<PAGE> 1
FORM-10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITY EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996
-------------------------------
Commission File Number 0-18261
TOWER PROPERTIES COMPANY
------------------------
(Exact name of registrant as specified in its charter)
Missouri (43-1529759)
- ------------------------------------ ----------------------------------
(State of incorporation) (IRS tax number)
Suite 102, 911 Main Street, Kansas City, Missouri 64105
- ------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
(816) 421-8255
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 1 (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
the filing requirements for the past 90 days.
Yes X . No
- ----------------------------------- -----------------------------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, at the close of the period covered by this report.
170,999 shares of common stock
------------------------------
$1.00 par value per share, at July 15, 1996
<PAGE> 2
<TABLE>
TOWER PROPERTIES COMPANY - CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<CAPTION>
(UNAUDITED)
ASSETS 1996 1995
-------------- --------------
<S> <C> <C>
Cash $ 18,026 $ 5,577
Short Term Investments 60,000 60,000
Related Party Investment, At Market 2,104,967 2,359,413
Accounts Receivable 846,857 988,565
Notes Receivable 55,277 69,678
Tenant Leasehold Improvements, Net 4,381,531 4,555,924
Construction in Progress 1,439,310 3,016,024
Prepaid Expenses and Other Assets 247,821 346,478
Rental Income Property, At Cost 66,629,264 62,521,254
Less: Accumulated Depreciation (22,162,178) (21,492,176)
-------------- --------------
Net Rental Income Property 44,467,086 41,029,078
Real Estate Held for Sale 837,140 1,147,859
Equipment and Furniture, at Cost 6,782,784 6,572,718
Less: Accumulated Depreciation (3,964,677) (3,647,253)
-------------- --------------
Net Equipment and Furniture 2,818,107 2,925,465
-------------- --------------
Total Assets $57,276,122 $56,504,061
============== ==============
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
Liabilities:
Accounts Payable and Other Liabilities $ 1,525,038 $ 919,297
Related Party Loan 5,786,859 13,856,859
Income Taxes Payable 8,861 436,086
Deferred Income Taxes 1,141,731 1,230,788
Mortgage Notes Payable 27,288,831 19,300,872
-------------- --------------
Total Liabilities 35,751,320 35,743,902
Minority Interest 128,163 124,900
Preferred Stock, No Par Value
Authorized 60,000 Shares, None Issued -- --
Stockholders' Investment:
Common Stock, Par Value $1.00
Authorized 1,000,000 Shares, Issued
178,430 Shares, Unchanged 178,430 178,430
Paid-In Capital 17,355,872 17,355,872
Retained Earnings 3,541,745 2,613,712
Unrealized Holding Gain for Securities 806,929 972,319
-------------- --------------
21,882,976 21,120,333
Less Treasury Stock, At Cost (7,431 and
7,416 shares in 1996 and 1995, respectively) (486,337) (485,074)
-------------- --------------
Total Stockholders' Investment 21,396,639 20,635,259
-------------- --------------
Total Liabilities and Stockholders' Investment $57,276,122 $56,504,061
============== ==============
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE> 3
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
<CAPTION>
June, 1996 June, 1995
--------------- --------------
<S> <C> <C>
REVENUES:
Rent $6,826,764 $5,770,599
Rent, Related Party 339,152 285,281
Management and Service Fees 32,319 73,495
Management and Services Fees, Related Party 175,432 161,455
Real Estate Sales 580,000 --
Interest and Other Income 40,245 40,481
Other Income, Related Party 66,674 61,603
--------------- --------------
Total Revenues 8,060,586 6,392,914
--------------- --------------
COSTS & EXPENSES:
Costs of Real Estate Sold 350,914 --
Salaries and Employee Benefits 825,246 781,840
Depreciation 987,426 768,878
Maintenance and Repairs 1,103,778 1,082,782
Taxes Other than Income 578,470 547,994
Utilities 522,408 344,792
Interest 947,142 729,651
Interest, Related Party 322,436 137,768
Amortization of Leasehold Improvements 615,900 390,899
Leasing and Advertising 47,270 45,816
Professional Fees 55,861 46,966
Insurance 86,042 113,162
Other 184,833 149,575
--------------- --------------
Total Costs and Expenses 6,627,726 5,140,123
Income Before Minority Interest and
Provision for Income Taxes 1,432,860 1,252,791
Minority Interest In Income of Subsidiary (3,263) (16,973)
--------------- --------------
Income Before Provision for Income Taxes 1,429,597 1,235,818
PROVISION FOR INCOME TAXES:
Currently Payable 501,564 438,533
--------------- --------------
NET INCOME $ 928,033 $ 797,285
=============== ==============
Earnings Per Share $ 5.43 $ 4.67
=============== ==============
Weighted Average Common Shares Outstanding 171,011 170,855
