based on December 31, 1996 market values
of Company common stock, assuming the additional common
stock and cash described above is conveyed to the ESOT,
could be as much as:
1997 $ 3,900,000
1998 3,500,000
1999 6,200,000
2000 3,900,000
2001 3,900,000
Thereafter 31,300,000
In the absence of a liquid trading market for the Company's
common stock, the Company may be obligated to repurchase
shares of the Company's common stock from ESOP
participants in future years in the amounts detailed
above. The ESOT has sufficient assets to meet its
obligations, and the Company has recorded no additional
liability beyond its contributions to the ESOT.
In 1996, the Company provided short-term advances to the
ESOT to assist in funding distributions and expenses. All
advances to the ESOT were unsecured and noninterest
51
<PAGE>
bearing. At December 31, 1996, the Company had advanced
$1,926,000 to the ESOT which, along with an additional
advance of $56,000, was repaid by the ESOT during January
1997 by transferring 54,162 shares of the Company's
common stock to the Company.
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the
requirements of SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments." The estimated fair value
amounts have been determined by the Company, using
available market information and appropriate valuation
methodologies. However, considerable judgment is required
in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the
Company might realize in a current market exchange. The
use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated
fair value amounts.
NOTES RECEIVABLE - Fair value for notes receivable was
estimated utilizing discounted cash flow calculations
based on interest rates currently offered for notes with
similar terms and credit risk. Nonaccrual notes were
valued at face value adjusted for potential credit loss.
TEMPORARY INVESTMENTS AND MARKETABLE EQUITY SECURITIES -
Fair values for temporary investments and marketable
equity securities were based upon quoted market prices.
NOTES PAYABLE TO BANKS AND OTHERS - The carrying value of
these financial instruments approximates fair value as
interest rates change with market conditions.
MORTGAGE INDEBTEDNESS - The carrying value of variable
rate mortgages approximates fair value. Fair value for
fixed rate mortgage indebtedness was estimated utilizing
discounted cash flow calculations based on the Company's
incremental borrowing rates for similar types of
borrowing arrangements.
OFF-BALANCE SHEET INSTRUMENTS - Fair value of commitments
to extend credit, guarantees of debt and letters of
credit is based on the estimated fees which would be
charged for similar arrangements or the estimated cost to
terminate or otherwise settle the obligations with the
counterparties at the reporting date. The aggregate
amount of the fees is not material to the consolidated
financial statements.
The estimated fair values of the Company's financial instruments
were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
-------------------------------------------------------------------------
Carrying Fair Carrying Fair
value value Value value
------------ ----------- ----------- -----------
Financial assets:
Temporary investments $45,053,000 45,053,000 4,606,000 4,606,000
Notes receivable 21,514,000 20,900,000 24,032,000 22,316,000
Marketable equity securities - - 38,114,000 38,114,000
Financial liabilities:
Notes payable to banks and others 2,000,000 2,000,000 5,658,000 5,658,000
Mortgage indebtedness 309,188,000 300,234,000 326,349,000 301,568,000
</TABLE>
52
<PAGE>
The fair value estimates presented are based on information
available to management as of December 31, 1996 and 1995.
Although management is not aware of any factors that
would significantly affect the estimated fair value
amounts, such amounts have not been revalued for purposes
of these consolidated financial statements since the
balance sheet date, and current estimates may differ
significantly from the amounts presented above.
(15) LITIGATION AND SETTLEMENTS
The Company was involved in various legal actions as
plaintiff and defendant against former officers and
directors, representatives of the Employees Stock
Ownership Trust, minority shareholders and others. The
Company had requested, among other things, that the
District Court rescind certain transactions (including
the 1992 transactions described below) between the
Company and former executive officers, the Employee Stock
Ownership Plan and others.
The Company and various other parties entered settlement
agreements in August 1995 which require conveyance of
Company common stock, payment of cash and extinguishment
of amounts due to and from the Company in consideration
of releases from all present and future claims by, among
and between the parties to the settlements.
During 1992, the Company entered into a transaction with the
Company's former president, whereby properties with
aggregate carrying values of $2,592,000 and marketable
equity securities with aggregate carrying values of
$1,103,000 were exchanged for 517,920 shares of common
stock of the Company and a note receivable for
$2,700,000. The fair values of the properties received,
based on current appraisals, aggregated $5,907,000. The
quoted market values of the marketable equity securities
aggregated $2,781,000. The purchase price of the common
stock was equivalent to the former president's basis in
such shares. The Company recognized a gain on the
transaction of $4,993,000 in 1992. As part of the 1995
settlement, the common stock was retained by the Company,
the properties were returned to the Company and the note
receivable was canceled. Management of the Company
determined the canceled note receivable did not exceed
the fair value of the properties received. This portion
of the settlement had no net impact on the 1995
consolidated statement of operations.
In May 1992, a limited partnership owned in part by the
Company's former president, acquired 125,242 unallocated
shares of common stock of the Company from J. C. Nichols
Company Employee Stock Ownership Trust (ESOT). These
shares were acquired for $124,529,000 through the
assumption of existing principal indebtedness from the
ESOT of $94,348,000 and accrued interest and other
advances of $30,181,000. The Company had previously
recorded, as contribution expense, the accrued interest
and other advances to the ESOT. At the time the shares
were sold, the $30,181,000 was deferred and recorded as a
reduction of the contractual note receivable from the
limited partnership. The $94,348,000 note receivable,
secured by Company stock as of December 31, 1994, was
comprised of the contractual note receivable from the
limited partnership of $124,529,000 net of the
$30,181,000 deferrals. Contractual interest of
$12,291,000 on the note receivable from the limited
partnership was deferred as of December 31, 1993.
Pursuant to a Pledge Agreement, the shares of common
stock were pledged as collateral to secure the note
receivable from the limited partnership. The related note
receivable was due in ten annual equal installments
beginning December 31, 1994 and had a stated interest
rate of prime (6.0% as of December 31, 1993) payable
annually beginning December 31, 1994. As part of the 1995
settlement, the unallocated 125,242 shares were conveyed
to the Company as treasury stock in exchange for
extinguishment of the $94,348,000 note receivable and all
related deferred
53
<PAGE>
amounts. This portion of the settlement had no impact on
the 1995 consolidated statement of operations.
In 1994, the Company provided valuation allowances of
$2,502,000 on notes and accounts receivable that were
part of the 1995 litigation settlement. The impact of the
litigation settlement included in the 1995 statement of
operations was as follows:
ESOT contribution (8,500 shares and $2,000,000) $13,050,000
Settlement of notes and accounts receivable
($5,619,000) and cash paid ($9,665,000), net
of related obligations ($1,064,000) and receipt
of 12,227 shares of Company common stock
($9,207,000) 5,013,000
Legal expenses ($8,117,000), net of insurance
reimbursement ($6,627,000) 1,490,000
----------
$19,553,000
==========
(16) EARNED STOCK COMPENSATION
In March 1996, the Company approved the 1996 Stock Option
Plan (the Plan) enabling the Company to grant stock
options to eligible plan participants. The Plan
authorized the issuance of up to 240,000 shares of the
Company's common stock. Pursuant to this Plan, the
Company has granted to an executive officer a
nonstatutory stock option to purchase 64,000 shares at a
price of $.0125 per share, which option vested 50% on
January 1, 1996 and the remaining 50% vested on January
1, 1997. The Company recorded compensation expense and
additional paid-in capital relating to this stock option
during the year ended December 31, 1996 of $1,240,000. An
incentive stock option has also been granted to this
executive officer to purchase 160,000 shares of common
stock of the Company at a price of $19.375 per share,
which option vests at a rate of 10% on December 31, 1996,
15% on December 31, 1997 and 25% annually on December 31
for the years ended 1998, 1999 and 2000. The fair market
value of the Company's common stock was $19.375 per share
at the date this incentive stock option was granted. No
options were exercised during 1996.
On January 1, 1996, the Company adopted SFAS 123,
"Accounting for Stock-Based Compensation," which permits
entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS 123 allows entities to
disclose pro forma net income and income per share as if
the fair value-based method defined in SFAS 123 had been
applied, while continuing to apply the provisions of
Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," under which
compensation expense is recorded on the date of grant
only if the current market price of the underlying stock
exceeds the exercise price. The Company has elected to
apply the recognition provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS
123.
Accordingly, no compensation expense has been recognized by the
Company for its incentive stock options. Had compensation
expense for the Company's incentive stock options been
determined based upon the fair value at the grant date
consistent with the methodology prescribed under SFAS
123, the Company's net income and income per share would
have been reduced by approximately $367,000, or $.08 per
share in 1996. The weighted average minimum fair value of
all options granted during 1996 is estimated as $12.34
per share on
54
<PAGE>
the date of grant using an option-pricing model with the
following assumptions: expected dividend yield of 0.0%,
risk-free interest rate of 7.0% and an expected life of
11.4 years.
Pro forma net income reflects only options granted and vested
in 1996. Therefore, the full impact of calculating
compensation expense for stock options under SFAS 123 is
not reflected in the pro forma net income amounts
presented above because compensation expense is reflected
over the options' vesting period.
(17) STOCK SPLIT
On May 29, 1996, the Company approved an increase from
225,000 to 10,000,000 in the number of shares of common
stock authorized for issuance by the Company and a
decrease to the par value per share of common stock from
$20.00 to $.01. Additionally, the Company approved an
80-for-1 stock split of the Company's common stock for
all issued and outstanding shares not then held in the
Company's treasury. Accordingly, the common stock par
value decreased from $4,500,000 to $100,000 with an
off-setting increase in additional paid-in capital from
$2,679,000 to $7,079,000. All periods presented have been
restated to reflect the effect of the Company's stock
split.
(18) TREASURY STOCK
During January 1997, the Company purchased 948,880 shares of its
common stock from a shareholder for $25,857,000, payable
in cash of $12,849,000 (which included approximately
$39,000 of interest) and a note payable of $12,990,000
(net of expenses totaling approximately $57,000), bearing
interest at 8% and due January 29, 1999.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
J. C. Nichols Company
Kansas City, Missouri:
Under date of March 7, 1997, we reported on the consolidated balance sheets of
J. C. Nichols Company and subsidiaries (the Company) as of December 31, 1996 and
1995 and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three year period ended
December 31, 1996, as contained in the 1996 annual report to stockholders. These
consolidated financial statements and our report thereon are included in the
annual report on Form 10-K for the year 1996. In connection with our audits
of the aforementioned consolidated financial statements, we also have
audited the related consolidated financial statement schedules in the annual
report on Form 10-K. These consolidated financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statement schedules based on
our audits.
