<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, 1997 Commission file number 0-18261
----------------- -------
Tower Properties Company
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Missouri 43-1529759
- ---------------------------------- ---------------------------------
STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION
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 (Sec.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.)
$23,808,598 at February 17, 1998
- -------------------------------------------------------------------------------
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 - 176,034 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 ARE 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, 1997,
- ---------------------------------------------------------------------------
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, 1997
<PAGE> 3
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET
---------------------
<S> <C>
Part II
- -------
Item 6 - Selected Financial Data 1997 Annual Report to Stockholders,
Page 24.
Item 7 - Management's Discussion and 1997 Annual Report to Stockholders,
Analysis of Financial Condition Pages 19 through 23.
and Results of Operations
Item 8 - Financial Statements and 1997 Annual Report to Stockholders,
Supplementary Data Pages 4 through 17 and Pages 24 and 25.
Part III
- --------
Item 10 - Directors and Executive Proxy Statement relating to Annual
Officers of the Registrant Meeting of Stockholders to be held on
April 8, 1998, under the caption
"Election of Directors."
Item 11 - Executive Compensation Proxy Statement relating to Annual
Meeting of Stockholders to be held on
April 8, 1998, 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 8, 1998, 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 8, 1998, under the caption
"Transactions."
Part IV
- -------
Item 14(a)(1) - Financial Statements 1997 Annual Report to Stockholders,
Pages 4 through 17.
Item 14(a)(2) - Exhibits Registrant's 1997 Form 10-K (File
No. 0-18261) filed on March 31, 1998.
</TABLE>
-2-
<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.
(c) Narrative Description of Business:
Registrant is primarily engaged in the business of owning,
developing, leasing and managing real property. Registrant owns
and manages 1,160,000 rentable square feet of office and warehouse
space located in the Kansas City metropolitan area.
Substantially all the improved real estate owned by Registrant
consists of office buildings and a warehouse 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
-3-
<PAGE> 5
basis, although some real estate owned by Registrant may be sold
at a future time.
Registrant leasing operations provided rental income constituting
approximately 96 percent of the 1997 revenues. Registrant
competes with other building owners in the renting and leasing of
office building space. Registrant employs approximately 45
persons on a full-time basis and approximately 4 persons on a
part-time basis. The remaining 4 percent of 1997 revenues include
management and service fees (3 percent) and other income (1
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, 1997, 1996 and 1995, Registrant received rent and
fees of $1,180,051, $1,043,640 and $898,846, respectively, from
Commerce.
The Company was also reimbursed for utilities in the amount of
$107,711, $107,885 and $102,054 in 1997, 1996 and 1995.
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 86 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. The building
is collateral for a line of credit with Commerce Bank.
(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 good condition. The building is 100
percent occupied. The building is subject to a mortgage
deed of trust securing a loan with a balance owing of
$3,693,083.
(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
-4-
<PAGE> 6
considers the building to be in good condition. The building
is 100 percent leased under a triple net lease. The building
is subject to a mortgage deed of trust securing a loan with a
balance owing of $5,179,584.
(4) 9221 Quivera, a 1-story 24,000 rentable square foot
building and an adjacent 70,000 square foot vacant parcel
of land, located in Overland Park, Kansas. The building
was completed in 1968. The Company purchased the building
on December 27, 1996. Registrant considers the building
to be in good condition. The building is 100 percent
leased under a triple net lease. The building is subject
to a mortgage deed of trust securing a loan with a balance
owing of $1,178,790.
(5) A warehouse/office facility, located at 9200 Cody,
Overland Park, Kansas. The building contains
approximately 24,100 square feet of office space and
96,800 square feet of warehouse space. The building was
constructed in 1973, with an addition in 1976 and an
expansion completed in 1997. The Company purchased the
facility on June 30, 1995. Registrant considers this
facility to be in good 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 $1,860,276.
(6) A warehouse, located at 9909 Lakeview, Lenexa, Kansas.
The building contains approximately 115,000 square feet of
warehouse space. The building was constructed in 1987.
The Company purchased the facility on December 18, 1996.
Registrant considers this facility to be in excellent
condition. The building is presently vacant. The
warehouse is subject to a mortgage deed of trust securing
a loan with a balance owning of $2,670,665.
(7) A two-story office building, located at 908-10 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 1998 to
accommodate a new car garage on the Southwest corner of
9th and Walnut.
(8) Two office buildings, located at 916 and 920 Walnut
Street, Kansas City, Missouri, and contains approximately
48,750 square feet of net rentable space. The 916
building is vacated and the 920 building is 90% occupied.
The Company, under its Tax Redevelopment District, plans
to demolish the buildings in 1998 to accommodate a new
garage on the Southwest corner of 9th and Walnut.
-5-
<PAGE> 7
(9) 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 Company is presently constructing an
additional l40 units to be completed in May, 1998. The
apartments are 92 percent occupied. Registrant considers
the complex to be in good condition. The original 210
unit apartments are subject to a mortgage deed of trust
securing a loan with a balance owing of $2,183,326. The
140 units under construction are subject to a mortgage
deed of trust securing a loan with a balance owing of
$4,983,229.
(10) A 24-building, 329-unit apartment complex, on a 30.3-acre
tract, located at 5401 Fox Ridge Drive in Mission, Kansas.
Construction of the complex was completed in 1985, with an
addition of 7 buildings in 1996. The Company purchased
the complex on December 31, 1992. Registrant considers
the 24-building complex to be in good condition. The
apartments are 87 percent occupied. The apartments are
subject to a mortgage deed of trust securing a loan with a
balance owing of $9,566,991.
(11) 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 completed in 1987. The
Company purchased the complex on September 30, 1993.
Registrant considers the 7-building complex to be in good
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 $3,606,757.
(12) 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.
(13) 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 and a
surface parking located located at 102 E. 8th in Kansas
City, Missouri, that contains approximately 40 parking
stalls.
(14) A tract of land located at the southwest corner of Ninth
and Walnut. This tract contains approximately 12,000
square feet of land.
(15) A two-story facility located at the Northwest corner of
Ninth and Walnut, immediately adjacent to the 811 Main
building and garage . The parking facility contains
approximately 80 parking spaces.
-6-
<PAGE> 8
(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 629 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 and storage.
The office space extending from the 6th floor through the
12th floor encloses a gross area of approximately 252,000
square feet. The building became a full-service,
multi-tenant building in April, 1996, and is presently 81
percent occupied. The condition of the property is
considered good. The building is subject to a mortgage
deed of trust of trust securing a loan with a balance
owing $6,711,914.
(2) 710 Main Garage Building, a, 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 had
remediated environmental problems in the buildings and
plans to demolish them except for the 280 car parking
garage at 711Main. The Company demolished the north
Rodeway facility and completed a 100 car surface parking
lot.
(4) An irregular tract of ground containing approximately
35,000 square feet , which was previously leased in part
to a service station until December, 1996. The company
demolished the station in 1997 and completed the entire
area for a 112 car surface parking lot.
