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 October 1, 1995
Commission File Number 0-24822
KAHLER MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1781923
(State or other jurisdiction of (I.R.S. Employer Identification 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
October 1, 1995 was:
Common Stock, $.10 par value - 100 shares
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KAHLER MANAGEMENT CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
October 1, 1995
PAGE
NUMBER
Index to Report . . . . . . . . . . . . . . . . . . . . . . . 1
Part 1. Financial Information
Balance Sheet -
October 1, 1995 and January 1, 1995 . . . . . . . . . . 2
Statements of Operations -
Three and Nine Months Ended
October 1, 1995 . . . . . . . . . . . . . . . . . . . . 3
Statement of Cash Flows -
Nine Months Ended
October 1, 1995 . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . 5
Management's Discussion and Analysis of
Results of Operations and Financial Condition . . . . . 6
Part II. Other Information
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 7
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 8
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<TABLE>
PART I. FINANCIAL INFORMATION Page 2
KAHLER MANAGEMENT CORPORATION
BALANCE SHEET
<CAPTION>
October 1, January 1,
1995 1995
ASSETS
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 25,229 $ 22,552
Trade receivables less allowance for doubtful
accounts of $7,580 and $3,000, respectively 168,159 182,926
Inventories 40,738 51,193
Prepaid expenses 58,489 17,392
Total current assets 292,615 274,063
PROPERTY AND EQUIPMENT
Buildings 2,500,000 2,500,000
Equipment 1,017,341 919,478
Total 3,517,341 3,419,478
Less accumulated depreciation 128,421 -
Total property and equipment 3,388,920 3,419,478
TOTAL ASSETS $ 3,681,535 $ 3,693,541
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 137,522 $ 147,754
Accrued liabilities:
Payroll and payroll related liabilities 147,361 91,586
Sales and income tax 218,699 72,960
Current portion of capital lease 8,797 8,797
Obligations due to affiliate 2,834,127 3,356,682
Total current liabilities 3,346,506 3,677,779
LONG-TERM CAPITAL LEASE OBLIGATION 9,255 15,752
STOCKHOLDER'S EQUITY
Common stock, par value $.10
Authorized - 20,000,000 shares;
Issued and outstanding - 100 10 10
Additional paid-in capital - -
Retained earnings 325,764 -
Total stockholder's equity 325,774 10
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,681,535 $ 3,693,541
See Notes to Financial Statements
</TABLE>
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PART I. FINANCIAL INFORMATION Page 3
KAHLER MANAGEMENT CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Nine Months
Ended Ended
October 1, 1995 October 1, 1995
REVENUE
<S> <C> <C> <C> <C>
Rooms $ 810,521 $ 2,587,854
Food and beverage 422,806 1,374,276
Telephone and other 50,992 151,470
Total revenue 1,284,319 4,113,600
OPERATING COSTS AND EXPENSES
Rooms 192,263 592,417
Food and beverage 334,826 1,079,862
Utilities, maintenance, administrative,
property taxes, insurance and other 493,752 1,515,518
Depreciation 23,421 128,421
Total operating costs and expenses 1,044,262 3,316,218
GROSS OPERATING PROFIT 240,057 797,382
Interest expense 61,350 201,852
Management fee 38,620 123,408
INCOME FROM OPERATIONS BEFORE INCOME TAXES 140,087 472,122
Provision for income taxes 43,427 146,358
NET INCOME (Note 5) $ 96,660 $ 325,764
See Notes to Financial Statements
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION Page 4
KAHLER MANAGEMENT CORPORATION
STATEMENT OF CASH FLOWS
<CAPTION>
Nine Months
Ended
October 1,
1995
OPERATIONS:
<S> <C> <C>
Net income $ 325,764
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 128,421
Change in current assets and current liabilities
Receivables 14,767
Inventories 10,455
Prepaid expenses (41,097)
Accounts payable (10,232)
Accrued liabilities 201,514
Net cash provided by operating activities 629,592
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (97,863)
Net cash used in investing activities (97,863)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on obligations due to affiliate (522,555)
Principal payments on capital lease obligation (6,497)
Net cash used in financing activities (529,052)
INCREASE IN CASH 2,677
CASH AT BEGINNING OF THE PERIOD 22,552
CASH AT END OF THE PERIOD $ 25,229
See Notes to Financial Statements
</TABLE>
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PART I. FINANCIAL INFORMATION Page 5
KAHLER MANAGEMENT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Nine Months Ended
October 1, 1995
NOTES TO FINANCIAL STATEMENTS
1. The accompanying unaudited 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 Management
Corporation (the Company) for the year ended January 1, 1995. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended October 1, 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. Supplemental disclosure of cash flow information.