In our opinion, these consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
March 7, 1997
55
<PAGE>
<TABLE>
<CAPTION>
J. C. NICHOLS COMPANY AND SUBSIDIARIES
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
BUILDING
LOCATION/DEVELOPMENT BUILDING TYPE ENCUMBRANCES LAND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KANSAS CITY, MISSOURI
- ---------------------
COUNTRY CLUB PLAZA MILLCREEK BLOCK OFFICE & RETAIL 2,672,490.63 73,342.82
COUNTRY CLUB PLAZA TRIANGLE BLOCK RETAIL 1,759,932.82 32,856.98
COUNTRY CLUB PLAZA BALCONY BLOCK OFFICE & RETAIL 3,845,779.17 80,669.55
COUNTRY CLUB PLAZA MACY BUILDING RETAIL 41,920.97
COUNTRY CLUB PLAZA ESPLANADE BLOCK OFFICE & RETAIL 7,887,106.48 138,830.18
COUNTRY CLUB PLAZA PLAZA CENTRAL RETAIL 1,564,384.73 111,638.19
COUNTRY CLUB PLAZA THEATRE BLOCK OFFICE & RETAIL 5,670,894.77 92,377.21
COUNTRY CLUB PLAZA SWANSON BLOCK RETAIL 3,715,413.81 103,707.20
COUNTRY CLUB PLAZA HALLS BUILDING RETAIL 1,694,750.15 101,667.80
COUNTRY CLUB PLAZA NICHOLS BLOCK OFFICE & RETAIL 3,259,134.89 87,694.14
COUNTRY CLUB PLAZA TIME BLOCK OFFICE & RETAIL 12,123,981.89 215,949.66
COUNTRY CLUB PLAZA 48th & PENN RETAIL 1,825,115.57 42,298.64
COUNTRY CLUB PLAZA SEVILLE SHOPS WEST RETAIL 2,346,577.17 224,484.92
COUNTRY CLUB PLAZA PLAZA SAVINGS SOUTH RETAIL 2,020,663.67 64,429.89
COUNTRY CLUB PLAZA COURT OF THE PENGUINS RETAIL 2,737,673.33 51,211.57
COUNTRY CLUB PLAZA SEVILLE SQUARE OFFICE & RETAIL 6,192,356.35 62,843.69
COUNTRY CLUB PLAZA PLAZA PARKING PARKING 689,285.90
COUNTRY CLUB PLAZA COMMON AREAS SIDEWALKS, 0.00
FOUNTAINS,
STATUES
4620 NICHOLS PARKWAY PARKWAY BUILDING OFFICE 44,413.58
300-320 EAST 51st ST. COLONIAL SHOPS RETAIL 6,804.88
301-337 EAST 55th ST. CRESTWOOD SHOPS RETAIL 18,204.54
63rd & BROOKSIDE BROOKSIDE SHOPS OFFICE & RETAIL 4,396,235.20 128,392.11
7100-7126 WORNALL RD. ROMANELLI SHOPS RETAIL 4,656.10
RED BRIDGE & HOLMES RED BRIDGE SHOPS RETAIL 14,933.61
7140 WORNALL ROAD ROMANELLI ANNEX OFFICE & RETAIL 1,403.95
TWO BRUSH CREEK BLVD. TWO BRUSH CREEK PLAZA OFFICE 6,896,318.38 6,539.16
ONE WARD PARKWAY ONE WARD PARKWAY OFFICE 10,755.20
400 EAST RED BRIDGE RD. RED BRIDGE PROF. BLDG. OFFICE 675,729.57 2,367.58
801 WEST 47th ST. PARK PLAZA OFFICE 5,866,442.80 132,572.17
4900 MAIN 4900 MAIN BLDG. OFFICE & VACANT 23,154,736.59 2,138,450.69
1.926 ACRES
4717-4740 GRAND AVENUE(1) PARK CENTRAL OFFICE 17,752,269.00 436,553.00
400 EAST BANNISTER RD. BANNISTER BUSINESS INDUSTRIAL 1,259,999.91 5,839.43
CENTER
6310 TROOST RETAIL SHOPS LAND LEASE 13,763.66
11049 HOLMES BURGER KING LAND LEASE 100,465.40
135th & HOLMES (18.6 GOLF DRIVING RANGE LAND LEASE 5,074.28
ACRES)
BANNISTER & RAYTOWN RD 2.928 ACRES BLDG. LEASE 1,588.90
655 EAST MINOR DRIVE(7) COACH HOUSE SOUTH APARTMENTS 20,000,000.00 54,753.88
11230 OAK(7) COACH HOUSE APARTMENTS 8,000,000.00 16,284.96
11209 McGEE DRIVE COACH LAMP APARTMENTS 16,374.35
4509 WORNALL RD. WORNALL ROAD APARTMENTS 5,188.00
4517 WORNALL RD. ST. CHARLES APARTMENTS 4,200.00
56
<PAGE>
BUILDING
LOCATION/DEVELOPMENT BUILDING TYPE ENCUMBRANCES LAND
- -----------------------------------------------------------------------------------------------------------------------------------
420 WEST 46th TERR. ALTA LOMA APARTMENTS 50,000.00
426 WEST 46th TERR. BISCAYNE TOWERS APARTMENTS 17,000.00
406 WEST 46th TERR. SANTA ANA APARTMENTS 3,317.18
408-410 WEST 46th TERR. VALENCIA APARTMENTS 8,250.00
414 WEST 46th TERR. LA SOLANA APARTMENTS 5,475.00
221 WEST 48th ST. REGENCY HOUSE APARTMENTS 3,478,000.00 35,263.51
121 WEST 48th ST. SULGRAVE APARTMENTS 5,212,000.00 240,000.00
4600 NICHOLS PARKWAY PARK LANE APARTMENTS 55,960.00
4417 PENNSYLVANIA PENN WICK APARTMENTS 4,108.00
4424-4426 PENNSYLVANIA COLE GARDENS APARTMENTS 0.00 4,521.00
4419 PENNSYLVANIA TAMA APARTMENTS 15,951.53
333 WEST 46th TERR. NEPTUNE APARTMENTS 3,572,977.34 0.00
4921 WORNALL RD. WORNALL POINT APARTMENTS 18,750.00
PLAZA AREA 54 RENTAL HOUSES SINGLE FAMILY 26,207.76 177,323.62
95th & NOLAND ROAD VACANT LOT 2.72 ACRES 6,000.00
72nd & WYANDOTTE MAINTENANCE SHOP 1,243.59
26 MISCELLANEOUS VACANT
LOTS, LESS THAN 1 ACRE EACH 25,852.51 1,087,842.36
46th TERR. & PENNSYLVANIA SURFACE PARKING PARKING 0.00
VARIOUS LOCATIONS TENANT IMPROVEMENTS, CONST. IN 0.00
ETC. PROGRESS
GRANDVIEW, MISSOURI
- -------------------
11900 SO. BLUE RIDGE EXT. GRANDVIEW SHOPS RETAIL 675,000.00
LEE'S SUMMIT, MISSOURI
- ----------------------
211 N. E. LAKEWOOD BLVD. SALES OFFICE RETAIL 0.00 267,122.00
SHAWNEE MISSION, KANSAS
- -----------------------
5000-5012 STATE LINE WESTWOOD SHOPS RETAIL 2,469.58
2700-2812 W 53 STREET FAIRWAY SHOPS RETAIL 2,945,260.97 1,099.01
MISSION ROAD & TOMAHAWK PRAIRIE VILLAGE SHOPS RETAIL & OFFICE 11,447,460.44 30,888.91
83 & MISSION ROAD CORINTH SQUARE SHOPS RETAIL 7,197,141.25 43,329.48
3910-4024 W 95 STREET 95 & MISSION ROAD
SHOPS RETAIL 3,041.37
9507-9541 NALL TRAILWOOD SHOPS RETAIL 4,232.31
9555-9563 NALL 96 & NALL SHOPS RETAIL 508.98
5205-5287 W 95 STREET TRAILWOOD III SHOPS RETAIL 892,499.91 1,459.41
4101-4117 W 83 STREET CORINTH SHOPS SOUTH RETAIL 2,029,962.90 11,930.82
75 & I-35 GEORGETOWN SHOPS RETAIL 11,335.48
8340 MISSION ROAD CORINTH OFFICE
BUILDING OFFICE 991,234.14 3,714.75
4121 W 83 STREET CORINTH EXECUTIVE OFFICE 445,241.74 6,309.20
BUILDING
7315 FRONTAGE ROAD HARTFORD OFFICE
BUILDING OFFICE 5,003.67
4200 SOMERSET NICHOLS BUILDING OFFICE 1,050,708.20 6,833.98
11111 W 95 STREET OAK PARK BANK
BUILDING OFFICE 495,575.34 4,912.28
7301 MISSION ROAD PRAIRIE VILLAGE
OFFICE CTR OFFICE 0.00 44,254.01
4350 SHAWNEE MSN FAIRWAY WEST
PKWAY(7) OFFICE CTR OFFICE 4,775,000.00 68,829.26
2400 W 75 STREET BRYMAR BUILDING OFFICE 0.00 0.00
4330 SHAWNEE MSN FAIRWAY NORTH OFFICE 4,500,000.00 109,738.65
PKWAY(7)
11836-50 W 85 STREET QUIVIRA BUS PARK -
BLDG A INDUSTRIAL 36,164.03 24,605.05
8441-8457 QUIVIRA QUIVIRA BUS PARK -
BLDG B INDUSTRIAL 29,967.49
57
<PAGE>
8419-8433 QUIVIRA QUIVIRA BUS PARK -
BLDG C INDUSTRIAL 36,164.03 23,078.94
8403-8417 QUIVIRA QUIVIRA BUS PARK -
BLDG D INDUSTRIAL 36,164.03 23,189.30
8347-8363 QUIVIRA QUIVIRA BUS PARK -
BLDG E INDUSTRIAL 163,697.11 31,309.18
11835-55 W 83 STREET QUIVIRA BUS PARK -
BLDG F INDUSTRIAL 169,715.39 34,060.83
8605-8619 QUIVIRA QUIVIRA BUS PARK -
BLDG G INDUSTRIAL 120,365.52 27,279.24
11730-11748 W 86 TERRACE QUIVIRA BUS PARK -
BLDG H INDUSTRIAL 148,049.59 36,082.09
11705 W 83 TERRACE QUIVIRA BUS PARK -
BLDG WE INDUSTRIAL 101,763.89 45,411.53
11531-11621 W 83 TERRACE QUIVIRA BUS PARK -
BLDG J INDUSTRIAL 1,396,000.00 4,962.42
11633-11647 W 83 TERRACE QUIVIRA BUS PARK -
BLDG K INDUSTRIAL 304,000.00 1,981.54
11505-11517 W 83 TERRACE QUIVIRA BUS PARK -
BLDG L INDUSTRIAL 300,000.00 2,055.81
11100-11200 ANTIOCH SHANNON VALLEY RETAIL 5,394,742.07 1,800,000.00
8201 MISSION ROAD LAND LEASE 276,648.00
4010 SOMERSET 1.25 ACRES LAND LEASE 2,165.69
I-35 & 75th ST.
(1.1 ACRES) PERKINS RESTAURANT LAND LEASE 1,302.97
I-35 & 75th ST.
(.45 ACRES) BANK DRIVE-IN LAND LEASE 537.31
I-35 & 75th ST.
(.86 ACRES) CONVENIENCE STORE LAND LEASE 1,019.61
I-35 & 75th ST.