-7-
<PAGE> 9
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 1997.
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 1997. 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>
1997 1996
-------------- ---------------
Quarter Bid Asked Bid Asked
------- --- ----- --- -----
<S> <C> <C> <C> <C>
First $121.00 $ - $75.00 $ -
Second 127.50 - 87.50 -
Third 127.50 - 87.50 -
Fourth 135.25 - 94.00 -
</TABLE>
There are no present or future restrictions on the ability of Registrant
to pay common stock dividends. No dividends were paid in 1997, 1996 and
1995. (Management has indicated it will not pay dividends in 1998.)
The table below shows the number of holders of record of each class of
equity securities of Registrant as of February 17, 1998:
<TABLE>
<CAPTION>
Number of
Title of Class Security Holders
-------------- ----------------
<S> <C>
Common stock,
$1.00 par value 503
</TABLE>
-8-
<PAGE> 10
Item 6. Selected Financial Data.
Reference is made to the caption "Selected Financial Data" on Page 24 of
Registrant's 1997 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.
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 19
through 23 of Registrant's 1997 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 17 and Pages 24 and 25 of
Registrant's 1997 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" set forth on
Page 2 of Registrant's Proxy Statement relating to Annual Meeting of
Stockholders to be held April 8, 1998. 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" set forth on Pages 7 through 9 of Registrant's
Proxy
-9-
<PAGE> 11
Statement relating to Annual Meeting of Stockholders to be held
April 8, 1998. 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" set forth on Page 4 of Registrant's
Proxy Statement relating to Annual Meeting of Stockholders to be held
April 8, 1998. 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.
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 8,
1998. 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 1997 Annual Report to
Stockholders are hereby incorporated herein:
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Investment for the
Years Ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements
-10-
<PAGE> 12
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.
(2) Exhibits.
--------
<TABLE>
<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)
-11-
<PAGE> 13
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)
13 Tower Properties Company's Filed on March 04, 1998, as
annual report to its security holders Exhibit 13 to Registrant's 1997
for the 1997 fiscal year. Such Form 10-K (File No. 0-18261)
report is furnished for the informa-
tion of the Commission and is not
to be deemed as filed as a part of
this report.
21 A list of Tower Properties See attached Exhibit 21
Company subsidiaries
(b) Reports on Form 8-K. Registrant filed no required reports on Form 8-K during
-------------------
the last quarter of 1997.
-12-
<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, 1998 BY: /s/ JAMES M. KEMPER, JR.
------------------------------------
James M. Kemper, Jr.
Chairman and Chief Executive Officer
DATE: March 31, 1998 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, 1998 BY: /s/ NEIL T. DOUTHAT
------------------------------------
Neil T. Douthat
Director
DATE: March 31, 1998 BY: /s/ BRIAN D. EVERIST
------------------------------------
Brian D. Everist
Director
DATE: March 31, 1998 BY: /s/ JONATHAN M. KEMPER
------------------------------------
Jonathan M. Kemper
Director
DATE: March 31, 1998 BY: /s/ THOMAS R WILLARD
------------------------------------
Thomas R. Willard
President and Director
-13-
</TABLE>
<PAGE> 1
TOWER PROPERTIES COMPANY
ANNUAL REPORT 1997
<PAGE> 2
TOWER PROPERTIES COMPANY
911 Main Street, Suite 100
Kansas City, Missouri 64105
TRANSFER AGENT:
UMB Bank, n.a.
928 Grand Avenue, Post Office Box 410064
Kansas City, Missouri 64141-0064
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 and 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 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
Quarter Bid Asked Bid Asked
------- --- ----- --- -----
<S> <C> <C> <C> <C>
First $121.00 $ - $75.00 $ -
Second 127.50 - 87.50 -
Third 127.50 - 87.50 -
Fourth 135.25 - 94.00 -
</TABLE>
The Company will furnish to any person who was a stockholder on February 17,
1998, 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 17, 1998, 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 100, Kansas City,
Missouri 64105.
-2-
<PAGE> 3
DEAR STOCKHOLDER:
The market for real estate in Kansas City continued to improve in 1998. Demand
for office space, apartments, downtown parking and warehouse space was strong
with high occupancy rates. This has resulted in additional competition from
the developers and an escalating valuation on existing properties. As the
stock market has continued to set new records and interest rates have remained
low, the real estate investment trusts have poured more money into the market.
Tower Properties is about to complete the construction of 140 new apartments at
New Mark. We will begin construction for a new six hundred car garage
adjoining our Commerce Tower office building later this spring. This will be
the first construction in our downtown TIF district. We continue to look for
real estate investments either in existing properties or in new development.
Sincerely,
/s/ James Kemper
James M. Kemper Jr.
Chairman
<PAGE> 4
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash $ 21,137 $ 52,772
Short Term Investments 63,118 60,000
Related Party Investment, At Market 4,607,407 2,995,520
Accounts Receivable 907,012 759,600
Notes Receivable 210,865 77,409
Tenant Leasehold Improvements, Net 3,732,907 4,131,175
Construction in Progress 4,986,958 1,592,153
Prepaid Expenses and Other Assets 763,718 482,754
Rental Income Property, Net 51,055,746 49,217,977
Real Estate Held for Sale 912,081 753,748
Equipment and Furniture, Net 3,514,670 3,501,137
----------- -----------
Total Assets $70,775,619 $63,624,245
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Liabilities:
Accounts Payable and Other Liabilities $ 1,092,359 $ 904,168
Related Party Line of Credit 1,395,000 12,121,859
Income Taxes Payable 66,091 85,333
Deferred Income Taxes 1,354,387 926,196
Mortgage Notes Payable 41,634,615 26,905,057
----------- -----------
Total Liabilities 45,542,452 40,942,613
Minority Interest 159,667 137,404
Commitments and Contingencies
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 5,656,677 4,118,935
Unrealized Holding Gain for Securities 2,358,637 1,385,789
----------- -----------
25,549,616 23,039,026
Less Treasury Stock, At Cost (476,116) (494,798)
----------- -----------
Total Stockholders' Investment 25,073,500 22,544,228
----------- -----------
Total Liabilities and Stockholders' Investment $70,775,619 $63,624,245
=========== ===========
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, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rent $16,050,084 $14,587,306 $11,798,377
Rent, Related Party 773,149 687,052 569,783
Management and Service Fees 47,546 44,967 166,139
Management and Services Fees, Related Party 406,901 356,588 329,062
Real Estate Sales -- 580,000 91,800
Interest and Other Income 301,301 236,332 197,721
----------- ----------- -----------
Total Revenues 17,578,981 16,492,245 13,152,882
----------- ----------- -----------
COSTS & EXPENSES:
Salaries and Employee Benefits 1,927,595 1,706,111 1,576,932