=============== ==============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE> 4
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE SIX MONTHS ENDING JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
<CAPTION>
June, 1996 June, 1995
---------------- ----------------
<S> <C> <C>
Retained Earnings, Beginning
of Period $ 2,613,712 $ 1,103,532
Net Income 928,033 797,285
---------------- ----------------
Retained Earnings, End of Period $ 3,541,745 $ 1,900,817
================ ================
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE> 5
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
<CAPTION>
June, 1996 June, 1995
--------------- ---------------
<S> <C> <C>
REVENUES:
Rent $3,600,658 $2,920,116
Rent, Related Party 181,971 141,764
Management and Service Fees 3,108 28,073
Management and Services Fees, Related Party 95,817 85,791
Interest and Other Income 25,379 23,722
Other Income, Related Party 27,497 24,734
--------------- ---------------
Total Revenues 3,934,430 3,224,200
--------------- ---------------
COSTS & EXPENSES:
Costs of Real Estate Sold 1,735 --
Salaries and Employee Benefits 431,488 387,640
Depreciation 498,269 371,505
Maintenance and Repairs 642,028 648,080
Taxes Other than Income 305,333 273,997
Utilities 278,076 151,561
Interest 536,508 360,093
Interest, Related Party 110,827 68,491
Amortization of Leasehold Improvements 307,950 207,899
Leasing and Advertising 25,701 27,586
Professional Fees 32,750 23,566
Insurance 55,104 58,425
Other 96,775 73,853
--------------- ---------------
Total Costs and Expenses 3,322,544 2,652,696
Income Before Minority Interest and
Provision for Income Taxes 611,886 571,504
Minority Interest In Income of Subsidiary 2,623 (7,078)
--------------- ---------------
Income Before Provision for Income Taxes 614,509 564,426
PROVISION FOR INCOME TAXES:
Currently Payable 214,336 199,730
--------------- ---------------
NET INCOME $ 400,173 $ 364,696
=============== ===============
Earnings Per Share $ 2.34 $ 2.14
=============== ===============
Weighted Average Common Shares Outstanding 171,008 170,750
=============== ===============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE> 6
<TABLE>
TOWER PROPERTIES COMPANY - CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDING JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
<CAPTION>
1996 1995
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 928,033 $ 797,285
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 987,426 768,878
Amortization of Leasehold Improvements 615,900 390,899
Decrease (Increase) in Accounts Receivables 141,708 (20,964)
Decrease in Notes Receivables 14,401 85,330
Increase in Accounts Payable and
Other Liabilities 605,741 194,227
Decrease (Increase) in Prepaid Expenses and
Other Assets 98,657 (487,733)
(Decrease) Increase in Income Taxes Payable (427,225) 225,709
Gain on Real Estate Sales (229,086) --
---------------- -----------------
Net Cash Provided by Operating Activities 2,735,555 1,953,631
---------------- -----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Increase in Construction of Hillsborough Phase II Apartments (4,080,000) --
Acquisition of Warehouse -- (2,600,000)
Decrease in Construction in Progress 1,576,713 --
Additions to Rental Property (28,010) (4,434)
Sale of Real Estate, Net 542,587 --
Additions to Real Estate Held for Sale, Net (2,782) (8,732)
Additions to Equipment & Furniture (210,066) (248,621)
Additions to Leasehold Improvements (441,507) (915,978)
---------------- -----------------
Net Cash Used in Investing Activities (2,643,065) (3,777,765)
---------------- -----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Principal Payments on Mortgages (312,041) (228,352)
Proceeds from Long Term Borrowings 8,300,000 --
(Decrease) Increase in Short Term Borrowings (8,070,000) 2,168,429
Purchase of Treasury Stock, Net (11,238) (14,170)
Treasury Stock Issued to Directors 9,975
Increase (Decrease) in Minority Interest 3,263 (99,089)
---------------- -----------------
Net Cash Used In Financing Activities (80,041) 1,826,818
---------------- -----------------
NET INCREASE IN CASH 12,449 2,684
CASH, Beginning of Period 5,577 23,225
---------------- -----------------
CASH, End of Period $ 18,026 $ 25,909
================ =================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 7
TOWER PROPERTIES COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The consolidated financial statements included herein have been
prepared by the Company and reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, although the Company believes that
the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be
read in conjunction with the consolidated financial statements and the notes
thereto included in the company's latest annual report on Form 10-K as of and
for the year ended December 31, 1995.