(.64 ACRES) VACANT LAND 390.44
5301 WEST 95th ST. SAVINGS & LOAN LAND LEASE 155.00
(.31 ACRES)
75th & REINHARDT SERVICE STATION LAND LEASE 12,825.00
8100-8300 QUIVIRA VACANT LAND 45 ACRES 81,308.30
99TH & NIEMAN ROAD VACANT LAND 22 ACRES 26,830.15
3541 SOMERSET DRIVE MAINTENANCE SHOP 849.70
151st & NALL 11.214 ACRES LAND 32,079.05
JOHNSON DRIVE & HWY. 7 FARM HOUSE & BLDGS. 0.00
135th -143rd, METCALF TO FARM HOUSES & BLDGS. 0.00
NALL
VARIOUS LOCATIONS TENANT IMPROVEMENTS, CONST. IN 0.00
ETC. PROGRESS
3617-3737 SOMERSET DRIVE CORINTH PLAZA VILLAS CONDOS 790.34
84th & MISSION ROAD CORINTH GARDENS APARTMENTS 43,000.00
4120 WEST 94th TERR. KENILWORTH APARTMENTS 5,842,920.79 63,527.39
3815 SOMERSET DRIVE(7) CORINTH PLACE APARTMENTS 4,500,000.00 27,100.81
3518 WEST 83rd ST. MISSION VALLEY APARTMENTS 1,206,863.83 38,191.65
8037 MOHAWK CORINTH PADDOCK APARTMENTS 509,165.92 205,500.00
OLATHE, KANSAS
- -----------------
LOTS ON SANTA FE LAND LEASE 44,441.00
11912-11950 STRANG
LINE RD 119 PLAZA RETAIL 1,366,385.71
MIAMI COUNTY, KANSAS
- --------------------
250th & FARLEY 810 ACRE FARMLAND LAND LEASE 1,173,082.50
OSAGE CITY, KANSAS
- -------------------
EAST HIWAY 31(2) MANUFACTURED HOMES BUILDING LEASE 4,800,000.00 47,840.00
PLANT
VALUATION RESERVE
DES MOINES, IOWA
- ----------------------
4201 WESTOWN PARKWAY(3) HIGHLAND BUILDING OFFICE 6,349,075.85 322,206.34
4200 CORPORATE DRIVE(3) CRESTWOOD BUILDING OFFICE 2,348,288.33 171,121.39
58
<PAGE>
4344 CORPORATE DRIVE(4) SUNSET BUILDING OFFICE 920,756.93 93,758.60
4601 WESTOWN PARKWAY(4) VERIDIAN BUILDING OFFICE 7,322,209.83 396,386.65
4200 UNIVERSITY AVE.(4) EDGEWATER BUILDING OFFICE 9,054,109.76 458,901.10
4445 CORPORATE DRIVE(4) WATERFORD BUILDING OFFICE 4,625,707.41 234,529.32
4401 WESTOWN PARKWAY(5) NEPTUNE BUILDING OFFICE 6,000,000.00 624,327.00
6031 MEADOW CREST WINWOOD APARTMENTS APARTMENTS 23,000,000.00 1,299,865.00
DRIVE(6)
ST.PETERSBURG, FLORIDA
- -----------------------
2nd ST. SOUTH & CENTRAL BAY PLAZA SHOPS RETAIL 1,107,200.00 2,526,266.77
25 2nd ST. NORTH TROPICANA BUILDING OFFICE 425,000.00 500,000.00
VALUATION RESERVE (852,852.48)
-------------- -------------
TOTAL REVENUE-PRODUCING 282,621,233.69 19,722,271.41
PROPERTIES
PREFERENCE ITEM(8) 4,026,457.95
-------------
TOTAL ENCUMBRANCES REVENUE PRODUCING PROPERTY 286,647,691.64
</TABLE>
(1) The Company owns a 51.3% interest in the partnership owning
these two office buildings.
(2) The Company owns a 99% profit-sharing interest and a 100%
loss-sharing interest in the partnership owning this
facility.
(3) The Company owns a 90% interest in the partnership owning these
two office buildings.
(4) The Company owns a 60% interest in the partnership owning these
four office buildings.
(5) The Company owns an 85% interest in the partnership owning this
office building.
(6) The Company owns a 65% interest in the partnership owning this
apartment building.
(7) The Company shares 50% of the cash flow from these properties
with an outside company providing credit.
enhancement support related to the financing of these properties.
(8) See discussion in Note 8 to the 1996 Consolidated Financial
Statements and Management's Discussion and Analysis.
LAND & IMPROVEMENT INVENTORIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Kansas City, Missouri
- ---------------------
400 West 49th Terr. Alameda Towers 40 Units Sold 3,539,981.00 0.00
Condominiums
(19-Story Building) 15 Units Remaining for Sale
Stone County, Missouri
- ----------------------
Table Rock Lake (20 Miles
West of Branson, MO) 257-Lot Subdivision (104 148 Lots Available 1,226,379.58
Acres) for Sale
Valuation Reserve (425,000.00)
Shawnee Mission, Kansas
- -----------------------
135th & Mission Road 67 Acres Vacant Land 3,163,034.98
Johnson Dr & Monticello Road 371 Acres Vacant Land 350,270.58
135th-151st, Metcalf to Nall(1) 657 Acres Vacant Land 13,659,713.09
Residential Subdivisions:
- ------------------------
151st & Nall (SW Corner) Green Meadows 77 Lots Available for Sale 157,868.89
59
<PAGE>
Location/Development
- --------------------
13200 Howe Waterford 0 Lots Available for 0.00
Sale
148th & Nall Whitehorse 54 Lots Available for 39,081.68
Sale
Johnson Dr & Hwy K-7 Woodsonia 66 Lots Available for 83,309.23
Sale
TOTAL LAND & IMPROVEMENT
----------- ------------
INVENTORIES 3,539,981.00 18,254,658.03
PROPERTY HELD FOR FUTURE DEVELOPMENT
Various Land Parcels Kansas 19,000,000.00 1,477,047.73
City, Missouri; Johnson
County, Kansas and Miami
County, Kansas Held for
Future Development
TOTAL PROPERTIES & MORTGAGE -------------------------------------------------
INDEBTEDNESS PER CONSOLIDATED BALANCE SHEET 309,187,672.64 39,453,977.17
=================================================
</TABLE>
(1) All but 88 acres of this property is under contract for sale.
<TABLE>
<CAPTION>
Total Cost
--------------------------------------------------
COSTS
TOTAL CAPITALIZED
INITIAL SUBSEQ. TO LAND & BUILDING
LOCATION/DEVELOPMENT BLDG. COSTS ACQUISITION IMPTS /IMPTS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KANSAS CITY, MISSOURI
- ---------------------
COUNTRY CLUB PLAZA 82,819.59 4,790,055.84 73,342.82 4,872,875.43 4,946,218.25
COUNTRY CLUB PLAZA 284,950.97 691,444.82 32,856.98 976,395.79 1,009,252.77
COUNTRY CLUB PLAZA 4,755,505.89 1,632,801.13 80,669.55 6,388,307.02 6,468,976.57
COUNTRY CLUB PLAZA 140,668.53 2,327,455.89 41,920.97 2,468,124.42 2,510,045.39
COUNTRY CLUB PLAZA 883,230.10 2,087,120.08 138,830.18 2,970,350.18 3,109,180.36
COUNTRY CLUB PLAZA 818,483.56 2,678,220.69 111,638.19 3,496,704.25 3,608,342.44
COUNTRY CLUB PLAZA 796,865.22 1,811,602.71 92,377.21 2,608,467.93 2,700,845.14
COUNTRY CLUB PLAZA 83,719.74 5,491,878.16 103,707.20 5,575,597.90 5,679,305.10
COUNTRY CLUB PLAZA 3,209,722.71 389,116.31 101,667.80 3,598,839.02 3,700,506.82
COUNTRY CLUB PLAZA 349,267.35 2,148,655.43 87,694.14 2,497,922.78 2,585,616.92
COUNTRY CLUB PLAZA 1,907,745.67 2,867,233.74 215,949.66 4,774,979.41 4,990,929.07
COUNTRY CLUB PLAZA 177,782.33 260,203.44 42,298.64 437,985.77 480,284.41
COUNTRY CLUB PLAZA 572,083.60 148,141.05 224,484.92 720,224.65 944,709.57
COUNTRY CLUB PLAZA 1,949,328.02 51,396.24 64,429.89 2,000,724.26 2,065,154.15
COUNTRY CLUB PLAZA 2,744,638.62 197,908.80 51,211.57 2,942,547.42 2,993,758.99
COUNTRY CLUB PLAZA 1,969,500.00 7,192,515.18 62,843.69 9,162,015.18 9,224,858.87
COUNTRY CLUB PLAZA 204,290.80 0.00 689,285.90 204,290.80 893,576.70
COUNTRY CLUB PLAZA 336,921.67 858,156.67 744,254.08 450,824.26 1,195,078.34
4620 NICHOLS PARKWAY 858,939.42 356,522.04 44,413.58 1,215,461.46 1,259,875.04
300-320 EAST 51st ST. 139,679.88 16,720.68 6,804.88 156,400.56 163,205.44
301-337 EAST 55th ST. 114,195.77 96,802.46 36,356.57 192,846.20 229,202.77
63rd & BROOKSIDE 521,791.88 710,606.35 142,843.61 1,217,946.73 1,360,790.34
7100-7126 WORNALL RD. 87,628.88 22,407.00 4,656.10 110,035.86 114,691.96
RED BRIDGE & HOLMES 1,717,885.47 1,880,719.87 538,696.66 3,074,842.29 3,613,538.95
60
<PAGE>
7140 WORNALL ROAD 8,351.00 45,912.18 1,403.95 54,263.18 55,667.13
TWO BRUSH CREEK BLVD. 7,327,125.19 215,429.01 6,539.16 7,542,554.20 7,549,093.36
ONE WARD PARKWAY 5,946,412.67 231,538.84 10,755.20 6,177,951.51 6,188,706.71
400 EAST RED BRIDGE
RD. 1,382,757.68 292,174.21 2,367.58 1,674,931.89 1,677,299.47
801 WEST 47th ST. 6,769,352.14 865,690.07 132,572.17 7,635,042.21 7,767,614.38
4900 MAIN 18,977,129.61 766,999.32 2,138,450.69 19,744,118.93 21,882,569.62
4717-4740 GRAND
AVENUE(1) 18,076,305.04 0.00 436,553.00 18,076,305.04 18,512,858.04
400 EAST
BANNISTER RD. 1,553,689.17 178,104.35 177,540.66 1,560,092.29 1,737,632.95
6310 TROOST 0.00 44,034.27 57,797.93 0.00 57,797.93
11049 HOLMES 0.00 0.00 100,465.40 0.00 100,465.40
135th & HOLMES
(18.6 ACRES) 1.00 0.00 5,074.28 1.00 5,075.28
BANNISTER & RAYTOWN RD 1.00 0.00 1,588.90 1.00 1,589.90
655 EAST MINOR DRIVE
(7) 23,400,786.69 2,949,049.86 2,980,304.04 23,424,286.39 26,404,590.43
11230 OAK(7) 6,474,534.86 1,166,773.53 854,239.52 6,803,353.83 7,657,593.35
11209 McGEE DRIVE 1,989,363.01 597,463.28 189,645.44 2,413,555.20 2,603,200.64
4509 WORNALL RD. 93,720.03 13,735.78 5,188.00 107,455.81 112,643.81
4517 WORNALL RD. 57,600.00 16,137.63 4,200.00 73,737.63 77,937.63
420 WEST 46th TERR. 450,000.00 18,559.94 50,000.00 468,559.94 518,559.94
426 WEST 46th TERR. 150,000.00 17,299.19 17,000.00 167,299.19 184,299.19
406 WEST 46th TERR. 95,169.25 19,082.39 3,317.18 114,251.64 117,568.82
408-410 WEST 46th
TERR. 329,149.95 0.00 8,250.00 329,149.95 337,399.95
414 WEST 46th TERR. 629,525.00 20,869.11 5,475.00 650,394.11 655,869.11
221 WEST 48th ST. 3,085,365.24 3,257,610.52 35,263.51 6,342,975.76 6,378,239.27
121 WEST 48th ST. 5,145,372.69 2,408,155.77 240,000.00 7,553,528.46 7,793,528.46
4600 NICHOLS
PARKWAY 554,839.89 313,585.19 55,960.00 868,425.08 924,385.08
4417 PENNSYLVANIA 208,509.21 5,227.00 4,108.00 213,736.21 217,844.21
4424-4426
PENNSYLVANIA 287,843.77 0.00 4,521.00 287,843.77 292,364.77
4419 PENNSYLVANIA 1.00 9,166.00 15,951.53 9,167.00 25,118.53
333 WEST 46th TERR. 5,987,039.83 99,099.13 94,557.30 5,991,581.66 6,086,138.96
4921 WORNALL RD. 656,250.00 1,931.37 20,681.37 656,250.00 676,931.37
PLAZA AREA 3,339,090.68 9,612.10 177,323.62 3,348,702.78 3,526,026.40
95th & NOLAND ROAD 0.00 0.00 6,000.00 0.00 6,000.00
72nd & WYANDOTTE 684,964.29 0.00 1,243.59 684,964.29 686,207.88
26 MISCELLANEOUS
VACANT 0.00 76,468.24 1,164,310.60 0.00 1,164,310.60
LOTS, LESS THAN 1
ACRE EACH
46th TERR.