Depreciation 2,359,602 2,049,245 1,593,638
Maintenance and Repairs 3,226,346 2,877,710 2,193,407
Cost of Real Estate Sold -- 352,240 52,756
Taxes Other than Income 1,343,101 1,197,183 1,065,872
Utilities 1,311,968 1,241,963 842,177
Interest 2,607,298 2,058,593 1,475,466
Interest, Related Party 275,848 476,755 373,994
Amortization of Leasehold Improvements 1,202,613 1,259,681 911,372
Leasing and Advertising 131,752 99,188 91,396
Professional Fees 104,398 142,314 113,724
Insurance 212,653 199,270 186,518
Other 399,763 496,977 310,660
----------- ----------- -----------
Total Costs and Expenses 15,102,937 14,157,230 10,787,912
Income Before Minority Interest and
Provision for Income Taxes 2,476,044 2,335,015 2,364,970
Minority Interest In Income of Subsidiary (22,263) (12,504) (26,982)
----------- ----------- -----------
Income Before Provision for Income Taxes 2,453,781 2,322,511 2,337,988
PROVISION (BENEFIT) FOR INCOME TAXES:
Currently Payable 1,164,748 933,288 1,012,808
Deferred (248,709) (116,000) (185,000)
----------- ----------- -----------
916,039 817,288 827,808
----------- ----------- -----------
NET INCOME $ 1,537,742 $ 1,505,223 $ 1,510,180
=========== =========== ===========
Earnings Per Share:
Basic $ 9.00 $ 8.80 $ 8.84
=========== =========== ===========
Diluted $ 8.96 $ 8.80 $ 8.84
=========== =========== ===========
Weighted Average Common Shares Outstanding:
Basic 170,925 170,958 170,871
=========== =========== ===========
Dilutive 171,678 170,958 170,871
=========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
-5-
<PAGE> 6
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
Common Stock
----------------------
Paid-In Retained
Shares Amount Capital Earnings
------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 178,430 $178,430 $17,355,872 $1,103,532
Net Income -- -- -- 1,510,180
Treasury Stock Purchases -- -- -- --
Treasury Stock Issued to Directors -- -- -- --
Unrealized Holding Gain For Securities -- -- -- --
------- -------- ----------- ----------
Balance, December 31, 1995 178,430 178,430 17,355,872 2,613,712
Net Income -- -- -- 1,505,223
Treasury Stock Purchases -- -- -- --
Treasury Stock Issued to Directors -- -- -- --
Unrealized Holding Gain For Securities -- -- -- --
------- -------- ----------- ----------
Balance, December 31, 1996 178,430 178,430 17,355,872 4,118,935
Net Income -- -- -- 1,537,742
Treasury Stock Purchases -- -- -- --
Treasury Stock Issued to Directors -- -- -- --
Unrealized Holding Gain For Securities -- -- -- --
------- -------- ----------- ----------
Balance, December 31, 1997 178,430 $178,430 $17,355,872 $5,656,677
======= ======== =========== ==========
<CAPTION>
The accompanying notes are an integral part of these consolidated statements.
Treasury Stock
---------------------
Unrealized
Holding
Shares Amount Gain Total
------ --------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 7,464 $(489,524) $ 469,732 $18,618,042
Net Income -- -- -- 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 7,416 (485,074) 972,319 20,635,259
Net Income -- -- -- 1,505,223
Treasury Stock Purchases 339 (29,663) -- (29,663)
Treasury Stock Issued to Directors (220) 19,939 -- 19,939
Unrealized Holding Gain For Securities -- -- 413,470 413,470
----- --------- ---------- -----------
Balance, December 31, 1996 7,535 (494,798) 1,385,789 22,544,228
Net Income -- -- -- 1,537,742
Treasury Stock Purchases 13 (1,272) -- (1,272)
Treasury Stock Issued to Directors (152) 19,954 -- 19,954
Unrealized Holding Gain For Securities -- -- 972,848 972,848
----- --------- ---------- -----------
Balance, December 31, 1997 7,396 $(476,116) $2,358,637 $25,073,500
===== ========= ========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
-6-
<PAGE> 7
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,537,742 $ 1,505,223 $ 1,510,180
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 2,359,602 2,049,245 1,593,638
Amortization of Leasehold Improvements 1,202,613 1,259,681 911,372
Gain on Real Estate Sales -- (227,760) (39,044)
Change in Balance Sheet Accounts:
Accounts Receivable (147,412) 228,965 (299,334)
Notes Receivable (133,456) (7,731) 99,928
Prepaid Expenses and Other Assets (280,964) (136,276) (7,899)
Accounts Payable and Other Liabilities 188,191 (15,129) (37,925)
Income Taxes Payable (19,242) (350,753) 436,086
Deferred Taxes (210,847) (527,229) (185,000)
------------ ----------- ------------
Net Cash Provided by Operating Activities 4,707,074 4,305,465 4,167,002
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of Hillsborough Phase II Apartments -- (4,157,931) --
Purchase of Warehouse -- (3,675,000) (2,600,000)
Purchase of Suburban Office Building -- (2,220,294) (7,700,000)
Net Change in Construction in Progress (3,394,805) 1,423,871 (2,627,762)
Proceeds from Sale of Land -- 541,261 91,800
Additions to Real Estate Held for Sale, Net (158,333) (2,782) (15,697)
Additions to Equipment & Furniture, Net (843,945) (571,579) (432,137)
Additions to Rental Income Property, Net (3,366,959) (105,620) (82,814)
Additions to Leasehold Improvements, Net (807,464) (834,932) (2,142,572)
------------ ----------- ------------
Net Cash Used in Investing Activities (8,571,506) (9,603,006) (15,509,182)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Mortgages (940,442) (695,815) (469,608)
Proceeds from Long Term Borrowings 15,670,000 8,300,000 1,950,000
Net Change in Short Term Borrowings (10,726,859) (1,735,000) 10,113,779
Purchase of Treasury Stock (1,272) (29,663) (15,470)
Treasury Shares Issued to Directors 19,954 19,939 19,920
Net Change in Minority Interest 22,263 12,504 (89,089)
------------ ----------- ------------
Net Cash Provided by Financing Activities 4,043,644 5,871,965 11,509,532
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH: 179,212 574,424 167,352
CASH, Beginning of Period 52,772 5,577 23,225
------------ ----------- ------------
CASH, End of Period $ 231,984 $ 580,001 $ 190,577
============ =========== ============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
-7-
<PAGE> 8
TOWER PROPERTIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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 and 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 previously reported amounts to conform to the current year 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:
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 is 38 years.
-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
$7,542,742 and $6,340,129 at December 31, 1997 and 1996, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
- -------------------------------
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of". SFAS No. 121 prescribes that
an impairment loss is recognized in the event that facts and circumstances
indicate that the carrying amount of an asset may not be recoverable, and an
estimate of future undiscounted cash flows is less than the carrying amount
of the asset. Impairment is recorded based on an estimate of future
discounted cash flows.
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 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.
STATEMENTS OF CASH FLOWS
- ------------------------
Interest payments were $2,924,659, $2,549,254 and $1,832,288 for the years
ended December 31, 1997, 1996 and 1995, respectively. The Company paid
income taxes of $1,146,128, $1,633,704, and $496,146 for the years ended
December 31, 1997, 1996 and 1995, respectively.
