FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended July 2, 1995
Commission File Number 0-24714
KAHLER REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1784272
(State or other jurisdiction of (I.R.S. Employee Identifiation No.)
incorporation or organization)
20 SW 2nd Avenue, Rochester, MN 55902
(Address of principal executive offices) (Zip Code)
(507) 285-2700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (2) 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
The number of shares outstanding of the Registrant's common stock as of July
2, 1995 was:
Common Stock, $.10 par value - 4,211,031 shares
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KAHLER REALTY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
July 2, 1995
PAGE
NUMBER
Index to Report . . . . . . . . . . . . . . . . . . . . . . 1
Part 1. Financial Information
Consolidated Balance Sheets -
July 2, 1995 and January 1, 1995 . . . . . . . . . . . 2 - 3
Consolidated Statements of Operations -
Second Quarter Ended and Six Months Ended
July 2, 1995 and July 3, 1994. . . . . . . . . . . . . 4
Consolidated Statements of Cash Flow -
Six Months Ended July 2, 1995 and
July 3, 1994 . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6 - 9
Management's Discussion and Analysis of Results
of Operations and Financial Condition. . . . . . . . . 9 - 17
Part II. Other Information . . . . . . . . . . . . . . . . 17
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 18
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PART I. FINANCIAL INFORMATION Page 2
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KAHLER REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(unaudited)
<CAPTION>
July 2, January 1,
1995 1995
ASSETS
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 1,324 $ 1,110
Receivables:
Trade, less allowance for doubtful accounts
of $239 and $252, respectively 6,173 5,333
Current portion of notes receivable 150 150
Inventories 2,557 2,498
Prepaid expenses 446 265
Total current assets 10,650 9,356
OTHER ASSETS
Notes receivable, primarily from affiliates 1,393 1,423
Investment in and advances to affiliates 3,425 3,279
Debt service reserve fund 750 750
Intangibles 736 791
Other 2,069 1,823
Total other assets 8,373 8,066
PROPERTY AND EQUIPMENT
Land and improvements 16,349 16,349
Buildings 136,967 136,967
Equipment 48,232 46,977
Formal wear apparel 5,763 4,735
Total 207,311 205,028
Less accumulated depreciation 58,521 54,281
148,790 150,747
Construction in progress 811 -
Total property and equipment 149,601 150,747
TOTAL ASSETS $ 168,624 $ 168,169
See Notes to Consolidated Financial Statements.
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PART I. FINANCIAL INFORMATION Page 3
KAHLER REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(unaudited)
<CAPTION>
July 2, January 1,
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C> <C> <C>
Accounts payable $ 7,727 $ 8,559
Accrued liabilities:
Payroll and payroll related liabilities 3,092 2,473
Real estate taxes 2,214 1,996
Other taxes 1,309 806
Notes payable 4,100 5,300
Current portion of long-term debt 2,912 2,767
Current portion of subordinated debt due to affiliate 500 500
Total current liabilities 21,854 22,401
LONG-TERM DEBT
Obligations of Kahler Realty Corporation 94,300 94,942
Obligations of Subsidiaries - Nonrecourse
to Kahler Realty Corporation 26,265 26,517
Total long-term debt 120,565 121,459
OTHER DEFERRED LIABILITIES
Deferred revenue 134 137
Other 1,392 1,401
Total other deferred liabilities 1,526 1,538
COMMITMENTS AND CONTINGENCIES
SUBORDINATED DEBT DUE TO AFFILIATE 1,000 1,500
STOCKHOLDERS' EQUITY
Common stock, par value $.10
Authorized - 70,000,000 shares;
Issued and outstanding - 4,211,031
and 4,167,598, respectively 421 417
Additional paid-in capital 13,250 13,030
Retained earnings 10,175 7,991
Minimum pension liability adjustment (167) (167)
Total stockholders' equity 23,679 21,271
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 168,624 $ 168,169
See Notes to Consolidated Financial Statements.