& PENNSYLVANIA 254,075.26 0.00 0.00 254,075.26 254,075.26
VARIOUS LOCATIONS 0.00 350,442.86 0.00 350,442.86 350,442.86
GRANDVIEW, MISSOURI
- -------------------
11900 SO. BLUE
RIDGE EXT. 1,370,892.36 413,064.26 898,923.85 1,560,032.77 2,458,956.62
LEE'S SUMMIT, MISSOURI
- ----------------------
211 N. E.
LAKEWOOD BLVD. 133,333.00 0.00 267,122.00 133,333.00 400,455.00
SHAWNEE MISSION, KANSAS
- -----------------------
5000-5012 STATE LINE 21,235.73 19,850.79 2,469.58 41,086.52 43,556.10
2700-2812 W 53
STREET 243,393.58 1,422,384.45 27,330.43 1,639,546.61 1,666,877.04
MISSION ROAD
& TOMAHAWK 2,150,388.48 3,708,032.87 121,091.88 5,768,218.38 5,889,310.26
83 & MISSION
ROAD 2,033,397.41 3,816,631.19 519,634.88 5,373,723.20 5,893,358.08
61
<PAGE>
3910-4024 W 95
STREET 110,784.72 71,042.86 63,253.95 121,615.00 184,868.95
9507-9541 NALL 567,657.15 8,476.29 4,232.31 576,133.44 580,365.75
9555-9563 NALL 151,582.59 12,102.31 2,358.11 161,835.77 164,193.88
5205-5287 W 95
STREET 1,473,876.95 312.50 1,459.41 1,474,189.45 1,475,648.86
4101-4117 W 83
STREET 191,765.49 2,460,825.15 116,998.94 2,547,522.52 2,664,521.46
75 & I-35 1,548,724.51 1,109,355.26 69,784.00 2,599,631.25 2,669,415.25
8340 MISSION ROAD 1,121,969.53 311,638.33 3,714.75 1,433,607.86 1,437,322.61
4121 W 83 STREET 1,117,443.04 334,407.85 6,309.20 1,451,850.89 1,458,160.09
7315 FRONTAGE ROAD 1,344,996.63 385,619.56 64,376.48 1,671,243.38 1,735,619.86
4200 SOMERSET 1,849,885.15 193,854.78 25,135.39 2,025,438.52 2,050,573.91
11111 W 95 STREET 1,025,675.81 48,770.87 13,202.36 1,066,156.60 1,079,358.96
7301 MISSION ROAD 443,776.10 406,105.00 53,429.65 840,705.46 894,135.11
4350 SHAWNEE MSN
PKWAY(7) 3,771,257.18 447,393.85 147,318.97 4,140,161.32 4,287,480.29
2400 W 75 STREET 1,634,057.96 64,494.85 5,808.35 1,692,744.46 1,698,552.81
4330 SHAWNEE MSN
PKWAY(7) 3,809,023.27 271,118.58 209,650.61 3,980,229.89 4,189,880.50
11836-50 W 85
STREET 246,154.19 156,518.16 105,800.85 321,476.55 427,277.40
8441-8457 QUIVIRA 284,610.40 36,653.30 29,967.49 321,263.70 351,231.19
8419-8433 QUIVIRA 235,350.87 112,264.33 23,078.94 347,615.20 370,694.14
8403-8417 QUIVIRA 256,012.59 49,927.98 23,189.30 305,940.57 329,129.87
8347-8363 QUIVIRA 304,367.65 105,019.28 31,309.18 409,386.93 440,696.11
11835-55 W 83 STREET 463,200.18 122,484.79 34,060.83 585,684.97 619,745.80
8605-8619 QUIVIRA 244,255.93 4,428.00 27,279.24 248,683.93 275,963.17
11730-11748 W 86
TERRACE 324,805.22 44,923.28 36,082.09 369,728.50 405,810.59
11705 W 83
TERRACE 516,014.72 163,690.84 45,411.53 679,705.56 725,117.09
11531-11621
W 83 TERRACE 1,064,466.89 377,481.99 355,896.37 1,091,014.93 1,446,911.30
11633-11647
W 83 TERRACE 364,696.36 86,406.99 82,509.43 370,575.46 453,084.89
11505-11517
W 83 TERRACE 400,516.67 86,497.59 82,558.40 406,511.67 489,070.07
11100-11200
ANTIOCH 6,307,009.25 1,824,986.50 1,800,000.00 8,131,995.75 9,931,995.75
8201 MISSION ROAD 0.00 0.00 276,648.00 0.00 276,648.00
4010 SOMERSET 0.00 0.00 2,165.69 0.00 2,165.69
I-35 & 75th ST.
(1.1 ACRES) 0.00 0.00 1,302.97 0.00 1,302.97
I-35 & 75th ST.
(.45 ACRES) 0.00 0.00 537.31 0.00 537.31
I-35 & 75th ST.
(.86 ACRES) 0.00 0.00 1,019.61 0.00 1,019.61
I-35 & 75th ST.
(.64 ACRES) 0.00 0.00 390.44 0.00 390.44
5301 WEST 95th ST.
(.31 ACRES) 0.00 0.00 155.00 0.00 155.00
75th & REINHARDT 0.00 0.00 12,825.00 0.00 12,825.00
8100-8300 QUIVIRA 0.00 0.00 81,308.30 0.00 81,308.30
99TH & NIEMAN ROAD 0.00 210,627.96 237,458.11 0.00 237,458.11
3541 SOMERSET DRIVE 266,120.49 0.00 849.70 266,120.49 266,970.19
151st & NALL 159,770.00 11,945.38 44,024.43 159,770.00 203,794.43
JOHNSON DRIVE &
HWY. 7 53,106.00 0.00 0.00 53,106.00 53,106.00
135th -143rd,
METCALF TO 467,986.81 0.00 0.00 467,986.81 467,986.81
NALL
VARIOUS LOCATIONS 0.00 192,390.14 0.00 192,390.14 192,390.14
3617-3737 SOMERSET
DRIVE 468,880.60 0.00 790.34 468,880.60 469,670.94
84th & MISSION ROAD 228,396.00 25,370.01 47,979.00 248,787.01 296,766.01
4120 WEST 94th TERR.4,085,514.60 2,514,741.61 347,301.65 6,316,481.95 6,663,783.60
62
<PAGE>
3815 SOMERSET DRIVE
(7) 3,868,981.82 650,884.34 650,565.04 3,896,401.93 4,546,966.97
3518 WEST 83rd ST. 930,038.99 871,070.67 93,437.21 1,745,864.10 1,839,301.31
8037 MOHAWK 986,170.00 243,156.27 307,897.00 1,126,929.27 1,434,826.27
OLATHE, KANSAS
- -----------------
LOTS ON SANTA FE 0.00 0.00 44,441.00 0.00 44,441.00
11912-11950 STRANG
LINE RD 2,556,613.12 439,221.17 1,805,606.88 2,556,613.12 4,362,220.00
MIAMI COUNTY, KANSAS
- --------------------
250th & FARLEY 357,950.00 0.00 1,173,082.50 357,950.00 1,531,032.50
OSAGE CITY, KANSAS
- ------------------
EAST HIWAY 31(2) 3,866,625.30 682,582.50 47,840.00 4,549,207.80 4,597,047.80
(1,025,047.04) 0.00 0.00 (1,025,047.04) (1,025,047.04)
DES MOINES, IOWA
- ------------------
4201 WESTOWN
PARKWAY(3) 5,056,683.85 337,949.47 461,991.97 5,254,847.69 5,716,839.66
4200 CORPORATE
DRIVE(3) 2,068,284.72 140,920.96 171,121.39 2,209,205.68 2,380,327.07
4344 CORPORATE
DRIVE(4) 834,073.21 176,590.97 93,758.60 1,010,664.18 1,104,422.78
4601 WESTOWN
PARKWAY(4) 5,530,002.53 584,787.33 396,386.65 6,114,789.86 6,511,176.51
4200 UNIVERSITY
AVE.(4) 6,699,068.74 1,170,105.03 679,183.47 7,648,891.40 8,328,074.87
4445 CORPORATE
DRIVE(4) 3,977,761.07 0.00 234,529.32 3,977,761.07 4,212,290.39
4401 WESTOWN
PARKWAY(5) 4,363,861.91 1,831,025.27 624,327.00 6,194,887.18 6,819,214.18
6031 MEADOW
CREST DRIVE(6) 19,103,696.97 113,146.84 1,299,865.00 19,216,843.81 20,516,708.81
ST.PETERSBURG, FLORIDA
- -----------------------
2nd ST. SOUTH &
CENTRAL 8,203,378.33 0.00 2,526,266.77 8,203,378.33 10,729,645.10
25 2nd ST. NORTH 1,333,070.23 22,002.18 500,000.00 1,355,072.41 1,855,072.41
VALUATION RESERVE 0.00 (8,524,432.11) (852,852.48) (8,524,432.11) (9,377,284.59)
TOTAL REVENUE-
PRODUCING -----------------------------------------------------------------------------------------------------------
PROPERTIES 250,189,526.61 73,068,686.00 29,354,835.00 313,625,649.33 342,980,484.36
</TABLE>
PREFERENCE ITEM(8)
(1) The Company owns a 51.3% interest in the partnership owning
these two office buildings.