EARNINGS PER SHARE
- ------------------
In February, 1997 the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share", effective for periods ending after December 15,
1997, requiring presentation of basic and diluted earnings per share. SFAS
No. 128 supersedes Accounting Principles Board Opinion (APB) No. 15 and
related pronouncements and replaces the computations of primary and fully
diluted earnings per share (EPS), with basic and diluted EPS respectively.
Basic earnings per share is based upon the weighted average common shares
outstanding during each year. Diluted earnings per share is based upon the
weighted average common and common equivalent shares outstanding during
-9-
<PAGE> 10
each year. Stock options are the Company's only common stock equivalents.
There was no effect of this accounting change on previously reported earnings
per share.
3. RENTAL INCOME PROPERTY:
Major classes of rental income property owned by the Company at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation Net
----------- ------------ -----------
<S> <C> <C> <C>
December 31, 1997--
Commercial office and warehouse buildings $45,435,264 $17,593,164 $27,842,100
Apartments 23,127,608 4,580,954 18,546,654
Parking facilities 6,819,173 2,152,181 4,666,992
----------- ----------- -----------
$75,382,045 $24,326,299 $51,055,746
=========== =========== ===========
<CAPTION>
Accumulated
Cost Depreciation Net
----------- ------------ -----------
<S> <C> <C> <C>
December 31, 1996--
Commercial office and warehouse buildings $43,390,449 $16,724,114 $26,666,335
Apartments 22,989,330 4,024,779 18,964,551
Parking facilities 5,679,818 2,092,727 3,587,091
----------- ----------- -----------
$72,059,597 $22,841,620 $49,217,977
=========== =========== ===========
</TABLE>
4. BENEFIT PLANS:
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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Fair value of plan assets $549,177 $564,436
======== ========
Accumulated benefit obligation $510,697 $506,696
======== ========
Vested benefit obligation $502,989 $499,694
======== ========
Projected benefit obligation $631,402 $607,149
======== ========
-10-
<PAGE> 11
<S> <C> <C>
Projected benefit obligation in
excess of plan assets $(82,225) $(42,713)
Unrecognized prior service cost 15,352 18,796
Unrecognized transitional obligation (4,416) (7,866)
Unrecognized net loss (gain) 39,048 (12,641)
-------- --------
Accrued pension liability $(32,241) $(44,424)
======== ========
<CAPTION>
Assumptions used in calculation:
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Expected long-term rate of return 7.75% 7.75% 7.75%
Discount rate 6.50% 7.25% 6.25%
Salary increase 3.89% 3.78% 3.82%
Pension cost consists of:
Service cost $ 27,207 $ 25,461 $ 13,474
Interest cost 34,946 35,940 31,848
Actual return on plan assets (43,547) (9,498) (75,214)
Net amortization (deferral) 9,376 (27,335) 38,821
-------- -------- --------
Net periodic pension cost $ 27,982 $ 24,568 $ 8,929
======== ======== ========
</TABLE>
All of the Company's union employees are covered by union-sponsored,
collectively-bargained, multi-employer pension plans. Tower contributed
$8,781, $8,837 and $8,577 in 1997, 1996 and 1995, 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.
The Company has a 401 (k) plan whereby the Company matches 25% of employee
contributions up to 1.5% of employee compensation. The Company may also make
discretionary contributions. The Company matched $12,959, $12,203 and
$10,940, and for the years ending December 31, 1997, 1996 and 1995,
respectively.
Effective July 1, 1990, the Company adopted a Stock Purchase Plan for
non-employee directors. The Plan permits the non-employee directors to elect
to have their director fees retained by the Company in a special account.
The Company will annually add to the special accounts 25% of the amount
contributed by each participating director. Semi-annually, the funds in each
participant's account shall be used to purchase common stock of the Company
at the last known sale price and the stock shall be distributed to
participants. Shares issued to non-employee directors were 152, 220 and 286
for the years ending December 31, 1997, 1996 and 1995, respectively.
5. MORTGAGE NOTES PAYABLE:
Mortgage notes payable, secured by rental income property with a net book
value of approximately $39,881,718 and an assignment of certain leases and
related revenue, consist of the following:
-11-
<PAGE> 12
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
8.50%, principal and interest payable
$66,388 monthly, until April, 2013 $ 6,814,966 $ 7,022,669
7.875%, principal and interest payable
$24,660 monthly, until February,
2009 2,183,326 2,302,175
7.50%, principal and interest payable
$32,224 monthly, until February,
2014 3,606,757 3,718,353
9.00%, principal and interest payable
$37,458 monthly, until December,
2012 3,693,083 3,804,686
8.00%, principal and interest payable
$16,311 monthly, until December,
2015 1,860,276 1,905,192
7.65%, principal and interest payable
$25,448 monthly, until April,
2013 2,752,025 2,843,057
7.40%, principal and interest payable
$43,172 monthly, until April,
2016 5,179,584 5,308,925
7.70%, principal and interest payable
$22,246 monthly, until March,
2017 2,670,665 -
7.95%, principal and interest payable
$10,000 monthly, until March,
2002 1,178,790 -
8.31%, principal and interest payable
$65,721 monthly, until November,
2012 6,711,914 -
8.125%, principal and interest payable
$42,212 monthly, until November,
2017 4,983,229 -
----------- -----------
$41,634,615 $26,905,057
=========== ===========
</TABLE>
Minimum mortgage note principal payments required over the next five years
and thereafter are as follows:
<TABLE>
<C> <C>
1998 $ 1,319,666
1999 1,430,222
2000 1,550,239
2001 1,680,365
2002 2,839,637
Thereafter 32,814,485
-----------
$41,634,615
===========
</TABLE>
-12-
<PAGE> 13
The carrying value of debt at December 31, 1997 approximates fair value.
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.
The Company's effective income tax rate differed from the statutory federal
income tax rate primarily due to the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Tax effect of:
Dividend exclusion (1.5) (1.4) (1.4)
Minority interest 0.9 0.5 1.2
State income taxes,
net of federal benefit 4.6 3.1 3.1
Other (0.7) (1.0) (1.5)
---- ---- ----
Effective Income Tax Rate 37.3% 35.2% 35.4%
==== ==== ====
</TABLE>
The tax effect of temporary differences giving rise to the Company's net
deferred income tax liability at December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Amortization of leasehold improvements $ 1,241,933 $ 985,450
Pension 37,717 35,528
Vacation 30,810 32,328
Contested real estate taxes 164,488 -
----------- -----------
1,474,948 1,053,306
----------- -----------
Deferred tax liabilities:
Depreciation on rental income property,
equipment and furniture (1,072,060) (919,622)
Unrealized holding gain for securities (1,460,109) (783,209)
Accrued rent receivable (297,166) (276,671)
(2,829,335) (1,979,502)
----------- -----------
Net deferred income tax liability $(1,354,387) $ (926,196)
=========== ===========
</TABLE>
7. ACQUISITIONS:
On December 27, 1996, the Company purchased the 9221 Quivera commercial
office building and an additional 70,000 square foot vacant parcel of land
for $1,750,000. 9221
-13-
<PAGE> 14
Quivera is a one-story, 24,000 square foot commercial office building located in
Overland Park, Kansas.