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PART I. FINANCIAL INFORMATION Page 4
KAHLER REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
(unaudited)
<CAPTION>
Second Quarter Ended Six Months Ended
July 2 July 3 July 2 July 3
1995 1994 1995 1994
REVENUES
<S> <C><C> <C><C> <C><C> <C><C>
Revenue of owned operations $ 32,499 $ 30,382 $ 61,866 $ 56,345
Other properties managed and/or
partially owned 4,253 4,533 8,362 8,576
Total revenues $ 36,752 $ 34,915 $ 70,228 $ 64,921
REVENUE OF OWNED OPERATIONS
Lodging - rooms $ 15,323 $ 14,022 $ 31,308 $ 27,901
- food and beverage 8,186 7,702 16,081 14,501
- other 3,125 2,753 5,888 5,216
Formal wear, laundry & other 5,679 5,804 8,365 8,444
Interest income 186 101 224 283
Total revenue of owned operations 32,499 30,382 61,866 56,345
OPERATING COSTS AND EXPENSES
Lodging - rooms 3,821 3,486 7,588 6,793
- food and beverage 6,537 6,010 12,762 11,542
- other 9,405 8,711 19,166 17,118
Formal wear, laundry & other 3,491 3,770 6,668 7,194
Corporate expenses 859 870 1,914 1,694
Depreciation and amortization 2,402 2,371 4,438 4,298
Total operating costs and expenses 26,515 25,218 52,536 48,639
GROSS OPERATING PROFIT 5,984 5,164 9,330 7,706
Interest expense (3,010) (2,749) (6,060) (5,248)
Equity earnings of affiliates 137 65 291 98
Gain (Loss) on sale of assets (32) 1 (31) 11
INCOME FROM OPERATIONS
BEFORE INCOME TAXES 3,079 2,481 3,530 2,567
Provision for income taxes 954 744 1,094 770
NET INCOME $ 2,125 $ 1,737 $ 2,436 $ 1,797
INCOME PER COMMON SHARE $ .49 $ .43 $ .57 $ .43
See Notes to Consolidated Financial Statements.
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PART I. FINANCIAL INFORMATION Page 5
KAHLER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in Thousands)
(unaudited)
<CAPTION>
Six Months Six Months
Ended Ended
July 2, 1995 July 3, 1994
OPERATIONS:
<S> <C> <C> <C> <C>
Net income $ 2,436 $ 1,797
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,438 4,298
Common stock issued under
employee benefit plans 105 3
Equity in earnings of affiliates (291) (98)
Gain on sale of assets (31) (11)
Change in current assets and current liabilities:
Receivables (840) (1,034)
Inventories (59) (92)
Prepaid expenses (181) (271)
Accounts payable (832) (304)
Accrued liabilities 1,340 1,304
Net cash provided by operating activities 6,085 5,592
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (3,163) (8,682)
Proceeds from sale of property and equipment 35 14
Payments received on notes receivable 30 105
Investment in and advances to affiliates (42) -
Payments received from affiliates 187 187
Payments for intangible assets (2) (37)
Increase in other assets (322) (1,037)
Net cash used in investment activities (3,277) (9,450)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to preferred shareholders - (159)
Dividends paid to common shareholders (252) (142)
Proceeds from issuance of common stock 119 420
Proceeds from new long-term debt and notes payable 227 3,700
Principal payments on subordinated debt (500) -
Principal payments on long-term debt (976) (1,159)
Net borrowings (payments) under line-of-credit
agreements and short-term notes payable (1,200) 1,700
Decrease in other liabilities (12) (174)
Net cash provided (used) by financing activities (2,594) 4,186
INCREASE IN CASH 214 328
CASH AT BEGINNING OF THE PERIOD 1,110 984
CASH AT END OF THE PERIOD $ 1,324 $ 1,312
See Notes to Consolidated Financial Statements.
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Page 6
PART I. FINANCIAL INFORMATION
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. They do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been
no material change in the information disclosed in the notes to consolidated
financial statements included in the Annual Report on Form 10-K of Kahler
Realty Corporation and subsidiaries (the Company) for the year ended January
1, 1995. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for the first
six months ended July 2, 1995 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1995.
2. All comparative data reflects application of consistent accounting
principles and contains no prior period adjustments.
3. Revenues of the Company are classified into two components. The Company
uses this presentation to show the total scope of the Company's operations.
The components of revenue are:
. Revenue of owned operations include revenues from lodging properties in
which the Company has an interest greater than 50%, management fees
generated from properties partially-owned (50% or less) and properties
owned by others. Also included are revenues from Anderson's Formal Wear,
Textile Care Services and Interest Income.
