<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 0-18261
------------------- ---------
Tower Properties Company
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Missouri 43-1529759
-------- ----------
STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
911 Main Street, Kansas City, Missouri 64105
- ------------------------------------------ -----------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (816) 421-8255
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
- -------------------------------------- -----------------------------------
- -------------------------------------- -----------------------------------
Securities registered pursuant to Section 12(g) of the Act:
$1 Par Value Common Stock
- ------------------------------------------------------------------------------
(TITLE OF CLASS)
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 SUCH 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 (SECTION 229.405 OF THIS CHAPTER) 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.
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
THE REGISTRANT. (THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE
TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES
OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF
FILING.)
$12,826,050 at February 22, 1996
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE (APPLICABLE ONLY TO
CORPORATE REGISTRANTS).
$1 Par Value Common Stock -- 171,014 Shares
- ------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF
INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE
DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY
PROXY OR INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO
RULE 424(b) OR (c) UNDER THE SECURITIES ACT OF 1933. (THE LISTED DOCUMENTS
SHOULD BE CLEARLY DESCRIBED FOR IDENTIFICATION PURPOSES.)
Portions of Annual Report to Stockholders for the year ended Dec. 31, 1995,
- ------------------------------------------------------------------------------
are incorporated by reference in Parts I, II and IV. Portions of the Annual
- ------------------------------------------------------------------------------
Proxy Statement are incorporated by reference into Part III.
- ------------------------------------------------------------------------------
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
TOWER PROPERTIES COMPANY
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
<PAGE> 3
<TABLE>
CROSS-REFERENCE SHEET
---------------------
<CAPTION>
Part II
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<C> <S> <C>
Item 6 - Selected Financial Data 1995 Annual Report to Stockholders,
Page 21.
Item 7 - Management's Discussion and 1995 Annual Report to Stockholders,
Analysis of Financial Condition Pages 17 through 20.
and Results of Operations
Item 8 - Financial Statements and 1995 Annual Report to Stockholders,
Supplementary Data Pages 4 through 16 and Pages 22 and 23.
<CAPTION>
Part III
- --------
<C> <S> <C>
Item 10 - Directors and Executive Proxy Statement relating to Annual
Officers of the Registrant Meeting of Stockholders to be held on
April 10, 1996, under the caption
"Election of Directors."
Item 11 - Executive Compensation Proxy Statement relating to Annual
Meeting of Stockholders to be held on
April 10, 1996, under the captions
"Summary Compensation Table" and
"Compensation Plans."
Item 12 - Security Ownership of Certain Proxy Statement relating to Annual
Beneficial Owners and Meeting of Stockholders to be held on
Management April 10, 1996, under the caption
"Security Ownership of Certain
Beneficial Owners and Management."
Item 13 - Certain Relationships and Proxy Statement relating to Annual
Related Transactions Meeting of Stockholders to be held on
April 10, 1996, under the caption
"Transactions."
<CAPTION>
Part IV
- -------
<C> <S> <C>
Item 14(a)(1) - Financial Statements 1995 Annual Report to Stockholders,
Pages 4 through 16.
Item 14(a)(2) - Exhibits Registrant's 1996 Form 10-K (File
No. 0-18261) filed on March 31, 1996.
</TABLE>
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<PAGE> 4
Part I
- ------
Item 1. Business.
(a) General Development of Business:
In September 1989, Tower Properties Company (Tower) formed Tower
Acquisition Corp. (TAC), a wholly-owned subsidiary of Tower. TAC
was formed pursuant to the terms of a merger between Tower and
Commerce Bancshares, Inc. (Commerce), a bank holding company.
Tower spun off certain assets and liabilities to TAC with a net
book value of approximately $17,500,000. Tower then merged with
Commerce on January 29, 1990. In connection with the merger each
Tower shareholder received 7.88 shares of Commerce in exchange for
each Tower share. TAC's capital stock was distributed to Tower's
shareholders on January 29, 1990 in the form of a stock dividend.
TAC's name was changed to Tower Properties Company (the Company) on
this same date. The net assets distributed to TAC represent the
assets currently owned and managed by the Company.
A private letter ruling was obtained from the IRS that the
distribution was tax-free under Section 355 of the Internal Revenue
Code and the merger constituted a tax-free reorganization under
Section 368(a)(1)(A) of the Internal Revenue Code.
The Company is primarily engaged in owning, developing, leasing and
managing real property located in Johnson County, Kansas, and Clay
and Jackson County, Missouri.
(b) Financial Information About Industry Segments:
Registrant considers its business to be concentrated in one industry
segment--real estate ownership, development, leasing and management.
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<PAGE> 5
(c) Narrative Description of Business:
Registrant is primarily engaged in the business of owning, developing,
leasing and managing real property. Registrant owns and manages
945,000 rentable square feet of office space located in the Kansas
City metropolitan area.
Substantially all the improved real estate owned by Registrant
consists of office buildings and a warehouse/office facility held
for lease, automobile parking garages, apartments and land held for
future sale. Registrant has not pursued a policy of acquiring real
estate on a speculative basis, although some real estate owned by
Registrant may be sold at a future time.
Registrant leasing operations provided rental income constituting
approximately 94 percent of the 1995 revenues. Registrant competes
with other building owners in the renting and leasing of office
building space. Registrant employs approximately 43 persons on a
full-time basis and approximately 3 persons on a part-time basis.
The remaining 6 percent of 1995 revenues include management and
service fees (4 percent) and other income (2 percent).
Registrant leases rental space and provides services to Commerce
Bancshares, Inc. The annual aggregate rental and service fees paid
to Registrant by Commerce will vary depending upon the space
occupied and services provided. For the years ended December 31,
1995, 1994 and 1993, Registrant received rent and fees of
$1,000,900, $1,012,620 and $753,272, respectively, from Commerce.
Item 2. Properties.
(a) The following real property is owned, in fee, by Registrant:
(1) The Commerce Tower, a 30-story office building located at
911 Main Street, Kansas City, Missouri, was opened for
occupancy in January 1965. The Commerce Tower has net
rentable space of approximately 425,000 square feet and is
presently 92 percent occupied. The building, of modern
architectural design, has six elevators serving the first 17
floors and an additional six express elevators serving the
17th through the 30th floors. Registrant considers the
Commerce Tower to be in good condition.
(2) The Barkley Place, a 6-story 95,000 rentable square foot
office building located in Overland Park, Kansas. The
building was completed in 1988. The Company purchased the
building on July 15, 1994. Registrant considers the building
to be in excellent condition. The building is 86
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<PAGE> 6
percent occupied. The building is subject to a mortgage deed
of trust securing a loan with a balance owing of $3,906,718.
(3) 6601 College Boulevard, a 6-story 101,200 rentable square foot
building, located in Overland Park, Kansas. The building was
completed in 1979. The Company purchased the building on
December 15, 1995. Registrant considers the building to be
in excellent condition. The building is 100 percent leased
under a triple net lease.
(4) A warehouse/office facility, located at 9200 Cody, Overland
Park, Kansas. The building contains approximately 19,100
square feet of office space and 74,800 square feet of
warehouse space. The building was constructed in 1973, with
an addition in 1976. The Company purchased the facility on
June 30, 1995. Registrant considers this facility to be in
excellent condition. The building is 100 percent leased under
a triple net lease. The warehouse/office facility is subject
to a mortgage deed of trust securing a loan with a balance
owing of $1,946,689.
(5) A two-story office building, located at 908 Walnut Street,
Kansas City, Missouri, is immediately adjacent to the
Commerce Tower and contains approximately 7,500 square feet
of net rentable space. This building is approximately 60
years old, and is unoccupied. The Company plans to demolish
the building in the near future to accommodate a proposed 300
car garage on the Northwest corner of 9th and Walnut.