The Company is primarily engaged in owning, developing, leasing and
managing real property located in Johnson County, Kansas and Clay and Jackson
County, Missouri. Substantially all of the improved real estate owned by the
Company and its subsidiaries consist of office buildings, apartment
complexes, a warehouse/office facility and automobile parking lots and
garages.
2. Tenant leasehold improvements are being amortized over the lives of the
related leases using the straight-line method.
3. Interest paid during the first six months of 1996 and 1995 for
long-term mortgages amounted to $947,142 and $729,651, respectively. Income
taxes paid during the first six months of 1996 and 1995 amounted to $928,789
and $212,824, respectively.
4. Certain prior quarter amounts have been reclassified to conform to the
1996 presentation.
5. Under SFAS No. 115, the investment in Commerce Bancshares common stock
is classified as "available for sale", and is recorded at fair market value.
The unrealized gain of $1,241,429 net of tax effects of $434,500 is reflected
as a separate component of equity. The decrease in the net unrealized
holding gain for the six months from December 31, 1995 to June 30, 1996 was
$165,390 and $25,059 for the three months from March 31, 1996 to June 30,
1996.
6. REAL ESTATE HELD FOR SALE:
Revenue is recorded on the sale of real estate when title passes to the
buyer. All land sales are to builders for cash or short-term notes
receivable. The Company's real estate held for sale is recorded at cost
which does not exceed its estimated realizable value.
<PAGE> 8
7. ACQUISITIONS:
On June 30, 1995, the Company purchased a warehouse/office facility for
$2,600,000. The warehouse/office facility is a 93,900 square foot, single
tenant commercial warehouse and office facility located in Overland Park,
Kansas. The Company used the line of credit with Commerce Bank of Kansas
City to acquire the property. In November, 1995, a $1,950,000 twenty-year
term mortgage loan was secured for this property with State Farm Insurance at
a fixed rate of 8%. The proceeds of this loan were used to reduce the line of
credit with Commerce Bank, N.A.
On December 15, 1995, the Company acquired the 6601 College Boulevard
commercial office building for $7,700,000. The 6601 College Boulevard is a
six-story, 101,200 square foot commercial office building located in Overland
Park, Kansas. The Company used the line of credit with Commerce Bank of
Kansas City to make this purchase. In March, 1996, a $5,400,000 twenty-year
term mortgage loan was secured for this property with Nationwide Life
Insurance Company at a fixed rate of 7.40%. The proceeds from this loan were
used to reduce the line of credit with Commerce Bank, N.A.
8. CONTINGENCIES:
Congress passed the Americans With Disabilities Act of 1990 (the Act)
which became effective January 26, 1992. The Act contains provisions for
building owners to provide persons with disabilities with accommodations and
access equal to, or similar to, that available to the general public.
Management cannot estimate the eventual impact of the Act on the financial
condition of the Company since certain provisions of the Act are open to
interpretation. The Company is implementing the requirements of the Act that
are readily achievable and will not constitute an undue burden on the
Company.
The Company is in the process of demolishing the North section of the
Rodeway Hotel and constructing a temporary 100 stall surface parking lot.
This site is included in the Redevelopment District established by the
Company and approved by the City of Kansas City, Missouri. The site is
planned for a commercial office building by the year 2005. The estimated
cost for the removal of asbestos, demolition, paving and landscaping of the
lot will be approximately $525,000, with year to date costs at $350,000.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
The Company's principal assets consist of real estate holdings which
are not liquid assets. Real estate holdings include office buildings,
apartment complexes, a warehouse/office facility, parking facilities and land
held for future sale. The principal source of funds generated internally is
income from operations. The principal source of external funds is long-term
debt and line of credit with Commerce Bank, N.A. The Company has not
experienced liquidity problems during the six months ended June 30, 1996. On
June 30, 1995, the Company acquired a warehouse/office facility located in
Overland Park, Kansas, for $2,600,000. The Company used the line of credit
with Commerce Bank, N.A. to acquire the property. In November, 1995, a
$1,950,000 twenty-year term mortgage loan was secured for this property with
State Farm Insurance. The proceeds from this loan were used to reduce the
line of credit with Commerce Bank, N.A. On December 15, 1995, the Company
acquired the 6601 College Boulevard commercial office building, located in
Overland Park, Kansas, for $7,700,000. The Company used $7,700,000 of the
line of credit with Commerce Bank, N.A. to make this purchase. In March,
1996, a $5,400,000 twenty-year term mortgage loan was secured with Nationwide
Life Insurance Company at a fixed rate of 7.40%. The proceeds from this loan
were used to reduce the line of credit with Commerce Bank, N.A.