. Other properties managed and/or partially-owned includes all revenue of
properties partially-owned (50% or less) by the Company and the properties
managed for others. Under generally accepted accounting principles, this
revenue is not included in revenue of owned operations and the Company's
interest in partially-owned properties is reflected in the Consolidated
Statements of Operations as equity earnings of affiliates.
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Page 7
PART I. FINANCIAL INFORMATION
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
4. Supplemental disclosure of cash flow information.
Cash paid (received) for:
Six Months Ended
July 2, 1995 July 3, 1994
Interest paid $ 6,397 $ 5,752
Interest received (155) (277)
Income taxes 409 302
5. Income per share is computed on a primary share basis using the weighted
average number of outstanding common shares plus common stock equivalents
aggregating 4,314,000 and 3,826,000 for the second quarter of 1995 and 1994,
respectively, and 4,306,000 and 3,785,000 for the six months ended July 2,
1995 and July 3, 1994.
Income per share computed on a fully diluted basis is not presented for the
amounts are the same as on a primary share basis.
6. The Board of Directors during the second quarter of 1995 and 1994 declared
quarterly dividends of $.03 and $.02 per share to common shareholders of
record on July 3, 1995 and July 1, 1994, respectively. These dividends
totaling $126 and $72 were paid July 21, 1995 and July 22, 1994. Year to
date 1995 and 1994, the Company paid dividends of $.06 per share, and $.04
per share, to common shareholders for a total dividend of $252 and $142,
respectively.
During the second quarter of 1994, the Company paid a quarterly dividend of
$0.5625 per share to preferred shareholders of record on June 1, 1994. This
dividend, totaling $79, was paid on June 15, 1994. Year to date 1994, the
Company paid dividends of $1.125 per share to preferred shareholders for a
total dividend of $159. All preferred shareholders converted their
outstanding preferred shares to common stock during 1994.
These dividends have been accounted for as a reduction to retained
earnings.
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Page 8
PART I. FINANCIAL INFORMATION
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
7. Investment in and advances to affiliates represent the Company's
proportionate share of the affiliates' assets and liabilities as adjusted to
reflect the effect of any basis differences. The Company or its
subsidiaries typically serve as a general partner or limited partner of the
partnership and operate the hotels under long-term management contracts.
Ownership July 2, July 3,
Equity investments Interests 1995 1994
Provo Park Hotel, Provo, UT 50.0% $ 3,308 $ 3,157
Kahler Park Hotel, Hibbing, MN 25.0% 117 143
Plaza One Hotel, Rock Island, IL 26.6% - 71
$ 3,425 $ 3,371
Combined summarized balance sheet information
for the Company's affiliates is as follows:
Current assets $ 742 $ 838
Noncurrent assets 15,405 15,636
Current liabilities 1,433 1,207
Long-term debt, principally mortgages 9,211 9,352
Other long-term liabilities 1,293 1,298
Owner's equity 4,210 4,617
Six Months Ended
July 2, 1995 July 3, 1994
The Company's income from affiliates before taxes
is as follows:
Management fees $ 187 $ 162
Equity in net earnings 291 98
$ 478 $ 260
Combined summarized operating results reported
by these affiliates are as follows:
Revenues $ 6,266 $ 5,418
Net loss (42) (470)
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Page 9
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
8. In June 1995, the Company acquired an option to purchase a 112 room hotel in
Twin Falls, Idaho for $5.8 million. On August 1, 1995 the Company exercised
this option and financed the purchase with a first mortgage of $3.8 million,
a note payable to seller of $400 and $1.6 million from available cash and
lines of credit.
On July 1, 1995, the Company took over the operating responsibility of the
150 room Copper King Inn in Butte, Montana. The Company anticipates
acquiring an approximate 30% equity interest in the hotel in the third
quarter.
In April 1995, construction of a 108 room expansion of the Boise Park Suites
Hotel began. Substantially all of the remaining construction cost will be
paid for with a $4.9 million construction and permanent loan.
The Company continues to study the possibility of converting to a real
estate investment trust simultaneously with a public offering of its common
shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL
CONDITION
General
The management's discussion and analysis of financial condition and results
of operations set forth below follows the presentation of the Company's
Consolidated Statements of Operations. This discussion should be read in
conjunction with this statement and the other Consolidated Financial
Statements and Notes thereto appearing in this Form 10-Q.