Cash paid for:
Nine Months Ended
October 1, 1995
Interest paid $ 201,852
4. The Company is a wholly-owned subsidiary of Kahler Realty Corporation
(Realty). Realty continues to study the possibility of converting to a real
estate investment trust simultaneously with a public offering of its common
shares. If this restructuring is successful, the Company would transfer the
Green Oaks property to an affiliate of Realty and would receive a transfer
of hotel management and other non-real estate related assets from Realty to
enable Realty to separate its hotels from its hotel management operations
and non-real estate businesses. In addition, Realty would distribute by
dividend approximately 90% of the common stock of the Company to Realty's
shareholders.
5. No income per common share is presented since the Company has only one
shareholder, Realty.
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PART I. FINANCIAL INFORMATION Page 6
KAHLER MANAGEMENT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Nine Months Ended
October 1, 1995
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
Statement of Operations. This discussion should be read in conjunction with
this statement and the other Financial Statements and Notes thereto appearing
in this Form 10-Q.
On December 31, 1994 the Company acquired the Green Oaks Inn and Conference
Center.
This hotel with 284 rooms is located in Fort Worth, Texas. With 16
conference rooms that can accommodate up to 1,000 persons, the hotel
primarily seeks to attract conferences and group meetings as well as
individual business travelers. The hotel leases the site where it is located
under a ground lease that expires December 2014.
During the three and nine months ended October 1, 1995 the Company had total
revenues of $1,284,319 and $4,113,600, respectively. Room revenue for the
same periods were $810,521 and $2,587,854, resulting from an average daily
room rate of $49.44 and $50.75 and occupancy of 63.4% and 65.8%,
respectively. The revenue per available room was $31.36 and $33.38,
respectively.
Food, beverage, telephone and other revenues were $473,798 and $1,525,746 for
the three and nine months ended October 1, 1995.
During the three and nine months ended October 1, 1995, the Company had total
operating costs and expenses, prior to depreciation, of $1,020,841 and
$3,187,797, respectively. This resulted in a gross operating margin of 20.5%
and 22.5% for the same periods.
Interest expense relates primarily to the note payable to Realty which
carries an interest rate equal to the prime lending rate.
Management fees were $38,620 and $123,408 for the three and nine months ended
October 1, 1995, respectively. This represents an allocation of corporate
expenses which is computed at 3% of total revenue and is paid to Realty.
Provision for income tax represents the Company's estimated portion of the
overall income tax cost for Realty and Realty's consolidated group.
The Company had a net income for the three and nine months ended October 1,
1995 of $96,660 and $325,764, respectively.
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PART I. FINANCIAL INFORMATION Page 7
KAHLER MANAGEMENT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Nine Months Ended
October 1, 1995
Liquidity and Capital Resources
Cash Flows
Net cash provided by operating activities for the first nine months of 1995
was $629,592. The Company's operating income was the primary contributor to
this source of cash.
Financing
The Company's primary source of financing is Realty, the Company's parent
corporation. The two companies have a lending arrangement whereby cash can
be advanced or paid back on a daily basis as evidenced by a demand note
between Realty and the Company. Realty charges the Company an interest rate
equal to the prime lending rate. During the first nine months of 1995, the
Company made payments on the note to Realty of $522,555.
Other
The Company is a wholly-owned subsidiary of Realty. Realty continues to
study the possibility of converting to a real estate investment trust
simultaneously with a public offering of its common shares. If this
restructuring is successful, the Company would transfer the Green Oaks
property to an affiliate of Realty and would receive a transfer of hotel
management and other non-real estate related assets from Realty to enable
Realty to separate its hotels from its hotel management operations and non-real
estate businesses. In addition, Realty would distribute by dividend
approximately 90% of the common stock of the Company to Realty's
shareholders.
Other
The Company is in the discovery state of litigation with a telecommunications
company relating to disputed unremitted telephone revenue and fees at the
Company's hotel. 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
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Page 8
KAHLER MANAGEMENT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Nine Months Ended
October 1, 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 November 14, 1995.
KAHLER MANAGEMENT CORPORATION
Dated: November 14, 1995 Harold W. Milner
Harold W. Milner
President, CEO
Dated: November 14, 1995 Paul R. Tieskoetter
Paul R. Tieskoetter
Controller and Treasurer
(principal financial and
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for 3rd quarter 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> OCT-1-1995
<CASH> 25229
<SECURITIES> 0
<RECEIVABLES> 168159
<ALLOWANCES> 0
<INVENTORY> 40738
<CURRENT-ASSETS> 292615
<PP&E> 3517341
<DEPRECIATION> 128421
<TOTAL-ASSETS> 3681535
<CURRENT-LIABILITIES> 3346506
<BONDS> 0
<COMMON> 10
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3681535
<SALES> 1284319
<TOTAL-REVENUES> 1284319
<CGS> 0
<TOTAL-COSTS> 1044262
<OTHER-EXPENSES> 38620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61350
<INCOME-PRETAX> 140087
<INCOME-TAX> 43427
<INCOME-CONTINUING> 96660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96660
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