SIX MONTHS ENDED JUNE 30, 1996
COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1995
RESULT OF OPERATIONS:
Increased occupancy in the Commerce Tower and Barkley Place office
buildings, the change at the 811 Main building from a single tenant with a
triple net lease to a multi-tenant, full service building effective April 1,
1996, the completion of Phase II of the Hillsborough apartment complex,
increased revenue from parking operations, the acquisition of the 9200 Cody
warehouse/office facility on June 30, 1995 and the December 15, 1995
acquisition of the 6601 College Boulevard office building are primarily
responsible for the increase in rental income of $1,110,036. Parking revenue
increased 7% and apartments rentals increased 8%. The acquisition of 9200
Cody warehouse/office facility and the 6601 College Boulevard commercial
office building with combined income of $536,743 was responsible for 48% of
the total increase. The increase in rental income at the 811 Main building
was responsible for 30% of the total increase. The sale of twenty-nine acres
of undeveloped land located in the New Mark Division during the first quarter
of 1996 accounts for the increase in real estate sales and cost of real
estate sold.
<PAGE> 10
The increase of $20,996 in maintenance and repairs is primarily due to
additional expense incurred due to the extremely cold weather in January and
February, 1996. The increase in depreciation and interest expense is a
direct result of the acquisition of the 9200 Cody warehouse/office facility
and the 6601 College Boulevard commercial office building and the completion
of Phase II of the Hillsborough apartment complex. The increase in
utilities is primarily due to severe weather conditions in the first two
months of 1996, changing 811 Main to a multi-tenant building, and the
completion of Phase II of the Hillsborough apartment complex.
The increase in amortization of leasehold improvements is primarily due
to the large expenditures for tenant improvements for both the Commerce Tower
and Barkley Place office buildings being amortized over the life of the
respective leases. The decrease in insurance expense is primarily due to an
audit of workers compensation coverage, received in 1996.
THREE MONTHS ENDED JUNE 30, 1996
COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 1995
RESULT OF OPERATIONS:
The change at the 811 Main building from a single tenant with a triple
net lease to a multi-tenant, full service building effective April 1, 1996,
the completion of Phase II of the Hillsborough apartment complex, increased
revenue from parking operations, the acquisition of the 9200 Cody
warehouse/office facility on June 30, 1995 and the December 15, 1995
acquisition of the 6601 College Boulevard office building are primarily
responsible for the increase in rental income of $720,749. The acquisition
of 9200 Cody warehouse/office facility and the 6601 College Boulevard
commercial office building with combined second quarter income of $268,371
was responsible for 37% of the total increase. The increase in rental income
at the 811 Main Building was responsible for 42% of the total increase.
The increase in depreciation and interest expense is a direct result of
the acquisition of the 9200 Cody warehouse/office facility and the 6601
College Boulevard commercial office building and the completion of Phase II
of the Hillsborough apartment complex. The increase in utilities and taxes
other than real estate is primarily due to changing 811 Main to a
multi-tenant building effective April 1, 1996 and the completion of Phase II
of the Hillsborough apartment complex.
The increase in amortization of leasehold improvements is primarily due
to the large expenditures for tenant improvements for both the Commerce Tower
and Barkley Place office buildings being amortized over the life of the
respective leases.
ENVIRONMENTAL ISSUES:
Due to governmental regulations regarding asbestos and uncertainty
surrounding the advantages and disadvantages of asbestos removal, Tower
Properties Company will continue to monitor the status of asbestos in its
buildings and will take appropriate action when required.
The cost to remove all asbestos from properties owned by Tower
Properties Company has not been determined; however, these removal costs
could have a significant adverse impact on the future operations and
liquidity of Tower Properties Company.
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOWER PROPERTIES COMPANY
/s/ Benjamin F. Bryan
- ---------------------
Benjamin F. Bryan
Executive Vice President
/s/ Chester A. Wittwer, Jr.
- --------------------------
Chester A. Wittwer, Jr.
Vice President
Date: August 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 18,026
<SECURITIES> 2,164,967
<RECEIVABLES> 902,134
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,772,258
<PP&E> 73,412,048
<DEPRECIATION> 26,126,855
<TOTAL-ASSETS> 57,276,122
<CURRENT-LIABILITIES> 7,320,758
<BONDS> 27,288,831
0
0
<COMMON> 178,430
<OTHER-SE> 21,218,209
<TOTAL-LIABILITY-AND-EQUITY> 57,276,122
<SALES> 0
<TOTAL-REVENUES> 8,060,586
<CGS> 0
<TOTAL-COSTS> 5,358,148
<OTHER-EXPENSES> 3,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,269,578
<INCOME-PRETAX> 1,429,597
<INCOME-TAX> 501,564
<INCOME-CONTINUING> 928,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 928,033
<EPS-PRIMARY> 5.43
<EPS-DILUTED> 0
</TABLE>