On December 18, 1996, the Company purchased the 9909 Lakeview Avenue
warehouse facility for $3,675,000. The property is a 115,000 square foot
warehouse located in Lenexa, Kansas.
On October 11, 1996 the Company purchased the 916-920 Walnut commercial
office buildings and the 102 E. 8th Street parking lot assets for $700,000
and assumed liabilities of $5,867. 916 Walnut is a eight-story commercial
office building and 920 Walnut is a two-story commercial office building
located in Kansas City, Missouri.
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 for $2,600,000. The property is a 93,900 square foot
warehouse/office facility located in Overland Park, Kansas.
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 and fees from Commerce Bank, N.A. and Commerce
Bancshares, Inc. (Commerce) and its subsidiaries of $1,180,051, $1,043,640
and $898,846 in 1997, 1996, and 1995, respectively. The Company was also
reimbursed for utilities in the amount of $107,711, $107,885 and $102,054 in
1997, 1996 and 1995, respectively.
The Company owns 68,006 shares of Commerce common stock, which is shown as a
related party investment in the accompanying consolidated balance sheet. The
shares have been classified as available for sale. Accordingly, they are
valued at market and the
-14-
<PAGE> 15
unrealized gain has been recorded as a component of equity, net of deferred
taxes. There are common officers and directors of the Company and Commerce.
The Company has a $13,500,000 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, 1997, $6,540,000 was available under
this line of credit, and the interest rate was 7.34 %. The line requires
monthly interest payments and expires March 1, 1998. Interest expense paid to
Commerce was $538,319, $551,527, and $444,020 for the years ended December
31, 1997, 1996 and 1995, respectively. The Company pledged the shares of
Commerce common stock and real estate as collateral for the line of credit.
The weighted short term borrowing rate was 6.95% in 1997. Interest of
$220,958 and $60,866 was capitalized for the years ending December 31, 1997
and 1996, respectively.
9. STOCK BASED COMPENSATION
In 1997, the Company granted 5,000 nonqualified stock options with an
exercise price of $94 to its Chairman. The exercise price of the options
equals the stock's market price on the date of grant. The options are
exercisable for five years from the date of grant. The Company accounts for
the options under APB No. 25, under which no compensation cost has been
recognized.
Had compensation cost for the options been determined in accordance with SFAS
No. 123, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
<TABLE>
<S> <C> <C>
Net Income: As reported $l,537,742
Pro Forma 1,458,656
Basic Earnings per share: As reported $9.00
Pro Forma $8.53
Diluted Earnings per share: As reported $8.96
Pro Forma $8.50
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk free
rate of 6.29%, expected dividend yield of zero, expected life of five years,
expected volatility of 9.69%.
Subsequent to year end, the options were exercised and an additional 5,000
nonqualified stock options were granted.
10. COMMITMENTS AND 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
-15-
<PAGE> 16
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.
Due to governmental regulations regarding asbestos and the uncertainty
surrounding the advantages and disadvantages of asbestos removal, Tower
Properties Company will 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 cannot be determined; however, these removal costs could have a
significant adverse impact on the future operations and liquidity of Tower
Properties Company.
The Company has outstanding construction commitments of $2,396,214 as of
December 31, 1997.
11. SUBSEQUENT EVENT:
In February, 1998, the Company entered into an agreement to sell
approximately 15 acres of land held for sale for $2,800,000 which will result
in a gain of approximately $2,645,000, when the transaction is consummated.
-16-
<PAGE> 17
10. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
1997 Quarters 1996 Quarters
----------------------------------------------- ----------------------------------------------
First Second Third Fourth First Second Third Fourth
- ----------------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue 4,237,939 4,410,646 4,372,464 4,557,932 4,126,156 3,934,430 4,137,169 4,294,490
Net income 337,504 509,418 403,958 286,862 527,860 400,173 422,555 154,635
- ----------------------------------------------------------------------------- ----------------------------------------------
Basic Earnings Per Share 1.97 2.98 2.36 1.69 3.09 2.34 2.47 0.91
Diluted Earnings Per Share 1.97 2.97 2.35 1.67 3.09 2.34 2.47 0.91
- ----------------------------------------------------------------------------- ----------------------------------------------
Market price per share: $ 121.00 $ 127.50 $ 127.50 $ 135.25 $ 75.00 $ 87.50 $ 87.50 $ 94.00
- ----------------------------------------------------------------------------- ----------------------------------------------
</TABLE>
-17-
<PAGE> 18
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,
1997 and 1996, and the related consolidated statements of income,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1997. These consolidated financial statements and
schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
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, is fairly stated in
all material respects in relation to the basic financial statements taken as
a whole.
Arthur Andersen LLP
Kansas City, Missouri
February 27, 1998
-18-
<PAGE> 19
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 and 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 $13,500,000 line of credit with Commerce Bank, N.A.
At December 31, 1997, the Company had $1,395,000 outstanding on the line of
credit. In 1998, the Company plans to demolish two buildings and build a
$7,000,000 parking garage to be completed in 1999. With cash provided from
operations of $4,496,000 in 1997, the Company does not anticipate any
liquidity problems. The Company has not experienced liquidity problems
during the twelve months ended December 31, 1997. 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 for this property with Nationwide Life Insurance. The proceeds from
this loan were used to reduce the line of credit with Commerce Bank, N.A.
During 1996, the Company constructed an additional 68 units at the
Hillsborough apartment complex. The Company used the line of credit with
Commerce Bank, N.A. to fund the construction project. In April, 1996, a
$2,900,000 twenty-year term mortgage loan was secured for this property with
Penn Mutual. The proceeds from this loan were used to reduce the line of
credit with Commerce Bank, N.A. On October 11, 1996, the Company acquired
the 916-920 Walnut office buildings and the 102 E. 8th Street parking lot in
Kansas City, Missouri for $700,000. The Company used the line of credit with
Commerce Bank, N.A. to acquire the property. On December 18, 1996, the
Company acquired the 9909 Lakeview Avenue warehouse located in Lenexa, Kansas,
for $3,675,000. The Company used the line of credit with Commerce Bank,
N.A. to acquire this property. In February, 1997, a $2,720,000 twenty-year
term mortgage loan was secured for this property from Prudential Insurance of
America. The proceeds of this loan were used to reduce the line of credit.