(6) A 19-building, 210-unit apartment complex, on a 17.4-acre
tract, located at New Mark Drive and North Cherry in Kansas
City North. Construction of the first phase was completed in
mid-1971 and completion of the second phase in 1978. The
apartments are 97 percent occupied. Registrant considers the
complex to be in good condition. The apartments are subject
to a mortgage deed of trust securing a loan with a balance
owing of $2,412,052.
(7) A 17-building, 261-unit apartment complex, on a 25-acre tract,
located at 5401 Fox Ridge Drive in Mission, Kansas.
Construction of the complex was completed in 1985. The
Company purchased the complex on December 31, 1992. The
Company has acquired a 5.3-acre adjacent tract of land and
is presently constructing an additional 68 units. Registrant
considers the 17-building complex to be in excellent
condition. The apartments are 94 percent occupied. The
apartments are subject to a mortgage deed of trust securing a
loan with a balance owing of $7,213,504.
(8) A 7-building, 162-unit apartment complex, on an 8.7-acre tract
located at 6800 Antioch in Merriam, Kansas. Construction of
the complex was
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<PAGE> 7
completed in 1987. The Company purchased the complex on
September 30, 1993. Registrant considers the 7-building
complex to be in excellent condition. The apartments are 95
percent occupied. The apartments are subject to a mortgage
deed of trust securing a loan with a balance owing of
$3,821,909.
(9) One block of surface parking bounded generally by Sixth Street,
Baltimore Street, Seventh Street and Wyandotte Street. This
parking location contains approximately 206 parking stalls.
(10) A block of surface parking located generally at the corner of
Eighth and Wyandotte Streets in Kansas City, Missouri, that
contains approximately 200 parking stalls.
(11) A tract of land located at the southwest corner of Ninth and
Walnut. This tract contains approximately 12,000 square feet
of land.
(12) A two-story facility located at the Northwest corner of Ninth
and Walnut, immediately adjacent to the 811 Main building and
garage (except that a portion of the parking facility is
leased under a long-term lease). The parking facility
contains approximately 80 parking spaces.
(b) New Mark, a division of Registrant, originally owned 1,207 acres
located in Kansas City North immediately adjacent to and contiguous
with the apartment complex owned by Registrant. The tract is owned
in fee. Residential lots and land aggregating approximately 600
acres have been sold from the tract by the Company. An additional
116 acres have been dedicated to streets, and 103 acres are
designated as an open greenbelt area.
(c) Downtown Redevelopment Corporation, an urban redevelopment
corporation under the laws of the state of Missouri, of which
Registrant owns approximately 98 percent of the outstanding capital
stock, owns the following property located in downtown Kansas City,
Missouri:
(1) The 811 Main building, which consists of an L-shaped, 12-story
combination office building and parking garage, was completed
in 1959. The first five floors are utilized primarily for
parking, although approximately 27,000 square feet of ground
floor and lower level space is available for use as
commercial office space. The office space extending from the
6th floor through the 12th floor encloses a gross area of
approximately 252,000 square feet. Registrant leased the
total office space to Kemper Financial Companies, Inc.,
effective May 15, 1989. Kemper Financial is now eligible
under the terms of their lease with the Company to terminate
the lease with 180 days notice. The condition of the
property is considered good.
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<PAGE> 8
(2) 710 Main Garage Building, an L-shaped, multi-deck, self-parking
garage facility, contains approximately 737 parking
spaces.The original portion was completed in 1959, with
additions made in 1962.The condition of the property is
considered good.
(3) A tract of ground approximately one-half block in width on
the east side of Main Street between 6th and 8th Streets.
The Company successfully pursued quiet title actions against
the leaseholder, and as a result, now holds clear title to
the leasehold improvements on this tract, Prom/Rodeway
Inn and 711 Main Garage. These structures are functionally
obsolete. The Company has remediated environmental problems
in the buildings and plants to demolish them except for the
280 car parking garage at 711 Main.
(4) An irregular tract of ground containing approximately 35,000
square feet, is leased in part to a service station.
Approximately 21,000 square feet is used for surface parking.
This tract is owned in fee.
Item 3. Legal Proceedings.
Neither Registrant nor any of its subsidiaries are involved in any material
pending litigation other than ordinary routine proceedings incidental to
their business.
Item 4. Submission of Matters to a Vote of Security Holders.
Registrant did not submit any matters to a vote of security holders during
the fourth quarter of 1995.
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<PAGE> 9
Part II
- -------
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters.
Registrant's stock is traded in the "over-the-counter" market and trading of
such stock is limited. The schedule below depicts the bid and asked prices,
as provided by an investment banking firm, in each quarter of 1995. The
"over-the-counter" market quotations shown below reflect interdealer prices
without retail markup, markdown or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
Quarter Bid Asked Bid Asked
------- --- ----- --- -----
<S> <C> <C> <C> <C>
First $65 $ - $65 $ -
Second 65 - 65 -
Third 65 - 65 -
Fourth 75 - 65 -
</TABLE>
There are no present or future restrictions on the ability of Registrant to
pay common stock dividends. No dividends were paid in 1995, 1994 and 1993.
(Management has indicated it will not pay dividends in 1996.)
<TABLE>
The table below shows the number of holders of record of each class of
equity securities of Registrant as of February 22, 1996:
<CAPTION>
Number of
Title of Class Security Holders
-------------- ----------------
<S> <C>
Common stock,
$1.00 par value 571
</TABLE>
Item 6. Selected Financial Data.
Reference is made to the caption "Selected Financial Data" on Page 21 of
Registrant's 1995 Annual Report to Stockholders for a summary of certain
financial data for the Registrant for each of its last five fiscal years.
Pursuant to General Instruction G(2) to Form 10-K and Securities Exchange
Act Rule 12b-23, the information set forth therein is incorporated herein by
reference.
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<PAGE> 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Reference is made to the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" set forth on Pages 17 through
20 of Registrant's 1995 Annual Report to Stockholders which, pursuant to
General Instruction G(2) to Form 10-K and Securities Exchange Act
Rule 12b-23, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Reference is made to Pages 4 through 16 and Pages 22 and 23 of Registrant's
1995 Annual Report to Stockholders which, pursuant to General Instruction
G(2) to Form 10-K and Securities Exchange Act Rule 12b-23, is incorporated
herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures.
None.
Part III
- --------
Item 10. Directors and Executive Officers of the Registrant.
Reference is made to the caption "Election of Directors" in Registrant's
Proxy Statement relating to Annual Meeting of Stockholders to be held April
10, 1996. Pursuant to General Instruction G(2) to Form 10-K and Securities
Exchange Act Rule 12b-23, information therein relating to the names, ages,
positions, terms of office, family relationships and business experience of
Registrant's directors is incorporated herein by reference.
Item 11. Executive Compensation.
Reference is made to the captions "Summary Compensation Table" and
"Compensation Plans" in Registrant's Proxy Statement relating to Annual
Meeting of Stockholders to be held April 10, 1996. Pursuant to General
Instruction G(2) to Form 10-K and Securities Exchange Act Rule 12b-23,
information therein is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Reference is made to the caption "Security Ownership of Certain Beneficial
Owners and Management" in Registrant's Proxy Statement relating to Annual
Meeting of Stockholders to be held April 10, 1996. Pursuant to General
Instruction G(2) to
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<PAGE> 11
Form 10-K and Securities Exchange Act Rule 12b-23, the
information therein is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Reference is made to the caption "Transactions" in Registrant's Proxy
Statement relating to Annual Meeting of Stockholders to be held April 10,
1996. Pursuant to General Instruction G(2) to Form 10-K and Securities
Exchange Act Rule 12b-23, the information therein is incorporated herein by
reference.