Revenues of the Company are classified into two components which are defined
in Note 3 of the Notes to Consolidated Financial Statements. The Company
uses this presentation to show the total scope of the Company's operations.
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Page 10
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
The Company's principal business is the ownership and management of hotel
properties. The following table sets forth certain financial information
from owned operations for the lodging segment, stating the lodging revenue
components as a percentage of total lodging revenue, for the periods
indicated.
Second Quarter First Six Months
1995 1994 1995 1994
Room revenue 57.5% 57.3% 58.8% 58.6%
Food and beverage revenue 30.7% 31.5% 30.2% 30.5%
Other - Golf, rents, phone, etc. 11.2% 10.7% 10.5% 10.5%
- Management fees .6% .5% .5% .4%
Total lodging revenues 100.0% 100.0% 100.0% 100.0%
Lodging operating expenses 74.2% 74.4% 74.2% 74.5%
Lodging operating income before
interest, depreciation and
corporate expenses 25.8% 25.6% 25.8% 25.5%
The Company's operations have benefitted from the addition of a new
management contract and the acquisition of new properties. In January
1995, the Company entered into a management contract with a 127 room
property in Waverly, Iowa. In March 1994, the Company acquired Pocatello
Park Quality Inn which is a 152 room property in Pocatello, Idaho. In
December 1994, the Company acquired the Green Oaks Inn and Conference Center
in Fort Worth, Texas which it had managed since 1990.
The following table sets forth certain operating data for the hotels owned
and managed by the Company:
Hotel Operating Data:
Second Quarter First Six Months
1995 1994 1995 1994
Number of Hotels, period end 20 19 20 19
Room Nights Available 406,219 392,187 812,285 772,884
Occupancy 68.4% 68.2% 66.5% 65.6%
Average Daily Room Rate
per Occupied Room $ 64.47 $ 63.1 $ 67.10 $ 65.49
Average Daily Revenue
per Available Room $ 44.11 $ 43.08 $ 44.63 $ 42.95
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Page 11
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
Results of Operations
This discussion should be read in conjunction with the Consolidated
Statement of Operations.
Lodging
Total lodging revenue for the second quarter and first six months of 1995
increased by $2.2 million and $5.7 million or 8.8% and 11.9% compared to the
same periods in 1994. These increases are primarily the result of
acquisitions subsequent to the first six months in 1994, which are outlined
above. The Company's room revenues also increased due to increased
occupancies and higher rates. The Company's occupancy percentage increased
from 68.2% to 68.4% in the second quarter and from 65.6% to 66.5% for the
first six months of 1995 compared with the same periods in 1994. The
Company's hotels in the intermountain west states of Utah and Idaho, and the
conference center hotels in Arizona and Texas primarily generated the
increase in average daily room rate and occupancy. This is a result of
strong economies in these areas and good marketing efforts by the Company.
Food and beverage revenues increased by $484 and $1.6 million or 6.3% and
10.9% when comparing the second quarter and the first six months of 1995
with the same periods in 1994. This is primarily the result of acquiring
new hotel properties as discussed above.
Lodging operating costs and expenses in the second quarter of 1995 increased
by $1.6 million from $18.2 million to $19.8 million and increased for the
first six months of 1995 by $4.1 million from $35.5 million to $39.5 million
when comparing the same periods in 1994. This again is primarily due to the
acquisition of new hotel properties.
The gross operating margin for lodging increased to 25.8% from 25.6% in the
second quarter and increased to 25.8% from 25.5% for the first six months of
1995 when comparing the same periods in 1994.
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Page 12
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
Formal Wear, Laundry and Other
Formal wear revenues remained at $3.9 million in the second quarter and
increased by 4.0% to $5.0 million from $4.8 million for the first six months
when comparing 1995 and 1994. The first six months of 1995 improvement
resulted from an increase in the volume of units shipped of 1.8% and an
increase of revenue per unit of 1.3%.
Formal wear operating expenses increased $49 and $232 or approximately 2.4%
and 6.3% when comparing the second quarter and the first six months of 1995
to the same periods a year ago. As a percentage of revenue, formal wear
expenses increased in the second quarter to 53.1% from 52.2% and for the
first six months increased to 78.7% from 77.0% for 1995 when compared with
the same periods in 1994.