(2) The Company owns a 99% profit-sharing interest and a 100%
loss-sharing interest in the partnership owning this facility.
(3) The Company owns a 90% interest in the partnership owning these
two office buildings.
(4) The Company owns a 60% interest in the partnership owning these
four office buildings.
(5) The Company owns an 85% interest in the partnership owning this
office building.
(6) The Company owns a 65% interest in the partnership owning this
apartment building.
(7) The Company shares 50% of the cash flow from these properties
with an outside company providing credit enhancement support
related to the financing of these properties.
(8) See discussion in Note 8 to the 1996 Consolidated Financial
Statements and Management's Discussion and Analysis
63
<PAGE>
<TABLE>
<CAPTION>
LAND & IMPROVEMENT INVENTORIES
COSTS
TOTAL CAPITALIZED
INITIAL SUBSEQ. TO LAND & BUILDINGS
LOCATION/DEVELOPMENT BLDG. COSTS ACQUISITION IMPTS. /IMPTS. TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kansas City, Missouri
- ---------------------
400 West 49th Terr. 10,967,226.52 0.00 0.00 10,967,226.52 10,967,226.52
Valuation 0.00 (4,558,443.00) 0.00 (4,558,443.00) (4,558,443.00)
Stone County, Missouri
Table Rock Lake (20 Miles West 0.00 0.00 1,226,379.58 0.00 1,226,379.58
of Branson, MO)
Valuation 0.00 0.00 (425,000.00) 0.00 (425,000.00)
Shawnee Mission, Kansas
135th & Mission Road 0.00 0.00 3,163,034.98 0.00 3,163,034.98
Johnson Dr & Monticello Road 0.00 0.00 350,270.58 0.00 350,270.58
135th-151st, Metcalf to Nall 0.00 0.00 13,659,713.09 0.00 13,659,713.09
Residential Subdivisions:
151st & Nall (SW Corner) 0.00 1,404,956.85 1,562,825.74 0.00 1,562,825.74
13200 Howe 0.00 21,744.81 21,744.81 0.00 21,744.81
148th & Nall 0.00 1,771,302.59 1,810,384.27 0.00 1,810,384.27
Johnson Dr & Hwy K-7 0.00 1,783,692.23 1,867,001.46 0.00 1,867,001.46
TOTAL LAND & IMPROVEMENT -------------------------------------------------------------------------------------------------------
INVENTORIES 10,967,226.52 423,253.48 23,236,354.51 6,408,783.52 29,645,138.03
PROPERTY HELD FOR FUTURE DEVELOPMENT
Various Land Parcels Kansas 0.00 0.00 1,477,047.73 0.00 1,477,047.73
City, Missouri; Johnson
County, Kansas and Miami
County, Kansas Held for
Future Development
TOTAL PROPERTIES & MORTGAGE--------------------------------------------------------------------------------------------------------
INDEBTEDNESS PER 261,156,753.13 73,491,939.82 54,068,237.27 320,034,432.85 374,102,670.12
CONSOLIDATED BALANCE
SHEET
--------------------------------------------------------------------------------------------------------
LESS ACCUMULATED DEPRECIATION 153,969,231.44
--------------------------
TOTAL PROPERTIES, NET OF ACCUMULATED 220,133,438.68
DEPRECIATION ==========================
</TABLE>
(1) All but 88 acres of this property is under contract for sale.
<TABLE>
<CAPTION>
ACCUM. DATE OF DATE DEPR.
LOCATION/DEVELOPMENT DEPR. CONST. ACQUIRED LIFE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KANSAS CITY, MISSOURI
- ---------------------
COUNTRY CLUB PLAZA 1,885,209.45 1920 1906-1910 20-40
COUNTRY CLUB PLAZA 378,152.40 1925 1906-1910 20-50
COUNTRY CLUB PLAZA 2,783,474.36 1925 1906-1910 20-50
COUNTRY CLUB PLAZA 737,456.75 1926 1906-1910 20-50
64
<PAGE>
ACCUM. DATE OF DATE DEPR.
LOCATION/DEVELOPMENT DEPR. CONST. ACQUIRED LIFE
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY CLUB PLAZA 1,999,800.08 1928 1906-1910 20-50
COUNTRY CLUB PLAZA 1,854,666.75 1958 1906-1910 20-40
COUNTRY CLUB PLAZA 1,271,597.29 1928 1906-1910 20-45
COUNTRY CLUB PLAZA 2,356,046.55 1967 1906-1910 20-55
COUNTRY CLUB PLAZA 2,533,410.87 1964 1906-1910 20-60
COUNTRY CLUB PLAZA 1,958,991.89 1930 1906-1910 20-45
COUNTRY CLUB PLAZA 3,098,967.55 1929 1906-1910 20-45
COUNTRY CLUB PLAZA 304,656.55 1948 1906-1910 20-40
COUNTRY CLUB PLAZA 256,077.21 1980 1906-1910 20-45
COUNTRY CLUB PLAZA 604,858.66 1948 1906-1910 20-40
COUNTRY CLUB PLAZA 2,743,170.49 1945 1975 10-20
COUNTRY CLUB PLAZA 6,896,977.34 1945 1975 10-39
COUNTRY CLUB PLAZA 137,055.62 1920-1964 1906-1910 15
COUNTRY CLUB PLAZA 782,750.41 1920-1964 1906-1910 10-20
4620 NICHOLS PARKWAY 838,862.12 1955 1906-1910 20-45
300-320 EAST 51st ST. 140,220.76 1907 1907 20-25
301-337 EAST 55th ST. 142,533.59 1932 1923 15-50
63rd & BROOKSIDE 910,908.48 1919 1920 10-50
7100-7126 WORNALL RD. 98,585.43 1925 1925 10-49
RED BRIDGE & HOLMES 2,775,794.13 1959 1959 10-50
7140 WORNALL ROAD 1,344.67 1963 1993 20
TWO BRUSH CREEK BLVD. 4,364,167.49 1983 1983 10-45
ONE WARD PARKWAY 3,686,444.91 1980 1980 10-45
400 EAST RED BRIDGE RD. 1,128,910.33 1972 1976 10-31.5
801 WEST 47th ST. 3,487,921.28 1983 1983 10-45
4900 MAIN 7,847,080.80 1986 1985 10-50
4717-4740 GRAND AVENUE(1) 1,049,953.47 1988 - 1990 1994 39
400 EAST BANNISTER RD. 1,029,388.15 1985 1985 10-40
6310 TROOST 44,034.27 1974 1971 20
11049 HOLMES 0.00 -- 1954 --
135th & HOLMES (18.6 ACRES) 0.00 -- 1972 --
BANNISTER & RAYTOWN RD 0.00 -- 1929 --
655 EAST MINOR DRIVE(7) 10,490,081.02 1986 1986 10-35
11230 OAK(7) 3,745,976.79 1984 1984 10-45
11209 McGEE DRIVE 2,025,704.66 1961 1963 10-50
4509 WORNALL RD. 107,453.81 1918 1968 15
4517 WORNALL RD. 58,630.74 1922 1972 15-27.5
420 WEST 46th TERR. 401,724.95 1918 1983 15-27.5
426 WEST 46th TERR. 166,307.30 1918 1975 14-15
406 WEST 46th TERR. 97,671.67 1960 1980 8-31.5
408-410 WEST 46th TERR. 301,277.21 1918 1983 15
414 WEST 46th TERR. 445,769.11 1918 1986 15-31.5
221 WEST 48th ST. 4,711,671.00 1960 1961 10-40
121 WEST 48th ST. 4,199,282.78 1967 1976 10-31
4600 NICHOLS PARKWAY 832,130.73 1924 1971 8-21
4417 PENNSYLVANIA 209,000.25 1960 1987 7-31.5
4424-4426 PENNSYLVANIA 287,843.77 1960 1987 7
4419 PENNSYLVANIA 55.56 1960 1979 15
333 WEST 46th TERR. 2,187,803.50 1988 1910 10-40
4921 WORNALL RD. 229,250.65 1950 1987 31.5
65
<PAGE>
PLAZA AREA 1,746,666.22 1920's & 1930's 1971 - 1989 10-31.5
95th & NOLAND ROAD 0.00 -- 1956 --
72nd & WYANDOTTE 253,533.34 1986 1983 10-40
26 MISCELLANEOUS VACANT
LOTS, LESS THAN 16,631.14 -- 1930-1985 --
1 ACRE EACH
46th TERR. & PENNSYLVANIA 9,880.71 -- -- --
VARIOUS LOCATIONS 0.00 -- -- --
GRANDVIEW, MISSOURI
- -------------------
11900 SO. BLUE RIDGE EXT. 615,318.65 1987 1987 10-39
LEE'S SUMMIT, MISSOURI
- ----------------------
211 N. E. LAKEWOOD BLVD. 18,401.91 1975 1993 15-31.5
SHAWNEE MISSION, KANSAS
- -----------------------
5000-5012 STATE LINE 21,475.72 1926 1949 48
2700-2812 W 53 STREET 349,849.55 1940 1962 10-39
MISSION ROAD & TOMAHAWK 3,395,648.35 1948 1962 10-50
83 & MISSION ROAD 3,663,651.48 1962 1955 10-50
3910-4024 W 95 STREET 144,481.72 1965 1972 15-50
9507-9541 NALL 461,778.68 1968 1972 10-50
9555-9563 NALL 130,256.77 1976 1981 15-35
5205-5287 W 95 STREET 736,545.80 1986 1972 10-40
4101-4117 W 83 STREET 1,279,531.28 1953 1953 10-55
75 & I-35 1,424,053.85 1974 1965 10-40
8340 MISSION ROAD 1,016,830.77 1960 1984 15-20
4121 W 83 STREET 868,421.16 1973 1986 10-55
7315 FRONTAGE ROAD 1,151,854.21 1978 1975 10-45
4200 SOMERSET 1,278,226.31 1978 1979 10-45
11111 W 95 STREET 752,659.11 1976 1978 15-40
7301 MISSION ROAD 499,590.61 1960 1981 15-20
4350 SHAWNEE MSN PKWAY 2,085,055.42 1983 1981 15-32
2400 W 75 STREET 1,534,672.41 1968 1984 15-20
4330 SHAWNEE MSN PKWAY 2,065,973.84 1985 1985 10-45
11836-50 W 85 STREET 255,285.33 1973 1973 15-45
8441-8457 QUIVIRA 223,731.21 1975 1973 15-35
8419-8433 QUIVIRA 177,411.70 1973 1973 15-45
8403-8417 QUIVIRA 183,396.95 1973 1973 15-45
8347-8363 QUIVIRA 244,600.56 1973 1973 10-45
11835-55 W 83 STREET 314,529.56 1973 1973 15-45
8605-8619 QUIVIRA 148,285.82 1973 1973 15-45
11730-11748 W 86 TERRACE 198,565.88 1973 1973 15-45
11705 W 83 TERRACE 362,568.52 1973 1973 15-45
11531-11621 W 83 TERRACE 834,694.50 1983 1965 10-35
11633-11647 W 83 TERRACE 281,894.60 1985 1965 15-35
11505-11517 W 83 TERRACE 306,789.23 1985 1965 15-35
11100-11200 ANTIOCH 3,910,105.86 1988 1988 10-48
8201 MISSION ROAD 0.00 -- 1957 --
4010 SOMERSET 0.00 -- 1955 --
I-35 & 75th ST. (1.1 ACRES) 0.00 -- 1953 --
I-35 & 75th ST. (.45 ACRES) 0.00 -- 1953 --
66
<PAGE>
I-35 & 75th ST. (.86 ACRES) 0.00 -- 1953 --
I-35 & 75th ST. (.64 ACRES) 0.00 -- 1953 --
5301 WEST 95th ST. (.31 ACRES) 0.00 -- 1972 --
75th & REINHARDT 0.00 -- 1950 --
8100-8300 QUIVIRA 0.00 -- 1955 --
99TH & NIEMAN ROAD 173,565.74 1966 - 1995 1959 15-20
3541 SOMERSET DRIVE 120,926.22 1987 1957 10-40
151st & NALL 146,424.77 1940's 1983 15
JOHNSON DRIVE & HWY. 7 53,105.00 1940's 1981 15
135th -143rd, METCALF TO NALL 140,134.05 1950's 1989 20-27.5
VARIOUS LOCATIONS 0.00 -- 1995 --
3617-3737 SOMERSET DRIVE 37,496.97 1989 1957 15-27.5
84th & MISSION ROAD 16,291.77 1961 1995 15-27.5
4120 WEST 94th TERR. 4,500,844.45 1965 1972 10-40
3815 SOMERSET DRIVE(7) 1,757,328.57 1987 1987 10-40
3518 WEST 83rd ST. 957,751.86 1964 1972 10-40
8037 MOHAWK 86,222.08 1973 1995 15-27.5
OLATHE, KANSAS
- --------------
LOTS ON SANTA FE 0.00 -- 1995 --
11912-11950 STRANG LINE RD 296,210.80 1994 1992 15-30
MIAMI COUNTY, KANSAS
- --------------------
250th & FARLEY 41,504.12 1940's - 50's 1994 5-30
OSAGE CITY, KANSAS
- ------------------
EAST HIWAY 31(2) 2,566,743.98 1985 1985 5-35
VALUATION RESERVE 0.00 -- -- --
DES MOINES, IOWA
- ----------------
4201 WESTOWN PARKWAY(3) 2,260,627.43 1987 1987 10-40
4200 CORPORATE DRIVE(3) 842,132.15 1987 1987 10-40
4344 CORPORATE DRIVE(4) 245,470.66 1989 1988 5-39
4601 WESTOWN PARKWAY(4) 1,430,823.98 1989 1988 7-39
4200 UNIVERSITY AVE.(4) 1,809,181.49 1989 1988 7-39
4445 CORPORATE DRIVE(4) 873,154.45 1990 1988 31.5
4401 WESTOWN PARKWAY(5) 2,669,454.49 1986 1986 10-50
6031 MEADOW CREST DRIVE(6) 8,226,169.59 1986 - 87 1985 5-28
ST.PETERSBURG, FLORIDA
- ----------------------
2nd ST. SOUTH & CENTRAL 921,772.12 1992 1990 31.5
25 2nd ST. NORTH 205,940.37 1914 1992 15-31.5
Valuation Reserve 0.00 -- -- --