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) Financial Statements. The following consolidated financial
--------------------
statements of the Registrant and its subsidiaries, together with
the report of independent public accountants, contained in the
Registrant's 1995 Annual Report to Stockholders are hereby
incorporated herein:
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income for the Years Ended December
31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Investment for the
Years Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Schedule III
All other schedules have been omitted because the required
information is shown in the financial statements or notes
thereto, because the amounts involved are not significant or
because of the absence of the conditions under which they are
required.
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<PAGE> 12
<TABLE>
(2) Exhibits.
---------
<CAPTION>
Item No. Description Location
- -------- ---------------------------------- -----------------------------------
<C> <S> <C>
3(a) Articles of Incorporation of Filed on March 30, 1990, as
Tower Acquisition Corp. Exhibit 3(a) to Registrant's 1989
Form 10-K (File No. 0-18261)
3(b) Bylaws of Tower Acquisition Filed on March 30, 1990, as
Corp. Exhibit 3(b) to Registrant's 1989
Form 10-K (File No. 0-18261)
3(c) Certificate of Amendment and Filed on March 30, 1990, as
Amendment of Articles of Exhibit 3(c) to Registrant's 1989
Incorporation Form 10-K (File No. 0-18261)
4(a) Conformed composite copy of Filed on March 30, 1990, as
Note Agreement and Deed of Exhibit 4(a) to Registrant's 1989
Trust dated September 21, 1972, Form 10-K (File No. 0-18261)
with respect to $8,000,000,
8 percent, due in monthly install-
ments to October 2007
10 Hillsborough Apartment Complex Filed on January 11, 1993, as
acquisition agreement Exhibit A to Registrant's Form 8-K
(File No. 0-18261)
Peppertree Apartment Complex Filed on October 12, 1993, as
acquisition agreement Exhibit A to Registrant's Form 8-K
(File No. 0-18261)
Barkley Place Office Building Filed on July 26, 1994, as
acquisition agreement Exhibit A to Registrant's Form 8-K
(File No. 0-18261)
6601 College Boulevard Office Filed on February 27, 1996, as
Building acquisition agreement Exhibit A to Registrant's Form 8-K
(File No. 0-18261)
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<PAGE> 13
14(a) Tower Properties Company's Filed on March 08, 1996, as
annual report to its security Exhibit 14(a) to Registrant's 1995
holders for the 1995 fiscal year. Form 10-K (File No. 0-18261)
Such report is furnished for the
information of the Commission and
is not to be deemed as filed as a
part of this report.
25(a) A list of Tower Properties See attached Exhibit 25(a)
Company subsidiaries
</TABLE>
(b) Reports on Form 8-K. Registrant filed a required report on Form 8-K
-------------------
during the last quarter of 1995.
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<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TOWER PROPERTIES COMPANY
(Registrant)
DATE: March 31, 1996 BY: /s/JAMES M. KEMPER, JR.
-------------------------------------
James M. Kemper, Jr.
Chairman, President and
Chief Executive Officer
DATE: March 31, 1996 BY: /s/CHESTER A. WITTWER, JR.
-------------------------------------
Chester A. Wittwer, Jr.
Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
DATE: March 31, 1996 BY: /s/NEIL T. DOUTHAT
-------------------------------------
Neil T. Douthat
Director
DATE: March 31, 1996 BY: /s/BRIAN D. EVERIST
-------------------------------------
Brian D. Everist
Director
DATE: March 31, 1996 BY: /s/JONATHAN M. KEMPER
-------------------------------------
Jonathan M. Kemper
Director
DATE: March 31, 1996 BY: /s/BENJAMIN F. BRYAN
-------------------------------------
Benjamin F. Bryan
Executive Vice President and Director
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<PAGE> 1
TOWER PROPERTIES COMPANY
ANNUAL REPORT 1995
<PAGE> 2
TOWER PROPERTIES COMPANY
911 Main Street, Suite 102
Kansas City, Missouri 64105
Transfer Agent:
UMB Bank, n.a.
928 Grand Avenue, Post Office Box 419226
Kansas City, Missouri 64141-6226
Description of the Company's Business
- -------------------------------------
The Company and its subsidiary organizations are primarily engaged in the
business of owning, developing, leasing and managing real property. All
real estate assets are located in Johnson County, Kansas, and Clay and
Jackson County, Missouri. Substantially all the improved real estate owned
by the Company and its subsidiaries consists of office buildings, apartment
complexes, a warehouse/office facility, automobile parking garages and land
held for future sale or development. The Company has not pursued a policy
of acquiring real estate on a speculative basis for future sale, although
some real estate owned by the Company or a subsidiary may be sold at some
future time.
Stock Market Data
- -----------------
The Company's stock is traded on the "over the counter" market. Following
is a schedule of the bid and asked prices in each quarter of 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
Quarter Bid Asked Bid Asked
------- --- ----- --- -----
<S> <C> <C> <C> <C>
First $65 $ - $65 $ -
Second 65 - 65 -
Third 65 - 65 -
Fourth 75 - 65 -
</TABLE>
The Company will furnish to any person who was a stockholder on February 22,
1996, a copy of the annual report, on Form 10-K, including the financial
statement schedules required to be filed with the Securities and Exchange
Commission, upon such person's written request for the same, which request
must contain a good faith representation that, as of February 22, 1996, such
person was a beneficial owner of securities entitled to vote at such meeting.
The request should be directed to Mr. Chester A. Wittwer, Jr., Vice
President, Tower Properties Company, 911 Main Street, Suite 102, Kansas City,
Missouri 64105.
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<PAGE> 3
DEAR STOCKHOLDER:
A solid rental market combined with close attention to overhead meant an
excellent year for Tower Properties. The real estate market continued to
improve in 1995, as the cost of borrowing remained reasonable and new
opportunities for investment appeared.
We are completing the construction of an additional sixty-eight apartments at
Hillsborough and are contemplating the construction of an additional one
hundred new apartments at New Mark. This year we acquired a 93,900 square
foot office warehouse and a 101,200 square foot office building in Johnson
County, Kansas. Both are 100% leased under triple net leases.
Our proposal for a tax incremental financed district, covering eight blocks
in downtown Kansas City, was approved by the City Council and so now is ready
for development. The first stage of this development will involve the
demolition of two abandoned buildings and the construction of a garage
adjoining the Commerce Tower. Downtown rentals remain extremely competitive
and parking is the most important consideration for all levels of employees.
Tower provides the best parking service in downtown Kansas City for its
tenants and will continue to do so.
1996 should be a busy and challenging year.
Sincerely,
/s/ James Kemper
James M. Kemper, Jr.