Laundry revenues for the second quarter of 1995 decreased 8.1% to $1.6
million from $1.7 million and decreased for the first six months of 1995 by
8.2% to $3.0 million from $3.3 million in 1994. This decrease was primarily
the result of downsizing the Utah laundry facility in the fourth quarter of
1994. This downsizing was the result of the Company's efforts to
discontinue laundry services for unprofitable products and accounts.
Offsetting this decrease was an increase in revenues at the Rochester
facility of approximately 3.3% for the first six months.
Laundry operating expenses for the second quarter decreased as a percentage
of laundry revenue to 79.3% in 1995 from 92.4% in 1994. For the first six
months of 1995 operating expenses decreased to 80.8% from 97.3% as a
percentage of revenue compared to 1994. The decreases are primarily due to
greatly improved efficiencies associated with the laundry facility in
Rochester, which opened in April 1993. Productivity measured in pounds
produced per labor hour increased to 90.1 in 1995 as compared to 62.3 in
1994, a 44.6% improvement. Also contributing to this improvement was the
downsizing at the Utah facility which was mentioned above.
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Page 13
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
Interest Income
Interest income for the second quarter of 1995 increased by $85 from 1994
and for the first six months decreased $59 in 1995. This resulted primarily
from an increase in interest income from a guarantee agreement with the
mortgagor of the Salt Lake Hilton which was offset by the consolidation of
the Green Oaks Inn & Conference Center which was acquired at the end of
1994. Prior to the acquisition, the Company held a mortgage receivable and
recognized interest income.
Corporate Expenses
Corporate expenses, primarily administrative and general expenses, declined
in the second quarter by $11 and increased in the first six months by $220
when compared with the same periods in 1994.
Depreciation and Amortization
Depreciation and amortization remained constant at $2.4 million when
comparing 1995 and 1994 second quarters. Comparing the first six months for
the same years, depreciation and amortization increased to $4.4 million from
$4.3 million.
Interest Expense
Interest expense for the second quarter and the first six months for 1995
increased by $261 and $812 respectively when compared to the same periods in
1994. The increase in the amount of interest expense is attributed to the
increase in the prime lending rate, and the debt associated with the
acquisition of Pocatello Park Hotel.
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Page 14
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
Equity Earnings of Affiliates
Equity earnings of affiliates for the second quarter was $137 in 1995
compared with $65 in 1994. Equity earnings of affiliates in the first six
months of 1995 was $291 compared with equity earnings of $98 in 1994. This
activity can be further understood by referencing Footnote 7 of the Notes to
Consolidated Financial Statements. For 1995, the Company received equity
earnings of $330 from Provo Park Hotel and incurred equity losses of $39
from Kahler Park Hotel. For the same period in 1994, the Company received
equity earnings of $257 from Provo Park Hotel and incurred equity losses of
$62 and $97 from Kahler Park Hotel and Plaza One Hotel, respectively.
Net Income
Net income for the second quarter increased to $2.1 million in 1995 from
$1.7 million in 1994. For the six months of 1995 net income increased to
$2.4 million compared to $1.8 million in 1994. The increase was primarily
due to increased revenues and operating margins in the lodging and laundry
segments.
Liquidity and Capital Resources
For this discussion, reference to 1995 represents the first six months of
1995 and reference to 1994 represents the first six months of 1994.
Cash Flows
Net cash provided by operating activities increased $493 over 1994 to $6.1
million for 1995. The Company's improved operating income was the primary
contributor to this improvement.
Negative working capital provides the Company with an interest free source
of capital. Since the Company principally sells services (rather than
goods) for cash, the Company does not need working capital. Negative
working capital is common in the lodging industry.
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Page 15
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
Capital Expenditures
Capital expenditures for 1995 and 1994 totaled approximately $3.2 million
and $8.7 million, respectively. In 1995, $2.1 million was used to remodel
and refurbish existing hotels and to purchase laundry and formal wear
equipment. The remaining $1.0 million was used for garment purchases. In
1994, approximately $5.2 million and $406 of the funds were used for the
acquisition of Pocatello Park Hotel and the laundry facility, respectively.
The remaining $3.1 million of funds were used for refurbishment of existing
properties and purchase of garments.