TOTAL REVENUE-PRODUCING
PROPERTIES 153,969,231.44
PREFERENCE ITEM(8)
TOTAL ENCUMBRANCES REVENUE PRODUCING PROPERTY
(1) The Company owns a 51.3% interest in the partnership owning these two office buildings.
(2) The Company owns a 99% profit-sharing interest and a 100% loss-sharing interest in the partnership owning this
facility.
(3) The Company owns a 90% interest in the partnership owning these two office buildings.
(4) The Company owns a 60% interest in the partnership owning these four office buildings.
(5) The Company owns an 85% interest in the partnership owning this office building.
(6) The Company owns a 65% interest in the partnership owning this apartment building.
(7) The Company shares 50% of the cash flow from these properties with an outside company providing credit
enhancement support related to the financing of these properties.
(8) See discussion in Note 8 to the 1996 Consolidated Financial Statements and Management's Discussion and Analysis
LAND & IMPROVEMENT INVENTORIES
Kansas City, Missouri
- ---------------------
400 West 49th Terr. 0.00 1988-1996 1962 --
Valuation 0.00 -- -- --
Stone County, Missouri
- ----------------------
Table Rock Lake (20 Miles
West of Branson, MO) 0.00 -- 1986 --
Valuation Reserve 0.00 -- -- --
Shawnee Mission, Kansas
- -----------------------
135th & Mission Road 0.00 -- 1994 --
Johnson Dr & Monticello Road 0.00 -- 1978 --
135th-151st, Metcalf to Nall 0.00 -- 1989 --
Residential Subdivisions:
- ------------------------
151st & Nall (SW Corner) 0.00 -- 1984 --
13200 Howe 0.00 -- 1983 --
148th & Nall 0.00 -- 1983 --
Johnson Dr & Hwy K-7 0.00 -- 1981 --
TOTAL LAND & IMPROVEMENT INVENTORIES 0.00
------
PROPERTY HELD FOR FUTURE DEVELOPMENT
Various Land Parcels
Kansas City, Missouri, 0.00 -- 1981 --
Johnson County, Kansas
and Miami County, Kansas
Held for Future Development
TOTAL PROPERTIES & MORTGAGE ---------
INDEBTEDNESS PER
CONSOLIDATED BALANCE
SHEET 153,969,231.44
==============
</TABLE>
(1) All but 88 acres of this property is under contract for sale.
67
<PAGE>
J. C. NICHOLS COMPANY AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED
DEPRECIATION ROLLFORWARDS
YEAR ENDED DECEMBER 31, 1996
Real Estate Assets Accumulated Depreciation
- -------------------------------------------------------------------------------
Balance at beginning of year $375,834,110 146,310,937
Additions during year:
Construction and
tenant improvements 10,717,282 0
Depreciation and
amortization expense (2,390,406) 10,391,018
Reclassification 308,133 308,133
Deductions during year:
Cost of real estate sold (9,405,299) (3,040,857)
Valuation allowances and
write-offs (961,150) 0
-----------------------------------------
Balance at end of year $374,102,670 153,969,231
=========================================
68
<PAGE>
J. C. NICHOLS COMPANY AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED
DEPRECIATION ROLLFORWARDS
YEAR ENDED DECEMBER 31, 1995
Real Estate Assets Accumulated Depreciation
- -------------------------------------------------------------------------------
Balance at beginning of year $381,181,933 137,077,447
Additions during year:
Acquisitions 3,700,609 0
Construction and tenant
improvements 7,449,127 0
Depreciation and amortization
expense (3,324,818) 9,991,182
Deductions during year:
Cost of real estate sold (11,055,540) (757,692)
Valuation allowances and
write-offs (2,117,201) 0
------------------------------------------
Balance at end of year $375,834,110 146,310,937
==========================================
69
<PAGE>
JC NICHOLS COMPANY AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION ROLLFORWARDS
YEAR ENDED DECEMBER 31, 1994
Real Estate Agents Accumulated Depreciation
------------------------------------------------
Balance at beginning of year $ 365,840,003 $ 126,832,234
Additions during year:
Acquisitions 45,210,729 626,213
Construction and tenant
improvements 14,580,346 0
Depreciation and amortization
expense (6,857,025) 10,644,975
Deductions during year:
Cost of real estate sold (12,925,339) (1,025,975)
Valuation allowances and write-
offs (24,666,781) 0
--------------------------------------
Balance at end of year $381,181,933 $137,077,447
======================================
70
<PAGE>
<TABLE>
<CAPTION>
J. C. NICHOLS COMPANY AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
Principal
Amount
Loans
Subject to
Face Carrying Delinquent
Periodic Amount of Amount of Principal
Description Interest Rate Maturity Date Payment Term Prior Liens Mortgage Mortgage or Interest
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Landing Ventures Prime 08/15/98 Varying $0 $3,255,000 $2,993,911 $0
Shopping Center Adjusted amounts over
Kansas City, Quarterly life to
Missouri maturity
Lemons Descendants 11% 11/30/01 Level monthly 0 750,000 681,105 0
Shopping Center at $7,741;
Kansas City, Missouri balloon at
maturity of
$564,556
Rayman, Steven W. 7% 12/01/02 Level monthly 0 11,750,000 10,826,413 0
Apartments at $87,000;
Merriam, Kansas balloon at
maturity of
$8,736,325
Construction loans on 10.50% 03/97 to 06/97 N/A N/A 0 3,032,176 807,154
single family
residences
Other miscellaneous 0% to 9.5% 01/97 to 09/99 N/A N/A 0 383,194 31,988
mortgages
---------- ------------ ----------
Totals $15,755,000 $17,916,799 $839,142
========== =======
Reserve for Uncollectible Accounts (905,397)
----------
Grand total $17,011,402
==========
</TABLE>
71
<PAGE>
J. C. NICHOLS COMPANY AND SUBSIDIARIES
ROLLFORWARD OF MORTGAGE LOANS ON REAL ESTATE
YEAR ENDED DECEMBER 31, 1996
Balance at beginning of year $21,337,384
Additions during year:
New mortgage loans 4,649,693
Deductions during year:
Collections of principal (7,918,608)
Write-offs (151,670)
----------
Balance at end of year $17,916,799
==========
December 31,
-------------------------------------
1995 1996
-------------------------------------
Gross Balance $21,337,384 $17,916,799
Reserve for uncollectible accounts (1,468,218) (905,397)
------------------------------------
$19,869,166 $17,011,402
====================================
72
<PAGE>
J. C. NICHOLS COMPANY AND SUBSIDIARIES
ROLLFORWARD OF MORTGAGE LOANS ON REAL ESTATE
YEAR ENDED DECEMBER 31, 1995
Balance at beginning of year $24,332,412
Additions during year:
New mortgage loans 4,591,994
Deductions during year:
Collections of principal (5,065,068)
Settlement expense items (see financial statement note 16) (2,271,954)
Write-offs (250,000)
----------
Balance at end of year $21,337,384
==========
December 31,
----------------------------------------
1994 1995
----------------------------------------
Gross balance $ 24,332,412 $ 21,337,384
Reserve for uncollectible accounts (400,000) (1,468,218)
---------------------------------------
$ 23,932,412 $ 19,869,166
========================================
J.C. NICHOLS COMPANY AND SUBSIDIARIES
ROLLFORWARD OF MORTGAGE LOANS ON REAL ESTATE
YEAR ENDED DECEMBER 31, 1994
Balance at beginning of year $ 28,590,695
Additions during year:
New mortgage loans 9,362,703
Deductions during year:
Collections of principal (13,620,986)
Write-offs --
----------
Balance at end of year $ 24,332,412
==========
December 31,
1993 1994
---------------------------------------
Gross Balance $ 28,590,695 $ 24,332,412
Reserve for uncollectible accounts (192,260) (400,000)
------------------------------------
$ 28,398,435 $ 23,932,412
=========== ===========
73
<PAGE>
J. C. NICHOLS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Balance at Charged to
Beginning of Costs Balance at
Description Year and Expenses Write-Offs End of Year
- -----------------------------------------------------------------------------------------------------------------------------------
Valuation Reserve:
Revenue producing
property $16,715,475 $ (961,489) $(5,351,654) $10,402,332
Valuation Reserve:
Land and
improvements
inventory 4,983,443 0 0 4,983,443
Valuation Reserve:
Marketable equity
securities 85,000 0 0 85,000
Valuation Reserve:
Notes and accounts
receivable 5,143,001 (102,833) (1,543,831) 3,496,337
Valuation Reserve:
Investments in real
estate partnerships 1,216,839 0 0 1,216,839
---------------------------------------------------------------------------------------------------
Totals $ 28,143,758 $ (1,064,322) $(6,895,485) $20,183,951
====================================================================================================
</TABLE>
74
<PAGE>
J. C. NICHOLS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Charged to Charged to
Balance at Costs Other Balance at
Description Beginning of Year and Expenses Accounts Write-Offs End of Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Valuation Reserve:
Revenue producing
property $ 15,025,400 $ 1,830,000 $ 0 $ (139,925) $16,715,475
Valuation Reserve:
Land and improvements
inventory 4,696,242 287,201 0 0 4,983,443
Valuation Reserve:
Property held for future
development 1,327,450 0 (1,327,450) 0 0
Valuation Reserve:
Marketable equity
securities 0 85,000 0 0 85,000
Valuation Reserve:
Notes and accounts
receivable 4,259,930 2,380,750 0 (1,497,679) 5,143,001
Valuation Reserve:
Prepaid expenses: 1,208,631 0 (1,208,631) 0 0
Valuation Reserve:
Investments in real estate
partnerships 1,360,239 0 (68,400) (75,000) 1,216,839
Valuation Reserve:
Minority interest 952,474 0 (952,474) 0 0
--------------------------------------------------------------------------------------------------------
Totals $28,830,366 $ 4,582,951 $(3,556,955) $(1,712,604) $ 28,143,758
========================================================================================================
</TABLE>
* These amounts were taken as credits to valuation allowance expense as
the Company was released from the assets and liabilities (net liability
position) of a consolidated affiliate during 1995.