Chairman and President
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<PAGE> 4
<TABLE>
TOWER PROPERTIES COMPANY - CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<CAPTION>
ASSETS 1995 1994
---------------- ----------------
<S> <C> <C>
Cash $ 5,577 $ 23,225
Short Term Investments 60,000 60,000
Related Party Investment, At Market (Note 8) 2,359,413 1,586,169
Accounts Receivable 988,565 689,231
Notes Receivable 69,678 169,606
Tenant Leasehold Improvements, Net 4,555,924 3,324,724
Construction in Progress 3,016,024 388,262
Prepaid Expenses and Other Assets 346,478 338,579
Rental Income Property, At Cost
(Notes 2, 3, 5 and 7) 62,521,254 53,017,440
Less: Accumulated Depreciation (21,492,176) (20,432,648)
---------------- ----------------
Net Rental Income Property 41,029,078 32,584,792
Real Estate Held for Sale (Note 2) 1,147,859 1,184,918
Equipment and Furniture, at Cost (Note 2) 6,572,718 5,300,354
Less: Accumulated Depreciation (3,647,253) (3,151,916)
---------------- ----------------
Net Equipment and Furniture 2,925,465 2,148,438
---------------- ----------------
Total Assets $ 56,504,061 $ 42,497,944
================ ================
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
<S> <C> <C>
Liabilities:
Accounts Payable and Other Liabilities $ 919,297 $ 957,222
Related Party Line of Credit (Note 8) 13,856,859 3,743,080
Income Taxes Payable 436,086 --
Deferred Income Taxes (Note 6) 1,230,788 1,145,131
Mortgage Notes Payable (Note 5) 19,300,872 17,820,480
---------------- ----------------
Total Liabilities 35,743,902 23,665,913
Minority Interest 124,900 213,989
Commitments and Contingencies (Note 9)
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 178,430 178,430
Paid-In Capital 17,355,872 17,355,872
Retained Earnings 2,613,712 1,103,532
Unrealized Holding Gain for Securities (Note 8) 972,319 469,732
---------------- ----------------
21,120,333 19,107,566
Less Treasury Stock, At Cost (485,074) (489,524)
---------------- ----------------
Total Stockholders' Investment 20,635,259 18,618,042
---------------- ----------------
Total Liabilities and Stockholders' Investment $ 56,504,061 $ 42,497,944
================ ================
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
-4-
<PAGE> 5
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
REVENUES: (Notes 2 and 8)
Rent $11,798,377 $9,913,907 $8,541,793
Rent, Related Party 569,783 551,548 321,550
Management and Service Fees 166,139 250,736 284,811
Management and Services Fees, Related Party 329,062 356,983 326,029
Real Estate Sales 91,800 294,800 53,000
Interest and Other Income 95,667 225,055 237,778
Other Income, Related Party 102,054 104,089 105,693
--------------- -------------- --------------
Total Revenues 13,152,882 11,697,118 9,870,654
--------------- -------------- --------------
COSTS & EXPENSES:
Salaries and Employee Benefits (Note 4) 1,576,932 1,959,427 2,041,505
Depreciation (Note 2) 1,593,638 1,493,831 1,330,463
Maintenance and Repairs (Note 2) 2,193,407 1,968,331 1,890,936
Cost of Real Estate Sold (Note 2) 52,756 114,842 53,000
Taxes Other than Income 1,065,872 978,819 840,669
Utilities 842,177 1,036,316 897,796
Interest 1,518,560 1,121,051 668,530
Interest, Related Party (Note 8) 330,900 366,000 340,000
Amortization of Leasehold Improvements 911,372 714,131 570,152
Leasing and Advertising 91,396 109,867 87,793
Professional Fees 113,724 241,054 152,460
Insurance 186,518 200,837 153,504
Reduction in Real Estate Valuation (Note 2) -- (289,757) --
Other 310,660 387,924 289,583
--------------- -------------- --------------
Total Costs and Expenses 10,787,912 10,402,673 9,316,391
Income Before Minority Interest, Provision for Income
Taxes and Cumulative Effect of Accounting Change 2,364,970 1,294,445 554,263
Minority Interest In Income of Subsidiary (26,982) (28,667) (16,771)
--------------- -------------- --------------
Income Before Provision for Income Taxes and
Cumulative Effect of Accounting Change 2,337,988 1,265,778 537,492
PROVISION (BENEFIT) FOR INCOME TAXES (NOTE 6):
Currently Payable 1,012,808 421,682 326,000
Deferred (185,000) 32,265 (132,000)
--------------- -------------- --------------
827,808 453,947 194,000
--------------- -------------- --------------
Net Income Before Cumulative Effect of Accounting
Change 1,510,180 811,831 343,492
Cumulative Effect on Prior Years of Change in
Accounting for Income Taxes (Note 6) -- -- 152,000
--------------- -------------- --------------
NET INCOME $1,510,180 $811,831 $495,492
=============== ============== ==============
Earnings per Share Before Cumulative Effect of
Accounting Change $8.84 $4.75 $2.01
Cumulative Effect of Accounting Change (Note 6) -- -- 0.89
--------------- -------------- --------------
Earnings Per Share (Note 2) $8.84 $4.75 $2.90
=============== ============== ==============
Weighted Average Common Shares Outstanding 170,871 170,849 170,741
=============== ============== ==============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
-5-
<PAGE> 6
<TABLE>
TOWER PROPERTIES COMPANY-CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,510,180 $ 811,831 $ 495,492
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 1,593,638 1,493,831 1,330,463
Amortization of Leasehold Improvements 911,372 714,131 570,152
Increase (Decrease) in Deferred Taxes (185,000) 124,551 (284,000)
(Increase) Decrease in Accounts Receivable (299,334) 49,847 771,360
Decrease in Notes Receivables 99,928 83,625 71,682
Increase (Decrease) in Accounts Payable and
Other Liabilities (37,925) 155,244 (115,629)
Increase in Prepaid Expenses and
Other Assets (7,899) (154,364) (163,695)
Increase (Decrease) in Income Taxes Payable 436,086 (30,692) (334,029)
Reduction in Real Estate Valuation Reserve -- (289,757) --
Gain on Real Estate Sales (39,044) (179,958) --
--------------- -------------- --------------
Net Cash Provided by Operating Activities 3,982,002 2,778,289 2,341,796
--------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Peppertree Apartments -- -- (5,800,000)
Purchase of Barkley Place Office Building -- (5,900,000) --
Purchase of Warehouse (2,600,000) --
Purchase of 6601 College Office Building (7,700,000) --
(Increase) Decrease in Construction in Progress (2,627,762) 113,620 (359,275)
Proceeds from Sale of Land 91,800 158,800 53,000
Additions to Real Estate Held for Sale, Net (15,697) (10,760) (11,265)
Additions to Equipment & Furniture (432,137) (279,396) (211,664)
Additions to Rental Income Property (82,814) (64,258) (101,217)
Additions to Leasehold Improvements (2,142,572) (836,538) (384,714)
--------------- -------------- --------------
Net Cash Used in Investing Activities (15,509,182) (6,818,532) (6,815,135)
--------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Mortgages (469,608) (3,092,713) (304,354)
Proceeds from Long Term Borrowings 1,950,000 10,600,000 7,650,000
Increase (Decrease) in Short Term Borrowings 10,113,779 (3,500,345) (3,406,575)
Purchase of Treasury Stock (15,470) (10,790) (7,800)
Treasury Shares Issued to Directors 19,920 20,020 20,670
(Decrease) Increase in Minority Interest (89,089) 28,667 16,771
--------------- -------------- --------------
Net Cash Provided by Financing Activities 11,509,532 4,044,839 3,968,712
--------------- -------------- --------------
NET (DECREASE) INCREASE IN CASH: (17,648) 4,596 (504,627)
CASH, Beginning of Period 23,225 18,659 523,286
--------------- -------------- --------------
CASH, End of Period $ 5,577 $ 23,255 $ 18,659
=============== ============== ==============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
-6-
<PAGE> 7
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
COMMON STOCK TREASURY STOCK
--------------------- ----------------------
Retained Unrealized
Paid-In Earnings Holding
Shares Amount Capital (Deficit) Shares Amount Gain Total
-------- ----------- ------------- -------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 178,430 $ 178,430 $17,355,872 $ (203,791) 7,804 $ (511,624) $ -- $16,818,887
Net Income -- -- -- 495,492 -- -- -- 495,492
Treasury Stock Purchases -- -- -- -- 120 (7,800) -- (7,800)
Treasury Stock Issued to
Directors -- -- -- -- (318) 20,670 -- 20,670
-------- ----------- ------------- -------------- -------- ------------- ------------ -------------
Balance, December 31, 1993 178,430 178,430 17,355,872 291,701 7,606 (498,754) -- 17,327,249
Net Income -- -- -- 811,831 -- -- -- 811,831
Treasury Stock Purchases -- -- -- -- 166 (10,790) -- (10,790)
Treasury Stock Issued to
Directors -- -- -- -- (308) 20,020 -- 20,020
Unrealized Holding Gain For
Securities -- -- -- -- -- -- 469,732 469,732
-------- ----------- ------------- -------------- -------- ------------- ------------ -------------
Balance, December 31, 1994 178,430 178,430 17,355,872 1,103,532 7,464 (489,524) 469,732 18,618,042
Net Income -- -- -- 1,510,180 -- -- -- 1,510,180
Treasury Stock Purchases -- -- -- -- 238 (15,470) -- (15,470)
Treasury Stock Issued to
Directors -- -- -- -- (286) 19,920 -- 19,920
Unrealized Holding Gain For
Securities -- -- -- -- -- -- 502,587 502,587
-------- ----------- ------------- -------------- -------- ------------- ------------ -------------
Balance, December 31, 1995 178,430 $ 178,430 $17,355,872 $ 2,613,712 7,416 $ (485,074) $ 972,319 $20,635,259
======== =========== ============= ============== ======== ============= ============ =============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
-7-
<PAGE> 8
TOWER PROPERTIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS:
Tower Properties Company (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 consists of
office buildings, apartment complexes, a warehouse/office facility and
automobile parking lots and garages.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made
to conform prior year financial statements to the 1995 presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The Company's accounting
policies conform to generally accepted accounting principles.