On December 27, 1996, the Company acquired the 9221 Quivera commercial office
building and an adjoining 70,000 square foot vacant parcel of land, located
in Overland Park, Kansas for $1,750,000. The Company used the line of credit
with Commerce Bank, N.A. to make this purchase. In March, 1997, a $1,200,000
loan with a twenty-year amortization and a five-year balloon payment was
secured for this property with Mercantile Bank and Trust. The proceeds from
this loan was used to reduce the line of credit. During 1997, the Company
began construction of an additional 140 units at the New Mark Apartment
Complex. The Company used the line of credit with Commerce Bank, N.A. to
fund the construction. In October, 1997, a $5,000,000 twenty-year term
mortgage loan was secured for this property from Ohio National. The proceeds
of this loan were used to reduce the line of credit. Also in October, 1997,
the Company secured a $6,750,000 fifteen year mortgage loan on the 811 Main
office building. The proceeds
-19-
<PAGE> 20
from this loan was used to pay off the line of credit and the remainder was
invested in short term investments until it was necessary to borrow additional
funds to finance the low rise elevator modernization and the replacement of the
chiller and cooling towers in the Commerce Tower office building.
YEAR ENDED DECEMBER 31, 1997
COMPARED WITH THE YEAR ENDED DECEMBER 31, 1996
RESULTS OF OPERATIONS
- ---------------------
Increased occupancy in the Barkley Place office building, 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 916-920 Walnut commercial office
buildings on October 11, 1996, the acquisition of the Stanley warehouse on
December 18, 1996 and the December 27, 1996 acquisition of the 9221 Quivera
office building, offset by the decrease in occupancy in the Commerce Tower
are primarily responsible for the 10% increase in rental income of
$1,548,875. Parking revenue increased 11% and apartment rentals increased
8%. The acquisition of the Stanley warehouse and the 9221 Quivera commercial
office building with combined rental income of $755,270 was responsible for
49% of the total increase. The increase in rental income at the 822 Main
building was responsible for 24% of the total increase. Occupancy in the
Commerce Tower is 86%. The Barkley Place commercial office building is 100%
leased and the 811 Main office building is 81% leased. The 9200 Cody
warehouse/office facility, the 6601 College Boulevard commercial office
building, and the 9221 Quivera commercial office building are 100% leased
under triple net leases. The 9909 Lakeview warehouse was 100% leased until
October 31, 1997 at which time the accepted a buy out offer from Stanley
Works. The New Mark apartments are 92% leased, Hillsborough apartments are
87% leased and Peppertree apartments are 95% leased at year end. The
increase in parking revenues in 1997 is primarily due to an increase in
occupancy in both the 710 and 711 Main Garages and the demolition and
construction of a surface parking lots at the South Rodeway and Texaco
Station property.
The increase in management and service fees is primarily due to an increase
in the amount of fees billed for tenant leasehold improvements performed by
Company employees and the management fee for the Commerce Trust, Commerce
Bank, Osco and Executive Office commercial office building for Commerce Bank
N.A. effective November 10, 1997.
The sale of twenty nine acres of undeveloped land located in the New Mark
sub-division in 1996 accounts for the decrease in real estate sales and cost
of real estate sold.
Interest and other income has increased due to a combination of the increase
in apartment income collected for washer and dryer facilities, forfeited
security deposits and the construction management fees earned on tenant
remodels.
-20-
<PAGE> 21
The increase in salaries and employee benefits of $221,484 is a direct result
of the increase in management personnel. The increase in depreciation is a
direct result of the acquisition of the Stanley warehouse, the 9221 Quivera
commercial office building, the completion of the Phase II of the Hillsborough
apartment complex, the expansion of the 9200 Cody warehouse/office facility and
the modernization of the low rise elevators in the Commerce Tower commercial
office building.
The increase of $346,636 in maintenance and repairs is primarily due to
changing the 811 Main building to a multi-tenant, full service building
effective April 1, 1996, repairs to the chillers at the Commerce Tower
office building, concrete repairs at the 710 Main parking facility and the
acquisition of 916-920 Walnut commercial office buildings. The changing of
the 811 Main building to a multi-tenant, full service building, the
acquisition of the 916-920 Walnut commercial office buildings, the completion
of the Phase II of the Hillsborough apartment complex, the lease buy out of
the 9909 Lakeview warehouse and the increase in the assessment of the
Commerce Tower commercial office building are responsible for the increase in
taxes other than income.
The increase in utilities is primarily due to the conversion of 811 Main to a
full service, multi-tenant building and the acquisition of the 916-920 Walnut
office building, offset by a reduction in both the Commerce Tower and Barkley
Place office buildings. The increase in other interest expense and the
reduction in related party interest expense is result of securing a mortgage
loan of $2,700,000 for the 9909 Lakeview warehouse, a $1,200,000 mortgage
loan for the 9221 Quivera commercial office building, a $6,750,000 mortgage
loan for the 811 Main commercial office building and garage and a $5,000,000
mortgage loan on the Phase III of the New Mark apartment complex. The
proceeds from these loans were used to reduce the line of credit with
Commerce Bank N.A.
The decrease in amortization of leasehold improvements is primarily due to
the UtiliCorp tenant improvements in the Commerce Tower which were being
amortized over the life of their leases which ended in the first half of
1997. The decrease in professional fees and other expenses is primarily due
to the expenses incurred in connection with the buy out of the downtown
Texaco lease and the write off of a note receivable for rent from a former
Commerce Tower tenant in 1996.
YEAR ENDED DECEMBER 31, 1996
COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995
RESULTS OF OPERATIONS
- ---------------------
Rental income increased 23% during 1996, primarily due to increased occupancy
in the Commerce Tower and Barkley Place office buildings, the conversion of
the 811 Main building from a net leased facility 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 effective June 30,
1995, the acquisition of the 6601 College Boulevard commercial office
building on December 15, 1995, the acquisition of the 916-920 Walnut Street
office
-21-
<PAGE> 22
buildings on October 11, 1996, the acquisition of the 9909 Lakeview
Avenue warehouse on December 18, 1996 and the December 27, 1996 acquisition
of the 9221 Quivera office building. Occupancy in the Commerce Tower is 97%.
The Barkley Place office building is 100% leased and the 811 Main office
building is 94% leased. The 9200 Cody warehouse/office facility, the 6601
College Boulevard commercial office building, the 9909 Lakeview warehouse and
the 9221 Quivera commercial office building are 100% leased under triple net
leases. The New Mark garden apartments are 94% leased, Hillsborough
Apartments are 94% leased and Peppertree Apartments are 97% leased at year
end. The increase in parking revenues in 1996 is primarily due to an
increase in occupancy in both the 710 and 711 Main Garages.
The decrease in management and service fees is primarily due to a decrease in
the amount of fees billed for tenant leasehold improvements performed by
Company employees and the loss of the management fee for the 811 Main office
building from Kemper Service Company effective April, 1996.
The sale of twenty nine acres of undeveloped land located in the New Mark
sub-division in 1996 compared to the sale of a 6 acre tract sold in 1995
accounts for the increase in real estate sales and cost of real estate sold.