JC NICHOLS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Charged to Charged to Balance at
Description Beginning of Year and Expenses Accounts Write-Offs End of Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Valuation Reserve:
Revenue producing
property $ 443,512 $ 14,581,888 $ 0 $ 0 $15,025,400
Valuation Reserve:
Land and improvements
inventory 137,799 4,558,443 0 0 4,696,242
Valuation Reserve:
Property held for future
development 0 1,327,450 0 0 1,327,450
Valuation Reserve:
Notes and accounts
receivable 1,195,894 3,064,036 0 0 4,259,930
Valuation Reserve:
Prepaid expenses 0 1,208,631 0 0 1,208,631
Valuation Reserve:
Investments in real estate
partnerships 0 1,360,239 0 0 1,360,239
Valuation Reserve:
Minority interest 0 952,474 0 0 952,474
---------------------------------------------------------------------------------------------------
Totals $ 1,777,205 $27,053,161 $ 0 $ 0 $28,830,366
===================================================================================================
</TABLE>
75
<PAGE>
J. C. NICHOLS COMPANY AND SUBSIDIARIES
MORTGAGES PAYABLE
DECEMBER 31, 1996
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING
LENDER MATURITY AS OF
PROPERTY OR TRUSTEE DATE 12/31/96 INTEREST RATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Millcreek Block Principal Mutual 12/13/13 $ 2,672,491 Fixed at 8% until 2004; rate adjusted
by holder at 2004 and 2009
Swanson Block Principal Mutual 12/13/13 $ 3,715,414 "
Hall's Building Principal Mutual 12/13/13 $ 1,694,750 "
Theatre Block Principal Mutual 12/13/13 $ 5,670,895 "
Triangle Block Principal Mutual 12/13/13 $ 1,759,933 "
Balcony Block Principal Mutual 12/13/13 $ 3,845,779 "
Plaza Central Principal Mutual 12/13/13 $ 1,564,385 "
Nichols Block Principal Mutual 12/13/13 $ 3,259,135 "
Time Block Principal Mutual 12/13/13 $ 12,123,982 "
Esplanade Block Principal Mutual 12/13/13 $ 7,887,106 "
Plaza Savings South Principal Mutual 12/13/13 $ 2,020,664 "
48th & Penn Principal Mutual 12/13/13 $ 1,825,116 "
Court of the Penguins Principal Mutual 12/13/13 $ 2,737,673 "
Seville Shops West Principal Mutual 12/13/13 $ 2,346,577 "
Seville Square Principal Mutual 12/13/13 $ 6,192,356 "
Park Plaza Principal Mutual 12/13/13 $ 5,866,443 "
Mission Valley Royal Neighbors 07/01/11 $ 1,206,864 7.8750%
Apartments
Corinth Office Building Members Life 09/01/06 $ 991,234 7.9500%
Insurance
Nichols Building CUNA Mutual 09/01/06 $ 1,050,708 7.9500%
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
AMORTIZATION BALANCE DUE AT
PREPAYMENT PROVISIONS PERIOD MATURITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Greater of 1% of principal or a calculated re-investment yield 20 years Fully Amortized
Holder is entitled to re-investment yield per prescribed formula 15 years Fully Amortized
Holder is entitled to re-investment yield per prescribed formula 10 years Fully Amortized
Holder is entitled to re-investment yield per prescribed formula 10 years Fully Amortized
</TABLE>
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING
LENDER MATURITY AS OF
PROPERTY OR TRUSTEE DATE 12/31/96 INTEREST RATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trailwood III Shops Bank Midwest 05/01/21 $ 892,500 Monthly weighted
average plus 2%
Bannister Business Center Bank Midwest 05/01/21 $ 1,260,000 Monthly weighted
average plus 2%
Regency House Mercantile Bank 07/07/99 $ 3,478,000 Prime +1/4%
Sulgrave Mercantile Bank 07/07/99 $ 5,212,000 Prime +1/4%
Tropicana Building Barnett Bank 03/27/01 $ 425,000 Prime +1/4%
Corinth Place Boatmen's Bank 12/01/15 $ 4,500,000 Lower floater,
adjusted monthly
Coach House South Boatmen's Bank 12/01/15 $ 20,000,000 Lower floater,
adjusted monthly
Coach House U.S. Trust 05/01/15 $ 8,000,000 Lower floater,
adjusted monthly
Fairway North U.S. Trust 11/01/14 $ 4,500,000 Lower floater,
adjusted monthly
(1) Two Brush
Creek Plaza Lincoln National 01/01/02 $ 6,896,318 8.0000%
Brookside Shops Lutheran 01/01/11 $ 4,396,235 10.5000%
Prairie Village Shops Lutheran 01/01/11 $ 11,447,460 10.5000%
Rental Houses Mages 05/01/04 $ 26,208 8.0000%
Neptune Apartments Lutheran 01/01/99 $ 3,572,977 9.8750%
Quivira Business Park,
Buildings J, K and L Commerce Bank 08/01/98 $ 2,000,000 9.8000%
Corinth Square Shops Farm Bureau 04/01/02 $ 7,197,141 9.3750%
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
AMORTIZATION BALANCE DUE AT
PREPAYMENT PROVISIONS PERIOD MATURITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
None 35 years Fully Amortized
None 35 years Fully Amortized
None 168,000 per year $ 3,202,000
None 252,000 per year $ 4,798,000
None 9 years Fully Amortized
Administrative costs for early call Interest Only $ 4,500,000
Administrative costs for early call Interest Only $ 20,000,000
Administrative costs for early call Interest Only $ 8,000,000
Administrative costs for early call Interest Only $ 4,500,000
Requires lender's approval and payment of all 25 years $ 5,001,164
contingent interest
In the first ten years additional charge at re-investment 20 years Fully Amortized
rate. Beginning in the 11th year, 5% of principal,
declining by 1/2% each year thereafter
In the first ten years additional charge at re-investment 20 years $ 9,516,048
rate. Beginning in the 11th year, 5% of principal,
declining by1/2% each year thereafter
None 10 years Fully Amortized
Beginning in 4th year, 5% of principal and declining 1% 30 years $ 3,497,643
each year to a minimum of 2%
Administrative costs for early call Interest Only $ 2,000,000
Beginning in 8th year, greater of 1% of principal or a 20 years $ 5,853,074
calculated reinvestment yield
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING
LENDER OR MATURITY AS OF INTEREST
PROPERTY TRUSTEE DATE 12/31/96 RATE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corinth Shops South Farm Bureau 04/01/02 $2,029,963 9.375%
Kenilworth Apartments Aegon 05/01/97 $5,842,921 9.250%
Red Bridge Professional Building NYLIC 07/10/98 $ 675,730 9.125%
Fairway West Office Center Commerce Bank 03/01/03 $4,775,000 9.000%
Oak Park Building NYLIC 01/10/03 $ 495,575 8.875%
Quivira Business Park, Buildings Northland
Financial 01/01/99 $ 210,256 8.875%
A, C, D, and WE
Quivira Business Park Buildings E, Northland
Financial $ 601,828 8.750%
F, G and H 11/01/98
Corinth Paddock Apartments NYLIC 05/10/99 $ 509,166 8.500%
(1) 4900 Main Building KPERS 02/01/21 $23,154,737 8.000%
Vacant Lots - Penn Plaza Bright 12/01/99 $ 25,852 8.000%
Corinth Executive Building NYLIC 10/01/02 $ 445,242 8.000%
Fairway Shops USG Annuity 02/01/06 $2,945,261 7.650%
Winwood Apartments Iowa Finance 11/01/15 $23,000,000 Lower Floater,
Authority adjusted
weekly
Neptune Building Iowa Finance 09/01/15 $6,000,000 Lower floater,
Authority adjusted
weekly
Shannon Valley Shops Principal Mutual 02/01/97 $5,394,742 9.750%
Manufactured Homes Plant Commerce Bank 12/01/99 $4,800,000 Lower floater,
adjusted
weekly
</TABLE>
<TABLE>
<CAPTION>
AMORTIZATIOM BALANCE DUE
PREPAYMENT PROVISIONS PERIOD AT MATURITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning in 8th year, greater of 1% of principal or a calculated 20 years $1,650,867
reinvestment yield
Beginning in 38th month, greater of 1% of principal or re-investment 20 years $5,842,921
yield
Beginning in 14th year, 5% of principal declining 1/4% per year 25 years $617,578
Redeemable on 3/1/98 and thereafter on interest payment dates 20 years $1,775,000
declining from 102% to 100% of principal
Beginning in 11th year, 5% of principal declining 1/4% per year 25 years Fully Amortized
Beginning in 11th year, 5% of principal declining 1/2 of 1% per year 27 years $101,228
to not less than 1%
Beginning in 11th year, 5% of principal declining 1/2 of 1% per year 25 years $527,720
to not less than 1%
Beginning in 11th year, 5% of principal declining 1/2% per year to a 25 years Fully Amortized
minimum of 1% thereafter
None 35 years Fully Amortized
None 25 years Fully Amortized
Beginning in 11th year 3% of principal declining 1/2% per year to 1% 30 years Fully Amortized
Greater of 1% of principal or a calculated reinvestment yield 20 years $2,068,324
Redeemable at rates declining from 102% to 100% of principal Interest Only $23,000,000
Redeemable at rates declining from 102% to 100% of principal Interest Only $6,000,000
Greater of 1% of principal on a calculated reinvestment yield 30 years $5,394,742
Redeemable at rates declining from 103% to 100% of principal Interest only $4,800,000
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING
LENDER OR MATURITY AS OF
PROPERTY TRUSTEE DATE 12/31/96 INTEREST RATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Highland and Crestwood Cigna 12/01/02 $8,697,364 8.290%
Buildings
Sunset, Veridian, Cigna 12/01/02 $21,922,784 8.290%
Edgewater, and Waterford
Buildings
Bay Plaza Shops Colonial Hotel, Inc. 08/21/00 $800,000 9.000%
Bay Plaza Shops Princess Mary Hotel 08/21/00 $307,200 9.000%
Co., Inc.