Depreciation and Amortization
- -----------------------------
Depreciation is charged to operations using straight-line and accelerated
methods over the estimated asset lives as follows:
<TABLE>
<CAPTION>
<S> <C>
Commercial office & warehouse buildings 18-65 years<F*>
Apartments 8-40 years
Parking facilities 15-45 years
Equipment and furniture 3-20 years
Tenant leasehold improvements 1-20 years
<FN>
<F*> Certain components of the Commerce Tower office building are depreciated
over 65 years. The original weighted average life of all components was
38 years.
</TABLE>
-8-
<PAGE> 9
Maintenance and repairs are charged to expense as incurred. The cost of
additions and betterments are capitalized. The cost of assets retired or
sold and the related accumulated depreciation are removed from the
applicable accounts and any gain or loss is recognized as income or expense.
Fully depreciated assets are retained in the accounts until retired or sold.
The amount of accumulated amortization on tenant leasehold improvements was
$5,080,459 and $4,169,087 at December 31, 1995 and 1994, respectively.
Revenue Recognition
- -------------------
Rental revenue is recognized on a straight-line basis over the term of
individual leases.
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. In 1994, the Company
eliminated its valuation reserve for real estate held for sale. In the
opinion of management, the reserve of $289,757 was no longer deemed necessary
due to current market conditions.
Statements of Cash Flows
- ------------------------
Interest payments were $1,832,288, $1,487,051 and $1,008,530 for the years
ended December 31, 1995, 1994 and 1993, respectively. The Company paid
income taxes of $496,146, $440,664, and $660,028 for the years ended
December 31, 1995, 1994 and 1993, respectively.
Earnings Per Share
- ------------------
Earnings per share have been calculated based on the weighted average common
shares outstanding during each period.
New Accounting Pronouncements
- -----------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the impairment of
long-lived assets to be disposed of". This new standard provides a framework
for evaluating the reliability of the Company's investments in long-lived
assets and adoption of this standard is required in 1996. At this time, the
Company does not anticipate adoption of the standard will have a material
impact on its financial position.
-9-
<PAGE> 10
<TABLE>
3. RENTAL INCOME PROPERTY:
Major classes of rental income property owned by the Company at December 31,
1995 and 1994 are as follows:
<CAPTION>
Accumulated
Cost Depreciation Net
---- ------------ ---
<S> <C> <C> <C>
December 31, 1995--
Commercial office & warehouse buildings $ 38,556,983 $ 16,177,608 $ 22,379,375
Apartments 19,096,504 3,512,640 15,583,864
Parking facilities 4,867,767 1,801,928 3,065,839
----------- ---------- ----------
$ 62,521,254 $ 21,492,176 $ 41,029,078
=========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation Net
---- ------------ ---
<S> <C> <C> <C>
December 31, 1994--
Commercial office & warehouse buildings $29,133,088 $15,649,217 $ 13,483,871
Apartments 19,016,585 3,082,469 15,934,116
Parking facilities 4,867,767 1,700,962 3,166,805
----------- ---------- ----------
$ 53,017,440 $ 20,432,648 $ 32,584,792
=========== ========== ==========
</TABLE>
4. PENSION PLAN:
The Company sponsors a defined benefit pension plan covering substantially
all employees not covered in collective bargaining agreements. The plan's
assets are primarily invested in fixed income securities. The Company's
funding policy is to make annual contributions as required by applicable
regulations.
The following table sets forth the Company pension plan's funded status at
the measurement dates of October 1, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Fair value of plan assets $ 516,506 $ 449,691
======= ========
Accumulated benefit obligation $ 524,997 $ 381,351
======= ========
Vested benefit obligation $ 509,642 $ 372,781
======= ========
Projected benefit obligation $ 625,652 $ 477,058
======= ========
Projected benefit obligation in
excess of plan assets $( 99,666) $ (11,201)
Unrecognized prior service cost 22,240 32,092
Unrecognized transitional obligation ( 10,550) ( 13,234)
Unrecognized net loss (gain) 24,380 ( 90,764)
------ ------
Accrued pension liability $( 63,596) $ (83,107)
======= ======
</TABLE>
-10-
<PAGE> 11
<TABLE>
Assumptions used in calculation:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Expected long-term rate of return 7.75% 7.75% 7.75%
Discount rate 6.25% 7.25% 5.75%
Salary increase 3.82% 4.50% 4.50%
Pension cost consists of:
Service cost $ 13,474 $ 16,712 $ 20,717
Interest cost 31,848 30,738 31,403
Actual return on plan assets (75,214) 12,651 (46,922)
Net amortization (deferral) 38,821 (42,795) 8,330
------ ------- -----
Net periodic pension cost $ 8,929 $ 17,306 $ 13,528
===== ====== ======
</TABLE>
Substantially all of the Company's union employees are covered by
union-sponsored, collectively-bargained, multi-employer pension plans. Tower
contributed $8,577, $29,368 and $38,391 in 1995, 1994 and 1993, respectively,
to such plans. The contributions were determined in accordance with the
provisions of negotiated labor contracts and are based on the number of hours
worked.
5. MORTGAGE NOTES PAYABLE:
Mortgage notes payable, secured by rental income property with a net book
value of approximately $23,615,000 and an assignment of certain leases and
related revenue, consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
---- ----
<S> <C> <C>
8-1/2%, principal and interest payable
$66,388 monthly, until April, 2013 $ 7,213,504 $ 7,388,840
7-7/8%, principal and interest payable
$24,660 monthly, until February,
2009 2,412,052 2,513,634
7-1/2%, principal and interest payable
$32,224 monthly, until February,
2014 3,821,909 3,918,006
9%, principal and interest payable
$37,458 monthly, until December,
2012 3,906,718 4,000,000
8%, principal and interest payable
$16,311 monthly, until December,
2015 1,946,689 -
--------- ---------
$ 19,300,872 $17,820,480
========== ==========
</TABLE>
-11-
<PAGE> 12
<TABLE>
Minimum mortgage note principal payments required over the next five years
and thereafter are as follows:
<CAPTION>
<S> <C>
1996 $ 547,797
1997 594,692
1998 645,618
1999 700,924
2000 760,988
Thereafter 16,050,853
-----------
$ 19,300,872
===========
</TABLE>
6. INCOME TAXES:
Deferred income taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities using the enacted
tax rate.