The increase of $684,303 in maintenance and repairs is primarily due to the
conversion of 811 Main to a full service, multi-tenant building in April,
1996 offset by the repairs to chillers, the cleaning and sealing of the
exterior precast panels of the Commerce Tower building in 1995. The increase
in depreciation and interest expense is a direct result of the acquisition of
the 6601 College Boulevard and the 9221 Quivera office buildings, the 9200
Cody warehouse/office facility and the 9907 Lakeview warehouse 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, the conversion of 811 Main to a full service, multi-tenant
building and the completion of Phase II of the Hillsborough apartment
complex.
The increase in related party interest expense is due to the use of the line
of credit with Commerce Bank, N.A. to acquire the 9200 Cody warehouse/office
facility on June 30, 1995, the 6601 College Boulevard commercial office
building on December 15, 1995, the October 11, 1996 purchase of 916-920
Walnut office buildings, the 9909 Lakeview warehouse on December 18, 1996 and
the 9221 Quivera office building on December 27, 1996. The increase in other
interest expense is a result of the interest expense incurred on the 6601
College Boulevard mortgage loan of $5,400,000 funded March 21, 1996, and the
$2,900,000 Hillsborough Phase II loan funded April 24, 1996.
The increase in amortization of leasehold improvements is primarily due to
the large expenditures for tenant improvements in both the Commerce Tower and
Barkley Place office buildings which are being amortized over the life of the
respective leases. The increase in professional fees and other expenses is
primarily due to the expenses incurred in connection with the buy out of the
downtown Texaco lease and the write off of a note receivable for rent from a
former Commerce Tower tenant that filed bankruptcy.
-22-
<PAGE> 23
IMPACT OF ACCOUNTING CHANGES
None.
ENVIRONMENTAL ISSUES
In accordance with Federal, State and local laws regarding asbestos, Tower
Properties Company is not required to remove, but will continue to monitor
the status of asbestos in its commercial office buildings.
The cost to remove all asbestos from properties owned by Tower Properties
Company cannot be 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
1997, the Company made modifications to certain properties at a cost of
approximately $121,000.
YEAR 2000
The Company has assessed the key financial, information and operational
systems. Management does not anticipate that the Company will encounter
significant operational issued related to the year 2000. Furthermore, the
financial impact of making required systems changes is not expected to be
material to the Company's consolidated financial position, results of
operations or cash flows.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", No.
131, "Disclosures about Segments of an Enterprise and Related Information",
and No. 132, "Employers Disclosures about Pensions and Other Postretirement
Benefits". The Company plans to adopt all statements in 1998 which will not
have an impact on the Company's financial position or results of operations.
Additional disclosures will be necessary to comply with these new standards.
-23-
<PAGE> 24
<TABLE>
TOWER PROPERTIES COMPANY
SELECTED FINANCIAL DATA
TWELVE MONTHS ENDING DECEMBER 31,
<CAPTION>
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenue $17,578,981 $16,492,245 $13,152,882 $11,697,118 $ 9,870,654
Net Income 1,537,742 1,505,223 1,510,180 811,831 495,492
Basic Earnings Per Common Share 9.00 8.80 8.84 4.75 2.90
Diluted Earnings Per Common Share 8.96 8.80 8.84 4.75 2.90
Dividends Per Common Share -- -- -- -- --
Mortgages Notes Payable 41,634,615 26,905,057 19,300,872 17,820,480 10,313,193
Net Equity 25,073,500 22,544,228 20,635,259 18,618,042 17,327,249
Total Assets $70,775,619 $63,624,245 $56,504,061 $42,497,944 $36,669,540
</TABLE>
-24-
<PAGE> 25
<TABLE>
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
<CAPTION>
Cost Capitalized
Subsequent to
Initial Cost to Company Acquisition
---------------------------- ----------------------------
Buildings and Carrying
Description-(C) Encumbrances Land Improvements Improvements Costs
--------------- ------------ ---- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
COMMERCIAL OFFICE BUILDINGS
Commerce Tower $ 0 $ 919,920 $ 18,133,895 $ 749,426 $ 0
811 Main 6,711,914 596,387 2,553,247 218,914 0
Barkley Place 3,693,083 871,000 4,943,000 56,605 0
6601 College Boulevard 5,179,584 1,000,000 5,950,000 0 0
9200 Cody Warehouse/office 1,860,276 296,850 2,174,150 1,222,560 0
9909 Lakeview Avenue 2,670,665 652,000 2,773,000 0 0
9221 Quivera 1,178,790 290,738 1,193,130 0 0
Other Rental Properties 0 319,797 433,680 86,965 0
------------ ------------ ------------ ----------- ------
Sub-Total 21,294,312 4,946,692 38,154,102 2,334,470 0
APARTMENTS
New Mark Apartments, 210 Units 7,166,555 19,768 3,797,495 328,571 0
Hillsborough Apartments, 329 Units 9,566,991 1,161,740 8,485,514 3,877,965 0
Peppertree Apartments, 162 Units 3,606,757 833,243 4,554,674 68,638 0
------------ ------------ ------------ ----------- ------
Sub-Total 20,340,303 2,014,751 16,837,683 4,275,174 0
PARKING FACILITIES
710 Main 0 286,361 672,655 4,974 0
811 Main 0 149,096 614,122 599,857 0
DRC Texaco & 711 Garage 0 501,513 50,538 1,030,112 0
Surface lots & 9th & Walnut Garage 0 2,129,257 81,000 748,281 0
------------ ------------ ------------ ----------- ------
Sub-Total 0 3,066,227 1,418,315 2,383,224 0
------------ ------------ ------------ ----------- ------
TOTALS $ 41,634,615 $ 10,027,670 $ 56,410,100 $ 8,992,868 $ 0
============ ============ ============ =========== ======
<CAPTION>
Gross Amount at Which
Carried at Close
of Period
------------------------------- ------------
Buildings and
Description-(C) Land Improvements Total
--------------- ---- ------------- -----
<S> <C> <C> <C>
COMMERCIAL OFFICE BUILDINGS
Commerce Tower $ 919,920 $ 18,883,321 $ 19,803,241
811 Main 608,355 2,760,193 3,368,548
Barkley Place 871,000 4,999,605 5,870,605
6601 College Boulevard 1,000,000 5,950,000 6,950,000
9200 Cody Warehouse/office 296,850 3,396,710 3,693,560
9909 Lakeview Avenue 652,000 2,773,000 3,425,000