Alameda Towers Boatmen's Bank 06/01/97 $3,539,981 Prime
Condominiums
Land under ground lease Cigna Corp. 03/01/09 $19,000,000 9.050%
Park Central Building I Hibernia Bank 09/30/97 $13,410,667 9.000%
Park Central Building II Midland Bank 10/15/99 $3,466,871 Boatmen's corporate rate
plus 1%; adjusted 11/15
each year
Park Central Building II F.D.I.C. 09/01/99 $874,731 Boatmen's corporate rate
plus .5%; adjusted 9/1
each year
Preference Items $4,026,458
---------
Total mortgages payable $309,187,673
===========
</TABLE>
(1) See discussion in Note 8 to the Consolidated Financial Statements
and Management's Discussion and Analysis - Liquidity and Capital
Resources.
AMORTIZATION BALANCE DUE
PREPAYMENT PROVISIONS PERIOD AT MATURITY
- -------------------------------------------------------------------------------
None 25 years $ 7,918,393
None 25 years $ 19,737,955
None Interest only $ 800,000
None Interest only $ 307,200
None Tied to condominium sales $ 3,539,981
Beginning in 9th year, 25 years $ 17,429,339
1% plus yield
maintenance
None 20 years $ 13,409,016
None 20 years $ 3,347,109
None 20 years $ 854,484
80
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The relationship between the Company and its prior auditor was
terminated on May 26, 1995. The Board of Directors of the Company decided to
terminate that relationship. KPMG Peat Marwick LLP was engaged as auditor for
the Company on May 26, 1995. The prior auditor qualified its report on the
consolidated financial statements of the Company for the years ended December
31, 1993 and 1992. The prior auditor stated its qualification resulted from its
inability to obtain sufficient evidence to evaluate whether certain capitalized
cost balances as of December 31, 1993 and 1992 were in excess of recoverable
amounts. To the knowledge of current management of the Company, there was not at
any time prior to May 26, 1995 any disagreement expressed to the prior auditor
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
Subsequent to May 26, 1995, current management of the Company had a
disagreement with the prior auditor concerning: (i) the manner in which certain
transactions between the Company and individuals who were at the time officers
or directors of the Company were described, or, alternatively, not disclosed, in
the financial statements of the Company for the years ended December 31, 1993
and 1992; (ii) the alleged failure of the prior auditor to forcefully
bring to the attention of the Board of Directors of the Company during the
years ended December 31, 1993 and 1992 the financial impact on the Company
of such transactions; and (iii) the alleged failure by the prior auditor to
identify for appropriate management or the Board of Directors of the Company
during the years ended December 31, 1993 and 1992 deficiencies in the
Company's internal accounting control structure. The disagreements with the
prior auditor, Deloitte & Touche LLP, were not communicated to the prior
auditor by the Company until after May 26, 1995. The transactions that gave
rise to certain of the foregoing disagreements were the subject of the
Settlement Agreement. Deloitte & Touche LLP was not a party to the Settlement
Agreement. However, Deloitte & Touche LLP was a party to the separate
Resolution Agreement entered into with the Company. Both the Settlement
Agreement and the Resolution Agreement are described in Item 3, "Legal
Proceedings."
81
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 28, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 28, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 28, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 28, 1997.
82
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents list
(1) The following financial statements are included in Part II Item 8:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity (Deficit) For the
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) The following financial statement schedules are included in Part
II, Item 8.
Independent Auditors' Report
Schedule of Real Estate and Accumulated Depreciation at
December 31, 1996
Schedule of Real Estate and Accumulated Depreciation Rollforwards
for the Year Ended December 31, 1996
Schedule of Real Estate and Accumulated Depreciation Rollforwards
for the Year Ended December 31, 1995
Schedule of Real Estate and Accumulated Depreciation Rollforwards
for the Year Ended December 31, 1994
Mortgage Loans on Real Estate at December 31, 1996
Schedule of Rollforward of Mortgage Loans on Real Estate for the
Year Ended December 31, 1996
Schedule of Rollforward of Mortgage Loans on Real Estate for the
Year Ended December 31, 1995
Schedule of Rollforward of Mortgage Loans on Real Estate for the
Year Ended December 31, 1994
Schedule of Valuation and Qualifying Accounts for the Year Ended
December 31, 1996
Schedule of Valuation and Qualifying Accounts for the Year Ended
December 31, 1995
Schedule of Valuation and Qualifying Accounts for the Year Ended
December 31, 1994
Mortgages Payable at December 31, 1996
(3) List of Exhibits:
83
<PAGE>
EXHIBIT NO.
- -----------
3.1 The Articles of Incorporation of the Company*
3.2 The Bylaws of the Company*
4.1 The Articles of Incorporation of the Company (Included in Exhibit
3.1)*
4.2 The Bylaws of the Company (Included in Exhibit 3.2)*
10.1(a) Amendment to and Restatement of J.C. Nichols Company Employee Stock
Ownership Plan*
10.1(b) First Amendment to the Amended and Restated J.C. Nichols Company
Employee Stock Ownership Plan*
10.1(c) Third Amendment to the Amended and Restated J.C. Nichols Company
Employee Stock Ownership Plan*
10.2(a) Amendment to and Restatement of J.C. Nichols Employee Stock Ownership
Trust*
10.2(b) First Amendment to the Amended and Restated J.C. Nichols Company
Employee Stock Ownership Trust*
10.3(a) Real Estate Contract of Sale (between J.C. Nichols Company and
Synergy Development Alliance, L.C.)*
10.3(b) Amendment to Real Estate Contract of Sale*
10.3(c) Second Amendment to Real Estate Contract of Sale*
10.3(d) April 25, 1995 Letter Agreement [constituting third amendment to Real
Estate Contract for Sale*
10.3(e) May 11, 1995 Letter Agreement [constituting fourth amendment to Real
Estate Contract of Sale*
10.4(a) Secured Promissory Note - Note A*
10.4(b) Secured Promissory Note - Note B*
10.4(c) Deed of Trust, Security Agreement and Assignment of Rents*
10.4(d) Assignment of Leases and Rents*
10.5 Hotel Management Fee Participation Sale Agreement*
10.6 Restated Joint Venture Agreement*
10.7 J.C. Nichols Company 1996 Stock Option Plan, Amended and Restated
Effective May 30, 1996*
84
<PAGE>
10.8 Form of Indemnification Agreement entered into between the Company and
each of the members of the Board of Directors and certain Officers*
10.9 Form Employment Agreement between the Company and Certain Officers*
10.10 Employment Agreement between the Company and Mr. Brady, President and
Chief Executive Officer of the Company*
10.11 Settlement Agreement between the Company and Deloitte & Touche LLP*
10.12 Stock Purchase Agreement among the Company, AHI Metnall L.P.,
John Simon, and James W. Quinn*
16.1 Letter re: Change in Certifying Accountant*
21.1 List of Subsidiaries and Affiliates of the Company*
24.1 Power of Attorney for the members of the Board of Directors and certain
Officers of the Company (Included in Signature Pages to the
Registration Statement)*
27.1 Financial Data Schedule
99.1 Settlement Agreement and Mutual Releases as of June 30, 1995*
* Incorporated by reference to the Company's Registration Statement on
Form 10.
(b) Reports on Form 8-K
None.
85
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 on March 27, 1997.
J.C. NICHOLS COMPANY
(Registrant)
By: /s/ BARRETT BRADY
-------------------------------
Barrett Brady
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ WILLIAM K. HOSKINS Chairman of the Board, March 27, 1997
and Director
/s/ BARRETT BRADY President, Chief Executive March 27, 1997
Officer and Director
/s/ KAY N. CALLISON Director March 27, 1997
/s/ MARK C. DEMETREE Director March 27, 1997
/s/ JOHN A. OVEL Director March 27, 1997
/s/ CLARENCE L. ROEDER Director March 27, 1997
/s/ MARK A. PETERSON Vice President, Chief Financial March 27, 1997
Officer and Treasurer (Principal
Accounting Officer)
86
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
J.C. NICHOLS COMPANY
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF J.C. NICHOLS COMPANY AS OF DECEMBER 31,
1996, AND FOR THE FISCAL YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000071978
<NAME> *zw3rvqu
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 59,507
<SECURITIES> 0
<RECEIVABLES> 19,365
<ALLOWANCES> 905
<INVENTORY> 29,645
<CURRENT-ASSETS> 0
<PP&E> 346,514
<DEPRECIATION> 156,926
<TOTAL-ASSETS> 320,327
<CURRENT-LIABILITIES> 0
<BONDS> 311,188
0
0
<COMMON> 100
<OTHER-SE> (28,706)
<TOTAL-LIABILITY-AND-EQUITY> 320,327
<SALES> 6,623
<TOTAL-REVENUES> 132,628
<CGS> 5,162
<TOTAL-COSTS> 87,976
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (63,000)
<INTEREST-EXPENSE> 23,305
<INCOME-PRETAX> 44,652
<INCOME-TAX> 16,750
<INCOME-CONTINUING> 27,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,902
<EPS-PRIMARY> 5.62
<EPS-DILUTED> 5.61
</TABLE>