Investment in and Advances to Affiliates
The Company received a $187 distribution from the Provo Park Hotel in 1995
and 1994. The investment of $42 made to affiliates in 1995 related to
Kahler Park Hotel. See Footnote 7 of Notes to Consolidated Financial
Statements for further discussion.
Financing
In 1995 the Company made a scheduled $500 payment on it's subordinated debt,
normal principal retirements of $976 and $1.2 million of repayments on the
lines of credit and short- term notes. In 1995, net cash provided from
proceeds of new long-term debt of $227 primarily relates to the construction
of a 108 suite addition to the Boise Park Suites Hotel. In 1994, net cash
provided from proceeds of new long-term debt of $3.7 million and net
borrowing under line-of-credit agreements of $1.7 million relates to the
cash requirements for the acquisition of Pocatello Park Hotel.
Inflation
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures have limited and may in the future
limit the Company's ability to raise rates in the response to inflation.
Industry-wide average daily room rates have generally failed to match
inflation since 1987.
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Page 16
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
Seasonality
The Company's hotel operations historically have been seasonal in nature,
reflecting higher occupancy rates during the first and third quarters. The
higher occupancy rates during the first quarter are due to increased
seasonal demand at the Sheraton San Marcos Golf Resort and Conference Center
and the greater Salt Lake City area hotels due to winter skiing. The third
quarter typically has higher occupancy rates due to summer vacation travel.
In addition, the formal wear segment is highly seasonal with the greatest
amount of rentals during the second quarter which typically includes higher
demand for high school proms and weddings.
Other
The Company is in the discovery stage of litigation with a
telecommunications company relating to disputed unremitted telephone revenue
and fees at ten of the Company's hotels. The Company has denied all claims
and has made counter claims relating to breach of contract and intends to
pursue all available alternatives. The outcome of this dispute is
uncertain.
In December 1994 the Company received notice of default relating to bond
indebtedness on one of its wholly owned properties. A group of bondholders
have claimed the Company incorrectly calculated added interest for this
hotel for the year 1993 in the amount of approximately $267. The Company
denies the claim. If the bondholders were found judicially correct, the
Company would owe this amount for 1993 and an additional $618 for 1994.
Additionally, the Company is involved in various litigation in the normal
course of business. The Company does not expect the outcome of the matters
described above to have a material adverse effect on the Company's
consolidated financial statements.
The Company is required to adopt Statement of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS
No. 107, "Disclosure about Fair Value of Financial Instruments" no later
than its fiscal year 1995. The Company has not completed all of the
analysis required to estimate the impact of the new statements. Management
of the Company does not believe that the adoption of these statements will
have any material adverse effect on the financial position or results of
operations of the Company.
<PAGE>
Page 17
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Second Quarter Ended
July 2, 1995
The Company continues to study the possibility of converting to a real
estate investment trust simultaneously with a public offering of its common
shares.
PART II. OTHER INFORMATION
The annual shareholders' meeting held April 27, 1995, was represented by
3,634,836 common shares or 87.1% of the total outstanding shares.
The shareholders approved the nominations and elected Mr. A. Blaine Huntsman
and Mr. Mark W. Sheffert each for a three year term expiring in 1998. There
were 3,470,109 common shares or 95.5% of the total shares voted that voted
in favor of the nominations.
The shareholders voted in favor of the 1994 Stock Option Plan as amended.
There were 2,638,701 common shares or 72.6% of the total shares voted
approving the proposal.
The 1994 Non-Employee Director Stock Option Plan was approved by 72.4% of
the shareholders voting. There were 2,630,977 common shares voted.
The shareholders approved the 1994 Employee Stock Purchase Plan. There were
2,944,821 common shares or 81.0% of the total shares voted that voted in
favor of the proposal.
The proposal to amend the Articles of Incorporation to eliminate limitation
of indebtedness was approved by 81.6% of the voting shareholders. There
were 2,966,624 common shares voted.
<PAGE>
Page 18
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
Second Quarter Ended
July 2, 1995
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on August 15, 1995.
KAHLER REALTY CORPORATION
By: Harold W. Milner By: Steven R. Stenhaug
Harold W. Milner Steven R. Stenhaug
President, CEO Senior Vice President-Treasurer
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Article 5 Financial Data Schedule for 2nd Quarter 10-Q.
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<FISCAL-YEAR-END> DEC-31-1995
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