9221 Quivera 290,738 1,193,130 1,483,868
Other Rental Properties 319,797 520,645 840,442
------------ ------------ ------------
Sub-Total 4,958,660 40,476,604 45,435,264
APARTMENTS
New Mark Apartments, 210 Units 19,768 4,126,066 4,145,834
Hillsborough Apartments, 329 Units 1,161,740 12,363,479 13,525,219
Peppertree Apartments, 162 Units 833,243 4,623,312 5,456,555
------------ ------------ ------------
Sub-Total 2,014,751 21,112,857 23,127,608
PARKING FACILITIES
710 Main 350,349 613,641 963,990
811 Main 149,096 1,213,979 1,363,075
DRC Texaco & 711 Garage 501,513 1,032,057 1,533,570
Surface lots & 9th & Walnut Garage 2,877,538 81,000 2,958,538
------------ ------------ ------------
Sub-Total 3,878,496 2,940,677 6,819,173
------------ ------------ ------------
TOTALS $ 10,851,907 $ 64,530,138 $ 75,382,045
============ ============ ============
<CAPTION>
Life
on Which
Depreciation
31-Dec-97 in Latest
------------------------------- --------- Income
Accumulated Date of Date Statement
Description-(C) Depreciation Construction Acquired is Computed
--------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
COMMERCIAL OFFICE BUILDINGS
Commerce Tower $ 13,949,160 1965 1971 18 to 65 Years
811 Main 2,340,896 1959 1972 45 Years
Barkley Place 533,233 1988 1994 40 Years
6601 College Boulevard 379,341 1979 1995 40 Years
9200 Cody Warehouse/office 173,258 1973 1995 40 Years
9909 Lakeview Avenue 82,956 1987 1996 40 Years
9221 Quivera 41,493 1968 1996 40 Years
Other Rental Properties 92,827 Various Various 10 to 40 Years
------------
Sub-Total 17,593,164
APARTMENTS
New Mark Apartments, 210 Units 2,704,949 1969/1977 1971/1977 8 to 40 Years
Hillsborough Apartments, 329 Units 1,336,447 1985 1992 40 Years
Peppertree Apartments, 162 Units 539,558 1986 1993 40 Years
------------
Sub-Total 4,580,954
PARKING FACILITIES
710 Main 555,476 1959 1972 45 Years
811 Main 1,262,172 1959/1996 1972/1996 15 to 45 Years
DRC Texaco & 711 Garage 155,819
Surface lots & 9th & Walnut Garage 178,714 Various 1989 20 Years
------------
Sub-Total 2,152,181
------------
TOTALS $ 24,326,299
============
</TABLE>
-25-
<PAGE> 26
TOWER PROPERTIES COMPANY
NOTES TO SCHEDULE
(A) An analysis of Rental Income Property for the three years ended
December 31, 1997 follows:
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
Additions during period -
Land 1,789,716
Building 7,748,627
------------
Balance, December 31, 1996 72,059,597
Additions during period -
Land 157,836
Building 3,164,612
------------
Balance, December 31, 1997 $ 75,382,045
============
(B) An analysis of accumulated depreciation reserves applicable to Rental
Income Property for the three years ending December 31, 1997:
Balance, December 31, 1994 $ 20,432,648
Additions during period -
Provision for depreciation 1,059,528
------------
Balance, December 31, 1995 21,492,176
Additions during period -
Provision for depreciation 1,349,444
------------
Balance, December 31, 1996 22,841,620
Additions during period -
Provision for depreciation 1,484,679
------------
Balance, December 31, 1997 $ 24,326,299
============
(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.
-26-
<PAGE> 27
DIRECTORS
James M. Kemper, Jr.
Chairman, and Chief Executive Officer of Tower Properties Company
Thomas R. Willard
President, Tower Properties Company
David W. Kemper
Chairman, President and Chief Executive Officer, Commerce Bancshares, Inc., a
bank holding company, Chairman, President and Chief Executive Officer,
Commerce Bank, N.A.
Jonathan M. Kemper
Vice Chairman, Commerce Bancshares, Inc., a bank holding company, Vice
Chairman, Commerce Bank, N.A.
Brian D. Everist
President, Intercontinental Engineering Manufacturing Corporation
Neil T. Douthat
Sr. Vice President-Investments, Smith Barney, Inc.
OFFICERS
James M. Kemper, Jr.
Chairman, and Chief Executive Officer
Thomas R. Willard
President
Chester A. Wittwer, Jr.
Vice President and Secretary
Margaret V. Allinder
Assistant Secretary and Controller
-27-
<PAGE> 28
PRINCIPAL REAL ESTATE OF
TOWER PROPERTIES COMPANY
COMMERCE TOWER BUILDING
30-STORY OFFICE BUILDING, 911 MAIN STREET
BARKLEY PLACE OFFICE BUILDING
811 MAIN BUILDING
6601 COLLEGE BOULEVARD OFFICE BUILDING
9221 QUIVERA OFFICE BUILDING
9200 CODY WAREHOUSE/OFFICE FACILITY
9909 LAKEVIEW AVENUE WAREHOUSE
6-STORY OFFICE BUILDING, 10561 BARKLEY
230,000 RENTABLE SQUARE FEET OFFICE BUILDING
AND 530 CAR PARKING GARAGE
6-STORY OFFICE BUILDING, 6601 COLLEGE BLVD.
1-STORY OFFICE BUILDING, 9221 QUIVERA
120,900 SQUARE FOOT WAREHOUSE/OFFICE FACILITY
115,000 SQUARE FOOT WAREHOUSE
710 MAIN PARKING GARAGE
711 MAIN PARKING GARAGE
740 CAR PARKING GARAGE
280 CAR PARKING GARAGE
NEW MARK APARTMENT COMPLEX
210 APARTMENTS AND AN ADDITIONAL 140 APARTMENTS TO BE
COMPLETED IN JULY 1998, LOCATED AT 100TH
AND NORTH OAK STREETS
NEW MARK SUBDIVISION 315 ACRES OF RESIDENTIAL AND COMMERCIAL
LAND IN THE AREA OF 100TH AND NORTH OAK
STREETS
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, LAND AND IMPROVEMENTS FROM
7TH TO 8TH STREETS ON EAST SIDE OF MAIN STREET,
A 112 CAR PARKING LOT AT 600 MAIN, A 100 CAR PARKING
LOT AT 601 MAIN AND A 40 CAR PARKING LOT AT 8TH AND
WALNUT.
908-920 WALNUT
APPROXIMATELY 56,150 SQUARE FEET OF
RENTAL SPACE (TO BE DEMOLISHED IN 1998)
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
329 GARDEN APARTMENTS 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.
-28-
<PAGE> 1
EXHIBIT 21
TOWER PROPERTIES COMPANY
LISTING OF SUBSIDIARIES
Percentage
Subsidiary Ownership
---------- ---------
Downtown Redevelopment Corporation 98%
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 21,137
<SECURITIES> 4,670,525
<RECEIVABLES> 1,117,877
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,560,215
<PP&E> 75,382,045
<DEPRECIATION> 24,326,299
<TOTAL-ASSETS> 70,775,619
<CURRENT-LIABILITIES> 2,553,450
<BONDS> 41,634,615
<COMMON> 178,430
0
0
<OTHER-SE> 24,895,070
<TOTAL-LIABILITY-AND-EQUITY> 70,775,619
<SALES> 0
<TOTAL-REVENUES> 17,578,981
<CGS> 0
<TOTAL-COSTS> 12,219,791
<OTHER-EXPENSES> 22,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,883,146
<INCOME-PRETAX> 2,453,781
<INCOME-TAX> 916,039
<INCOME-CONTINUING> 1,537,742
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,537,742
<EPS-PRIMARY> 8.96
<EPS-DILUTED> 0
</TABLE>