<TABLE>
The Company's effective income tax rate differed from the statutory federal
income tax rate primarily due to the following:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Tax effect of:
Dividend exclusion (1.4) (2.0) (4.0)
Minority interest 1.2 2.3 3.1
State income taxes,
net of federal benefit 3.1 2.2 4.3
Other (1.5) (0.6) (1.3)
----- ----- -----
Effective Income Tax Rate 35.4% 35.9% 36.1%
===== ===== =====
</TABLE>
As a result of adopting the provisions of SFAS No. 109, the Company
recognized a $152,000 increase in consolidated net income from the cumulative
effect of a change in accounting for income taxes as of January 1, 1993.
-12-
<PAGE> 13
<TABLE>
The tax effect of temporary differences giving rise to the Company's net
deferred income tax liability at December 31, 1995 and 1994, is as follows:
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Amortization of leasehold improvements $ 661,799 $ 441,009
Pension 19,732 35,522
Vacation 24,613 25,709
Contested real estate taxes 52,132 38,182
------- -------
758,276 540,422
------- -------
Deferred tax liabilities:
Depreciation on rental income property,
equipment and furniture (1,181,206) (1,181,008)
Unrealized holding gain for securities (549,527) (265,495)
Other (35,614) (35,614)
Accrued rent receivable (222,717) (203,436)
--------- ---------
(1,989,064) (1,685,553)
----------- -----------
Net deferred income tax liability $ (1,230,788) $(1,145,131)
=========== ===========
</TABLE>
The Company did not record any valuation allowance against deferred tax
assets at December 31, 1995 and 1994.
7. ACQUISITIONS:
On December 15, 1995, the Company purchased the 6601 College Boulevard
commercial office building assets for $7,700,000. 6601 College Boulevard is
a six-story, 101,200 square foot commercial office building located in
Overland Park, Kansas.
On June 30, 1995, the Company purchased the 9200 Cody warehouse/office
facility assets for $2,600,000. The property is a 93,900 square foot
warehouse/office facility located in Overland Park, Kansas.
On July 15, 1994, the Company purchased the Barkley Place commercial office
building assets for $5,900,000 and assumed liabilities of $78,049. Barkley
Place is a six-story, 95,000 square foot commercial office building located
in Overland Park, Kansas.
On September 30, 1993, the Company purchased the Peppertree apartment assets
for $5,800,000 and assumed liabilities of $80,993. The property is a
162-unit apartment complex located in Merriam, Kansas.
-13-
<PAGE> 14
The following unaudited pro forma summary combines the results of operations
of the Company as if the acquisition of 6601 College had occurred at January
1, 1995, after giving effect to certain adjustments, including additional
interest expense, depreciation and amortization and related income tax
effects.
<TABLE>
<CAPTION>
Unaudited
---------
Fiscal Year 1995
----------------
<S> <C>
Total revenue $13,957,746
Net income 1,525,300
Earnings per common share 8.93
</TABLE>
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the operations had been combined
during the period and is not intended to be a projection of future results.
8. OTHER RELATED PARTY TRANSACTIONS:
The Company received rent, fees, and other income from Commerce Bank, N.A.
and Commerce Bancshares, Inc. (Commerce) and its subsidiaries of $1,000,900,
$1,012,620 and $753,272 in 1995, 1994, and 1993, respectively.
The Company owns 61,684 shares of Commerce common stock, which is shown as a
related party investment in the accompanying consolidated balance sheet.
There are common officers and directors of the Company and Commerce.
The Company adopted SFAS No. 115 in the first quarter of 1994. Under the
provisions of SFAS No. 115, the investment in Commerce common stock was
recorded at fair market value, and the unrealized gain is reflected as a
separate component of equity.
The Company has a $15,000,000 line of credit with a variable interest rate
equal to one and one half percent (1-1/2%) in excess of the Fed Funds rate,
floating with Commerce. At December 31, 1995, $1,143,141 was available under
this line of credit, and the interest rate was 6.23%. The line requires
monthly interest payments and expires March 1, 1996. Interest expense paid to
Commerce was $330,900, $366,000, and $340,000 for the years ended December
31, 1995, 1994 and 1993, respectively. The weighted short term borrowing
rate was 7.84% in 1995.
9. CONTINGENCIES:
Congress passed the Americans With Disabilities Act (the Act) of 1990 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. During
1995 and 1994, the Company made modifications to certain properties at a cost
of approximately $1,700 and $2,300, respectively.
-14-
<PAGE> 15
<TABLE>
10. QUARTERLY FINANCIAL DATA (Unaudited):
<CAPTION>
1995 Quarters 1994 Quarters
----------------------------------------------------- -----------------------------------------------------
First Second Third Fourth First Second Third Fourth
- ------------------------------------------------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue 3,168,714 3,224,200 3,315,985 3,443,983 2,799,168 2,673,883 3,003,354 3,220,713
Net income 432,589 364,696 367,743 345,152 271,522 109,101 119,305 311,903
- ------------------------------------------------------------------------ -----------------------------------------------------
Earnings per share: 2.53 2.13 2.15 2.02 1.59 0.64 0.70 1.83
- ------------------------------------------------------------------------ -----------------------------------------------------
Market price per
share: $ 65 $ 65 $ 65 $ 75 $ 65 $ 65 $ 65 $ 65
- ------------------------------------------------------------------------ -----------------------------------------------------
</TABLE>
-15-
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Tower Properties Company:
We have audited the accompanying consolidated balance sheets of Tower
Properties Company (a Missouri corporation) and subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of income,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these 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 audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of Tower Properties Company and
subsidiary as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 6, the Company changed its method of accounting for
income taxes effective January 1, 1993. As discussed in Note 8, the Company
changed its method of accounting for investments effective January 1, 1994.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying Schedule III is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Kansas City, Missouri
February 23, 1996
-16-
<PAGE> 17
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 a line of credit with Commerce Bank, N.A. The Company has not
experienced liquidity problems during the twelve months ended December 31,
1995. On June 30, 1995, the Company acquired the 9200 Cody warehouse/office
facility located in Overland Park, Kansas for $2,600,000. The Company used
$2,600,000 of 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. The Company is arranging permanent financing from
Nationwide Insurance. This mortgage will have a twenty-year amortization
term and bear interest at a fixed rate of 7.40%. The loan will close during
first quarter of 1996, and the proceeds of this loan will be used to reduce
the line of credit.
Year Ended December 31, 1995
Compared with the Year Ended December 31, 1994
Results of Operations
- ----------------------
Rental income increase 18% during 1995, primarily due to increased occupancy
in the Commerce Tower Building, increased revenue from parking operations,
the acquisition of the 9200 Cody warehouse/office facility effective June 30,
1995, and the acquisition of the 6601 College Boulevard commercial office
building on December 15, 1995. Occupancy in the Commerce Tower was 92%. The
Barkley Place office building was 86% leased. Both the 9200 Cody
warehouse/office facility and the 6601 College Boulevard commercial office
building were 100% leased under triple net leases. The New Mark garden
apartments were 97% leased, Hillsborough Apartments were 94% leased and
Peppertree Apartments were 95% leased at year end. The increase in parking
revenues in 1995 is primarily due to an increase in occupancy in both the 710
and 711 Main Garages.
A decision by management to sub-contract engineering services in the Commerce
Tower and 811 Main buildings in September, 1994 accounts for the decrease in
management and service fees income and salaries and employee benefit expense.
-17-
<PAGE> 18
The sale of the remaining ten single family lots located in the New Mark
sub-division and 33.5 acres of undeveloped land in 1994 compared to the sale
of a 6 acre tract sold in 1995 accounts for the decrease in real estate sales
and cost of real estate sold.
The sub-contracted engineering costs of $284,165, repairs to chillers, the
cleaning and sealing of the exterior precast panels of the Commerce Tower
building and the acquisition of the Barkley Place office building on July 15,
1994 offset by the painting and repairs of Hillsborough, New Mark and
Peppertree apartment complexes in 1994, are primarily responsible for the
increase of $225,076 in maintenance and repairs. The increase in
depreciation and taxes other than income is a direct result of the
acquisition of the Barkley Place and 6601 College Boulevard office buildings
and the 9200 Cody warehouse/office facility The decrease in utilities is
primarily due to milder weather conditions in 1995.
The increase in related party interest expense is a result of the use of the
line of credit with Commerce Bank, N.A. to acquire the 9200 Cody
warehouse/office facility on June 30, 1995 and the 6601 College Boulevard
commercial office building on December 15, 1995. The increase in other
interest expense is a result of the interest expense incurred on the
$4,000,000 Barkley Place Office building loan funded December 23, 1994, and
the 9200 Cody warehouse/office facility mortgage loan of $1,950,000 funded
November 21, 1995.
The increase in amortization of leasehold improvements is primarily due to
expenditures for the Commerce Tower and Barkley Place tenant improvements
which are being amortized over the life of the respective leases. The
decrease in professional fees and other expenses is primarily due to the
expenses incurred in connection with the land lease on the land at 6th and
Main Streets, the future construction of a downtown parking garage and the
legal fees related to the operating engineers union negotiations in 1994.
Year Ended December 31, 1994
Compared with the Year Ended December 31, 1993
Results of Operations
- ---------------------
Increased revenue from parking operations and the acquisition of the
Peppertree apartment complex and the Barkley Place office building on
September 30, 1993 and July 15, 1994, respectively, are primarily responsible
for the increase in rental income of 18% during 1994. Occupancy in the
Commerce Tower was 92% at December 31, 1994 compared to 78% in 1993. This
increase in occupancy is a result of leasing of approximately 45,000 square
feet of rental space in the last quarter of 1994. The Barkley Place office
building was 96% leased, New Mark garden apartments were 94% leased,
Hillsborough Apartments were 90% leased, and Peppertree apartments were 98%
leased at year end. The increase in parking revenues in 1994 is primarily
due to an increase in occupancy in both the 710 and 811 Main Garages and
taking over the operation of the 711 Main Garage in October, 1994.
A decision by management during the last quarter of 1994 to contract the
operating engineering services in the Commerce Tower and 811 Main buildings
accounts for the decrease in management and service fees. The reduction of
the employees required to
-18-
<PAGE> 19
perform the engineering duties and related expenses offset in part by
severance paid to the terminated engineers, is primarily responsible for the
decrease in salaries and employee benefits.
The sale of the remaining ten single family lots located in the New Mark
division and 33.5 acres of undeveloped land accounts for the significant
increase in real estate sales and cost of real estate sold. In 1994, the
Company eliminated its valuation reserve for real estate held for sale. In
the opinion of management, the reserve was no longer deemed necessary due to
current market conditions.
The increase in repairs and maintenance is primarily due to the painting and
repair expenses incurred in 1994 for the Hillsborough, New Mark and
Peppertree apartment complexes offset by the 1993 repairs to the swimming
pool and clubhouse of New Mark Apartments and the painting and concrete
repairs to 710 Main Parking Garage. The increase in depreciation, taxes
other than income and utilities of $440,038 is a direct result of the
acquisition of the Peppertree apartment complex and the Barkley Place office
building.
The increase in related party interest expense relates to the use of the line
of credit with Commerce Bank, N.A. to acquire the Barkley Place office
building on July 15, 1994. The increase in other interest expense is a
result of the interest expense incurred on the $2,600,000 New Mark Apartment
mortgage loan funded January 13, 1994 and the Peppertree Apartment mortgage
funded January 27, 1994, offset by the retirement of the 1992 mortgage on the
New Mark Apartments on January 13, 1994.
Large expenditures for Commerce Tower tenant improvements which are being
amortized over the life of the respective leases accounts primarily for the
increase in amortization of leasehold improvements. The increase in
professional fees includes accounting and legal fees incurred in connection
with the filing requirements of the Securities and Exchange Act of l934 for
the acquisition of Barkley Place and the possible construction of a downtown
parking garage. Other professional fees included legal fees incurred in
connection with the Rodeway land lease, a Downtown parking facility and the
union contract negotiations with the operating engineers and the subsequent
change to utilizing contract labor. The increase in leasing, advertising and
other expenses is primarily due to the acquisition of the Peppertree
apartments in October, 1993 and Barkley Place office building in July, 1994.
Impact of Accounting Changes
Refer to footnotes six and eight in the notes to the consolidated financial
statements for a discussion of the new accounting standards.
Environmental Issues
Due to governmental regulations regarding asbestos and the uncertainty
surrounding the advantages and disadvantages of asbestos removal, Tower
Properties Company will
-19-
<PAGE> 20
continue to monitor the status of asbestos in its commercial office 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.
Americans With Disabilities Act
Congress passed the Americans With Disabilities Act (the Act) of 1990 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. During
1995, the Company made modifications to certain properties at a cost of
approximately $1,700.
-20-
<PAGE> 21
<TABLE>
<CAPTION>
TOWER PROPERTIES COMPANY
SELECTED FINANCIAL DATA
Twelve Months Ending December 31,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenue $13,152,882 $11,697,118 $ 9,870,654 $ 8,913,457 $ 9,289,741
Net Income 1,510,180 811,831 495,492 272,210 221,498
Earnings Per Common Share 8.84 4.75 2.90 1.58 1.26
Dividends Per Common Share -- -- -- -- 0.50
Mortgages Notes Payable 19,300,872 17,820,480 10,313,193 2,967,547 5,035,017
Net Equity 20,635,259 18,618,042 17,327,249 16,818,887 16,780,388
Total Assets 56,504,061 42,497,944 36,669,540 32,938,994 23,995,311
</TABLE>
-21-
<PAGE> 22
<TABLE>
TOWER PROPERTIES COMPANY
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
<CAPTION>
Cost Capitalized Gross Amount at Which
Subsequent to Carried at Close
Initial Cost to Company Acquisition of Period
-------------------------- ----------------------- ------------------------
Buildings and Carrying Buildings and
Description-(C) Encumbrances Land Improvements Improvements Costs Land Improvements
--------------- ------------ ---- ------------ ------------ ----- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL OFFICE BUILDINGS
Commerce Tower 0 919,920 18,133,895 51,721 0 919,920 18,185,616
811 Main 0 596,387 2,553,247 198,764 0 608,355 2,740,043
Barkley Place 3,906,718 871,000 4,943,000 2,895 0 871,000 4,945,895
6601 College Boulevard 0 1,000,000 5,950,000 1,000,000 5,950,000
9200 Code Warehouse/office 1,946,689 296,850 2,174,150 296,850 2,174,150
Other Rental Properties 0 581,461 283,693 0 0 581,461 283,693
----------- ---------- ----------- --------- ------ ---------- ----------
Sub-Total 5,853,407 4,265,618 34,037,985 253,380 0 4,277,586 34,279,397
APARTMENTS
New Mark Apartments, 210 Units 2,412,052 19,768 3,797,495 167,610 0 19,768 3,965,105
Hillsborough Apartments,
261 Units 7,213,504 1,161,740 8,485,514 71,025 0 1,161,740 8,556,539
Peppertree Apartments,
162 Units 3,821,909 833,243 4,554,674 5,435 0 833,243 4,560,109
----------- ---------- ----------- --------- ------ ---------- ----------
Sub-Total 13,447,465 2,014,751 16,837,683 244,070 0 2,014,751 17,081,753
PARKING FACILITIES
710 Main 0 286,361 672,655 4,974 0 350,349 613,641
811 Main 0 149,096 614,122 599,857 0 149,096 1,213,979
Surface lots & 9th &
Walnut Garage 0 1,869,257 81,000 590,445 0 2,459,702 81,000
----------- ---------- ----------- --------- ------ ---------- ----------
Sub-Total 0 2,304,714 1,367,777 1,195,276 0 2,959,147 1,908,620
----------- ---------- ----------- --------- ------ ---------- ----------
TOTALS 19,300,872 8,585,083 52,243,445 1,692,726 0 9,251,484 53,269,770
=========== ========== =========== ========= ====== ========== ==========
<CAPTION>
Life
on Which
Depreciation
in Latest
Income
Accumulated Date of Date Statement
Total Depreciation Construction Acquired is Computed
----- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
COMMERCIAL OFFICE BUILDINGS
Commerce Tower 19,105,536 13,463,798 1965 1971 18 to 65 Years
811 Main 3,348,398 2,163,465 1959 1972 45 Years
Barkley Place 5,816,895 226,692 1988 1994 40 Years
6601 College Boulevard 6,950,000 15,174 1979 1995 40 Years
9200 Code Warehouse/office 2,471,000 29,260 1973 1995 40 Years
Other Rental Properties 865,154 279,219 Various Various 10 to 40 Years
----------- -----------
Sub-Total 38,556,983 16,177,608
APARTMENTS
New Mark Apartments, 210 Units 3,984,873 2,544,844 1969/1977 1971/1977 8 to 40 Years
Hillsborough Apartments,
261 Units 9,718,279 683,763 1985 1992 40 Years
Peppertree Apartments,
162 Units 5,393,352 284,033 1986 1993 40 Years
----------- -----------
Sub-Total 19,096,504 3,512,640
PARKING FACILITIES
710 Main 963,990 514,826 1959 1972 45 Years
811 Main 1,363,075 1,124,645 1959 1972 15 to 45 Years
Surface lots & 9th &
Walnut Garage 2,540,702 162,457 Various 1989 20 Years
----------- -----------
Sub-Total 4,867,767 1,801,928
----------- -----------
TOTALS 62,521,254 21,492,176
=========== ===========
</TABLE>
-22-
<PAGE> 23
<TABLE>
TOWER PROPERTIES COMPANY
NOTES TO SCHEDULE
(A) An analysis of Rental Income Property for the three years ended
December 31, 1995 follows:
<S> <C>
Balance, December 31, 1992 $ 41,580,023
Additions during period -
Land 1,084,983
Building 4,404,151
----------
Balance, December 31, 1993 47,069,157
Additions during period -
Land 999,848
Building 4,948,435
----------
Balance, December 31, 1994 53,017,440
Additions during period -
Land 1,302,060
Building 8,201,754
----------
Balance, December 31, 1995 $ 62,521,254
===========
</TABLE>
<TABLE>
(B) An analysis of accumulated depreciation reserves applicable to Rental
Income Property for the three years ending December 31, 1995:
<S> <C>
Balance, December 31, 1992 $ 18,568,637
Additions during period -
Provision for depreciation 878,891
----------
Balance, December 31, 1993 19,447,528
Additions during period -
Provision for depreciation 985,120
----------
Balance, December 31, 1994 20,432,648
Additions during period -
Provision for depreciation 1,059,528
----------
Balance, December 31, 1995 $ 21,492,176
==========
</TABLE>
(C) All of the real estate is located in Johnson County, Kansas, and Clay
and Jackson County, Missouri.
(D) There are no significant differences in the aggregate cost basis of the
real estate for federal income tax purposes and financial reporting
purposes.
-23-
<PAGE> 24
DIRECTORS
James M. Kemper, Jr.
Chairman, President and Chief Executive Officer of Tower Properties Company
Benjamin F. Bryan
Executive Vice President, Tower Properties Company
David W. Kemper
Chairman, President and Chief Executive Officer, Commerce Bancshares, Inc., a
bank holding company
Jonathan M. Kemper
Vice Chairman, Commerce Bancshares, Inc., a bank holding Company and Chairman
and Chief Executive Officer, Commerce Bank, N.A.
Brian D. Everist
President, Intercontinental Engineering Manufacturing Corporation
Neil T. Douthat
Managing Director-Investments and Resident Manager, Piper, Jaffray Inc.
OFFICERS
James M. Kemper, Jr.
Chairman, President and Chief Executive Officer
Benjamin F. Bryan
Executive Vice President
Chester A. Wittwer, Jr.
Vice President and Secretary
Margaret V. Allinder
Assistant Secretary
-24-
<PAGE> 25
<TABLE>
<CAPTION>
PRINCIPAL REAL ESTATE OF
TOWER PROPERTIES COMPANY
<C> <S>
Commerce Tower Building 30-story office building, 911 Main Street
Barkley Place Office Building 6-story office building, 10561 Barkley
811 Main Building 230,000 rentable square feet office building
and 530 car parking garage
6601 College Boulevard Office Building 6-story office building, 6601 College Blvd.
9200 Cody Warehouse/Office Facility 93,900 square feet warehouse/office facility
710 Main Parking Garage 740 car parking garage
New Mark Apartment Complex 210 apartments, located at 100th
and North Oak Streets
New Mark Subdivision 400 acres of residential and commercial
land in the area of 100th and North Oak
Streets
Texaco Service Station Land and improvements located at 6th
and Main Streets
Motor Hotel Site Land and leasehold improvements from
6th to 8th Streets on east side of
Main Street
Downtown Kansas City Vacant Land 6th Street to 7th Street, Baltimore to
Wyandotte Streets and a block of land
located on the corner of 8th and
Wyandotte Streets
908-910 Walnut Approximately 7,400 square feet of
retail space
9th and Walnut Property located at the southwest corner
of Ninth and Walnut and a two-story
parking facility located at the northwest
corner of Ninth and Walnut
Hillsborough Apartment Complex 261 garden apartments and an additional 68
apartments to be completed in May, 1996
located at 5401 Fox Ridge Drive
Peppertree Apartment Complex 162 garden apartments, located at
6800 Antioch
All of the real estate is located in Johnson County, Kansas, and Clay and
Jackson County, Missouri.
</TABLE>
-25-
<PAGE> 1
EXHIBIT 25(a)
TOWER PROPERTIES COMPANY
LISTING OF SUBSIDIARIES
<TABLE>
<CAPTION>
Percentage
Subsidiary Ownership
---------- ---------
<S> <C>
Downtown Redevelopment Corporation 98%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,577
<SECURITIES> 2,419,413
<RECEIVABLES> 1,058,243
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,845,735
<PP&E> 69,093,972
<DEPRECIATION> 25,139,429
<TOTAL-ASSETS> 56,504,061
<CURRENT-LIABILITIES> 15,212,242
<BONDS> 19,300,872
<COMMON> 178,430
0
0
<OTHER-SE> 20,456,829
<TOTAL-LIABILITY-AND-EQUITY> 56,504,061
<SALES> 0
<TOTAL-REVENUES> 13,152,882
<CGS> 0
<TOTAL-COSTS> 8,938,452
<OTHER-EXPENSES> 26,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,849,460
<INCOME-PRETAX> 2,337,988
<INCOME-TAX> 827,808
<INCOME-CONTINUING> 1,510,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,510,180
<EPS-PRIMARY> 8.84
<EPS-DILUTED> 0
</TABLE>
